A Citizens Guide to Understanding

Local Government Units Finances,

Systems and Functions
By Jocelyn C. Cuaresma and Alvic Padilla

GOVERNMENT FINANCIAL SYSTEMS are traditionally inaccessible to people who are

not public officials or employees. The best example of a closed financial system is the
budget process. At both national and local levels, the budget process starting from
budget preparation to budget accountability and audit does not call on the participation
of civil society or the private sector. Typically, the private sector participates in
government transactions only as bidders for government projects, vendors of goods and
services, investors availing of government fiscal incentives and as taxpayers. Civil
society and the general public participate as taxpayers, recipients of government
programs and projects; attendees to general assemblies and public hearings on the
budget and as spectators during public deliberations and consultations.
Only recently have the national government and local government units (LGUs) started
opening up their financial systems to citizens in pursuit of the policy and principles of
participatory governance.
This article discusses the financial systems in local governments, identifies the offices in
charge of local finances and who may exercise the power of the purse; identifies the
flaws and weaknesses in the financial systems; determines how these flaws may be
addressed, and how citizens may participate and exercise the authority and
responsibility assigned to them by the state under the 1991 Local Government Code.
Fiscal powers of local governments
The power of the purse can be favourably (or unfavourably) exercised by government
officials and is strongly associated with the power and authority to propose, appropriate
and release government funds to certain agencies, offices, programs and/or projects.
Traditionally, the exercise of the power of the purse is associated with legislative policy
making over government budgets, taxes, fiscal incentives, grant or franchises and use
of government facilities and similar resources (i.e., human resource, physical facilities,
land and other real properties). At the national government level, it is said that the power
of the purse rightfully belongs to the Congress, but the power of the Executive
Department over the national budget is properly acknowledged. The national budget
remains as a tool in implementing national priorities for public interest while maintaining
the bureaucracys efficiency and to guard it against abuses. (USAID 2009:1).
The exercise of the power of the purse by local governments is governed by the
following provisions in Article X on Local Government in the 1987 Philippine
Constitution:

Section 5. Each local government unit shall have the power to create its own
sources of revenues and to levy taxes, fees and charges subject to such guidelines
and limitations as the Congress may provide, consistent with the basic policy of local
autonomy. Such taxes, fees, and charges shall accrue exclusively to the local
governments;

Section 6. Local government units shall have a just share, as determined by law,
in the national taxes which shall be automatically released to them; and

Section 7. Local governments shall be entitled to an equitable share in the

proceeds of the utilization and development of the national wealth within their
respective areas, in the manner provided by law, including sharing the same with the
inhabitants by way of direct benefits.
To better understand the exercise of the power of the purse at the local government
level, one must understand the local financial systems and local budget process.
Local fiscal administration systems
Local financial systems are drawn from the theory and practice of local fiscal
administration in the Philippines. Local fiscal administration encompasses the systems
of development planning, taxation and revenue generation, budgeting and spending,
borrowing,
budget
accountability
and
audit.
Fiscal systems and citizen participation
Local governments in the Philippines are classified into four: provinces, cities,
municipalities and barangays. Each type of local government has a set of officials, both
elective and appointive, and performs a well-defined set of executive or legislative
functions.
The Governor or Mayor is the chief executive officer of a province, city and municipality,
and the barangay captain is the chief executive of the barangay government. On the
side of the legislative branch, the Local <i> Sanggunian </i> (Council) headed by the
Vice-Governor in provinces or the Vice Mayor in cities and municipalities, together with
the members of the Sanggunian, exercise the power of legislation. The Sanggunian
makes policies through ordinances and resolutions, and approves among others, the
Annual Budget, the Local Revenue Code, the Local Development Plan, the Annual
Investment Program, and the Comprehensive Land Use Plan.

Citizen representation in the Sanggunian is mandated in the 1991 Local Government

Code. As shown in Table 1, sectoral representatives must serve as regular members of
the provincial, city and Municipal Sanggunian. At the barangay level, members of the
Sangguniang Barangay are elected at large and could represent various sectors.
Table 1. LGU Elected Officials and Members of the Sanggunian (RA 7160)
LGU

Executive
Branch

Legislature: The Sanggunian and its Composition

Sangguniang Panlalawigan
- Vice Governor

Province

Governor

- Board members (number varies from 6 to 12 depending on income class)

- President of the provincial chapter of the Liga ng mga Barangay
- President of the provincial federation of the Sangguniang Kabataan
- Sectoral representatives
Sangguniang Panlungsod
- Vice Mayor

City

Mayor

- Councilors (number varies from 10 to 36 councilors, depending on the

number of districts and the number of councilors per district)
- President of the city chapter of the Liga ng mga Barangay
- President of the city federation of the Sangguniang Kabataan
- Sectoral representatives
Sangguniang Bayan
- Vice Mayor

Municipality

Mayor

- Councilors (number varies from 8 to 12)

- President of the municipal chapter of the Liga ng mga Barangay
- President of the municipal federation of the Sangguniang Kabataan
- Sectoral representatives

