Cash-Strapped Municipalities Sue Over Financial Equalization: A Battle for Basic Distribution Key
- Money at stake: actions for monetary settlement
Dive into the financial whirlwind engulfing Rhineland-Palatinate, where numerous lawsuits against the municipal financial equalization (MFE) have been lodged in administrative courts. It'goes beyond the quest for additional funds for numerous villages in Rhineland-Palatinate; instead, it's a fight for the fundamental distribution key.
The municipal financial equalization (MFE), following heated debates in 2023, underwent a revision. "The wave of lawsuits filed and the intent of other municipalities to join the legal fray underscores the precarious financial situation many municipalities are currently grappling with," notes Interior Minister Michael Ebling (SPD) on the growing wave of litigation.
"Every municipality has the right to defensively assert their interests in court," states Ebling. "We cannot make an informed assessment of the supposed lawsuits at this time since the reasons for filing them have yet to be disclosed."
26 lawsuits from cash-strapped local municipalities
The doubts voiced by many municipalities concerning the construction of the financial equalization have given rise to 26 lawsuits from local municipalities against the key allocations of the MFE from 2023. These include Reichsthal, a local municipality within the Verbandsgemeinde Nordpfälzer Land, and 25 municipalities from the Verbandsgemeinde Adenau in the district of Ahrweiler. No collective action lawsuit has been initiated – each municipality acts independently.
Key allocations are designed to support financially strapped municipalities. These allocations are based on such factors as the tax capacity of independent cities, non-associated municipalities, and local municipalities. The funds received are not restricted in use.
Municipalities complain of mounting underfunding
Frustrated by the insufficient reform of the municipal financial equalization, municipal associations report a surge in municipal underfunding. This situation is exacerbated by loans and further fiscal burdens for residents and the economy.
"The desperately needed reinforcement of municipal financial power has not materialized," lament the managing directors of the German Association of Cities and the German Association of Towns and Municipalities, Lisa Diener, Andreas Göbel, and Moritz Petry. In response, the municipal associations offer legal guidance to their members to protect them from inadequate state financing.
Early evaluation demanded
The municipal associations call for an immediate evaluation of the MFE. Their goal is to achieve a proper needs assessment and thus a reasonable financial footing for all municipalities in Rhineland-Palatinate. In 2023, the financial deficit of the municipal associations totaled over 565 million euros.
Göbel warns, "Municipalities, cities, and districts are under immense pressure." Many budgets have yet to be finalized. "For years, the state has enjoyed budget surpluses, whereas the municipalities struggle to balance their budgets." Thriving local administrations, he argues, are the best defense against extreme political parties.
Review scheduled for 2026
Ebling acknowledges that a review of the reformed MFE, according to the State Financial Equalization Act, can only occur for the first time in 2026. However, he adds that exceptional developments might warrant an earlier review.
With the dual budget 2025/26 of the state government, the municipal financial equalization has been significantly augmented. The finance, amounting to nearly four billion euros for 2025 and over four billion in 2026, has almost doubled over the past decade.
The equalization ensures that the state furnishes municipalities with the funds needed to fulfill their mandatory tasks and maintain a minimum of voluntary self-government tasks. Municipalities shoulder state tasks delegated to them, such as maintaining school buildings, managing social and youth welfare, and accommodating refugees.
Set to meet in late March, discussions between the state and municipal peak associations will center on the financial situation of municipalities and the state. The municipal financial equalization is among the topics on the agenda. However, the specific agenda for the meeting of the Financial Equalization Commission has yet to be confirmed, according to the Minister of the Interior.
Regardless of the impending meeting, local officials are bracing themselves for a complex, protracted legal battle: If a court finds the regulations governing municipal financial equalization to be incompatible with the state constitution, the Constitutional Court could become involved.
- Municipalities in Rhineland-Palatinate, such as Reichsthal and those from the Verbandsgemeinde Adenau, have filed 26 lawsuits against the Key Allocations of the municipal financial equalization (MFE) from 2023, asserting their rights under the municipal financial equalization (MFE) and voicing concerns about mounting underfunding.
- The municipal financial equalization (MFE), originally revised in 2023 following heated debates, is currently a focal point of lawsuits in administrative courts as cash-strapped municipalities challenge its Key Allocations and seek to improve their financial footing.
- Interior Minister Michael Ebling acknowledges that a review of the reformed MFE, mandated by the State Financial Equalization Act, can only occur for the first time in 2026; however, he notes that exceptional developments might warrant an earlier review, considering the municipality's precarious financial situation and the growing wave of litigation.
