By: PROF. LEONOR MAGTOLIS BRIONESU.P. National College of Public Administration and Governance

Lead Convenor, Social Watch PhilippinesChair, KAAKBAY

LOCAL FISCAL LOCAL FISCAL ADMINISTRATIOADMINISTRATION AND N AND MANAGEMENTMANAGEMENT

“Refresher Course on Participatory Budgeting and MOU Signing for Task Force on Democratic Budgeting”Magpet, North CotabatoSept. 27, 2012

There are two global and national developments which have direct implications on LGUs and LGU officials :

1. Citizens participation in governance, especially in public finance

2. Transparency and accountability in governance

3. For LGUs, this includes DILG’s Memorandum Circular 2010-83 on 14 financial statements

Some concepts…

Public Finance the inflow and

outflow of financial resources to achieve public objectives

People’s participation people’s participation in governance is

redefined by Buendia as “the expression of citizenship and the collective exercise of power of the organized disadvantaged basic sectors to advance the people’s interests for the greater public good, which is pursued within and and beyond the confines of the public arena.”

“Democratizing Governance in the Philippines: Redefining and Measuring the State of People’s Participation in

Governance” (2005)

Concepts…

“citizens participation” have been broadened to include organized NGOs or civil society organizations, professional groups, academic institutions , church and civic organizations, in addition to the basic sectors.

very often, these groups form networks and pursue advocacies as citizens’ groups.

Citizens’ participation

Concepts…

Citizens’ participation and democracy

citizens participation go back to traditional community practices even before the coming of foreign invaders

these traditions were suppressed during the colonial period and marginalized by 18 years of martial law regime

citizens’ participation is explicitly provided for in the 1987 constitution

Article XIII of the 1987 ConstitutionROLE AND RIGHTS OF PEOPLE’S ORGANIZATIONS

Sec. 15. The State shall respect the role of independent people’s organizations to enable the people to pursue and protect, within the democratic framework, their legitimate and collective interests and aspirations through peaceful and lawful means.

People’s organizations are bona fide associations of citizens with demonstrated capacity to promote the public interest and with identified leadership, membership, and structure.

Article XIII of the 1987 ConstitutionROLE AND RIGHTS OF PEOPLE’S ORGANIZATIONS

Sec. 16. The right of the people and their organizations to effective and reasonable participation at all levels of social, political, and economic decision-making shall not be abridged. The State shall, by law, facilitate the establishment of adequate consultation mechanisms.

PUBLIC FINANCE CYCLEPUBLIC FINANCE CYCLE

• Fiscal PolicyFiscal Policy• Revenue and Tax AdministrationRevenue and Tax Administration

• BBudgeting and Expendituresudgeting and Expenditures

• AccountabilityAccountability

• BorrowingBorrowing

Scope of Local Public FinanceScope of Local Public Finance

1. Revenue Generation

• All aspects of local taxation• Loan and its management• Operation of public enterprise• Revenue enhancement measures• Revenue planning, forecasting & accounting

Scope of Local Public Scope of Local Public FinanceFinance

2. Revenue Allocation and Utilization

• Synchronized planning and budgeting system and processes

• Accounting and auditing of expenditures

Scope of Local Public FinanceScope of Local Public Finance

3. Other Aspects • Property and supply management• Internal Control in all fiscal functions• Organization• Computerization of systems related to public finance

Profile and Financial Status of Profile and Financial Status of Magpet Magpet

Profile

• Population 45,726• Total Land Area 75,536 has• No. of barangays 32• No. of households 9,214

• IRA share 115,146,319• Local-Sourced Revenues 4,762,790.21• Total LGU Income 119,909,109.21

Local Revenue Collection EfficiencyMunicipality of Magpet, North Cotabato

Fiscal Year 2011

Source: Local Governance Performance Management System,Bureau of Local Governance Statistics, DILG, 2012

Interpretation GuideDesired performance: lower than the average of LGUs with the same LGU type and income classExceptional performance: lower than the average of LGUs with the same LGU type and income class and lower than the national average

