Local Revenue Generation and

Mobilization: Non-Traditional Revenue

Sources
De Castro, Bea Alyssa B.
De Rueda, Jarvis Iven G.
Outline

Non-Traditional Revenue Source: IV. Local Economic Enterprises (LEEs)

I. Local Government Code a. Role of LEEs in Development
II. Credit and Capital Market b. LEEs vs Public Utilities
○ Benefits of Credit Financing c. Issues and Challenges
○ Issues in the Development of the LGU bond V. Official Development Assistance
market
○ Credit Financing Options: Case Studies:
■ Loans Plaridel, Bulacan (1st Class Municipality)
■ Deferred Payments San Jose Del Monte, Bulacan (Chartered City)
■ Bonds
III. Private Sector Participation Modalities (PSPs)
○ Benefit
○ Issues and Challenges
○ PPP Process
○ BOT and Other Modalities
 SECTION 296. General Policy. - (a) It shall be the basic
1991 Local Government policy that any local government unit may create

Code indebtedness, and avail of credit facilities to finance

local infrastructure and other socio-economic
development projects in accordance with the
approved local development plan and public
investment program.

(b) A local government unit may avail of credit lines

from government or private banks and lending
institutions for the purpose of stabilizing local
finances.
Credit and Capital Market: (LGC) SECTION 297. Loans, Credits, and Other Forms
Loans, Credits, and Other of Indebtedness of Local Government Units. - (a) A
local government unit may contract loans, credits, and
Forms of Indebtedness other forms of indebtedness with any or domestic
private bank and other lending institutions to finance
the construction, installation, improvement, expansion,
operation, or maintenance of public facilities,
infrastructure facilities, housing projects, the
acquisition of real property, and the implementation of
other capital investment projects, subject to such
terms and conditions as may be agreed upon by the
local government unit and the lender. The proceeds
from such transactions shall accrue directly to the
local government unit concerned.
 (LGC) SECTION 297. (b) A local government unit may
Credit and Capital likewise secure from any government bank and

Market lending short, medium and long-term loans and

advances against security of real estate or other
acceptable assets for the establishment,
development, or expansion of agricultural, industrial,
commercial, house financing projects, livelihood
projects, and other economic enterprises.

SECTION 297. (c) Government financial and other

lending institutions are hereby authorized to grant
loans, credits, and other forms of indebtedness out of
their loanable funds to local government units for
purposes specified above.
 1. Ready source of funds during low revenue
Benefits of Credit collection;

Financing 2. LGUs can attain flexible financial capabilities

without having to wait for sufficient funds to
accumulate from their savings;
3. LGUs can augment quality investments with
consistent and viable yields to investors and
LGUs;
4. LGUs can promote early cost-recovery types of
projects, thus crafting a faster and quicker way
in processing local development and service
delivery;
5. Having access to private loan sources and
investor markets benefits the LGUs as
creditworthiness standards applied permit only
the most viable undertakings to be financed;
and
6. Private loans and investor market potential
sources are relatively large.
Credit Financing
Loans - debt for a specific period, repaid with
Options: Loans interest, usually by regular periodic payments.

Loans according to maturity:

1. Short term (not more that one year
repayment);
2. Medium term (between one and five
years); and
3. Long term (more than five years)
Credit Financing
Categories of bank loans offered to LGUs:
Options: Loans 1. Term Loans - usually used for capital
projects
2. Transaction Loans - granted for specific
purpose
3. Line of Credit - a special arrangement
which allows an LGU to borrow maximum
amount of money at any one time
4. Revolving Credit - the bank’s commitment
to lend a maximum amount for a duration
that an LGU can withdraw upon request
 Where can a LGUs avail loan?
Credit Financing 1. Government Financial Institutions
a. Landbank of the Philippines
Options: Loans b. Development Bank of the
Philippines
c. Government Service Insurance
System
d. Social Security System
2. Private Domestic Banks and Other Credit
Institutions
3. Municipal Development Fund Office
(MDFO)
4. Inter-LGU Loans
 1. All LGUs are eligible, except where a specific
Features of MDFO component had been pre-agreed to focus within

Loans 2.
a confined geographic area or sector
Project shall be directed towards poverty
alleviation through reduction of physical
infrastructure shortage
3. Ceiling:
a. For non-revenue projects: shall not
exceed 10% of annual regular income
multiplied by annuity factor of 12 years at
14% per annum or the prevailing interest
rate
b. For revenue projects: shall not exceed
18% of annual regular income multiplied
by annuity factor of 12 years at 14% per
annum or the prevailing interest rate
 4. Term: shall depend on the project being
Features of MDFO financed but not to exceed 15 years
5. Repayment: done every semester from the
Loans time of withdrawal.
● In the case of non-repayment:
penalty of 2% on the amount due
6. Security Requirement:
● Withholding from LGU’s IRA on the
amount equivalent to its
amortization
 LGUs may also obtain loans, grants and subsidies
Inter-LGU Loans from other LGUs
-From surplus funds of the creditor

