The finances of the state governments including their local governments worsened significantly in 2023. Following a large surplus in 2022, an unadjusted deficit of €8 billion was recorded in 2023. Growth in tax revenue was weak. Meanwhile, individual categories of expenditure, such as personnel and service purchases, grew much more strongly following the high price increases of recent years.

Nevertheless, the (structural) situation of state government finances was still relatively favourable, as the deficit is mainly caused by factors such as temporary measures and acquisitions of financial assets weighing heavily on the balance. Adjusted for these and for cyclical effects, a structural surplus of €8 billion was recorded in 2023. However, developments are likely to remain unfavourable in the current year, and the structural balance, too, could move into deficit as tax revenue growth is muted and spending growth remains high.

In 2023, the financial situation again differed strongly between the individual state governments (including local governments). Saarland achieved the highest per capita surplus – largely buoyed by budgetary recovery assistance from central government. Although Bremen also receives budgetary recovery assistance, it ranked last by a wide margin with a high per capita deficit. Bremen also recorded the highest per capita debt amongst all state governments, while Saarland had the highest debt per capita among the non-city states. Per capita debt was lowest in Saxony and Bavaria.

In recent years, the state governments have made extensive use of emergency borrowing via the debt brake escape clause. They repaid almost €5 billion in the reporting year. For the end of 2023, they reported outstanding emergency loans amounting to nearly €70 billion (€820 per capita). These loans will have to be repaid at future dates according to state-specific repayment schedules. These outstanding obligations vary greatly between the state governments. Recipients of budgetary recovery assistance Saarland and Bremen have the highest per capita holdings, at €3,500 and €3,100, respectively. By contrast, Rhineland-Palatinate and Hamburg have already repaid all emergency loans.

In November 2023, the Federal Constitutional Court ruled that emergency borrowing may not be used to finance expenditure in subsequent years (unless an emergency situation is declared). At the time of the ruling, the federal states overall had established large reserves in connection with emergency situations. In response to the ruling, some federal states liquidated parts of their emergency reserves. Certain federal states, meanwhile, declared an emergency situation again for 2023 and increased their emergency borrowing (first and foremost Brandenburg and Bremen). The use of emergency borrowing is also planned for the current year in some instances, including in the two federal states receiving budgetary recovery assistance, Bremen and Saarland. By contrast, following a ruling by its state constitutional court, Brandenburg is no longer making recourse to emergency borrowing, but is instead using its reserves. In some federal states, proceedings before the state constitutional courts are still ongoing.

State and local government finances and the state-specific debt brakes are still very opaque and difficult to compare. In some cases, key information is not available until very late. The onus therefore remains on the Stability Council to increase transparency in order to facilitate good fiscal surveillance and prevent imbalances. This requires comparable data on financial results and the debt brakes. These should be available promptly after the annual financial statements are published – ideally in the first quarter of the following year and thus around the same time as the central government figures. It is also important to have an overview of the state governments’ reserves. This would be needed, amongst other things, to assess federal states’ ability to respond to unforeseen structural revenue shortfalls or spending needs outside of emergency situations.

Based on past experience, it seems advisable to make the debt brakes of individual states more uniform. Amongst other things, there is no compelling reason why state governments in some cases report extremely different cyclical effects per capita for the same year.

1 Overview and data preparation

State and local government finances deteriorated significantly in 2023 compared with the preceding year, but the structural situation, adjusted for one-off effects, was still relatively favourable. This regular report on state government finances takes a closer look at the results. This first part starts by explaining how the data are prepared. The second part describes the lines of development of the federal states as a whole in 2023. The third section focuses on the differences between states. The fourth part analyses selected aspects with regard to the state-specific debt brakes, and the fifth section provides an outlook for the current year. It concludes with proposals on how state government finances could be rendered more transparent.

Presentation of the data

In order to compare the finances of the individual federal states, the cash statistics include not only their core budgets but also their local authorities and all of their off-budget entities. Looking beyond state governments’ own core budgets ensures that the results are not distorted if individual state governments shift tasks and financing burdens between these different units. It also makes it easier to compare city states with non-city states.

Structural balances are calculated to enable better assessment of the financial situation. To achieve this, the budget balance is adjusted for financial transactions (e.g. loan issuances and repayments), temporary cyclical influences, temporary crisis measures and known one-off effects. In addition, financial equalisation and supplementary central government grants are allocated in accordance with the first settlement in the following year, and thus largely on an accruals basis. Cyclical influences are calculated using the Bundesbank’s methodology, on the basis of its spring macroeconomic forecast. Adjustment is made for temporary influences resulting from crisis-related measures (in 2023, these were primarily aimed at cushioning the impact of high energy prices) in the state government aggregate. However, this adjustment is not performed at the level of individual state governments, as temporary influences cannot be fully allocated to specific states. Below, the adjusted balances of the individual state governments are therefore referred to as partially adjusted structural balances.

In the cash statistics, local public transport has been included among the off-budget entities in the general government sector since the second quarter of 2023 (having previously fallen outside the general government sector). This reallocation relates to the €49 Deutschland-Ticket for the use of local public transport nationwide, which was introduced at that time, and the associated higher governmental subsidies.[1]

The inclusion of local public transport among off-budget entities noticeably increases general government revenue and expenditure overall for 2023. Notably, staff expenses, other operating expenditure, and investment are seeing year-on-year growth as a result of the change in allocation. This is accompanied by a sharp rise in revenue from usage fees. By contrast, transfers and capital injections for local public transport (primarily, it would seem, for the purpose of offsetting losses) are down on the previous year, as these are now consolidated.
Overall, the 2023 budget balance is changed only moderately by the inclusion of local public transport in the general government sector, as growth in expenditure is then only slightly more substantial than that in revenue.

The overall budget balance reported for a federal state may, in some cases, be distorted in connection with off-budget entities. If new units have not yet been recorded statistically, transfers from the core budgets to these units have a negative impact on the balance: whilst the transfer to the off-budget entity reduces the overall budget balance, the corresponding revenue received by the off-budget entity does not increase it (as this has not yet been recorded and thus this revenue-side counterpart entry is missing). Distortions can also occur if the revenue and expenditure entries for intra-government transfers are recorded at different points in time. There is an anomaly in Schleswig-Holstein’s figures for the reporting year. In the cash statistics, this state reports extensive transfers to its off-budget entities. The corresponding revenue recorded for these off-budget entities is significantly lower. According to figures from the Federal Statistical Office based on data later collected for the annual financial statements statistics, which rectify this point, the consolidated budget balance is just over €½ billion too unfavourable in the cash statistics. Another anomaly concerns Bremen, whose core budget recorded almost €½ billion of investment grants to off-budget entities, without a corresponding counterpart entry.[2] This report thus offsets the overly unfavourable balances in the calculation of partially adjusted balances as one-off effects.

