Posted : 2014-03-31 18:51
Updated : 2014-03-31 23:06

Time bomb ticking on local government debt

This is the last of a three-part series ana- Local governments' debt to budget ratio in 2012 lyzing the seriousness of Korea's debt problem and suggesting recommendations to address the issue. — ED.

By Nam Hyun-woo

Incheon and several other local governments are on the verge of bankruptcy as they are sitting on record debt from heavy borrowing to fund various construction projects.

This poses a grave threat to the fiscal soundness of the entire country, reaching a point where they cannot service the debt on their own.

Still, heads of local governments and candidates bidding for June 4 local elections are competing to make rosy, unrealistic campaign pledges, dimming prospects of addressing the snowballing debt.

"It's a ticking time bomb for some administrations, such as Incheon and Gyeonggi Province," said Lim Suhng-bin, a professor at Myongji University.

Lim said many local governments' debts have reached a "dangerous level."

He said if the debt exceeds 15 percent of their annual budget, it is a warning sign.

"The issue is more serious than it appears, when you look at Incheon," he said.

Analysts said that the ultimate victims of local governments' shaky finances are taxpayers as they will be forced to pay more to fill empty coffers.

As of 2012, the total debt of local governments reached 47.7 trillion won ($44.2 billion), according to the Ministry of Security and Public Administration (MOSPA). However, this tops 100 trillion won, if the 52.4 trillion won owed by public companies run by them is added.

The central government is well aware of the "100 trillion won ticking time bomb," and seeks to address it. However, central and local governments differ widely on how to solve the problem.

Incheon ― a bottomless pit

"Most local governments' fiscal condition is very bad as a result of unnecessary and redundant projects which wasted a massive amount of taxpayers' money," the Board of Audit and Inspection (BAI) said in a recent report.

Incheon, the nation's second largest port city, has fallen into a bottomless pit of debt after years of issuing bonds to raise funds for loss-making development projects.

According to MOSPA, the city‘s debt stood at 2.8 trillion won against its 8 trillion won fiscal budget in 2012, resulting in a debt-to-budget ratio of 35 percent. This is the highest among all cities in Korea, except for Sejong, a newly-built city for a government complex.

Due to the debt, the city government had to delay paying parts of monthly salaries to 6,000 of its employees in 2012.

Last year, it also postponed 1.9 billion won in salary payments. This time, it blamed a "systematical error," but many are suspicious that the city is slipping deeper into a financial abyss serious enough as to make it unable to pay employees.

The city was not in the worst fiscal condition from the beginning. In 2003, the debt-to-budget ratio was 17.5 percent. It jumped to 29.8 percent in 2009 and 35 percent in 2012.

Former Incheon Mayor Ahn Sang-soo, who took the helm of the city from 2002 to 2010, is deemed responsible for this. Under his leadership, the city government, led by the IDTC, aggressively issued bonds to develop a free economic zone in Songdo beginning 2003, which houses some 510,000 people and infrastructure worth 21.4 trillion won. It also launched a new town project near Geomdan-dong and refurbishment plans for some 220 areas in old downtown.

Furthermore, for the Incheon Asian Game, scheduled this summer, the city issued nearly 1 trillion won of bonds to fund the construction of the main stadium and other preparations.
Officials from Incheon say that the central government should also take responsibility for its debt problems.

"There were bonds that we had to issue to help the central government boost the overall economy," an official said. "During the past several years, we also had to issue bonds because of the Asian Games and building another subway line."

The official said that Incheon will curb issuing bonds from this year and reimburse debt by selling city-owned properties.

Despite growing debt, many other local governments are carrying out massive building projects.

The southern city of Cheongju, North Chungcheong Province, recently tried to push forward with a 644 billion-won plan to build a high technology industrial complex in the city.
The state auditor, however, issued a warning to the city government for its "clumsy" feasibility study for justifying the "unnecessary" project.

The Seoul Metropolitan Government, sitting on a 2.9 trillion won of debt, was also stopped by the auditor in its attempt to create a 34 billion won park on Mt. Soomyung, which was deemed an "unnecessary project."

Bankruptcy system for local governments

As local governments' debt keeps swelling, the central government is belatedly attempting to tackle the issue.

President Park Geun-hye's latest pledge to rationalize state-invested public companies is also aimed at reducing their debt before it is too late.

The Park administration is considering introducing a bankruptcy system for debt-ridden local governments to hold them responsible for fiscal deficits and force them to take steps to cut their debt.

