Explanation of Financial Terms

General Account

This refers to the statistical accounts created based on the standards set by the Ministry of Internal Affairs and Communications, which combine the General Fund and Special Account (excluding public enterprise accounts) and deduct overlapping amounts. In Inagi City, this includes parts of the General Fund, the Land Readjustment Project Special Account, and the Late-stage Elderly Medical Care Special Account.

Actual Balance

The difference between the city's revenue and expenditure (the cash received and spent during the fiscal year) is called the formal balance. It refers to the amount obtained by subtracting from the formal balance the funds that should be carried over to the next fiscal year, such as those for which debts have been confirmed and payment obligations have arisen but have not yet been paid.
Whether the actual balance is in surplus or deficit is an important point for assessing the state of financial management. A deficit in the actual balance indicates that the financial management is in a state of collapse and is unhealthy.

Revenue

The city's revenue can be classified based on its usage into general funds, which the city can use freely for any expenses, and specific funds, which have restricted uses. Specific funds include national treasury disbursements, metropolitan disbursements, and local bonds.

General Revenue

It refers to income that can be freely used without restrictions, such as Municipal Tax and local allocation tax, among the income received every year. Since it is continuously and consistently received every year, and the use of it can be decided freely, it can be said to be a flexible source of income for the city.

Current Account Balance Ratio

This is an index that represents the ratio of how much of the city's regular expenses, such as personnel costs, assistance costs, bond costs, material costs, and subsidy costs, among others, are covered by regular general revenue sources, including Municipal Tax, local allocation tax, and local grant tax.
In addition to being allocated from regular specific revenue sources from the national and metropolitan governments, any shortfall in regular expenses will be covered by regular general revenue. The more regular general revenue that is allocated to regular expenses (the lower the regular revenue expenditure ratio), the more flexible the financial structure can be considered.

Bond Expense Ratio

Since the local bond approval system transitioned to a consultation system from fiscal year 2006, the ratio established from the fiscal year 2005 settlement is calculated by placing the principal and interest repayment of local bonds (public bond expenses) in the numerator and the standard financial scale in the denominator. The difference from the past is that the principal and interest repayment in the numerator includes the contributions from the general account to the principal and interest repayments paid by public enterprises such as sewerage, as well as expenses similar to public bond expenses from PFI and some joint administrative associations, effectively representing the overall city settlement. It is shown as an average value over the past three years.

Financial Power Index

The value obtained by dividing the standard financial demand amount used in the calculation of ordinary grants by the standard financial income amount is referred to as this value. The displayed value is the average of the past three years, including the current fiscal year, and a value exceeding 1.0 indicates a strong financial capacity. The standard financial demand amount is the expense required for standard administrative operations, while the standard financial income amount is the theoretically estimated amount of income, such as Municipal Tax, which is determined annually in July.
In principle, 75% of the Municipal Tax and other revenues are included in the standard financial income amount.
If the city's financial capacity for the current fiscal year is below 1.0, ordinary grants will be provided as a grant organization, and if it exceeds 1.0, no grants will be provided. (Grants are assessed on a single-year basis.)

Expenditure

The classification method of the city's expenditures includes purpose-based categories based on local government laws such as welfare expenses, education expenses, and civil engineering expenses, as well as classifications based on nature used in local financial statistics. Next, I will explain the terminology for the classification of mandatory expenses, investment expenses, and other expenses by nature.

Mandatory Expenses

Among the expenses of local public entities, those with a strong mandatory and inelastic nature include personnel expenses, welfare expenses, and debt service expenses. These expenses are all highly mandatory and cannot be freely reduced, and they refer to recurring operational expenses that are incurred every year in the composition of expenditures.

Personnel Expenses

Salaries of general staff, compensation for the mayor, council members, and special positions such as school faculty and staff are all expenses paid as compensation for labor (including salaries, allowances, mutual aid costs, and retirement benefit burdens) and are used as expense categories in financial statistics.
These expenses account for a significant weight in the financial structure and, due to their regular expenditure, have a substantial impact on ensuring the soundness of the finances.

Assistance Expenses

This refers to the expenses provided to beneficiaries under the Public Assistance Law, Child Welfare Law, and Elderly Welfare Law, as well as the various assistance expenditures conducted by the city. Due to its nature, these expenses cannot be arbitrarily reduced, and their increase leads to a rigidity in the financial structure.

Public Debt Expenses

This refers to the principal and interest repayment of local bonds (debt) issued by the city that occurs every fiscal year, as well as the interest on temporary borrowings. It is an expense required for the payment of past debts, and an increase in this amount will lead to a rigid financial operation.

