[Viewpoint] It’s time to bear cost of overspending

If you go through Namsan tunnel No. 3, past Itaewon junction, you will see a large new building by the road: the Yongsan District Office. It’s a 10-story building with five basement levels built on a site of 13,497 square meters (145,281 square feet), and it officially opens in March.

It includes spaces for administration, a district council, a health center and an art and culture area, including a large concert hall, and it cost about 150 billion won ($130 million) to build.

That’s roughly two-thirds of Yongsan District’s estimated 230 billion won budget for the year.

It’s not new. The competition between municipal organizations to build new office buildings is not even surprising anymore. And public opinion is not wavering either: Anyang city plans to build a 100-story high-rise building at a cost of 2 trillion won after Sungnam city and Yong-in city in Gyeonggi erected buildings worth 322.2 billion won and 197.4 billion won, respectively - despite debates on the luxuriousness of the plans.

In general, these municipal palaces cost about 50 billion won in rural areas, and four times that in small to medium-sized cities.

So where’s the money coming from?

Not the municipalities themselves. Most municipal governments are financially weak, and these buildings cannot be operated properly with the profits from acquisition taxes, registration taxes and property taxes.

Instead, they have to rely on funds from the central government.

According to the Ministry of Public Administration and Security, half of the 230 cities, counties and districts nationwide couldn’t even afford civil servant labor fees last year with their local tax income.

Nevertheless, the mayors, governors and heads of city districts, are throwing up luxury offices and pouring great amounts of money into show projects and events that don’t make a profit, such as local festivals and sets for TV dramas.

Spending borrowed money is easy. But it’s leading to a contagious moral laxness.

You can call it a bold, “Spend first, think later” attitude.

The Busan Nam District office recently issued municipal bonds worth 2 billion won to get a bank loan. Reportedly, it borrowed 43.7 billion won to construct a new building - and now it doesn’t have the money to pay its employees because it has to pay back the principal and interest.

All the cities, counties and districts together had a total debt of 11 trillion won at the end of 2008, and that figure is continuing to increase.

Yet Anyang, with a debt of 71 billion won, still dreams of a 100-story building.

Municipal governments are just like individuals and companies. When they take out a loan, they have to pay back the principal and interest. And if things turn bad, they should be able to declare bankruptcy.

That’s not how it works now. Current tax regulations for local governments provides that the central government will pay local governments’ shortfalls after their regular budgets are exhausted.

In other words, the central government supports municipal governments to a certain extent.

This is why municipal governments don’t go bankrupt even if they have enormous debts from huge sums spent to show off the accomplishments of the chief.

Japan operates a bankruptcy system for municipal governments that have a deficit of more than 20 percent from the previous year.

Yubari city in Hokkaido ran up a debt of 36 billion yen (460 billion won, $395.5 million) from over-investing in construction of tourist facilities, and went bankrupt in June 2006.

There were consequences. The population of the city plummeted from 120,000 to 12,000, and the civil servants salaries were slashed until they were the lowest in the entire country.

Even in the United States, local governments must file for bankruptcy if they have mismanaged their finances.

What must be understood is that municipal governments which mindlessly spend money - even with the grandest intentions - will go broke. And bailing them out cannot be accepted any more. The money that pays for that comes out of the people’s pockets.

Other countries hold municipalities accountable for their spending. It is time for Korea, too, to actively review a municipal government bankruptcy system.

*The author is an editorial writer of the JoongAng Ilbo.

by Ko Dae-hoon