Bureau of Local Government Finance Updates JOCELYN T. PENDON Bureau of Local Government Finance Department of Finance Philippines

Electronic Financial Users Circle, Inc March 8, 2016 Sarabia Hotel, Iloilo

2016 NEP: STRATEGIC OBJECTIVES Mandate

Vision/Mission

 EO 127  The focal agency and an authority in local finance that aims to be at the forefront of local economic growth leading the way towards national development.

Key Result Areas

 Anti-Corruption/Transparent, Accountable and Participatory Governance

Sector Outcome

 Fiscal Strength

Organizational Outcome

 Fiscal Sustainability of LGUs Strengthened

2016 NEP: KEY STRATEGIES

Local Finance Policy Reforms and Services

• Formulation of opinions, guidelines, rules and regulations on local taxation and tax administration, real property assessment, financial management, credit and other forms of indebtedness

Local Finance Capacity Development

• Conduct capacity building seminars on strategies and best practices to improve LGU revenue generation and resource mobilization

LGU Fiscal Monitoring and Evaluation

• Supervise local assessment and treasury operations through regular monitoring of fiscal and financial performance and compliance to rules, regulations and policies • Oversee the implementation of Special Projects.

ORGANIZATIONAL OUTCOME

Fiscal Sustainability of LGUs strengthened

PERFORMANCE INDICATORS

Ratio of LGU expenditures over total income is less than or equal

Ratio is < or = 1

PERFORMANCE INDICATORS

Percentage of total actual collections of LGUs from local taxes and other locally generated revenue sources versus targets

Collection efficiency is > = 95%

PERFORMANCE INDICATORS

Number of LGUs not exceeding 20% of their regular income for debt servicing Sec. 324 (b) of RA the total number of 7160

MAJOR FINAL OUTPUT

Regulation of LGU Financial Management

Income Profile of Local Government Units from 2009-2014

Local Sources vs. External Sources of Income

External Sources 66%

Local Sources 34%

Local Sources vs. External Sources (Average Percentage Contribution)

