DIY Local Fiscal Administration

Local Fiscal Administration

By Yvonne T. Chua

Shortcomings in Local Finance Reporting

Journalists interviewed for this chapter acknowledge that analyzing and interpreting
data, and using them as a base for a story are among their waterloos. They add that
many journalists also lack the capability to establish linkages, patterns and trends
significant to a story.
“Reporting is limited to how much is the collection, how much is spent on a project or
received by department, how much was spent for this so-and-so project,” says Allan
Nawal, a reporter based in Davao del Sur. “(Reporters) gloss over the figures.”
Few journalists can claim to having done a great deal – and a great job — of reporting
on local government finance. “Many areas are overlooked,” says Labiste. Markets and
other public enterprises, taxation and barangay planning are but a few of them.
To close observers of local governance like Rood, coverage of local governance
finance is disappointing. “It’s either nonexistent, dismal or deeply ignorant,” he says,
pointing out that of the various finance stories, budget stories more often land in
newspapers and newscasts, but they generally lack substance. “It’s not even going
beyond the figures, just using the figures in keeping score in the fight between (the
Sanggunian) and the executive,” he notes.
Almost always, the journalists’ ignorance of finance and governance shows up in their
copies. This shortcoming is best illustrated when they report on borrowings of LGUs.
“One of the (manifestations of) deep ignorance is ‘Debt is bad,’ so that one of the
surest ways to get into the newspapers about local government finance is if the LGU
proposes to borrow,” says Rood.
He explains debt financing as an integral part of running a government. “It doesn’t
make sense for a government to run entirely on current expenditures. It’s like you
don’t buy a house with current expenditures; you borrow money to buy a house,” he
says.
Another obvious pitfall in local government finance reporting is the failure of most
journalists to provide background and context in their stories. “If you look at the long-
running controversy in Baguio about the increase in taxes, none of the stories that
came out ever referred to what happened before,” Rood says. “To somebody who
doesn’t follow these things, it’s impossible to learn what’s going on by reading the
story aside from Councilor X said this and Judge Y said that.”
Attempts to help journalists understand the nuances of local government finance
through training have been made, notably by the Evelio B. Javier Foundation Inc.
Banacia says that a course he attended in Bohol helped improve his and his paper’s
coverage of city hall and capitol. He echoed what he learned to his editors and
colleagues once he returned to Cebu. The paper also built up its library collection to
include more materials on local governance, especially local government finance.
But the courses are few and far between. “Largely, learning has been an individual
effort. It would help to hold an orientation on local government finance,” says
Labiste, who went to a similar course.
Getting to Know the Basics
Short of attending such seminars, journalists who intend to do serious reporting on
local government finance could start with this reading list:
• The Local Government Code of 1991 and its implementing rules and regulations
• Handbook of Local Fiscal Administration in the Philippines, published by the
National Center for Public Administration and Governance of the University of the
Philippines and the German Foundation for International Development
• The Budget Operations Manual of the Commission on Audit (COA) and Department
of Budget and Management (DBM)
• DBM’s Local Government Budgeting Manual, which elaborates on the Budget
Operations Manual
• COA’s Government Accounting and Auditing Manual, Barangay Accounting
Manual and circular and property and supply management
• GOLD occasional papers and Rapid Field Appraisal reports
They would also find it worthwhile to look at circulars, regulations, opinions and
other issuances from government agencies that have a bearing on local government
finance. Besides COA and DBM, the agencies include the Department of Finance
(Bureau of Local Government Finance), Department of Interior and Local
Governments (Bureau of Local Government Supervision) and the Office of the
President.
Reporting on local government finance also requires journalists to watch a fairly long
list of people at LGUs, a far cry from the days when about the only person worth
bothering was the local treasurer. Retired audit commissioner Sofronio Ursal
describes the things he would do at the local treasury services of Cebu City, Cebu
province, Toledo City and Leyte province from the fifties to the mid-seventies: “I see
myself typing invitations for public bidding, which was my first job in the local
treasury. I see myself journalizing an endless stream of disbursement and special
journal vouchers. I also recall having to pay, at the behest of our treasurer, labor
payrolls on day before an election ban. In another assignment I see myself supervising
the preparation of a city budget. But among my most vivid memories was when I was
bitten by a dog while trying to collect a delinquent real property tax.”
Local treasurers also performed property management and procurement functions. In
all, Ursal says the treasurer at the time had a total of 17 fiscal and non-fiscal
functions, including as deputy or agent of a number of national government agencies.
That no longer holds today. Finance work at LGUs has been divided up among
several local officials. They include:
• The chief executive (the governor, mayor or barangay captain) has overall
responsibility for the collection, custody, disbursement and proper use of funds.
• The treasurer collects revenue due the local government by implementing tax and
related ordinances, keeps custody of the funds by depositing it in an official
depository bank, and disburses the funds. The treasurer inspects private commercial
and industrial establishments and examines books of accounts of businessmen for the
purpose of implementing tax ordinances. The assistant treasurer, if there is any,
administers oaths on notices and notifications to those that are delinquent in paying
real property tax. The treasurer is appointed by the finance department from a list of
three recommendees submitted by the mayor or governor.
• The assessor conducts a periodic appraisal of real properties, maintains a tax
mapping in preparation of tax rolls used by the treasurer, and prepares a schedule of
fair market value for the different classes of fair real properties. The assessor keeps
sworn statements declared by property owners, compiles house plans and their
classification into kinds and types of property for assessment purposes, and issues
certified copies of assessment records or real property and related records.
• The budget officer consolidates and evaluates the budget proposal of various
offices/units, assists the local chief executive in preparing the budget, and executes
the budget through the allotment system. The budget officer coordinates with the
planning and development coordinator in drawing up the development plan.
• The accountant is in charge of accounting and internal audit, prepares and submits
financial statements to the local chief executive and Sanggunian, and certifies to the
availability of budgetary allotment to which expenditures and obligations may be
charged.
• The development council draws up the local development plan and investment plan.
• The planning and development coordinator links planning and budgeting, especially
in the preparation of the development plan.
• The Sanggunian enacts legislative measures for revenue generation, allocation and
regulation of business activities.
• The finance committee makes sure that the budget supports the programs identified
in the development plan or the plan takes into account the financial capacity of a local
government unit. It is composed of the treasurer, budget officer and the planning and
development coordinator.
• The general services officer buys the supplies and services an LGU needs.
• The bids and awards committee decides the winning bids and questions of awards
on procurement and disposal of supplies or property. In provinces, towns and cities,
the committee consists of the chief executive as the chairman, and the treasurer,
accountant, budget officer, general service officer, head of office and occasionally a
Sanggunian member as members. In the barangay, the Sanggunian Barangay forms
the committee.
The Budget
To figure out the priorities of a local government unit, examine its budget. That may
not be an inviting proposition for journalists, most of whom usually avoid numbers
unless they are on a lotto ticket. But as Isaac Shapiro, international project director for
the Washington-based Center on Budget and Policy Priorities, points out, the budget
is “the most important economic policy instrument for governments.” Furthermore, he
says, it “reflects a government’s socioeconomic policy priorities by translating
policies and commitments into expenditure and revenue. As the main government
instrument for the distribution of income, it directly or indirectly affects the life of all
citizens.”
In the Philippines, budgets of local government units — from the barangay to the
province — must put into action multisectoral development plans initiated by local
development councils and approved by the Sanggunian. The development plan
contains the summary of major development concerns and priorities of a local
government unit, its development vision and goals, strategies, projected revenues and
expenditures, public investment, requirements, maps and other visual aids, and
physical and zoning plans for three to 10 years. The council also puts out the local
development investment plan, which estimates the three- to 10-year level of
investment development, matches programs and projects against estimated
investments, and identifies funding sources. A third output is the annual investment
plan, which contains a list of priority programs, projects and activities to be
implemented during a specific budget year.
The law mandates multisectoral participation in development planning. That explains
the composition of the development council at the different levels. NGO
representation constitutes one-fourth of the council membership. Chaired by the local
chief executive, the council’s executive committee consists of:
• Province: governor, representatives of city and municipal mayors, chairman of the
Sangguniang Panlalawigan’s appropriations committee, president of the provincial
league of barangays, NGO representatives
• City or municipality: mayor, chairman of the Sagguniang Panglunsod/Bayan’s
appropriations committee, president of the city/municipal league of barangays, NGO
representatives.
• Barangay: punong barangay, representative of Sangguniang Barangay, NGO
representatives
Like the budget of the national government, the law on local budget is clear: No
money can be paid out of the local treasury without an appropriations ordinance or
law. Likewise, local budgets are framed in two parts (income and expenditures) and
go through five stages (preparation, legislation/authorization, review, execution and
accountability).
The development plan has important functions during the various phases of the budget
cycle. During budget preparation, it is used to determine expenditure and sectoral
ceilings, formulate the functions and project activities, and determine cost estimates.
During budget review, it is used to verify consistency of the budget with approved
activities, goals and objectives. During budget execution, the plan is the basis for
determining activities to be undertaken during the period. In the budget accountability
phase, it sets the standards against which the performance can be measured. Budget
preparation normally begins after local government units receive from the DBM a
circular advising them of their internal revenue allotment or the IRA. This usually
happens on June 15 of every year or earlier. Thanks to the Local Government Code,
the share of local governments in the IRA has risen to 40 percent from an average of
11 to 12 percent before 1991.
At around the same time as the IRA advisory release, the development council
furnishes the local finance committee with copies of the development plan,
development investment plan and annual investment plan. That means the plans must
be in place by the end of May and have been approved by the Sanggunian. The
accountant, meanwhile, turns over the necessary financial data to the chief executive
through the finance committee. The treasurer submits a certified statement covering
the income and expenditures of the preceding year, the actual income and
expenditures of the first two quarters of the current year, and the estimated income
and expenditures for the last two quarters of the current year. Other inputs to the
budget making process include information supplied by the national government and
state corporations on their programs and projects.
Made up of the treasurer, budget officer and planning and development officer, the
finance committee’s job is to project the income the city or province expects in the
coming year, set ceilings for spending, and recommend tax and revenue measures and
borrowings. Its recommendations form the basis of the guidelines that the mayor or
governor later issues to department or unit heads in drafting their own budget
proposals.
The budget call follows: The mayor or governor asks the heads of various offices and
departments to submit their budget proposals. The budget proposals that department
heads hand in to the mayor or governor weeks later are accompanied by information
about their office’s objectives, functions and projects; organizational charts and
staffing patterns, showing plantilla positions with their corresponding salaries; and
accomplishment reports for the preceding two years. The proposals find their way to
the finance committee, which then comes up with a consolidated budget due for
submission to the mayor or governor for review on or before July 15. The mayor or
governor conducts budget hearings as he sees fit.
On October 16 each year, the mayor or governor presents for legislation the executive
budget to the Sanggunian or the local lawmaking body. Failure to meet this deadline
means criminal and administrative charges for the slowpoke official.
Three documents make up the executive budget: a budget message stressing the
significance of the proposed budget in relation to the local development plan, a
summary of the local government’s planned activities and a summary of financial
statements showing the actual and estimated income and expenditures in the
preceding, current and ensuing year. The last document includes information about
the city, town or province’s obligations and indebtedness, a summary of statutory and
contractual obligations and other financial statements that show the local
government’s financial condition.
The Sanggunian holds a series of public hearings on the budget before buckling down
to review the executive branch’s proposal. Like Congress, the local legislature can
decrease or delete an item in the budget, but cannot increase total appropriations
proposed by the local chief executive or include new items, except to provide for
statutory or contractual obligations that have not been included in the executive
budget, or if the items provided are deficient in amounts. Even then, such additional
provision should not result in an excess of the total appropriations in the executive
budget.
The enactment process follows the sequence of sponsorship – first and second
readings and passage. The law mandates the Sanggunian to enact an appropriations
ordinance not later than December 31. The mayor or governor subsequently approves
or vetoes the ordinance.
