By: iLead (Institute for Leadership, Empowerment and Democracy, Inc.)

2022

ABSTRACT

This article argues that the full devolution process could benefit from extending its timeframe beyond FY 2024 for two main reasons. First, not all LGUs are equally capacitated. They will require targeted function-matching and capacity development interventions to effectively perform new devolved services. Second, institutional and absorptive capacity are not built overnight. This fact is clearly demonstrated even by the implementing pains experienced by the national government. What dedicated national agencies could not do over years of work could not be reasonably expected from LGUs in a little over three years. Extending the timeline for full devolution, therefore, helps avoid the risks of excessive institutional shocks, service delivery failure, and reversion of devolved functions to the national government.

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Executive Order No. 138 mandates that local government units (LGUs) of the Philippines be awarded larger responsibilities in pursuit of the full devolution in response to the Mandanas-Garcia ruling, which demands that LGUs be given a larger share of the national fiscal pie through a larger IRA. As such, there is now a burden to capacitate said LGUs to take over some functions formerly handled by the national government in relation to the larger funds allocated to them. In line with the trend, there are expectations for discourse centered around the administrative and logistical implications of the said ruling. There must, however, have a focus on investigating and exploring the concept of devolution itself, particularly in the case of BARMM, whose goal is to inculcate moral governance as a framework. Devolution, and as a corollary political decentralization, might be a key factor in paving the way for moral governance.

The write-up provides an overview of the Mandanas-Garcia Ruling and the issues and concerns attached to it.

The Mandanas Ruling provides a double-edged sword in local autonomy. On the one hand, it allows local governments to express their local autonomy by fully devolving certain national functions. Many local governments, on the other hand, are still unprepared for such a transition, although EO 138 mandates them to do so due to (1) varying capacities, (2) weak institutions, and (3) clientelist politics. This study looks at potential options that LGUs can use to address their concerns about devolution. Special attention will be given to the non-traditional security issues such as social services, health, and investment in the Bangsamoro Autonomous Region.

Philippine local governments were given increased autonomy, revenue-raising and expenditure responsibilities under the Local Government Code of 1991 (LGC). At the same time, the LGC instituted the intergovernmental fiscal transfer called the internal revenue allotment (IRA) to help to help local governments fulfill their mandates recognizing fiscal imbalance in devolved functions. Apart from this, national government provides additional assistance to local governments through programs lodged in different agencies that are meant for devolved infrastructure services. This study examines these national government programs, evolution and expenditure trends and surveys the literature of assessments of these programs. Understanding the evolution in the design and implementation of these programs would be a powerful tool moving forward with strengthened decentralization, especially in designing policy for national government oversight agencies and for any envisioned support programs of national government. In the past decade, the three programs that received the largest budgetary allocations, are the Department of Public Works and Highways’ Local Infrastructure Program, Department of Agriculture’s Farm to Market Road programs and the Department of the Interior and Local Government’s Financial Subsidy to Local Government Units (LGUs). Though expenditures on these programs have been increasing as a whole, there have been no clear trends for the individual programs except for one performance-based program. Furthermore, several programs were initially targeted toward poorer LGUs but eventually expanded in coverage because of the low uptake of these targeted LGUs. These national government programs have almost 100% budget utilization rates compared to lower utilization rates of local development funds (which are the primary source of infrastructure investments of LGUs). This, combined with the evidence of low uptake of assistance programs by poorer LGUs, offer two clear considerations for policymakers in strengthening local government oversight especially if the assistance programs will be discontinued. First, ensure that local governments will spend on infrastructure, i.e. at the very least spend the mandated local development fund. Infrastructure spending has the largest impact on incomes and in jumpstarting the economy and the path to growth would be arduous if this slows down as a result of insufficient local government investments absent national government programs. Second, if policymakers decide to maintain a more targeted assistance program, its objective, criteria and monitoring and evaluating plan should be clear. It should be complementary and aligned with the assistance programs of the Seal of Good Local Governance and Community-Based Monitoring System Laws to be efficient in the use of public funds. The goal moving in recovering from COVID coupled with the implementation of the Mandanas ruling is how to protect the vulnerable with social safety nets but also ensure that local governments contribute to economic recovery, of which infrastructure spending brings the largest multiplier effect.

