The German federal cabinet has approved a draft bill to amend the Basic Law regarding municipal old debts.
Federal Finance Minister Jörg Kukies (SPD) stated, “We want to create a legal framework that allows the federal government to support the affected municipalities in resolving their old debt issues, so that they can once again make the necessary investments in kindergartens, schools, or public transportation.”
The cabinet’s decision paves the way for the federal government and the states to jointly take over municipal old debts. This could lead to cost savings through the federal government and states financing the liquidation of debts at a lower cost, Kukies added. It now rests with the parties in the Bundestag and the states to continue this path, which is generally supported by all parties involved, Kukies said.
The draft bill proposes a new Article 143h of the Basic Law, which would allow the federal government to take on half of the debt relief volume of each state if the state has fully discharged its municipalities from their excessive liquidation credits, totaling 31 billion euros, by December 31, 2023. This could also include excessive liquidation credits that were part of a state’s debt relief program and did not exist at the municipalities by December 31, 2023.
To prevent the buildup of new liquidation credits, the states are obligated to take “suitable budgetary and municipal law measures”under Article 143h, Section 2. The special situation in the city-states of Berlin, Bremen and Hamburg will also be taken into account. In these states, there is no direct equivalent of the municipal liquidation credit, so a fictional amount of municipal liquidation credits will be used as a basis, comparable to the debt situation in German major cities (Article 143h, Section 3).
The Service and Commercial Union (Verdi) welcomes the cabinet’s decision on taking over municipal old debts: “The old debts weigh heavily on the finances of many municipalities. Debt relief is essential to restore the operational capabilities of the affected municipalities”said Verdi’s chief, Frank Werneke, on Friday.
“The restoration of the financial capabilities of the municipalities is an investment in a functioning state. For most citizens, state action is most directly experienced at the local level: whether in the citizen’s office, at consultation hours, in the processing of applications, or in many other state services provided by the municipalities”Werneke said. “Financial relief for the municipalities dampens frustration and anger ‘at those above’ and strengthens democracy”Werneke added.
Municipal old debts do not respect state or party boundaries: “The factions of all democratic parties in the German Bundestag are therefore called upon to assume their responsibility and pass the constitutional amendment in the current legislative period”said Werneke. “Given the required two-thirds majority in the Bundestag and the Bundesrat, this appeal is particularly directed at the CDU/CSU Bundestag faction.