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Nineteen (19) Years of Decentralization

19 October 2010

RA 7160 otherwise known as the Local Government Code of 1991 has changed the political and socio-economic landscape of our country after 19 years of decentralization.
Those who of us who have long worked in local government have, over the years, made many different proposals to effect changes in the local government code

Today, we undertake a serious discussion on some of those proposed amendments to the local government code.

I would like to address in particular two proposed amendments. These two are:
1. Increase the shares of LGUs from 40% to 50% to include the collection of the Bureau of Customs, and
2. Creation of the Local Government Enhancement Fund (LGEF)
The first proposal needs the amendments of two (2) provisions of R.A.7160 which reads:

(1)Local government units shall have a just share in the national internal revenue taxes based on the collection of the third (3rd) fiscal year preceding the current fiscal year as follows:
(a) On the first year of the effectivity of this Code, 30 percent (30%);
(b) on the second year, thirty-five percent (35%); and
(c) On the third year and thereafter, forty percent (40%)

(2) The share of each local government unit shall be released without need of any further action, directly to the provincial, city, municipal or barangay treasurer, as the case may be, on a quarterly basis within five (5) days after the end of its quarter, and which shall not be subject to any lean or holdback that may be imposed by the national government for whatever purpose.

Nothing in this chapter shall be understood to diminish the share of local government units under existing law.

Significantly, the proposed amendment on Section 284 is to increase the IRA share of the local government units by providing adjustment fund to the local government units with negative transfer and to provide performance-base grant to support LGUs which exhibited good fiscal management.
Likewise, the proposed amendment to Section 286 is to provide legal basis for the creation of the of Local Government Enhancement Fund.
As to the 2nd proposal, the creation of the Local Government Enhancement Fund may I suggest an alternative and to amend Section 284 by invoking the Constitution which provides:
Local government units shall have a just share, as determined by law, in the national taxes which shall be automatically released to them. (Section 6, Article X)
Thus, Section 284 of the Code shall be amended to read as follows:
Local government units shall have a share in the national [from internal revenue] taxes
Informatively, the IRA share of the LGUs in CY2009 was P249 billion equivalent to forty percent (40%) based on the actual collection of BIR in 2006 in the amount of P622.5 billion, while the collection of other national taxes in the same year (2006) made by other authorized collecting agencies of the government was P237.35 billion and forty percent (40%) of which is P94.94 billion by using the same sharing allocation provided for in Section 284 of the Code. Therefore, the total funds available for the local government units applying it to CY2009 is:
Sources of the Equalization and Support Fund
The fund shall be taken from the proceeds of the national taxes collected by other collecting agencies of the government other than the BIR the amount of P 94.94 billion.
This amount shall be allocated based in the following allocation scheme:
A – SEVENTY PERCENT (70%) (EQUIVALENT TO 66.46 billion) shall be distributed to all LGUs on the based on a formula of sharing between LGU’s to be agree upon by the different leagues.

The release of the shares of the LGUs under this paragraph is subject to the following condition, a viz:

The individual LGUs shall receive the shares accruing to them in accordance with Section 286 of R.A 7160 which provides for an automatic release of their share without lien or holdback that may be imposed by the National Government.Provided, that the local government units concerned shall be able to collect at least ninety-five percent (95%) of the approved collection target during the fiscal year immediately preceding; and Provided, finally, that failure on the part of the LGUs to collect the approved collection target, the shares of the LGUs under this paragraph shall be automatically forfeited and reverted to and form part of the equalization and support fund.

B – TWENTY PERCENT (20%) (EQUIVALENT TO P 18.99) billion shall be used to support and augment the funds of poorer municipalities in addition to funds provided in Section 17 (g) of R.A. 7160 intended for the implementation of the direct and actual delivery of basic services devolved to the LGUs.

C – TEN PERCENT (10%) (EQUIVALENT TO P 9.49) billion shall be used to support and augment the 20% budgetary support for development projects of 4th,5th and lower 3rd class municipalities in accordance with Section 287 of R.A. 7160.

Therefore, the total funds available for the local government units applying it to CY2009 is:
P249 billion - BIR collection
+ P94.94 billion - collection by other agencies
P343.4 billion - total amount available to LGUs


We may further suggest to utilize the P94.94 billion for the following purposes:

(1) provide financial resources to poorer LGUs, and
(2) to provide incentive to LGUs to enhance the collection of locally generated taxes:
An Equalization and Special Purpose Fund or FUND is being proposed to support the following initiatives:
1. The FUND shall augment the budgetary requirements of the devolved functions and facilities of poorer LGUs;
2. To address the desire of municipalities for equitable sharing of the IRA;
3. To provide start-up capital for the development of agriculture, aquamarine culture as well as the promotion of small and medium scale industries;
4. To provide incentive to improve the collection of locally local taxes, and
5. To provide support fund to fifth as well as the lower fourth class municipalities to achieve higher level of development.


The supervision and management of the FUND shall be vested in national council composed of the following:

(a) Chairman to be chosen by the following:
Presidents of:
1. League of provinces of the Philippines
2. League of Municipalities of the Philippines
3. League of Cities of the Philippines
4. LigangMga Barangay Sa Pilipinas

1. President of ULAP
2. An Undersecretary of DBM
3. An Undersecretary of DOF
4. LLP President
5. LCP President
6. LMP President

Provided, however, that the chairman of the council shall be the chief executive officer of the council and the vice-chairman shall be elected by the members of the board. Provided, further, that the board members of the council shall have a fixed term of three (3) years without extension. And, Provided, finally, that the executive director shall serve for a fixed term of four (4) years.

Further, there have been other proposals made for the amendments in the local Government Code
1. The move to re-nationalize the following devolved functions: health, social services and agriculture
2. The appointment in every barangay of a social welfare and development worker.
3. Making the positions of provincial, city, or municipal agriculturist mandatory – (must assure who will need an equi)
4. The proposal to increase the amount and ceiling of local taxes would be counter-productive for the following reasons:
a. Only cities and rich provinces, and first class municipalities would benefit, to the disadvantage of the lower class municipalities;
b. There will be political repercussions; and
c. It will not necessarily result in higher tax collection.

Finally, may I recommend for the amendment of Section 533 of R.A. 7160 which created the oversight committee on local government. The amendment should include:

1. Extending the life of the committee is necessary for the following reasons:
a. The committee shall undertake immediate review of the local government code.
b. The Committee shall also conduct a review of the code every five (5) years starting from the effectivity of this amendment.
c. Establish monitoring and consultation mechanisms among the regular members of the ULAP, DILG, and the appropriate sectors involved in the decentralization program.

To achieve this objective, the group may tap the Philippine Consortium for Local Government Reform and the Local Government Development Foundation which could provide technical services.

Speech of Senator Ferdinand "Bongbong" Marcos Jr.
Heritage Hotel, Roxas Blvd, Pasay
October 18, 2010