Título VI. Hacienda municipal

The finances of the municipality comprise the set of property, income and obligations that constitute the assets and liabilities of the municipality.

The following constitute income of the municipality:

a)Those derived from the contribution that, by constitutional provision, the Executive Branch must transfer directly to each municipality;

b)The proceeds of the taxes that the Congress of the Republic decrees in favor of the municipality;

c)The donations made to the municipality;

d)The communal and patrimonial property of the municipality, and the rents, fruits and products of such property;

e)The proceeds of municipal levies, administrative fees and municipal services;

f)Income derived from improvement contributions, compensatory contributions, fees and taxes for urban and rural development works carried out by the municipality, as well as income derived from the contributions paid by those engaged in the commercial exploitation of the resources of the municipality or whose seat is located therein;

g)Income derived from loans and borrowings;

h)Income derived from administrative fines and from other legal sources;

i)The interest generated by any type of fiscal debit;

j)The interest accrued on sums of money held on deposit in the national financial system;

k)Those derived from the enterprises, foundations or any deconcentrated entity of the municipality;

l)Those derived from recurring transfers from the various national funds;

m)Those derived from agreements of associations of municipalities;

n)Those derived from contracts for the concession of municipal public services;

o)Those derived from donations;

p)Those derived from special sporadic contributions agreed by State organs;

q)The price of the sale of immovable property;

r)The income, whether in the form of rents from municipal property for common use or otherwise, from onerous servitude, leases or fees; as well as the income derived from licenses for the construction, modification or demolition of public or private works within the jurisdiction of the municipality, and;

s)Any others determined by the laws or municipal agreements and other municipal norms.

The obtaining and collection of resources for the economic strengthening and development of the municipality and to carry out the works and provide the services that are needed must comply with the principle of legality, which fundamentally rests on tax equity and justice.

The collection of income that is not authorized is prohibited. Any charge made on this basis must be refunded to the taxpayer, upon prior request to the Municipal Council, which before authorizing the refund shall verify the fact of the improper charge.

The resident beneficiaries of urbanization works that improve the areas or places in which their immovable properties are located shall pay the contributions established by the Municipal Council, which may not exceed the cost of the improvements. The regulation issued by the Municipal Council shall establish the quota system and the collection procedures.

Revenues from contributions, administrative and service fees, rents, and those derived from municipal property and enterprises shall preferably be allocated to cover administration, operation and maintenance expenses and the payment of debt service incurred by the Municipal Council for the provision of the service concerned.

The proceeds of advance contributions for the carrying out of urbanization works shall not be given any other use or destination.

When investments are made with central government funds in the planning, programming and execution of projects aimed at establishing or improving services in the municipality, the municipality is not obligated to reimburse them, unless there is a pre-established agreement approved by the Municipal Council.

Central government, decentralized and autonomous entities shall enter into agreements for the execution of civil works with the municipalities of the country and associations of municipalities.

Taxes with a specific destination decreed by the Congress of the Republic for the direct benefit of the municipality may not be given another destination. In the case of those taxes whose collection is entrusted to the municipalities by the Ministry of Public Finance, training and certification by said ministry shall be required to effect their collection.

No State body is empowered to exempt individual or juridical-person taxpayers from payment of municipal levies or fees, except the municipality itself and as provided in this regard by the Political Constitution of the Republic.

The Municipal Council may resolve, with the favorable vote of two-thirds (2/3) of the total members comprising it, the condonation or reduction of fines and surcharges for failure to pay municipal levies, fees and other contributions and duties, provided that the amount owed is covered within the time indicated.

The property and securities constituting the municipal treasury are the exclusive property of the municipality and enjoy the same guarantees and privileges as the property and securities owned by the State.

The municipality has the administration of its property and securities with no limitations other than those established by the laws.