Barangay
Captain

Sangguniang Barangay
- Barangay Captain
- 7 members elected at-large

Barangay

- Sangguniang Kabataan chairperson

SK Chairperson Sangguniang Kabataan

- Sangguniang Kabataan Chairperson

- 7 members elected at-large
Local development planning system
This system provides the framework for the pursuit of local development. Two plans that
local governments must formulate and legislate are the Comprehensive Development
Plan (CDP) and the Comprehensive Land Use Plan (CLUP).
The CDP is a comprehensive multi-sectoral development plan that must be duly
approved by the Sanggunian. The CLUP, enacted through zoning ordinances, is to be
the primary and dominant bases for the future use of land resources, providing
particularly for the requirements of food production, human settlements, and industrial
expansion. The CDP, the CLUP and the Local Development and Physical Framework
Plan (LDPFP), if available, are implemented through the Local Development Investment
Plan (LDIP), Annual Investment Plan (AIP) and the Executive-Legislative Agenda (ELA),
and other thematic plans such as the Local Poverty Reduction Action Plan (LPRAT),
Disaster Risk Reduction and Management Plan (DRRMP), Gender and Development
Plan (Serote 2012).
In local finance, the LGU formulates the Local Revenue Code and the Annual
Appropriations Ordinance. These are implemented through the Revenue Generation
Plan, the Annual Procurement Plan, and actual disbursements and delivery of services.
Development planning is the mandate of the Local Development Council (LDC).
Considered as the mother of all special local bodies, the importance, power and
authority vested in the LDC are mirrored in the significance of the development planning
documents that it must formulate and their implementation monitored, since these
documents define the future and growth of the local economy and contain the basis for
the formulation and spending of the local General Fund or the Annual Budget, the
Special Education Fund, and Local Trust Funds of the local government.
The LDC is tasked to appraise and prioritize programs and projects, and coordinate,
monitor and evaluate the implementation of development plans and projects. When the
LDC is not in session, the LDC-Executive Committee is active, ensures that LDC
decisions are faithfully carried out, and acts on matters needing immediate attention by
the LDC. It formulates plans, policies and programs based on principles and priorities
laid out by the LDC.
The LDC is assisted by the LDC Secretariat, which provides technical support,
documents LDC proceedings and prepares reports for the LDC. Assisting the LDC in
the conduct of its functions are the various LDC Sectoral Committees such as the Social
Sector, Economic Sector, Infrastructure, Environment and Natural Resources, and the
Institutional Sector Committees. The sectoral committees provide the LDC with data
and information essential to the formulation of plans, programs, projects, & activities

(PPPAs), define sectoral or functional objectives, set targets, collate and analyse data,
conduct studies, conduct public hearings, and monitor and evaluate PPPAs status.
The number of civil society representatives in the LDC should not be less than 25
percent of the total LDC regular membership. Serote (2012) suggests that the
composition of LDC-Sectoral Committees Technical Working Group (TWG) could grow
from the Core TWG, to an Expanded-TWG, and to a Full-Blown TWG as summarized in
Table 2.
In addition to the Core TWG, membership of the Sectoral Committees may expand to
include other government officials from the local and national levels operating in the
locality, and important non-government organizations whose functions and advocacies
are highly connected to the particular sector. In addition, the full-blown TWG may
include other groups and individuals from the non-government sectors who have a
stake in local development and who can enrich the committees capability.
Table 2. Suggested LDC-Sectoral Committees Composition (Serote 2012)
Sectoral
Core TWG (Must
Committee
be there)
Social
MPDO Staff
Development
MHO
LDC Rep.
(Barangay)
District Supervisor
Sanggunian
representative
SWDO
POSO
LDC representative
(CSO)

Expanded TWG (nice to have

participating)
Police Chief
Local Civil Registrar
PCUP
Housing Board representative
Manager GSIS/SSS
Fire Marshall

MPDO staff

Sports
organization
Religious leaders
Media
representative
Inner Wheel Club

Population Officer

Charitable
organizations

Nutrition Officer

Labor groups

NSO

Senior citizens
TMCA/YWCA

PTA Federation
Economic
PESO
Development
Tourism Officer

Full-blown
TWG (the more
the merrier)

School principals
Chamber of Commerce & Industry

Lions club

DTI Rep.

Rotary Club

Bank Managers

Jaycees

LDC representative Sidewalk Vendors

(CSO)
Transport Orgs.

Academe
Other interested

Agriculturist

Trade Unions

groups

Coop Development Market Vendors

Officer
Cooperatives
LDC representative
(barangay)
Sanggunian Rep.
Physical/Land Mun. Engineer
Electric Coop representative
Use
MPDO staff
Real Estate Developers
Development
LDC representative Professional Orgs.
(CSO)
Telecomm. companies
Mun. Architect
Water district representative
Zoning officer
Academe
LDC Rep
(barangay)

Other interested
groups &
individuals

Sanggunian Rep.
Environmenta MPDO staff
Sanitary Inspector
l Management
LDC representative CENRO
(barangay)
FARMC Representatives
General Services
Heads of private hospitals
Head
Academe
Sanggunian
Representative
PENRO
LDC
representative
(CSO)

Environmental
advocates
Other interested
groups &
individuals

BFAR representative

LG ENRO
Institutional MPDO staff
HRDO
Development
LDC representative Treasurer
(Barangay)
Budget Officer
LDC representative
Assessor
(CSO)
Academe
LGOO
Local

