The State and Municipal Relief Act aims to give cities and municipalities more financial leeway for investments in roads, schools, daycare centers, and citizen-oriented services. In total, the federal government is providing around four billion euros through 2029, retroactive to January 1, 2026. The German Bundestag approved the draft law on July 9, and the Bundesrat on July 10.
Of the annual billion, 250 million euros will go to financially weak area states to help them service municipal old debts. Another 350 million euros per year will relieve eastern German states of pension payments from the former GDR’s supply system. The financially strong states will receive around 400 million euros annually because they bear the costs for weaker states in the state financial equalization scheme.
The background to the law is broken roads, dilapidated daycare centers and school buildings, and reduced service hours at citizen offices. Many municipalities in Germany are struggling with high debt burdens and can hardly invest in infrastructure. The federal government has already initiated further relief in this legislative period, including 100 billion euros from the special fund for infrastructure and climate neutrality, as well as the full takeover of municipal revenue losses of around 13.5 billion euros through adjustments to the fixed VAT amounts.
Source: Bundesregierung
