Recently, there is a growing social demand to stabilize the management of local public enterprises as their financial soundness has been undermined by compounding losses. While the financial self-sufficiency of local governments has been lowered, concerns are rising over the possibility that the worsening financial health of municipal businesses may pose a fiscal threat to not only local governments but also the central government. Indeed, local governments have financed municipal corporations with KRW 10.9 trillion in total during 2009~2013, including KRW 2.9 trillion and 2.4 trillion in 2009 and 2013, respectively.

  This report analyzes the current financial support of local governments for local public enterprises and their possible expansion of support, based on the evaluation of the financial stability of municipal enterprises by type and region.

  According to the analysis, municipal sewage corporations have run a growing deficit, and their financial support from local governments is likely to continue to rise due to the growing losses resulting from the increase in rental fees and operational costs of build-transfer-lease (BTL) related facilities. It won’t be easy for metropolitan rapid transit corporations, which have suffered repeated losses, to improve their poor financial performance unless they resolve the inefficiency in labor and depreciation costs, the reduced fare rate from the free-pass welfare policy, and the overestimation of the number of passengers at the time of constructing urban railways. For city development corporations, municipalities continue to fund them to keep their financial ratios for issuing additional corporate bonds, and they are highly likely to increase their funding to help the corporations implement debt reduction plans.

  Based on the analysis to identify areas for improvement, this report suggests that public enterprises come up with a concrete plan to propel their management efficiency forward, thus cutting debt and increasing profitability. At the same time, the Ministry of the Interior, this report points out, needs to control and oversee the implementation of these measures. In terms of the segment accounting system of municipal businesses, it is recommended to verify the appropriateness of the segment unit and set up a suitable plan to support these enterprises with local and national finance. Lastly, in order to improve the demand forecast accuracy of preliminary feasibility surveys on urban railways, local governments need to conduct a post evaluation in accordance with article 52 of the Construction Technology Promotion Act and apply the findings to the construction of new urban railways.