Cities face financial abyss

Some 5 per cent of Japan's local authorities are in danger of going broke, writes David McNeill

LONG BEFORE you reach the dilapidated half-empty city hall, Yubari's eerie silence imposes itself.

Against a majestic background of pine-carpeted mountains, shuttered businesses pockmark the main street like broken teeth in a faded smile. The few pedestrians are pensioners who walk past empty shops and parking lots. In the city hall itself, the lights and heating go off at 5pm, forcing the remaining staff to work in their jackets.

Once a thriving area built on coal mining, this quaint city in the northern island of Hokkaido is now emblematic of Japan's declining countryside.

When it went bankrupt two years ago with debts of nearly €400 million, the shock "rolled like an earthquake" across the country, said the Japan Times, which wondered how many more cities were hiding problems.

This month, the government gave a partial answer, naming 43 localities tethering on the edge of the financial abyss. The real figure may be double that number - 5 per cent of all local authorities in Japan are in danger of going broke. "The whole of Japan is in trouble. It is quite terrifying," said Natalia Roschina, a Hokkaido resident who wrote a book called Letter to Yubari, aimed at diagnosing and fixing the city's problems. "Yubari is just one of many," she says.

Miki City, about 400km west of Tokyo, is the latest to signal financial trouble, announcing a large deficit and a goal of cutting about €37.5million from its budget over the next two years.

Dozens of other local governments have received "preliminary warnings" from Japan's internal affairs ministry, indicating that they must restructure or face bankruptcy, and with it the humiliating loss of local autonomy.

The choices for these governments are grim. Miki has already begun swinging the axe, slashing its payroll, cutting salaries and closing local rail lines. In an attempt to save some of the money it pays to run the city's public hospital, officials are asking patients to pay more and leave earlier.

"We have to hope these measures are enough," says city hall spokesman Yoshifumi Yamamoto.

Worse may be on the way. Local governments run 973 hospitals around Japan, and some are deeply in the red. A city in Chiba prefecture, bordering Tokyo, shut its public hospital this month and sacked the entire 185 staff.

In Otaki City, Hokkaido, government officials recently raided the home of a tax defaulter and confiscated what they could grab, including cash and jewellery. Yubari even had to board up its only public toilet to save money, along with the local library.

With over half of Yubari's workforce gone, local services of virtually every kind have been trimmed to the bone.

As winter approaches, road clearers have been told to wait until 15cm of snow lies on the ground before going to work; the old regulation was 10cm.

These problems have been brewing for years. Yubari's mines began to close in the 1980s, taking most local people with them. The population has plummeted from a high of nearly 120,000 in 1960 to just 13,000 today - imagine Cork city shrinking to the size of Carlow.

During Japan's boom years, the central government poured money into public works to make up the shortfall in tax revenues, funding ski slopes, amusement parks, a "history village" and even a robot museum in a bid to make this into a family resort. The tourists never came.

Now the city, like scores of others around the country, faces a double whammy of declining central-government subsidies and an ageing population. Weighed down by the highest public debt in the OECD, Tokyo says it can no longer prop up failing local economies, which have a combined public debt of nearly $2 trillion, according to the Nikkei newspaper - roughly the GDP of Italy.

Since the 1990s, the government has demanded that local areas raise more taxes, part of a long-term plan to devolve authority back to the regions. It is often easier said than done: four out of 10 residents in Yubari are aged 65 or older and their growing medical and welfare costs are being shouldered by the shrinking working population. "There is very little room to manoeuvre, but we are trying our best," said a city spokesman.

Officially "under rehabilitation", Yubari's budget will be carefully scrutinised by central-government bureaucrats for the next 18 years, until its debt is cleared. The city has submitted a reconstruction plan that consolidates the district's 11 schools into four and downsizes the only public hospital into a small clinic. In effect, Yubari is now directly run by Tokyo.

Avoiding this humiliation is now a priority for the rest of the country. Miki has given itself until 2014 to return to the black by focusing on reducing administration costs. The opening salvo was fired when the city cut the salaries of hundreds of public workers. Yamamoto says some services will be outsourced to private companies in a bid to save more money, but he explains that the key to rescuing the city will be raising tax revenues.

"We have started to put a lot of effort into local tourism," he says.

Miki is not bereft of attractions, boasting 25 golf courses, a long tradition of brewing sake and a November hardware festival that pulls in about 160,000 people every year. It remains to be seen, however, whether tourism alone will be enough to pull the city back from the brink.

Some troubled regions are trying more innovative approaches. The mayor of a rural village walked about 200km to Tokyo's glitzy Ginza district last year in a sales pitch aimed at selling local housing plots to rich city folk. "We should change the village on our own instead of expecting help from the government," explained a tired Hideo Kobayashi afterwards. Others are merging: Takayama in rural Gifu prefecture recently became Japan's largest city in terms of area following the consolidation of 10 local regions.

The city office plans to slash its work force by a third and farm off water supply and other utilities to the private sector.

As the first city to fail, however, everyone is watching Yubari to see if it can make the mother of all comebacks. One welcome sign is a small rise in what some call "sympathy tourism" to the local ski resorts by visitors who have learned about its problems on TV. And then there is the Yubari Melon, a revered - and expensive - fruit that has helped put the city on the map again.

Despite selling for €70 to €140 a pop, the melon is hugely popular and now accounts for the bulk of Yubari's agricultural income. "This is our main industry now that the mines have closed," said Katsuhide Totsuka, manager of the local Agricultural Co-operative Association.

The oddly named annual Yubari International Fantastic Film Festival, also made a comeback this year after falling victim in 2006/7 to the city's financial collapse. One of the festival's former patrons, director Quentin Tarantino, paid oblique tribute to the city and its difficulties by naming a chain-wielding psychopath in Kill Bill, Gogo Yubari.

Can melons and movies save this picturesque city from dying?

Roschina doubts it and urges officials here and across Japan to start thinking outside the box. One of her more innovative suggestions was to sell Yubari "bankruptcy seminars".

"I suggested that since you've gone bust, why not make money from it: teach other towns how not to go bankrupt," she says, adding: "I got no response."