De La Salle University Manila

Economics Department

In Partial Fulfilment of the Requirements in
ECONTWO

FISCAL POLICY
I ssues and Solutions


Submitted by:
Chua Co, Sean Dara T.
Nable, Danica Alyssa C.
Rivera, Benette Louie E.
Te, Angelo Josel S.
Tsang, Preziella S.

Submitted to:
Mr. Marvin Castell
Professor, ECONTWO

Submitted on:
August 28, 2012
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According to (Case & Fair, 2011), Fiscal Policy refers to the governments decisions
about how much to tax and spend. Today, the Philippines is currently facing fiscal problems.
Problems like budget deficits, budget allocation, tax collection, and other problems that involve
income and spending of the government for economic affairs. In this paper, the group desires to
address the current issues the country is facing economically and suggest probable solutions that
will help solve these problems.

A. BUDGET DEFICIT
The first issue is the governments budget deficit. A budget deficit occurs when
government spending is greater than the income generated by the government. This often occurs
when the government commits overspending. A budget deficit causes the country's government
to borrow money from other countries in order to pay off expenses made.
In 2009, the Philippines had a budget deficit of P272.5 billion which made each of 92.2
million Filipinos owe P47, 039 to local and foreign creditors. The countries past overspending
have made the Philippines incur more debts every year. Because of the interest rates of the
money borrowed from creditors, the Philippine's total debt keeps on increasing every year.
As of 2012, the Philippines public debt has increased to $121,058,469,945, which is
5,104,430,385,231 pesos.
The first solution we would like to propose to address the problem in the countrys
budget deficit is to decrease government spending. According to trading economics (2012),
"Government expenses include spending on current goods and services, which economists call
government consumption; government investment expenditures such as infrastructure investment
or research expenditure; and transfer payments like unemployment or retirement benefits."
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In order to achieve budget balance based on the current budget standing of the
Philippines, we must cut back on government spending. For example we should decrease
spending on military equipment because currently the Philippines don't need to increase its
military defense.
Second solution, is to increase taxes. There is an allocated government budget every year
that is passed by the legislature, and approved by the chief executive-or president.
As of 2012 the approved allocated budget for 2012 is 1.816 trillion pesos.
The table below shows the break down of the budget for 2012:

In order to increase the allocated budget we must then increase the taxes. Here are
the tax rates according to SEC. 24 of NIRC:
Not over P10,000.......... 5%
Over P10,000 but not over P30,000. P500+10% of the excess over P10,000
Over P30,000 but not over P70,000.... P2,500+15% of the excess over P30,000
Over P70,000 but not over P140,000.. P8,500+20% of the excess over P70,000
Over P140,000 but not over P250,000P22,500+25% of the excess over P140,000
Over P250,000 but not over P500,00 P50,000+30% of the excess over P250,000
Over P500,000 . P125,000+34% of the excess over P500,000 in 1998.
Sector
Percent
of budget
Amount
allocated
SOCIAL SERVICES
(Education, public health and the
PantawidPamilyang Pilipino Program)
31.6%
P573.5 billion

ECONOMIC SERVICES 24.3% P442.1 billion
GENERAL PUBLIC SERVICES 17.7% P322.3 billion
DEFENSE SECTOR 6.1% P111.4 billion
DEBT BURDEN 20.2% P367.2 billion
Total
100
percent
1.816.5 billion
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We can increase the tax rate of all employees by one percent in order to increase
government budget. Increasing the tax rates of the employees income will result to an increase
in budget because there would be higher tax remittances that the government will receive.
Our third solution is a combination of the two-Government increases taxes and decreases
government spending. We can implement both solutions in order to meet budget balance and
improve its effect. We need not to increase much on taxes if we are also going to decrease
government spending. If implemented, increasing tax while decreasing government spending
will surely lessen the budget deficit of the Philippines and will help attain budget balance.
Our fourth solution is to audit government spending. The government must only spend
based on their allocated budget in order not to incur deficits. In order to find out if a certain
sector spends more than what is allocated we must audit every expense incurred by the
government. It is not an easy task but by simply keeping every receipt of costs and expenses
incurred by each sector, and by submitting the tally every quarter we can ensure that the budget
goes to where it is supposed to be allocated to.
Corruption is not the issue here but the system on how they audit government spending.
If the budget is spent correctly then we wouldn't exceed the budget allocation and we would not
incur budget deficit.
Lastly, we propose that the government audit taxes. The government can earn more from
taxes just by auditing taxes. Many companies and business commits tax evasion and tax
avoidance. Tax avoidance is a legal act where in one company spends his net income on
donations or other expenses to lessen the taxes they need to pay, tax evasion on the other hand is
an illegal act where in the company doesn't report the real net income of the company but reports
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lower income to pay lower taxes. Tax evasion can cause imprisonment and a payment of a very
large fine.
If we audit tax collections specifically from companies earning millions we can catch tax
evaders and earn millions from just one company and if we combine all fines collected from tax
evaders we can even earn billions. Fixing the system of the government would greatly improve
not only our country's budget balance but also the country as a whole.

B. INEFFICIENCY IN BUDGET ALLOCATION
The issue in budget allocation is concerned and connected with the countrys budget
deficit. This issue emphasize that the government spends more and more each year increasing the
total budget to 2 trillion for the next year while increasing it total debt to 5.5 trillion in 2012 from
4.2 trillion in 2010.





Year Outstanding Debt Amount (in billions)
2010 4,212.22
2011 4,639.73
2012 5,523.28

Year Budget amount
2010 1.47 trillion
2011 1.64 trillion
2012 1.82 trillion
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This issue has been with the government for a very long time and like what we learn in
this subject having government debt would not be bad as long as the use of the budget that is
given be used properly for the interest of the countrys gain not of a certain corrupt company or
firm neither any fraudulent government officials.
Our government should have progressed as the time goes by and learn from the mistakes
they incurred. Instead, they did not do anything but to continue to try to look for that certain
person who stole the peoples money which is not exactly the right thing.
They should fix the system. One example is to take out the presidents immunity and
other officials power while in position which made President Arroyo untouchable when
evidences where in front of the peoples faces about her corrupt practices.
We should computerize the system of collecting taxes as this would be a lot more efficient
and accurate rather than the manual way of checking tax collections.
In addition, we should stop with the crooked practices in the BIR as it is very evident. In
the news before there was this regular BIR employee who is a regular salary owner and possess a
luxury car worth millions. Even with increase in tax to 12% and a larger coverage of taxed
products the deficit is still increasing in the country.
Although the government is now increasing its budget on agriculture, the government
still is allocating more in industrial projects rather than the agricultural development of our
country. Budget inefficiency was for cutting on education and putting it on the military defense.
Budget allocation for argiculture
2011 - Decrease of 8.5 percent in its budget, from P41.2 billion to P37.7 billion due to the
reduction in the allocation for input subsidies
2012 - P54.1 billion, from P35.2 billion in 2011
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2013 - P73.6 billion which is 19.9 percent higher than the current years P61.4 billion.
Although the agricultural budget is gradually increasing, it is still low compared to the
budget of other sectors. This issue should be addressed since we are an agricultural country. We
need to focus on our agricultural sector.

As the government increases its total debt which increases the annual interest expense
and continues to pursue a budget deficit, the country (which increases government debt) without
really allocating the budget properly, our economy would suffer more and more in the long run.
Increase in deficit or overall debt of the country is not really bad if the budget would be used as
an investment for the growth of the country however that is not whats happening in the situation
of the country. For example roads are still rugged and the improvements of waterways are not
developed even with all the flooding happened through the years due to heavy rain. After
calamities happen, it is the only time where they would release extra budget to help people who
are hit by the calamity. Why not release this money to prevent the flooding from happening in
the first place.

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C. TAX COLLECTION
Taxes are levy on goods and services that the government imposes on consumers. The
government uses this tax to earn income, as well as to provide budget for the betterment of the
country by building infrastructures, giving insurances, health services, and other public services.
Taxes also play an important role for the governmentto generate income. Government spending
and tax collection is used to determine the budget standing of a country. When tax collection is
greater than government spending, there is budget surplus. On the other hand, when tax
collection is less than government spending, there is budget deficit.
The Philippines has been experiencing budget deficits in the past years. ABS-CBN News
(2012) reported that for the first half of the current year, the Philippines posted a P34.482 budget
deficit as shown by the data of the Department of Finance. Thus, the government has been
spending a lot for the country but has failed to collect enough tax to offset the deficit.
There is not enough government revenue to attain budget balance, wherein tax collection
is equal to government spending. Budget deficit has a negative effect for the government, as well
as for the society. These negative effects can be seen through the services that the government
has given to its constituents, as well as the infrastructures it funded. These services and
infrastructures that the government provides are considered of low quality just by looking at its
inferior performance, durability, and appearance.
If there is no ample amount of tax collections, how can we satisfy the claims of society?
In order to prevent the consistent occurrence of budget deficitand to achieve budget balance
tax collection should be stronger.
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To strengthen the governments collection of tax, they should expand the tax bracketing.
According to the National International Revenue Code (NIRC), Sec. 24, the tax shall be
computed in accordance with and at the rates established in the following schedule:
Not over P10,000 5%
Over P10,000 but not over P30,000 P500+10% of the excess over
P10,000
Over P30,000 but not over P70,000 P2,500+15% of the excess over
P30,000
Over P70,000 but not over P140,000.. P8,500+20% of the excess over
P70,000
Over P140,000 but not over P250,000 P22,500+25% of the excess over
P140,000
Over P250,000 but not over P500,000 P50,000+30% of the excess over
P250,000
Over P500,000 P125,000+32% of the excess over
P500,000

The tax bracket from 5% as minimum should be at 4% minimum and the next interval will be at
8%, thus a 4% interval, respectively. By expanding the tax bracket, taxpayers would be more
encouraged to remit their taxes to the government. If more taxpayers remit their taxes, there
would be more revenue for the government.
The government should also allot enough budget for the recording and auditing system of
the BIR. Computerization of recording and auditing would make the workload easier and would
make the process be well-organized.
According to the Department of Budget and Management, the countrys budget for
General Public Service is P338.1B. If the government could allot at least P5B to the BIR, it will
allow the BIR to computerize their system and improve services. P5B is just barely 1.5% of the
budget for General Public service so it would be a good move for the government.
Since the BIR will have enough fund for the computerization of the system, there will be
employees that will have less workload. These employees can be used to audit wealthy people
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who would possible be tax evaders. These employees will give a head start to an organized and
keen auditing system.
Having an organized and keen auditing system will also ensure that taxes are properly
collected. If these employees audit all Income Tax Returns of wealthy people, there will be a
lesser number of tax evaders. This would then ensure that all taxes are properly and fairly
collected.
It is stated in the Republic Act No. 7642 Sec. 2.Section 253 of the National Internal
Revenue Code, "Attempt to evade or defeat tax. Any person who wilfully attempts in any
manner to evade or defeat any tax imposed under this Code or the payment thereof shall,
in addition to other penalties provided by law, upon conviction thereof, be fined not less
than Thirty thousand pesos but not more than One hundred thousand pesos and suffer
imprisonment of not less than two years but not more than four years."
The government should revise this article and put heavier weight on the penalty. The fine
should be not less than Ninety thousand pesos but not more than Five hundred thousand pesos
and suffer imprisonment of not less than 5 years but not more than 15 years. This would
discourage tax evaders and eventually eradicate them.
Another way of strengthening the governments tax collection is by hiring more efficient
and knowledgeable workers, lawyers, and accountants to run and manage the Bureau of Internal
Revenue. Accountants and lawyers are the best choice in this kind of job because they are
efficient and superior in terms of taxation. These efficient workers would help boost the
organization of the system and operations in the BIR.


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D. BUREAU OF INTERNAL REVENUES LOW TECHNOLOGY
For the past 99 years, the BIR had been rendering service to the taxpaying public. Due to
low quality of technology, it takes them a long period of time to get their job done and send
information to the public.
The main issue tackled is the efficiency of the BIR. Since the Bureau of Internal
Revenues lack technology, tax records are not efficiently recorded and systemized which will
oversee problems like fraudulent deeds. To minimize these problems and to serve the public
better, the BIR need reforms and improvements to answer the problems of revenue collection
and to help the employees tasks be lighter.
This has been a common problem to the BIR, there are possible solutions we could take
to address this problem of technological deficiency. One solution is that they onset the Tax
Computerization Project in 1994 and to continuously use information and communications
technology to strengthen tax administration, which is a great idea for them to obtain information
faster.
The BIR must also invest budget for new computer hard wares and soft wares for faster
data inputs. The BIR should also put in budgets to hire skilled BIR personnel that are equipped
with the required knowledge in computer operations and systems. By implementing this, the BIR
also attain transparency in its operations due to the computerized information that will be
available to the public and provide easy access to information regarding taxes.
There is also a need for an electronic submission to the BIR of the required tax returns,
forms, and lists. It is designed to make the tax fulfilment easier and convenient for the tax payers.
They can use this method to submit taxes on time and places convenient for the tax payers as
long as the file it on the required time and date.
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Another solution is to enforce advance payments of business and income tax for
establishments without a permanent address such as tiangges and bazaars, as well its
organizers. There is a regulation currently being imposed that a fixed amount of Value-Added
tax of P150 per day and Income Tax per day of P50 are to be collected in advance per month
from the operators. This is good idea since it would not be a hassle for the BIR to collect taxes
from establishments whose incomes are not fixed.
Since most Filipinos do not care much about official receipts, and the BIR are having a
hard time to audit taxes due to unrecorded transactions in a companys books, there is a need for
promotional tactics. To encourage consumers to ask for their receipt everytime they make
purchases, The BIR must launch more promotional ads such as raffles like, Bayan,I-txt ang
Resibo, contests, and advertisements that will encourage citizens to habitually get their purchase
receipts. Through this, the BIR will also be able to determine which companies or businesses
who do not issue receipts through the reports given to them by this raffle or any promotional
tactics.
And lastly, they must provide Call Centers that will attend to the tax payers questions,
complaints and feedback regarding their services. As a result that they will be able to get the
opinion of the people for them to improve their services, thus making their auditing, information
and service more efficient in the long run. On another note, since we would need a lot of new
equipments and call centers, there would also be a need for new employees that utilize these
capitals. This would be also good for the economy since there would be more job opportunities
available.


