FM 309

PUBLIC FINANCE

JEMUEL G. MALALUAN
Faculty-in-Charge
Second Semester AY 2023-2024
Batangas State University – The National Engineering University
College of Accountancy, Business, Economics and International Hospitality Management
Rizal Ave. Extension, Batangas City
 CHAPTER I
LOCAL PUBLIC FINANCE

What is public finance and why should it concern you?

Local Public Finance refers to the conduct and management of financial affairs,
transactions, and operations of provinces, cities, municipalities and barangays. You may think
that’s not something you should care about, but you’re wrong. At heart, local public finance is
about why some localities have more money, or spend money better than others. How local
public finance is managed could spell the difference if a trip to the government doctor or nurse
will take only half an hour or extend to half a day. It could spell the difference if the police or
barangay tanod will turn up quickly or not at all when called for help.
In some laws, Local Public Finance is referred to as local fiscal administration. Regardless
of how it is called, it is all about basically three things.
 First, the generation of resources and revenues, primarily through taxes and
transfer of grants from the national government.
 Second, the allocation and utilization of such resources and revenues, and
 Third, the management and control over revenue generation and resource
utilization.

Following is a more detailed enumeration of the scope of local public finance:

Scope of local public finance

 Revenue generation
 All aspects of local taxation
 Loans and its management
 Operation of public enterprises
 Revenue enhancement measures
 Revenue planning, forecasting and accounting
 Revenue allocation and utilization
 Synchronized planning and budgeting system and processes
 Accounting and auditing of expenditures
 Other aspects
 Property and supply chain management
 Internal control in all fiscal functions
 Organizations
 Computerization of systems related to public finance

Who are the key officials who handle local public money?
The local chief executive -- the town or city mayor and the provincial governor -- along
with members of their respective local law-making bodies, the local finance committees and the
local development councils, are the officials tasked with the responsibility of raising, spending and
managing local public funds and resources.
The main responsibility for ensuring that funds are available to implement programs,
policies and rules made by the local chief executive and the local deliberative bodies fall on the
treasurer, the budget officer, the accountant, the assessor, and the local administrator.
Procurement is the main responsibility of the chief of the general services office. (See Figure 1
for an illustration of the roles of the various officials and bodies).

While some of the key officials involved, such as the local chief executive or members of
law-making bodies, are directly elected by local voters (and therefore accountable to them),
many more are merely appointed by the elected officials. Concerned citizens should also keep a
close watch on all appointed officials, ensuring their qualifications and performance hew close to
the standard if not the best practice.
Local citizens or people’s organizations who want to change how their local governments
are raising or spending public money should be familiar with the roles and responsibilities of the
various officials and bodies. For example, a petition asking for a cut in real property tax rate
should first be addressed to the town or city council, as it is the council that decides on such
matters first before they are passed on to the mayor for final approval.
Below is a brief summary of the jobs of the key local officials and bodies:
The Local Chief Executive (LCE) is ultimately responsible for the collection, custody,
disbursement, and proper utilization of government funds. He or she provides overall direction
and control. He or she is the chief development and budget planner and is responsible for issuing
all licenses and permits.
The Local Sanggunian approves the Annual Budget and supplemental budgets of the LGU.
It also approves the local government’s development and investment plans, which serve as
guidelines in the preparation of the annual budget. The Local Sanggunian is the local
government’s sole taxing authority. All policies on revenue generating measures such as taxes,
fees, and charges require the enactment of appropriate ordinance of the Sanggunian. The
Sanggunian prescribes the rates for such levies and has the power to grant exemptions,
incentives or reliefs. The Local Chief Executive cannot sign any loan agreement or enter into
any contract without the approval of the Local Sanggunian. It can also authorize the floating of
bonds or other instruments of indebtedness for the purpose of raising funds to finance
development projects.
The Local Finance Committee (LFC) comes up with the estimates and targets for both
income and expenditures that go into the preparation of the draft local government budget that is
debated and approved by the Local Sanggunian. It plays such an important role that the Local
Government Code mandated all LGUs to create a local finance committee. It is composed of the
local planning and development officer, the local budget officer and the local treasurer. The local
chief executive may designate the chairman of the LFC and may expand the membership to
include the local accountant, local assessor, the chairman of the Appropriations Committee of the
Sanggunian or the LGU administrator. Apart from helping prepare the annual budget, the Local
Finance Committee also helps the local sanggunian in evaluating the budgets of lower level
LGUs and conducts semi-annual reviews of costs and accomplishments in undertaking
development projects.
Despite its name, local public finance is not a purely local affair. Many national
government agencies issue policies and regulations that govern how public funds are managed at
the local level. These include the Commission on Audit (COA), the Department of Finance
(DOF), the Department of Budget and Management (DBM), the Department of Interior and
Local Government (DILG), and the Office of the President (OP).

