Part I — Situation overview

The financial situation of the Municipality of Budapest reached a tight deadline in September 2026. On 2 September the Mayor of Budapest said that the city’s account stood at around minus 65 billion forints, while the available overdraft facility was 80 billion forints — so the room for manoeuvre was roughly 15 billion forints. From 1 September a general payment restriction and a hiring freeze came into force: every new commitment requires the mayor’s prior written approval. According to the Director General of the Mayor’s Office, the 80-billion credit line expires on 18 September, and in addition a 45-billion-forint loan linked to public transport also matures at the end of the month; the local business tax advance flowing in during September, estimated at 115–120 billion forints, will therefore largely go on repaying the loans and on wages. On 8 September it emerged that the municipality had begun rescheduling payments: with an “urgent decision” the mayor agreed that the invoices of ArrivaBus — which operates a significant share of the capital’s bus services — falling due between September and December, totalling 9 billion forints, be paid by March 2027. A similar step was needed last year too, but then two months later.

Two separate matters converge in the background. One is the solidarity contribution: of its 86-billion-forint instalment, postponed to mid-October, the Director General said that “there will be nothing to collect it from”; according to the Minister of Transport and Investment, the main question is not the 12-billion state per-capita grant for public transport, but that the calculation model and rate set by the previous government cause payment difficulties. The other is the property settlement: under a bill submitted on 2 September, from 1 October 2026 Vörösmarty tér, Podmaniczky tér, Széchenyi tér and József Attila utca pass into the asset management of the Municipality of Budapest for 99 years, free of charge — this is not a transfer of ownership, the properties remain in state ownership. The capital’s asset management of the Danube-bank properties in District XXII is also restored. The bill raises the Budapest Public Development Council to statutory level: ten members, five from the government and five from the capital, with unanimous decision-making, chaired by the Prime Minister and co-chaired by the Mayor. The government announced the decision on 12 September, as a correction of the earlier transfers to the districts made without consultation.

MIAK’s reading: the liquidity shortfall is no longer a forecast but a fact spilling over to service providers, so the deadline is real. The yardstick, however, is not whether the agreement is reached, but in what form. A one-off, non-public bargain carries risk even if its content is defensible: it sets a precedent for local government financing to depend on the relationship between the government of the day and the city leadership of the day. The property settlement shows the same pattern with the opposite sign — the rights to manage public spaces were moved in one direction in 2022 and now in the other, both times from above, by rewriting the legal title. For MIAK the question is how all this can become a rule that works the same way under the next government and the next mayor.

Part II — Foundations in the literature

Three authors provide the frame in which the present situation can be interpreted. Alexis de Tocqueville, the French political thinker, calls local self-government the strength of free nations in Democracy in America (1835–1840), but he also adds what is essential here: local bodies cannot on their own stand up to a strong central government if their autonomy has not taken root in the customs of the nation — autonomy without financial independence is formal. János Kornai, the Hungarian-born economist who developed the theory of the soft budget constraint, describes in A hiány (Economics of Shortage, 1980) the mechanism by which, alongside a state that regularly bails out losses, an actor’s behaviour becomes detached from its own solvency. In the present case the threat comes not from the capital but from the regulation: if the rate of the levy can be changed mid-year and the rescue package is a one-off bargain, then no predictable constraint applies on either side. Elinor Ostrom, the American political scientist and Nobel Memorial Prize-winning researcher of the governance of common resources, identifies in Governing the Commons (1990) eight design principles that characterise durably functioning local governance systems — among them clear boundaries, a cheap and fast forum for conflict resolution, and multi-level nesting. The detailed treatment of the literature — by author, with quotations — is in section 6.4 Literature in detail.

Part III — MIAK’s concrete proposal

MIAK proposes three measurable measures. The first sets the disclosure minimum for the agreement now being prepared, the second the valuation methodology for the property settlement, and the third makes the whole system predictable.

3.1 Disclosure minimum for the government–capital agreement (simultaneously with the signing of the agreement)

MIAK proposes that the full text of the liquidity agreement between the government and the Municipality of Budapest be made public simultaneously with its signing, and that it contain at least the following: the amount made available and its legal title; the schedule with dates; the capital’s commitments in quantified form (spending cuts, the deadline for settling postponed obligations, asset sales, if any); the checkpoints and the reporting obligation attached to them; and the consequence of non-performance. The agreement is neither a government favour nor a mere financial transaction: it is a documentable agreement between two separate levels of public authority, and the local government is an autonomous constitutional actor under the Fundamental Law. It follows that disclosure serves not the control of the capital but the accountability of both parties. The proposal is a direct application of the G19 radical transparency programme point, and fits the local government module of the A1 public-money dashboard. According to Ostrom’s sixth design principle (see 6.4.3), in durable systems the actors have a fast and cheap forum available for resolving their conflicts — the Budapest Public Development Council, now to be raised to statutory level, can be such a forum if the review of the agreement’s implementation is also placed on its agenda.