Religious groups
Good governance
advocates
Other interested
groups &
individuals

Administrator
Sanggunian
Representative

Local tax system

Taxation is one of the inherent powers of the state, exercised through the national and
local government offices and units.
Tax policies shall follow the principles of uniformity, equity, progressivity, justice, not
contrary to law and public policy, and must not be in restraint of trade. These tax
principles are not necessarily homogenous, but must be pursued with vigor. Having
been given the power to impose local taxes and to generate their own sources of
income, local governments have to develop a system of taxation and revenue and
income generation through the imposition of local taxes, fees and charges, operate
markets and other local enterprises, borrow for purposes of development, partner with
the private sector in undertaking infrastructure investments and income-generating
activities, and assist the national government in the collection of national taxes from
which LGUs get a fair share of the proceeds.
To facilitate tax assessment, tax collection, and tax records management, computerized
systems are adopted and installed in the offices of the Assessor, Business Permits and
Licenses, Treasury, Registry of Deeds, among others and personnel from the same
offices are trained in the management of tax information system.
The power to impose taxes is exercised by the Local Sanggunian. The Sanggunian is
further authorized to grant tax exemptions, give incentives or relief from taxes under
certain terms and conditions. The Sanggunian passes the appropriate tax or revenue
ordinance and specifies the subjects or objects of taxation and the rates and penalties
for noncompliance. Each level of local government has its own set of taxing powers as
shown in Table 3. The proceeds of certain taxes in provinces and cities are shared with
component local governments shown in Table 4.
Table 3. Taxes by Type of Local Government (RA 7160)
Provincial Taxes

Additional 1% SEF
tax

Taxes in Cities &

Metro Manila
Municipalities

Municipal Taxes

Amusement tax

All provincial and

municipal taxes may
be levied

Community tax

Barangay Taxes

Barangay clearance fee

Fees & chares on

Amusement tax

Annual fixed tax

on delivery trucks or

business & occupation

vans

Fees and charges on

Idle land tax

Income tax on

advertisements

measures

Franchise tax

signs, & outdoor

Fees for sealing &

licensing of weights &

commercial breeding of
fighting cocks, on cockfights,

Fishery rentals, fees

& on cockpits

Income tax on banks

& financial institutions

Public utility

Public utility charges

Special levy on lands

benefited by public works

charges

Real property tax

Special levy on real
property

Tax on business

Tool fees & charges

Barangay clearance
fee

Tax on business of
printing & publication

billboards, signboards,

Tax on sand and

neon signs, & outdoor

gravel

Tax on transfer of

Fees & chares on

advertisements

Fees & charges on

Fees & charges on

places of recreation that
charge admission fees

institutions
Professional tax

Fees & charges on

& charges

banks & financial

billboards, signboards, neon

Public utility charges

Service fees
Taxes on stores &
retailers

Tool fees & charges

real property ownership

commercial breeding of
fighting cocks, on

Tool fees &

cockfights, & on cockpits

charges

Fees & charges on

places of recreation that
charge admission fees

Public utility charges

Service fees

Taxes on stores &

retailers

Tool fees & charges

Table 4. Local Taxes with Shared Proceeds (RA 7160)

Taxes with
shared
proceeds

Provincial taxes Provincial share Municipal

share

Provincial taxes Tax on Sand,

Gravel &
Quarry
Resources

Barangay
share

30%

30%

40%

Amusement Tax 50%

50%

None

Basic Real
Property Tax

35%

40%

25%

Additional 1%
RPT for SEF

50% to
Provincial
School Board

50% to
Municipal
School Board

None

City taxes

City share

Barangay share

City taxes

Sand & Gravel 60%

Tax

40%, where quarry is

located

Basic Real
Property Tax

30%

70%

MM-Municipal MMDA share

Taxes
Taxes in Metro Sand & Gravel None
Manila
Tax
Municipalities

Municipal share Barangay

share
60%

40%,
where
quarry is
located

Basic Real
Property Tax

35%

35%

30%

Idle Land Tax

50%

50%

None

The local budget system: who is in charge?

Each local government maintains three different types of funds: the General Fund (GF)
or Annual Budget; the Special Education Fund (SEF) and Trust Funds.
When people talk of the local government budget, they typically mean the GF or Annual
Budget. The GF consists of monies and resources which are available for the payment
of expenditures, obligations or purposes not specifically declared by law as accruing
and chargeable to, or payable from, any other fund. The SEF consists of the respective
shares of provinces, cities, municipalities and barangays in the proceeds of tax on real
property. Trust Funds meantime consist of private and public monies which have
officially come into the possession of the local government or of a local government
official as trustee, agent or administrator, or which have been received as a guaranty for
the fulfilment of obligations.
Control over the local government budget should be discussed in line with the budget
process. In budget preparation, the power to propose the annual budget, set budget
ceilings and allocation criteria, is vested on the Local Chief Executive (LCE). The
Governor or Mayor as chief executive issues budget policy and guidelines in conformity
with the Local Development Plan and budget ceilings set by the Local Finance
Committee (LFC). This becomes the basis of each department head in preparing his or
her own budgets which are then submitted to the LCE on or before July 15 of each
year.
th

