After a lengthy struggle, the leaders of the various German states have wrested €7 billion ($7.73 billion) in integration funding from the federal government to deal with the massive influx of over 1 million refugees over the past year.
But the controversy over the cost-sharing of the country’s refugee policy is far from over.
As soon as the agreement between the states and the federal government was finalized, the local authorities began voicing their demands that the money not stay in the “sticky fingers” of the states. Cities like Duisburg, where refugee-related costs more than doubled from €33 million in 2015 to €77 million this year, are in urgent need of more funds.
“The cities expect further support from the states, for example for the expansion of childcare and construction of housing, as well as special funds for the construction and outfitting of classrooms,” said Eva Lohse, president of the Association of German Cities and mayor of Ludwigshafen in the state of Rhineland-Palatinate.
“It’s pouring money in at the top and hoping that somehow it ends up where it needs to be.”
The state prime ministers have different ideas for the money. “The extra money is specifically intended to offset the costs to the states,” said North Rhine-Westphalia premier, Hannelore Kraft, a member of the center-left Social Democrats.
Her state has already created 7,000 new teaching positions and thousands of daycare openings, she said. This year it is set to spend €4.6 billion for the accommodation and integration of refugees, with plans to spend €4.1 billion next year, Ms. Kraft said, so the states desperately need the federal funds themselves.
Last week Chancellor Angela Merkel came to an agreement with the state leaders to make an additional €2 billion available annually from 2016 through 2018. An additional €1 billion is to be provided for housing. According to calculations by finance ministry, the federal government will give out €21 billion in total to the states and local municipalities through the year 2020 (see chart). Eckhardt Rehberg, spokesman for Christian Democrats’ parliamentary group, said he hoped, “the call for additional federal funds will now be silenced and the looting of the federal treasury has an end.”
Now the debate has been bumped down to the local level. Michael Thöne is an economist and director of the FiFo Institute for Public Economics at the University of Cologne. He criticized the government’s approach to divvying up of the money, saying that the federal government had taken the easier but less effective approach by following the German financial equalization scheme, which redistributes funding from richer to poorer states, rather than targeting the specific needs of each state or basing the funding on actual refugee numbers.
“It’s pouring money in at the top and hoping that somehow it ends up where it needs to be,” he said.
One problem: How much money is needed and where is unclear and will remain unclear as long as it’s unknown how many refugees will stay in the German states and for how long. Germany’s Federal Office for Migration and Refugees (BAMF) still has 500,000 undecided asylum applications. BAMF head Frank-Juergen Weise said he anticipates that the agency will receive another 150,000 applications from asylum seekers who are currently being handled at the municipality level because the initial reception facilities were too full.
This is why it is unclear whether the states will actually need the €20.9 billion their finance ministers estimated in March they would need this year for the admission and accommodation of refugees, the care of unaccompanied minors, additional teachers and daycare staff, new housing and court costs. About half of the amount was to be passed on to the municipalities.
Cities and municipalities are also in the dark when it comes to their actual financial needs for refugees. According to a recent survey by the management consultancy EY, they expect 370,000 more refugees arriving this year, making an annual total of 733,000 people. Cities and municipalities have hired staff and invested in housing based on these forecasts, said EY partner Bernhard Lorentz.
“Rather than ad-hoc decisions, we’re now seeing long-term planning in many municipalities, which admittedly is considerably more difficult in the absence of authoritative forecast numbers,” he said.
To make matters worse, there isn’t a standard procedure for providing financial support for local authorities. The federal government provides €670 per refugee per month. This is calculated based on the number of refugees, but the municipalities say they need twice as much as that to cover their refugee costs. Some states provide a flat amount.
According to a survey by the German County Association from the beginning of the year, that amount ranged from €513 in Rhineland-Palatinate to €833 in most other states. Only in Bavaria, Mecklenburg-Western Pomerania and Saarland are all actual costs reimbursed based on invoice receipts. Because the federal government does not control the allocation of funds through administrative agreements, a confusing patchwork approach to funding is taking place, according to financial expert Mr. Thöne.
In North Rhine-Westphalia, for example, the state government had already agreed at the end of 2015 to increase the budgeted local costs for refugee accommodation. The statisticians have until the middle of next year to determine those figures.
The federal government, meanwhile, wants to pay its €670 per month per asylum seeker faster. It’s planning for an exact count of refugees this summer, rather than by the end of the year. For the current year, the government in Berlin is using the figures of 800,000 registered asylum seekers and a five-month processing time to come up with a flat rate of almost €2.7 billion to be paid to the states.
In April, a working group of states led by North Rhine-Westphalia put pressure on the federal government to increase the reimbursements, arguing that the €670 only covers a fraction of the actual costs incurred during the asylum procedure. The states also want to make sure that the government pays for the 150,000 refugees that have yet to apply for asylum through BAMF but still must be accommodated.
It likely won’t take long before the states that are in disagreement with their municipalities over refugee funding go back to the federal government to remind it of their earlier demand: that the federal government cover at least half of their refugee costs.
Donata Riedel covers economic policy. Frank Specht is based at Handelsblatt’s Berlin bureau, where he focuses on the German labor market and trade unions. Axel Schrinner is an editor at Handelsblatt, specializing in tax and fiscal policy. To contact the authors: email@example.com; firstname.lastname@example.org; email@example.com