Local Government Finance

Summary

Highlights

• Bulacan and Batanes show the disparity in provincial spending levels - highlighting how diverse LGU financial realities can be. 💸
• Quezon City stands out as the highest spending city, reflective of its large population and needs. 🏢
• Local governments are allowed but cautious about incurring debt, keeping their borrowings well below permitted levels. 📉
• A Supreme Court ruling could significantly boost LGU revenues by adjusting their share of national taxes. ⚖️

Key Takeaways

• Local government units (LGUs) in the Philippines create their own unique spending plans tailored to their community's needs, rolling with decentralization since the 1991 Local Government Code. 🏙️
• LGUs can collect taxes like the real property tax and business tax, but they're often underutilized due to technical challenges and lack of political will. 💰
• A significant chunk of LGU funding comes from the Internal Revenue Allotment, making them quite reliant on national tax shares. 🏦
• Despite having the power to borrow, LGUs are conservative with debts, keeping them well below the 20% income cap. 🤓

Overview

Chapters

• 00:00 - 00:30: Introduction to Local Government Finance This chapter introduces the fundamental concepts of local government finance. It highlights four key points regarding the financial operations of local government units (LGUs). Firstly, LGUs have the autonomy to create their own spending plans. This autonomy is a result of the decentralization policy which was established through Republic Act 7160, also known as the Local Government Code of 1991. This code specifies various services that have been transferred from the national government to local governments. These services include solid waste management, public marketplace management, primary health care services, maintenance of public parks, and agricultural extension support.
• 00:30 - 01:00: Crafting of Spending Plans The chapter titled "Crafting of Spending Plans" discusses the process followed by local government units (LGUs) in formulating their budgets. Similar to the national budget cycle, local budgets are proposed by the local chief executive, debated, and approved by the local legislative body, and then implemented by the local chief executive. While LGUs have the freedom to design their own spending plans, they must adhere to restrictions set by the local government code. The chapter highlights the importance of these budgetary processes in managing essential services like water supply, drainage, and sewerage.
• 01:00 - 02:00: Expenditure Regulations and Priorities The chapter 'Expenditure Regulations and Priorities' discusses the budgetary constraints and spending priorities for local government units (LGUs) in a given year. It emphasizes that personal services should not exceed 45 to 55 percent of an LGU's annual budget, the exact percentage depending on the category of the LGU. Additionally, 20 percent of their internal revenue allotment should be allocated to development projects. The chapter highlights the spending levels in 2018, with provinces, cities, and municipalities collectively spending a total of 506 billion pesos. Among these, cities had the highest spending at 203 billion pesos, followed by municipalities.
• 02:00 - 03:00: Disparity in Spending The chapter titled 'Disparity in Spending' discusses the financial allocations made by various local government units (LGUs) in a particular region. In one year, the LGUs had a total expenditure of 188 billion, with provinces spending 114 billion. This expenditure prioritized general public services, acquisition or construction of property, plant, and equipment, as well as economic services, health, and nutrition. A significant focus is on the disparity in spending levels among the LGUs, highlighting that, in 2018, Bulacan recorded the highest expenditure among them.
• 03:00 - 04:00: Local Revenue Collection The chapter discusses local revenue collection in various provinces, cities, and municipalities. It highlights disparities in spending, with Quezon City being the highest spending city at 21 billion, while Can City is the lowest at 246 million. Taitai in Resale is the highest spending municipality at 1 billion, whereas Mahatau in Batanes is the lowest at 26 million. The chapter notes that population size significantly influences these spending disparities.
• 04:00 - 05:00: Local and National Revenue Sources This chapter discusses the financial structure of local government units (LGUs), focusing on their ability to generate revenue independently through various taxes. It mentions how, due to the devolution of responsibilities, LGUs are tasked with collecting their own taxes. Key taxes at the local level include the real property tax, business tax, professional tax, and amusement tax. This system allows for a more localized approach to managing income and expenditure, potentially altering expenditure per capita rankings.
• 05:00 - 06:00: Revenue Distribution and Dependency The chapter discusses revenue distribution and dependency, focusing on the powers of local government units (LGUs) to generate income. Local governments, like the national government, have the authority to tax through appropriate ordinances. In addition to taxes, LGUs garner revenues from permits, licenses, service fees, and businesses owned by the LGUs themselves. In 2018, local sources of revenue totaled 226 billion, with business taxes accounting for 40% and real property taxes contributing 28% of the total.
• 06:00 - 07:00: ERA Ruling and Implications The chapter 'ERA Ruling and Implications' discusses the challenges faced by Local Government Units (LGUs) in maximizing their local taxation powers. It highlights the deficiencies in technical capacity and lack of political will, particularly in implementing real property taxes. The chapter also touches on the disparities in revenue collection among LGUs, citing the example of Rizal province's collections in 2018. These factors have significant implications for the financial autonomy and development capabilities of LGUs.
• 07:00 - 08:00: Debt and Loan Authority The chapter titled "Debt and Loan Authority" discusses the revenue generation capabilities of various regions and local government units. It highlights that Tau Italy has the highest revenues at 1.6 billion, while the city of Marawi has the lowest at 6 million. In terms of revenue from municipalities, Lima Bataan is the highest at 1 billion, whereas Lumbayanage La Nao Del Sur is the lowest at 30,000. It underscores the significance of effective debt and loan authority in managing local government finances.
• 08:00 - 08:30: Summary of Local Government Finance Local Government Units (LGUs) receive a portion of national taxes in addition to local revenues. This share includes an automatic 40% from national tax collections, known as the Internal Revenue Allotment (IRA). Some laws provide LGUs with additional shares on top of the IRA, including revenues from ecozones, mining, PCSO, and tobacco excise tax. In 2018, revenues from these external sources amounted to 450 billion.

