Small Concession Case Study: The Reproducibility of Fukuchiyama's Zero-Burden Public Model
Drawing on MLIT's 'Recommendations for Small Concession' (R8.5.25) and Public Management Consulting seminar materials, this article extracts Fukuchiyama City's small-scale concession case and structurally analyzes the reproducibility of the model that delivers VFM-exempt status and minimum administrative burden.
TL;DR
- Of the 16 closed schools created in Fukuchiyama City between fiscal 2012 and fiscal 2020, the city allocated 2 to sales, 6 to leases, 2 to administrative use, and 6 to unused status — generating cumulative revenue of approximately ¥150 million and annual maintenance savings of approximately ¥10 million. As a leading case, Fukuchiyama is featured in the case studies of MLIT's 'Recommendations for Small Concession' (R8.5.25)
- THE 610 BASE (the former Nakamutobe Elementary School) was established without a single subsidy under a scheme that provides the building and the land directly beneath it free of charge while charging rent on the surrounding land. The annual ground rent of ¥1.6 million accrues to the city. The model is not literally 'zero' but rather 'zero new fiscal burden plus positive revenue during operations'
- Once reproducibility is unpacked, only the 'Seven Common Principles' that the city negotiated with its assembly can be transplanted to other municipalities through institutional design. The four other factors — physical condition, zoning flexibility, demand density, and operator-recruitment capacity — are municipality-specific. A reflexive transplant of the Fukuchiyama model to mountainous and depopulated regions does not work
Small Concession in the Institutional Landscape
The position of small concession within the public facility operating-right system under the PFI Act, and the statutory basis for VFM-exempt status
16 schools
Closed schools created in Fukuchiyama City between FY2012 and FY2020 through school consolidation
¥150 million
Cumulative revenue gains from school reuse (sales and lease income combined)
¥10 million
Annual reduction in maintenance expenditure from school reuse
¥1.6 million
Annual ground rent collected by the city from THE 610 BASE
Small concession is the operational framework that applies the public facility operating-right system under the PFI Act (the Act on Promotion of Private Finance Initiative) to small-scale projects with a project value below ¥1 billion. It is not a standalone statute. Rather, it functions as guidance for applying the public facility operating right defined in Article 16 and following of the PFI Act to individual cases such as closed schools, former government buildings, and underused administrative offices.
Promotion Measures (2024) explicitly stated that projects with independent profitability and no fiscal expenditure fall outside the scope of the PFI Act's mandatory VFM (Value for Money) calculation. This established a framework that substantially reduces the procedural burden of the PFI Act, and on May 25, 2026 a 40-page practical handbook titled "Recommendations for Small Concession" was published.
Three elements form the core of the framework. First, the granting of a public facility operating right allows a private operator to hold operational rights to a facility over the long term. Second, where the project is designed for independent profitability, it is not subject to the PFI Act's mandatory VFM calculation. Third, the process proceeds in three steps — project conception, project formulation, and solicitation — enabling operator selection in six to twelve months rather than the one to two years typical of conventional PFI.
In short, small concession is an operational framework that combines "the grant of a long-term right in the form of the public facility operating right" with "procedural simplification through VFM exemption," making private-sector participation viable even for small-scale projects. Fukuchiyama City's school-reuse project ran ahead of this institutional consolidation and serves as a representative case incorporated into the case studies of MLIT's handbook (published R8.5.25).
→ For the basic framework, see What Is Small Concession? Mechanism and Cases; for a detailed commentary on the handbook, see Full Commentary on MLIT's 'Recommendations for Small Concession'.
The Structure of Fukuchiyama's Case
Sixteen closed schools, ¥150 million in revenue, the THE 610 BASE business scheme, and the Seven Common Principles
The Picture in Numbers
Fukuchiyama City sits in northern Kyoto Prefecture with a population of approximately 76,000. Elementary school consolidation progressed from FY2012 (Heisei 24) through FY2020 (Reiwa 2), reducing the number of elementary schools from 27 to 14. This generated 16 closed schools.
Among Fukuchiyama City's 16 closed schools, the city allocated 2 to sales, 6 to leases, 2 to administrative use, and 6 to unused status, achieving cumulative revenue gains of approximately ¥150 million from school reuse and annual maintenance savings of approximately ¥10 million. Eight schools are under private utilization, two are under administrative use, and six remain unused. The utilization rate is 10 of 16, or 62.5%, which sits close to the national average reported by MEXT's "All Closed Schools Project" (75% reused as of the May 2018 publication; for the FY2004–FY2023 cumulative figures, 8,850 schools closed and 1,951 (25.6%) remain unused).
