As Chief Executive of the Association of German Towns and Municipalities (DStGB) and former mayor, the trained lawyer has a particular focus on local authorities. At the same time, as a member of the German Savings Banks Association’s (DSGV) Executive Committee, he is familiar with all aspects of Savings Banks business. Both local authorities and Savings Banks are indispensable for the positive development of rural areas and thus also for the agricultural economy. Dr André Berghegger highlights what is necessary from the DStGB’s perspective to ensure that both can continue to meet this particularly challenging task.
Dr Berghegger, how does the DStGB assess the current situation for local authorities, and what challenges are cities and municipalities currently facing in view of the record deficit in local government finances?
The financial situation of cities and municipalities is dramatic. Local authorities ended the last financial year with a historic deficit of EUR 24.3 billion. Their ability to act and invest is under serious threat. The main cause of this structural underfunding is the continuing rapid rise in expenditure, which is largely beyond the control of local authorities. In addition to the significant increase in personnel costs of 8.9 percent to EUR 88.1 billion due to new hires and wage increases that took effect in 2024, the increases in spending on social services are especially striking, with an increase of 11.7 percent to EUR 84.5 billion. The high deficit on the municipal side is due in particular to the increase in expenditure on child and youth welfare and integration assistance in accordance with the German Social Code.
There is currently no sign of improvement in the precarious financial situation of cities and municipalities. On the contrary, the continued dynamic growth in social spending is accompanied by lower tax revenues due to the economic situation. Many municipalities will be forced to cut back on investment just to keep the financing deficit at around EUR 20 billion. Given the investment backlog of EUR 186 billion and necessary future investments in the triple-digit billion range, this would be disastrous. In this respect, the federal government’s planned financial package for infrastructure is an important signal to the construction industry and local authorities that cities and municipalities can continue to invest in the future.
How should the financial relations between the federal government, the states and the municipalities be reorganised?
In order to maintain the municipalities’ ability to act and invest and to prevent further erosion of the democratic community, the federal and state governments must finally react and put municipal finances back on at least a reasonably stable footing. First and foremost, this includes respect for genuine connectivity, which includes cost-intensive standard adjustments and the expansion of existing tasks. There also needs to be a political shift away from the state having responsibility for everything and the associated limitation of its tasks. Not everything that is desirable can also be financed.
On the revenue side, local authorities must be given lasting relief from social spending. In addition, the municipal share of community taxes must be significantly increased. In the current municipal financial situation, municipal revenue shortfalls resulting from federal and state tax legislation must also be compensated.
»Rural areas must be given greater political attention than they have received in the past.«
Member of the DSGV Executive Committee
In which key areas should the planned EUR 100 billion for the federal states and municipalities from the multi-billion-euro financial package be invested in order to make cities and municipalities sustainable and fit for the future?
The new federal government has announced plans to tackle the infrastructure renovation backlog. To achieve this, we need municipal investment in areas such as our schools, roads and bridges. Of course, this can only be achieved with the support of local property owners and building authorities, i.e. the cities and municipalities. Take the example of dilapidated bridges, which are often the focus of attention. Anyone who fails to take into account that three-quarters of roads and associated engineering structures are the responsibility of local authorities will ultimately achieve little. Even a renovated motorway is worthless if the local bridge behind the junction becomes impassable. We have very clear expectations that the federal states will pass on a large part of these additional funds to the local authorities.
Money alone is not enough – what needs to be done to ensure that the allocated funds have the desired effect?
Local authorities not only need investment funds, but also a significantly greater scope to act. Without strong local authorities, it will not be possible to build up the personnel required to implement infrastructure measures. In addition, excessive standards and regulations make investments in local infrastructure more expensive, slow them down and sometimes even prevent them altogether. Significant improvement is needed here. This also applies to documentation requirements in the context of funding programmes.
In your view, what role do Savings Banks and their partners play in revitalising the economy?
A sustainable economic upturn can only be achieved through locally owned Savings Banks and their association partners. It is they who, as part of their public mandate, ensure the provision of banking and financial services across the country. Thanks to their regional roots, they are very familiar with local conditions and are therefore extremely important for the development of local businesses and the implementation of economic transformation on the ground. As reliable partners in times of crisis, they also play a central role in implementing government support and development programmes.
It is all too often overlooked that regionally rooted Savings Banks, with their local expertise, played a key role in helping the German economy recover from the global financial crisis of 2008/2009. Ultimately, the same applies to financial institutions as to politics: local responsibility creates trust – trust creates economic stability. However, in order for Savings Banks to be able to resume this role, the framework conditions need to be improved. Reporting requirements and the associated bureaucratic costs must be reduced across the board. Less bureaucracy generally creates more scope for investment.
What opportunities and challenges do you see for rural development and the agricultural economy in Germany?
More than half of our country’s population lives outside of urban areas. This is where a large part of the value added is generated. However, the financial situation poses a major challenge, especially for structurally weak regions and rural communities. Here we are often dealing with small administrations that find it more difficult to participate in funding programmes, for example. Rural areas must therefore be given greater political attention than they have received in the past. Even though every region is different, it must be possible to create prospects for the future everywhere. This could be through tourism, an industrial estate or an agri-photovoltaic project, in which agricultural land is used simultaneously for food production and renewable energy generation. We consider the joint tasks of regional economic structure, agricultural structure and coastal protection to be particularly helpful in triggering private investment that strengthens small and medium-sized enterprises and secures and creates jobs.
What role does the above-mentioned joint task of agricultural structure and coastal protection play in ensuring sustainable agriculture and a secure food supply?
The joint task is very important for agriculture. However, agricultural structure and coastal protection are much more than just agricultural aid. The joint task makes an important contribution to strengthening public services in rural areas and can also have a social impact. The funds are used, for example, to finance village community centres or town centre development, i.e. projects that send a clear signal that rural areas are not being left behind.
How important are Savings Banks for rural areas?
Savings Banks are indispensable partners for towns and municipalities in rural areas. They not only ensure comprehensive financial services for citizens and small and medium-sized enterprises, they are also strongly committed to the common good, for example by promoting culture, sport and voluntary work. They are also important taxpayers and reliable lenders for local authorities. As a result, municipally supported Savings Banks are the central anchor of the regional infrastructure and make a significant contribution to local economic and social stability.
