60% of municipalities will face financial problems by 2026

The social challenges facing the Netherlands will push six out of ten Dutch municipalities into financial trouble by 2026, according to the BDO benchmark, a study into Dutch municipalities’ financial situation by the accounting firm BDO. The municipalities expect a budget deficit of 600 million euros in that year. They blame it on challenges like solving the housing shortage and financing the energy transition.

Struggling Dutch municipalities had a budget deficit of 249 million euros in 2021. The vast majority ended the year in positive territory, with a joint surplus of 1.8 billion euros. BDO concludes that municipalities’ financial situation has improved in recent years. “That seems like good news, but the causes of these surpluses are not always positive,” said Rob Bouman, chairman of the sector group Government within BDO. According to the firm, the green figures were partly because municipalities received more money from the government.

But in 2026, the government will significantly reduce that contribution. According to BDO, that creates a “complex situation,” and all prospects look “bleak.” Municipalities indicate that they lack long-term perspective from the government, which means there is a lot of uncertainty within the local authorities. Not only because the government is lowering its contribution but also because of the challenges they face, like financing migration, the energy transition, and digitalization, among other things. “This uncertainty and these threatening budget deficits make it very difficult to make structural policy and invest in the social challenges that exist,” said Bouman.

In recent years, youth care has put a lot of pressure on municipal finances. Since 2017, municipalities have fallen about 1.7 billion euros short every year on the budget they receive from the government. The Cabinet refused to close this gap. That led to a long-running conflict. In the spring of 2021, an arbitration committee tasked with settling the dispute ruled that the government must give municipalities extra money until at least 2028. “More than 1 billion euros has now been compensated,” said Bouman. According to him, municipalities are now less concerned about this.

According to Bouman, the government and municipalities should work together better. “Municipalities and provinces often work together successfully because they focus on the citizens’ problems and use each other’s expertise. The national government, on the other hand, still mainly works in silos, like departments.” Municipalities cannot do everything, even though they have to be open to trying, Boumen said. The government must also take a critical look at itself. “A continuous dialogue about this is essential,” he said.