The comparability of key expenditure categories among the individual federal states is limited (even aside from the aforementioned points). For example, state and local governments can either provide services using their own staff and institutions, or they can purchase or subsidise similar services from external (private sector) providers. This applies, not least, to the areas of education and childcare.

In addition, payments between a state government’s core budget and its off-budget entities are consolidated overall only for current and capital transactions, not for individual categories. If payments between units in a federal state constitute compensation for services (rather than transfers), no consolidation takes place. For example, if a state government compensates an off-budget entity for services that other state governments include in their core budgets, its total expenditure is correspondingly higher.

Furthermore, the recording methods of state and local governments vary. If, for example, a state allocates social benefits in the area of integration assistance to its own level instead of the local government level, this may be reflected in higher administrative expenditure and lower transfers to households.[3]

Below, the figures for the individual state governments are generally shown in relation to the respective population size. This ensures better comparability between federal states. Particularly for financial equalisation among the federal states, population size is key in determining financing needs and redistributing tax resources accordingly.[4] As outlined above, temporary crisis measures are not factored out on a state-by-state basis, as complete data were not available for some federal states. For this reason, the partially adjusted balances reported here are less favourable than fully adjusted balances. According to the Bundesbank’s estimate, temporary crisis burdens of €120 per capita are taken into account in the state government aggregate.

2 Federal state aggregate: deficit in 2023, but structural balance still in surplus

In 2023, state and local governments recorded an unadjusted deficit of just under €8 billion (0.2% of GDP). The federal states reported a deficit of almost €2½ billion in their core budgets but a surplus of €1½ billion in their off-budget entities. Local government (core budgets and off-budget entities) closed last year with a significant deficit of just under €7 billion (see Table 4.1, item 1, and Chart 4.1).

Fiscal balance of state governments (including local governments)

**Table 4.1: Budgetary figures for state governments (including local governments) as a whole**
€ billion
Item	Item no	2021	2022	2023
Fiscal balance	1	5.1	15.0	-7.7
Financial transactions (net)	2	-8.5	-12.2	-6.3
Settlement of payments under state government financial equalisation scheme	3	0.4	-0.8	0.0
Adjusted balance	4=1-2+3	14.0	26.4	-1.3
Cyclical component	5	0.5	2.8	1.4
One-off effects	6	-9.1	-22.1	-10.6
Non-recurring effects	6a	-	-	0.3
Coronavirus response measures	6b	-9.1	-12.9	-0.7
Energy measures	6c	-	-9.3	-10.2
Partially adjusted structural balance	7=4-5-6a	13.5	23.7	-3.1
Adjusted structural balance; temporary coronavirus response and energy measures removed	8=4-5-6	22.5	45.8	7.9
Net interest burden	9	10.2	9.6	9.1
Adjusted structural primary balance	10=8+9	32.8	55.4	16.9

The unadjusted result has deteriorated significantly compared with 2022. Various factors outweighed the lower spending resulting from crisis measures and the net acquisition of financial assets. Higher wages for a further increased number of staff and higher prices for the purchase of services, for example, had a major impact. At the local government level, expenditure on social benefits also rose sharply. On the revenue side, low growth in tax revenue (+1%), in particular, had a negative impact. At the state government level, tax revenue actually declined slightly. Revenue from real estate acquisition tax plummeted almost 30% (-€5 billion). Value added tax revenue stagnated as central government transferred €3 billion less of this tax to state and local governments.[5] Looking at wage and income tax, the fact that bracket creep was offset by tax cuts slowed growth. This offset has been customary for a number of years. Bracket creep is offset with a lag of one year: the high inflation rate in 2022 meant that the shortfall in tax revenue as a result of the offset was particularly high in 2023. The tax revenue shortfall as a result of energy price measures weighed more than in the previous year. Receipts from fees went up sharply. This is likely due to the integration of public transport, though this had only a moderate impact on the balance (see Chapter 1 entitled Overview and data preparation). In addition, state and local governments are likely to have financed inflation-driven cost increases by raising fees in some instances. At the local government level, local business taxes rose sharply, and a settlement-related one-off effect in relation to income tax shares had a positive effect.[6] However, these alleviating factors were unable, by far, to compensate for the above-mentioned burdens at the local government level.

Structurally, state and local governments remained in surplus. However, in a year-on-year comparison, this surplus deteriorated significantly more than the unadjusted balance (see Table 4.1, items 2-8). Compared with the unadjusted balance in 2023, the structural outturn is better because it is adjusted for various factors that had, overall, weighed on the unadjusted balance:

Burdens of €6 billion as a result of financial transactions[7] and temporary burdens of €10 billion from measures to combat the energy crisis were eliminated. The Bundesbank has estimated some of the temporary burdens, in particular the revenue shortfall resulting from the tax exemption for inflation compensation bonuses, which account for around half of these burdens. The reduced VAT on gas and district heating as well as on restaurant meals weighed similarly heavily.
In structural terms, however, adjustment was also made for some (less significant) relief. For example, the Bundesbank estimate showed a small degree of cyclical relief,[8] which the fiscal balance was adjusted for. Further adjustments hardly weighed on the aggregate result.[9]

Factors influencing fiscal balance of state governments (including local governments)

3 State government results vary greatly

The unadjusted surplus

Half of state governments (including local governments) recorded an unadjusted surplus in 2023. Overall, the range in the results was just over €1,300 per capita.[10] Saarland achieved the highest surplus (€550), and Bremen recorded the largest deficit (€780).

Bremen and Saarland have been receiving large amounts of budgetary recovery assistance from central government since 2020.[11] Last year, this amounted to €580 per capita in Bremen and €400 in Saarland. Each state receives recovery assistance totalling €400 million per year. In return, they are normally obliged to make minimum repayments of €80 million each per year. Saarland’s surplus exceeded this amount and ultimately meant the state was able to make the required repayment. Bremen, by contrast, had a large deficit. It declared a state of emergency and took out additional loans to finance its budget. The Federal Ministry of Finance appears to have accepted Bremen’s actions and refrained from reducing its budgetary recovery assistance.

The partially adjusted per capita deficit

The partially adjusted per capita deficit stood at €40 across all states (2022: surplus of €280). The width between the states was significantly smaller than in unadjusted terms and stood at €600. Saarland again reported the highest surplus, at €250 per capita (including budgetary recovery assistance). Next came Thuringia, Saxony-Anhalt and Lower Saxony with surpluses in the region of €150 per capita.

As in the previous year, the city state of Bremen recorded the highest structural deficit per capita, which grew to €360 (2022: €310) (adjusted for the statistical gap mentioned above). The large deficit is remarkable in the light of the budgetary recovery assistance the state has received. Among the non-city states, North Rhine-Westphalia recorded the highest deficit, at €280 per capita.[12] The result consequently deteriorated less sharply compared with the preceding year (2022: €140) than the federal state average. One factor in this was the sharp improvement in the outturn of an off-budget entity for the resolution of the Landesbank.

