LOCAL FISCAL ADMINISTRATION

I. NATURE AND SCOPE

Definition

Local fiscal Administration refers to systems, structures, processes, officials

and personnel, and the policy environment governing intergovernmental, and
inter-local fiscal relations, affecting among others:

the giving and receipt of allotments and grants from the National
Government (NG) to local government units (LGUs);
allotment sharing between LGUs;

sharing of taxing powers between the national government (NG)

and LGUs, and among LGUs;

policy on tax rates and structure;

revenue and expenditure planning;

revenue utilization and expenditure allocation; monitoring and

approval budgets, tax ordinances and other fiscal measures;

policy on borrowing and borrowing instruments; and

Appointment and supervision of local fiscal officers. (Cuaresma and

Ilago)

This broad definition comprehends five major elements as the scope of

local fiscal administration. These are:

Systems;
Structures;

Processes;

Official/personnel; and

Policy environment governing inter-governmental and inter-local

fiscal relations.
The first four elements can be interpreted as comprising the internal
environment of local fiscal administration, while the policy environment is
part of the larger external environment of local fiscal administration.

The definition likewise underscores inter-governmental and inter-local

fiscal relations that transpire between national and local governments and
among the latter (e.g. giving and receipt of allotments/grants, sharing of
taxing powers between central government and LGUs, among the latter,
allotment sharing among LGUs).

All definitions have common areas. All of them refer to revenue

generation and revenue allocation/utilization as part of the scope of local
fiscal administration.

Local fiscal administration refers to the rational, effective and efficient

conduct of the fiscal functions and operations of local government units
which embrace the systems, structures, processes and human resources
involved in revenue generation, revenue allocation and utilization. In
addition, such conduct of fiscal affairs is governed by laws and is affected
by the fiscal policy environment, which defines central-local and inter-LGU
fiscal relations.

Local Fiscal Administration involves revenue generation, the rational

allocation, utilization and control of resources through the concept of
performance budgeting by the local government units (LGU) to optimize
the use of public funds for the benefit of the greatest number of people. It
draws strength and rationality from the Constitutional provision of granting
local government the power to create their own sources of revenue
through local taxation.

In public administration, local fiscal administration is commonly referred to

as the formulation, implementation, and evaluation of local fiscal policies by
local governments.

Among others, these fiscal policies set the framework and procedures on
local revenue generation that includes property tax administration, revenue
ordinance codification as well as the operations of local economic
enterprises.

It also deals on the national government allotments, shares and subsidies

together with the availment of credit financing through domestic and
foreign institutions.

Local Government Finances

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Fiscal relations between national and local government centre on the
following major areas of fiscal administration:

Allotment of internal revenue shares;

Shares of local governments in national wealth exploitation;
Shares of earnings of government agencies or government-owned or
controlled corporations engaged in the utilization and development of
national wealth;
Local government borrowing; and
Review of local government budgets.

Aspects of local fiscal administration

The major aspects of local fiscal administration are the fiscal relations
between the national government and local governments, and among the
local government units, to wit:

1. The fiscal relations between the national government and its agencies,
on the one hand, and the LGUs on the other, which we may call vertical
financial relations. This is also referred to in the literature as central-
local fiscal relations, with the Internal Revenue Allotments at its core;
and

2. The fiscal relations among LGUs themselves, which may be referred to

as the inter-local fiscal relations.

Scope

The definitions of local fiscal administration enumerated the areas covered.

However, it is helpful to specify once more the scope of the field according
to their functional categories, which fall into the main traditional divisions of:

a. Revenue Generations

All aspects of local taxation;

Borrowing and its management;
Operation of public enterprises;
Revenue enhancement measures;
Revenue planning, forecasting and accounting;

b. Revenue Allocation and Utilization

Budgeting system and process, including the linkage of planning

and budgeting, expenditure planning, expenditure allocation and
expenditure monitoring;
Accounting and auditing of expenditures;

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 c. Other Aspects

Property and supply management;

Internal control which cuts across all fiscal functions; and
Other related matters, like the central grant and allotment system,
organization for local fiscal administration, and computerization of
fiscal operations/systems.

