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Minimum Income Allowance Renationalisation in Seine-Saint-Denis is Credit Positive for French Departments

France's draft law on local governments to be adopted by the end of 2021 or at the beginning of 2022 introduces the possibility for a French department to ask the central government for the renationalisation of the funding of the minimum income allowance expenditure ("RSA"). The first mainland department impacted by this renationalisation will be the Department of Seine Saint-Denis.

DBRS Morningstar considers that the renationalisation of the RSA funding will ease Seine-Saint-Denis' budgetary pressures and help it strengthen its financials. Several other French departments are likely to apply for the same RSA funding mechanism in the near term. Still, DBRS Morningstar does not expect at this stage this process to be generalised to all French departments, given that many of them are in a good financial situation and/or are unwilling to apply for such renationalisation. However, its implementation for Seine-Saint-Denis and potentially another few departments reinforces, in DBRS Morningstar's view, the strength of central government support for the French departmental sector.

Key highlights include:
-- The renationalisation of RSA funding for Seine-Saint-Denis, one of the largest French local government's by budget size, would be the first for a department in mainland France; RSA expenses have historically outgrown the compensating revenues allocated by the central government, adding budgetary pressure on departments' finances, especially those with below-average socioeconomic indicators;
-- In previous instances, the renationalisation of the RSA funding for several French overseas territories has helped them strengthen their financial performance and DBRS Morningstar expects a similar positive budgetary impact for Seine-Saint-Denis;
-- Even though this mechanism will likely benefit only a few departments at this stage, it reinforces, in DBRS Morningstar's view, the strength of central government support for the departmental sector.

“The renationalisation of the RSA funding will have a direct positive credit impact on the Department of Seine-Seine-Denis but is also a clear signal that the French government is willing to continue to support the departmental sector in case of need” notes Mehdi Fadli, Vice President in the Global Sovereign Ratings Group.