Japanese Localities on Verge of Bankruptcy

The Japanese city of Miki in Hyogo Prefecture declared a financial crisis Monday.

The city slashed its payroll and closed railroad routes in the red to save 2.1 billion yen, but has a long way to go. Should it fail to raise an additional five billion yen over the next five years, it will face bankruptcy.

Miki was not listed as a financially unhealthy locality Tuesday by the Japanese Internal Affairs and Communications Ministry. In the eye of the ministry, Miki is not in trouble.

According to the Asahi Shimbun and other Japanese newspapers, the ministry named 43 localities as having unstable financial conditions based on last year’s fiscal records.

Yubari and Akabira in Hokkaido Prefecture and Ohtaki in Nagano Prefecture have been deemed virtually insolvent by the ministry.

Forty other localities including Rumoi in Hokkaido have received “preliminary warnings,” indicating they cannot avoid bankruptcy without taking urgent measures.

The ministry will take mandatory action from next year to steer financially unhealthy localities into a healthy direction. This year, however, it will simply announce the list.

Once a locality is categorized as virtually insolvent, it is barred from issuing bonds and deprived of autonomy; the central government will supervise its financial administration. The locality will have to provide a plan to regain financial health and stick to the plan.

Thus localities in red are doing whatever they can to cut corners and boost revenue.

In Ohtaki, for example, officials raided the home of a resident with an outstanding tax bill and confiscated cash, jewelry and other valuables there in a rare move.

Metropolitan areas are also suffering from financial woes. A city in Chiba Prefecture closed its 58-year-old hospital Tuesday and fired all 185 staff members.

Provincial governments run 973 hospitals around Japan, but their combined deficits in 2006 are almost two trillion yen. Thus similar closures of hospitals are expected to follow.