II. LEGAL BASIS FOR LOCAL FISCAL ADMINISTRATION

Local fiscal administration is characteristically legalistic or statutory. It is

governed by laws and statutes. At the sub-national level, local government
exercise the function of fiscal administration by virtue of the explicit powers
and authority vested in them by:

the Constitution of the land;

the Local Government Code of 1991; and
such other laws from national government agencies exercising
supervisory power over the LGUs.

A. 1987 PHILIPPINE CONSTITUTION

1. Constitutional Provisions

a. Principle of Local autonomy

The present Constitution, ratified in 1987, contains more substantial

provisions on local governments with one article (Article X) devoted
solely on them. The provisions reflect the changing political
environment characterized by growing recognition of the importance
of local governments.

One provision reiterates the significance of local autonomy, to wit:

Section 2 Article X: The territorial and political subdivisions shall

enjoy local autonomy.

The principle of local autonomy under the 1987 Constitution simply

means decentralization; it does not make the local government
sovereign within the state or an imperium in imperio. The exercise
of local autonomy remains subject to the power of control by
Congress, and the power of general supervision by the President.

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Political subdivisions

Section 1 Article X: The territorial and political subdivisions of the

Republic of the Philippines are the provinces, cities, municipalities,
and barangays. There shall be autonomous regions in Muslim
Mindanao and the Cordilleras as hereinafter provided.

Region - A sub-national administrative unit comprising of several

provinces having more or less homogenous characteristics, such as
ethnic origin of inhabitants, dialect spoken, agricultural produce, etc.

Province - The largest unit in the political structure of the

Philippines. It consists, in varying numbers, of municipalities and, in
some cases, of component cities. Its functions and duties in relation
to its component cities and municipalities are generally coordinative
and supervisory.

City The city composed of a cluster of municipalities or

municipalities and component cities. There are three classes of
cities in the Philippines: the highly urbanized, the independent
component cities which are independent of the province, and the
component cities which are part of the provinces where they are
located and subject to their administrative supervision.

Municipality - Is a political corporate body which is endowed with

the facilities of a municipal corporation, exercised by and through
the municipal government in conformity with law. It is a subsidiary of
the province which consists of a number of barangays within its
territorial boundaries, one of which is the seat of government found
at the town proper (poblacion).

Barangay - The smallest political unit into which cities and

municipalities in the Philippines are divided. It is the basic unit of the
Philippine political system. It consists of less than 1,000 inhabitants
residing within the territorial limit of a city or municipality and
administered by a set of elective officials, headed by a barangay
chairman (punong barangay).

Did you know that the number of cities has more than doubled in
over thirty years?

The number of cities in the country has increased by 76 or by

124.5%, from 61 cities in 1977 to 137 cities as of the fourth quarter
of 2009. During this 30-year period, the number of cities in Luzon
had an increase of 41 cities, Visayas, up by 19 cities and Mindanao
with 16 cities more.

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Majority of the cities in the country can be found in Luzon. As the
largest island in the country, Luzon has 65 cities or 47%, with 16
cities coming from the National Capital Region (NCR). Visayas has
39 cities or 29% with Regions VI and VII having 16 cities apiece,
while Mindanao has 33 cities. Among the regions in Mindanao,
Region X had the highest number of cities in the island at 9.

Table 1. Number of Provinces, Cities and Municipalities by Island Group

as of December 2009

REGIONS PROVINCES CITIES MUNICIPALITES BARANGAYS

LUZON 38 65 706 20,489

NCR 0 16 1 1,695

CAR 6 2 75 1,176

I (ILOCOS REGION) 4 9 116 3,265

II (CAGAYAN VALLEY) 5 3 90 2,311

III (CENTRAL LUZON) 7 13 117 3,102

IV-A (CALABARZON) 5 13 129 4,011

IV-B (MIMAROPA) 5 2 71 1,458

V (BICOL REGION) 6 7 107 3,471

VISAYAS 16 39 369 11,444

VI (WESTERN VISAYAS) 6 16 117 4,051

VII (CENTRAL VISAYAS) 4 16 116 3,003

VIII (ESTERN VISAYAS) 6 7 136 4,390

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 MINDANAO 27 33 423 10,080

IX (ZAMBOANGA 67
PENINSULA) 3 5 1,904

X (NORTHERN MINDANAO) 5 9 84 2,022

XI (DAVAO REGION) 4 6 43 1,162

XII (SOCCSKSARGEN) 4 5 45 1,194

ARMM 6 2 117 2,488

XIII (CARAGA) 5 6 67 1,310

TOTAL 81 137 1,498 42,013

Some cities act independently from any province and are self-
governing as referred to in the Constitution and in the 1991 Local
Government Code of the Philippines:

