The balance of financial stabilization funds set aside by local governments outside the capital region has dropped to less than half in three years. Meanwhile, the financial burden on these local governments has increased due to rising local contributions required for national subsidy projects.
On October 8, Lee Jong-wook, a member of the National Assembly's Finance and Economy Planning Committee from the People Power Party, revealed that the balance of financial stabilization funds for 14 metropolitan local governments outside the capital region decreased from 754.6 billion won at the end of 2022 to 346.7 billion won at the end of 2025, a reduction of 407.9 billion won (54.1%).
The financial stabilization fund is a resource accumulated from surplus revenue or budget surpluses to prepare for financial shocks due to economic downturns and unexpected expenditures. It is also used for repaying local government bonds.
Regionally, the balance in South Chungcheong Province plummeted from 30.1 billion won to 1.5 billion won, a decrease of 94.9%. In South Jeolla Province, it fell from 80.9 billion won to 11.1 billion won, an 86.3% drop, while North Jeolla Province saw a decline from 2.7 billion won to 400 million won, an 84.4% decrease. North Chungcheong Province also experienced a reduction from 9.2 billion won to 2.8 billion won, a 69.3% drop.
As local governments' own buffer resources diminish, the financial burden from national subsidy projects has increased. The local contributions required for these projects, known as matching costs, are the expenses local governments must share to implement national subsidy projects.
According to data from the Ministry of the Interior and Safety, local contributions increased from 36.4 trillion won in 2022 to 44.9 trillion won in 2026, an increase of 8.5 trillion won (23.4%). The average annual growth rate is about 5%. By sector, education contributions rose from 14 trillion won to 45 trillion won, while social welfare contributions increased from 182 trillion won to 209 trillion won.
Changes in the distribution structure of local allocation taxes for the next year also pose a variable. According to the government budget proposal, the introduction of a future response fund will result in a reduction of 30.5 trillion won in the allocation of local taxes compared to what would have been allocated under the existing formula.
The government maintains that the future response fund is designed to reduce the volatility of local allocation taxes and support local governments when financial conditions worsen. However, there are concerns that as local buffer resources decrease, the central government's control over the scale and timing of support through the fund may lead to increased dependency of local governments on central government decisions in times of crisis.
Lee stated, "The rapid decline in the balance of financial stabilization funds for local governments outside the capital region signals a swift weakening of their capacity to respond to financial shocks. It is essential for local governments to secure sufficient general resources and financial buffer capacity to prepare for crises, rather than relying solely on post-event support from the central government through future funds."
* This article has been translated by AI.
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