3.2 Valuation and maintenance cost rule for the property settlement (by the adoption of the bill)

For the public spaces and Danube-bank properties being returned, MIAK proposes that the bill be supplemented with two elements. First: a public, itemised inventory of the value and technical condition of the properties passing into asset management should be prepared as of the date of handover — this does not slow the handover down, but prevents later disputes, since this is asset management for 99 years. Second: the bill should state who bears the maintenance and renovation costs after the takeover, and how large these are annually — under the text now submitted, the capital would receive a free right of use even before the asset management right arises, without any reimbursement obligation, but there is no figure on the annual burden of maintenance. For a local government in a liquidity crisis this is not a formal question. The same applies to the City Park (Városliget): the bill separates maintenance from the investor’s tasks and requires the development concept to be public — MIAK welcomes this, but proposes that instead of the owner’s consent being automatically granted after fifteen days of silence, an explicit, reasoned statement be mandatory. Tacit consent hollows out precisely the consultation that other points of the bill create. The proposal follows the logic of the G1 data-driven budget: every item should have a target indicator and a measurable cost.

3.3 Local government financing predictability rule (entering into force with the 2028 Budget Act)

MIAK proposes that the rate and calculation formula of the solidarity contribution have to be set within a multi-year — at least three-year — framework, fixed in advance, and that it should not be possible to change them mid-year; any amendment could only take effect from the next budget year. This rule does not decide how large the levy should be — that is a political question, and it remains so — but it ends the situation in which a single legislative amendment can rewrite the order of magnitude of a local government’s budget mid-year. The rule should come with a uniform, machine-readable liquidity and debt time series for every local government, at quarterly frequency. This extends the TE2 data-based resource allocation programme point to the operating side, and is the subnational module of the G23 debt sustainability framework. In Kornai’s frame (see 6.4.2) this is the essence of double protection: the rule simultaneously prevents the local government from counting on a bailout and the central budget from making local financial management unpredictable mid-year. The rule should not apply only to the capital: the present situation is not a Budapest issue, but a test of the entire local government financing model.

The three proposals are bound together by the same principle: a one-off bargain is a risk even if its content is right, because next time the same procedure can also be used in the opposite direction. MIAK therefore does not ask for the agreement not to be concluded — on the contrary, it is urgent — but for it to be concluded in a form that can be turned into a rule.

Part IV — Expected effects and risks

Dimension Expected effect Risk
Economy The multi-year formula that cannot be changed mid-year makes local government budgets plannable and reduces reliance on short-term loans A fixed formula can be rigid in a crisis: if tax revenues fall unexpectedly, the central budget has no fast correction tool
Public administration and local governments The public agreement and the itemised asset inventory create a documented chain of responsibility; the Budapest Public Development Council becomes an institutional consultation forum Unanimous decision-making in the council means a mutual veto: if relations between the two sides deteriorate, the forum is paralysed and developments stall
Public services and society Fixing the deadline for settling postponed invoices makes the situation of service providers and their employees predictable If the agreement slips, the postponement piles up into the next year, and the 2027 budget starts out already burdened

The main trade-off lies between speed and rules-based design. The liquidity deadline is real, and waiting for a longer legislative process could lead to disruption of public services — which is why MIAK does not propose postponing the agreement, but a disclosure minimum that can be met with a single signature. The longer-term rule (3.3) can be prepared independently of this, for the 2028 budget cycle. The proposal tips into risk if the disclosure requirement becomes an obstacle to negotiation: if the parties fear that every detail will immediately become the subject of political debate, they will tend to push the substance into informal channels outside the agreement. This can only be handled if disclosure applies to the final result and not to the negotiating process — and that is what MIAK’s proposal says.