I am just an ordinary citizen. How can I participate?

Traditionally, the role of citizens in local government affairs is limited to electing local
leaders and engaging them through petitions, dialogue, legal suits or protest actions to adopt or
change policies and regulations. The Local Government Code, however, has opened up
another democratic avenue for people to influence local policy-making: the local development
councils. Perhaps unknown to many, the law requires the representation of non-government
organizations at the local development councils. More than that, the law says that one-fourth of
the members of local development councils should come from NGOs.
The councils are one of the five special bodies mandated by the Local Government Code,
and are to be organized in all levels of LGUS – the barangays, towns, cities and provinces. The
LDC may call upon any local official concerned or any official of national agencies in the LGU
to assist in the formulation of development plans.

How powerful is the Local Development Council (LDC)?

LDCs that enjoy widespread support from citizens and are managed well can be a
powerful voice that local officials will find hard to ignore. Even at the barangay level, local
development councils have the power and responsibility to mobilize people’s participation,
prepare development plans and monitor and evaluate the implementation of national and local
programs and projects. This means that local councils in poor or sickly communities can hold
their barangay chairmen or mayors to account if their localities are lagging in meeting some
targets of the millennium development goals, a flagship national program.
Local development councils in towns, cities and provinces have even broader powers and
responsibilities. They formulate many of the medium- and long-term plans and policies that
guide the preparation of the annual budgets that are approved by the local sanggunians and
implemented by the local chief executive. The development councils are also tasked with
formulating the medium-term and annual investment programs, and with appraising socio-
economic development programs and projects. They are also responsible for formulating local
investment incentives to promote the inflow and direction of private capital. Lastly, they also
coordinate, monitor and evaluate the implementation of development programs and projects.
Through the local development councils, the organized citizenry can have a powerful platform
to influence the preparation of the long-term plans and policies that can guide the work of the
elected and appointed officials of the local government units. They can hold officials to account
for actions and decisions that are not consistent with the long-term plans and policies adopted by
the local development councils.

Who are the members of the LDC?

 Barangay:
 Members of the Sanggunian
 Barangay Representatives of Non-Government Organizations (NGO)
 Representative of the Congressman
 City/Municipality:
 All Barangay Chairman of the LGU
 Chairman of the Committee of the Appropriations of the Sanggunian
 Congressman or his representative
 Representative of NGOs
 Province:
 All mayors of components cities and municipalities
 Chairman of the Committee on Appropriation of the Provincial Sanggunian
 Congressmen or their representatives
 Representative of NGOs

Where does the money come from?

The money that can be spent by local governments come from internal and external
sources:
The external sources of revenues of local governments are the following:
 Internal Revenue Allotment (IRA) - IRA refers to the share of local governments in
the collection of taxes imposed by the national government. This is in consonance
with Sec. 6, Art.VI of the Philippine Constitution which provides that local
governments are entitled to a joint share in national taxes. At present, local
governments are entitled to 40% of the internal revenue taxes. These include the
income tax, VAT and excise taxes. The IRA transfers resources to local
governments to help them finance the expenditure responsibilities that have been
 devolved to them, such as primary health care among others. IRA is in the form of
grant or allotment from the national government.
 Share from the utilization of National Wealth - LGUs have an equitable share from
the proceeds derived from the utilization and development of national wealth within
their respective areas. Local governments are entitled to 40 percent of the National
Government’s gross collection in the preceding fiscal year from mining taxes,
royalties, forestry and fishery charges, and such other taxes, fees, or charges—
including related surcharges, interests, or fines—from their share in any
coproduction, joint venture, or production-sharing agreement in the utilization and
development of the national wealth within their territorial jurisdiction.
 Grants and donations - LGUs may secure financial grants or donations from local
and foreign assistance agencies. Other forms of grants may be fund allocation from
Senators or Congressmen or special projects from the President or other national
agencies.
 Domestic loans and Credit-financing schemes - LGUs may contract loans and other
forms of indebtedness from government or private banks and lending institutions.
The provisions allowing LGUs to tap nontraditional revenue sources for local
governments are an innovative feature of LGC 1991. LGUs may utilize credit
financing, build-operate-transfer (BOT) schemes, bond flotations, and other
investment strategies to enable them to finance local development programs and
projects.

