Sub-Module 2: Allocation of Responsibilities between the Central Government and Local Governments

Transcription

1 Sub-Module 2: Allocation of Responsibilities between the Central Government and Local Governments Case Study 1: Promoting Municipal Mergers 1. Introduction In the some 130 years that have passed since Japan joined the world s modernized nations, it has experienced a total of three phases during which many municipal mergers occurred nationwide. The first was the great Meiji merger that took place together with execution of the municipality system (1889) as a modern local government system. During this time, some 71,000 municipalities located throughout Japan were configured into approximately 16,000 municipalities in order to form administrative units appropriate for management of administrative affairs. The second phase was the great Showa merger from 1953 to During this period, some 9,900 municipalities nationwide were reformed into approximately 3,500 municipalities to allow efficient management of administrative affairs given the expanding roles of municipalities in the years following World War II. And the third phase was the great Heisei merger that began in 1999 and has continued to the present day. In this current phase, some 3,200 municipalities nationwide have been formed into 1,800 municipalities since 1999 (estimate as of the present time; up to 2006) for the purpose of reinforcing their administrative and financial foundations in line with progressing decentralization. It is expected that further mergers will occur. In this way, every 50 years or so, Japan has embarked on nationwide municipal mergers during major reviews of national and local administrative and financial roles. Through these mergers, the country has attempted to reinforce the administrative and financial foundations of the municipalities that are most closely tied to local residents. On the other hand, there are cases apart from this national trend where cities serving a central role in their regions engage in mergers for the purpose of promoting regional urban development or of becoming government-designated cities. After summarizing financial support measures provided by the central government in recent municipal mergers in Japan, this sub-module will select examples based on the following three perspectives and then provide simple presentations of the characteristics and issues of each example as seen from the viewpoint of local finances. 1

2 Example 1: A case where, amid efforts by cities to become government-designated cities through repeated mergers, mergers with financially-strong towns in adjacent areas have not proceeded well: Hiroshima City, Hiroshima Prefecture Example 2: A case typified by steps to increase tax revenue by pouring energy into post-merger industrial policies together with continuing financial/administrative reform: Kitakami City, Iwate Prefecture Example 3: A case in which social infrastructure was improved through merger and the use of special merger bonds : Sasayama City, Hyogo Prefecture 2. Financial support measures provided by the central government for municipal mergers In Japan, financial support measures implemented by the central government for municipal mergers in recent years can be largely divided into two levels: the FY1999 to FY2004 system and the FY2005 to FY2009 system (planned). Of these, the first five-year level provides the most generous support. a. Main points of measures taken from FY1999 to FY Special merger bonds: For a period of ten years following a merger, a city can apply special bonds called special merger bonds to up to 95% of expenses for projects especially necessary for post-merger urban development. Seventy percent of payment of interest and principal for these bonds is included into the standard fiscal needs of each municipality and implemented as ordinary local allocation tax. - Merger calculation exchange of ordinary local allocation tax: When a merger occurs, the amount of ordinary local allocation tax normally goes down when ordinary local allocation tax is calculated due to increased efficiency in administrative operations that result from the merger. With this measure, however, ordinary local allocation tax for each pre-merger municipality is calculated for a period of 10 years following the merger; the total is used to establish ordinary local allocation tax for the new municipality that was formed after the merger. Furthermore, a five-year period is established after the initial 10-year period has passed during which rapid reductions in ordinary local allocation tax are alleviated. - Fiscal measures for temporary expenses immediately after merger (merger : : phases? : recalculation of the local allocation tax on the basis without municipal merger 2

3 correction): Measures to deal with expenses necessary for post-merger administrative unification (formulation and revision of basic strategies, system improvement, etc.) are considered when calculating ordinary local allocation tax. - Special local allocation tax measures for new urban development: Measures are implemented in special local allocation tax for precise response to such demands as new urban development spurred by mergers, adjustment in utility charge disparities among merged municipalities, and correction of disparities in public bond expenditure. - Special local allocation tax measures for merger transfer expenses, etc.: Measures are implemented that pertain to pre-merger expenses necessary to quickly establish a unified municipality (integration of computing systems, etc.). - Subsidies for merged municipalities: Subsidies that match population are issued to cover projects that are particularly required for post-merger urban development. b. Main points of measures taken from FY2005to FY Merger calculation exchange of ordinary local allocation tax: For a period of between 5 and 9 years following a merger, ordinary local allocation tax is calculated for each pre-merger municipality, and the total is used to establish ordinary local allocation tax for the new municipality that was formed after the merger. Furthermore, a five-year period is established during which rapid reductions in ordinary local allocation tax are alleviated. - Fiscal measures for temporary expenses immediately after merger (merger correction): These measures are the same as those applied under the FY1999 to FY2004 system. - Special local allocation tax measures for merger preparation expenses and merger transfer expenses: Several measures that were separate in the FY1999 to FY2004 system have been integrated; special local allocation tax measures are implemented in the same manner. * Special merger bonds and special local allocation tax measures for new urban development have been eliminated. : In addition, each prefecture is implementing financial support measures on its own. 3. Example 1: Hiroshima City, Hiroshima Prefecture 3