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E. PORK BARREL
What is the issue of pork barrel, or sometimes termed as countryside development fund
(CDF), congressional initiative allocation (CIA), or priority development assistance fund
(PDAF)? Before we go to the problem, let us first find the meaning of pork barrel and how it
came to be?
Pork barrel is a term used to describe government spending that is usually given
to politicians in return for their campaign donations or vote. They are sometimes referred to as
pork barrel as patronage for helping them. So how did all begun?
It all started in the post-Civil War era in the U.S. and then when the American colonizers
inhabited the Philippines, it is said to be a part of the democratic institutions and processes that
was implanted by the Americans to the Philippines.
The term pork barrel comes from the plantation practice of allocating rations of salted
pork to slaves room wooden barrels. When used to describe a bill, it implies the legislation is
loaded with special projects for Members of Congress to distribute to their constituents back
home as an act of largesse, courtesy of the federal taxpayer. (C-SPAN Congressional Glossary)
The issue of pork barrel is that it encourages graft and corruption because there is a
misallocation of government budget due to annual increase of the pork barrel.
One of the solutions is the government should not increase and cut down the budget of
pork barrel and if there should be an increase, the government should use the increase for the
pork barrel for something else, like for education, health, infrastructure, etc. Why is there a need
to increase the pork barrel?
In 2010, What is the political rationale of Congress of giving Aquino P 68 billion in
pork barrel fund which is 200 percent bigger that the budget allocated for Department of Health
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and 300 percent bigger than the budget allocated for state colleges and universities? For what
noble purpose this budget is intended to? Is it for foreign trips abroad? Is it for the political allies
of Mr. Aquino? For what purpose and for whom? asked Hicap. In the statement, it states that
the pork barrel is higher than the budget of DOH gave enlightenment that the solution for of all
of these is to cut down the pork barrel and allocate it to other government budget like DPWD,
DOH, and DA.
Another solution is that the government should use some of pork barrel not entirely
everything to pay our foreign debt because right now, we have a foreign debt of $62.62 billion
(31 December 2010 est.). With the help of pork barrel, it can lessen the countrys debt slowly.
Third, the government should enact a Freedom of Information (FOI) law similar to other
countries that can give the citizens free access and the right to see all public records and
government transactions. With this law, the citizens can be rest assured that the pork barrel is
really used for the benefit of the country which will make citizens believe that it is used the
correct and justifiable way.
Another thing the government can do is to promote greater transparency in the use of the
pork barrel funds by requiring all of the projects to be listed publicly available throughout the
internet and print media so that the citizen can monitor the progress of the project and can learn
to appreciate the pork barrel.
Lastly, the government should form a certain no bias group that will keep watch on all
the government spending and where the flow of transactions is going. With this, there would not
be any government mismanagement anymore because everything is monitored by this group and
will lead the citizens to pay their taxes because they can see where their money is going.