The internal or locally generated revenues are the following:

 Taxes, fees and charges – Taxes are enforced contributions, fees are imposed in the
exercise of regulatory powers, and charges are cost recovery impositions for services
delivered or for use of LGU facilities. Real Property Tax (RPT) is the biggest source of
locally generated revenue for most provinces and municipalities. Many cities,
however, collect big amount of business taxes comparable to their RPT collections.
 Income derived from investments, privatized and development enterprises, and inter-local
government - LGUs may incorporate development enterprises where income from
investments may be derived. LGUs may also group themselves together or consolidate
their efforts, services, and resources for purposes commonly beneficial to them and may
derive income from such undertaking.

What is the distribution of Real Property Tax proceeds among different levels of LGUs?
Sharing among LGUs is as follows:
 Provinces
 Provincial Share 35%
 Municipal Share 40%
 Barangay Share 25%
 Cities
 City Share 70%
 Barangay Share 30%
a. 50% shall accrue to the barangay where the property is located
b. 50% shall accrue equally to all component barangays of the city
I already pay VAT and income taxes to the Bureau of Internal Revenue (BIR), can my local
government still tax me?
Yes. Table 1 below illustrates the taxing powers allocated to each level of LGU?

I keep hearing about the Internal Revenue Allotment. How is it computed and distributed among
LGUs?
 Forty percent of the BIR collection (with a 3-year lag) is distributed to local governments
following a predetermined formula. The amount is distributed in two stages: (1) distribution to
local governments according to type, and (2) allocation following a predetermined set of criteria
(LGC 1991). The second stage of sharing for barangays differ. After the 20% share of the
barangays is determined, all barangays with 100 inhabitants or more is granted an amount of
P80,000.00. The aggregate amount will then be deducted from the total barangay allocation. The
balance will then be further sub-divided based on a formula: 60% population, 40% equal sharing.

What are the major issues surrounding the IRA distribution among LGUs? Why the squabble for
cityhood?
The situation now is that a lot of municipalities are aspiring to acquire cityhood status
because such a status will automatically increase their IRA share. The currently existing cities
are not happy about this because such increases for the new cities will mean a corresponding
reduction in their share.
The purpose of IRA allotment to LGUs is to help them finance the expenditures of
responsibilities devolved to them, primarily health care. But according to Dr. Guevarra (2007),
the present LGU sharing of IRA is disproportionate to the services they absorbed from the
national government. Provinces and municipalities, saddled by limited taxing powers, are
receiving far less than the cost of services expected from them. Dr. Guevarra explains that in the
present system, LGUs with higher income are receiving bigger share transfer on a per capita
basis. Discussions on amendments to the Local Government Code, including the IRA sharing
continues.

What enables the LGUs to collect taxes, fees and charges?

The 1987 Constitution, Section 5, Article X provides that “Each local government unit
shall have the power to create sources of revenue and to levy taxes, fees, and charges subject
to such guidelines and limitations as the Congress may provide, consistent with the basic policy
of local autonomy. Such taxes, fees, and charges shall accrue exclusively to local governments.”
However, the LGC only provides general guidelines and limitations for this, such that each
LGU still needs to enact an enabling ordinance. Some of the provisions of the Code are also not
self-executory. Each LGU, through its Local Sanggunian, must determine the base and rates to be
imposed, the subject of the revenues, and the incentives and penalties. The approved tax
ordinance is what gives authority to the Local Treasurer to collect revenues.

