Hiding debt in hundreds of agencies

Public agencies like the Catalan Geometrics Institute or the Galicia-America Foundation proliferated during the boom days across Spain's regions. These are just two of nearly 1,300 institutions that regional governments have created over the years, and which are exempt from inclusion into Spain's official debt-and-deficit figures (unlike other European countries).

Far from putting a stop to them, the crisis has exacerbated this perfectly legal practice, and the debt generated by these agencies has skyrocketed in the last three years.

Every public administration - even the central one in Madrid - includes an appendix at the bottom of its official debt records; this addendum lists the public or semi-public agencies that are allowed to stay off the records that are checked by the European Union. EU accounting methods consider that entities whose commercial revenues cover at least half of their expenses are not a drag on the public sector. Of the 2,386 regional entities tallied by the Economy Ministry, over half fall into that category. The Spanish agencies that do not count for Brussels have accumulated liabilities of nearly 17.3 billion euros at the regional level (representing 1.6 percent of GDP) and another nine billion euros at the local level, according to late 2010 figures released by the Bank of Spain.

"The more budget restrictions there are, the more creative the accounting"

If these liabilities were added to Spain's official debt levels, their weight would be 13 percent at the regional level and 20 percent of the municipal burden.

"The more budget restrictions there are, the more creative the accounting," says Jordi Sevilla, a former minister of public administration in the first Zapatero administration and now a consultant with PriceWaterhouseCoopers.

Although most regional governments have embraced this practice, not all have done so with equal intensity. Catalonia is by far the leader in this type of entity, with 304, followed by Andalusia with 159 and Madrid with 92.

This glut of agencies in the shadows constitutes a varied group. "There is good cholesterol and bad cholesterol," jokes César Cantalapiedra, a public sector expert at Analistas Financieros Internacionales (AFI). He cites the virtuous example of a Basque public company that runs the highways and uses the revenues to finance other public works. But there are more questionable actors out there, too. Such is the case of Mintra, an infrastructure company linked to Metro de Madrid, which Brussels forced into the general statements because it did not seem capable of self-financing. A good many regional agencies are still pending a clear decision on whether they should be included in the general public sector accounting or not.

Overall, public or semi-public agencies (both those on the general list and those outside it) have grown in number at the regional level, going from 2,280 in early 2008 to 2,386 in July of last year. During the same period, the central government reduced its dependent agencies from 477 to 454.

AFI's Cantalapiedra predicts an immediate trimming of regional agencies. "There are lots of rationalization plans for the public sector that were kept on the back burner until after the [May 22] elections."

But none of the mainstream political parties dare suggest cutting back on regional autonomy - except for the new UPyD party, which has made a return of powers to the central administration its battle cry. The government has at least taken a step by admitting the problem.