This survey was conducted for the improvement of the management systems among local government. The survey covers 1) Tokyo, Hokkaido, and all the other prefectures, 2) ordinance-designated cities, and 3) cities, wards, and towns. The survey collected balance sheets for fiscal year 2005. The collection rate of this survey was, for balance sheets : 1) 97.7% for Tokyo, Hokkaido, and all the other prefectures, 2) 100% for ordinance-designated cities, 3) 74.1% for both cities and wards, and 46.5% for towns. The rate for administration cost statements was 90.9% for 1) Tokyo, Hokkaido, and all the other prefectures, 2)100% for ordinance-designated cities, 70.1% for both cities and wards, and 44.6% for towns. The following notes explain the method of evaluation and terminologies.
Six perspectives were set for this survey for comprehensive evaluation and assessment. They are "sustainability", "independence", "flexibility" "productivity", "degree of capital accumulation," and "future burden". "Evaluation" means "the deviation value rating". Therefore, its standard value is 50. Some cities, wards and towns submitted only balance sheets. Each of the six perspectives has its indicators. The indicators consist of; 1) currently existing indicator for financial analysis index (such as financial strength index) which has been used for the financial analysis of local governments, and 2) unique indicator developed by local government management center based on their balance sheets and administration cost statements. Detailed explanation of these indicators is as follows :
<Sustainability>
(1) Net debt / Standard fiscal scale *Net debt = Debt - ( Current cash outstanding + Current reserve outstanding)
The rate of future burden to current fiscal scale. Future burden here means net debt excluding current cash and reserve outstanding. If this number is large, the burden will be large in the future compared with the current fiscal scale.
(2) Current Ration (%) *Current assets/Current liabilities
The ratio of current assets to current liabilities on the balance sheet. A large ratio % represents high ability to pay in the short-term.
(3) Debt Service Payment ratio used for permission to issue local bonds (%)
The average percentage of last three years. Expenses to issue local bonds vs. revenues that are regularly received every year for which the purpose for spending is not specified, such as local taxes and an ordinary local grant taxes.
<Independence>
(1) (National and prefecture treasury disbursement + Local special grant + Local allocation tax) / Total revenues (%)
The ratio of dependent (national) revenues to total revenues on administration cost statements. A low percentage means that they are providing administration services without relying too much on the national or prefectural governmental support.
(2) Invested in fixed assets, national and prefecture treasury disbursement / Net assets (%)
*Subsidy (National treasury disbursement + prefecture disbursement) / net assets. Unless the breakdown of net assets is available, (National treasury disbursement + prefecture disbursement) will be calculated as : 2004 net assets - (2003 net assets like general resources + change of general revenue resources in 2006 administration cost statements).
The ratio of the national and prefecture treasury disbursements to the net assets on a balance sheet. A low percentage means that they have increased fixed assets without relying too much on the national or prefectural governmental resources.
(3) Fiscal power index
It shows the financial power of local governments. The last three year average value of (standard financial revenues / standard financial demand). The higher number the index shows, the more sufficient resources they have.
<Flexibility>
(1) Total costs / Total revenues
The rate of the cost sum total to the income sum total on an administration cost statement. If it is less than 1, it means that the cost of administration service can be provided with the ordinary income.
(2) Ordinary balance ratio (%)
This is an indicator to evaluate the elasticity of the local government financial structure. It shows the ratio of expenditures which are regularly spent every year such as personnel expenses, aid expenses, and bond fund expenses among the source of revenues regularly received every year for which the purpose for spending is not specified, such as local taxes and an ordinary local grant tax. If a ratio is high, it means that stiffness of financial structure is progressing.
<Productivity>
(1) Total costs per residents
Cost per person in order to offer administration service. If administration cost is low per one person, it means the offering of administration services more efficiently compared with other groups.
(2) No. of employees per thousand of residents
The number of the personnel employed in order to offer administration service to residents. A smaller number of employees per a population of 1000, it means supporting residents more efficiently compared with other groups.
<Capital Scale>
(1) Fixed asset per residents
The tangible fixed assets which each resident has. If the rate of tangible fixed assets per each person in the population is high, the accumulation of social capital (=infrastructure) etc. is high.
(2) Total assets / Total revenues(cash basis)
The rate of the assets to the total revenue amount. If the rate of assets vs. the budget is high, accumulation of social capital etc. is high compared with total revenues.
<Future Burden>
(1) Net assets / Fixed assets (%)
The ratio of the net assets to tangible fixed assets. A high future burden ratio of social capital means that the past generation has paid the issuing cost of tangible fixed assets compared with other groups. A low ratio, on the contrary, it means that the future generations will have to pay the issuing cost of tangible fixed assets.
(2) Change of General revenue resources / Total revenues
The rate of the change of general revenue resources (balance on an administration cost statement) to the total revenues. A positive rate means that the present generation is accumulating the capability to offer administration services to the future generations. A negative rate, on the contrary, means that the present generation is consuming the capability that the older generations have accumulated.
<Overall Evaluation>
To evaluate all 6 perspectives, the indexes contained in each perspective are converted into deviation values, the average of those deviation values is calculated, and again converted into deviation values. Then, after calculating the average of the evaluations of the six perspectives, they are converted into a deviation score, which is the overall evaluation of the group.
