Chicago June 30 2016 The issue of overindebted German municipalities Very diverse picture Depending on States and their legal environment The issue of overindebted German municipalities ID: 630458
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Over-indebted Municipalities under German law
ChicagoJune 30, 2016Slide2
The issue of over-indebted German municipalities
Very diverse picture
Depending on States and their legal environmentSlide3
The issue of over-indebted German municipalities
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The issue of over-indebted German municipalities
Vast part of budget is fixed by mandatory administrative tasks delegated (and funded) from superior level Slide5
The issue of over-indebted German municipalities
Vast part of budget is fixed by mandatory administrative tasks delegated (and funded) from superior level Slide6
The issue of over-indebted German municipalities
Vast part of budget is fixed by mandatory administrative tasks delegated (and funded) from superior level Slide7
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 Slide8
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 Slide9
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 Slide10
The issue of over-indebted German municipalities
Main sources of income:Taxes 3. Fees and fines Fund transfers 4. Profits Slide11
The issue of over-indebted German municipalities
Main sources of income:Taxes 3. Fees and fines Fund transfers 4. Profits Slide12
The issue of over-indebted German municipalities
Main expenditures:Payroll 3. Administrative expenses 5. Interest on debtSocial spending 4. Investments in infrastructure Slide13
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 activitiesSlide14
The issue of over-indebted German municipalities
Structure of debt:Slide15
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 neededWater supply
Garbage collection
Public transport
Winding-down organisations that are not required
Local bath
Library
Theatre or opera housesSlide16
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 expendituresSlide17
How to address the issue of over-indebted German municipalities
Insolvency proceedings of over-indebted municipalities?
Should debt restructuring be available?
Pro: I
dentifying structurally non-performing loansRelief 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 preferableSlide18
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)345 552 3190
E
stephan.madaus@jura.uni-halle.de
www.stephanmadaus.de