The enactment of the Local Government Code (LGC) in 1991, which provided a comprehensive framework for local autonomy and decentralization, ushered in the widespread and systematic pursuit of local government reforms in the Philippines. The need to enhance the pace of local government reforms increased in 2008–2009, on the back of the global financial crisis (GFC). The deteriorating external environment and its impact on the domestic economy brought to the forefront the critical role that local government units (LGUs) could play in cushioning the impact of the GFC, stimulating domestic demand, and sustaining the government’s economic development agenda.
Against this backdrop, the Local Government Financing and Budget Reform (LGFBR) program cluster became critically important. The program already gained ground with the government even before it was brought forward for consideration by the Board of Directors of the Asian Development Bank (ADB). ADB approved subprogram 1 of the LGFBR for a loan of $300 million in December 2007, and subprogram 2 for a $225 million loan in November 2009. Agence Française de Developpement provided additional financing for subprogram 2.
The two single-tranche program cluster was expected to increase the efficiency and effectiveness of LGUs in delivering basic public services to their constituent communities, as impact. Its intended outcome was enhanced resources and capacities of LGUs to plan and budget for the general welfare of their constituent communities in a transparent and accountable way. As outputs, it sought to put in place reforms to (i) improve the release of LGU shares in national government revenues; (ii) implement a financial reporting system; (iii) improve the local government performance measurement system; (iv) facilitate access of LGUs to development credit financing; and (v) improve the collection of local business and real property taxes.
Automatic appropriation of the internal revenue allotment (IRA) for the LGUs was supported and so were reforms that increased the amount and reduced the uncertainty of the release of LGU special shares in national wealth and other taxes. Local planning, investment programming, revenue administration, budgeting, and expenditure management were harmonized and LGUs were trained on the guidelines and procedures associated with these harmonized systems. The timeliness and accuracy of financial information for LGU financial managers and overall fiscal and financial management were improved through computerization, systems and materials development, and capacity building. The Local Government Performance Management System (LGPMS), a self-assessment tool to improve performance, was enhanced to include financial management indicators and expanded to cover all LGUs.
A system of performance-based grants was introduced to provide LGUs with an additional financing option to improve local services delivery. An LGU financing framework providing guidance to LGU efforts to tap private sources of capital for development projects was established and so were mechanisms to provide potential creditors and investors with a better picture of the LGUs’ own-source revenue-generation capacity. LGU access to tax information at the central level was strengthened and guidance papers and procedural manuals prepared to boost the LGU’s ability to generate revenues from local business taxes. Trainings to enhance the collection of real property taxes were undertaken and loans were provided to update real property assessments and valuation standards for machinery and equipment.
Overall, the reforms triggered by the LGFBR have helped LGUs to obtain greater and more stable financial resources and improved their capacity to plan and budget for the general welfare of their constituents. On the non-financing side, LGFBR has helped build the institutional preconditions for improved efficiency and accountability of financial and expenditure planning and management. The adoption of the LGPMS, improvements in the competency of local officials, and enhancement of the financial reporting frameworks in local governments are some of the key accomplishments that in due time may generate even wider benefits.
The program had the Department of Finance as executing agency. An LGFBR program coordination committee monitored the program’s progress and oversaw its implementation.