The municipalities, by effect of their autonomy, may constitute their deposits in the banking and financial entities authorized by the Superintendency of Banks. This decision must be agreed upon with at least the favorable vote of two-thirds (2/3) of the total members who comprise the Council, in accordance with the criteria of opportunity, efficiency, soundness and profitability. Deposits made in banking or financial entities must be contracted at an interest rate above the average passive rate reported by the Bank of Guatemala at the time of carrying out the transaction.

The sale, exchange and lease of property of the municipality is subject to the provisions that the State Contracting Law and other fiscal laws establish for property of the State, it being understood that the powers that therein correspond to the Ministry of Public Finance shall be applicable to the Municipal Council.

The decision ordering the sale, exchange, registrable lease, or approving the auction of property of the municipality, shall be issued with the favorable vote of two-thirds (2/3) of the total members comprising the Municipal Council, except where it involves goods and services produced by the municipality, its service units and its enterprises, in which cases the provisions of the rules on freedom of commerce shall apply.

The municipal government shall establish, upon prior consultation with the community authorities, the mechanisms that guarantee to the members of the communities the use, conservation and administration of the community lands whose administration has traditionally been entrusted to the municipal government; in any case, the mechanisms must be based on what is indicated in Title IV, Chapter I of this Code.

The municipalities, for the achievement of their purposes, may contract loans in compliance with the legal requirements established for such purpose. They shall carefully observe the principle of capacity to pay so as not to affect municipal finances and to ensure that the indebtedness they incur does not affect or compromise national public finances.

The municipalities may not incur credit obligations whose amortization term exceeds the term of government of the Municipal Council incurring them, provided that it is supported by the conclusions and recommendations of the technical feasibility studies prepared for such purpose.

They may likewise issue, negotiate and place securities in the national market or abroad, for which purpose they shall previously have the opinions of the Executive Branch and of the Monetary Board.

The scope of application of this Chapter shall be for all municipalities, enterprises, entities or other decentralized municipal juridical figures that have independent budgets, but depend financially on contributions from the Central Government, the Municipal Development Institute or any municipality.

Loans that are contracted and do not comply with the requirements established in this chapter, the provisions of Article 15 of the Organic Law of the Budget and its Regulation, or contravene them, shall be null and void by operation of law, the Council or municipal authority agreeing thereto and the legal representative of the financial entity or individual person authorizing it being civilly, criminally and administratively liable for its contracting, in accordance with the law.

The indebtedness of the municipalities shall in no case exceed their payment capacity. Payment capacity for any year shall be understood as the maximum limit between the ordinary resources obtained (own revenues and transfers obtained on a permanent basis) and expenditures for operating expenses and debt service.

In the contracting of internal and external loans it is furthermore necessary that:

a.The proceeds be allocated exclusively to finance the planning, programming and execution of municipal public works or services, or to the expansion, improvement and maintenance of existing ones.

b.It be approved with the affirmative vote of two-thirds (2/3) of the total members comprising the Municipal Council, upon prior consideration and discussion of the conclusions and recommendations of the technical feasibility studies conducted for such purpose by the Municipal Planning Office.

c.External loans shall be channeled through the Ministry of Public Finance and be subject to the indebtedness policy established by the State for the public sector. In the case of internal loans, they shall be subject to the indebtedness policy established by the State for the public sector.

d.The issuance, negotiation and placement of securities shall have a risk rating in accordance with the Securities and Commodities Market Law, Decree Number 34-96 of the Congress of the Republic. After placement, the Ministry of Public Finance shall be informed, for purposes of the register of public indebtedness.

e.The interest rate contracted for the loans may in no case exceed the average active interest rate of the National Financial System reported by the Bank of Guatemala.

2.6 Internal loans may be contracted with banks of the national financial system supervised by the Superintendency of Banks or through the Municipal Development Institute, in accordance with the provisions of its Organic Law. Any loan made with natural or legal persons that does not comply with what is prescribed in this article shall be null and void by operation of law and the mayor or Municipal Council that authorized it shall be liable in accordance with the law.

