Remaining on the Right Side of History – an Interview with Gergely Karácsony, the Green Mayor of Budapest

Interview

Ever since the municipal elections in 2019, opposition mayors in Hungary have been accusing the Government of plundering opposition-led municipalities through deliberate financial cuts. At the 2021 Congress of Local and Regional Authorities organised by the Council of Europe, the Green Mayor of Budapest, Gergely Karácsony, spoke about the risk of the financial asphyxiation of local authorities as a result of the financial recentralisation of the state. That same year a billboard campaign in Budapest challenged the Orbán administration on Government restrictions endangering the most fundamental public services, warning that ”Looting our cities is no way to govern!”. This year, the mayor initiated a survey between 5 May and 16 June,  “the Budapest Residents’ Assembly” among Budapest residents aged 14 and older to seek their support on issues related to the future of Budapest, such as the green renovation of the Chain Bridge and the Government cuts due to which the capital city cannot finance all its expenditures. (The results of the poll are available here.) In our interview with Gergely Karácsony, we discussed the financial situation of Budapest, as the city’s solvency is hanging by a thread, the consequences of Covid-19 and the energy crisis, the role of the EU in ensuring the self-governance of cities, future greening projects, and the impact of the war in Ukraine on Hungary.

Q: Mr Mayor, I also received the questions of the Budapest Residents’ Assembly via mail. What is the purpose of this poll?

A: The capital city, as a municipality, is very committed to deepening democracy in a country where it is otherwise eroding, and in recent years we have been using tools to involve people more in local decisions.

Currently there are two burning issues: One is that the city is in an extremely difficult financial situation. Other large cities in Hungary have dealt with the same problem by accepting the Government’s cuts and reducing the quality of their public services. We do not want to go down this road, we dispute the legitimacy of these cuts imposed on the capital city’s municipal departments, and therefore we would like to ask the people of Budapest to give us the authority to assert the city's economic interests in court, if necessary, to get these burdens reduced and to maintain public services at the level they have been delivered so far.

The other issue is the most important project in Budapest, the green renovation of the Chain Bridge, a very narrow bridge in the city centre, the first historic bridge in Hungary.

Q: The renovation of the Chain Bridge, which is part of the poll, costs around EUR 72 million, out of which the Government had earlier agreed to cover EUR 16 million. Yet the Regional Development Ministry told the ATV television channel last December that the cabinet would not pay this sum, as personal vehicles are to be banned from the bridge, which, in their interpretation, goes against the Government resolution about the bridge.

A: The idea of removing personal motor vehicle traffic so the bridge can serve the purposes of public transport and cycling is very old. This is a very important, symbolic issue which has generated a great deal of public debate, and we would like to extend it into a debate on the city’s future. We cannot keep living here the same way we did in previous decades because it is simply unsustainable. Our mindsets must change. This cannot happen without the involvement of the people and active social dialogue.

Q: Another poll question suggests either suspending certain public transport services in Budapest or not paying taxes to the Government: is the situation that dramatic?

A: Well, this is what Debrecen, the second-largest city in Hungary, decided to do. They halved the number of trams and replaced their trolleys with diesel buses due to the increase in electricity prices. In Budapest, too, most of the city's spending goes to funding public transport. Covid-19 led to a plunge in ticket revenues, and the Government contributes very little to funding public transport. If Budapest wants to make up for the money taken from its budget by various Government austerity measures, this can only be achieved in practice through a dramatic reduction to capacity, which, as a Green city government, we cannot accept, as we are very committed to improving public transport. It is very important to confront the people of Budapest with the fact that these Government taxes simply cannot be managed.

Q: Take us through the steps of what you have called the financial asphyxiation of Budapest.

A: Covid-19 itself was a great challenge for us, and obviously for all the big municipalities, because it reduced the city's revenues very much. It practically eliminated paying passengers from public transport, reduced ticket revenue to a fraction of what it had been, but we still had to maintain capacity because of the pandemic.

Q: Parking was also made free via an emergency Government decree at that time (2020), which stripped the municipalities of considerable revenues.