If no budget is approved, the Sanggunian continues holding sessions, without
additional pay for its members, until the ordinance gets the green light. If there is still
no approved budget after 90 days, the appropriations ordinance of the preceding year
is considered reenacted and remains in force until the local council okays the new
budget. Specifically, only the appropriations for salaries and wages for existing
positions, statutory and contractual obligations and essential operating expenses in the
annual and supplemental budgets for the preceding year are considered reenacted.
Like the President, mayors and governors enjoy the power to veto any item of the
appropriations ordinance or resolution directing payment of money or creating
liability without affecting the other parts of the measure. They exercise the line-item
veto only once on an appropriations ordinance or an item in it.
Local governments are by no means limited to the annual budget. The Sanggunian can
pass a supplemental budget in times of public calamity by realigning items in the
appropriations ordinance. The source of funds must be indicated. The local legislature
can also enact a supplemental budget to cover other expenditures as long as the local
budget officer certifies that money is available for the purpose. The supplemental
budget is enacted in the same way as the regular budget.
Despite devolution, the national government has not really let go of LGUs especially
when it comes to money. An important phase in the budgeting process is the review
done by the DBM central office of appropriations ordinances enacted in cities and
municipalities within Metro Manila and regional DBM offices of budgets enacted in
provinces and highly urbanized cities. The Sangguniang Panlalawigan reviews the
budgets of towns and cities under it, while the Sangguniang Panlungsod or Bayan
looks at the budgets of the barangays that comprise the city or town.
The local government submits copies of the annual budget, appropriations ordinance,
local development plan and investment program, along with the organizational
structure and staff pattern to the reviewing bodies. Given 90 days to act, the reviewing
bodies can declare the ordinance inoperative in whole or in part, and may disallow
specific items in excess of the amounts.
Essentially, the budget review is to ensure that the budget is balanced (read: projected
expenditures do not exceed projected income), covers statutory and contractual
obligations, and earmarks the sums mandated by law for certain expenditures such as
the calamity fund (five percent of the budget), aid to barangays (not less than P1,000
per barangay) and development projects or the Development Fund (20 percent of the
IRA).
The review is also intended to make sure that spending limits are not breached. Debt
servicing, for example, is limited to 20 percent of the LGU’s regular income;
personnel services appropriations, 45 percent for first- to third-class cities and
municipalities and 55 percent for fourth- to sixth-class; and discretionary funds of
governors and mayors, two percent of actual receipts from real property tax collected
in the preceding year.
Local governments are given from January 1 to December 31 to execute the budget.
At the end of the year, money unspent by a local government unit reverts to its
general fund and must await an appropriations ordinance before it can be used.
Appropriations for capital outlay, however, are the exception.
The last phase in the budget process is budget accountability. The estimated and
actual income and expenditures are recorded and reported and operations of local
governments are evaluated or audited against planned targets.
Why Some Budgets Are Defective
The Local Government Code sets the ideal scenario, complete with checks and
balances, under which local budgets are to be enacted. But a great divide exists
between theory and practice. Local governance experts say a number of local budgets
are plain unresponsive to public needs and even prone to corruption. Because the
budget is supposed to implement the local development plan, local officials should
give the most weight to this document when they prepare the budget: Journalists
should give the plan more than a cursory glance as well, since it can give them a fairly
good idea of the LGU’s socioeconomic priorities in the short and long run.
Few local governments, however, actually base their budgets on development plans,
according to Eddie Dorotan, former mayor of Irosin, Sorsogon and now a
development management consultant of the Ford Foundation. In the first place, he
notes, most planning and development councils fail to come up with them. In fact,
data from the DILG show that only 53 of the 78 provinces and 54 of 83 cities have
development councils.
Some LGU budgets have also been found to lean heavily toward infrastructure
projects instead of development projects, because of kickbacks offered to local
officials, says Dorotan.
Transparency is hardly to be expected of local officials as well. Contents of the
budget and public transactions are often kept secret even when the public, including
journalists, have a right to them. Reporting requirements are also often violated.
Dorotan says even national government agencies are guilty of withholding
information from local governments and their constituents about their programs and
projects. Senators and congressmen at times also disrupt development planning and
the local budgeting system by embarking on projects using their pork barrel funds
without consulting LGUs. “You’d know about the project only when it’s already
being done or finished,” Dorotan says.
In some places, mayors and governors are known to railroad the whole budgetary
process. Except for the local treasurer who is appointed by the finance department and
the staff of the Sanggunian who are appointed by the vice mayor or vice governor, all
local officials and employees owe their appointments to the mayor or governor. The
local chief executives have no qualms replacing local officials with whom they don’t
see eye to eye, and that includes members of the finance committee.
The ideal situation is one in which the finance committee acts as a body that will do
its job of setting targets and spending ceilings. But what usually happens, says
Dorotan, is that only the mayor and just one committee member – the treasurer or the
budget officer – determine the shape of the budget.
As long as the mayor or governor has the numbers in the local legislature, the budget
gets approved without sweat. Legislators eschew public hearings in favor of caucuses
where compromises are struck. But the budget proposal may have a rough going if the
mayor or governor lacks the backing of either majority of the local legislature or the
vice mayor, who is the Sanggunian’s presiding officer.
Mark Joseph, an opposition councilor in Makati City, knows only too well the
problems of which Dorotan speaks. He still vividly remembers how he and the city’s
only other opposition councilor, Robert Dean Barbers, were excluded every step of
the way when the 1999 budget was drawn up. “As councilors, we’re supposed to
submit our budget to the local finance committee by July 15,” says Joseph. “The letter
advising us to submit our budgets was dated July 28. We got the letter on October 16,
when the budget was supposed to have already been submitted by the mayor to the
Sanggunian.”
Even then, he says. Mayor Elenita C. Binay submitted the budget to Sanggunian a
month after the deadline, and furnished the council only with the executive summary.
He adds, “I’ve never seen the local development plan and public investment plan. I’ve
asked for them but have not been furnished copies. They’re state secrets.”
The council supposedly held budget hearings, but notified Joseph and Barbers the day
after the hearings. The two opposition councilors finally got a chance to look at the
budget when it was presented for second and third readings. “Barbers and I were all
set to question the budget,” says Joseph. “But (Vice Mayor) Edu (Manzano) didn’t
show up so (Councilor Johnny) Wilson presided. He talked at the rate of 120 miles
per hour. Before we knew it, the budget had been passed; it took less than a minute.
When we said we had not asked our questions, we were told that the debate was
closed.”
The council naturally passed the budget without accompanying documents such as the
public investment program, development plan and procurement program because,
says Joseph, none was ever submitted in the first place.
While the budget review is important to guard against deviations from the law, local
chief executives often succeed in convincing regional DBM offices or the provincial
budget officers to discard this step. According to Dorotan, it takes only a few words to
do that. He says, “The governor will go to the DBM and say, ‘That’s already done.’”
Going Beyond the Numbers
The issues and problems raised by Dorotan and other local governance experts show
the importance of going beyond what reporters typically do during the budget process:
file stories that say nothing else beyond comparing this year’s figures with the
preceding year’s. At the very least, a report on the adoption of a local budget should
contain the following:
• Amount to be spent
• New or increased taxes, higher license and permit fees and other income that will be
necessary to meet expenditures, cuts, if any, to be made in such taxes, fees or fines
• Comparison with preceding year or years
• Justification for increases sought, cuts made
• Rate of current spending, under or over budget of previous year
• Patterns behind the submission and subsequent adjustments, such as political
motives, pressure groups, history
• Consequences of budget for agencies, departments, business, the public.
Lest readers are lulled to sleep by such number-heavy discussions, journalists could
enliven the coverage of development planning and budget making. The following lists
just some of the ways to do this:
• Examine participation in development planning, and report both good and bad news.
Some of the bad news: NGOs and other groups are shut out from the process; sham
NGOs or those established by the government to give a semblance of multisectoral
participation get accredited to the development council; no public hearings are held;
no development plan is ever drafted. And some of the good news: NGOs get to
participate not only in development planning, but in other aspects of local governance
as in the case of Naga City. Development planning is truly participatory and bottom-
up, as in the case of Toboso in Negros Occidental.
• Deal with the development plan at the barangay level. Or “barangay-ize” the plan, as
Rood puts it. Plans at the city, town and provincial level tend to overwhelm because
the wish lists by then become long and unwieldy. A good approach is to explain what
the development plan means to a barangay. A new school? More medicines at the
health center? Why the need? Or pick a marginalized community, comb through the
resources they have – or don’t have – and see how it copes. Are they losers or
winners? The development plan can also be cut up the geographically or by sector so
that stories hit people where they live. Journalists can actually write a series.
• Check if the investment program would indeed attract new investors and if the LGU
would end up losing or gaining from the programs and the incentives they have lined
up. Labiste’s paper pays close attention to Hollo’s annual investment program,
especially now that retail business is down. “We want to find out how they intend to
get Iloilo out of the doldrums,” she says. Nawal says he looks at agro-industrial
centers being encouraged under Davao del Sur’s annual investment program not only
for additional income they would generate but also their impact on the environment.
How will the factories dump their wastes? Will they build wastewater treatment
facilities?
• Look for variance between the development plan and budget, and the budget and its
execution. Orejas keeps a copy of Pampanga’s development plan and budget close by.
She has learned from experience that making a story out of the development plan for
the Inquirer is hardly a worthwhile activity, but she has found the plan and budget to
be a handy reference when monitoring development projects and operations of the
province and the cities and towns under it. Any deviations should be a red flag, she
says.
• Sit patiently through the budget hearings until the budget takes its final shape. After
all, deliberations last only a couple of months (from mid-October to end-December)
unless the Sanggunian fails to enact an appropriations ordinance. In sanggunians
where there is healthy opposition, sparks fly when budget proposals come under fire
and are in danger of being slashed. Banacia suggests widening the discussion to
include reactions and positions of stakeholders not present during the hearings,
especially when drastic actions are taken or proposed – barangay residents, local
government officials and employees, sectoral groups, contractors. What happens to
plans and targets? Who’s happy or unhappy? Who has the upper hand? Who is put at
a disadvantage? Why? Are politics involved? What are the alternatives? Sometimes,
journalists come up with interesting stories by simply reporting where budget
hearings are held – in homes and restaurants, for example, as was the case in
Pampanga before 1998.
• Determine who gets the lion’s share in the budget and probe why. This is how
Nawal usually begins most of his budget stories. He is hardly surprised when the
general services office, which handles the procurement of materials for health,
education and other vital agencies, gets the biggest chunk of the budget. But when the
governor is given the next biggest slice, a lot of questions pop in his head. He also
begins to wonder the governor may have up his sleeve, especially in an election year.
• See how the budget addresses what Labiste calls “flashpoints” or pressing concerns
in an LGU. In Iloilo, these include flood control and drainage, squatter relocation,
health and urbanization, and salaries. According to Labiste, many journalists overlook
the issues and stay glued to personalities or lump-sum figures.
• Look at the budgeting trends. An exercise worth engaging in to compare the budgets
of different local governments to find out discrepancies in spending for say, supplies
or infrastructure projects. Why is Town A paying 50 percent more than nearby Town
B for the same bottle of cough syrup from the same company?
Where the Money Comes From
One vital question that the reporter should know the answer to before asking any more
queries, though, is: Where do local governments get the money to fund their budgets?
First, there’s the central government from which they draw their annual internal
revenue allotment or IRA and their share from the national wealth. Then, LGUs can
on their own slap taxes like real property and business taxes, impose fees for
regulating and inspecting businesses and activities, and collect charges for services
and goods they provide to the public. Local governments also operate public
enterprises like markets and slaughterhouses. Finally, since the implementation of the
Local Government Code, LGUs are increasingly turning to nontraditional sources of
revenues: credit financing or borrowings, build-operate-transfer schemes and bond
flotation.