Section 12 Article X: Cities that are highly urbanized, as determined

by law, and component cities whose charters prohibit their voters
from voting for provincial elective officials, shall be independent of
the province. The voters of component cities within a province,
whose charters contain no such prohibition, shall not be deprived of
their right to vote for elective provincial officials.

Sec. 451 of the Local Government Code provides that Cities,

Classified, which states that, A city may either be component or
highly urbanized: Provided, however, that the criteria established in
this Code shall not affect the classification and corporate status of
existing cities. Independent component cities are those component
cities whose charters prohibit their voters from voting for provincial
elective officials. Independent component cities shall be
independent of the province

As of December 22, 2009 there are 137 cities in the Philippines.

Thirty-eight cities (38) are independent: thirty-three (33) are
classified as "highly urbanized" and five (5) as "independent
component;" the rest are component cities of the provinces in which
they are geographically located.

Table 2. List of Highly Urbanized Cities in the Philippines as of December

2009

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 Population
Population Area density
City Province Region 2007 (km) (km)

Caloocan -none- NCR 1,378,856 53.33 25855.17

Las Pias -none- NCR 532,330 41.54 12814.88
Makati -none- NCR 510,383 21.57 23661.71
Malabon -none- NCR 363,681 15.76 23076.21
Mandaluyong -none- NCR 305,576 11.26 27138.19
Manila -none- NCR 1,660,714 38.55 43079.48
Marikina -none- NCR 424,610 33.97 12499.56
Muntinlupa -none- NCR 452,943 46.70 9698.99
Navotas -none- NCR 245,344 10.77 22780.32
Paraaque -none- NCR 552,660 47.69 11588.59
Pasay -none- NCR 403,064 19.00 21213.89
Pasig -none- NCR 617,301 31.00 19912.94
Quezon City -none- NCR 2,679,450 161.12 16630.15
San Juan -none- NCR 125,338 5.94 21100.67
Taguig -none- NCR 670,309 53.67 12489.45
Valenzuela -none- NCR 568,928 44.58 12761.96
Butuan Agusan del Norte Region 13 298,378 816.62 365.38
Baguio Benguet CAR 301,926 57.51 5249.97
Cebu City Cebu Region 07 798,809 315.00 2535.9
Lapu-Lapu Cebu Region 07 292,530 58.10 5034.94
Mandaue Cebu Region 07 318,575 25.18 12651.91
Davao City Davao del Sur Region 11 1,363,337 2,443.61 557.92
Iloilo City Iloilo Region 06 418,710 70.23 5961.98
Iligan Lanao del Norte Region 10 308,046 813.37 378.73
Tacloban Leyte Region 08 217,199 201.72 1076.74
Cagayan de Oro Misamis Oriental Region 10 553,966 412.80 1341.97
Bacolod Negros Occidental Region 06 499,497 162.67 3070.62
Puerto Princesa Palawan Region 04-B 210,508 2,381.02 88.41
Angeles Pampanga Region 03 314,493 60.27 4745.63
Lucena Quezon Region 04-A 236,390 80.21 2947.14
General Santos South Cotabato Region 12 529,542 492.86 1074.43
Olongapo Zambales Region 03 227,270 185.00 1228.49
Zamboanga City Zamboanga del Sur Region 09 774,407 1,414.70 547.4

Autonomous Regions

The regions themselves do not possess a separate local

government, with the exception of the Autonomous Region in
Muslim Mindanao, which has an elected regional assembly and
governor. The Cordillera Administrative Region was originally

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intended to be autonomous (Cordillera Autonomous Region), but the
failure of two plebiscites for its establishment reduced it to a regular
administrative region.

b. Provisions That Strengthen The Principles Of Local

Autonomy

General Supervision of the President

Section 4 Article X provides that the President of the Philippines

shall exercise general supervision over local governments.
Provinces with respect to component cities and municipalities, and
cities and municipalities with respect to component barangays, shall
ensure that the acts of their component units are within the scope of
their prescribed powers and functions.