Growth Rate

Growth Rate of Revenues from Local and External Sources

14% 12% 10% 8% 6% 4% 2% 0% -2% -4% -6%

2010

2011

2012

2013

2014

External Sources

7%

8%

-5%

8%

10%

Local Sources

10%

9%

13%

2%

11%

External Sources

Local Sources

2014 Local and External Revenue Sources by Type of LGUs PROVINCES Local Source

MUNICIPALITIES

CITIES

External Source

Local Source

External Source 19%

19% 44% 56%

81%

81% Local Source

External Source

Local Sources of Income as Percentage of GDP, 2009-2014 1.25%

1.26% 1.24%

Percentage

1.22%

1.21%

1.21%

1.19%

1.19%

1.20%

1.17%

1.18% 1.16% 1.14% 1.12% 2009

2010

2011

2012 Year

2013

2014

Tax and Non-Tax Revenues, 2010-2014 25%

100% 90%

20%

31%

34%

31%

30%

29%

28%

69%

66%

69%

70%

71%

72%

2009

2010

2011

2012

2013

2014

80% 70%

Growth Rate

15%

60% 50%

10%

40% 30%

5%

20% 10%

0% 2010

2011

-5%

2012

2013

2014

Year Tax Revenues

0% Tax Revenues

Non-Tax Revenues

Non-Tax Revenues

Growth Rate of Tax and Non-Tax Revenues

Share of Tax and Non-Tax Revenues

LGU Tax and Non-Tax 2009

80 60 40 Non-Tax Revenue Tax Revenue

20 0

AVERAGE TAX AND NONTAX REVENUE, 2009-2014 Tax Revenue

Non-Tax Revenue

0 22 44

54

2014

78 56

46

PROVINCES

100 80 60 40 20 0

Non-Tax Revenue Tax Revenue

Tax Revenue

Non-Tax Revenue

CITIES

MUNICIPALITIES

Composition of Tax Revenues, 2009-2014 120,000

Average Percentage Contribution of RPT, BT and Other Taxes to Tax Revenues

Amount in Million Php

100,000

Other Taxes 6%

80,000

60,000

40,000

20,000

-

2009 Other Taxes 3,864 Business Tax 32,334 Real Property Tax 31,518

2010 4,526 33,565 33,057

2011 4,670 40,434 36,000

2012 4,823 48,730 39,315

2013 5,679 49,458 41,191

2014 6,825 55,634 45,349

Business Tax 50%

Real Property Tax 44%

Composition of Non-Tax Revenues, 2009-2014 Composition of Non-Tax Revenues Average Percentage Contribution of FC, EE and Other Receipts to Non-Tax Revenues

50,000 45,000

Amount in Million Pesos

40,000 35,000

30,000

Other Receipts 20%

25,000 20,000 15,000 10,000 5,000 -

2009 6,370

Other Receipts Receipts from Economic 12,124 Enterprises Fees and Charges 11,299

2010 10,145

2011 8,140

2012 7,903

2013 5,791

2014 5,400

13,074

14,354

16,357

16,922

17,674

12,949

13,848

15,149

16,136

19,839

Receipts from Economic Enterprise s 40%

Fees and Charges 40%

Type of Tax Revenue by Type of LGU LGU Tax and Non-Tax Revenues, 2009

2009

80 Municipalities

60 40 20 Tax Revenue

0

Cities

Provinces 0 Tax Revenue

20 Other Tax

40 Business Tax

LGU Tax and Non-Tax Revenues, 2014

60

80

100

Real Property Tax

2014 Municipalities

Cities

100 50 0

Non-Tax Revenue Tax Revenue

Provinces 0

20 Other Tax

Tax Revenue

Non-Tax Revenue

40 Business Tax

60

80

Real Property Tax

100

Current Operating Expenditure by Sector 20%

Growth Rate

15% 10% 5% 0% -5%

General Public Services Social Services Economic Services Debt Service

2010 11% 3% 10% 8%

2011 3% 10% 4% 16%

2012 6% 8% 6% -2%

2013 4% 9% 4% -4%

2014 -1% 4% 1% 1%

Net Operating Income(Loss): Growth Rate 450,000

50%

400,000

40%

Amount in Million Pesos

350,000 30% 300,000 250,000

20%

200,000

10%

150,000 0% 100,000 -10%

50,000 0

-20% 2009

Operating Income

2010

2011

2012

Operating Expenditures

2013

2014

Net Operating Income/Loss

PERFORMANCE INDICATORS

Ratio of LGU expenditures over total income is less than or equal

Ratio is < or = 1

LGUs Overall Surplus/Deficit 1.60%

200,000 180,000

1.40%

140,000 1.00%

120,000

0.80%

100,000 80,000

0.60%

60,000 0.40% 40,000 0.20%

20,000

0.00%

2009

2010

2011

LGU Overall Surplus/(Deficit)

2012

2013

2014

LGU Overall Surplus/(Deficit) (% GDP)

Amount in Million Pesos

160,000 1.20%

PERFORMANCE INDICATORS

Number of LGUs not exceeding 20% of their regular income for debt servicing Sec. 324 (b) of RA the total number of 7160

Amount in Million Php

LGU Borrowings 80,000

0.80%

70,000

0.70%

60,000

0.60%

50,000

0.50%

40,000

0.40%

30,000

0.30%

20,000

0.20%

10,000

0.10%

0

0.00% 2009

2010

2011

2012

2013

2014

LGU Debt Service

LGUs Loans Oustanding

LGU Debt Service (% of GDP)

LGUs Loans Oustanding (% of GDP)

PERFORMANCE INDICATORS

Percentage of total actual collections of LGUs from local taxes and other locally generated revenue sources versus targets

Collection efficiency is > = 95%

SUMMARY FROM 2009 -2014 • LGUS are still IRA dependent. Cities however are becoming less IRA dependent