Part V — Measurability and summary

5.1 What is worth following? (suggested KPIs)

MIAK proposes four performance indicators (KPIs, in English: Key Performance Indicator) from which it will be visible in 6, 12 and 24 months whether the proposals have been implemented:

  • Completeness of the agreement’s disclosure: the suggested target is that within 15 days of signing the full text — with the amount, the schedule, the commitments and the checkpoints — be available.
  • Stock of rescheduled service provider invoices: it is worth following whether the amount of obligations postponed from 2026 to 2027 decreases; the largest currently known item is 9 billion forints, while the order of magnitude of postponed payments piling up at the transport organiser is substantially larger.
  • Disclosure of the local government liquidity time series: the suggested target is that by the end of 2027 quarterly, machine-readable liquidity and debt data be available for every city with county rights and for the capital.
  • Maintenance cost and condition of the returned public spaces: it is worth following how the technical condition of the properties develops compared with the itemised inventory at handover, and how large the actual annual maintenance expenditure is.

5.2 Summary

MIAK’s request to the government and the Municipality of Budapest: let the agreement be concluded quickly, but publicly — with the amount, the schedule, the commitments and the checkpoints. For the property settlement an itemised valuation and maintenance cost breakdown should be prepared, and for the City Park the rule should be an explicit, reasoned statement instead of tacit owner’s consent. And MIAK asks the National Assembly to adopt a multi-year local government funding formula, entering into force with the 2028 budget and not modifiable mid-year — not for the capital’s sake, but because the same risk affects every Hungarian local government.

Two MIAK foundational values are at stake. Transparency, because the disclosure of an agreement between two levels of public authority is not a matter of courtesy: it is the only tool with which it can be verified afterwards whether the agreement was made according to a rule or as a political bargain. Universal representation, because MIAK asks for the same rule both when the political direction of the government and the capital coincides and when they are opposed — the present situation is a good opportunity for a settlement precisely because relations between the parties are now cooperative, and a rule made in a calm period is the one that also survives a period of conflict.

Part VI — Reasoning and further sources

6.1 Press framing by spectrum

In the economic band Portfolio approached the topic from two sides. Its analysis of the bill went through the asset management changes item by item — from the public squares through the Planetarium to the Budapest Public Development Council — and in its closing sentence gave a balancing assessment: the bill makes a spectacular gesture towards the capital, while building strong ministerial control into the large state investments. A discussion paper prepared for an urban planning conference, published in the paper’s opinion section, gave a broader frame: according to the authors, underfunding local governments has been a recurring government practice since the change of regime, nearly seventy per cent of settlements struggle with a budget deficit, and the solution would be a revenue-sharing act fixed at constitutional level. This is the frame that places the present debate most precisely: not a Budapest issue, but a question of the model.

In the public-affairs and left-liberal band the emphasis was on the consequences. Telex and 24.hu detailed the rescheduling of invoices, together with the expiring credit lines and the Director General’s statement; both outlets highlighted that the decision affects the public transport service provider, and quoted the trade union side’s hope that the postponement does not affect wages. From its interview with the mayor, ATV highlighted that the negotiations are taking place at a professional level, and that this time the capital is deliberately not using the tool of public exchanges of messages. This framing is rare, because it makes the negotiating method itself the news.

In the conservative band Mandiner, relying on the MTI interview, published the most concrete figures — the current account balance, the amount of the maturing loans, the 110 billion forints to be repaid — and its framing focused on the severity of the consequence (“collapse”). Magyar Nemzet put wages and the September deadline in its headline. It is noteworthy that on the question of the capital’s financing the two ends of the spectrum this time reported not different facts but different emphases: there is no real dispute about the severity of the situation, but all the more about the question of responsibility. Portfolio framed the announcement of the property settlement as a correction of the earlier transfers to the districts, and quoted the reasoning of the head of the transport ministry in the dispute with the previous city leadership.

