KfW Report Finds German Municipalities Expect Major Investment Increase While Financial Strain Continues to Deepen

KfW Report Finds German Municipalities Expect Major Investment Increase While Financial Strain Continues to Deepen

(IN BRIEF) KfW’s latest Municipal Panel shows that German municipalities plan to increase infrastructure investment significantly in 2026, with expected spending rising to around EUR 50 billion, up 14.8% from the EUR 44 billion planned in 2025. Most planned investment is directed toward schools, roads and transport infrastructure, and fire safety and disaster management. However, the perceived municipal investment backlog has also climbed to a new record high of EUR 231.2 billion, with major gaps remaining in schools and roads and sharp increases reported in sports facilities, disaster management and administrative buildings. Many municipalities are struggling to fund even routine maintenance, particularly in transport infrastructure, and the situation is especially difficult in eastern Germany. The report also highlights the role of municipal companies, with most municipalities holding stakes in utilities, housing, transport, sports facilities or waste management. While energy utilities are generally financially self-sustaining, cultural institutions, sports facilities and public transport companies often require municipal support. KfW Chief Economist Dr Dirk Schumacher said the Special Fund may stabilise investment activity, but structural reforms are needed to align municipal financial resources with their responsibilities.

(PRESS RELEASE) FRANKFURT, 17-Jun-2026 — /EuropaWire/ — KfW’s latest Municipal Panel shows that German municipalities are planning a significant increase in infrastructure investment this year, with expected spending on physical assets rising to around EUR 50 billion in 2026.

The planned investment volume is 14.8% higher than the EUR 44 billion municipalities had planned for the 2025 fiscal year. This increase is far above the average annual variation of 4.2% recorded in planned investment between 2019 and 2025. Schools remain the largest planned investment area, accounting for 27% of expected spending, followed by roads and transport infrastructure at 23%, and fire safety and disaster management at 10%.

Dr Dirk Schumacher, Chief Economist of KfW, said the sharp rise in planned municipal investment can likely be explained by expectations linked to the Special Fund. However, he noted that it remains uncertain how much of the planned investment will actually be implemented. Past experience shows that municipalities complete fewer projects than planned and typically spend only around two thirds of the intended investment volume.

KfW said the gap between planned and realised investment is now a well-documented issue. It is partly caused by non-financial barriers that delay or prevent projects, including complex approval procedures, public procurement requirements, extensive building regulations and staffing shortages in building authorities. Schumacher said it is positive that the Federal Government is working to remove some of these obstacles.

Despite the higher investment plans, the financial situation of municipalities has continued to deteriorate. The perceived municipal investment backlog has reached a new record high of EUR 231.2 billion, an increase of EUR 15.2 billion or 7.2% from the previous year. Since 2018, the backlog has grown by 67% in nominal terms, although the real-terms increase remains at 7%.

The largest investment gaps remain in school infrastructure, at EUR 68.9 billion, and roads, at EUR 53.7 billion. These areas have grown only slightly, but other categories have seen more notable increases. Municipal treasurers reported widening backlogs in sports facilities, which increased by EUR 6.0 billion, disaster management, which rose by EUR 3.2 billion, and administrative buildings, which grew by EUR 2.8 billion.

KfW also highlighted concerns that many municipalities no longer have sufficient resources to carry out ongoing infrastructure maintenance, including smaller repairs. The issue is especially severe in roads and transport infrastructure, where 30% of municipalities said they had no or only very limited resources available for maintenance work. In some cases, this means potholes and road unevenness cannot be repaired. The situation is particularly difficult in eastern Germany, where 47% of municipal treasuries reported that they could ensure none or only a small share of the maintenance required for transport infrastructure.

Looking ahead, only 23% of municipalities expect their perceived investment backlog to decline in the coming years. By contrast, 42% expect the backlog to continue growing, while 36% believe it will remain unchanged.

This year’s KfW Municipal Panel also focuses on municipal holding companies. Around nine in ten municipalities have a participation in municipal companies. Approximately two thirds reported having a stake in a water or energy utility, while just over half hold interests in housing companies. Forty-eight percent own sports or aquatic facilities, another 48% are involved in mass public transport, and 45% have holdings in waste management.

The financial strength of municipal companies varies significantly by sector. Energy utility companies are the strongest, with 97% able to sustain themselves and 51% recently transferring profits to the municipal core budget. Water utilities and housing companies also contributed funds in some cases, with 27% and 23% respectively transferring money to municipalities.

Other areas remain financially dependent on municipal support. Sixty-one percent of municipalities with a stake in cultural institutions had to offset losses, while the same was true for 60% of sports facilities and 52% of public transport companies. Municipalities support these companies mainly through guarantees and by waiving profit distributions.

KfW said the heating transition and wider climate transformation will require investment volumes that many utility companies cannot finance on their own, meaning debt capital is likely to become more important in the future.

Dr Dirk Schumacher said the financial position of municipalities has continued to worsen noticeably and that the mood among municipal treasuries is gloomy. He said the Special Fund can help stabilise municipal investment activity, but it will not be enough to reverse the budget situation. Structural reforms are needed to bring municipal financial resources back into line with their responsibilities. One possible option, he said, would be to adjust how tax revenues are distributed between the federal government, the states and municipalities.

The KfW Municipal Panel is based on a representative national survey of treasuries in German cities and municipalities with more than 2,000 inhabitants, as well as all rural districts. It has been conducted annually since 2009 by KfW Research and the German Institute for Urban Affairs. The current edition is based on a survey carried out in the first quarter of 2026, covering 2,900 communities, municipalities and districts. The response rate was 37%, which KfW describes as very high for this type of survey.

Media Contact:

Nina Luttmer
+49 69 7431 41336
nina.luttmer@kfw.de

SOURCE: KfW