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Shortcomings in Local Finance Reporting
Journalists interviewed for this chapter acknowledge that analyzing and interpreting data, and using them as a base
for a story are among their waterloos. They add that many journalists also lack the capability to establish linkages,
patterns and trends significant to a story.
Reporting is limited to how much is the collection, how much is spent on a project or received by department, how
much was spent for this so-and-so project, says Allan Nawal, a reporter based in Davao del Sur. (Reporters) gloss
over the figures.
Few journalists can claim to having done a great deal and a great job of reporting on local government finance.
Many areas are overlooked, says Labiste. Markets and other public enterprises, taxation and barangay planning are
but a few of them.
To close observers of local governance like Rood, coverage of local governance finance is disappointing. Its either
nonexistent, dismal or deeply ignorant, he says, pointing out that of the various finance stories, budget stories more
often land in newspapers and newscasts, but they generally lack substance. Its not even going beyond the figures,
just using the figures in keeping score in the fight between (the Sanggunian) and the executive, he notes.
Almost always, the journalists ignorance of finance and governance shows up in their copies. This shortcoming is
best illustrated when they report on borrowings of LGUs. One of the (manifestations of) deep ignorance is Debt is
bad, so that one of the surest ways to get into the newspapers about local government finance is if the LGU
proposes to borrow, says Rood.
He explains debt financing as an integral part of running a government. It doesnt make sense for a government to
run entirely on current expenditures. Its like you dont buy a house with current expenditures; you borrow money to
buy a house, he says.
Another obvious pitfall in local government finance reporting is the failure of most journalists to provide background
and context in their stories. If you look at the long-running controversy in Baguio about the increase in taxes, none of
the stories that came out ever referred to what happened before, Rood says. To somebody who doesnt follow
these things, its impossible to learn whats going on by reading the story aside from Councilor X said this and Judge
Y said that.
Attempts to help journalists understand the nuances of local government finance through training have been made,
notably by the Evelio B. Javier Foundation Inc. Banacia says that a course he attended in Bohol helped improve his
and his papers coverage of city hall and capitol. He echoed what he learned to his editors and colleagues once he
returned to Cebu. The paper also built up its library collection to include more materials on local governance,
especially local government finance.
But the courses are few and far between. Largely, learning has been an individual effort. It would help to hold an
orientation on local government finance, says Labiste, who went to a similar course.
Getting to Know the Basics
Short of attending such seminars, journalists who intend to do serious reporting on local government finance could
start with this reading list:
The Local Government Code of 1991 and its implementing rules and regulations
Handbook of Local Fiscal Administration in the Philippines, published by the National Center for Public
Administration and Governance of the University of the Philippines and the German Foundation for International
Development
The Budget Operations Manual of the Commission on Audit (COA) and Department of Budget and Management
(DBM)
DBMs Local Government Budgeting Manual, which elaborates on the Budget Operations Manual
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COAs Government Accounting and Auditing Manual, Barangay Accounting Manual and circular and property and
supply management
GOLD occasional papers and Rapid Field Appraisal reports
They would also find it worthwhile to look at circulars, regulations, opinions and other issuances from government
agencies that have a bearing on local government finance. Besides COA and DBM, the agencies include the
Department of Finance (Bureau of Local Government Finance), Department of Interior and Local Governments
(Bureau of Local Government Supervision) and the Office of the President.
Reporting on local government finance also requires journalists to watch a fairly long list of people at LGUs, a far cry
from the days when about the only person worth bothering was the local treasurer. Retired audit commissioner
Sofronio Ursal describes the things he would do at the local treasury services of Cebu City, Cebu province, Toledo
City and Leyte province from the fifties to the mid-seventies: I see myself typing invitations for public bidding, which
was my first job in the local treasury. I see myself journalizing an endless stream of disbursement and special journal
vouchers. I also recall having to pay, at the behest of our treasurer, labor payrolls on day before an election ban. In
another assignment I see myself supervising the preparation of a city budget. But among my most vivid memories
was when I was bitten by a dog while trying to collect a delinquent real property tax.
Local treasurers also performed property management and procurement functions. In all, Ursal says the treasurer at
the time had a total of 17 fiscal and non-fiscal functions, including as deputy or agent of a number of national
government agencies.
That no longer holds today. Finance work at LGUs has been divided up among several local officials. They include:
The chief executive (the governor, mayor or barangay captain) has overall responsibility for the collection, custody,
disbursement and proper use of funds.
The treasurer collects revenue due the local government by implementing tax and related ordinances, keeps
custody of the funds by depositing it in an official depository bank, and disburses the funds. The treasurer inspects
private commercial and industrial establishments and examines books of accounts of businessmen for the purpose of
implementing tax ordinances. The assistant treasurer, if there is any, administers oaths on notices and notifications to
those that are delinquent in paying real property tax. The treasurer is appointed by the finance department from a list
of three recommendees submitted by the mayor or governor.
The assessor conducts a periodic appraisal of real properties, maintains a tax mapping in preparation of tax rolls
used by the treasurer, and prepares a schedule of fair market value for the different classes of fair real properties.
The assessor keeps sworn statements declared by property owners, compiles house plans and their classification
into kinds and types of property for assessment purposes, and issues certified copies of assessment records or real
property and related records.
The budget officer consolidates and evaluates the budget proposal of various offices/units, assists the local chief
executive in preparing the budget, and executes the budget through the allotment system. The budget officer
coordinates with the planning and development coordinator in drawing up the development plan.
The accountant is in charge of accounting and internal audit, prepares and submits financial statements to the local
chief executive and Sanggunian, and certifies to the availability of budgetary allotment to which expenditures and
obligations may be charged.
The development council draws up the local development plan and investment plan.
The planning and development coordinator links planning and budgeting, especially in the preparation of the
development plan.
The Sanggunian enacts legislative measures for revenue generation, allocation and regulation of business activities.
The finance committee makes sure that the budget supports the programs identified in the development plan or the
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plan takes into account the financial capacity of a local government unit. It is composed of the treasurer, budget
officer and the planning and development coordinator.
The general services officer buys the supplies and services an LGU needs.
The bids and awards committee decides the winning bids and questions of awards on procurement and disposal of
supplies or property. In provinces, towns and cities, the committee consists of the chief executive as the chairman,
and the treasurer, accountant, budget officer, general service officer, head of office and occasionally a Sanggunian
member as members. In the barangay, the Sanggunian Barangay forms the committee.
The Budget
To figure out the priorities of a local government unit, examine its budget. That may not be an inviting proposition for
journalists, most of whom usually avoid numbers unless they are on a lotto ticket. But as Isaac Shapiro, international
project director for the Washington-based Center on Budget and Policy Priorities, points out, the budget is the most
important economic policy instrument for governments. Furthermore, he says, it reflects a governments
socioeconomic policy priorities by translating policies and commitments into expenditure and revenue. As the main
government instrument for the distribution of income, it directly or indirectly affects the life of all citizens.
In the Philippines, budgets of local government units from the barangay to the province must put into action
multisectoral development plans initiated by local development councils and approved by the Sanggunian. The
development plan contains the summary of major development concerns and priorities of a local government unit, its
development vision and goals, strategies, projected revenues and expenditures, public investment, requirements,
maps and other visual aids, and physical and zoning plans for three to 10 years. The council also puts out the local
development investment plan, which estimates the three- to 10-year level of investment development, matches
programs and projects against estimated investments, and identifies funding sources. A third output is the annual
investment plan, which contains a list of priority programs, projects and activities to be implemented during a specific
budget year.
The law mandates multisectoral participation in development planning. That explains the composition of the
development council at the different levels. NGO representation constitutes one-fourth of the council membership.
Chaired by the local chief executive, the councils executive committee consists of:
Province: governor, representatives of city and municipal mayors, chairman of the Sangguniang Panlalawigans
appropriations committee, president of the provincial league of barangays, NGO representatives
City or municipality: mayor, chairman of the Sagguniang Panglunsod/Bayans appropriations committee, president
of the city/municipal league of barangays, NGO representatives.
Barangay: punong barangay, representative of Sangguniang Barangay, NGO representatives
Like the budget of the national government, the law on local budget is clear: No money can be paid out of the local
treasury without an appropriations ordinance or law. Likewise, local budgets are framed in two parts (income and
expenditures) and go through five stages (preparation, legislation/authorization, review, execution and accountability).
The development plan has important functions during the various phases of the budget cycle. During budget
preparation, it is used to determine expenditure and sectoral ceilings, formulate the functions and project activities,
and determine cost estimates. During budget review, it is used to verify consistency of the budget with approved
activities, goals and objectives. During budget execution, the plan is the basis for determining activities to be
undertaken during the period. In the budget accountability phase, it sets the standards against which the performance
can be measured. Budget preparation normally begins after local government units receive from the DBM a circular
advising them of their internal revenue allotment or the IRA. This usually happens on June 15 of every year or earlier.
Thanks to the Local Government Code, the share of local governments in the IRA has risen to 40 percent from an
average of 11 to 12 percent before 1991.
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At around the same time as the IRA advisory release, the development council furnishes the local finance committee
with copies of the development plan, development investment plan and annual investment plan. That means the
plans must be in place by the end of May and have been approved by the Sanggunian. The accountant, meanwhile,
turns over the necessary financial data to the chief executive through the finance committee. The treasurer submits a
certified statement covering the income and expenditures of the preceding year, the actual income and expenditures
of the first two quarters of the current year, and the estimated income and expenditures for the last two quarters of
the current year. Other inputs to the budget making process include information supplied by the national government
and state corporations on their programs and projects.
Made up of the treasurer, budget officer and planning and development officer, the finance committees job is to
project the income the city or province expects in the coming year, set ceilings for spending, and recommend tax and
revenue measures and borrowings. Its recommendations form the basis of the guidelines that the mayor or governor
later issues to department or unit heads in drafting their own budget proposals.
The budget call follows: The mayor or governor asks the heads of various offices and departments to submit their
budget proposals. The budget proposals that department heads hand in to the mayor or governor weeks later are
accompanied by information about their offices objectives, functions and projects; organizational charts and staffing
patterns, showing plantilla positions with their corresponding salaries; and accomplishment reports for the preceding
two years. The proposals find their way to the finance committee, which then comes up with a consolidated budget
due for submission to the mayor or governor for review on or before July 15. The mayor or governor conducts budget
hearings as he sees fit.
On October 16 each year, the mayor or governor presents for legislation the executive budget to the Sanggunian or
the local lawmaking body. Failure to meet this deadline means criminal and administrative charges for the slowpoke
official.
Three documents make up the executive budget: a budget message stressing the significance of the proposed
budget in relation to the local development plan, a summary of the local governments planned activities and a
summary of financial statements showing the actual and estimated income and expenditures in the preceding, current
and ensuing year. The last document includes information about the city, town or provinces obligations and
indebtedness, a summary of statutory and contractual obligations and other financial statements that show the local
governments financial condition.
The Sanggunian holds a series of public hearings on the budget before buckling down to review the executive
branchs proposal. Like Congress, the local legislature can decrease or delete an item in the budget, but cannot
increase total appropriations proposed by the local chief executive or include new items, except to provide for
statutory or contractual obligations that have not been included in the executive budget, or if the items provided are
deficient in amounts. Even then, such additional provision should not result in an excess of the total appropriations in
the executive budget.
The enactment process follows the sequence of sponsorship first and second readings and passage. The law
mandates the Sanggunian to enact an appropriations ordinance not later than December 31. The mayor or governor
subsequently approves or vetoes the ordinance.
If no budget is approved, the Sanggunian continues holding sessions, without additional pay for its members, until the
ordinance gets the green light. If there is still no approved budget after 90 days, the appropriations ordinance of the
preceding year is considered reenacted and remains in force until the local council okays the new budget.
Specifically, only the appropriations for salaries and wages for existing positions, statutory and contractual obligations
and essential operating expenses in the annual and supplemental budgets for the preceding year are considered
reenacted.
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Like the President, mayors and governors enjoy the power to veto any item of the appropriations ordinance or
resolution directing payment of money or creating liability without affecting the other parts of the measure. They
exercise the line-item veto only once on an appropriations ordinance or an item in it.
Local governments are by no means limited to the annual budget. The Sanggunian can pass a supplemental budget
in times of public calamity by realigning items in the appropriations ordinance. The source of funds must be indicated.
The local legislature can also enact a supplemental budget to cover other expenditures as long as the local budget
officer certifies that money is available for the purpose. The supplemental budget is enacted in the same way as the
regular budget.
Despite devolution, the national government has not really let go of LGUs especially when it comes to money. An
important phase in the budgeting process is the review done by the DBM central office of appropriations ordinances
enacted in cities and municipalities within Metro Manila and regional DBM offices of budgets enacted in provinces
and highly urbanized cities. The Sangguniang Panlalawigan reviews the budgets of towns and cities under it, while
the Sangguniang Panlungsod or Bayan looks at the budgets of the barangays that comprise the city or town.
The local government submits copies of the annual budget, appropriations ordinance, local development plan and
investment program, along with the organizational structure and staff pattern to the reviewing bodies. Given 90 days
to act, the reviewing bodies can declare the ordinance inoperative in whole or in part, and may disallow specific items
in excess of the amounts.
Essentially, the budget review is to ensure that the budget is balanced (read: projected expenditures do not exceed
projected income), covers statutory and contractual obligations, and earmarks the sums mandated by law for certain
expenditures such as the calamity fund (five percent of the budget), aid to barangays (not less than P1,000 per
barangay) and development projects or the Development Fund (20 percent of the IRA).
The review is also intended to make sure that spending limits are not breached. Debt servicing, for example, is limited
to 20 percent of the LGUs regular income; personnel services appropriations, 45 percent for first- to third-class cities
and municipalities and 55 percent for fourth- to sixth-class; and discretionary funds of governors and mayors, two
percent of actual receipts from real property tax collected in the preceding year.
Local governments are given from January 1 to December 31 to execute the budget. At the end of the year, money
unspent by a local government unit reverts to its general fund and must await an appropriations ordinance before it
can be used. Appropriations for capital outlay, however, are the exception.
The last phase in the budget process is budget accountability. The estimated and actual income and expenditures
are recorded and reported and operations of local governments are evaluated or audited against planned targets.
Why Some Budgets Are Defective
The Local Government Code sets the ideal scenario, complete with checks and balances, under which local budgets
are to be enacted. But a great divide exists between theory and practice. Local governance experts say a number of
local budgets are plain unresponsive to public needs and even prone to corruption. Because the budget is supposed
to implement the local development plan, local officials should give the most weight to this document when they
prepare the budget: Journalists should give the plan more than a cursory glance as well, since it can give them a
fairly good idea of the LGUs socioeconomic priorities in the short and long run.
Few local governments, however, actually base their budgets on development plans, according to Eddie Dorotan,
