The weight of some of society’s biggest challenges – climate change, affordable housing, equitable education and digitalisation – are felt most acutely by municipalities. These local governments are instrumental in providing services and infrastructure that have a direct impact on the quality of people’s lives.
The recent survey by the European Investment Bank found that municipal governments understand the need to increase investment in social infrastructure, such as housing, health care and education in the next three years. They also want to invest more in cutting emissions and in dealing with the overall effects of climate change. They have witnessed an increase in the frequency and damaging impact of extreme weather, such as flooding, heatwaves and high winds, and need to better prepare for these events.
Financing these investments, however, can be tough. A large and growing share of municipalities and cities rely on financial support provided by the European Union to finance new infrastructure and to improve creaky transport or rundown schools and hospitals. When they do find the money, local governments say regulatory barriers can often slow projects.
About the report
Investing to improve services
Municipalities and cities in the European Union plan to significantly boost investment in climate change mitigation (56% of municipalities), and social infrastructure (53% municipalities) over the next three years. Local and regional governments are on the front line of climate change investment. They account for about 60% of spending on efforts to cut emissions.
A large share of municipalities in less-developed areas – those where gross domestic product per capital is less than three-quarters of the EU average – also plan to invest more in social infrastructure, namely housing, health care and childcare.
Financial and regulatory barriers
Nearly two-thirds of municipalities say that financing projects is difficult, and almost half cite lengthy regulatory processes as a major obstacle to investment. The share of municipalities naming finance and regulator barriers as obstacles to investment has increased since 2022.
Other obstacles to investment have eased, however. Local governments have developed the necessary tools and skills to carry out investments, and their ability to get residents and other local governments to agree on the types of projects needed has improved. Finding people with the right skills, however, remains difficult. Local governments say the have a hard time finding people with expertise in environmental issues and engineering.
Critical role of EU funds
A large and growing share of municipalities and cities say that EU funds and financial support are crucial for future investments. EU grants are the most common source of funding for future municipal projects (83% of municipalities), followed by direct transfers from the national government (74%).
Municipalities increasingly tap other sources of EU funding, namely financial instruments, which were used by about 60% municipalities (up from about 40% in 2022). These financial instruments take various forms, such as EU grant money, which can be used as a guarantee to attract banks and other private investors. Finance provided directly from financial institutions or markets plays a smaller role (about one in three municipalities say they use it), and tends to be primarily used by higher income and larger municipalities.