Earlier in 2025, the 20th Bundestag paved the way for a new Special Infrastructure and Climate Neutrality Fund amounting to EUR 500 billion through the new Article 143h of the German Basic Law (Grundgesetz, “GG”). The Basic Law stipulates that EUR 100 billion of this special fund be allocated to the federal states for their infrastructure. To achieve this, the Bundestag has passed laws on establishing the special fund (“SVIKG”) and distributing the financial resources to the federal states (“LuKIFG”).
Background and objective
Faced with both the public infrastructure gaps that have become increasingly apparent in recent years and the need to meet ambitious climate neutrality goals by 2045, the German legislature enacted, in spring 2025, the constitutional basis for a new Special Infrastructure and Climate Neutrality Fund worth EUR 500 billion in Article 143h GG. It was no longer possible to remedy the investment backlog – notably in the areas of transport, energy, hospital, and education infrastructure – using resources from the regular budget.
In response, the Federal Ministry of Finance presented draft bills in July 2025 setting out the federal statutory basis for establishing the special fund and distributing resources from it. These laws were passed by the Bundestag in October 2025.
The Act to Establish a Special Fund for Infrastructure and Climate Neutrality (Sondervermögen-Infrastruktur-und-Klimaneutralität-Gesetz, “SVIKG”) defines the fund’s technical structure and the purposes for which it can be used at the federal level. EUR 100 billion from the fund is expressly earmarked for the Climate and Transformation Fund (KTF), for which the Climate and Transformation Fund Act (Klima- und Transformationsfondsgesetz, “KTFG”) is amended by the new Budget Accompanying Act (Haushaltsbegleitgesetz 2025). The Federal States and Municipalities Infrastructure Financing Act (Länder- und Kommunal-Infrastrukturfinanzierungsgesetz, “LuKIFG”) sets out how EUR 100 billion share intended for the federal states will be allocated and used.
Both legislative initiatives have the objective of strengthening economic growth through an “investment offensive”. In this context, public capital is to be expanded and the economic conditions for business improved through additional investment in infrastructure.
Establishment of the special fund by the SVIKG
Under the SVIKG, a “Special Fund for Infrastructure and Climate Neutrality” with credit authorisation of up to EUR 500 billion is established. This fund will be able to conduct legal transactions, sue and be sued in its own name, although it will not possess its own legal personality.
The special fund is intended to finance additional investment in infrastructure and in the achievement of climate neutrality by 2045. Eligible federal investments include investments in civil defence and civil protection, transport infrastructure, hospital infrastructure, energy infrastructure, education-, childcare-, and research-related infrastructure, research and development, digitalisation, construction, housing, and sport. Dr. Marco König, Dr. Christine Mattes, Dr. Thomas Fritsche and Christoph Schoppe describe in their article in detail what the allocation of the Special Fund for Infrastructure and Climate Neutrality means for construction companies.
Funding for climate neutrality investment will be provided by transferring up to EUR 100 billion to the Climate and Transformation Fund (KTF) in tranches until 2034. However, this funding is limited to “additional investments”. Investments budgeted from the special fund are considered “additional” under this legislation if the investment spending provided for in the federal budget comprises at least 10% of federal budget spending in the respective budget year. Certain items (such as outlays that amount to financial transactions) will be factored out for calculation purposes.
The special fund may only finance investments approved by 31 December 2036. The SVIKG requires that adequate cost-benefit analyses pursuant to section 7 of the Federal Budget Code (Bundeshaushaltsordnung, “BHO”) be carried out in the planning phase and performance reviews during the project and after its completion for all measures to be funded by the special fund. Accordingly, sufficiently specific objectives must be defined for the measures, and methods for the performance reviews determined, with these defined objectives aligning with the purposes of the special fund. Federal budget rules also apply in all other respects (section 113 BHO).
Distribution of funds to the federal states under the LuKIFG
The SVIKG provides for EUR 100 billion to be made available from the special fund to the federal states for investment in their infrastructure. Article 143h(2), sentence 4 GG requires the details to be set out by statute, which the LuKIFG does. As this implementing legislation, the LuKIFG sets out how the EUR 100 billion will be distributed among the federal states, which infrastructure sectors qualify for funding, the duration of funding, and the reporting mechanisms to the Federal Government.
The allocation of funds among the 16 German federal states will be based on the so-called “Königstein” formula (Königsteiner Schlüssel), which takes into account both the federal state’s tax revenue and population size. In turn, the federal states are to designate a portion of these funds for municipal infrastructure, with particular attention paid to financially weak municipalities, while also taking into consideration the specific circumstances in each federal state. The draft law stated that at least 60% of the funding allocable to each federal state must be dedicated to municipal infrastructure. This restriction has been removed in the final LuKIFG. These municipal regulations do not apply to the city states of Berlin, Bremen and Hamburg.
The federal and state governments have agreed on an administrative agreement (Verwaltungsvereinbarung) to regulate the details of the implementation of the LuKIFG. It will enter into force as soon as it has been signed by all federal states.