former mayor of Irosin, Sorsogon and now a development management consultant of the Ford Foundation. In the first
place, he notes, most planning and development councils fail to come up with them. In fact, data from the DILG show
that only 53 of the 78 provinces and 54 of 83 cities have development councils.
Some LGU budgets have also been found to lean heavily toward infrastructure projects instead of development
projects, because of kickbacks offered to local officials, says Dorotan.
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Transparency is hardly to be expected of local officials as well. Contents of the budget and public transactions are
often kept secret even when the public, including journalists, have a right to them. Reporting requirements are also
often violated.
Dorotan says even national government agencies are guilty of withholding information from local governments and
their constituents about their programs and projects. Senators and congressmen at times also disrupt development
planning and the local budgeting system by embarking on projects using their pork barrel funds without consulting
LGUs. Youd know about the project only when its already being done or finished, Dorotan says.
In some places, mayors and governors are known to railroad the whole budgetary process. Except for the local
treasurer who is appointed by the finance department and the staff of the Sanggunian who are appointed by the vice
mayor or vice governor, all local officials and employees owe their appointments to the mayor or governor. The local
chief executives have no qualms replacing local officials with whom they dont see eye to eye, and that includes
members of the finance committee.
The ideal situation is one in which the finance committee acts as a body that will do its job of setting targets and
spending ceilings. But what usually happens, says Dorotan, is that only the mayor and just one committee member
the treasurer or the budget officer determine the shape of the budget.
As long as the mayor or governor has the numbers in the local legislature, the budget gets approved without sweat.
Legislators eschew public hearings in favor of caucuses where compromises are struck. But the budget proposal may
have a rough going if the mayor or governor lacks the backing of either majority of the local legislature or the vice
mayor, who is the Sanggunians presiding officer.
Mark Joseph, an opposition councilor in Makati City, knows only too well the problems of which Dorotan speaks. He
still vividly remembers how he and the citys only other opposition councilor, Robert Dean Barbers, were excluded
every step of the way when the 1999 budget was drawn up. As councilors, were supposed to submit our budget to
the local finance committee by July 15, says Joseph. The letter advising us to submit our budgets was dated July
28. We got the letter on October 16, when the budget was supposed to have already been submitted by the mayor to
the Sanggunian.
Even then, he says. Mayor Elenita C. Binay submitted the budget to Sanggunian a month after the deadline, and
furnished the council only with the executive summary. He adds, Ive never seen the local development plan and
public investment plan. Ive asked for them but have not been furnished copies. Theyre state secrets.
The council supposedly held budget hearings, but notified Joseph and Barbers the day after the hearings. The two
opposition councilors finally got a chance to look at the budget when it was presented for second and third readings.
Barbers and I were all set to question the budget, says Joseph. But (Vice Mayor) Edu (Manzano) didnt show up so
(Councilor Johnny) Wilson presided. He talked at the rate of 120 miles per hour. Before we knew it, the budget had
been passed; it took less than a minute. When we said we had not asked our questions, we were told that the debate
was closed.
The council naturally passed the budget without accompanying documents such as the public investment program,
development plan and procurement program because, says Joseph, none was ever submitted in the first place.
While the budget review is important to guard against deviations from the law, local chief executives often succeed in
convincing regional DBM offices or the provincial budget officers to discard this step. According to Dorotan, it takes
only a few words to do that. He says, The governor will go to the DBM and say, Thats already done.
Going Beyond the Numbers
The issues and problems raised by Dorotan and other local governance experts show the importance of going
beyond what reporters typically do during the budget process: file stories that say nothing else beyond comparing this
years figures with the preceding years. At the very least, a report on the adoption of a local budget should contain
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the following:
Amount to be spent
New or increased taxes, higher license and permit fees and other income that will be necessary to meet
expenditures, cuts, if any, to be made in such taxes, fees or fines
Comparison with preceding year or years
Justification for increases sought, cuts made
Rate of current spending, under or over budget of previous year
Patterns behind the submission and subsequent adjustments, such as political motives, pressure groups, history
Consequences of budget for agencies, departments, business, the public.
Lest readers are lulled to sleep by such number-heavy discussions, journalists could enliven the coverage of
development planning and budget making. The following lists just some of the ways to do this:
Examine participation in development planning, and report both good and bad news. Some of the bad news: NGOs
and other groups are shut out from the process; sham NGOs or those established by the government to give a
semblance of multisectoral participation get accredited to the development council; no public hearings are held; no
development plan is ever drafted. And some of the good news: NGOs get to participate not only in development
planning, but in other aspects of local governance as in the case of Naga City. Development planning is truly
participatory and bottom-up, as in the case of Toboso in Negros Occidental.
Deal with the development plan at the barangay level. Or barangay-ize the plan, as Rood puts it. Plans at the city,
town and provincial level tend to overwhelm because the wish lists by then become long and unwieldy. A good
approach is to explain what the development plan means to a barangay. A new school? More medicines at the health
center? Why the need? Or pick a marginalized community, comb through the resources they have or dont have
and see how it copes. Are they losers or winners? The development plan can also be cut up the geographically or by
sector so that stories hit people where they live. Journalists can actually write a series.
Check if the investment program would indeed attract new investors and if the LGU would end up losing or gaining
from the programs and the incentives they have lined up. Labistes paper pays close attention to Hollos annual
investment program, especially now that retail business is down. We want to find out how they intend to get Iloilo out
of the doldrums, she says. Nawal says he looks at agro-industrial centers being encouraged under Davao del Surs
annual investment program not only for additional income they would generate but also their impact on the
environment. How will the factories dump their wastes? Will they build wastewater treatment facilities?
Look for variance between the development plan and budget, and the budget and its execution. Orejas keeps a
copy of Pampangas development plan and budget close by. She has learned from experience that making a story
out of the development plan for the Inquirer is hardly a worthwhile activity, but she has found the plan and budget to
be a handy reference when monitoring development projects and operations of the province and the cities and towns
under it. Any deviations should be a red flag, she says.
Sit patiently through the budget hearings until the budget takes its final shape. After all, deliberations last only a
couple of months (from mid-October to end-December) unless the Sanggunian fails to enact an appropriations
ordinance. In sanggunians where there is healthy opposition, sparks fly when budget proposals come under fire and
are in danger of being slashed. Banacia suggests widening the discussion to include reactions and positions of
stakeholders not present during the hearings, especially when drastic actions are taken or proposed barangay
residents, local government officials and employees, sectoral groups, contractors. What happens to plans and
targets? Whos happy or unhappy? Who has the upper hand? Who is put at a disadvantage? Why? Are politics
involved? What are the alternatives? Sometimes, journalists come up with interesting stories by simply reporting
where budget hearings are held in homes and restaurants, for example, as was the case in Pampanga before
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1998.
Determine who gets the lions share in the budget and probe why. This is how Nawal usually begins most of his
budget stories. He is hardly surprised when the general services office, which handles the procurement of materials
for health, education and other vital agencies, gets the biggest chunk of the budget. But when the governor is given
the next biggest slice, a lot of questions pop in his head. He also begins to wonder the governor may have up his
sleeve, especially in an election year.
See how the budget addresses what Labiste calls flashpoints or pressing concerns in an LGU. In Iloilo, these
include flood control and drainage, squatter relocation, health and urbanization, and salaries. According to Labiste,
many journalists overlook the issues and stay glued to personalities or lump-sum figures.
Look at the budgeting trends. An exercise worth engaging in to compare the budgets of different local governments
to find out discrepancies in spending for say, supplies or infrastructure projects. Why is Town A paying 50 percent
more than nearby Town B for the same bottle of cough syrup from the same company?
Where the Money Comes From
One vital question that the reporter should know the answer to before asking any more queries, though, is: Where do
local governments get the money to fund their budgets?
First, theres the central government from which they draw their annual internal revenue allotment or IRA and their
share from the national wealth. Then, LGUs can on their own slap taxes like real property and business taxes,
impose fees for regulating and inspecting businesses and activities, and collect charges for services and goods they
provide to the public. Local governments also operate public enterprises like markets and slaughterhouses. Finally,
since the implementation of the Local Government Code, LGUs are increasingly turning to nontraditional sources of
revenues: credit financing or borrowings, build-operate-transfer schemes and bond flotation.
Wherever the money comes from, there are two things to bear in mind: One, any money a local government officer
receives officially in any capacity or on any occasion must be accounted for as local funds. Two, every LGU officer
who keeps the local fund must be properly bonded and is accountable and responsible for the funds in his or her
safekeeping. Of all their sources of funding, local governments are known to be most fiercely protective of the IRA.
This is the share of LGUs in the taxes collected by the national government such as income taxes, value added tax,
excise taxes and capital gains tax. It is given to provinces, cities, towns and barangays to enable them to effectively
carry out the tasks that the national government transferred to them under the Code.
The IRA has risen from 30 percent of the national taxes in 1992 to 35 percent in 1993 and to 40 percent beginning in
1994. It is computed based on collections in the third fiscal year preceding the current year.
The amount that a specific local government gets from the IRA varies. Of the LGUs 40 percent share, provinces and
cities each get 23 percent, municipalities, 34 percent, and barangays, 20 percent. Population, land area and equal
sharing also come into play when computing a local governments share.
Of the various issues that have come to be associated with the IRA, two are of note: the dependence of local
governments on it and their struggle to keep their IRA intact.
Many local governments remain dependent on the IRA as their funding source, especially provinces and
municipalities. So dependent have these local government units become to the IRA that it will not be surprising to
find that a considerable chunk of their own budgets would be sourced from the IRA, say lawyers Vincent Edward R.
Festin and Marion J. Manuel in a paper, The IRA Cut: Threat of Local Governance and Democracy.
In some areas, the lRA accounts for as much as 96 percent of total revenues and has become a disincentive for
LGUs to improve collection of local taxes, especially real property tax. The tax collection efficiency or the ratio of
actual collections to potential collectibles of LGUs is dismal. The GOLD Project of the Associates in Rural
Development estimates this to range from 6.7 to 74.8 percent in the provinces it sampled. Meaning, for every peso
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supposed to be collected, only seven to 75 centavos are actually collected. In municipalities, collection efficiency
ranges from 30 to 40 percent.
Journalists can help readers understand the ills of dependency by illustrating development projects that could have
been undertaken or expanded, or services that could have been delivered or improved had their local governments
looked beyond the IRA for funding.
When the IRA Gets Cut
Overdependence on the IRA partly explains why local governments get easily upset when the DBM delays the
release of the money to them or when the national government Malacaang and Congress, in particular tries to
slash the sum that is due them. But LGUs have other good and legal reasons to be offended.
The law clearly requires the national government to automatically release the IRA directly to the provincial, city,
municipal or barangay treasurer within five days after the end of every quarter, and bars the national government
from imposing any lien or holdback. It also sets several tough conditions before the IRA can be cut:
There must be an unmanageable public sector deficit.
Cuts on the IRA should come from the executive branch. A joint recommendation must be submitted by three
Cabinet secretaries finance, interior and local government, and budget to the President.
Before a recommendation is made, the Senate and the House of Representatives and the leagues must be
consulted.
The IRA cannot be cut to less than 30 percent of the amount collected as internal revenue taxes.
Corresponding cuts must be made on other agencies, including cash and non-cash budgetary aids to state
corporations, government financial institutions, the Oil Price Stabilization Fund and the Central Bank. In recent years,
local officials have been caught in a struggle to keep their IRA intact, sometimes with little success. In 1997, the year
the Asian financial crisis struck, President Fidel Ramos issued an administrative order that withheld 10 percent of the
IRA without consulting the leagues and Congress and without premising his act on an unmanageable public sector
deficit, as required by the Local Government Code.
The bickering among Congress, the President and local officials continued in the years that followed, as did the
reduction of the IRA by 10 percent. Then in December 1999, Senator John Osmea, chair of the Senate finance
committee, cited the growing deficit in calling for a cut in certain budgetary items or their classification as
unprogrammed expenses. He proposed that the P121.7 billion originally appropriated for the IRA be slashed by P30
billion.
Angry local officials responded to the proposal by marching in the streets and threatening a four-day work stoppage
unless the P30 billion was restored as a regular appropriation. The protest action and a veiled threat by local officials
to withhold support for President Joseph Estradas call for constitutional amendments forced Estrada to persuade the
Senate to reprogram the amount. But local officials were not wholly triumphant: P10 billion of the P30 billion fell
under unprogrammed funds.
Local governments had real reason to rejoice, however, when the Supreme Court in July 2000 said Malacaang was
barred from withholding their IRA. Responding to the petition filed by Senator Aquilino Pimentel Jr. that questioned
the legality of Ramoss order to reduce the IRA, the Court ruled that while the President may issue advisories and
seek (the LGUs) cooperation in solving economic difficulties, he cannot prevent them from performing their tasks and
using available resources to achieve their goals. It further noted that the President had only the power of
supervision, not control, over LGUs.
Sharing in the National Wealth
On top the IRA, local governments that are blessed with natural wealth such as forests, fishing grounds, oil fields and
mines share 40 percent of mining taxes, royalties, fishery and forestry charges and similar taxes, fees and charges,
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including surcharges, interests or finances collected by the national government. If the entity that develops and uses
the national wealth is a government-owned or -controlled corporation, LGUs are entitled to one percent of its gross
receipts in the preceding year or 40 percent of taxes it would have paid if it were not exempt, or whichever is higher. If
the tax paid by a business has been remitted to the national treasury, the local governments share is distributed
among the province (20 percent), city or town (45 percent) and barangay (30 percent). In highly urbanized or
independent cities, the city gets 65 percent and the barangay 35 percent. If the resources are located in two or more
local governments, sharing will be based on population (70 percent) and land area (30 percent).
The LGUs share in the national wealth, however, has created its own set of problems, largely owing to the Local
Government Codes failure to provide for direct remittances to local governments except for state corporations. As a
result, the actual share of local governments cannot be determined until tax payments have been remitted to the
national treasury and verified. These take time. If a business fails to pay up, LGUs dont get their appropriate share.
There have also been instances in which local governments quarreled over which should get the bigger slice of the
national wealth in their area.
Some LGUs get a special share from other taxes collected by the national government. For example, local
governments that host ecozones get one percent of the five percent gross income tax while areas flanking to the
zones split another one percent among themselves. The rest goes to the national government. In early 1998, Central
Luzon newspapers were filled with stories about the conflict between the Clark Development Corporation, operator of
the dark economic zone, and mayors of towns in Pampanga and Tarlac after the corporation failed to release their
one percent share.
Virginia tobacco-growing areas, meanwhile, are guaranteed a share in the 15 percent excise tax slapped on all local
tobacco cigarettes. Local governments also get from 20 to 50 percent from the excess collection in value-added tax.
In addition, the national government shoulders part of the insurance premiums of barangay officials and provides
subsistence allowances to barangay health workers.
In Pampanga, though, the national government found itself butting heads over the local government over tax
collection. In this instance, the quarrying tax, the collection of which had been purely a local activity until President
Estrada issued Proclamation 66 that allowed the Department of Environment and Natural Resources (DENR)
specifically the Natural Resources Development Corporation (NRDC) to step in, raise the tax from P40 to P300,
and split the proceeds. The provincial government, towns and barangays protested that the new setup went against
local autonomy and cut into their revenues.
Whether in the hands of the local or national government, the collection of quarrying fees was fraught with problems.
The Ombudsman suspended Pampanga Governor Manuel Lito Lapid for collecting P120 when the fee was pegged
