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Engaging LGUs in economic development

At present, the Local Government Units (LGUs), with their Internal Revenue Allotments (IRA), are hardly mobilized to get directly involved in economic development.

The LGUs have been decentralized since 1991, or a period of 30 long years. With the decentralization, they have been given 40% share of the Bureau of Internal Revenue collections computed on the basis of the collections of three years ago. This allocation will be augmented beginning 2022 by an additional 40% of the customs duties collected by the Bureau of Customs in compliance with the Supreme Court decision in 2018.

The total IRA for 2021 is P695 billion and is allocated among the provinces, cities, towns, and barangays based on established proportions and methods of subsequent sub-allocation. The LGUs are required to spend 20% of their respective IRA for development projects which generally refer to infrastructures (roads; bridges; water and sewerage systems; drainage; flood control; irrigation; and similar projects). This 20% proportion is equivalent to P139 billion for 2021, which is the floor limit; but the LGUs can increase the actual development project expenditures if they want to.

Where did this money go for the last 30 years? I personally do not see and feel the effects of that money whenever I go to the countryside, especially considering the cumulative effects of spending that annually-recurring money allotments. For garbage disposal facility alone, I don’t see much of it. What I see most of the time is garbage that scatters everywhere, including in riverbanks after every heavy rain.

This IRA—to be renamed as National Tax Allotment (NTA)—will be increased beginning 2022 by P252 billion (40% of customs duties collections in 2019), bringing the total to at least P947 billion or most likely reaching the one-trillion threshold.

In spite of the availability of that much money, we don’t generally see much infrastructure development activities occurring in the LGUs. I believe the main reason for this condition is that it is not clear which LGU will do what, a situation that leads easily to inaction.

As expressed in the law, the responsibility of a province in this regard is the development of “…provincial roads and bridges; intermunicipal water works, drainage, and sewerage, flood control and irrigation systems”; while that of a town “…municipal roads and bridges … communal irrigation… drainage and sewerage and flood control.”
For purposes of implementation, the foregoing provisions may not be easy to interpret. For example, what is a provincial road or bridge as opposed to a municipal road or bridge? Moreover, infrastructures like drainage, sewerage, flood control and irrigation generally cover more than one town, not to mention an environmentally acceptable dumpsite. This lack of clarity generally results in inaction to take the initiative of building the infrastructures. Even when an LGU takes an initiative, the question of who bears the cost arises, especially on cases when the infrastructure benefits two or more towns. The logical LGU who should take on multi-town infrastructures is the province, but presumably it is inhibited to do so because apparently the IRA has not been allocated on that basis. As a result, much of the infrastructures are not built. Instead, the money goes somewhere else.

If I were the next President, using presidential powers and exhortation, I will deliberately engage the LGUs to get directly involved in economic development.

The first thrust is to clearly establish the responsibilities of the LGUs for infrastructure development in their respective geographical area. For this purpose, I will organize a high-level commission to study these matters comprehensively. This study will necessarily include reviewing and revising the allocation method to put the NTA of each LGU in line with its newly established responsibilities. Moreover, I will require the commission to study how a portion—as large as possible—of the IRA can be converted into the form of direct taxes to be imposed by the LGUs themselves on their respective constituents. In this way, the LGUs can be made much more accountable for the use of such revenues by their own citizens. Moreover, by imposing its own taxes to meet is own expenditures, the LGU may be better motivated to grow its own local economy.

While the study is going on, we will start conducting an information campaign to inform the citizenry that the LGUs are receiving large amounts of allocations from national taxes, much more than their own local revenues, and encourage the citizens to demand more and better services from their LGUs.

As part of this campaign, we will post in the appropriate national government website the IRAs of all LGUs in an organized manner for the information of all concerned citizens. At the same time, we will require each LGU to make an annual report, in an appropriate form, to their constituents of their revenues, IRA and local, and their expenditures, highlighting the details of those spent in infrastructures. We will require this annual report to be posted in the LGUs’ respective website.

What we are trying to achieve are two things: to make the LGUs more aware, responsive, and accountable in fostering economic development in their respective geographical area; and to make the citizens much more aware that their LGUs have the financial resources to serve them and demand the LGUs to provide the services and facilities that they deserve. When successful, these engagements by the LGUs and their citizens will propel greater economic activities and development in the LGUs.

To assist the LGUs in providing improved and effective services to their citizens, especially in the devolved services like health and agricultural extension, we will develop an organization and work process model of a modern unit for each services sector for the LGUs to adopt. We will also provide regularly occurring training for the frontline personnel of these services.

Additionally, we will reorient the purpose of the barangay system by removing the barangay as a political unit and become like its predecessor during the pre-Spanish times. A barangay is too small to have regulatory powers and such powers are just duplications of those already vested in the towns and cities.
Under this scheme, the barangay organization will consist of only the barangay captain and an assistant. The barangay captain will continue to be elected. His office will be his own house, for which use an appropriate amount of rent will be paid to him. The barangay will get its funding, including provisions for office equipment and office and travel expenses, from the Department of Interior and Local Government to make them independent from the city or town. The remainder of its present IRA will be transferred to the city or town where it is located.

The remaining function of the barangay will be exclusively civic in nature. The barangay captain will help keep the peace in the barangay, arbitrate neighbor disputes, get the barangay citizens to observe order and cleanliness, motivate parents to keep their children in school, and other similar civic duties. He has no police powers; he has to use moral suasion, which after some experience, he should be very good at.

This reorientation of the purpose of the barangay system will reduce the cost of doing business and free up additional funds for local development purposes.

When properly harnessed, the resources of the LGUs can provide additional firing power to energize higher economic development for the whole nation. We will guide and assist the LGUs to so exploit those resources and thereby achieve higher economic growth.

Mr. Punongbayan is a well-experienced public accounting practitioner. He founded Punongbayan & Araullo 33 years ago and which is now one of the prominent and leading professional accounting firms in the country. On April 16, 2009, Punongbayan—along with several like-minded Filipinos—founded a national political party under the name of Buklod. As a political party, it aims to replace the present leaders with an entirely new set of trailblazers who do not carry the baggage and ineffectual governance of the past.

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