LOCAL FISCAL

ADMINISTRATION

GILBERT R. HUFANA
Professor
 LOCAL FISCAL ADMINISTRATION

• It refers to systems, structures, processes, officials and

personnel, and the policy environment governing
intergovernmental, and inter-local fiscal relations (Cuaresma
and Ilago)
• It refers to the rational, effective and efficient conduct of the
fiscal functions and operations of local government units which
embrace the systems, structures, processes and human
resources involved in revenue generation, revenue allocation and
utilization.
• In public administration, it is commonly referred to as the
formulation, implementation, and evaluation of local fiscal
policies by local governments.
 LOCAL FISCAL ADMINISTRATION

• the giving and receipt of allotments and grants from the

National Government (NG) to local government units (LGUs);
• allotment sharing between LGUs;
• sharing of taxing powers between the national government
(NG) and LGUs, and among LGUs;
• policy on tax rates and structure;
• revenue and expenditure planning;
• revenue utilization and expenditure allocation; monitoring and
approval budgets, tax ordinances and other fiscal measures;
• policy on borrowing and borrowing instruments; and
• Appointment and supervision of local fiscal officers
 ASPECTS OF
LOCAL FISCAL ADMINISTRATION

1. The fiscal relations between the national

government and its agencies, on the one hand, and
the LGUs on the other, which we may call vertical
financial relations. This is also referred to in the
literature as central-local fiscal relations, with the
Internal Revenue Allotments at its core; and

2. The fiscal relations among LGUs themselves, which

may be referred to as the inter-local fiscal relations.
 SCOPE

1. Revenue Generation
• All aspects of local taxation;
• Borrowing and its management;
• Operation of public enterprises;
• Revenue enhancement measures;
• Revenue planning, forecasting and accounting;
2. Revenue Allocation and Utilization
• Budgeting system and process
• Accounting and auditing of expenditures
3. Other Aspects
• Property and supply management, Other related matters
 LEGAL BASIS

• Local fiscal administration is characteristically legalistic

or statutory. It is governed by laws and statutes. At the
sub-national level, local government exercise the
function of fiscal administration by virtue of the explicit
powers and authority vested in them by:
• the Constitution of the land;
• the Local Government Code of 1991; and
• such other laws from national government agencies
exercising supervisory power over the LGUs.
 PRINCIPLE OF LOCAL AUTONOMY
1987 PHILIPPINE CONSTITUTION

• The principle of local autonomy under the 1987 Constitution

simply means “decentralization”; it does not make the local
government sovereign within the state.
• Section 1 Article X: The territorial and political subdivisions of the
Republic of the Philippines are the provinces, cities, municipalities,
and barangays. There shall be autonomous regions in Muslim
Mindanao and the Cordilleras as hereinafter provided .
• The exercise of local autonomy remains subject to the power
of control by Congress, and the power of general supervision
by the President.
• Section 2 Article X: “The territorial and political subdivisions shall
enjoy local autonomy.”
 LOCAL GOVERNMENT UNITS

• Province - largest unit in the political structure;

consists of cities and municipalities
• City - composed of a cluster of municipalities
• Municipality - a political corporate body which is
endowed with the facilities of a municipal
corporation; consists of a number of barangays within
its territorial boundaries
• Barangay – smallest political unit into which cities or
municipalities are divided
 POWER TO CREATE THEIR OWN
SOURCES OF REVENUE
SEC 5, ARTICLE X OF THE 1987 PHILIPPINE CONSTITUTION

• Each local government unit shall have the power to

create its own sources of revenues and to levy taxes,
fees and charges subject to such guidelines and
limitations as the Congress may provide, consistent
with the basic policy of local autonomy. Such taxes,
fees, and charges shall accrue exclusively to the local
governments.
A JUST SHARE IN NATIONAL TAXES
SEC 6, ARTICLE X OF THE 1987 PHILIPPINE CONSTITUTION

• Local government units shall have a just share, as

determined by law, in the national taxes which shall
be automatically released to them.
• In accordance with law, the LGUs’ share in local taxes
collected by the Bureau of Internal Revenue three
years before or says the 2009 share will be based on
the 2006 collection.
• Of the total local taxes, the LGUs will have 40%, while
the national government gets the balance.
 DISTRIBUTION OF THE IRA

POLITICAL SUBDIVISION SHARE

Province 23%
City 23%
Municipality 34%
Barangay 20%
 ELECTIVE OFFICIALS

• The fiscal administration is performed by its elected

officials who have 3-year terms as provided for by
Section 8 Article X of the Constitution, to wit:
• The term of office of elective local officials, except
barangay officials, which shall be determined by law, shall
be three years and no such official shall serve for more
than three consecutive terms. Voluntary renunciation of
the office for any length of time shall not be considered as
an interruption in the continuity of his service for the full
term for which he was elected.
 POWERS IN PURSUANCE OF
LOCAL FISCAL ADMINISTRATION

• General Welfare Clause [Sec. 16, RA 7160]

• The general welfare clause is the statutory grant of police
power to local government units.
• As such, LGUs may in the exercise of police power under
the general welfare clause, order the closure of bank for
failure to secure the appropriate mayor’s permit and
business licenses. (Rural Bank of Makati vs. Municipality
of Makati)
• It likewise has the authority to issue permits to operate
cockpits and for holding of activities for any charitable or
welfare purpose
 POWERS IN PURSUANCE OF
LOCAL FISCAL ADMINISTRATION

