Monday, February 16, 2009

Implications of the Reclassification of LGUs

Since the Memorandum Circulars of the Bureau of Local Government Finance (BLGF) on the new reclassification of local government units were circulated, I received a number of queries on how such reclassification would affect the present status of concerned LGUs.

As a backgrounder, the BLGF has issued a series of MCs reclassifying LGUs on the basis of their average income from 2004 to 2007. Said reclassification is done every four (4) years pursuant to Executive Order No. 249 authorizing the Department of Finance (DOF) to review the income ranges of LGUs that serve as basis for their income classification. Said task has been delegated to the BLGF, an operating bureau under the DOF tasked to supervise LGUs, particularly their treasury and real property tax assessment. To carry out the reclassification, the BLGF prescribes an income bracket by class (1st class to 6th class), for each level of LGUs (provinces, cities and municipalities). For example, a province with an average annual income for the last four years of P450 M or more is classified as 1st class.

How LGUs in Region VI fared. All the six (6) provinces in the region retained their present classification that is, Capiz, Iloilo and Negros as 1st class; Aklan and Antique as 2nd class; and Guimaras, 4th class. Seven (7) of the 16 cities were affected. Himamaylan moved up to 3rd class along with Escalante at 4th class; cities (5) were downgraded - San Carlos as 2nd class; Sagay, 3rd class; and Passi, Talisay and Victorias down to 4th class. the remaining nine (9) cities retained their respective income class: Bacolod, Iloilo and Kabankalan at 1st class; Bago and Cadiz, 2nd class; Roxas and Silay, 3rd class; and La Carlota as well as Sipalay as 4th class. The region now boasts of 19 1st class municipalities; 17 as 2nd class; 26 as 3rd class; 37 as 4th class; and eight (8) others as 5th class. There are no 6th class municipalities in Region VI anymore.

Effects of reclassification. One Municipal Mayor called us up relaying his apprehension that since his municipality was downgraded from 3rd to 4th class, the IRA share will correspondingly be reduced. Not true. The reclassification of the LGU whether to a higher or lower class does not affect the IRA computation. There is no direct correlation between the two. The IRA computation is based on a different set of formula as provided for in the 1991 Local Government Code (RA 7160): 50% based on population; 25% based on land area and 25% equal sharing. A higher IRA though may result in a higher reclassification of the particular LGU in the future.

Still another Mayor informed us that he refuses to accept the new classification of his municipality from 4th class to 3rd class arguing that it does not in any way translate into a better financial position (meaning increase in IRA or monetary reward). The municipality he reasoned out, stands to lose as it has to set aside additional funds to implement a higher salary schedule for the employees in accordance with the salary standardization law; and a higher representation and transportation allowances (RATA) for the officials, from the mayor himself down to assistant department heads.

So what's the beef? The mayor's allegation though short sighted is true. But a point is missed here. While there may be no immediate financial rewards for LGUs that were reclassified to a higher bracket, this periodic round of classification serves as a psychic reward or recognition for the LGU's efforts and capability to improve their financial condition. In the long run, it can trigger more economic activities in the locality ( business expansion, new investment, etc.) because of business confidence conferred upon the LGU that eventually may result in bigger tax collection (business permits, real property taxes, etc.).

Monday, February 02, 2009

Errata on the 2007 Census of Population

The National Statistics Office (NSO) has submitted to the Office of the President last December, 2008, the corrected 2007 Population count. If approved by the President, the revised population count of the Philippines will be brought to 88,572,996 from the originally proclaimed figure of 88,574,614 - or a reduction of 1,618.

The correction was due to the errata in the population count of the province of Pampanga; two (2) municipalities in Maguindanao; one (1) barangay in Kalookan City; and nine (9) barangays in the provinces of Nueva Ecija, Bulacan, Albay, Cebu, Leyte, Davao del sur, Sultan Kudarat and Compostela Valley.

Since the corrected population figure involves only an adjustment of 1,618, this will minimally affect the computation of the Internal Revenue Allotment (IRA) of LGUs across the country.