4 3.1 Background behind mergers in Hiroshima City Hiroshima City, Hiroshima Prefecture, is one of Japan s most representative cities. It has rebuilt itself from the devastation that resulted from the 1945 atomic bombing, and currently has a current population of approximately 1.15 million people (ranking it No. 9 in the country). In 1964, it became a city of 500,000 residents as a result of the amalgamation of neighboring towns and villages sparked by the post-war great Showa merger. During the 1960s, the opening of an airport, full electrification of main rail lines, opening of bypasses on main roads, and other developments led to Hiroshima s becoming a metropolitan area that extended beyond the city limits. Thus, based on the concept that provision of unified urban management and administrative services as a single administrative entity contributes to enhanced regional development and public welfare, the city worked to merge with 19 neighboring towns and villages since 1970, and had completed mergers with 14 towns and villages by Emergence as a government-designated city In line with progressing mergers, in 1980 Hiroshima City became Japan s tenth government-designated city, which gave it authorities on par with the nation s prefectures. In the area of fiscal policy, as well, the city was granted financial resource exceptions that matched its status as a major city, and thus the scale of its finances expanded greatly. As a result, its ordinary account revenue, which stood at approximately 100 billion yen in FY1975, grew to approximately 200 billion yen in FY1980. In FY2004, this figure had reached approximately 660 billion yen. Thus, it can be said that promotion of mergers allowed Hiroshima City to become a government-designated city, reinforce its administrative and financial base, and pursue unified urban development. 3.3 Despite geographical integration, there are small towns and villages that will not merge with Hiroshima City A look at a map of Hiroshima City (Figure 1) reveals that there are four spatially-small towns located very close to the center of the city. In particular, Fuchu Town (population of approximately 50,000 people) is made up of a continuous urban zone located five kilometers from central Hiroshima; in fact, it is surrounded on all four sides by Hiroshima 4

5 City. Fuchu Town was first approached with the idea of merging with Hiroshima City 35 years ago. And in a recent ballot initiative, 49.9% of voters approved merging with Hiroshima City, a result that led to the establishment of a legal merger council. Despite this, an agreement on such a merger has yet to be reached (2004). While the reason for this involves various overlapping factors, it is generally recognized that the town s relatively healthy financial situation is one such factor. Fuchu Town is home to the headquarters of a major manufacturer owning a plant that extends across both Hiroshima City and the town, and this state of financial health has led to divided public opinion on the matter. Likewise, Kaita Town (population of approximately 30,000 people) also established a legal merger council with an eye to merger with Hiroshima City. However, those opposed to the merger in a 2004 ballot initiative accounted for 65.5% of the vote, and therefore an agreement on merger could not be reached. Thus, cases where, despite geographical integration, large cities and small towns and villages do not merge can be seen throughout today s Japan. Many of such cases involve a town or village with rich municipal tax (and particularly fixed asset tax) revenue due to its being the location of a major factory, power station, etc. The town or village withdraws from the merger framework because it cannot gain the consent of its residents. 4. Example 2: Kitakami City, Iwate Prefecture 4.1 Background behind mergers in Kitakami City With a current population of approximately 90,000 people, Kitakami City is a sub-prefectural capital located in Iwate Prefecture of Japan s Tohoku region. It has flourished as a strategic transport center since ancient times, and even today serves as an intersection for main roads and railroad lines connecting all parts of the Tohoku region. The city has a growing population and accounts for more industrial shipments than any other city in Iwate Prefecture. Discussion on merging the former Kitakami City with two neighboring towns emerged in the 1970s, and actual merging was even put on the back burner at one point. However, entering the 1980s, efforts to realize the creation of a sub-prefectural capital by merging the three municipalities which shared a common livelihood sphere gained momentum. This movement placed emphasis on improving the vitality and strategic 5

6 nature of the three municipalities in terms of industrial and cultural aspects, and culminated in a merger in Normally, if a central city merges with neighboring small towns and villages, the towns and villages are absorbed with the city s corporate status remaining intact. However, in the case of Kitakami City, the former Kitakami City discarded its corporate status. It was able to realize the merger by attaining a new corporate status together with the towns, working to foster understanding among the residents of the towns, and fostering a sense of regional unity. 4.2 Stimulation of activities to attract business, and strategies to improve tax revenue and regional capacity through the holding of national events, etc. Prior to merger, the former Kitakami City had been working to attract business with the aim of becoming an industrial capital since the 1960s. Because it had been able to secure various types of industrial land within the entire area of the new city, the new Kitakami City utilized the know-how acquired by the old city to successfully attract some 50 companies (affiliates of major manufacturers, etc.) over the course of several years following the merger. This led to higher tax revenue. Furthermore, it took active steps to improve the collective strength of the region by, among other activities, working to actively attract national events and receiving central-government designation as a regional core city (through a system aiming to promote appropriate allocation of industrial and operational functions throughout the country). As a result, Kitakami City developed into a representative city of the Tohoku region. 4.3 Control of expenditure by promoting post-merger administrative and financial reform Following the merger, the city has been actively engaged in administrative and financial reform in order to bolster its financial standing. For a period beginning with the 1991 merger and continuing until FY2002, Kitakami City reduced the number of its employees, consolidated and rationalized subsidies, and promoted review of usage and handling fees. These steps produced significant results, as the reduction of employees had a financial effect of some 4.3 billion yen; curtailing subsidies issued to various organizations had an effect of some 500 million yen; and review of usage fees (i.e., increase in the burden on beneficiaries) for sewage treatment, day care, and other services had an effect of some 700 million yen. Since FY2003, Kitakami City has been aiming to reduce expenses by some 3 billion yen by reviewing its office operations as a further step toward sound 6

