THE REVIEW OF THE 1991
LOCAL GOVERNMENT CODE
Improving Lives Through Local Governance Reform:
Transparency, Accountability and Better Services
Results of Nationwide Consultations on
the Review of the Local Government
Code of 1991
Improving Lives Through Local Governance Reform:
Transparency, Accountability and Better Services
Result of Consultations
 Island-wide consultations in Luzon, Visayas and Mindanao
attended by close to 400 LGU chief executives, council
members, and officers
 Smaller meetings with selected officials of Leagues of
Provinces, Cities, Municipalities, Vice Governors,
Councilors, Vice Mayors, ULAP, Provincial Board Members
 Meetings with technical staff of ULAP, League of Provinces,
League of Cities and League of Municipalities
 Consultations with business sector (PCCI, TMAP, BAP,
BPO sector, etc.)
 Initial consultations with national government agencies
Scope of LGC Review
1.
2.
3.
4.
5.
6.
7.
Expenditure assignment
Revenue assignment and taxing powers
Intergovernmental fiscal transfers
LGU borrowing and credit finance
Creation of LGUs
Inter-local cooperation/alliances
Fiscal administration
1. Expenditure Assignment
Improving Lives Through Local Governance Reform:
Transparency, Accountability and Better Services
Expenditure Assignment – who does what?
Issue:
 Overlapping and, at times, unclear assignment of functions
across various levels of government (NG and different
levels of LGUs)
 Results in waste of resources
 Unfunded mandates
 Results in relevant services not being delivered at all or not
delivered in sufficient quantities
In either case, the welfare of local communities
is adversely affected.
Expenditure Assignment – who does what?
 Proposed amendment
 Amend Section 17 (a) of the 1991 LGC by inserting a proviso that will
differentiate between fully devolved functions and delegated
functions
o Fully devolved functions are those for which exclusive responsibility for
service provision is assigned to.
o Delegated functions are those for which the national government has
primary responsibility for provision but which are implemented by LGUs;
delegated functions typically associated with national objectives and/ or
externalities
 Delegated functions are best financed through conditional transfers
 Stakeholder support
 Consistent with PFM reform of NG; Strong support in principle from
LGUs in Luzon, Visayas and Mindanao consultations; League officials
want to see details of delineation
* Studies now on-going with respect to functional assignment in health, environment
and natural resources; study on agriculture to follow.
2. Own-Source Revenues
and Revenue Assignment
Improving Lives Through Local Governance Reform:
Transparency, Accountability and Better Services
Own-source revenues and revenue assignment
Overarching issues
 Lack of productive source of local revenues ► high LGU
dependence on transfers ► weak revenue autonomy ►
perverse incentives and weak accountability
 Wide flexibility in taxes/ fees that LGUs are allowed to
impose ► discourages prospective investors in local
economy
Revenue assignment - Schedule of market value (SMV)
of real property
Specific issue
 Outdated schedule of fair market value of real property in
many provinces and cities
o SMV at least 2 cycles behind in 59% of provinces & 72% of cities in
2014
 Need to strengthen real property valuation standards to
promote integrity and fairness of RPT system
Revenue assignment - SMV
Proposed Amendment
 Amend Sections 212 and Section 214 so as to assign the
approval of the schedule of market values of real
properties situated in each province/ city/ MM
municipality to the Department of Finance instead of
requiring that schedule of market value be enacted into an
ordinance by the local Sanggunians
 Retain LGUs’ autonomy in setting assessment levels for
RPT purposes (Section 218) and setting real property tax
rates (Sections 232, 233, 235 and 236)
Revenue assignment - SMV
Impact
 If SMVs of all provinces and cities were to be fully updated,
potential RPT revenues for all provinces in the aggregate
will increase by 97% (or PhP 9.6 billion) while RPT
revenues for all cities as group will increase by 138% (or
PhP 40.8 billion) for a total of PhP 50.3 billion, other things
being equal
Stakeholder support
 DOF priority bill
 strong support from LGUs in Visayas and Mindanao
consultations
o LCP National Assembly passed resolution support this proposal
 General support from business sector
 Number of bills filed in Congress (e.g., Sarmiento bill)
3. Intergovernmental
Fiscal Transfers
Improving Lives Through Local Governance Reform:
Transparency, Accountability and Better Services
Intergovernmental Fiscal Transfers – IRA increase
 Issue
 Perception on part of LGUs that IRA does not provide
sufficient resources needed for LGUs to deliver fully devolved
services
Proposed amendment (from LGU consultations)
 Amend Sec. 284 of LGC such that the IRA shall be set equal to
40%-50% of all national taxes (i.e., including collections of
both BIR and BOC in the base)
Intergovernmental Fiscal Transfers – IRA increase
 Impact
 Incremental revenue impact (based on actual NG tax collections in