The LCE puts together the different department budgets into the proposed annual
budget, with the technical assistance of the LFC composed of the Treasurer, the
Planning and Development Officer, and the Budget Officer. The membership of the LFC

shows that the budget preparation phase is a closed process. No citizens, individuals or
groups who are not officials or employees of the local government may participate in
this stage of the budget process. The proposed budget is then submitted to the
Sanggunian not later than October 16 for approval into a Budget Ordinance. The
Sanggunian led by the Vice-Governor or Vice-Mayor, exercises the power to legislate
the annual budget into an ordinance on the basis of the estimates of income and
expenditures submitted by the LCE.
th

The power to review the annual and supplemental budgets of component cities and
municipalities is vested on the Sangguniang Panlalawigan where the
cities/municipalities belong. The Department of Budget and Management (DBM)
exercises the power to review the annual and supplemental budget ordinances of
provinces, highly-urbanized cities, independent component cities, and municipalities
within Metro Manila. Budgets of cities and provinces, in turn, are reviewed by the
Secretary of the Department of the Interior and Local Government (DILG). The purpose
of the review is to ensure compliance with the budgetary requirements and general
limitations set forth in Sections 324 and 325, respectively, of the 1991 Local
Government Code. The budgetary requirements and general limitations that must be
complied with in annual budgets are summarized in the Table 5 below.
Table 5. Budgetary Requirements and General Limitation on Local Budgets set in
RA 7160
Legal basis

Details of Provisions

RA 7160, Section 287;

DBM & DILG Joint Circular

No. 1, s 2005 dated 20

September 2005

Each P/C/M shall appropriate in its Annual Budget no less than

20% of the IRA for Development Projects. The 20% Development
Fund is a Special Account in the GF, and is maintained with separate
subsidiary ledgers for easier preparation of the financial statements.

RA 7160, Section 294

At least 80% of the proceeds from the development and

utilization of hydrothermal, geothermal and other sources of energy in
the P/C/M/B shall be applied solely to lower the cost of electricity in
the LGU where such source of energy is located.

RA 7160, Section 324.

Budgetary requirements

The aggregate amount appropriated shall not exceed the

estimates of income;

Full provision shall be made for all statutory and contractual

obligations of the LGU;

The appropriations for debt service shall not exceed twenty

percent (20%) of the regular income of the LGU concerned;

In the budget of provinces, cities, and municipalities (P/C/M),

aid to component barangays shall not be less than One thousand
pesos (P1,000.00) per barangay; and

Five percent (5%) of the estimated revenue from regular sources

shall be set aside as an annual lump sum appropriation for calamities.

RA 7160, Section 325.

General Limitations

The annual appropriations for Personal Services shall not

exceed forty-five percent (45%) in the case of first to third class
P/C/M, and fifty- five percent (55%) in the case of fourth class or
lower, of the total annual income from regular sources realized in the
next preceding fiscal year.

The annual Discretionary Fund of the LCE shall not exceed two
percent (2%) of the actual receipts derived from basic real property
tax in the next preceding calendar year.

RA 10121 Phil. Disaster Risk

Reduction & Management

(PDRRM) Act of 2010

Not less than 5% of estimated revenue from regular sources

shall be set aside as Local Disaster Risk Reduction & Management
fund (LDRRMF), of which 30% shall be allocated as Quick Response

Fund, and the remaining 70% as Special Trust Fund.

Budget execution and budget accountability are vested primarily on the LCE. Additional
or supplemental budget proposals may be proposed by the LCE duly supported by new
or additional income or revenue sources as certified by the Local Treasurer. In case of a
calamity, a supplemental budget by way of budgetary realignment may be proposed by
the LCE to set aside appropriations for the purchase of exceptionally urgent supplies
and materials, and payment of indispensable services for use in areas of the LGU
declared by the President to be in a state of calamity.
In revenue generation, the LCE is tasked to initiate the general revision of real property
assessment values, the updating of the revenue code and the codification of tax
ordinances. It should also initiate the submission to the Sanggunian of a list of
delinquent taxpayers and the posting of notice of tax delinquency (COA AFR 2012:121).
The LCE and his financial team are then in charge of implementing the annual budget.
The local financial management team must maintain a system of accounting and
reporting which provides for the necessary internal controls to ensure that transactions
are properly authorized, recorded, assets are safeguarded against unauthorized use or
disposition, and liabilities recognized (2011 COA AFR:37). The expanded financial
management team in each LGU is composed of the following government officials:

The Local Budget Officer

The Local Assessor

The Local Treasurer

The Local Accountant

The Local Planning and Development Officer.

The Provincial/City/Municipal (P/C/M) Budget Officer reviews and consolidates the
budget proposals of the different departments and offices of the LGU, assists the LCE in
the preparation of the budget, provides technical assistance during budget hearings,
study and evaluate the budgetary implications of proposed legislation and give his/her
comments and recommendations, and assists the Sanggunian in reviewing the
approved budgets of component LGUs,
The P/C/M Assessor performs appraisal and assessment of real properties for purposes
of taxation. The Office of the Assessor must be able to establish a systematic,

preferably computerized, system of real property tax administration, including an

