LOCAL FISCAL

ADMINISTRATIO
N
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Definition
● It refers to systems, structures, processes, officials
and personnel, and the policy environment governing
intergovernmental, and inter-local fiscal relations,
affecting, among others, the giving and receipt of
allotments and grants from the national government
(NG) to local government units (LGUs
Fiscal Policy
● Refers to the policies on taxation and other revenue,
expenditure and borrowings which is intended to
promote stabilization and development of the
economy
 Scope
● allotment sharing between LGUs;
● sharing of taxing powers between the NG and LGUs, and
among LGUs;
● policy on tax rates and structure;
● revenue and expenditure planning;
● revenue utilization and expenditure allocation; monitoring
and approval of budgets, tax
● ordinances and other fiscal measures;
● policy on borrowing and borrowing instruments;
● appointment and supervision of local fiscal officers
 VERTICAL FISCAL RELATIONS
● The fiscal relations between the national
government and its agencies, on the other hand, and
the LGUs on the other, which we may call vertical
fiscal relations. This is also referred to in the
literature as central-local fiscal relations, with the
Internal Revenue Allotment as its core.
 INTER-LOCAL FISCAL
RELATIONS
● The fiscal relations among LGUs themselves, which may
be referred to as the inter-local fiscal relations.

Remember:
● Philippine intergovernmental fiscal transfers are of three
types: (a) the internal revenue allotment (IRA), a formula-
based grant, (b) and a share in national wealth, origin-
based and (c) ad-hoc conditional grants.
The Philippine Local Government Units
NATIONAL-LOCAL GOVERNMENT SHARE IN THE
ECONOMY
● SECTION 289. Share in the Proceeds from the
Development and Utilization of the National Wealth. -
Local government units shall have an equitable share in
the proceeds derived from the utilization and development
of the national wealth within their respective areas,
including sharing the same with the inhabitants by way of
direct benefits.
NATIONAL-LOCAL GOVERNMENT SHARE IN THE
ECONOMY
● SECTION 290. Amount of Share of Local Government Units. –
Local government units shall, in addition to the internal revenue
allotment, have a share of forty percent (40%) of the gross
collection derived by the national government from the preceding
fiscal year from mining taxes, royalties, forestry and fishery
charges, and such other taxes, fees, or charges, including related
surcharges, interests, or fines, and from its share in any co-
production, joint venture or production sharing agreement in the
utilization and development of the national wealth within their
territorial jurisdiction.
NATIONAL-LOCAL GOVERNMENT SHARE IN THE
ECONOMY
SECTION 291. Share of the Local Governments from
any Government Agency or -Owned and -Controlled
Corporation. - Local government units shall have a share
based on the preceding fiscal year from the proceeds
derived by any government agency or government-
owned or - controlled corporation engaged in the
utilization and development of the national wealth based
on the following formula whichever will produce a
higher share for the local government unit
NATIONAL-LOCAL GOVERNMENT SHARE IN THE
ECONOMY
● (a) One percent (1%) of the gross sales or receipts of
the preceding calendar year; or

