In Latvia, the size of a local budget depends on the number of residents. There are 8,000 people registered as living in Valka municipality, but another thousand or so have registered as residents of Valga municipality in southern Estonia over the years because benefits are higher and the healthcare system is better.

Another 500 people commute to work in Estonia every day. However, their taxes do not reach Valka, and they are not included in its population register either, even though their families continue to live on the Latvian side and use services there.

"We have the same obligations imposed by the state as a municipality with, for example, a thousand more residents. The tasks do not change – children's rights must still be protected, municipal policing and the prevention of cyberattacks must still be ensured. All this costs a lot and means that we can allocate less and less money to sports, culture and community events. This is not right," said Vents Armands Krauklis, chairman of Valka municipality.

Latvia's State Audit Office has criticized Valka for spending more money than it could guarantee in the budget, and for disorder in the heating and water supply sectors.

For many years, Valka municipality has operated as a property management company, through which residents paid their utility bills. However, many failed to pay, debts were not collected. Calculations by the State Audit Office show the tariffs did not reflect actual costs either. At the end of last year, residents owed the municipality more than €1 million.

"In our assessment, the reason for Valka's financial difficulties is weak financial management and insufficient internal controls. More revenue was planned in the budget than could realistically be collected. Obligations to implement European Union projects were also undertaken too optimistically, even though there was no certainty that these expenditures could be made at all," said Ilze Badere, a member of the council of Latvia's State Audit Office.

There are currently €400,000 in unpaid bills.

The Pudrumäe recreation area connects the two countries and has been a joint development project. In the future, such projects with Valga will be put on hold. The Ministry of Finance will primarily focus on ensuring that Valka municipality fulfills the duties laid down in the constitution and other laws.

No one can say how long the process will last or if a long-term solution for the budget will be found.

"Valka does not directly owe Valga any money. At the same time, Valga municipal government has begun drafting the joint Valga-Valka strategy, which is a very important document for obtaining funding from the European Union, together with the Vidzeme Planning Region. It may be inevitable that Valka municipality will merge with a somewhat wealthier municipality in the region, be it Smiltene or Valmiera," said Valga municipal mayor Mart Kase.

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