A Citizens Guide to Understanding

Local Government Units Finances,

Systems and Functions
By Jocelyn C. Cuaresma and Alvic Padilla Sept 23, 2016
GOVERNMENT FINANCIAL SYSTEMS are traditionally inaccessible to people who are not public officials
or employees. The best example of a closed financial system is the budget process. At both national and local
levels, the budget process starting from budget preparation to budget accountability and audit does not call on
the participation of civil society or the private sector. Typically, the private sector participates in government
transactions only as bidders for government projects, vendors of goods and services, investors availing of
government fiscal incentives and as taxpayers. Civil society and the general public participate as taxpayers,
recipients of government programs and projects; attendees to general assemblies and public hearings on the
budget and as spectators during public deliberations and consultations.
Only recently have the national government and local government units (LGUs) started opening up their
financial systems to citizens in pursuit of the policy and principles of participatory governance.
This article discusses the financial systems in local governments, identifies the offices in charge of local
finances and who may exercise the power of the purse; identifies the flaws and weaknesses in the financial
systems; determines how these flaws may be addressed, and how citizens may participate and exercise the
authority and responsibility assigned to them by the state under the 1991 Local Government Code.
Fiscal powers of local governments
The power of the purse can be favourably (or unfavourably) exercised by government officials and is strongly
associated with the power and authority to propose, appropriate and release government funds to certain
agencies, offices, programs and/or projects.
Traditionally, the exercise of the power of the purse is associated with legislative policy making over
government budgets, taxes, fiscal incentives, grant or franchises and use of government facilities and similar
resources (i.e., human resource, physical facilities, land and other real properties). At the national government
level, it is said that the power of the purse rightfully belongs to the Congress, but the power of the Executive
Department over the national budget is properly acknowledged. The national budget remains as a tool in
implementing national priorities for public interest while maintaining the bureaucracys efficiency and to guard
it against abuses. (USAID 2009:1).
The exercise of the power of the purse by local governments is governed by the following provisions in Article
X on Local Government in the 1987 Philippine Constitution:

Section 5. Each local government unit shall have the power to create its own sources of revenues 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 the local
governments;

Section 6. Local government units shall have a just share, as determined by law, in the national taxes
which shall be automatically released to them; and

Section 7. Local governments shall be entitled to an equitable share in the proceeds of the utilization and
development of the national wealth within their respective areas, in the manner provided by law, including
sharing the same with the inhabitants by way of direct benefits.
To better understand the exercise of the power of the purse at the local government level, one must understand
the local financial systems and local budget process.

Local fiscal administration systems

Local financial systems are drawn from the theory and practice of local fiscal administration in the Philippines.
Local fiscal administration encompasses the systems of development planning, taxation and revenue generation,
budgeting
and
spending,
borrowing,
budget
accountability
and
audit.
Fiscal systems and citizen participation
Local governments in the Philippines are classified into four: provinces, cities, municipalities and barangays.
Each type of local government has a set of officials, both elective and appointive, and performs a well-defined
set of executive or legislative functions.
The Governor or Mayor is the chief executive officer of a province, city and municipality, and the barangay
captain is the chief executive of the barangay government. On the side of the legislative branch, the Local <i>
Sanggunian </i> (Council) headed by the Vice-Governor in provinces or the Vice Mayor in cities and
municipalities, together with the members of the Sanggunian, exercise the power of legislation. The Sanggunian
makes policies through ordinances and resolutions, and approves among others, the Annual Budget, the Local
Revenue Code, the Local Development Plan, the Annual Investment Program, and the Comprehensive Land
Use Plan.
Citizen representation in the Sanggunian is mandated in the 1991 Local Government Code. As shown in Table
1, sectoral representatives must serve as regular members of the provincial, city and Municipal Sanggunian. At
the barangay level, members of the Sangguniang Barangay are elected at large and could represent various
sectors.
Table 1. LGU Elected Officials and Members of the Sanggunian (RA 7160)
LGU

Executive
Branch

Legislature: The Sanggunian and its Composition

Sangguniang Panlalawigan
- Vice Governor

Province

Governor

- Board members (number varies from 6 to 12 depending on income class)

- President of the provincial chapter of the Liga ng mga Barangay
- President of the provincial federation of the Sangguniang Kabataan
- Sectoral representatives
Sangguniang Panlungsod
- Vice Mayor

City

Mayor

- Councilors (number varies from 10 to 36 councilors, depending on the

number of districts and the number of councilors per district)
- President of the city chapter of the Liga ng mga Barangay
- President of the city federation of the Sangguniang Kabataan
- Sectoral representatives
Sangguniang Bayan
- Vice Mayor

Municipality

Mayor

- Councilors (number varies from 8 to 12)

- President of the municipal chapter of the Liga ng mga Barangay
- President of the municipal federation of the Sangguniang Kabataan
- Sectoral representatives

Barangay
Captain

Sangguniang Barangay
- Barangay Captain

- 7 members elected at-large

Barangay

- Sangguniang Kabataan chairperson

SK Chairperson Sangguniang Kabataan
- Sangguniang Kabataan Chairperson
- 7 members elected at-large