at only P40. It said the illegally collected quarry taxes went to the personal pockets of the governor, two other
provincial officials and his brother-in-law. The Lapid camp, citing the governors longstanding feud with President
Estrada, charged persecution by Malacaang. Under the NRDC, reporters like Orejas found it difficult to determine
revenues collected from quarrying operations. Orejas came across inconsistent reports put out by NRDC and
discovered that receipts were being recycled.
Aside from dissecting such disputes, journalists may also find it worthwhile to scrutinize how the proceeds from the
share of national wealth are actually used. The law provides that they must fund local development and livelihood
projects. In the case of money raised from the development and use of energy sources, 80 percent of the proceeds
must be used to lower the cost of electricity in the local government where the source of energy is located. Is this,
indeed, happening in their neighborhood?
Local Fees and Charges
Since the Local Government Code came into effect, many money-raising opportunities have opened up to LGUs to
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lessen their dependence on national coffers. These include the collection of a variety of fees and charges.
Fees are paid to local governments in relation to the service rendered in regulating or inspecting business or activity
such as the privilege to operate an establishment or practice a profession. Fees are fixed by law.
Charges cover service fees, user charges and direct charges that are paid in exchange for certain services or
consumption of goods sold or operated by LGUs.
Local governments can pass an ordinance to adjust fees and charges whenever their computations show the rates
have become low. Local fees and charges include:
Regulatory fees in construction: building permit, plumbing permit, electrical permit, mechanical permit, occupancy
permit, plumbing inspection, mechanical inspection, inspection fees, demolition, fire certification, sanitary permit.
Regulatory fees in business: mayors permit, weights and measures, tricycle operation, sanitary inspection, video
tape rentals, storage of inflammable and combustible material.
Regulatory fees in non-business: marriage permit and solemnization, tax clearance fees, burial permit,
impounding/sales of stray animals, exhumation/removal of cadaver, police clearance, sheriffs fees, court fees, fiscals
clearance, fees on holding benefits, firearms permit, registration of large cattle.
Service fees: secretarys certification fee, traffic violations, garbage, hospital fees, overnight parking, terminal fee,
tuition fees, parking fees, health services, physical examination fees.
Receipts from economic enterprise: markets, hawkers, slaughterhouses, electric light and power, cemeteries,
waterworks system.
Journalists can easily come across stories involving fixers that facilitate the release of permits and licenses in big
towns and cities. More difficult to track are the mishandling of collections, as well as massive payoffs to inspectors,
collectors and local officials, especially by firms suspected of violating safety and sanitation requirements. The fire
that struck Ozone Disco in Quezon City in 1996 and left 166 people dead illustrates only too well how business
establishments that brazenly violate the Building Code and local ordinances still manage to get the permits and
licenses to continue operating.
What LGUs Can and Cannot Tax
Local governments are able generate their own funds through taxes as well. Taxes refer to monetary contributions
imposed on persons or property within the jurisdiction of the LGU to support government needs. They require
legislation ordinances before they can be imposed.
Local governments are allowed a variety of taxes, ranging from real property tax to the community tax that replaces
the old residence tax or cedula.
Taxes vary, depending again on the level of the LGU. Cities, for example, enjoy the widest range of tax options: They
can impose levies of both provinces and municipal ties combined. At the same time, a province cannot collect taxes
within the jurisdiction of the city. In addition, the rates can be pegged at 50 percent higher in all taxes except
professional tax and amusement tax. These explain why municipalities are raring to become cities. Metro Manila
towns enjoy the privileges granted to cities. The Local Government Code allows all local governments to adjust tax
rates once every five years at a rate not exceeding 10 percent. Journalists should thus be cautious when reporting
campaign promises not to raise taxes. It is likely the politicians cant fulfill that pledge not when tax rates have been
adjusted recently.
The law also limits the taxing powers of local governments. For instance, they cannot tax what the central
government already taxes such as the documentary stamp and taxes on inheritance. Neither can they tax the
national government, its agencies and other local governments. Also exempted from paying taxes to LGUs are
sectors and sectors and activities
What LGUs Cannot Tax
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(Put in box all with buttons)
Income tax, except on banks and other financial institutions
Documentary stamp tax
Taxes on estates, inheritance, gifts, legacies and other acquisition mortis causa
Customs, duties, registration fees of vessel and wharfage on wharves, tonnage dues, except when wharves are
constructed and maintained by LGUs out of its fund
Taxes, fees or charges on goods carried into or out of, or passing through, the territorial jurisdiction of LGUs
Taxes, fees or charges on agricultural or aquatic products, except when sold by marginal farmers or fishermen
Taxes on business enterprises certified to by the Board of Investments for six and four years, respectively, from the
date of registration
Excise taxes on articles enumerated under the National Internal Revenue Code, and taxes, fees or charges on
petroleum products
Percentage or VAT on sales, barters, or exchanges or similar transactions on goods and services
Taxes on the gross receipts of transportation contractors and persons engaged in the transportation of passengers
or freight by hire and common carriers by air, land and water
Taxes on premium paid by way of reinsurance or retrocession
Taxes, fees or charges on motor vehicle registration and driving licenses and permits, except on tricycles
Taxes, fees or charges on exports
Taxes, fees or charges on countryside and barangay business enterprises and cooperatives registered under the
Cooperatives Code
Taxes, fees or charges on the national government, its agencies and LGUs
Real Property Tax
By far, real property tax is considered as the most important of sources of revenues, accounting for slightly more than
a third of local receipts. Local governments can collect four types of real property tax, or a combination of these,
provided they are covered by appropriation ordinances
Basic real property tax (at most one percent of assessed value in provinces and two percent in cities and Metro
Manila);
Additional real property tax for the Special Education Fund (one percent for provinces and one percent for cities and
Metro Manila municipalities);
Idle land tax (at most five percent in provinces and cities); and
Special levy on land benefited by local public works (at most 60 percent of the actual cost of the projects and
improvements in provinces in cities).
Exempted from taxation are real property owned by the government or charitable institutions, churches, convents,
mosques, nonprofit or religious cemeteries and lands, buildings, and improvements used for religious, charitable or
educational purposes; machineries and equipment used by local water districts and government-owned or controlled
corporations to supply and distribute water or generate and transmit electric power; real property owned by registered
cooperatives; and machinery and equipment used for pollution and environmental protection.
Local officials, though, rarely make full and good use of provisions of the law to raise revenues. Orly Baleal, former
planning and development officer of Orani, Bataan, says most shunt aside proposals to impose new taxes or even
the maximum allowable rates because they are politically unpopular. They have also been found to be soft in
collecting taxes and running after tax delinquencies. Many LGUs hardly worry because they always have the IRA to
fall back on.
Local governments, for example, collected only 63.44 percent of potential basic real property tax in 1998, according
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to the COA. In Mindanao, the collection rate reached as low as zero in Lanao del Sur and 6.92 percent in the
Autonomous Region of Muslim Mindanao. Rood suggests that journalists produce reports on the arrears, specifically
where they are, as wake-up calls for negligent or complacent local officials. But he notes that the weak tax collection
is partly due to the unrealistically low targets set by the Department of Finance. As a result, local officials do not even
know they are collecting only half of what they could and should.
When 1998 drew to a close, real property tax delinquencies of local governments nationwide had ballooned to P1.21
billion. This happened despite remedies available to local governments such as administrative and court actions
against personal or real property of delinquent owners. Journalists do not have to look far for interesting stories to
write about tax delinquencies. They would do well to ask: Who owes the local government? How long have they
managed to get away with their delinquencies? Why?
They can also try to find out why local governments have failed miserably in collecting tax delinquencies. Some
problems, as it turns out, would have been easy to solve. Take this town where delinquent taxes of P182 million
remained uncollected only because the municipal treasurer omitted to post notices of delinquent real property taxes
at the municipal hall and conspicuous public places, and publish the list in newspapers, as required by a municipal
ordinance. The increase in the real property tax delinquency has far-reaching implications in terms of accelerating
socio-economic growth, says the COA. This will deter the planned program and project of LGUs because of
inadequate funding requirements. This ultimately shows how complacent to some extent are some of our local
officials, particularly in their efforts to generate more revenues for their respective areas of responsibility.
Other issues in real property taxation that should serve as red flags to journalists are:
Tax discounts: Are they granted in excess of the limitation provided under the Local Government Code, thus
resulting in an undercollection of tax?
Fines, penalties and interests on unpaid taxes: Have they been condoned by an ordinance thus depriving the local
government of additional income, as in the case of a city?
Payments of delinquent taxes: Are they applied to the current year despite nonpayment of their prior years tax
obligations? Payments of current taxes on properties with delinquencies should not be accepted. Any payment made
by a property owner should be applied first to delinquencies until the current tax can be accepted.
Tax mapping: Has the lack of capability to conduct tax mapping impaired an LGUs tax collection effort?
Valuation and assessment: Are properties sitting next to each other valued differently? How are properties of friends
and relatives of the sanggunian valued? To whom do the properties belong? Remember, it is the Sanggunian that
approves property values.
Tax collection: Is tax payment accepted publicly under supervised conditions? Do field collectors commit abuses like
extortion?
Remittance: Are taxes collected remitted to the concerned agencies? For example, Paraaque failed to turn over
trust liabilities amounting to P220 million to the concerned agencies. In one city, local officials remitted to the Bureau
of Internal Revenue only P99,951.24 in taxes withheld, leaving a balance of P125 million, thus depriving the national
government of the immediate use of the funds.
Official receipts: How does the local government acknowledge tax payments and remittances of tax proceeds? In
one town, the COA found 15 official receipts were actually falsified to reduce the amount of remittance. The amount
that appeared in the original and duplicate copies showed disparity ranging from P15,000 to P40,000. The
discrepancy totaled P157 million.
Fund juggling or diversion: Does the local government use the tax for the purpose it was collected? In Quezon City,
for example, 80 percent of P9.9 million realty tax that was supposed to go to the Special Education Fund or SEF went
instead to the General Fund, a clear case of what the COA said was illegal diversion. (The General Fund absorbs all
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obligations not specifically declared by law to be payable from any other funds.) In many local governments, the SEF
is being used for non-educational purposes such as salaries or allowances of non-school employees. The law says
the SEF should be used to operate and maintain public schools such as the construction and repair of school
buildings, facilities and equipment; educational researches; purchase of books and periodicals; and sports
development.
The Real Property-Paper Chase
Journalists can be aided by a wealth of records if they wish to look up a real property or examine issues related to the
realty tax in a locality. The documents are generally easy to access from the assessors and treasurers offices,
especially if the operations of the local government have been automated.
Local governments that have done or are doing tax mapping carry various maps, ranging from cadastral surveys,
engineering maps to barangay maps and isolated surveys, to help them identify the location, boundaries, dimensions,
size, ownership, existence of structure and title or taxable and exempt properties. The output of tax mapping should
be of interest as well: Municipal, barangay and section index maps; parcellary index maps with appropriate labels;
and a tax map control roll matching the map parcel with its characteristics and ownership data.
The assessors office classifies real property as either residential, agricultural, commercial, industrial, mineral,
timberland or special, and sub-classifies them as first class, second class, and so on. It then produces a schedule of
fair and current market values for lands and buildings. The Local Government Code requires that schedules to be
published in a newspaper of general circulation in the locality or posted in the provincial capital, city or municipal hall
and in two other conspicuous public places. The field appraisal and assessment sheet serves as the basis for
preparing the tax declaration, or the owners notice of assessment, and assessment roll, which is converted to a tax
roll and becomes the basis for preparing the tax bill or real property tax order of payment. Each property carries a
property identification number or PIN, which makes it easy for the local government to retrieve the tax declaration and
assessment report. Local governments also keep ownership record forms or ORF, which are controlled alphabetically
to respond to cases where the taxpayer will know only the name of the property owner. Assessment transactions and
cancellations are entered in chronological order into the Journal of Assessments. The document is useful in checking
dubious assessments and can provide insights on cancellations made during a period of natural disasters such as
destruction inflicted by a typhoon or other calamities.
Every semester the assessor submits a report of all assessments, as well as cancellations and modifications of
assessments, to the mayor or governor and the Sanggunian. A general revision of real property assessment is
supposed to be conducted every three years. Finding out delinquent real properties should not be difficult either. The
law requires local governments to update the list of delinquent real properties. The list specifies the name of the
property or person, the location, description and value of the property, and taxes due. The treasurer must post
notices of delinquency at the main entrance of the capitol and the municipal buildings and in other accessible places
and publish them once a week for two consecutive weeks in newspapers of general circulation within the locality.
Journalists must not overlook the role of the Sanggunian when it comes to the real property tax. After the assessors
prepare the schedule of fair market value, it is the Sanggunian that determines the assessment levels, tax rates, and
fines, discounts and penalties.
Taxing Businesses
All taxes imposed by local governments bear watching. But among the more interesting ones to keep an eye on is the
tax on business, which is different from the business permit. The annual tax is imposed on the act of operating a
business enterprise and computed on the basis of gross receipts. The local government prepares a tax schedule for
different business clusters such as manufacturers, wholesalers, exporters, retailers, contractors, banks and financial
institutions, and peddlers.
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Journalists may find it fruitful to determine if the business lines are properly identified. Firms engaged in several lines
of business (a wholesaler and retailer at the same time, for example) are subject to tax separately. Misclassification
can mean a business is either shortchanging the local government or is being taxed excessively.
The Local Government Code empowers local government to grant businesses various incentives, including
deferment or waiver of taxes and fees for a certain period, to attract investments. As journalists in Iloilo and some
provinces have found out, these incentives, especially so-called tax holidays, require close watching as they may
not always benefit the local government and its residents.
In Iloilo City, the Sanggunian passed an ordinance giving firms with a minimum capital of P5 million a one-to three-
year tax holiday retroactive to January 1999. But local businessmen and residents overwhelmingly opposed the
ordinance, saying none of them stood to benefit from the measure. The reason: small industries with capitalization of
below P5 million form the bulk of Iloilo Citys economy. They charged that the ordinance was intended to benefit the
newly opened SM City.
As Labistes paper, the Visayas Examiner, dug deeper into the ordinance, it uncovered other things that were not
quite right. One, it found that SM City had lobbied hard for the measure and were, in fact, employing several relatives
of some Sanggunian members. Two Sanggunian members later admitted as much: one had a sister and brother
while another had a daughter working for SM City.
The Visayas Examiner also reported that the ordinance was passed without the benefit of a public hearing. The
council instead held one committee hearing. In addition, the paper analyzed the impact of the tax holiday the city
stood to lose P50 million every year for the next three yearsand explained the projected loss in terms of basic
services that would not be delivered to residents. In the end, the vice mayor and mayor did not sign the flawed
ordinance.
The tax holiday case in Iloilo City brought out SMs attempts to get similar concessions in Bacoor, Cavite, Cagayan
de Oro, and Pampanga. SM also ran into stiff opposition from businessmen in San Fernando and Mexico towns in
Pampanga, where it asked for a 10-year tax holiday after deciding to build a mall on a 32-hectare lot in the province.
About 8,000 entrepreneurs petitioned the provincial government to junk the investment incentive codes of San
Fernando and Mexico. The San Fernando ordinance gave businesses with more than P100 million in capital a four-
year tax holiday on gross sales taxes and real property taxes, while Mexicos investment code exempted big business
from all taxes, except for regulatory fees, within the next seven years.
The businessmen said the investment codes were pro-SM and pro-big business, and discriminated against small
local businesses. While tax holidays were being obtained for and offered to SM City and big businesses, they said
in a statement, local businesses were slapped with a 600-percent increase on real property taxes and other fees.
The businessmen also said the implementing rules of the Local Government Code exclude malls from the business
