Unprecedented budget shortfalls whet concerns among local administrative bodies
In a joint declaration, three major German municipal associations have highlighted the severe financial issues facing municipalities across the country. The current challenges include escalating budget deficits, rising debt, and a growing investment backlog in public infrastructure such as schools, childcare, and social services.
According to the declaration, municipalities recorded a €24.8 billion deficit in 2024, marking a stark contrast to a decade of surpluses until 2022. Debt levels have also increased by 3.0% in the first quarter of 2025, indicating a deepening fiscal crisis. Local authorities are struggling to meet rising social spending and public service demands, all while lacking sufficient funds and planning capacity.
The associations have outlined key demands towards the federal government and states. These include financial support and reform, addressing the investment backlog, inclusion in federal budget planning, and managing rising interest expenses and debt levels.
The Bertelsmann Foundation emphasizes the urgent need for reforms and financial aid to prevent town halls from "running out of breath." Municipalities face a large backlog estimated at €55 billion for school buildings and €13 billion for childcare facilities alone. Existing subsidies have been ineffective due to obstacles like lack of planning and political approval.
The federal budget for 2026 does not adequately address the municipalities' financial crisis, despite deficits tripling and pressures increasing. There are calls for the federal government to better account for municipalities’ significant share in social spending and public investment.
Interest payments on public debt are expected to rise sharply, threatening budgets at all government levels. Municipalities’ debt has been growing rapidly, and state governments are also increasing borrowing. This necessitates coordinated federal-state action.
Annual increases in costs of 10% or more are pushing municipalities' budgets to their limits. Rising social and personnel costs are causing problems for municipalities. However, no specific timeline for the escalation of financial issues is provided in the declaration.
The associations argue that cities, counties, and municipalities are often legally forced to cut expenses in areas like sports clubs, public transportation, or economic promotion due to expenditure in other areas. The presidents of the associations did not provide a proposed solution to the financial situation.
Emergency budgets and austerity measures have become the norm for many municipalities. The deficit in German municipalities' core budgets is projected to grow from 25 billion euros to 35 billion euros in the coming years. Municipal reserves have been depleted in many places.
In response, the associations demand a significantly higher share of value-added tax in the short term. They also call for the states to provide "task-appropriate financial equipment" for cities, municipalities, and counties. Currently, municipalities contribute more than a quarter of the total state expenditure but receive only one-seventh of the tax revenue.
The joint declaration does not mention any specific municipalities facing financial difficulties. However, it warns that this could lead to severe liquidity problems, cash credit debt explosion, and a decline in investments in municipalities and states. The federal government, as the primary legislator of municipalities' burdens, is also expected to contribute.
The associations have urged the federal government and states to address the financial crisis in municipalities, proposing a higher share of value-added tax and task-appropriate financial equipment to prevent municipal bankruptcies. The escalating deficits and rising debt in municipalities could lead to liquidity problems, cash credit debt explosions, and a decline in investments, as highlighted in the joint declaration.
