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Since the onset of the novel coronavirus, the Tokyo Metropolitan Government has spent more than 90% of its ¥934.5 billion contingency fund on countermeasures intended to safeguard the capital’s economy and keep the virus at bay.

While the money has served its intended purpose, it’s unclear how long it will take to rebuild the fund, much less whether the capital can afford to maintain virus countermeasures if and when another wave of COVID-19 strikes.

The metropolitan government has already begun to slash expenses, reroute money from other designated funds and borrow cash to alleviate the pressure. In the last budget revision approved earlier this month, the city will further subsidize domestic travel to the tune of ¥2.3 billion and issued ¥174 billion in bonds for the first time in nine years.

But experts say it’s too little, too late.

By falling into debt and re-appropriating existing funds, the capital risks financial destabilization and the loss of its ability to respond to natural disasters or continue to shoulder the growing cost of the Olympic and Paralympic Games.

“The situation is quite dangerous,” said Motohiro Sato, a professor at the Hitotsubashi University Graduate School of Economics.

“Borrowing money is advisable only if there’s a plan to return it, and the metropolitan government surely needs to examine how it spent so much in such a short period of time,” he said. “This isn’t about being frugal, it’s about recognizing that this is a long-term battle.”

The metropolitan government’s Adjusting Fund for Finance (AFF) is a discretionary fund reserved for contingency measures in the case of a natural disaster, economic crisis or otherwise unexpected emergency that warrants heavy spending.

At the end of fiscal 2019, the fund had accumulated a record-breaking ¥934.5 billion following a string of prosperous years in which corporate tax revenue climbed steadily.

Since January, Tokyo has spent ¥1.6 trillion on COVID-19 countermeasures, more than ¥862 billion of which came from the emergency fund.

Less than 8% of the fund remains.

Officials say the capital has never spent so much money on emergency countermeasures, nor had the AFF ever accrued so much wealth nor had so much of it been depleted in such a short period of time.

“The priority is to uphold coronavirus countermeasures, and to simultaneously protect residents and help the economy recover,” Tokyo Gov. Yuriko Koike said during a news conference in early October after a new supplementary budget was approved. “These are difficult times but the city has the means and will to achieve both.”

In the sharp economic slump following the real estate crisis in the early 1990s — more commonly known as the “bubble burst” — then-Gov. Shintaro Ishihara introduced a plan in 2000 to jump-start the capital’s regeneration by making deep cuts to annual expenses wherever it could, covering everything from limiting the use of copy machines to the reduction of city employees.

The plan worked. Economic growth since then has resulted, among other things, in the steady accumulation of excess corporate revenue that allowed the AFF to reach historic heights. Two decades later, this enabled the capital to spend more on virus countermeasures than any other municipality in Japan.

In a proposed supplementary budget put forward in September, the metropolitan government installed a spending ceiling that would reduce expenses by 10% over the next fiscal year.

However, critics say the spending ceiling won’t yield returns fast enough.

In the same tentative budget, roughly ¥15 billion in funding for health initiatives was repurposed and added to ongoing COVID-19 measures.

According to officials, the total monetary value of designated funds other than the AFF amounts to more than ¥1 trillion.

These funds, however, are intended for short- and long-term public projects related to everything from social security, education and disaster preparedness to the maintenance of public infrastructure — bridges, parks, roads, hospitals and schools — as well as the planning of the Tokyo Games.

“Any effort to dismantle and repurpose these funds will invariably face backlash from voters and bipartisan dissent,” said Yasushi Aoyama, a professor of political science at the Meiji University Graduate School of Governance who served as Tokyo’s vice governor from 1999 to 2003. “This is where the situation becomes political.”

Garnering enough support to disperse funds meant to keep the city functioning, he went on, will be a test of Koike’s political prowess.

The budget also called for ¥152 billion in loans to small and midsize private sector companies.

Of the ¥862 billion spent on COVID-19 measures from the city’s emergency fund, roughly ¥500 billion was spent on loans to such companies. This means the money isn’t “gone” but rather invested in the private sector to temporarily shield it from the economic downturn.

Experts say this may have allowed the capital to avoid a devastating recession, but financial reserves won’t be built up again as long as the virus is still spreading and the hard times continue. Until then, the capital will have to regain at least part of its spending power through other means.

Another option for the city is to sell bonds, a move made in the budget approved in October, the first time the capital has issued bonds in nine years. But whether it is borrowing or lending money, doing so recklessly or with no endgame is dangerous, said Takehiko Ikegami, a professor in the Department of Economic Policy Studies at Rikkyo University.

“This is all fine if the money is returned, but it’s impossible to know when that will happen, if at all,” he said. “In that regard, the future remains opaque.”

The capital’s annual budget for fiscal 2020 is likely to exceed ¥9 trillion.

Unlike other parts of the country, Tokyo is heavily dependent on annual corporate tax revenue due to a high concentration of companies headquartered within city limits, which makes it exposed to the behavior of the private sector and thus vulnerable to sudden downturns.

Roughly ¥70 billion will be added to the AFF in fiscal 2021.

Officials say the size of the fund and its behavior over long periods of time can reflect the city’s economic situation.

At the end of each fiscal year, the city adds to the fund by setting aside half of excess revenue and a fraction of economic growth — 3% to 5%, depending on the amount of growth.

In Japan, the toll of COVID-19 has reached more than 100,000 infections and over 1,700 deaths.

With 30,000 infections and 445 deaths, Tokyo accounts for more of the country’s pandemic toll than any other town, city or municipality, so it follows that the city would have spent more on measures to combat the pandemic.

But the capital’s wealth is reaching its limit. As the city begins to scrape the bottom of the barrel to make ends meet, experts say efforts to cut expenses or borrow money are only temporary and won’t yield actionable returns until after the economy recovers.

Meanwhile, the metropolitan government needs to re-examine how all that money was spent so quickly, said Takero Doi, an economics professor at Keio University.

Since the outbreak reached Japan, the central government has on multiple occasions issued cash handouts to struggling individuals and businesses, provided rent relief to those who became infected with COVD-19 and, more recently, funded a ¥1.35 trillion campaign to resuscitate the domestic travel industry.

In each case, the capital supplemented the central government’s efforts by adding an additional layer of financial support available only to residents of Tokyo.

Excessive spending, Doi said, is part of the reason the AFF was depleted so quickly.

While debt may be unavoidable, loans to the private sector won’t be paid back until after the pandemic has subsided and the economy is given a chance to recover. Similarly, the metropolitan government won’t be able to repay its debt until then either.

Tokyo saw a ¥1 trillion drop in tax revenue both in the early 1990s after the bubble burst and during the economic downturn triggered by the 2007-08 global financial crisis. In both cases, officials say it took years for the city to recover.

“Arguably the most symbolic casualty of the novel coronavirus in Japan is its economy,” Doi said, adding that it could take four to five years for corporate tax revenue to rebound even after the economy recovers.

“It all depends on how fast and to what extent the private sector can rebuild itself,” he said. “Even then, tax revenue won’t heal as quickly.”

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