Annex 1: Decentralization in the Philippines:

Selected Literature Review on Fiscal, Political and Service Delivery Aspects

HISTORICAL BACKGROUND
The Local Government Code of 1991 (LGC) was landmark legislation that initiated the
decentralization of governance in the Philippines and provides the overall framework for
central-local relations !nacted in the wake of the 19"# People Power revol$tion% the
LGC consolidated and amended vario$s e&isting laws that specified the parameters for
local government (ie the Local Government Code of 19"'% the Local Ta& Code (P)
*'1+% and the ,eal Propert- Ta& Code (P) .#.+) and laid the fo$ndation for increased
local a$tonom- and acco$nta/ilit- thro$gh the assignment of service deliver- and
e&pendit$re responsi/ilities and reven$e mo/ilization powers to local government $nits
(LG0s)
1
The LGC also specified the /asis for reven$e sharing /etween the national
government and LG0s and provided for the participation of civil societ- in local
governance
1everal factors are cited to e&plain the p$sh for increased devol$tion of fiscal and service
deliver- responsi/ilities to LG0s that res$lted in the enactment of the LGC 2ne
e&planation is the widespread sentiment to democratize after the change of government in
19"#% which led to a strong determination to dismantle the mechanisms of central control
instit$ted /- 3arcos
*
This coincided with an increasing demand for local a$tonom-
from local politicians 4$rthermore% decentralization has /een cited as a wa- to respond
to the armed resistance of the 5ew People6s 7rm- and the separatist movements in
3indanao
7s in man- cases of decentralization in developing co$ntries (eg% Latin 7merica%
8ndonesia)% the primar- impet$s seems to /e political and the desire to improve
government performance (eg% service deliver-) seems to /e onl- a secondar- motive
7s the following sections on e&pendit$re and reven$e assignments indicate% the c$rrent
intergovernmental fiscal arrangement is hardl- cond$cive to efficient service deliver- and
LG0 acco$nta/ilit- 9$t more than 1: -ears since the passage of the LGC% the data on
the level and the ;$alit- of p$/lic services provided /- LG0s remain scarce% which has
prevented researchers from esta/lishing a solid empirical /asis for assessing the effects of
decentralization on service deliver-
FISCAL DECENTRALIZATION
!&pendit$re 7ssignment<
'
Prior to the enactment of the LGC% the responsi/ilities of
LG0s were limited to the administration of /asic local services and enterprises s$ch as
1
3anasan% ,osario G *==> ?)ecentralization and the 4inancing of ,egional )evelopment@ The
Dynamics of Regiona De!eo"men#$ The %hii""ines in Eas# Asia !d 7rsenio 3 9alisacan and Aal Aill
7sian )evelopment 9ank 8nstit$te 3anila< !dward !lgar P$/lishing Ltd and 7teneo de 3anila 0niversit-
Press
*
,ood% 1teven 199" ?)ecentralization% )emocrac-% and )evelopment@ The %hii""ines$ Ne& Di'ec#ions
in Domes#ic %oicy an( Fo'eign Rea#ions !d )avid G Tim/erman 0nited 1tates 7genc- for
8nternational )evelopment 3anila< 7sia 1ociet-
gar/age collection% p$/lic cemeteries% p$/lic markets% and sla$ghterho$ses The LGC
formall- transferred from national government agencies to LG0s the principal
responsi/ilit- for providing and financing services in the following areas<
o land $se planning o hospital care
o agric$lt$ral e&tension and research o local p$/lic /$ildings and str$ct$res
o comm$nit--/ased forestr- o local p$/lic parks
o solid waste disposal s-stem o local services and enterprises (eg p$/lic markets% p$/lic
markets% sla$ghterho$ses% etc) o environmental management
o poll$tion control o local infrastr$ct$re facilities (eg local roads and /ridges%
school /$ildings% health facilities% ho$sing% comm$nal
irrigation% water s$ppl-% drainage% sewerage% flood control)
o primar- health care
o social welfare services
3$nicipalities and cities are primaril- responsi/le for the frontline deliver- of local
p$/lic services% s$ch as the operation and maintenance of local health centers% the
collection and disposal of solid waste% and the constr$ction and maintenance of p$/lic
school /$ildings 2n the other hand% provinces are tasked with responsi/ilities for
f$nctions that involve inter-m$nicipal provision of services% s$ch as the operation and
maintenance of district and provincial hospitals Aowever% the provision of /asic
ed$cation was not devolved to LG0s and contin$es to /e the responsi/ilit- of the
national government6s )epartment of !d$cation Bhile the national government
contin$es to provide for and finance /asic ed$cation% the responsi/ilit- for the
constr$ction and maintenance of p$/lic school /$ildings was assigned to LG0s

Bhile the delineation of responsi/ilities /etween national and local governments are
generall- consistent with the normative assignments s$ggested /- decentralization theor-
(with ed$cation /eing a prominent e&ception)% the LGC incl$des provisions that
compromise the apparent clarit- of the e&pendit$re assignments 1pecificall-% the LGC
allows national government agencies to implement p$/lic works and infrastr$ct$re
proCects and s$pplement local service deliver- when these are not availa/le or are
inade;$atel- provided /- LG0s 8n addition% legislative allocations /- congressmen and
senators are commonl- $sed to a$gment LG0 spending% partic$larl- on infrastr$ct$re
4inall-% the center infl$ences local e&pendit$res thro$gh the enactment of laws that res$lt
in mandated increases in spending on the part of LG0s witho$t an- corresponding
financial s$pport from the national government !&amples of these so-called $nf$nded
mandates incl$de the salar- standardization law% the 3agna Carta for Aealth Borkers%
and the re;$irement for LG0s to pa- for the health ins$rance premi$ms of their indigent
residents
,even$e 7ssignment<
.
