Municipal finances in danger: every second municipality will be left behind!

Municipal finances in danger: every second municipality will be left behind!

The financial conditions for cities and municipalities are tense. Although the government program provides more resources through additional taxes, these are not enough to stop the structural decline in local financing flexibility. Projections show that by 2025 almost every second community could be considered a leaving community, which is a worrying trend kommunal.at.

A central problem is the increasing co-financing obligation of municipalities, especially in the social sector and hospitals. These financial burdens increase through levies, so that by 2028 only 40 cents of every euro from the common tax pot will remain with the cities and municipalities. In 2019 it was over 50 cents. This development undermines financial independence and thus the ability to finance municipal services of general interest.

Public services and quality of life

Municipal services of general interest play a crucial role in the quality of life and the development of cities and communities. The tasks include education, culture, infrastructure and leisure activities. In particular, requirements and expenses in these areas have increased in recent years while financing options have been limited due to the pandemic. Public services include areas such as child care, primary schools, municipal roads and water supply awblog.at.

Expenditure on areas not financed by fees amounted to 4.8 billion euros in 2018, while the high dependence on tax revenues in various areas is clear. 65% of infrastructure and public transport expenditure must be covered by tax revenue. The Corona crisis led to a decline in revenue shares of 9% in 2020, which further severely limited the municipalities' financial scope.

Need for action and reforms

The need for reform is urgent. Mayor Matthias Stadler is calling for structural changes to sustainably secure municipal finances. Savings in personnel could theoretically help, but these are difficult to implement in practice as the need in areas such as childcare and schools is growing at the same time. A reduction in annual personnel costs by 1% would mean the elimination of around 850 positions annually.

In order to maintain public services, the federal and state governments must create suitable framework conditions. Determined reform steps are necessary to fulfill municipal services without clear-cutting. Investments in future-proof projects must be a priority, as savings in these areas would lead to a loss of quality of life in the long term.

The Association of Cities General Secretary Thomas Weninger emphasizes the need to provide cities with the necessary resources. The forecast investment gap of 1.0 to 1.2 billion euros annually until 2024 shows how pressing the problems are. A lack of funds to finance municipal services could further increase the challenges in the coming years.

Conclusion: Without appropriate financial resources and far-reaching reforms, it will become increasingly difficult for cities and municipalities to maintain the quality of life. However, the satisfaction of 80% of the population with municipal services shows how important functioning public services are.