Incheon City, 70% of National Fund Matching and Current Expenditure... Need to Strengthen Financial Management Autonomy

Increase in Legal? Mandatory Expenditure, Fiscal Pressure Factors
Incheon Research Institute Proposes Improvement of National Subsidy System and Strengthening Management of Legal? Mandatory Expenditures

Incheon City Hall

[Asia Economy Reporter Park Hyesook] As the increase in legal and mandatory expenditures puts pressure on Incheon City's finances, a study has found that measures are needed to secure the autonomy of financial management and the accountability of financial expenditures.

The Incheon Institute announced the results report of the 2019 planned research project titled "A Study on Financial Management Measures According to the Structure of Incheon City's Financial Expenditures" on the 5th.

The study analyzed the financial expenditure structure of local governments by classifying financial expenditure projects of metropolitan local governments such as Incheon City into four types based on 'whether there is legal and mandatory binding' and 'whether the local government has autonomy.'

As a result, among the four types, all 14 cities and provinces except Seoul showed the highest proportion of Type 2 (national matching projects), followed by 13 cities and provinces except Daegu and Gwangju showing a high proportion of Type 4 (current funds).

In the case of Incheon City, Type 2 (national matching projects) accounted for 37.6%, and Type 4 (current funds) accounted for 36.1%, making up more than 70% of total expenditures.

By function, in national matching projects, the social welfare sector accounted for the largest share, while current funds were mostly spent on transfers to other accounts and financial support expenditures for basic local governments.

Ultimately, Incheon City's financial expenditure structure shows a pattern where expenditures on legally and mandatorily required costs such as national matching projects, statutory transfers to other accounts, and financial support for basic local governments, as well as social welfare projects, lead to a decrease in expenditures on Incheon City's autonomous independent projects.

Accordingly, the study proposed measures to strengthen the autonomy of local government financial management and accountability of financial expenditures, including improving the national subsidy system involving local government burdens, strengthening management of legal and mandatory expenditures, establishing cooperative systems between central and local governments, planning and operating financial expenditure projects systematically, and managing evaluation of financial expenditure projects.

Lee Mi-ae, a research fellow at the Incheon Institute, stated, "The current financial expenditure structure has very insufficient autonomy in local government financial management due to legal and mandatory binding," and added, "Efforts are needed to secure the autonomy of financial management and accountability of financial expenditures to fundamentally overcome the limitations of local government financial expenditure structures and the uncertainties of revenues and expenditures."

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