The following ta/le s$mmarizes the vario$s ta&es that were
assigned to LG0s /- the LGC Cities have the widest range of ta&ing tools availa/le
while provinces and m$nicipalities either have no access to certain ta& meas$res or are
re;$ired to share the proceeds with s$/-levels of LG0s 8n addition to local ta&es% LG0s
are allowed to lev- $ser fees and charges on /$sinesses and occ$pations commens$rate
with the cost of reg$lation% inspection% and licensing of /$siness entities and individ$als
'
3anasan% ,osario G *==. ?Local P$/lic 4inance in the Philippines< 8n 1earch of 7$tonom- with
7cco$nta/ilit-@ )isc$ssion Paper% 1eries 5o *==.-.* 3anila< Philippine 8nstit$te for )evelopment
1t$dies
.
3anasan% ,osario G *==.
1everal ke- ta& /ases are reserved for the national government% incl$ding the personal
and corporate income ta&% c$stom d$ties% the val$e added ta&% and e&cise ta&es on
alcoholic /everages% to/acco prod$cts% and petrole$m prod$cts
Local Tax ities Provinces !unicipalities "aran#ays
2n ,eal Propert- Transfers D D
2n 9$siness of Printing and P$/lication D D
2n 4ranchises D D
2n 1and% Gravel% and other E$arr- ,eso$rces D D F F
2n 7m$sement Places D D F
2n Professionals D D
2n )eliver- Gans and Tr$cks D D
2n ,eal Propert- D D F F
2n 8dle Lands D D
2n 9$sinesses D D D
2n Comm$nit- Ta& D D F
F 1hares in the proceeds of the higher level LG0 that collects the ta&
Local ta& assignment is generall- consistent with the traditional criteria for assessing
appropriateness< economic efficienc-% e;$it-% and administrative feasi/ilit- Aowever% the
assignments are weak in terms of providing local fiscal a$tonom- for LG0s The
maCorit- of the prod$ctive ta& /ases are restricted to the national government and among
the local ta& /ases% onl- the real propert- ta& and /$siness ta& /ases provide s$/stantial
local reven$es The LGC also limits the power of LG0s to set ta& rates /- specif-ing
floors and ceilings on the ta& rates that can /e imposed and% in some cases% fi&ed rates on
local ta&es 4$rthermore% the LGC allows LG0s to adC$st ta& rates onl- once ever- :
-ears and /- no more than 1= percent
8mportantl-% cities are generall- allowed to set higher ta& rates compared to provinces and
m$nicipalities The /roader range of ta&es and higher rates availa/le to cities co$pled
with the re;$irement for provinces and m$nicipalities to share real propert- ta&
collections% t-picall- a primar- so$rce of local reven$es% res$lts in wide disparities in
local reven$e mo/ilization /etween cities% on one hand% and m$nicipalities and provinces%
on the other This has created a strong incentive for m$nicipalities to convert into cities
The vertical fiscal im/alance is f$rther e&acer/ated for provinces given their lack of
access to /$siness ta&es% which onl- cities and m$nicipalities can collect This is
ill$strated in the following ta/le% which shows the shifts in the shares of own-so$rce
reven$es among the three levels of LG0s
:
Distri$ution o% &wn'source Revenues o% L()s $y Level o% (overn*ent, 1+,-'.//0 123
4ear All L()s Provinces !unicipalities ities
1991 1=== 1". '"9 .*>
199: 1=== 1." '1> :':
*==1 1=== 119 *'' #."
*==' 1=== 1=1 **1 #>9
A!e'age
)*+,-*) )../. )*/* 01/) 20/.