Local development planning system

This system provides the framework for the pursuit of local development. Two plans that local governments
must formulate and legislate are the Comprehensive Development Plan (CDP) and the Comprehensive Land
Use Plan (CLUP).
The CDP is a comprehensive multi-sectoral development plan that must be duly approved by the Sanggunian.
The CLUP, enacted through zoning ordinances, is to be the primary and dominant bases for the future use of
land resources, providing particularly for the requirements of food production, human settlements, and
industrial expansion. The CDP, the CLUP and the Local Development and Physical Framework Plan (LDPFP),
if available, are implemented through the Local Development Investment Plan (LDIP), Annual Investment Plan
(AIP) and the Executive-Legislative Agenda (ELA), and other thematic plans such as the Local Poverty
Reduction Action Plan (LPRAT), Disaster Risk Reduction and Management Plan (DRRMP), Gender and
Development Plan (Serote 2012).
In local finance, the LGU formulates the Local Revenue Code and the Annual Appropriations Ordinance. These
are implemented through the Revenue Generation Plan, the Annual Procurement Plan, and actual disbursements
and delivery of services.
Development planning is the mandate of the Local Development Council (LDC). Considered as the mother of
all special local bodies, the importance, power and authority vested in the LDC are mirrored in the significance
of the development planning documents that it must formulate and their implementation monitored, since these
documents define the future and growth of the local economy and contain the basis for the formulation and
spending of the local General Fund or the Annual Budget, the Special Education Fund, and Local Trust Funds of
the local government.
The LDC is tasked to appraise and prioritize programs and projects, and coordinate, monitor and evaluate the
implementation of development plans and projects. When the LDC is not in session, the LDC-Executive
Committee is active, ensures that LDC decisions are faithfully carried out, and acts on matters needing
immediate attention by the LDC. It formulates plans, policies and programs based on principles and priorities
laid out by the LDC.
The LDC is assisted by the LDC Secretariat, which provides technical support, documents LDC proceedings
and prepares reports for the LDC. Assisting the LDC in the conduct of its functions are the various LDC
Sectoral Committees such as the Social Sector, Economic Sector, Infrastructure, Environment and Natural
Resources, and the Institutional Sector Committees. The sectoral committees provide the LDC with data and
information essential to the formulation of plans, programs, projects, & activities (PPPAs), define sectoral or
functional objectives, set targets, collate and analyse data, conduct studies, conduct public hearings, and monitor
and evaluate PPPAs status.
The number of civil society representatives in the LDC should not be less than 25 percent of the total LDC
regular membership. Serote (2012) suggests that the composition of LDC-Sectoral Committees Technical
Working Group (TWG) could grow from the Core TWG, to an Expanded-TWG, and to a Full-Blown TWG as
summarized in Table 2.
In addition to the Core TWG, membership of the Sectoral Committees may expand to include other government
officials from the local and national levels operating in the locality, and important non-government
organizations whose functions and advocacies are highly connected to the particular sector. In addition, the fullblown TWG may include other groups and individuals from the non-government sectors who have a stake in
local development and who can enrich the committees capability.
Table 2. Suggested LDC-Sectoral Committees Composition (Serote 2012)
Sectoral
Core TWG (Must
Committee
be there)
Social

MPDO Staff

Expanded TWG (nice to have

participating)
Police Chief

Full-blown
TWG (the more
the merrier)
Sports

Development MHO
LDC Rep.
(Barangay)
District Supervisor
Sanggunian
representative
SWDO
POSO

organization
Local Civil Registrar

Religious leaders

PCUP

Media
representative

Housing Board representative

Manager GSIS/SSS
Fire Marshall
Population Officer
Nutrition Officer

LDC representative
(CSO)
NSO
PTA Federation
Economic
PESO
Development
Tourism Officer
MPDO staff

Inner Wheel Club

Charitable
organizations
Labor groups
Senior citizens
TMCA/YWCA
School principals

Chamber of Commerce & Industry

Lions club

DTI Rep.

Rotary Club

Bank Managers

Jaycees

LDC representative Sidewalk Vendors

(CSO)
Transport Orgs.
Agriculturist
Trade Unions
Coop Development
Market Vendors
Officer
Cooperatives
LDC representative
(barangay)

Academe
Other interested
groups

Sanggunian Rep.
Physical/Land Mun. Engineer
Electric Coop representative
Use
MPDO staff
Real Estate Developers
Development
LDC representative Professional Orgs.
(CSO)
Telecomm. companies
Mun. Architect
Water district representative
Zoning officer
Academe
LDC Rep
(barangay)

Other interested
groups &
individuals

Sanggunian Rep.
Environmenta MPDO staff
Sanitary Inspector
l Management
LDC representative CENRO
(barangay)
FARMC Representatives
General Services
Heads of private hospitals
Head
Academe
Sanggunian
Representative
PENRO
LDC
representative
(CSO)

Environmental
advocates
Other interested
groups &
individuals

BFAR representative

LG ENRO
Institutional MPDO staff
HRDO
Development
LDC representative Treasurer
(Barangay)