By: Charlotte Justine D. Sicat, Maria Alma P. Mariano, Angel Faye G. Castillo, Catharine Adaro, Ricxie C. Maddawin

December 2019

ABSTRACT

Delivering public goods and services requires identifying the needs of constituents and designing policies and programs to address these needs in the hopes of attaining development. These policy and program interventions should get the appropriate budgetary allocations to be implemented and effect change. That is, knowing what is needed helps identify the necessary interventions embodied in plans which in turn effects change and development after it is successfully implemented through budgets. This study looks at this mechanism of development for local governments and maps out the current planning and budget framework. Corroborated with evidence from a nationwide survey of municipalities, several areas of improvement in the planning and budgeting process, such as stricter enforcement of the presence of development plans and substantiating the prioritization of investment programs, are identified. These areas have implications on local governments as well as on the oversight government agencies. Finally, this study is timely now that the national government is at the cusp of infusing local governments with a broader base for intergovernmental fiscal transfers.

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The Supreme Court (SC) ruled with finality in April 10, 2019 on the motions for reconsideration of its initial decision promulgated in July 3, 2018 on the petitions filed by separately by Mandanas et al. and Garcia regarding what petitioners perceived to be errors in the computation of the Internal Revenue Allotment (IRA) or the LGUs’ share in national internal revenue taxes (NIRTs) as mandated under Section 284 of the 1991 Local Government Code (LGC). As a result, the IRA in 2022 will increase by P225.3 billion relative to what it would have been prior to promulgation of the said ruling to reach PhP 1,102.7 billion. This study proposes that said increase in the IRA be sourced by unfunding PAPs in the budgets of some national government agencies that are actually intended to deliver functions that are assigned to LGUs under the LGC with the end in view of ensuring sustainability of the national government’s fiscal position. It then proceeds to these PAPs on the basis of the 2020 General Appropriations Act. It also evaluates the impact that this manner of financing the increase in the IRA has on the vertical fiscal balance across different levels of local government and horizontal fiscal balance across individual LGUs within each level of local government.

Farm-to-market roads (FMRs) provide ‘last kilometer’ connectivity for bringing inputs to farmers and taking their production to distant markets. The quality and quantity of these roads has a big impact on transport costs for farmers; good roads close to farms lower production costs and raise the prices that farmers get for their products. As part of the government’s ‘Build, Build, Build’ initiative, the Department of Agriculture (DA) has accorded FMRs high priority and has invested heavily in recent years in roads to enhance accessibility and trigger economic activity in remote agricultural areas. In recent years (2019–21), FMR projects received about 18 percent of the DA’s total budget. FMR construction is also a component of several special projects. For instance, under locally funded projects, total constructed FMRs as of 2017 have reached 392 km, while foreign-assisted projects have built an estimated 2,072 km as of December 2017. The World Bank was requested to carry out a rapid Public Expenditure Review (PER) focusing on the DA FMR Development Program. While this exercise would be useful under any circumstances, it is especially timely in view of the ‘Mandanas ruling’ of the Supreme Court. This ruling requires the central government to increase the Internal Revenue Allotment (IRA), the share of government tax revenue going to the Local Government Units (LGUs), starting in 2022. Since it will be sharing more revenue with the LGUs, the central government intends to devolve more responsibilities to them for administering and funding projects and programs. Exactly how this devolution will affect the FMR Development Program is yet to be precisely defined, and the PER is intended to help plan this process.

The Supreme Court (SC) ruling on the Mandanas-Garcia Petition concerning the Internal Revenue Allotment (IRA) follows a long and persistent effort of local government units (LGUs) and stakeholders in demanding greater autonomy and resources from the national government (NG).

While the SC ruling’s effect is straightforward—greater amount of resources for LGUs in implementing devolved functions—there are concomitant and equally important issues that the NG needs to contend with. Foremost of these is the ruling’s effect on the NG fiscal situation. Aside from fiscal considerations, the transition calls for an examination of programs, activities, and projects (PAPs) to be devolved. There are concerns on how the intended outcomes can be achieved as NG transfers to LGUs some of the PAPs it continues to perform despite being devolved functions.