Wherever the money comes from, there are two things to bear in mind: One, any
money a local government officer receives officially in any capacity or on any
occasion must be accounted for as local funds. Two, every LGU officer who keeps the
local fund must be properly bonded and is accountable and responsible for the funds
in his or her safekeeping. Of all their sources of funding, local governments are
known to be most fiercely protective of the IRA. This is the share of LGUs in the
taxes collected by the national government such as income taxes, value added tax,
excise taxes and capital gains tax. It is given to provinces, cities, towns and barangays
to enable them to effectively carry out the tasks that the national government
transferred to them under the Code.
The IRA has risen from 30 percent of the national taxes in 1992 to 35 percent in 1993
and to 40 percent beginning in 1994. It is computed based on collections in the third
fiscal year preceding the current year.
The amount that a specific local government gets from the IRA varies. Of the LGUs’
40 percent share, provinces and cities each get 23 percent, municipalities, 34 percent,
and barangays, 20 percent. Population, land area and equal sharing also come into
play when computing a local government’s share.
Of the various issues that have come to be associated with the IRA, two are of note:
the dependence of local governments on it and their struggle to keep their IRA intact.
Many local governments remain dependent on the IRA as their funding source,
especially provinces and municipalities. “So dependent have these local government
units become to the IRA that it will not be surprising to find that a considerable chunk
of their own budget’s would be sourced from the IRA,” say lawyers Vincent Edward
R. Festin and Marion J. Manuel in a paper, “The IRA Cut: Threat of Local
Governance and Democracy.”
In some areas, the lRA accounts for as much as 96 percent of total revenues and has
become a disincentive for LGUs to improve collection of local taxes, especially real
property tax. The tax collection efficiency – or the ratio of actual collections to
potential collectibles – of LGUs is dismal. The GOLD Project of the Associates in
Rural Development estimates this to range from 6.7 to 74.8 percent in the provinces it
sampled. Meaning, for every peso supposed to be collected, only seven to 75 centavos
are actually collected. In municipalities, collection efficiency ranges from 30 to 40
percent.
Journalists can help readers understand the ills of dependency by illustrating
development projects that could have been undertaken or expanded, or services that
could have been delivered or improved had their local governments looked beyond
the IRA for funding.
When the IRA Gets Cut
Overdependence on the IRA partly explains why local governments get easily upset
when the DBM delays the release of the money to them or when the national
government – Malacañang and Congress, in particular – tries to slash the sum that is
due them. But LGUs have other good and legal reasons to be offended.
The law clearly requires the national government to automatically release the IRA
directly to the provincial, city, municipal or barangay treasurer within five days after
the end of every quarter, and bars the national government from imposing any lien or
holdback. It also sets several tough conditions before the IRA can be cut:
• There must be an unmanageable public sector deficit.
• Cuts on the IRA should come from the executive branch. A joint recommendation
must be submitted by three Cabinet secretaries – finance, interior and local
government, and budget to the President.
• Before a recommendation is made, the Senate and the House of Representatives and
the leagues must be consulted.
• The IRA cannot be cut to less than 30 percent of the amount collected as internal
revenue taxes.
• Corresponding cuts must be made on other agencies, including cash and non-cash
budgetary aids to state corporations, government financial institutions, the Oil Price
Stabilization Fund and the Central Bank. In recent years, local officials have been
caught in a struggle to keep their IRA intact, sometimes with little success. In 1997,
the year the Asian financial crisis struck, President Fidel Ramos issued an
administrative order that withheld 10 percent of the IRA without consulting the
leagues and Congress and without premising his act on an “unmanageable public
sector deficit,” as required by the Local Government Code.
The bickering among Congress, the President and local officials continued in the
years that followed, as did the reduction of the IRA by 10 percent. Then in December
1999, Senator John Osmeña, chair of the Senate finance committee, cited the growing
deficit in calling for a cut in certain budgetary items or their classification as
“unprogrammed” expenses. He proposed that the P121.7 billion originally
appropriated for the IRA be slashed by P30 billion.
Angry local officials responded to the proposal by marching in the streets and
threatening a four-day work stoppage unless the P30 billion was restored as a regular
appropriation. The protest action and a veiled threat by local officials to withhold
support for President Joseph Estrada’s call for constitutional amendments forced
Estrada to persuade the Senate to “reprogram” the amount. But local officials were
not wholly triumphant: P10 billion of the P30 billion fell under “unprogrammed
funds.”
Local governments had real reason to rejoice, however, when the Supreme Court in
July 2000 said Malacañang was barred from withholding their IRA. Responding to
the petition filed by Senator Aquilino Pimentel Jr. that questioned the legality of
Ramos’s order to reduce the IRA, the Court ruled that while the President may “issue
advisories and seek (the LGUs’) cooperation in solving economic difficulties, he
cannot prevent them from performing their tasks and using available resources to
achieve their goals.” It further noted that the President had only the “power of
supervision, not control, over LGUs.”
Sharing in the National Wealth
On top the IRA, local governments that are blessed with natural wealth such as
forests, fishing grounds, oil fields and mines share 40 percent of mining taxes,
royalties, fishery and forestry charges and similar taxes, fees and charges, including
surcharges, interests or finances collected by the national government. If the entity
that develops and uses the national wealth is a government-owned or -controlled
corporation, LGUs are entitled to one percent of its gross receipts in the preceding
year or 40 percent of taxes it would have paid if it were not exempt, or whichever is
higher. If the tax paid by a business has been remitted to the national treasury, the
local governments’ share is distributed among the province (20 percent), city or town
(45 percent) and barangay (30 percent). In highly urbanized or independent cities, the
city gets 65 percent and the barangay 35 percent. If the resources are located in two or
more local governments, sharing will be based on population (70 percent) and land
area (30 percent).
The LGUs’ share in the national wealth, however, has created its own set of problems,
largely owing to the Local Government Code’s failure to provide for direct
remittances to local governments except for state corporations. As a result, the actual
share of local governments cannot be determined until tax payments have been
remitted to the national treasury and verified. These take time. If a business fails to
pay up, LGUs don’t get their appropriate share. There have also been instances in
which local governments quarreled over which should get the bigger slice of the
national wealth in their area.
Some LGUs get a special share from other taxes collected by the national
government. For example, local governments that host ecozones get one percent of
the five percent gross income tax while areas flanking to the zones split another one
percent among themselves. The rest goes to the national government. In early 1998,
Central Luzon newspapers were filled with stories about the conflict between the
Clark Development Corporation, operator of the dark economic zone, and mayors of
towns in Pampanga and Tarlac after the corporation failed to release their one percent
share.
Virginia tobacco-growing areas, meanwhile, are guaranteed a share in the 15 percent
excise tax slapped on all local tobacco cigarettes. Local governments also get from 20
to 50 percent from the excess collection in value-added tax. In addition, the national
government shoulders part of the insurance premiums of barangay officials and
provides subsistence allowances to barangay health workers.
In Pampanga, though, the national government found itself butting heads over the
local government over tax collection. In this instance, the quarrying tax, the collection
of which had been purely a local activity until President Estrada issued Proclamation
66 that allowed the Department of Environment and Natural Resources (DENR) –
specifically the Natural Resources Development Corporation (NRDC) – to step in,
raise the tax from P40 to P300, and split the proceeds. The provincial government,
towns and barangays protested that the new setup went against local autonomy and
cut into their revenues.
Whether in the hands of the local or national government, the collection of quarrying
fees was fraught with problems. The Ombudsman suspended Pampanga Governor
Manuel “Lito” Lapid for collecting P120 when the fee was pegged at only P40. It said
the illegally collected quarry taxes went to the “personal pockets” of the governor,
two other provincial officials and his brother-in-law. The Lapid camp, citing the
governor’s longstanding feud with President Estrada, charged persecution by
Malacañang. Under the NRDC, reporters like Orejas found it difficult to determine
revenues collected from quarrying operations. Orejas came across inconsistent reports
put out by NRDC and discovered that receipts were being recycled.
Aside from dissecting such disputes, journalists may also find it worthwhile to
scrutinize how the proceeds from the share of national wealth are actually used. The
law provides that they must fund local development and livelihood projects. In the
case of money raised from the development and use of energy sources, 80 percent of
the proceeds must be used to lower the cost of electricity in the local government
where the source of energy is located. Is this, indeed, happening in their
neighborhood?
Local Fees and Charges
Since the Local Government Code came into effect, many money-raising
opportunities have opened up to LGUs to lessen their dependence on national coffers.
These include the collection of a variety of fees and charges.
Fees are paid to local governments in relation to the service rendered in regulating or
inspecting business or activity such as the privilege to operate an establishment or
practice a profession. Fees are fixed by law.
Charges cover service fees, user charges and direct charges that are paid in exchange
for certain services or consumption of goods sold or operated by LGUs.
Local governments can pass an ordinance to adjust fees and charges whenever their
computations show the rates have become low. Local fees and charges include:
• Regulatory fees in construction: building permit, plumbing permit, electrical permit,
mechanical permit, occupancy permit, plumbing inspection, mechanical inspection,
inspection fees, demolition, fire certification, sanitary permit.
• Regulatory fees in business: mayor’s permit, weights and measures, tricycle
operation, sanitary inspection, video tape rentals, storage of inflammable and
combustible material.
• Regulatory fees in non-business: marriage permit and solemnization, tax clearance
fees, burial permit, impounding/sales of stray animals, exhumation/removal of
cadaver, police clearance, sheriffs fees, court fees, fiscal’s clearance, fees on holding
benefits, firearms permit, registration of large cattle.
• Service fees: secretary’s certification fee, traffic violations, garbage, hospital fees,
overnight parking, terminal fee, tuition fees, parking fees, health services, physical
examination fees.
• Receipts from economic enterprise: markets, hawkers, slaughterhouses, electric light
and power, cemeteries, waterworks system.
Journalists can easily come across stories involving “fixers” that facilitate the release
of permits and licenses in big towns and cities. More difficult to track are the
mishandling of collections, as well as massive payoffs to inspectors, collectors and
local officials, especially by firms suspected of violating safety and sanitation
requirements. The fire that struck Ozone Disco in Quezon City in 1996 and left 166
people dead illustrates only too well how business establishments that brazenly
violate the Building Code and local ordinances still manage to get the permits and
licenses to continue operating.
What LGUs Can and Cannot Tax
Local governments are able generate their own funds through taxes as well. Taxes
refer to monetary contributions imposed on persons or property within the jurisdiction
of the LGU to support government needs. They require legislation – ordinances –
before they can be imposed.
Local governments are allowed a variety of taxes, ranging from real property tax to
the community tax that replaces the old residence tax or cedula.
Taxes vary, depending again on the level of the LGU. Cities, for example, enjoy the
widest range of tax options: They can impose levies of both provinces and municipal
ties combined. At the same time, a province cannot collect taxes within the
jurisdiction of the city. In addition, the rates can be pegged at 50 percent higher in all
taxes except professional tax and amusement tax. These explain why municipalities
are raring to become cities. Metro Manila towns enjoy the privileges granted to cities.
The Local Government Code allows all local governments to adjust tax rates once
every five years at a rate not exceeding 10 percent. Journalists should thus be cautious
when reporting campaign promises not to raise taxes. It is likely the politicians can’t
fulfill that pledge – not when tax rates have been adjusted recently.
