THE distribution model of state or federal resources to Brazilian city halls mostly favors small cities, not necessarily the poorest, at the same time that municipalities with the worst quality of life indicators in the country receive less funding per capita than the national average.
The data appears on a platform created by the FNP (National Front of Mayors) that brings together numbers on the fiscal scenario of cities in the year 2024. The basis of the information is the National Treasuryand the Sheet crossed the data with indicators from the IBGE (Brazilian Institute of Geography and Statistics).
The average per capita external revenue in local administrations is R$6,837, a figure that smaller cities exceed by up to 400% and that others, many of which have chronic problems in sanitation basic needs, health or income, they don’t even reach.
Differences occur mainly because the distribution rules “were all thought of in isolation, without the entire work being designed”, says the researcher at Ipea (Institute for Applied Economic Research) Cláudio Hamilton, PhD in economics from the New School for Social Research, New York.
“There are multiple federal transfer instruments that don’t talk to each other”, he states. “And the chance of this working is very low.”
The main distortion, according to experts, is in the way in which the Municipal Participation Fund (FPM), the main source of resources for most city halls in Brazil, is distributed.
The fund comes from the Union and transfers resources based on 18 population ranges. In per capita terms, the model favors cities with the lowest number of inhabitants in a given range and disadvantages those that approach the ceiling.
The transfers mainly benefit the 1,261 municipalities with up to 5,000 inhabitants, whose average external revenue per inhabitant amounts to R$10,886.
The design means that Serra da Saudade (MG), the smallest city in the country, with 854 residents, receives R$31,700 per inhabitant at the same time as Melgaço (PA), which has the worst HDI in Brazil, receives R$5,356.
It is no different for Fernando Falcão (MA), which has the second worst development index and receives R$5,743 per capita while the same figure for Borá (SP), with just over 900 inhabitants and 4,000 positions ahead of Fernando Falcão in the HDI ranking, is equivalent to R$27,700.
The Human Development Index was created by the UN in 1990 and analyzes the quality of life in each region. The most recent data related to federative entities is from 2010.
Of the 100 cities with the worst index, 63 receive external revenue per capita below the average — which occurs in practice for 65% of Brazilian municipalities. Of the 100 smallest, on the other hand, 96 earn above it.
Although the FPM concentrates distortions, according to scholars, it is not the only driver of inequalities in the distribution of resources. There is also the ICMS (Tax on the Circulation of Goods and Services), a state tax whose distribution to federative entities takes into account the productive activity of each territory.
It is because of the ICMS that Paulínia (SP), where there is a petrochemical complex, has R$19,303 in foreign revenue for each of its 115 thousand inhabitants, while São Lourenço da Mata (PE), whose population is practically the same, but does not have such relevant productive activity, only receives R$2,696.
The consequence, says lawyer Fernanda dos Santos Figueiredo, a doctoral student in constitutional law, is reflected in local finances.
According to her, cities that have a volume of revenue at these levels tend to create expenses without a demand that necessarily justifies them.
“What we often see is that small, overfunded municipalities have no incentive to control costs or explore their tax base, which implicitly favors the swelling of the local machine.”
The distribution system has operated along the same lines for decades. The tax reform tends to reduce inequality regarding ICMS, but does not change the Participation Fund criteria.
The FPM was created in 1965, and the main changes since then have aimed to increase its revenue base, which comes from IR (Income Tax) and IPI (Tax on Industrialized Products), reducing the Union’s discretionary (non-mandatory) budget.
If in the beginning the fund took around 10% of the revenue from the taxes that make it up, the percentage today is 25.5% — the last increase came in 2021, when Congress approved a constitutional amendment that increased the calculation base by 1%.
The distribution criteria currently follow an unreasonable logic, says federal public servant Gabriel Gdalevici Junqueira, a political scientist whose doctoral thesis at USP analyzed the policy of the Participation Fund.
“When the FPM was created, there was a perception that large centers were rich, and small municipalities were poor, because urbanization was at that time synonymous with development and income. that this has changed“, it says.
A change, according to him, should cover structural aspects in the distribution of resources based on objective criteria, “introducing social and economic indicators such as income, health, education or security, always attacking the demands of each region”.
This would mean making the calculation of distribution dynamic, a proposal against which there would certainly be resistance from the political class, says lawyer Carlos Braga, a specialist in financial law.
“Brazil should establish objective criteria for distributions, but the problem is that we don’t see this even for parliamentary amendments”, he states.
The CNM (National Confederation of Municipalities) claims to disagree. The FPM told Sheet the president of the institution, Paulo Ziulkoski, is today “the most distributive, transparent and safe transfer of public resources in Brazil”.
“The dilemma is not how municipalities divide resources, but rather the fact that the Union keeps most of the taxes while cities keep most of the obligations”, he argues.
“Changing the criteria to focus only on ‘performance’ or ‘economic volume’ indicators would inevitably privilege large centers, which have greater capacity to collect their own revenue.”
It is an issue that opposes the CNM and the National Front of Mayors, which recently created a commission, called Underfinanced Territories, to deal with the issue.
“Cities have changed, but the distribution of resources remains the same,” he told Sheet the president of the collegiate, the mayor of São Vicente (SP), Kayo Amado (Podemos).
“It is not acceptable to see cities with (external) revenue per inhabitant of R$20,000 or R$30,000 while others, which need more resources, agonize with less than R$3,000. It is a discussion about the equity of the federative pact itself.”
THE Ministry of Finance did not respond whether he considers there to be distortions. In a note, the department declared that the transfers to federal entities comply with current provisions.
