Local gov’ts get share of national tax take

BY FELIPE F. SALVOSA II, Senior Reporter
businessworld august 1, 2006

http://www.bworldonline.com/BW080106/content.php?id=051&src=1

Local government units (LGUs) finally got their share of national tax collections for the years 2000 and 2001. But they had to lose P4.5 billion under a scheme that securitized the receivables and gave them the discounted value, rather than wait for annual installments up to 2013.

In ceremonies yesterday, Land Bank of the Philippines (Landbank) and the Development Bank of the Philippines (DBP) gave P6.91 billion to a total of 21,291 LGUs in the first tranche of a program converting their internal revenue allotment (IRA) collectibles into cash.

The receivables actually amount to P14.3 billion, but local governments will get only P9.8 billion, forced to shoulder a discount rate of 29.84%.
Mel Senen S. Sarmiento, mayor of Calbayog City, Western Samar and secretary-general of the League of Cities, said local governments had no choice but to be on the losing end of the IRA monetization scheme because the funds are needed badly to augment spending for social services.

He warned of a repeat of the situation, noting Congress’ failure to pass the 2006 national budget, which could mean there would be no increase in the IRA. Under the Local Government Code of 1991 -- which gave LGUs more autonomy -- provinces, cities, towns, and barangays must get P0.40 for every P1 in taxes collected by the National Government.

As tax collections increase, the LGUs’ mandatory share must automatically rise, but Congress has to include it in the yearly budget. Under the Estrada administration in 2000 and 2001, Congress refused to fund some P20 billion in IRA because of poor government finances. Last year, the Supreme Court ruled this move illegal.

The Arroyo administration has decided to honor the obligations, but could pay only through seven annual installments starting next year. Local governments were, however, given the option to get it in cash but at a discount. Under that scheme, Landbank and DBP sold "investment certificates" with the government’s payment notices to LGUs as underlying assets. The proceeds were given to local governments, net of interest and other charges.

Out of the P20 billion in withheld IRA in 2000 and 2001, P17.5 billion were left unpaid, but the issue size was reduced to P14.3 billion as the League of Municipalities went ahead with its own monetization program.

Socioeconomic Planning Sec. Romulo L. Neri, who pursued the program when he was still Budget chief, said LGUs actually got a "fair shake" with the Landbank and DBP, as the 29.84% rate is the lowest discount of all monetization programs offered to LGUs. Elsewhere, the discount factor would have been at 35% to 40%, he said.

With the government operating under the 2005 budget this year, Finance Sec. Margarito B. Teves said a supplemental budget being crafted would include an increase in IRA and a "reiteration" that the IRA is supposed to be appropriated automatically even in the absence of a new budget.

Unable to raise much money on their own, local governments remain largely dependent on subsidies from Manila in the form of IRA.

Data from the Union of Local Authorities of the Philippines show that IRA accounts for more than 60% of LGUs’ financial resources.

Provinces are the most dependent at 73%, followed by municipalities at 60%, and cities at 44%