Several districts are turning to the Federal Constitutional Court as a last resort to tackle severe financial issues exacerbated by new responsibilities and inadequate funding. With an estimated shortfall of seven billion euros, local leaders are advocating for reforms while preparing for upcoming elections. The financial struggles highlight the need for a fundamental minimum funding requirement, as districts face mounting deficits and limited revenue sources, prompting calls for significant changes in governance and funding strategies.
Several districts are taking decisive action by appealing to the Federal Constitutional Court, while others are resorting to drastic measures to address their financial struggles. The state of municipal finances has reached a critical point, now becoming a hot topic for election candidates.
For many, the path to Karlsruhe is viewed as a last resort to resolve pressing constitutional questions. The districts of Mansfeld-Südharz and Salzlandkreis in Saxony-Anhalt have recently filed a constitutional complaint, seeking clarity on these issues.
Districts have been inundated with new responsibilities—stemming from the pandemic, migration, and the energy crisis—without sufficient funding to manage these tasks. André Schröder, the district administrator of Mansfeld-Südharz, highlighted this disparity in a press conference last Friday. His district is facing a staggering deficit of 42 million euros this year and is now officially deemed unable to fulfill its obligations.
Forecasts suggest a continued decline in population for certain regions in East Germany.
Current Financial Challenges
The German District Association has reported that districts and independent cities are facing a shortfall of approximately seven billion euros, as the federal government has ceased to fully cover accommodation costs for refugees under citizen money programs. Achim Brötel, the district administrator of Neckar-Odenwald and president of the District Association, has emphasized that districts are becoming ‘guarantors’ of federal policies.
The judges in Karlsruhe are now tasked with determining whether there is a fundamental minimum funding requirement for districts as outlined in the Basic Law. This would establish a baseline of resources necessary for them to effectively execute their responsibilities. These responsibilities are categorized into two types: mandatory tasks, which include the construction and upkeep of secondary schools, district roads, and essential healthcare and social services, and voluntary tasks, which encompass libraries, museums, theaters, and sports facilities.
Although municipalities are not obligated to provide these voluntary services, they do so to sustain a vibrant community life in Germany. In Mansfeld-Südharz, voluntary tasks now represent a mere two percent of the total budget, according to Schröder.
As the Union, SPD, and Greens prepare to unveil their election platforms for the upcoming federal elections in February, the financial struggles of districts remain a pressing concern.
Districts find themselves caught in a challenging position. Unlike federal and state governments, they have limited revenue streams and primarily depend on state allocations and municipal payments, known as district levies. However, these levies cannot be increased arbitrarily, and some municipalities in Saxony-Anhalt have been granted certain rights in such matters. Similar legal battles are unfolding in various other states, some yielding early victories.
In response to the districts’ demands, the states have been cautious. Michael Richter, Saxony-Anhalt’s CDU finance minister, noted this week that allocations have recently seen an increase.
Two districts in Saxony-Anhalt are preparing to lodge a constitutional complaint in Karlsruhe.
Local Governments Take Action
In Saxony, local leaders are employing unconventional tactics to highlight their fiscal challenges. In the Erzgebirgkreis district council, a request for additional expenditures amounting to 14.8 million euros was repeatedly rejected. This funding is crucial for accommodating refugees from Ukraine.
Despite multiple rejections, the council has tasked the district administrator with pushing for reforms in social legislation at both the federal and state levels. Failing to approve the proposed expenditures could lead to significant deficits in the district budget, jeopardizing local self-governance, as stated in the proposal from the CDU, FDP, Free Voters, and BSW.
District administrator Rico Anton, a member of the CDU, has echoed these concerns but preferred a different strategy. He noted that the rejection was not permissible under the law.
Consequently, the district faces the threat of coercive measures. The State Directorate of Saxony has indicated that it may proceed with a ‘substitute execution’ to approve the necessary funds on behalf of the district. However, Anton took preemptive action by authorizing the expenditures through an emergency decision.
In Saxony, districts are grappling with an annual deficit of around 500 million euros, with independent cities adding another 300 million to that sum. Both the Saxon District Association and the Saxon Cities and Municipalities Association are in agreement that the financial situation is precarious.
The Union is advocating for a reform of the debt brake for states, although the anticipated benefits may not materialize.
Election Campaigns Addressing Financial Strain
As election campaigns unfold, parties cannot ignore the financial predicaments facing districts. The SPD, for instance, is proposing a ‘Future Pact Federal Government, States, Municipalities’ aimed at easing the debt brake for states and introducing inheritance and gift taxes to generate additional revenue. A portion of these funds would then be redistributed to municipalities, along with the proposed ‘Germany Fund’ to bolster municipal enterprises.
Federal Chancellor Olaf Scholz has also focused on the issue of historic debts, which are unevenly distributed across Germany, placing immense pressure on many municipalities. Cities in North Rhine-Westphalia alone have amassed approximately 20 billion euros in old debts. For instance, Marl, a city with a population under 100,000, is projected to exceed one billion euros in debt by 2035, as reported by the Marler Zeitung, with current liabilities already surpassing half a billion.
While the current federal government, comprising the SPD and Greens, is striving for a resolution before the end of the legislative term in February, the likelihood of achieving this before the election appears slim. Amending the Basic Law would necessitate consensus with the Union.
The sitting federal chancellor is actively seeking new alliances in the Bundestag ahead of the upcoming elections.
District Administrator Schröder Advocates for Change
In contrast, the Union is promising a reduction in corporate taxes within its election platform, anticipating that this move will stimulate economic growth and lead to increased revenues over time.
However, since tax income is shared among federal, state, and municipal levels, initial revenue may decline for all tiers. The program also calls for greater inclusion in federal legislation and enhanced support for local governments.
A district administrator has voiced that the administrative system in Germany is overwhelmed and calls for a significant shift in Berlin’s approach.
Many local representatives resonate with this sentiment, as they seek not only additional funding or a relaxation of the debt brake but also a reduction in tasks, fewer requirements, and increased participation in decision-making processes.
André Schröder, the district administrator of Mansfeld-Südharz, is among those pushing for these critical changes.