In any developing country, it’s sadly typical to see a few who are rich and many who are poor. Our local government units (LGUs) are in the same dire situation. We have a few LGUs with so much cash surplus as opposed to most of the rest that practically have no resources other than their often-delayed meager internal revenue allocation (IRA) coming from the national government!

For instance, we have Quezon City considered the country’s richest city vis-à-vis the poorest of the poor municipalities in the far-flung areas – in the likes of Tanudan town in Kalinga in northern Luzon, or Siayan town in Zamboanga del Norte in southern Mindanao. These two destitute towns were ranked No. 2 and 1 respectively, among the 40 poorest towns based on a 2003 NSCB survey.

Yet after more than a decade of full implementation of the Local Government Code (LGC) of 1991, we still have many LGUs mostly in the countryside that could hardly provide decent basic services to their constituents as mandated by law. This anomalous situation deserves further discussion.

When decentralization was mandated in our 1987 Constitution, our 1991 LGC was enacted to provide local autonomy to LGUs. In expanding their responsibilities and resources, various “basic services” were devolved from national government to local governments, namely: Field health and hospital services, agricultural extensions and on-site research, community-based forestry projects, and public works and infrastructure projects funded out of local funds. Other devolved services also covered school building programs, social welfare services, tourism facilities and tourism promotion and development, and telecom services/housing projects for provinces and cities.

To be able to finance these “evolved” services, LGUs were empowered “to create their own sources of revenues and levy taxes, fees, and charges subject to the provisions of the LGC, consistent with the basic policy of local autonomy.” The intent is to strengthen LGUs to become vital partners with the national government in ensuring the quality of public service. Also, with their new corporate powers, some have already engaged increasingly in business and economic ventures with other government agencies and the private sector to raise more revenues in form of income and business tax payments.

To survive, LGUs must maximize their revenues and cash flow from both internal and external sources. Internal revenues include local taxes in forms of business taxes, real property tax, franchise tax being paid by the private sector, income from economic enterprises operated by LGUs (e.g. public market, municipal electricity or water systems) and various fees and charges. Various external sources of funds include the usual share in the Internal Revenue Allocation (IRA), share in the proceeds from national wealth taxes (mining, forestry, fishery), LGU borrowings, and grants.

The IRA is the LGUs’ share in the national tax revenues. Every fiscal year, 40% of BIR collections of the preceding year are supposed to be automatically allocated to various LGUs “without need of any further action.” Section 286 of the LGC is very clear on this. However, I was told some “unpleasant realities” cannot be avoided at times like continuous budget deficit and/or shortfalls in internal revenue collections as justifiable reasons. All this, compounded by the pressures of “political patronage or favoritism” could regrettably result in: (1) delayed distribution of IRAs to various LGUs (one LGU executive in the south told to me he still has to receive his share of taxes already paid to the national government more than two years ago!); or (2) reduced amount of IRA. Either way, this will prevent a poor LGU mostly dependent on IRA to deliver badly needed basic services to the public.

There could be also many reasons why some LGUs are unable to raise or increase their internal revenues. For one, businesses don’t usually thrive well in places affected by conflicts like Jolo or Tawi-Tawi. Or it could be that an LGU is not trying hard enough to encourage or to partner with the private sector or government corporations or agencies to invest in their respective localities.

LGUs are allowed to borrow or issue municipal bonds to fund their infrastructure programs. Luckily, many government-run banks are willing to extend credit either to finance LGU-initiated commercial ventures or other projects using their future IRA allocation or other revenues as collaterals. I’m just wondering however, why only a few LGUs are presently maximizing this “borrowing power.”

As mentioned earlier, one of the new major sources of external revenues is LGUs’ 40% share of the proceeds of so-called national wealth taxes paid by the mining/extraction/forestry sectors. LGUs that have mining activities within their jurisdiction should be greatly benefited from this only if their share is directly remitted to them on a timely basis. Just like IRA, the present backlog I was told is quite long – as much as two to three years! (There was a proposed bill to amend our present Tax Code to effect outright remittance to LGUs but it did not see the light of day; meanwhile, there was joint circular recently signed by DENR, Dept. of Finance, DBM, and DILG to fast track mining taxes paid at the national level for timely distribution to LGUs concerned. But I still have to see how it will be effectively implemented!).

LGUs now have more tools to maximize revenues. The New Magna Carta for SMEs (RA 9501), newly amended Cooperatives Law (RA 9520), Livelihood & Skills Training for SMEs (RA 9509) Barangay Livelihood Program (RA 9178), etc., are examples that could also spur economic activities and provide livelihood, employment and revenues. To be dependent solely on IRA is out of the question! LGUs must unleash their corporate, fiscal and taxing powers to be self-reliant. But power does not have to be acquired for its own sake. It comes with immense responsibility to provide better public service especially during natural disasters and calamities our marginalized sector is sadly experiencing right now!

(The author is with the SME/Cooperatives, Publication and Public Affairs Committees of the Financial Executives Institute of the Philippines (FINEX). His email address: admin@finex.org.ph)