Urgent warning: municipalities are heading towards 30 billion euros in debt!

Urgent warning: municipalities are heading towards 30 billion euros in debt!

The issue of municipal finances is currently high on the agenda. As Achim Brötel, the new president of the Baden-Württemberg district council, emphasizes, the municipalities are threatened with serious financial bottlenecks. Budget planning is due in the autumn, which will not only affect the financial situation of the cities and municipalities, but will also have a noticeable impact on the everyday lives of citizens. “We are heading for a loss of over 30 billion euros,” said Brötel, who also works as a district administrator in the Neckar-Odenwald district and heads the German District Council. He describes the situation as dramatic and calls for quick help from politicians instead of waiting until 2026, as Staatsanzeiger reports.

What is particularly worrying is that in some places people are already considering possible measures that could include canceling bus routes and cultural offerings. These developments could encourage the rise of extreme parties as popular discontent grows. The past few years have shown that although municipal revenues have increased by 3.5%, expenditure has increased by 8.8%. One reason for this is the greatly increased spending on social services, which, according to figures from the Schader Foundation, caused a deficit of 24.3 billion euros in 2024. This represents an increase of almost 300% compared to previous years. Local decision-makers are unlikely to be able to evade these challenges lightly.

Debt and deficits

At the same time, the 2025 municipal financial report shows that the financial situation of municipalities has collapsed across the board. The stagnating tax revenues reflect the weak economy and mean that important expenses such as personnel and social services are growing unchecked. “The structural problems, especially with social spending, are unresolved,” warns Brigitte Mohn from the Bertelsmann Foundation. She emphasizes that the high deficits call into question the financial ability of municipalities, which account for over 50% of public investments. Over the years, the tasks of the municipalities have been expanded, but not sufficiently financed. This shows that we are in a dilemma: more and more tasks are being carried out without the necessary money, and the municipalities are structurally underfinanced.

Spending on social services has increased particularly dramatically, by around 11.7% in the areas of integration assistance and child and youth welfare. In view of these figures, it becomes clear how urgently reforms are needed to stabilize the financial situation of municipalities. It remains to be seen whether the future pact envisaged in the coalition agreement of the new federal government, which is aimed at strengthening municipal financial capacity, also provides concrete reform proposals. The current pessimistic outlook on the financial prospects of municipalities raises doubts about this, as the [Bertelsmann Stiftung](https://www.bertelsmann-stiftung.de/de/themen/aktuelle-melden/2025/juli/kommunale-finanzen-groesstes-streit-in-der-geschichte-der-bundes republic) states.

The urgent need for state reform becomes clear not only in political discussions, but also in workshops, such as those recently organized by the Schader Foundation and the Darmstadt University of Applied Sciences. Approaches to reform options were discussed here, which should focus on both the expenditure and income of the municipalities. Uwe Zimmermann, from the German Association of Cities and Municipalities, emphasized that challenges such as digitalization, reduction of bureaucracy and climate protection measures must be actively addressed. This is the only way communities can survive a critical situation without endangering the foundations of social cohesion.