Valka insolvency halts major projects with Valga

Latvia’s Valka municipality is insolvent, ending its ability to pursue major cross-border projects with neighbouring Valga for now, ERR reported. The municipal council has agreed to begin a financial stabilisation process, while Valga is seeking other partners in Latvia.

Valka has about 8,000 residents on its register. Around 1,000 people have registered in Valga over the years, where benefits are higher and healthcare is better, while another 500 commute to work in Estonia each day. Their taxes do not go to Valka, and they are not included in its population register, even though their families remain in Latvia and use local services.

Valka municipality chairman Vents Armands Krauklis said the municipality has the same state-mandated responsibilities as local governments with more residents. These include protecting children’s rights, maintaining municipal police and preventing cyberattacks, he said, leaving less money for sport, culture and community events.

Latvia’s State Audit Office criticised Valka for committing to spending without certainty that the money would be available, as well as for disorder in heating and water management. The municipality had long handled residents’ utility payments, but many bills went unpaid and debts were not collected. Auditors also found that tariffs did not reflect actual costs. By the end of last year, residents owed the municipality more than €1 million. Valka currently has €400,000 in unpaid bills.

State Audit Office council member Ilze Badere said the financial difficulties stemmed from weak financial management and inadequate internal controls. The municipality budgeted for more revenue than it could realistically expect and took on European Union project commitments without certainty that the costs could be covered, she said.

Investments in the Pudrumäe recreation area, which connects the two countries, will also be put on hold for at least some time. A commission at Latvia’s Finance Ministry will first monitor whether Valka meets its duties under the constitution and other laws. The duration of the stabilisation process is unclear, and it may only provide a temporary fix unless the budget model changes.

Valga municipality head Mart Kase said Valka does not owe Valga money. Valga is now preparing a joint strategy with the Vidzeme planning region, rather than with Valka. Kase said Valka may eventually join a somewhat wealthier municipality, such as Smiltene or Valmiera.