As deliberations on the FY 2022 National Budget commence, Congress is called on to take a close look at the implications of the SC ruling beyond the outright effect of transferring more resources to LGUs. Full devolution of functions, along with the concomitant transition, entails both fiscal and PAP implementation issues which can impact on fiscal sustainability, service delivery, and the achievement of national objectives. In this regard, this paper discusses the implications of the SC ruling as it relates to budgetary and some operational concerns. This paper aims to provide relevant information and discuss prospectively some of the issues that could help Members of Congress in examining the FY 2022 proposed National Budget.

Despite almost three decades of Philippine decentralization, local governments continue experience varied levels of development and face challenges in delivering devolved basic services. At the same time, the national government has been continuously providing various forms of support for local governments to carry out devolved functions to build their capacity towards genuine fiscal autonomy. One major challenge faced in assessing the impact of the various interventions is the lack of baseline data. This current study aimed to identify policy and governance gaps in infrastructure and planning to provide baseline data on key areas and current planning practices of local governments to provide the necessary information for taking the next steps in decentralization.

This report covers 1,373 municipalities and establishes baseline information on fiscal gaps in local roads, evacuation centers and rural health units. This study also documents governance gaps in development planning through a survey of planning practices vis-à-vis the DILG prescribed process of these municipalities. These are all done within the context of current local development instruments and performance monitoring systems reviewed during the initial stages of the drafting of this report.

The internal revenue allotment (IRA) is the main intergovernmental fiscal transfer in the Philippines. It is the biggest source of operating revenues of local government units (LGUs) to provide basic goods and services and finance other development activities. Like other subnational governments in developing countries (Liu and Waibel 2008), LGUs in the Philippines have been clamoring for more fiscal transfers to address some of the challenges they have been facing. These include the lack of funds to finance the functions devolved to them, the unclear delineation of power and authority, and the large disparities in financial resources among LGUs. The implementation of the Mandanas-Garcia ruling beginning 2022 will result in LGUs having bigger coffers, however, it also poses varying challenges to both national and local governments.

With the country still managing the COVID-19 pandemic, the election of national and local officials next year, and an increase in resources available to local governments units (LGUs) with the implementation of the Supreme Court ruling on the Mandanas-Garcia petition, major shifts in Philippine governance can be expected in 2022. Increased resources for LGUs reduce the fiscal space for national government efforts to jumpstart the economy from the pandemic-induced slump. How then does the President’s budget for 2022 plan to address the many urgent needs, such as providing social safety nets to minimize economic and human capital scarring and sustaining strategic infrastructure investments to spur economic growth? This study provides an overall perspective of the budget and examines how the 2022 National Expenditure Program (NEP), also called the President’s budget, embodies the priorities identified by the national government. In terms of the continued COVID-19 management and human capital investment and consistent with declared priorities in the National Budget Call, spending on health and social protection is prioritized. With the implementation of the Supreme Court ruling, the national tax allotment (formerly known as the internal revenue allotment) is 38 percent higher in 2022, almost 20 percent of the proposed budget. Despite greater devolution, the budget still includes some LGU assistance programs, such as the new growth equity fund (GEF) targeted at poorer LGUs. Institutional reforms, such as the Medium-Term Information and Communications Technology Harmonization Initiative (MITHI) and convergence programs, are also present to help reshape and improve the delivery of public goods and services through investments in information and communications technology. However, the 2022 NEP is projected to increase the debt-to-GDP ratio to 60.8 percent, the highest since 2006. To benefit from increased borrowing, fiscal authorities need to be both strategic and prudent in spending.

By: Jessica Reyes-Cantos

August 2021

ABSTRACT

When the Local Government Code was enacted in 1991, a common lament of LGUs was that responsibilities were devolved, but resources remained largely with the national government. Thirty years hence, will the Mandanas Ruling bridge the gap? Are the implementing guidelines adequate and transition plans, stakeholders, and institutions ready?

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