Jeonju City Council’s administrative report voices concerns about the issuance of local bonds
Next year’s debt ratio will be 22%… Concerns about being designated as a financial-oriented organization
Interest increases due to high interest rates, burden of 700,000 won per citizen
City “secure financial resources such as selling public property and collecting arrears”
Photo = Provided by Jeonju City
As Jeonju City’s local bond issuance amount is growing like a snowball, voices are pouring in raising concerns about the city’s financial soundness.
Jeonju City Council members Choi Myung-kwon, Lee Nam-sook, and Kim Hak-song expressed great concern about the issuance of local bonds that worsened the city’s finances during the administrative audit of the 416th 2nd regular meeting on the 19th.
Rep. Choi said, “According to the National Institute for Livelihood Research, Jeonju City’s debt ratio as of 2022 was 7.55%, ranking 6th among basic local governments in the country.” He added, “Jeonju City’s local bond issuance amount exceeded 100 billion won last year and this year, and the debt ratio is expected to increase further. “It is expected to rise,” he said.
Rep. Choi continued, saying, “The Ministry of the Interior and Safety designates a local government as a fiscalistic organization if its debt-to-budget ratio exceeds 25%, and as a fiscal crisis organization if it exceeds 40%. In this case, it is subject to various regulations, including restrictions on the issuance of local bonds.” He pointed out, “Next year, Jeonju City’s debt-to-budget ratio is 22%, and it is at risk of being designated as a fiscalist organization.”
The city’s debt ratio by year was 12.2% last year and 16.5% this year. Next year it is estimated at 22%.
Rep. Choi said, “I agree with the issuance of local bonds to promote major projects. However, the city must assume debt at a level it can handle,” and added, “If local bonds are issued excessively in a high interest rate situation, citizens’ tax money will have no choice but to be used to repay the debt.” Emphasis was placed on curbing local bond issuance and debt management.
In response to this, Lee Kang-jun, head of the city’s Planning and Coordination Office, said, “We are exploring various measures to avoid being designated as a fiscalistic organization,” and added, “We will secure financial resources by selling public property land (740 lots, KRW 150 billion) and collecting arrears from previous years. Private sector” “We will also reduce subsidies and reduce the burden on local bond issuance,” he said.
He added, “Institutional support is also needed to stabilize the finances of basic local governments, such as identifying available financial resources and restructuring expenditures, as well as increasing the local allocation tax rate and collection grant rate.”
The interest burden on local bonds, which has increased due to high interest rates, was also pointed out.
These lawmakers said, “If local bonds are issued in a high interest rate situation, the interest burden will be greater,” and that efforts are needed to refinance high interest rate local bonds at low interest rates.
In addition, Rep. Lee said, “When we calculated the burden of citizens’ debt due to the issuance of local bonds, it was found to be 700,000 won per person,” and said that a local bond repayment plan should be established to promote early repayment.
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Great, I have prepared the following questions for an interview with two guests about Jeonju City Council’s concerns over local bond issuance and its financial impact:
Guest 1: Choi Myung-kwon, Jeonju City Council Member
1. Can you explain the implications of Jeonju City’s debt-to-budget ratio exceeding 25%, which could potentially lead to the designation as a fiscalist organization? What challenges does the city face in meeting its financial obligations amid the current economic climate, and what steps is the government taking to ensure financial stability?
2. The interest burden on local bonds has increased due to high-interest rates, which is causing concern among citizens. What measures can the city take to refinance high-interest rate local bonds at lower interest rates? Is there a plan in place to reduce the debt repayment period?
3. The city hopes to secure financial resources by selling public property land and collecting arrears from previous years. How feasible do you think these measures are in the long run? Are there any other alternatives that the city could consider to stabilize its finances?
4. The National Institute for Livelihood Research warns that issuing local bonds excessively can lead to a financial crisis. Do you agree with the current pace of local bond issuance by Jeonju City? What should be the ideal level of local bond issuance that aligns with the city’s budget and financial capabilities?
5. The Ministry of the Interior and Safety has stated that basic local governments should have a debt-to-budget ratio below 25%. Do you think Jeonju City is on track to meet this target in the foreseeable future? If not, what are the factors contributing to the high debt-to-budget ratio, and what steps can the city take to bring it down?
Guest 2: Lee Kang-jun, Head of Jeonju City’s Planning and Coordination Office
1. How is the city planning to balance its desire to issue local bonds for major projects with the need to maintain financial stability? Are there any guidelines or regulations in place to ensure that bond issuance does not exceed the city’s financial capacity?
2. The interest burden on
