MANILA, Philippines — Local government units (LGUs), which may not be well-equipped to implement big-ticket projects, are at risk of underspending as much as P155 billion or nearly two-thirds of their additional internal revenue allotment (IRA) next year when the implementation of the Mandanas ruling goes on full swing, the World Bank warned on Thursday.
The World Bank’s Philippine economist Kevin Cruz told a virtual briefing that LGUs at present already faced difficulties implementing big budgets, especially complex capital-outlay investments which needed more time to prepare and expertise to roll out.
Next year, LGUs’ IRA — now called national tax allotment (NTA) — will be added with about P238.8 billion, which they can spend to improve health and education services, among other formerly national government functions which had been devolved to them through Executive Order (EO) No. 138 signed by President Duterte early this month.
The additional money will bloat their IRA to P1.09 trillion or a 56.3-percent hike compared to this year’s allocation, noted National Economic and Development Authority (Neda) Undersecretary Mercedita Sombilla.
To recall, the Supreme Court granted in 2018 and reaffirmed a year later the petitions of Batangas Gov. Hermilando Mandanas and former Bataan Gov. Enrique Garcia Jr., wherein LGUs’ IRA will come from 40 percent of collections of “all” national taxes — the Bureau of Internal Revenue’s (BIR) tax take, as well as the Bureau of Customs’ (BOC) collections of import duties and other taxes.
At present, LGU’s IRA only came from two-fifths of national internal revenue taxes collected by the BIR.
As the high court ruling will be implemented next year, Development Budget Coordination Committee (DBCC) estimates had shown LGUs’ 2022 IRA coming from 2019 BIR and BOC collections shall carve a heftier chunk from the record P5.024-trillion national budget proposal for next year, instead of only P848.4 billion under the current computation.
Since the bigger IRA will deprive funding for the national government’s programs and projects, EO 138 transferred to LGUs expenditures on local infrastructure, agriculture, social welfare, health care, and livelihood, among other sectors listed down in the Local Government Code of 1991.
Cruz said that ideally, the larger LGU budgets should help as provinces, cities and municipalities played a crucial role at the front-lines of COVID-19 response.
But in reality, this may pose a problem given LGUs’ difficulty in spending budgets due to procurement bottlenecks, lack of competency and human resources, among other challenges, Cruz said.
Cruz said World Bank estimates showed the total amount LGUs could fail to spend next year would be equivalent to 0.7 percent of gross domestic product (GDP) or about 70 percent of their additional allotment.
“In the midst of the country’s worst socioeconomic and health crises, unspent budgets are wasted opportunities to bring crucial services to communities that need them the most,” Cruz noted, citing the need to fund social services, health facilities as well as COVID-19 vaccines next year.
Albay Rep. Joey Salceda said the implementation of the Mandanas ruling would have a “modestly negative” impact on GDP during the short- to medium-term due to loss of about 20 percent of the national government’s current capital outlay.
It may also narrow the national government’s borrowing space partly as the LGU bond market was not yet sophisticated, Salceda said.
On a political standpoint, Salceda said LGUs’ bigger budgets could shift power from Congress to local governments, while consolidating leadership potentially to more homegrown dynasties.
Sombilla noted that EO 138 provided for a “smooth transition” to devolve certain functions of national government agencies to LGUs.
“LGUs with limited resources will also be assisted to enable them to deliver basic social services. As provided in EO 138, a growth equity fund (GEF) shall be proposed to Congress for inclusion in the national expenditure program starting in fiscal year 2022. This is intended to fund programs, projects and activities of poor, disadvantaged and lagging LGUs to gradually enable them to implement their devolved functions and services,” Sombilla said.
Moving forward, both the national government and LGUs also needed to brace for the impact of the pandemic-induced economic recession on NTA, as Sombilla pointed to the huge decline in 2020 revenue collection, which, in turn, will be the basis for 2023 allotments.