)**3-3..0 )../. )3/, 31/0 4./3
8ntergovernmental transfers The LGC instit$tionalized the internal reven$e allotment
(8,7)% which is the primar- transfer of shared reven$es from the national government to
:
3anasan% ,osario G *==>
LG0s
#
8n principle% the 8,7 is s$pposed to /e a$tomaticall- and $nconditionall-
released /- the national government to LG0s on a ;$arterl- /asis% altho$gh the LGC
provides conditions for the national government to withhold a portion of the 8,7 d$ring
periods of national fiscal distress The 8,7 is essentiall- an $nconditional grant that
LG0s can $tilize at their discretion The onl- restriction imposed /- the LGC is for
LG0s to set aside *= percent of their 8,7 allocation for a local development f$nd 8n
practice% the 8,7 form$la has /een adC$sted for vario$s reasons% incl$ding the proper
interpretation of the stip$lated 8,7 form$la
>
and red$ctions in ann$al 8,7 transfers to
LG0s as a res$lt of fiscal a$sterit- meas$res of the national government
"
1ome of these
iss$es have /een /ro$ght /efore the 1$preme Co$rt% altho$gh man- remain $nresolved
Bhat is clear is that the 8,7 represents the primar- so$rce of income for the vast
maCorit- of LG0s and research has indicated that the relativel- large transfers from the
center have had a disincentive effect on local ta& effort
9
9ased on 1tatement of 8ncome
and !&pendit$re data for *==# from the 9$rea$ of Local Government 4inance of the
)epartment of 4inance% the 8,7 represented >9 percent% >. percent% and .= percent of
provincial% m$nicipal% and cit- income% respectivel- 4$rthermore% the c$rrent form$la is
inconsistent with the distri/$tion of e&pendit$re responsi/ilities among the three main
levels of LG0s% th$s e&acer/ating the vertical fiscal im/alance The c$rrent form$la also
does a poor Co/ of compensating for the var-ing levels of fiscal capacities of LG0s% often
worsening the horizontal im/alance that e&ists within each level of LG0
1=
4inall-% there
is evidence of $neven and distortionar- effects of the 8,7 on e&pendit$re on local
services 7nal-sis has shown that disparities in health spending among LG0s are
s$/stantial and not directl- related to the distri/$tion of dependentHneed pop$lations
11

LG0 str$ct$ral and fiscal factors are what primaril- determine levels of health spending%
with spending strongl- paralleling 8,7 allocations Aence% rather finance following
f$nction in health spending% it is the other wa- aro$nd
5on-8,7 Transfers< LG0s also /enefit from ad hoc grants from national government
agencies% legislative f$nds% and foreign donors and creditors to s$pport vario$s local
services 7 st$d- cond$cted to anal-ze the ;$antit- and composition of non-8,7
transfers to LG0s in *==' estimated that the aggregate total for these transfers
represented over *= percent of the total 8,7 transfer for that -ear
1*
The largest
component of this total% comprising #1 percent% was f$nded /- Priorit- )evelopment
#
3anasan% ,osario G *==.
>
Cap$no% Ioseph I *==' ?Philippines@ In#e'go!e'nmen#a Fisca T'ansfe's in Asia$ C5''en# %'ac#ice an(
Chaenges fo' #he F5#5'e !d J$n-Awan Kim and Pa$l 1moke 3anila< 7sian )evelopment 9ank
"
3anasan% ,osario G *==.
9
3anasan% ,osario G *==>
3$llins% )aniel ,% 7mita/ha 3$kherCee% 1igne Leikate% and I$ng-Ioo Lee *==# ?1$/national
Government 4inance in the Philippines< 4indings on the !fficac- and )istri/$tional 8mplications of the
8nternal ,even$e 7llotment% and Aealth and !d$cation 1pending - 7 1$/te&t for ,eformed
8ntergovernmental ,eso$rce 7llocation ()etailed 4indings)@ 3anila< Borld 9ank
1=
Cap$no% Ioseph I *=='M 3anasan% ,osario G *==>M 3$llins% )aniel ,% 7mita/ha 3$kherCee% 1igne
Leikate% and I$ng-Ioo Lee *==#
11
3anasan% ,osario G *==>M 3$llins% )aniel ,% 7mita/ha 3$kherCee% 1igne Leikate% and I$ng-Ioo Lee
*==#
1*
1teffensen% Iesper% 3a Cecilia G 1oriano% !P 3aka-an% and I9 5isperos *==: ?7ssessment of 5on-
8,7 Transfers and 2ther 4$nds for )evolved 1ervices in the Philippines@ 3anila< Borld 9ank
7ssistance 4$nds (P)74) of legislators and the f$nds were mainl- $sed to finance local
infrastr$ct$re 0nlike the 8,7% these transfers are distri/$ted to LG0s thro$gh a wide
variet- of mechanisms% ranging from ad hoc grants from legislators to matching grants
from national government agencies and donors There is generall- less transparenc- in
the non-8,7 f$nding s-stems% which has adverse effects on LG0 planning and /$dgeting%
and less information availa/le for these miscellaneo$s transfers
4inall-% ver- little is known a/o$t transfers /etween different la-ers of LG0s
1'
The LGC
provides for reven$e-sharing /etween levels of LG0s for vario$s ta&es% as disc$ssed in
the earlier s$/-section on ,even$e 7ssignment 4$rthermore% the LGC also allows inter-
local grants from one LG0 to another Aowever% the e&tent of inter-local transfers and
the processes these entail have not /een st$died in depth 7n e&ception was a case st$d-
of the Provincial )evelopment Co$ncil of )avao del 5orte cond$cted in *===% wherein
the provincial government organized a m$lti-sectoral co$ncil (incl$ding representatives
of all component LG0s) that collectivel- determined the $nmet /asic p$/lic service
needs of the province and allocated provincial f$nds accordingl-
1.
