LOCAL PUBLIC

FINANCE

Christine Joy S. Octobre

September 7, 2017
Local Government Definition
Section 1 of the 1987 Constitution
-The territorial and political subdivisions
of the Republic of the Philippines are the
provinces, cities, municipalities, and
barangays. There shall be autonomous
regions in Muslim Mindanao and the
Cordilleras as hereinafter provided.
Level of Organizational Units
Section 2 of 1987 Constitution provides:
-The territorial and political
subdivisions shall enjoy local
autonomy

While Section 3 of 1987 Constitution:

-Mandates the enactment of Local
Government Code that provides a
more responsive and accountable
government structure.
 Decentralization
O Is the process of transferring basic
powers from the national to the local
governments to allow maximum
participation of the citizens in
governmental and community
activities.
O The Local Government Code
(Republic Act 7160) of 1991
O Organic Act for Muslim Mindanao
(Republic Act 6734) of 19893 jointly
define central-local relations in the
Philippines.
O Section 5 of the 1987 Constitution provides that
taxes, fees and charges shall accrue exclusively to
the local government

O Sections 6 of the 1987 Constitution provides that

LGU shall have the just share as determine by law in
the national taxes which shall be automatically
released to them.

O Section 7 of the 1987 Constitution provides that

LGU shall be entitled to an equitable share in the
proceeds of the utilization and developments of
national wealth within the respective areas.
 LOCAL FISCAL ADMINISTRATION
I. NATURE AND SCOPE
Definition
O Local fiscal Administration refers to systems, structures, processes, officials
and personnel, and the policy environment governing
intergovernmental, and inter-local fiscal relations, affecting among
others:

O the giving and receipt of allotments and grants from the National
Government (NG) to local government units (LGUs);
O allotment sharing between LGUs;
O sharing of taxing powers between the national government (NG)
and LGUs, and among LGUs;
O policy on tax rates and structure;
O revenue and expenditure planning;
O revenue utilization and expenditure allocation; monitoring and
approval budgets, tax ordinances and other fiscal measures;
O policy on borrowing and borrowing instruments; and
O Appointment and supervision of local fiscal officers. ( Cuaresma and
O Ilago)
This broad definition comprehends five
major elements as the scope of local fiscal
administration. These are:
O Systems;
O Structures;
O Processes;
O Official/personnel; and
O Policy environment governing inter-
governmental and inter-local fiscal relations.
Local fiscal administration refers to the rational,
effective and efficient conduct of the fiscal functions
and operations of local government units which
embrace the systems, structures, processes and
human resources involved in revenue generation,
revenue allocation and utilization.

In addition, such conduct of fiscal affairs is

governed by laws and is affected by the fiscal
policy environment, which defines central-local
and inter-LGU fiscal relations.
O Local Fiscal Administration involves revenue
generation, the rational allocation, utilization
and control of resources through the concept
of performance budgeting by the local
government units (LGU) to optimize the use of
public funds for the benefit of the greatest
number of people.
O It draws strength and rationality from the
Constitutional provision of granting local
government the power to create their own
sources of revenue through local taxation.
Among others, these fiscal policies set the
framework and procedures on
O local revenue generation that includes property tax
administration, revenue
O ordinance codification as well as the operations of
local economic
O enterprises.
O It also deals on the national government
allotments, shares and subsidies
O together with the availment of credit financing
through domestic and
O foreign institutions.
 Scope of LFA
a. Revenue Generation
• All aspects of local taxation;
• Borrowing and its management;
• Operation of public enterprises;
• Revenue enhancement measures;
• Revenue planning, forecasting and accounting;
b. Revenue Allocation and Utilization
• Budgeting system and process, including the linkage of
planning and budgeting, expenditure planning, expenditure
allocation and expenditure monitoring;
• Accounting and auditing of expenditures;
c. Other Aspects
• Property and supply management;
• Internal control which cuts across all fiscal functions; and
• Other related matters, like the central grant and allotment
system, organization for local fiscal administration, and
computerization of fiscal operations/systems.
Legal Basis for Local Fiscal Administration
Local fiscal administration is characteristically legalistic
or statutory. It is governed by laws and statutes. At the
sub-national level, local governments exercise the
function of fiscal administration by virtue of the explicit
powers and authority vested in them by:
O the Constitution of the land;
O the Local Government Code of 1991; and
O such other laws from national government agencies
exercising supervisory power over the LGUs.
Other Laws and Government Issuances

O Department of Finance (DOF)

O Department of Budget and Management (DBM)
O Commission on Audit (COA)
O Department of the Interior and Local Government
(DILG)
O Office of the President (OP)
The Role of Local Government Units in
Decentralized Development
O Local governments play a significant role in the national
development task. Since advocates of decentralization
count on the promptness of public service and
accountability to effectively address public needs.
O The LGUs are the levels of government closest to the
people; thus, they are in the best position to assess the
changing demands of communities and respond to
them in such a way that local capacities and priorities
are taken into account.
 Local Public Finance Offices
O Office of the Local Chief Executive (Governor,
Mayor;
O Office of the Treasurer;
O Office of the Assessor;
O Budget Office;
O Office of the Accountant;
O Office of the Planning and Development
Coordinator; and
O The Sanggunian
 Central-Local Fiscal Relations
O LGUs at present receive 40% share from the Internal
Revenue Allotment (IRA), a substantial increase
compared to 11% (Brillantes, 1996) that they were
getting prior to 1992)
O They also get a share from the proceeds of the
utilization of natural resources in their localities.
O On top of these central grants, the tax base of LGUs has
been expanded to include those that used to be
outside their taxing powers (e.g. community tax,
business tax/income tax from banks).
O In the area of revenue allocation, the central
government relaxed a bit its tight control over
the LGUs’ spending decisions.
 Status of Local Revenue Generation
Local governments derive their income from internal and
external sources.
O Internal sources include taxation, non-tax sources,
such as operating and service fees, and business
operations income, such as from the operation of
public enterprises, among others.
O External revenues come from the national
government (e.g. IRA) private capital markets like
banks (loans), and foreign grants.
 Development Planning-Budgeting Linkage
O The Code recognizes the importance of local
development planning in the exercise of sound fiscal
management.
O The Local Development Plan is envisioned by the Code
to be a product of participatory planning among various
actors in the LGUs. It is supposed to tbe concretized by
the local budgets. It also serves as the basis of Local
Finance Committee in determining annual expenditures
as well as expenditure ceilings for economic, social and
general services.