State aid is a field for which the EU has strong regulatory and enforcement competences but so far does not take into account the rights of disabled people when investigating individual measures. There are strong reasons for why it should and could
The European Union has funding instruments at its disposal, for example the European Regional Development Fund and the European Social Fund, which contribute to the financing of personal assistance services but also to the financing of institutions. The European Commission disburses funding to member state governments who ensure the money is spend on specific projects. Both level of governance, the EU and the member state level thus share the responsibility of managing those financial resources.
In 2017, the Committee on the Rights of Persons with Disabilities (CRPD), the official UN watchdog for the UN CRPD, adopted General Comment No 5 on Independent Living which states that “state parties should ensure that public or private funds are not spent on maintaining, renovating, establishing, building or creating any form of institutions or institutionalisation”.
Within the CRPD and the disability community, there is a consensus that those provisions oblige state parties to stop spending money on institutions. The legislation governing the EU Funds acknowledges this legal situation but as of yet does not contain a strict ban.
A new ENIL case study shows that there is another type of funding which contributes to the financing of institutions an for which Member States and the EU-level share legislative and enforcement responsibility. This type of financing is called state aid.
What is state aid?
The Treaty on the function of the European Union (TFEU) article 107 defines state aid as “any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition”. State aid can for example take the form of grants, capital injections and tax advantages. According to the TFEU, state aid is not permissible “in so far as it threatens trade between Member States”. In such cases it is judged to be “incompatible with the internal market”.
EU state aid competence
State aid is not dispersed through the EU-budget but comes directly from Member State budgets, making it appear to be a purely national issue. However, article 3 of the TFEU gives the EU exclusive competence in creating the competition rules for the single market. Chapter 1 on Competition, defines state aid to be a key component of the regulatory framework establishing the single market. Article 108 TFEU grants the European Commission important monitoring and enforcement powers. The authority guarding the treaties can keep national state aid measures under constant review. If the European Commission finds state aid to be incompatible with the internal market, it can oblige a national government to abolish the measure and recover the money. In 2021 the Commission decided that Denmark and Sweden had to retrieve EUR 66 million plus interests which had been paid to the joint public postal company.
State aid and institutions
Throughout the years, the European Commission has reviewed several cases of state aid being spent on institutions. There is a database containing details about those investigations. Evidence from this database shows that member state governments do use state aid financing to build and maintain institutions. The cases which were found were from Germany and Portugal.
In 2011, local and federal state authorities in the Land (federal state) of Rheinland-Pfalz paid EUR 5,5 million to a private provider to convert an abandoned hopsital into a nursing home with a capacity for 950 residents. The grant covered approximately one third of the total investment costs of EUR 15,78, making the project viable for the investor.
For the German case, it is important to take into account the private non-profit providers, which together employ 1,9 million people and run a substantial proportion of social services in Germany. Nursing homes and homes for disabled people make up a substantial part of the total portfolio. For those providers, state aid is an important source of income. For example, since 1956 the German federal state of Niedersachsen pays over EUR 20 million per year to the largest private non-profit providers of disability services and nursing homes. Diakonia, the protestant non-profit charity, has more than 3000 organisational members in Niedersachsen. There are examples of two specific institutions from other parts of the country which are state aid beneficiaries. One is called the Stephanus Foundation and operates in and around Berlin. It provides homes for 1000 disabled people in the area. The Welfare Facilities St. Georg are a provider of services for disabled people from Nordrhein-Westfalen. St. Georg has 3200 disabled people institutionalized, employs 2.532 staff members and had a turnover of EUR 145,9 million in 2021. Non-profit providers in Germany are exempt from the corporate income tax, trade tax and property tax and thus continuous recipients of state aid.
There is evidence from Portugal too. In 2009 authorities in northern Portugal paid almost EUR 2 million to a provider to build a long-term mental health unit
Disability rights as a crtierion in state aid
In some of the cases, the European Commission launched investigations to check whether the state aid measures were in line with EU regulations. In each case, the payments were approved as compatible with the international market and competition laws. Compability with the UN CRPD and General Comment No 5 was not reviewed. One could argue, that of course state aid measures should only be judged against state aid legislation. However, in cases against social service providers the Commission commonly takes into account other criteria than just the wording of legislation. A strict reading of the law in the books and the ECJ rulings allows for no exceptions. State aid payments to social service providers should be very difficult to justify. In practice there is not only the wording but also the spirit of the law which does not mean to disrupt member states social security and social assistance provision. In all cases presented here, the Commission declared the state aid legal.
In the case against the Land of Rheinland-Pfalz, the Commission into account the need to cater to public health as a justification for approving the EUR 5,5 million payment. If public health can be a criterion, why not the service provision needs of the disabled population which lie in community-based services and not institutions?
Further ENIL action Member states and service providers know it is not in their interest to make state aid payments known to a wider public. As a consequence, our knowledge on the matter is still scarce. We need our members to be our eyes and ears and bring state aid cases to our attention. Are you aware of your local, regional or national authorities providing grants to providers of institutions? We will push for more attention for topic and try to trigger EU-investigations. Please get in touch with our Policy Coordinator. Write to florian.sanden@enil.eu.
