A new study from the Ifo Institute in Munich reveals that only about twelve percent of the funds channeled to local governments originate from the special assets for infrastructure and climate protection. According to Sebastian Blesse, a research professor at Leipzig University, the federal states receive a total of 100 billion euros from these funds, of which they pass on approximately 60 percent to the municipalities. This figure, Blesse noted, does not align with the significant investment role of local governments, which account for over half of all public investments, whereas the states themselves contribute only 17 percent to the total public investment.
Mario Hesse, an economist at Leipzig University and co-author of the study, stated that given the difficult financial situations faced by municipalities across Germany, the funds from the special assets are unlikely to generate substantial additional growth momentum. At best, they may only slow the current decline in local investment.
Specific state distributions show varied rates: North Rhine-Westphalia passes on 68 percent, Baden-Württemberg sends 67 percent, and Hesse and Schleswig-Holstein each allocate 63 percent of the funds. Rhineland-Palatinate supplements the special assets with additional state funding, resulting in a handover rate of 72 percent to the municipalities. Bayern and Saxony have distribution rates ranging from 60 to 70 percent.
Mecklenburg-Vorpommern, Lower Saxony, Saxony-Anhalt, and the Saarland each allocate about 60 percent of the special assets funds. Brandenburg’s rate is lower, at only 50 percent, due to advance deductions for healthcare and digitalization. Thuringia is passing on only 43 percent of its share initially, because its involvement was delayed by a separate financial package for municipalities.
The allocation of these funds to the federal states follows the Königsteiner Key mechanism: one-third based on population size and two-thirds based on fiscal strength within the federal financial equalization system. This structure results in financially strong states receiving a surprisingly high share of the total package, with Hamburg, Bavaria, and Baden-Württemberg together receiving one-third of the 100 billion euros. Furthermore, the distribution of funds within the states to individual municipalities primarily uses flat-rate distribution mechanisms, limiting the reliance on bureaucratic application processes, thereby increasing the likelihood that the capital from the special assets can be quickly deployed on the ground.