Recorded Largest Financial Shortfall Experienced by Local Communities in History - Historial deficits record high among municipalities
Struggling Finances in Schleswig-Holstein's Municipalities Prompt Calls for Long-term Solutions
Financial struggles in Schleswig-Holstein's municipalities have reached a critical point, with the deficit for communities, district and office administrations, and independent cities amounting to a record-breaking 964 million euros in 2024, according to the Municipal Finance Report of the Bertelsmann Foundation. This figure is also echoed by the Statistical Office North, which reports a deficit of 778 million euros for the same year.
These deficits have been driven by a variety of factors. Personnel expenses have doubled within ten years due to staff growth and higher wage agreements. The municipalities of Schleswig-Holstein have also been faring financially worse than the average of all German municipalities over the last decade.
The situation has been further exacerbated by the need for extensive investments in the climate adaptation of municipal infrastructure. Kirsten Witte, a municipal expert, has stated that the funds for investments are not sufficient for the major tasks of transformation in Schleswig-Holstein. The federal special fund will only partially cover the demand for climate adaptation investments.
Brigitte Mohn, president of the Bertelsmann Foundation, has called for long-term financing solutions due to the municipalities' inability to cope with their central tasks without further commitment from the federal and state governments. Mohn advocates measures that go beyond short-term fixes like budget supplements, to enable sustainable financial management.
Key aspects of these long-term solutions include relaxing the debt brake or constitutional debt limits to allow controlled additional borrowing, securing new long-term financing channels focused on investments in infrastructure and sustainable projects, and leveraging sustainable and citizen-engaged projects that could also generate future revenues or value.
For instance, innovative projects in Schleswig-Holstein focusing on sustainable energy (like seawater heat pump systems in urban districts) suggest that combining technical innovation with strategic financing can improve economic and ecological outcomes in municipalities. Major financial packages, such as the €15.5bn recently approved for transport, energy, housing, and business investments, demonstrate models of how municipalities might tap capital markets or institutional investors for stable, long-term funds.
While explicit statements from Mohn on exact instruments are limited, the overall context indicates she pushes for structural reforms including constitutional budget flexibility, diversified and long-term capital financing, and sustainable investment programs to address persistent municipal deficits in Schleswig-Holstein.
The financial struggles of Schleswig-Holstein's municipalities are not just a local issue. Unchecked expenses for personnel, materials, and social services, coupled with the tripling of the deficit in 2024 and high inflation rates in the construction industry, paint a bleak outlook for the coming years. Inflation, the development of expenses, and a weak economy are contributing to this outlook.
It is clear that radical changes are needed to ensure the financial sustainability of Schleswig-Holstein's municipalities. The focus must shift towards long-term solutions that enable these vital institutions to continue carrying over 50 percent of public investments and ensuring social cohesion, while also adapting to the challenges of climate change and the modern economy.
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The financial predicament of Schleswig-Holstein's municipalities necessitates a shift towards comprehensive, long-term solutions that address factors such as personnel expenses, climate adaptation investments, and structural reforms. These solutions may include relaxing debt brake rules, securing new long-term financing channels, and implementing sustainable investment programs, which could potentially generate future revenues or value.
Moreover, the financial struggles in Schleswig-Holstein's municipalities extend beyond local boundaries, affecting industries like construction, business, and finance due to unchecked expenses and high inflation rates. To ensure the financial sustainability of these municipalities, it is crucial to adopt policies that consider these interrelated aspects, such as community policy and employment policy, to maintain social cohesion and adapt to the challenges of the modern economy and climate change.
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