Religious groups
Good governance
advocates

LDC representative Budget Officer

(CSO)
Assessor
LGOO
Academe
Local
Administrator

Other interested
groups &
individuals

Sanggunian
Representative

Local tax system

Taxation is one of the inherent powers of the state, exercised through the national and local government offices
and units.
Tax policies shall follow the principles of uniformity, equity, progressivity, justice, not contrary to law and
public policy, and must not be in restraint of trade. These tax principles are not necessarily homogenous, but
must be pursued with vigor. Having been given the power to impose local taxes and to generate their own
sources of income, local governments have to develop a system of taxation and revenue and income generation
through the imposition of local taxes, fees and charges, operate markets and other local enterprises, borrow for
purposes of development, partner with the private sector in undertaking infrastructure investments and incomegenerating activities, and assist the national government in the collection of national taxes from which LGUs
get a fair share of the proceeds.
To facilitate tax assessment, tax collection, and tax records management, computerized systems are adopted and
installed in the offices of the Assessor, Business Permits and Licenses, Treasury, Registry of Deeds, among
others and personnel from the same offices are trained in the management of tax information system.
The power to impose taxes is exercised by the Local Sanggunian. The Sanggunian is further authorized to grant
tax exemptions, give incentives or relief from taxes under certain terms and conditions. The Sanggunian passes
the appropriate tax or revenue ordinance and specifies the subjects or objects of taxation and the rates and
penalties for noncompliance. Each level of local government has its own set of taxing powers as shown in Table
3. The proceeds of certain taxes in provinces and cities are shared with component local governments shown in
Table 4.
Table 3. Taxes by Type of Local Government (RA 7160)
Provincial Taxes

Additional 1% SEF
tax

Amusement tax

Taxes in Cities &

Metro Manila
Municipalities

Municipal Taxes

Amusement tax

All provincial and

municipal taxes may
be levied

Community tax

Annual fixed tax

on delivery trucks or
vans
Franchise tax

Idle land tax

Barangay clearance fee

Fees & chares on

advertisements
Fees for sealing &

measures

billboards, signboards, neon

signs, & outdoor

business & occupation

Fees & charges on

commercial breeding of
fighting cocks, on cockfights,

Fishery rentals, fees

& on cockpits

& charges

Income tax on
banks & financial

Fees and charges on

licensing of weights &

Barangay Taxes

Income tax on banks

Fees & charges on

places of recreation that

institutions

& financial institutions

charge admission fees

Professional tax

Public utility charges

Public utility charges

Public utility

Special levy on lands

Service fees

charges

benefited by public works

Real property tax

Tax on business

Special levy on real

Tool fees & charges

Barangay clearance

property

Tax on business of

fee

printing & publication

Tax on sand and

billboards, signboards,

gravel

neon signs, & outdoor

advertisements

Tax on transfer of

real property ownership

Fees & chares on

Fees & charges on

commercial breeding of

Tool fees &

fighting cocks, on

charges

cockfights, & on cockpits

Fees & charges on

places of recreation that
charge admission fees

Public utility charges

Service fees

Taxes on stores &

retailers

Tool fees & charges

Table 4. Local Taxes with Shared Proceeds (RA 7160)

Taxes with
shared
proceeds

Provincial taxes Provincial share Municipal

share

Provincial taxes Tax on Sand,

Gravel &
Quarry

30%

30%

Barangay
share
40%

Taxes on stores &

retailers
Tool fees & charges

Resources

City taxes

Amusement Tax 50%

50%

None

Basic Real
Property Tax

35%

40%

25%

Additional 1%
RPT for SEF

50% to
Provincial
School Board

50% to
Municipal
School Board

None

City taxes

City share

Barangay share

Sand & Gravel 60%

Tax

40%, where quarry is

located

Basic Real
Property Tax

30%

70%

MM-Municipal MMDA share

Taxes
Taxes in Metro Sand & Gravel None
Manila
Tax
Municipalities

Municipal share Barangay

share
60%

40%,
where
quarry is
located

Basic Real
Property Tax

35%

35%

30%

Idle Land Tax

50%

50%

None

The local budget system: who is in charge?

Each local government maintains three different types of funds: the General Fund (GF) or Annual Budget; the
Special Education Fund (SEF) and Trust Funds.
When people talk of the local government budget, they typically mean the GF or Annual Budget. The GF
consists of monies and resources which are available for the payment of expenditures, obligations or purposes
not specifically declared by law as accruing and chargeable to, or payable from, any other fund. The SEF
consists of the respective shares of provinces, cities, municipalities and barangays in the proceeds of tax on real
property. Trust Funds meantime consist of private and public monies which have officially come into the
possession of the local government or of a local government official as trustee, agent or administrator, or which
have been received as a guaranty for the fulfilment of obligations.
Control over the local government budget should be discussed in line with the budget process. In budget
preparation, the power to propose the annual budget, set budget ceilings and allocation criteria, is vested on the
Local Chief Executive (LCE). The Governor or Mayor as chief executive issues budget policy and guidelines in
conformity with the Local Development Plan and budget ceilings set by the Local Finance Committee (LFC).
This becomes the basis of each department head in preparing his or her own budgets which are then submitted
to the LCE on or before July 15 of each year.
th

