LGU Dependence on the I.R.A.

Given this constitutional and legal framework, one can say that the proposed Php 30 billion cut was both illegal and unconstitutional. The Senate proposed the cut without due consultation with the representatives of the leagues, and the proposed reduction amounted to twenty-five percent (25%). Even if an unmanageable public sector deficit existed, and this is really a very gray area in the law, the Code only allows a maximum reduction of ten percent. And such a cut can only be made after due consultation. Given the reaction of the leagues, there was clearly no such consultation. On top of these issues, a more fundamental issue remains. Is it not clear in the Code and the Constitution that the I.R.A. share is to be automatically released according to the sharing scheme and schedule set by the Code? If it is clear that the I.R.A. is part of the just share of LGUs in the nation's revenue that is automatically released to them, Congress is only authorized to discuss any cut if an unmanageable public sector deficit is foreseen and this cut should be confined to 10%. Why then did the Senate feel authorized to even deliberate on the I.R.A. to be released to the LGUs?

In fairness to the Senate Finance Committee, the 2000 budget did reflect a daunting deficit of more than a Php 100 Billion--especially when the International Monetary Fund threatened to hold back its loans unless the deficit was somehow reduced. Therefore, the Senate decided to cut the budget by reducing the I.R.A. share by Php 30 Billion. Of course, other cuts were made to the budget but, along with education, the I.R.A. was the most controversial: both for the potential unconstitutionality and illegality of the act and the potential damage it could do.

The I.R.A. cut is truly potentially damaging for the operations of LGUs. To date, LGUs are more than 50% dependent on their I.R.A. allocation. Despite their expanded taxing powers, many LGUs simply do not have a tax base beyond that which the national government already collects. This is due to a lack of natural endowments and administrative neglect on the part of past and more centralized administrations. After all, despite the expanded taxing powers of the LGUs, the most substantial sources of tax funds from their constituents are already collected by the National Government. Thus, clearly the I.R.A. is not fiscal assistance from the national government but is actually the just share of local governments from the taxes collected from their constituents.

For many LGUs, especially those which are classified as 4th to 6th class municipalities, a reduction of I.R.A. shares means a reduction of their capability to provide for basic services. As it stands, the I.R.A. distribution scheme discriminates against smaller municipalities that are poorer, smaller and have a small population. Because the I.R.A. distribution favors highly populated areas, like cities, the reduction doubly discriminates against poorer and less populated localities. Also, the I.R.A. distribution favors provinces which get a bigger share of the I.R.A. pie while most of the front line services are provided by cities and municipalities. The first step of distribution follows this formula: provinces = 23%, cities = 23%, municipalities = 34%, and barangays = 20%. If we consider that the provincial share will be distributed among 78 provinces, the cities' share among 83, and the municipal share among 1,452 municipalities, we can clearly see how municipalities which often bear the brunt of line services and often have little income, are discriminated against with this sharing scheme. The second step of distribution determines the share of each LGU based on these weighted criteria: population is weighted 50%, land area, 25% and the remaining 25% to be distributed equally. Again we see the discrimination against poorer and less populated municipalities.

For LGUs, especially municipalities, that have almost no way of raising revenue and are discriminated against by the I.R.A. sharing scheme, the millions that will be cut from their actual budget will mean that social and economic services cannot be funded. Existing services will suffer and as well as projects that will lead to any form of economic development leading to fiscal independence. And surely, the first things that suffer from budget cuts would be social services since these are the lowest priority in local government spending.

One cannot but agree that the budget needs cutting. After all, the deficit seems staggering. However, the ULAP is right in questioning the cut against the budgets of local governments, and they are right in demanding that the cuts be focused more on national government agencies whose functions have been devolved. Since the Code was passed, over 70,000 government personnel from the departments of health, agriculture, social welfare, environment, and natural resources have been taken on by the local government units. Over 900 hospitals and health facilities are now the responsibility of LGUs. Despite the devolution of these services, the budgets of the departments of agriculture and health seem to have risen disproportionately. The Department of Health's budget rose to about Php 12.3 B from Php 7.5 B in 1991 before devolution and the Department of Agriculture Php 22.3 B from Php 4.3 B. Thus, while the local governments are taking on more of the burden of governance, their budgets are being reduced and the devolved agencies are getting more money. Surely the national government should look into the absurdity of this situation. The logic behind this rise in their budgets, some local officials claim, is because they are the sources of the pork barrels of Congress. For instance, some items under their budgets, such as farm to market roads, can only be released with the concurrence of a district's congressperson-these can be extremely useful funds for courting political favor. Of course, the rise in budget could be attributed to the rise in inflation. Nonetheless, before Congress touched the I.R.A., they should have examined the budgets of devolved national agencies.

 

Resolutions and Victories

The Bicameral Budget Committee seemed to have come up with a compromise solution to the I.R.A. problem. In their February 2000 solution, they restored Php 20 billion to the I.R.A. and placed another Php 10 billion of it under the category of unprogrammed expenses. This means that the Php 10 billion would be released only when the national government reaches a desired amount in its tax collection. In short, there was no cut in principle. But in fact, the ULAP noted that the Php 10 Billion has been practically cut since the Php 10 billion could never be released if the national government deems that they have not collected enough revenue. With this solution, the ULAP would still have taken the matter of the I.R.A. cut to the Supreme Court so that the court could finally decide on the constitutionality of such hold-backs and cuts. This was probably the best move that the ULAP could have made since it would have given the issue of the automatic release of the I.R.A. a resolution with finality. This move would have been especially significant since the ULAP uncovered many items in the budgets of national line agencies that they claimed were hidden pork barrel items for Congress.

In a study made by the ULAP of the 2000 budget, many items under national agencies such as the Department of Health, Department of Agriculture, Department of Public Works and Highways, and the Department of Education among others needed either prior concurrence or prior consultation before they were implemented. Things like the use and release of funds for various infrastructure projects including local projects, rural electrification projects, and the use of lump sum appropriations of the Department of Agriculture needed either prior concurrence or consultation with legislators. Before local shares of the I.R.A. were cut, these items, which could be nothing more than sources of pork for lawmakers, should have been examined. Through these projects, lawmakers could use national government money to improve their political images in the localities while depriving essential funds for autonomous local government that provide essential services to the localities. With these continued threats against local autonomy, the ULAP pressured national government to restore all cuts. Finally, the President conceded by restoring all cuts to the I.R.A. and by promising to veto any hidden pork in the budget. Although there is no clear word on the President's veto on the "hidden pork" since he declared that there was no pork in the General Appropriations Act submitted to him, the Php 10 B cut to the I.R.A. was restored and the ULAP declared itself victorious. But how victorious was it? National government still feels that it can cut the I.R.A. at will and its full release this year was based on the favor of the President. ULAP president, Gov. Jose Lina, admits this much. Therefore, the I.R.A. issue illustrates that local governments do not have genuine fiscal autonomy given that they must court the favor of Congress and the national executive to have their full share of the constitutionally mandated and legislated I.R.A.. Therefore, the ULAP and local government have not really won anything in the annual battle for the I.R.A.. At the most they have only won a brief respite, and perhaps they have even lost something because this round has only reiterated their dependence on the Office of the President. Thus, despite ULAP's withdrawal of its resolution to bring the matter of the I.R.A. to the Supreme Court, the battle will still continue until the court has resolved this issue with finality.