fpmi inside: the balance sheet of one of Germany’s largest cities
01.04.2011 by Finanzplatz München Initiative
Dr. Ernst Wolowicz, treasurer of the
municipality of Munich, gave the keynote speech at the fifth fpmi inside, held
on March 22, 2011. He took his many listeners, networking-minded members of the
local financial community, through an entertaining and enlightening tour of the
nooks and crannies of municipal finances.
"To give our participants a look behind doors that are otherwise closed." That is the purpose for staging the fpmi inside series of get-togethers, according to Christine Bortenlänger, speaker of fpmi (the Munich Financial Center Initiative) and managing director of Bayerische Börse, corporate parent of the Munich Stock Exchange.
Wolowicz's 80 nearly listeners - young managers and specialists staffing fpmi's member companies and organizations - had been personally selected to attend these get-togethers by their executive board members or managing directors.
At the first fpmi inside of the year, these participants heard a speech entitled "Managing the budget of one of Germany's largest cities". This look at the finances of this municipality of 1.3 million was given by Dr. Ernst Wolowicz, the treasurer of the municipality of Munich. His talk was prefaced by the words "the city of Munich has revenues of €5 million a year. We're looking forward to hearing how you spend them." This remark was made by Christine Bortenlänger in her entertaining introduction.
Dr. Wolowicz started his talk by making use of the opportunity to counter the opinion so widely disseminated by the media and economists that the public sector is a "money eater" on a binge. His key indicator is the public sector ratio, which is the share of the gross domestic product accounted for by expenditures by the public sector, with this including those for payments into social insurance accounts. Using this indicator, Dr. Wolowicz revealed that this share has remained largely unchanged since the 1970s. Germany's public sector ratio is, in fact, lower than those of France, Italy, the United Kingdom and other western countries. According to him, the only country with a lower public spending ratio is the USA. The same applies to Germany's tax and mandatory expenditure ratios, which, in fact, are at or near the averages of the members of the OECD and of the EU's 27 countries. Summing it up, Dr. Wolowicz stated: "This tenet of ideology is disproved by an empirical investigation."
Dr. Wolowicz took a look at the special features of Munich's finances. "Some 99.9% of Bavaria's communities employ a cameralism-derived method of fiscal accounting, " he stated. According to him, this method offers them the considerable advantages of yielding items of lesser scope in the balance sheet items reported. This method is, however, less easy to understand. "In 2009, in the interests of fiscal honesty and transparency, the municipality of Munich voluntarily eschewed 250 years of cameralism for corporate accounting. This transition has been accompanied by the subsequent compiling of annual financial statements."
Dr. Wolowicz then provided his listeners, whose interest made itself evident in the form of the many questions posed by them, with a look at this system's features. The main source of revenues for his city is the corporate commercial tax. "Don't make the mistake of equating the profits and dividends earned and paid out by large-scale companies with their payments of this tax. Most of our revenues in this area stem from our SMEs," noted Dr. Wolowicz. He next took in-depth looks at the spread of expenditures, at the special features of and problems associated with charges and levies, and at the debt load borne by the municipality. Wolowicz elucidated the nature of the loans taken out by the city, and at the reason why these have been accorded at such good conditions. As he explained, Munich dispensed a while ago with the principle of relying upon a single main bank in this area. Dr. Wolowicz went on to provide an overview of how the municipality manages its financial investments. He could not refrain from making the remark that "Munich is one of the very few cities that has something to manage in this area." The priorities of this management of financial investments, a number of which have ensued from the fulfillment of legal stipulations, are "first and foremost, achieving security. Second and then third are availability and yield," stated Wolowicz.
Dr. Wolowicz concluded his look at the financial investments with a mentioning of a problem experienced by managers of municipal finances: "the structural imbalance existing in the area of financial knowhow" between, on the one hand, the expertise held by them, and, on the other, that possessed by the financial consultants employed by banks. According to him, this imbalance is one reason why a number of communities now have to deal with losses arising from complicated financial transactions.