● (b) Forty percent (40%) of the mining taxes, royalties,

forestry and fishery charges and such other taxes, fees
or charges, including related surcharges, interests, or
fines the government agency or government -owned
or -controlled corporation would have paid if it were
not otherwise exempt.
NATIONAL-LOCAL GOVERNMENT SHARE IN THE
ECONOMY
● SECTION 292. Allocation of Shares. - The share in
the preceding Section shall be distributed in the
following manner:
(a) Where the natural resources are located in
the province
(1) Province - Twenty percent (20%);
(2) Component city/municipality - Forty-five
percent (45%); and
(3) Barangay - Thirty-five percent (35%)
NATIONAL-LOCAL GOVERNMENT SHARE IN THE
ECONOMY
● Provided, however, That where the natural resources are located in two
(2) or more provinces, or in two (2) or more component cities or
municipalities or in two (2) or more Barangays, their respective shares
shall be computed on the basis of:
(1) Population - Seventy percent (70%); and
(2) Land area - Thirty percent (30%).
NATIONAL-LOCAL GOVERNMENT SHARE IN THE
ECONOMY
● (b) Where the natural resources are located in a highly
urbanized or independent component city:
(1) City - Sixty-five percent (65%); and
(2) Barangay - Thirty-five percent (35%)
NATIONAL-LOCAL GOVERNMENT SHARE IN THE
ECONOMY
● SECTION 293. Remittance of the Share of Local Government
Units. – The share of local government units from the
utilization and development of national wealth shall be
remitted in accordance with Section 286 of this Code:
Provided, however, That in the case of any government agency
or government-owned or -controlled corporation engaged in
the utilization and development of the national wealth, such
share shall be directly remitted to the provincial, city,
municipal or Barangay treasurer concerned within five (5) days
after the end of each quarter
TRENDS IN LOCAL GOVERNMENT REVENUES AND
EXPENDITURES
● First is the inadequacy of own-source revenue to finance basic
and devolved functions, which render LGUs dependent on
transfers from the national government. This is referred to as
the problem of vertical imbalance. Invariably, the Internal
Revenue Allotment (IRA) has occupied a primordial position
in local finance.
● - Second is the reliance on a few local taxes particularly the
real property tax and business tax.
TRENDS IN LOCAL GOVERNMENT REVENUES AND
EXPENDITURES
● A third observable pattern is the uneven growth of the finances of local
governments resulting in uneven levels of expenditures and hence access to
local public services, which may be viewed as the horizontal imbalance.
● Local finance data from the Commission on Audit from 1990 to 1994 showed
that the basic RPT and revenue from business taxes and licenses remain the
most reliable local revenue raisers.
*The revenue from the amusement tax is rising in absolute amount,
but its share to total revenue fluctuated.
*The community tax revenue collection does not reflect the rising
income and value of property.
*The revenue from the franchise tax likewise behaved erraticallyh
during the same period.
Remember!
● Devolution is the transfer of
power and authority from the
national government to local
government units (LGUs);
political and territorial.
TRENDS IN LOCAL GOVERNMENT EXPENDITURES
● The trend in the local expenditures has been partly dealt
with in the previous section in relation to local revenues.
In this section, emphasis is placed on the sector
distribution of local expenditures.
TRENDS IN LOCAL GOVERNMENT EXPENDITURES
● An examination of the composition of local government
expenditures shows that the trend in the sectoral and object
distribution of expenditures from 1992 to 1994 has shown
favorable, but minimal changes. The total amount of
expenditures has definitely increased, and its composition has
changed commensurate to the devolution of functions from
national government agencies.
TRENDS IN LOCAL GOVERNMENT EXPENDITURES
● From 1990 to 1994 the bulk of local expenditures is devoted to
general public services, which include salaries and wages of
employees. Significantly, expenditures on general public
services declined while social services’ share of expenditures
improved
TRENDS IN LOCAL GOVERNMENT EXPENDITURES
● The object distribution of LGU expenditures remains heavily
skewed towards
○ Personal Services (PS),
○ Maintenance and Other Operating Expenses (MOOE),
○ Capital Outlay (CO).
Personnel Services (PS)
● An expenditure category/expense class for the
payment of salaries, wages and other compensation
of permanent, temporary, contractual, and casual
employees of the government (DBM, 2012).
Maintenance and Other Operating Expense
(MOOE)
● An expenditure category/expense class for support to the
operations of government agencies such as expenses for
supplies and materials; transportation and travel; utilities
(water, power, etc.) and the repairs, etc. (DBM, 2012)
Capital Outlays (CO)
● An expenditure category/expense class for the purchase of
goods and services, the benefits of which extend beyond the
fiscal year and add to the assets of the Government, including
investments in the capital stock of GOCCs and their
subsidiaries (DBM, 2012)
GRANTS, INTERLOCAL LOANS, AND
OTHER FORMS OF VERTICAL
SHARING OF REVENUES, NATIONAL
LOANS, AND ASSISTANCE TO LGUs
On Grants
● By authority of the Sanggunian, LGUs can directly negotiate and secure
financial grants or donations from local and foreign assistance agencies
without the need for clearance or approval of the National Economic and
Development Authority (NEDA).

