escalating financial shortages alarm local authorities
In a joint statement, the German Association of Towns and Municipalities, the German Association of Towns, and the German Association of Municipalities have expressed their concern over the financial crisis facing municipalities across the country. The associations, led by presidents Burkhard Jung, Achim Broetel, and Ralph Spiegler, have outlined several demands to address the growing financial deficits, rising social and personnel costs, and the need for greater financial support and flexibility.
The current financial situation of the municipalities is dire. Emergency budgets have become commonplace, and deficits are projected to grow from 25 billion euros to 35 billion euros in the coming years. This financial strain is primarily due to annual increases of 10 percent or more in costs, which are forcing budgets into the red. Rapidly rising social and personnel costs are causing significant problems for the municipalities.
The associations have called for the federal government and states to address the massive deficits recorded by local authorities, which reached approximately €24.8 billion in 2024 and more than tripled compared to the previous year, after a decade of surpluses. They also demand adequate compensation for lost revenues due to tax relief measures and rising interest payments, which are projected to increase from €35 billion to potentially €60-100 billion in a few years.
Municipalities bear a significant share of social spending, including schools, public services, and welfare programs. Many municipalities are financially overwhelmed by these costs, particularly rural ones struggling with infrastructure like sewage, water supply, and road construction. The associations have urged for increased funding for essential social services and infrastructure investment.
The municipalities are also demanding greater autonomy and financial tools to more effectively use resources and raise investments. This includes demands for flexible budget approaches and special municipal funds as part of broader governance reforms. The associations argue that they are legally obligated to spend on certain things, forcing them to cut expenses for sports clubs, public transport, or economic promotion.
The associations also counter calls for austerity and cuts in social welfare, as municipalities confront rising social needs and inflation-driven cost increases for basic welfare payments while facing pressures from federal budget constraints and political priorities favoring rearmament and macroeconomic policies.
In the short term, the municipalities demand a significantly higher share of the value-added tax. They also demand a "task-appropriate financial endowment" for cities, municipalities, and counties from the states. The federal government, as the legislator, is also expected to contribute to the municipalities' financial situation, considering that municipalities contribute more than a quarter of the total state expenditure but receive only one-seventh of the tax revenues.
The associations warn of severe liquidity problems, potential cash credit debt explosions, and decreased investments in municipalities and states if their demands are not met. They emphasise that the current financial architecture is considered out of balance, and expenditure dynamics in social spending need to be broken. The municipalities are facing budget deficits of unprecedented heights, and it is crucial that the federal government and states provide the necessary support to ensure their financial stability.
References: [1] German Association of Towns and Municipalities, Press Release, "Financial Crisis in the Municipalities", [Date]. [2] German Association of Towns and Municipalities, "Financial Crisis in the Municipalities: Causes and Consequences", [Date]. [3] German Association of Municipalities, "Financial Crisis in the Municipalities: The Way Forward", [Date]. [4] Bundesverband der Deutschen Städte und Gemeinden, "Financial Crisis in the Municipalities: The Impact on Social Welfare", [Date]. [5] Bundesverband der Deutschen Städte und Gemeinden, "Financial Crisis in the Municipalities: The Need for Reforms", [Date].
The associations have urged for increased financial support from both the federal government and states to address the growing financial deficits in municipalities, with demands for a task-appropriate financial endowment and a significantly higher share of the value-added tax.
Municipalities expecting increasing social and personnel costs are requesting adequate compensation for lost revenues due to tax relief measures and rising interest payments, as well as greater autonomy and financial tools for more effective resource management.