• Power to Generate and Apply Resources [Sec. 18, RA

7160]
• Local government units shall have the power and
authority to establish an organization that shall
be responsible for the efficient and effective
implementation of their development plans, program
objectives and priorities; to create their own sources of
revenue and to levy taxes, fees, and charges which shall
accrue exclusively for their use and disposition and which
shall be retained by them …
 POWERS IN PURSUANCE OF
LOCAL FISCAL ADMINISTRATION

• Reclassification of lands [Section 20, RA 7160]

• A city or municipality may, through an ordinance passed
by the sanggunian after conducting public hearings for
the purpose, authorize the reclassification of agricultural
lands and provide for the manner of their utilization or
disposition…
 POWERS IN PURSUANCE OF
LOCAL FISCAL ADMINISTRATION

• Closure and opening of Roads [Sec. 21, RA 7160]

• A local government unit may, pursuant to an ordinance,
permanently or temporarily close or open any  local road,
alley, park, or square falling within its jurisdiction:
Provided, however, That in case of permanent closure,
such ordinance must be approved by at least two-thirds
(2/3) of all the members of the  sanggunian, and when
necessary, an adequate substitute for the public facility
that is subject to closure is provided
 POWERS IN PURSUANCE OF
LOCAL FISCAL ADMINISTRATION

• Corporate Powers [Sec. 22, RA 7160]

• Every local government unit, as a corporation, shall
have the following powers:
(1) To have continuous succession in its corporate name;
(2) To sue and be sued;
(3) To have and use a corporate seal;
(4) To acquire and convey real or personal property;
 POWERS IN PURSUANCE OF
LOCAL FISCAL ADMINISTRATION

• Authority to negotiate and secure grants [Sec. 22,

RA 7160]
• Local chief executives may, upon authority of the
sanggunian, negotiate and secure financial
grants or donations in kind, in support of the basic
services or facilities enumerated under Section 17 hereof,
from local and foreign assistance agencies without
necessity of securing clearance or approval therefor from
any department, agency, or office of the national
government or from any higher local government unit…
 OTHER LAWS AND GOVERNMENT
ISSUANCES

• Local fiscal administration is also governed by laws

and issuances from the national agencies that
exercise supervisory power over local government
units
• DOF
• DBM
• COA
• DILG
• OP
 DEPARTMENT OF FINANCE- BLGF

• The Bureau of Local Government Finance (BLGF) which is the

unit primarily involved in local financial administration.
• The Bureau provides technical assistance and training for
local governments on local finance.
• It administers credit facilities such as the Municipal
Development Fund, and prepares guidelines and standards
on matters related to taxation, credit financing, and
imposition of various fees and charges.
• It also exercises technical supervision on local assessment
and treasury operations, and performs monitoring and
evaluation of financial performances.
 DEPARTMENT OF BUDGET AND
MANAGEMENT (DBM)

• The DBM is primarily responsible for disseminating

information on Internal Revenue Allotment (IRA)
allocation and the local government’s share from the
utilization and development of national wealth.
• This information is used by local governments in the
budget preparation phase.
• Through its regional offices and the Budget Finance
Bureau, the Department releases the share of internal
revenue allotment directly to the provinces, cities,
municipalities and barangays.
 COMMISSION ON AUDIT

• The COA is primarily responsible for the accountability

phase of the local budget process.
• The Commission maintains the Local Government
Audit Office (LGAO), through which it implements
auditing rules and regulations in local government
units.
• The Commission also “settles accounts and fixes the
liability of accountable officers, as well as determines
whether fiscal responsibility has been properly and
effectively discharged by the local chief executives.
 DEPARTMENT OF INTERIOR AND
LOCAL GOVERNMENT (DILG)

• The DILG, upon which the supervisory power of the

President is reposed, at times issues guidelines which
are fiscal-related.
 OFFICE OF THE PRESIDENT

• The President of the Philippines has general

supervisory power over the local government units as
provided in Section 4 Article X of the Constitution.
• As such, the OP still issues from time to time
executive or administrative order that affect local
government units.
 ROLE OF LGUS IN
DECENTRALIZED DEVELOPMENT

• The primary principle of devolution and decentralization

is very clear – to unburden the national government of
responsibilities of attending to the basic needs of the
people by shifting the responsibilities down to the LGUs
where such needs can best be carried out.
• Local executives now play a more assertive role in their
respective units. The Local Government Code gave
more leeway for local executives in conceptualizing and
in implementing development programs.
 ROLE OF LGUS IN
DECENTRALIZED DEVELOPMENT

• With the rise in the share of LGUs in the internal revenue

allotment (from 11% to a maximum of 40%), proceeds from
the utilization of natural resources, as well as other income-
enhancing powers, decentralized development may prove to
be the real tool in actualizing national development.
• Local governments play a significant role in this
development task.
• Advocates of decentralization count on the promptness of
public service and accountability to effectively address
public needs.
 ROLE OF LGUS IN
DECENTRALIZED DEVELOPMENT

• The LGUs are the level of government closest to the

people; thus, they are in the best position to assess
the changing demands of communities and respond
to them in such a way that local capacities and
priorities are taken into account.
• Once local governments are clothed with fiscal
autonomy and this autonomy is used effectively and
responsibly, development from below would not be
impossible to realize.