2012)
o Inclusion of VAT/ excise tax collections of BOC in base (Mandanas petition) –
PhP 98.5 billion
o 50% of BIR collection – PhP 97.3 billion
o 50% of national internal revenue taxes incl. VAT/ excise tax collections of BOC
– PhP 122 billion
o 50% of all national taxes – PhP 245 billion
 Significant implications on macroeconomic flexibility
 Demand for increase may be mitigated by increase in LGU taxing
powers
 Stakeholder support
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

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Very strong support from LGUs
Many bills in House and Senate
Mandanas petition pending at SC
Opposition from DOF
Intergovernmental Fiscal Transfers – Equalization grant
 Issue
 IRA does not assist fiscal equalization in the sense of providing
more resources to LGUs with lower revenue capacity relative
to their needs and less to LGUs with greater revenue capacity
relative to their needs
Proposed amendment
 Amend Section 3 (d) to specifically introduce principle that
share of LGUs in national taxes shall take into account
disparities in revenue raising capacity of LGUs in line with their
expenditure needs (i.e., have equalization as an objective)
Intergovernmental Fiscal Transfers – Equalization grant
 Impact
 can be designed and implemented in a marginal and
sequential manner so as not to harm any LGU in the process
and without impacting negatively on NG flexibility
 If distribution is calibrated relative to revenue capacity as
measured by potential revenue, it will incentivize ownrevenue generation
Stakeholder support
 Support from LGUs in Luzon, Visayas and Mindanao
consultation
4. LGU Borrowing
and Credit Finance
Improving Lives Through Local Governance Reform:
Transparency, Accountability and Better Services
LGU Borrowing and Credit Finance
 Overarching issues
 Subnational borrowing important if LGUs are to be
enabled to finance lumpy investments on local
infrastructure
 At present, subnational borrowing is low relative to
LGU financing for local infrastructure
o Need to streamline procedures governing LGU access to
credit market
LGU Credit Finance – LGU deposits in PFIs
 Issue
 Preference for gov’t financial institutions as LGU depository
bank (Section 311 of LGC) ► discourages entry of private
institutions in LGU credit market
o Greater competition has potential to reduce LGU borrowing cost
 Proposed amendment
 Amend Sec. 311 so as to explicitly allow LGUs to open
depository account in PFIs if LGUs will be borrowing from
PFIs without any need for prior government approval
 Stakeholder support
 Strong support from LGUs in Luzon, Visayas and Mindanao
 Some support from business sector
 DOF does not support this
Inter-LGU Alliances /Cooperation
 Issues
 Inter-LGU cooperation deemed necessary and critical
when delivery of devolved service involves:
o economies of scale (e.g., solid waste management, water supply)
o externalities or spillover effects (e.g., coastal resource
management, environmental management)
 Attempts at inter-LGU cooperation to date have been
hamstrung by questions related to how they will
manage funds they have contributed to the alliance,
how they can access financing from both credit and
capital markets, etc.
Inter-LGU Alliances /Cooperation
 Proposed amendment
 Establish regulatory framework for inter-local cooperation
and alliances; register ILCs in a National Registry to vest ILC
with legal personality
Stakeholder support
 Some support from LGUs in Luzon an Mindanao
consultation
6. Creation of LGUs
Improving Lives Through Local Governance Reform:
Transparency, Accountability and Better Services
Creation of LGUs
 Issues
 Growing trend in favor of…
o conversion of municipalities to cities
o Breaking up of existing provinces/ municipalities/ barangays into
two or more new provinces/ municipalities/ barangays
 Such a trend tends to result in inefficiently sized jurisdictions
 Proposed amendment
 Align income requirements for the creation/conversion of
highly urbanized city, province and municipality with that in
RA 9009 which provides new income criteria for the creation
of cities
 Stakeholder support
 Support from LGUs in Luzon, Visayas and Mindanao
7. Local Fiscal
Administration
Improving Lives Through Local Governance Reform:
Transparency, Accountability and Better Services
Local Fiscal Administration (1)
Issue
 Need to ensure transparency in LGU operations for greater
accountability
Proposed Amendment
 Legislate full disclosure policy for LGUs requiring them to
post documents relating to income, expenditures,
procurement, loans, etc. in conspicuous places for
transparency
Stakeholder support
 Strong support from LGUs in Luzon, Visayas and Mindanao
consultation
 House bill file in Congress
Local Fiscal Administration (2)
 Issues
 Need to promote PFM by strengthening internal control
 Proposed Amendment
 Amend Sec. 47 (b) to exclude “internal audit” from functions of
Accountant;
 Insert Section on the creation of Internal Audit Service as a
mandatory position
Stakeholder support
 Supported by DBM
 Some support from LGUs
Thank you very much!