Worth noting is that more than half of the eight utilized schools — six of them — are operated under leases, that is, schemes in which the city retains ownership while transferring operating rights to private operators. Distinct from the two sales, the six leases are designed to "retain the public asset while delegating operation to the private sector" — a structure consistent with the basic architecture of small concession.
The Seven Common Principles — A Standard Rulebook Agreed with the Assembly
The reason MLIT's handbook explicitly credited Fukuchiyama City is that, rather than repeating case-by-case negotiations with the assembly, the city secured the assembly's advance agreement on a common policy that functions as a "standard rulebook for school reuse."
The seven principles, as organized in the Fukuchiyama City presentation material, are as follows.
- Utilization should prioritize local intentions
- Both lease and sale are permissible (except where local intentions stand against it)
- The city contracts with a single operator
- The closed school is utilized or managed as a whole (no partial use)
- The closed school is provided as-is
- For leases, the building and the land directly beneath it are free of charge; other land carries rent
- Operators are recruited through public solicitation within a defined period
Principle 7 reads as prohibiting negotiated contracts. The Fukuchiyama model rests on the combination of "zero administrative burden plus competitive solicitation" — preferential treatment for specific operators is excluded, and minimization of administrative burden is realized within that constraint. The assembly's deliberation period is reported at six months to one year. The point is that one round of deliberation establishes the principles, and subsequent cases are processed as applications of the same policy.
THE 610 BASE — The Reality of an Individual Project
The representative case formulated under the Seven Common Principles is THE 610 BASE (The Roku-to Base), which uses the former Nakamutobe Elementary School.
| Item | Content |
|---|---|
| Operator | Inoue Co., Ltd. (Wells United) |
| Rent structure | Building and the land directly beneath it: free of charge / surrounding land: rented |
| Subsidies used | None (statement by the company's representative, Jichitai Works Vol. 1393) |
| Use composition | Strawberry farm (approximately 15,000 plants in a 2,142 m² greenhouse) + SLIDERS CAFE + craft beer brewing |
| Opening | October 2020 (Reiwa 2) |
| Visitor target | 20,000 visitors per year (cumulative) |
| Visitor reality | Growing at approximately 10,000 per year |
| Zoning | Located in an urbanization control area, but the district plan permits "roadside service facilities" |
| Annual ground rent | Approximately ¥1.6 million |
The operator is Inoue Co., Ltd., a local company, which financed both interior renovation and operational start-up entirely without subsidies. The city leases the building and the land directly beneath it free of charge while setting ground rent on the surrounding land — the strawberry-farm site and parking area — generating annual ground rent of approximately ¥1.6 million as municipal revenue.
The business combines a strawberry farm (approximately 15,000 plants cultivated in a 2,142 m² greenhouse occupying the school's gymnasium and classroom spaces), SLIDERS CAFE (using the school building), and a craft beer brewery — together forming an experiential agritourism facility. The site sits in an urbanization control area, where commercial development is normally restricted, but the district plan permits "roadside service facilities" — a route that clears the zoning wall by treating the operation as an experiential agritourism facility.
Unpacking the Zero-Burden Public Model
The reality composed of three elements — initial investment, operating costs, and risk allocation — and the revenue structure of the ¥1.6 million annual ground rent
What "Zero" Actually Means
The phrase "zero-burden public model" carries a potentially misleading connotation. The city does not literally bear no burden whatsoever. Rather, the phrase refers to a state in which the following four conditions hold simultaneously.
- The city incurs no fiscal expenditure in either the initial or operating phases (no subsidy disbursement, no renovation cost share, no operating cost share)
- The project relies on no national or prefectural subsidies (the private operator finances interior renovation from its own funds)
- The building and the land directly beneath it are leased free of charge, while the surrounding land carries rent
- The city receives ground rent, so the state is not "zero" but rather positive revenue during the operating phase
Precisely stated, the structure is "zero new fiscal burden plus positive revenue during operations." From the initial renovation investment through the operating-phase maintenance, the private operator absorbs all ongoing costs, and in exchange receives the right to use the building free of charge. The city reduces the maintenance cost it would have incurred had the school remained a held asset (estimated in the millions of yen per year) and additionally secures ¥1.6 million per year in ground rent revenue.