efficient tax mapping system, and an up-to-date real property identification and
accounting system because real property taxes are one of two most productive local
taxes. The other one is the business taxes, whose administration (assessment and
collection) could similarly benefit from tax mapping and computerization. It is the duty of
the Local Assessor to keep the assessment records on real property up-to-date.
The P/C/M Treasurer advises the LCE, the Sanggunian and other local officials on
matters relative to public finance including the disposition of government funds and
property. The Treasurer or his/her duly authorized deputies are in charge of collecting all
local taxes, fees and charges. In relation to these functions, the Treasurer exercises the
authority to examine the books, accounts, and other pertinent records of any person,
partnership, corporation, or association subject to local taxes, fees and charges in order
to ascertain, assess, and collect amount of taxes, fees, and charges. Specific to
taxation, Local Treasurers must keep the Taxpayers Index Cards up to date for easy
determination of potential tax collection and tax delinquencies (Section 171, Chapter III,
RA 7160).
To facilitate revenue collection, the Office of the Treasurer should maintain and update
the tax information system of the LGU. The Treasurer or duly authorized representatives
may seize or confiscate any personal property of a person who failed to pay any local
tax, fee, or charge within a required time period, to satisfy the amount of tax, fee or
charge in question together with any increment cost incident to delinquency and the
expenses of seizure (Section 175 [a] Chapter III, RA7160). Treasurers are tasked to
disseminate information on newly approved tax ordinances and revenue measures.
The P/C/M Accountant performs the dual role of accounting and internal control. The
Office of the Accountant must install and maintain an internal audit system, prepare and
submit financial statements, appraise the Sanggunian and the LCE on the financial
condition and operations of the LGU. The office prepares, for each fund, the financial
statements such as: (1) Balance sheet; (2) Statement of Income and Expenses; and (3)
Statement of Cash Flows, as well as (4) Consolidated Financial Statements for all funds
and the (5) Notes to the Financial Statements. The Accountant must certify to the
availability of budgetary allotment to which expenditures and obligations may be
properly charged.
The P/C/M Planning and Development Officer (LPDO) must be included in the financial
management team of the LGU, he/she being a member of the Local Finance Committee
(LFC). The LPDO performs planning and zoning functions and assists in the attainment
of other development concerns of the LGU. The LPDO is primarily tasked with the
formulation of integrated economic, social, physical and other development plans and
policies for consideration of the LDC. As a member of the LFC, the LPDO is an
important fiscal officer who is likewise tasked to analyse income and expenditure
patterns, and formulate and recommend fiscal plans and policies for consideration of
the LFC and the LCE. He/she or his office is further tasked to promote citizen
participation in development planning. The development plans and the CLUP prepared
by the LPDO serve as basis for the annual budget, investment program, revenue
generation program, and other thematic plans/programs of the local government.

The LPDO, the Budget Officer, and the Local Treasurer are members of the Committee
LFC. The LFC is highly active during budget preparation and budget legislation as it
makes income estimates, recommends appropriate tax and other revenue or borrowing
measures to support the budget, and recommends to the LCE the level of annual
expenditures and spending ceilings based on the approved LDP. In budget execution,
the Budget Officer exercises the authority to certify the existence of a duly approved
appropriation in support of every disbursement. The Accountant is duty bound to
obligate said appropriation. The Treasurer certifies to the availability of funds for the
purpose.
The barangay budget system
At the barangay level, the income of each barangay accrues to the Barangay General
Fund. Ten percent of the general fund of the barangay is set aside for the <i>
Sangguniang Kabataan </i> (Youth Council).
The power to prepare the barangay budget is exercised by the Barangay Chairman,
who proposes the barangay budget for the ensuing fiscal year, and submits this to the
Sangguniang Barangay for legislative enactment. The Barangay Chairman bases the
proposed budget on the statement of income and expenditures prepared by the
Barangay Treasurer also on the basis of the statement of income and expenditures
issued by the city/municipal treasurer. In turn, the Sangguniang Barangay exercises the
power to approve the budget into a barangay ordinance.
Local enterprise system
Local governments may own public utilities and economic enterprises such as public
markets, slaughterhouses, transport terminals, cemeteries, water systems, and the like.
Such utilities and economic enterprises shall be operated and maintained independently
of the LGU concerned. This means that the local enterprises generate their own
income, maintain their respective budgets, appropriate for salaries, wages,
representation and transportation allowances of officials and employees of the public
utilities and economic enterprises. The appropriations for the personal services of
economic enterprises shall be charged to their respective budgets and are excluded in
the annual budget of the LGU and in the computation of the maximum amount of
allocation for personal services.
Local government loans and loan-financed projects
Title IV of RA 7160 authorized LGUs to incur debt and avail of credit facilities to finance
local infrastructure and other socio-economic development projects. Debt-funded
projects must be in accordance with the approved Local Development Plan and the
Public Annual Investment Program.
Interestingly, Section 296 on the general policy on incurring LGU debt does not specify
the entity (LCE or the Sanggunian) that may exercise such power. Section 297 on
Loans, Credits, and Other Forms of Indebtedness of LGUs also did not specify who is

