Berlin – Cities and municipalities fear high tax losses, a billion deficit threatens – the Corona crisis also hits the municipalities in Germany hard. The German Association of Cities is now calling for a “municipal rescue package”.
President Burkhard Jung told the German press agency: “The corona pandemic is causing serious financial burdens in all cities: revenues are falling, expenses are increasing.”
WHAT FINANCIAL IMPACT THE CRISIS HAS:
The corona crisis has massive economic consequences, Germany will fall into a recession from the perspective of the federal government and leading economists. Many stores had to close to curb the spread of the coronavirus. A relaxation of the massive restrictions is currently not in sight. Orders and sales from many companies have plummeted. This also affects the cities, whose main source of income is trade tax. In 2019, their total volume was 54.6 billion euros.
According to an initial forecast, the city day expects trade tax to fall by more than ten percent this year. “This decline will be much bigger,” said Leipzig Mayor Jung. “Because that’s just a snapshot a short time after the severe shutdown of public life.”
Besides, there were expected slumps in income tax as well as declines in childcare contributions, loss of income in libraries, swimming pools and theaters – many events were canceled during the crisis, theaters have closed. On the other hand, expenditure rose – for example, the cost of recipients of basic security. The bottom line is that the City Day fears that the municipalities will run into double-digit billions in 2020.
WHAT THE MUNICIPALITIES NEED:
The federal government had decided to provide comprehensive economic aid to protect companies and jobs. Jung said that a rescue umbrella for the municipalities must now be opened. Even after the crisis, people wanted to live in cities and towns that could provide their citizens with good services of general interest. There must be a joint effort by the federal and state governments to ensure that the cities can act and that the municipal coffers are liquid. Say: There should be financial aid.
The president of the German district council, district administrator Reinhard Sager, called the situation of municipal finances serious on Tuesday – but it can be kept under control by the federal and state governments through immediate measures. A compensation of reduced income and additional expenditure in the amount of 11.5 billion euros is necessary by May. “However, if this does not happen, counties, cities and municipalities will soon have their backs to the wall.”
THE DEBATE ON OLD LIABILITIES:
Even before the Corona crisis, there was a debate about relieving local authorities. Finance Minister Olaf Scholz (SPD) had announced that he wanted to support around 2500 financially weak municipalities and transfer their cash loans to federal debt – this should give them more scope for investments in schools, streets, and hospitals, for example.
Jung said that the already critical situation is now getting worse for structurally and financially weak cities. The problem of old municipal debts must be solved. The SPD parliamentary group’s spokesman for fiscal policy, Lothar Binding, said: “We cannot let the municipalities down in this crisis.” The SPD continues to work to relieve the municipalities of old debts.
WHICH FOLLOWS CAN BE DANGEROUS:
In the worst case, cities would have to borrow heavily to cope with the crisis or would be forced to adopt an austerity policy. In concrete terms, this could mean that swimming pools, theaters or libraries would have to be closed permanently. And municipal companies also ran into financial difficulties, said Jung: “For example, transport companies, trade fairs, airports, event centers, ports, spas, zoos, and cultural institutions are sometimes threatened by their loss of income.” Municipal companies should therefore absolutely have access to the liquidity aids and loan programs from the federal and state governments that have been launched for the economy.
The general manager of the Association of Municipal Enterprises, Ingbert Liebing, said: “While municipal baths, for example, immediately feel the financial consequences, the long-term effects on the energy business of the municipal utilities are not yet foreseeable.” Falling electricity sales also lead to less revenue for municipal utilities. “This means there are no funds available to support other areas.” Government aid must be also available to municipal companies if necessary.