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Until last year, Kyoto basked in the glow of being ranked as one of the best, if not the best, places in the world to visit. Polls like one by the U.S. travel magazine Conde Nast in 2020 called Japan’s ancient capital the world’s best city.

Of Kyoto’s 53.5 million tourists in 2019, about 8.8 million were from abroad. Together, they spent around ¥1.2 trillion — the fourth straight year the figure had topped ¥1 trillion.

One estimate showed that the city went from about 30,000 available rooms at hotels and traditional inns in 2015 to over 53,000 last year.

But now, international tourism in Kyoto is at a standstill and the city faces bankruptcy by fiscal 2028 unless it figures out how to come up with another ¥160 billion over the next five years, Mayor Daisaku Kadokawa says.

What happened? Some might attribute Kyoto’s financial woes to COVID-19’s impact on tourism. However, the mayor puts the lion's share of the blame elsewhere.

First, Kadokawa and bureaucrats point to a money-bleeding subway line that opened in 1997. Construction costs were 1.4 times what was initially budgeted, while the number of passengers has been below expectations.

Second, Kyoto residents age 70 and over ride city buses and the subway for free or at a discount thanks to municipal subsidies. Kyoto’s rapidly aging population means more people have been getting those discounts in recent years, adding to the city's bill.

Third, 10% of Kyoto’s population is said to be college students. Not only do they, too, get discounts, but their universities often qualify for tax breaks, meaning less money for city coffers.

Fourth, Kyoto bureaucrats enjoy salaries that are high given the tax base, and there are too many of them.

To keep the city from going bankrupt, the mayor is seeking ¥21.5 billion in salary cuts for bureaucrats and the elimination of 550 jobs. He also wants to review various municipal projects and subsidies totaling ¥72.1 billion, and to sell municipal land worth ¥11.7 billion — all over the next five years.

What Kadokawa is not talking about is raising property taxes. There are a couple of reasons why.

Kyoto’s traditional wooden machiya (townhouses) are a big part of the city’s appeal to tourists. But from a tax perspective, the city sees them as weaknesses because they have a lower property tax rate than larger modern buildings, and there’s a sense it’s not worth the effort — politically or financially — to target them.

In addition, all of the city's temples and shrines, designated as World Heritage sites or not, might get a lot of money from visitors, but they are exempt from local property taxes if they are registered religious corporations. They are also very influential, especially with the mayor’s office and city assembly. In 1985, when Kyoto imposed a tax on famous temples, there was a bitter legal fight that led to it being abolished in 1988.

Kadokawa’s plan has drawn criticism from neighboring Osaka. That city's mayor, Ichiro Matsui, suggested Kadokawa should show leadership by cutting his own salary — Matsui himself took a 40% salary cut and abolished the mayor's retirement bonus. So far, Kadokawa has only offered to take a 30% salary cut and a 16% cut in his retirement bonus.

Kyoto and Osaka have long been rivals and the two cities have very different characters.

Osaka television media commentators, after hearing about Kyoto’s situation, half-jokingly said it's typical Kyoto behavior to pretend there are no problems and hope that they go away.

But they’re not laughing in Kyoto, which faces drastic cuts in services for its residents even as it must also make more investments to lure tourists and visitors back once the coronavirus pandemic is history.

View from Osaka is a monthly column that examines the latest news from a Kansai perspective.

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