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Debts incurred from past public investment and reconstruction work after disasters are placing heavy financial burdens on local governments while social security costs are increasing amid the graying of Japan’s population.

In fiscal 2018, which ended in March 2019, the future burden rate, one of the indicators for judging local governments’ financial soundness, reached a crisis level of over 300 percent in Hokkaido, Niigata Prefecture and Hyogo Prefecture.

The average rate among the country’s 47 prefectures stood at 173.6 percent.

If the rate, which shows the extent of future burdens on finances, exceeds 400 percent, local governments are required to submit a fiscal reconstruction plan to the central government.

The rate was highest across the country in Hyogo, at 339.2 percent.

The Hyogo Prefectural Government is struggling to repay municipal debt it issued in 1995 to finance reconstruction work after the Great Hanshin Earthquake, which devastated Kobe, the prefectural capital, and its vicinity.

In fiscal 2018, the prefectural government spent ¥46 billion on debt servicing. It is expected to take over a decade to complete the payments, according to the prefectural government.

The rate came to 323.5 percent in Hokkaido. Debts that the prefectural government incurred from public investments it made as stimulus measures in the aftermath of the collapse of Japan’s bubble economy in the early 1990s are increasing pressure on the local government’s finances.

It costs a lot for the prefectural government to maintain services for residents, as it has to cover an area about four times the size of the Shikoku region, which consists of four prefectures, and it also has to deal with snow and cold weather.

Niigata’s future burden rate came to 321.4 percent, as its economic growth was lower than expected in its fiscal management plan for fiscal 2006-2017. The balance of debt ballooned as revenues fell.

If there are no improvements, its kikin fund from savings is expected to run out by the end of fiscal 2022.

“If we compare the financial situation to a household, it’s like we fell deeper into debt on the assumption that the breadwinner will get promoted, but in reality income didn’t increase,” an official of the prefectural government said.

The three prefectures are stepping up efforts such as cutting the number of employees and their salaries. But reducing expenditures will not be enough to rebuild their finances.

Faced with severe revenue shortfalls, local governments continue to face difficulties in drawing up budgets.

Local governments are calling on the central government to review its method for calculating the distribution of tax revenues to local governments, in response to falls in population.

Hokkaido is asking for a calculation method based more on ground area and other factors, rather than population.

“Establishing a local finance system that enables municipalities to offer public services despite changes in population structure is needed,” an official of the Hokkaido Prefectural Government’s financial division said.

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