Eligible sectors and funding requirements under the LuKIFG
Under the LuKIFG, only investments in tangible infrastructure assets belonging to certain sectors are eligible for funding, provided they serve the performance of state or municipal tasks. The eligible sectors are:
- Civil protection
- Transport infrastructure
- Hospital, rehabilitation and care infrastructure
- Energy and heating infrastructure
- Educational infrastructure
- Childcare infrastructure
- Research infrastructure
- Research and development
- Digitalisation
The draft law stated that entities that are fully financed by fees, contributions, or private-law charges are not eligible for funding. Conversely, facilities that receive only partial financing through these means would be eligible. This would have led to the challenge in further implementation of structuring the financing of assets such as network infrastructure, given that they are largely financed by network charges. This restriction has been removed from the LuKIFG in the final version meaning that entities which are fully financed by fees, contributions, or private-law charges are generally eligible for funding.
Funding is not precluded if the public administration uses a private entity under a contractual arrangement to perform tasks for which the public administration is responsible throughout the lifecycle of the project associated with the tangible investment. Thus, projects in public-private partnerships can also be financed. The administrative agreement expressly stipulates that third-party investments in their infrastructure facilities may also be financed if they serve to fulfil state or municipal tasks (section 2(1)).
Furthermore, only investments with a minimum investment volume of EUR 50,000 are eligible. Additionally, any tangible investments must be aimed at long-term use and take demographic changes into account.
To prevent the special fund from serving merely as substitute financing for existing investments, the principle of additionality was regulated in the draft law. Although this requirement, like its federal-level counterpart, was aimed at ensuring that investment increases overall during the eligibility period, it should not be conflated with the federal-level additionality requirement. However, in the final version of the LuKIFG, the principle of additionality has been removed. Although the removal of the principle of additionality could increase investment activity in the short term, it is also subject to criticism, as the removal of this restriction could create incentives to refinance already planned investments.
Double funding, meaning a combination of multiple sources of funding, is generally possible according to the final version of the LuKIFG.
With respect to timing, only those investment measures begun on 1 January 2025 or thereafter will be eligible to receive special fund financing. Exceptions are made solely for earlier preparatory measures related to qualifying investment projects within the funding period. The latest point at which funding approval will be able to be granted is 31 December 2036, and expenditure of funds may continue until 31 December 2042 (see also section 4 of the administrative agreement hereto).
Obligations of the federal states under the LuKIFG
Under the LuKIFG, the federal states must ensure that the funds are used for their intended purpose and must set up appropriate processes to accomplish this. For monitoring purposes, they must submit an overview of started and completed investment projects to the Federal Government annually. The Federal Government will review the projects on a risk-determined sample basis. In this context, the Federal Government has the power to inspect books, records and other documentations, to request explanatory reports, and to conduct on-site investigations – although it is required to avoid disproportionate administrative expenses. The highest federal state authorities must provide any requested information to the Federal Government.
The federal states must also report whether their investments are eligible for green securities issued by the Federal Government (so-called Grüne Bundeswertpapiere) in the areas transport infrastructure, hospital infrastructure, public buildings as well as energy and heating infrastructure (section 5(5) of the administrative agreement on the LuKIFG). These include measures to improve and promote cleaner and more environmentally friendly transportation systems or to accelerate the transition to renewable energies. This allows the Federal Government to refinance the investments by issuing such securities.
Repayment obligation in the event of breach of the LuKIFG
If a federal state violates the funding requirements, the Federal Government can demand repayment of the funds granted. Its right to demand repayment applies where funds have been used for non-eligible purposes (i.e. outside the permitted infrastructure sectors) or where funding was granted outside of the relevant funding period. The wording of the statute is: “The Federal Government may require the repayment of funds from a federal state,” which suggests the existence of administrative discretion. Any repayment claim must be asserted by the end of 2045, unless the Federal Government does not receive the relevant information until subsequently. No repayment will be enforced if the amount in question is under EUR 1,000 (de minimis limit). Any returned funds may be made available to the federal state again.
Structural Component for the Federal States Act
In addition, with the Structural Component for the Federal States Act (Strukturkomponente-für-Länder-Gesetz, “StruKomLäG”), the Federal Government grants the federal states their own debt leeway amounting to 0.35% of the gross domestic product (GDP). The possibilities for the states to take on net borrowing were previously strictly limited due to the debt brake (e.g. with exceptions during periods of economic weakness, natural disasters and extraordinary emergencies). With the StruKomLäG, the debt leeway is allocated to the federal states using a mechanism based on the so-called “Königstein formula” (Königsteiner Schlüssel), so that the federal states have the option of structural new borrowing.
Conclusion and outlook
These laws provide an ordinary statutory mechanism for implementing the special fund already enacted by Article 143h GG. They set explicit requirements for distributing the total of EUR 500 billion and establish initial allocation criteria. It remains to be seen how the states’ investments will develop in detail. The ultimate success of these proposals will likely depend on their compatibility with EU state aid law. The federal states must ensure that their measures comply with the requirements of EU state aid law (section 3(4) of the administrative agreement on the LuKIFG).
The Structural Component for the Federal States Act grants the federal states their own scope for debt. This enables the federal states, for example, to finance additional infrastructure investments through loans.
Forward