The President can only interfere in the affairs and activities of a local
government unit if he finds that the latter had acted contrary to law.
This is the scope of the Presidents supervisory powers over local
government units. Hence, the President or any of his alter egos,
cannot interfere in the local affairs as long as the concerned local
government unit acts within the parameters of the law and the
Constitution. Any directive, therefore, by the President or any of his
alter egos seeking to alter the wisdom of a law-conforming
judgement on local affairs of a local government unit is a patent
nullity, because it violates the principles of local autonomy (Judge
Dadole vs. Commission on Audit).

The power of general supervision by the President over local

governments, as provided for in the Constitution, is now limited and
extend only to provincial governors and mayors of HUCs. General
supervision over lower level officials is entrusted to the provincial
governor and to some extent to the local legislative councils. The
national government has no control over local governments except
for the power of general supervision. The national government
cannot abolish a local government. The legislature can pass a law
abolishing a local government but only after the law is approved by
the people through a referendum. Political jurisdictions are governed
with full administrative autonomy. However, the national government
still exerts influence and regulatory of national government
subsidies. National government under certain circumstances
likewise guarantees loan application of local governments and
regulates the issuance of local government bonds.

Power to Create their own sources of revenue

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Section 5 Article X: 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.

Local Governments are authorized to create and formulate projects

as sources of revenue. As such, local governments are authorized
to issue bonds, debentures, securities, collateral notes and other
obligations to finance self-liquidating, income-producing
development and livelihood projects. However the power given to
local governments in the issuance of bonds and other long-term
securities is subject to the rules and regulations of the Central Bank
and the Securities and Exchange Commission (Section 299). The
Department of Budget and Management has the power to review
appropriation ordinances of provinces, highly urbanized cities,
independent component cities and the municipalities within the
Metropolitan Manila Area (Section 326).

A just share in national taxes

Since financing is a crucial aspect of the success of decentralization

and local autonomy, the 1987 Constitution goes beyond the mere
granting to LGUs the power to create their own revenue sources by
adding Section 6 of Article X with provides to wit:

Local government units shall have a just share, as determined by

law, in the national taxes which shall be automatically released to
them.

The Local Government Code of 1991 reiterated such provision of

the Constitution by providing for the automatic release of the Internal
Revenue Allotment (IRA).

In accordance with law, the LGUs share in local taxes collected by

the Bureau of Internal Revenue three years before or says the 2009
share will be based on the 2006 collection. Of the total local taxes,
the LGUs will have 40%, while the national government gets the
balance.

The distribution of the Internal Revenue Allotment to local

governments is as follows:

Political subdivision Percentage Share

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 Provinces 23 %

Cities 23 %

Municipalities 34 %

Barangays 20 %

The share of each province, city and municipality is as follows:

By population 50 %

By land area 25 %

By equal sharing 25 %

The code also mandated each LGU to appropriate in its annual

budget no less than 20% of its annual IRA for development projects.

Over the years, the total IRA allocation to all LGUs has grown and is
currently less than 20% of the total national budget.

INTERNAL REVENUE ALLOTMENT AND ITS PERCENTAGE SHARE IN THE

NATIONAL BUDGET (1992-2006)

TOTAL
BUDGET (in PERCENTAGE
YEAR AMOUNT (in billion pesos)
billion SHARE
pesos)
1992 20.30 295.20 6.88
1993 36.12 331.70 10.89
1994 46.13 369.00 12.50
1995 52.04 372.10 13.99
1996 56.59 445.10 12.71
1997 71.04 491.80 14.44
1998 80.99 537.40 15.07
1999 96.78 593.60 16.03
2000 111.77 651.00 17.17
2001 111.77 669.88 16.69
2002 134.42 780.80 17.22
2003 141.00 804.0 17.54
2004 141.00 861.6 16.36

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 2005 151.60 907.6 16.70
2006 166.0 907.6 18.29
Source: Department of Budget and Management

Each Barangay should at least receive eighty thousand Pesos per

annum. The Local Government Code provides that local
governments shall have an equitable share in the proceeds derived
from the utilization and development of national wealth within their
respective areas and sharing these with the inhabitants by way of
direct benefits (Section 289).

