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Municipalities and Infrastructure
Analyses and survey findings on municipal finances and municipal investment, urban and neighbourhood development, adaption of public infrastructure and aspects of fiscal federalism.Full coffers provide a reprieve but the outlook is clouding over
Most municipalities reported a good or even very good budget situation in the KfW Municipal Panel 2019. They were able to plan or even start many investment projects, so according to a nationwide estimate the perceived investment backlog has dropped to around EUR 138 billion, roughly the level of 2015. The surveyed treasuries, however, are significantly more sceptical about their future financial position. Moreover, around one third of investments cannot be realised as planned. So it remains to be seen whether the reduction in the backlog of investment can continue. The KfW Municipal Panel is based on an annual representative survey conducted by the German Institute for Urban Affairs. It covers municipal financial decision-makers in cities, communities and districts and is recognised as an important point of reference in economic policy debate in Germany.
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KfW Municipal Panel 2019 - Summary (PDF, 233 KB, non-accessible)
Focus on Economics
The need for climate action and environmental protection requires German municipalities to invest large sums in infrastructure as well. Municipalities are already deploring a significant backlog of investment and it is unclear how they can finance the necessary investments in enhancing sustainability. Green bonds were developed as a financing instrument to meet this challenge but are almost unknown in Germany’s municipalities. In order for this to change, a number of conditions have to be fulfilled.
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Focus on Economics
In an international comparison, German municipalities have a significant investment backlog, while French municipalities are doing better. The analysis suggests that this cannot be explained by the centralist structure of the French state but by the specific structure of the municipal level. For Germany, that means increasingly delegating funding responsibility to the federal level and introducing one-off special programmes will not provide a long-term solution. Instead, municipalities should generally be given more financial leeway through a clear definition of responsibilities and appropriate allocation of financial resources.
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KfW Municipal Panel 2018
The KfW Municipal Panel 2018 confirms German municipalities’ growing investment needs and limited capacities. Despite the positive economic environment, the perceived investment backlog has risen to EUR 159 billion. The annual surveys of municipal treasuries illustrate the many different challenges facing municipalities. The regional differences between municipalities have become more accentuated, especially as growing needs have not been met with rising investment. The task for policymakers therefore remains to strengthen municipalities’ structural investment capacity so as to ensure good infrastructure across the country.
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KfW Municipal Panel 2018 - Summary (PDF, 114 KB, non-accessible)
Focus on Economics
Cities all over the world are facing major challenges. The smart city is a concept for meeting these challenges. Germany’s smart city initiatives are better than the European average but not in the top group. German municipalities still lag behind considerably in e-government in particular. In order for the digital transformation of Germany’s cities to be successful, they need a clear strategy, sufficient investment capacities and skilled workers.
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The smart city as a solution to municipal challenges? (PDF, 225 KB, non-accessible)
Focus on Economics
Although municipal investment expenditure has increased in absolute figures and the backlog has recently decreased, the share of investment in municipal budgets is trending downward. The shift to other expenditure categories could thus be to the detriment of municipal infrastructure. Ongoing material expenditure merits particular attention: Maintenance activities are necessary but cannot substitute construction investment in the long run as this may result in high follow-up costs. The backlog of investment demonstrates that municipalities continue to have a substantial need for construction investment as well.
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KfW Municipal Panel 2017
The KfW Municipal Panel 2017 has identified a drop in the observed investment backlog of German municipalities. Investment activity is rising but nearing the limits of capacity in many places. Roads and schools remain the areas with the highest backlog. Nevertheless, the surveyed municipalities look to the future with cautious optimism. Municipalities with weak structures and finances continue to have an investment gap, so regional disparities remain.
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KfW Municipal Panel 2017 - Summary (PDF, 53 KB, non-accessible)
Focus on Economics
Many municipalities have a high backlog of investment despite a relatively favourable funding environment, as tax revenues are flowing and lending rates are low. Still, there is no sign of any clear investment surge. The available investment promotion funds are also being used very reluctantly. Critics deplore that municipalities’ planning capacities are insufficient because of excessive staff cuts in the past. This focus provides some relevant facts and arguments. The blanket call for more staff is no solution, however. Rather, processes and procedures also need to be revised in order to strengthen municipalities’ investment capabilities.
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Focus on Economics
The KfW Municipal Panel 2016 has revealed a backlog of investment in the education sector of around EUR 34 billion. At the same time, investment requirements continue to increase. A current paper by KfW Research explains that this backlog of investment can have an adverse impact on educational success in Germany. The trend in municipal school construction activity is not only declining but differs greatly from one federal state to another. There are many reasons for the wide variations. Chief among them, however, are probably the differences in budgetary leeway among the municipalities. All federal levels are therefore called upon to make Germany's education system fit for the future.
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Investment backlog in schools hampers educational performance (PDF, 194 KB, non-accessible)
KfW Municipal Panel 2016
The KfW Municipal Panel 2016 reveals that the observed investment backlog of German municipalities remains at a high level, at EUR 136 billion. Not all municipalities are able to benefit from the good economic environment and the low-interest phase on the credit market. The disparities between municipalities' budgetary outcome, debt levels and investment activity are deepening. Road and transport infrastructure (EUR 35 billion) and the school and education sector (EUR 34 billion) have the highest investment needs. This year's special topic "Education, schools and inclusion" demonstrates that the investment backlog can impair the performance of the school system and hamper the integration of refugee children, for example, as well as the inclusion of children with physical and cognitive disabilities.
