Philippines: Local Government Financing and Budget Reform (Financed by the Japan Special Fund)

Technical Assistance Consultant’s Report

Project Number: 39516 TA 7019-PHI May 2010

Prepared by: POYRY IDP Consult, Inc. Manila, Philippines

For: Department of Interior and Local Government

This consultant’s report does not necessarily reflect the views of ADB or the Government concerned, and ADB and the Government cannot be held liable for its contents. (For project preparatory technical assistance: All the views expressed herein may not be incorporated into the proposed project’s design.

ADB TA 7019-PHI

LOCAL GOVERNMENT

FINANCING AND BUDGET

REFORM (LGFBR) PROJECT FINAL REPORT Volume One: Main Report and Appendices

Pöyry IDP Consult, Inc. 19 May 2008 – 14 May 2010

Abbreviations and Acronyms

ADB _ Asian Development Bank AIP _ Annual Investment Program BGPMS _ Barangay Government Performance Monitoring System BLGD – Bureau of Local Government Development BLGS – Bureau of Local Government Supervision BLGF _ Bureau of Local Government and Finance CAR _ Cordillera Autonomous Region CBMS _ Community-Based Monitoring System CCD _ Coordinating Committee on Decentralization CDP – Comprehensive Development Plan CIDA _ Canadian International Development Agency CLUP – Comprehensive Land Use Plan CPI _ Consumer Price Index DA – Department of Agriculture DBM – Department of Budget and Management DENR – Department of Natural Resources DILG – Department of Interior and Local Government DOF – Department of Finance DOH – Department of Health DSWD – Department of Social Welfare EA – Executing Agency EC _ Executive Committee ELA _ Executive Legislative Agenda ENR _ Environment and Natural Resources EO _ Executive Order ESWM _ Ecological Solid Waste Management HLURB – Housing and Land Use Regulatory Board HOR _ House of Representatives ICC _ Investment Coordination Committee IRA _ Internal Revenue Allotment JICA _ Japan International Cooperation Agency JMC – Joint Memorandum Circular LCP – League of Cities of the Philippines LDC _ Local Development Council LDIP _ Local Development Investment Plan LGC – Local Government Code LGFBR – Local Government Financing and Budget Reform LGFPMS – Local Government Financial Performance Monitoring System LGOOs – Local Government Operations Officers LGPMS – Local Government Performance Management System LGUs – Local Government Units LMP – League of Municipalities of the Philippines LnB – Liga ng mga Barangay LPDO _ Local Planning and Development Office LPP – League of Provinces of the Philippines LOGODEF _ Local Government Development Foundation MLGOO _ Municipal Local Government Operations Officers MOU _ Memorandum of Understanding NEDA – National Economic and Development Authority NG _ National Government NGAs – National Government Agencies NSO _ National Statistics Office NVA _ National Valuation Authority PBUSS _ Philippine Basic Urban Services Sector PDF _ Philippine Development Forum PBGS – Performance Based Grant System PHCO _ Philippine Country Office PVS _ Property Valuation Staff RLPS – Rationalized Local Planning System RPS – Rationalized Planning Systems SEF _ Special Education Fund SLDR _ State of Local Development Report SLGPR _ State of Local Governance Performance Report SLGR _ State of Local Governance Report SMV _ Schedule of Market Values TA – Technical Assistance TOR – Terms of Reference UBOM – Updated Budget Operations Manual ULAP – Union of Local Authorities of the Philippines UP-NCPAG _ University of the Philippines National College for Public Administration and Government VRA _ Valuation Reform Act WB – World Bank

TABLE OF CONTENTS

Page No.

Executive Summary i Volume 1 – Main Report

I. Introduction and Overview 1

II. Issues and Objectives of the Project 2 A. Component A 2 B. Component B 7 C. Component C 8

III. Project Deliverables: Rationale and Performance 9 A. Component A 9 B. Component B 15 C. Component C 22

IV. Outcome and Assessment of Project Deliverables 25 A. Component A 25 B. Component B 28 C. Component C 29

V. Recommendations for Next Step 30 A. Component A 30 B. Component B 30 C. Component C 31

VI. Summary of Resources Used: 32

Table 1 Component A - Summary of Project Deliverables (As of May 15, 2010): 9 Actual Vs. Expected Table 2 Component B - Summary of Project Deliverables: Actual Vs. Expected 16 Table 3 Summary of Training Activities under Component B 19 Table 4 Component C - Summary of Project Deliverables: Actual Vs. Expected 23 Table 5 Component A - Deliverables, Expected Outcome, Actual Outcome and 25 Assessment Table 6 Component B - Deliverables, Expected Outcome, Actual Outcome and 28 Assessment Table 7 Component C - Deliverables, Expected Outcome, Actual Outcome and 29 Assessment Table 8 Component A – Next Steps: Activities and Expected Outputs (Up to 30 Project End) Table 9 Component B – Next Steps: Activities and Expected Outputs 31 Table 10 Component C – Next Steps: Activities and Expected Outputs 32 Table 11 Summary of Level of Effort Usage (As of May 14, 2010) 32 Table 12 Summary of Equipment and Workshop Resources Used (As of 33 November 2009) Appendix A: Component A Outputs

