Naju-si Issues Official Statement on 'Local Bond Issuance'

[Naju=Asia Economy Honam Reporting Headquarters Reporter Kim Yukbong] Naju City, Jeollanam-do (Mayor Kang In-gyu) recently expressed its views on issues related to local bond issuance raised through some media and SNS.

According to the city on the 7th, it has begun to clarify objective facts regarding the overall issuance of local bonds through a statement titled “Position on the Controversy over Local Bond Issuance” announced under the mayor’s name on the 4th.

In particular, considering the challenging financial conditions in carrying out current projects, the city expressed regret over the rejection of the local bond issuance consent proposal amounting to 21 billion KRW out of 21.1 billion KRW submitted to the city council, emphasizing the role of local finance suited to the current circumstances.

In the statement, the city said, “Due to the increase in city expenses from large-scale national and provincial subsidy projects such as the Energy Valley development, a decrease in ordinary local allocation tax caused by a reduction in domestic taxes, and unforeseen demands due to COVID-19, available resources are decreasing while expenditure demands are increasing,” adding, “To resolve difficult financial conditions, we intended to issue low-interest local bonds to secure city expenses for national and provincial subsidy projects.”

In fact, the ordinary and real estate allocation taxes, which account for 31.9% of the city’s revenue, decreased by 26.3 billion KRW compared to last year (ordinary allocation tax decreased by 44.4 billion KRW, real estate allocation tax increased by 18.1 billion KRW), and the general account’s net surplus decreased by 26.5 billion KRW.

Conversely, the city’s financial burden increased by 30.9 billion KRW due to the expansion of national and provincial subsidy projects such as COVID-19 disaster relief funds, causing difficulties in financial management.

Accordingly, the city has been making efforts to prepare self-help measures to overcome the worsening financial conditions caused by reduced resources, including two rounds of intensive expenditure restructuring, cutting annual leave compensation for general public officials (1 billion KRW), and utilizing the financial stabilization fund (9 billion KRW), while promoting local bond issuance in line with the central government’s active encouragement of local financial management.

The local bond issuance consent proposal submitted to the city council on October 7 includes three areas totaling 21.1 billion KRW: ‘Construction of the Job Comprehensive Support Center’ (2.1 billion KRW), ‘Creation of the Urban Wind Forest Path’ (4 billion KRW), and ‘Disaster Prevention and Small River Maintenance Projects’ (15 billion KRW).

However, among the local bond issuance consent proposals submitted to the city council (229th Naju City Council Extraordinary Session 1st Plenary Meeting), the proposal for 19 billion KRW in two areas excluding the 2.1 billion KRW for the Job Comprehensive Support Center was rejected.

The city’s announcement of its position came after Councilor Lee posted an opinion regarding the rejection of the local bond issuance consent proposal on social networking services (SNS).

In the post, Councilor Lee used somewhat provocative expressions such as “The surplus (169.9 billion KRW) is a waste of opportunity cost,” “More than 28 billion KRW in special accounts is sleeping in the bank account,” and “It is foolish to incur debt when there is money in the account,” which caused misunderstandings in the local community by implying that the city was pushing for local bond issuance despite having sufficient available resources.

He also stated that “It is a matter to be judged after reviewing the 2020 settlement” and “Concerns that the rejection of local bond issuance consent will hinder project progress are unnecessary,” firmly expressing his stance on the rejection.

The city responded with objective factual answers regarding local bond issuance through this statement.

For example, the city pointed out that Councilor Lee’s expression that “the 169.9 billion KRW net surplus is a waste of opportunity cost” is somewhat excessive.

All local governments inevitably have net surpluses, carryover budgets, and balances of national and provincial subsidies resulting from financial settlements.

The key is to approach this with emphasis on how systematically and efficiently finances are managed. Simply evaluating financial management based on the occurrence of surpluses is unreasonable.

According to last year’s Naju City fiscal year settlement, the net surplus was 169.9 billion KRW as Councilor Lee claimed.

However, 104.8 billion KRW of that is carryover project funds for this year, and 9.5 billion KRW is the balance of national and provincial subsidies that must be used for their intended purposes. Excluding these amounts, the net surplus is 55.6 billion KRW (26.9 billion KRW in the general account and 28.7 billion KRW in special accounts).

The city said, “The net surplus is used as available resources for citizen welfare and local economic revitalization projects in the following year, not wasted or discarded.”

The city ranks among the highest in efficiency of budget management related to net surplus compared to other cities in the province.

According to the settlement data (general and special accounts) of Jeollanam-do cities over the past four years, Naju’s net surplus gradually decreased from 94.4 billion KRW in 2016 to 55.6 billion KRW last year.

Last year, the ratio of net surplus to the current budget was the lowest among other cities at 5.3% (Mokpo 7.1%, Gwangyang 8.8%, Suncheon 10.8%, Yeosu 12.1%), and the carryover budget ratio was also 10% (Mokpo 11.4%, Gwangyang 13%, Suncheon 14.3%, Yeosu 17.4%).

The city also criticized the claim that “more than 28 billion KRW in special accounts is sleeping in the bank account,” saying it should be interpreted differently.

According to Article 9 of the Local Finance Act, special accounts refer to “accounts that allocate specific revenues to specific expenditures for achieving specific purposes.”

In other words, special accounts must be used for their designated purposes, and since the related laws do not impose mandatory provisions on reserve funds, they have been operated independently. Therefore, the opinion that funds are sleeping in the bank account is somewhat unreasonable.

The city said, “To efficiently operate local finances this year, the Ministry of the Interior and Safety amended the Local Finance Act (allowing reserve funds in special accounts up to 1%), and our city also revised individual ordinances (general account transfer regulations) to cover insufficient resources, already pushing for restructuring of 14.9 billion KRW in special accounts.”

It added, “In the case of large-scale projects, if the city’s share of expenses is not reflected in a timely manner each year, the burden increases in the following year, doubling the share. For example, the 20 billion KRW (50% national, 50% city) Urban Wind Forest Path Creation Project.”

The Urban Wind Forest Path Creation Project was confirmed in 2018. Last year, the city and national government each bore 500 million KRW, totaling 1 billion KRW. This year’s burden is 10 billion KRW (50% national, 50% city). The national government’s 5 billion KRW was fully allocated, but only 500 million KRW of the city’s 5 billion KRW was reflected in the 6th supplementary budget proposal.

Accordingly, considering the difficulty of having to bear 4.5 billion KRW for next year’s burden plus 4.5 billion KRW unpaid this year, totaling 9 billion KRW at once, the city intended to cover 4 billion KRW of this year’s burden by issuing local bonds.

The city said, “It is truly regrettable that the issuance of 19 billion KRW out of the 21.1 billion KRW local bonds, which were difficult to allocate from central ministries, was canceled,” emphasizing, “Since early repayment of all 12.8 billion KRW local bonds in 2017, the city has managed finances without issuing local bonds.”

It added, “When financial conditions are good, local bonds should be repaid early, and when conditions are difficult, low-interest local bonds (1.365% in Q4 2020, 5-year grace period, 10-year equal repayment) should be issued to meet investment demand, stabilize citizens’ lives, and revitalize the local economy. This is an important role of local finance.”

This content was produced with the assistance of AI translation services.