A: Yes, so on the one hand there was the Covid-19 pandemic, and on the other hand the energy crisis – a huge financial shock for the cities. Yet what we have actually been suffering from is not that, but the Government measures explicitly aimed at curtailing municipal autonomy.

The Government is clever enough not to take away the municipalities' room for manoeuvre in a legal sense, but simply stops the money that is needed to fill our work with content. There were silly, hidebound measures, such as making parking free in Budapest, which created an impossible situation in the densely-populated city centre: Clearly, this was mismanagement of public space.

However, that is a small thing compared to the fact that in 2020, ‘21 and ‘22, the Government, referring to its own economic problems, reduced local authorities’ revenues and partly passed them on to small businesses, even though the taxes levied by local authorities are just a very small part of the business tax system. The Government made gestures to the business sector which were to our detriment.

Then, from this year onwards, although they have already phased out those measures by now, they dramatically increased the taxes imposed on the capital city municipality and on other, larger municipalities, which in the Hungarian tax system are called solidarity contributions. To put this in perspective, in the last year of the previous municipal budget cycle, 2019, this amounted to EUR 13.3 million, but this year it amounts to EUR 154.7 million, so the amount that the Budapest municipality has to pay into the central budget of the state has increased by a factor of 12. This has created a situation in which 99 per cent of local authorities receive some kind of subsidy from the state, whereas the capital city municipality and other large municipalities are net contributors to the state budget. This is not just contrary to all European legislation and to the European Charter of Local Self-Government, but it is also contrary to the Constitution, which protects revenues generated by municipalities on their own — which is why we are going to court.

Q: According to the Government-friendly Magyar Nemzet media outlet Budapest’s local business tax revenue increased by 14 per cent from 2021 to ‘22 and there has been no financial plundering whatsoever.

A: Unfortunately, the city's budget increase did not keep pace with the extent to which inflation and the energy price explosion actually eroded those revenues, so in reality, Budapest municipality is running on much less money than it was a few years ago. There is obviously a war of numbers here, with the Government cherry-picking figures that are meaningless in and of themselves. One should always look at the relevant figures that paint the real picture.

Q: The inflation rate alone is 25 per cent already.

A: Well, yes, the April inflation figure was by far the highest in Hungary and in the whole of Europe. Due to the energy price explosion, the cost of electricity for lighting the streets is four to five times higher, and since we run the biggest public transport system in the country, we are very big energy users, and that actually results in an unpayable energy bill.

I am suggesting adopting an indicator that is common in European statistics, namely, how Budapest’s economic performance and the capital city’s municipal revenues relate to the national GDP. The agglomeration around Budapest and the city itself produce 38 per cent of the country’s economic output. This is an enormous figure, even though only around one-fourth of Hungary’s population lives here (one-sixth in the city itself and about one-twelfth in its agglomeration, with Hungary having approximately 9.7 million inhabitants). There is no doubt that Budapest is the engine of the Hungarian economy and of intellectual life. In comparison, the income on which the capital's municipality operates on is just one per cent of the GDP it generates. As a percentage of the national GDP, we have a budget of roughly 0.4 per cent - which, by the way, has fallen by 30 per cent in the last three years. I do not think any economic entity can sustain such a loss of resources in the long run. That is why we are not prepared to accept this politically and we would like to override this Government policy, including by asking the people of Budapest for their opinion on this in our poll.

This is very important, because Budapest has 1,600,000 jobs and a very high proportion of those workers uses public transport. Budapest is not competing with the other municipalities in Hungary, because we are not in the same league, Budapest has 10 times as many people as the next big Hungarian city. We are competing with Vienna, Bratislava, Warsaw, Prague. The destruction of urban public services that the Government is trying to force on us with its financial whip would actually undermine the performance of the Hungarian economy as a whole.

Q: Now that we’ve made it through the winter, how did you manage to survive in light of the increase in energy and gas prices?

A: On the one hand, we introduced a very strict energy conservation package with a highly-detailed energy monitoring system.

