Municipal financial crisis: record deficit of 24.8 billion euros!

Municipal financial crisis: record deficit of 24.8 billion euros!

The financial situation of municipalities in Germany is becoming increasingly critical. In 2024, municipal budgets recorded a financing deficit of 24.8 billion euros, which is the highest deficit since reunification. In comparison, the deficit at the end of 2023 was only 6.6 billion euros. This drastic increase is primarily due to the exploding social spending, which increased by almost 12% and now accounts for a large portion of municipal spending. In addition to social benefits, personnel costs also rose by almost 9%, while tax revenue only rose by 1.5%, which further exacerbated the financial difficulties. kommunal.de reports that an increase in the deficit of 10 billion euros compared to the previous year was already recorded in the first half of 2024.

Expenditure in municipal core and extra budgets increased by 12.6% year-on-year, but revenue only grew by 7.6%. This resulted in 6.2% of expenditure not being covered by regular revenue, forcing municipalities to resort to reserves and loans. The German Association of Cities described the financial situation as “catastrophic” and called for a reform of the financial system. Helmut Dedy, general manager of the association, warned that the municipalities cannot compensate for the deficit on their own. The German District Association is also calling for comprehensive reforms in financial distribution.

Challenges and expenses

A key driver of the deficit is social benefits, which rose by 11.7% to 84.5 billion euros. Particularly noticeable are the increases in citizens' benefits and social assistance, which each increased by 12.4% or to 21.1 billion euros. Spending on child and youth welfare also rose by 17.1% to 18.3 billion euros, while integration assistance grew by 13.6% to 22.7 billion euros. These increased expenses present municipalities with enormous financial challenges.

Personnel expenses now amount to 88.1 billion euros, which was heavily influenced by wage increases and an increase in the number of employees. Faced with an investment backlog of 215.7 billion euros - over half of which relates to schools and road and transport infrastructure - the mayors feel under pressure. 70% of them see financial issues as the most pressing challenge, while 85% see rising social spending as a major problem.

Outlook and possible solutions

For the coming years, a decline in tax revenues of 27.2 billion euros is forecast between 2025 and 2029. This poses serious problems for municipalities, as they are simultaneously confronted with a massive shortage of skilled workers - there is currently a shortage of 570,000 employees in local administrations. In the next 20 years, 937,100 employees will leave the public sector, which could further aggravate the situation.

In this context, the “Finance 2025” discourse will take place in Göttingen on August 27th and 28th, 2025, in which up to 40 participants will take part in three panel discussions and nine keynotes. The topics of the discourse include, among other things, double-entry bookkeeping, integration assistance, investment ability, property tax C as well as securing liquidity and employer attractiveness. The aim of the discourse is to develop solutions and networks for the challenges in the area of ​​municipal finances.

The current crisis is seen as the result of five structural trends: demographic change, an increase in tasks without connectivity, fragmented funding logic, crowding out of investment through mandatory spending, and a shortage of skilled workers. In order to meet these challenges, fundamental reforms and reorientations in financial policy are necessary. zdf.de has also taken up these developments and emphasizes the urgency with which municipalities rely on support and adequate financing models.