Saxony's municipalities are cutting construction spending by nearly 10 percent

Amid an increasingly strained financial situation, local governments in Saxony have cut their infrastructure investments by nearly one-tenth. Last year, 390 euros per resident were spent on construction projects in Saxony’s cities and municipalities, according to a recent survey of municipal finance offices commissioned by the KfW development bank. This represented a decline of 9.8 percent. Nationwide, however, spending rose by 4.3 percent. 

Municipal Budgets Remain Under Pressure

KfW continues to view the municipal financial situation as strained. Nationwide, 70 percent of municipal finance offices assess their situation as negative. According to the authors, rising expenditures are hindering urgently needed investments in municipal infrastructure.

While municipal revenues in Saxony fell slightly by 1.1 percent last year, expenditures remained roughly at the same level (up 0.1 percent). The financing deficit stood at 265 euros per resident, which was significantly lower than the national average of minus 413 euros. 

Renovation Needs Reach Record Levels

According to the development bank, the investment backlog of municipalities in Germany has now risen to a record high of 231.2 billion euros. The need for renovation is particularly acute in schools as well as in roads and transportation infrastructure. At the same time, municipalities are planning significantly higher investments for the current year. Nationwide, around 50 billion euros are expected to be allocated to capital investments, up from 44 billion euros in the previous year. 

Hopes for Billions from Special Fund

Many municipalities are also counting on additional funds from the Special Fund for Infrastructure and Climate Neutrality. According to KfW, Saxony will receive approximately 4.84 billion euros from this fund over the next twelve years for investments by the state and municipalities. KfW Chief Economist Dirk Schumacher said it stands to reason that the significant increase in planned investments can be explained by expectations regarding the special fund. 

Loans Are Gaining Importance

In addition, loans are playing an increasingly important role in financing municipal projects. Investment loans and securities debt held by municipalities in Saxony rose by 5.3 percent within a year to 840 euros per resident. Nationwide, about one in two municipalities now expects to rely more heavily on loan financing in the future.