Appendix B: Component B Outputs

Appendix C: Component C Outputs

Volume 2: Finalized CDP Training Modules

Volume 3: Finalized Enhanced Guide to Comprehensive Development Plan (CDP) Preparation

Volume 4: Guide to Ecological Profiling

Volume 5: Rationalizing the Local Planning System

Volume 6: Study on the Local Planning Database Management System

Volume 7: Local Governance Performance Management System (LGPMS) User’s Manual and Sample Output

Volume 8: Legislative Agenda for the Comprehensive Study on the Status of Decentralization. ADB TA 7019: Local Government Financing and Budget Reform Project Final Report May 2010

Executive Summary

1. This final report for ADB TA 7019-PHI: Local Government Financing and Budget Reform Project summarizes the project’s accomplishments from May 19, 2008-May 14, 2010 which concludes all activities for Component A, B and C, originally planned and additional requested, and outlines the recommendations for the next steps for the concluded activities. The contents of this final report were described in the project’s consolidated fourth and fifth quarter report submitted last October 2009 and agreed upon in the second variation approval which was approved in November 2009.

3. Under the Inception Report, the focus of Component A is to 1) facilitate the creation or institutionalization of the Coordinating Committee on Decentralization; 2) provide technical support for the CCD Policy Agenda; and 3) facilitate the creation of the CCD technical secretariat to replace the project support team. It was determined during project design and reconfirmed during the inception period that there was a need for a coordinating body composed of the oversight central government agencies – the Department of the Interior and Local Government (DILG), the Department of Finance (DOF), the Department of Budget and Management (DBM) and the National Economic and Development Authority (NEDA)—and the local government leagues – the League of Provinces of the Philippines (LPP), the League of Cities of the Philippines (LCP), the League of Municipalities of the Philippines (LMP), the Liga ng mga Barangay (LnB), and Union of Local Authorities of the Philippines (ULAP) to address interrelated issues in fiscal decentralization, local financial management, local expenditure management and planning, local revenue generation, and local governance. Although under the Local Government Code of 1991, such a coordinating body was created, it met very rarely, with last recorded meeting held in 2005, and was difficult to organize due to the size of it’s membership which spanned all levels of government including the legislature. It was determined that a smaller body composed of the abovementioned agencies could address a majority of the local government issues and could elevate the more difficult ones to the LGC created body or Oversight Committee on Devolution (OCD). In order to further support this new body, technical support and assistance for the creation of a technical secretariat was needed.

4. The focus of Component B is to provide 1) a deeper appreciation by the DILG Local Government Operations Officers (LGOOs) and other key actors in the extension of planning assistance to LGUs, e.g., Provincial Planning and Development Coordinators and HLURB field personnel at the regional and provincial levels of the concepts and principles of the rationalized local planning system and the JMC No. 001 series of 2007;Improved competencies of the DILG LGOOs to exercise their functions as coaches/trainors for LGUs in the preparation of CDPs, and as collaborators/facilitators in the preparation of Code- compliant CLUPs in their respective LGUs; and improved data management system (collection, storage, retrieval)

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5. The focus of Component C of TA 7019 is for improving revenue and service delivery through an improved implementation of the Local Governance Performance Management System (LGPMS). The LGPMS is one of the major innovations in improving local governance in the country. The purpose of the system is to evolve a performance-based management system and strengthen a culture of performance amongst local governments.

6. The deliverables of Component A were calibrated to meet the three objectives: a) the creation or institutionalization of the Coordinating Committee on Decentralization, b) progress on selected LGFBR-related policy reforms, and c) the creation and capacitating of the CCD technical secretariat. The achievement of the second objectives is related to the achievement of the first since it was by jointly working at these key reforms that the members of the CCD moved towards institutionalizing the body. The following table presents the deliverables in the Inception Report versus the Actual Deliverables:

7. The deliverables for main task 1 were designed to provide the DILG and CCD members with technical assistance on both a pre-selected set of policy concerns for the purpose of addressing these concerns as well as acclimate them to working with each other as a body paving the way for the formalization of the CCD. As noted in the table above, only one policy concern (i.e., NG-LGU Co-Management Issues) did not meet the interest of either the DILG or the CCD. At the beginning of the project, ten (10) policy issues were pre- identified but nine (9) were actively taken up with at one policy outputs generated for the policy issue and twenty-four (24) additional policy outputs generated for policy issues outside of the original ten. By this writing of this report, the number of policy outputs generated exceeded the original count by at least 2.4 times. The additional policy outputs were either quick-policy response memorandum requested by the DILG for urgent policy issues such as legislative measures to decrease the local Amusement Tax and creating an additional bureaucracy for land valuation to issues papers on LGU Access to ODA and local credit financing and the formulation of the government’s (i.e., National and Local Government) position for the Philippine Development Forum Working Group on Decentralization and Local Government annual workplan.