The law also limits the taxing powers of local governments. For instance, they cannot
tax what the central government already taxes such as the documentary stamp and
taxes on inheritance. Neither can they tax the national government, its agencies and
other local governments. Also exempted from paying taxes to LGUs are sectors and
sectors and activities
What LGUs Cannot Tax
(Put in box all with buttons)
• Income tax, except on banks and other financial institutions
• Documentary stamp tax
• Taxes on estates, inheritance, gifts, legacies and other acquisition mortis causa
• Customs, duties, registration fees of vessel and wharfage on wharves, tonnage dues,
except when wharves are constructed and maintained by LGUs out of its fund
• Taxes, fees or charges on goods carried into or out of, or passing through, the
territorial jurisdiction of LGUs
• Taxes, fees or charges on agricultural or aquatic products, except when sold by
marginal farmers or fishermen
• Taxes on business enterprises certified to by the Board of Investments for six and
four years, respectively, from the date of registration
• Excise taxes on articles enumerated under the National Internal Revenue Code, and
taxes, fees or charges on petroleum products
• Percentage or VAT on sales, barters, or exchanges or similar transactions on goods
and services
• Taxes on the gross receipts of transportation contractors and persons engaged in the
transportation of passengers or freight by hire and common carriers by air, land and
water
• Taxes on premium paid by way of reinsurance or retrocession
• Taxes, fees or charges on motor vehicle registration and driving licenses and
permits, except on tricycles
• Taxes, fees or charges on exports
• Taxes, fees or charges on countryside and barangay business enterprises and
cooperatives registered under the Cooperatives Code
• Taxes, fees or charges on the national government, its agencies and LGUs
Real Property Tax
By far, real property tax is considered as the most important of sources of revenues,
accounting for slightly more than a third of local receipts. Local governments can
collect four types of real property tax, or a combination of these, provided they are
covered by appropriation ordinances
• Basic real property tax (at most one percent of assessed value in provinces and two
percent in cities and Metro Manila);
• Additional real property tax for the Special Education Fund (one percent for
provinces and one percent for cities and Metro Manila municipalities);
• Idle land tax (at most five percent in provinces and cities); and
• Special levy on land benefited by local public works (at most 60 percent of the
actual cost of the projects and improvements in provinces in cities).
Exempted from taxation are real property owned by the government or charitable
institutions, churches, convents, mosques, nonprofit or religious cemeteries and lands,
buildings, and improvements used for religious, charitable or educational purposes;
machineries and equipment used by local water districts and government-owned or
controlled corporations to supply and distribute water or generate and transmit electric
power; real property owned by registered cooperatives; and machinery and equipment
used for pollution and environmental protection.
Local officials, though, rarely make full and good use of provisions of the law to raise
revenues. Orly Baleal, former planning and development officer of Orani, Bataan,
says most shunt aside proposals to impose new taxes – or even the maximum
allowable rates – because they are politically unpopular. They have also been found to
be soft in collecting taxes and running after tax delinquencies. Many LGUs hardly
worry because they always have the IRA to fall back on.
Local governments, for example, collected only 63.44 percent of potential basic real
property tax in 1998, according to the COA. In Mindanao, the collection rate reached
as low as zero in Lanao del Sur and 6.92 percent in the Autonomous Region of
Muslim Mindanao. Rood suggests that journalists produce reports on the arrears,
specifically where they are, as wake-up calls for negligent or complacent local
officials. But he notes that the weak tax collection is partly due to the unrealistically
low targets set by the Department of Finance. As a result, local officials do not even
know they are collecting only half of what they could and should.
When 1998 drew to a close, real property tax delinquencies of local governments
nationwide had ballooned to P1.21 billion. This happened despite remedies available
to local governments such as administrative and court actions against personal or real
property of delinquent owners. Journalists do not have to look far for interesting
stories to write about tax delinquencies. They would do well to ask: Who owes the
local government? How long have they managed to get away with their
delinquencies? Why?
They can also try to find out why local governments have failed miserably in
collecting tax delinquencies. Some problems, as it turns out, would have been easy to
solve. Take this town where delinquent taxes of P182 million remained uncollected
only because the municipal treasurer omitted to post notices of delinquent real
property taxes at the municipal hall and conspicuous public places, and publish the list
in newspapers, as required by a municipal ordinance. “The increase in the real
property tax delinquency has far-reaching implications in terms of accelerating socio-
economic growth,” says the COA. “This will deter the planned program and project of
LGUs because of inadequate funding requirements. This ultimately shows how
complacent to some extent are some of our local officials, particularly in their efforts
to generate more revenues for their respective areas of responsibility.”
Other issues in real property taxation that should serve as red flags to journalists are:
• Tax discounts: Are they granted in excess of the limitation provided under the Local
Government Code, thus resulting in an undercollection of tax?
• Fines, penalties and interests on unpaid taxes: Have they been condoned by an
ordinance thus depriving the local government of additional income, as in the case of
a city?
• Payments of delinquent taxes: Are they applied to the current year despite
nonpayment of their prior years’ tax obligations? Payments of current taxes on
properties with delinquencies should not be accepted. Any payment made by a
property owner should be applied first to delinquencies until the current tax can be
accepted.
• Tax mapping: Has the lack of capability to conduct tax mapping impaired an LGU’s
tax collection effort?
• Valuation and assessment: Are properties sitting next to each other valued
differently? How are properties of friends and relatives of the sanggunian valued? To
whom do the properties belong? Remember, it is the Sanggunian that approves
property values.
• Tax collection: Is tax payment accepted publicly under supervised conditions? Do
field collectors commit abuses like extortion?
• Remittance: Are taxes collected remitted to the concerned agencies? For example,
Parañaque failed to turn over trust liabilities amounting to P220 million to the
concerned agencies. In one city, local officials remitted to the Bureau of Internal
Revenue only P99,951.24 in taxes withheld, leaving a balance of P125 million, thus
depriving the national government of the immediate use of the funds.
• Official receipts: How does the local government acknowledge tax payments and
remittances of tax proceeds? In one town, the COA found 15 official receipts were
actually falsified to reduce the amount of remittance. The amount that appeared in the
original and duplicate copies showed disparity ranging from P15,000 to P40,000. The
discrepancy totaled P157 million.
• Fund juggling or diversion: Does the local government use the tax for the purpose it
was collected? In Quezon City, for example, 80 percent of P9.9 million realty tax that
was supposed to go to the Special Education Fund or SEF went instead to the General
Fund, a clear case of what the COA said was illegal diversion. (The General Fund
absorbs all obligations not specifically declared by law to be payable from any other
funds.) In many local governments, the SEF is being used for non-educational
purposes such as salaries or allowances of non-school employees. The law says the
SEF should be used to operate and maintain public schools such as the construction
and repair of school buildings, facilities and equipment; educational researches;
purchase of books and periodicals; and sports development.
The Real Property-Paper Chase
Journalists can be aided by a wealth of records if they wish to look up a real property
or examine issues related to the realty tax in a locality. The documents are generally
easy to access from the assessor’s and treasurer’s offices, especially if the operations
of the local government have been automated.
Local governments that have done or are doing tax mapping carry various maps,
ranging from cadastral surveys, engineering maps to barangay maps and isolated
surveys, to help them identify the location, boundaries, dimensions, size, ownership,
existence of structure and title or taxable and exempt properties. The output of tax
mapping should be of interest as well: Municipal, barangay and section index maps;
parcellary index maps with appropriate labels; and a tax map control roll matching the
map parcel with its characteristics and ownership data.
The assessor’s office classifies real property as either residential, agricultural,
commercial, industrial, mineral, timberland or special, and sub-classifies them as first
class, second class, and so on. It then produces a schedule of fair and current market
values for lands and buildings. The Local Government Code requires that schedules to
be published in a newspaper of general circulation in the locality or posted in the
provincial capital, city or municipal hall and in two other conspicuous public places.
The field appraisal and assessment sheet serves as the basis for preparing the tax
declaration, or the owner’s notice of assessment, and assessment roll, which is
converted to a tax roll and becomes the basis for preparing the tax bill or real property
tax order of payment. Each property carries a property identification number or PIN,
which makes it easy for the local government to retrieve the tax declaration and
assessment report. Local governments also keep ownership record forms or ORF,
which are controlled alphabetically to respond to cases where the taxpayer will know
only the name of the property owner. Assessment transactions and cancellations are
entered in chronological order into the Journal of Assessments. The document is
useful in checking dubious assessments and can provide insights on cancellations
made during a period of natural disasters such as destruction inflicted by a typhoon or
other calamities.
Every semester the assessor submits a report of all assessments, as well as
cancellations and modifications of assessments, to the mayor or governor and the
Sanggunian. A general revision of real property assessment is supposed to be
conducted every three years. Finding out delinquent real properties should not be
difficult either. The law requires local governments to update the list of delinquent
real properties. The list specifies the name of the property or person, the location,
description and value of the property, and taxes due. The treasurer must post notices
of delinquency at the main entrance of the capitol and the municipal buildings and in
other accessible places and publish them once a week for two consecutive weeks in
newspapers of general circulation within the locality.
Journalists must not overlook the role of the Sanggunian when it comes to the real
property tax. After the assessors prepare the schedule of fair market value, it is the
Sanggunian that determines the assessment levels, tax rates, and fines, discounts and
penalties.
Taxing Businesses
All taxes imposed by local governments bear watching. But among the more
interesting ones to keep an eye on is the tax on business, which is different from the
business permit. The annual tax is imposed on the act of operating a business
enterprise and computed on the basis of gross receipts. The local government prepares
a tax schedule for different business clusters such as manufacturers, wholesalers,
exporters, retailers, contractors, banks and financial institutions, and peddlers.
Journalists may find it fruitful to determine if the business lines are properly
identified. Firms engaged in several lines of business (a wholesaler and retailer at the
same time, for example) are subject to tax separately. Misclassification can mean a
business is either shortchanging the local government or is being taxed excessively.
The Local Government Code empowers local government to grant businesses various
incentives, including deferment or waiver of taxes and fees for a certain period, to
attract investments. As journalists in Iloilo and some provinces have found out, these
incentives, especially so-called “tax holidays,” require close watching as they may not
always benefit the local government and its residents.
In Iloilo City, the Sanggunian passed an ordinance giving firms with a minimum
capital of P5 million a one-to three-year tax holiday retroactive to January 1999. But
local businessmen and residents overwhelmingly opposed the ordinance, saying none
of them stood to benefit from the measure. The reason: small industries with
capitalization of below P5 million form the bulk of Iloilo City’s economy. They
charged that the ordinance was intended to benefit the newly opened SM City.
As Labiste’s paper, the Visayas Examiner, dug deeper into the ordinance, it
uncovered other things that were not quite right. One, it found that SM City had
lobbied hard for the measure and were, in fact, employing several relatives of some
Sanggunian members. Two Sanggunian members later admitted as much: one had a
sister and brother while another had a daughter working for SM City.
The Visayas Examiner also reported that the ordinance was passed without the benefit
of a public hearing. The council instead held one committee hearing. In addition, the
paper analyzed the impact of the tax holiday— the city stood to lose P50 million
every year for the next three years—and explained the projected loss in terms of basic
services that would not be delivered to residents. In the end, the vice mayor and
mayor did not sign the flawed ordinance.
The tax holiday case in Iloilo City brought out SM’s attempts to get similar
concessions in Bacoor, Cavite, Cagayan de Oro, and Pampanga. SM also ran into stiff
opposition from businessmen in San Fernando and Mexico towns in Pampanga,
where it asked for a 10-year tax holiday after deciding to build a mall on a 32-hectare
lot in the province.
About 8,000 entrepreneurs petitioned the provincial government to junk the
investment incentive codes of San Fernando and Mexico. The San Fernando
ordinance gave businesses with more than P100 million in capital a four-year tax
holiday on gross sales taxes and real property taxes, while Mexico’s investment code
exempted big business from all taxes, except for regulatory fees, within the next seven
years.
The businessmen said the investment codes were “pro-SM and pro-big business,” and
discriminated against small local businesses. “While tax holidays were being obtained
for and offered to SM City and big businesses,” they said in a statement, “local
businesses were slapped with a 600-percent increase on real property taxes and other
fees.” The businessmen also said the implementing rules of the Local Government
Code exclude malls from the business enterprises entitled to tax exemptions.