enterprises entitled to tax exemptions.
Consumers and entrepreneurs further complained that they were denied participation in the final deliberations on the
San Fernando investment code. They said the code was approved during a closed-door session held in the home of
a municipal councilor.
LGU, Inc.
As a corporate entity, local governments can own and manage public enterprises. By far, the most common types of
enterprises operated by local governments are markets and slaughterhouses, which are more profitable compared to
other public utilities.
Local governments can own and manage public buildings for lease to private parties, waterworks systems,
vocational-technical schools, ferries and wharves, barangay multipurpose halls, multipurpose pavements, grain or
copra dryers, patios and other post-harvest facilities, parking areas. The Department of Finance also allows local
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governments to operate electric power plants, irrigation systems, telephone systems, toll roads and bridges,
commercial buildings, cold storage plants, cattle and hog markets, coliseums and sports complexes, radio stations,
food terminals, fishery and fishing rights, beach houses, municipal hospitals.
The questions suggested by the Handbook on Local Fiscal Administration to local officials in deciding public
enterprises to pursue are also worth raising by journalists. Is there a need for the project? Will it improve local
conditions? Will it serve a majority of the community? Were feasibility studies conducted; especially on-site
development and financial viability? Did the LGU get approval from the Sanggunian?
Journalists could also scrutinize the individuals or companies that local officials hire to help them operate the
facilities. Friends, relatives and political supporters, perhaps? Are there talks of payoffs or conflict of interest in the
awarding of rights or management contracts? How well or badly are the enterprises run?
Journalists can tell if an enterprise is profitable or losing by examining official financial reports that appear as special
accounts in the General Fund. Local governments keep separate accounts for each economic enterprise. Look at the
income generated from and the costs or expenditures in operating the enterprise. But there are hidden costs that are
not reflected in the financial reports. Market management costs, for example, can be charged to office of the mayor or
governor, or collection costs to treasurers office. Remember, too, that if an enterprise turns in a profit, the money can
be used for improvement and repairs, and pay advances or loans. Any excess goes automatically to the General
Fund.
Journalists can mine a lot of stories just by checking out public markets. In one city, for example, a public market was
gutted by fire and was cleared, rebuilt and maintained by a company owned by close friends and associates of high-
ranking local officials. Some public markets are being privatized, causing vendors to complain about the exorbitant
goodwill money or leases private operators ask for. Allegations of favoritism and irregularities have been raised
against market committees in awarding market stalls. Dummies are sometimes used to obtain more stalls.
In a city in the Visayas, the public market has been turned over to a market vendors cooperative. Unfortunately, the
cooperative has proved ill-equipped to operate it. In another city, also in the Visayas, the vendors cooperative has
turned into a cartel.
Again, the Sanggunians role in the operations of public markets is too important for journalists to overlook. The
council is empowered to pass an ordinance setting the guidelines for the adjudication and regulation of market stalls.
The awarding of stalls owned and operated by a local government may be provided for in an ordinance.
Local governments, by ordinance, can impose goodwill fees on market stallholders, after a public hearing. The
Sanggunian may also create a market committee, which shall the award or adjudicate vacant stalls.
Loans by the Local Government
Since 1991, though, local governments have also been exploring nontraditional ways to raise money for their
operations. They can issue bonds that guarantee creditors payment of their principal investments and interests when
the bonds mature. They can tap the private sector to finance, build, operate and maintain infrastructure projects. And
they can borrow from government financial institutions, private banks, other local governments, and foreign sources.
The Code lists infrastructure and socio-economic development projects, equipment, renovation of city and town halls,
and purchase of lots as eligible for loans. Banks normally lend to all local governments except the barangays.
Journalists can tell that a loan transaction with a bank passed the proper procedures if:
The project to be covered by a loan appears in the local development plan and annual investment plan.
The mayor or governor secures authority from the Sanggunian to apply for a loan. The council must pass an
ordinance identifying the purpose, source, amount, terms and conditions of the borrowing and the commitments of
the local government, and authorizing the mayor or governor to negotiate for and in behalf of the local government
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and sign the legal documents.
The debt service ceiling does not exceed 20 percent of the local governments annual regular budget.
Often, banks set interest rates that are based on prime rate, the prevailing market rate or the 91-day treasury rate
plus two percent. Local governments are allowed to put up the following as security or collateral: its income, including
the IRA, or net profit from the project being financed by the loan; chattel mortgage or equipment financed by the loan;
real estate mortgage or patrimonial property of the local government; and its bank deposits.
Journalists may find other documents that accompany a local governments loan application helpful. These include
the LGUs charter and profile, list of elective officials, certifications of available equity, COA-audited financial
statements, summary of statutory and contractual obligations, actual and projected IRA, and project specifics like
feasibility studies and projected cash flow; quotations from suppliers, or survey of lease rates in neighboring areas for
commercial building. Some local governments also submit Torrens titles, building plans and photographs as evidence
of their security or collateral.
The Code of Conduct and Ethical Standards for Public Officials and Employees or Republic Act 6713 classifies loans
obtained by a government entity as public records. But as Makati Councilor Joseph has found out, the guarantee is
good only on paper, at least in his city. When he tried to get hold of documents covering a P2.4 billion loan for the
construction of the city hall and a subsequent P1.5 billion loan, the council, of which he is a member, was of no help.
Neither would the bank give him a copy of the contract, saying he was not listed as one of the contracting parties. Its
ridiculous. The council approved the loan, but a member of the council could not get a copy of the loan, he says.
Joseph finally got a copy of the loan through a friends help.
Local governments can also borrow from other LGUs that have surplus funds. Among the questions journalists
should ask are:
Did the borrowing LGU enact a resolution or ordinance applying for a loan? The ordinance must define the name of
the lending LGU and purpose of the loan, and empower the governor or mayor to negotiate and enter into the
contract for the local government.
Did the treasurer of lending LGU certify that his town, city or province has surpluses that can be lent? Did the
auditor attest to the certification?
Did the Sanggunian meet to decide the amount to be loaned within the certified amount by the treasurer? Did the
Sanggunian draw the terms and conditions?
Did the ordinance define the amount, purpose, equity of the borrower, interest rates, grace periods, repayment
schemes and security?
Was the loan contract signed by both the borrower and lender, then ratified by their sanggunians? The contract is
not valid if it has not been ratified.
Besides the chief executive and Sanggunian, the auditors, budget officers and treasurers of both LGUs should have
copies of the documents listed above.
With help from the national government, local governments have access to foreign loans and grants through the
Municipal Development Fund or MDF. The special fund makes available to LGUs various foreign loans, assistance or
grants resulting from agreements entered into by the national government with foreign governments and international
lending institutions. It is managed by a policy governing board composed of representatives from DBM, DILG,
Department of Finance, Department of Public Works and Highways, and the National Economic Development
Authority. The MDF administrator is based at the Bureau of Local Government Finance of the finance department.
LGUs can also apply for Official Development Assistance or foreign aid obtained from government agencies through
diplomatic channels and officials representations. ODA takes the form of soft or confessional loans or grants. In this
case, the local government consults the national government and prepares a project proposal using the NEDA form.
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The local development council evaluates the project to ensure it is consistent with the development and investment
plans, after which the Sanggunian endorses it. The project proposal finds its way to the DILG, which, in turn, refers it
to the concerned national government agency for review. The proposal is returned to the local government then
endorsed by the Sanggunian to the funding institution. When the LGU submits the proposal to the funding institution,
it furnishes copies of the proposal to the local, regional and national offices of the DILG and NEDA.
Unfortunately, when local governments borrow money, they are likely to get a bad press. I think its a realistic goal to
get people away from the debt is bad framework. But the various forms of debt and credit finances are sort of very
difficult to explain or bring down to the level of the ordinary person, says Rood. He also notes that journalists tend to
encourage the notion that it is irregular for borrowers to put up their IRA as security for loans. Theres nothing
crooked about it. Banks hold their (LGUs) IRA because its guaranteed and the bank knows itll get paid.
Bonds to Boost Revenues
Local governments also become borrowers whenever they issue bonds. Parties who purchase the bonds become
investors; they can be individuals, corporations or financial institutions.
Towns and cities like Victorias, Claveria and Legazpi have floated bonds to boost local revenues. The Local
Government Code is strict about the bonds that LGUs are allowed to issue. They should be revenue bonds, and not
general obligation bonds such as those intended to raise the salaries of employees or improve city halls. Issuing
bonds follows this process:
The project to be supported by the bonds is identified and evaluated.
The Sanggunian approves the project and authorizes the issuance of the bonds.
A financial adviser is hired to help design the financial plan. An underwriting team or middleman (banks, investment
houses or brokers) is selected. Bond terms and conditions are negotiated. Documents and agreements are drawn up.
The Sanggunian approves the final bond terms and includes them in the budget.
Guarantees must be obtained from the Housing Insurance and Guarantee Corporation for housing projects.
Approval of the Department of Agrarian Reform must be secured to convert land from agriculture to
housing/commercial property.
Underwriting documents are prepared and a prospectus is offered.
The LGU gets a favorable opinion from the Bangkok Sentral on the issuance of the bonds.
A city or town gets the approval of the Sangguniang Panlalawigan.
The LGU sells and bonds and pays investors when they mature.
Build, Operate and Transfer Schemes
In recent years, a number of local governments have also been successful in getting the private sector to participate
in financing, building, operating and maintaining roads, bridges, public markets and infrastructure projects under the
Build-Operate-Transfer (BOT) scheme. (See Box)
But LGUs still have a long way to go in getting the public to accept the private sectors role in development and
infrastructure projects. Notes Rood: If its a road, people believe it must be government, and thats part of the trouble
with BOT and privatization. The average Filipino, like the average person in the world, doesnt much like profit in the
abstract. They dont mind if the company theyre working for makes money, but they dont like (some) other company
(to be) making money in electricity or roads. Theyre suspicious of the notion that the only way to get this road is to
allow somebody to build it and make a profit. Theyre more accustomed to the government providing it. For
journalists, the worries should start when local governments and contractors depart from normal procedures. Here
are some questions journalists can ask when reporting on BOT projects:
Is project justified? Does it fill a need? Does it improve conditions in public health, safety and welfare? Is it useful to
the large majority? Is it creating jobs?
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Does the project consider site and right-of-way acquisition and relocation issues, including availability of
appropriately located LGU-owned land?
What are the effects of local government master plans?
Does the project have support of the community?
What are environmental issues and potential cost implications?
What is the possible social impact?
Is it viable? Technically? Financially? Economically?
Types of Build-Operate-and-Transfer Schemes
(Put in box all with buttons)
Local governments can consider using any of the following BOT variants:
Build-and-Transfer (BT): The private sector finances and constructs an infrastructure or development facility. After
its completion, the private sector turns it over to the LGU, which pays the contractor the total investment on the
project.
Build-Lease-and-Transfer (BLT): The private sector finances and builds the facility. When completed, the facility is
leased by the local government for a fixed period after which ownership is transferred to the LGU.
Build-Operate-and-Transfer (BOT): The private sector finances, builds and operates the facility over a fixed term.
During the period, the private sector charges facility users appropriate tolls, fees, rentals and charges not exceeding
those proposed in its bid or as negotiated and incorporated in the contract to enable the private firm to recoup its
investment, operating and maintenance expenses. The private sector transfers the facility to the LGU at the end of
the fixed term, which shall not exceed 50 years.
Build-Own-Operate (BOO): The project proponent finances, contracts, owns, operates and maintains the facility,
and collects tolls, fees, rentals or other charges from users.
Build-Transfer-and Operate (BTO): The contractor builds the facility on a turn-key basis, assuming cost overruns,
delays and specified performance risks. Once the facility is commissioned satisfactorily, the title is transferred to the
LGU. But the private entity operates the facility on behalf of the implementing agency under an agreement.
Contract-Add-and-Operate (CAO): The project proponent adds to an existing facility that it is renting from the local
government and operates the expanded project over an agreed franchise period. There may or may not be a transfer
arrangement on the added facility.
Develop-Operate-and-Transfer (DOT): The contractor develops adjoining property and enjoy benefits of investment
such as higher property or rent values.
Rehabilitate-Operate-Transfer (ROT): A facility is turned over to the private sector to refurbish, operate and maintain
for a franchise period, at the expiry of which the facility is turned over to the government.
Rehabilitate-Own-and Operate (ROO): Similar to the ROT, except no time limitation is imposed on ownership by the
franchise holder.
Did the Sanggunian authorize the mayor or governor to negotiate for the project?
How is the project proponent selected? Through public bidding? Through an unsolicited proposal? If the project is
the result of an unsolicited proposal, watch out. Chances are the proposal did not go through reviews made during
the project formulation phase.
Is there a notice to proceed to the successful bidder? Is the notice issued within 15 days of contract approval?
Is the project built according to specifications?
Is it delivering the intended volume or level of service?
Do the target beneficiaries make corresponding payments?
Where the Money Goes
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The funds collected through all these efforts are bound to be spent on something or more accurately perhaps, many
things. The budget is supposed to give at least a general idea where the money will go.
The budget often lumps the money for various projects under broad categories, say, different road and bridge
projects under Capital Outlay. Local governments usually report expenditures by fund (General Fund, Special
Education Fund, Trust Fund), allotment class (Personal Services, Maintenance and other Operating Expenditures,
and Capital Outlay), and by function (General Public Services, Economic Services, Health Services, Education,
Culture, Sports and Manpower Development, Other Purposes, Housing and Community Development, and Social
Welfare Services). Beyond that, no specifics are given. This is why it is important for journalists to talk to the heads of
the offices and agencies to determine what they are spending the money on.
Local governments are given from January 1 to December 31 to execute the budget. But because of their heavy
dependence on the IRA as their source of revenues, activities often pick up after the DBM has issued to the cities,
town and provinces their quarterly advice of allotment (AA) for the IRA and, more importantly, the monthly notice of
cash allotment (NCA). The latter advises mayors, governors and barangay leaders that the money representing their
share in the IRA has been transferred to the LGUs bank account.
To get money released for specific items means going through a bureaucratic maze. It can happen only after the local
budget officer certifies the existence of the appropriations, the accountant obligates the money, the treasurer certifies
to availability of funds, and the mayor or governor approves the release.
There are also a lot of legal dos and donts. For instance, while a local government can spend on school children and
support livelihood projects of NGOs, it is prohibited from spending for religious or private purposes. The law also says
local governments cannot juggle funds, spend more than uncollected estimated revenues, make new positions and
salary increases retroactive, incur overdrafts at the end of the year, and pay contractors in advance for undelivered
goods or services. Local governments are not supposed to use trust funds for purposes other than for which the trust
was created, or spend for reception and entertainment except those allowed by law or authorized by the President, or
for the reception of visiting foreign dignitaries or members of foreign missions.
The Local Procurement Process
One thing about the government procurement process is that nearly every step is accompanied by a piece of paper.
For a journalist looking at local government deals, any process that is not performed or any document that is not filled
out or filled out improperly should be a red flag.
The rules on procurement are stringent. They are spelled out in the Local Government Code and COA circular No.
92-386, or the Rules and Regulations on Supply and Property Management in the Local Governments.
A local government, for example, cannot buy supplies or real property unless this is included in the approved annual
procurement program or is an emergency purchase. The total estimated cost of the program itself cannot exceed the
total appropriations authorized for the acquisition of supplies or property for the year, although supplementary and
amendatory programs are allowed.
The program, prepared by the local chief executive (the barangay captain, mayor or governor), is based on the