1$/-national 9orrowing<
1:
The LGC also provided LG0s with greater fle&i/ilit- to
$tilize credit financing% incl$ding /ank credit% /onds% and /$ild-operate-transfer (92T)
arrangements 8n 199#% the )epartment of 4inance developed the LG0 4inancing
4ramework (L44)% which provides for a segmented approach to capital financing< lower-
income LG0s wo$ld have access to s$/sidized loans and grants from the 3$nicipal
)evelopment 4$nd (3)42)% those in the middle tier co$ld access credit from
government financial instit$tions (G48s)% while $pper-tier LG0s co$ld access private
commercial finance To improve access to private capital markets% the L44
recommended the increased $se of 92T schemes% development of an LG0 /ond market%
improved LG0 access to private /anks% and optimization of G48s role in LG0 financing
The progress of implementation of the L44 has /een $neven
1#
There has /een some
progress with the involvement of the private sector in infrastr$ct$re investments% mostl-
thro$gh management contracts% /$t few efforts to $se 92T arrangements The LG0
G$arantee Corp was created to g$arantee de/t iss$es of LG0s financed from private
so$rces% /$t the rate of /ond iss$es has not accelerated Bhile G48 credit to LG0s has
s$/stantiall- increased% LG0s have not -et accessed financing thro$gh private /anks%
primaril- /eca$se these have not /een allowed to /ecome depositor- /anks for LG0s
4$rthermore% the s$/sidized interest rates offered /- the 3)42 acts as a disincentive to
the relativel- creditworth- LG0s to access f$nds from the private capital market
4inall-% LG0s have generall- tended to avoid de/tM with reso$rce-rich LG0s not needing
to /orrow while reso$rce-challenged LG0s not meeting re;$isite creditworthiness
criteria
1'
Cap$no% Ioseph I *=='
1.
9$rton% !3 *=== Baseine S#5(y on #he In(ica#o's of Goo( Go!e'nance in Da!ao (e No'#e %'o!ince
Paper s$/mitted to the Philippine Center for Polic- 1t$dies - Governance ProCect E$ezon Cit-< PCP1
1:
3anasan% ,osario G *==>
1#
Borld 9ank and 7sian )evelopment 9ank *==. ?)ecentralization in the Philippines< 1trengthening
Local Government 4inancing and ,eso$rce 3anagement in the 1hort-term@ ,eport 5o *#1=.-PA
3anila< Borld 9ank and 7sian )evelopment 9ank
DECENTRALIZATION AND GO6ERNANCE
Bhile the case for decentralization is t-picall- rooted in the theor- that it enhances the
acco$nta/ilit- of local officials /- aligning government decision-making more closel- to
local preferences and emphasizing competition among regions to attract capital and
la/or%
1>
e&isting research indicates that the effects of decentralization on local governance
in the Philippines is am/ig$o$s% at /est There were positive earl- assessments of the
impact of the LGC (/ased on case st$dies% anecdotal evidence% and local s$rve-s) that
cited the increased acco$nta/ilit- of local officials% leading to innovations in local
governance and management% increased participation of citizens and civil societ-% and
socio-economic /enefits
1"
3ore recent reviews of the Philippine e&perience have
emphasized the scarcit- of comprehensive empirical anal-sis on the long-term impact of
decentralization 7 wide range of ;$antitative indices% c$stomer satisfaction s$rve-s% and
;$alitative performance meas$res have /een developed over the -ears to assess the
;$alit- of local governance
19
Jet these are not $niforml- availa/le for all regions% m$ch
less for all LG0s% and foc$s on vario$s governance concerns% from inp$ts and processes
to o$tp$ts and o$tcomes% that are not necessaril- compara/le across datasets Aence onl-
/road comparisons can /e made
7ccording to theories% a post$lated /enefit of fiscal decentralization is a /etter alignment
of the government6s polic- priorities and local preferences /eca$se of the s$/-national
governments6 pres$med ?pro&imit-@ to the local residents and their realities on the
gro$nd 7 s$rve--/ased anal-sis cast do$/t on the validit- of this ass$mption in the
Philippines% at least as of the late 199=s when the st$d- was cond$cted 8n a statistical
anal-sis of s$rve- res$lts% 7zfar et al (*===) fo$nd that LG0 officials were not a/le to
predict local preferences ver- acc$ratel-
*=
The s$rve- asked provincial and m$nicipal
government officials and mem/ers of ho$seholds in the respective C$risdictions how
h-pothetic e&tra reso$rces sho$ld /e allocated among different p$/lic service options
The m$nicipal officials were a/le to identif- ?roads@ as the top priorit- of the residents in
their C$risdictions% /$t failed to predict other priorities
*1
The preferences of the
provincial officials and those of the provincial residents were negativel- correlated 8n
addition% the same s$rve- asked the provincial and m$nicipal officials how the- learned
a/o$t local preferences /$t the anal-sis fo$nd that none of the methods had a statisticall-
significant effect on the officials6 a/ilities to predict local preferences
1>
Campos% Iose !dgardo% and Ioel A Aellman *==: ?Governance Gone Local< )oes )ecentralization
8mprove 7cco$nta/ilit-@ Eas# Asia Decen#'ai7es$ 8a9ing Loca Go!e'nmen# :o'9 Bashington% )C<
Borld 9ank
1"
,ood% 1teven 199"
19
Cap$no% Ioseph I *==> ?The E$alit- of Local Governance and )evelopment $nder )ecentralization@
The Dynamics of Regiona De!eo"men#$ The %hii""ines in Eas# Asia !d 7rsenio 3 9alisacan and Aal
Aill 7sian )evelopment 9ank 8nstit$te 3anila< !dward !lgar P$/lishing Ltd and 7teneo de 3anila
0niversit- Press
*=
7zfar% 2mar% et al *=== )ecentralization and Governance< 7n !mpirical 8nvestigation of P$/lic 1ervice
)eliver- in the Philippines )epartment of !conomics% Center for 8nstit$tional ,eform and the 8nformal