The municipalities may only pledge their own revenues or transfers from the Central Government up to an amount not exceeding what the municipal administration reasonably foresees it will receive for such items during its corresponding government period, and which shall be allocated exclusively to payment of the amount of the debts incurred. Those responsible for using the funds derived from such pledges for a different use shall be liable in accordance with the law.

The Municipal Council shall submit monthly, within the ten (10) days of the following month, through the debt module of the Integrated Financial Administration System, in any of its modalities, the detail of current internal and external loans and the balance of the contracted debt. The Public Credit Directorate of the Ministry of Public Finance shall ensure that the municipalities keep the information updated; when it determines that a municipality is not fulfilling said obligation, it shall communicate it to the Office of the Comptroller General of Accounts so that it applies the legally corresponding sanction.

The municipality may opt to obtain current funds in trust directly from the Executive Branch and through the Ministry of Public Finance. For such purpose, it shall submit the technical, economic and financial studies of the projected operation.

In the month of February of each year, the Municipal Councils that use internal or external loans shall inform the population, through the Municipal Development Councils and the available means of communication, of the destination and execution of the resources.

The financial resources referred to in Article 257 of the Political Constitution of the Republic of Guatemala shall be distributed to the municipalities of the country on a monthly basis, in accordance with the criteria that this Code indicates for that purpose.

The Ministry of Public Finance shall deposit directly, without any intermediation, before the fifteenth day of each month, the amount corresponding to each municipality, into the accounts that they shall open in the national banking system. The same banking mechanism for delivery of funds shall apply to any allocation or transfer legally established or agreed.

The financial resources referred to in this chapter shall be distributed in accordance with the mathematical calculation carried out for that purpose by the specific commission composed of:

a)The Secretary of Planning and Programming of the Presidency, who presides over it; or the Undersecretary designated by the latter;

b)A titular representative and alternate, designated by the Minister of Public Finance;

c)The President of the National Association of Municipalities or the Vice-President designated by the Board of Directors;

d)The President of the Guatemalan Association of Mayors and Indigenous Authorities -AGAAI-; or the Vice-President designated by the Board of Directors;

e)A titular representative and alternate, designated by the Comptroller General of Accounts.

Distribution shall be carried out in accordance with the following criteria:

1.30% distributed proportionally to the total population of each municipality.

2.35% distributed in equal parts to all municipalities.

3.25% distributed proportionally to the own per capita income of each municipality.

4.10% distributed directly proportional to the number of villages and hamlets.

For purposes of the provisions of numeral 3 of this article, own per capita income of each municipality shall mean the result derived from the sum of income from municipal levies, administrative fees, services, rents, municipal enterprises without counting specific transfers or contributions from the State, special assessments, fruits, products and taxes collected by reason of powers attributed by delegation, divided by the total population of the municipality.

The Commission shall make a preliminary calculation in the month of September of each year, based on the information for the immediately preceding fiscal year, rendered and settled before the Comptroller General of Accounts (year n-2), and on the allocations contained in the draft budget of revenue and expenditures of the State constitutionally corresponding to the municipalities. The Commission shall carry out the final calculation during the first five days after entry into force of the annual law on the general budget of revenue and expenditures of the State.

In the case of newly created municipalities that do not have historical data on the variables used for the allocation of the constitutional transfer, the Commission shall define the allocation methodology to be used.

The Secretariat of Planning and Programming of the Presidency shall receive, directly, the information for the mathematical calculation of the constitutional allocation, from the following institutions:

1.From the Supreme Electoral Tribunal: The number of municipalities constituted at the time of making the calculation;

2.From the National Institute of Statistics: The total population of each municipality estimated for the year prior to that in which the calculation is to be made and the number of villages and hamlets of each municipality;

3.From the Ministry of Public Finance: The amount of the own revenues of each municipality, including those of the municipal enterprises reported to the Integrated Financial Administration System, rendered and settled before the General Comptroller's Office of Accounts;

4.From the General Comptroller's Office of Accounts: To verify the authenticity of the information referred to in the preceding numeral.

