The deepening financial trouble of local governments came to the fore again when the Incheon metropolis, finding its coffers nearly empty, delayed paying monthly perks to its 6,000 employees last week. Such a delay was unprecedented not just in Incheon but throughout the nation.
True, payments were made three days later. But some other metropolises and municipalities are already mentioned as potential candidates for failing to disburse monthly salaries on time. The central government is planning to put under its scrutiny those local governments whose ratio of debt to revenues exceeds 40 percent.
Incheon expects the debt ratio to reach 39.8 percent by the end of this year, with the debt amount projected to exceed 3.18 trillion won and the revenues set at a little less than 8 trillion won. The projected ratio is perilously close to the 40 percent threshold set by the Ministry of Public Administration and Security. Moreover, debt has grown more than twice as fast as revenues during the past several years.
Should its projection prove inaccurate and the debt ratio exceed 40 percent, Incheon would be designated as a metropolis in financial crisis and subjected to the ministry’s regulations on bond issuance and investments in new projects. It will have to cut its expenses if it wishes to avoid such humiliation and put debt growth under control.
Indeed, Incheon says it will cut its expenditures and sell off property. But it is yet to be seen whether or not its plan for savings and new revenues will have an intended effect.
Incheon says it will save 10 billion won a year by cutting allowances and perks for its employees by 22.6 percent. It also promises to cut travel and other expenses substantially and subsidies to nongovernmental organizations 10 percent.
But the savings will be seen to be a meager amount when compared with the huge amount of debt owed to the metropolis. Add the liabilities of its corporations, and the total debt will triple, making the savings look even more inconsequential.
This is not to say that it is not worthwhile to save what it can afford to. The savings are highly valued insofar as they symbolize Incheon’s determination to put the shaky finances back to normal.
But the lion’s share of relief from the debt burden has to come from property sales. Here again, the prospects are not so promising. Incheon is seeking to privatize its bus terminal and sell off a large plot of land and other properties it holds in its possession at a time when the property market is in slump.
Ahn Sango-soo, who had served as mayor for eight years until his second term in office expired in June 2010, is much to blame for Incheon’s snowballing debt. It goes without saying that much of the blame must be shared by Incheon citizens who elected him to the post of mayor despite his populist platform.
One example of spendthrift under his mayoralty is the decision to launch a 500 billion won project to build a new stadium for the 2014 Asian Games despite the Olympic Council of Asia’s 2002 permission to use an existing one on condition that it be remodeled. Incheon could have saved as much as 450 trillion won had it decided to remodel the stadium for the Asian Games, as demanded by the central government. But it went ahead with the construction of a new stadium, promising to finance it on its own.
The cash-strapped Incheon is now making a dubious demand for financial support from the central government, claiming that the hosting of the Asian Games is a national project as well. With the central government refusing to comply with the request, some civic groups are making an ill-advised and irresponsible proposal to the metropolis to give up on the sports festival.
A solution to its worsening financial problem should be found elsewhere. Here, self-help is the only answer to the call for debt-controlling measures.
Incheon is not the only local government bedeviled with snowballing debt. The central government needs to watch over not only Incheon but also Busan and Daegu, which maintain dangerously high levels of debt obligations.
