Local governments that need to secure funding for the second round of people's livelihood recovery consumption coupons are said to be in a bind. The Ministry of the Interior and Safety said it was fine to use disaster funds as the source, but in the past the Board of Audit and Inspection noted that using disaster funds for other purposes could cause problems. There are also concerns that if disaster funds are used as the source for consumption coupons, there may be a shortage of funds to respond to heavy snow, cold snaps, and sinkhole accidents.
◇ Local governments to share 10%–25% of funding for second round of consumption coupons… Interior Ministry says "it is fine to use disaster funds"
The first round of consumption coupons was paid entirely by the central government. But local governments must share the funding for the second round. Seoul must provide 25%, and other local governments must provide 10% each.
There are two main ways for local governments to secure funds. One is to save money by trimming other items in the budget. They can also raise money by issuing local government bonds.
The problem is that many local governments cannot use these methods. Their fiscal conditions are not ample, and issuing local government bonds for consumption coupons is not possible under current law. In response, the Interior Ministry sent guidance to local governments nationwide in late Aug. stating that they could use surplus resources from disaster funds "to the extent that it does not hinder disaster and calamity response." Disaster funds are money that can be used for relief and recovery in the event of damage from natural disasters and the like.
At the same time, the Interior Ministry explained the accounting method for using disaster funds. If the disaster funds are deposited into the emergency reserve account, the Integrated Fiscal Stabilization Fund, where surplus resources are accumulated, and then transferred back to the general account, they can be used as the budget for consumption coupons.
◇ Local governments say "the Interior Ministry's guidance is conditional—won't we be cited later by the Board of Audit and Inspection?"
However, front-line local governments are hesitating to use disaster funds as the source for consumption coupons. Gwangju Metropolitan City decided to put on hold provisions in its supplementary budget to secure 20 billion won in city funds for the second payout of consumption coupons. The city said it would wait until an amendment to the Local Finance Act, which would allow the issuance of local government bonds for consumption coupons, passes the National Assembly to establish a legal basis.
An official at a local government said, "In the past, the Board of Audit and Inspection made a decision to the effect that using disaster funds for other purposes could cause problems, so local governments are reluctant to follow the Interior Ministry's guidance as is."
Indeed, in 2014, through an audit of the status of disaster and calamity fund operations at metropolitan governments nationwide, the Board of Audit and Inspection uncovered instances in which disaster and calamity funds were used for general project budgets and repayment of local government bonds, and it sought disciplinary action against the officials involved.
This time, as it issued the guidance to local governments that "it is fine to use disaster funds as the source for consumption coupons," the Interior Ministry sought prior consulting from the Board of Audit and Inspection. The aim was to proactively seek the board's view to facilitate active administration. The intention is to prevent officials from failing to do what they should because they fear post-facto discipline.
On this, another local government official said, "The Interior Ministry's guidance this time does not allow unrestricted use of disaster funds; it sets a constraint 'to the extent that it does not hinder disaster and calamity response,'" adding, "If disaster funds are used for consumption coupons and that later causes problems in disaster response, wouldn't the responsible official be subject to discipline?"
◇ Seoul city says "we have to borrow to refill the disaster fund"
Seoul finalized a supplementary budget last month to draw 350 billion won from the disaster fund to finance the second payout of consumption coupons. A city official said, "We need to use the disaster fund for winter snow removal and cold snaps and for emergency recovery from 'sinkholes,' but as we divert it to fund the consumption coupons, the fund is running short."
Seoul is pushing to issue local government bonds to replenish the disaster fund depleted by providing the source of funds for consumption coupons. However, the city is said to be weighing the interest burden. The benchmark rate for Seoul's five-year local government bonds is around 2.9% per year. The final decision on issuing the bonds is expected to be made in line with the timing of a future base rate cut.