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Financial distress: municipalities are facing record deficits!
Hans-Günter Henneke warns of a municipal financial collapse on February 17, 2025: Deficits are rising rapidly, urgently needed reforms are required.
Financial distress: municipalities are facing record deficits!
The financial situation of German municipalities is getting worse. Hans-Günter Henneke, the general manager of the German District Council, urgently warns of an impending collapse of district budgets. In a recent statement, he explains that without slowing down spending growth and strengthening the municipal revenue base, the situation could reach catastrophic proportions. The original deficit forecast by the municipal associations for 2024 was 13.2 billion euros. However, reality currently shows a deficit of almost 25 billion euros after the first three quarters of 2024, which Henneke describes as a gigantic problem with structural errors.
In order to escape the catastrophic situation, Henneke is calling for a higher share in the distribution of sales tax. He therefore calls for measures to noticeably improve the financial basis of the municipalities, such as Deutschlandfunk reported.
Alarming deficits and backlog of investment
In addition, the financial situation of municipalities is deteriorating rapidly. Last year, municipalities recorded a deficit of 6.2 billion euros, a deterioration of 8 billion euros. An expected deficit of 13.2 billion euros is forecast for the current year, which means a doubling compared to the previous year. The forecasts up to 2027 show that the deficits could remain at a similar level City Day reported.
In this context, the presidents of the municipal umbrella associations are calling for a larger share of community taxes, while at the same time criticizing the expansion of the municipalities' tasks without adequate financing. New investments hardly seem possible, and a decline in municipal investments is expected from 2025. This investment backlog already amounts to 186 billion euros and will continue to grow. The reason for the increasing deficits is not only inflation and rising case numbers, but also a historically high collective bargaining agreement at the local level. Because of this, the federal and state governments have to relieve the burden on their budgets by using municipalities as default guarantors.