Process:
1. Borrower shall ratify a resolution/ordinance
applying for a loan.
Shall include the:
a. name of the creditor LGU and purpose
b. LCE’s authority to negotiate and enter
into contract for the LGU
c. Concurrence of the LCE
 Process:
Inter-LGU Loans 2. Creditor shall establish the amount to be loaned
and its terms and conditions.
a. The provincial/city/municipal treasure
shall issue a certification on the collected
surplus which will be eligible for lending,
grants or subsidies.
b. Sanggunian shall decide on the amount
to be loaned. The sanggunian shall draw
the terms and conditions
c. Borrower and creditor may draw requisite
contracts
d. Contracts shall be ratified by the
sanggunian of both parties
e. Both parties shall be furnished copies of
contracts
f. LGUs may resort to automatic allocation
of repayment
LGU Loan Application
Process

Source: dof.gov.ph
 (LGC) SECTION 298. Deferred-Payment and
Credit Financing other Financial Schemes. - Provincial, city and
Options: Deferred municipal governments may likewise acquire
property, plant, machinery, equipment, and
Payments such necessary accessories under a supplier's
credit, deferred payment plan, or other financial
scheme.
 Bond - an interest-bearing obligation
Credit Financing - in effect, it is an promissory note of LGUs
direct to the creditor that upon maturity, LGUs will pay
Options: Bonds both the principal investment and the interest.
Issues in the development
1. Political succession risk
of LGU bond market 2. Lack of technical knowledge on bond
(PIDS) flotation
3. Lack of private financial sector
confidence in LGUs regulatory constraints
4. Administrative constraints
 (LGC) SECTION 302. Financing, Construction,
Private Sector Maintenance, Operation, and Management of

Participation Infrastructure Projects by the Private Sector. - (a)

Local government units may enter into contracts with
any duly pre-qualified individual contractor, for the
financing, construction, operation, and maintenance of
any financially viable infrastructure facilities, under the
build-operate-and-transfer agreement, subject to the
applicable provisions of Republic Act Numbered Sixty-
nine hundred fifty-seven (R.A. No. 6957) authorizing
the financing, construction, operation and
maintenance of infrastructure projects by the private
sector and the rules and regulations issued
thereunder and such terms and conditions provided in
this
 (b) Local government units shall include in their
Private Sector respective local development plans and public

Participation investment programs priority projects that may be

financed, constructed, operated and maintained by the
private sector under this Section. It shall be the duty of
the local government unit concerned to disclose to the
public all projects eligible for financing under this
Section, including official notification of duly
registered contractors and publication in newspapers
of general or local circulation and in conspicuous and
accessible public places. Local projects under the
build-operate-and-transfer agreement shall be
confirmed by the local development councils.
 1. Access to sophisticated technologies;
Potential Benefits of 2. cost-effective design, construction and/or
PSPs (PIDS) operation of projects;
3. guaranteed cost;
4. flexible financing, including use of private
capital; and
5. delegation of responsibility and risk
through various modalities
 1. Lack of capacity to prepare feasibility
Factors that may hinder studies;
LGU to access PSPs 2. LGUs lack of creditworthiness;
3. Absence of long-term funds to
(PIDS) shortcomings in capital market; and
4. LGUs relying in unsolicited proposals, w/c
do not result to competition
 Public-Private Participation Center (PPPC)
● Central coordinating and monitoring agency
Private Sector ● Helps project preparation, managing project
Participation development and monitoring facility
● Provides:
○ project advisory and facilitation services
○ Provides capacity building
○ Technical assistance to National
Government Agencies (NGAs),
Government-Owned-and Controlled
Corporations (GOCCS), Government
Financial Institutions (GFIs), and Local
Government Units (LGUs)

Source: ppp.gov.ph
Private Sector Participation
PPP Process

Four Stages
1. Development
2. Approval
3. Competition
4. Cooperation

Source: ppp.gov.ph
 Eligible LGU Projects

Source: A PPP Manual for LGUs

 Eligible LGU Projects

Source: A PPP Manual for LGUs

Private Sector Examples of Operational LGU Projects under PSPs/PPP:
Participation Dapitan Public Market, Quezon City
● Implementing Agency: Quezon City
● Private Proponent: Ithiel Corporation
● Under Build-Operate-Transfer Modality
● 50 years cooperation period (2004-2054)

