After the crises of recent years, it is becoming increasingly difficult for municipalities in Germany to make the necessary investments, according to a study. "The permanent crisis mode threatens to slow down the climate transformation," said Fritzi-Köhler Geib, Chief Economist of the state-owned promotional bank KfW on Monday at the presentation of the annual KfW Municipal Panel.
Cities, municipalities and districts proved to be surprisingly crisis-proof and closed last year with a total financing surplus of 2.6 billion euros. However, the surpluses have become smaller and smaller over time. Strong price increases and rising interest rates are also dampening expectations. "Financially weak municipalities in particular have to postpone longer-term investments in crises in order to alleviate the acute financial hardship," Köhler-Geib explained. "But even financially strong municipalities are reaching their limits in view of the multitude of challenges."
According to the survey of municipalities with more than 2000,51 inhabitants, 22 percent expect a rather disadvantageous development of the financial situation and a further 57 percent a very adverse development in the coming years. Treasurers are particularly worried about the rise in interest rates, which make borrowing more expensive. The majority (30 percent) expect credit conditions to deteriorate significantly. 860 percent of the more than <> participating municipalities stated that they were also compensating for the rising costs through savings, including investments.
Are the tasks properly distributed?
However, further postponement of municipal investments would be problematic in view of the challenges posed by climate change and digitalisation, according to KfW. "The various crises in close succession show that we need a municipal financial system that simultaneously guarantees day-to-day business, transformative challenges such as climate protection or digitalisation, and acute crisis management," said Köhler-Geib. The question arises as to whether tasks and their financing are properly distributed in the current system.
As in previous years, there are investment backlogs, especially in schools, roads and administrative buildings. According to projections, the backlog of the overall investment volume perceived as necessary to bring the infrastructure up to the level required today increased slightly last year by almost 4 percent to around 166 billion euros.
43.1 billion in investments
According to the survey, municipalities are planning investments of 43.1 billion euros for the current year. The increase of 4.4 percent is below the current inflation rate of more than 7 percent.
According to KfW's projections, the investment needs of municipalities in climate protection alone amount to around EUR 5.8 billion per year. Most recently, cities, municipalities and districts spent a total of EUR 3.9 billion on climate protection and adaptation. The municipalities themselves also expect higher spending, as a preliminary evaluation of the municipal panel showed. However, more than half (60 percent) assume that they will only be able to finance a small part of the additional investment from their own budget.