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Germany

German Cities Issue a Plea For Money

Confronted by a huge drop in tax revenues and a troubled economy, German cities are running up huge deficits, and now they are crying out for help.

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Budgetary clouds cast a shadow over German financial center Frankfurt.

On the surface, Petra Roth sees prosperity when she looks over the skyscraper-filled skyline of Frankurt. But that is only on the surface. Once she takes a deeper look, particularly at the city government's budget, she sees something that resembles poverty.

"Our budgetary situation is a catastrophe," Roth told reporters on Monday. And when she speaks of "we," Roth is talking not only about Frankfurt, Germany's financial capital, but also about the state of city budgets across the country.

Petra Roth

Petra Roth

To sound the alarm about the state of affairs, Roth issued an appeal for help to federal officials this week. "Without quick action by federal and state officials, we will soon have to bury the self-administration of German cities," said Roth, who issued her appeal in her function as president of the Association of German Cities.

Anatomy of a crisis

As part of the appeal, the association issued a number-filled analysis that detailed the funding woes that have been caused by a mix of tax law changes over the years and the country's anemic economy:

  • First, the total amount of revenues that flow from the cities' primary source of revenue -- the trade tax that applies to businesses -- has decreased by €3.8 billion ($4.1 billion) since 2000.
  • Second, the costs of such social services as welfare have been climbing -- with increases totaling about 5 percent last year alone.
  • Third, the total deficit of German cities hit €6.65 billion last year and may rise to a record €9.9 billion this year.

    But the crisis is nothing new to Josef Schmid, the city treasurer in the southern German city of Schwäbisch Hall. Since 2000, Schmid has watched the revenues generated by the trade tax drop nearly 74 percent in his city. That is the second worst decrease experienced by a German city, according to the association.

    "It is a really difficult situation," Schmid told DW-WORLD on Tuesday. "You have to examine everything and ask: 'Do you need this or don't you need it?"

    As a result of this examination, city officials have taken emergency action to curb their expentitures. In one action, they decided last year not to fill 120 jobs that became vacant, including 40 full-time positions. They also jacked up the fees for city services. Monthly kindergarten fees were doubled to €60 for a family's first child, and cemetery fees were raised 60 percent.

    But Schmid said the end was not in sight. "It remains difficult," he said.

    Frankfurt faces fall in revenues

    Roth, too, can tell a similar tale. The amount of trade taxes Frankfurt has had to turn over to federal authorities has tripled since 1992 to €150 million, she said.

    To ease the shorfall, Roth is urging the federal government in Berlin, which is encountering money troubles of its own, to allow the cities to keep an additional €2.3 billion from the trade tax. Such an immediate injection of cash would allow cities to carry out much-needed improvements in their infrastructure, she said.

    But a spokesman for German Finance Minister Hans Eichel said federal officials were unwilling to provide the assistance right now. Instead, they want to await the work of a commission that is to complete its work on a sweeping financial reform proposal for German cities this spring.