Per capita revenue

Considerable differences in per capita revenue remain. Looking at tax revenue,[13] the span between the non-city states stood at €850.

Frontrunner Hesse (just under €6,300) outperformed last-placed Rhineland-Palatinate by 16% (see also Table 4.2, item 19). Differences across the states in real estate acquisition tax rates and the average multipliers for real estate taxes and local business tax are also factors here. However, these differences in the tax rate explain only about one-sixth of Hesse’s revenue advantage over Rhineland-Palatinate. Rhineland-Palatinate, meanwhile, was hit by a one-off effect in 2023. This is because the preceding year’s tax potential for local business tax is extrapolated under the financial equalisation scheme based on financial capacity. This tax potential was very high back in 2022, as a vaccine manufacturer temporarily paid a particularly large amount of taxes on earnings. The lag effect explains roughly one-third of the aforementioned shortfall in tax revenue as compared with Hesse.[14]

Fiscal balances of individual state governments (including local governments) in 2023

The expenditure side

On the expenditure side, state government budgets can be compared to only a limited extent. This is, in part, because the federal states report the same things inconsistently in some cases (see Chapter 1 entitled Overview and data preparation).

Debt and interest burdens

The debt of state and local governments stood at €825 billion (around €9,800 per capita) across Germany. It thus increased less than suggested by the deficits and debt of newly included units.[15] Overall, debt only rose by €4½ billion year on year – despite the deficit of just under €8 billion and the newly included debt of the public transport companies. At the local government level, debt rose by just over €13 billion, with deficits totalling €7 billion. By contrast, state government-level debt declined by €9 billion, although the slight deficit in the federal states indicated further borrowing needs.

Debt levels continue to differ very widely between state governments (including their local governments). Bremen had by far the highest per capita figure, at €33,600, followed by Saarland at €19,900. The lowest figure was recorded in Saxony (€2,850), closely followed by Bavaria. Per capita debt fell particularly sharply in Hamburg and Bremen. In Bremen, higher interest rates meant that the market value of interest rate hedges was less negative and the volume of cash collateral to be provided declined. As a result, the debt level fell – although additional borrowing was taken out to finance the budget.[16]

Debt of individual state governments

The average interest rate on debt throughout Germany rose significantly on the year. It went up by 0.3 percentage point to 1.7% (see Tables 4.2 and 4.3, item 23 in each). Whilst individual state governments are generally able to borrow at similar conditions in the capital market, differences in factors such as borrowing dates, interest rate fixation periods and interest rate hedges result in average interest rates varying quite widely.

The highest average rate of interest was calculated for Bremen and Baden-Württemberg (2.6%). It rose most sharply (+0.8 percentage point) in North Rhine-Westphalia. The fact that interest expenditure was kept down in 2022 by special factors that ceased to apply in 2023 obviously played an important role here.[17] In addition, local government interest expenditure rose sharply in this state. In particular, average interest rates on large local government cash advances, which are typically supposed to be paid off promptly, are likely to have risen significantly. In Bremen, growth in the average interest rate was only slightly weaker. Interest rate hedges were a factor here: with the exceptionally sharp decline in cash collateral as at the reporting date at the end of the previous year, Bremen repaid low-interest cash advances taken out for this purpose. The only marginally reduced interest expenditure was spread over a significantly lower debt level. Saxony again recorded the lowest average interest rate (0.9%).

While state government interest expenditure rose on the whole, interest income increased somewhat more sharply overall.[18] On balance, net interest burdens – for which interest income is deducted from interest expenditure – therefore fell in most federal states. The largest net interest burden per capita was recorded by the city states and Saarland (see Table 4.2, item 8).

The way in which fiscal policy is restricted by the net interest burden can be illustrated by expressing it as a percentage of tax revenue. In Bremen, the ratio of its net interest burden to tax revenue was 10%. According to the state government’s budget plan, payments for derivatives once again made a considerable contribution to this.[19] In Saarland, the ratio was already significantly lower (4½%). Comparative figures for the most heavily burdened non-city and city states not receiving budgetary recovery assistance were just under 3% in Schleswig-Holstein and North Rhine-Westphalia and 2½% in Berlin and Hamburg.

Interest burden of individual state governments (including local governments) in 2023

The effective interest burden for Saarland and Bremen is much lower than indicated by the net interest burden, because they receive budgetary recovery assistance from central government (see Chart 4.5). After adjustment for budgetary recovery assistance, the net interest burden in Bremen amounts to only 2½% of tax revenue. In Saarland, it is even negative (-3%). This means that central government assistance more than offsets Saarland’s net interest burden.

4 State government debt brakes

4.1 Federal Constitutional Court’s ruling leads to fiscal policy adjustments in some cases

The Federal Constitutional Court’s ruling of November 2023 also has implications for the federal states’ debt brakes. In its ruling on central government’s second supplementary budget for 2021, the court clarified, in particular, that emergency borrowing may not be used in later years.[20] The government may use it only in the year for which budget legislators have declared a state of emergency. In addition, it must be stated in the budget legislation that the purpose of the emergency borrowing is to overcome the crisis situation. It must also be made clear that the scope of borrowing authorisations is appropriate for this purpose.

At the time of the ruling, the federal states had set aside or were planning sizeable reserves connected to the pandemic as well as multi-year special funds financed through emergency borrowing. These needed to be examined following the ruling. With respect to pandemic-related reserves, the federal states had reported continued borrowing authorisations totalling €18 billion at the end of 2022. Including ongoing planning, multi-year special funds financed through emergency borrowing amounted to around €15 billion.[21]

Some federal states adjusted their fiscal policies and amended their plans. Others justified proposals on the grounds of another state of emergency in that year.[22] In 2023, one-third of the federal states activated the escape clauses for their debt brakes in order to be able to obtain new emergency funds. Only North Rhine-Westphalia had already declared a state of emergency before the ruling. Brandenburg, Bremen, Saarland, Saxony-Anhalt and Schleswig-Holstein did not follow suit until the end of the year.

4.2 Repayments of emergency borrowing in 2023 larger than estimated repayment capacity

The volume of emergency borrowing as at the end of 2023

As at the end of 2023, the federal states as a whole reported a volume of just over €69 billion (€820 per capita) in outstanding emergency borrowing. Upon approval of emergency borrowing, the federal states are required to adopt a repayment schedule. As in previous years’ reports, the Bundesbank asked the federal states about their debt brake settlement results. Information was also requested on total accumulated emergency borrowing and corresponding repayment schedule.

