In 2024, German municipalities faced a staggering deficit of 24.8 billion euros, marking the highest level since reunification in 1990, primarily driven by soaring social welfare expenditures.

This deficit represents a sharp increase from the previous year's deficit of 6.6 billion euros, as reported by the Federal Statistical Office.

Core municipal budgets accounted for the majority of this deficit, totaling 24.3 billion euros, nearly four times the 6.3 billion euros recorded in 2023.

The primary driver of this increased spending was social benefits, which rose by 11.7% or 8.9 billion euros, totaling 84.5 billion euros due to adjustments in social assistance and citizen's income effective January 1, 2024.

Additionally, personnel expenses surged nearly 9%, reaching 88.1 billion euros, further straining municipal finances.

Specific areas of social assistance saw significant increases, with expenditures rising by 12.4% to 21.1 billion euros, child and youth aid spending growing by 17.1% to 18.3 billion euros, and integration assistance costs climbing by 13.6% to 22.7 billion euros.

In light of these financial challenges, local governments are struggling to manage the deficit and may be forced to cut investments and voluntary services due to limited options for cost reduction.

In the first half of 2024, municipalities earned 8.0 billion euros from property taxes, which accounted for 13% of their tax revenues, highlighting the importance of this revenue source for local budgets.

Municipal associations have criticized federal and state governments for expanding municipal responsibilities without providing adequate funding, calling for a larger share of joint taxes.

Christian Görke, parliamentary manager of the Left Party, urged the governing parties to tackle the structural financial crisis, proposing measures such as debt relief and increased shares of sales and income taxes for municipalities.

The German Association of Cities described the financial situation as catastrophic, advocating for comprehensive reforms in financial regulations at all governmental levels to address this structural imbalance.

As a potential short-term solution, an increase in property tax rates has been proposed to help municipalities manage their financial challenges.