1. Over-indebted Municipalities under German law
Chicago
June 30, 2016

2. The issue of over-indebted German municipalities
Very diverse picture
Depending on States and their legal environment

3. The issue of over-indebted German municipalities

4. The issue of over-indebted German municipalities
Vast part of budget is fixed by mandatory administrative tasks delegated (and funded) from superior level

5. The issue of over-indebted German municipalities
Vast part of budget is fixed by mandatory administrative tasks delegated (and funded) from superior level

6. The issue of over-indebted German municipalities
Vast part of budget is fixed by mandatory administrative tasks delegated (and funded) from superior level

7. The issue of over-indebted German municipalities
Trend to outsource and privatize local administrative tasks (fully publicly-owned private companies)
Very different levels of outsourcing

8. The issue of over-indebted German municipalities
Trend to outsource and privatize local administrative tasks (fully publicly-owned private companies)
Very different levels of outsourcing

9. The issue of over-indebted German municipalities
Trend to outsource and privatize local administrative tasks (fully publicly-owned private companies)
Very different levels of outsourcing

10. The issue of over-indebted German municipalities
Main sources of income:
Taxes 3. Fees and fines
Fund transfers 4. Profits

11. The issue of over-indebted German municipalities
Main sources of income:
Taxes 3. Fees and fines
Fund transfers 4. Profits

12. The issue of over-indebted German municipalities
Main expenditures:
Payroll 3. Administrative expenses 5. Interest on debt
Social spending 4. Investments in infrastructure

13. The issue of over-indebted German municipalities
Very limited flexibility on income
Very limited flexibility on expenditures
Level of debt results from
Years with little business tax income
Failing private business activities

14. The issue of over-indebted German municipalities
Structure of debt:

15. How to address the issue of over-indebted German municipalities
Insolvency proceedings of failing publicly-owned private companies
Possible and ongoing (e.g. Stadtwerke Gera)
Restructuring necessary where services are needed
Water supply
Garbage collection
Public transport
Winding-down organisations that are not required
Local bath
Library
Theatre or opera houses

16. How to address the issue of over-indebted German municipalities
Insolvency proceedings of over-indebted municipalities?
Possible under Sec. 12 InsO but excluded under every State law
No orderly debt restructuring
Winding-down public organisations is no option anyway
Living with constantly rising debt levels (hoping for better days)
With insolvency excluded: credit rating under risk weighing standard is 0%
Only in cases of miss-managements: supervisory authority may appoint a commissioner or limit non-mandatory expenditures

17. How to address the issue of over-indebted German municipalities
Insolvency proceedings of over-indebted municipalities?
Should debt restructuring be available?
Pro:
Identifying structurally non-performing loans
Relief from principal and interest payments on debt
“Normalize” risk weighing of municipal loans
Contra:
Higher credit costs for all municipalities (not only over indebted ones)
No operational restructuring possible (not even exchange of management)
Costs of proceedings
Public solution preferable

18. Let’s talk about it. Prof. Dr. Stephan Madaus
Professor of Civil Law, Civil Procedure and Insolvency Law
Martin-Luther-University Halle-Wittenberg
06099 Halle (Saale), Germany
T +49 (0) E