Article 2 of the Constitution recognizes and guarantees the right to autonomy of the different nationalities and regions and solidarity between all of them. Likewise, Article 158.2 establishes that “In order to correct interterritorial economic imbalances and make effective the principle of solidarity, a Compensation Fund will be constituted for investment expenses, whose resources will be distributed by the Cortes Generales between the Autonomous Communities and provinces, where appropriate.”

To give effect to this principle of solidarity, the Organic Law 8/1980, of September 22, on the Financing of the Autonomous Communities (LOFCA) In its article 16, it included the general principles of the Interterritorial Compensation Fund (FCI), as well as the basic rules governing that Fund, establishing that it will be an ordinary law that contains its specific regulations.

La Law 22/2001, of December 27, regulating the Interterritorial Compensation Fundswhich currently regulates it, was promulgated to take up two recommendations of the Fiscal and Financial Policy Council of 27 July 2001 on the Interterritorial Compensation Fund:

• Incorporate the Autonomous Cities of Ceuta and Melilla as territories that benefit from this Fund.

• Allow a maximum of 25 percent of the fund to be used to finance operating expenses associated with investments financed by the fund itself. This resulted in its breakdown into two funds, one of Compensation and the other Supplementary.

The credits of these two Interterritorial Compensation Funds are included in Section 33 of the General State Budgets.

a. Territorial scope of the Fund:

The Law on General State Budgets specifies which Communities will benefit from the Fund on the basis of their lower development, that is, those whose per capita income is less than 75 percent of the Community average; and which coincide with those included by the European Union within the regions benefiting from the Structural Funds Objective 1 of the 2000-2006 programming period.

The Compensation Fund and the Supplementary Fund are intended to finance investment expenses in the comparatively less developed territories that directly or indirectly promote the creation of income and wealth in the beneficiary territory. Specifically, the Supplementary Fund, at the request of the beneficiary territories, may be used to finance expenses necessary to implement or operate the investments financed from the Compensation Fund or this Fund, for a maximum period of two years. In this regard, the calculation of the years will start at the time when the project execution is completed.

Currently, the beneficiary communities are Andalusia, Galicia, Castilla y León, Extremadura, Castilla-La Mancha, Valencia, the Canary Islands, the Principality of Asturias, the Region of Murcia, Cantabria and the Autonomous Cities of Ceuta and Melilla, in accordance with the unique additional provision of Law 22/2001, of 27 December.

b. Amount of the Funds:

The Compensation Fund may not be less than 22.5 percent of the basis of calculation constituted by public investment, meaning, for this purpose, all the expenses of the year included in the Budgets of the State and its Autonomous Bodies, corresponding to new real investments of a civil nature.

The Supplementary Fund will be provided annually for each Autonomous Community and City with its own Statute of Autonomy, with an amount equivalent to 33.33 percent of its respective Compensation Fund.

c. Criteria for the distribution of the Fund:

The Compensation Fund is distributed in accordance with the provisions of article 4 of Law 22/2001, regulating the Compensation Funds, and is distributed among the beneficiary Autonomous Communities based on criteria or variables established in article 16 of the LOFCA, although it is Law 22/2001 that proceeds to its weighting, granting a greater weight relative to the relative population variable of each Community in relation to that of all the beneficiary Communities of the Fund (87.5 percent). The other variables are the migratory balance of each Community in the last ten years (1.6 percent), the quotient between the number of unemployed and the number of assets in each Community (1 percent), the area of each Community (3 percent), and the number of unique Entities per square kilometer of each Community (6.9 percent).

Once the distribution of the Compensation Fund has been carried out with the criteria and weightings established in the Law, the result obtained is corrected according to the inverse of the per capita income of each territory and the insular fact.

In the case of the Cities with Statute of Autonomy of Ceuta and Melilla, their financing is carried out according to section 1.b) of article 2 and article 6 of Law 22/2001.