As part of the stimulus package, money for cities is also being considered. But the planned assumption of old debts by Finance Minister Scholz would only reach individual municipalities and federal states.

The city of Essen has high liquidity loans and would benefit greatly from assuming debt.

EA billions in municipal debts according to the plan of Federal Finance Minister Olaf Scholz (SPD) missed the majority of the approximately 11,000 municipalities in Germany. As a result of the corona pandemic, almost every community is experiencing lower tax revenues and higher expenses for health authorities. But not every municipality has previously accumulated high liquidity loans, which are actually intended as a kind of overdraft facility for short-term financing for cities. Scholz names the number of around 2,000 municipalities that he wants to relieve around 45 billion euros as part of a Corona aid package: Together with the federal states, the federal government is to take over liquidity loans from the municipalities that amounted to more than 100 euros per inhabitant at the end of 2019.

The debt level is mostly low, only around 650 municipalities had high cash loans of more than 1000 euros per inhabitant in 2017. As the top of the mountain of debt, the North Rhine-Westphalian cities of Essen, Oberhausen, Dortmund, Duisburg, Wuppertal, Hagen and Mülheim an der Ruhr together had cash advances of around 10 billion euros in 2017. These seven cities are to receive a significant part of the billions in aid from Scholz with around a fifth.

The Freiburg economist Lars Feld, who rejects the assumption of debt by the federal government, accuses Scholz that the finance minister only helps very certain municipalities. “I even think it’s pretty bold to include that in the Corona package,” he told the FAZ. “Overall, the municipalities don’t have too much debt, but the City Council regularly manages to put the financially weakest cities in the shop window.” Municipalities are much better off financially than the federal states or the federal government, said the chairman of the council of experts on the assessment of macroeconomic development.

Reward for mismanagement?

He sees the problem in the state that gives its municipalities too little money. “The federal states that paid too little attention to their municipalities and set other priorities in the past decades are now being rewarded.” The majority of municipal liquidity loans are in North Rhine-Westphalia and Rhineland-Palatinate. Both countries should better equip their municipalities, says Feld. He cites aid to communities in Hesse and Lower Saxony as a model, while other states with better financial supervision have prevented the communities from having too much debt.

In addition to North Rhine-Westphalia and Rhineland-Palatinate, Saarland will also benefit from the planned debt aid. According to an estimate by the Bertelsmann Foundation, the takeover of municipal loans of around 22 billion euros by the federal government varies greatly between the federal states, which are also supposed to take out half of the municipal liquidity loans: Federal aid for liquidity loans for municipalities in Saarland amounts to 945 euros per inhabitant , in Rhineland-Palatinate to 676 euros per inhabitant and in North Rhine-Westphalia to 657 euros per inhabitant. In contrast, it is 118 euros per inhabitant in Lower Saxony, 101 euros per inhabitant in Schleswig-Holstein and less than 50 euros per inhabitant in Bavaria, Baden-Württemberg, Saxony and Thuringia. The federal states must agree to the old debt aid, which Saxony, Hesse, Baden-Württemberg and Bavaria have so far spoken out against.

Much less help for tax losses

In addition to taking over the old debts, Scholz wants to relieve the municipalities of trade tax decreases with around 12 billion euros, for which the state is to contribute half. The federal aid for the trade tax of 6 billion euros varies less widely and ranges from 95 euros per inhabitant in Hesse, 84 euros per inhabitant in Bavaria to 42 euros per inhabitant in Mecklenburg-Western Pomerania. The calculation is based on cash advances from 2017 and a 26 percent decrease in trade tax income.

Economist Lars Feld points out that the regions there will receive up to 40 billion euros by 2038 for shutting down lignite power plants in North Rhine-Westphalia, Brandenburg, Saxony-Anhalt and Saxony: “The coal compromise is probably counterproductive for climate protection, but regional political aid worth billions for North Rhine-Westphalia and East German states. Then why a debt assumption by the federal government? “