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Municipalities across the globe are grappling with record deficits in financial management, as operational cost pressures mount and climate-related risks impact revenue and expenses. A recent analysis by the Bertelsmann Foundation highlights these challenges and proposes potential solutions to help municipalities overcome their financial hurdles.
One of the key challenges facing municipalities is the rising operational costs and revenue losses due to climate change and extreme weather. Physical damage, population shifts, and higher emergency service expenses are causing significant impact on municipal budgets and credit ratings.
Financial market volatility and judicial uncertainties are also affecting borrowing capacity and credit ratings, alongside a softening municipal bond issuance environment. This makes capital access more constrained, further exacerbating the financial difficulties faced by municipalities.
Another challenge lies in the difficulties in implementing integrated cost accounting systems. Outdated IT infrastructures, lack of interoperability, fragmented data systems, and absence of standardized methodologies are leading to inefficiencies and delayed reporting in public financial management.
To address these issues, the Bertelsmann Foundation suggests several practices for sustainable financial management and overcoming deficits. One such practice is long-term, forward-looking fiscal planning, as exemplified by Chandler, Arizona's approach with 10-year capital improvement plans, regularly updated forecasts, and clearly documented financial policies.
Another solution involves increasing climate risk disclosure and integrating sustainability considerations into credit evaluation and bond issuance. This acknowledges that strong climate disclosure is becoming critical for municipal access to capital markets.
Advancing data cooperation through interoperable and standardized cost accounting frameworks is also crucial for municipalities to better align financial data with operational outcomes, reduce inefficiencies, and support evidence-based decision-making.
These practices emphasize disciplined financial governance combined with leveraging sustainability and advanced data management to address the growing fiscal challenges municipalities face today. The Bertelsmann Foundation has been at the forefront of these discussions, with numerous podcasts and events focusing on sustainable municipalities and digital participation, public procurement, and data cooperations.
For instance, the Municipal Conference: Sustainability Needs Strong Municipalities! was held on June 4, 2024, in Berlin, and featured Kirsten Witte and Uwe Schneidewind. The conference aimed to bring together experts and municipal leaders to discuss sustainable municipalities and the role they play in shaping a sustainable future.
The Kommunalkongress 2023 in Potsdam, held on July 18, 2023, also focused on transformation areas for sustainable municipalities, with six forums dedicated to the topic. The event provided a platform for municipalities to share their experiences and discuss best practices in sustainability management.
The podcast by Bertelsmann Foundation, titled "Municipalities in Record Deficit - How Can We Save Our Cities?" addresses the deficit in municipal finances and offers insights into potential solutions. A YouTube video of the podcast is also available.
In conclusion, the challenges facing municipalities are significant, but so are the potential solutions. By adopting strong fiscal policies, improving forecasting, leveraging sustainability disclosures for capital access, and enhancing data cooperations for better financial transparency and decision-making, municipalities can navigate these challenges and build a sustainable future.
- The Bertelsmann Foundation suggests that integrated cost accounting systems can be improved by advancing data cooperation through interoperable and standardized cost accounting frameworks, helping municipalities better align their financial data with operational outcomes, reduce inefficiencies, and support evidence-based decision-making, a crucial practice for sustainable financial management.
- As a solution to the financial issues in municipalities, the Bertelsmann Foundation advocates increasing climate risk disclosure and integrating sustainability considerations into credit evaluation and bond issuance, acknowledging that strong climate disclosure is becoming critical for municipal access to capital markets, thus enabling them to secure the necessary funds.