I’ve heard that a lot of LGUs are very much dependent on IRA. How can LGUs enhance their
own tax revenues?
The Code has provided opportunities for LGUs to enhance existing revenues. The LGC
provides the following:
“Local government units may exercise the power to levy taxes, fees or charges on any base
or subject not otherwise specifically enumerated herein or taxed under the National Internal
Revenue Code, that the taxes, fees or charges shall not be unjust, excessive, oppressive,
confiscatory or contrary to declared national policy: provided, further, that the ordinance levying
such taxes, fees or charges shall not be enacted without any prior public hearing conducted for
the purpose” (LGC 1991,Sec.129-130 ).
 The framers of the 1987 Constitution did not intend Congress to cover all the aspects of
local taxation. LGUs have the unique opportunity to continue exploring new revenue measures that
will provide them with significant resources for improving both services and governance.

LGUs may consider the actions and programs for enhancing their tax revenues charted
hereunder:

POLICY AND ACTION FRAMEWORK FOR ENHANCING LGU TAX REVENUES

Local Taxes
1. Prepare Local Revenue Generation Plan
2. Conduct public consultations on revenue measures
3. Update Local Tax Code
4. Computerize Tax Administration and Financial Management System
5. Improve taxpayer services and make it easier for taxpayers to pay; establish
customer-friendly offices or one-stop shops for securing business permit applications
6. Provide incentives to tax collectors
Real Property Taxes
7. Conduct tax mapping operations for real property
8. Regularly conduct General Revision of Property Assessment and Classification and
adopt realistic Schedule of Fair Market Values, e.g., zonal values of the BIRc
9. Computerize records of the Assessor’s and Treasurer’s Offices
10. Link up with the Registrar of Deeds, Building Official Geodetic Engineers, and other
relevant government agencies
11. Strengthen tax collection enforcement (publication of list of delinquent taxpayers/
properties and use of judicial and administrative remedies, e.g., auction sale)
12. Engage the participation of other stakeholders (e.g., barangay officials and public-school
teachers) to help in a tax information and education campaign
13. Display approved Schedule of Fair Market Values in conspicuous places
14. Display transaction flow charts
Local Business Taxes
15. Conduct business tax mapping – inventory of business establishments – and tie up
with the records and tax maps of the Assessor’s Office
16. Use presumptive income levels in determining gross receipts of business
establishments to calculate establishments’ business tax liabilities
17. Conduct examination of books of accounts of business establishments (with proper
authorization) to counteract massive under declaration by business establishments
18. Use information from databases of other government agencies, e.g., SEC, BIR, etc.,
through institutionalized interagency tax information-sharing scheme
19. Establish one-stop shops for tax payments and business permit applications
Can local officials spend money just as they wish?
No. There are several types of funds maintained by LGUs each with a specific parameter
of spending provided for in the Local Government Code. Every LGU maintains different funds
to hold the monies and resources that may be received and disbursed by the local treasurer.
These are as follows:
 General Fund - General Fund describes the fund that is available for any purpose to
which the legislative body may decide to apply it. It is composed of receipts or
revenues that are not, by law or by contractual agreement, applicable to a specific
purpose. Included here are the 20% Development Fund, the 5% Calamity Fund, and
Intelligence Fund.
 Special Funds - Special Fund is the fund created for a special purpose or object and
used to defray specified expenditures or classes of expenditures.
 Special Education Fund - The LGC states that a province or city may levy and
 collect an annual tax of one percent on the assessed value of real property in
addition to the basic real property tax and the proceeds of which will go
exclusively to the special education fund and can be used only for that purpose.
 Trust Fund - Trust Fund consists of private and public monies which have
officially come into possession of the local government or of a local
government official as trustee, agent or administrator or which have been
received as a guarantee for the fulfillment of some obligation.
What are the mandatory budgeting parameters of LGUs?
The Sanggunian Tasks and Responsibilities Checklist (2007) summarized these into 10
pointers as follows:
1. Total Appropriations shall not exceed the estimates of income.
2. Full Provision shall be made for all contractual and statutory obligations of the
LGU.
3. Debt Servicing shall not exceed 20% of the regular income of the LGU.
4. Aid to Barangays shall not be less than One Thousand Pesos (PhP 1,000.00) per
barangay.
5. Calamity Fund shall be 5% of the estimated revenue from regular sources.
6. Development Fund shall be at least 20% of the LGU’s Annual Internal Revenue
Allotment and shall be appropriated for development projects.
7. Personal Services shall not exceed 45% for 1st to 3rd class LGU, and 55% for 4th
to 6th class LGU.
8. Discretionary Purposes shall not exceed 2% of the actual receipts derived from
basic real property tax.
9. Intelligence or Confidential Undertakings shall not exceed 30% of the total annual
amount allocated for peace and order efforts or 3% of the annual appropriations,
whichever is lower (DILG MC No. 99-65. S. 199, as amended).
10. Allocation for the strengthening of the Local Council for the protection of children
shall be 1% of the Internal Revenue Allotment of the LGU (RA 9344, 2006,
Juvenile Justice and Welfare Act).
Money is always short. How do officials decide spending priorities?
This is where citizen’s participation is crucial. There is this so-called joint planning-
budgeting process that citizens can be actively involved in.
The Updated Budget Operations Manual (UBOM) for LGUs, released by the Department
of Budget and Management (DBM) in June 2005, emphasized the importance of linkage in
planning, budgeting, and participative governance through the involvement of stakeholders, civil
society, and the private sector in the planning process. A more recent issuance jointly released by
the Department of Interior and Local Government (DILG), the National Economic Development
Authority (NEDA), the Department of Budget and Management (DBM), and the Department of
Finance (DOF) outlines the “Guidelines for the Harmonization of Local Planning Investment
Programming, Revenue Administration, Budgeting, and Expenditure Management
This is exemplified in the following Planning-Budgeting Cycle.
What is the planning horizon and vantage point of local development plans?
The Provincial Development and Physical Framework Plan (PDPFP) for provinces and the
Comprehensive Development Plan (CDP) for cities and municipalities are six-year multisectoral
plans embodying the long-term vision, sectoral goals, development strategies, objectives and
targets of LGUs.
These two plans also contain the Program-Project-Activity (PPA) structure which consists
of programs, projects, and activities designed to achieve specific objectives with corresponding
performance indicators. From the approved PDPFP and CDP, a programming document called
Local Development Investment Program (LDIP) is prepared. The LDIP is a basic document
linking the local plan to the budget. It contains the prioritized PPAs, matched with financing
resources, and to be implemented annually within a three to six- year period. The first 3 years of
the LDIP shall be firmed up along the priorities of the incumbent LCE. (DILG, NEDA, DBM,
DOF. JMC No.1, 2007).
The Annual Investment Plan (AIP) is the annual slice of the LDIP. It contains the capital
and current operating requirements of the LGU that will serve as basis for the preparation of the
Annual and Supplemental Budgets. (DBM, 2008)