The Three Elements: Initial Investment, Operating Costs, and Risk Allocation
Decomposing the project design into three elements makes the character of the Fukuchiyama model more visible.
Initial investment
The operator covers all initial investment from its own funds. Inoue Co., Ltd. has stated unequivocally that "no subsidies of any kind were used" (the representative's statement, Jichitai Works Vol. 1393). Interior renovation, equipment installation, and farm preparation were all financed by the operator. Because the city transfers the facility "as-is," there is no shared burden for renovation costs.
Operating costs
Running costs including utilities, personnel, and repairs fall entirely on the operator. The operator covers operating costs from revenues and pays ground rent to the city; the city incurs no continuing expenditure.
Risk allocation
The three risks — operator insolvency, facility repair, and force majeure (disasters, pandemics) — fall in principle on the operator. Principle 5 of the Seven Common Principles, "the closed school is provided as-is," provides the contractual basis for assigning operating-phase repair risk to the operator.
| Element | Public-Sector Burden | Private-Sector Burden |
|---|---|---|
| Initial investment (renovation, equipment) | None | Full |
| Operating costs (utilities, personnel, repairs) | None | Full |
| Insolvency risk | None (only the burden of re-solicitation) | Operational continuity responsibility |
| Major disaster risk | None | Borne in principle |
| Ground rent revenue | ¥1.6 million per year (building and land beneath are free; rent applies to surrounding land) | Equivalent outflow |
→ The Fukuchiyama model transfers both the public facility operating right and the full set of operational risks to the private sector. The operator's self-financing capacity and operational capability are preconditions of the structure. The model can hold only where an operator capable of absorbing all of these risks is identified.
Necessary and Sufficient Conditions for Reproducibility
A difficulty matrix for the five structural factors, and the limits of what can be transplanted through institutional design
Five Structural Factors Behind the Fukuchiyama Outcome
A municipality looking to adopt the Fukuchiyama model needs first to organize the five structural factors that Fukuchiyama satisfied.
| Factor | Situation in Fukuchiyama | Difficulty of Reproduction Elsewhere |
|---|---|---|
| (1) Physical condition of the school | Operable "as-is" (no critical damage to seismic structure or piping) | Medium — depends on age and degradation |
| (2) Zoning flexibility | The district plan permits "roadside service facilities" | High — change of use is difficult in urbanization control areas |
| (3) Demand density | Within day-trip range of Kyoto and the Kansai area, on tourism routes | High — mountainous areas struggle to attract visitors |
| (4) Operator-recruitment capacity | A local company entered without subsidies | Medium — attracting out-of-municipality firms is harder still |
| (5) Mechanism for assembly and local consent | The Seven Principles were pre-resolved as a "common school-reuse policy" | Low — reproducible through institutional design |
What matters here is that only factor (5) can be transplanted reflexively to other municipalities. Factors (1) through (4) are municipality-specific physical, geographic, and social conditions, and they cannot be changed in the short term through policy effort. A municipality with limited tourism demand in a mountainous area that simply adopts the Fukuchiyama model will see the shortfall in (3) demand density compress operator profitability, which in turn weakens (4) operator-recruitment capacity.
Placing the Model in the "Three Walls" Framework
MLIT's handbook organizes the "three walls" that municipalities face in advancing small concession. The Fukuchiyama model's response to each is as follows.
| Wall | The Typical Municipal Situation | The Fukuchiyama Response |
|---|---|---|
| Image wall | Unclear what can be done; explaining the project to the assembly is hard | The Seven Principles state explicitly that "leases mean the building is free and ground rent is collected," and the assembly has already agreed |
| Partner wall | No operators can be found; no applicants | The district plan permits the use category that operators need — easier for the private sector to design the business |
| Commercialization wall | Procedures are complex; case-by-case negotiation is required | The same policy applies to all 16 schools, reducing the deliberation burden for each case |
→ Fukuchiyama did not "scale walls case by case" but rather "dismantled walls through institutional design." The Seven Common Principles concentrate the assembly's deliberation burden into a single round, and all subsequent cases are processed as applications of the same policy.
The Limits of "Zero Administrative Burden" — Emergency Repair and Re-Solicitation Costs
Mapping the three risks identified on page 30 of MLIT's handbook onto the Fukuchiyama model shows that ongoing costs are zero in normal times, but the model remains exposed to contingencies.