to exercise such authority to incur loans, credits and other forms of indebtedness with
any government or domestic private banks and other lending institution. Section 298
likewise did not specify who, between the LCE and the Sanggunian, may enter into
Deferred-Payment and other Financial Schemes.
In the case of bond flotation, the Sanggunian is identified to exercise the power to
approve and state the purpose, terms and conditions for bond flotation. In inter-LGU
loans, grants and subsidies, the Sanggunian of the LGU concerned is the approving
authority. The exercise of power to borrow by local governments is limited by the
provision on debt service allocation, which sets an amount not to exceed 20 percent of
the regular income of the LGU concerned at the same time that it must fully provide for
all statutory and contractual obligations.
The Department of Finance-Bureau of Local Government Finance (DOF-BLGF) sets
guidelines on local government borrowing renders technical assistance and determines
LGU creditworthiness. As of 2008, LGU borrowing of PhP 5.196 billion comprised 1.89
percent of total LGU income (Padilla, May 2010). While the amount of annual local
borrowing as a percentage of total annual local income may yet be considered relatively
low, the nominal amount is already significant and there is much evidence that LGUs
have increasingly tapped borrowing as a fiscal tool. As of 2011, the total loans payable
of LGUs a total of PhP 72.039 billion, of which PhP 36.906 billion (or 51.2 percent) is
payable to the Land Bank of the Philippines (COA AFR 2011).
Citizen participation in local special bodies
In the LDC and in the Sanggunian, civil society representation is mandatory. In other
local special bodies such as the Local School Board (LSB), Local Health Board (LHB),
Prequalification, Bids and Awards Committee (PBAC), and the Local Peace and Order
Council (LPOC), the participation of civil society organizations (CSOs) and the private
sector may be made possible through the passage by the Sanggunian of rules on
CSO/private sector accreditation and guidelines on citizen participation and
representation in local special bodies.
Citizen participation in the LSB is important because the LSB exercises the power over
the preparation, deliberation and approval of the Special Education Fund (SEF) Budget.
The LSB determines the annual supplementary budgetary needs for the operation and
maintenance of public schools within the LGU. It is noted that the SEF Budget is not
approved by the Sanggunian, but instead by the LSB, which is chaired by the governor
or mayor and the school supervisor. Citizen representation could be expanded to
include representatives from the women, youth and cultural sectors, among others.
Table 6. Composition of the Local School Board (RA 7160)
Local School Board:
Chairmen

Members
Chairman of the Education Committee of the Sangguniang

Provincial School Board

Panlalawigan
Provincial treasurer

Co-Chairmen:

Representative of the Pederasyon ng mga Sangguniang

Kabataan in the Sangguniang Panlalawigan

Governor and Division

Superintendent of Schools Duly-elected President of the Provincial Federation of ParentsTeachers Association
Duly- elected Representative of the Teachers' Organization in
the Province, and
Duly-elected Representative of the Non-Academic Personnel of
Public Schools in the Province

City School Board

Chairman of the Education Committee of the Sangguniang

Panlungsod
City Treasurer

Co-Chairmen:
City Mayor and
City Superintendent of
Schools

Representative of the Pederasyon ng mga Sangguniang

Kabataan in the Sangguniang Panlungsod
Duly Elected President of the City Federation of ParentsTeachers Associations
Duly Elected Representative of the Teachers' Organizations in
the city, and
Duly Elected Representative of the Non-Academic Personnel of
Public Schools in the city

Municipal School Board

Chairman of the Education Committee of the Sangguniang

Bayan
Municipal Treasurer

Co-Chairmen:

Representative of the Pederasyon ng mga Sangguniang

Kabataan in the Sangguniang Bayan

Municipal Mayor and the

Duly Elected President of the Municipal Federation of ParentsDistrict Supervisor of
Teachers Associations
Schools
Duly Elected Representative of the Teachers' Organizations in
the Municipality, and
Duly Elected Representative of the Non-Academic Personnel of
Public Schools in the city
The LHBs budget is included in the General Fund Budget of the LGU. The Sanggunian
decides on the amount of allocation for health and other offices and sectors of the local

government. As shown in table 7, an NGO or private sector representative is regular

member of the LHB, and not simply an observer.
Citizen participation is important in the LHB because it proposes the annual budgetary
allocation for the operation and maintenance of health facilities and services in the LGU.
The LHB and its committees perform advisory functions to the Local Health Office on
matters of personnel (selection, promotion, grievances, discipline), bids and awards,
budget review, operations review and similar functions.
Table 7. Composition of the Local Health Board (RA 7160)
Chairman & ViceChairman
Provincial Health
Board

Chairman: Governor
Vice-Chairman:
Provincial Health
Officer

Members
Chairman of the Committee on Health of the
Sangguniang Panlalawigan
Representative from the private sector or nongovernmental organizations involved in health
services, and
Representative of the Department of Health in
the province

City Health Board

Chairman: City Mayor Chairman of the Committee on Health of the

Sangguniang Panlungsod
Vice-Chairman: City
Health Officer
Representative from the private sector or nongovernmental organizations involved in health
services, and
Representative of the Department of Health in
the city

Municipal Health
Board

Chairman: Municipal
Mayor

Chairman of the Committee on Health of the

Sangguniang Bayan

Vice-Chairman:
Municipal Health
Officer

Representative from the private sector or nongovernmental organizations involved in health

services, and
Representative of the Department of Health in
the municipality

Public Bids and Awards Committee and the local procurement system
The Public Bids and Awards Committee (PBAC) is present in every province, city and
municipality, and is assigned the power and authority to ensure the prequalification of
contractors, bidding, the evaluation of bids, and the recommendation of awards

concerning local infrastructure projects. The chair is the Governor or Mayor, and the
following are members.