Figure 3. Synchronization Calendar of Local

Planning, Investment Programming, Revenue
Administration, Budgeting and Expenditure
Management (Per Joint Memo Circular No.
1 Series of 2007, DILG, NEDA, DBM, DOF)
 How do we know local officials are
spending money wisely?
Unfortunately, there is no instantaneous
assessment of whether or not our elected
government officials are spending the
people’s money wisely. But over a
reasonable time period, perhaps after a
year-and-half of serving their terms, we
should be able to see tangible results and
gauge if development has occurred, perhaps
in terms of better roads or delivery of
potable water systems and efficient health
services.

Is there a system of internal control within

LGUs?
The LGC mandates that internal
control of LGUs is a responsibility of the
local accountant. However, only financial
or accounting control is being performed by
them. The other important aspects of the task, such as administrative, program and management
controls are not performed by the office.
In 2003, then President Gloria Macapagal-Arroyo issued AO No. 70 directing LGUs “to
organize an Internal Audit Service in their respective offices.” This is related to the earlier AO
No. 278 in 1992 of Pres. Corazon Aquino, which directs the strengthening of Internal Control
Systems in all government offices, including the LGUs.
The primary goals of an internal control audit are to establish the areas of vulnerability
to corruption and devise control mechanisms to address those vulnerabilities. Internal control
audit looks into the effectiveness and sufficiency of controls, tests the controls and recommends
solutions for the identified weaknesses and inefficiencies of such controls.
The primary responsibility of ensuring effective internal control is on the Local Chief
Executive. This is one aspect that has been lacking in many LGUs of the country.

