The Department of Economic, Planning, and Development (DEPDev) has proposed several policy reforms to support the implementation of a phased-in devolution strategy that accounts for the fiscal and technical capacity of local government units (LGUs).
The DEPDev released a study over the weekend showing Executive Order (EO) No. 138, s. 2021, which supports the implementation of the Supreme Court ruling on the Mandanas-Garcia case and promotes greater autonomy and empowerment for LGUs.
However, the EO needs to be amended to integrate changes and recommendations on the implementation of a phased-in devolution, it said.
The DEPDev study titled, “Shifting Gears in Devolution: An analysis of the fiscal implications of reassigning devolved functions, services and facilities among LGUs,” recommends that changes to EO 138 should include the following recommendations:
“The amendment should include the legal framework for the reassignment of functions, services and facilities (FSF) within the LGU levels and their upgrading to meet minimum service standards. It can focus on the preparatory steps towards the full implementation of the proposed reassignment.”
The study also said:
“These include capacity-building interventions for LGUs, both technical and financial, for them to assume the new FSF assigned to their LGU level, and other forms of financial assistance to the LGUs in anticipation of issues and challenges in the policy implementation.”
Case resolved
The Supreme Court ruling on the Mandanas-Garcia case resolved that the internal revenue allotment (IRA) shares of LGUs should be computed based on all national taxes, encompassing national internal revenue taxes and custom duties.
This new computation resulted in an increase in the IRA and corresponding reduction in the fiscal resources of the national government starting fiscal year 2022.
To manage the fiscal impact of the SC ruling, EO 138, s. 2021, or the “Full Devolution of Certain Functions of the Executive Branch to Local Governments, Creation of a Committee on Devolution, and for Other Purposes,” was issued, the study said.
The EO reaffirmed that the LGUs are primarily responsible for the delivery of services and performance of functions devolved under Section 17 of the Local Government Code (LGC) while the national government will assume more strategic and steering functions to address persistent development issues.
Lack of readiness
However, the DEPDev study said LGUs have raised issues on the policy approach of EO 138, s. 2021, including their lack of readiness to fully assume all the devolved FSFs.
In response, the President instructed DEPDev, then the National Economic and Development Authority, to analyze the list of proposed reassignment of devolved FSFs which was provided by the Department of Interior and Local Government (DILG)-Union of Local Authorities of the Philippines (ULAP).
This was the result of a presidential directive instructing DILG and ULAP to come up with a list of basic functions and services that the LGUs should be performing based on their absorptive capacities.
The list pointed out that should the devolved functions, services and facilities be recommended to be retained with the LGUs where these were originally assigned, then the FSFs must be reassigned to another LGU level, or shared by a group of LGUs, or even recentralized to the national government.
The list also includes FSFs that may be reassigned at the option of the recipient LGU.
DEPDev has been tasked to recommend ways to better implement a phased-in devolution process, which will guide the national government in formulating the appropriate devolution policy.
Fiscal gap
The DEPDev’s study thus analyzed the fiscal implications of reassigning the devolved FSFs across LGU levels: province, city and municipality.
The primary metric used is the LGU fiscal gap (FG), defined as the difference between the LGU’s available revenues and the incremental costs of the devolved FSFs reassigned to it.
The fiscal gaps of provinces, cities and municipalities both at the aggregate by LGU level and by individual LGUs were estimated under two scenarios, labeled as “Slow Go” and “Big Bang.”
Slow Go simulates the fiscal implications of implementing the DILG-ULAP proposed reassignment of the devolved FSFs among LGUs.
“Results indicate that most LGUs will not incur fiscal gaps; that is, most will have enough fiscal resources to absorb the reassigned FSFs,” the study said.
“While feasible fiscal-wise and seemingly easy to execute, Slow Go may widen the inequality in the availability and quality of service delivery, unless the reassigned FSFs are also upgraded to meet minimum service standards,” it added.
The report said the costs of meeting the prescribed minimum service standards for some of the FSFs are the main contributor to the fiscal gap.
