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Germany

Germany: Wealthy in Wolfsburg, down and out in Dortmund

Most German municipalities are suffering financially. And the gap between the well-off cities and the notoriously broke is widening.

The Association of German Cities has criticized the fact that the gap between wealthy and poor municipalities is widening. At the association's annual general assembly, being held June 10 and 11 in Dresden this year, some 1,000 delegates are requesting more funding from the federal government. City and municipal leaders argue that their ability to govern themselves independently hangs in the balance. The reasons for the diverse destinies vary by city.

Wolfsburg's stroke of luck

Cities and municipalities receive income from a number of sources. The most important source tends to be corporate taxes. Whoever has a major company at hand, as Wolfsburg does with Volkswagen, doesn't have to worry about balancing budgets. The city receives an average of more than 2,000 euros ($2,225) in corporate taxes per resident - the highest in Germany.

When industries leave

Bochum

Bochum has its amenities, but jobs are no longer one of them

Legislators have to impose restrictions on expenditures. Above all, social benefits have to be paid for. How financially robust communities can become weak within just a few short years can be seen throughout the Ruhr, home to Dortmund, Duisburg, Essen and several other midsize cities. The structural transformation of the former mining region cannot compensate for what has been lost. Workers have become welfare recipients. This is exemplified right now in Bochum. In the early 1960s, Opel's factories began employing thousands of former miners. But now, instead of having 20,000 employees, Opel employs roughly 1,000 workers.

Ailing NRW

North-Rhine Westphalia, Germany's most populous state, is considered to be an ailing giant. Just 30 DAX listed companies make their homes along the Rhine and Ruhr rivers, nevertheless their per capita economic output ranks fourth among German states. However, 15 of Germany's poorest 20 cities can be found in North-Rhine Westphalia. Less than a dozen of NRW's 400 municipalities are even solvent.

When debt exceeds income

The biggest burden is reserved for the social sector. This year, municipalities will have to come up with over 50 billion euros for social costs. In plain terms: Increases in social spending in 2014 have outstripped increases in tax revenue.

No more money for investments

Sixty percent of all public investments in Germany are paid for by cities and municipalities. Yet less and less money is available. In the 1970s, the average investment percentages for cities and municipalities were about 30 percent of the total annual budget. Today, investment hovers at about 10 percent.

Taking out loans to pay the bills

In emergencies, city treasurers grasp for the last straw and bank loans are taken out to ensure that cities can cover the expenses that they are legally bound to pay. These "ways and means advances" are becoming increasingly common, and now total some 50 billion euros. In comparison, 10 years ago municipalities "only" had to borrow 20 million euros from the banks. That was alarming enough at the time.

Unidentical twin cities

In the shadow of Frankfurt, the eurozone's financial capital, the cities of Offenbach and Eschborn are heading in opposite fiscal directions. On the south bank of the Main River, Offenbach is struggling for survival after the loss of its old staple industries: chemistry, metal, leather. One in eight residents is unemployed. Offenbach's chances of survival without help are dim, and the city has sought protection under the state of Hesse's municipal rescue fund. Since then, Offenbach's largest source of income has been the cash that it receives from the state. The opposite is true to the northwest, in Eschborn, on the outskirts of Frankfurt. The city of 20,000 residents has reserve assets of about 300,000 euros. Deutsche Bank, Deutsche Telekom and Vodafone have all set up sprawling corporate complexes here - and, despite paying lower-than-average corporate taxes, have been a blessing to Eschborn.

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