The repayment obligations accrued from emergency borrowing vary greatly from one federal state to the next. Rhineland-Palatinate had already repaid its emergency borrowing in 2021. Last year, Hamburg also repaid all emergency borrowing (see also the section entitled Cyclical offset reserves). At €3,500, the outstanding per capita repayment obligations from emergency borrowing are highest in Saarland, followed by Bremen (€3,100). Bremen and Saarland are receiving extensive budgetary recovery assistance from central government. In return, they have committed to reducing their debt levels. Extensive emergency borrowing will increase this debt for a prolonged period and widen the debt gap compared with the other federal states. However, repayment obligations stemming from emergency borrowing are not a good indicator of how burdened future budgets will be. Existing contingency funds should also be taken into consideration. Their size also varies greatly across federal states (see Chart 4.8).

Repayment schedules for emergency borrowing

The federal states plan to repay outstanding emergency borrowing over varying periods. Federal states that have borrowed more tend to have longer repayment schedules. It is not yet possible to gauge the actual binding force of the schedules. Saxony has the shortest scheduled repayment period (eight years). This has resulted in relatively high annual repayment burdens. The particularly long repayment period in North Rhine-Westphalia spans 50 years up to 2070, thus lowering annual burdens to a much greater extent. Repayment schedules had already entered into effect in six federal states, but three of these again declared states of emergency that took priority over these schedules. Of the remaining three, Berlin repaid more than scheduled (it would appear that this was done using reserves; see the next section), while Thuringia repaid nothing (although its level of emergency borrowing is very low). Meanwhile, some federal states repaid emergency borrowing even though no payments were pending under their repayment schedules.

Annual repayment obligations as at end-2023 from emergency borrowing

Emergency borrowing in the 2023 fiscal year

On balance, the federal states repaid just over €4½ billion in emergency borrowing in 2023, half of which, as reported by the states, was in response to the Federal Constitutional Court’s ruling. Five of the federal states with activated escape clauses together obtained €1½ billion in new emergency funds on balance. By contrast, Schleswig-Holstein repaid almost €1½ billion net despite declaring a state of emergency. The other federal states repaid a further €5 billion in emergency borrowing. The states of Schleswig-Holstein, Berlin and Bremen reported that they repaid a total of €2½ billion in response to the ruling of the Federal Constitutional Court. In doing so, it appears that these three federal states scaled back the reserves they had previously formed from emergency borrowing.

The Bundesbank’s rough calculation[23] suggests that some federal states used reserves for repayment purposes. This is because the rough calculation for 2023 shows, on balance, marginally less scope for repayment from budget implementation alone.[24] In the 2023 budgets, there was a structural margin of €4 billion to repay emergency borrowing – though actual repayments amounted to just over €4½ billion.

Of the federal states, the take-up of emergency borrowing was highest per capita in Brandenburg and Bremen, at just over €170, followed at some distance by Saarland and North Rhine-Westphalia. Brandenburg thereby covered its financing needs as determined in the rough calculation for 2023 (see Table 4.4). In Bremen and North Rhine-Westphalia, these needs still outpaced emergency borrowing. Withdrawals from reserves explain this difference. In the case of both Saarland and Saxony-Anhalt, by contrast, the calculation indicates no need for such borrowing. The actual take-up of emergency borrowing thus exceeded their notional requirements. Meanwhile, the moderate repayment of emergency borrowing in Bavaria reflected its calculated repayment capacity fairly accurately. Hamburg, Schleswig-Holstein, Berlin and Saxony repaid more, in some cases considerably so, than the structural repayment capacity determined by the rough calculation would have allowed (for Hamburg, see the section entitled Cyclical offset reserves). Outstanding emergency borrowing in Baden-Württemberg, Mecklenburg-West Pomerania and Thuringia remained unchanged. Thuringia appears to have covered its financing needs using reserves. Hesse and Lower Saxony used only some of their repayment capacity to repay emergency borrowing.

The impact of cyclical effects on the federal states’ debt brakes

The debt brakes of the federal states calculate widely varying cyclical influences in 2023. This was reflected, in some cases strongly, in individual federal states’ need for emergency borrowing to obtain financing. Specifically, the four federal states that actually borrowed the most per capita did not report any cyclical burdens, in contrast to the federal states as an aggregate.[25] In other words, cyclical adjustment did not explain any cyclical deficits, and emergency borrowing was deployed to cover at least some of the financing needs calculated.[26] The cyclical relief factored in by Bremen ultimately even exceeded the level of emergency borrowing. This means that Bremen’s take-up of emergency borrowing can be fully attributed to the cyclical assessment differing from the federal states as an aggregate. Saxony-Anhalt, by contrast, took account of a very large cyclical burden. This limited the take-up of emergency borrowing to a minimum.

The major differences in the cyclical adjustment procedures make it very difficult to analyse state government finances with regard to the states’ respective debt brakes. Such strong divergences between the cyclical effects of individual federal states are difficult to justify from an economic perspective (unless they are resolved in lagged payment settlements under the state government financial equalisation scheme). The main outcome of this is that the cyclically adjusted figures across the federal states, based on data from those states, cannot be meaningfully compared in economic terms.

Federal states' net emergency borrowing and estimated financing needs in 2023

4.3 Level of available reserves remains difficult to gauge

Concept of reserves and available information

In order to establish room for manoeuvre in budgets and bridge budget shortfalls outside of emergency situations, it is generally helpful to build up reserves (although forming reserves using emergency borrowing is prohibited). State governments often hold these resources as reserves in the core budget and in special funds. These reserves are usually illiquid. Instead, they consist of borrowing authorisations to which recourse was made only formally when implementing the budget. Funds are only actually procured in the capital market when a need for financing materialises.

The federal states have for the most part designated such reserves for specific purposes. However, they can also mobilise the funds they have set aside on an ad hoc basis, via legislative adjustments where necessary. Thuringia, for example, liquidated its civil servants’ pension fund in 2022 and did not restrict the use of this money to making pension payments. Schleswig-Holstein plans to use the contents of its civil servants’ pension fund to balance its budget in the coming years. Other federal states had already limited payments to their civil servants’ pension funds in recent years and used the accrued funds to finance their budgets.

There is still no complete overview of federal states’ reserves.[27] The Stability Council could create transparency here. This would be helpful in order to conduct well-founded budget surveillance and assess the situtation of state government finances as accurately as possible. While reserve holdings are generally reported in state governments’ budget accounts, some states’ budget accounts are not made available until very late and often contain numerous different reserves without clearly summarising their holdings. However, clear information on reserves is important in order to be able to estimate the room that federal states have in their budgets, for example in the event of additional borrowing requirements or revenue shortfalls that are not explained by cyclical factors.

For this Monthly Report, the Bundesbank asked the state governments about their reserve stocks as at the end of 2023. However, there appear to still be some gaps in the data (as in previous years). The information on reserves in special funds and core budgets is likely to be comprehensive and comparable. However, there are other reserves for which no consistent picture could be painted based on the request for information and which would be important in terms of the overall picture. Issues here include the fact that, for example, some federal states close the year with target appropriations still in their budgets and thus ultimately transfer unused borrowing authorisations to subsequent years at year-end: following the ruling of the Federal Constitutional Court, it would now be necessary to ensure that these are not authorisations for emergency borrowing.