Consumers and entrepreneurs further complained that they were denied participation
in the final deliberations on the San Fernando investment code. They said the code
was approved during a closed-door session held in the home of a municipal councilor.
LGU, Inc.
As a corporate entity, local governments can own and manage public enterprises. By
far, the most common types of enterprises operated by local governments are markets
and slaughterhouses, which are more profitable compared to other public utilities.
Local governments can own and manage public buildings for lease to private parties,
waterworks systems, vocational-technical schools, ferries and wharves, barangay
multipurpose halls, multipurpose pavements, grain or copra dryers, patios and other
post-harvest facilities, parking areas. The Department of Finance also allows local
governments to operate electric power plants, irrigation systems, telephone systems,
toll roads and bridges, commercial buildings, cold storage plants, cattle and hog
markets, coliseums and sports complexes, radio stations, food terminals, fishery and
fishing rights, beach houses, municipal hospitals.
The questions suggested by the Handbook on Local Fiscal Administration to local
officials in deciding public enterprises to pursue are also worth raising by journalists.
Is there a need for the project? Will it improve local conditions? Will it serve a
majority of the community? Were feasibility studies conducted; especially on-site
development and financial viability? Did the LGU get approval from the Sanggunian?
Journalists could also scrutinize the individuals or companies that local officials hire
to help them operate the facilities. Friends, relatives and political supporters, perhaps?
Are there talks of payoffs or conflict of interest in the awarding of rights or
management contracts? How well or badly are the enterprises run?
Journalists can tell if an enterprise is profitable or losing by examining official
financial reports that appear as special accounts in the General Fund. Local
governments keep separate accounts for each economic enterprise. Look at the
income generated from and the costs or expenditures in operating the enterprise. But
there are hidden costs that are not reflected in the financial reports. Market
management costs, for example, can be charged to office of the mayor or governor, or
collection costs to treasurer’s office. Remember, too, that if an enterprise turns in a
profit, the money can be used for improvement and repairs, and pay advances or
loans. Any excess goes automatically to the General Fund.
Journalists can mine a lot of stories just by checking out public markets. In one city,
for example, a public market was gutted by fire and was cleared, rebuilt and
maintained by a company owned by close friends and associates of high-ranking local
officials. Some public markets are being privatized, causing vendors to complain
about the exorbitant “goodwill money” or leases private operators ask for. Allegations
of favoritism and irregularities have been raised against market committees in
awarding market stalls. Dummies are sometimes used to obtain more stalls.
In a city in the Visayas, the public market has been turned over to a market vendors’
cooperative. Unfortunately, the cooperative has proved ill-equipped to operate it. In
another city, also in the Visayas, the vendors’ cooperative has turned into a cartel.
Again, the Sanggunian’s role in the operations of public markets is too important for
journalists to overlook. The council is empowered to pass an ordinance setting the
guidelines for the adjudication and regulation of market stalls. The awarding of stalls
owned and operated by a local government may be provided for in an ordinance.
Local governments, by ordinance, can impose “goodwill” fees on market stallholders,
after a public hearing. The Sanggunian may also create a market committee, which
shall the award or adjudicate vacant stalls.
Loans by the Local Government
Since 1991, though, local governments have also been exploring nontraditional ways
to raise money for their operations. They can issue bonds that guarantee creditors
payment of their principal investments and interests when the bonds mature. They can
tap the private sector to finance, build, operate and maintain infrastructure projects.
And they can borrow from government financial institutions, private banks, other
local governments, and foreign sources.
The Code lists infrastructure and socio-economic development projects, equipment,
renovation of city and town halls, and purchase of lots as eligible for loans. Banks
normally lend to all local governments except the barangays. Journalists can tell that a
loan transaction with a bank passed the proper procedures if:
• The project to be covered by a loan appears in the local development plan and
annual investment plan.
• The mayor or governor secures authority from the Sanggunian to apply for a loan.
The council must pass an ordinance identifying the purpose, source, amount, terms
and conditions of the borrowing and the commitments of the local government, and
authorizing the mayor or governor to negotiate for and in behalf of the local
government and sign the legal documents.
• The debt service ceiling does not exceed 20 percent of the local government’s
annual regular budget.
Often, banks set interest rates that are based on prime rate, the prevailing market rate
or the 91-day treasury rate plus two percent. Local governments are allowed to put up
the following as security or collateral: its income, including the IRA, or net profit
from the project being financed by the loan; chattel mortgage or equipment financed
by the loan; real estate mortgage or patrimonial property of the local government; and
its bank deposits.
Journalists may find other documents that accompany a local government’s loan
application helpful. These include the LGU’s charter and profile, list of elective
officials, certifications of available equity, COA-audited financial statements,
summary of statutory and contractual obligations, actual and projected IRA, and
project specifics like feasibility studies and projected cash flow; quotations from
suppliers, or survey of lease rates in neighboring areas for commercial building. Some
local governments also submit Torrens titles, building plans and photographs as
evidence of their security or collateral.
The Code of Conduct and Ethical Standards for Public Officials and Employees or
Republic Act 6713 classifies loans obtained by a government entity as public records.
But as Makati Councilor Joseph has found out, the guarantee is good only on paper, at
least in his city. When he tried to get hold of documents covering a P2.4 billion loan
for the construction of the city hall and a subsequent P1.5 billion loan, the council, of
which he is a member, was of no help. Neither would the bank give him a copy of the
contract, saying he was not listed as one of the contracting parties. “It’s ridiculous.
The council approved the loan, but a member of the council could not get a copy of
the loan,” he says. Joseph finally got a copy of the loan through a friend’s help.
Local governments can also borrow from other LGUs that have surplus funds. Among
the questions journalists should ask are:
• Did the borrowing LGU enact a resolution or ordinance applying for a loan? The
ordinance must define the name of the lending LGU and purpose of the loan, and
empower the governor or mayor to negotiate and enter into the contract for the local
government.
• Did the treasurer of lending LGU certify that his town, city or province has
surpluses that can be lent? Did the auditor attest to the certification?
• Did the Sanggunian meet to decide the amount to be loaned within the certified
amount by the treasurer? Did the Sanggunian draw the terms and conditions?
• Did the ordinance define the amount, purpose, equity of the borrower, interest rates,
grace periods, repayment schemes and security?
• Was the loan contract signed by both the borrower and lender, then ratified by their
sanggunians? The contract is not valid if it has not been ratified.
Besides the chief executive and Sanggunian, the auditors, budget officers and
treasurers of both LGUs should have copies of the documents listed above.
With help from the national government, local governments have access to foreign
loans and grants through the Municipal Development Fund or MDF. The special fund
makes available to LGUs various foreign loans, assistance or grants resulting from
agreements entered into by the national government with foreign governments and
international lending institutions. It is managed by a policy governing board
composed of representatives from DBM, DILG, Department of Finance, Department
of Public Works and Highways, and the National Economic Development Authority.
The MDF administrator is based at the Bureau of Local Government Finance of the
finance department.
LGUs can also apply for Official Development Assistance or foreign aid obtained
from government agencies through diplomatic channels and officials representations.
ODA takes the form of soft or confessional loans or grants. In this case, the local
government consults the national government and prepares a project proposal using
the NEDA form. The local development council evaluates the project to ensure it is
consistent with the development and investment plans, after which the Sanggunian
endorses it. The project proposal finds its way to the DILG, which, in turn, refers it to
the concerned national government agency for review. The proposal is returned to the
local government then endorsed by the Sanggunian to the funding institution. When
the LGU submits the proposal to the funding institution, it furnishes copies of the
proposal to the local, regional and national offices of the DILG and NEDA.
Unfortunately, when local governments borrow money, they are likely to get a bad
press. “I think it’s a realistic goal to get people away from the ‘debt is bad’
framework. But the various forms of debt and credit finances are sort of very difficult
to explain or bring down to the level of the ordinary person,” says Rood. He also
notes that journalists tend to encourage the notion that it is irregular for borrowers to
put up their IRA as security for loans. “There’s nothing crooked about it. Banks hold
their (LGUs’) IRA because it’s guaranteed and the bank knows it’ll get paid.”
Bonds to Boost Revenues
Local governments also become borrowers whenever they issue bonds. Parties who
purchase the bonds become investors; they can be individuals, corporations or
financial institutions.
Towns and cities like Victorias, Claveria and Legazpi have floated bonds to boost
local revenues. The Local Government Code is strict about the bonds that LGUs are
allowed to issue. They should be revenue bonds, and not general obligation bonds
such as those intended to raise the salaries of employees or improve city halls. Issuing
bonds follows this process:
• The project to be supported by the bonds is identified and evaluated.
• The Sanggunian approves the project and authorizes the issuance of the bonds.
• A financial adviser is hired to help design the financial plan. An underwriting team
or middleman (banks, investment houses or brokers) is selected. Bond terms and
conditions are negotiated. Documents and agreements are drawn up.
• The Sanggunian approves the final bond terms and includes them in the budget.
• Guarantees must be obtained from the Housing Insurance and Guarantee
Corporation for housing projects. Approval of the Department of Agrarian Reform
must be secured to convert land from agriculture to housing/commercial property.
• Underwriting documents are prepared and a prospectus is offered.
• The LGU gets a favorable opinion from the Bangkok Sentral on the issuance of the
bonds.
• A city or town gets the approval of the Sangguniang Panlalawigan.
• The LGU sells and bonds and pays investors when they mature.
Build, Operate and Transfer Schemes
In recent years, a number of local governments have also been successful in getting
the private sector to participate in financing, building, operating and maintaining
roads, bridges, public markets and infrastructure projects under the Build-Operate-
Transfer (BOT) scheme. (See Box)
But LGUs still have a long way to go in getting the public to accept the private
sector’s role in development and infrastructure projects. Notes Rood: “If it’s a road,
people believe it must be government, and that’s part of the trouble with BOT and
privatization. The average Filipino, like the average person in the world, doesn’t
much like profit in the abstract. They don’t mind if the company they’re working for
makes money, but they don’t like (some) other company (to be) making money in
electricity or roads. They’re suspicious of the notion that the only way to get this road
is to allow somebody to build it and make a profit. They’re more accustomed to the
government providing it.” For journalists, the worries should start when local
governments and contractors depart from normal procedures. Here are some questions
journalists can ask when reporting on BOT projects:
• Is project justified? Does it fill a need? Does it improve conditions in public health,
safety and welfare? Is it useful to the large majority? Is it creating jobs?
• Does the project consider site and right-of-way acquisition and relocation issues,
including availability of appropriately located LGU-owned land?
• What are the effects of local government master plans?
• Does the project have support of the community?
• What are environmental issues and potential cost implications?
• What is the possible social impact?
• Is it viable? Technically? Financially? Economically?
Types of Build-Operate-and-Transfer Schemes
(Put in box all with buttons)
Local governments can consider using any of the following BOT variants:
• Build-and-Transfer (BT): The private sector finances and constructs an
infrastructure or development facility. After its completion, the private sector turns it
over to the LGU, which pays the contractor the total investment on the project.
• Build-Lease-and-Transfer (BLT): The private sector finances and builds the facility.
When completed, the facility is leased by the local government for a fixed period after
which ownership is transferred to the LGU.
• Build-Operate-and-Transfer (BOT): The private sector finances, builds and operates
the facility over a fixed term. During the period, the private sector charges facility
users appropriate tolls, fees, rentals and charges not exceeding those proposed in its
bid or as negotiated and incorporated in the contract to enable the private firm to
recoup its investment, operating and maintenance expenses. The private sector
transfers the facility to the LGU at the end of the fixed term, which shall not exceed
50 years.
• Build-Own-Operate (BOO): The project proponent finances, contracts, owns,
operates and maintains the facility, and collects tolls, fees, rentals or other charges
from users.
