Senator Ferdinand “Bongbong” R. Marcos, Jr., Chairman of the Senate Committee on Local Government, today pushed for objective and more realistic standards in determining the income classification of local government units (LGU’s).
During the hearing on Senate Bill 2664, or “An Act Institutionalizing the Income Classification of Provinces, Cities, and Municipalities, and for Other Purposes”, Marcos noted that using absolute numbers as sole basis for reclassification of LGU’s renders it meaningless over time.
“At the rate we’re going, given another couple of years, the income classification becomes meaningless. Sooner or later a very large percentage of LGU’s will be in the first class bracket because of inflation, increasing IRA (Internal Revenue Allotment), local collections and other factors,” Marcos noted.
According to Marcos, author of SB 2664, the current reclassification system have evolved in such a way that an LGU’s income class “is not truly reflective of its financial capability.”
Under the standing Department of Finance order, a province with an average annual income of P450 million or more is considered 1st Class; 2nd Class with P360 million or more but less than P450 million; 3rd Class with P270 million or more but less than P360 million; 4th Class with P180 million or more but less than P270 million; 5th Class with P90 million or more but less than P180 million; and 6th Class with an income below P90 million.
While SB 2664 still proposes the use of average annual income in the classification scheme, Marcos urged the DOF to consider including in its Implementing Rules and Regulations other factors suggested to the committee, such as per capita income, level of IRA dependence, or services the LGU provides to its constituents.
Such income classification serve as basis, among others, in determining how much an LGU will receive in administrative and statutory aids, financial grants and other forms of assistance and in finding out the financial capability of LGU to undertake developmental programs and priority projects.
SB 2664 was principally meant to authorize the Secretary of Finance to undertake regular reclassification of LGUs so that their income classification would conform with the prevailing economic condition and their overall financial status.
The bill also shortens the period of regular reclassification from four years to three years.
Income classification of LGU is based on Executive Order No. 249 issued in 1987, carried out through DOF orders, the most recent of which was issued on July 2008.
However, a legal opinion of the Department of Justice issued on September 2013 limited the authority of the Finance Secretary to merely implement the regular reclassification of LGUs, saying the power to revise the income ranges used as basis for such classification belongs solely to Congress.
Marcos filed the bill to address this issue.
He said the hearing indicated that was no real objection to the expanded authority of the Finance Secretary with respect to reclassification of LGUs.
“There are just suggestions as to how we carry out the actual reclassification,” Marcos said.