OFF-BUDGET DEBTS AND PRIOR LIABILITIES: THE DIFFERENCES TO KNOW IN ORDER TO KNOW HOW TO ORIENTATE ONESELF

For those who work with local authorities on a daily basis, it is well known how frequent it is that certain expenses must be recorded outside the normal commitment procedures, thus requiring the authority to turn to institutions such as off-balance sheet debt and prior liabilities. The choice is obviously not discretionary (although subject to a partial interpretation concerning the nature of the debt) and has precise and important repercussions. Normally speaking, off-balance sheet debts are provided for and governed by Article 194 of the Consolidated Law on Financial Intermediation, which qualifies them as a real exception to be applied to peremptory hypotheses such as: 

• executive sentences 

• covering deficits of consortia; 

• recapitalisations of corporations for the operation of public services; 

• expropriation or emergency occupation procedures; 
• acquisition of goods or services within the limits of proven and proven enrichment benefits. 

What is evident in the above list is that off-balance-sheet debts constitute, civil law speaking, obligations that are entirely valid and capable of producing effects even if contracted in the absence of the necessary commitment of expenditure proper to administrative law. 

In order to prevent these debts from remaining outside the entity’s budget, in open contrast with the principle of the universality of the budget, which prescribes that all revenue and expenditure must be entered therein, the legislature provided for an ad hoc procedure for their recognition. The procedure involves the Municipal Council, which is called upon to give its opinion as the holder of the power to scrutinise and make use of the commitments undertaken by the Local Authority. 

As for past liabilities, these are envisaged by Article 191 of the Consolidated Law on Finance and can be qualified as expenses related to the year of their occurrence that have been placed within an ordinary expenditure commitment but, due to unforeseeable events, do not find suitable coverage. The adjustment mechanism in this case will be an ordinary expenditure procedure with a possible budget variation. Evident in this case is the incapacity nature of the expenditure. 

Once the boundaries of the two cases have been delineated and clarified, it is clear that the qualification of the debt upstream of the two procedures is fundamental for adherence to either type, an activity to be delegated to technicians and experts in the sector in order to proceed with their regular classification.