Financial distress in the Saxon municipalities: 12 billion euros needed!

Financial distress in the Saxon municipalities: 12 billion euros needed!

On June 5, 2025, the Saxon Association of Cities and Municipalities (SSG) and the Saxony Competence Center for Municipal Infrastructure at the University of Leipzig published alarming results on the financial situation of Saxon municipalities. A joint paper speaks of a “dramatically worsening financial crisis”, which is confirmed by the most recent local survey. This survey, in which around 130 of 400 Saxon municipalities took part, highlights the current challenges in municipal finances.

The causes for the tense financial situation are diverse. On the one hand, the consequences of the corona pandemic and the energy price crisis in 2022 are putting a strain on municipal spending. There are also significant cost increases in the construction industry, which are putting additional pressure on municipal projects. At the same time, municipalities are confronted with weak revenue development, which is exacerbated by the general economic stagnation. According to the results, the municipal investment needs in Saxony are estimated at around 10.9 billion euros by 2028, while an additional 2.1 billion euros are estimated for maintenance measures.

Investment needs and infrastructural challenges

Overall, there is an infrastructure requirement of around 12 billion euros, which underlines the urgency of measures to stabilize the municipal financial situation. The survey, which included detailed questions about investment and maintenance needs, showed that the investment activity of Saxon municipalities is below the East German average. The reason for this is savings that were made between 2002 and 2015. Many cities and municipalities are trying to reduce an existing investment backlog while construction prices continue to rise.

In order to counteract the difficult situation, it is recommended to continue investment spending and reduce bureaucratic hurdles. The federal government's special investment fund is considered a helpful component to support local authorities. The construction industry is ready to make additional investments without causing significant price increases.

Municipal financing bill

In 2020, the Saxon cabinet introduced a bill to finance Saxon municipalities after tax revenues plummeted as a result of the COVID-19 pandemic. The draft law, which applies to the years 2021 and 2022, is intended to ensure broader distributional justice and the safeguarding of municipal financial resources. Finance Minister Hartmut Vorjohann described the draft as modern and strong, with the amount of general funding for the municipalities in these years being around 6.8 billion euros. The state parliament should decide on the bill in spring 2021.

The results that have now been published illustrate the need for action for Saxon municipalities and underline the need to take appropriate measures to sustainably secure the municipal infrastructure and finances. These developments must continue to be closely monitored to ensure the quality of life in the affected regions.