• Municipalities expect to invest EUR 50 billion in their infrastructure, 14.8 per cent more than they had planned in 2025
• Perceived backlog of investment has grown by 7.2 per cent to reach a new record high of EUR 231.2 billion
• Particularly in sport facilities, disaster management and administrative buildings, investment gaps have widened significantly
• Nine in ten municipalities have a participation in municipal companies, especially water and energy supply utilities
• 97 per cent of energy utility companies can sustain themselves, while 52 per cent of public transport companies were recently injected with municipal funds

Municipalities in Germany expect to invest significantly more in their infrastructure this year. In their responses to the KfW Municipal Panel, they noted that they planned to invest around EUR 50 billion in physical assets. Most of this is to go to schools (27 per cent), followed by roads and transport infrastructure (23 per cent), and fire safety and disaster management (10 per cent).

In the previous fiscal year 2025, municipalities were still planning to invest a significantly lower volume of EUR 44 billion. The 14.8 per cent increase is many times higher than the average variation in planned investment of 4.2 per cent in the years 2019 to 2025.

“The giant leap from 2025 to 2026 can likely be explained by the expectations which municipalities hold for the Special Fund,”

said Dr Dirk Schumacher, Chief Economist of KfW.

But it remains to be seen to what extent the planned investments are ultimately realised. Experience shows that fewer projects are completed than planned, and municipalities spend only around two thirds of the intended volume.

“The gap between planned and realised investments is now a well-documented phenomenon. It is due in part to non-financial investment barriers that delay or block projects altogether. These barriers include complex approval and awarding procedures, extensive building regulations and staff shortages at building authorities. It is good that the Federal Government is in the process of clearing some of these barriers,”

said Dr Dirk Schumacher, Chief Economist of KfW.

The financial position of the municipalities has become more and more precarious in recent years. According to the KfW Municipal Panel, the perceived investment backlog has now reached a record EUR 231.2 billion. That is EUR 15.2 billion or 7.2 per cent more than a year before. The investment backlog of municipalities has grown by 67 per cent in nominal terms since 2018, while the increase in real terms remains at seven per cent.

The greatest backlogs remain in school infrastructure (EUR 68.9 billion) and roads (EUR 53.7 billion), but these have grown only minimally. What is noteworthy, however, is the increase in the backlogs which treasurers have identified in sporting facilities (+ EUR 6.0 billion), disaster management (+ EUR 3.2 billion) and administrative buildings (+ EUR 2.8 billion).

Many municipalities reported that they no longer have the means to ensure the ongoing maintenance of their infrastructure, and this is concerning. This includes, for example, minor repairs. This is a particularly serious issue in the area of roads and transport, with 30 per cent of municipalities responding that they have no or only very limited resources to carry out maintenance work, meaning sometimes they cannot fix potholes or bumps in a road. Municipal treasuries in eastern Germany are in a particularly dire situation, with 47 per cent reporting that they can ensure none or only a small portion of the maintenance required on their transport infrastructure.

Looking ahead, around 23 per cent of municipalities currently expect their perceived backlog in investment to decrease in the coming years. However, a much higher share of 42 per cent of surveyed municipal treasuries expect it to continue to widen. Thirty-six per cent believe there will be no change in the current backlog.

This year’s KfW Municipal Panel addresses municipal holding companies as a focal theme. Around two thirds of municipalities reported holding a stake in a water or energy utility. Just over half of municipalities hold a participation in the area of housing, 48 per cent own sport or aquatic facilities, and another 48 per cent are invested in mass public transport and 45 per cent in waste management.

The financial viability of publicly owned companies with municipal participations varies widely from one area to another. Ninety-seven per cent of energy providers are able to sustain themselves, and 51 per cent have recently transferred profits to the core budget. Twenty-seven per cent of water utilities and 23 per cent of housing companies transferred funds to the municipality. By contrast, 61 per cent of municipalities with a stake in the cultural sector had to offset losses, while this was the case in 60 per cent and 52 per cent of cases for sport facilities and mass public transport, respectively.

Municipalities support municipal utilities particularly with guarantees and by waiving profit distributions. As the heating transition and climate transformation require investment in a volume that cannot be funded by utility companies on their own, debt capital will likely play a larger role here in the future.

“The financial position of municipalities has continued to deteriorate noticeably, and the mood in the treasuries is gloomy,”

said Dr Dirk Schumacher, Chief Economist of KfW.

“The Special Fund can have a stabilising effect on municipal investment activity. But that will not be sufficient to turn the budget position around. What are needed are structural reforms so that municipalities’ financial resources align with their functions again. One option for improving municipalities’ situation would be to modify the distribution of tax revenues between the federation, the state and the municipalities.”

The KfW Municipal Panel can be downloaded from KfW Municipal Panel | KfW (only available in German)

You can find a graph on municipalities’ perceived backlog of investment here(JPG, 1 MB) (only available in German)

The KfW Municipal Panel is based on a representative national survey of treasuries of cities and municipalities with more than 2,000 inhabitants and of all rural districts. It has been conducted annually by KfW Research and the German Institute for Urban Affairs (Difu) since 2009. The survey for the current edition was carried out in the first quarter of 2026. In total, 2,900 communities, municipalities and districts were surveyed. The response rate was 37 per cent, a very high rate for surveys of this kind. Thus, the KfW Municipal Panel once again provides a valid picture of the mood around the financial situation and investment activities of municipalities.

KfW supports municipalities with a number of promotional programmes on behalf of the Federal Government. Further information is available at Public Institutions | KfW (only available in German)