● While this may be done, the national government or any of its agencies can
also enter into bilateral or multilateral grant agreements for and on behalf of
LGUs. In any case, LGU proposals may have to be cleared, endorsed or
approved by NEDA or any national agency, if such is a condition of the
funding agency.
On Inter-local Loans
● Provisions on inter-local loans are rather loose and difficult to implement. The
Code only says that the majority of all the members of the local Sanggunian
shall approve the loan, grant or subsidy to other local governments. The only
limitation mentioned in the Local Government Code pertains to the amount
that an LGU should lend, which is not to exceed its surplus fund in the
preceding fiscal year. The formulation of the terms and conditions under which
such loan, grant, or subsidy may take place is left to the parties concerned. It is
possible that interest rates, terms of repayment, collateral, and other
requirements would vary greatly from one LGU to another.
On Inter-local Loans
● Provisions on inter-local loans are rather loose and difficult to implement. The
Code only says that the majority of all the members of the local Sanggunian
shall approve the loan, grant or subsidy to other local governments. The only
limitation mentioned in the Local Government Code pertains to the amount
that an LGU should lend, which is not to exceed its surplus fund in the
preceding fiscal year. The formulation of the terms and conditions under which
such loan, grant, or subsidy may take place is left to the parties concerned. It is
possible that interest rates, terms of repayment, collateral, and other
requirements would vary greatly from one LGU to another.
OTHER FORMS OF VERTICAL
SHARING OF REVENUES, NATIONAL
LOANS, AND ASSISTANCE TO LGUs
Share in Tobacco Excise Tax
● This benefits four provinces in Region 1 – Abra, Ilocos Norte, Ilocos Sur, and
La Union. The amount of collection is divided among the four provinces on
the basis of actual volume of tobacco acceptances for the same year. The
sharing is 30% to province, 40% to municipalities and cities, of which 50%
will be shared in proportion to volume of tobacco; and 30% to the
Congressional District. The share of each LGU shall be treated as a special
account in the General Fund to be utilized specifically for cooperatives,
livelihood, and agro-industrial and industrial projects.
Municipal Development Fund
● It is a special revolving fund created under Presidential Decree No.
1914 dated March 29, 1984. The fund is made available to provinces,
cities, and municipalities through an appropriate agreement between the
Department of Finance and the local government unit concerned.
● It is the national government’s mechanism through various foreign
loans or grants availed of from international lending institutions such as
the World Bank, Asian Development Bank, US Agency for
International Development, OECF, among others, are channeled or
relent to local governments.
Countryside Industrialization Fund
● This Act promotes industrialization throughout the Philippines. It
provides for the establishment of manufacturing, processing and
related industries in all towns and cities by establishing a fund and
mechanisms for the granting of financial assistance to such industries.
 Type of Funds Maintained By LGU

General Fund-fund that is available for any purpose to which the legislative body may decide to
apply it. It is composed of receipts or revenues that are not, by law or by contractual agreement ,
applicable to a specific purpose

Special Funds
Special Education Fund
Trust Fund
 Type of Funds Maintained By LGU

Special Funds
Special Education Fund-LGC states that a province or city may levy and collect an annual tax of
one percent of the assessed value of real property in addition to the basic real property tax and the
proceeds of which will go exclusively to the special education fund and can be used only for that
purpose

Trust Fund-consists of private and public monies which have officially come into possession of the
local government or of a local government official as trustee, agent or administrator or which have
been received as a guarantee for the fulfillment of some obligation