What’s very important is that, unlike all other Hungarian municipalities, we have established an energy procurement practice through which we actually buy gas and electricity at a daily rate, as opposed to the previous practice in the era of low energy prices, when municipalities always purchased their energy for the following year in advance, roughly during the autumn. Last year, most municipalities continued purchasing as before; consequently, they had to pay outrageously high prices, set by the Hungarian state energy trader on the grounds of market risks. We, on the other hand, developed a separate procurement practice where we were actually able to buy electricity at a daily rate and get billed afterwards – this turned out to be much cheaper, even if it was obviously still more expensive than in 2021 or the years before. However, on the whole, it is the savings through this procurement procedure that have given us a chance of somehow getting through this year.

I am very proud that the city's energy know-how has allowed us to survive the energy crisis. We will deal with whatever life throws at us: Covid-19, energy crisis, inflation, war, everything. However, the Government intends politically to punish this city because the majority of voters and the mayor here are in the opposition: We cannot and will not accept that.

Q: To what extent do the cuts a municipality or a city has to face depend on the political party they’re affiliated with in Hungary?

A: It's jaw-dropping. The Government's practice is to reduce the revenues municipalities receive, which is the most important pillar of local governance, as only those who have their own resources can make independent decisions. Some of the cuts are then compensated for through individual Government decisions. However, not everyone benefits from those. The compensation is always higher for the municipalities that are Government-friendly. The Government has clearly, openly taken discriminatory decisions which I think should attract the attention of the European institutions.

This was true when the Government compensated municipalities for increased utility prices as an energy subsidy: Budapest didn't get a penny, the opposition districts got much less than the pro-Government ones, and the pro-Government cities got the most subsidies.

Unfortunately, this is not the first such case, and I fear it will not be the last. The discriminatory financial support policy of the Government applies not only to domestic funds, but also to EU funds. Here too, it is quite clear that in the various regional Operational Programmes, for example, municipalities run by the governing party receive far more funds than those run by the opposition.

Q: How repulsive is this to potential investors?

A: (Sigh.) Budapest is an island in the structure of the Hungarian economy. Almost all high value-added, service-focused investments with a lot of innovative capacity are accomplished in Budapest or in its agglomeration and follow market logic. Obviously, you cannot build factories in a metropolis, but you can create knowledge bases.

Meanwhile, the Government has been taking separate decisions to locate mainly low value-added jobs and industrialisation, such as car factories or battery factories, in rural municipalities, and the economic development funds for these actually bypass Budapest completely. This has not discouraged investment so far.

The service sector constitutes 80 per cent of Budapest’s economic structure, far higher than in any other Hungarian municipality or region. According to recent Eurostat statistics analysing the share of R&D in graduate jobs, Budapest still retains the competitive advantage of having the best universities in the country, with the majority of their young graduates starting work somewhere in Budapest or the conurbation, providing the skilled workforce. This could change anytime though, which is one of my biggest fears.

For that reason, we have set up an association with Hungarian and foreign-owned multinational companies called the Budapest Global Association to strengthen Budapest’s knowledge-based economic role by retaining young workers and providing extra services for foreign nationals working here.

Budapest will only continue to prosper economically if it is a trendy, likeable city with a good atmosphere that can guarantee a high quality of life. Whether a city has cinemas, restaurants, parks, good transport and air quality, whether it is a welcoming, culturally vibrant city - these are very, very important aspects of economic competitiveness. If a young person graduates from a Budapest university as an engineer, a programmer or a designer, such aspects will matter in their choice of whether to leave or stay, whether to look for a job in Budapest, or to look for one in London instead.

Let me give you another example: tourism. International tourism in Hungary is 95 per cent concentrated in Budapest. Of course, those who visit Budapest may go to Lake Balaton for a day, or visit the Pannonhalma Abbey, but Budapest is the main marketing product that can bring international tourism here, which alone provides 5 per cent of Hungary's GDP. Whether the Chain Bridge is renovated and whether you can walk across it, therefore, are fundamental factors in preserving Budapest’s appeal.

So I’m not asking anything extra for Budapest, just that the money the city generates for itself not be taken away. Let this city be Hungary's bridge to Europe and the world, and let the economic players who can only imagine their Hungarian home in Budapest not be chased away.

Q: Now that I'm talking to you, you’re giving me the impression of a positive, prosperous, dynamic city, while the Hungarian media reports about Budapest being on the verge of bankruptcy.

