Grim Finances: How Municipalities' Financial Woes Show Up at Savings Banks

Municipalities in southwestern Germany are grappling with a deepening financial crisis, evident in the shrinking balances held by their local savings banks. By the end of June, public sector deposits across 50 savings banks in Baden-Württemberg plummeted by 15% compared to the previous year, reaching 9.1 billion euros.

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The municipalities need more and more loans from the savings banks, while deposits continue to fall.

Simultaneously, demand for loans surged. Cities, towns, and districts owed savings banks 6.0 billion euros by the end of June, a significant increase of one billion euros, or 20%, from a year earlier. This trend indicates that expenditures are currently outpacing revenues for many local governments, forcing them to dip into reserves and increasingly rely on bank loans to fulfill their obligations.

Matthias Neth, president of the Savings Banks Association of Baden-Württemberg (SVBW), expressed grave concern over the unprecedented municipal financial crisis. He highlighted several factors straining local budgets: declining business tax revenues, a substantial rise in non-investment-related spending, particularly on social services, and the need for significant investments in infrastructure like schools, kindergartens, roads, and digitalization.

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I look to the future of the municipalities with the greatest concern.

Neth warned that if business tax income does not recover, social spending is not curtailed, and federal funding decreases, municipalities will be forced to cut back on investments. This, he cautioned, would jeopardize their future viability and negatively impact the state and society. The situation is particularly dire as Baden-Württemberg's municipalities recorded a record deficit of 4.4 billion euros in 2025, driven by rising personnel and social costs alongside falling tax revenues.

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If the business tax does not pick up again, the non-investment expenditures do not decrease, and the money from the federal government no longer flows as it does now, then investments will be cut, i.e., future viability. And that cannot be good for this state, for this society.