A New Dawn for Local Governments: Overcoming Crisis and Investing for the Future
Municipalities require monetary assistance, as urged by Slawig.
I'm thrilled about the new federal government acknowledging municipalities as equal partners and taking steps to help them during the current budget crisis. Now we're facing the real test of their commitment - turning warm words into tangible actions, echoes the long-standing city official.
The federal finance minister has introduced a bill to alleviate the economic strain by lessening the tax burden: "This move is commendable, considering the current economic downturn. However, the proposed tax reduction will lead to substantial revenue losses for municipal budgets. Last year, municipalities faced a deficit of over 24 billion euros, and a similar scenario is expected this year."
The budget crisis has impacted most municipalities, including ours, which must come up with a new financial equalization plan this year. I'm apprehensive that this will necessitate savings of one billion euros - double what was achieved through the last financial equalization plan from 2012 to 2021. Thus, it's crucial for the federal government to offset the losses of municipalities to prevent further deterioration of the municipal budget crisis. I anticipate the state government to advocate for this demand in federal council negotiations and fight for it fiercely there.
Given the municipal budget crisis, there's a risk that investments by municipalities will again dwindle. Yet, reducing investments is far from ideal as it's vital to address the maintenance backlog of municipal infrastructure. The new federal special fund, with 100 billion euros to be handed to the states and municipalities, is a much-needed lifeline for municipal investments. I expect North Rhine-Westphalia to distribute a large portion of this amount to municipalities in an efficient, uncomplicated process with lump-sum allocations and minimal bureaucratic red tape.
For municipalities, it will be a significant challenge to effectively and targeted use these additional funds - as the federal government mandates - for increased investments. Even today, most municipalities struggle to execute investment programs within the cost and time constraints. This is clearly evident in Wuppertal, where the new school construction offensive will only add to the already overburdened building department.
The apparent "management and organizational problems" of the GMW have led Slawig to advocate for structural measures to ensure the federal funds are utilized swiftly and efficiently. In this context, the demand for a school construction company, as proposed by the CDU, seems increasingly relevant. Many municipalities in North Rhine-Westphalia have already embraced this approach, and our city should join them.
Some Insights:
While the federal and state governments are under constitutional spending limitations, adjustments have been made to offer more budgetary flexibility. This may help stabilize intergovernmental transfers and programs backed by federal and state budgets, indirectly benefiting municipalities. Moreover, Germany employs a fiscal system that combines revenue redistribution and local business tax collection to cushion municipalities against revenue shortfalls due to tax cuts (when it occurs). Additionally, Germany may consider encouraging municipal borrowing and innovative finance mechanisms, such as municipal bonds and public-private partnerships, to help municipalities mobilize extra resources for investments despite tax revenue reductions [1][2][3][5].
Contending with the budget crisis, reduced investments by municipalities could exacerbate the maintenance backlog of municipal infrastructure, emphasizing the need for the federal government to alleviate the strain by facilitating access to funds for infrastructure investments. Politically, it's crucial for the state government to fight for the offset of municipal losses in the federal council negotiations, given the projected increased savings required in the upcoming financial equalization plan.
In the realm of business, the federal government's proposal of a special fund with 100 billion euros could prove instrumental for municipal investments, necessitating efficient and uncomplicated distribution processes to minimize bureaucratic red tape. Furthermore, the adoption of innovative finance mechanisms, such as municipal bonds and public-private partnerships, could help municipalities secure additional resources for investments despite tax revenue reductions, ultimately benefiting the broader general-news landscape.
