Overview of the new draft law on infrastructure funding

100 billion euros – that is how much money is to be made available to states, municipalities, and public bodies from the federal government's special infrastructure and climate neutrality fund. With the draft of the State and Municipal Infrastructure Financing Act (LuKIFG), which was submitted to the Bundesrat on July 3, the federal government wants to enable investments in schools, heating networks, transportation, and digitalization nationwide.

This raises a number of important questions: Who gets how much? Who distributes the funds? And who ultimately bears responsibility for misuse?

Strengths of the draft law

• Clear distribution
  The allocation of funds according to the Königstein formula provides planning security because each federal state knows its share (e.g., North Rhine-Westphalia € 21.10 billion, Bavaria € 15.70 billion, Berlin € 5.22 billion, Saxony € 4.84 billion, Bremen € 0.95 billion).
• Flexible use of funds at the local level
  The states decide to what extent they involve local authorities. The mandatory quota for municipal investments of 60 %, which was still included in the draft bill, has been deleted. Large states should take particular account of the needs of financially weak municipalities.
• Institutional neutrality
  In addition to states and municipalities, other legal entities may also be recipients of funding, provided they perform public tasks. The decisive factor is that public infrastructure is modernized where it is actually operated and designed. This may include, in particular, municipal enterprises, special-purpose associations, non-profit limited liability companies and associations, welfare organizations, and foundations with educational, environmental, and social missions.
• Strict control
  The draft law regulates recovery mechanisms, random checks, and reporting obligations much more precisely than the draft bill, including interest at a rate of 0.1 % above the base rate in the event of misuse.
• Clear funding period
  The draft law does not deviate from the draft bill in terms of deadlines. Measures that were started on or after January 1, 2025, are eligible for funding. Funds can generally be drawn down until December 31, 2042, and, with restrictions, until December 31, 2043. Approval can be granted until December 31, 2036, at the latest. By the end of 2029, at least one-third of the funds allocated to a state must be contractually committed.

Risks & open questions

• State sovereignty
  Without a fixed minimum quota for municipalities, much depends on the political priorities set by the states. Municipalities must pay close attention to ensuring that their needs are met in a timely manner.
• Administrative agreement still a black box
  The specific agreement between the federal government and each state is still pending. However, such an agreement is a prerequisite for drawing down funds and contains the details for implementation. Without a binding nationwide framework, this approach threatens to create a fragmented funding landscape, especially at the municipal level. There is no sign of systematic administrative simplification as yet.
• Interest risk in the event of reclaims
  Although the state is initially liable to the federal government for any misuse, if the subsidies are used to finance projects by municipalities or other agencies, the ultimate responsibility lies with the respective recipients. For smaller municipalities and agencies, this can place a considerable financial burden on their budgets in the event of reclaims.

Recommendations for municipalities and agencies

• Clarify funding eligibility internally
  Project ideas should be specified at an early stage and evaluated in terms of their eligibility for funding.
• Strategic preparation
  Early communication with the relevant state ministries helps to clarify which types of investment are likely to be favored, such as education, digitalization, or energy infrastructure.
• Establish digital infrastructure in good time
  Funding requests, documentation, and audit procedures are likely to be challenging. Digital applications should therefore be ready for use before funding begins. Smaller municipalities and agencies in particular can benefit from inter-municipal cooperation, for example, through shared systems, interfaces, or technical support.

What happens next

Following the draft bills presented in June for the LuKIFG and a law on the establishment of a special fund for infrastructure and climate neutrality (SVIKG), the federal government is taking a further step with the current draft law to ensure that federal funds can be accessed as soon as possible and investment projects for modernizing infrastructure can be implemented. After the Bundesrat has submitted its opinion, the draft will be debated in the Bundestag and its committees.

In order to be able to quickly launch infrastructure projects after the law comes into force, municipalities and agencies should make the above preparations. As experienced funding and financing specialists, we are happy to assist you in this regard.