First, operator insolvency risk. Because the model assumes self-financing without subsidies, the operator's financial capacity becomes a precondition. For small operators, this is a substantive hurdle. The condition that "the operator must be able to operate at 100% self-financing with zero subsidies" can narrow the applicant pool in other municipalities at the selection stage.
Second, facility repair risk. Because the facility is transferred "as-is," large-scale repairs (roof, seismic retrofit, total piping replacement) that arise during operations tend to fall on the operator. For school buildings 40–50 years old, large-scale repair needs may exceed an operator's capacity to bear.
Third, force majeure risk. Where an operator cannot absorb the impact of disasters or pandemics, withdrawal leaves the facility unused again. The city then faces a choice between bearing re-solicitation costs and leaving the building idle.
"Zero administrative burden" is zero in terms of ongoing costs in normal times, but emergency repair and re-solicitation costs remain on the public side. A design that transfers all risks to the private sector is also a design that presumes private-sector capacity to bear them.
Routes to Other Municipalities
Application paths to closed schools, former government buildings, park facilities, and roadside stations, and the practical solution of partial adoption
Application Paths Across Asset Types
When transplanting the Fukuchiyama model to other facility types, the necessary conditions differ by asset.
Closed schools (the most direct application)
The most natural transplant is to other closed schools. Where age, seismic condition, site shape, or surrounding population density allow some relaxation of conditions, the Seven Common Principles can be transplanted to compress the deliberation burden. According to MEXT's "All Closed Schools Project," from FY2004 to FY2023 a cumulative 8,850 schools nationwide closed, of which 1,951 (25.6%) remain unused. The base population is large, and application opportunities for the Fukuchiyama approach are broad.
Former government buildings
For former government buildings, floor area is generally smaller than closed schools and project scale is harder to secure, but the typical inner-city location offers comparatively higher demand density. A workable application transplants three of the seven principles — "whole-facility use," "as-is condition," and "ground rent collection" — and adjusts the use mix (dining, retail, coworking) to suit the location.
Park facilities
For park facilities, a dedicated Park-PFI system exists under Article 5-2 of the Urban Park Act, and the practical path is combining Park-PFI with small concession rather than transplanting small concession alone. The May 2025 guideline revision explicitly opened the connection between Park-PFI and small concession. A design that uses small concession for adjacent closed schools or former community halls while developing the park portion under Park-PFI as an integrated project becomes possible.
→ For details on the Park-PFI/small concession connection, see Park-PFI in 2025: Reviewing the Year's Awards and Regional Application Patterns.
Roadside stations and tourism exchange facilities
For roadside stations, public-interest service for regional development is a precondition, which makes pure adoption of the zero-burden public model difficult. The practical route combines designated management with small concession, or sets a partial public share of the operating-right consideration.
Partial Adoption — Transplanting Only the Seven Principles
For municipalities that cannot match Fukuchiyama on operator-recruitment capacity or demand density, the practical solution is "transplant the Seven Principles only." Securing assembly agreement on the four items most directly tied to minimizing administrative burden — Principle 3 (single-operator contract), Principle 4 (whole-facility use), Principle 5 (as-is condition), and Principle 7 (competitive solicitation) — already compresses the case-by-case deliberation burden substantially.
Principle 6 (free building and land-beneath, rented surrounding land) may need to be adjusted in lower-demand areas — expanding the free range to the surrounding land may be needed to preserve operator participation incentives.
Limits on Application to Mountainous and Depopulated Regions
The OECD report (September 2025) notes the following about depopulated regions. In depopulated regions, population decline and aging proceed in parallel, land-use change accelerates, and in extreme cases most municipalities "cannot project their own future." Community-led initiatives are the key, but coordination across government levels constrains them.
Expert consensus adds two further points. Profitability of stand-alone facilities tends to weaken, leaving the private side unable to recover initial investment. Municipal-side capacity in PPP/PFI know-how is limited, and financial expertise is often absent. Fukuchiyama benefits from the precondition of being within one to two hours of the Kansai metropolitan area. In depopulated areas of Hokkaido, mountainous parts of Tohoku, or interior Chugoku, transplanting the Fukuchiyama model alone is severely constrained.
For mountainous or depopulated regions, sustaining a small concession project likely requires raising the administrative burden in some limited form — combining operator subsidies, setting the operating-right consideration to zero, or bundling multiple facilities into a package (one or several of these in combination).