Dr. Wolowicz had witty answers to the listeners' questions, most of which were posed during his talk. This led the get-together's participants to quickly conclude the resultant Q & A, and to move on to the buffet and to cocktails. This segment of the evening was used to discuss the contents of Wolowicz's speech and other topics, and - in accordance with fpmi's goal of networking its members - to simply get to know each other and to get to know each other better.
"To give our participants a look behind doors that are otherwise closed." That is the purpose for staging the fpmi inside series of get-togethers, according to Christine Bortenlänger, speaker of fpmi (the Munich Financial Center Initiative) and managing director of Bayerische Börse, corporate parent of the Munich Stock Exchange.
Wolowicz's 80 nearly listeners - young managers and specialists staffing fpmi's member companies and organizations - had been personally selected to attend these get-togethers by their executive board members or managing directors.
At the first fpmi inside of the year, these participants heard a speech entitled "Managing the budget of one of Germany's largest cities". This look at the finances of this municipality of 1.3 million was given by Dr. Ernst Wolowicz, the treasurer of the municipality of Munich. His talk was prefaced by the words "the city of Munich has revenues of €5 million a year. We're looking forward to hearing how you spend them." This remark was made by Christine Bortenlänger in her entertaining introduction.
Dr. Wolowicz started his talk by making use of the opportunity to counter the opinion so widely disseminated by the media and economists that the public sector is a "money eater" on a binge. His key indicator is the public sector ratio, which is the share of the gross domestic product accounted for by expenditures by the public sector, with this including those for payments into social insurance accounts. Using this indicator, Dr. Wolowicz revealed that this share has remained largely unchanged since the 1970s. Germany's public sector ratio is, in fact, lower than those of France, Italy, the United Kingdom and other western countries. According to him, the only country with a lower public spending ratio is the USA. The same applies to Germany's tax and mandatory expenditure ratios, which, in fact, are at or near the averages of the members of the OECD and of the EU's 27 countries. Summing it up, Dr. Wolowicz stated: "This tenet of ideology is disproved by an empirical investigation."
Dr. Wolowicz took a look at the special features of Munich's finances. "Some 99.9% of Bavaria's communities employ a cameralism-derived method of fiscal accounting, " he stated. According to him, this method offers them the considerable advantages of yielding items of lesser scope in the balance sheet items reported. This method is, however, less easy to understand. "In 2009, in the interests of fiscal honesty and transparency, the municipality of Munich voluntarily eschewed 250 years of cameralism for corporate accounting. This transition has been accompanied by the subsequent compiling of annual financial statements."
Dr. Wolowicz then provided his listeners, whose interest made itself evident in the form of the many questions posed by them, with a look at this system's features. The main source of revenues for his city is the corporate commercial tax. "Don't make the mistake of equating the profits and dividends earned and paid out by large-scale companies with their payments of this tax. Most of our revenues in this area stem from our SMEs," noted Dr. Wolowicz. He next took in-depth looks at the spread of expenditures, at the special features of and problems associated with charges and levies, and at the debt load borne by the municipality. Wolowicz elucidated the nature of the loans taken out by the city, and at the reason why these have been accorded at such good conditions. As he explained, Munich dispensed a while ago with the principle of relying upon a single main bank in this area. Dr. Wolowicz went on to provide an overview of how the municipality manages its financial investments. He could not refrain from making the remark that "Munich is one of the very few cities that has something to manage in this area." The priorities of this management of financial investments, a number of which have ensued from the fulfillment of legal stipulations, are "first and foremost, achieving security. Second and then third are availability and yield," stated Wolowicz.
Dr. Wolowicz concluded his look at the financial investments with a mentioning of a problem experienced by managers of municipal finances: "the structural imbalance existing in the area of financial knowhow" between, on the one hand, the expertise held by them, and, on the other, that possessed by the financial consultants employed by banks. According to him, this imbalance is one reason why a number of communities now have to deal with losses arising from complicated financial transactions.
Dr. Wolowicz had witty answers to the listeners' questions, most of which were posed during his talk. This led the get-together's participants to quickly conclude the resultant Q & A, and to move on to the buffet and to cocktails. This segment of the evening was used to discuss the contents of Wolowicz's speech and other topics, and - in accordance with fpmi's goal of networking its members - to simply get to know each other and to get to know each other better.