We keep hearing about officials buying equipment and supplies from their friends and relatives.
Is it allowed?
As insider information can readily be obtained especially in small towns, then there will
always be attempts and maneuvers to collude amongst bidders or even exclude those who would
wish to participate. But as long as there are safeguards and that a set of straightforward procedures
that allow for a real competitive bidding is followed, then there should really be no reason to
disallow friends and relatives. The clincher here are the qualifiers “straightforward” and
“competitive”.
What are the Bids and Awards Committee (BAC)? Who are its members? Can the mayor be part
of it?
All LGUs are mandated to establish a Bids and Awards Committee (BAC) to decide the
winning bids and questions of awards on procurement of property and supply. The Local Chief
Executive has the responsibilities to designate the Members of the Bids and Awards Committee
(BAC) in accordance with the following rules:
 The BAC shall consist of at least five (5) but not more than seven (7) members.
 The Local Chief Executive shall designate from those occupying plantilla positions
the members of the BAC
 All members designated by the Local Chief Executive are regular members except
the end-user member who is considered as a provisional member. The members,
whether regular or provisional, are equally entitled to participate and to vote during
deliberations.
 The regular offices under the Office of the Governor or Mayor, as the case may be,
may be represented in the BAC. The offices that shall be represented are the
following:
 The Office of the Administrator
 The Budget Office
 The Legal Office
 The General Services Office
 Engineering Office
 In the case of municipalities which do not have an Office of the Administrator or a
Legal Office, the Mayor shall designate a representative from the office/s
performing the functions equivalent to that of the former offices.
 The BAC members shall elect among themselves the Chairman and Vice-
Chairman. The Chairman shall be at least a third ranking permanent official of the
provincial/ city/municipal government.
 The BAC Members shall be designated for a term of one (1) year only, reckoned
from the date of designation. However, the Local Chief Executive may renew
such designation at his discretion.
 The following officials are disqualified from membership in the BAC:
 The Local Chief Executive and other elective officials of the province/city/
municipality
 The official who approves procurement contracts
 The Chief Accountant or Head of the Provincial/City/Municipal
Accounting Office and his/her staff, unless the Accounting Department is the
end-user unit, in which case the Chief Accountant, Head of the Accounting
Department or his/her staff may be designated as an end-user member.

What are the procedures in procurement?

Government Procurement Reforms Act (GPRA) or the RA 9184 is the law governing the
procurement of goods and services in government. For the procurement of goods and services,
following are the abridged steps:
1. Procurement planning and preparation of the annual procurement plan within the
approved budget of the LGU
2. Requisitioning, which entails the submission of written request for supplies,
materials and the like.
3. The Local Chief Executive or Department approves the requisition
 4. Preparation of the Obligation Request which should include the purchase request
and a certification from the Budget Officer that funds are available and that the
requests are valid.
5. Competitive or Public Bidding which means that it should be open to any
interested and qualified party. This involves 8 steps: advertisement, pre-bid
conference, receipt of eligibility documents and bids, eligibility check, opening
and preliminary examination of bids, detailed evaluation of bids, post
qualification and award of contract.
6. Preparation, approval and delivery of purchase order (PO).
7. Payment for the items when they are delivered.

For the procurement of infrastructure projects, there are several steps in each phase:
PREPARATION:
 Procurement planning taking into consideration not just the budget but timing,
engineering design, and right of way among others.
 Preparation of bid documents.
 Pre-procurement conference where the BAC discusses all aspects of the
procurement.
BIDDING
 Advertisement and posting of Invitation to Apply for Eligibility and to Bid
 Accept Letter of Intents, Issue Eligibility Documents and conduct eligibility check
 Issue the Bidding Documents to eligible bidders
 Pre-Bid Conference and if necessary, issue a supplemental/bid bulletin.
 Receive and open the technical and financial envelopes
 Evaluate the bids
 Post qualification of the winning bidder. This entails verifying, validating and
ascertaining all the statements made and documents submitted by the bidder,
 Award the contract
 Contract signing, approval and issue the notice to proceed
IMPLEMENTATION
 Effectivity of the contract
 Contractor’s performance of his contractual obligations
 LGU’s performance of his contractual obligations
 Final acceptance or project sign-off
 All other related activities; and
 Payment by the LGU

Procurement of services basically follows the same steps but in addition, the quality of the
personnel to be assigned to the project, the experience and capability of consultants and the plan
and methodology in delivering services are properly weighted.