Local governments, in addition to the internal revenue allotment,

have a share of 40 per cent of the gross collection derived by the
national government from the preceding fiscal year from mining
taxes, royalties, forestry and fishery charges, other taxes, fees, or
charges, including related surcharges, interests or fines and from its
share in any co-production, joint venture or production sharing
agreement in the utilization and development of the national wealth
within their territorial jurisdictions (Section 290). Local governments
likewise have a share based on the preceding fiscal year from the
proceeds derived from any government agency or government-
owned or controlled corporation engaged in the utilization and
development of the national wealth based on the following formula
whichever will produce a higher share for the local government unit:

1 per cent of the gross sales or receipts of the preceding

calendar year; or
40 per cent of the mining taxes, royalties, forestry and fishery
charges and such other taxes, fees or charges, including related
surcharges, interests, or fines the government agency or
government-owned or controlled corporation would have paid if it
were not otherwise exempt (Section 291).
c. Elective Officials

The fiscal administration is performed by its elected officials who

have 3-year terms as provided for by Section 8 Article X of the
Constitution, to wit:

The term of office of elective local officials, except barangay

officials, which shall be determined by law, shall be three years and
no such official shall serve for more than three consecutive terms.
Voluntary renunciation of the office for any length of time shall not
be considered as an interruption in the continuity of his service for
the full term for which he was elected.

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 The following is the breakdown of elective officials and the
minimum age requirement:

LGU Official Minimum age

Autonomous region
Provinces
Highly urbanized cities
Independent component and
component cities
Municipalities
Barangay
*a Sangguniang Kabataan official who has surpassed 21 years of age while in office is allowed to serve for the rest of the term.
Regional governor 35 years old on election day
Regional vice governor Same as regional governor
Regional legislative assembly member 21 years old on election day
Governor 23 years old on election day
Vice governor Same as governor
Sangguniang Panlalawigan member Same as governor
Mayor Same as governor
Vice mayor Same as governor
Sangguniang Panlungsod member
Same as governor
(Councilor)
Mayor 21 years old on election day
Same as independent component and
Vice mayor
component city mayor
Sangguniang Panlungsod member Same as independent component and
(Councilor) component city mayor
Same as independent component and
Mayor
component city mayor
Same as independent component and
Vice mayor
component city mayor
Same as independent component and
Sangguniang Bayan member (Councilor)
component city mayor
Barangay captain 18 years old on election day
Barangay kagawad Same as barangay captain
Sangguniang Kabataan chairperson 15 to 21 years old on election day*
Same as Sangguniang Kabataan
Sangguniang Kabataan member
chairperson*

B. LOCAL GOVERNMENT CODE OF 1991 AND OTHER LAWS

Following the mandate of the Constitution, a new Local Government

Code (RA 7160) was enacted into law in October 1991 and became
effective on January 1, 1992. The Code is considered by many as a
landmark legislation that gives teeth and substance to the constitutional
policy on local autonomy and decentralization.

Creation of Local Government Units

Section 10 of the Local Government provides that:

No creation, division, merger, abolition, or substantial alteration of

boundaries of local government units shall take effect unless approved
by a majority of the votes cast in a plebiscite called for the purpose in
the political unit or units directly affected. Said plebiscite shall be
conducted by the Commission on Elections (Comelec) within one
hundred twenty (120) days from the date of effectivity of the law or
ordinance effecting such action, unless said law or ordinance fixes
another date.

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As a matter of principle, higher legislative entities have the power to
create, divide, merge, abolish, or substantially alter boundaries of any
lower-level LGU through a law or by an ordinance, all subject to
approval by a majority of the votes cast in a plebiscite to be conducted
by the Commission on Elections (COMELEC) in the local government
unit or units directly affected.

