City plans budget freeze

As the city of Erlangen's trade tax income of 170 million euros this year is expected to be 50 million euros lower than forecast, the city administration is planning a budget freeze. Lord Mayor Florian Janik and Konrad Beugel, Head of Economic Affairs and Finance, have informed the City Council accordingly.

The next steps

The administration is currently working on a proposal as to which investment funds and which material resources can be saved in the current financial year. In order to be able to act quickly, it was agreed with the parliamentary groups that the budget freeze would be issued as an emergency decree by the Lord Mayor following a coordination meeting with the parliamentary groups on the basis of concrete proposals. "Our aim is to be able to maintain a high level of investment," explains Lord Mayor Florian Janik. The prerequisite for this is to ensure the city's long-term solvency.

Financial budget 2024: shortfall of 38 million euros

In the past four years, the city of Erlangen has experienced exceptionally good financial years. The city's debt level has been halved. The budgets were achieved without new debt. The city had sufficient liquid, i.e. freely available funds. However, the poorer trade tax income threatens to deplete the free liquid funds. The 2024 financial budget shows a funding shortfall of 38 million euros, which cannot be covered by current revenue. With the reduced trade tax revenue, this shortfall could rise to a calculated 88 million euros. This would mean a considerable, possibly even almost complete consumption of free liquid funds.

Looking ahead to the years 2025 to 2027

A consumption of liquid funds would also have longer-term consequences: In the financial planning for the years 2025 to 2027, negative balances from current administrative activities are shown in each case, meaning that the city's expenditure is set higher than its income. According to the financial planning for 2025, a funding shortfall of 60 million euros is to be expected. These shortfalls could then no longer be offset by the available cash and cash equivalents (liquidity). Permanent solvency would therefore no longer be guaranteed and it would no longer be possible to draw up an approvable budget for 2025.

What is the city doing?

In order to counteract this development, the first step in the current financial year is to stop the complete consumption of existing cash and cash equivalents. This can only be achieved in the short term by issuing a budget freeze. In the next step, the task in the budget discussions for 2025 will then be to restore the permanent ability to pay. This means that the balance from current administrative activities in the financial budget will again be able to cover at least the ordinary repayments and also enable a self-financing share for investments as a "free financial margin".

Konrad Beugel, Head of Finance and Economic Affairs, explains: "After four outstanding tax years, we are back at the level of 2019. We still have comparatively high trade tax revenues. However, the new situation is forcing us to prioritize in order to remain capable of acting in the long term."