Reserves as a whole

Reserves are the most important component of funds set aside by the state governments. On aggregate, the state governments again reported very large holdings of €135 billion in their core budgets and in special funds. In most cases, it is not known what portion of the reserves has already been ring-fenced for subsequent years as planned. The reserves include, in particular, general reserves and reserves for civil servants’ pensions.

General reserves

The figure reported for general reserves came to €38 billion (€440 per capita) at the end of 2023, up €4 billion on the year. The general reserves per capita are highest in Hamburg (€3,280) and Mecklenburg-West Pomerania (€1,500). In addition to Berlin, Schleswig-Holstein did not report any general reserves; in North Rhine-Westphalia and Bremen, only a small residual amount was left over.

Over the course of 2023, general reserves went up particularly significantly in Hamburg, Rhineland-Palatinate, Lower Saxony and Hesse. With the exception of Hesse, these federal states reported surpluses in their budgets. Hesse, on the other hand, reclassified funds from its cyclical offset reserve, which it was possible to tap on account of a large calculated cyclical burden.

By contrast, general reserves went down particularly in Berlin, Saxony and Thuringia. Berlin had massively built up its reserves in 2020 in connection with pandemic-related emergency borrowing. It now appears to have restructured its reserves, repaid some of its emergency borrowing in response to the Federal Constitutional Court’s ruling and covered remaining ongoing financing needs. Saxony and Thuringia, too, used withdrawals from general reserves to cover the financing needs of their core budgets.

Reserves for civil servants’ pensions

Civil servants’ pensions represent a growing burden on state government budgets; the federal states have expanded their provisioning in this area by €6 billion overall to €57 billion. Pension pots thus still account for the largest share of reserves.[28] Saxony has the highest level of funds set aside for pensions, at almost €2,800 per capita, although the western German states will have to shoulder far higher pension payments. Saxony has filled its pension pots to this level with the intention of being able to fully fund pension obligations from reserves in future. The next highest by a wide margin are those of Baden-Württemberg and Saxony-Anhalt (in the order of €1,000 per capita). Thuringia and Saarland have (almost) no pension reserves. Several years ago, Thuringia made adjustments to its pension funding, repaying fixed amounts of its legacy debt in order to cover new civil servants’ pensions. Saarland has particularly high pension obligations. However, due to its strained budgetary situation, it has already used up a significant amount of the funds it had previously set aside for this purpose.

Cyclical offset reserves

The figure reported for cyclical offset reserves fell by €2 billion to €9 billion. Cyclical effects must be recorded symmetrically under the debt brake. The reserves then fill during upturns and empty during downturns, ebbing and flowing in time with the economic cycle.

The cyclical offset reserves (in other words, the cyclical item) declined in Hesse and Hamburg[29] in particular. However, in the case of Hamburg, this is not a reflection of cyclical budgetary burdens; rather, it is due to the federal state having adjusted its cyclical adjustment procedure. Using this new procedure, it calculates cyclical budgetary relief of almost €2 billion for 2023 (the cyclical item increases by this amount, in other words). For the previous years as a whole, however, this relief was €3 billion lower than previously estimated (meaning that the cyclical item from previous years falls by this amount). Hamburg took the €1 billion difference out of the cyclical item. The adjustments made for the crisis years 2020 to 2022 were deducted from the outstanding emergency borrowing, which was therefore effectively repaid.[30]

Coronavirus-related reserves

Reserves explicitly related to the coronavirus pandemic more or less halved to €8 billion. Such reserves decreased particularly sharply in Baden-Württemberg and Berlin. The reasons for this cannot be identified using the information available to date. The federal states were probably still funding pandemic-related measures in some cases. In other cases, though, they may have also reclassified reserves (see the section entitled Energy reserves and other reserves) for repayments or for general budgetary financing (for more on Berlin, see also the section entitled General reserves). This is an example of how difficult it is to get to the bottom of developments in state government reserves.

At an unchanged €680 per capita, Saxony-Anhalt recorded the highest explicitly coronavirus-related reserves. At the end of 2023, it had once again declared a state of emergency due to the pandemic. North Rhine-Westphalia, too, reported a relatively high per capita figure for its coronavirus special fund (€310). The federal state had raised funds in the capital market as a precautionary measure and appears to be repaying its borrowing as it matures (just over one-half of the borrowed amount fell due for repayment in 2024).

Reserves in off-budget entities for investment purposes

For the federal states as an aggregate, reserves in pre-financed off-budget entities for investment purposes rose by €1½ billion to €8½ billion. Berlin and Rhineland-Palatinate were the main drivers of this increase.

Energy reserves and other reserves

Taken together, the other reserves and energy reserves of the federal states rose by €6 billion to €15 billion. The increase was particularly great in Berlin and Baden-Württemberg, possibly as a result of reallocations. In Baden-Württemberg, it was evidently partly attributable to the fact that the state transferred funds from its cyclical borrowing authorisation, as there was apparently no specific financing requirement.[31] For Saarland’s other reserves, as in the previous year, the Bundesbank includes lending of €3½ billion from off-budget entities to the core budget.[32] This is because, according to the cash statistics, the funds were not used up and the emergency loans taken out for this purpose were not repaid either.

Comparison of reserves and outstanding emergency borrowing

While some reserves are earmarked for specific tasks, they could also be mobilised as necessary to repay emergency borrowing. This way, the federal states could avoid having to generate structural surpluses to make these repayments. Even if the often extensive funds for civil servants’ pensions as well as cyclical offset reserves are disregarded, the emergency borrowing of most federal states exists alongside significantly larger reserves (see also Chart 4.8). Only in Bremen and North Rhine-Westphalia are these reserves far from sufficient. In Baden-Württemberg, it should be noted that in addition to these reserves, there are other extensive reserves in the form of surpluses from previous years. The lion’s share of reserves in Saarland are already tied to commitment appropriations.[33] The arithmetical coverage ratio thus overstates the amount of available reserves.

Ratio of reserves* to outstanding repayments from emergency borrowing

Self-management funds

Some budget items contain spending authorisations that do not expire at the end of the year, known as self-management funds. In this respect, they are similar to reserves, but their actual use is not visible in the budget. In principle, these multi-year self-management funds are intended to ensure an efficient use of funds. For example, they prevent funds from being spent uneconomically at the end of the year (“December fever”). As a general rule, spending authorisations expire at the end of a given fiscal year. This is probably why federal states sometimes used to disburse large amounts of funds at the end of the year, without an apparent increase in funding needs. Self-management funds are intended to lessen this “spending pressure” at year-end.

Specifically, self-management funds are booked as expenditure in the budget by year-end at the latest, even if some of these funds have not yet been disbursed. Borrowing on the capital markets to cover actual spending needs is only necessary when the funds are actually disbursed. In the budget, however, borrowing is also booked for funds that have not yet been disbursed. The actual disbursement of the funds in subsequent years is then no longer visible in the budgetary figures (they have already been booked). Viewed from this perspective, the budgetary statistics give a chronologically distorted picture of such outflows.

