Miaoli County government runs out of money

The Miaoli County government is completely broke. Not broke as in, it can’t afford a fancy National Day celebration and it’ll have to make do with a modest one. No, broke as in, it can’t pay basic expenses on time. Civil servants didn’t get their paychecks as scheduled this week. The county government is currently NT800m in the red, and that’s after some creative accounting is already figured in. One prominent media figure is comparing the situation to the current Greek crisis. It’s not an entirely crazy analogy.

How did this happen? As soon as the new county magistrate took office and got a peek at the county finances early this year, he immediately started screaming that the previous administration, led by Liu Cheng-hung 劉政鴻, had spent the county into financial disaster. This is not a partisan ploy. Both the prior and the present magistrates are KMT members, though they are from different local factions. The KMT owns 100% of this calamity. Their guy borrowed way too much, spent the money irresponsibly, and the central government never stepped in to slow him down. They didn’t even complain.

It should have been obvious to the technocrats that something was going wrong. I’m a novice when it comes to finances, and even I can see a problem in the numbers.

(Note: The numbers are hard to get straight. The newspaper report says Miaoli has a total debt of NT64.8b. I can’t find that number in official documents. The numbers I have found are NT48.7b in May 2015 or NT49.1b in 2013. I’m going to be using the document with the 2013 number for the rest of this post, so keep in mind that the actual debt might be 30% higher. Even if I am using the wrong year or making some other minor mistake, the broad story is unmistakable. Miaoli is not like everywhere else.)

Miaoli County debt went from NT16.2b in 2005, the year before Liu took office, to NT49.1b in 2013. That seems like a big increase. However, we need some context. Regulations governing how much debt local governments were allowed to incur were revised, so everyone’s debt went up. Further, we shouldn’t compare Maioli with Taipei. Direct municipalities run under different rules and have very different revenue streams. In this post, I will only look at the eleven county governments in Taiwan. That is, I’m not looking at Taichung or Tainan Counties (which were upgraded to direct municipalities), Keelung or Hsinchu Cities (which, as cities, don’t have the same sorts of revenue or expenditure profiles as a rural county like Miaoli), Kinmen (which is mostly funded by the alcohol factory) or Matsu (which gets nearly all of its budget directly from central government subsidies). The eleven counties in this table (especially the first eight) face roughly comparable fiscal challenges.

	2005 debt	2013 debt	% increase
	(billion NT)	(billion NT)
Yilan	20.32	25.28	24.4%
Hsinchu	22.66	27.76	22.5%
Miaoli	16.23	49.05	202.3%
Changhua	14.35	33.05	130.3%
Nantou	12.58	17.90	42.3%
Yunlin	23.58	31.99	35.7%
Chiayi	19.57	28.69	46.6%
Pingtung	17.92	28.02	56.4%
Taitung	4.52	9.08	100.9%
Hualien	8.76	12.41	41.6%
Penghu	1.12	2.18	93.7%
.
6 KMT counties	71.46	139.01	94.5%
3 DPP counties	61.06	88.70	45.3%

Compared to the other ten counties, Miaoli stands out. Miaoli’s debt increased by over 200%, which is another way of saying it more than tripled. The next biggest increase is from Changhua, which increased by a mere 130%. Everyone’s debt went up, but Miaoli’s debt exploded.

Since I know everyone wants to make a party comparison, I’ve summed the totals for the six KMT governed counties (Hsinchu, Miaoli, Changhua, Nantou, Taitung, and Penghu) and the three DPP governed counties (Yunlin, Chiayi, and Pingtung). On the whole, the increase in the KMT group is roughly double the increase in the DPP group. Does this mean the DPP is the party of fiscal responsibility? Hold your horses there, Sonny. There’s more to this story.

Maybe Miaoli could handle the increased debt load. If Vanuatu and the USA both borrow a billion Euros, it will be a big burden for Vanuatu while the USA will barely notice it. We really need to know something about how much debt Miaoli is capable of carrying.