What dubious procurement practices should we watch out for?

Note the following dubious procurement practices cited in The Governor’s Handbook, 2nd
Edition, of the League of Provinces of the Philippines (1994).
Are there examples of best practices in local public finance management?
Yes. The case of Bulacan is one good example.

BEST PRACTICE IN LOCAL PUBLIC FINANCE SUSTAINABILITY: THE CASE OF

BULACAN
Bulacan ranks first among provinces of the country as the biggest income earner per
official reports of the Commission of Audit (P1.71 B Php in 2007). The province has become a
model of the kind of self-reliance and greater self-sufficiency among local government units that
the Local Government Code intended to promote among the ranks of LGUs, specifically through
the empowering provisions on local revenue generation.
In 1998, Bulacan’s dependence on the Internal Revenue Allotment was at 74%. With a
decisive and determined drive to increase local revenues, the province worked for a balanced,
50-50 ratio between IRA and locally-sourced funds. In less than 10 years, the province
successfully reduced its dependence on the IRA by 22 percentage points. This further went down
to 52% in 2007, when Bulacan registered a tax collection efficiency of 91%.
The province invested heavily on the computerization of its systems. It initiated the
development and installation of Real Property Tax Information System (RPTIS). In 2002, the
province embraced satellite technology when it adapted the Geographic Information System
(GIS) to enhance critical services in real property and tax mapping. The computerization of
various government operations proved to be a crucial support mechanism to the province’s
efforts in promoting transparency, efficiency, and effective governance.
Bulacan’s declaration of an expansive Tax Amnesty Program in 1998, 2002, and 2005
contributed to the attainment of the goal of lowering IRA dependence. Because the initial focus
was on unpaid real property taxes, the amnesty encouraged delinquent taxpayers to come out into
the open and update their records.
Public auction was conducted in 2000. One effective strategy used after the first auction is
the application of remedial measures for delinquent tax payers whose property were already
subject for auction. Instead of auction, the Sanggunian authorized the Treasurer to negotiate on
behalf of the province and enter into a tax compromise agreement with delinquent tax payers.
In 2003, various offices involved in local public finance underwent major organizational
restructuring in preparation for a massive campaign for revenue generation. This resulted in the
merging of the Provincial Treasury and the Provincial Assessment departments into one single
department. This development became a cause of concern for Provincial Assessors in the
country. The Civil Service Commission, however, approved the plan. The restructuring also
created a Tax Mapping Division under the Provincial Assessor. The total workforce of the two
offices was reduced from 69 to 54 personnel. The new blueprint, which clarified accountabilities
of financial frontline departments, proved effective in Bulacan’s goal of increasing revenue.
Also in 2003, the province installed its very own Performance Management System
(PMS), a system of monitoring and evaluating the quality and performance of the employees and
departments, which played a key role in energizing the bureaucracy and reaching the goal. Under
the PMS, expectations were defined to make sure that employees understand what must be
accomplished by each one of them and their departments, how and when it must be
accomplished, and how accomplishments will be measured. The PMS translated the province’s
goal of a 50-50 IRA-locally generated revenue ratio, into actual performance indicators, from
which standards are based and measured. The employees embraced the system and resulted in
positive results. The PMS also reinforced the values of performance among the employees within
the context of teamwork.
In 2004, the province approved a Revised Provincial Revenue Code to address the
shortcomings and pitfalls of the previous ordinance. Rates of all types of taxes were adjusted by
10 percent, except those levied on real property, amusement, and sand, gravel, and other quarry
resources. Before this, the province already exercised the power to levy taxes provided in
Section 129 to130 of the LGC, taxing 10% of the fair market value for ordinary stones, sand,
gravel, earth, and other quarry resources extracted from private lands. A cement factory in
Bulacan refused to pay and lodged a protest arguing that the LGC applies only to public lands.
This power of the LGU was upheld by the Supreme Court and Bulacan won a landmark case for
LGUs of the country (Bulacan vs. Court of Appeals, 299 SCRA 442). It may be noted that this
residual power provided by the LGC had not been utilized by many LGUs.
All the efforts were supported by massive information and education campaigns.
Orientation of homeowners’ associations, barangay consultations, distribution of informative
comics and flyers, and tax caravans were also conducted. Active participation of public schools,
howeowners associations, and barangay officials in the tax campaigns were successfully
utilized.
 Also worth noting is the contribution of the Bulacan Investments Incentive Code, enacted
in 1999, to the influx of investments in the province which also contributed to higher revenues.

