Municipal Social Spending Soars, Straining Local Budgets, New Study Finds
A new study by the Institute of German Economy (IW) reveals a dramatic increase in social spending by German municipalities between 1992 and 2022, while funding for discretionary projects like road construction and housing has significantly declined. The research underscores growing financial pressure on local governments, fueled by rising social service costs largely dictated by federal legislation and insufficient corresponding funding.
Between 1992 and 2022, social spending per capita rose from 759 to 1,675 euros, according to the IW study. Together, the proportion of municipal funds allocated to self-persistent projects-such as road construction and housing-fell from one in three euros in 1992 to just one in five in 2022. Capital investments in buildings experienced a particularly sharp decline, dropping from 21% to 12% over the same period.
The study highlights a shift in the composition of municipal spending,with a substantial portion now driven by political decisions made at the state and federal levels. Authors argue these costs should be adequately financed by those higher levels of government. “To end the municipal financial crisis, fully funded social and youth services as well as a containment of administrative tasks are required,” the study concludes, emphasizing the need to assess whether municipalities receive sufficient funds to cover their social obligations.
Local associations and state governments echo these concerns, criticizing the federal government for imposing additional tasks on municipalities without providing commensurate financial resources. The analysis supports their long-standing claims of underfunding and unsustainable financial burdens.