• Build-Transfer-and Operate (BTO): The contractor builds the facility on a turn-key
basis, assuming cost overruns, delays and specified performance risks. Once the
facility is commissioned satisfactorily, the title is transferred to the LGU. But the
private entity operates the facility on behalf of the implementing agency under an
agreement.
• Contract-Add-and-Operate (CAO): The project proponent adds to an existing
facility that it is renting from the local government and operates the expanded project
over an agreed franchise period. There may or may not be a transfer arrangement on
the added facility.
• Develop-Operate-and-Transfer (DOT): The contractor develops adjoining property
and enjoy benefits of investment such as higher property or rent values.
• Rehabilitate-Operate-Transfer (ROT): A facility is turned over to the private sector
to refurbish, operate and maintain for a franchise period, at the expiry of which the
facility is turned over to the government.
• Rehabilitate-Own-and Operate (ROO): Similar to the ROT, except no time
limitation is imposed on ownership by the franchise holder.
• Did the Sanggunian authorize the mayor or governor to negotiate for the project?
• How is the project proponent selected? Through public bidding? Through an
unsolicited proposal? If the project is the result of an unsolicited proposal, watch out.
Chances are the proposal did not go through reviews made during the project
formulation phase.
• Is there a notice to proceed to the successful bidder? Is the notice issued within 15
days of contract approval?
• Is the project built according to specifications?
• Is it delivering the intended volume or level of service?
• Do the target beneficiaries make corresponding payments?
Where the Money Goes
The funds collected through all these efforts are bound to be spent on something – or
more accurately perhaps, many things. The budget is supposed to give at least a
general idea where the money will go.
The budget often lumps the money for various projects under broad categories, say,
different road and bridge projects under “Capital Outlay.” Local governments usually
report expenditures by fund (General Fund, Special Education Fund, Trust Fund),
allotment class (Personal Services, Maintenance and other Operating Expenditures,
and Capital Outlay), and by function (General Public Services, Economic Services,
Health Services, Education, Culture, Sports and Manpower Development, Other
Purposes, Housing and Community Development, and Social Welfare Services).
Beyond that, no specifics are given. This is why it is important for journalists to talk
to the heads of the offices and agencies to determine what they are spending the
money on.
Local governments are given from January 1 to December 31 to execute the budget.
But because of their heavy dependence on the IRA as their source of revenues,
activities often pick up after the DBM has issued to the cities, town and provinces
their quarterly advice of allotment (AA) for the IRA and, more importantly, the
monthly notice of cash allotment (NCA). The latter advises mayors, governors and
barangay leaders that the money representing their share in the IRA has been
transferred to the LGU’s bank account.
To get money released for specific items means going through a bureaucratic maze. It
can happen only after the local budget officer certifies the existence of the
appropriations, the accountant obligates the money, the treasurer certifies to
availability of funds, and the mayor or governor approves the release.
There are also a lot of legal do’s and don’ts. For instance, while a local government
can spend on school children and support livelihood projects of NGOs, it is prohibited
from spending for religious or private purposes. The law also says local governments
cannot juggle funds, spend more than uncollected estimated revenues, make new
positions and salary increases retroactive, incur overdrafts at the end of the year, and
pay contractors in advance for undelivered goods or services. Local governments are
not supposed to use trust funds for purposes other than for which the trust was
created, or spend for reception and entertainment except those allowed by law or
authorized by the President, or for the reception of visiting foreign dignitaries or
members of foreign missions.
The Local Procurement Process
One thing about the government procurement process is that nearly every step is
accompanied by a piece of paper. For a journalist looking at local government deals,
any process that is not performed or any document that is not filled out – or filled out
improperly – should be a red flag.
The rules on procurement are stringent. They are spelled out in the Local Government
Code and COA circular No. 92-386, or the Rules and Regulations on Supply and
Property Management in the Local Governments.
A local government, for example, cannot buy supplies or real property unless this is
included in the approved annual procurement program or is an emergency purchase.
The total estimated cost of the program itself cannot exceed the total appropriations
authorized for the acquisition of supplies or property for the year, although
supplementary and amendatory programs are allowed.
The program, prepared by the local chief executive (the barangay captain, mayor or
governor), is based on the annual procurement plans handed in by the heads of
departments. The plan is an itemized list showing the kind, estimated quantity,
estimated cost, description of supplies or property together with the balance on hand
the department requires for the year.
COA requires separate plans and programs for supplies or property; non-expendable
supplies or articles that are not consumed in use such as weapons, vehicles, machines,
tools and instruments; nonpersonal services, which include repairing, cleaning,
redecorating or rental of personal property and furnishing of necessary repair parts or
other supplies as part of the services performed; and materials for infrastructure
projects.
The general services officer in the province and city, or the treasurer in the
municipality and barangay, buys on the local government’s behalf. But no order can
be placed without a written requisition of the department head, who certifies the
supply’s necessity for official use. Each requisition comes with a request for
obligation and allotment.
Before the local chief executive approves the requisition, there must first be a string
of certifications. The department head certifies the validity, propriety and legality of
the funding. The budget officer certifies that the appropriations exist. The accountant
certifies that the expenditure has been obligated. The treasurer certifies the funds that
have been obligated are available,
An advice of allotment issued by the budget officer is the green light for the
department head to fill out the requisition and issue voucher for supplies that are
carried in stock or the purchase request for those not carried in stock. Copies of the
forms are furnished the general services officer, treasurer and the requisitioning
department. At this point, reporters may want to determine if requisitions are split to
evade the required approval of higher authorities or circumvent control measures.
The Code specifies public bidding as the primary mode of procurement. It also
mandates the creation of a committee on bids and awards, which will decide the
winning bids and questions of awards on procurement and disposal of supplies or
property. This committee consists of the local chief executive as the chair, and the
treasurer, accountant, budget officer, general services officer, head of office and
occasionally a sanggunian as members. In the barangay, the Sangguniang Barangay
makes up the committee.
Usually, the general services officer or the treasurer acts as secretariat to the
committee and keeps records of the minutes of meetings. The same official puts out
the call for bids. The call or invitation for bids must be posted in at least three publicly
accessible and conspicuous places – such as the barangay hall or public market – at
least 10 days before the opening of bids. This invitation must contain the complete
description and technical specifications of supplies or property, terms and conditions
of participants and award, and the terms of delivery and payment. For infrastructure
projects, the invitation must have the program of work. Local governments may also
publish the notice of bidding in a newspaper of general circulation.
The general services officer or treasurer is required to maintain a list of bidders in the
locality – indexed and cross-indexed by supplies categories. Bidders fill out bid forms
in which they declare their business interests, submit quotations, and indicate the
brand name and country of origin of the manufacturer of the supplies.
The COA sets the bidder’s bond at five percent of the total amount of the tender but
limits it to P20,000 at most per proposal. A winning bidder who refuses to accept the
award without justifiable reason forfeits the bond and will be barred from
participating in future biddings. Tenders are good for 60 days. Bids are submitted in
sealed envelopes. Bidders may be required to submit a sample as well. All submitted
bids are opened at the time, date and place set in the call forbids, in the presence of
the provincial, city or municipal auditor or his representative who needs to initial and
secure copies of the bids. The proceedings are open to the public. The bids are then
abstracted and certified as to their correctness and authenticity by the committee on
awards and the auditor. Defective bids may be considered to determine whether it
would be advisable to hold a rebidding or waive the defects. Whenever the price in a
defective bid is lower by at least 10 percent, the bidder who offered the nondefective
bid will be asked reduce his price to that of the defective bid. If he consents, the
award goes to him at the reduced price.
The lowest complying and responsible bid that meets all the terms and conditions of
the contract is declared winner by the committee on bids and awards. COA requires
that the decision be recorded and posted at a prominent place in the provincial capital
or the city or municipal or barangay hall.
Winners and losers alike should be notified of the acceptance of their bids. The bonds
of the unsuccessful bidders are then released; the losers should acknowledge the
return of the bond. The winner’s bond, in turn, gets a receipt and may be released only
when the bidder enters into a contract and files a performance bond.
The winning bidder is then issued a purchase order or contract, which must have the
following information: the office to which the account will be charged and the
requisition number; the name and address of the supplier or contractor; the office to
which the delivery will be made; complete descriptions and specifications of the
supplies or property, including the nature and quality of the items; a penalty clause for
late or nondelivery; the quantity and unit price; the period of delivery; the shipping
terms and conditions and other conditions of delivery; the date of effectivity and
termination of the contract; and the conditions regarding importation.
Contracts involving more than P10,000 require that the winner put up a performance
bond, equivalent to a tenth of the value of the purchase order or contract. In case of
importation, the bond reaches 20 percent. An extension of delivery period is allowed
if the request is made before the term has expired and recommended by the committee
on awards and approved by the local chief executive.
Should the first bidding fail, a second bidding can be called by the committee on
awards. Only after a second failed bidding can the committee recommend a
negotiated purchase.
The committee on awards or its representative does the canvass and prepares an
abstract of the canvass. The local chief executive, upon recommendation of the
committee, decides and awards the contract, which then goes to the Sanggunian for
approval. Items must be delivered within seven days after the order is placed.
Procurements Beyond Biddings
The COA allows other procurement modes when justified. These include personal
canvass, emergency purchase, direct purchase, and purchase from an exclusive
distributor or a government entity. The authority to decide awards in emergency
purchases rests with the local chief executive, upon the recommendation of the
general services officer or the treasurer. In the other modes, the authority rests with
the committee on bids and awards.
The law sets limits on the various modes of procurement. Personal canvass, for
example, is limited to amounts specified for all items in any one month for the entire
local government unit. This means P150,000 for first and second class provinces,
cities and Metro Manila towns; P100,000 for third and fourth-class towns; and
P50,000 for fifth and sixth-class local government units.
In municipalities outside Metro Manila, the ceilings are P60,000 for first class towns,
P40,000 for second and third class, and P20,000 for fourth class and below.
Barangays in cities and Metro Manila can buy up to P10,000 and the rest, P5,000.
Metro Manila, the Autonomous Region of Muslim Mindanao and the Cordillera
Autonomous Region fall under the category of a first-class province.
Unless the purchase order or contract says otherwise, deliveries must be made within
seven days of the receipt of the order. Deliveries must be inspected and verified by the
authorized inspector, and evidence of deliveries presented. An inspection report
should be submitted within 24 hours to the auditor, who can conduct surprise and
selective inspections. Property inspectors must submit reports to their supervisors
during the day. Curiously, though, the deadline for delivery for items bought as
emergency purchases is 10 days after an order is placed. But then the supplies must be
used within 15 days of delivery. A report of utilization must be prepared, supported
by requisition and issue vouchers signed by a representative of the beneficiaries. A
copy goes to the auditor.
Confirmatory reports must be furnished to members of the awards committee.
The COA also allows local government to buy from exclusive distributors that have
no subdealers selling substitutes of the same quality at lower prices. The authority to
purchase rests with the committee on awards.
Repeat orders are authorized if the original purchase was made through public
bidding, the quantity in the repeat order does not exceed the original purchase and
prices have not gone down in the market by 10 percent. Also, the order has to be
made within three months from the date of the original purchase order, and the terms
and conditions should be similar to the original purchase. The mayor or governor is
empowered to place a repeat order upon the recommendation of the treasurer of
general services officer.
Whichever procurement mode is used, payment is always by check. The local
treasurer draws the check, which is countersigned by the local administrator. If there
is no administrator, the mayor countersigns. For expenditures appropriated for the
Sanggunian’s operation, the checks are countersigned by the vice governor or vice
mayor. The law prohibits advance payments – no services rendered, no goods
delivered, no payment – but makes exceptions for infrastructure projects.
The COA also sets the following conditions on:
• Disposal of supplies: by public auction, sale through negotiation, transfer without
cost to other offices or department or other government agencies, or destruction.