The LCE puts together the different department budgets into the proposed annual budget, with the technical
assistance of the LFC composed of the Treasurer, the Planning and Development Officer, and the Budget
Officer. The membership of the LFC shows that the budget preparation phase is a closed process. No citizens,
individuals or groups who are not officials or employees of the local government may participate in this stage of
the budget process. The proposed budget is then submitted to the Sanggunian not later than October 16 for
approval into a Budget Ordinance. The Sanggunian led by the Vice-Governor or Vice-Mayor, exercises the
power to legislate the annual budget into an ordinance on the basis of the estimates of income and expenditures
submitted by the LCE.
th

The power to review the annual and supplemental budgets of component cities and municipalities is vested on
the Sangguniang Panlalawigan where the cities/municipalities belong. The Department of Budget and
Management (DBM) exercises the power to review the annual and supplemental budget ordinances of
provinces, highly-urbanized cities, independent component cities, and municipalities within Metro Manila.
Budgets of cities and provinces, in turn, are reviewed by the Secretary of the Department of the Interior and

Local Government (DILG). The purpose of the review is to ensure compliance with the budgetary requirements
and general limitations set forth in Sections 324 and 325, respectively, of the 1991 Local Government Code.
The budgetary requirements and general limitations that must be complied with in annual budgets are
summarized in the Table 5 below.
Table 5. Budgetary Requirements and General Limitation on Local Budgets set in RA 7160
Legal basis

Details of Provisions

RA 7160, Section 287;

DBM & DILG Joint Circular

No. 1, s 2005 dated 20

September 2005

Each P/C/M shall appropriate in its Annual Budget no less than

20% of the IRA for Development Projects. The 20% Development
Fund is a Special Account in the GF, and is maintained with separate
subsidiary ledgers for easier preparation of the financial statements.

RA 7160, Section 294

At least 80% of the proceeds from the development and

utilization of hydrothermal, geothermal and other sources of energy in
the P/C/M/B shall be applied solely to lower the cost of electricity in
the LGU where such source of energy is located.

RA 7160, Section 324.

Budgetary requirements

The aggregate amount appropriated shall not exceed the

estimates of income;

Full provision shall be made for all statutory and contractual

obligations of the LGU;

The appropriations for debt service shall not exceed twenty

percent (20%) of the regular income of the LGU concerned;

In the budget of provinces, cities, and municipalities (P/C/M),

aid to component barangays shall not be less than One thousand
pesos (P1,000.00) per barangay; and

Five percent (5%) of the estimated revenue from regular sources

shall be set aside as an annual lump sum appropriation for calamities.

RA 7160, Section 325.

General Limitations

The annual appropriations for Personal Services shall not

exceed forty-five percent (45%) in the case of first to third class
P/C/M, and fifty- five percent (55%) in the case of fourth class or
lower, of the total annual income from regular sources realized in the
next preceding fiscal year.

The annual Discretionary Fund of the LCE shall not exceed two
percent (2%) of the actual receipts derived from basic real property
tax in the next preceding calendar year.

RA 10121 Phil. Disaster Risk

Reduction & Management

(PDRRM) Act of 2010

Not less than 5% of estimated revenue from regular sources

shall be set aside as Local Disaster Risk Reduction & Management
fund (LDRRMF), of which 30% shall be allocated as Quick Response
Fund, and the remaining 70% as Special Trust Fund.

Budget execution and budget accountability are vested primarily on the LCE. Additional or supplemental
budget proposals may be proposed by the LCE duly supported by new or additional income or revenue sources
as certified by the Local Treasurer. In case of a calamity, a supplemental budget by way of budgetary
realignment may be proposed by the LCE to set aside appropriations for the purchase of exceptionally urgent
supplies and materials, and payment of indispensable services for use in areas of the LGU declared by the
President to be in a state of calamity.
In revenue generation, the LCE is tasked to initiate the general revision of real property assessment values, the
updating of the revenue code and the codification of tax ordinances. It should also initiate the submission to the
Sanggunian of a list of delinquent taxpayers and the posting of notice of tax delinquency (COA AFR 2012:121).
The LCE and his financial team are then in charge of implementing the annual budget. The local financial
management team must maintain a system of accounting and reporting which provides for the necessary
internal controls to ensure that transactions are properly authorized, recorded, assets are safeguarded against
unauthorized use or disposition, and liabilities recognized (2011 COA AFR:37). The expanded financial
management team in each LGU is composed of the following government officials:

The Local Budget Officer

The Local Assessor

The Local Treasurer

The Local Accountant

The Local Planning and Development Officer.

The Provincial/City/Municipal (P/C/M) Budget Officer reviews and consolidates the budget proposals of the
different departments and offices of the LGU, assists the LCE in the preparation of the budget, provides
technical assistance during budget hearings, study and evaluate the budgetary implications of proposed
legislation and give his/her comments and recommendations, and assists the Sanggunian in reviewing the
approved budgets of component LGUs,
The P/C/M Assessor performs appraisal and assessment of real properties for purposes of taxation. The Office
of the Assessor must be able to establish a systematic, preferably computerized, system of real property tax
administration, including an efficient tax mapping system, and an up-to-date real property identification and
accounting system because real property taxes are one of two most productive local taxes. The other one is the
business taxes, whose administration (assessment and collection) could similarly benefit from tax mapping and
computerization. It is the duty of the Local Assessor to keep the assessment records on real property up-to-date.
The P/C/M Treasurer advises the LCE, the Sanggunian and other local officials on matters relative to public
finance including the disposition of government funds and property. The Treasurer or his/her duly authorized
deputies are in charge of collecting all local taxes, fees and charges. In relation to these functions, the Treasurer
exercises the authority to examine the books, accounts, and other pertinent records of any person, partnership,
corporation, or association subject to local taxes, fees and charges in order to ascertain, assess, and collect