Structural Implications
Packaging the small concession framework, design questions for operator selection, and the limits of the zero-burden public model
Packaging the Small Concession Framework
MLIT's PPP/PFI Action Plan (2025 Revised Edition) positions small concession as a tool for addressing regional challenges through closed schools, vacant buildings, and similar facilities. On December 16, 2024, the Small Concession Platform (SCPF) was established, and the FY2025 Formation Promotion Project selected seven municipalities (Manazuru Town, Anjo City, Himeji City, Nara City, Ikeda Town, Shimoda City, and Nagasu Town).
The small concession space, with project values below ¥1 billion, is still in transition from concept to implementation. As a 2020 case opened ahead of this transition, Fukuchiyama serves as a "national reference point" embedded in the case studies of the handbook itself. Over the next three to five years, as the seven selected municipalities accumulate commercialized cases, the variations on the Fukuchiyama model (subsidy-combined type, zero operating-right consideration type, multi-facility package type) are likely to be organized as a packaged framework.
International Comparison — UK Community Asset Transfer (CAT)
The UK Localism Act 2011 (Part 5, Chapter 3, "Assets of Community Value") introduced a system through which community groups or parish councils can designate "assets of community value." A six-month moratorium applies on sale, during which community groups can prepare a bid. The connected Community Asset Transfer (CAT) provides a route by which local authorities transfer ownership or lease to community groups.
Placing the Fukuchiyama model alongside UK CAT reveals substantial differences in purpose and subject.
| Item | Fukuchiyama Model | UK CAT |
|---|---|---|
| Subject | Private for-profit operator (joint-stock company) | Community group, NPO, or parish council |
| Consideration | Rent (free building plus ¥1.6 million annual ground rent) | Free or nominal amount as standard (peppercorn rent) |
| Solicitation | Competitive | Priority negotiation for community groups |
| Expected effect | Economic activation (employment, tourism) | Civic self-governance and resilience |
Japan's Fukuchiyama model aims at "economic regeneration through private business" while UK CAT aims at "civic recovery through community groups." The OECD report does discuss "community-led utilization of publicly owned assets" as an umbrella concept covering both, but the institutional designs diverge. Operating a CAT-type framework in Japan would require expanding the Seven Common Principles' subject clause (Principle 3, "the city contracts with a single operator") to include community groups and NPOs.
Design Questions for Operating-Partner Selection
For municipalities adopting the Fukuchiyama model, the design of evaluation criteria for operating partners is a determining factor for success or failure. The criteria need to include the following four points.
- Self-financing capacity: Can the operator complete interior renovation and operational start-up without subsidies?
- Local-operator participation: Where solo local applicants are difficult to find, how should joint-venture (JV) participation by local operators be scored?
- Probability of 20-year operational continuity: How is the operator's continued operation during the public-facility operating-right period to be evaluated?
- Response to withdrawal: In the event of withdrawal, how are restoration obligations, selection of successor operators, and re-solicitation costs to be allocated?
The weighting of these criteria varies by municipality, but to reproduce Fukuchiyama's "zero administrative burden" outcome, the weighting on self-financing capacity and 20-year continuity probability has to be heavy. This tends to narrow the applicant pool, which in turn raises the question of balance with the local-operator participation criterion.
Full Commentary on MLIT's 'Recommendations for Small Concession' — Three Walls, VFM Exemption, Contract Risk
A practical commentary on the 40-page handbook published in May 2026: three walls, four case studies, VFM-exempt requirements, and the 14-program cross-ministry map
What Is Small Concession? Mechanism and Cases
Application of the public-facility-operating-right system under the PFI Act at small scale, the statutory basis for VFM exemption, and how it differs from Park-PFI
Closed-School Reuse: Notable National Cases and Business Structures
A casebook of notable closed-school reuse cases nationwide, including the School Re-Use Project, with comparisons of formats and revenue structures
References
Recommendations for Small Concession (Handbook for the Utilization of Underused Public Facilities) (2026)
Fukuchiyama City School Re-Use Project — MLIT Public-Private Partnership Seminar Presentation (2023)
Fukuchiyama City Official 'School Re-Use Project' (2024)
School Reuse Boosts Attention from Local Firms: Fukuchiyama City's Public FM (2024)
Jichitai Works Vol. 1393 — Fukuchiyama City School Reuse Article (2024)
Small Concession Promotion Measures (2024)
Enhancing Rural Innovation in Japan (2025)
On the Effective Utilization of Closed School Facilities (2022)
PPP/PFI Action Plan (2025 Revised Edition) (2025)
Localism Act 2011 (UK) (2011)