The Ministry of the Interior is introducing nine new criteria for allocating state grants to municipalities, which will be effective from July 1, 2024, following the implementation of the Local Government reform. This reform will reduce the number of municipalities from 30 to 20.

Under the existing criteria, one-third of the state grant is distributed equally among the 30 municipalities, and the remaining two-thirds are allocated based on voter numbers. The Ministry of the Interior has expressed that this system is both outdated and unfair in several cases.

Now, in anticipation of the Local Government reform, the Ministry of the Interior is implementing a new calculation system based on nine criteria. These criteria are expected to bring fiscal balance and distribute state grants more fairly, considering each municipality's location and economic capabilities.

The nine new criteria include:

1. Population
2. Population Density - (A municipality may be extensive but have low population density)
3. Residential Density (Number of housing units in each municipality)
4. Area (Total land area of each municipality)
5. Per Capita Income (Income per resident in a municipality)
6. Special provision for Nicosia (Due to its partially occupied status)
7. Built-up Area (Urban and residential areas within the total land area)
8. Overnight Stays and Hotels, and Tourist Accommodations (Number of overnight stays relative to the residents)
9. Mountainous / border / partially occupied areas

70% of the state grant will be calculated based on population.

It should be noted that under the new criteria, the state grant will be calculated based on the weight of each criterion, with the Ministry of the Interior having presented various scenarios to the Union of Municipalities, involving slight variations in the percentages of each criterion. However, these scenarios do not significantly alter the calculation of the state grant amount each municipality receives.

This report, which describes the nine criteria and incorporates scenarios for state grants to each new municipality, has already been submitted to the Union of Municipalities for review. The Ministry of the Interior is awaiting its response.

According to information from Brief, the Union of Municipalities has not yet submitted its recommendations. However, there is an underlying consensus among municipalities that the new criteria should be applied from January 1, 2025. This is because the Union of Municipalities will have a new council from July 1, 2024, following the reform, and the current council cannot agree and bind the new council to any agreement.

In 2024, the state grant will reach €94.5 million (including €51 million in state grants, €17.5 million against the abolition of professional tax, and €2.1 million from funds against the abolished Gateways), as the Local Government reform will be partially implemented in the second half of the year.

This amount is derived from 50% of the state grant received by municipalities in 2023 (€72 million) and 50% of the state grant to be given after the reform, amounting to €117 million. Thus, in 2024, municipalities will receive - likely in two installments - €94.5 million, and this will increase to €117 million from 2025 when the reform is fully implemented.

Specifically, the state grant for municipalities will increase by 84% in 2024 compared to 2023, and by 129% overall from 2015 compared to 2023.

Communities will also see an increased grant, with a 15% increase in 2024 compared to 2023, and a total increase of 38% from 2015 compared to 2023.

It should be noted that displaced municipalities and communities will not see an increase in the state grant they receive.