[1] Meaning of Article 36(1) of the Local Finance Act that "a budget shall be included in the budget within the scope prescribed by statutes and municipal ordinances," and whether the authority of the head of a local government to compile a budget is bound by statutes or municipal ordinances directly governing the standards for compilation of budget (affirmative)

[2] The case holding that the addition of the upper limit of the contribution to the previous municipal ordinance as the criteria for the contribution of the budget to the previous municipal ordinance under the proviso of Article 6 of the Seocho-gu Seoul Metropolitan Government Ordinance on the Establishment and Operation of the Scholarship Foundation shall not be deemed as a fundamental violation of the right to compile the budget bill, which is the inherent authority of the head

[1] Article 36 (1) of the Local Finance Act / [2] Articles 36 (1) and 41 (3) of the Local Finance Act, Article 47 of the Enforcement Decree of the Local Finance Act

The head of Seocho-gu Seoul Metropolitan Government (Attorney Cho Jae-woo, Counsel for defendant)

Seocho-gu Seoul Metropolitan Council (Attorney Park Dong-dong et al., Counsel for the defendant-appellant)

October 15, 2014

The plaintiff's claim is dismissed. The costs of lawsuit are assessed against the plaintiff.

The re-resolution made by the Defendant on October 16, 2013 on the Seocho-gu Seoul Metropolitan Government Ordinance on the Establishment and Operation of the Scholarship Foundation shall not be effective.

1. Re-resolution of the Ordinance of this case and a summary of its contents

The following facts may be acknowledged by adding up the whole purport of the pleadings to each entry in the evidence Nos. 1 through 6.

A. On September 12, 2013, the Defendant passed a resolution on partial amendment of the Seocho-gu Seoul Metropolitan Government Ordinance on the Establishment and Operation of the Scholarship Foundation (hereinafter “instant amendment Ordinance”). On September 16, 2013, the Plaintiff demanded reconsideration from the Defendant on the ground that the instant amendment Ordinance violated the statutes. However, the Defendant, on October 16, 2013, re-resolutioned the instant amendment Ordinance as the original draft, and finally confirmed the instant amendment Ordinance.

B. Of the previous Seocho-gu Seoul Metropolitan Government Ordinance on the Establishment and Operation of the Scholarship Foundation (hereinafter “the Seocho-gu Ordinance on the Scholarship Foundation”), the proviso of Article 4 provides that “the creation and operation of the Scholarship Fund” shall be added (Article 4 subparag. 1) and Article 6 of the same Ordinance shall not exceed 0.3% of the general accounts budget in the relevant year, provided that “the head of the Gu may contribute funds within budgetary limits for the creation of the Scholarship Fund” (proviso of Article 6), and “the Fund may only disburse operating profits except the principal after the acquisition of at least ten billion won (Article 7-2).”

2. Whether the amendment of the Municipal Ordinance to this case was unlawful beyond the limit of the legislative power of the Municipal Ordinance

A. The plaintiff argues that the amendment of the Ordinance on the Establishment and Supervision of the Scholarship Foundation is illegal since it is not delegated by the upper statutes nor prescribed by the ordinance of the Gu on the establishment, supervision and supervision of the Scholarship Foundation, although the affairs of the Scholarship Foundation constitute the affairs of "Special Metropolitan City, Metropolitan City, and Do" under Article 2 of the Local Education Autonomy Act, which are the affairs of education and arts, and are the affairs of "Special Metropolitan City, Metropolitan City, and Do."

B. The amendment bill of this case only stipulates the contents of the business of the scholarship foundation established under the previous Ordinance of the Scholarship Foundation, the upper limit of the contributions to the scholarship foundation by the head of the Gu, and the expenditure of the scholarship fund by the scholarship foundation. The provisions of the Civil Act do not stipulate matters concerning the permission for establishment of the scholarship foundation, permission for amendment of the articles of incorporation, and other guidance and supervision of the incorporated foundation, which is the competent authority pursuant to the provisions of the Civil Act, and the affairs concerning the operation of the incorporated foundation with the grant of contributions by the local government, cannot be deemed as affairs concerning education and arts. Thus, the plaintiff's assertion on the premise that the affairs governed by the amendment bill of this case are affairs of the

