Repeal the pension reform, initiate a “major tax reform”, improve purchasing power, restore public services… In Lucie Castets’ list of priorities, one big absentee: reducing the French debt. The candidate of the New Popular Front for the post of Prime Minister, whose name was pulled out of the hat of the left-wing coalition on Tuesday evening, has nevertheless occupied the post of Director of Finance and Purchasing for the City of Paris since October 2023. She was previously an advisor to Anne Hidalgo’s office, in charge of the budget and finances. “Her profile is excellent, she has worked in the Treasury, an elite administration,” believes Michel Bouvier, Director of the French Review of Public Finance, who is desperate for a political leader to finally tackle the more than 3,000 billion euros of debt accumulated by France.
The accounts of the City of Paris do not, however, inspire optimism. The opposition has been concerned for years about the financial management of the capital. “Lucie Castets at Matignon? That would be very bad news for the French, synonymous with a massive increase in taxes and a spiral of debt,” asserts David Alphand, LR member of the commission in charge of finances. As an advisor to the mayor of Paris, she was not only the executor of the political decisions taken by elected officials. She is one of the architects of the collapse of the city’s finances since 2020.” More than doubled in ten years, the capital’s debt exceeded 8 billion euros at the end of 2023. Critics of the majority add capitalized rents, bringing the burden to nearly 10 billion euros. What is it about? Since 2016, Paris has been transferring housing from its stock to social landlords, rented at market prices. In exchange, HLM operators are required to pay discounted rents in one go over the next fifty or sixty years, going into debt to pay the bill. Since Gabriel Attal’s time at Bercy, then in charge of public accounts, the City of Paris is no longer authorized to use this accounting maneuver to cover operating expenses. But the principle is still in force, with a view to financing investments.
Real estate transaction revenues fall
Asked Wednesday morning on France Inter, Lucie Castets defended herself: “The debt of the City of Paris has no common measure with the debt of the French State, so it is a little ironic to hear lessons from the people responsible for the debt of the French State”. Michel Bouvier does not see the situation in this light, calling on all parties to more rigorous management of public funds. “If local authorities are not well managed, this has an impact on State spending, and vice versa”, underlines the academic. Despite everything, the ratings of the agencies are lenient with the City of Light: AA- at Fitch and S & P, AA2 at Moody’s. But the financial rating is not a rating of good management. It measures the capacity of an organization to repay its debts.
The members of Changer Paris, which brings together Les Républicains, the centrists and the independents of the Paris Council, are up in arms. On the revenue side, they denounce the city’s dependence on transfer taxes – these taxes levied on each real estate transaction – which swelled the capital’s coffers during the boom years of the property market. In 2022, they peaked at 1.7 billion euros, or nearly a fifth of total operating revenue. Last year, with the rise in interest rates, the wind turned. This source of income dried up by 24%, or 418 million euros less on the clock. A drop whose extent had been underestimated in the city’s budget, criticizes Changer Paris. This year, in a market that is still sluggish, transfer taxes continue to decline.
Despite everything, total revenues have increased significantly in 2023, by almost 5%. “This increase is the result of the explosion in property tax, decided by Anne Hidalgo”, the collective of elected representatives of the opposition gets carried away. + 62% on average. “Thus, the executive was able to collect 1.745 billion euros in property taxes in 2023, compared to 1.096 billion euros in 2022”. An impressive inflation, to be qualified nevertheless. As the rating agency Fitch recalled at the end of 2023, the Parisian property tax rate, at 20.5%, remains lower than the national average (35.6%). Analysts even see this as a reassuring factor.
A heavier debt than other major cities
Because Paris is a rich city. There is still room to tax households, especially since the tax base – the value of the assets on which the tax is based – is higher there than elsewhere. “It benefits from structural strengths, particularly in the event of an economic slowdown, thanks to diversified revenues, less exposure to RSA expenses than other departments, and very good access to financing,” adds Pierre Charpentier, senior director in Fitch’s Public Finance team. The analyst, who has been speaking to Lucie Castets since she took up the position of financial director, nevertheless acknowledges that “Paris’ debt ratio is not very good compared to other cities.” To judge this, he relies on an indicator: debt repayment capacity. This is measured by comparing debt to gross savings, i.e. the gap between revenues and operating expenses. In short: in how many years of savings is the municipality able to repay its debt? “In 2023, it would have taken ten years, which is twice the average for French local authorities, regions, departments and cities combined,” he notes. This year, between the increase in debt and the deterioration in gross savings, this duration could climb above 15 years, according to the 2024 budget. The comparison with other European metropolises is hardly more flattering. “Paris’ debt per capita is close to 4,000 euros. Apart from the particular case of Berlin, which is a federated state, it is therefore higher than in Milan (less than 3,000 euros), London (1,800 euros) and Madrid (500 euros),” says Pierre Charpentier.
Possible additional costs related to the Olympic Games
On the operating expenses side, Pierre Charpentier notes that they “have not exploded”. Since 2013, they have increased by 20%, slightly less than operating income. However, “the term ‘savings’ is taboo in the City of Paris, while the trajectory of the debt and its consequences on interest charges is alarming, complains Maud Gatel, former deputy of Paris, member of the MoDem. There is no steering, no evaluation! Each expense should be seen in the light of the interest of Parisians, and some would not pass this filter. I am thinking in particular of the diplomatic role that the mayor of Paris wants to play and which causes enormous costs.”
In this Olympic year, will the Games come to weigh down the boat again? “The City says it expects 100 million euros in exceptional expenses, which is not huge compared to Paris’ budget, which is close to 9 billion,” notes Pierre Charpentier. It remains to be seen whether the hope of an increase in revenue from the tourist tax paid by visitors will come to fruition. In the 2024 budget, the city hall dreams of collecting 185 million euros, compared to 100 million last year. It’s not a given. David Alphand fears the consequences of the crowding-out effect, which has led regular tourists to postpone their stay. Above all, he considers the compensation requests from catering professionals, who are penalized by security measures, to be “legitimate.” And he wonders: “We are heading towards additional costs. The question is: how much?”
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