Financial distress in Baden-Württemberg: municipalities are at the tipping point!

Financial distress in Baden-Württemberg: municipalities are at the tipping point!

The financial crisis in the municipalities of Baden-Württemberg continues to worsen. A current report from the district council shows that of 35 districts, a whopping 31 are in the red. The district council president Joachim Walter is already warning that the municipalities have reached the “tipping point”. What is particularly worrying is the forecast that an additional 110 million euros are expected to be in the red by the end of the year. These alarming developments have forced numerous districts to take on new debt or reduce investments, while 25 of them are able to draw on existing reserves. According to SWR, a crisis meeting with the state government is scheduled for this Friday to discuss solutions.

The causes of these financial difficulties are diverse. Cost increases, particularly in the social sector, clinics and local transport, are putting a strain on municipal budgets. The most affected districts include the Main-Tauber district, Rems-Murr district, Calw, Freudenstadt, the Rhein-Neckar district and Lörrach. In this context, Walter not only calls for support from the state and federal government, but also a redistribution of sales tax points in favor of the municipalities. The Baden-Württemberg municipalities' share of sales tax currently amounts to around 1.1 billion euros.

Relief measures and investment funds

In May 2023, the state government promised initial aid amounting to around 3 billion euros to support the municipalities. In addition, the Municipal Investment Fund (KIF) helps to improve the financial situation of the municipalities. This fund, which has had a volume of 1,115 million euros since 2021, supports important construction projects such as schools, hospitals and renovations. The funds are made available according to strict funding guidelines, which were drawn up in collaboration with municipal associations and ministries, as Baden-Württemberg Finance explains.

A municipal investment allowance (KIP) of around 1.3 billion euros is also expected for 2024. This flat rate is intended to help municipalities improve their general investment capacity without being tied to a specific use. In particular, poorly performing municipalities benefit from additional funds made available through the equalization fund. The distribution of these funds is decided by committees at the regional councils, most of which are made up of local representatives.

Federal support

Financing municipalities is not just a state issue. The Federal Ministry of Finance emphasizes that the states are responsible for adequate financial resources for municipalities. At the same time, the federal government is making an important contribution to strengthening the municipal infrastructure. The federal government has increased support for financially weak municipalities through various funding programs, which can mean a high funding rate of up to 90 percent.

The change in the municipal financial landscape requires not only state support, but also innovative concepts to ensure the financial ability of cities and municipalities to act. The pressure on municipalities, especially in times of rising living costs and general inflation, will continue to increase. Only through cooperation between the federal, state and local authorities can a course be maintained that secures public services and local self-government in the long term.