3. Whether Article 4 subparagraph 1 of the Amendment Ordinance of this case violates the Acts and subordinate statutes

A. Article 2 of the Act on the Establishment and Operation of Public Interest Corporations (hereinafter “Public Interest Corporations Act”) and Article 2(1)1 of the Enforcement Decree of the Act on the Establishment and Operation of Public Interest Corporations (hereinafter “Enforcement Decree of the Public Interest Corporations”) stipulate corporations with the purpose of paying or supporting money for the purpose of scholarships as public interest corporations. Article 4(1) of the amended Ordinance of this case argues that “the creation and operation of the Scholarship Fund”, which is not included in the purpose project prescribed by the Act and subordinate statutes, is unlawful since it violates the purport of the Act and subordinate statutes of the Public Interest Corporations.

B. According to Article 2(2) of the Enforcement Decree of the Public Interest Corporation Act, the term “the creation and operation of the Scholarship Fund” shall be included in the public interest corporation. Article 4(3) of the Public Interest Corporation Act permits the public interest corporation to operate a profit-making business with the approval of the competent authority in order to achieve the purpose. Article 16(1)2 of the Enforcement Decree of the Public Interest Corporation Act provides that the property donated or acquired without compensation shall be the basic property, thereby allowing the public interest corporation to increase the basic property like the creation of the Scholarship Fund. Thus, the addition of the term “the creation and operation of the Scholarship Fund” to the purpose of the Scholarship Foundation established under the Public Interest Corporation Act is possible under the Public Interest Corporation Act, and the application of the Act on the Public Interest Corporation to the Scholarship Foundation is not excluded. Accordingly, it does not create an obstacle to the public interest guarantee of the Scholarship Foundation.

Therefore, we cannot accept the Plaintiff’s assertion that Article 4 subparag. 1 of the amended Ordinance of this case was unlawful against the intent of the public interest corporation law.

4. Whether the proviso of Article 6 of the Amendment Ordinance of this case violates the statutes

A. The plaintiff asserts that the proviso of Article 6 of the Amendment Ordinance of this case establishes a new check system with no statute concerning the right to compile a budget bill, which is the inherent authority of the head of a local government, and that it is unlawful in essence because the right to compile

B. According to Article 117(1) of the Constitution of the Republic of Korea and Article 22 of the Local Autonomy Act, a local government may enact its municipal ordinances with regard to its affairs within the scope of statutes. The Local Autonomy Act grants independent authority to the local council as a deliberative organ and the head of the local government as an executive organ. On the other hand, the local council may monitor and control the performance of affairs by the head of the local government through administrative affairs audit, investigation authority, etc., and the head of the local government can maintain mutual checks and balance by allowing the local council to act as a member of the local council with the exercise of voting rights by the local council due to the local council's request for reconsideration of resolution, etc. Therefore, the local council may enact its municipal ordinances to the extent that it does not infringe upon the unique authority of the head of the local government (see, e.g., Supreme Court Decisions 9Da92, Jun. 13, 200; 2013Hu67, Feb. 13, 2014

Article 36(1) of the Local Finance Act provides that “Local governments shall calculate expenses in accordance with reasonable standards within the scope prescribed by statutes and municipal ordinances and include them in the budget.” The phrase “shall be included in the budget within the scope prescribed by statutes and municipal ordinances” refers to that the budget bill should, in principle, not go against statutes or municipal ordinances that directly regulate the budget compilation standards, etc. or go beyond the scope thereof (see Supreme Court Decision 2012Hu60, Feb. 14, 2013). Therefore, it is reasonable to deem that the local government’s right to compile the budget is bound if any statutes or municipal ordinances directly regulate the budget compilation standards, etc.

