Since 1992, when local government units (LGUs) started receiving properly computed and regularly released shares in the internal revenue allotments (IRA), several more funds have been put up supposedly to help LGUs keep up with the demands of decentralization.

(For the amount of IRA released to each province, city, and municipality from 2004 to 2006, please visit the Local Government section of Newsbreak’s Democracy and Governance website). IRA shares of individual LGUs in preceding years will be uploaded as they become available.)

We estimate that from 1998 to 2006, LGUs benefited from at least P58.82 billion in other allocations from the national government, or so-called “non-IRA funds.” (Click here for the allocations from 1998 to 2006)

Unlike the IRA, these other funds are not divided among all LGUs. Depending on the law that created or the source of funding for each allocation, a non-IRA fund has to go to a limited number of localities with specific types of programs or activities, or those that meet the requirements of fund donors.

There remains a debate within the local government and public finance circles whether these other funds are enough to make LGUs eventually self-sufficient, or to help the poorer LGUs—the usual beneficiaries—catch up with their more progressive neighbors.

The answer, it seems, is no.

For one, considering the fact that there are more poor LGUs than rich ones, the total amount of these other funds against the IRA is measly. The amount of non-IRA funds was equivalent over those nine years was only a little over 5 percent of the total IRA (P1.135 trillion) that LGUs received. (Click here for comparison of IRA and Non-IRA Allocations)

Under the Arroyo administration, the biggest non-IRA allocation is the “Special Financial Assistance to LGU,” which by its definition, can be used by Malacañang for patronage purposes like a pork barrel. In 2005, for example, the total amount of non-IRA allocations was P6.6 billion. More than half of that was special financial assistance to LGUs (P3.75 billion). In 2006, out of the P6.11 billion non-IRA allocations, P3.86 billion were used as special financial assistance to LGUs.

There are no set amounts every year for the non-IRA allocations—they depend on the fees collected or the assistance received by the agencies or bodies that are tasked to release these funds to LGUs. In 1998, for example, the non-IRA funds amounted to a total of only P3.79 billion. It shot up to P11.23 billion in 1999. From P10.98 billion in 2001, it dropped to P4.64 billion the following year, and further down to P1.71 billion in 2003.

The non-IRA funds also vary in number and kinds from one administration to another. During President Fidel Ramos’s last year in office, there were only four non-IRA allocations. During President Joseph Estrada’s time, there were six. They decreased to four to five under President Arroyo.

Based on the 2007 Budget of Expenditures and Sources of Financing, there are nine kinds of other funds that the national government now make available to LGUs (up from six last year). They are the Municipal Development Fund, share in the tobacco excise tax, share in the utilization of national wealth, share in the gross income of businesses within the economic zones, share in the value added tax (VAT), share in the franchise tax, share in the special privilege tax, barangay officials death benefits fund, and the premium subsidy for indigents under the National Health Insurance Program.

LGUs naturally want automatic bigger shares in all national collections, to correspond with the responsibilities devolved to them. Those in the national government, however, think that if there will be increases in the allocations that LGUs are getting now, these will make them dependent on national releases and discourage them from becoming enterprising.

Following are brief backgrounds on the funds that have been created for LGUs over the years:

• Municipal Development Fund
  (Created in 1984; continued to this day)
  This fund was created by virtue of Presidential Decree No. 1914, which was signed by then President Marcos in 1984. It is a fund pooled from the grants, loans, and assistance that the national government receives from other countries and international institutions. Administered by the Department of Finance, it provides loans to finance projects of local governments units. Payments to these loans are used for re-lending to other LGUs. (Click here to see allocation of MDF from 1998-2006)
  
• Insurance Premium of Local Officials
  (Created in 1990)
  RA 6942, which seeks to increase the insurance benefits of local government officials, mandates the national government to include in the annual General Appropriations Act the total annual premiums of local officials.
  
