YUBARI, Hokkaido (Kyodo) The city of Yubari, Hokkaido, once the center of a thriving coal-mining industry, has the dubious honor of being the second city in the nation to get bankruptcy protection.

Once all the mines shut down, the town tried to live off its Yubari melon fame and international film festival, however it could not prevent the municipal government from being designated as in financial reconstruction — the equivalent of bankruptcy protection for a private enterprise.

“There is no longer any other way” but to go along with the reconstruction, Yubari Mayor Kenji Goto said as he left the municipal assembly chamber June 20 after announcing his administration had given up plans to get the city back on its feet.

Yubari’s financial problems are not unusual, according to political observers. There are a number of municipalities on the verge of bankruptcy, largely due to the lagging economic recovery and continuing cuts in their national budget allocations.

Yubari’s debts have ballooned to 63.2 billion yen, more than 13 times its annual budget, a combination of municipal taxes and budget allocations from the central government to local governments.

The huge debt is a result of abuses in temporary borrowing — getting quick access to funds through short-term loans from financial institutions. For 10 years, the city had been covering its deficit with the loans to make it appear that it was in the black.

As a result, the Yubari government has been reduced to shoestring operations while repaying its debts with more loans. This tactic might be interpreted as municipalities exploiting legal loopholes, one official at the Internal Affairs and Communications Ministry said.

A senior Yubari official replied to the charge with, “We had no choice but to resort to stopgap measures to repay our debts.”

Yubari once prospered as a leading coal-mining center. The last mine closed in 1990 and the population, which was 120,000 in 1960, is now down to about 10,000. Yubari has been trying to survive by turning to tourism.

The municipal government has built a theme park showcasing its coal-mining history and has invested in several hotels and ski resorts. But every effort to promote tourism has failed.

The situation has become more dire with the termination in 2001 of a law to give money to former coal-mining areas, and Yubari’s budget allocation from the central government to local governments in fiscal 2005 fell to less than half of what it had been at its peak.

All of these setbacks have made it impossible for the municipal government to rebuild its finances.

Yubari is the second municipality designated as undergoing financial reconstruction, following Akaike (now Fukuchi), Fukuoka Prefecture, in 1992, another former coal-mining town.

When a municipality is designated as undergoing financial reconstruction, day-care fees, water rates and rents for public housing are raised, and allocating money to such things as basic road repair becomes difficult.

“This is a snowy region, and I wonder just what they are going to go about snow removal,” the operator of an inn in Yubari said, adding, “With the city’s image damaged, I am afraid we’ll get even fewer tourists.”

Twenty-four municipal governments nationwide reported deficits in their fiscal 2004 account settlements. None has a deficit topping 20 percent of its fiscal budget, which is the figure set for declaring a municipality to be in financial reconstruction.

However, one source said other municipalities face the same situation as Yubari.

Budget allocations from the central government to local governments to make up their revenue shortages have decreased by 5 trillion yen in the last three years under Prime Minister Junichiro Koizumi. And the combined loans held by local governments exceeded 200 trillion yen at the end of fiscal 2005.

Last fall, the Hino Municipal Government in Tottori Prefecture announced the town was near bankruptcy, setting off a chorus of criticism from residents and the governor.

Tottori Gov. Yoshihiro Katayama referred to the town’s announcement as “a planned bankruptcy that came about through no action and no planning.”

The Hino government raised sewerage charges, but local officials have revealed that some of the revenue listed in the current budget is not guaranteed to be received.

“We are groping around in the dark,” one official said.

To halt the financial collapse of municipalities, the internal affairs ministry is studying legislation that would require that local government debts be monitored and supervised by a third party, including accountants.

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