Self-management funds are not actually intended to fund procurements that are expected to span multiple years. If such procurements are foreseeable, they are normally recorded in the budget in the form of commitment appropriations. These commitment appropriations then have to be financed in future budgets within the framework of the debt brake.[1] It would not appear to be in the spirit of budgetary law to book these as self-management funds (foreseeable use across multiple years). In any case, it would be necessary to ensure that these multi-year funds, too, meet the constitutional requirements for the use of credit authorisations originating in emergency years.

Self-management funds should be reported transparently. Specifically, funds and outflows should be recorded by expenditure type on an ongoing basis. Central government, for instance, records these holdings by individual instrument in its annual budget accounts. Such information is important for analytical purposes, and it is needed anyway in order to ensure an accurate representation of the general government sector in the national accounts: expenditure from self-management funds should not appear in the national accounts until the spending actually takes place.

In one state, in particular, self-management funds are very extensive and, at the same time, opaque. In addition, they are sometimes mobilised as reserves. In response to a parliamentary question, North Rhine-Westphalia reported holdings of €8 billion (€450 per capita) at the beginning of the reporting year. The state is now booking a portion of its self-management funds from previous years back to its budget as revenue. In this respect, these funds are acting as an additional reserve.

Any remaining fiscal space in a given year could therefore potentially be used to form reserves.

5 Outlook for 2024 and selected fiscal policy considerations

Budgetary developments in 2024

The financial result of state and local governments could deteriorate significantly in the current year. Macroeconomic growth remains subdued. According to the May estimate, tax revenue is therefore expected to increase only moderately. For the remainder of this year, the steeply rising prices of the past few years are likely to generate substantial growth in expenditure, too. For the federal states, personnel costs are especially significant. At the state government level, inflation compensation bonuses were paid out to employees as from the beginning of 2024, with regular wages being raised later on in the year. Tangible goods purchases are also rising dynamically due to price factors. At the local government level, the broad-based increase in expenditure has exceeded revenue growth even more over the course of the year thus far. On balance, the deficit of state and local governments rose substantially by a total of €17 billion in the first half of the year, particularly at the local government level. The structural balance of state government budgets as an aggregate (including local governments) could turn negative for 2024 as a whole.

Cyclical adjustment in the debt brakes

North Rhine-Westphalia, the most populous federal state, is now also planning to use borrowing authorisations to offset cyclical burdens for the first time (i.e. to use cyclical adjustment as part of the debt brake). In contrast to most other federal states and central government, North Rhine-Westphalia has thus far not considered cyclical influences in its debt brake. In the current year, borrowing scope of €2 billion is now to be made available to finance a corresponding cyclical burden (2% of the budget volume).[34] However, North Rhine-Westphalia intends to use cyclical adjustment only temporarily, or even dispense with it altogether if no borrowing authorisations end up being required. Any cyclical loans taken out will be recorded in a borrowing account. Once they have been repaid from cyclical surpluses, the plan is to end cyclical adjustment.

However, the Bundesbank generally recommends symmetrical cyclical adjustment within the framework of budgetary rules such as the debt brake. In other words, not only cyclical deficits should be allowed: rather, it should also be permissible for cyclical surpluses to have an impact on the budget in good times. Budgetary policy is otherwise at risk of becoming erratic and procyclical. Cyclical surpluses might then be disbursed during cyclical upturns. Were policymakers to utilise this leeway, a structural deficit would emerge that would then have to be closed procyclically during the next downturn.

Developments in emergency borrowing

Bremen, Saarland, Saxony-Anhalt and Schleswig-Holstein are still planning to take out emergency loans in 2024. This was also initially envisaged in Brandenburg’s budget. However, its state constitutional court ruled that it had not sufficiently justified its emergency borrowing in 2023. Although the court did not order the transaction for 2023 to be reversed, it appears that following the ruling, Brandenburg no longer considered the conditions for emergency borrowing in 2024 to have been met and restructured its budget without emergency borrowing. In Bavaria, North Rhine-Westphalia, Saxony and Schleswig-Holstein, decisions from constitutional courts are still pending. In Bremen, in addition to the judicial review of the 2023 budget, there were reports of proceedings against the 2024 budget.[35]

By contrast, some federal states are planning to repay some of their outstanding emergency borrowing this year. This year, as planned, North Rhine-Westphalia, for example, repaid €3 billion in emergency loans that it had taken out for its coronavirus special fund. At the end of 2023, the special fund had an even higher reserve of €5½ billion available. It did not consist of borrowing authorisations parked in the fund, such as the Federal Constitutional Court had ruled against for central government; rather, North-Rhine Westphalia had already raised the funds in the capital market and evidently invested them. However, from an economic perspective, this resembles the parking of borrowing authorisations; it therefore seems logical to use this reserve for repayments.[36] Although Mecklenburg-West Pomerania is planning to use reserves built up from emergency loans to make repayments this year, it also appears that some of these reserves will be used to finance further crisis-related measures,[37] though no state of emergency has been declared for 2024.

Federal states that are already highly indebted are authorised to take out emergency loans this year as well. Saarland and Bremen receive budgetary recovery assistance from central government so that they can service and significantly reduce their very high legacy debts. Both federal states are planning to take out emergency loans in the current year as well, meaning that their borrowing will exceed the standard limit under the debt brake accordingly.[38] In this respect, the debt burden in those states is likely to become even greater in future, with both of them diverging further from the state average. This runs counter to the objective of Saarland and Bremen reducing their debt to a permanently sustainable level.

Transparency of state government finances

State government finances still lack transparency. This makes it difficult to identify periods of distress and budgetary scope. Moreover, the range of services offered by the different state governments can only be compared to a limited extent. One great opportunity afforded by federalism is that federal states can compare services rendered in different ways and continuously improve their own offerings as part of a best practice approach. As a result, they can provide their services in the most cost-effective way possible. However, mutual learning and informed decisions of this kind require transparency. Meaningful and comparable data make it possible for the general public, not least, to better understand the results.

There are a number of approaches that could be used to improve the transparency of state government finances.

