Collective wage agreements heavily impact Reykjavík City's 6-month results
Reykjavík City's semi-annual financial statement for January through June 2025 was presented to the City Executive Council today. Section A – Core Operations remained balanced during this period, despite salary increases tied to collective wage agreements and their impact on pension liability costs.
City operations stay balanced
Section A – Core Operations, which is funded by tax revenues, was balanced during the period. Core operations — meaning operating results before financing costs and depreciation (EBITDA) — showed a positive result of 3.3 billion króna, about 600 million króna less than budgeted. Operating results after financing costs and depreciation posted a loss of 47 million króna.
The effects of salary increases from collective wage agreements are reflected in pension liability expenses for the R-section of Brú Pension Fund, which is now valued much higher than the original budget anticipated. This change, running about 3.7 billion króna above budget, is a major factor in the interim financial statement.
On the other hand, property tax revenues have outperformed projections, and asset sales have exceeded original budget plans.
Operating cash flow totaled 10.4 billion króna, representing 10% of the period's total revenues.
Consolidated operations post positive results exceeding 5 billion
Consolidated operating results for sections A and B showed a surplus of 5.1 billion króna, a performance that was 4.7 billion króna better than the same period in 2024. Operating results exceeded budget by 1.6 billion króna. Property revaluation at Félagsbústaðir Social Housing had a positive impact on results, coming in 3.3 billion króna above budget.
Economic environment still faces significant uncertainty
The biggest risks stem from inflation's impact on interest rates, the króna's exchange rate and global uncertainty. Inflation has proven stubborn, and the Central Bank has kept policy rates high to combat inflation and ease demand pressures. High interest rates have increased the city's financing costs, while also potentially raising city expenses through negative effects on indebted households and businesses.
The króna's real exchange rate has strengthened substantially so far this year — by 7% — reflecting both rapid currency gains and high domestic prices. Uncertainty is growing in international economic affairs, especially due to trade disputes and armed conflicts. The impact these factors will have on the domestic economy remains unclear.
An agreement between the state and municipalities on operating specialized services for children with complex needs took effect June 1, transferring responsibility and operations to the state. Full long-term funding for services for disabled people has not yet been secured, according to a September 2024 working group report on cost-sharing for these services.
The Reykjavík City budget for 2025‐2029, approved on Dec. 3, continues to demand strong fiscal restraint.