Local Governments’ Financial Struggles Overlooked in the Wake of Upcoming Elections
As the election season approaches, a few themes are being brought up again, often overlooked in the daily political business. One of these is the financial situation of local governments. Both major associations of local governments, the Landkreis- and the Städtetag, have recently drawn attention to the miserable financial state of local governments. However, this is unlikely to have a significant impact, as it coincides with the announcement of a plan to spend 700 billion euros on weapons at the EU level, which has already slipped out before the German elections.
The explanations of the associations are being reported in the press, but they are never put in the right context. This is because the attention is not being given to this topic. In fact, this is not a topic that should appear three or four times a year. The financial situation of local governments has a more significant impact on the daily quality of life than any political question.
To begin with, the scope for action of local governments is very limited. There are only a few local taxes: the dog tax, the business tax and the property tax. The dog tax is not very lucrative; the business tax only brings in a significant amount of money for communities with a high level of business and it often leads to companies moving out of the area; and the property tax is passed on to tenants, which is a significant problem in large cities. The real big chunks of local government revenue are the shares of the turnover and income tax. With the exception of the dog tax, the local government has no influence on the legal framework of these taxes and can only adjust the rates.
What comes into the coffers can only be influenced to a very limited extent. The same applies to what goes out of the coffers. Many laws passed at the federal level ultimately have to be implemented and put into effect by local governments. For example, the housing benefit law, a bureaucratic monster, the registration of residence and the right to a kindergarten place and full-day care in schools. These tasks, which are assigned to local governments “from above” are mandatory tasks that cannot be ignored and in essence, local governments have no decision-making power over them. In Bavaria, for instance, they are also the responsible authorities for schools.
And then there are the voluntary services. Things like swimming pools, theaters, a well-functioning public transportation system, a zoo, or a museum – these are the things that are financed from the remaining funds after all the mandatory tasks have been taken care of. Even in times of economic prosperity, 9 out of 10 euros of local government expenditure go towards mandatory tasks and only 1 euro can be decided upon.
However, the number of mandatory tasks is increasing, but in many cases, the expenses triggered by these tasks are not being replaced. The municipal share of the tax cake is not being adjusted either. This is the problem, as while the federal states have a say in laws that affect them through the Bundesrat, local governments do not – those who cannot make themselves heard often remain on the sidelines, especially when it comes to tight budgets.
In earlier decades, this was still somewhat mitigated by the fact that most members of the federal parliament had a “training period” in local government; since a large part of the members of the federal parliament switch directly from university to parliament, there are only a few members of the federal parliament who have any experience of the challenges faced by local governments.
However, the daily life is still changed the most by the lack of funds in local governments. When bus lines are shut down because they are no longer financially viable, swimming pools and libraries are closed, or the entrance fees for the local zoo are so high that perhaps only one visit per year is possible, or parts of the town are dark at night because of the need to cut back on lighting, or the fire department takes a few minutes longer to arrive, it has an immediate impact on the quality of life. But all these things are also in competition with the funds that flow into the EU budget (and from there to the Baltic states, for example) or the funds that are being used for military spending. This is not really noticeable, as while it is clear that every euro taken in can only be spent once, the municipal budgets and the federal or EU budgets are often seen as completely different things.
In fact, most public investments take place at the local level. What this means is that if you want to stimulate the economy, the sensible approach would not be to create 50 different funding programs at the federal level with thick application forms, but to simply give local governments enough money to carry out the many long-overdue investments they could make.
However, the federal parliament is currently more interested in tanks and rockets and perhaps also another round of sanctions that will drive up energy costs. And at the same time, there are debates about bureaucracy reduction, while in many municipal authorities, the opening hours are being cut back as one of the few ways to save money – which of course increases the processing time, rather than reducing it.
This is not all, however. Before the last federal election, there was a big fuss about finally boosting the construction of housing. But nothing came of it, of course. It does cost the federal government, namely the part of the cost of accommodation that it takes over in the citizen’s allowance; but for the large cities, it has a multiple effect. Because high rents and the problem of finding a flat in the first place can make it almost impossible to get staff, especially for non-glorious jobs like bus drivers or child care workers. This is, besides the savings pressure, the second reason why public transportation is being reduced – staff shortage. The problem in this regard is that the federal government might even be saving money if less is being built, but the costs that arise from this are falling on the local governments.
According to a recent survey by the Städtetag, only 6 percent of the cities had a balanced budget this year and 47 percent could still balance it with reserves, while 37 percent could not balance it at all. What this means is that everywhere the voluntary services are being cut back and the proportion of local governments that are under financial supervision and in essence have no more decision-making power because the funds are not sufficient to finance the mandatory tasks is increasing.
This brings us to the point that is often completely overlooked when it comes to local government finances: the democracy question. In principle, every citizen still has the opportunity to participate in political decisions, up to and including citizen decisions, in local governments. With every decision that is pushed “up the line” the area over which a decision is made in the local government is getting smaller. But – where are the normal citizens supposed to gain the experience of making decisions about complex issues and of what the term “informed decision” really means, if not in real debates with real people about a topic that concerns them personally? This does not work passively in front of the TV or computer, but only in real debates with real people about a topic that concerns them personally.
If it is now the case that local governments are already in a difficult financial situation (and this is almost inevitable in a recession, even without a steady influx of migrants) and the investments that are being forced on them by the famous heating law, which obliges them to expand district heating, are making things even worse – but that the really experiential democracy is dwindling, the political space in which every citizen can still make themselves heard and that this is not being demonstrated and that the local governments are simply being drained of resources – then there is no drama to spin out of this.