Chairman of the Appropriations Committee of the Sanggunian;

Representative of the minority party in the Sanggunian, or one (1) chosen by the
Sanggunian from among its members;

Local treasurer;

Two (2) NGO representatives in the LDC, to be chosen by the organizations

themselves; and

Any practicing certified public accountant from the private sector, to be

designated by the local chapter of the Philippine Institute of Certified Public
Accountants.
NGO representatives on the PBAC sit as regular members and not as observers.
With regard to the procurement of property and supplies, the general rule on award of
contracts on procurement of supplies is to award the contract to the lowest complying
and responsible bidder who meets all the terms and conditions of the contract or
undertaking. The procurement of supplies such as equipment, furniture, stationary
materials for construction or personal property and maintenance of equipment and
furniture, as well as trucking, hauling, janitorial, security, and related services shall all
undergo a bidding process.
Procurement of supplies without public bidding is allowed under Title VI Section 366 of
the 1991 Local Government Code. Procurement without bidding can be done through:
(1) personal canvass; (2) emergency purchase; (3) negotiated purchase; (4) direct
purchase from manufacturers or exclusive distributors; and (5) purchase from other
government entities. However, these options are subject to the approval of the
Committee on Awards and the rules and limitations listed in Table 8.
Table 8. Mechanisms for Procurement of Supplies without Bidding and Rules and
Limitations (RA 7160)
Procureme
nt of
supplies
without

Rules and Limitations

bidding
Personal
canvass

In P/C/M in MM, the value shall not In Municipalities,

exceed the following amounts:
the value shall not
exceed the
1 & 2 class not >P150,000
following amount:
3 & 4 class not > P100,000
1 class
municipalities
5 & 6 class not > P50,000
P60,000
st

nd

rd

th

st

th

th

2 & 3 class
P40,000
nd

rd

4 class & below

P20,000
th

Emergency Resorted to in cases of emergency where the need for the

purchase
supplies is exceptionally urgent or absolutely indispensable
and only to prevent imminent danger to, or loss of, life or
property, regardless of amount
Negotiated Resorted to in cases where public biddings have failed for
purchase
two (2) consecutive times and no suppliers have qualified
to participate or win the bidding, regardless of amount
Procurement In case of locally manufactured goods, procurement may
from duly be made directly from the duly licensed manufacturers. In
licensed
case of supplies of foreign origin, procurement may be
manufacture made directly from exclusive Philippine agents or
r & from
distributors
exclusive
Philippine
agents or
distributors
Procurement Direct procurement may be made from the government
from
entities producing the required supplies. Procurement of
government supplies from units or agencies of foreign governments
entities
with which the Philippines maintains diplomatic relations
may be made with prior authority from the Office of the
President.

LGU partnership with the private sector

The power to approve such proposed partnerships with the private sector is vested in
the Sanggunian. The local government through the LCE may enter into contract with
private contractors for the financing, construction, and maintenance of any financially

viable infrastructure facilities under the build-operate-transfer (BOT) agreement, subject

to the provisions of RA 6957 or the BOT law. A check on the exercise of this power is
the requirement that the project to be undertaken under a BOT arrangement shall be
duly included in the LDP and the AIP.
Additional audit and accountability policies
Policies on audit and accountability in LGUs are contained in the Commission on Audit
(COA) Manual on the New Government Accounting System for use in LGUs under COA
Circular No. 2002-003 issued on June 20, 2002, the 2008 DBM-issued Updated Budget
Operations Manual (UBOM) for LGUs, and the Statement of Receipts and Expenditures
of the Department of Finance-Bureau of Local Government Finance (DOF-BLGF), and
other pertinent rules issued by these three agencies (COA AFR 2011:1).
The DILG similarly issued financial management policies to enhance transparency and
accountability, particularly the Full Disclosure Policy (FDP) of Local Budget and
Finances, and Bids and Public Offerings under Memorandum Circular No. 2010-83
issued on August 31, 2010 by then DILG Secretary Jesse M. Robredo.
Attached to the FDP are the Seal of Good Housekeeping (SGH) Award and the
Performance Challenge Fund (PCF). The SGH award is conferred on LGUs found to
adhere to sound fiscal management evidenced by the absence of an Adverse or
Disclaimer Audit Opinion by COA and on Accountable and Transparent Governance in
compliance to the FDP.
The financial incentive for being a good housekeeper is the PCF established under
DILG-MC No. 2011-02 issued on April 27, 2011 to give due recognition to LGUs good
performance in the areas of planning, fiscal management, transparency, accountability
and valuing performance management. LGUs that have been conferred the SGH
award may avail of the PCF to finance the undertaking of capital investment projects.
The SGH award as well as the PCF has stirred LGUs to improve internal control and
financial management, although much remains to be desired.
As mentioned above, the LGU maintains at least three funds: the General Fund/Annual
Budget; Special Education Fund, and Trust funds. Local treasurers and other
accountable officers should keep these funds distinct and separate. Each fund has its
own money source intended for distinct purposes, and must be recorded in separate
books and depository accounts.
The local treasurer is responsible for maintaining depository accounts in the name of
the LGU with banks, preferably government-owned, located in or nearest to the LGU.
Under the GF are special accounts for the following purposes: (1) public utilities and
other economic enterprises; (2) loans, interest, bond issues, and other contributions;
and (3) development projects funded from the share of the LGU in the Internal Revenue
Allotment (IRA). Other special accounts may be created by law or ordinance as the
need arises.
Raising the capability of citizens

