OREANDA-NEWS. June 01, 2015. The local authority experts from German cities, municipalities and districts have estimated the investment backlog for 2014 at around EUR 132 billion. This represents a significant increase compared to the previous year (2013: EUR 118 billion). "There is growing awareness in the municipalities of the accumulated infrastructure weaknesses and, at the same time, needs continue to pile up, be it for refugee housing and integration, or inclusive schooling," said Dr J?rg Zeuner, KfW Chief Economist, today at the presentation of the KfW Municipal Panel 2015 at KfW's Berlin branch. The slight increase in capital expenditures reported last year did nothing to change the situation. "Over the next few years, however, it is possible that this investment backlog will be reduced because the German Federal Government will contribute more to social spending," said Dr Zeuner.

The investment volume increased by EUR 3 billion to EUR 28 billion in 2014 and will continue to rise in 2015 (forecast: EUR 31 billion). However, this will likely only represent a small part of the estimated increase in total municipal debt. Despite favourable overall conditions, only around 22% of the investments are financed by municipal loans; the municipalities themselves account for 44%, the German Federal Government and the federal states provide the rest.

As was also the case in the two previous years, the municipal core budgets closed out the year with a small surplus; however, accompanied by signs of growing disparities between municipalities - while, on the one hand, the share of municipalities (based on their own estimates) with a currently good or very good financial situation grew (from 13% to 20%), the number of municipalities not able to balance their budgets also rose slightly in 2014 (from 26% to 29%). Among larger cities with populations of more than 50,000, one in two say that their overall financial situation is less than satisfactory.

Overview of other results:

  • Around 7% of German municipalities have had financial difficulties in the past but are optimistic about the future (for example, because they expect a decline in social transfers).
  • Around 19% of German municipalities had a solid financial footing in the past, but are pessimistic about the future (due to increased costs for human resources, etc.).
  • Around 35% of German municipalities are equally pessimistic about the past and future. They are experiencing a downward spiral because many are and, in their own estimation, will remain, heavily indebted. Their tax base is much smaller than the average. These municipalities cut corners in the upkeep of their infrastructure, what will create even more problems in the future.
  • Around 15% of German municipalities are equally positive about the past and future. Their overall positive assessment goes hand-in-hand with a larger than average tax base.

"I have high hopes for the upcoming reorganisation of fiscal relations between the German Federal Government and the states. It creates the opportunity to comprehensively address the structural problems of municipal finance, increase public investments and strengthen Germany's potential to grow over the long run without having to raise taxes even one euro for the taxpayer," explained Zeuner. But the municipalities also still have a lot of homework to do. "Supported by concepts for balanced budgets, four out of ten municipalities which went through a negative financial situation in the past closed their 2013 budget without a deficit and put an end to the negative cycle. The aim is to highlight these successful examples and encourage other municipalities to adopt the same strategy and become more modern and efficient," Dr Zeuner added.

Note:

A total of 3,791 cities, municipalities and districts were surveyed in the period from October to December 2014 for the KfW Municipal Panel 2015; 373 questionnaires were returned by cities and municipalities and 102 by districts. The survey used a layered random sample based on the four size categories for municipalities. The results are representative for the approximately 5,200 cities and municipalities with a population of more than 2,000 and for the 293 administrative districts in Germany. The survey was conducted by the German Institute for Urban Affairs (Deutsches Institut f?r Urbanistik, Difu) on behalf of KfW Group.

Service:

Further information on this subject (incl. an interview with Dr Zeuner, charts) is available at our website www.kfw.de/kommunalpanel2015.