amount of taxes, fees, and charges. Specific to taxation, Local Treasurers must keep the Taxpayers Index Cards
up to date for easy determination of potential tax collection and tax delinquencies (Section 171, Chapter III, RA
7160).
To facilitate revenue collection, the Office of the Treasurer should maintain and update the tax information
system of the LGU. The Treasurer or duly authorized representatives may seize or confiscate any personal
property of a person who failed to pay any local tax, fee, or charge within a required time period, to satisfy the
amount of tax, fee or charge in question together with any increment cost incident to delinquency and the
expenses of seizure (Section 175 [a] Chapter III, RA7160). Treasurers are tasked to disseminate information on
newly approved tax ordinances and revenue measures.
The P/C/M Accountant performs the dual role of accounting and internal control. The Office of the Accountant
must install and maintain an internal audit system, prepare and submit financial statements, appraise the
Sanggunian and the LCE on the financial condition and operations of the LGU. The office prepares, for each
fund, the financial statements such as: (1) Balance sheet; (2) Statement of Income and Expenses; and (3)
Statement of Cash Flows, as well as (4) Consolidated Financial Statements for all funds and the (5) Notes to the
Financial Statements. The Accountant must certify to the availability of budgetary allotment to which
expenditures and obligations may be properly charged.
The P/C/M Planning and Development Officer (LPDO) must be included in the financial management team of
the LGU, he/she being a member of the Local Finance Committee (LFC). The LPDO performs planning and
zoning functions and assists in the attainment of other development concerns of the LGU. The LPDO is
primarily tasked with the formulation of integrated economic, social, physical and other development plans and
policies for consideration of the LDC. As a member of the LFC, the LPDO is an important fiscal officer who is
likewise tasked to analyse income and expenditure patterns, and formulate and recommend fiscal plans and
policies for consideration of the LFC and the LCE. He/she or his office is further tasked to promote citizen
participation in development planning. The development plans and the CLUP prepared by the LPDO serve as
basis for the annual budget, investment program, revenue generation program, and other thematic
plans/programs of the local government.
The LPDO, the Budget Officer, and the Local Treasurer are members of the Committee LFC. The LFC is highly
active during budget preparation and budget legislation as it makes income estimates, recommends appropriate
tax and other revenue or borrowing measures to support the budget, and recommends to the LCE the level of
annual expenditures and spending ceilings based on the approved LDP. In budget execution, the Budget Officer
exercises the authority to certify the existence of a duly approved appropriation in support of every
disbursement. The Accountant is duty bound to obligate said appropriation. The Treasurer certifies to the
availability of funds for the purpose.
The barangay budget system
At the barangay level, the income of each barangay accrues to the Barangay General Fund. Ten percent of the
general fund of the barangay is set aside for the <i> Sangguniang Kabataan </i> (Youth Council).
The power to prepare the barangay budget is exercised by the Barangay Chairman, who proposes the barangay
budget for the ensuing fiscal year, and submits this to the Sangguniang Barangay for legislative enactment. The
Barangay Chairman bases the proposed budget on the statement of income and expenditures prepared by the
Barangay Treasurer also on the basis of the statement of income and expenditures issued by the city/municipal
treasurer. In turn, the Sangguniang Barangay exercises the power to approve the budget into a barangay
ordinance.
Local enterprise system
Local governments may own public utilities and economic enterprises such as public markets, slaughterhouses,
transport terminals, cemeteries, water systems, and the like. Such utilities and economic enterprises shall be
operated and maintained independently of the LGU concerned. This means that the local enterprises generate
their own income, maintain their respective budgets, appropriate for salaries, wages, representation and
transportation allowances of officials and employees of the public utilities and economic enterprises. The
appropriations for the personal services of economic enterprises shall be charged to their respective budgets and
are excluded in the annual budget of the LGU and in the computation of the maximum amount of allocation for
personal services.
Local government loans and loan-financed projects
Title IV of RA 7160 authorized LGUs to incur debt and avail of credit facilities to finance local infrastructure
and other socio-economic development projects. Debt-funded projects must be in accordance with the approved
Local Development Plan and the Public Annual Investment Program.

