Since the 2025 Budget Law, municipalities have been required to freeze a share of current spending in their budgets. At year-end that amount becomes investment capacity for the following financial year, and it must be used before taking on new debt.

Set-aside first, new financing second
‍

Law No. 207 of 30 December 2024 sets an order of priority among funding sources. The resources set aside as the contribution to public finance targets, namely the contribution that each municipality enters in its budget in a dedicated fund, once they have flowed into the administrative result, finance the following year’s investments before any recourse to new debt.

Take the example of a municipality that sets aside the contribution and closes the financial year with a non-negative result. The following year, if a school roof needs to be replaced, the municipality must first use the share earmarked for investment, provided it can actually be applied to the budget, and consider a loan for any remaining funding gap. This changes both the amount the council must authorise and the interest paid in subsequent years.

The new budget balance rule
‍

The budget balance rule therefore requires municipalities to achieve a non-negative balance between accrual-basis revenues and expenditures, that is, revenues assessed and expenditures committed during the year. The calculation includes the use of the administrative surplus, the recovery of the deficit and the use of the multi-year restricted fund (FPV); restricted and set-aside revenues not used during the year are excluded.

This is a tighter constraint than the one in force since 2019 (Law 145/2018, paragraph 821), which was considered met with a non-negative accrual result: the balance must now be calculated net of unused restricted and set-aside resources. The amount to be set aside by municipalities in ordinary-statute regions, Sicily and Sardinia totals €130 million in 2025, €260 million a year from 2026 to 2028 and €440 million in 2029; each municipality’s share is set by ministerial decree.

Who checks, and what
‍

The check is carried out on municipalities as a whole, but the consequences fall on individual authorities. Every year from 2026 to 2030, by 30 June, a decree of the Ministry of Economy and Finance verifies the balance and the set-asides across all municipalities, based on the year-end financial statements submitted to the Public Administration Databank (BDAP). Negative deviations by some authorities are offset by positive ones by others.

If the sector as a whole is compliant, nothing happens. If it is not, the correction applies only to the authorities that failed to meet the balance or did not make the set-aside: within thirty days they must increase the fund by an amount equal to the negative balance plus the missing share. For them it is an unplanned budget variation, which forces a quick decision on which commitments to postpone.

‍
What changes in planning
‍

The new budget templates apply from the 2026-2028 budget, and therefore also to the 2027-2029 budget now being prepared. The contribution does not need to be estimated, because the amount is already fixed. The municipality only decides which current resources to cover it with, and the room for other recurring expenditure shrinks.

The amounts are fixed until 2029 and the 2026 Budget Law did not change them. One financial year passes between the year of the set-aside and the year in which the amount finances works: the works timetable included in the DUP, the Single Planning Document, must take this into account. For an authority in deficit, the amount does not finance works but speeds up the recovery of the deficit.

What to check before the council meeting
‍

• The available margin: how much of the administrative result is earmarked for investment under paragraph 790 and can be applied to the project, before calculating the loan.
• The PEG (Executive Management Plan): the allocations assigned to managers through the Executive Management Plan must be built on the margin already reduced by the set-aside, not corrected halfway through the year.
• The timetable: the amount set aside only becomes available the following year; an urgent project may not find funding in time.
• Priorities across projects: if the margin is limited, comparing the candidate projects by cost, expected benefits and urgency shows where to allocate it. Economic cost-benefit analysis is a sound tool for comparing alternative project options, not only from a financial standpoint but also in terms of economic impacts, by monetising costs and benefits for the local area.

Frequently asked questions
‍

Who approves a municipality’s budget?

The municipal executive (giunta) prepares the draft and submits it to the council by 15 November, together with the update note to the DUP. The council approves it by 31 December, covering a period of at least three years. The deadline can be extended by decree of the Minister of the Interior, as has happened in each of the last three years, under Articles 151 and 174 of the TUEL, the Consolidated Law on Local Authorities.

What is the DUP?

The Single Planning Document is the authority’s strategic and operational guide. It has a strategic section, covering the term of office, and an operational section, covering the budget period. The executive submits it by 31 July and updates it in November. Without the DUP the budget cannot be approved. Municipalities with up to 5,000 inhabitants use a simplified version (Article 170 of the TUEL).

Has the European Union imposed a spending cap on municipalities?

No. EU rules set a net expenditure growth path for the national public sector as a whole, not for individual authorities. The constraint on the balance and on the set-asides stems from the Italian Budget Law, while the national accounting framework has yet to be aligned with the new EU rules.

Does the contribution have to be paid to the State?

No. The municipality enters in its budget, under Mission 20 (Funds and provisions), a current-account fund equal to the contribution, which cannot be committed. It does not reduce the Municipal Solidarity Fund. At year-end the fund becomes a spending saving: for authorities in deficit it contributes to early recovery of the deficit; for the others it finances the following year’s investments. Law No. 207 of 2024, Article 1, paragraphs 789 and 790.

Does the correction also affect compliant municipalities?

No. The check covers municipalities as a whole, but the correction falls only on those that failed to meet the balance or did not make the set-aside. There is also a separate penalty: the contribution increases by 10% for authorities that do not submit their final or pre-final accounts data by 31 May. Law No. 207 of 2024, Article 1, paragraphs 792 and 793.

Which municipalities are exempt from the contribution?

Exempt are authorities that were in financial distress (dissesto) or under a financial rebalancing procedure as at 1 January 2025, and those that signed the deficit recovery agreements provided for by Law No. 234 of 2021 and Decree-Law No. 50 of 2022. Law No. 207 of 2024, Article 1, paragraph 784.