The Federal Office for Building and Regional Planning

Objectives, funding, allocation of funds

The essential fundamentals and objectives of urban development grants are defined in Article 104b of German Basic Law:

(1) To the extent that this Basic Law confers on it the power to legislate, the Federation may grant the states (Länder) financial assistance for particularly important investments by the states and municipalities (associations of municipalities) which are necessary to:

  1. avert a disturbance of the overall economic equilibrium;
  2. equalise differing economic capacities within the federal territory; or
  3. promote economic growth.

(2) Details, especially with respect to the kinds of investments to be promoted, shall be regulated by a federal law requiring the consent of the Bundesrat or by an executive agreement based on the federal budget law. The duration of the grants shall be limited and the grants must be reviewed at regular intervals with respect to the manner in which they are used. The financial assistance must be designed with descending annual contributions.

(3) Upon request, the Bundestag, the Federal Government as well as the Bundesrat shall be informed about the implementation of such measures and the improvements reached.
The federal government and the states, based on this, attribute great economic, social and cultural significance to urban development grants. They consider it an important domestic and municipal task as well as a central instrument of sustainable urban development in the sense of a lead programme.

The statutory provisions regarding funding and grants are summarised in sections 164 a and b of the Building Code (BauGB). These sections also show that the further phrasing of substantive focal points in urban development grants (programmes) as well as the regulation of the amount and distribution of funds are essential elements of executive agreements. These are concluded between the federal government and the states according to the federal budget law.

On the basis of the executive agreement, it is then the funding guidelines of the states that further define the fundability and funding key areas of the measures as well as the specific selection criteria. The municipalities are responsible for the preparation and implementation of urban planning measures as part of their local planning competence.
The main objective of urban development grants is about strengthening cities and municipalities sustainably as economic and residential sites, as well as about rectifying permanently any opposing deficiencies or grievances.

The main focal points for the use of financial assistance are:

  1. Strengthening inner cities and district centres in terms of their urban planning functions, with special consideration to residential housing as well as the protection and maintenance of monuments
  2. "Socially City" measures
  3. Urban restructuring in the old and new federal states
  4. Re-use of land, particularly in inner cities, with special consideration to its functionally meaningful allocation (mixed use)
  5. Securing the general economic interests of smaller cities and municipalities in sparsely populated, rural areas

The federal government, states and municipalities all share in the funding of urban development grants. The basic rule states that the federal share must be one third. Exceptions are the programmes "Protection of the urban architectural heritage" (federal share 40%) and "Urban restructing in the new federal states" (federal share 50%). The states raise an amount of funds equal to that of the federal government. The remainder is contributed by the municipalities as municipal co-payment, with the states deciding on the financial distribution of funds between the state and municipality.

The amount of the federal financial assistance is defined in the federal budget plan. In the individual plan of the Federal Ministry of the Interior, Building and Community (BMI) for the programmes "Urban development and redevelopment measures", "Protection of the urban architectural heritage" and "Urban restructing", the financial assistance is pre-allocated according to the old and new federal states. This is based on political decisions regarding the funds for programmes specific to the East and West. The programmes "Social City programme", "Active district and neigbourhood centres" and "Smaller cities and municipalities" are anchored federally.

Most funding flowed to East-German municipalities up to 2008 due to the increased urban development requirements. Since 2009, the framework of obligations has taken greater account of the West when it comes to the distribution of funds. Relative to the East-German population share, the states of former East Germany continue to participate in the federal financial assistance disproportionately. In parallel to the pre-allocation according to East and West, financial assistance is distributed to the different programmes.

Finally, the executive agreement determines the distribution of financial assistance for the various programmes to the states. This is done via an allocation formula that is to ensure for each programme an appropriate distribution of funds and that comprises different individual components.

Currently, especially within the EU context, there is a discussion underway as to the use of new funding instruments such as urban development funds and their implementation is being tried out.

Allocation of funds

Financial assistance is allocated to the states on the basis of problem-based allocation formulae. Depending on the programme, various components with different weightings are factored into the calculation of the allocation of funds. In the process, the states' shares are calculated relative to the total value of all states involved in the respective programme. For all programmes, the basic component "Population share" is taken into account for the calculation at a rate of 70% each.

The allocation formula for "Urban development and redevelopment measures" as well as "Protection of the urban architectural heritage" is based additionally on the components "Share of municipalities with a population decline greater than 2% in a specific period", "Share of the unemployment rate", "Share of foreign population" and "Share of residential units in buildings built prior to 1918". These components are taken into account in the calculation at a rate of 7.5% each. This is done separately for the East and West of Germany. The same formula is also applied to the programme "Active district and neigbourhood centres". But in this case, the allocation of funds is calculated for all of Germany. The allocation formula for "Social City" programme is based, apart from the basic component "Population share", on the two components "Share of the unemployment rate" (22.5%) and "Share of foreign population" (7.5%). The calculation is done for all of Germany.

For the programmes "Urban restructuring in the old federal states" and "Urban restructuring in the old federal states", as well as the programme "Smaller cities and municipalities", the allocation of funds is calculated via the basic component "Population share" and the following components: "Share of municipalities with a population decline greater than 2% in a specific period" (15%), "Share of the unemployment rate" (7.5%), "Share of vacant units in residential buildings" (5.0%), and "Share of the population over 65" (2.5%).

After the financial assistance has been allocated to the states, the states are responsible for implementing the programmes and allocating the financial assistance to the municipalities. This means that by exerting regional and structural control, depending on the specific needs, the states can define key task areas and "assistance cultures" in implementing the programmes.
When a municipality receives assistance, the funding commitment always refers to a specific assistance area. The financial assistance flows into overall measures that are put in place in the affected assistance areas, which are in turn divided further into individual projects.

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