Interestingly, Section 296 on the general policy on incurring LGU debt does not specify the entity (LCE or the
Sanggunian) that may exercise such power. Section 297 on Loans, Credits, and Other Forms of Indebtedness
of LGUs also did not specify who is to exercise such authority to incur loans, credits and other forms of
indebtedness with any government or domestic private banks and other lending institution. Section 298 likewise
did not specify who, between the LCE and the Sanggunian, may enter into Deferred-Payment and other
Financial Schemes.
In the case of bond flotation, the Sanggunian is identified to exercise the power to approve and state the
purpose, terms and conditions for bond flotation. In inter-LGU loans, grants and subsidies, the Sanggunian of
the LGU concerned is the approving authority. The exercise of power to borrow by local governments is
limited by the provision on debt service allocation, which sets an amount not to exceed 20 percent of the regular
income of the LGU concerned at the same time that it must fully provide for all statutory and contractual
obligations.
The Department of Finance-Bureau of Local Government Finance (DOF-BLGF) sets guidelines on local
government borrowing renders technical assistance and determines LGU creditworthiness. As of 2008, LGU
borrowing of PhP 5.196 billion comprised 1.89 percent of total LGU income (Padilla, May 2010). While the
amount of annual local borrowing as a percentage of total annual local income may yet be considered relatively
low, the nominal amount is already significant and there is much evidence that LGUs have increasingly tapped
borrowing as a fiscal tool. As of 2011, the total loans payable of LGUs a total of PhP 72.039 billion, of which
PhP 36.906 billion (or 51.2 percent) is payable to the Land Bank of the Philippines (COA AFR 2011).
Citizen participation in local special bodies
In the LDC and in the Sanggunian, civil society representation is mandatory. In other local special bodies such
as the Local School Board (LSB), Local Health Board (LHB), Prequalification, Bids and Awards Committee
(PBAC), and the Local Peace and Order Council (LPOC), the participation of civil society organizations
(CSOs) and the private sector may be made possible through the passage by the Sanggunian of rules on
CSO/private sector accreditation and guidelines on citizen participation and representation in local special
bodies.
Citizen participation in the LSB is important because the LSB exercises the power over the preparation,
deliberation and approval of the Special Education Fund (SEF) Budget. The LSB determines the annual
supplementary budgetary needs for the operation and maintenance of public schools within the LGU. It is noted
that the SEF Budget is not approved by the Sanggunian, but instead by the LSB, which is chaired by the
governor or mayor and the school supervisor. Citizen representation could be expanded to include
representatives from the women, youth and cultural sectors, among others.
Table 6. Composition of the Local School Board (RA 7160)
Local School Board:
Chairmen

Provincial School Board

Members
Chairman of the Education Committee of the Sangguniang
Panlalawigan
Provincial treasurer

Co-Chairmen:

Representative of the Pederasyon ng mga Sangguniang

Kabataan in the Sangguniang Panlalawigan

Governor and Division

Duly-elected President of the Provincial Federation of ParentsSuperintendent of Schools
Teachers Association
Duly- elected Representative of the Teachers' Organization in
the Province, and
Duly-elected Representative of the Non-Academic Personnel of
Public Schools in the Province

City School Board

Chairman of the Education Committee of the Sangguniang

Panlungsod
City Treasurer

Co-Chairmen:

Representative of the Pederasyon ng mga Sangguniang

Kabataan in the Sangguniang Panlungsod
Duly Elected President of the City Federation of Parents-

City Mayor and

Teachers Associations

City Superintendent of
Schools

Duly Elected Representative of the Teachers' Organizations in

the city, and
Duly Elected Representative of the Non-Academic Personnel of
Public Schools in the city

Municipal School Board

Chairman of the Education Committee of the Sangguniang

Bayan
Municipal Treasurer

Co-Chairmen:

Representative of the Pederasyon ng mga Sangguniang

Kabataan in the Sangguniang Bayan

Municipal Mayor and the

Duly Elected President of the Municipal Federation of ParentsDistrict Supervisor of
Teachers Associations
Schools
Duly Elected Representative of the Teachers' Organizations in
the Municipality, and
Duly Elected Representative of the Non-Academic Personnel of
Public Schools in the city
The LHBs budget is included in the General Fund Budget of the LGU. The Sanggunian decides on the amount
of allocation for health and other offices and sectors of the local government. As shown in table 7, an NGO or
private sector representative is regular member of the LHB, and not simply an observer.
Citizen participation is important in the LHB because it proposes the annual budgetary allocation for the
operation and maintenance of health facilities and services in the LGU. The LHB and its committees perform
advisory functions to the Local Health Office on matters of personnel (selection, promotion, grievances,
discipline), bids and awards, budget review, operations review and similar functions.
Table 7. Composition of the Local Health Board (RA 7160)
Chairman & ViceChairman
Provincial Health
Board

Chairman: Governor
Vice-Chairman:
Provincial Health
Officer

Members
Chairman of the Committee on Health of the
Sangguniang Panlalawigan
Representative from the private sector or nongovernmental organizations involved in health
services, and
Representative of the Department of Health in
the province

City Health Board

Chairman: City Mayor Chairman of the Committee on Health of the

Sangguniang Panlungsod
Vice-Chairman: City
Health Officer
Representative from the private sector or nongovernmental organizations involved in health
services, and
Representative of the Department of Health in
the city

Municipal Health
Board

Chairman: Municipal
Mayor

Chairman of the Committee on Health of the

Sangguniang Bayan

Vice-Chairman:
Municipal Health
Officer

Representative from the private sector or nongovernmental organizations involved in health

services, and
Representative of the Department of Health in
the municipality

Public Bids and Awards Committee and the local procurement system
The Public Bids and Awards Committee (PBAC) is present in every province, city and municipality, and is
assigned the power and authority to ensure the prequalification of contractors, bidding, the evaluation of bids,
and the recommendation of awards concerning local infrastructure projects. The chair is the Governor or Mayor,
and the following are members.