Can anyone request for a copy of financial reports of the LGU? What is the role of the
Commission of Audit (COA) on Local Public Finance?
The Commission on Audit is a constitutional body mandated to perform the audit of all
financial transactions of the LGU. COA is responsible for making rules on accounting and
auditing to prevent irregular, unnecessary, excessive or extravagant expenditures of the LGUs.

What is the basic process in government accounting?

The Commission on Audit prescribed the New Government Accounting System (NGAS)
effective January 1, 2002, replacing the old form of government accounting in force since the
1950s. The NGAS uses: (1) new uniform guidelines and procedures that will simplify
government accounting, (2) new coding structure and chart of accounts to conform with
international accounting standards, and (3) new accounting books, reports/ forms, financial
statements and accounting entries that generate periodic relevant financial statements for better
performance monitoring. (COA, NGAS Manual, Vol. I)
The general accounting plan presents the whole accounting cycle in LGUs. Transactions
emanate from the various departments of the LGU. These departments provide the source
documents and accounting forms necessary to complete the transaction, whether budgetary,
collection, or disbursement.
Government accounting covers the process of analyzing, recording, classifying,
summarizing, and communicating all transactions involving the receipt, disposition of
government funds and property, and interpretation of the results (PD 1445, Sec. 109).

What is COA’s Annual Financial Report (AFR)?

The AFR is a consolidated report of COA to the President of the Philippines and to
the Congress not later than the last day of September of each year. This is published in the
country’s national newspaper every year under the Financial Highlights of Local Government
Units.
Based on the Balance Sheet of all LGUs, the following are highlighted in the published
report:
a. Top Ten Provinces, Cities, and Municipalities Based on Current Assets
b. LGUs with Substantial Amount of Cash in Bank
c. Top Ten Provinces, Cities, and Municipalities Based on Total Liabilities
d. Top Ten Provinces, Cities, and Municipalities Based on Total Equity
Based on the Statement of Income and Expenditures, the following are generated:
a. LGUs with Highest and Lowest Gross Income
b. Highest and Lowest LGU Spenders
c. LGUs with Highest and Lowest Share from Internal Revenue Allotment
d. LGUs with Highest and Lowest Net Income.

LGUs included in the list are then the benchmark of other LGUs.

What is the COA’s Annual Audit Report of LGU?

The Annual Audit Report (AAR) is prepared by auditors as the final output of the yearly
comprehensive audit conducted by COA. It is the medium used by COA to communicate to the
LGU and to proper authorities the result of COA appraisal of how management had
discharged its fiscal responsibility. The report includes the auditor’s recommendation of
measures necessary to improve the economy, efficiency, and effectiveness of LGU operations.
The significant findings and recommendations contained in the Audit Observation Memorandum
(AOM) are summarized in this report. AOM’s are the findings and observations on the audit of
accounts and operations of different offices in the LGU which require comments and
explanations from the responsible persons.

Can anyone request for a copy of financial reports of the LGU?

Yes. Concerned citizens who have inquiries or are requesting for documents from any
government agency, including the LGUs, are protected by the Anti-Red Tape Act of 2007 or RA
9485. The law seeks to reduce bureaucratic red tape and cut down processing time of
government transactions. It directs government offices to act on a simple transaction or request
within five working days and on complex ones within ten working days. Requests therefore must
be made in writing and properly stamped with “received” and signed by concerned employees.
This way, concerned citizens can demand the stipulation of the law.
Employees proven guilty may be penalized for light offenses with 30 days suspension
without pay on the 1st offense, 3 months suspension without pay on the 2nd offense and
dismissal and perpetual disqualification from public service on the 3rd offense.