The Local Government Code has also set requisites for creating local
government units based on verifiable indicators of viability and
projected capacity to provide services. A summary can be found in the
table below:

Legislative bodies that can

create, merge, abolish or
LGU Area Population Income
substantially alter the
boundaries of the LGU
P20 million for the last two
2,000 square (2) consecutive years
Province
kilometers
250,000
based on 1991 constant Congress
prices
P100 million for the last
100 square two (2) consecutive years
City
kilometers
150,000
based on 2000 constant Congress
prices[9]
P50 million for the last two
Highly urbanized 100 square (2) consecutive years
City kilometers
200,000
based on 1991 constant Congress
prices

P2.5 million for the last Congress

50 square two (2) consecutive years
Municipality 25,000
kilometers based on 1991 constant
prices
ARMM Regional
Assembly
Congress
ARMM Regional
Assembly
5,000 (Metro Sangguniang
Manila and Panlalawigan, with
highly-urbanized recommendation
Barangay None None
cities) from the concerned
2,000 (rest of the Sangguniang
country) Bayan(s) required

Sangguniang
Panlungsod

Division and merger,

Division, merger and abolition of local government units

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SEC. 8. Division and Merger.of RA 7160 - Division and merger of
existinglocal government units shall comply with the same
requirements herein prescribed for their creation: Provided, however,
That such division shall not reduce the income, population, or land area
of the local government unit or units concerned to less than the
minimum requirements prescribed in this Code: Provided, further, That
the income classification of the original local government unit or units
shall not fall below its current income classification prior to such
division. The income classification of local government units shall be
updated within six (6) months from the effectivity of this Code to reflect
the changes in their financial position resulting from the increased
revenues as provided herein.

SEC. 9. Abolition of Local Government Units. of RA 7160- A local

government unit may be abolished when its income, population, or land
area has been irreversibly reduced to less than the minimum standards
prescribed for its creation under Book III of this Code, as certified by
the national agencies mentioned in Section 17 hereof to Congress or to
the sanggunian concerned, as the case may be.
The law or ordinance abolishing a local government unit shall specify
the province, city, municipality, or barangay with which thelocal
government unit sought to be abolished will be incorporated or merged.

Place illustration/sample

Powers in pursuance of Local Fiscal Administration

1. General Welfare Clause [Sec. 16, RA 7160]: Every local

government unit shall exercise the powers expressly granted, those
necessarily implied therefrom, as well as powers necessary,
appropriate, or incidental for its efficient and effective governance,
and those which are essential to the promotion of the general
welfare. Within their respective territorial jurisdictions, local
government units shall ensure and support, among other things, the
preservation and enrichment of culture, promote health and safety,
enhance the right of the people to a balanced ecology, encourage
and support the development of appropriate and self-reliant
scientific and technological capabilities, improve public morals,
enhance economic prosperity and social justice, promote full
employment among their residents, maintain peace and order, and
preserve the comfort and convenience of their inhabitants.

The general welfare clause is the statutory grant of police power to

local government units. As such, LGUs may in the exercise of
police power under the general welfare clause, order the closure of

15
 bank for failure to secure the appropriate mayors permit and
business licenses (Rural Bank of Makati vs. Municipality of Makati)

It likewise has the authority to issue permits to operate cockpits and

for holding of activities for any charitable or welfare purpose.

2. Power to Generate and Apply Resources [Sec. 18, RA 7160] -

Local government units shall have the power and authority to
establish an organization that shall
be responsible for the efficient and effective implementation of their
development plans, program objectives and priorities; to create their
own sources of revenue and to levy taxes, fees, and charges which
shall accrue exclusively for their use and disposition and which shall
be retained by
them; to have a just share in national taxes which shall be
automatically and directly released to them without need of any
further action; to have an equitable share in the proceeds from the
utilization and development of the national wealth and resources
within their respective territorial jurisdictions including sharing the
same with the inhabitants by way of direct benefits; to acquire,
develop, lease, encumber, alienate, or otherwise dispose of real or
personal property held by them in their proprietary capacity and to
apply their resources and assets for productive, developmental, or
welfare purposes, in the exercise or furtherance of their
governmental or proprietary powers and functions and thereby
ensure their development into self-reliant communities and active
participants in the attainment of national goals.

