ADB: Bigger LGU share in national revenue in 2022 could slow spending

MANILA, Philippines—The bigger budget share and responsibilities to be bestowed on local government units (LGUs) in 2022 may slow public spending and was flagged by the Manila-based Asian Development Bank (ADB) as a downside risk to the Philippines’ economic recovery.

“Typically, when expenditure functions are also being transferred to local governments, there’s always that period when they revise their budgets, you’ve got to bring in new staff and new skills,” said Kelly Bird, ADB country director for the Philippines, at a press conference on Wednesday (April 28).

“So there’s always risk that on the ground, there will be some delayed project or program implementation—that’s kind of a natural outcome of transferring functions to local governments,” Bird said.

Bird was referring to the Supreme Court’s ruling on bigger LGU shares in national taxes, known as the Mandanas ruling, which would be enforced starting in 2022.

The ADB was hopeful that big government spending, especially on infrastructure, would generate more jobs and help in economic rebound from the pandemic-induced recession.

Budget Secretary Wendel Avisado last Monday (April 26) said a draft executive order (EO) was pending approval of the Office of the President (OP) “in due time” to fully devolve some national government functions to LGUs starting in 2022 to match LGUs’ bigger budget equivalent to at least P239 billion.

In 2018, the Supreme Court granted a petition by Batangas Gov. Hermilando Mandanas and Bataan Gov. Enrique Garcia Jr. increasing to 40 percent the LGUs’ share in all national taxes, including Bureau of Internal Revenue (BIR) and Bureau of Customs (BOC) collections.

LGUs currently share only two-fifths of national revenue collected by the BIR.

As the high court ruling will be implemented in 2022, Development Budget Coordination Committee (DBCC) estimates had shown that LGUs’ 2022 IRA from 2019 BIR and BOC collections shall carve P1.08 trillion, or a heftier chunk, from the record P5.024-trillion national budget proposal for 2022, instead of only P848.44 billion under the current computation.

With higher budgets in 2022, the Department of Budget and Management (DBM) had said LGUs must “undertake necessary actions to prepare for the greater role and responsibilities they are expected to assume.”

“The Philippines has a well-developed, decentralized system,” said Bird, of ADB.

“So the local governments do have a lot of experience, and many also have the capacity to implement programs and projects. So, for many, this will be just an additional workload; for some others, there may be challenges with weak capacity,” Bird said.

“The better-capacitated LGUs will probably find an easier transition,” according to Bird.

“Maybe some of the poor, less-capacitated LGUs will have some more difficulties because they’ll need to recruit the right staff and expertise for these new programs and projects,” he said.

“So I think it will be a mixture of outcomes for next year,” Bird added.

Last February, Avisado said the EO would transfer to LGUs the responsibility to spend on local infrastructure, agriculture, social welfare, health care and livelihood as listed down in the Local Government Code of 1991.

The earlier 2022 budget call issued by Avisado last January listed down the national government expenditures to be fully devolved to LGUs, which included health services, like public hospital operations as well as communicable and non-communicable disease control services.

Avisado had said that amid a prolonged fight against COVID-19, LGUs may have to take a bigger role in public health as a result of their bigger budgets in 2022.

The Inquirer earlier reported that the EO will:

• Delineate the roles of the national and local governments
• Jump-start preparation of devolution transition plans
• Establish a growth equalization fund “to address the vertical and horizontal fiscal imbalance across LGUs”
• Create an interagency committee on devolution to be headed by the executive secretary to monitor and evaluate implementation by 2025.

It would also provide options for national government employees who may lose their jobs once more functions get transferred to LGUs.

TSB