annual procurement plans handed in by the heads of departments. The plan is an itemized list showing the kind,
estimated quantity, estimated cost, description of supplies or property together with the balance on hand the
department requires for the year.
COA requires separate plans and programs for supplies or property; non-expendable supplies or articles that are not
consumed in use such as weapons, vehicles, machines, tools and instruments; nonpersonal services, which include
repairing, cleaning, redecorating or rental of personal property and furnishing of necessary repair parts or other
supplies as part of the services performed; and materials for infrastructure projects.
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The general services officer in the province and city, or the treasurer in the municipality and barangay, buys on the
local governments behalf. But no order can be placed without a written requisition of the department head, who
certifies the supplys necessity for official use. Each requisition comes with a request for obligation and allotment.
Before the local chief executive approves the requisition, there must first be a string of certifications. The department
head certifies the validity, propriety and legality of the funding. The budget officer certifies that the appropriations
exist. The accountant certifies that the expenditure has been obligated. The treasurer certifies the funds that have
been obligated are available,
An advice of allotment issued by the budget officer is the green light for the department head to fill out the requisition
and issue voucher for supplies that are carried in stock or the purchase request for those not carried in stock. Copies
of the forms are furnished the general services officer, treasurer and the requisitioning department. At this point,
reporters may want to determine if requisitions are split to evade the required approval of higher authorities or
circumvent control measures.
The Code specifies public bidding as the primary mode of procurement. It also mandates the creation of a committee
on bids and awards, which will decide the winning bids and questions of awards on procurement and disposal of
supplies or property. This committee consists of the local chief executive as the chair, and the treasurer, accountant,
budget officer, general services officer, head of office and occasionally a sanggunian as members. In the barangay,
the Sangguniang Barangay makes up the committee.
Usually, the general services officer or the treasurer acts as secretariat to the committee and keeps records of the
minutes of meetings. The same official puts out the call for bids. The call or invitation for bids must be posted in at
least three publicly accessible and conspicuous places such as the barangay hall or public market at least 10
days before the opening of bids. This invitation must contain the complete description and technical specifications of
supplies or property, terms and conditions of participants and award, and the terms of delivery and payment. For
infrastructure projects, the invitation must have the program of work. Local governments may also publish the notice
of bidding in a newspaper of general circulation.
The general services officer or treasurer is required to maintain a list of bidders in the locality indexed and cross-
indexed by supplies categories. Bidders fill out bid forms in which they declare their business interests, submit
quotations, and indicate the brand name and country of origin of the manufacturer of the supplies.
The COA sets the bidders bond at five percent of the total amount of the tender but limits it to P20,000 at most per
proposal. A winning bidder who refuses to accept the award without justifiable reason forfeits the bond and will be
barred from participating in future biddings. Tenders are good for 60 days. Bids are submitted in sealed envelopes.
Bidders may be required to submit a sample as well. All submitted bids are opened at the time, date and place set in
the call forbids, in the presence of the provincial, city or municipal auditor or his representative who needs to initial
and secure copies of the bids. The proceedings are open to the public. The bids are then abstracted and certified as
to their correctness and authenticity by the committee on awards and the auditor. Defective bids may be considered
to determine whether it would be advisable to hold a rebidding or waive the defects. Whenever the price in a
defective bid is lower by at least 10 percent, the bidder who offered the nondefective bid will be asked reduce his
price to that of the defective bid. If he consents, the award goes to him at the reduced price.
The lowest complying and responsible bid that meets all the terms and conditions of the contract is declared winner
by the committee on bids and awards. COA requires that the decision be recorded and posted at a prominent place in
the provincial capital or the city or municipal or barangay hall.
Winners and losers alike should be notified of the acceptance of their bids. The bonds of the unsuccessful bidders
are then released; the losers should acknowledge the return of the bond. The winners bond, in turn, gets a receipt
and may be released only when the bidder enters into a contract and files a performance bond.
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The winning bidder is then issued a purchase order or contract, which must have the following information: the office
to which the account will be charged and the requisition number; the name and address of the supplier or contractor;
the office to which the delivery will be made; complete descriptions and specifications of the supplies or property,
including the nature and quality of the items; a penalty clause for late or nondelivery; the quantity and unit price; the
period of delivery; the shipping terms and conditions and other conditions of delivery; the date of effectivity and
termination of the contract; and the conditions regarding importation.
Contracts involving more than P10,000 require that the winner put up a performance bond, equivalent to a tenth of
the value of the purchase order or contract. In case of importation, the bond reaches 20 percent. An extension of
delivery period is allowed if the request is made before the term has expired and recommended by the committee on
awards and approved by the local chief executive.
Should the first bidding fail, a second bidding can be called by the committee on awards. Only after a second failed
bidding can the committee recommend a negotiated purchase.
The committee on awards or its representative does the canvass and prepares an abstract of the canvass. The local
chief executive, upon recommendation of the committee, decides and awards the contract, which then goes to the
Sanggunian for approval. Items must be delivered within seven days after the order is placed.
Procurements Beyond Biddings
The COA allows other procurement modes when justified. These include personal canvass, emergency purchase,
direct purchase, and purchase from an exclusive distributor or a government entity. The authority to decide awards in
emergency purchases rests with the local chief executive, upon the recommendation of the general services officer or
the treasurer. In the other modes, the authority rests with the committee on bids and awards.
The law sets limits on the various modes of procurement. Personal canvass, for example, is limited to amounts
specified for all items in any one month for the entire local government unit. This means P150,000 for first and
second class provinces, cities and Metro Manila towns; P100,000 for third and fourth-class towns; and P50,000 for
fifth and sixth-class local government units.
In municipalities outside Metro Manila, the ceilings are P60,000 for first class towns, P40,000 for second and third
class, and P20,000 for fourth class and below. Barangays in cities and Metro Manila can buy up to P10,000 and the
rest, P5,000. Metro Manila, the Autonomous Region of Muslim Mindanao and the Cordillera Autonomous Region fall
under the category of a first-class province.
Unless the purchase order or contract says otherwise, deliveries must be made within seven days of the receipt of
the order. Deliveries must be inspected and verified by the authorized inspector, and evidence of deliveries
presented. An inspection report should be submitted within 24 hours to the auditor, who can conduct surprise and
selective inspections. Property inspectors must submit reports to their supervisors during the day. Curiously, though,
the deadline for delivery for items bought as emergency purchases is 10 days after an order is placed. But then the
supplies must be used within 15 days of delivery. A report of utilization must be prepared, supported by requisition
and issue vouchers signed by a representative of the beneficiaries. A copy goes to the auditor.
Confirmatory reports must be furnished to members of the awards committee.
The COA also allows local government to buy from exclusive distributors that have no subdealers selling substitutes
of the same quality at lower prices. The authority to purchase rests with the committee on awards.
Repeat orders are authorized if the original purchase was made through public bidding, the quantity in the repeat
order does not exceed the original purchase and prices have not gone down in the market by 10 percent. Also, the
order has to be made within three months from the date of the original purchase order, and the terms and conditions
should be similar to the original purchase. The mayor or governor is empowered to place a repeat order upon the
recommendation of the treasurer of general services officer.
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Whichever procurement mode is used, payment is always by check. The local treasurer draws the check, which is
countersigned by the local administrator. If there is no administrator, the mayor countersigns. For expenditures
appropriated for the Sanggunians operation, the checks are countersigned by the vice governor or vice mayor. The
law prohibits advance payments no services rendered, no goods delivered, no payment but makes exceptions for
infrastructure projects.
The COA also sets the following conditions on:
Disposal of supplies: by public auction, sale through negotiation, transfer without cost to other offices or department
or other government agencies, or destruction.
Lease of spaces for public use: by sealed bid or negotiations, if sealed bid fails. The contract must be in writing and
approved by the Sanggunian and must run for one year to correspond to the budget year. Renewal is an option of the
local government.
Lease of government spaces to other entities: by sealed bid of negotiation. Only idle lands and buildings can be
leased.
Lease of idle equipment: By sealed bud or negotiation-lease contracts exceeding one month should be supported
by a surety bond. Rental must be paid in advance or the lessee must put up a domestic letter of credit. The
Sanggunian and the committee on awards determine the rental rate.
Importation: Heavy equipment or machinery for use in infrastructure can be imported without paying duties and
taxes, but cannot be disposed of within five years from importation. Otherwise, the local government must pay duties
and taxes.
How the Process Can Get Manipulated
Despite all these rules, irregularities still take place. For instance, according to Dorotan, local governments tend to
lean heavily toward infrastructure projects where kickbacks offered to officials normally range from 10 to 30 percent of
the contract price. He says the mafia that reaps from kickbacks from infrastructure projects and procurement of
supplies usually consists of the mayor, treasurer and auditor who are the key people in budget execution. It is the
contractors lookout when the treasurer is left out of deals. Until the treasurer gets his share of the grease money, he
can very well make life difficult for the contractor. In the case of contracts, journalists may find it worthwhile to
examine the relationship between the mayor and other local officials and suppliers.
In Makati City, Vice Mayor Edu Manzano marvels at how prescribed procurement procedures are followed then
subverted through other means to favor suppliers.
Manzano does not belong to the same party as Mayor Binay. Months after his election in 1998, Manzano, a movie
actor and TV host, noticed he was being excluded from meetings of the committee on bids and awards. As the
Sanggunian or city councils presiding officer, he is a member of the committee. In fact, despite being left out of the
meetings, he was still being asked to sign procurement documents, including vouchers.
Then came a council purchase request for radios priced at some P30,000 each. Earlier that day, Manzano had come
across a newspaper column that happened to quote the average price for the same radios and it was less than half
the figure on the purchase request.
The vice mayor then began his own investigation. He learned from suppliers and officials that kickbacks or
commissions ranging from 10 to 20 percent are the norm whenever local governments purchase supplies or
equipment. But at the Makati City Hall, Manzano found, the cuts average a whopping 40 percent. An independent
canvass done subsequently by Manzanos office showed that items bought for the Makati City Council were
overpriced by an average of 519 percent. For example, paper copiers bought by Makati were priced at P89,000 each
but were being sold by the same firm to its walk-in customers for half that. The city bought a fax machine for P75,000
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that could be had for P11,000. TV sets that go for P19,000 apiece are bought at P43,000, while toner ink that sells for
P1,116 at a leading bookstore was purchased at P6,500.
One thing Im assured of, says Manzano, is the process must (have been) respected, from the request, to the
rewarding, to the payment. That was all respected. Even the bidding was above board. They got three bids, bids were
considered, the winner was made accordingly. But see, what we have here is now a moral issue already, the process
may have been respected, but I know for a fact that its non-acceptable.
He says that five friendly accredited suppliers control millions of pesos worth of contracts. The vice mayor tried to
persuade other firms to apply for accreditation to provide competition and bring down prices. But they opted out after
being asked by the general services office, Are you willing to wait for 360 days to get paid?
Yet, Manzano says, It has become my experience in city hall that even if I havent signed the disbursement voucher,
theres already a check waiting for it. He adds, Seriously, last December (1999), I almost sued one of the suppliers,
I signed a request for allocation on December 9. When the check came for my signature, it was dated December 8. It
hadnt been approved by my office but there was this check.
Such speed is probably due to the fact that suppliers have to pay sizable kickbacks in cash to City Hall officials
and employees before their merchandise is assured of payment. Suppliers themselves have admitted this to
Manzano.
Two years into his job, the vice mayor has discovered that trying to tidy up City Hall is a thankless task. When he
refused to sign vouchers and checks for purchases, singer-councilor Rico Puno threatened to haul him off before the
Ombudsman on graft charges. When Manzano questioned a P14-million road project, which his independent canvass
showed could be done for P3 million, councilors belonging to the majority party called for a division of the house.
Every time legislation is questioned where you suspect some form of anomaly, the house is divided, grouses the
vice mayor. Everything stops there.
Manzano has tried summoning the city engineer and other officials for questioning, to no avail. The fault essentially
lies with the Local Government Code, he says. The council has no compelling powers. We dont have any contempt
powers. Neither has the COA helped him access documents on purchases made by the city government. Notes
Manzano, COA will have to support you first before you provide the documentation before the Ombudsman.
Makatis problems existed even during the term of Binays husband, Jejomar, as mayor. Then Councilor Michael M.
Joseph wrote the COA to investigate three ordinances issued in 1998 allotting a total of P137.7 million from the
special project funds of the mayor and councilor for the purchase of school pads, notebooks, workbooks. Joseph
noted that no requisition was prepared by the schools superintendent certifying the necessity of supplies to be
procured, the supplies to be procured were not included in the annual procurement program, no stock position sheet
was presented, and the supplies to be procured were excessive in quantity and price. Ironically, Joseph was the
chairman of the committee on finance, ways and means, but lost the appropriations committee when he and Jejomar
Binay had a falling out.
Cebu has not been spared from procurement scandals either. In June 1999, the Ombudsman filed criminal and
administrative charges against Cebu City Mayor Alvin Garcia and eight other city officials for entering into an
exclusive contract with F.E. Zuellig to supply P27.6 million worth of asphalt. The Ombudsman declared the deal as
grossly disadvantageous to the city. Cebu Daily News Banacia, who broke the story, reported that:
The city bought the asphalt at an overprice of P18.3 million.
The mayor signed a three-year contract, which violated a government regulation that provides such contracts to be
good for only one year.
The products were not subjected to proper bidding. Since the specifications in the notice for bidding fit exactly F.E.
Zuelligs specifications, the bidding was just a formality.
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Advance payments were made to F.E. Zuellig.
The prices for the products were not quoted in the contract. They were also fixed in dollars but payable in pesos.
The city should have imposed 20 percent performance bond instead of 10 percent because the item was imported
from Singapore. F. E. Zuellig later even decreased the performance bond to five percent.
The case led to the Garcias six months preventive suspension, a first in Cebu Citys history.
Banacia emphasizes the importance of getting the documents in this and other stories involving government
contracts. He recalls a resolution issued by the Sanggunian authorizing Garcia to enter into an agreement with the
Europe-based Geoconsult and Hong Kongs Yuen Fat on investing $50 million of the city governments money. But
when Banacia compared the resolution with the contract that Garcia finally entered into with the foreign companies,
he found that the Cebu City government promised to invest ten $50 million or a total of $500 million.
Personal Services Expenditures
One perennial item in the local government budget is personal services, which includes the salaries and allowances
of local officials and employees. According to the Code, such wages, as well as representation and transportation
allowances, are limited to 45 percent of the budget for first- to third- class municipalities and 55 percent to fourth- to
sixth-class municipalities. The Code, though, makes an exception for salaries and allowances of officials and
employees assigned to public utilities and economic enterprises like markets, cemeteries and slaughterhouses
owned, operated and maintained by local governments. These are charged to their respective budgets.
As a result, mayors and governors have found an ingenious way to skirt the restriction on personal services: They
have transformed their offices and public enterprises into employment agencies for followers, friends and relatives.
Many followers are hired as casuals whose appointments are co-terminus with the chief executives. The practice
has resulted in casuals outnumbering permanent employees in many local governments, especially in Metro Manila.
In the metropolis, only seven towns and cities employ more regular workers than casuals. But casuals still make up a
significant number of the workforce a third to close to a half in all but one of these areas.
Some local governments employ too many workers that they end up unproductive. Often, the situation leads to what
a former Vice Mayor Joselito San Jose of Montalban, Rizal calls the cross-stitching syndrome. Manzano himself