New San Fernando Slaughterhouse Project

● Implementing Agency: San Fernando City
● Private Proponent: Philippine Abattoir Development
Corporation
● Under Build-Operate-Transfer Modality
● 25 years cooperation period

Source: ppp.gov.ph
Local Economic
Enterprises “LEEs are ventures wholly or
partially owned by LGUs that
generate revenue/income through
the sale of services and goods to
meet a perceived constituency
demand.” (DBM, 2016)
 Manual on setting up and operation of local economic
Role of LEEs in LGU enterprises (DBM):

Development ● provide wider access to good and services with

pricing that is affordable to a larger segment of
the LGU population;
● be a means to augment LGU revenues; and
● attract investors by providing key services not
provided by the private sector
 Economic Enterprise vs. Public Utilities

Economic Enterprise: Public Utilities:

● Created for improving production and ● Created for providing basic necessity or
delivery of marketable goods and/or service which cannot be provided by
services for a specific market group. the private sector

● Expected to earn profits or at least ● “xxx may continue to be operated by

recover lost (revenue center not cost the lgus even if the income they
center) generate may not be enough to sustain
their operations”
 Economic Enterprise vs. Public Utilities

Economic Enterprise: Public Utilities:

Examples: Examples:

a. public markets and shopping centers;
b. slaughterhouses, livestock trading and animal
raising;
c. fish landing, ice plants and cold storage
facilities;
d. post harvest facilities (grain storage, drying,
milling);
e. commercial retail and office spaces;
f. public parks, sports and recreational facilities;
g. public cemeteries;
h. local hospitals; and
i. local colleges.
a. LGU-operated water supply system not yet
taken over by the Local Water Utilities
Administration (LWUA);
b. power supply and distribution;
c. telecommunications;
d. sanitation (local drainage, sewerage, solid
waste collection and disposal); and
e. public transportation and transport terminals
(bus, jeepney, parking, pier).
Official Development
Assistance Official Development Assistance
(ODA) - a foreign loan, or loan and
grant, derived from government
agencies and administered to
promote social and economic
development and welfare.
Official Development
Assistance (ODA) ODA funds are meant to achieve
equitable growth and development in
all : provinces through priority
development projects for the
improvement of economic and social
service facilities taking into account
such factors as: 1)land area,
2)population, 3)scarcity of resources,
4)low literacy rate,5)infant mortality,
6)poverty incidence.

Source:Section 4, RA 8182- ODA Act

Official Development Provided through:

Assistance I. Multilateral Institutions

A. United Nations
B. European Community
C. World Bank
D. Asian Development Bank

II. Bilateral Programs

Ex. with Japan, U.S., Germany
Case Study 1: Plaridel, Background
Income Class: 1st
Bulacan No. of Barangays: 19
Population: est. 110,000 (2017)
Land Area: 3,244 hectares
Primary Industries: Farming, poultry/livestock
raising, garments manufacturing and food
processing.
Traditional Revenue 2017 2016
Sources of Plaridel, Total Tax ₱ 95,920 ₱ 87,576
Revenue
Bulacan
Internal ₱ 182,046 ₱163,286
Revenue
Allotment
Total ₱ 34,674 ₱ 27,619
Service/Busin
ess Income
 Resource Persons:
Case Study 1: Plaridel, Mrs. Leonora Vivas
Bulacan Municipal Administrator

Engr. Reynaldo Alvaro

Municipal Planning and Development
Office
Case Study 1: Plaridel, Local Economic Enterprise:

Bulacan ● Public Market

● Slaughterhouse
● Sports Facility
- Revenues from LEEs do not have
specific use and are collected into
the general fund

Proposals:
● E-trike (offered all over the country
by DOE)
Pamilihang
Bayan ng
Plaridel
 Municipal
Slaughterhouse
Case Study 1: Plaridel, Plaridel’s Approach to Credit Market:
Bulacan
● As much as possible they stay
away from loans.
● They outrightly dismissed the idea
of loans.
● Much of their programs and
projects were funded by
politicians (congressmen) through
requests
Case Study 1: Plaridel, On PSPs:

Bulacan ● There were unsolicited proposals

coming from private firms
● However, none of these projects
seem to be appealing to them
Key Management Interests
Social Development Environmental Management
a. Construction of Public Cemetery a. Improvement of Materials Recovery Facilities
b. Improvement of Day Care b. River and Waterways Management
c. Water Supply Project
Other
d. Installation of Streetlights and Traffic Lights a. Computerization ( NGAS)
e. Rehabilitation of Cultural and Historical Place b. Purchase of Lots
f. Construction of Evacuation Center c. Titling of Properties Owned by the Municipality.

Economic Development
a. Construction/ Rehabilitation of Roads/
Drainage
b. Improvement of Roads/Drainages (Cost
Sharing)
c. Post Harvest Facilities
 Issues faced by the LGU
Conclusion ● One of the main problem, according to the
resource, person is land.