• Lease of spaces for public use: by sealed bid or negotiations, if sealed bid fails. The
contract must be in writing and approved by the Sanggunian and must run for one
year to correspond to the budget year. Renewal is an option of the local government.
• Lease of government spaces to other entities: by sealed bid of negotiation. Only idle
lands and buildings can be leased.
• Lease of idle equipment: By sealed bud or negotiation-lease contracts exceeding one
month should be supported by a surety bond. Rental must be paid in advance or the
lessee must put up a domestic letter of credit. The Sanggunian and the committee on
awards determine the rental rate.
• Importation: Heavy equipment or machinery for use in infrastructure can be
imported without paying duties and taxes, but cannot be disposed of within five years
from importation. Otherwise, the local government must pay duties and taxes.
How the Process Can Get Manipulated
Despite all these rules, irregularities still take place. For instance, according to
Dorotan, local governments tend to lean heavily toward infrastructure projects where
kickbacks offered to officials normally range from 10 to 30 percent of the contract
price. He says the mafia that reaps from kickbacks from infrastructure projects and
procurement of supplies usually consists of the mayor, treasurer and auditor who are
the key people in budget execution. It is the contractor’s lookout when the treasurer is
left out of deals. Until the treasurer gets his share of the grease money, he can very
well make life difficult for the contractor. In the case of contracts, journalists may find
it worthwhile to examine the relationship between the mayor and other local officials
and suppliers.
In Makati City, Vice Mayor Edu Manzano marvels at how prescribed procurement
procedures are followed then subverted through other means to favor suppliers.
Manzano does not belong to the same party as Mayor Binay. Months after his election
in 1998, Manzano, a movie actor and TV host, noticed he was being excluded from
meetings of the committee on bids and awards. As the Sanggunian or city council’s
presiding officer, he is a member of the committee. In fact, despite being left out of
the meetings, he was still being asked to sign procurement documents, including
vouchers.
Then came a council purchase request for radios priced at some P30,000 each. Earlier
that day, Manzano had come across a newspaper column that happened to quote the
average price for the same radios and it was less than half the figure on the purchase
request.
The vice mayor then began his own investigation. He learned from suppliers and
officials that “kickbacks” or commissions ranging from 10 to 20 percent are the norm
whenever local governments purchase supplies or equipment. But at the Makati City
Hall, Manzano found, the cuts average a whopping 40 percent. An independent
canvass done subsequently by Manzano’s office showed that items bought for the
Makati City Council were overpriced by an average of 519 percent. For example,
paper copiers bought by Makati were priced at P89,000 each but were being sold by
the same firm to its walk-in customers for half that. The city bought a fax machine for
P75,000 that could be had for P11,000. TV sets that go for P19,000 apiece are bought
at P43,000, while toner ink that sells for P1,116 at a leading bookstore was purchased
at P6,500.
“One thing I’m assured of,” says Manzano, “is the process must (have been)
respected, from the request, to the rewarding, to the payment. That was all respected.
Even the bidding was above board. They got three bids, bids were considered, the
winner was made accordingly. But see, what we have here is now a moral issue
already, the process may have been respected, but I know for a fact that it’s non-
acceptable.”
He says that five “friendly” accredited suppliers control millions of pesos worth of
contracts. The vice mayor tried to persuade other firms to apply for accreditation to
provide competition and bring down prices. But they opted out after being asked by
the general services office, “Are you willing to wait for 360 days to get paid?”
Yet, Manzano says, “It has become my experience in city hall that even if I haven’t
signed the disbursement voucher, there’s already a check waiting for it.” He adds,
“Seriously, last December (1999), I almost sued one of the suppliers, I signed a
request for allocation on December 9. When the check came for my signature, it was
dated December 8. It hadn’t been approved by my office but there was this check.”
Such speed is probably due to the fact that suppliers have to pay sizable kickbacks –
in cash – to City Hall officials and employees before their merchandise is assured of
payment. Suppliers themselves have admitted this to Manzano.
Two years into his job, the vice mayor has discovered that trying to tidy up City Hall
is a thankless task. When he refused to sign vouchers and checks for purchases,
singer-councilor Rico Puno threatened to haul him off before the Ombudsman on
graft charges. When Manzano questioned a P14-million road project, which his
independent canvass showed could be done for P3 million, councilors belonging to
the majority party called for a division of the house. “Every time legislation is
questioned where you suspect some form of anomaly, the house is divided,” grouses
the vice mayor. “Everything stops there.”
Manzano has tried summoning the city engineer and other officials for questioning, to
no avail. The fault essentially lies with the Local Government Code, he says. “The
council has no compelling powers. We don’t have any contempt powers.” Neither has
the COA helped him access documents on purchases made by the city government.
Notes Manzano, “COA will have to support you first before you provide the
documentation before the Ombudsman.”
Makati’s problems existed even during the term of Binay’s husband, Jejomar, as
mayor. Then Councilor Michael M. Joseph wrote the COA to investigate three
ordinances issued in 1998 allotting a total of P137.7 million from the special project
funds of the mayor and councilor for the purchase of school pads, notebooks,
workbooks. Joseph noted that no requisition was prepared by the schools
superintendent certifying the necessity of supplies to be procured, the supplies to be
procured were not included in the annual procurement program, no stock position
sheet was presented, and the supplies to be procured were excessive in quantity and
price. Ironically, Joseph was the chairman of the committee on finance, ways and
means, but lost the appropriations committee when he and Jejomar Binay had a falling
out.
Cebu has not been spared from procurement scandals either. In June 1999, the
Ombudsman filed criminal and administrative charges against Cebu City Mayor Alvin
Garcia and eight other city officials for entering into an exclusive contract with F.E.
Zuellig to supply P27.6 million worth of asphalt. The Ombudsman declared the deal
as “grossly disadvantageous” to the city. Cebu Daily News’ Banacia, who broke the
story, reported that:
• The city bought the asphalt at an overprice of P18.3 million.
• The mayor signed a three-year contract, which violated a government regulation that
provides such contracts to be good for only one year.
• The products were not subjected to proper bidding. Since the specifications in the
notice for bidding fit exactly F.E. Zuellig’s specifications, the bidding was just a
formality.
• Advance payments were made to F.E. Zuellig.
• The prices for the products were not quoted in the contract. They were also fixed in
dollars but payable in pesos.
• The city should have imposed 20 percent performance bond instead of 10 percent
because the item was imported from Singapore. F. E. Zuellig later even decreased the
performance bond to five percent.
The case led to the Garcia’s six months preventive suspension, a first in Cebu City’s
history.
Banacia emphasizes the importance of getting the documents in this and other stories
involving government contracts. He recalls a resolution issued by the Sanggunian
authorizing Garcia to enter into an agreement with the Europe-based Geoconsult and
Hong Kong’s Yuen Fat on investing $50 million of the city government’s money. But
when Banacia compared the resolution with the contract that Garcia finally entered
into with the foreign companies, he found that the Cebu City government promised to
invest “ten $50 million” or a total of $500 million.
Personal Services Expenditures
One perennial item in the local government budget is personal services, which
includes the salaries and allowances of local officials and employees. According to
the Code, such wages, as well as representation and transportation allowances, are
limited to 45 percent of the budget for first- to third- class municipalities and 55
percent to fourth- to sixth-class municipalities. The Code, though, makes an exception
for salaries and allowances of officials and employees assigned to public utilities and
economic enterprises like markets, cemeteries and slaughterhouses owned, operated
and maintained by local governments. These are charged to their respective budgets.
As a result, mayors and governors have found an ingenious way to skirt the restriction
on personal services: They have transformed their offices and public enterprises into
employment agencies for followers, friends and relatives. Many followers are hired as
“casuals” whose appointments are co-terminus with the chief executive’s. The
practice has resulted in casuals outnumbering permanent employees in many local
governments, especially in Metro Manila. In the metropolis, only seven towns and
cities employ more regular workers than casuals. But casuals still make up a
significant number of the workforce – a third to close to a half – in all but one of these
areas.
Some local governments employ too many workers that they end up unproductive.
Often, the situation leads to what a former Vice Mayor Joselito San Jose of
Montalban, Rizal calls the “cross-stitching syndrome.” Manzano himself confesses
that his own office employs 37 people doing a job that a staff of six can easily do. He
“inherited” his staff from his predecessor. “My employees were cross-stitching most
of the time,” he says in jest. “We were in the running for the best local government
unit cross-stitching.”
As the previous chapter also noted, it is common as well for local governments to
have “ghost” or “15-30″ employees in local governments. Ghost employees refer to
appointments given to non-existing people. “15-30″ workers refer to people who
show up only on the 15th and 30th of the month to collect their paycheck.
Journalists should also keep in mind these do’s and don’ts when local governments
spend on personal services:
• No official or employee can get a salary higher than the maximum fixed for his
position or other positions of equivalent rank.
• No local fund should be appropriated to increase or adjust salaries or wages of
officials and employees of the national government, unless authorized by law.
• No changes in designation or nomenclature of positions resulting in a promotion or
demotion in rank or increase or decrease in compensation will be allowed, except
when the position is actually vacant. The filling of such positions should be made
strictly according to civil service rules and regulations.
• New positions and salary increases cannot be made retroactive.
• The minimum salary for elective local officials shall be according to the Local
Government Code. Any compensation beyond the minimum shall be determined by
the Sanggunian, but increase in compensation can take effect only after the terms of
office of those approving such increase have expired.
• No elective or appointive local official or employee can receive additional, double
or indirect compensation, unless authorized by law. Pensions or gratuity are not
considered as additional, double, or indirect compensation.
Funds to Monitor
The law is also specific in saying that at least 20 percent of the IRA should
automatically be set aside as the Development Fund. This Fund is meant for
development programs, projects or activities that directly create jobs; human and
ecological security initiatives; trainings and related efforts; anti-crime campaigns of
barangays and the police; office automation; revenue enhancement activities; and the
purchase of new and reconditioned equipment. As Depthnews’s Juan Mercado has
discovered, though, the Fund money can be misused. Sifting through a 336-page COA
report for 1999, he found that some local politicians had turned the Development
Fund into an almost unsupervised mini-pork barrel they dip into. The money went to
hardware splurges, ghost projects, even jamboree funds, paying loan amortizations, to
local executives reimbursing themselves. In Cebu and Samar, projects were not
supported by the development and investment plans, inviting abuse and loss. Dagupan
doled out P100,000 to every barangay on a near-blank-check basis. Davao Oriental
paid P669,892 to Sangguniang Panlalawigan officials from the fund as “financial
assistance.” Cebu City’s P103.4 million went mostly to hardware: fire hydrants,
generators, cementing projects, even tourism. San Carlos City siphoned P100,000
from the fund to send its boy scouts to the 11th national jamboree in Angeles City.
Dapitan City disbursed P500,000 for the “operation of its executive band.” While the
Development Fund is closely monitored by the COA, other funds like discretionary
funds and intelligence funds of mayors and governors are not.
The law limits discretionary funds to two percent of the actual receipts from the basic
real property tax in the preceding year. Discretionary funds should be disbursed only
for public purposes. Intelligence funds, meanwhile, should be used to maintain peace
and order in the locality.
The problem is, the COA itself admits that it does not closely monitor the
disbursements from the two funds as these are confidential in nature. It requires only a
certification from the mayor or governor that funds have been, disbursed for purposes
of audit. Local officials are not required to present vouchers, receipts and other
supporting documents. This makes it difficult to journalists to follow the money and
paper trails.
Still, when the COA conducts an honest-to-goodness audit, its reports (either for
individual local governments or consolidated reports for Congress) are a rich source
of stories for journalists. In its 1998 Annual Financial Report of Local Governments,
the COA sounded the alarm on the P2.3 billion unliquidated cash advances given to
local officials and employees. The rule is that no cash advance should be given except
for an authorized specific purpose. A cash advance must be liquidated as soon as the
purpose for which it was given has been served. Officials or employees cannot get an
additional cash advance unless they have accounted for their previous cash advances.
