The Diet in the last session enacted a law designed to prevent bankruptcy of local governments like that of Yubari city in Hokkaido. The law became necessary because many local governments suffer from a similar deterioration of finances.
The law introduces four indicators to gauge the health of local governments' financial conditions. It adopts a two-stage approach. If the indicators slip a certain degree below standards set by the internal affairs ministry, the local government concerned will be required to work out a plan to put its finances on a sound footing. If the indicators fall further, the local government will enter a rehabilitation stage and be obliged to work out a financial rehabilitation plan. A limit will also be set on the amount of bonds it can issue.
Although the internal affairs ministry is to draw up the standards, it must carefully take into consideration the opinions of local governments. Too strict standards will lead to a deterioration of local services such as education, city water, sewerage, garbage collection and health care, including the operation of publicly run hospitals.