8. The deliverables for main task 2 were designed to formalize the Coordinating Committee on Decentralization, its membership and structure, scope of work, relation to other agencies, and technical secretariat. After much deliberation, the legal instrument decided upon was a Memorandum of Understanding which was signed by both the oversight agency members (i.e., DILG, DOF, DBM, and NEDA) and the LGU Leagues (i.e., LPP, LMP, LCP, LnB, and ULAP) last November 2009. A welcome development occurred during the deliberations which resulted in the agreed expansion of the powers of the CCD. In earlier deliberations, it was agreed that the role of the CCD was to address issues which did not require the reconstitution of the much larger, multi-sectoral Oversight Committee on Devolution (OCD). However, upon the request of the DBM, the group has decided to become the body which would trigger the reconvening of the OCD to address policy issues that is beyond the authority of the CCD members. An example of such policy issue is the determination of the release of the IRA shares based on new census data. This policy issue will be discussed in the next CCD meeting as well as an agreement on how to trigger the recovening of the CCD possibly through a CCD resolution and a MOU with the Office of the President.

9. The deliverables for the third task have been completed by project end with recommendations for further assistance to the CCD Technical Secretariat included in this final report. However, part of this assistance is being provided in the upcoming LGFBR Subprogram 2 TA.

10. The principal deliverables under Component consist of the following:

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a. Enhanced Guide to Comprehensive Development Plan Preparation – This is designed as a reference document that can assist LGOOs and/or local planning and development officers in facilitating the formulation of a CDP and LDIP.

b. Training Modules and Session Guides for the Conduct of Courses on CDP Preparation – The training modules and session guides for both the Introductory Course and Intensive Course on CDP Preparation are the same, except that the latter includes hands-on exercises on the application of tools and techniques for the sectoral profiles and plan development.

c. Cross-Referencing Guide – This is a matrix of suggested tools and techniques for planning, investment programming and plan monitoring and evaluation extracted from the various manuals and guidebooks prepared by NEDA, DBM and DOF in addition to those contained in the RPS Sourcebook. This will allow users of the Guide to select the appropriate tool or adopt a technique based on his/her capability and appreciation of such tool or technique.

d. Reports on Consultation-Dialogues with HLURB, DBM and other National Government Agencies – Engagement with HLURB will seek to establish and clarify relationships between the CLUP and CDP preparation process and guidebook; delineate and clearly spell out functional responsibilities and areas for dovetailing one from the other; and describe points of interface between the CLUP and CDP.

Expected output from this engagement is a Joint Memorandum Circular between DILG and HLURB articulating the above.

11. Discussions with DBM are expected to yield the following results:

a. Funnelling of the five (5) development sectors of the CDP into the three (3) budgetary sectors.

b. Agreement of the definition of ―investment program‖ and other terms used in local development investment programming.

12. Meetings with other national government agencies are envisioned to draw out consensus on how thematic/cross-sectoral or sectoral concerns can be mainstreamed or integrated not only in the CDP preparation process but more importantly, in the rationalized local planning system.

13. Some of the agencies identified for this purpose are the National Council on the Role of Filipino Women (NCRFW) for Gender and Development; National Disaster Coordinating Council (NDCC) for Disaster Risk Reduction and Management Plan; National Commission on Indigenous Peoples (NCIP) for the Ancestral Domain Sustainable Development and Protection Plan (ADSDPP); Council for the Welfare of Children for the protection of children and promotion of children’s rights; National Police Commission/National Security Council for the Peace and Security Plan; etc. 14. In the course of the project period, Component B conducted eleven (11) training activities covering all regions except for the Autonomous Region of Muslim Mindanao. The total number of person trained is 658 which is 54.8% higher than the 425 persons trained committed under the Inception Report.

