Help for municipalities: The illusory billion dollar plan by Olaf Scholz

Olaf Scholz (SPD) had chosen a provocative place for his advance. In the Willy-Brandt-Haus of all places, the Federal Minister of Finance announced his new rescue plan for the municipalities at the weekend. With this appearance in the Berlin SPD party headquarters instead of the Ministry of Finance, Scholz symbolically reinforced the social democratic handwriting of his project and at the same time distinguished himself from the coalition partner. The shrewd top politician must have factored in this double effect, but also at the price that he can hardly expect approval from the Union, especially since he is said to have consulted no one from the CDU and CSU beforehand.

For about a year now, Scholz has been trying unsuccessfully to convince the grand coalition and cabinet to repay old debts. “I announced that I would like to make suggestions. I believe that now is the right time to discuss them, ”said Scholz in the Willy-Brandt-Haus.

The financial resources of many cities and municipalities are already tight, and due to the Corona crisis, the municipalities must now expect considerable reduced income, according to his tripartite paper, which is available to WELT. “This protective shield should not only bring cities and municipalities through the currently difficult situation, but also enable them to do their jobs even better,” said Scholz.

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The Federal Minister of Finance is planning acute emergency aid and a one-time assumption of the old debt. Half of the cost of almost 57 billion euros is to be borne by the federal government. The other half would be in the federal states, which are responsible for funding the municipalities anyway. Scholz regards this as an “act of solidarity”. Especially in these times of crisis, it is important that “our cities and municipalities are able to act and do not have to reduce their expenditure and benefits”.

This reasoning may at first sound plausible, after all, cash advances in the amount of more than 45 billion euros burden municipalities nationwide as old debts and limit their ability to act in the long term. But René Geißler from the Bertelsmann Foundation, one of the best-known experts in municipal finance, sees Scholz’s plan critically. The old debt question is important, but not urgent at the moment.

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The focus on revenue this year and next is much more important. “Cities need fresh money to prevent nationwide austerity measures,” said Geißler WELT. The Scholz proposal also creates unnecessary hurdles in implementation. State treaties with each individual federal state are necessary. In the second step, the countries would then have to decide internally how they would distribute the money to their municipalities. “This procedure is ongoing and will lead to new arguments,” said Geißler.

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Scholz promptly rejected opposition from the ranks of the Union, also with the indication that the Basic Law had to be changed for the old debt regulation and one was asked where the necessary two-thirds majority in Parliament should come from. The Union will not help him in any case, that much is clear.

The budget expert of the Union parliamentary group in the Bundestag, Eckhardt Rehberg (CDU), sees the project merely as a “party-political initiative”. He points to more urgent financial priorities for the federal government and emphasizes that federalism alone is responsible for the financial resources of the municipalities. “We have to wait and see how the situation develops in the Corona crisis. According to initial forecasts, significant deficits in social insurance are expected, ”said Rehberg.

It can be assumed that for expected deficits in unemployment, pension and long-term care insurance in the next few years “an additional three-digit billion amount will have to be taken from the federal budget”. Rehberg also pointed out that aid for municipalities would be included in the planned economic program anyway.

“As a Union, we finally want to see a drop in the till from Scholz. What else is there for the federal government in terms of social insurance, Europe and the stimulus package? How high should the new debt be? Before that, we cannot seriously assess the plans, ”said Rehberg.

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The lack of understanding of the initiative is also due to the fact that the federal states alone are responsible for funding the municipalities. And it is by no means the case that the federal states have less funds available than the federal government. On the contrary: according to the latest tax estimate, you can expect higher income for the first time this year, since the corona crisis hits the federal government much harder than the federal states. In 2020 and 2021, he will have to make do with 76 billion euros less tax revenue than the estimates forecast in autumn. For the federal states, the expected minus only adds up to 49 billion euros.

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The centrifugal forces in the grand coalition are getting stronger. The Union suspects that Scholz wants to profile himself and his party before the local elections in North Rhine-Westphalia this autumn and the Bundestag election scheduled for 2021. You have to know: North Rhine-Westphalia, together with Rhineland-Palatinate and Saarland, is the overwhelming majority of the roughly 2,000 municipalities in Germany that suffer from high old debts. The municipalities in Bavaria, Baden-Württemberg, Saxony and Thuringia, on the other hand, are practically debt-free.

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Bundestag

There are clear lines between critics and supporters between the parliamentary groups. The FDP shares the Union’s criticism. “The municipalities need help, but a flat-rate debt assumption or watering can help would be the wrong way,” said FDP budget expert Otto Fricke. The municipalities must be helped with investments and not with the assumption of debt. In any case, municipalities should get a higher share of sales tax and be less dependent on the fluctuating trade tax, which in times of crisis is “the Achilles heel of municipal finances”, says Fricke.

In the AfD faction, Scholz’s plan is also critical. “In this situation, tackling the issue of municipal finance is either a mania addiction or a hassle behavior,” said the AfD Group’s spokesman for finance policy, Albrecht Glaser. In the case of structural and regional faults, it is the task of the federal states to install compensation mechanisms and state aids.

The SPD, the Greens and the Left unanimously express a lot of sympathy for the repayment of old debts by the federal and state governments. “The municipal solidarity pact, which Finance Minister Scholz wants to launch, is a massive throw at the right time. Now, however, the federal states must also stand by their financial responsibility for the municipalities, because the municipal solidarity pact can only succeed as a joint effort by the federal government and the states, ”said SPD parliamentary group leader Achim Post.

The first parliamentary managing director of the Green Group, Britta Haßelmann, fears that the crisis will further exacerbate the situation of financially weak municipalities. “Therefore, the federal government must pay special attention to them and solve the municipal old debt problem together with the states as quickly as possible. We need old debt help. Because if we want to ensure equal living conditions in Germany, we have to support these municipalities in the crisis more than ever, ”said Haßelmann. The Left Group sounds almost enthusiastic: “We welcome Olaf Scholz’s proposal and support it. The municipalities must not be let down, ”said Linke Finance Committee member Stefan Liebich.

His push has met with a mixed response in municipalities and countries. “The proposal comes at the right time before the uncertainty grows and before the municipalities have to tackle their budget planning for next year,” said the Mayor of Leipzig, the Mayor of Leipzig, Burkhard Jung (SPD).

Approval came from Rhineland-Palatinate, the Saarland and the most populous state of North Rhine-Westphalia, where numerous cities are over-indebted. Bavaria and Lower Saxony, on the other hand, are critical, especially because of the repayment of old debts. Federal aid is desirable, said Bavaria’s finance minister Albert Füracker (CSU), but “we cannot do anything to pay back old debts to municipalities throughout Germany with Bavarian tax money”.

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Countries that had been responsible and sound for years would be punished. His Lower Saxony counterpart Reinhold Hilbers (CDU) sees Scholz ‘plans as a “contract to the detriment of third parties” and considers a 50 percent participation of the states as “not sensible”.

Olaf Scholz wants to have everything done in November, with the necessary votes in Parliament and the Federal Council. However, a red-red-green agreement is not enough for a constitutional two-thirds majority in the Bundestag. The Federal Minister of Finance needed the Union for this. But that seems illusory.

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