Local Government Finance Transcription

• 00:00 - 00:30 four things to know about local government finance number one local government units craft their own spending plans decentralization was instituted through republic act 7160 or the local government code of 1991. the code identified a number of devolved services such as solid waste disposal public markets primary health services public parks agricultural extension
• 00:30 - 01:00 water supply drainage and sewerage among many others similar to the national budget cycle the local budget is proposed by the local chief executive debated and approved by the local sangonian and implemented by the local chief executive lgus are free to craft their own spending plans the only restriction set by the local government code
• 01:00 - 01:30 is that personal services of an lgu should not exceed 45 to 55 percent of their annual budget depending on lgu category and that 20 percent of their internal revenue allotment which we will discuss later should be spent on development projects in 2018 overall spending of provinces cities and municipalities reached 506 billion pesos cities topped the level of spending at 203 billion municipalities was second
• 01:30 - 02:00 at 188 billion and provinces last at 114 billion top spending priorities were general public services purchase or construction of property plant and equipment economic services and health and nutrition given the diversity of the lgus there is also a big disparity in spending levels among them in 2018 bulacan is the highest spending
• 02:00 - 02:30 province at 3.8 billion while batanes is the lowest spending at 289 million quezon city is the highest spending city at 21 billion while can city is the lowest spending at 246 million taitai resale is the highest spending municipality at one billion while mahatau batanes is the lowest spending at 26 million of course population size plays a major role in these disparities
• 02:30 - 03:00 if one were to compute expenditure per capita the rankings would probably be very different number two local government units collect their own taxes with the devolution of responsibilities the local government code also saw it fit to devolve certain taxes to lgus major local taxes are the real property tax business tax professional tax and amusement tax
• 03:00 - 03:30 similar to the national government the power to tax is exercised by the local sangonian through an appropriate ordinance aside from taxes lgu's also get revenues from permits and licenses as well as service fees and lgu owned businesses in 2018 revenues from local sources totaled 226 billion 40 came from business taxes 28 from real property taxes
• 03:30 - 04:00 and 10 from lgu operated enterprises most observers believe that lgu's have not yet maximized the potential of their local taxation powers due to deficiencies in technical capacity as well as lack of political will especially when it comes to implementing real property taxes similar to expenditures lgu revenue collection also varies greatly in 2018 among provinces rizal collected the
• 04:00 - 04:30 highest revenues at 1.6 billion while tau italy is the lowest at 2 million among cities quezon city is the highest at 16.6 billion while marawi city is the lowest at six million among municipalities lima bataan is highest at one billion while lumbayanage la nao del sur is lowest at thirty thousand number three local government units get
• 04:30 - 05:00 a share of national taxes aside from local sources lgu's also get an automatic share of 40 from national tax collections called the internal revenue allotment some laws also grant particular lg us additional shares on top of the era such as shares from echo zones mining bag core pcso and tobacco excise tax in 2018 revenues from external sources totaled 450 billion
• 05:00 - 05:30 93 percent were from the internal revenue allotment this is almost twice the total collection from local sources era is distributed as follows 23 for provinces 23 for cities 34 for municipalities and 20 for barangays the allocation formula is such that population gets 50 percent land area 25 percent and equal sharing 25 distribution of other shares in national
• 05:30 - 06:00 revenues are described in different laws in 2018 highest recipients of shares in national revenues were illokosour at 4.6 billion quezon city at 5.2 billion and kaluya and tk at 913 million lowest recipients are botanists at 406 million balayan city at 344 million and mugbog marinduque at 25 million for many the high dependence of most lgus on their era
• 06:00 - 06:30 and shares from national revenues is a wasted opportunity given the devolution of some taxation powers to lgus more than 56 provinces 52 cities and 1178 municipalities depend on their share of national government revenues for more than 80 per cent of their income recently the supreme court ruled in favor of several cases filed against the
• 06:30 - 07:00 national government agreeing with the petitioners that the formula used in computing lgu share in national government revenues was incorrect according to the ruling one of the major errors was the exclusion of internal revenue collections of the bureau of customs the implication of this ruling is that in 2022 lgu era is expected to increase by 260 billion
• 07:00 - 07:30 how the national government will fund this is uncertain considering the sum is even higher than the budgets of several national government agencies number four local government units can also incur debt the authority of the lg youth incur loans or issue bonds should be exercised through a sangunyan resolution authorizing the local chief executive to
• 07:30 - 08:00 negotiate and enter into contract for securing a loan or setting the terms and conditions of the bonds the local government code allows lgu's to borrow as long as debt servicing does not exceed 20 percent of regular income lgus are way below that ceiling averaging only three percent of regular income in fact lgu's have been very conservative and have consistently ended with savings at
• 08:00 - 08:30 the end of the year year-end cash balance of lg use in 2018 was 465 billion these are the four things to know about local government finance