OSAKA — Toru Hashimoto, Osaka's new governor, officially started work Wednesday by declaring a state of fiscal emergency and warning prefectural residents that a rocky road lies ahead.

"Osaka is facing bankruptcy. Funding for all prefectural projects and public facilities will be reviewed with an eye toward cutting those that are not necessary. Personnel cost cuts must also be considered, and the fiscal 2008 budget will be drawn up so that expenses do not exceed tax income," Hashimoto, 38, told an afternoon news conference.

"These structural reforms are likely to cause some trouble for prefectural residents, but they must be enacted," Hashimoto said.

Osaka Prefecture has about ¥5 trillion in total outstanding debts.

Two special project teams to be overseen by Hashimoto will be formed next week to recommend specific fiscal and structural reforms.

The first team will review designated prefecture-funded projects deemed vital and make recommendations on how to fund and restructure them.

The second team will look at how the prefecture funds all of its projects, with an eye toward cutting funds, or privatization where possible.

Initial reports are expected from the teams in June, and final recommendations are likely at the end of August.

Hashimoto also wants to make payroll cuts, and had tough words for bureaucrats who might oppose his attempts to reduce salaries or bonuses, or even personnel.

"If the bureaucrats say they want to help change Osaka, then let's work for change together. However, if they don't want to change, then I hope they will leave the prefectural government," Hashimoto said.