The Saxon Association of Towns and Municipalities (SSG) recently presented a six-point paper which speaks of a "dramatically worsening financial crisis" in the municipalities of the Free State. The Competence Center for Municipal Infrastructure Saxony at the University of Leipzig has now published a paper with the results of its Saxony Municipal Survey, the findings of which are in line with the SSG’s assessment. Why are the municipal coffers in the Free State so empty and why is the investment activity of Saxony’s municipalities even below the East German average? Questions for the financial scientist Dr. Mario Hesse, Managing Director of the Competence Center for Municipal Infrastructure Saxony (KOMKIS) at Leipzig University.
Dr. Hesse, what do you see as the causes of the current very difficult financial situation of Saxony’s municipalities?
The causes are manifold. In recent years, we have seen that the challenges for local authorities on the expenditure side have become ever greater. The consequences of the coronavirus pandemic, the 2022 energy price crisis and cost increases in the construction industry have resulted in additional costs for local authorities. At the same time, municipal revenues have only developed weakly. The general stagnation in economic growth is having a fairly direct impact on local authority tax revenues - both nationwide and in Saxony.
The Competence Center for Municipal Infrastructure Saxony at Leipzig University has now published a paper with the results of its Saxony Municipal Survey. According to your survey, how high is the need for municipal investment in Saxony?
The municipal investment requirement we have calculated is currently around 10.9 billion euros up to 2028 alone. Added to this is another 2.1 billion euros for maintenance measures on existing infrastructure that cannot be directly allocated to the investment area. Together, we therefore assume an infrastructure requirement of around 12 billion euros.
How many local authorities did you survey and how?
We conducted a local authority survey among Saxony’s cities, municipalities and districts, in which around 130 local authorities took part. With around 400 municipalities in the Free State of Saxony, this is a very good result. In a very detailed questionnaire, we asked the municipalities to provide information on investment and maintenance requirements in various municipal areas. We then extrapolate the overall results from this. We also ask the municipalities about current priorities and obstacles that are preventing them from implementing their projects. The methodology allows us to make reliable projections and also to gain deeper insights into the world of infrastructure planning.
What do you think are the reasons why the investment activity of Saxony’s municipalities is even below the East German average?
In the last ten years, investment activity in Saxony’s municipalities has already picked up significantly. The reasons for this lie more in the period from 2002 to 2015, during which time significant savings were made in the investment programs, the keyword being "black zero", and a considerable investment backlog accumulated. With a few exceptions, this finding can be observed nationwide. Local authorities are still busy reducing this backlog and addressing new challenges at the same time. In the meantime, however, the prices for construction services have risen significantly, so that today yesterday’s investment requirements actually have to be financed with new price tags.
What needs to be done to alleviate this situation?
As I said, investment spending has already increased noticeably in recent years. That is initially good news. It is therefore important that this positive trend continues. If, on the other hand, investments were to be cut again, as was the case 20 years ago, requirements would continue to rise. The federal government’s special investment fund, part of which is to go to the federal states and local authorities, is a helpful building block in this respect. At the same time, we have noticed that local authorities are paralyzed by funding bureaucracy. Fast and low-bureaucracy procedures are therefore needed to get additional funding to local authorities quickly. The more generalized, the better. One piece of good news in this context is that the construction industry is prepared to make the additional investments. I don’t currently share the fear that additional billions will cause prices to soar.
