Main factors affecting the rating

The rating reflects the operating results of the Municipality of Tarnowo Podgórne, its high ability to finance investments from its own resources, the exemplary liquidity position of the budget and a low level of debt service in relation to operational funds. The rating also takes into account the level of indebtedness of municipal companies.

The debt policy is implemented in a safe manner and guarantees its timely repayment in subsequent periods. The debt planned by the entity should not significantly affect its ability to settle long-term liabilities.

The current income of the unit in 2014-2019 increased from PLN 135.54 million in 2014 to PLN 228.80 million in 2019, which implies a cumulative annual growth rate (CAGR) at the level of 11.04%. Part of this increase, however, is related to grants related to the government program to support families bringing up children (the „Family 500+” program). The tax revenue of the commune ranged from 64.18% to 71.07% of current revenue. On average, 49,64% of tax revenues were local taxes.

The average cost of the municipality’s debt is 2.75%, while the average debt repayment period – that is, the time period in which the municipality would repay its liabilities assuming that it would allocate its entire operating surplus in accordance with the plan for 2019 at 2.47. However, if we expand the analysis and take the average surplus from the years 2014-2019, the value of this indicator will decrease to just 1 year.

The main factors of the rating change

The municipality has a stable budget base. The level of operating surplus remained high throughout the analyzed period. A relatively low surplus in 2019 may be related to prudent income and expenditure forecasting. An important factor that may lead to a change in the rating will, therefore, be an analysis of the actual implementation of the planned revenue and budget expenditure plan. Analysis of the commune’s budgets in the last 11 years suggests that approx. 20% of the revenue item generates approx. 85% of the budget (similarly in the expenditure of 20% of the largest items, it generates 70% of all expenditure). Despite the narrowing down of the source of these revenues, they are based on a significant extent (on average 75% in 2014-2019) on the commune’s own revenues.

Despite the completion of investment projects in the last 5 years exceeding PLN 223 million, the level of debt is higher than at the beginning of this period by only PLN 3.9 million. The debt planned by the entity in subsequent periods should not significantly affect its ability to settle long-term liabilities.

Factors determining the upgrade of the rating: according to the methodology adopted by INC Rating, Polish local government units cannot receive a rating higher than the rating of Poland, assigned as the country’s average rating issued by the rating agencies Moody’s, S&P and Fitch.

Factors determining the lowering of the rating: an over-plan increase in the level of debt, with a lower operating margin below 15% and an upsetting trend in the relation of operating income and expenses, caused by an increase in expenditure on remuneration.


Krzysztof Grybionko
Lead Analyst
+48 61/851 38 83

Research Report – Tarnowo Podgórne