Sun, Dec 19, 2010 - Page 8 News List

Mayors face financial time bomb

By Chen Chao-chien 陳朝建

At the end of this month, the leaders of the five special municipalities will take their oaths of office, but the fiscal pressures the municipalities will have to face are extremely worrying: As of their first day in office, the total combined debt of the five municipalities will already exceed NT$500 billion (US$15.8 billion).

What’s more, civil servants in the municipalities will be given a higher rank and their organizational structure will expand, as will their power and responsibilities. Therefore, annual expenditure will also skyrocket, as the law specifies.

So far, however, many of the items that make up the municipalities’ budget for next year have yet to be compiled and properly reviewed. In other words, when the five mayors take office, some of these municipalities may find themselves dealing with tentative or provisional budgets, something that has never happened before.

Before the budgets are officially approved, how are the affected municipalities going to make tentative financial plans based on the previous year’s budget when they have now been upgraded and in some cases combined? I believe it to be unavoidable that the five special municipalities will face a tight financial situation that will prove extremely hard to remedy.

In addition, if important laws such as the Act Governing the Allocation of Government Revenues and Expenditures (財政收支劃分法), the rules regarding the Tax Redistribution Fund (統籌分配款) and other regulations for subsidies are not revised as expected, a lack of adequate funding will become a regular excuse for special municipality mayors when they fail to deliver on their election promises.

On the other hand, even if these laws and regulations are revised in time, the complementary measures to the Public Debt Act (公共債務法) offer room to raise more debt, and this will eventually lead to a breakdown in fiscal discipline in the special municipalities.

Although the special municipalities are under serious fiscal pressure, they are still required to, like Taipei City, gradually take charge of hospitals managed by the Department of Health and national senior high schools.

However, even if the central government transfers the necessary funds to the special municipalities as required by law, that will not necessarily enable them to handle increasing costs in the future growing, such as pension expenditure and other financial burdens.

It is foreseeable that the special municipalities whose finances are not in good shape could potentially face bankruptcy, while the others are staring at time bombs waiting to explode. An important task for these cities would be to learn from the experience of Orange County, California, or Yubari, Japan, and how they rebuilt their local finances.

The problem is that local residents believe the five special municipalities have healthy finances or at least that their finances are in much better shape than the finances of other counties and cities, when this is not the case.

Despite this looming crisis, the central government authorities and legislators have not dared to raise the idea of a law aimed at helping local governments rebuild their finances or adopting a system whereby local governments can declare bankruptcy and rebuild said finances.

Therefore, many problems can be expected once the five special municipalities begin to operate.

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