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Italy: Legislation Addressing Difficult Financial Situation of Territorial Entities

(July 19, 2016) On June 25, 2016, new legislation establishing urgent financial measures for territorial entities within the country entered into effect in Italy. (Decree Law No. 113 of June 24, 2016, Urgent Financial Measures for Territorial Entities and the Territory (D.L. No. 113), GAZETTA UFFICIALE, No. 146 (June 24, 2016), NORMATTIVA (in Italian).) This legislation was passed to address the difficult financial situation of sub-national territorial governmental entities in the country.

Municipal Solidarity Fund Resources

The law allows for resources of the Municipal Solidarity Fund not spent during 2015 to be carried into 2016. (Id. art. 1(1-2).) It also provides that Fund resources to be allocated to financially distressed territorial entities will be reduced by percentages indicated in the legislation, starting in the year 2017, with an endpoint of 2020. (Id. art. 2(1).)   The Municipal Solidarity Fund was established by the national government through a Decree issued by the President of the Council of Ministers on December 1, 2014, in order to provide financial assistance to the communes (the basic Italian administrative division) of the Italian regions, including the regions of Sicily and Sardinia, which have special administrative status. (Decree of the President of the Council of Ministers of December 1, 2014, Municipal Solidarity Fund. Definitions and Distribution of the Resources Payable for Year 2014, GAZETTA UFFICIALE No. 21 (Jan. 27, 2015) (in Italian).)

Extraordinary Resources to Alleviate the Effects of Natural Disasters

New resources from the national budget are allocated for the reconstruction of Aquila city, the capital of the Province of L’Aquila, in central Italy, which was severely affected by an earthquake in 2009. Among other items, the funds will go to the social services sector, compulsory education including kindergarten, local public transportation, and the maintenance of public parks. (D.L. No. 113, art. 3(1).) Additional monies are allocated to meet the needs of other cities that were affected by seismic events. (Id. art. 3(2).) Additionally, new resources will be provided for the 2016-2019 period in connection with the enforcement of judicial decisions issued in cases where the cause of action arose from natural disasters, including the structural failures. (Id. art. 4(1).) To receive the funds, the affected communes must submit their requests to the Ministry of the Interior promptly, and the funds will then be transferred pursuant to a decree of the President of the Council of Ministers. (Id. art. 4(2).)

New funds are also allocated for the victims of the flood that occurred on May 5, 1998, in the commune of Sarno, in the Province of Salerno, in southern Italy. The funds have become available as a consequence of the civil liability of the Italian State and Sarno city that has been established or that is expected to be established by judicial decisions during the years 2016 and 2017. (Id. art. 5(1)(a).) Compensation funds are also available to the legitimate heirs of those who died in the flood. (Id. art. 5(1)(b).)

Financial Assistance for Communes

Decree Law No. 113 eliminates the economic sanctions against communes and the regions of Sicily and Sardinia that failed to comply with the Internal Stability Pact in 2015. (Id. art. 7(1).). The Internal Stability Pact is a system of rules that addresses the connections between the finances of the Italian Regions and the local entities, establishing specific objectives for their budgets and debt levels. (Alberto Nucciarelli, Patto di Stabilità Interno [Internal Stability Pact], in DIZIONARIO DI ECONOMIA E FINANZA (2012), available at TRECCANI.IT.)

The 2016 Law makes receipt of new funds by the regions, autonomous provinces, metropolitan cities, and provinces conditional on compliance with balanced budget requirements. (D.L. No. 113, art. 9(1).) The Law also increases the financing of the National Fund for the Financial Assistance of the State, in particular for local public transportation needs, including railroads, at the regional level. (Id. art. 10(1).) Other incentives are established for regions that have achieved annual benchmarks of timely payment of their financial commitments with the state. (Id. art. 10(3).)

Communes that resolved their financial difficulties between September 1, 2011, and May 31, 2016, and that comply with other administrative requirements qualify to receive an annual advance of up to €150 million for each of the years 2016 to 2020, in order to meet outstanding debt payments. (Id. art. 14(1).) Local entities that have submitted a multiannual financial rebalancing plan may proceed to reformulate the plan while preserving the original maturity date, taking into consideration the eventual deficit resulting from the approved accounts or debts off balance. (Id. art. 15(2).)

Other provisions ensure the continuation of the education offered in nursery schools and kindergartens at the local level through an extraordinary three-year plan that provides for open-ended contracts with teachers. (Id. art. 17(1).)

Financial Provisions for Regions

Regional agencies may obtain advances solely to deal with temporary cash deficits for an amount not exceeding ten percent of the total amount that the region is to receive during the fiscal year. (Id. art. 10(5).)

Pursuant to the agreement reached between the national government and the Region of Sicily on June 20, 2016, a cash advance from the total individual income taxes assessed for the current fiscal year has been made available to that region. (Id. art. 11(1).) These funds are allocated exclusively to cover the now-delinquent payment of wages to government employees and for the amortization payments of loans with maturity during the current year. (Id. art. 11(3).)

According to the agreement signed on July 21, 2015, between the President of the Valle d’Aosta Region and the Ministry of Economy and Finances, funds will be transferred to the latter to offset the revenue loss from the years 2011 to 2014. (Id. art. 12(1).) In total, €90 million (about US$99.7 million) is provided for year 2016 and €20 million (about US$22.2 million) for each of the years 2017 to 2019. (Id. art. 19(1).)

Other Measures

The new legislation contains measures to address the high cost of supporting the pharmaceutical industry and covering its associated financial deficits faced by national, regional, and local governments in Italy. In particular, the legislation takes into consideration the strategic importance of the pharmaceutical sector, its contributions to the goals of the industrial and innovation policies of the state, and its benefits to the national health sector. (Id. art. 21(1).) To that effect, the Italian Pharmaceutical Agency (AIFA, in Italian) must publish on its website a list with the amounts set as incentives for the years 2013 to 2015 for authorized pharmaceutical companies that are entitled to these financial incentives. (Id. art. 21(2).)

Financial incentives are established to support producers of milk and other dairy items, including €10 million (about US$11.1 million) for the year 2016. (Id. art. 23(1).) The beneficiaries of these measures will be named in a decree of the Ministry for Food, Agricultural and Forestry Policies to be issued within 30 days of the date of entry into effect of Decree-Law No. 113. (Id. art. 23(2).)