Yesterday I noted that the great day had arrived: the Metro 4 line of the Budapest metro system opened at last. The man who is largely responsible for making this day possible is Gábor Demszky, who was lord mayor (főpolgármester) of the city between 1990 and 2010. He was the second longest serving mayor of the city since 1873.
Who was Gábor Demszky before he became mayor of Budapest at the age of 38? He finished law school but worked as a sociologist–that is, when he was employed, which was not too often. He was not exactly the Kádár regime’s favorite because of his participation in the illegal underground democratic opposition. He was involved in producing and propagating samizdat literature. It was this small democratic opposition that eventually established SZDSZ (Szabad Demokraták Szövetsége/Association of Free Democrats), a liberal party.
Although in the early days the politicians of Fidesz and the Free Democrats were close, after Viktor Orbán decided to move his party to the right there was not much love lost between the two groups, especially after 1994 when Fidesz did poorly at the polls and SZDSZ decided to join the socialists to form a government. Moreover, Viktor Orbán had a long-standing aversion to Budapest. He was proud of being a country boy and never felt at home in a large city.
Orbán’s personal dislike of Gábor Demszky can be dated from 1998. Although Fidesz, with substantial help from the right-wing Smallholders, managed to win the national election in the spring, that fall Demsky trounced the Fidesz candidate, János Latorcai, in the Budapest municipal election. Demszky received 59.22% of the votes; Latorcai, 39%. Viktor Orbán decided to “punish” the city and Demszky for that defeat. He stopped projects midstream, for example, the new national theater whose foundation had already been dug. Then he broke the contract between the government and the city for the financing of Metro 4. He announced that the government had no means to support the project. It was only five years later, after the fall of the first Orbán administration, that the loan guarantee was renewed and work could resume. Demszky managed to convince the European Union to subsidize half of the estimated cost of building the metro line. Of the other half the city of Budapest was to pay 21% and the national government 79%.
By 2010 a substantial amount of work on Metro 4 had been completed. Yet the new “independent” mayor, István Tarlós, talked about stopping the project half way. He announced in April 2011 that “there are no funds for the second section of Metro 4 but the first part of the work can be completed.” Later he tried to slow down the project by breaking the contract with the French company Alstom that provided the metro cars. In brief, Tarlós and Orbán did everything in their power to sabotage the work of Demszky and to undermine the whole project. Yesterday, however, they took full credit for Metro 4. In fact, in the last minute the officials who were in charge of the project in the previous city administration were barred from the celebrations. In his speech Tarlós went on and on about his travails: he and his team had to finish the project, they had no choice. He made sure that everybody understands that it wasn’t Demszky who came up with the idea of an additional metro line but the city government of Budapest during the Kádár regime in the mid-1970s. Surely, Tarlós is fighting the shadow of his predecessor. It must have been a terrible blow for him to see a large poster with a blue background (the color of SZDSZ) held up by some young people. It said: “Thank you Demszky.” Gábor Demszky has spent the last few months at the Woodrow Wilson Center in Washington as a research fellow. Yesterday he was among the few designated to be “global fellows.” Wilson Center Global Fellows are selected based on their achievements as authorities in their field, which includes public service, journalism, business, academia, and civil society. These non-residential fellows will contribute to the ongoing work of the Center’s programs and serve as an integral part of the overall intellectual community of the Wilson Center. Here are passages from a speech Demszky delivered at the Center a couple of days ago.
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What has motivated me to write about urban reforms? To keep the memory of democratic local governance alive! In Hungary before 1990, there was no independent local government system. We had only local “soviets,” which represented the party state. After 2010, because of strong centralization tendencies, local governments again lost their autonomy, as evidenced by the nationalization of municipal schools, hospitals, and public works. We are backsliding. During the first 20 years of independence, the municipal leadership of Budapest was able to work under very special, economically and politically favorable conditions. Hungary experienced an economic boom in the 1990s when Budapest became a robust economic engine of the country.
This period was unique because we were finally working in a country with a rule of law where the government could not directly interfere with city policies. I hope that we will once again be able to work under normal democratic conditions that will allow us to apply the methods and experiences summarized in the Budapest Model. My goal was to strengthen the elected, autonomous municipal tradition to show that this is a feasible and sustainable model. Looking back, it is remarkable to observe that in 1990, after the breakdown of the socialist system, we had to face the same kinds of challenges that city planners faced at the end of the 19th century.
There was a need to finish those infrastructure projects that had been started more than a century before but had never been finished. Buda and Pest merged in 1873, and the last quarter of the 19th century saw the capital’s greatest period of prosperity when its basic infrastructure and many of its finest buildings were almost, but not fully completed. It was this period of economic growth that eventually shaped the city. The “Queen of the Danube,” as Budapest was widely known, was also expanded through a plan of the Capital Council of Public Works, chaired by Baron Frigyes Podmaniczky, Budapest’s Haussmann, whose was responsible for modern Paris. The plan created stately boulevards, bridges, and a set of squares (the grandest being Heroes’ Square, which is connected to the center of the city via Andrássy Avenue.) The first continental subway in Europe was built in Budapest to create a true metropolis. These monumental projects were not maintained under the Communist system, so there was an urgent need to rebuild them before they collapsed. In addition, we had to solve the problem of waste water management because only 20 % of the waste water was treated biologically.
