On 9 July 2021, the Basque Government and the three Provincial Councils reached a pre-agreement to renew the methodology for the distribution of resources and the determination of the Contributions of the Provincial Councils to the financing of the budgets of the Autonomous Community of the Basque Country applicable to the period 2022-2026. In order to proceed with its mandatory processing, an extraordinary Basque Public Finance Council was convened on 15 July. The corresponding draft law, approved by the Basque Government, was sent to the Basque Parliament for its approval and became Law 4/2021, of 7 October, on the methodology for the distribution of resources and the determination of the contributions of the provincial councils to the financing of the budgets of the Autonomous Community of the Basque Country applicable to the period 2022-2026.

The budgets for the financial year 2022 of the different institutions have been drawn up applying the methodology approved in the new Law, which includes the demands that the different institutions have been demanding during the validity of the current methodology and, above all, highlights the incorporation of the precepts derived from the Law on Local Institutions of the Basque Country (LILE), with a chapter especially dedicated to municipal financing.

The main keys are as follows:

• Vertical coefficient:

The vertical coefficient increases from 70.04% to 70.81%, mainly due to the integration of the new transfers assumed by the Basque Government in recent years. This coefficient takes into account the distribution of competences between the different institutional levels and also reflects the integration of the amount corresponding to the Social Services Fund in the vertical distribution model, which is increased to €35m/€35m, from the current €20m/€20m.

• Horizontal coefficients:

The methodology for calculating the horizontal contribution coefficients remains unchanged.

• General Adjustment Fund:

The objective of ensuring that the relative weight of each Provincial Council’s collection reaches 99% of its horizontal coefficient is maintained. The maximum limit of the General Adjustment Fund is increased to 1.45% of the resources to be distributed among the Basque institutions, as opposed to the 1% set by the current Contributions Act. The increase in the maximum amount of the General Adjustment Fund increases the guarantees for the Historical Territories.

• Minimum percentage of participation of local entities in the agreed taxes:

The minimum percentage of local bodies’ participation in agreed taxes is set at 39.23%. Thus, local entities in the three Historical Territories will consolidate a higher percentage of participation in the agreed taxes than that in force in Law 2/2007.