Local Revenue Collection Effort vis-à-vis Dependency to External Revenue Sources*

Municipality of Magpet, North CotabatoFiscal Year 2011

Source: Local Governance Performance Management System,Bureau of Local Governance Statistics, DILG, 2012

*external revenue sources: IRA and other inter-governmental fund transfers

Locally-Sourced Revnue LevelMunicipality of Magpet, North Cotabato

Fiscal Year 2011

Source: Local Governance Performance Management System,Bureau of Local Governance Statistics, DILG, 2012

Interpretation GuideDesired performance: higher than the average of LGUs with the same LGU type and income classExceptional performance: higher than the: (1)average of LGUs with the same LGU type and income class, (2) national average of the same LGU type regardless of income class

Locally-sourced Revenue per capitaMunicipality of Magpet, North Cotabato

Fiscal Year 2011

Source: Local Governance Performance Management System,Bureau of Local Governance Statistics, DILG, 2012

Interpretation GuideDesired performance: higher than the average of LGUs with the same LGU type and income classExceptional performance: higher than the average of LGUs with the same LGU type and income class and higher than the national average

Local Revenue Collection Effort on RPTMunicipality of Magpet, North Cotabato

Fiscal Year 2011

Source: Local Governance Performance Management System,Bureau of Local Governance Statistics, DILG, 2012

Interpretation GuideDesired performance: higher than the average of LGUs with the same LGU type and income classExceptional performance: higher than the: (1)average of LGUs with the same LGU type and income class, (2) national average of the same LGU type regardless of income class

Resource Allocation and UtilizationMunicipality of Magpet, North Cotabato

Fiscal Year 2011

Source: Local Governance Performance Management System,Bureau of Local Governance Statistics, DILG, 2012

Interpretation GuideShows the biases of the LGU in terms of budget allocation .Desired performance: not to exceed with the ceiling as mandated by law, i.e. for 1st-3rd class LGUs – 45%, for 4th-6th class LGUs – 55%Exceptional performance: lower than the average of LGUs with the same LGU type and income class and lower than the national average

Total Expenditure per capitaMunicipality of Magpet, North Cotabato

Fiscal Year 2011

Source: Local Governance Performance Management System,Bureau of Local Governance Statistics, DILG, 2012

Interpretation GuideDesired performance: higher than the average of LGUs with the same LGU type and income classExceptional performance: higher than the average of LGUs with the same LGU type and income class and higher than the national average

Actual Debt Service Costs to Total Regular IncomeMunicipality of Magpet, North Cotabato

Fiscal Year 2011

Source: Local Governance Performance Management System,Bureau of Local Governance Statistics, DILG, 2012

Note: the debt servicing limitation set for under the 1991 Local Government Code is 20%

Observation and Recommendations

• Municipal income dependent largely on external revenue sources (IRA, intergovernmental fund transfers)

– Improve further revenue collection efficiency

– Increase local revenue

Observation and Recommendations

• Municipal income dependent largely on external revenue sources (IRA, intergovernmental fund transfers)

– Improve further revenue collection efficiency

– Increase local revenue

Fiscal Administration and BudgetFiscal Administration and Budget

• THE LOCAL GOVERNMENT CODE OF THE PHILIPPINES (Republic Act No. 7160)

SEC. 305. Fundamental Principles. - The financial affairs, transactions, and operations of local government units shall be governed by the following fundamental principles:

Fiscal Administration and BudgetFiscal Administration and Budget

• SEC. 305. Fundamental Principles of Budget Operations:(a) No money shall be paid out of the local

treasury except in pursuance of an

appropriations ordinance or law;(b) Local government funds and monies

shall be spent solely for public purposes;

Fiscal Administration and BudgetFiscal Administration and Budget• SEC. 305. Fundamental Principles of