We had to address the problems of waste management, extend the existing public transport system with new tram-lines, and build the 4th metro-line. Our main concern was to find feasible solutions to finance these major projects while keeping the quality and accountability of the city at a good level. We renovated the Margaret Bridge and Liberty Bridge and built a network of connecting roads around three newly built bridges .The Gresham Palace, which can be seen behind the Chain Bridge, is on the list of “monument-like buildings” in Budapest. This legal category was created by the city to protect hundreds of monument-like buildings. (A “monument” belongs to a different category because it is protected by state laws). These monument-like buildings—ranging from Neoclassical to Art Nouveau—imbue the city with its eclectic character.
The Budapest Urban Renewal Fund was designed to assist the owners of these buildings in renovating and maintaining them as sites of the city’s cultural heritage. The owners could apply for refundable or non-refundable grants, which were made available from the city budget. Many small projects were also financed through these grants. Perhaps most notably the Royal Hotel, which was on the list of monument-like buildings, was reconstructed according to the original plans by a private investor and was renamed the Grand Hotel Corinthia. As the mayor of Budapest, I always thought that our task was to renew the capital city using visions in harmony with the newly formulated EU cohesion policy.
The European cohesion policy is a redistributive policy, largely unknown in the US and in Asian countries, the aim of which is to give opportunities for economic development, even to the least developed areas of the Union. To develop the most lagging regions and cities–like the large industrial cities in Eastern Europe– is completely against pure market logic, which would encourage further development in the best performing regions. Nonetheless, it was exactly this cohesion policy that provided us with the chance to live in an integrated Europe, where Budapest could compete in the region with Vienna and Prague. The policies we created and introduced may not have been the best of all conceivable policies, but they certainly were effective. We tried to develop an innovative new financial strategy while reorganizing the social policy of the city as well. We were fully conscious of the fact that maintaining a sustainable balance in financial management was the single most important and indispensable factor for the future success of the city. It was for this reason that a seven-year financial model was drawn up by the French consultant company Credit Local International Counsel. We had to take into consideration that the governments in the region operated under very difficult conditions. They faced pressing macro-economic problems and had little chance of eliminating the structural deficit of their budgets.
Under these conditions, managing these pressing needs by keeping most of the public resources in their own hands was considered a “last resort” for central governments. This is why resources were consistently taken away from municipalities. As a consequence of the city’s rapid growth, the revenue from personal income taxes grew exponentially. On the other hand, the remaining proportion for the city’s use decreased dramatically year by year because of repeated state budgetary cuts. We were able to use 100% of the personal income taxes (PIT) in 1989, but our share decreased to 0.7% by 2010. As the cornerstone of our financial strategy, we decided that the operational surplus must be kept at the level of 15 percent. (Operational surplus means the surplus of operational revenues over operational expenditure.) Keeping the operational surplus at the minimum 15 per cent level meant that only 85 percent of the recurrent revenues were spent on recurring expenditures, like bills and salaries. The rest was invested in improving the infrastructure of the city and the municipal institutions. With this rule, stable resources were secured for the continuous maintenance and upgrading of the city’s assets.
In our long term financial strategy, the targeted 15 per cent of the operational surplus was the stable element. It was carved in stone, and we could realize it. (In 2008, when the financial crisis hit, the operational surplus was 16.3 per cent.) One of the huge benefits of this system was that in this framework, politicians could not sacrifice long-term goals for short-term benefits. This system did not allow spending the budget for long-term investments on short-term political gains resulting from ad hoc salary increases or subsidies offered to certain groups. The 15 percent operational surplus rule can define not only the possible volume of the yearly operational expenditure and guide financing strategies, but, based on the seven-year financial prognosis that we used since 1996, it could also guide sector strategies (public transport projects, infrastructure investments, cultural and educational projects). With this, we have arrived at my last point. Finances in Budapest were not technical issues dealt with by a specific city hall department but were considered as a crucial element in the policy making process.
hrough this manner of financial management restructuring, the running of Budapest became easier to plan, more effective, and stable. The city’s credit rating improved from A3 to A1, which significantly increased the financing options for developments. The financial management of the capital became a dependable instrument of urban policy. From the accumulation of the operational surplus, the city completed hundreds of projects, which I described earlier. In Budapest, the newly elected local government has started only one new large-scale EU funded project since 2010. It has only finished those which were started by us earlier. Generally, one sees that especially this year, the city fathers have started many smaller projects to beautify the city, obviously taking elections into consideration. But the most worrisome change in my view is that the financial model, which we used for fifteen years and which brought long-lasting results, has not been used by the current local government since 2011. In addition, the Orbán administration does not provide the capital with resources that would be sufficient for the long-term financing of public transport and that could support the sustainable management of this huge task. Therefore the future prosperity of the city is in doubt.