At a presentation of the capital's financial situation by Tallinn's financial service, Marek Reinaas, a representative of Eesti 200, mentioned that the situation was worse than he had anticipated. Riina Solman from Isamaa expressed similar concerns.

In response, the new mayor, Jevgeni Ossinovski, assured the fresh coalition partners that the city's financial status is actually good. Following their assumption of office, the new city government began creating this year's supplementary budget to start implementing the agreements made within the coalition.

Tallinn's current annual budget totals €1.26 billion, showing a 6.7 percent increase from the previous year. According to the existing budget, the city plans to invest €252 million this year, intending to cover these investments with €125 million from loans and €70 million from reserves.

In Estonia, the extent to which local governments can borrow is regulated by the Local Government Financial Management Act. This law stipulates the maximum net debt for a local government — the difference between liquid assets and debt obligations. Local governments can have a net debt up to 60 percent of the current year's revenues.

For the city of Tallinn, this year's revenues are planned at €1.04 billion, with a net debt burden of €352 million euros, equating to 34 percent of the primary operational revenues. Thus, theoretically, the new city government could borrow an additional €271 million to fulfill the coalition's agreements before reaching the legal limit.

However, the same law that restricts financial freedom for local governments also sets another limit. Specifically, the operating result of the local government — which is the city's revenues minus expenses, excluding investments or financing activities — must be positive. The 2024 budget for the city of Tallinn projects an operating result of €61.2 million.

Therefore, the new coalition could feasibly create a supplementary budget with new expenses amounting to €61.2 million without violating the law.

There is also a legal exception that allows for a negative operating result for one year, but Tallinn's finance director, Silver Tamm, mentioned that this would be more of a theoretical option for Tallinn.

"The law provides for this possibility. Then you must show in your budget strategy how you plan to return to balance. The city of Tallinn has never reached a negative operating result, and I hope it never does. Even mid-year, fixed costs should not exceed fixed revenues. It's not sustainable," Tamm explained.

Tamm also noted that potential new expenses in the supplementary budget cannot be mechanically taken from the primary operating result presented in the budget. When drafting the supplementary budget, the city's revenues, which largely consist of personal income tax receipt and the revenues and expenses of agencies, among other budget-impacting factors, must also be recalculated.

According to Tamm, indicators from the first three months of the year show that the income tax is being collected as forecasted, so significant decreases or increases in revenue are not expected. The rest is still not very clear.

"Actually, a letter on the supplementary budget was just sent out to the agencies yesterday. The city government is just starting to discuss these issues, and now the agencies are reviewing their revenue side, expense side and possible reallocations," Tamm remarked.

The forces forming the coalition in Tallinn have agreed on their activities for the next eighteen months in a nine-page coalition agreement. The most significant clear financial impacts in this agreement include a commitment not to raise taxes or lower subsidies; to start clearing snow from sidewalks, which could cost up to €25 million; and to reduce kindergarten fees, although it is unclear to what extent, but €13.1 million was planned for kindergarten fees in the 2024 budget.

Asked whether the city's financial service has analyzed the new coalition agreement in more detail to see how much the agreed-upon items might take from the city budget, Tamm responded that they have not yet because the details in the agreement are still somewhat vague.

"That work still lies ahead and primarily concerns next year's budget. When we start putting together the 2025 budget and revising the budget strategy and looking at these things, then we will be looking very specifically at [the coalition agreement]. That's when we'll see the numbers that emerge behind it," Tamm explained.

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