Investment Expenses

It refers to the expenses required for the development of public facilities such as roads, bridges, parks, and schools. It consists of ordinary construction project costs, disaster recovery project costs, and unemployment countermeasure project costs.

Other Expenses

Other expenses include property expenses, subsidies, etc., reserve funds, transfers, maintenance and repair costs, investments and capital contributions, and loans.

Property Cost

Expenses for consumables for City Hall, schools, utility costs, equipment purchases, and outsourcing fees for computer operations, etc. are applicable.

Subsidies and Other Expenses

This includes the burden and subsidies for the joint administrative organizations (such as the Tamagawa Sanitation Association for waste and sewage treatment, the Tokyo Tama Wide Area Resource Recycling Association, and the Minami-Tama Funeral Hall Association) that Inagi City is a member of, as well as the burden and subsidies for public enterprise accounting (Sewerage Operations, hospital operations), and subsidies for various organizations within the city (such as arts and culture organizations, sports organizations) and promotion and development projects.

Disbursement

The Special Account is based on the premise of independent accounting for its business purposes; however, in reality, it is difficult to collect fees that correspond to the expenditures of each Special Account from the perspective of reducing the burden on citizens, and it is unavoidable to draw from the General Fund. The city provides funding for the National Health Insurance Special Account, Land Readjustment Project Special Account, Long-Term Care Insurance Special Account, and Late-Stage Elderly Medical Care Special Account for operating funds, administrative expenses, and deficit coverage.

Financial indicators based on the "Law on the Soundness of Local Government Finances"

The "Law on the Soundness of Local Government Finances" ("Soundness Law") was fully enacted in April 2009 to clarify the financial situation of local governments with a unified indicator and to enable prompt responses when financial soundness or revitalization is necessary.

Health Improvement Judgment Ratio

In the Act on Financial Soundness, four financial indicators are established as "Soundness Judgment Ratios" to objectively represent the financial situation of local public entities and to assess the necessity for early financial soundness and revitalization.

1. Real Deficit Ratio
   If a deficit occurs in the General Fund (including some Special Accounts), this is an indicator that compares the amount of the deficit to the standard financial scale (the standard size of general revenue, mainly Municipal Tax). The higher this ratio, the worse the financial situation becomes.
2. Consolidated Real Deficit Ratio
   This is an indicator that compares the total amount of deficits and surpluses of all city accounts against the standard financial scale to understand how much funding is lacking for the entire city. The higher this ratio, the worse the overall financial situation of the city becomes. Even if the General Fund is in surplus, if there are significant deficits in other accounts, it cannot be said that the overall financial situation of the city is good.
3. Real Debt Service Ratio
   This is an indicator that compares the annual repayment amount of borrowed funds (including expenses related to borrowing, such as school purchase costs (installment purchase costs)) to the standard financial scale, based on the average value over the past three years. The higher this ratio, the greater the proportion of borrowed fund repayments in relation to Municipal Tax, indicating a decrease in fiscal flexibility.
4. Future Burden Ratio
   This is an indicator that compares the annual repayment amount of borrowed funds (including expenses related to borrowing, such as school purchase costs (installment purchase costs)) to a standard financial scale, based on the average value over the past three years. The higher this ratio, the greater the proportion of borrowed fund repayments in relation to Municipal Tax and other revenues, indicating a decrease in financial flexibility.

Early Restoration Standards

This is a benchmark indicating the range of financial conditions (Yellow Zone) set to encourage early corrective measures to prevent the city from going bankrupt. If any of the four ratios exceed this benchmark, it is necessary to formulate a "Financial Health Improvement Plan" after obtaining the approval of the city council and to work on financial reconstruction.

Financial Revitalization Standards

This is the benchmark indicating the danger range of the financial situation (red zone). If any of the three ratios, excluding the future burden ratio, exceeds this benchmark, the city will be in a state of financial collapse and will formulate a "Financial Revitalization Plan" after the approval of the city council, and will begin the city's revitalization efforts with the involvement of the national and metropolitan governments.

Funding Shortage Ratio

This is calculated for each public enterprise and is a metric that compares the funding shortfall with the scale of the business. The higher this ratio, the more difficult it becomes to resolve the funding shortfall through revenue such as fees, indicating that there are issues with the management situation.

Management Soundness Standards

This is the benchmark indicating the caution range (yellow zone) for the financial status of each public enterprise. If this benchmark is exceeded, it is necessary to formulate a "Management Improvement Plan" after obtaining the approval of the City Council.