Budget Operations:(c) Local revenue is generated only from

sources expressly authorized by law or ordinance, and collection thereof shall at

all times be acknowledged properly;(d) All monies officially received by a local

government officer in any capacity or on any occasion shall be accounted for as

local funds, unless otherwise provided by law;

Fiscal Administration and BudgetFiscal Administration and Budget• SEC. 305. Fundamental Principles of Budget

Operations:(g) Local governments shall formulate sound

financial plans, and the local budgets shall be based on functions, activities, and projects, in terms of expected results; development plans, goals, and strategies in order to optimize the utilization of resources and to avoid duplication in the use of fiscal and physical resources;

(i) Local budgets shall operationalize approved local development plans;

Fiscal Administration and BudgetFiscal Administration and Budget• SEC. 305. Fundamental Principles of

Budget Operations:(l) Fiscal responsibility shall be shared by all

those exercising authority over the financial affairs, transactions, and operations of the local government

units; and

(m) The local government unit shall endeavor to have a balanced budget in each

fiscal year of operation.

LOCAL OFFICIALS IN LOCAL OFFICIALS IN FISCAL FISCAL

ADMINISTRATIONADMINISTRATION

Functions, Accountabilities and ResourcesFunctions, Accountabilities and Resources

Who are responsible for Local Public Who are responsible for Local Public Finance?Finance?

1. Local Chief Executive (LCE)2. Local Sanggunian3. Local Finance Committee (LFC)4. Local Development Council

(LDC)

1. General Fund (includes the 20% Devt Fund, 5% calamity fund, intel fund

2. Special Fundsa. SEF b. Trust Fund

Can LG Officials Spend as Can LG Officials Spend as they wish?they wish?

Mandatory Requirements in the Mandatory Requirements in the Preparation and Approval of the Preparation and Approval of the Annual BudgetAnnual Budget1. Total Appropriations shall not exceed the

estimates of income. (LGC, Sec. 324 )2. Full Provision shall be made for all

contractual and statutory obligations of the LGU. (LGC Sec, 324 )

3. Debt Servicing shall not exceed 20% of the regular income of the LGU. (LGCSec. 324 )

4. Aid to Barangays shall not be less than One Thousand Pesos (PhP 1,000.00) per barangay. (LGC Sec. 324 )

Mandatory Requirements in the Mandatory Requirements in the Preparation and Approval of the Preparation and Approval of the Annual BudgetAnnual Budget

5. Calamity Fund shall be 5% of the estimated revenue from regular sources (LGC Sec. 324 [d] & RA 8185)

6. Development Fund shall be at least 20% of the LGU’s Annual Internal Revenue Allotment and shall be appropriated for development projects. (Sec. 287, LGC)

7. Personal Services shall not exceed 45% for 1st to 3rd class LGU, and 55% for 4th to 6th class LGU (LGC Sec. 325[ a])

Mandatory Requirements in the Preparation Mandatory Requirements in the Preparation and Approval of the Annual Budgetand Approval of the Annual Budget

8. Discretionary Purposes shall not exceed 2% of the actual receipts derived from basic real property tax ( LGC Sec 325[ h] )

9. Intelligence or Confidential Undertakings shall not exceed 30% of the total annual amount allocated for peace and order efforts or 3% of the annual appropriations, whichever is lower (DILG MC No. 99-65. S. 199, as amended).

10. Allocation for the strengthening of the Local Council for the protection of children shall be 1% of the Internal Revenue Allotment of the LGU (RA 9344, 2006, Juvenile Justice and Welfare Act)

Local Finance is not only the business of LCE, Local Sanggunian, LFC & LDC, it is the business of citizens as well.

Participatory Budgeting Participatory Budgeting

. . .”a decision-making process through which citizens deliberate and negotiate over the distribution of public resources. Participatory budgeting programs are implemented at the behest of governments, citizens, nongovermental organizations (NGOs) and civil society organizations (CSOs) to allow citizens to play a direct role in deciding how and where resources should be spent. These programs create opportunities for engaging, educating, and empowering citizens, which can foster a more vibrant civil society.”