A recent study from the Ifo Institute in Munich reveals that only about twelve percent of the funds from the special state asset for infrastructure and climate protection ultimately reach local municipalities. According to Ifo research professor Sebastian Blesse from Leipzig University, while the federal states collectively receive 100 billion euros, they only pass about 60 percent of this amount on to the municipalities. This allocation is disproportionate considering that local authorities account for over half of all public investments, while the states themselves contribute only 17 percent of total public spending.
Mario Hesse, an economist at Leipzig University and co-author of the study, suggested that given the difficult financial situation facing municipal authorities across Germany, the funds from the special asset are unlikely to generate significant additional growth momentum. Instead, they might only manage to slow down the current decline in municipal investments.
The specific percentage of funds passed on to municipalities varies by state. North Rhine-Westphalia allocates 68 percent, Baden-Württemberg 67 percent, and Hesse and Schleswig-Holstein each pass on 63 percent. Rhineland-Palatinate enhances the available funds by supplementing the special asset money with additional state funds, resulting in a distribution of 72 percent to the municipalities. For Bavaria and Saxony, the allocation ranges between 60 and 70 percent.
Other states show varied distribution patterns: Mecklenburg-Vorpommern, Lower Saxony, Saxony-Anhalt, and Saarland each pass on approximately 60 percent of the special asset funds. Brandenburg only reaches 50 percent due to advance deductions for healthcare provision and digitalization. Thuringia has only recently positioned itself due to a separate financial package for municipalities and will initially distribute only 43 percent of its share from the special asset.
The distribution of the overall funds to the states is based on a system similar to the Königstein key, allocating one-third based on population and two-thirds based on financial strength within the federal equalization process. This mechanism results in financially strong states, such as Hamburg, Bavaria, and Baden-Württemberg, receiving a surprisingly high share-one-third of the total 100 billion euros. Furthermore, the distribution within the states to individual municipalities predominantly utilizes blanket allocation mechanisms, with bureaucracy and application procedures only playing a minor role, thereby increasing the likelihood that the funds from the special asset can be quickly implemented locally.
