Financial Sustainability of Local Governments in Germany
Financial sustainability of local governments in Germany is examined in this lecture, covering constitutional guarantees, financial problems, possible solutions, and structural changes. The overview includes the role of municipalities, counties, and independent cities in managing finances, as well as the challenges they face and strategies to address them.
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Financial Sustainability of Local Governments in Germany Univ.-Prof. Dr. Thorsten Ingo Schmidt
Outline of the Lecture I. II. III. Financial problems of local governments in Germany IV. Possible solutions by the local authorities on their own V. State-sponsored programmes of financial support VI. Necessary structural solutions VII. Summary Local governments in Germany Constitutional guarantees of local governments in Germany 2
I. Local governments in Germany ~ 10.000 municipalities ( Gemeinden ) ~ 400 counties ( Landkreise ) ~ 100 independent cities ( kreisfreie St dte ) Some associations of local authorities in populous states 13 territorial states ( Fl chenl nder ) 3 city states ( Stadtstaaten ) 3
II. Constitutional guarantees of local governments in Germany - Guarantee of local self-government - Additional guarantee of financial autonomy - Guarentee of financial equalization - Guarantee of reimbursement for the transfer of state tasks - Local government constitutional complaint to the constitutional courts - No significant participation in the process of law-making A _4
III. Financial problems of local governments in Germany 1. Expenditures - infrastructure, social welfare, (voluntary) cultural tasks Revenues a) Municipalities - real estate tax, local business tax, share of federal income tax and federal sales tax - contributions and fees; government grants b) Counties - no taxes, but levy on the municipalities ( Kreisumlage ) - contributions and fees; government grants Budget - no debt brake, but limits on investment loans and cash loans 5 2. 3.
IV. Possible solutions by the local authorities on their own 1. Solutions concerning the expenditures - abolishment of voluntary social and cultural services - making use of leeways while performing obligatory tasks Solutions concerning the revenues - increasing the real estate tax by municipalities - increasing the county levy by counties - gaining inhabitants in order to get more grants from the financial equalization scheme Especially loans - abuse of cash loans 2. 3. A _6
V. State-sponsored programmes of financial support - State sponsored programmes of additional financial support. - Local governments have to curb voluntary services and to raise taxes for several years in order to receive grants from these programmes. - Only one-off makeshift measures but no permanent solutions. A _7
VI. Necessary structural solutions 1. Expenditures - federal government should shoulder more social burdens - costly standards could be lowered Revenues - own tax revenues for counties - right for municipalities to a surcharge on the income tax - reform of the financial equalization scheme Budget? - double-entry bookkeeping is adequate - provisions on loans should be harmonized with debt break 2. 3. A _8
VII. Summary - Several thousand local governments in Germany - Strong constitutional protection. - Severe financial problems due to excessive social expenditures and insufficient tax revenues. - Few opportunities for local governments to improve the situation. - State-sponsored programmes only help on a one-off basis but offer no permanent solution. - Structural solutions depend on a reduction of social expenditures and an increase in taxes. A _9
Contact Univ.-Prof. Dr. Thorsten Ingo Schmidt Faculty of Law Potsdam University Chair in Public Law, especially Constitutional Law, Administrative Law and Local Government Law August-Bebel-Stra e 89 14482 Potsdam Germany Phone 0049-(0)331-977-3284 thorsten.ingo.schmidt@gmail.com 10