7 financial management. It should be mentioned that this new program does not simply seek to control expenditure; a distinguishing feature is that approximately one billion yen to promote responses to new policy issues such as measures to increase the city s population are also included. In the wake of a merger, raising the amount paid by local residents and regional organizations to the city while reducing the amount supplied by the city requires difficult administrative responses. However, this is also an issue that must be addressed in order to promote efficiency in administrative and financial policy, which is one effect of mergers. When doing so, the government must carefully explain its approaches to local residents and promote public understanding in a fair and candid manner, without being tied by old constraints. 5. Example 3: Sasayama City, Hyogo Prefecture 5.1 Background behind the merger in Sasayama City Located approximately one hour by train from Osaka City, Sasayama City, Hyogo Prefecture, is a small city (population of approximately 50,000 people) that is surrounded by mountains. The city was born through the merger of four towns comprising a single county that had deep historical and administrative ties. Ordinarily, legal stipulations state that one condition for transfer to city status is a population of 50,000 people. However, this case received national attention because it involved transfer from town status to city status through relaxation of this condition as an exception that is applied when such shift involves a merger. : 5.2 Promoting large-scale post-merger social infrastructure improvement utilizing special merger bonds The most characteristic point in post-merger urban development in Sasayama City was the fact that large-scale social infrastructure improvement involving waste treatment centers, libraries, citizens centers, tourist facilities, development of water resources, etc. took place for several years following the merger. This improvement was intended to resolve administrative issues faced by each town prior to the merger as well as to improve unity in the new city. Over a five-year period following the merger, over 30 billion yen was invested to cover the expenses of major projects alone. Highly 7

8 significant in making these projects possible was the fact that a framework for local bonds (called special merger bonds ) was established as a financial support measure by the central government to promote municipal mergers during the great Heisei merger. This framework, which is limited to mergers, allows the issuance of special merger bonds to cover up to 95% of the expenses of individual projects that are of particular need. An amount equivalent to 70% of interest and principal payments for these bonds is then considered when the central government calculates ordinary local allocation tax (for FY2006 and thereafter, this measure will not be applicable to mergers). Sasayama City thus utilized this system to promote a series of large-scale projects that had a major impact on urban development. However, despite being a special measure of the central government, there are some who are concerned by the size of future financial burden on the city as the amount of bonds it issues increases substantially. In the city s FY2003 settlement, its local bond balance stood at 56.4 billion yen. This is opposed to approximately 30 billion yen in ordinary account revenue. (Total revenue of the four towns prior to the FY1998 merger was approximately 24.0 billion yen; the total local bond balance was 23.5 billion yen.) Discussion Topics - What effects do mergers of fundamental local governments which have the most bearing on peoples daily lives have when viewing the financial aspects of such fundamental local governments? What concerns do these mergers entail? - Chief among financial support measures for merging municipalities of the central government are those utilizing ordinary local allocation tax and special local allocation tax. What observations can be made about these measures? - From the fiscal management perspective, what observations can be made concerning cases such as Hiroshima City (example 1), where a merger between a large city and a small town or village with rich financial resources does not proceed despite high regional integration? - What observations can be made concerning cases such as Kitakami City (example 2), where post-merger efforts are made to further enhance the city s financial basis by increasing residents burden, decreasing subsidies, etc.? - What observations can be made concerning cases such as Sasayama City (example 3), where large-scale projects are implemented by taking advantage of opportunities to issue local bonds under advantageous conditions with central : municipalities ( ) : municipalities 8

9 government support? References - Society for the Study of Municipal Governments (ed.), Heisei 16-nendo-ban, Zenkoku Shichosan Yoran (2004, Legislation No. 1) - Website of the Local Administration Bureau, Ministry of Internal Affairs and Communications (as of August 1, 2005) - Website of Hiroshima City (as of August 1, 2005) - Japan Center for Regional Development, Gappei-go no Shichoson Un ei no Tebiki: Senshin Jirei Chosa Hokokuksho (2005) : 9

10 Reference Figure 1: Current Map of Hiroshima City and its Surroundings : Location of city/town hall Railroad Hiroshima City Population: 1.13 million Fuchu Town Population: 50,000 Kaita Town Population: 30,000 Higashihiroshima City 0 10 km Population: 180,000 Hatsukaichi City Population: 110,000 Hiroshima bay Kure City Population: 260,000 Saka Town Population: 12,000 Kumano Town Population: 25,000 10