Major findings
Overall, Saitama Prefecture was ranked 22nd of all prefectures in fiscal year 2003, 19th in 2004, and sharply up to first place in 2005. The reason for this is the significant impact of the improvement in flexibility and future burden. As an indicator of flexibility, the improvement of the total costs over total revenues is noteworthy. Total costs/total revenues compared to the previous year has improved noticeable from FY2003 to 2005; in 2003 1.10 (ranking 11th ), in 2004 1.11 (7th ), and in 2005 1.05(5th ). In addition, the indicator of future burden shows that change of general revenue resources/total revenue was markedly improved, which were -8.2 (ranked 29th ) in 2003, -9.2 (27th ) in 2004, and -3.2 (10th ) in 2005. The minus of general revenue resources means that income is not enough to cover administration costs. However, we can say that it has been gradually improved in order for the income to cover the costs. The improvement of both indicators is due to a decrease in administration costs.
In productivity, Saitama Prefecture has remained first for three consecutive years, from FY 2003 to 2005. As an indicator of productivity, administration costs per capita population is about 190,000 yen which is the best of all the prefectures. The number of employees per thousand of population is 8.88 and this also puts Saitama Prefecture in the lead. Both indicators mean that their efforts on the efficiency are working effectively and as a result, it improved flexibility and future burden.
With its overall rating of Saitama City was in first place for three consecutive years from FY 2003 to 2005. Especially, sustainability, independence, and productivity were ranked 1st in those 3 years. As an independence indicator of Saitama City, a percentage of dependent revenues/total revenues is 17.6 (rating 4th), financial capability 0.97 (rating 2nd), and subsidies in net assets 15.2 (rating 1st). Also, the indicator of productivity shows that administration costs per capita population is about 250,000 yen, putting Saitama City in 1st place, the number of employees per thousand of population is in 4th place with 6.87. Furthermore, Saitama City's sustainability tells us that the net debt /standard fiscal scale is 1.71, again putting Saitama City in 1st place, current ratio indicates 149.8%, once again in 1st place, and dept service payment ratio used for permission to issue local bonds 9.9%, this time in 2nd place. Thus, all indicators show favorable levels.
These indicators in Saitama City were all at good levels from FY 2003 to 2005. They have built a firm financial base by aiming at efficiencies that allow them to move away from national or prefectural governmental monetary resources.
The overall ratings of the Cities of Osaka, Chiba, Kyoto, Hiroshima, and Fukuoka were below the average value of 50 for the three consecutive years from FY 2003 to 2005. The trends of change in administration costs and revenues were evaluated, but the cities with the lower overall ratings stayed the same without any major improvements. It seems that there is a gap in the financial strength among the ordinance-designated cities.
In particular, Osaka City is the weakest for the two consecutive years of FY 2004 and 2005. Although Osaka City has earned capital accumulation, Osaka City's sustainability, independence, flexibility, productivity, and future burden are all low. Similarly, Osaka City's infrastructure has sufficiently developed, yet on the other hand, the introduction of efficiencies has not gone well, and Osaka City seems to be in a tight financial situation. As a result, it seems that Osaka City has to issue of special bonds, is losing financial sustainability, and is deferring its debt to future generations. From this viewpoint, it is certain that Osaka City has no remaining financial investment funds available and has no cash reserves. Administration costs include depreciation and amortization expenses. Therefore, compared to the other cities, Osaka City's well-developed infrastructure yields depreciation and amortization, which can be an obstacle to introducing efficiencies.
The overall rating of Kariya City is first for three consecutive years from FY 2003 to 2005. From every aspect, Kariya City is far above the average (value of 50) from FY 2003 to 2005. In particular, sustainability, independence, and flexibility are in first place. Kariya City stands self-sufficient financially through efficient administrative operations. They do not depend on national or prefectural governmental resources. Ultimately, they enhance not only financial sustainability, but also maintains sufficient infrastructure free from imposing a financial burden on future generations.
The cities with high flexibility, high sustainability, and low future burden have financial sustainability, are financially sufficient, and also will reduce the burden on future generations. These cities like Kariya City can be commended for considering implementing their policy to improve infrastructure while staying sustainable. Especially, the cities depending on local business conditions need to build infrastructure for future generations while they are financially stable.
Onojo City, Soka City, Kaji City rank in as the top three groups in productivity for three consecutive years from FY 2003 to 2005. Soka City was ranked as 1st , Kaji City as 2nd , and Onojo City as 3rd in 2003. However, Onojo City was 1st , Kaji City 2nd , and Soka City 3rd in 2004. Furthermore, Onojo City was 1st , Soka City 2nd , and Kaji City 3rd 2005. These 3 cities have been jockeying with each other for first place in the area of productivity.
The three cities have high productivity in common, but of different types; Soka City differs from Onojo City and. In Soka City, administration costs per capita of population are low, while in both Kani and Onojo cities, the number of employees per thousand of population is low. The administration costs per capita population in Soka City is about 200,000 Yen and Soka City is ranked as the second, while its number of employees per thousand of population is 5.34 and this ranks it 9th. In contrast, the number of employees per thousand of population in Onojo City is 4.07 (Rating 1st) and Kaji City 4.82 (3rd). The administration costs per capita population in Onojo City is 230,000 yen (46th), and 220,000 yen (22nd) in Kaji City. Thus, the way of improvement of Soka City is different from the type of productivity of Onojo and Kaji cities.
Conclusion and Future Challenges
To date, the nationwide comparison of balance sheets or statement of administration costs have been difficult as there was little framework for analysis. Therefore, local governments take limited advantage of their financial statements even though they made their own balance sheets and local statements of administration costs. We believe this survey has been providing the opportunity for continuous comparisons nationwide and a uniform framework for analysis. From the results in this survey, we expect that the local governments will be able to use and interpret their balance sheets and statements of administration costs more effectively.
(This report is based on the document prepared by Japan Productivity Center's U.S. Office.)
