DIY Local Fiscal Administration

Local Fiscal Administration
By Yvonne T. Chua

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. “It’s 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. “It’s 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 doesn’t make sense for a government to run entirely on current expenditures. It’s like you don’t 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 doesn’t follow these things, it’s impossible to learn what’s 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 paper’s 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)
• DBM’s Local Government Budgeting Manual, which elaborates on the Budget Operations Manual
• COA’s 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 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 government’s 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 council’s executive committee consists of:
• Province: governor, representatives of city and municipal mayors, chairman of the Sangguniang Panlalawigan’s appropriations committee, president of the provincial league of barangays, NGO representatives
• City or municipality: mayor, chairman of the Sagguniang Panglunsod/Bayan’s 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.
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 committee’s 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 office’s 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 government’s 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 province’s obligations and indebtedness, a summary of statutory and contractual obligations and other financial statements that show the local government’s financial condition.
The Sanggunian holds a series of public hearings on the budget before buckling down to review the executive branch’s 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.
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 LGU’s 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 LGU’s 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.
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. “You’d know about the project only when it’s 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 don’t 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 Sanggunian’s 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 city’s only other opposition councilor, Robert Dean Barbers, were excluded every step of the way when the 1999 budget was drawn up. “As councilors, we’re 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, “I’ve never seen the local development plan and public investment plan. I’ve asked for them but have not been furnished copies. They’re 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) didn’t 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, ‘That’s 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 year’s figures with the preceding year’s. At the very least, a report on the adoption of a local budget should contain 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 don’t 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. Labiste’s paper pays close attention to Hollo’s 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 Sur’s 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 Pampanga’s 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? Who’s 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 1998.
• Determine who gets the lion’s 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, there’s 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 government’s 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 budget’s 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 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 – Malacañang 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 Osmeña, 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 Estrada’s 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 Malacañang was barred from withholding their IRA. Responding to the petition filed by Senator Aquilino Pimentel Jr. that questioned the legality of Ramos’s 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, 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 Code’s 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 don’t 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 governor’s longstanding feud with President Estrada, charged persecution by Malacañang. 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 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: mayor’s 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, fiscal’s clearance, fees on holding benefits, firearms permit, registration of large cattle.
• Service fees: secretary’s 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 can’t 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
(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 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 LGU’s 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, Parañaque 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 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 assessor’s and treasurer’s 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 assessor’s 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 owner’s 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.
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 City’s economy. They charged that the ordinance was intended to benefit the newly opened SM City.
As Labiste’s 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 years—and 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 SM’s 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 Mexico’s 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 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 treasurer’s 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 Sanggunian’s 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 and sign the legal documents.
• The debt service ceiling does not exceed 20 percent of the local government’s 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 government’s loan application helpful. These include the LGU’s 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. “It’s 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 friend’s 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. 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 it’s 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. “There’s nothing crooked about it. Banks hold their (LGUs’) IRA because it’s guaranteed and the bank knows it’ll 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 sector’s role in development and infrastructure projects. Notes Rood: “If it’s a road, people believe it must be government, and that’s part of the trouble with BOT and privatization. The average Filipino, like the average person in the world, doesn’t much like profit in the abstract. They don’t mind if the company they’re working for makes money, but they don’t like (some) other company (to be) making money in electricity or roads. They’re suspicious of the notion that the only way to get this road is to allow somebody to build it and make a profit. They’re 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?
• 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

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 LGU’s 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 do’s and don’ts. 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.

The general services officer in the province and city, or the treasurer in the municipality and barangay, buys on the local government’s behalf. But no order can be placed without a written requisition of the department head, who certifies the supply’s 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 bidder’s 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 winner’s bond, in turn, gets a receipt and may be released only when the bidder enters into a contract and files a performance bond.

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.

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 Sanggunian’s 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 contractor’s 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 council’s 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 Manzano’s 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 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 I’m 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 it’s 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 haven’t signed the disbursement voucher, there’s 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 hadn’t 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 don’t 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.”

Makati’s problems existed even during the term of Binay’s 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. Zuellig’s specifications, the bidding was just a formality.
• 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 Garcia’s six months preventive suspension, a first in Cebu City’s 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 Kong’s Yuen Fat on investing $50 million of the city government’s 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 executive’s. 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 do’s and don’ts 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.
• 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 Depthnews’s 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 City’s 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-tawi’s 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 year’s 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 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 Piñas and Marikina, Pateros and Navotas. As for those that did, Caloocan incurred the biggest overdraft at P385.27 million of the region’s 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 LGU’s 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 state’s 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. 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. “That’s often the attitude. Government people are not very forthcoming with information. If you’re 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 don’t even know about an ordinance, don’t 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 engineer’s 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 engineer’s 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 we’ve 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 province’s 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 they’d 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. Banacia’s strategy works because he, like the Ombudsman for the Visayas, is based in Cebu. For journalists like Iloilo’s 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 you’re nice to them,” says Pampanga’s 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 government’s 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 Nawal’s 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. “They’re good sources of information, but not of analysis,” he says, partly because few bother with the implementation and don’t 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 tell them anything you want. These are people who care about doing their job and think they don’t 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.

Rood’s 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 won’t show (them to) you,” he says. “They’ll say they’re 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.

Civil society also plays an active role in monitoring local governments. In Bacolod City, the People’s Graftwatch has furnished newsmen with a lot of goods on city officials. Then there’s 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 don’t keep themselves updated on current events while others dwell too much on theory than on the real world.

Source: Investigating Local Governments, 2001