confesses that his own office employs 37 people doing a job that a staff of six can easily do. He inherited his staff
from his predecessor. My employees were cross-stitching most of the time, he says in jest. We were in the running
for the best local government unit cross-stitching.
As the previous chapter also noted, it is common as well for local governments to have ghost or 15-30 employees
in local governments. Ghost employees refer to appointments given to non-existing people. 15-30 workers refer to
people who show up only on the 15th and 30th of the month to collect their paycheck.
Journalists should also keep in mind these dos and donts when local governments spend on personal services:
No official or employee can get a salary higher than the maximum fixed for his position or other positions of
equivalent rank.
No local fund should be appropriated to increase or adjust salaries or wages of officials and employees of the
national government, unless authorized by law.
No changes in designation or nomenclature of positions resulting in a promotion or demotion in rank or increase or
decrease in compensation will be allowed, except when the position is actually vacant. The filling of such positions
should be made strictly according to civil service rules and regulations.
New positions and salary increases cannot be made retroactive.
The minimum salary for elective local officials shall be according to the Local Government Code. Any compensation
beyond the minimum shall be determined by the Sanggunian, but increase in compensation can take effect only after
the terms of office of those approving such increase have expired.
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No elective or appointive local official or employee can receive additional, double or indirect compensation, unless
authorized by law. Pensions or gratuity are not considered as additional, double, or indirect compensation.
Funds to Monitor
The law is also specific in saying that at least 20 percent of the IRA should automatically be set aside as the
Development Fund. This Fund is meant for development programs, projects or activities that directly create jobs;
human and ecological security initiatives; trainings and related efforts; anti-crime campaigns of barangays and the
police; office automation; revenue enhancement activities; and the purchase of new and reconditioned equipment. As
Depthnewss Juan Mercado has discovered, though, the Fund money can be misused. Sifting through a 336-page
COA report for 1999, he found that some local politicians had turned the Development Fund into an almost
unsupervised mini-pork barrel they dip into. The money went to hardware splurges, ghost projects, even jamboree
funds, paying loan amortizations, to local executives reimbursing themselves. In Cebu and Samar, projects were not
supported by the development and investment plans, inviting abuse and loss. Dagupan doled out P100,000 to every
barangay on a near-blank-check basis. Davao Oriental paid P669,892 to Sangguniang Panlalawigan officials from the
fund as financial assistance. Cebu Citys P103.4 million went mostly to hardware: fire hydrants, generators,
cementing projects, even tourism. San Carlos City siphoned P100,000 from the fund to send its boy scouts to the
11th national jamboree in Angeles City. Dapitan City disbursed P500,000 for the operation of its executive band.
While the Development Fund is closely monitored by the COA, other funds like discretionary funds and intelligence
funds of mayors and governors are not.
The law limits discretionary funds to two percent of the actual receipts from the basic real property tax in the
preceding year. Discretionary funds should be disbursed only for public purposes. Intelligence funds, meanwhile,
should be used to maintain peace and order in the locality.
The problem is, the COA itself admits that it does not closely monitor the disbursements from the two funds as these
are confidential in nature. It requires only a certification from the mayor or governor that funds have been, disbursed
for purposes of audit. Local officials are not required to present vouchers, receipts and other supporting documents.
This makes it difficult to journalists to follow the money and paper trails.
Still, when the COA conducts an honest-to-goodness audit, its reports (either for individual local governments or
consolidated reports for Congress) are a rich source of stories for journalists. In its 1998 Annual Financial Report of
Local Governments, the COA sounded the alarm on the P2.3 billion unliquidated cash advances given to local
officials and employees. The rule is that no cash advance should be given except for an authorized specific purpose.
A cash advance must be liquidated as soon as the purpose for which it was given has been served. Officials or
employees cannot get an additional cash advance unless they have accounted for their previous cash advances. In
fact, salaries of delinquent officials are supposed to be withheld until they account for the cash advances. The COA is
also supposed to furnish the Office of the Ombudsman a list of employees with unliquidated cash advances so the
Ombudsman can send demand letters. A Supreme Court ruling authorizes the government to deduct unliquidated
cash advances for travel from monthly salaries of the officials and employees. But sanctions are rarely imposed, and
local officials and employees thus find no reason to shape up. Among the provinces, Tawi-tawis unliquidated cash
advances in 1998 stood at P102.79 million followed by Leyte at P47.9 million. In Metro Manila, the COA came upon
unliquidated cash advances ofP123.81 million in Mandaluyong, P100.81 million in Caloocan and P87.78 million in
Manila.
The COA also chastised provinces, cities and municipalities for their P2.09 billion cash overdraft, a 207.45 percent
increase over the previous years that resulted largely from the improper use of the Trust Fund. The Local
Government Code provides that trust funds are not to be paid out except to fulfill the purpose for which the trust was
created or funds received upon authorization of the Sanggunian or other government agency that has control of the
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money. The provision is often ignored. Among the more notorious violators are towns and cities in Metro Manila. Only
five cities and two municipalities ended 1998 without an overdraft: Muntinlupa, Pasig, Makati, Las Pias and
Marikina, Pateros and Navotas. As for those that did, Caloocan incurred the biggest overdraft at P385.27 million of
the regions total P798.27 million overdraft, followed by Paranaque (P197.12 million), Pasay (P87 million), Manila
(P65.6 million), and Mandaluyong (P42.12 million).
People and Paper Trails
In theory, tracking how a local government raises and spends money should not be too much trouble, given the
number of reports the law requires of local officials. The treasurer and chief accountant, for example, must post and
publish monthly collections and disbursements within 10 days following the end of every month for at least two
consecutive weeks or face a fine of P500 or a month in jail. The accountant must furnish the Sanggunian with
financial statements within 30 days after the close of each month and the yearend statement of accounts 60 days
after December 31. The mayor or governor is supposed to submit an annual report to the Sanggunian on or before
March 31. The treasurer, budget officer and accountant officers are also expected to open their books, accounts,
papers and cash for inspection by the COA at any given time. For reports that are more accessible to the ordinary
citizen, there is the copy of the semi-annual review of targets and accomplishments that the local finance committee
must post in public places. Also obligated to make similar postings are the treasurer, accountant, and budget officer
who must do these in three public places each year with the summary of revenues collected and funds received,
including the appropriations and disbursement of such funds. Reports prepared by the COA itself should not be
overlooked. Every year, the COA prepares an annual financial report for local governments based on consolidated
data they gather from cities and provinces. The report is ready on or before September 30.
Journalists will find annual audit reports of the individual local governments as interesting. Normally ready on or
before February 28, these reports are the results of a comprehensive audit conducted by the provincial or municipal
auditor on the LGUs accounts and operations.
The public, in general, and journalists, in particular, have the law on their side. The Constitution guarantees the right
of people to information on matters of public concern. It assures access to official records and to documents
pertaining to official acts, transactions, or decisions, as well as to government research data used as basis for
policymaking.
Republic Act 6713, which provides for the Code of Conduct and Ethical Standards for Public Officials and Employees,
and its implementing rules reiterate the states policy of full disclosure of all transactions involving public interest.
Among other things, the law requires that public biddings, purchases and other public transactions, including
contracts and status of projects, and statements of assets and liabilities and financial disclosure of public officials and
employees must be open for inspection by the public, within reasonable hours. There are exceptions, though. The
state can restrict access to information affecting national defense or security or the conduct of foreign affairs, drafts of
decisions, orders, rulings, policy decisions, and memoranda, and investigation records for law enforcement. Aside
from unclassified official documents and government data, the COA has identified the following as public documents:
birth and marriage records; property inventory reports; land assessments; land ownership; tax payments; tax
accounts; business permits and other records or documents of public interest.
When Reality Bites
For all the rules that should make accessing public documents uncomplicated, the reality is that getting hold of such
papers, especially those containing finance information, is not easy. For example, many local governments do not
comply with the required posting of reports. Delayed reporting is also common. And when a local government fails to
submit the necessary documents related to transaction, no audit trail exists, making it even impossible for the COA to
catch an irregularity. Some government agencies also impose unnecessary conditions before releasing information.
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Rood recalls being told by a local treasurer to first get a letter from the Bureau of Local Government Finance before
the information he needed could be released. Which is not true as this is a public document, he says. But what
Rood finds more ridiculous is being asked by the National Statistics Coordinating Board to write a letter to the director
requesting permission to use the Public Information Center. Thats often the attitude. Government people are not
very forthcoming with information. If youre a farmer and you get that response, you just stop, he says.
The level of difficulty in getting public documents varies from local government to local government. Makati is an
example of just how secretive a local government can be, even to its own officials. Opposition Councilor Mark Joseph
says ruefully, In my case, I dont even know about an ordinance, dont even get to see a copy of the ordinance I am
supposed to have introduced or approved.
When Joseph tried to get details of the drainage improvement project for Aranda Street, he was told by the
Sanggunian secretary to get the specs from the engineers office. When I went there, I was shown a copy of an old
presidential decree that everything remains confidential until after the bidding, he says. Joseph returned to the
engineers office after the bidding, but he still failed to get the information he wanted. Because of this, he says, We
(the opposition) never get to monitor the bidding because weve never seen the bid notices and are not told the
bidding dates. In Iloilo, some journalists prefer to be assigned to the capitol rather than city hall. Labiste says nearly
every bit of data, from procurement records to revenue statistics, is hard to obtain from the Iloilo city government.
They keep telling us to come back, but nothing happens, she says.
It is the exact opposite at the provincial capitol where the governor down to the clerk are quite open and transparent,
says Labiste. Journalists get invited to attend public hearings on development plans and proposed ordinances, and to
observe biddings. The provinces development plan is available on CD-Rom and distributed to interested parties,
including the media. Financial statements and contracts are readily available. The secretariat would happily produce
transcripts of meetings. They give everything, folder-folder pa, Labiste says.
Accessing records becomes easier easy in local governments that have computerized certain operations, especially
real property tax assessment and collection, like Iloilo province and Cebu City. Journalists there get printouts of tax
assessments on the same day. In Digos, the capital of Davao del Sur, the mayor even used to inform the public and
the media when the budget had been submitted to Sanggunian and when it was adopted. His office would then
compile financial information, including revenues and cash positions, and hand them out to newsmen in thick folders.
But journalist Nawal says it stopped the practice after noticing the media lost interest in covering its activities. He
explains that reporters apparently began thinking there was no news to write, specifically irregularities, because the
mayor was not hiding anything. But, Nawal says, you can still go to the municipal hall and ask for a copy of the
financial records, and theyd give you one. Audit reports are fairly easy to obtain at the COA central office. But
journalists in the provinces report different experiences. While some city and provincial auditors hand out the reports
to the media, others refer journalists to the regional office. An internal COA rule requires that the regional director
clear the release of audit reports.
Journalists have found various ways to compel offices to release the documents they want. Some have found that it
pays. to remind government agencies of provisions of the R.A. 6713 on full public disclosure when they hand in their
letters requesting information. Others, like Banacia, furnish a copy of the letter to the Office of the Ombudsman. He
adopted this practice when the Cebu city government made it difficult to access information. The Ombudsman has
since written the Cebu city government directing the release of documents Banacia requested within the required 15
days with a reminder that a delay or refusal would be punished with an administrative case. Banacia, however,
reminds journalists to specify the documents they need. Going on a fishing expedition would get them nowhere.
Banacias strategy works because he, like the Ombudsman for the Visayas, is based in Cebu. For journalists like
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Iloilos Labiste, the route is inconvenient and time-consuming. The trick then is for journalists to pinpoint the other
offices that have a copy of the documents they need and press their luck with those offices.
The COA, for example, furnishes the mayor, the city administrator and the Sanggunian with copies of its audit
reports. The treasurer and assessor would both have copies of the notice of assessment, tax bills and the real
property tax order of payment. The Sanggunian is furnished stacks of documents by the executive offices, ranging
from financial reports to bidding notices and contracts. It thus pays for journalists to befriend local officials and
employees who have access to the documents, including clerks and secretaries. The Sanggunian secretary, for
example, is the best person to ask for a copy of transcripts of meetings and hearings. They can even lend you the
tapes if youre nice to them, says Pampangas Orejas.
In local governments where the mayor or governor and the opposition councilors or the congressman are not exactly
on good terms, documents are also fairly easy to obtain. Iloilo journalists like Labiste rely partly on an opposition
councilor for documents on irregularities in procurement and other contracts. The councilor has taken on the role of
the city governments watchdog, she says. In Davao del Sur, the congressman who does not see eye to eye with the
governor has set a project monitoring committee as a check against possible abuses at the capitol. The committee
has become one of Nawals sources of records. But Rood suggests that journalists should write about having been
denied access to information. Do journalists do sting operations here? Do journalists put somebody up to get
information? That would be a great story, he says.
Within a local government, there are many human sources that journalists can tap for help in piecing together a
finance story. Besides the mayor or governor, there are the budget officer, administrator, treasurer, accountant,
development officer, general services officer, and assessor. One of them is likely to be willing to talk to journalists. He
may not be able to give the documents, but he can at least explain the processes.
Sanggunian members are also good sources, although Rood notes that their mastery of local financial matters is
spotty. Theyre good sources of information, but not of analysis, he says, partly because few bother with the
implementation and dont watch the flow of funds.
For substantive programs, the best people to talk with would be those involved in the programs themselves like the
provincial health officer or provincial agriculture office. They are so thrilled that you care about them that they will tel l
them anything you want. These are people who care about doing their job and think they dont get enough attention,
Rood notes. Orejas also looks for what she calls activists in local governments or officials or employees who can
give journalists tips because of their distaste over whatever is going on. National agencies are good sources of
information as well. After all, local governments continue to be under the technical supervision and control of certain
national government agencies, known collectively as Oversight Agencies. These include the Civil Service
Commission, Commission on Audit, Department of Interior and Local Government, Department of Budget and
Management, Department of Finance and the National Economic and Development Authority.
Roods experience with the DILG, however, has not been entirely encouraging. The important people there, those in
local government supervision, compile all sorts of performance reports, but they wont show (them to) you, he says.
Theyll say theyre confidential. The reports go directly to the Office of the President.
Local government operations officers at the DILG are sometimes willing to talk, but since they represent the national
government, journalists should watch out for their agenda. The NEDA and the Department of Finance are pretty
useful sources of information, but usually just those at the regional level.
Outside of the national and local governments, journalists working on local fiscal administration stories should
consider tapping the private sector, especially the local chamber of commerce or business association. Armed with a
long list of reasons to gripe about the level of taxes, businessmen have become rather well-versed with the internal
workings of local governments. The same is true with consumer groups.
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Civil society also plays an active role in monitoring local governments. In Bacolod City, the Peoples Graftwatch has
furnished newsmen with a lot of goods on city officials. Then theres the academe. The National Center for Public
Administration and Governance of the University of the Philippines is one of the best authorities on local government
finance. Labiste suggests checking with universities for studies they have done on the local business environment, as
the U.P. Visayas did with mall spaces in Iloilo. But a word of caution: the academic world can sometimes be behind
the real world. Sadly, some academics dont keep themselves updated on current events while others dwell too much
on theory than on the real world.