9 February 2016

Subsidies to agricultural activities covered by the local government mandate

An association's sub-lease of land owned by the municipality was not considered an indirect municipal subsidy. The municipality could lawfully subsidize the association's activities and it was therefore also not contrary to the local government mandate that the association held a right to use the municipality's buildings. This was the opinion of the State Administration.

The Municipality of Frederikshavn had concluded an agreement with Foreningen Knivholt Hovedgaard concerning the lease of agricultural land for the purpose of farming and use of a municipally owned group of buildings to achieve the association's object.

According to the association's by-laws, the object was to maintain and fit up the buildings and areas for the purpose of cultural and tourist activities and to promote children's and young peoples' understanding of the link between nature, environment and agriculture. The association was financed by way of membership fees. Any profit was used for setting off any loss in subsequent years and for the association's object.

According to the agreement between the municipality and the association concerning the use of the group of buildings and the surrounding areas, the association could only use the property for music arrangements, theatre, livestock shows, seminars etc. Further, the daily operation of the property/surrounding areas was to be left to the association at no charge. However, the use was subject to a number of conditions - for example, the association was obligated to maintain the buildings and the surrounding areas; however, the municipality would provide an annual subsidy in this respect. Also, surrounding areas had to be available to the public.

COMPLAINT FROM A CITIZEN

A citizen was of the opinion that the parties' agreement concerning the lease of the agricultural land and the right to use the municipality's buildings was contrary to the local government mandate. According to the agreement, the association would receive substantial municipal funds as direct operational subsidies and could use a municipally owned group of buildings at no charge. Further, the association had staff paid by the municipality, who directly and indirectly worked for the association.

SUBSIDY WAS NOT CONTRARY TO THE RULES OF THE LOCAL GOVERNMENT MANDATE

Based on the by-laws, the State Administration assessed that the association did not pursue any commercial objectives, and the municipality's subsidy was therefore not contrary to the rules of the local government mandate.

As the municipality was entitled to subsidize the association's activities, the fact that the municipality made premises available to the association could also not be considered illegal subsidies.

The State Administration was unable to establish whether the conditions for use of the buildings/surrounding areas constituted a consideration equivalent to the value of the municipality's subsidy to the association. However, as the subsidy was for activities, which the municipality could lawfully support, it was not contrary to the rules of the local government mandate.

THE MUNICIPALITY ACTED CORRECTLY

The State Administration also noted that the division of the expenses between the municipality and the association to the manager of the property could not be considered a subsidy to the association as the expenses were divided based on the extent of the manager's work for the municipality and the association.

Further, the State Administration noted that there were no grounds for assuming that the municipality's lease of the agricultural land to the association and the association's sub-lease of the land to a grazing association were not on market terms. The State Administration referred to the fact that the lease of the land had taken place on the same terms applied by the municipality when leasing agricultural land.

The State Administration also attached importance to the fact that the municipality was represented in the association's management and had to approve the accounts, and the municipality therefore had knowledge of the association's activities.

The State Administration found no reason to assume that the municipality's transactions in the matter had not been financially reasonable.

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