The basis for transparent public finances is meaningful, harmonised statistics. This article and its predecessors highlight the weaknesses in this regard identified in various areas. State government finance statistics should report comparable transactions in the same way. This would require the federal states to consistently apply agreed accounting rules, such as the budgetary planning system, to their various revenues and expenditures, clarifying cases of doubt in advance. It would also make sense for accounting practices used for the financial statistics to align more closely with the national accounts rules. These harmonised rules are used for European budgetary surveillance. Compliance with these accounting rules is subject to fairly tight quality control. Finally, they are more geared to the economic substance of transactions.
One obvious starting point for creating greater transparency would be to further harmonise the debt brakes, some of which differ greatly between federal states. This concerns, not least, cyclical adjustment. At present, cyclical effects diverge more strongly across the individual federal states than can be explained from an economic perspective. The cyclically adjusted figures based on the federal states’ data thus cannot be meaningfully compared.
Were the federal states to harmonise their debt brakes with regard to excluded financial asset acquisitions, too, this would also be a welcome development. The national accounts provide a good starting point for this. For example, there is much to be said for excluding financial transactions from the debt brake only in the event that they do not increase the general government deficit in accordance with the national accounts rules as well.
Furthermore, it would be logical to also include institutions and companies in the debt brake, provided that they belong to the government sector. The federal states (and, incidentally, central government) could follow the accounting rules of the national accounts for this purpose, too.
In order to better assess the state of public finances, supplementary information on the budget plans would be helpful:
The plans should be augmented by meaningful lists of operations which, under the European fiscal rules, affect the deficit but not cash flow. These operations include, in particular, assumptions of debt. Here, too, the federal states could use the national accounts to define such operations. Furthermore, the lists could contain overviews of the stocks of non-financial assets that would have to be carried at replacement values and with write-downs.
Comprehensive up-to-date information on both commitments entered into for subsequent years and on reserves is also essential.

In addition, it is recommended that the federal states present their results under the debt brake in a timely manner so that the figures still have political relevance, too. So far, the Stability Council has analysed the results of the individual federal states in the autumn of the following year. However, the focus is then usually already on planning for the subsequent year. This is also true of central government. If the federal states were to present their results in the spring already, the figures would undoubtedly have a much greater weight. The same would apply if the results were provisional, as is the case for central government.

List of references

Bremen Parliament (2024), Bericht über die Derivate des Landes Bremen zum 31.12.2023, Vorlage VL 21/1626.

Bundesrat (2022), Gesetzentwurf der Bundesregierung, Entwurf eines Gesetzes zur Änderung des Finanzausgleichsgesetzes, des Stabilitätsratsgesetzes sowie weiterer Gesetze, Drucksache 365/22.

Deutsche Bundesbank (2024a), Commentaries, Public finances, Local government finances, Monthly Report, April 2024.

Deutsche Bundesbank (2024b), Public finances, Monthly Report, February 2024, pp. 57-82.

Deutsche Bundesbank (2023a), Federal Constitutional Court issues ruling on debt brake, Monthly Report, November 2023, pp. 69-71.

Deutsche Bundesbank (2023b), State government finances in 2022: high surplus overall, some states still making extensive recourse to emergency borrowing, Monthly Report, October 2023, pp. 39-63.

Deutsche Bundesbank (2023c), The growing significance of central government’s off-budget entities, Monthly Report, June 2023, pp. 63-82.

Deutsche Bundesbank (2022), Central government’s debt brake: options for stability-oriented further development, Monthly Report, April 2022, pp. 49-66.

Deutsche Bundesbank (2021), State government finances in 2020: deficit due to temporary effects of pandemic, escape clauses also used to build reserves, Monthly Report, October 2021, pp. 15-42.

Deutsche Bundesbank (2006), A disaggregated framework for analysing public finances: Germany’s fiscal track record between 2000 and 2005, Monthly Report, March 2006, pp. 61-76.

Federal Statistical Office (2024), Umstellung der Bevölkerungszahlen auf die Ergebnisse des Zensus 2022.

Hamburg Parliament (2024), Schriftliche Kleine Anfrage und Antwort des Senats: Tilgung von Notfallkrediten für Corona-Maßnahmen, Drucksache 22/15243.

Hellmeyer, M. (2024), Länderbericht Mecklenburg-Vorpommern, in: Junkernheinrich, M. et al. (eds.), Jahrbuch für öffentliche Finanzen 1-2024, pp. 193-198.

Meyer, B. (2024), Länderbericht Baden-Württemberg 2023, in: Junkernheinrich, M. et al. (eds.), Jahrbuch für öffentliche Finanzen 1-2024, pp. 121-132.

State Parliament of North Rhine-Westphalia (2024), Gesetz über die Feststellung eines Nachtrags zum Haushaltsplan des Landes Nordrhein-Westfalen für das Haushaltsjahr 2024, Gesetzentwurf der Landesregierung, Drucksache 18/9900.

State Parliament of Saarland (2023), Antrag der SPD-Landtagsfraktion: Feststellung einer außergewöhnlichen Notsituation nach § 2 Abs. 1 Haushaltstabilisierungsgesetz (HStabG) für das Haushaltsjahr 2024, Drucksache 17/698.

taz (2024), FDP zieht Bremer Haushalt vor Gericht – Keine Subvention fürs Klima, report of 24 July 2024.

