LGPF: Welcome Remarks

The IRA Cut: Threat to Local Governance and Democracy
Atty. Vincent Edward R. Festin and Atty. Marlon J. Manuel

Cutting Clean?

Having shown that Congress has indeed cut the IRA, it is now important to show that the manner in which this cut was made is improper.

The Local Government Code states that:

Section 284. Allotment of Internal Revenue Taxes. Local Government Units shall have a share in the national internal revenue taxes based on the collection of the third fiscal year preceding the current fiscal year as follows:

Provided, that in the event of an unmanageable public sector deficit, the President of the Philippines is hereby authorized, upon the recommendation of the Secretary of Finance, Secretary of Interior and Local Government and Secretary of Budget and Management, and subject to consultation with the presiding officers of both Houses of Congress and the Presidents of the liga to make the necessary adjustments in the internal revenue allotment of local government units but in no case shall the allotment be less than thirty per cent (30%) of the collection of national internal revenue taxes of third fiscal year preceding the current fiscal year.

In addition Art. 379 of the implementing rules and regulations of the Local Government Code states that:

(a) In the event that an unmanageable public sector deficit is incurred by the national government, the Secretary of Finance, the Secretary of Interior and Local Government, and the Secretary of Budget and Management shall submit to the President a joint recommendation that will institute necessary adjustments in the IRAs of LGUs.

(b) Upon receipt of the joint recommendation of the Secretary of Finance, the Secretary of Interior and Local Government, and the Secretary of Budget and Management, and subject to consultation with the presiding officers of both Houses of Congress and the Presidents of the Leagues of LGUs, the President shall authorize the necessary adjustments of the total IRA to be distributed among the LGUs for the given year, provided, That in no case shall the adjusted amount be less than thirty percent (30%) of the national internal revenue collections of the third fiscal year preceding the fiscal year during which the reduction is to be made.

(c) Adjustments to the IRA share of LGUs shall be made only after effecting a corresponding reduction of the national government expenditures including cash and non-cash budgetary aids to GOCCs, government financial institutions (GFIs), the Oil Price Stabilization Fund (OPSF), and the Central Bank.

Based on the law and the implementing rules, several conditions have to be met. First, there must be an unmanageable public sector deficit. Second, cuts on the IRA should emanate from the Executive Branch. Third, before such a recommendation can be made, consultation with particular agencies, Congress and the Leagues has to be undertaken. Fourth, the cut cannot reduce the IRA to less than thirty percent (30%) of the amount collected as internal revenue taxes for the third fiscal year preceding the year in which the reduction is sought to be made. Finally, corresponding cuts on other agencies have to be undertaken.

Congress itself has imposed rather strict conditions for any cut to be effected. This only affirms the lofty position that the IRA should occupy in the system of priorities. Notwithstanding these requirements, Congress has seen it fit to cut the IRA by P10B with nary a concern for the requirements laid out by law. It is hence necessary to compare Congress' act with the requirements of the law.

The very first condition that must be extant is the presence of an unmanageable public sector deficit. In fairness to Senator Osmeña, his act was premised on a desire to keep the government's deficit to a reasonable level. Assuming, without conceding, that an unmanageable public sector deficit may be incurred by government, the test of the infirmity of the cut still has to be weighed by other prerequisites and it is in this regard that the cut imposed falls short of the standard set by the law.

First, the law is explicit in stating that any cut should emanate from the executive department. Specifically, it outlines a process whereby the cut should first be recommended by no less than three Cabinet Secretaries. In the present situation, no such recommendation was ever made and the cuts were in fact brought about by Congressional action. Second, it is clear that no consultation with the Leagues concerned was ever undertaken. Elementary fairness should at least have been observed when depriving local government units of the right to their share. One is therefore led to ask the question, "was due process afforded the local government units?" Third, it has not been shown that corresponding decreases on agencies has been effected.

Defenders of the cut, however, state that in view of the imminent deficit, the cut in the IRA comprises local government units' efforts at "burden sharing" or doing their part, so to speak, in governmental belt tightening.

First, it is clear that the cut, even under a scenario that an unmanageable public sector deficit will be incurred, does not comply with the strict provisions of the law. The law has recognized situations where a cut is allowed but has provided for the manner in which the same should be made. Any deviation from the manner so provided is therefore illegal.

Second, it should be noted that the "burden" has not been shared equally. An examination of the Bicameral Conference Committee Report would reveal that some agencies' and offices' appropriations were actually increased from what was initially earmarked in House Bill 8374. Curiously, among the items where cuts were imposed, it was the IRA that received the biggest slash.

From the foregoing, we can see that the IRA is a right. We can also conclude that this right has been violated. The automatic release of the IRA and the strict requirements for its allowable reduction are not merely arbitrary impositions made by the framers of the Constitution and the legislators. In other words, the IRA is not merely a legal necessity but is, more importantly, a practical reality. The special treatment of the IRA is rooted in three essential principles of local governance: decentralization, local autonomy and democracy. Any effort to undermine the preferred position of the IRA therefore adversely affects the very stability of the country's system of local governance. The next portion of this paper will focus on how the reduction of the IRA affects the principles mentioned above and how the national government, through its acts, has failed in its duty to render fidelity to these principles.