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Made-over Košice in deep debt

The beautifully reconstructed buildings in the downtown core of Košice make this eastern Slovak regional capital a truly memorable destination. Much of the credit among city residents goes to current President Rudolf Schuster, who in his almost five years as Košice mayor put the town back on the tourist map.
But as the city begins to add up the bills for the Schuster-era reconstruction spree, which brought a 'musical fountain' among other extravangances to this historic 13th century site, it is beginning to appreciate the long-term damage wrought by the former mayor's reckless spending.
The irony is literally everywhere you look. The freshly reconstructed Historical Town Hall on Košice's Hlavná ulica (Main Street) cost about 50 million Slovak crowns to rebuild; it now serves as collateral for recently issued municipal bonds, as does the 19th century Jakabov Palace.


Košice city's 'singing fountain' reminds residents of the spending excesses that occured under former Mayor Rudolf Schuster.
phto: TASR

The beautifully reconstructed buildings in the downtown core of Košice make this eastern Slovak regional capital a truly memorable destination. Much of the credit among city residents goes to current President Rudolf Schuster, who in his almost five years as Košice mayor put the town back on the tourist map.

But as the city begins to add up the bills for the Schuster-era reconstruction spree, which brought a 'musical fountain' among other extravangances to this historic 13th century site, it is beginning to appreciate the long-term damage wrought by the former mayor's reckless spending.

The irony is literally everywhere you look. The freshly reconstructed Historical Town Hall on Košice's Hlavná ulica (Main Street) cost about 50 million Slovak crowns to rebuild; it now serves as collateral for recently issued municipal bonds, as does the 19th century Jakabov Palace.

According to Rudolf Bauer, who served as Košice mayor from 1990 to 1994, the city now owns virtually no property outright; many buildings were taken over by creditors after the city failed to pay loan after loan.

Bauer told The Slovak Spectator on January 19 that when he left office to make way for Schuster in 1994, the city had a debt of about 30 million crowns ($714,000). According to figures provided by Košice City Hall, the municipality now has a debt of about 1.7 billion crowns ($40.5 million). "By excessive spending, Schuster helped to build up his own image by investing into the city's reconstruction and spending public money, all of which helped him later in his [May 1999] presidential campaign," said Bauer, who is now an MP for the SDK ruling coalition party.

What is more, the new Košice city government under mayor Zdenko Trebuľa was forced to launch a one billion crown municipal bond on December 15, which will add fresh debt to the backlog amassed by Schuster.

While Schuster remains a popular figure in the city, residents say the scales are falling from their eyes. "He was the best Slovak mayor in the country," maintained Košice native Andrea Bublišová, a 25 year-old student of Prešov University. "But I often ask myself at what price he bought his popularity."

Desperately seeking buyers

Košice mayor Trebuľa was out of town on a business trip during the past week, while Deputy Mayor Boris Farkašovský, who is responsible for city finances, refused all requests for an interview with The Slovak Spectator.

However, according to Košice City Council spokesman Marian Krajňák, the city's level of indebtedness is not unusual in Slovakia. "All towns are indebted now, and it has been a recent favourite topic of local journalists to blame the state of Košice on Schuster. But I think they [journalists] have been forcing this idea on people unnaturally. As I said, all towns in Slovakia, big or small, have their debts."

But financial market experts who deal in Slovak municipal bonds said that Košice's situation was thankfully not common in the country, as proven by comparing interest rates on bond issues.

Krajňák said that Košice had already placed about 300 million crowns worth of the total one billion crown issue of five year municipal bonds with buyers. The local financial house Prvá Komunálna Banka (PKB) was mediating the sale, he said, which had been launched "to consolidate the difficult financial situation the city is in."

According to Imrich Urbančík, director of PKB Košice, buyers are very interested in the Košice bonds. "We are currently in negotiations with two potential investors who showed interest in buying 500 million crowns worth of Košice municipal bonds," he said. "At the moment, these bonds are the best stock you can buy on the Slovak financial market." The interest rate on the bonds is 16.5%, Urbančík continued, and they are backed by "very lucrative buildings and sites in the city."

To make the bond issue even more appealing, he said, "buyers will be given a say or a veto in future decisions concerning the city budget."

Oĺga Dlugopolská, head of the statistics and research department at the Bratislava Stock Exchange (BSE), said that the relatively high interest rates on the Košice bonds, as well as the advantageous conditions attached, was a sign of the city's desperation.

Although the Košice issue had not yet begun trading on the BSE, comparable five-year municipal bonds issued by other Slovak towns were less interesting, she said. "Banská Bystrica had a 12.9% interest rate, Žilina 13%. Košice's indebtedness has forced the city to offer more [a higher rate], apparently because they need the money."

Košice spokesman Krajňák admitted that the city was indeed in a tight spot. "Košice will get about 264 million crowns this year from the state budget, which is only about 7% of the amount needed to take care of basic city maintenance," he said. He added that the city officials were trying to solve their financial situation by selling the city's property, but explained it was hard to find suitable and serious buyers.

Schuster's legacy

As Košice representatives set about their tasks - one of which is finding 400 million crowns to cover unpaid Schuster-era construction bills - debate continues over the merits of both the city's renovation programme, and the man who led it.

Renáta Némethová, a journalist with the local Korzár daily, is a committed Schuster hater. "He just had no thought for the future," she said. "He would do anything to make himself popular, and during the presidential election campaign [from March to May 1999], he even asked local firms not to say how much money Košice owed them."

On the other side of the fence, Krajňák made no secret of his support for his former boss. "We decided to say yes to development programmes in Košice, and we are doing everything in our capacity to pay the loans back," he said. "We are hoping the money from the sale of these municipal bonds will be sufficient."

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