Municipal financial equalization; application for needs-based allocations and stabilization aid for cities and municipalities

Classic needs-based allocations

Cities and municipalities can receive needs-based grants in the following cases, among others:

• Trade tax losses,
• Hardships in the context of key allocations,
• Voluntary mergers of municipalities,
• Establishment of an administrative community or accession of a municipality to an existing administrative community,
• Elimination of damage caused by natural disasters,
• Remediation of contaminated sites
• Rock restoration,
• Purchase of land as a result of military conversion,
• Costs for the preparation of an expert opinion on budget consolidation (prepared by the Bavarian Municipal Audit Association (BKPV) or state audit office).

Stabilization aids

Municipalities that are considered structurally weak based on objective indicators or are particularly affected by negative demographic trends and are in financial difficulties through no fault of their own or whose financial capacity is at risk can receive state aid to help them help themselves by receiving stabilization aid. Since 2019, stabilization aid for cities and municipalities has been designed as a two-pillar model: Stabilization aid can be applied for to pay off old debt (1st pillar) and/or as investment aid (2nd pillar).

The aim is that through its own consolidation and the granting of stabilization aid

• the above-average level of debt is reduced and
• interest and redemption payments are reduced so that local authorities regain more financial leeway.

In addition, municipalities willing to consolidate can be supported in financing necessary investments in basic municipal equipment by granting investment aid; an investment backlog can thus be avoided or reduced.

Requirements for the granting of traditional needs-based allocations:

• An event or special expense (loss of trade tax, hardship in the context of key allocations, voluntary mergers of municipalities, establishment of an administrative community or accession of a municipality to an existing administrative community, remediation of damage caused by natural disasters, remediation of contaminated sites, rock remediation, purchase of land as a result of military conversion) has caused financial hardship for the municipality.
• The municipality has exhausted all revenue options to absorb the financial burden caused by the special expenditure or special event (including at least average rates of assessment for property tax and trade tax, charging fees that cover costs).
• The municipality was unable to balance the operating budget or the municipality is experiencing financial hardship as part of an overall assessment (including comparison of the free financial margin with the costs to be incurred, existing reserves).

Requirements for the granting of traditional needs-based allocations for expert opinions on budget consolidation:

• The expert opinion must be up to date and was prepared by the BKPV or the responsible state audit office.
• The municipality must demonstrate that it is financially weak.

Conditions for the granting of stabilization aid (Pillar 1):

• Existence of financial hardship (assessment as part of an overall assessment based on specific criteria)
• Existence of structural hardship (e.g. high population loss)
• Proof of a stringent and sustainable will to consolidate (e.g. by creating or updating and implementing a budget consolidation concept based on the specified 10-point catalog)
• From the 6th year of application additionally: existence of a special need

Conditions for the granting of stabilization aid (Pillar 2):

• Three purchases of stabilization aids
• Existence and continuation of the stringent and sustainable consolidation will, including updating and implementation of the budget consolidation concept based on the specified 10-point catalog
• Restriction on borrowing
• Presentation of the investment program

Applications for needs-based allocations or stabilization aid must be submitted by the deadline set by the Bavarian State Ministry of Finance and Regional Identity. The deadline is announced to the district governments and district administrations in the spring by letter from the Ministry of Finance or on the website of the Bavarian State Ministry of Finance and Home Affairs (see "Further links").

• Needs-based allocations and stabilization aid

• Art. 11 Act on Financial Equalization between the State, Municipalities and Associations of Municipalities (Financial Equalization Act - FAG)

  GVBl. p. 436 2016; BayRS 605-1-F

• Needs-based allocations and stabilization aid

The application for a needs-based allocation and/or stabilization aid must be submitted in the required digital form to the responsible district office for municipalities and cities belonging to the district. These forward it via the district government to the Bavarian State Ministries of Finance and Home Affairs and of the Interior, Sport and Integration. In the case of independent cities, the application must be submitted directly to the responsible district government in the required digital form. They will then forward it to the two state ministries.

The aforementioned state ministries examine the applications submitted.

The Bavarian State Ministries of Finance and Home Affairs and of the Interior, Sport and Integration decide once a year (in autumn) on all applications for a needs-based allocation and/or stabilization aid in accordance with Art. 11 of the Bavarian Financial Equalization Act (BayFAG) in the so-called distribution committee after consulting the municipal umbrella organizations.

After the distribution committee, the district governments make the decisions; the grants are usually paid out in the same year.

Needs-based grants are not subsidies - they are granted to mitigate financial hardship resulting from special expenses/events.

Decisions on all applications for needs-based allocations and stabilization aid are made once a year (in the autumn); the processing time varies depending on when the application is submitted.

• Municipal financial equalization; general information