Place illustration/sample

3. Reclassification of lands [Section 20, RA 7160] - (a) A city or

municipality may, through an ordinance passed by the sanggunian
after conducting public hearings for the purpose, authorize the
reclassification of agricultural lands and provide for the manner of
their utilization or disposition in the following cases: (1) when the
land ceases to be economically feasible and sound for agricultural
purposes as determined by the Department of Agriculture or (2)
where the land shall have substantially greater economic value for
residential, commercial, or industrial purposes, as determined by
the sanggunian concerned: Provided, That such reclassification
shall be limited to the following percentage of the total agricultural
land area at the time of the passage of the ordinance:

(1) For highly urbanized and independent component cities,

fifteen percent (15%);

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 (2) For component cities and first to third class municipalities,
ten percent (10%); and

(3) For fourth to sixth class municipalities, five percent (5%):

Provided, further, That agricultural lands distributed to
agrarian reform beneficiaries pursuant to Republic Act
Numbered Sixty-six hundred fifty-seven (R.A. No. 6657),
otherwise known as "The Comprehensive Agrarian Reform
Law", shall not be affected by the said reclassification and
the conversion of such lands into other purposes shall be
governed by Section 65 of said Act.

Place illustration/sample

4. Closure and opening of Roads [Sec. 21, RA 7160] - A local

government unit may, pursuant to an ordinance, permanently or
temporarily close or open any local road, alley, park, or square
falling within its jurisdiction: Provided, however, That in case of
permanent closure, such ordinance must be approved by at least
two-thirds (2/3) of all the members of the sanggunian, and when
necessary, an adequate substitute for the public facility that is
subject to closure is provided.

Place illustration/sample

5. Corporate Powers [Sec. 22, RA 7160] - (a) Every local

government unit, as a corporation, shall have the following powers:
(1) To have continuous succession in its corporate name;
(2)To sue and be sued;
(3) To have and use a corporate seal;
(4) To acquire and convey real or personal property;

Place illustration/sample

6. Authority to negotiate and secure grants [Sec. 22, RA 7160] -

Local chief executives may, upon authority of the sanggunian,
negotiate and secure financial
grants or donations in kind, in support of the basic services or
facilities enumerated under Section 17 hereof, from local and
foreign assistance agencies without necessity of securing clearance
or approval therefor from any department, agency, or office of the
national government or from any higher local government unit:
Provided, That projects financed by such grants or assistance with
national security implications shall be approved by the national

17
 agency concerned: Provided, further, That when such national
agency fails to act on the request for approval within thirty (30) days
from receipt thereof, the same shall be deemed approved.

Municipal Liability

Section 24 provides that:

Local government units and their officials are not exempt from
liability for death or injury to persons or damage to property.
As such, the local government units is liable in damages for death or
injuries suffered by reason of the defective condition of roads,
bridges, streets, public buildings and other public works. In fact, in
the case of City of Manila vs. Teotico, the city of Manila was held
liable for damages when a person feel into an open manhole in the
streets of the city.

C. Other Laws and Government Issuances

Local fiscal administration is also governed by laws and issuances

from the national agencies that exercise supervisory power over
local government units. Such agencies are the following:

a. Department of Finance (DOF)

The DOF, maintains the Bureau of Local Government Finance

(BLGF) which is the unit primarily involved in local financial
administration. The Bureau provides technical assistance and
training for local governments on local finance. It administers
credit facilities such as the Municipal Development Fund, and
prepares guidelines and standards on matters related to
taxation, credit financing, and imposition of various fees and
charges. It also exercises technical supervision on local
assessment and treasury operations, and performs monitoring
and evaluation of financial performances.

b. Department of Budget and Management (DBM)

The DBM is primarily responsible for disseminating information

on Internal Revenue Allotment (IRA) allocation and the local
governments share from the utilization and development of
national wealth. This information is used by local governments
in the budget preparation phase. Through its regional offices
and the Budget Finance Bureau, the Department releases the
share of internal revenue allotment directly to the provinces,
cities, municipalities and barangays.