Chairman of the Appropriations Committee of the Sanggunian;

Representative of the minority party in the Sanggunian, or one (1) chosen by the Sanggunian from
among its members;

Local treasurer;

Two (2) NGO representatives in the LDC, to be chosen by the organizations themselves; and

Any practicing certified public accountant from the private sector, to be designated by the local chapter
of the Philippine Institute of Certified Public Accountants.
NGO representatives on the PBAC sit as regular members and not as observers.
With regard to the procurement of property and supplies, the general rule on award of contracts on procurement
of supplies is to award the contract to the lowest complying and responsible bidder who meets all the terms and
conditions of the contract or undertaking. The procurement of supplies such as equipment, furniture,
stationary materials for construction or personal property and maintenance of equipment and furniture, as well
as trucking, hauling, janitorial, security, and related services shall all undergo a bidding process.
Procurement of supplies without public bidding is allowed under Title VI Section 366 of the 1991 Local
Government Code. Procurement without bidding can be done through: (1) personal canvass; (2) emergency
purchase; (3) negotiated purchase; (4) direct purchase from manufacturers or exclusive distributors; and (5)
purchase from other government entities. However, these options are subject to the approval of the Committee
on Awards and the rules and limitations listed in Table 8.
Table 8. Mechanisms for Procurement of Supplies without Bidding and Rules and Limitations (RA 7160)
Procurem
ent of
supplies
without
bidding
Personal
canvass

Rules and Limitations

In P/C/M in MM, the value shall not

exceed the following amounts:
1 & 2 class not >P150,000
st

nd

3 & 4 class not > P100,000

rd

th

5 & 6 class not > P50,000

th

th

In Municipalities,
the value shall
not exceed the
following
amount:
1 class
municipalities
P60,000
st

2 & 3 class
P40,000
nd

rd

4 class & below

P20,000
th

Emergenc Resorted to in cases of emergency where the need for the

y purchase supplies is exceptionally urgent or absolutely indispensable
and only to prevent imminent danger to, or loss of, life or

property, regardless of amount

Negotiated Resorted to in cases where public biddings have failed for
purchase two (2) consecutive times and no suppliers have qualified to
participate or win the bidding, regardless of amount
Procureme In case of locally manufactured goods, procurement may be
nt from
made directly from the duly licensed manufacturers. In case
duly
of supplies of foreign origin, procurement may be made
licensed directly from exclusive Philippine agents or distributors
manufactu
rer & from
exclusive
Philippine
agents or
distributor
s
Procureme Direct procurement may be made from the government
nt from
entities producing the required supplies. Procurement of
governme supplies from units or agencies of foreign governments with
nt entities which the Philippines maintains diplomatic relations may be
made with prior authority from the Office of the President.

LGU partnership with the private sector

The power to approve such proposed partnerships with the private sector is vested in the Sanggunian. The local
government through the LCE may enter into contract with private contractors for the financing, construction,
and maintenance of any financially viable infrastructure facilities under the build-operate-transfer (BOT)
agreement, subject to the provisions of RA 6957 or the BOT law. A check on the exercise of this power is the
requirement that the project to be undertaken under a BOT arrangement shall be duly included in the LDP and
the AIP.
Additional audit and accountability policies
Policies on audit and accountability in LGUs are contained in the Commission on Audit (COA) Manual on the
New Government Accounting System for use in LGUs under COA Circular No. 2002-003 issued on June 20,
2002, the 2008 DBM-issued Updated Budget Operations Manual (UBOM) for LGUs, and the Statement of
Receipts and Expenditures of the Department of Finance-Bureau of Local Government Finance (DOF-BLGF),
and other pertinent rules issued by these three agencies (COA AFR 2011:1).
The DILG similarly issued financial management policies to enhance transparency and accountability,
particularly the Full Disclosure Policy (FDP) of Local Budget and Finances, and Bids and Public Offerings
under Memorandum Circular No. 2010-83 issued on August 31, 2010 by then DILG Secretary Jesse M.
Robredo.
Attached to the FDP are the Seal of Good Housekeeping (SGH) Award and the Performance Challenge Fund
(PCF). The SGH award is conferred on LGUs found to adhere to sound fiscal management evidenced by the
absence of an Adverse or Disclaimer Audit Opinion by COA and on Accountable and Transparent Governance
in compliance to the FDP.
The financial incentive for being a good housekeeper is the PCF established under DILG-MC No. 2011-02
issued on April 27, 2011 to give due recognition to LGUs good performance in the areas of planning, fiscal
management, transparency, accountability and valuing performance management. LGUs that have been
conferred the SGH award may avail of the PCF to finance the undertaking of capital investment projects. The
SGH award as well as the PCF has stirred LGUs to improve internal control and financial management,
although much remains to be desired.
As mentioned above, the LGU maintains at least three funds: the General Fund/Annual Budget; Special
Education Fund, and Trust funds. Local treasurers and other accountable officers should keep these funds
distinct and separate. Each fund has its own money source intended for distinct purposes, and must be recorded
in separate books and depository accounts.
The local treasurer is responsible for maintaining depository accounts in the name of the LGU with banks,
preferably government-owned, located in or nearest to the LGU. Under the GF are special accounts for the
following purposes: (1) public utilities and other economic enterprises; (2) loans, interest, bond issues, and other