1ector 3ar-land< 0niversit- of 3ar-land
*1
Poor roads wo$ld /e among the most visi/le p$/lic service deficienc- and for those living in the localit-
it sho$ld /e ;$ite eas- and o/vio$s to identif- them as a priorit-
The st$d- fo$nd that people6s knowledge of local politics was limited as well Bhen
asked to name the vice president (of the national government)% the ma-or and the vice
ma-or of their own localities in a test of people6s knowledge of national and local
politics% .1 percent of the respondents were a/le to name the vice president /$t onl- 1
percent knew who their vice ma-or was 2ne pla$si/le reason for the local resident6s
limited knowledge of local affairs is their tendenc- to rel- on national media for
information and the media6s tendenc- to foc$s on national affairs in their news coverage
Ao$seholds are m$ch more likel- to o/tain information a/o$t local affairs from friends
and famil- and local officials themselves% which ma- /e relativel- $nrelia/le as so$rces
of o/Cective information 2verall% /ased on data from the late 199=s% the evidence is thin
that decentralization reall- /ro$ght the government ?closer to the people%@ at least in the
sense that the e&pressed preferences of the government were close eno$gh to those of the
people
2verall% improvements in local governance since the enactment of the LGC have /een
$neven There has /een an o/served $ps$rge in p$/lic participation and a growing
n$m/er of cases of innovative practices /- LG0s
**
8n addition% there was evidence of a
decline in overall perceptions of corr$ption and improved service deliver- standards
d$ring the 199=s
*'
Aowever% the link /etween these o$tcomes and the acco$nta/ilit- of
local officials is weak and local officials contin$e to /e s$/Cect to the risks of state
capt$re and clientelism )espite the development of an active local civil societ- network%
co$ntervailing instit$tions at the local level generall- lack the capacit- and independence
to mitigate these risks
*.

Beak electoral acco$nta/ilit- is evident in the e&isting research% tho$gh still limited in
n$m/er and constrained /- data limitations !lections seem to /e effective at rewarding
o$tstanding local leaders /$t have clearl- /een ineffective at p$nishing poor performers
8n a rare attempt at empirical anal-ses of these ;$estions% Cap$no (*==>) shows weak
correlation /etween LG0 performance (as meas$red with the pro&- of h$man
development inde& at the provincial level) and the electoral performance of the governors
standing for re-election in *==1 4$rthermore% citing another empirical anal-sis of
correlation /etween changes in povert- rates and the share of vote o/tained /- inc$m/ent
governors re-elected% Cap$no also arg$es that ?in economicall- depressed provinces% new
governors often commence their administration with a lower level of s$pport than the re-
elected inc$m/ent governors This indicates the diffic$lt- of replacing inc$m/ent
provincial leaders in economicall- depressed areas Together these res$lts reflect the
persistence of patronage politics at the local level@ (*==>% p *'*)
**
Cap$no% Ioseph I *==>
*'
Campos% Iose !dgardo% and Ioel A Aellman *==:
*.
Campos% Iose !dgardo% and Ioel A Aellman *==:
han#es in 5D6 Score, 1++7'./// and (u$ernatorial 8lection &utco*e in .//1 1no9 o% #overnors3
han#e in 5D6 Score (overnors Standin# %or Re'election
,e-elected )efeated
N*=O 1
1=-*=O # #
=-1=O *. 9
=O (no change) * 1
P=O ' .
Total 0: ./
1o$rce< 51C9% reprod$ced from Cap$no (*==>)% Ta/le >>% p **=
2ther st$dies have cited the presence of different non-democratic modes of governance at
the local level% ranging from political d-nasties and clientelism to the $se of violence and
coercion termed /- one political scientist as ?/ossism@ 2ne of the most noteworth-
political phenomena in the Philippines is the dominance of families as the /asic
organizing $nit of political life /oth at the local and the national levels 8ncl$ding some
of the /est-known cases of good local governance% a considera/le of n$m/er of LG0s
have /een controlled /- what are commonl- called political d-nasties% or a s$ccession of
local politicians and their kin who take t$rns to perpet$ate themselves in power /e-ond
the term limits imposed /- the Constit$tion
*:
The presence of these ?d-nasties@ is
pop$larl- acknowledged (and /arel- disg$ised% if at all)% /$t its effect on governance has
not /een st$died s-stematicall- even tho$gh anecdotes a/o$nd of favoritism% nepotism%
and cron-ism res$lting from this st-le of governance
*#
Aowever% one econometric
anal-sis of economic growth and povert- red$ction at the provincial level fo$nd that ?the
dominance of oligarchic political regime inhi/its growth and% thro$gh lower growth%
h$rts povert- red$ction@
*>

)-nastic politics go hand in hand with other forms of governance The $se of violence
and coercion /- local politicians is said to remain common% especiall- d$ring electoral
periods
*"
4$rthermore% patron-client relationships% where/- local officials provide
protection and partic$laristic favors to individ$als and families in e&change for the
political s$pport% contin$e to pervade local politics
*9
!ither wa-% these are not the kinds
of politician-voter relations that foster acco$nta/ilit- for government performance
DECENTRALIZATION AND LOCAL SER6ICE DELI6ER;
*:
Local e&ec$tives are onl- allowed to serve $p to three '--ear terms
*#
2ne recent attempt to doc$ment the e&tent and the mod$s operandi of d-nastic politics is the ver-
ill$strative acco$nt of the Philippine national congress and its mem/ers in 1heila 1 Coronel% et al (*==.)
