German cities are grappling with serious financial challenges as a recent survey revealed that most are struggling to achieve balanced budgets due to sluggish economic growth and high social expenditure. Ahead of an upcoming election, where the economy is a central concern for voters, the survey highlights the economic hardships faced by municipalities in Germany.
Factors such as stiff competition from abroad, escalating energy costs, rising interest rates, and economic uncertainty have all contributed to a contraction in Germany's economy for the second consecutive year. The survey by the German Association of Cities indicates that around 37% of major cities are unable to balance their budgets, with 47% relying on reserves for financial stability.
With the federal election approaching, concerns over the economy dominate voter discussions, with the far-right Alternative for Germany (AfD) party expected to make significant gains. The survey also paints a bleak picture for the future financial outlook of cities, with only 2% feeling optimistic for the next five years and nearly half anticipating deteriorating budgets, potentially leading to cuts in services and infrastructure projects being put on hold.
Addressing the alarming financial situation, Markus Lewe, the president of the association, emphasized that the problem lies in structural issues rather than with the cities themselves. He called for urgent intervention from the incoming federal government to avert a financial crisis in cities, suggesting measures like a fairer distribution of tax revenue, full funding for mandated programs, and a review of debt management policies.
Rising social expenditures, particularly in areas like childcare, disability support, and elder care, have significantly strained municipal budgets. The association reported a 12% surge in social spending last year, with child and youth welfare costs doubling in the past decade. This increase is exacerbated by unfunded mandates from federal and state governments, such as the legal requirement for all-day childcare.
City officials also expressed concerns about the funding of major investments in areas like transportation, energy, and environmental initiatives like the heat transition. Burkhard Jung, the association's vice president, highlighted the lack of clarity on financing these critical projects amidst the financial challenges faced by cities.