Thuringian Municipalities Struggle with Massive Investment Shortfall
It's no secret that Thuringia's local authorities are burdened with an investment backlog totaling several hundred million euros annually. This sobering reality emerged from the Municipal Monitor, presented by the Thüringer Aufbaubank in Erfurt recently.
Matthias Wierlacher, the Aufbaubank's CEO, shared the findings from their survey of local authorities, revealing that cities, municipalities, and districts anticipate an average annual investment requirement of approximately 1.3 billion euros over the next three years.
Assuming half a billion euros in annual investments for road improvements, schools, digitalization, and increased renewable energies, an investment gap of around 800 million euros remains due to insufficient funding sources. Wierlacher proposes a solution: an investment fund offering low-interest loans.
Entrepreneurial hotspots face an ongoing rise in investment requirements. According to the survey, the figure stood at a billion euros in 2019, climbing to 1.2 billion euros last year.
Overcoming Thuringia's Investment Shortfall
To bridge the funding gap, various initiatives and strategies are under consideration.
- Modifying Funding Structure and Minority Shareholder Protection Shield (KSH): In Hesse, Germany, the WIBank assists municipalities and municipal-related companies, incorporating an extension of the KSH in its financing structure. An allocation of EUR 300 million is earmarked for 2024 as part of a total EUR 1.8 billion set aside for 2023-2026[2].
- Low-Interest Loans: An investment fund offering low-interest loans can support municipalities through several avenues:
- Microloans: The WIBank provides microloans ranging from EUR 3,000 to EUR 35,000, with a 7-year fixed interest rate, two redemption-free years, and no standard bank collateral needed[2].
- Innovation Loans: The innovation loan program supports companies and start-ups with loan volumes between EUR 100,000 and EUR 7.5 million. This program includes a 70% liabilities exemption for the house bank, alleviating financial pressure on municipalities[2].
- Global Loans with Development Banks: The WIBank collaborates with global development banks to secure additional financing sources for municipal projects[2].
- Utilizing Funding Instruments: The investment fund can employ various funding instruments, such as global loans, bearer bonds, promissory notes, and registered bonds, to secure medium and long-term financing requirements essential for addressing the investment backlog[2].
- Partnerships with Development Institutions: Collaborating with institutions like the Kreditanstalt für Wiederaufbau (KfW), Landwirtschaftliche Rentenbank, and the European Investment Bank (EIB) can expand the fund's access to a broader range of funding options and risk-sharing mechanisms for large-scale municipal investments[2].
By implementing these strategies, an investment fund can make a significant impact on addressing Thuringia's annual investment backlog, thereby aiding in the economic development and infrastructure support of these regions.
[2] Source: Enrichment Data