The R5emae9's$ Ho& #he :ea#h an( #he :e-Bo'n Domina#e Cong'ess/ 3anila< Philippine Center for
8nvestigative Io$rnalism
*>
9alisacan% 7rsenio 3 and 5o/$hiko 4$wa *==1 ?Growth% 8ne;$alit-% Politics and Povert- ,ed$ction
in the
Philippines@ 0niversit- of the Philippines 1chool of !conomics )isc$ssion Paper 5o =1=9 3anila
*"
1idel% Iohn T 1999 Ca"i#a< Coe'cion< an( C'ime$ Bossism in #he %hii""ines/ California< 1tanford
0niversit- Press
*9
)e )ios% !mman$el 1 *==> ?Local Politics and Local !conom-@ The Dynamics of Regiona
De!eo"men#$ The %hii""ines in Eas# Asia !d 7rsenio 3 9alisacan and Aal Aill 7sian )evelopment
9ank 8nstit$te 3anila< !dward !lgar P$/lishing Ltd and 7teneo de 3anila 0niversit- Press
The financial infrastr$ct$re s$pporting LG0s has not /een cond$cive to improving local
service deliver- The misalignments of e&pendit$re and reven$e assignments often fo$nd
in the decentralization frameworks in developing co$ntries tend to $ndermine s$/-
national governments6 incentives andHor capacities for efficient service deliver-
1ometimes s$/-national governments receive more e&pendit$re assignments than the
act$al reven$es made availa/le can cover% as seems to /e the case in the Philippines%
whereas in other cases% the s$/-national governments receive more reven$es than
C$stified given the e&pendit$re assignments (eg% Colom/ia) The manner in which fiscal
reso$rces are made availa/le to s$/-national governments also matters Large /lock
grants with am/ig$o$s e&pendit$re assignments are likel- to lead to weak acco$nta/ilit-
for reso$rce $se /- s$/-national governments% res$lting in s$/-optimal service deliver-
!&cessive tightening of the $se of fiscal reso$rces /- s$/-national governments (eg
earmarked transfers% restrictions over local ta&ation) can $nder-e&ploit the potential of
allocational efficienc- pres$med in the fiscal decentralization literat$re and stifle local
innovations 8n short% the design of the intergovernmental fiscal arrangement is as
important% if not more% as the overall governance environment that determines the nat$re
of local political acco$nta/ilit-
8n the Philippines% the LG0s6 share of total p$/lic sector e&pendit$res is more than three
times their share of p$/lic sector reven$es
'=
and LG0s% partic$larl- provinces and
m$nicipalities% generall- str$ggle to provide high-;$alit- local p$/lic services given
reso$rce constraints 7s mentioned% the distortionar- effects of the 8,7 e&acer/ate
im/alances among and within the three levels of local government 5onetheless% LG0s
have generall- /een $nwilling to ma&imize local reven$es thro$gh local ta&es and fees
Local reven$es contin$e to make $p a minisc$le share of LG0 income and the 8,7 has
effectivel- s$/stit$ted for own-so$rce reven$e generation 2ne widespread perception is
that state capt$re of LG0s /- local elites prevents local officials from ta&ing
themselves
'1
7nother possi/ilit- is that local officials assess the net political trade-off of
higher reven$es vers$s greater e&pendit$re and determine that the political costs are too
high
'*
8n an- case% the a/sence of a s$/stantial connection /etween ta&ation and service
deliver- serves to compromise the ;$alit- of local spending and $ndermine local
acco$nta/ilit-
''
8n spite of the acknowledged financial diffic$lties faced /- LG0s% it cannot /e denied
that overall income has steadil- increased coinciding with the e&pansion of the 8,7
4rom 199" to *==.% a period that incl$ded the retention of small portions of the total 8,7
appropriation /- the national government d$e to ?severe fiscal constraints%@ the aggregate
8,7 distri/$ted to LG0s increased from PhP"1 /illion to PhP1.1 /illion% representing an
ann$al increase of 1=# percent 8,7 transfers ann$all- comprised appro&imatel- two-
thirds of total LG0 income d$ring this period (and have contin$ed at this level $p to the
'=
Aill% Aal% 7rsenio 3 9alisacan% and 1haron 4 Piza *==> ?The Philippines and ,egional )evelopment@
The Dynamics of Regiona De!eo"men#$ The %hii""ines in Eas# Asia !d 7rsenio 3 9alisacan and Aal
Aill 7sian )evelopment 9ank 8nstit$te 3anila< !dward !lgar P$/lishing Ltd and 7teneo de 3anila
0niversit- Press
'1
Aill% Aal% 7rsenio 3 9alisacan% and 1haron 4 Piza *==>
'*
Borld 9ank and 7sian )evelopment 9ank *==.