However, Article 41(3) of the Local Finance Act and Article 47 of the Enforcement Decree thereof stipulate that the criteria for the management of the budget compilation of local governments (hereinafter “standards for the management of budget compilation”) that determine the classification and establishment of items of the local government’s expenditure budget, etc. shall be directly governed by the standards for the budget compilation. Article 6(2) [Attachment 12] of the criteria for the management of budget compilation, which determines the detailed classification of the expenditure budget, provides that “expenses provided to private and corporation by local governments pursuant to statutes or municipal ordinances,” which are the statistics of the items of the “contribution” as the items of the budget compilation, shall be formulated based on the municipal ordinances that stipulate the establishment and purpose of the scholarship foundation, guidance and supervision of local governments, appointment of ex officio directors, appointment of ex officio directors, approval of the articles of association, and approval of the budget contribution standards.” Thus, the budget compilation of the budget compilation of the local government’s contribution to the scholarship foundation shall be established prior to the enactment of the municipal ordinances that stipulate the criteria for the budget contribution. Therefore, it shall be deemed that the restriction on the right to grant to the scholarship foundation.

Examining the proviso of Article 6 of the amended Ordinance in light of the above legal principles, the purpose of the provision is to add the upper limit of the contribution to the previous Ordinance of the Scholarship Foundation, which serves as the basis for compiling the budget for the contributions of the Scholarship Foundation, so this cannot be deemed to have made a new check-up device with no legal basis for the right to compile the budget for the budget of the head of a local government. In addition, according to the above amended Ordinance, the discretion on the compilation of the budget within the scope of the upper limit of the contribution is still granted to the head of a local government within the scope of the contribution, and the limit is not deemed to be the degree of undermining the discretionary power,

Therefore, we cannot accept the Plaintiff’s assertion that the proviso to Article 6 of the Amendment Ordinance infringes on the right to compile a budget bill, which is the inherent authority of the head of a local government.

5. Whether Article 7-2 of the Amendment Ordinance of this case violates the Acts and subordinate statutes

A. The plaintiff asserts to the effect that the specific scholarship payment business regulated by Article 7-2 of the Amendment Ordinance of this case is the business of the Scholarship Foundation itself and is not a business belonging to the authority of the local government, and that the amendment Ordinance of this case is unlawful beyond the scope of the legislative authority of the Local Autonomy Act.

B. The previous Ordinance of the Scholarship Foundation provides that the Scholarship Foundation shall be established to discover and foster local core human resources and to encourage childbirth rates (Article 1); the Scholarship Foundation shall be an incorporated foundation under the Civil Act (Article 2); the Foundation shall provide scholarships to undergraduate students selected from among the children of the Seocho-gu household with the contributions, etc. from Seocho-gu residents (Articles 4 and 9); and the head of the Gu shall provide guidance and supervision on the affairs of the Foundation, such as the establishment and modification of the Foundation’s articles of incorporation, etc. and the approval of the project plan (Articles 12, 13, and 15).

According to the above provisions of the Seocho-gu Seoul Metropolitan Government Ordinance on Scholarship Foundation, the Seocho-gu Seoul Metropolitan Government will pay scholarships in order to achieve the administrative purpose of fostering local human resources and encouraging childbirth rates, and establish the Scholarship Foundation in accordance with the Civil Act for the performance of its affairs. However, since the above scholarship payment affairs are affairs concerning the promotion of welfare of residents as stipulated in Article 9(2)2 of the Local Autonomy Act and belong to the autonomous affairs of local governments, it is also deemed that the establishment and operation of a structural foundation for the performance of its affairs are also within the area of autonomous affairs. Article 7-2 of the amended Ordinance on Scholarship of this case stipulates matters concerning the disbursement of the Scholarship Fund, and its matters correspond to the basic matters concerning the operation of the Scholarship Foundation, the above amended Ordinance on Scholarship is a regulation on autonomous affairs of local governments.

Therefore, the Plaintiff’s assertion that Article 7-2 of the Amendment Ordinance of this case is unlawful by regulating matters not belonging to the affairs of a local government cannot be accepted.

6. Conclusion

Therefore, the plaintiff's claim is dismissed as it is without merit, and the costs of lawsuit are assessed against the losing party. It is so decided as per Disposition by the assent of all participating Justices.

Justices Lee In-bok (Presiding Justice)