Each of the institutions shall forward the corresponding information before the thirty-first of January of each year. The information must be on the network via the internet.

No later than March 31 of each year, the Municipal Councils must have submitted the information on their execution of expenditures and revenues for the previous year, through the Integrated Financial Administration System -SIAF-, in any of its modalities, as required by the Organic Budget Law and the Municipal Code. For any municipality that fails to submit the information through the SIAF, those reported in the SIAF in the previous year shall be considered as own-source revenues. If it fails to report in the following year, it shall be deemed to have had no own-source revenues, for purposes of the calculation.

The Specific Commission established in Article 119 of this Code shall publish in the Official Gazette and another newspaper of wide circulation the final calculation indicating the amount corresponding to each municipality, as well as the information used to distribute the constitutional allocation. Such publication shall be made before the end of the month of January of each year. Likewise, the adjustments made to the amounts assigned to each municipality must be published; such publication must be made within the fifteen following days. The publication of such information in the Official Gazette shall be made free of charge and immediately.

The constitutional allocation assigned to the municipalities that is not used during the fiscal period for which it was assigned, may be reprogrammed for the following fiscal year, maintaining its character as a constitutional allocation for purposes of the application of the funds.

The municipalities shall continue to receive those allocations established in their favor in specific laws.

The fiscal year of the budget and municipal accounting begins on January one (1) and ends on December thirty-one (31) of each year.

The municipal budget is one, and all estimated revenues and authorized expenditures for the corresponding fiscal year must appear therein. Municipal enterprises shall have their own budget of revenues and expenditures which shall be approved by the Municipal Council. The Municipal Council may agree on subsidies from the municipal budget for the support of its enterprises. In the case of municipal enterprises, the revenues generated by them shall be included in the revenue estimate of the municipal budget.

In no case may the amount fixed for expenditures exceed that of anticipated income, plus the sum available in cash from savings or surplus from prior fiscal years.

The budget of income and expenditures may be expanded during the fiscal year on account of income derived from cash balances, extraordinary income, loans, bond issues, donations, new municipal levies, or by modification thereof, fees, rents and other local contributions.

When the budget is expanded with the cash balance or any other seasonal or occasional income, such amounts shall not be applied to increases in salaries or wages, the creation of positions or permanent current expenditures.

The preparation of the budget shall be subject to the financial reality of the municipality, based on the estimates and results of the last five (5) years.

The municipal budget shall be structured in accordance with budget technique, by programs, observing the following programmatic categories:

a)Program;

b)Subprogram;

c)Project; and,

d)Activity or work.

For the formation of the income budget the resource classifier by item shall be used, and with respect to expenditures the following classifications shall be used:

a)Institutional;

b)Object of expenditure;

c)Type of expenditure;

d)Economic;

e)Purposes and functions:

f)Sources of financing; and,

g)Geographic location.

Investments shall be made preferably in the creation, maintenance and improvement of municipal public services and in the carrying out of sanitary and urbanization works.

No amount may be assigned or disposed of for objectives unrelated to the purposes of the municipality.

The municipal mayor, advised by the finance and probity commissions and municipal public officials, subject to the budgetary norms contained in the Political Constitution of the Republic of Guatemala, this Code, and the Organic Law of the Budget, shall formulate the draft budget in coordination with the public policies in force, and in the first week of the month of October of each year, shall submit it for consideration to the Municipal Council which, upon approving it, may make thereto the modifications deemed appropriate. The budget must be approved no later than the fifteenth (15) of December of each year. If the following fiscal year should begin without the new budget having been approved, the budget of the previous year shall govern, which may be modified or adjusted by the Municipal Council.

The municipality must equitably allocate and administer its annual budget among rural and urban, indigenous and non-indigenous communities, taking into account population density, unsatisfied basic needs, health and education indicators, the environmental situation and the availability of financial resources.