''
)e )ios% !mman$el 1 *==>M 3anasan% ,osario G *==>
present) 8n spite of the growth in incomes% LG0 spending on social services has
stagnated after a sharp increase immediatel- after the devol$tion of health services in
199'
'.
1pending on social services has flattened at aro$nd two pesos per capita in real
terms since 199# and this ma- /e indicative of free-riding /- LG0s on the national
government6s contin$ed provision of devolved services 7s proof of the contin$ed poor
;$alit- of local health services% a nationwide s$rve- cond$cted in *==1 revealed that the
>. percent of people were /-passing r$ral health $nits and #" percent /-passing /aranga-
health stations in favor of higher-level (/$t more distant) government and private
hospitals
':
This ma- indicate that% /e-ond fiscal considerations% the governance iss$es
raised in the previo$s section have also res$lted in disincentives for local officials to
efficientl- allocate e&pendit$res and improve service deliver-
Bhile the e&pected competition that wo$ld sp$r LG0s to improve performance has not
materialized on a /road scale% award-giving /odies that recognize LG0 achievements in
improving service deliver- and p$/lic welfare% s$ch as the Galing Pook 4o$ndation% have
s$cceeded in fostering some competition Aowever% even tho$gh there is considera/le
doc$mentation of /est practices% their adoption /- other LG0s has /een limited
'#

,esearch on innovative practices s$ggests n$mero$s internal and e&ternal conditions
/ehind local innovations% s$ch as a hospita/le polic- environment% a Qtriggering crisis%6
aggressive local government and civil societ-% inade;$ate financial reso$rces% p$/lic
demand for specific /asic services% participation in training programs% and initiatives /-
academic instit$tions
'>

,oad 1ector The LGC assigned to LG0s the responsi/ilit- for developing and
maintaining local infrastr$ct$re 4or the road sector% the national government retained
the responsi/ilit- for providing primar- road networks while cities and m$nicipalities
were assigned the responsi/ilit- for tertiar- networks Aowever% it is $nclear which tier
of government is responsi/le for planning investments and coordinating the development
of the secondar- road network% which links the local roads of cities and m$nicipalities to
the national roads and re;$ires the $se of common reso$rces Bhile in principle
provinces pla- a coordinating role% the- t-picall- have ins$fficient technical and financial
reso$rces to ass$me this role The a/sence of a via/le regional development co$ncil has
led to a Qmissing middle6 in the intermediate road infrastr$ct$re
'"

The poor condition and slow development of infrastr$ct$re in the Philippines and the
adverse effects on the econom- and development has /een doc$mented e&tensivel-
'9

'.
Cap$no% Ioseph I *==>M 3anasan% ,osario G *==.
':
Cap$no% Ioseph I *==>
'#
Cap$no% Ioseph I *==>
'>
9rillantes% 7le& 9 *==' Inno!a#ions an( E=ceence$ Un(e's#an(ing Loca Go!e'nmen#s in #he
%hii""ines 3anila< 5ational College of P$/lic 7dministration and Governance% 0niversit- of the
Philippines
'"
Peterson% George ! and !lisa 3$zzini *==: ?)ecentralizing 9asic 8nfrastr$ct$re 1ervices@ Eas# Asia
Decen#'ai7es$ 8a9ing Loca Go!e'nmen# :o'9 Bashington% )C< Borld 9ank
'9
Borld 9ank *==: %hii""ines$ 8ee#ing Inf'as#'5c#5'e Chaenges 3anila< Borld 9ank
Peterson% George ! and !lisa 3$zzini *==:
Llanto% Gil/erto 3 *==> ?8nfrastr$ct$re and ,egional Growth@ The Dynamics of Regiona De!eo"men#$
The %hii""ines in Eas# Asia !d 7rsenio 3 9alisacan and Aal Aill 7sian )evelopment 9ank 8nstit$te
1pecificall-% empirical anal-sis indicates that the ;$alit- of roads has a positive and
significant effect on regional growth and that regional incomes tend to increase with an
increase in the ;$alit- of road infrastr$ct$re 8n fact% there is evidence to s$ggest that
investing in road improvements and the constr$ction of high-;$alit- roads at the local
level is more /eneficial to the region than investing in the national road network alone
.=

5onetheless% a comprehensive assessment of the local road networks does not e&ist
4$rthermore the a/sence of acc$rate and relia/le aggregate LG0 e&pendit$re data at the
sector level precl$des an anal-sis of LG0 road investments Aowever% it has /een
pointed o$t that local fiscal capacit- remains ins$fficient to s$pport significant local
infrastr$ct$re e&pansion as LG0s have contin$ed to rel- heavil- on the 8,7 and not
ma&imized local reven$e potentials
.1
The str$ct$re of lending to LG0s for financing
infrastr$ct$re% as disc$ssed in the earlier section on 1$/-national 9orrowing% also remains
a significant /ottleneck 7s disc$ssed a/ove% poor planning and polic- coordination
/etween the national and local governments has also stifled road development 4inall-%
the allocation of investments over time and space is a contin$ing challenge given the
fre;$enc- of self-serving and short-term political o/Cectives of politicians at all levels
8n terms of other e&isting research in the local road sector% case st$dies have revealed
efficienc- gains and /enefits from increased participation in infrastr$ct$re development
at the local level
.*
Local savings have /een fo$nd per kilometer of road constr$ction /-
LG0s compared to costs of the )epartment of P$/lic Borks and Aighwa-s There is also
evidence s$pporting the /enefits of comm$nit- participation in infrastr$ct$re choices and
management% incl$ding higher rates of s$staina/ilit- of locall- selected infrastr$ct$re
proCects when there is direct comm$nit- participation
.'