In fact, salaries of delinquent officials are supposed to be withheld until they account
for the cash advances. The COA is also supposed to furnish the Office of the
Ombudsman a list of employees with unliquidated cash advances so the Ombudsman
can send demand letters. A Supreme Court ruling authorizes the government to deduct
unliquidated cash advances for travel from monthly salaries of the officials and
employees. But sanctions are rarely imposed, and local officials and employees thus
find no reason to shape up. Among the provinces, Tawi-tawi’s unliquidated cash
advances in 1998 stood at P102.79 million followed by Leyte at P47.9 million. In
Metro Manila, the COA came upon unliquidated cash advances ofP123.81 million in
Mandaluyong, P100.81 million in Caloocan and P87.78 million in Manila.
The COA also chastised provinces, cities and municipalities for their P2.09 billion
cash overdraft, a 207.45 percent increase over the previous year’s that resulted largely
from the improper use of the Trust Fund. The Local Government Code provides that
trust funds are not to be paid out except to fulfill the purpose for which the trust was
created or funds received upon authorization of the Sanggunian or other government
agency that has control of the money. The provision is often ignored. Among the
more notorious violators are towns and cities in Metro Manila. Only five cities and
two municipalities ended 1998 without an overdraft: Muntinlupa, Pasig, Makati, Las
Piñas and Marikina, Pateros and Navotas. As for those that did, Caloocan incurred the
biggest overdraft at P385.27 million of the region’s total P798.27 million overdraft,
followed by Paranaque (P197.12 million), Pasay (P87 million), Manila (P65.6
million), and Mandaluyong (P42.12 million).
People and Paper Trails
In theory, tracking how a local government raises and spends money should not be
too much trouble, given the number of reports the law requires of local officials. The
treasurer and chief accountant, for example, must post and publish monthly
collections and disbursements within 10 days following the end of every month for at
least two consecutive weeks or face a fine of P500 or a month in jail. The accountant
must furnish the Sanggunian with financial statements within 30 days after the close
of each month and the yearend statement of accounts 60 days after December 31. The
mayor or governor is supposed to submit an annual report to the Sanggunian on or
before March 31. The treasurer, budget officer and accountant officers are also
expected to open their books, accounts, papers and cash for inspection by the COA at
any given time. For reports that are more accessible to the ordinary citizen, there is
the copy of the semi-annual review of targets and accomplishments that the local
finance committee must post in public places. Also obligated to make similar postings
are the treasurer, accountant, and budget officer who must do these in three public
places each year with the summary of revenues collected and funds received,
including the appropriations and disbursement of such funds. Reports prepared by the
COA itself should not be overlooked. Every year, the COA prepares an annual
financial report for local governments based on consolidated data they gather from
cities and provinces. The report is ready on or before September 30.
Journalists will find annual audit reports of the individual local governments as
interesting. Normally ready on or before February 28, these reports are the results of a
comprehensive audit conducted by the provincial or municipal auditor on the LGU’s
accounts and operations.
The public, in general, and journalists, in particular, have the law on their side. The
Constitution guarantees the right of people to information on matters of public
concern. It assures access to official records and to documents pertaining to official
acts, transactions, or decisions, as well as to government research data used as basis
for policymaking.
Republic Act 6713, which provides for the Code of Conduct and Ethical Standards for
Public Officials and Employees, and its implementing rules reiterate the state’s policy
of full disclosure of all transactions involving public interest. Among other things, the
law requires that public biddings, purchases and other public transactions, including
contracts and status of projects, and statements of assets and liabilities and financial
disclosure of public officials and employees must be open for inspection by the
public, “within reasonable hours.” There are exceptions, though. The state can restrict
access to information affecting national defense or security or the conduct of foreign
affairs, drafts of decisions, orders, rulings, policy decisions, and memoranda, and
investigation records for law enforcement. Aside from unclassified official documents
and government data, the COA has identified the following as public documents: birth
and marriage records; property inventory reports; land assessments; land ownership;
tax payments; tax accounts; business permits and other records or documents of
public interest.
When Reality Bites
For all the rules that should make accessing public documents uncomplicated, the
reality is that getting hold of such papers, especially those containing finance
information, is not easy. For example, many local governments do not comply with
the required posting of reports. Delayed reporting is also common. And when a local
government fails to submit the necessary documents related to transaction, no audit
trail exists, making it even impossible for the COA to catch an irregularity. Some
government agencies also impose unnecessary conditions before releasing
information. Rood recalls being told by a local treasurer to first get a letter from the
Bureau of Local Government Finance before the information he needed could be
released. “Which is not true as this is a public document,” he says. But what Rood
finds more ridiculous is being asked by the National Statistics Coordinating Board to
write a letter to the director requesting permission to use the Public Information
Center. “That’s often the attitude. Government people are not very forthcoming with
information. If you’re a farmer and you get that response, you just stop,” he says.
The level of difficulty in getting public documents varies from local government to
local government. Makati is an example of just how secretive a local government can
be, even to its own officials. Opposition Councilor Mark Joseph says ruefully, “In my
case, I don’t even know about an ordinance, don’t even get to see a copy of the
ordinance I am supposed to have introduced or approved.”
When Joseph tried to get details of the drainage improvement project for Aranda
Street, he was told by the Sanggunian secretary to get the specs from the engineer’s
office. “When I went there, I was shown a copy of an old presidential decree that
everything remains confidential until after the bidding,” he says. Joseph returned to
the engineer’s office after the bidding, but he still failed to get the information he
wanted. Because of this, he says, “We (the opposition) never get to monitor the
bidding because we’ve never seen the bid notices and are not told the bidding dates.”
In Iloilo, some journalists prefer to be assigned to the capitol rather than city hall.
Labiste says nearly every bit of data, from procurement records to revenue statistics,
is hard to obtain from the Iloilo city government. “They keep telling us to come back,
but nothing happens,” she says.
It is the exact opposite at the provincial capitol where the governor down to the clerk
are quite open and transparent, says Labiste. Journalists get invited to attend public
hearings on development plans and proposed ordinances, and to observe biddings.
The province’s development plan is available on CD-Rom and distributed to
interested parties, including the media. Financial statements and contracts are readily
available. The secretariat would happily produce transcripts of meetings. “They give
everything, folder-folder pa,” Labiste says.
Accessing records becomes easier easy in local governments that have computerized
certain operations, especially real property tax assessment and collection, like Iloilo
province and Cebu City. Journalists there get printouts of tax assessments on the same
day. In Digos, the capital of Davao del Sur, the mayor even used to inform the public
and the media when the budget had been submitted to Sanggunian and when it was
adopted. His office would then compile financial information, including revenues and
cash positions, and hand them out to newsmen in thick folders. But journalist Nawal
says it stopped the practice after noticing the media lost interest in covering its
activities. He explains that reporters apparently began thinking there was no news to
write, specifically irregularities, because the mayor was not hiding anything. “But,”
Nawal says, “you can still go to the municipal hall and ask for a copy of the financial
records, and they’d give you one.” Audit reports are fairly easy to obtain at the COA
central office. But journalists in the provinces report different experiences. While
some city and provincial auditors hand out the reports to the media, others refer
journalists to the regional office. An internal COA rule requires that the regional
director clear the release of audit reports.
Journalists have found various ways to compel offices to release the documents they
want. Some have found that it pays. to remind government agencies of provisions of
the R.A. 6713 on full public disclosure when they hand in their letters requesting
information. Others, like Banacia, furnish a copy of the letter to the Office of the
Ombudsman. He adopted this practice when the Cebu city government made it
difficult to access information. The Ombudsman has since written the Cebu city
government directing the release of documents Banacia requested within the required
15 days with a reminder that a delay or refusal would be punished with an
administrative case. Banacia, however, reminds journalists to specify the documents
they need. Going on a fishing expedition would get them nowhere. Banacia’s strategy
works because he, like the Ombudsman for the Visayas, is based in Cebu. For
journalists like Iloilo’s Labiste, the route is inconvenient and time-consuming. The
trick then is for journalists to pinpoint the other offices that have a copy of the
documents they need and press their luck with those offices.
The COA, for example, furnishes the mayor, the city administrator and the
Sanggunian with copies of its audit reports. The treasurer and assessor would both
have copies of the notice of assessment, tax bills and the real property tax order of
payment. The Sanggunian is furnished stacks of documents by the executive offices,
ranging from financial reports to bidding notices and contracts. It thus pays for
journalists to befriend local officials and employees who have access to the
documents, including clerks and secretaries. The Sanggunian secretary, for example,
is the best person to ask for a copy of transcripts of meetings and hearings. “They can
even lend you the tapes if you’re nice to them,” says Pampanga’s Orejas.
In local governments where the mayor or governor and the opposition councilors or
the congressman are not exactly on good terms, documents are also fairly easy to
obtain. Iloilo journalists like Labiste rely partly on an opposition councilor for
documents on irregularities in procurement and other contracts. The councilor has
taken on the role of the city government’s watchdog, she says. In Davao del Sur, the
congressman who does not see eye to eye with the governor has set a project
monitoring committee as a check against possible abuses at the capitol. The
committee has become one of Nawal’s sources of records. But Rood suggests that
journalists should write about having been denied access to information. “Do
journalists do sting operations here? Do journalists put somebody up to get
information? That would be a great story,” he says.
Within a local government, there are many human sources that journalists can tap for
help in piecing together a finance story. Besides the mayor or governor, there are the
budget officer, administrator, treasurer, accountant, development officer, general
services officer, and assessor. One of them is likely to be willing to talk to journalists.
He may not be able to give the documents, but he can at least explain the processes.
Sanggunian members are also good sources, although Rood notes that their mastery of
local financial matters is spotty. “They’re good sources of information, but not of
analysis,” he says, partly because few bother with the implementation and don’t watch
the flow of funds.
For substantive programs, the best people to talk with would be those involved in the
programs themselves like the provincial health officer or provincial agriculture office.
“They are so thrilled that you care about them that they will tell them anything you
want. These are people who care about doing their job and think they don’t get
enough attention,” Rood notes. Orejas also looks for what she calls “activists” in local
governments or officials or employees who can give journalists tips because of their
distaste over whatever is going on. National agencies are good sources of information
as well. After all, local governments continue to be under the technical supervision
and control of certain national government agencies, known collectively as Oversight
Agencies. These include the Civil Service Commission, Commission on Audit,
Department of Interior and Local Government, Department of Budget and
Management, Department of Finance and the National Economic and Development
Authority.
Rood’s experience with the DILG, however, has not been entirely encouraging. “The
important people there, those in local government supervision, compile all sorts of
performance reports, but they won’t show (them to) you,” he says. “They’ll say
they’re confidential.” The reports go directly to the Office of the President.
Local government operations officers at the DILG are sometimes willing to talk, but
since they represent the national government, journalists should watch out for their
agenda. The NEDA and the Department of Finance are pretty useful sources of
information, but usually just those at the regional level.
Outside of the national and local governments, journalists working on local fiscal
administration stories should consider tapping the private sector, especially the local
chamber of commerce or business association. Armed with a long list of reasons to
gripe about the level of taxes, businessmen have become rather well-versed with the
internal workings of local governments. The same is true with consumer groups.
Civil society also plays an active role in monitoring local governments. In Bacolod
City, the People’s Graftwatch has furnished newsmen with a lot of goods on city
officials. Then there’s the academe. The National Center for Public Administration
and Governance of the University of the Philippines is one of the best authorities on
local government finance. Labiste suggests checking with universities for studies they
have done on the local business environment, as the U.P. Visayas did with mall
spaces in Iloilo. But a word of caution: the academic world can sometimes be behind
the real world. Sadly, some academics don’t keep themselves updated on current
events while others dwell too much on theory than on the real world.
Source: Investigating Local Governments, 2001
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