Assessment of Local Fiscal Performance

Developments in Philippine local government have been sweeping the area of fiscal

administration. The 1973 Constitution provided that each local government unit shall have the

power to create its own sources of revenue and to levy taxes, subject to such limitations as may be

provided by law. Implementing laws and decrees put into effect the Constitutional mandate.

Presidential Decree No. 144 revised the system of national internal revenue allotments to

remedy the lopsided distribution of funds among local government units. PD 231, as amended by

PD 426, provided local governments with adequate sources of revenue to make them visible,
selfsufficient, and effective instruments of national development.

In addition, Presidential Decree No. 464, which amended PD 76, improved real property

tax administration. It provided for a general revision of assessment and classified real property for

taxation purposes into residential, agricultural, commercial, and industrial. PD 436 increased the

specific tax on lubricating oils and other similar petroleum products, and granted provinces, cities

and municipalities share in the specific tax thereon. PD 526 simplified supply management

procedures. This decree on local fiscal management strengthened the supervisory powers of the

Ministry of Finance over local governments.

The expected net effect of the Real Property Tax Code (PD 464) and PD 76 which upgraded

assessment values should redound to at least 100 percent increase in the real property tax yield of

most local units.

Dr. Roy Bahl noted impediments to these developments. In his study of Philippine local

finance, Dr. Bahl observed that the country has not moved towards fiscal decentralization for the

past decade. The local government's expenditures are about 20% of the amount which the central

government has spent in 1960. This dropped to 11% in 1974. The ratio of local expenditures from

own sources to central expenditures declined from 19% in 1969 to 8% in 1990. It was observed

that there was much centralization.

Public Finance Adviser: Prof. Ragrciel Grafil Manalo FOR READING PURPOSES ONLY

III. PRACTICES

A. Local Fiscal Administration

The law provides for cardinal rules or principles pertaining to local fiscal administration. They
are mentioned in the Local Government Code, to wit:

(a) No money shall be paid out of the local treasury except in pursuance of an appropriation,

ordinance, or law.

(b) Local government funds and monies shall be spent solely for public purposes;

(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;

(e) Trust funds in the local treasury shall not be paid out of the treasury except in fulfillment

of the purpose for which the trust was created or the funds received;

(f) Every officer of the local government unit whose duties permit or require the possession

or custody of local funds shall be properly bonded, and such officer shall be accountable and

responsible for said funds and for the safekeeping thereof in conformity with the provisions of law;

(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;

(h) Local budget plans and goals shall, as far as practicable, be harmonized with national

development plans, goals and strategies in goals and 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;

(j) Local government units shall ensure that their respective budgets incorporate the

requirements of their component units and provide for equitable allocation of resources among

these component units;

(k) National planning shall be based on local planning to ensure that the needs and

aspirations of the people as articulated by the local government units in their respective local

development plans are considered in the formulation of budgets of national line agencies or offices;

(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.