6.2 Facts and data

Datum Value Source
The capital’s current account balance around −65 billion forints (2 September), −67 billion forints (8 September) ATV, 2 September 2026; 24.hu, 8 September 2026
Overdraft facility and maturity 80 billion forints, maturing 18 September 2026 ATV, 2 September 2026; Mandiner, 2 September 2026
The public transport loan 45 billion forints, maturing at the end of September Mandiner, 2 September 2026
The amount to be repaid in September around 110 billion forints Mandiner, 2 September 2026
The September local business tax advance 115–120 billion forints (estimate) Mandiner, 2 September 2026
Rescheduled service provider invoice 9 billion forints, by March 2027 Telex, 24.hu, 8 September 2026
Postponed payments piling up at the transport organiser around 75 billion forints for the second half of 2026 Telex (based on Népszava), 8 September 2026
The postponed instalment of the solidarity contribution 86 billion forints, pushed to mid-October Telex (based on Népszava), 8 September 2026
The capital’s annual solidarity contribution nearly 98 billion forints (2026) Portfolio opinion section, 31 August 2026
Public transport per-capita grant not transferred 12 billion forints 24.hu (based on Népszava), 8 September 2026
Share of local governments struggling with a budget deficit nearly 70% Portfolio opinion section, 31 August 2026
Local government debt stock before consolidation 1,196 billion forints (2011), 94% of it in settlements with more than 5,000 inhabitants Portfolio opinion section, 31 August 2026
The public squares being returned Vörösmarty tér, Podmaniczky tér, Széchenyi tér, József Attila utca — for 99 years, free asset management, from 1 October 2026 Portfolio, 2 September and 12 September 2026
The Budapest Public Development Council 10 members (5 government, 5 capital), unanimous decision, meets quarterly Portfolio, 2 September 2026

Two data points require a separate note. First: the annual amount of the solidarity contribution (nearly 98 billion forints) and the instalment postponed to mid-October (86 billion forints) are two different quantities — the former is the full annual obligation, the latter the item of the postponed collection; the two cannot be added together. Second: the current account balance differs at two points in time (−65 and −67 billion forints respectively), which is not a contradiction but a difference of six days; MIAK reports both values with their own dates.

6.3 Policy dimensions

  • Territorial inequality and rural policy (programme points) — the question of the local government revenue structure and the solidarity contribution: TE2 (data-based resource allocation) provides the model of public, algorithmically verifiable allocation, while TE4 (rural public service minimum) provides the principle that the level of service should not depend on local revenue-raising capacity;
  • Economy (programme points) — G1 (data-driven budget) extended to the local government level, G19 (radical transparency) for the disclosure of the agreement, and G23 (public-debt sustainability framework) for the subnational liquidity and debt time series;
  • Public administration and e-government (programme points) — KI9 (local participatory budgeting) provides the local decision-making model for developing the returned public squares, while KI4 (local government digitalisation) provides the technical basis for uniform data reporting;
  • Transparency and anti-corruption policy (programme points) — the local government module of A1 (public-money dashboard) would be the common interface for liquidity and contract data.

6.4 Literature in detail

6.4.1 Alexis de Tocqueville: Democracy in America

In the chapter on local self-government, Tocqueville regards municipal autonomy as the foundation of a free political order, but in a more nuanced way than usual: he draws attention to how easily this autonomy is vulnerable if there is no lasting body of custom and public opinion behind it:

“[…] they are unable to struggle, single-handed, against a strong or an enterprising government, and they cannot defend their cause with success unless it be identified with the customs of the nation and supported by public opinion. […] Nevertheless local assemblies of citizens constitute the strength of free nations.”

The thesis applies to the present Hungarian situation in two directions. On the one hand, it explains why the constitutional status of local government is not enough: if its revenue side can be rewritten by a single legislative amendment, autonomy remains formal. On the other hand, it also warns that protection is not primarily legal but institutional and social: a multi-year, pre-announced funding formula would be exactly such a lasting rule that becomes custom. According to Tocqueville, local freedom is not the fruit of a human plan but develops slowly — so the legislator cannot create it, only preserve or spoil it.

📖 Source: Alexis de Tocqueville: Democracy in America

6.4.2 János Kornai: A hiány (Economics of Shortage)

Kornai introduces the concept for which he is best known when analysing the budget constraint of the firm: the constraint becomes soft when the actor’s freedom of choice is no longer bound in advance by its own solvency. The volume specifically emphasises that this is not a binary state:

“Nem tehető egyszerű »vagy igen, vagy nem« jellegű megállapítás. Nem mondhatjuk például, hogy a hitelnyújtás vagy kemény, vagy puha feltételek mellett történik. Sok közbeeső fokozat lehetséges.”

This gradation provides the key to interpreting the present situation. Bailing out the capital is not in itself a “soft budget constraint”: a local government is not a firm, maintaining public services is not a business risk, and a significant part of the present deficit is caused not by local financial management but by the centrally set levy. The risk of softness stems from the form of the agreement: if the bailout is an ad hoc bargain whose terms are not public and whose implementation is not monitored, then the incentives of both parties shift — the local government’s towards the next bargain, and the central budget’s towards using the levy as a negotiating position in the bargain. MIAK’s proposal therefore does not argue against the bailout, but for fixing its terms: in this case a hard constraint means not refusing support, but a pre-announced rule binding on both parties.

