Debt: Local trick with cash advances

The situation of the municipal budget has been deteriorating since the early 90s and it is increasingly dramatically. Perhaps those of you who know more about the problem they thought such a development. However, what are the reasons? This is due mainly to the sharp increase municipal cash advances.

These are basically a short-term bridging liquidity problems. In fact, cash advances from many communities are misused. Since the early 90s, more and more cash advances to long-term finance consumption spending are included. These numerous examples of many local North Rhine-Westphalia, Lower Saxony and Saarland.

Financing deficits there were increasingly financed through cash advances, while the long-term credit market debt has fallen. The reason is that in many municipal constitutions already are restrictions on the issuance of long-term, investment-loans. However, the institutional and legal hurdles for taking cash advances have fallen.

For example, in 1994, abolished in North Rhine-Westphalia, the need for one-off approval limits borrow money after the financial regulation. Even a complaint duty in an unlawful, perpetual prolongation does not exist. In the following period, the cash advances were piled on a high pedestal and can be removed only with difficulty.

Presumably, the situation of municipal budgets will be exacerbate even more in the future. The country into debt within the constitutional debt limit from 2020 are no longer allowed. In the same time local authorities are excluded from the constitutional debt limit, has a load shift to the detriment of local communities.

The load shift may be in the form of a pass-new, costly duty tasks or by a reduction of investments and allocations, as the local legal restrictions have fallen for the cash borrowing is assumed that the municipalities try to close the resulting financing gap on cash advances. The problem is the spending and the lack of responsibility of decision-makers. There is lack of participation of citizens, which is why the municipalities may make expenditures, as they consider necessary.