MANILA, Philippines – For the national government’s 2023 budget, the Marcos administration is seeking nearly P28.9 billion for its local government support fund (LGSF), a substantial increase from the current year’s appropriations worth nearly P18 billion.
But why the proposed bump, when local government units (LGUs) are already getting a higher allocation due to a Supreme Court ruling that expands their share in national taxes?
Rappler breaks down key points in the House of Representatives’ first budget hearing for the Department of the Interior and Local Government (DILG), and explains the financial challenges many LGUs will face in the coming year.
Devolution process ongoing
First, there is a need to look at the Duterte administration’s Executive Order No. 138 in 2021, which allowed national government agencies to stop financing certain national programs, projects, and activities, and instead let local government units look for funding themselves.
The process, as the title of the EO suggests, is called “full devolution.”
In general terms, these devolved functions include:
- Agriculture services
- Local infrastructure services
- Natural resource management and environmental services
- Energy-related services
- Revenue-mobilization services
- Health services
- Local development and supervision services
- Maintenance of peace and order
- Employment facilitation
- Social welfare services
- Transportation services
- Tourism services
- Housing services
Let’s be specific and cite an example. EO 138 allowed the Department of Education (Deped) to pass the responsibility of local infrastructure services – particularly the construction of public elementary and secondary schools – to LGUs.
Now, wealthy cities may have the funding to get by on their own, but fourth-, fifth-, and sixth-class municipalities do not enjoy the same privilege. They are, after all, poor.
This is a dilemma that was acknowledged by President Ferdinand Marcos Jr. himself in his first State of the Nation Address in July.
“Though some complications have arisen over the question of repair of school buildings in relation to the Mandanas-Garcia ruling, this will be ironed out,” Marcos had said.
So when House Deputy Majority Leader Franz Pumaren asked the DILG on Thursday, September 1, what was the purpose of the P10-billion requested increase in the local government support fund, Interior and Local Government Secretary Benhur Abalos said the proposed additional funding was meant to soften the blow that would be caused by the functions that the national government had devolved to LGUs.
“Fifth- and sixth-class municipalities make up about 19% of all municipalities. If you include fourth-class, that’s 45% of all municipalities. On the issue of construction and repair of school buildings, maybe they won’t be able to do it,” Abalos said. “Because they might not have the capacity, we will get the funding from the local government support fund.”
Below is the table comparing the local government support fund for 2022 and the proposed budget for 2023:
Interior Undersecretary Marlo Iringan said LGUs that would benefit from the growth equity fund under the LGSF would be determined by the following criteria: income class of the local government unit, poverty incidence, and national tax allocation per capita.
(Aside from the growth equity fund, the proposed 2023 budget for the support to the barangay development program of the National Task Force to End Communist Armed Conflict also nearly doubled from the current year’s appropriations.)
“The local government support fund will not be released to DILG, but direct to the identified LGUs,” Abalos added.
Offsetting impact of Mandanas-Garcia ruling
The country’s group of governors, also known as League of Provinces of the Philippines (LPP), has expressed apprehension against the transfer of certain functions to LGUs from the national government.
The group even said it might be “perhaps to cushion the impact to the fiscal space of the national government due to the national tax allotment increase from the Mandanas-Garcia ruling.”
That Mandanas-Garcia ruling is a favorite buzz phrase of local chief executives, but it is ultimately a landmark Supreme Court decision that said LGUs are entitled to a share of all national taxes (now called national tax allotment or NTA), and not just the national internal revenue taxes, which is smaller.
The LGUs’ victory at the highest court of the land was even described by Sorsogon 2nd District Representative Wowo Fortes as a “manna from heaven.”
“[But] with EO 138, it became nada from heaven,” Fortes quipped.
LPP explained it best: “The effect here is that some LGUs which used to receive financial assistance from these national government agencies will no longer receive fund support and the net effect despite their supposed NTA increase will even be a net decrease in their annual revenues.”
To make matters worse for LGUs, the national tax allotment for them is expected to drop next year – from P959 million to P820 million – because the basis of the computation of the 2023 NTA was the low tax collections in 2020, which was the height of the pandemic in the Philippines.
Basis of EO 138
The guiding principle of EO 138 is the Local Government Code of 1991, which said national agencies “shall devolve to LGUs the responsibility for the provision of basic services and facilities.”
The order said full devolution must be achieved not later than the end of fiscal year 2024, and in order to prepare LGUs, the government adopted a “phased” approach. National government agencies and LGUs were asked to submit devolution transition plans. In May, the DILG said 99% of LGUs have complied.
OFW Representative Marissa Magsino asked Abalos on Thursday, “Are our LGUs prepared and ready to take over the functions that will be devolved to them in an absorptive capacity?”
Abalos said not quite.
“Sad to say, not all LGUs can do it, particularly on school buildings,” he answered.
Abalos added it may be time to amend the Local Government Code of 1991.
“I’ve been reaching out to the committee on local government [chaired by] Representative Rex Gatchalian. Likewise in the Senate, [his counterpart] Senator JV Ejercito,” he said. “I think that’s the long-term solution, amend the Local Government Code.” – Rappler.com
*All quotes in Filipino were translated into English.