📖 Source: János Kornai: A hiány (Economics of Shortage)

6.4.3 Elinor Ostrom: Governing the Commons

Ostrom’s volume identifies eight design principles from case studies in which local communities governed common resources sustainably over centuries — from Swiss alpine pastures to Spanish irrigation associations. Two of them fit the present case directly. The sixth concerns conflict resolution, and the eighth multi-level nesting:

“6. Conflict-resolution mechanisms: Appropriators and their officials have rapid access to low-cost local arenas to resolve conflicts among appropriators or between appropriators and officials. […] 8. Nested enterprises: Appropriation, provision, monitoring, enforcement, conflict resolution, and governance activities are organized in multiple layers of nested enterprises.”

Ostrom also adds what matters most here: if external government officials presume that they alone have the authority to set the rules, then local actors cannot sustain a rule-governed system in the long run — because anyone who wants to circumvent the local rule simply turns to the higher level. In Hungarian local government financing this is precisely the recurring pattern: the validity of a local budget decision depends on whether the central level overrides it mid-year. Raising the Budapest Public Development Council to statutory level is a step in the direction of the sixth principle — a fast, institutionalised consultation forum — but meeting the eighth principle also requires that rule-making not take place unilaterally at the higher level. This is what MIAK’s proposal 3.3 would serve: the multi-year formula fixed in advance.

📖 Source: Elinor Ostrom: Governing the Commons — The Evolution of Institutions for Collective Action

6.5 International comparison

Several European solutions offer a model for the predictability of local government financing. In Denmark and Sweden the ratio of local tax revenues to the state equalisation system is fixed in multi-year agreements, and the government cannot change the rate of the contribution mid-year — predictability here is not a constitutional guarantee but an institutionalised practice, maintained by the annual negotiation between the association of local authorities and the government. In Germany the revenue share of the municipal level is fixed in the federal tax-sharing arrangement, and changing it requires the approval of the federal chamber; the local level therefore has an institutional veto over decisions affecting its own revenues. In Poland, decision-making powers delegated to the regional level in the use of cohesion funds resulted in one of the highest absorption rates in the European Union — the lesson is that decisions placed at the local level do not necessarily come with worse financial management. In France, by contrast, after the local tax reform of the 2010s the revenue autonomy of municipalities decreased noticeably and dependence on central transfers grew: this is the negative model closest to the Hungarian situation. The common lesson is not that the levy is bad in itself, but that the predictability of its rate and formula is an independent, measurable value — regardless of how large the levy is.

Territorial inequality and rural policy

  • TE2 — Data-based allocation of EU cohesion funds
  • TE4 — Rural public service minimum

Economy

  • G1 — Data-driven budget
  • G19 — Radical transparency in economic decision-making
  • G23 — Public-debt sustainability framework

Public administration and e-government

  • KI4 — Local government digitalisation
  • KI9 — Local participatory budgeting

Transparency and anti-corruption policy

  • A1 — Public-money dashboard

Proposed new programme point: Local government financing predictability rule — a multi-year funding formula that cannot be changed mid-year — for the Territorial inequality and rural policy area.

6.7 List of sources

Press sources (MIAK topic monitor, 13 September 2026 — topic 1; with the underlying press monitor sources):

Knowledge-base references (books):

  • 📖 Alexis de Tocqueville: Democracy in America
  • 📖 János Kornai: A hiány (Economics of Shortage)
  • 📖 Elinor Ostrom: Governing the Commons — The Evolution of Institutions for Collective Action

MIAK internal materials:

  • MIAK policy area: Territorial inequality and rural policy (programme points; programme point ID: TE2, TE4)
  • MIAK policy area: Economy (programme points; programme point ID: G1, G19, G23)
  • MIAK policy area: Public administration and e-government (programme points; programme point ID: KI4, KI9)
  • MIAK policy area: Transparency and anti-corruption policy (programme points; programme point ID: A1)
  • MIAK topic monitor, 13 September 2026 — topic 1, score: 90/100

Supplementary public data sources:

  • Hungarian State Treasury — local government budget reports
  • State Audit Office of Hungary — local government integrity and financial management reports
  • Eurostat — COFOG breakdown of local government expenditure
  • Fundamental Law of Hungary — Articles 31–35, local governments

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