• Share in the Excise Tax on Tobacco
  (Created in 1992; continued to this day)
  RA 7171, popularly known as the virginia tobacco law, provides special support to the provinces that produce virginia tobacco. According to this law, 15 percent of the tax on locally-manufactured virginia-type cigarettes will be allocated to provinces that have an average annual production of at least one million kilos of virginia leaf. The share of each province corresponds to the volume it produces. The law mandates that these funds should be used “to advance the reliance of the tobacco farmers through” by financing cooperative, livelihood, agro-industrial, and infrastructure projects like farm-to-market roads. Ilocos Norte, Ilocos Sur, La Union, and Abra are the beneficiaries of this fund. (Click here to see the amount of tobacco excise tax share from 1998-2006)
  
• Metropolitan Manila Development Authority Provincial Share in the IRA
  (Created in 1992; continued to this day)
  The Metro Manila Commission was renamed as MMDA in 1995 but it had received a provincial share from the annual Internal Revenue Allotment since 1992. Apart from this allocation, it also receives a subsidy from the national government, and 5 percent of the annual gross revenues for the preceding year of all the 17 LGUs in Metro Manila. (Click here to see IRA share of MMDA from 1998-2006)
  
• Share in the Utilization of National Wealth
  (Created in 1992; continued to this day)
  Sections 289 to 291 of the Local Government Code state that LGUs “shall have equitable share in the proceeds derived from the utilization and development of national wealth within their respective areas.” The LGUs have a 40-percent share in the gross collection derived from mining taxes, royalties, fisheries and forestry charges, and other fees from the utilization and development of national wealth within the LGU’s territorial jurisdiction. (Click here to see the LGUs share in the utilization of national wealth from 1998-2006)
  
• Share in the Gross Income of Enterprises Within Special Economic Zones
  Under the Bases Conversion and Development Act of 1992 (RA 7227) and the Special Economic Zone Act of 1995 (RA 7916), economic zones should remit 5 percent of the gross income earned by all enterprises within their jurisdictions to the national government. Of this amount, 3 percent will go to the national government and 1 percent for the LGUs affected by the declaration of the ecozone in proportion to population, land area, and equal sharing.
  The remaining 1 percent is allocated as development fund for adjacent municipalities affected by the declaration. The share of each LGU is computed using the following formula—50 percent based on population, 25 percent based on land area, and 25 percent based on equal sharing.
  In 1999, the municipalities of Taguig and Pateros received a share amounting to 2.5 percent of the proceeds from the sale of portions of Fort Bonifacio.
  (Click here for the share in the gross income of enterprises within the economic zones from 1998-2007. Click here for the share of Taguig and Pateros from the sale of portions of Fort Bonifacio.)
  
• Local Government Empowerment Fund (LGEF)
  (Created in 1996; discontinued in 2000)
  The Local Government Empowerment Fund provides fund for foreign-assisted projects that are supportive of the national government’s program in 19 priority provinces and 5th and 6th class LGUs identified under the Social Reform Agenda. The LGEF has not received allocations since 2000. (Click here to see LGEF allocation from 1998-2006)
  
• Local Government Service Equalization Fund (LGSEF)
  (Created in 1998; dissolved in 2002)
  The LGSEF was created in 1998. President Joseph Estrada signed Executive Order No. 48, which established a devolution adjustment and equalization fund, which was intended to help poorer LGUs to cope with the financial requirements of devolution like their richer counterparts. An oversight body called the Devolution Committee was tasked to set an amount based on the devolution status appraisal surveys done by the Department of the Interior and Local Government. Initial fund for this new allocation came from the savings of the national government for 1998. For the succeeding years, the fund was incorporated in the annual national budget but it was discontinued and has not received appropriations since 2002.
  
• Premium Subsidy for Indigents Under the National Health Insurance Program
  (Created in 1995; continued to this day)
  Under the National Health Insurance Act of 1995, the subsidy contribution for the indigents’ premium shall be equally shared between the local and the national government. For 4th class, 5th class, and 6th class LGUs, the national government and the local government will pay 90 percent and 10 percent of the contributions, respectively, during the first and second year of the implementation. (Click here for the premium subsidy of indigents under NHIP from 1998-2006)
  
• Share in the 2-Percent Special Privilege Tax (Hydro-Electric)
  (Created in 1991; continued to this day)
  Republic Act 7156 entitles LGUs to a 2-percent share in the special privilege tax paid by mini-hydro-electric power developers.
  
• Barangay Officials Death Benefits Fund
  This fund is used for the payment of death benefits of barangay officials—barangay chairs, councilors, Sangguniang Kabataan chairs, barangay secretaries, barangay treasurers—who die during their term of office.
  
• Special Assistance to LGUs
  This includes fund transfers from calamity funds, Priority Development Assistance Funds, contingency funds, and pension and gratuity funds. (Click here for the special assistance to LGU from 1998-2006)

This article was made possible with support provided by the United Nations Democracy Fund and the United Nations Development Programme in the Philippines. The opinions expressed here are those of the author(s) and Newsbreak and do not necessarily reflect the views of the United Nations Democracy Fund and the United Nations Development Programme in the Philippines.

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