Citizens and taxpayers have the right and the responsibility to exact accountability from
government. Citizen participation is a partnership between the people, the government,
the private sector and all other sectors of society. While government is expected to be
honest and efficient, the reality is that substantial amount of government resources are
wasted in illegal expenditures resulting in low quantity and low quality public services
leading to poorer quality of life. In pursuit of good governance, all sectors of society
have a part to play in ensuring societys growth and protection. Government typically
performs better under informed public scrutiny and citizens needed to participate in
fiscal processes as major stakeholders.
Citizen participation can only be effective if government legislates for it. On one hand,
local governments must pass orders, ordinances, rules and regulations defining the
mechanisms through which participation may happen. It must accredit civil society
organizations (CSOs) where necessary; activate local special bodies, and allow CSOs
full membership in the local special bodies and in the Sanggunian, and not just as
observers, as mandated in the Local Government Code.
On the other hand, citizens and CSOs must have the willingness to perform their role as
citizens. They should develop awareness of the scope of authority of the local
government, its officials, its programs, projects and activities. They should strive to
acquire the technical knowledge and skills that may help them exercise responsible
citizenship. People should develop a sense of belonging to local government, and a
concern for what is happening in the local community, neighbouring localities, and
beyond.
Periodic visits to the barangay hall, city/municipal hall and provincial capitol can help
build knowledge on projects and activities undertaken by local governments. Listening
to broadcast media (radio and television), reading newspapers, becoming aware of
activities in the neighbourhood, visiting the barangay hall on a regular basis, joining
associations of residents, and participating in community events could be done with
very little effort or at little extra cost.
Among the websites that citizens may access to monitor government projects and
activities are the websites of the DBM, the National Economic Development Authority
(NEDA), COA, DOF, DILG and their respective local governments.
The DBM publishes in its website information on the General Appropriations Act, which
contains information on the IRA and similar allocations to LGUs. The NEDA website
contains information on Official Development Assistance (ODA) and ODA-funded
programs and projects intended for local governments. The DOF website is a wealthy
source of information on the countrys fiscal performance and the governments fiscal
policy, with links to the websites of DOF-bureaus and attached agencies including the
Bureau of Local Government Finance (BLGF). The BLGF website is amply loaded with
information on policies, assistance, services, facilities and related information that are
useful to local governments.
The DILG website is a rich source of information on policy issuances and comparative
information on LGU performances and very useful information of interest and benefit to
LGUs. The COA website contains findings on audit of operations of all government

agencies including local governments. There is much information that citizens can
access that will truly help them better understand and appreciate their local
governments.
Local governments have their respective websites which they have to populate with
relevant information particularly on the budget and their financial performance. The
posting on bulletin boards and websites of the financial statements and reports and
similar documents of LGUs has been required by the DILG under the Full Disclosure
Policy. LGUs are duty bound to comply with this directive.
It is now up to citizens and civil society organizations to examine the programs and
performance of LGUs using this information. Citizens can take pro-active stance in
requiring the LGU to comply with the provisions in the 1991 Local Government Code on
citizen participation and participate in the overall management of the local government
through the Sanggunian, local special bodies, and similar mechanisms that the LGUs
have created. Citizen Action Network for Accountability

REFERENCES
Padilla, Alvic. May 24, 2010. Understanding Incomes and Expenditures of Local Government Units. www.transparencyreporting.net.
Serote,

Ernesto.

18

April

2012.

Planning

in

Local

Governance.

UP

SURP.

Land

Equity

International,

accessible

through www.landequity.com.ph.
United States Agency for International Development (USAID). 2009. Power of the Purse Reform in the Philippines: Proposed Revisions to
the 1987 Administrative Code. July 2009, pp. 1-24, accessible through http://incitegov.org/wp-content/uploads/2011/05/INCITEGov-Power-ofthe-Purse.pdf.
Commission on Audit. 2011 Annual Financial Report of Local Government Units.
Commission on Audit. COA Manual on the New Accounting System for use in LGUs under COA Circular No. 2002-003 issued on June 20,
2002.
Department of Budget and Management. 2008. DBM-issued Updated Budget Operations Manual (UBOM) for LGUs.
Department of Finance-Bureau of Local Government Finance (DOF-BLGF). Statement of Receipts and Expenditures.
Department of the Interior and Local Government. DILG Memorandum Circular No. 2010-83 issued on August 31, 2010 Full Disclosure
Policy (FDP) of Local Budget and Finances, and Bids and Public Offerings
DBM and DILG Joint Circular No. 1, s 2005 dated 20 September 2005.
DILG-MC No. 2011-02 issued on April 27, 2011, creating the Performance Challenge Fund.
1987 Philippine Constitution.
Executive Order No. 292 or the Administrative Code of 1987.
RA 6957 or the Build-Operate-Transfer (BOT) Law, as amended by RA 7718.
RA 7160 or the 1991 Local Government Code.

RA 10121 Philippine Disaster Risk Reduction & Management (PDRRM) Act of 2010

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