Study: municipalities spend too much – and slide into the record minus

The ever increasing social spending and personnel costs ensured a record minus at the municipalities in Germany last year. According to the now published municipal financial report 2025 of the Bertelsmann Foundation, all cities and municipalities have a minus of 24.8 billion euros. After more than ten years with surpluses, there was a trend reversal in 2023. A year later, the record deficit follows three times higher than in the previous year. The numbers are based on already published financial statistics.

According to the study authors, the problem of treasurer in cities and municipalities is not the income. They rose by five percent in all countries and nationwide last year, according to the financial report. It is the expenses grown by ten percent that the municipalities take the options for action. As reasons, the authors state inflation, increasing social expenditure, tariff increases and thus the personnel costs as well as higher energy prices.

According to the authors, personnel costs have doubled within ten years. The reason is a job structure and high tariff degrees. The social expenditure has made a jump over a quarter to 85 billion euros in the past two years. “The municipalities have a large spectrum of social tasks, which are mainly regulated by federal law, but are often not sufficiently counter -financed by the federal government,” said the foundation on the reasons.

Nevertheless, the municipalities in Germany spent a record amount of investments with 52 billion euros. However, according to the report, there is an investment deficit of around 216 billion euros. The authors will be pessimistic in the forecast for the coming years. The permanent underfunding can only be remedied by long -term structural reforms, for example in social expenditure.

“The deficit of 2024 marks a turning point that questions the financial ability to act sustainably. Municipalities shoulder over 50 percent of public investments and are important for social cohesion. We need a state reform, because otherwise the municipalities no longer perform these important tasks
can “, says Brigitte Mohn from the Bertelsmann Foundation’s board.

The financial situation is very different depending on the state. Only 8 out of 70 East German municipalities reach the national average of tax power. Cities and municipalities in Bavaria and Hesse finance more than 40 percent of their budget from taxes, but in the case of East Germans, it is less than 25 percent. The rest comes from fees, contributions and financial allocations.

Before 2013, the municipalities were able to dismantle their cash loans comparable to the overdraft facility among consumers for over seven years. Cash loans are considered the central crisis indicator. According to the study, the problem is increasingly focusing on North Rhine-Westphalia. “A quarter of the German volume is only necessary for nine cities in this country,” explains co -author René Geißler. “Other earlier crisis regions such as the Saarland and Rhineland-Palatinate have already implemented aid programs. However, the hard-achieved successes of the past few years are threatening to be lost in the face of new deficits,” says the professor of public administration at the Technical University of Wildau.

Transparency note: The star is part of the Bertelsmann Group.