The cities, municipalities and districts in Germany generated historic surpluses in 2017 and 2018. Thanks to the sustained strong economy, taxes, investments and reserves are rising, while cash loans are shrinking. Nevertheless, the economic differences between strong and weak municipalities are becoming ever greater.
In 2018, German cities, municipalities and districts achieved surpluses in their households for the seventh year in a row. For the first time since reunification, the municipalities in all territorial states of the Federal Republic were up in 2017 and then again in 2018 overall. Tax revenues and reserves reached new record levels. After decades of growth, there are also signs of a trend reversal in the case of cash loans, to a certain extent the overdraft facility of the municipalities. But behind the good overall numbers there is a growing gap. This is shown by our municipal financial report 2019. As the analysis shows, there is an increasing gap between tax revenues, investments, reserves and local government debt.
Regional differences are striking. While cities, municipalities and districts are doing above average, especially in Bavaria and Baden-Württemberg, the economic situation of many municipalities in North Rhine-Westphalia, Rhineland-Palatinate and Saarland gives cause for concern.
Business activity increases the differences in tax power
Nationwide, the municipalities have been in a phase of extraordinary stability since 2012, due to a sustained strong economy. This is reflected in the municipalities’ tax revenues, which have increased by 36 percent since then. Although tax revenue grew across the board, the increase was all the higher in the economically strong municipalities. The already existing regional differences worsened. In 2018, the municipalities in Hesse, Bavaria and Baden-Württemberg were at the top of tax revenues. The East German municipalities, on the other hand, achieved an average of only 61 percent of the West German level.
Trend reversal in cash loans, but regionally critical values
The cash advances are considered to be the central crisis indicator. Intended by the legislator as a means of bridging budget gaps in the short term, they have become a permanent financing instrument in many municipalities. As a rule, they go hand in hand with high social spending and tax rates, low investments and generally little room for maneuver for local politics. Nationwide, these loans peaked in 2015 at around 50 billion euros. After more than 20 years of continuous growth, a trend reversal set in in 2016, as a result of which cash loans fell to currently 36 billion euros.
However, the burden of cash advances varies significantly between countries. Around half of the federal German municipalities are almost free of cash advances; they are lowest in Bavaria, Baden-Württemberg, Thuringia and Saxony. The state of Hesse set up the so-called Hessenkasse in 2018 to support its municipalities in debt relief. In the states of Saarland, Rhineland-Palatinate and North Rhine-Westphalia, however, there are still threateningly high stocks. In 2017, 19 of the 20 municipalities with the highest cash loans were in Rhineland-Palatinate and North Rhine-Westphalia.
20 municipalities with the highest cash advances per inhabitant in 2017
Ranking name cash advances
in Euro your EW
1 Pirmasens (independent city) 8.239
2 Oberhausen (independent city) 7,634
3 Kaiserslautern (independent city) 6,843
4 Mülheim an der Ruhr (independent city) 6.241
5 Hagen (independent city) 5,763
6 Remscheid (independent city) 5.314
7 Zweibrücken (independent city) 5.228
8 Ludwigshafen am Rhein (independent city) 4,638
9 Kusel (complete circle) 4,222
10 Trier (independent city) 4.178
11 Essen (independent city) 3.864
12 Wuppertal (independent city) 3,691
13 Worms (independent city) 3.630
14 Herne (independent city) 3,605
15 Solingen (independent city) 3,374
16 Frankenthal (Pfalz) (independent city) 3.230
17 Saarbrücken Regional Association 3.151
18 Mönchengladbach (independent city) 3.115
19 Mainz (independent city) 3.114
20 Birkenfeld (district) 3,028
(Source: Guide to the municipality)
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