The municipality of Árborg in South Iceland is facing financial difficulties due to inflation and a decline in real estate revenues.
Following an assessment of the municipality’s financial situation by international accounting firm KPMG, the municipal council has called a meeting with residents to discuss the town’s financial position, which is reportedly extremely challenging compared to other municipalities.
The town has taken out loans with increasing interest rates in recent years, and the council fears that they may be on the verge of bankruptcy, with a negative net worth of ISK 76,000 [$550, €509] per resident. In contrast, other comparable towns like Reykjanesbær, Mosfellsbær, Akureyri, and Akranes have positive net worth per resident.
The town has been in financial trouble for a long time, with a negative net worth per resident of ISK 20,000 in 2020. The COVID-19 pandemic cannot be entirely blamed for the financial situation, but the town invested heavily in infrastructure and construction in recent years, including new schools, sports facilities, and a kindergarten, which have contributed to the financial issues. The council is concerned that they may have to resort to layoffs and selling off assets to address their financial problems.
Mayor of Árborg Municipality, Fjóla Kristinsdóttir, stated to Vísir: “I expect there will be some streamlining. Unfortunately, that’s just the way it is. But of course, we are not going to pay off the municipality’s debts by just streamlining operations. There needs to be more done.”
Árborg’s debt is approximately ISK 28 billion [$205 million, €188 million], with increasing debt-to-income ratios. The council is currently discussing possible solutions, including raising taxes, reducing spending, or selling assets. However, the town’s mayor notes that many of the investments made in recent years have been necessary due to the town’s growing population, and it is challenging to balance the needs of the community with the financial constraints they now face.