In February 2022 we met with Marika Aaso, Head of the Financial Department of Viljandi City Government, and talked about the local government, finance and life in general.

You have been the Head of the Financial Department of Viljandi City Government for quite a long time. How did you get involved in the field of finance and in what year did you start working for the city?

I started working as a financial controller for Viljandi City Government in 2007, and in 2009, I was chosen to be Head of the Financial Department. I graduated in the field of financial management in 2006, and in 2014, I received a master’s degree in Tartu University in law.

What have been the biggest changes and challenges since you started working for the city?

When I started managing the Financial Department, the economic crisis began and handling it was a serious challenge. We did well. We centralised the accounting together with the chief accountant, started processing purchase invoices electronically and modernised the budgeting process. The COVID-19 pandemic brought about the organisation of remote work.

Did the administrative reform completed in 2017 affect Viljandi City or was it more of a burden or joy for the surrounding municipalities?

The reform did not affect the city. Those around us were adjoined to us.

The government recently reviewed the proposals of ministries for increasing the role of local governments up to 2035. The focus of the proposals is on courses of action that support increasing the rights and obligations of local governments and the general direction of the country towards a decentralised government. How would you assess the capacity of local governments and how should the current financing model of local governments change in the light of increasing their rights and obligations?

All Estonian residents should be provided equally excellent services everywhere in Estonia. There is a basic level that must be ensured, for example kindergarten and school services, social services, but matters related to the infrastructure of local governments should therefore also be equally funded. The present reality is that the revenue base of the “golden circle” of Harju County local governments is significantly better than the rest of Estonia, and the equalisation fund intended to bring in equality has not been sufficient for alleviating the differences for a long time. The obligations imposed by the state that the local governments must perform have to be fully financed by the state. Our people must be motivated to live elsewhere than the major cities where the revenue base allows for providing more services and benefits and paying higher wages.

The public debt of Greece exceeds 200% of GDP; Estonia as the shining light of the European Union has a respective rate of less than 20%, while we are joined in the same monetary system and all bear the same risks. In the light of large-scale money printing, couldn’t Estonia also borrow more and make investments that would improve our well-being? Is the current Local Government Financial Management Act already out of date considering the principles of a decentralised government?

Imposing limits on borrowing is necessary in the big picture. If sufficient funds were allocated to local governments for providing services to people, local governments would not need to borrow money for crucial investments. The funds could be borrowed by the state and then allocated to local governments. In my opinion, giving our current status a slight push with a loan, we are able to create better opportunities for future developments, create a competitive advantage for our enterprises and thereby ensure future revenue for the state. However, the state is saying that local governments have borrowed excessively and some local governments are close to passing the limit of net debt ceiling provided in legislation. The atmosphere is that local governments are inefficient or unable to think of the future, yet the state (by this, I mean the ministries) are doing great as the total net debt of the state is low. The attitude that there’s us (the state) and them (the local governments) annoys me. In reality, it is a unitary state with a uniform economic space and the joint objective of ensuring that people in Estonia are leading happy lives everywhere both now and in the future.

What is your opinion on the activity-based budgetary planning that has caused a lot of confusion on the state level? Various state authorities have provided rather harsh criticism about the underdevelopment of IT solutions and the significantly increased workload of financial departments. Should the state become, so to speak, a private limited company that should aim to earn a profit, or should the state above all else serve the people and all activities should not necessarily be “profitable” in financial terms?

In my opinion, the activity-based budget is like an extra layer on the financial budget. When we prepare the activity-based budget, must still financially plan it in order to maintain a balance of revenue and expenses. In terms of budgeting, it would mean a twofold workload. Obviously, all organisations must have their objectives and measures, and for this, we have development plans and budget strategies. Every budgetary line should be suitable for meeting an objective set out in the development plan, and when connecting these, half of the work of activity-based budget planning has been completed. The development plan also includes indicators (and wording these is the most complex part) in order to assess the completion of the objectives. Therefore, the report on meeting the objectives set out in the development plan could meet the requirements of the activity-based budget when it comes to local governments. This report is already a mandatory part of the annual report.

The activities of a local government cannot be profitable. The state provides services to its residents via local governments, and the state collects the revenue covering these costs by means of taxes, for example. The revenue is presented in the state budget while the expenses are presented in the budgets of local governments. Without support from the state (which is covered from taxes from residents and locally operating companies), local governments cannot function. Total self-sufficiency is impossible.

What is your opinion on the green transition? For example, numerous local governments have replaced their ageing street lighting with environmentally friendly LED lighting with the support of financing from the European Union, yet the invoices have remained the same.

There are ever more of us in the world, we constantly crave a better quality of life, but our resources are limited. Naturally, mindless consumption should be reduced and we should not use everything that can be produced. Increasing production is a burden on the natural environment. However, we should not resort to euphoria when it comes to the green transition and environmental protection…

What is the future of financial departments in local governments? Are accountants finally retiring and technical means are replacing them, or are new people up for the job and the changes are not that drastic?

I think that there are many processes in accounting that can be automated. Since the inputs are received from people and the result is also required by people, this field will not be fully ruled by machines. New young accountants are still being trained and this profession certainly has future potential. There will simply be less data entry, and more handling of data processing and sharing of financial information.

You have recently implemented the budget planning application VeeRa and the interactive data visualisation/business analytics solution Microsoft Power BI in Viljandi City. How did the implementation of the new solutions work out in your subordinate divisions and, in your opinion, has budgetary planning and the use of budgetary means become more transparent in the city?

When the budgetary data is available to everyone in real-time, transparency improves. In Viljandi, our goal for years has been that the head of every institution is responsible for the budget of their institution. The budget has not been a secret sequence of numbers and codes composed by the accountant that is only understandable to financial experts. The budget is an instrument for management and the availability of data is extremely important in order to make decisions.

Previously, we prepared our budgets in Excel, and I must admit that preparing and processing these Excel tables took significantly longer compared to the online application. When implementing VeeRa, we conducted training events with follow-up lessons. Everything is working out smoothly since the program is generally logical and easily usable.

The development plans of many Estonian local governments provide for a significant decrease in the number of residents in the next decades. Would the simplified access of refugees or migrant workers to the country be a solution, or how to stop the marginalisation of certain areas which is gaining momentum?

The entire world is undergoing urbanisation, and I doubt that we are able to reverse it. Agriculture does not need as much workforce as 100 years ago. With the help of ever bigger and smarter agricultural equipment and factories, we are able to feed the cities. Therefore, an increase in the number of migrant workers would not stop marginalisation.

Are women great leaders or should we actually not consider the gender of a person in a leading position and rather assess their mental capacity? Could women somehow bring more empathy to the organisation?

The gender of a person does not matter. Everyone has their own advantages. Some people are strong, some are fast, and some are good with words. It is important to make sure that the right person has the right position.

How do you relax after work? Do you still think about numbers or work out?

Numbers are always on my mind. But I like fussing about in the kitchen a lot, and spending time with my family. Hyper-cheerful Ruudi, a Giant Schnauzer, is a definite source of relaxation in our family.

Finally, why should young people move to Viljandi?

It’s just fun to live in Viljandi!