	2005 revenues	2013 revenues	% increase
	(billion NT)	(billion NT)
Yilan	17.20	18.62	8.2%
Hsinchu	19.60	24.62	25.6%
Miaoli	18.01	26.33	46.2%
Changhua	28.04	35.49	26.6%
Nantou	17.05	20.30	19.1%
Yunlin	19.01	27.79	46.2%
Chiayi	14.56	20.90	43.5%
Pingtung	24.76	30.58	23.5%
Taitung	9.21	12.63	37.1%
Hualien	13.38	17.34	29.6%
Penghu	6.81	8.05	18.2%
.
6 KMT counties	98.71	127.42	29.1%
3 DPP counties	58.32	79.26	35.9%

Miaoli has roughly the same population as Hsinchu, Nantou, and Chiayi, so you would expect those four to have similar revenues. In 2005, the first three were roughly similar, with Chiayi trailing behind. By 2013, Miaoli was outspending Nantou and Chiayi by quite a margin, and it was even ahead of fast-growing Hsinchu. Miaoli’s revenue stream increased by 46.2%, tied with Yunlin for the highest growth of any county. (Data on revenues and expenditures can be downloaded here.)

	2005 expenditures	2013 expenditures	% increase
	(billion NT)	(billion NT)
Yilan	18.83	18.62	-1.2%
Hsinchu	21.39	25.02	17.0%
Miaoli	18.14	26.33	45.1%
Changhua	32.40	39.84	23.0%
Nantou	19.50	20.30	4.1%
Yunlin	22.36	27.79	24.3%
Chiayi	18.88	21.40	13.4%
Pingtung	26.74	30.58	14.4%
Taitung	10.78	14.40	33.5%
Hualien	15.38	17.34	12.8%
Penghu	7.69	9.43	22.6%
.
6 KMT counties	109.92	135.33	23.1%
3 DPP counties	67.98	79.76	17.3%

However, Miaoli also led the way in spending growth. A lot more money came in, but all that money went right back out. Miaoli’s expenditures increased by 45.2%, just about the same percentage as its revenue growth. By contrast, Yunlin’s expenditures only increased by 24.3%. This brings us to the final table, the one that really matters.

	2005 debt as a % of revenues	2013 debt as a % of revenues	% increase
Yilan	118.1%	135.8%	15.0%
Hsinchu	115.7%	112.7%	-2.5%
Miaoli	90.1%	186.3%	106.7%
Changhua	51.2%	93.1%	81.9%
Nantou	73.8%	88.2%	19.5%
Yunlin	124.0%	115.1%	-7.2%
Chiayi	134.4%	137.3%	2.2%
Pingtung	72.4%	91.6%	26.6%
Taitung	49.1%	71.9%	46.5%
Hualien	65.5%	71.5%	9.3%
Penghu	16.5%	27.0%	63.9%
.
6 KMT counties	72.4%	109.1%	50.7%
3 DPP counties	104.7%	111.9%	6.9%

In 2005, Miaoli was firmly in the middle of the pack. In 2013, it was far, far more indebted than any other county. I don’t know what level of debt is sustainable, but judging by Miaoli’s inability to pay its bills, I’m guessing the magic number is somewhere below 186% of revenues. The current magistrate’s complaint, that Liu Cheng-hung’s administration spent the county treasury into a crisis, appears to be entirely reasonable.

What about the comparison between the KMT and DPP? It is tempting to see that the three DPP governed counties have only increased their debt load by an average of 6.9% and conclude that the DPP is much more responsible. However, I think that is far too simplistic. Sometimes borrowing is responsible. If the money is invested wisely, increased debt can set the stage for long-term prosperity. (Miaoli is said to have blown its money on extravagances such as elaborate fireworks shows and invitations to international celebrities such as Sarah Brightman. That probably wasn’t wise.) Moreover, if we are simply to look at the fiscal situations, we must consider responsibility for the starting points. In 2005, Yilan and Chiayi were two of the most indebted counties. The DPP had governed Yilan for 24 years, so it was completely responsible for the 2005 debt. While it had only governed Chiayi for four years, the DPP county magistrate had increased the debt by 28% in the previous three years. Similarly, we probably shouldn’t give Yunlin and Chiayi too much credit for keeping their debt growth low from 2005 to 2013 since the 2005 debt levels were already so high. I don’t think we should draw any broad conclusion from a simple table like this about the performance of the two parties.

However, given the current state of Miaoli’s finances, I’m pretty confident in concluding that the previous administration borrowed and spent irresponsibly. In every one of these tables, Miaoli is the extreme case. Why didn’t the Finance Ministry step in to investigate what the hell was going on? They should have been able to see the broad trends developing, and they should have had enough contextual information to know that Miaoli couldn’t sustain that debt. And where is the Control Yuan? Sorry, I got carried away. Everyone knows that the Control Yuan is only used to harass the other party, not to investigate actual government incompetence or malfeasance. Any real oversight will have to come from the voters.