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KfW Municipal Panel 2016 - Summary (PDF, 57 KB, non-accessible)
Focus on Economics
The historic dimensions of the refugee numbers lead to organisational problems, acute capacity bottlenecks – and manageable fiscal costs. Over the long term, the influx of refugees requires definitive investments in the future in three key areas: Firstly in accommodation, secondly in schools and daycare. Thirdly, alongside these investments in infrastructure, investments must be made in the human capital of the refugees. Integration into the labour market can only take place with sufficient language proficiency and professional qualifications. This provides an opportunity for an ageing economy which is already reliant on a workforce from abroad.
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Economics in Brief
Too little has been invested in Europe since the financial and economic crisis. This applies to both the public and private sector. A substantial investment backlog has developed as a result. Capital stock is threatened with obsolescence. Competitiveness and potential growth are declining. We identify three approaches to countering this trend.
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Efficient investment for higher growth in the euro area (PDF, 87 KB, non-accessible)
The current statistics do not yet reflect the decision to expand public investment activity. In the second quarter of 2015, real government gross fixed capital formation fell by 2.4 % on the previous quarter, after already falling slightly in the first quarter. But the stage is set for a reversal, with first tangible increases since 2011 anticipated for 2016. We expect the investment needs for housing and integrating refugees to further increase in the coming years, particularly in the municipalities. Local administrations, particularly the building authorities, must have the capacity to meet this challenge. The need for further action in this area is becoming urgent.
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KfW Investment Barometer Germany October 2015 (PDF, 33 KB, non-accessible)
Germany has some scope for public investment without violating the debt brake. In total, the federal government and municipal authorities could undertake additional investments in the region of EUR 150 billion (about 5 % of GDP) in the years ahead, if the government were to abandon budget surpluses that are not required by the constitution. The main arguments in favour of such a move are the fact that Germany trails most other industrialised countries in terms of public investment, the low interest rates and demand for safe forms of investment for retirement provisions.
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KfW-Investment Barometer Germany – Q2 2014 (PDF, 144 KB, non-accessible)
KfW Municipal Panel
The KfW Municipal panel 2014 – a nationwide survey of local governments in urban and rural areas in Germany – produced the following results, among other things:
- Perceived investment backlog falls to EUR 118 billion – nonetheless, the all-clear is not sounded
- Roads and traffic infrastructure are still a cause for concern
- Inadequate financial framework is the greatest obstacle to road construction
- Good situation on the credit market hardly impacts on investments
- Financially weak municipalities are falling ever more behind
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Focus on Economics
Debt and deficits are usually seen as negative – the result of poor financial management. Yet they are market economy instruments and essential to the existence of their counterparts: assets and savings. These instruments allow money to flow from sectors with savings to sectors wishing to invest. So, it is difficult to praise surpluses and assets while at the same time condemning deficits and debt. This Focus on Economics looks at the key relationships.
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Should we feel bad about debt? (PDF, 182 KB, non-accessible)
Focus on Economics
Car sharing started off as a green alternative; it has now proved itself in practice and is growing strongly. Reason enough to investigate its incentive structures and their significance for the energy revolution. Ultimately, car sharing should facilitate a reorganization of the personal transport sector so that it, too, can contribute to achieving the goals of the energy revolution. At the same time, a comprehensive car sharing provision is economically advantageous for many transport users and may even open up entirely new land use options for local authorities.
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How can car sharing help in the energy turnaround? (PDF, 322 KB, non-accessible)
Economics in Brief
The investment backlog in the municipal transport infrastructure amounts to EUR 33 billion. Preservation should therefore take priority over new construction and the need for maintenance should be reduced in the long term.
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Transport infrastructure – the municipalities are in need! (PDF, 227 KB, non-accessible)
Economics in Brief
Energy cooperatives are becoming more and more important for the energy turnaround and offer specific advantages, particularly with regard to citizen involvement and local acceptance. They have adapted their organisational structure to the current conditions. However, these conditions are likely to change again soon. This paper discusses the implications of the potential reform of the German Renewable Energies Act (EEG) for energy cooperatives.
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Energy cooperatives need to professionalise following elections (PDF, 179 KB, non-accessible)
Focus on Economics
Municipalities have a considerable need for conversion and demolition, the demographic change plays a major role. Until 2017, EUR 25 billion should be allocated to conversion and demolition.
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Economics in Brief
The number of very old people in Germany will increase continuously over the coming decades. If these people are to participate in public life without restrictions wherever possible, the municipal and social infrastructure will need to be reconstructed so that it is suitable for the elderly and disabled.
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Municipalities, prepare for old age! (PDF, 174 KB, non-accessible)
KfW-Komunalpanel
KfW-Kommunalpanel 2012 Summary
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KfW-Kommunalpanel 2012 Summary (PDF, 137 KB, non-accessible)