In the national accounts, these units, together with the infrastructure segment of the railway provider Deutsche Bahn, were also retroactively allocated to the general government sector as part of the 2024 summer revision.
In the previous year, there had been an even larger negative distortion in Saarland’s figures. However, it was possible to allocate this to individual off-budget entities in last year’s reporting, thus neutralising it.
The local government finance statistics record expenditure on selected social benefits. These are then categorised globally as transfers to households. For the state government budgets, the allocation of expenditure follows the budgetary planning system. This does not break spending down by social benefits, but by cash payments to households or various expenditures on tangible goods purchases. The example concerns the latter.
As usual, the data in the report are based on extrapolated population figures from previous years. These also form the basis for the provisional figures for 2023 available thus far for the financial equalisation scheme. Results from the 2022 census published this year (see Federal Statistical Office (2024)) differ from these to varying degrees for the individual federal states.
In 2022, central government had, in particular, provided compensation for additional spending by state and local governments in connection with benefits for asylum seekers. In addition, it had reimbursed state and local governments for revenue shortfalls as a result of the 2021 child bonus; see Bundesrat (2022).
For more information, see Deutsche Bundesbank (2024a).
A large part of the financial transactions are attributable to special pension funds, which invest the funds they receive.
Entrepreneurial and investment income developed relatively favourably, which brought cyclical relief for profit-related taxes. This relief was somewhat greater than the cyclical burdens affecting wage tax and VAT. The Bundesbank’s estimation method derives the cyclical influences on the various types of tax from the trend deviations of the key macroeconomic reference variables. See also Deutsche Bundesbank (2006).
On balance, the state-specifically adjusted one-off effects provided slight relief (included in the crisis-related measures in the following chart). As a shareholder of a logistics company, Hamburg received a fairly large special dividend of just over €1 billion. On aggregate, this was largely neutralised by corrections for statistical anomalies in relation to off-budget entities. These weighed on the unadjusted balance by just over €½ billion in Schleswig-Holstein and by just under €½ billion in Bremen. The lagged settlement of payments under the state government financial equalisation scheme (including supplementary central government grants that are dependent on financial capacity) had little impact on the overall result. By contrast, individual states were significantly affected (see Chart 4.3).
Adjusted for the statistical one-off effect in Bremen, the difference was still €850 per capita (see Chapter 1 entitled Overview and data preparation, paragraph: “The overall budget balance reported for a federal state may, in some cases, be distorted in connection with off-budget entities.”
In the period from 2011 to 2019, the German state as a whole had already paid these federal states annual consolidation assistance of €260 million (Saarland) and €300 million (Bremen). In return, they had to prove that they were reducing their structural deficits.
Without the data corrections for the accounting figures, Schleswig-Holstein would have reported an even higher figure, namely a deficit of €310 per capita; see Chapter 1 entitled Overview and data preparation, paragraph: “The overall budget balance reported for a federal state may, in some cases, be distorted in connection with off-budget entities.”
Tax revenue accounted for around 70% of total revenue. It is recorded here on an accruals basis for the individual federal states (unlike the cash statistics it includes the provisional settlement under the financial equalisation scheme based on financial capacity). Local government taxes are included in full. This is different from the financial equalisation scheme based on financial capacity, which only includes the larger taxes and counts 75% of the revenue they generate. For local business and real estate tax, the financial equalisation scheme based on financial capacity further only works with extrapolations of tax potential.
In this respect, the lagged burden is the compensation for the favourable outcome under the financial equalisation scheme based on financial capacity during the preceding sharp increase in revenue from taxes on earnings.
The figures presented here are taken from the debt statistics of the Federal Statistical Office. They cover debt to the non-public sector (the capital market) and the public sector. By contrast, debt as defined under budget law may additionally include unused borrowing authorisations. These are then available as reserves (e.g. reserves in core budgets or off-budget entities) without funds already having been raised in the capital market.
The debt level in Bremen is particularly volatile given extensive derivatives transactions. For more on the impact of interest rate hedges in Bremen, see Bremen Parliament (2024), p. 2 and p. 5. and Deutsche Bundesbank (2021), p. 24.
In 2022, the state government budget recorded relatively large amounts as negative interest expenditure in a collective item for premia and income from interest rate hedges. For 2023, however, additional interest expenditure was budgeted for in the item. Note: As of 2025, central government plans to switch to the accrual accounting method for premia and discounts. This had been proposed by the Bundesbank, amongst others; see, for example, Deutsche Bundesbank (2022), p. 61. The switch will prevent premia and discounts from causing interest expenditure to fluctuate erratically. Changes in interest burdens can then also be better interpreted from an economic perspective. It would be advisable for the state governments to follow central government’s approach.
This may be due to the maturity structure. Where, for example, interest-bearing assets were invested in the short term, they responded quickly to the particularly sharp rise in short-term interest rates.
Unlike many other federal states, Bremen records expenditure on interest rate hedges separately, thus making its budget more transparent. In a supplementary budget for 2023, the state cancelled the expenditure appropriations for interest in connection with cash collateral for derivatives. Meanwhile, the relatively high interest payments for actual hedging transactions continued.
See Deutsche Bundesbank (2023a), pp. 69 ff.
The first long-term special fund was Saarland’s transformation fund (€3 billion) set up at the end of 2022. Emergency borrowing for this purpose was recorded in the year the fund was established. A similar amount as in Saarland was planned for Bremen’s climate fund. In 2023, the Berlin state government had passed a special fund for climate action, resilience and transformation, initially containing €5 billion. There was scope for a further €5 billion increase.
See Deutsche Bundesbank (2024b), pp. 75 f.
The starting point for the Bundesbank’s rough calculation is not the same as that for the settlement of federal states’ debt brakes. This is because the Bundesbank determines the federal states’ financing needs or room in their budget to make repayments with respect to emergency borrowing based on their cash balances, and unlike the federal states, it factors in all off-budget entities. Adjustments for cyclical effects and financial transactions are then made following the rules of the respective federal states’ debt brakes. The resulting figure is compared with how the volume of emergency borrowing has changed. Differences indicate that reserves have been formed or that reserves have been used for repayment. For more on this, see Table 4.4. For details on the calculation process, see Deutsche Bundesbank (2023b), p. 49.
Specifically, for the federal states as an aggregate in 2023, the starting point for the calculation is the states’ balance, including their off-budget entities, of just over €¼ billion (after adjustments in Schleswig-Holstein and Bremen on the revenue side; see Chapter 1 entitled Overview and data preparation, paragraph: “The overall budget balance reported for a federal state may, in some cases, be distorted in connection with off-budget entities”). Deducted from this are those burdens caused by cyclical effects and financial transactions. According to federal states’ reporting, these deductions improve the balance: the deficit from financial transactions amounted to €1 billion, and the negative cyclical component stood at almost €3 billion. There are sometimes significant disparities in the cyclical components per capita identified in state-specific procedures. The Bundesbank’s cyclical adjustment procedure estimates a cyclical burden of €1 billion for state governments as an aggregate (excluding local governments).
There is only a limited link to outstanding burdens from lagged payment settlements under the state government financial equalisation scheme.
While the rough calculation did not reveal that Saarland required any financing, it had to additionally make a mandatory repayment in the context of its budgetary recovery assistance. The exceptionally high cyclical relief largely reflects the burden on the state with respect to lagged payment settlements under the state government financial equalisation scheme (see Table 4.2, item 3).
It is also difficult to maintain an overview at the central government level; see Deutsche Bundesbank (2023c), pp. 71 ff.
A special feature of pension funding is that the federal states do not usually set aside any borrowing authorisations for this purpose, but rather invest pension funds in profit-yielding instruments – not least in their own state’s debt instruments, but also in shares in some cases.
Hamburg uses a double-entry bookkeeping system, which is why it reports no reserves. However, the cyclical item on Hamburg’s balance sheet is similar in nature and has therefore been used here.
See Hamburg Parliament (2024).
See also Meyer (2024), pp. 122 ff.
This loan is from 2022. The cash statistics only record expenditure in the off-budget entities and no income in the core budget. See also Deutsche Bundesbank (2023b), p. 41.
According to figures from the Ministry of Finance of the State of Saarland.
See State Parliament of North Rhine-Westphalia (2024). The calculated cyclical burden takes account of tax forecast errors as against autumn 2023, when North Rhine-Westphalia had not yet planned for cyclical adjustment. On balance, the cyclical burden exceeds the figure calculated for this federal state in the Federal Government’s 2024 spring estimate by just under €½ billion.
See taz (2024).
In addition, the state ultimately pays the interest on the coronavirus emergency loans from the special fund’s reserve. It is difficult to gain an overview of the extent to which other federal states are proceeding in the same manner.
For information on the state’s response to the Federal Constitutional Court’s ruling, see Hellmeyer (2024), pp. 195 ff.
In Saarland, however, the aim of the authorisations is to restructure emergency loans for the state’s transformation fund, in particular. The amount of outstanding emergency borrowing therefore will not rise, but rather the sum of outstanding capital market debt subject to interest. See State Parliament of Saarland (2023).

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