Reykjavík City budget: operating surplus in 2027 and debt reduction in 2028
The proposed Reykjavík City budget for 2027, presented to City Council today, projects an ISK 9.4 billion year-over-year turnaround in the City's operations.
Following an estimated ISK 6.6 billion deficit this year, the City expects to post an ISK 2.8 billion surplus next year, begin paying down debt in 2028, and expand its investment capacity each year. Investments will focus on basic services, particularly for children and families with children.
A difficult financial position at the start of the council term
The new governing majority inherits a challenging financial situation. Based on the previous governing majority's budget, the 2026 year-end forecast projects an operating deficit of ISK 6.6 billion for Section A – Core Operations. Revenue from building rights and road construction fees will fall ISK 6.4 billion short of budget, and cash and cash equivalents will decrease by ISK 6.7 billion during the year. Net debt in Section A – Core Operations has nearly doubled since 2021, from ISK 98 billion to ISK 195 billion.
Meanwhile, maintenance of school buildings, sports facilities, culture houses, sidewalks, and other infrastructure has been neglected. Strengthening operations is therefore essential to expanding the City's investment capacity in the coming years.
A turnaround as early as next year
Revenue is projected to increase by 5.6% next year, while operating expenses are expected to rise by 3.7%. The operating surplus is then projected to grow each year, reaching ISK 16.8 billion in 2031. By 2027, the City aims to reduce payroll costs to 74% of revenue from municipal tax and the Municipal Equalization Fund, down from 87% in 2021 and 2022.
The governing majority is introducing a financial policy centered on sustainability and long-term stability in the City's operations. This policy sets stricter fiscal targets for City operations, aiming to achieve each one between 2027 and 2031.
Efficiency measures yield ISK 2.3 billion in annual savings
The governing majority's current efficiency measures, which include reducing central administration by 130 full-time equivalent positions, will lower annual payroll costs by ISK 2.3 billion. The priority is protecting frontline jobs that serve residents. For the first time, a limit is being set on administrative overhead: Full-time equivalent positions in the central administration must account for no more than 7.5% of the City's total, compared with 8.4% in June. Next, the efficiency working group will review the City's asset portfolio, employee sick leave rates, and procurement.
Paying down debt during the council term
Systematic debt repayment will begin in 2028. From 2027 through 2031, the City plans to repay ISK 16.4 billion more in loans than it borrows. The debt ratio for Section A – Core Operations is projected to fall from 86% to 73%, and a contingency fund will be established to handle major setbacks.
Greater investment capacity: prioritizing children and families
Working capital from operations, which funds loan repayments and investments, is projected to increase from ISK 18 billion in 2027 to nearly ISK 31 billion in 2031. Investments will total ISK 23.6 billion next year, rising to ISK 25.6 billion in 2031.
The 2027 investment plan focuses on maintenance for preschools and primary schools, new preschool development in partnership with private entities, maintenance and development of sports facilities, a sidewalk maintenance initiative, Vetrargarður in Breiðholt, and improved playgrounds for children. Investments will also support swimming pools, smart traffic signal control, heated paths, biking paths, and a greener city, including a tree-planting initiative in which children will help plant at least 50,000 saplings.
The City's core operations have run persistent deficits, and its infrastructure maintenance backlog has grown substantially. Through continued efficiency measures and responsible financial management, we intend to turn this around as early as next year. We also plan to begin systematically paying down debt during this council term. Putting our operations in order is essential to strengthening the City's investment capacity and providing exemplary services here. We are determined to make Reykjavík a leading city, and I am optimistic about what lies ahead.
| Key budget figures | |
| Operating result for Section A – Core Operations in 2026 (year-end forecast) | −ISK 6.6 billion |
| Operating result for Section A – Core Operations in 2027 | +ISK 2.8 billion |
| Year-over-year turnaround in operations | ISK 9.4 billion |
| Reduction in payroll costs through efficiency measures | ISK 2.3 billion per year |
| Debt repayments above new borrowing, 2027-2031 | ISK 16.4 billion |
| Investment in Section A – Core Operations in 2027 | ISK 23.6 billion |
| Working capital from operations, 2027 → 2031 | ISK 18.0 billion → ISK 30.8 billion |
The draft budget will be referred to City Council for a second reading on Dec. 1, 2026.
Stock Exchange announcement Nov. 3, 2026