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 c. Commission on Audit (COA)

The COA is primarily responsible for the accountability phase

of the local budget process. The Commission maintains the
Local Government Audit Office (LGAO), through which it
implements auditing rules and regulations in local government
units. The Commission also settles accounts and fixes the
liability of accountable officers, as well as determines whether
fiscal responsibility has been properly and effectively
discharged by the local chief executives.

d. Department of Interior and Local Government (DILG)

The DILG, upon which the supervisory power of the President

is reposed, at times issues guidelines which are fiscal-related.

e. Office of the President (OP)

The President of the Philippines has general supervisory power

over the local government units, as provided by Section 4 of
the 1987 Constitution. As such, the OP still issues from time to
time executive or administrative orders that affect local
government units.

III. THE ROLE OF LGUS IN DECENTRALIZED DEVELOPMENT

In 1986, the Aquino government adopted decentralization as the

development framework of the national government. To attain more
quickly its envisioned developmental goals and objectives, the
Government decided to transfer powers, functions and
responsibilities from central government to the sub-national level. In
1991 when the Local Government Code was passed by Congress.
This piece of legislation altered power relationships between the
national government and the local governments. Some basic
services and functions that were traditionally delivered and
performed by the central government were transferred to the local
government and it was given the power to appoint the personnel
involved in the delivery of these services. Local government was
also given additional local taxation powers and allocated a
significant share from the collection of nationally impose taxes, to be
able to maintain and sustain the delivery of such services.

Due to these devolved powers and authority, local governments in

the Philippines was further given wide latitude to make vital
decisions in governing their local communities. They were enabled,

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and expected to assume new and wider roles in local governance
through innovations and changes in the local structures though with
limited resources. Most of all they were expected to organize more
intervention in local economy to bring about more economic
development activities in the community.

The primary principle of devolution and decentralization is very clear

to unburden the national government of responsibilities of
attending to the basic needs of the people by shifting the
responsibilities down to the LGUs where such needs can best be
carried out,

Local executives now play a more assertive role in their respective

units. The Local Government Code gave more leeway for local
executives in conceptualizing and in implementing development
programs. Unlike before, when significant decisions emanate from
the national government, local governments are now given more
flexibility in decision making.

Decentralization has never had genuine meaning until the passage

of the Code. Despite the presence of strong local leaders
throughout the history of the archipelago, the national government
has been the dominant factor that determined where development
could take place. This was mainly because of its tremendous
control of public financial resources.

With the rise in the share of LGUs in the internal revenue allotment
(from 11% to a maximum of 40%), proceeds from the utilization of
natural resources, as well as other income-enhancing powers,
decentralized development may prove to be the real tool in
actualizing national development.

Local governments play a significant role in this development task.

Advocates of decentralization count on the promptness of public
service and accountability to effectively address public needs. The
LGUs are the level of government closest to the people; thus, they
are in the best position to assess the changing demands of
communities and respond to them in such a way that local
capacities and priorities are taken into account.

Once local governments are clothed with fiscal autonomy and this
autonomy is used effectively and responsibly, development from
below would not be impossible to realize. What is left to be done
are the following:

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 the installation of organizational mechanism and policy that
anticipate and address the peoples interests in an adequate
and accountable manner;
the vigilance of the people themselves in choosing individuals
who work in the LGU; and
their support and manifestation of local empowerment.

Bibliography:

Handbook of Local Fiscal Administration in the Philippines, Alicia B. Celestino,

Norberto G. Malvar, Romulo R. Zipagan, Sr., December 1998

The 1987 Constitution, Rex Bookstore 2001 Edition, Philippines

The Local Government Code of 1991, Rex Bookstore 2001 Edition,

Philippines

Outline Reviewer in Political Law, Antonio E. B. Nachura, 2009 Edition,

Philippines

Wikipedia

Empowering LGUs through Decentralized Development Planning, Volume 11,

No. 16 October 2007 of the National Economic Development Authority

Local Fiscal Administration, Jocelyn C. Cuaresma and Simeon A. Ilago

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