Town halls around Spain are so skint that many of them are struggling to pay the wages, reports the Spanish press. Why is this interesting? For two reasons: one, the situation is partly the result of incompetence and stupidity by local politicians, which I always like to point out. And two, because it is bound to have an impact on the quality of life for anyone living in an area where the town hall is stony-broke.

In a way it’s nothing new. Municipal financing is one of Spain’s structural problems, as town halls are starved of funds by central and regional governments, who gobble up most of the tax take whilst expecting town halls to shoulder an increasing burden of social services. As a result town halls have come to rely on revenues from the few taxes they do control, one of which is construction licences.

During the construction boom, everything was hunky-dory. Town halls revenues were up, and local politician spent money freely hiring staff and building municipal facilities, as much as anything for political favour and to win votes.

Now the residential construction boom has turned to spectacular bust, and local tax revenues have shrivelled up. The problem is particularly acute on the coast, where construction and tourism are the only games in town, and where the tax base has become heavily dependent upon construction over the last decade.

The situation gets more acute with every passing day. An increasing number of town halls can’t afford to pay their staff, let alone suppliers. In Andalucia, for example, more than half of all town halls are having trouble paying staff, according to a regional town hall federation. And thanks to the formula used to calculate central government transfers to municipal budgets, the lack of funds will get worse in 2010.

Town halls have been cutting costs where they can. In Pamplona, for example, the budget for San Fermin, the famous running of the bulls, is 30% lower this year. All over the country, the ‘fiesta mayor’ in each municipality is likely to be a much more modest affair than in the past.

But the real problem is pay roll. During the boom, town halls went on a hiring spree, often for political favour. Now the boom has gone, but town halls are left with high fixed costs for labour.

The town halls suffering the most are those that “managed their budgets on the basis of the construction boom, without foreseeing that it all might come to an end at some point,” Pedro Arahuetes, mayor of Segovia, and head of a national federation of town council treasurers, told the Spanish press. “Personnel costs can’t be reduced,” explains Arahuetes. “We can’t do lay-offs like a private company, so this is hitting all town halls.”

All of which means that many town halls in coastal areas popular with overseas buyers will be in serious financial straits for the next few years. What does that mean for local residents and property owners? Well, how about reduced or slovenly municipal services like rubbish collection and town maintenance, and more petty fines for things like parking infractions. Look no further than dishevelled Marbella, where local expats complain about ridiculous traffic fines, to see what I mean.