OREANDA-NEWS. The local authority experts from the cities, muncipalities and districts have estimated the German municipalities' investment backlog for 2013 at around € 118 billion; this equates to a 10% decline on the previous year. After a steep decline in 2012, capital expenditure increased slightly last year, with roads and traffic infrastructure accounting for the lion's share (28%). According to the municipalities, roughly one billion euros more was spent in this area than the year before. This result is due to the municipalities' generally good financial situation for the second consecutive year. Financial leeway was also used for capital expenditure.

Despite the decline, the investment backlog is at its second-highest level since the survey began. "There can be no question of sounding the all-clear.", Dr Jörg Zeuner, Chief Economist of the KfW Group, stated today in Berlin at the presentation of the KfW Municipal Panel 2014. "The poor expectations of the fiscally weak municipalities are of greater concern to me than the volume of the investment backlog. The need to consolidate is suppressing investment decisions in many municipalities. Structural problems are preventing steps from being taken for the future at extremely low interest charges."

The backlog is most pronounced in the areas ofroads and traffic infrastructure (26% or approx. EUR 31 billion) and schools (20% or approx. EUR 24 billion). The municipalities blame this in particular on insufficient own funds, insufficient federal state funds, differing political priorities and inadequate staffing levels in the road construction authorities. "Roads and traffic infrastructure therefore continue to be a concern for the municipalities", Dr Zeuner said.

The fiscally strong municipalities in particular generated the overall budget surplus of around EUR 1.7 billion (core budgets) for all municipalities. The share of municipalities whose budgets are not balanced rose again in 2013 (from 28% to 34%). The volume of short-term loans increased to around EUR 48 billion (roughly EUR 47 billion in 2012; core budgets) - and the trend is rising: some 30% of the municipalities surveyed expect an increase in their short-term debt in 2014. This also drives up interest rate risk, especially in the municipalities that are already quite heavily indebted.

The good situation on the credit market, especially the low interest rates for investment loans, is scarcely stimulating investment activity. According to the municipalities investments were funded more frequently and to a greater extent by own funds (share in investment finance 2013: 43%; 2012: 36%).

Debt reduction is therefore often prioritised over capital expenditure. However, investment activity is a prerequisite for economic development, future tax receipts and for implementing regional and local unique selling points in the competition between regions. "A vicious circle is emerging in the weaker municipalities: they have to reduce their debt levels on the one hand, while investing for the future on the other, but they are often refused access to credit to do this. Especially investments with significant benefits - such as roads and bridges - or offering high savings potential - such as energy efficiency - cannot be or can only be insufficiently implemented", Dr Zeuner commented.