Gyeonggi Province Faces Controversy Over '7 Trillion Won Debt' and 770 Billion Won Budget Cut

As Gyeonggi Governor Choo Mi-ae declared a fiscal emergency yesterday (August 5) involving a 770 billion won reduction supplementary budget to address a 7 trillion won debt, attention is focusing on the details of the financial crisis facing Gyeonggi Province, which—along with Seoul—is classified as a local government ineligible for central government subsidies.

In particular, as Governor Choo pointed out that the fiscal crisis of the 8th popular election term was masked by stopgap measures such as issuing local government bonds and borrowing from funds, and that the golden time to rectify the finances was missed, controversy surrounding the causes has continued.

◇ Out of 7 Trillion Won in Debt, Local Bonds Account for 1.9 Trillion Won... 300 Billion Won in Livelihood Budgets Unfunded This Year According to the "Financial Status Report" submitted by Gyeonggi Province to the provincial council last month, the total amount of local bonds and internal transactions (fund borrowings) to be repaid by 2038, based on the timing of this year's first supplementary budget, stands at 7.0415 trillion won.

Among this, local government bonds amount to 1.9117 trillion won.

This consists of 1.661 trillion won in principal—including 943 billion won issued last year and 718 billion won issued up to this year's first supplementary budget—and 250.7 billion won in interest.

The issuance amount from last year reached 99.6% of the legal limit for local bond issuance under the Local Finance Act (946 billion won).

Gyeonggi Province issued local bonds three times last year and twice this year.

Due to varying repayment periods and amounts, the principal and interest to be repaid next year will be 58 billion won, but for three years from 2028 to 2030, the province must repay between 325.4 billion won and 405.8 billion won annually, acting as a considerable financial pressure factor.

Internal transactions refer to borrowings from various funds into the general account, for which principal and interest must be returned to the fund accounts.

The total principal and interest for internal transaction repayments amount to 5.1298 trillion won, including 3.9462 trillion won from the Regional Development Fund and 1.1836 trillion won from the Unified Fiscal Stabilization Fund.

Although internal transactions do not draw external funds like local bonds do, depleting funds intended to prepare for future crises on projects inconsistent with their purposes can ultimately become a factor in worsening finances.

Due to the burden of repaying local bonds and internal transactions, Gyeonggi Province ultimately failed to include 313.2 billion won for livelihood project budgets in this year's main budget.

Consequently, quite a few essential projects have budgets compiled for only nine months instead of twelve.

These include long-term care for the elderly (123.4 billion won), support for meal costs at kindergarten, elementary, middle, and high schools under the Provincial Office of Education (58.4 billion won), and operational support for the city bus public management system (29.1 billion won).

To add insult to injury, acquisition tax revenues among Gyeonggi Province's projected tax revenues for this year fell far short of the target, expected to drop by more than 350 billion won. Accordingly, Gyeonggi Province has judged that a reduction supplementary budget on the scale of 770 billion won is inevitable.

◇ Choo Mi-ae: "Fiscal Situation Should Have Been Disclosed" ... People Power Party: "Disaster Relief Funds of the 7th Popular Election Term Started It" In November 2024, former Governor Kim Dong-yeon announced the 2025 main budget bill, stating, "The government's budget bill for next year is effectively a tightened budget with no consideration or solutions for the immediate crisis. Gyeonggi Province will walk a different path from the government. Following last year, we will pursue bold expansionary fiscal policy and revive our crisis-recovery DNA through the human-centered economy 'Humernomics'."

At that time, the main budget bill included the issuance of 49.62 billion won in local bonds for the first time in 19 years since 2006.

Lee Hee-jun, then head of the Gyeonggi Provincial Planning and Coordination Office, explained, "Considering that it is at the level of 1.3% of next year's budget, while other metropolitan local governments are around 3% and some exceed 4%, it is a sufficiently bearable level."

During the process of compiling this year's first supplementary budget last April, Gyeonggi Province issued 1,978 billion won in local bonds.

It was the fifth issuance starting with last year's main budget.

In response, Jeong Doo-seok, head of the Gyeonggi Provincial Planning and Coordination Office, explained, "This was prepared to swiftly back up the government's supplementary budget with a stance of responding to high oil prices, stabilizing the livelihoods of vulnerable groups, and minimizing industrial damage."

The budget bills, including the five local bond issuances and fund borrowings, passed through the provincial council without major modifications.

This year's main budget was also approved by the provincial council with three months' worth of livelihood projects omitted.

Regarding this, Governor Choo pointed out, "If we had transparently disclosed the financial situation even a little earlier and embarked on restructuring, we could have responded preemptively. However, while masking the crisis with stopgap measures, we even missed the golden time to rectify Gyeonggi Province's finances."

In connection with this, former provincial council member Ko Jun-ho of the People Power Party released a press statement claiming, "The Lee Jae-myung provincial administration of the 7th popular election term used various funds and financial resources for disaster relief payments and other purposes, while the Kim Dong-yeon provincial administration of the 8th popular election term issued local bonds and pulled in funds to cover financial shortages."

He further criticized, "As a result, Governor Choo Mi-ae, the third Democratic Party governor, was greeted upon taking office with a 770 billion won reduction supplementary budget and the declaration of a fiscal emergency."

According to Gyeonggi Province, funds borrowed into the general account (Regional Development Fund) over the two-year period from 2020 to 2021 during the tenure of former Governor Lee Jae-myung of the 7th popular election term amounted to 1.6543 trillion won.

(Photo: Yonhap News)
※ Please note: This article was translated by AI and may contain errors.