FAQs on the budget

The city must expect significantly lower trade taxes this year and next. This is due to the overall economic development and additional tax refunds. As of December 19, the city can expect around 66 million euros in revenue for 2024, as taxes already received for previous years will also have to be repaid. Trade tax revenue of 220 million euros was forecast for 2024. As of December 19, the treasury is forecasting trade tax income of 120 million euros for 2025.

A change in trade tax has such a strong impact on the city's budget because this tax accounts for around 40 percent of the city's total revenue. Over the last ten years, the city has experienced strong economic development, which has led to high trade tax revenues.

Trade tax revenues are subject to regular fluctuations. There are therefore mechanisms in place to compensate for these fluctuations, such as allocations from the federal and state governments. In addition, the city has reduced debt on a large scale in recent years and built up reserves.

However, losses of this magnitude caused by unforeseeable repayments are very unusual and can only be offset in the medium term. As a result, the city's reserves are being depleted and the city has to work with measures such as a budget freeze and cuts in order to stabilize its financial situation. Foreseeable changes in trade tax have been taken into account in the city's medium-term financial planning.

The companies' advance payments are determined by the tax office and are binding for the municipalities. These payments are usually calculated on the basis of the previous year's assessment or on the basis of the companies' profit expectations, which they submit to the tax office. The city is in regular contact with major trade tax payers in order to be able to make adjustments to the forecasts as quickly as possible. For this reason, the city also issued a budget freeze following corresponding discussions in July.

However, the decisive step in the trade tax process is the trade tax assessment notice issued by the tax office. This assessment takes into account, for example, special expenses incurred by companies and provides the binding basis for the final tax amount that a company must pay. As soon as this assessment notice is issued, repayments or additional claims may be necessary. As the assessment notice often only arrives later in the year, the advance payments, which are based on forecasts, are often inaccurate.

In July, the city issued a budget freeze for 2024 in order to reduce expenditure. As a result, the 2024 budget was cut by around 18 million euros. The biggest changes to the material resources budget relate to the funds for ongoing maintenance in building management. Of the 31.6 million euros originally budgeted, 3 million euros will be cut here. At the Civil Engineering Department, 775,000 euros will be cut from the 7.7 million euros budgeted for ongoing road maintenance. At Eigenbetrieb 77, the climate budget, which is used for zero-emission vehicles among other things, will be reduced from 1.6 million to 800,000 euros.

In the area of reduced investment funds, the largest share of around 2.5 million euros is in the area of municipal roads. Here, 6 million euros had been budgeted for this year. Around 500,000 euros will be reduced in the area of playgrounds, partly due to the postponement of the construction of the new playground at Dechsendorfer Weiher.

In order to stabilize the budget situation, the city of Erlangen will also have to make savings in various areas in 2025. For example, plans for investment projects will be postponed. There are also significant restrictions in the area of so-called voluntary services, i.e. expenditure that goes beyond mandatory tasks. Mandatory tasks are prescribed by law, such as the provision of schools, childcare and public safety. Voluntary services, on the other hand, relate to services that are not mandatory, such as cultural events, sports promotion or grants to clubs.

There will also be delays or reductions in infrastructure projects that are not urgent mandatory tasks, such as the construction of new district houses or playgrounds. The draft budget of the treasury department contains corresponding proposals.

Compared to other cities of a similar size, Erlangen has a wide range of cultural and leisure facilities. Here in particular, but also in the services offered by the administration, there will be restrictions due to staff cuts. In individual areas, the city council will also discuss how to respond to the changed framework conditions with changes to taxes and fees.

The preparation of the municipal budget involves several important steps.

• First, the administration prepares a draft budget that reflects the city's financial priorities. This draft is developed on the basis of revenue forecasts, such as trade tax, as well as planned expenditure for administration, investments and mandatory tasks.
• The city council then examines this draft and decides which measures and projects are to be implemented. The budget resolution in Erlangen is planned for January 16, 2025.

Once the budget has been adopted by the city council on January 16, 2025, it will be submitted to the government of Middle Franconia as the responsible supervisory authority. This checks the budget for legality and balance, in particular

• whether the city can fulfill its mandatory tasks and
• its long-term solvency is assured.

If there are any concerns, the government can reject the budget or impose conditions.

For 2025, it is to be expected that the budget cannot be approved due to the large gap between planned revenue and planned expenditure - particularly in administrative activities. This means that the so-called "provisional budget management" will apply for the entire year. Corresponding regulations can be found in Art. 69 of the Bavarian municipal code. The basic announcement here is: the city provides the financial services

• to which it is legally obliged or
• which cannot be postponed for the continuation of necessary tasks.

In addition, the city must submit a budget consolidation concept to the government of Middle Franconia in order to secure future investments in schools, childcare and the city's infrastructure.

The slump in trade tax in Erlangen is not due to profound economic problems, such as corporate insolvency. Erlangen remains a stable and attractive business location. The outlook for 2026 shows that the city has the opportunity to gradually work its way out of its financial difficulties through compensation mechanisms and structural adjustments. However, savings efforts will continue to be necessary.