Core
By Benjamin E. Diokno
Empowering local governments
Local authorities owe President Aquino a great debt of gratitude for the improved state of local governance and for giving them the resources and responsibilities to address their constituents’ needs. Some may continue to bellyache that they do not have enough resources to implement their devolved responsibilities. But these gripers must know how much better off they are now compared to the bad, old days before the Local Government Code of 1991 was enacted.
In the bad old days before EDSA 1, local government officials had to trek to Malacañang to ask for authority to buy any capital goods (say, a typewriter or air-conditioner) authorized in their local budgets. They had to lobby with Malacañang and budget authorities for the release of their much smaller internal revenue allotment (IRA). The process of grant giving was tedious and opaque. Local authorities did not know how much their IRA shares were, and even more iffy, when they would be released.
The uncertainty necessarily created so many problems in local budgeting. It resulted in so much waste in time and effort following up the approval of authority to purchase capital goods and budget releases. And because the process is complex, it opened up opportunities for graft and corruption for government bureaucrats and public officials.
When President Aquino took power in 1986, she promised a wide-ranging package of public sector reforms including the devolution of political and administrative authority to local governments. The promise was kept through the passage of the Local Government Code of 1991 that resulted in far-reaching devolution of both political authority and administrative authority of many services including many aspects of health care, agricultural extension, social welfare, and financial management.
The Local Government Code of 1991 is the most sweeping law changing intergovernmental structure and fiscal rules in the Philippines. Aquino knew that the existing system of national- local relations then was an inefficient and unwieldy way to manage the 76 provinces, 66 cities, 1,540 municipalities, and some 42,000 barangays. She knew that local governments have to be empowered.
Bigger ira shares
The 1991 decentralization act significantly increased the assigned responsibilities and taxing powers of local governments. Not surprisingly, it is in the area of intergovernmental transfer system that the change was most drastic. Showing great concern for local fiscal autonomy, President Aquino committed to give local governments a bigger share of the country’s internal taxes. But being a non- politician, she wanted the intergovernmental grant system to be rules-based rather than discretionary and thus subject to political bargaining.
As a result, the share of local governments from domestically raised taxes was more than doubled, the grant system was formula-based, and the fund release automatic. The amount of IRA that should go to a particular local government unit (province, city, municipality, barangay) was transparent, predictable, and automatically released. (A power-hungry President would not allow such arrangement to happen.)
These new IRA rules have significantly improved the capability of local governments to provide essential local public services. And because grants coming from the central government was predictable, budget planning and execution was enhanced.
Before the reform, the share of local government units was, at the maximum, equal to 20% of internal revenue taxes. In practice, however, less than three-fourths of internal revenue taxes was appropriated and released to local governments. The fund release was discretionary on the part of the President and was subject to political bargaining.
The intergovernmental transfer system under the LGC of 1991, called IRA, is formula-based and mandatory. The share is very transparent. The code provides for 40% of central government revenues collected three years before the year of distribution to be transferred back to local government units as internal revenue allotment.
The IRA is divided among the local government units through a two-stage process. The first is to distribute the total IRA into four distributable pools by level of local governments (provinces, cities, municipalities, and barangays). The second stage is to allocate the distributable pool available to each level of local government according to a formula based on population, land area, and equal sharing.
Specifically, at the first stage, the IRA is divided among the levels of local government as follows: provinces and cities receive 23% each, municipalities receive 34% and barangays 20%. At the second stage, the IRA share of each tier of government is then divided among the individual local government units on the basis of population (50%), land area (25%) and equal sharing (25%).
In contrast, under the previous IRA formulation, the total amount was divided: 27% for provinces, 22% for cities, 41% for municipalities, and 10% for barangays. The IRA share of each level of local governments was then distributed among each level of local government units according to the following factors and weights: population (70%), land area(20%), and equal sharing (10%)
Winners, losers
The new formula has resulted in a sharp increase in the financial grants received by local governments. The barangays were the biggest winners, followed by cities. The provinces, on the other hand, were the biggest losers considering that they absorbed almost half of the total cost of devolved functions but saw their allocation share drop from 27% to 23%.
The IRA is in the nature of an unconditional block grant, thus giving local governments wide discretion in its use. The only condition for the use of the IRA is that each local government unit must earmark in the annual budgets an amount no less than 20% for local development projects that are embodied or contained in the local development plan.
As a result of the Local Government Code of 1991, the amount of resources going to local government units have soared from P15.6 billion (1.2% of GDP) in 1991 to P271.1 billion (3.1% of GDP) in 2009.
The important lesson here is that local authorities owe a debt of gratitude for their higher IRA to President Cory, not to any incumbent President. The provision for automatic release of local government’s IRA share is embodied in the 1987 Constitution while the IRA formula is specified in the Local Government Act of 1991 — both legacies of President Aquino.
For some local authorities who still doubt the significance of President Aquino’s legacy, remember the June 19th 2000 Supreme Court decision when it ruled that President Ramos committed grave abuse of discretion in ordering the withholding of 10% of the IRA. The decision states: "The Constitution vests the President with the power of supervision, not control, over local government units (LGUs).... He may not withhold or alter any authority or power given them by law. Thus, the withholding of a portion of internal revenue allotments due them cannot be directed by administrative fiat."
Admittedly, the Local Government Code of 1991 is not a perfect law and, at times, has not been implemented properly. But the higher and unconditional grant that’s embedded in the code has empowered local authorities to provide what they believe their constituents want. For their enhanced political power and fiscal autonomy, local authorities have only one person to thank, though posthumously — President Cory
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