Empty municipal coffers jeopardize heating transition

20.02.2025

Source: E & M powernews

The German Association of Cities warns that German municipalities barely have balanced budgets. The heating transition could therefore fail, which is why the new federal government must take action.

This year, almost no city in Germany will be able to present a truly balanced budget. This is the result of a snap survey conducted by the Association of German Cities, in which 100 major cities took part. According to the survey, 37 percent of cities will no longer be able to present a balanced budget, while a further 47 percent will only be able to achieve a balanced budget by drawing on financial reserves.

The President of the Association of German Cities, Lord Mayor Markus Lewe from Münster, told journalists in Berlin that this was not a problem that cities had brought on themselves. "Social spending, over which we have little influence, is running away from us," he explained. In addition, the federal and state governments were assigning more and more tasks to the cities that were not fully financed. "Together with the continuing weak growth, this is leading to a complete overload of municipal budgets," complained Lewe.

Municipal utilities also affected

The Managing Director of the Association of Municipal Enterprises (VKU) also supported the demands of the Association of Cities and Towns. Ingbert Liebing pointed out: "The energy and heating transition will falter if there is no financial basis for it in the cities." In order to be climate-neutral by 2045, municipal utilities would have to mobilize four to five times their current investment volume for the expansion of renewables, power plants, CHP plants and grids.

"We need to put investment financing on a broader footing. More equity capital will play a key role in this," Liebing demanded of federal and state politicians. Financially strong cities have so far helped their municipal utilities with sureties, guarantees and subsidies. If this is no longer possible in the future, investments in the energy and heating transition would become more difficult. Municipal utilities could also generate more equity by retaining their profits. However, this would mean distributing less profit to the cities and thus to the municipal budgets, which would exacerbate their financial situation.

Demands on politicians

The new federal government must therefore initiate a turnaround so that municipal finances do not collapse completely and the cities can finally shape their own finances again, appealed the leadership of the Association of German Cities. The cities are calling for this turnaround:

• A higher share for cities in community taxes, for example sales tax. The local authorities are responsible for around a quarter of all state tasks, but only receive one seventh of the tax revenue. That doesn't add up.
• The federal and state governments must stop giving cities additional tasks that are not fully funded. Funds for tasks where costs are likely to rise must be dynamized - so that cities do not have to chase after their money when costs rise.
• The federal and state governments must not make any tax policy decisions that lead to a loss of revenue for local authorities. If the tax policy of the federal and state governments leads to revenue shortfalls for the municipalities, these shortfalls must be compensated 1:1.
• More frequent fixed budgets instead of complicated funding programs. We need more trust in cities from the federal and state governments. This means: fixed budgets for funded tasks that cities can dispose of freely - instead of complicated funding programs that cost cities time and money.
• Putting the debt brake to the test: If the debt brake prevents investment in the future, it must be reformed.

Lack of money jeopardizes democracy

Looking back over the past five years, almost two thirds of cities rated their budget situation as "rather good or balanced", which has completely changed. "This is not just a financial policy issue. It is also about the future of our democracy," warned Lewe. People were experiencing the state on the ground in the cities. "If they only perceive it as an administrator of deficiencies and no longer as a creator and problem solver, trust in the state's ability to act and in democracy will suffer," said the President.

Katja Dörner, Vice President of the Association of Cities and Towns and Lord Mayor of the Federal City of Bonn, reported: "Over the past ten years, municipal social expenditure has risen by at least a third in almost all areas, in some cases by more than 100 percent." According to Dörner, these socially necessary tasks should also be financed by society as a whole and not be left largely to the municipalities.

Author: Susanne Harmsen