City's bleak finances will put new Madrid mayor Botella in tight spot

When Ana Botella becomes Madrid mayor on Tuesday, she will inherit a city with a burgeoning debt that will leave her little room for any new investments and force her to make very politically sensitive decisions, such as raising taxes and reducing services.

The 57-year-old wife of former Prime Minister José María Aznar will be voted in by the Popular Party-majority backed city council to take over from Alberto Ruiz-Gallardón, who has now joined Prime Minister Mariano Rajoy's Cabinet as justice minister.

Madrid's debt has mushroomed to 6.34 billion euros - a near impossible figure for Botella to grapple with.

Behind the costs for the nightly botellón (nightly youth beer parties) cleanups, Atlético's proposed soccer stadium, modernizations of historic neighborhood markets, summer concerts and the seasonal "white night" festivals, there are giant gaps in Madrid's accounting books.

The man who knows all about Madrid's financing and is now painting a grim view is Juan Bravo, who has been Gallardón's economic commissioner since the now-justice minister arrived at City Hall in 2003. Along with Manuel Cobo, the former deputy mayor, Bravo was part of a mini triumvirate.

"Ours is not a coalition but a symbiosis," Gallardón said some weeks back when he presented the city budget for 2012. And as he describes this trio as being inseparable, he may just take Bravo along with him as he embarks on a new adventure as the nation's justice chief. Cobo, who abandoned his opportunity to become mayor, thus opening the door for Botella as she was the third in line on the PP slate, has already joined Gallardón.

If Bravo does leave City Hall - a move that still has to be confirmed - he will leave a colossal hole in Botella's ranks but would allow her to freely chose who she wants as her economic chief. In any case, the numbers don't lie and Botella is poised to find Madrid's finances in really bad shape, regardless who looks at the accounting books.

Financial debt. Part of Bravo's Financial Economic Plan to reconcile the budget was to ensure the city doesn't spend more than what it collects in 2012. When Gallardón became mayor in 2003, Madrid's debt was listed at 1.4 billion euros. After that and up until 2009, Gallardón embarked on a refinancing program to fund a host of city projects. The plan proposes to bring the debt down to 5.6 billion euros by 2012 and to 3.1 billion euros by the end of 2016. All of this, of course, depends on the Euribor benchmark mortgage rate not being raised within six months. The next three years are crucial for the Madrid government, which will have to pay out more than it can invest.

Outstanding bills. Bravo blames the city's late payments to service providers, such as cleaning firms, on the previous Socialist government's refusal to allow Gallardón to refinance Madrid's debt. But it is also true that if the city didn't allow the debts to pile up, there wouldn't be some 937 million in unpaid bills. If the new national government of Mariano Rajoy sticks to this strict financial doctrine, the city won't be able to catch up with its payments until 2016.

Pacifying the unions. Bravo last week signed an agreement with the three biggest labor unions - CCOO, UGT and CSI-CSIF - that will guarantee, he says, an absence of labor unrest for the next four years. If they are not reduced by the central government like they were by five percent in July, salaries will be frozen in exchange for the promise there will be no layoffs. Until now, the only way to cut personnel costs has been to not replace retirees or workers who have changed jobs. Since 2009, 1,851 public posts have been eliminated, saving 150 million euros. Botella's government will have to continue on this course, and only replace those workers that are essential. According to Bravo, the city can continue with this policy until 2016 before cutbacks in municipal services become noticeable.

Same services but without new taxes. The Financial Economic Plan, which was approved last Thursday, works on the basis that the city will maintain its actual spending level until 2016. If revenues increase, as expected, Madrid can meet its spending needs, including paying its debt with current earnings until 2015. There will be extraordinary revenue this year. The city hopes to sell off buildings it owns and its participation in the Canal Isabel II waterworks company as well as turning over its management responsibility at the Madrid Metro to the regional government. The plan doesn't project any new tax hikes except annual revisions of the IBI, the property valuation appraisal tax, which has stood at 5.7 percent for the last decade. Given the small margin to seek out other sources of revenue, Botella may resort in the short term to raising municipal tax rates.

Spending freeze. Since 2008, the city's electricity bill has dropped by 12.7 percent with lights being turned off in many areas of Madrid. In the next five years, the city will continue to look at other areas for savings, but it will be hard to save on waste management. A dirty Madrid will create a negative impression of Botella's tenure among citizens.

Projects on ice. Because there will not be money for any new investment, a host of planned projects will remain on the back burner for now. The PP administration has committed itself to paying for the projects that are still under construction. This year there were only 280 projects that were started and in 2012 it is estimated that there will only be 224.