A: Yes, this is the dichotomy of the situation. We have short-term, petty, political and financial problems, and at the same time we have huge prospects for this city which would be conceivable over the decades to come: to become climate-neutral, to have better air quality, to find a way to eliminate traffic accidents.

It’s difficult for a city to go bankrupt, because many of the companies based in the capital operate independently of what happens to the municipality. In my formulation, bankruptcy means the city administration goes out of business. Buses stop running, lights stop working, water stops running from the tap. We will not let that happen.

However, the city’s solvency is hanging by a thread. We are surviving somehow with hundreds of tricks, bridge loans and all kinds of financial operations that are unfortunately costly and involve higher interest rates. If the opposition leadership remains in the city after the municipal elections in 2024, and I think it will, then we must achieve a new bargaining position with the Government, because the city's problem is actually the result of Government cutbacks.

Q: How optimistic are you about the municipal elections in 2024?

A: I’m very optimistic. Unfortunately, I’m not optimistic for the country as a whole, because the 2022 parliamentary elections showed that the opposition is not in a position to win the support of the majority of society. However, in Budapest and in many big cities, that is not the case. The global trend was clearly demonstrated in the recent presidential elections in Turkey or Poland: big cities have very different political opinions from smaller towns.

Q: To what extent does Budapest need direct EU funding?

A: We have a lot of projects that come from some kind of direct EU funding, but these do not solve either our development or our operating budget issues. However, I do believe urban governance should be in the EU's elementary interest, as a third pillar in addition to the EU and the nation states. At an urban level it is much easier to involve people in decisions, and since the vast majority of CO2 emissions come from cities, this is where climate targets could best be achieved.

The application of the partnership principle would be even more important in the short term and it could easily be implemented in the comprehensive EU decision-making processes. When we tried to negotiate with the Hungarian Government on Budapest’s access to the EU's seven-year budget cycle, the negotiations always took place only when the European Commission formally requested the Hungarian Government to reach an agreement with the capital city’s municipality on the use of EU funds – otherwise, I as Mayor of Budapest would never have made it to the negotiating table with my own Government. This is an undignified situation, but it shows that these EU guarantees do work and are very beneficial for the use of such funds.

Q: What are you proud of from your mayoralty so far and what would you like to see more of?

A: We have much to be proud of. We have survived under such difficult circumstances. Every step we take is part of a green vision that this city needs. There is a revolution in cycling in Budapest, we have one of the most successful public bicycle systems in Europe, with a 12-fold increase in public bicycle use in the last few years. If I had to highlight just one thing, it is that we have made the biggest improvements to public transport in the last 30 years, despite this financial climate. We have renovated – and this is an investment inherited from the previous cycle, so it is not just to our credit, but we are completing it – the biggest Hungarian infrastructure for a subway, Metro line three, and we have carried out the most extensive replacement of vehicles in the last 30 years in the bus, tram and trolleybus networks. I would like to implement further projects in public transport, in greening the city, and in social housing programmes with the help of EU funding.

Q: How important are Hungary’s foreign relations to you, and how is the situation in Ukraine affecting Budapest?

A: Our objective was to put Budapest back on the map of Europe in terms of city diplomacy and to have allies across Europe. The Government's foreign policy is very different from the way we think about the world. This holds for the Russian intervention in Ukraine too. I cannot agree with the Government's policy of trying to downplay what is happening in Ukraine. I have always said that this is a completely black-and-white situation, one country attacking another without any legal basis. Budapest has therefore been very active in receiving refugees from Ukraine, and we also support ethnic Hungarian refugees from the Transcarpathian Oblast of Ukraine and our twin city there, Beregszász (Berehove) which is the largest Hungarian settlement in Ukraine. I myself, at the invitation of Mayor Klitschko, visited Kyiv and Bucha with the mayors of Bratislava, Warsaw and Prague. We want to remain on the right side of history in such a terrible conflict, and history has taught us quite clearly what it is like to be left alone when you are the victim of military aggression. The Hungarian nation is deeply imprinted with the repercussions of Soviet troops occupying Hungary in 1956 and the whole world actually silently tolerating that. We do not want to make the same mistake with Ukraine.


This article first appeared here: cz.boell.org