Under the paln, such administrations would be declared bankrupt when they are unable to pay their debt. The central government will pay off their debt instead and take control of their budget execution.

Some analysts expect that this will help tighten lax management in local administrations. But others are strongly opposed to it.

Professor Lim urged the central government to introduce the bankruptcy system because it is aimed at reviving local administrations through programs similar to court receivership.

He said local governments must be stopped from continuing their reckless investments in non-profitable projects.

"Many local administrations push for irrational projects and run up a massive amount of debt. The central government should stop them from conducting such projects, otherwise their debt could deal a huge blow to the fiscal soundness of the whole country," Lim said.

Some analysts, however, expressed concerns that the central government should consider structural problems such as the tax system before enforcing the bankruptcy plan.

They say local governments' tax revenue sources are too small to strike a balance between development and fiscal soundness. Of the nation's total tax revenue, comprised of national and local tax, local governments make up only 20 percent and the central government 80 percent.

"Introducing the bankruptcy system without considerations of systematic shortcomings would deal a serious blow to local government autonomy," said an official from the National Council Association of Chairmen, a group of local council chairmen. "Under the current system, local governments have to rely on debt."

The central government's efforts to promote social welfare services is also a burden, because extra costs needed for expanded services have to be shouldered by local administrations.

"Before denouncing lax management, the central government should revise the taxation system, or at least come up with other measures that can raise local governments' financial independence," said the official.

관련 한글 기사

"지자체 도시개발공사 부채비율 300% 육박"

'정치권 낙하산 인사 막고 공공요금 현실화해야'

지방공기업 전체의 부채 비율은 양호하지만 도시개발공사를 포함하면 중앙정부의 공공기관의 부채 수준보다 훨씬 심각한 것으로 드러났다.

이를 해결하려면 낙하산 인사를 개혁하는 등 안전행정부와 지방자치단체, 지방공기업이 지배구조 문제를 해결해야 한다는 지적이 나왔다.

31일 한국재정학회에 따르면 정창훈 인하대 행정학과 교수는 최근 이 학회 춘계학술대회에서 '지방공기업 부채증가 원인과 감축 방안' 이라는 논문을 발표했다.

논문을 보면, 2013년 1월 현재 지방공기업(391개)은 직영기업 254개, 지방 공사 59개, 지방 공단 78개다. 직영기업은 지자체 조직의 일부다. 공사·공단은 지자체가 50% 이상 출자한 별도의 독립법인이다.

2012년 지자체 전체 부채는 26조7천억원이지만 지방공기업 부채는 72조5천억원으로 3배 수준이다. 특히 도시개발공사 부채는 43조5천억원으로 전체 지방공기업 부채의 60%를 차지한다.

2012년 말 지방공기업 전체 부채비율은 74.7%로 한국은행 기업경영분석상 전 산업 부채비율(152.7%)보다 훨씬 낮아 언뜻 양호한 것처럼 보인다. 그러나 지방공기업 전체 부채의 60%를 차지하는 도시개발공사의 부채비율은 286.6%로 상당히 높다.

도시개발공사 부채의 원인으로는 대규모 국책사업이 지목됐다. 임대주택, 보금자리사업, 혁신도시 등 수지가 안 맞는 사업들을 충분한 보상 없이 떠맡았기 때문이라는 것이다.

부채 해결 방안으론 지배구조 개혁을 꼽았다.

정 교수는 '지방공기업 사장, 임원의 약 73%가 전직 공무원이나 정치권 출신'이라면서 '낙하산은 사업의 경제성·타당성보다 정치적인 면을 더 고려하므로 필연적으로 효율적인 경영이 어렵다'고 지적했다.

그러면서 '기관장 임명 시 지방의회에 청문회 과정을 도입해 후보자의 경영능력을 검증하고 낙하산 인사를 차단해야 한다'고 권고했다.

공공요금 현실화도 주요 과제로 꼽았다.

서울 지하철 요금이 선진국 주요 도시의 40% 수준임을 고려하면, 원가보상률 이하의 공공서비스는 결국 해당 지자체의 일반회계로 보충해줘야 하는 만큼 미래 세대의 부담이 커진다는 것이다.

이밖에 지방정부채무와 지방공기업 부채, 출자·출연기관 민자사업을 포함하는 포괄적인 '부채총량제'를 도입하는 방안도 검토해야 한다고 밝혔다. (연합뉴스)

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