When the financial conditions of the municipalities so permit, the community or auxiliary mayoralties shall receive annually a financial allocation from the municipal budget strictly intended for operation and administration expenses. The amount of this allocation shall be determined by two-thirds (2/3) of the members comprising the Municipal Council, taking into account the needs of the community or auxiliary mayoralties and the economic capacity of the municipality.

The Mayor, in the formulation of the budget, may integrate the commitments agreed upon within the respective Municipal Development Council, provided that such projects have been approved in the other public investment management instances; likewise, incorporate the recommendations of the municipal planning office.

The Municipal Council shall establish the mechanisms that ensure community organizations the opportunity to communicate and discuss with the municipal organs the projects they wish to include in the investment budget as well as operating expenses.

The Municipal Council shall inform community organizations of the technical, financial and political criteria and limitations that affected the inclusion or exclusion of the projects in the municipal budget, and, as applicable, the deferred scheduling thereof.

The approval of the budget, modifications to the approved budget and the transfer of line items thereof require the favorable vote of two-thirds (2/3) of the members comprising the Municipal Council, which shall observe the national and municipal rules relating to budget execution. A copy of these approvals shall be sent.

The Municipal Council may include in the budget execution rules the budget ceilings within which the Municipal Mayor may make transfers or expansions of line items that do not modify the total amount of the approved budget.

The improper, illegal and unauthorized use of resources, expenditures and disbursements renders the employee and public official who carried them out and authorized them administratively or criminally liable on a joint and several basis, as applicable. Likewise, if harm to municipal interests has resulted, the liability of those who concur in favorably qualifying a bond to safeguard municipal interests shall be enforced if, at the time of admitting it, the guarantor proves to be notoriously incapable or insolvent, as reliably proven.

The mayor must report every four months to his Municipal Council on the execution of the income and expenditure budget of his municipality. Furthermore, according to the information technology used for the register of financial transactions and its physical accomplishments, he shall make available to the Comptroller General's Office, on a constant or monthly basis, as applicable, the register of budgetary, extra-budgetary and patrimonial transactions for its control, oversight and advice.

Likewise, for purposes of public-sector budgetary consolidation and updating of the fiscal transparency portals, said information, in aggregate form, shall be available to the Ministry of Public Finance and the Secretariat of Planning and Programming of the Presidency of the Republic.

To satisfy the principle of unity in the oversight of State income and expenditures, the municipality shall submit to the Congress of the Republic the settlement of its budget, for which the provisions of Article 241 of the Political Constitution of the Republic of Guatemala shall be observed. To enable social audit, the Municipal Council shall share every four months with the Municipal Development Council the information on the status of income and expenditures of the municipal budget. The same information must be available to the communities, through the community mayors or auxiliary mayors, and to the population in general, using the means within its reach.

The oversight of the execution of municipal resources shall be the responsibility of the Contraloría General de Cuentas, and its purpose is:

a)To check and verify the legality of revenues and expenditures.

b)To ensure that the administration of the property and financial interests of the municipality is carried out legally, technically and rationally and that the greatest benefits are obtained for its economic, social and institutional development.

c)To ensure the proper investment of the funds of the municipality in any of its operating, investment and debt programs.

d)To establish liability of municipal public officials and employees, for acts and omissions that harm or prejudice the interests of the municipality.

Oversight shall be carried out by the following means:

a)Audit review and examination of the accounts of the municipality.

b)Cash counts, counts of securities and verification of inventories.

c)Audit of the financial statements.

d)Safeguarding of such property of the municipality as reasonably requires protection.

e)Administrative audits.

f)Security, by means of a fidelity bond guaranteeing the liability of public officials and municipal employees who collect, administer and hold in custody property, funds and securities of the municipality.

The municipality shall render accounts as established by the Organic Law of the Tribunal and Comptrollership of Accounts.