contributions; and (3) development projects funded from the share of the LGU in the Internal Revenue
Allotment (IRA). Other special accounts may be created by law or ordinance as the need arises.
Raising the capability of citizens
Citizens and taxpayers have the right and the responsibility to exact accountability from government. Citizen
participation is a partnership between the people, the government, the private sector and all other sectors of
society. While government is expected to be honest and efficient, the reality is that substantial amount of
government resources are wasted in illegal expenditures resulting in low quantity and low quality public
services leading to poorer quality of life. In pursuit of good governance, all sectors of society have a part to play
in ensuring societys growth and protection. Government typically performs better under informed public
scrutiny and citizens needed to participate in fiscal processes as major stakeholders.
Citizen participation can only be effective if government legislates for it. On one hand, local governments must
pass orders, ordinances, rules and regulations defining the mechanisms through which participation may
happen. It must accredit civil society organizations (CSOs) where necessary; activate local special bodies, and
allow CSOs full membership in the local special bodies and in the Sanggunian, and not just as observers, as
mandated in the Local Government Code.
On the other hand, citizens and CSOs must have the willingness to perform their role as citizens. They should
develop awareness of the scope of authority of the local government, its officials, its programs, projects and
activities. They should strive to acquire the technical knowledge and skills that may help them exercise
responsible citizenship. People should develop a sense of belonging to local government, and a concern for
what is happening in the local community, neighbouring localities, and beyond.
Periodic visits to the barangay hall, city/municipal hall and provincial capitol can help build knowledge on
projects and activities undertaken by local governments. Listening to broadcast media (radio and television),
reading newspapers, becoming aware of activities in the neighbourhood, visiting the barangay hall on a regular
basis, joining associations of residents, and participating in community events could be done with very little
effort or at little extra cost.
Among the websites that citizens may access to monitor government projects and activities are the websites of
the DBM, the National Economic Development Authority (NEDA), COA, DOF, DILG and their respective
local governments.
The DBM publishes in its website information on the General Appropriations Act, which contains information
on the IRA and similar allocations to LGUs. The NEDA website contains information on Official Development
Assistance (ODA) and ODA-funded programs and projects intended for local governments. The DOF website is
a wealthy source of information on the countrys fiscal performance and the governments fiscal policy, with
links to the websites of DOF-bureaus and attached agencies including the Bureau of Local Government Finance
(BLGF). The BLGF website is amply loaded with information on policies, assistance, services, facilities and
related information that are useful to local governments.
The DILG website is a rich source of information on policy issuances and comparative information on LGU
performances and very useful information of interest and benefit to LGUs. The COA website contains findings
on audit of operations of all government agencies including local governments. There is much information that
citizens can access that will truly help them better understand and appreciate their local governments.
Local governments have their respective websites which they have to populate with relevant information
particularly on the budget and their financial performance. The posting on bulletin boards and websites of the
financial statements and reports and similar documents of LGUs has been required by the DILG under the Full
Disclosure Policy. LGUs are duty bound to comply with this directive.
It is now up to citizens and civil society organizations to examine the programs and performance of LGUs using
this information. Citizens can take pro-active stance in requiring the LGU to comply with the provisions in the
1991 Local Government Code on citizen participation and participate in the overall management of the local
government through the Sanggunian, local special bodies, and similar mechanisms that the LGUs have
created. Citizen Action Network for Accountability
REFERENCES
Padilla, Alvic. May 24, 2010. Understanding Incomes and Expenditures of Local Government Units. www.transparencyreporting.net.
Serote, Ernesto. 18 April 2012. Planning in Local Governance. UP SURP. Land Equity International, accessible through www.landequity.com.ph.
United States Agency for International Development (USAID). 2009. Power of the Purse Reform in the Philippines: Proposed Revisions to the 1987 Administrative Code. July
2009, pp. 1-24, accessible through http://incitegov.org/wp-content/uploads/2011/05/INCITEGov-Power-of-the-Purse.pdf.
Commission on Audit. 2011 Annual Financial Report of Local Government Units.
Commission on Audit. COA Manual on the New Accounting System for use in LGUs under COA Circular No. 2002-003 issued on June 20, 2002.
Department of Budget and Management. 2008. DBM-issued Updated Budget Operations Manual (UBOM) for LGUs.

Department of Finance-Bureau of Local Government Finance (DOF-BLGF). Statement of Receipts and Expenditures.
Department of the Interior and Local Government. DILG Memorandum Circular No. 2010-83 issued on August 31, 2010 Full Disclosure Policy (FDP) of Local Budget and
Finances, and Bids and Public Offerings
DBM and DILG Joint Circular No. 1, s 2005 dated 20 September 2005.
DILG-MC No. 2011-02 issued on April 27, 2011, creating the Performance Challenge Fund.
1987 Philippine Constitution.
Executive Order No. 292 or the Administrative Code of 1987.
RA 6957 or the Build-Operate-Transfer (BOT) Law, as amended by RA 7718.
RA 7160 or the 1991 Local Government Code.
RA 10121 Philippine Disaster Risk Reduction & Management (PDRRM) Act of 2010