KfW Research: Investment backlog in German schools exceeds EUR 45 billion

• A modern school infrastructure is a prerequisite for an efficient education system
• High costs of construction and energy pose challenges for municipalities
• Differences in degree of urgency for municipalities continue to widen

Education is a cornerstone of Germany’s prosperity and competitiveness. Modern, functional school buildings are an essential prerequisite for an efficient education system. The investment backlogs in schools, which have been high for years, are therefore cause for concern. To be sure, in recent years cities, communities and districts have responded to new demands on inclusion, digitalisation and pandemic intervention efforts , as well as increasing investment in school infrastructure, as revealed by a current special analysis by KfW Research on the basis of the nationally representative KfW Municipal Panel on the occasion of the start of the new school year. But the costs are rising faster than the levels of municipal investment. According to the KfW Municipal Panel, the nationwide investment backlog in the school sector stood at EUR 45.6 billion in 2021, which was 4.7 times the volume of EUR 9.8 billion invested by municipalities in school infrastructure annually.

In addition to construction prices, which have been rising for some time now, the current gas crisis is further exacerbating the cost problem. School buildings account for a major portion of municipal building space, involving high energy costs and corresponding requirements for energy efficiency upgrades. Municipalities are planning to invest EUR 10.8 billion in school buildings this year.

Although the investment backlog fell slightly in the past year (2020: EUR 46.5 billion), overall it has hardly changed in the past five years despite all efforts. Thus, school buildings remain one of the three areas where municipalities have the greatest need, along with roads and administrative buildings.

What is alarming is that the differences in the degree of urgency felt by municipalities impacted by high backlogs are still widening. Thus, in 2022 around 17% of municipalities reported a serious backlog of investment in school buildings, a deficit that is severely restricting their ability to fulfil their municipal functions in this area. That rate has grown substantially in the past years and was only 10% in 2015. At the same time, the share of municipalities that are experiencing no or only minor investment backlogs remained nearly unchanged at 45% in the current survey, after 47% in 2015. In the median, the proportion of municipalities experiencing “only” a significant investment backlog in their schools has fallen from 43% in 2015 to now 39%. That has created increasingly different levels of urgency to reduce the investment backlog between municipalities with a good school infrastructure and those with a poor one.

The views on the future trend of the backlog are also drifting apart again. Whereas 55% of municipalities in 2019 believed that the investment backlog in schools would fall in the following year, that share has now dropped to a mere 43%. At the same time, the share of municipalities expecting the backlog to actually continue increasing rose from 20% to 25% over the same period.

The investment backlogs in schools resemble the situation of municipal finances in general. The positive overall development is masking high regional disparities. In the future the main focus in this area of public service provision, which is so important for Germany, will have to be placed not just on municipalities’ overall development but on securing a sufficient supply of modern school infrastructure in all of Germany’s regions.

“Education is a crucial factor for Germany’s future prosperity and competitiveness. In addition to the quality of individual teachers, school buildings are a cornerstone of an efficient education system. The investment backlogs in schools, which have been high for years, are therefore cause for concern”, said Dr Fritzi Köhler-Geib, Chief Economist of KfW. “The catching-up process is being disrupted by the impact of the current crises, as the effects of the war in Ukraine are being felt alongside the pandemic. Rapidly rising energy prices are also affecting municipalities. Amid rising costs of electricity and heating, it is becoming much more expensive to run school buildings, and this is leaving less room for investment.”

Education is mainly a state matter. So it is primarily up to state policymakers to improve the conditions for municipal investment in schools. This can be done via municipal fiscal equalisation systems or specific state programmes, for example. But local fiscal policy hardly permits specific budget areas to be seen in isolation. “All federal levels must come together to strengthen the overall ability of the territorial authorities responsible for school buildings. It is therefore necessary to ensure that municipalities in all regions have the capacity to invest so that they can make key areas of infrastructure such as school buildings available in appropriate numbers and condition. This will help maintain the competitiveness of Germany’s regions and open up new opportunities for the lives of the people while at the same time helping the country actually solve to the great challenges it is facing”, added Köhler-Geib.

Further information can be obtained at:
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