Aealth 1ector<
..
Generall-% the division of responsi/ilit- for health f$nctions /etween the
national and local governments mandated /- the LGC /roadl- reflects efficienc-
principles LG0s ass$med responsi/ilit- for health services that are simple to administer
or confer local /enefits while the national government ass$med responsi/ilit- for services
with significant economies of scale or inter-C$risdictional spillovers 8n practice%
however% it is do$/tf$l that decentralization has improved the ;$alit- of local health care%
as disc$ssed earlier in this section 7 s$rve- confirmed that 4ilipinos were more satisfied
with private hospitals and clinics than government facilities
.:
Perhaps d$e to the inferior
3anila< !dward !lgar P$/lishing Ltd and 7teneo de 3anila 0niversit- Press
.=
Llanto% Gil/ert 3 *==>
.1
Llanto% Gil/ert 3 *==>
.*
Peterson% George ! and !lisa 3$zzini *==:
.'
Aopkins% ,ichard *==' ?Aow Bell )id Those )evelopment ProCects in 4lores BorkR@ S5s#aina>ii#y
%anning an( 8oni#o'ing in Comm5ni#y :a#e' S5""y an( Sani#a#ion/ !d 3$kherCee and Gan BiCk
Bashington )C< Borld 9ank
Borld 9ank *==' ?8ndonesia< 1elected 4iscal 8ss$es in a 5ew !ra@ ,eport *:.'>-85) Bashington )C<
Borld 9ank
..
Lie/erman% 1am$el 1% Ioseph I Cap$no% and Aoang Gan 3inh *==: ?)ecentralizing Aealth< Lessons
from 8ndonesia% the Philippines% and Gietnam@ Eas# Asia Decen#'ai7es$ 8a9ing Loca Go!e'nmen# :o'9
Bashington% )C< Borld 9ank
.:
Borld 9ank *==1 ?Philippines< 4ilipino ,eport Card on Pro-Poor 1ervices@ Bashington )C< Borld
9ank
;$alit- of p$/lic health services% even the poor contin$e to self-finance their access to
private health services
5onetheless% the Philippines has s$stained favora/le trends in overall health stat$s after
decentralization The $nder-: mortalit- rate per 1%=== /irths declined from ## in 199= to
.= in *=== while life e&pectanc- at /irth increased from ## to #9 over the same period
These favora/le res$lts have /een attri/$ted to progress in health o$tp$ts and service
coverage% s$ch as an increase in the proportion of /irths attended /- trained health
workers and increased access to clean water so$rces and sanitation services These
positive trends contradict the indirect evidence of poor health service ;$alit- o/tained in
s$/Cective s$rve- data cited a/ove The a/sence of sector-specific data for LG0s% as
disc$ssed in the previo$s s$/-section% has made it diffic$lt to anal-ze local health
e&pendit$res% and th$s the total p$/lic e&pendit$res in health in the co$ntr-% let alone
o/Cective ;$antified meas$res of service o$tp$ts 4inall-% there do not appear to /e
st$dies that have clarified the role of LG0s in the health sector vis a vis other providers%
s$ch as national government agencies% other levels of local government% 5G2s% and the
private sector
!ven so% decentralization has given local a$thorities greater leewa- to adapt local
innovations in health planning% service deliver-% and financing There is no s-stematic
tall- of these innovations% /$t the general perception among the anal-sts and o/servers
seems to view these innovations as e&ceptions rather than the norm 7ltho$gh some of
these cases are in fact doc$mented as case st$dies (s$ch as those awarded /- Galing
Pook)% LG0s in general do not seem to /e in a r$sh to em$late these known cases of
s$ccess The lack of incentives% rather than missing models% appears to /e holding /ack
needed polic- interventions /- local decision-makers 4$rthermore% wide variations in
local reven$es and the distortionar- effects of the 8,7 have res$lted in $neven access to
;$alit- health services The 8,7 favors highl- pop$lated LG0s and those with large land
areas% and so does not ens$re an overall pro-poor /ias in health services 1t$dies have
also shown that other fiscal transfers% incl$ding those from the )epartment of Aealth%
correlate weakl- with povert-% th$s reinforcing health disparities among LG0s
.#
Bhile
p$/lic hospitals ma- collect $ser fees and charge for dr$gs% recover- rates remain low
/eca$se of the inordinate vol$me of charit- and s$/sidized patients 4inall-% other iss$es
faced /- LG0s in the health sector incl$de< the str$ggle to hire and retain ph-sicians%
n$rses% and medical professionals% who are in great demand in foreign marketsM the
$nf$nded mandate posed /- the 3agna Carta for Aealth Borkers% a law which provides
for higher compensation and e&tra /enefits and allowances to all health workersM and the
a/sence of a need-responsive and cost-effective health information s-stem at the national
and local levels
.#
3$llins% )aniel ,% 7mita/ha 3$kherCee% 1igne Leikate% and I$ng-Ioo Lee *==#