● Projects/programs that reliant on local chief

executive’s effort to submit proposals to
congressmen
○ This does not guarantee approval of a
project
○ Usually non-competitive, unlike
solicited proposals given to the private
firms
● Projects/programs that reliant on traditional
revenue sources
○ Does not free up funds to be used for
other projects
● Some of the key management interest can be
funded through non-traditional sources
 Chartered City since 2003
Case Study 2: San Jose Component City of the Province of Bulacan
del Monte City Land Area: 10,553 hectares
No of Barangays: 59
Population: 543,528 (as of 2015)
“The Rising City”
Leadership: strong-willed chief of local government
unit; well-coordinated and organized since
Congressman, Mayor, and Vice Mayor are within the
same political party
 Resource persons:
Case Study 2: San Jose
del Monte City Mr. Rizal P. Cadiz
Secretary to the Sangguniang Panlalawigan

Ms. Liza S. Avanceña

City Treasurer
 SJDM’s Approach to Credit Market/Bond Flotation:
Case Study 2: San Jose
del Monte City ● They outrightly dismissed the idea of loans,
according to them they have not considered
borrowing or lending money to other cities
● Much of their programs and projects were
funded by the traditional revenue sources, and
through requests in Congress (since the City
Mayor and Congresswoman have a well-
coordinated relationship)
● San Jose del Monte City does not subscribe to
bond flotation but might consider it in the near
future
● The City’s excess income is invested in banks
so that it can grow interest
Case Study 2: San Jose On PSPs:

del Monte City There were proposals coming from

private firms. However, the city does
not entertain proposals where the
private firms would earn more than the
LGU.
Case Study 2: San Jose Main Sources of Non-traditional
Revenue (2018):
del Monte City
Rent Income - P546,138

;estimated: 525,000

from facilities such as:

● San Jose del Monte Sports

Complex
● City Covered Court
● Activity Center
● Productivity Center
Case Study 2: San Jose del Monte City
Case Study 2: San Jose
del Monte City
 Main Sources of Non-traditional Revenue:
Case Study 2: San Jose
del Monte, Bulacan Receipts from Market Operation-
P2,744,280 ;estimated: 3,000,000

Receipts from Slaughterhouse Operation-

P5,000,315 ;estimated: 6,000,000

Receipts from Cemetery Operation-

P5,532,500 ;estimated: 3,600,000

Interest Income- P9,554,581 ;estimated:

5,500,000

Hospital Fees- P79,315,729 ;estimated :

8,000,000
Case Study 2: San Jose del Monte City
Case Study 2: San Jose del Monte City
Case Study 2: San Jose del Monte City
Sources of Income (2018)
Case Study 2: San Jose del Monte, Bulacan
Most of the city’s income come from traditional revenue sources

No program or project has been fully funded by non-traditional revenue sources

The non-traditional revenue sources exist in the city but the income is very low because for now,
they only exist for the sake of employment and for helping the citizens of the city

In the long run, the city LGU plans to build more non-traditional revenue sources in the form of
economic enterprises such as the soon to rise San Jose del Monte ICT and Business Hub.

Additional source of income includes the City of San Jose del Monte College, fully operational this
upcoming academic year.
 Department of Budget and Management. (2016). Manual on the setting up and operation of local
economic enterprises.

References Department of Finance. (n.d.). Application for LGU Loan. Retrieved from Department of Finance:
https://www.dof.gov.ph/index.php/services/application-for-lgu-loan/

Brilliantes, A.B.,et. al. (2010). LGU Access to Official Development Assistance (ODA) : Status, Issues,
and Concerns. Quezon City: Philippine Institute for Development Studies.

Manasan, R. G., & Villanueva, E. C. (2006). Gems in LGU Fiscal Management: a Compilation of Good
Practices. Quezon City: Philippine Institute for Development Studies.

National Tax Research Center. (2013). Local Government Credit Financing. NTRC Tax Research
Journal Vol. XXXV.4, 1-26.

Official Website of San Jose del Monte, Bulacan:

http://csjdm.gov.ph/socioeconomic-and-physical-profile/

Public-Private Partnership Center . (2012). Developing Public-Private Partnerships in Local

Infrastructure and Development Projects: A PPP Manual for LGUs, Vol. 1. Quezon City.

Public-Private Partnership Center. (n.d.). List of projects. Retrieved from Public-Private Partnership
Center: https://ppp.gov.ph/list-of-projects/

Public-Private Partnership Center. (n.d.). What is PPP? Retrieved from Public-Private Partnership
Center: https://ppp.gov.ph/ppp-program/what-is-ppp/