• Business Tax and Real Property Taxes are the main source of local income

• Economic Enterprises and User Fees Charges on the other hand are the main source on Non-Tax Revenues • Social Services dominates the operating expenditure items of LGUs • LGUs have a surplus and their borrowings are almost the same

PERFORMANCE INDICATORS

Percentage of total actual collections of LGUs from local taxes and other locally generated revenue sources versus targets Collection efficiency should be > = 95% LGUs registered 94% collection efficiency for business tax and 64% collection efficiency for real property tax as of 3rd quarter 2015

Key Challenge: Increase LGU Revenue Generation Capacity Optimize LGU taxing powers through updating of revenue codes across all LGU levels, ensure the contribution of property tax as equitable, stable, progressive source of local income Executive Order No. 173 reduced the real property assessment level to 15% RA 10653 which provides for a higher tax exemption on 13th month pay and other benefits from gross income of private and public employees lowered the IRA share of LGUs

Updates on BLGF’s KEY STRATEGIES

Finance Policy Reforms Valuation Reform Bill - recentralize the approval of property valuations Income Classification Bill - for the Secretary of Finance to set income brackets and to regularly reclassify local governments every 3 years Bill increasing the income requirement for creation of cities from Php100M to Php250M (which may be increased every 3 years).

Local Finance Capacity Development

building of local assessors and appraisers  Capacity building of BLGF regional and central offices staff

 Performance Standards for Local Treasurers and Assistant Treasurers which is line with BLGF’s manadate to supervise local treasurers and assistant treasurers. It consist of Operational Performance Goals (OPGs) intended to measure technical competency  Development/updating of manuals to support the conduct of capacity building programs (LTOM, MRPAAO, AEEM, revenue forecasting)  Professionalization of local treasurer officers in coordination with the Civil Service Commission  n through the Basic Competency for Local Treasury Examinations (BCLTE) and Ethnic-Oriented Personality Test (EOPT)  Continous professional development (CPD) of local assessors and treasurers through the Continuing Professionalization Education (CPE)

LGU Fiscal Monitoring and Evaluation • LGU Compliance reporting through the eElectronic Statement of Receipts and Expenditures. There were 1, 708 out o 1,714 LGUs compliant with the eSRE submissions in 2014 required by DILG pursuant to DILG Memorandum Circular No. 2016-01 (2016 Seal of Good Governance: Pagkilala sa Katapatan at Kahusayan ng Pamahalaang Lokal).

• Good Financial Housekeeping (GFH) There were 1,369 out of 1,714 LGUs which obtained positive average local revenue collection for three consecutive years (FY 2012, 2013 and 2014) required by DILG pursuant to DILG Memorandum Circular No. 2016-01 (2016 Seal of Good Governance: Pagkilala sa Katapatan at Kahusayan ng Pamahalaang Lokal).

• LGU Fiscal Sustainability Scorecard (FSS) Publication of Fiscal Performance of LGUs (http://iskor.blgf.gov.ph) to evaluate financial management performances • Tax watch campaign to increase transparency on tax payments and promote proper fiscal management among LGUs.

LGU Fiscal Monitoring and Evaluation • Submission of quarterly electronic Statement of Receipts and Expenditures (eSRE) • LGU borrowing capacity and debt service computation at the BLGF regional offices • Proposed LGU Creditworthiness Index • Improved transparency in reporting LGU fiscal data on extractive Industries under the ENRDMT

Institutional Strengthening •

Delivery of information technology – four information systems such as Local Real Property Information System, LGU Loans Information System, Document Management and Archiving System

•

Implementation of the BLGF Rationalization Plan –recruitment of applicants for first and level positions are done through the Kalibrr, CapDev Unit to support professionalization of treasurers, Unit to monitor LGU debt

•

Training of BLGF on STATA, advanced Excel

E N VI R O N M E N T A L I N F L U E N C E

LGU Financial Performance Monitoring and Evaluation

Policy Development

LGU Fiscal Sustainability

Regulation of LGU Financial Management

Technical Assistance

Attaining LGU Fiscal Sustainability

S U P P O R T M E C H A N I S M S