Report to Society 2025

Governance

Local government finances

New financing instruments for local authorities navigating transformation

Germany is undergoing a significant process of change. To clear the long-standing backlog in renovation and modernisation, make our infrastructure fit for the future and drive forward this transformation, massive investment is needed in roads, bridges, digitalisation, and energy and heating networks: according to estimates, between 600 billion and 1.5 trillion over the next ten years. Politicians have set a decisive course with the creation of a special fund. Nevertheless, the high level of investment required continues to pose major challenges, particularly for many local authorities and their municipal utilities.

To date, local authorities have largely financed their investments from their own resources. Borrowed capital accounts for only around 20 per cent. Efficient access to capital markets and greater involvement of private sector players offer a good way of tapping into the additional funds required. Savings banks and state banks, as established and long-standing partners of local authorities in Germany, are particularly well placed to identify financial needs and offer reliable financing solutions.

€600 billion to €1.5 trillion
in infrastructure investment is estimated to be needed over the next ten years.

One example is ‘Zukunft Finanzieren’ (Financing the Future), an initiative developed by savings banks, the Baden-Württemberg Savings Banks Association, LBBW and other partners of the Savings Banks Finance Group. The aim is to bring municipal enterprises together with private investors and to create standardised, scalable financing solutions for this purpose. These include direct investments, where an investor finances a specific project, as well as fund models, where several investors jointly invest in a portfolio of projects.

“We have spoken to more than 60 municipal utilities. Several are ready to move forward as soon as there is clarity at the political level,” said Dr Matthias Neth, President of the Baden-Württemberg Savings Banks Association. “The key is to combine public and private capital in a sensible way and to ensure that the costs of fresh equity capital are sustainable for local authorities.”

Experience from the transaction involving the electricity grid operator TransnetBW demonstrates that such structures are feasible. Since 2023, the so-called Südwest Consortium – led by Savings Banksversicherung and involving many other stakeholders such as LBBW – has held a stake in the EnBW subsidiary and is providing additional funds for the expansion of the transmission grid. The contribution ranges from structuring and financing to support with capital raising. This expertise can continue to help in the future to mobilise additional capital for social and economic infrastructure, thereby securing prosperity, quality of life and opportunities for participation in the long term.