NRW ensures debt relief: municipalities breathe a sigh of relief!

NRW ensures debt relief: municipalities breathe a sigh of relief!

In North Rhine-Westphalia, significant progress was made yesterday in managing municipal debts. The state government has decided to take over half of the municipalities' excessive liquidity loans. This means that every municipality in the country should not have to have debts of more than 1,500 euros per capita. This unanimous vote in the state parliament is seen as a triumph for the action alliance “For the Dignity of Our Cities”, which has been campaigning for this relief for years. Information about this can be found on the alliance's website fuerdiewuerde.de.

District Administrator Olaf Schade summed up the situation: “It is imperative that the federal government does its part and prevents new municipal debts.” The coalition agreement between the Union and the SPD stipulates that the federal government will contribute half of the states' old debt programs. The deadline for this old debt regulation is December 31, 2023. This initiative is no coincidence, as the financial situation of the municipalities has deteriorated significantly since then. Social spending has increased by over 10% and deficits in core and extra budgets are reaching record levels.

The old debt problem in detail

According to that Federal Ministry of Finance the municipal level suffers from an enormous debt burden. At the end of 2023, the debt to secure liquidity amounted to around 31 billion euros. These are primarily excessive liquidity loans, i.e. loans over 100 euros per resident that could not be used for investments. These loans place a significant burden on municipalities and limit their ability to carry out important tasks and investments.

To counteract this, the draft law, which requires an amendment to the Basic Law, obliges the states to take measures to prevent municipal debt from rising again. Particular attention will be paid to debt relief programs already implemented, which must also be taken into account in city states. The bill is currently in the legislative process and states have until April 11, 2025 to comment.

Development of municipal finances

The action alliance calls, among other things, for an increase in the municipalities' share of tax revenue to 28%, for the state to have a greater share in the municipalities' social spending and for three quarters of NRW's share of the “special infrastructure fund” to be passed on to the municipalities. These demands are not only suitable for improving the current situation, but also for better meeting future challenges.

The reform of municipal finances in North Rhine-Westphalia is generating great interest. This comprehensive strategy is intended not only to find a solution to the acute problems, but also to create a basis for a sustainable financial policy in the future. This is the only way municipalities can continue to be there for their citizens and make necessary investments.