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15. The highlights of the Component C accomplishments are the following:

a. Enhancement/development of an analytical framework for utilizing LGPMS assessment results in LGU operations including planning and budgeting, monitoring and evaluation, capacity development, application in performance-based grant system, policy development.

b. Development of a utilization manual for LGPMS that links LGU performance data to LGU planning and budgeting.

c. Training of select core DILG personnel on the practical application of LGPMS.

d. Provision of technical assistance in the development of the LGPMS on- line database system

16. As a result of the outputs of Component A, the following outcomes are being targeted:

a. Fully-functioning Coordinating Committee on Devolution (CCD) that meets every month and institutionalized through an executive issuance.

b. Approved medium-term agenda for CCD.

c. Fully-functioning CCD Technical Secretariat.

d. Legislation passed on the Executive and LGU League-endorsed tax amendments to the Local Government Code of 1991.

e. Signed Memorandum of Agreements between LGU Leagues and the Department of Agriculture, Department of Environment and Natural Resources, Department of Social Welfare and Development, and Department of Health on further devolution of functions to LGUs.

17. Three out of the five outcomes have been achieved in full by the end of the project in May 2009. These are the creation of the CCD, the creation of the CCD Technical Secretariat, and the development and approval of a medium-term agenda. The first two were completed through a signed Memorandum of Understanding and the third was finalized as the LGU Medium-Term Roadmap, 2010-2015 for submission to the next administration.

18. Two outcomes – the passage of legislation for increasing local taxes and memorandum of agreement for further decentralization in selected national government agencies such as Agriculture, Environment and Natural Resources, Health, and Social Welfare and Development were substantially achieved. This means that the policy reform is in place and will continue to be pursued with a likelihood of being achieved some time after the project has concluded and in the next administration. With respect to legislation on improving local taxes, it was the assessment of the team that although consensus and support was achieved among the CCD members, it could not anticipate nor compensate for the dynamic between the LGUs and the legislature. It was reported that there exists underlying friction and competition between some members of Congress, who are also members of the House Committee on Local Government, and local chief executives. This resulted in resistance on the part of the legislature to file bills that would improve local resource generation from taxes. This resistance was strong enough to bar the draft bill in spite of consultations with the House Committee and letters of endorsements from the DILG Secretary and the President of the League of Provinces of the Philippines and the League of

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Municipalities of the Philippines. On the other hand, the CCD has not given up on the proposed measures and will continue to pursue the filing of the bill and the advocacy of the reform in the next administration when new congressional members will be elected. However, this project also recommends that any pursuit of this reform in the next administration study what incentives can motivate and be instituted in order to generate congressional support for the reforms.

19. A critical lesson learned from this project is the need to identify incentives on the part of the legislature in the pursuit of policy reforms. A good example can be found in the passing of legislation for the lowering of the local amusement tax. In spite of opposition from the DILG, BLGF and the LGU Leagues, the legislature, both the Senate and the House of Representatives passed the measure which contravenes the intent of the Local Government Code of 1991 to improve local revenue generation. The local amusement tax is one of the taxing powers of the province and city. However, strong support came from both Houses of Congress because the measure was requested by the local entertainment industry composed of film producers, actors, and theatre owners. Since local legislators gain electoral mileage when endorsed by film celebrities, they ensured that the bill passed quickly into law.

20. On the matter of further decentralization in selected national government agencies, executive support in the form of resources for re-engineering the bureaucracy was no longer available thereby weakening the initiative. Movement in the policy agenda was heavily contingent on the momentum brought about by the re-engineering agenda of the National Government. This would provide the incentive for opening up the devolution of functions and resources to the LGUs by ensuring that redundant central government agency function and personnel would be compensated with a adequate retirement or separation package. However, lack of resources, partly due to the financial crises, weakened executive support for the agenda and the flow of resources. In addition, policy reversals were also being implemented in some agencies such as the Department of Agriculture which was moving towards re-nationalizing the devolved functions as well as calls on the part of some provincial LGUs to re-nationalize their hospitals since they did not have the resources to support their operation. By the mid-term report of this project, discussions with DILG moved towards ensuring that the LGUs would have a position paper on further devolution in selected sectoral agencies that they could present to the next administration for discussion. The CCD has agreed to support the dialogue and move towards greater decentralization of the functions with the position papers as the base. As with the local tax legislation, this policy agenda is in place and has a likelihood of being achieved but sometime after the project has terminated.

21. Overall, the desired ultimate outcomes of Component B are the adoption of Code- compliant CDP borne out of enhanced competencies of LGOOs to extend technical assistance to LGUs and LPDCs in CDP and LDIP formulation within the framework of the RPS and JMC No. 001 series of 2007; strengthened plan-to-budget linkage through the investment program; integration of sectoral, cross-sectoral and/or thematic concerns and plan documents mandated by law or advocated by some national government agencies in the RPS and the CLUP and CDP.

22. Modest outcomes are generated based on the Component C accomplishments and deliverables. The highlights of these outcomes are the re-establishment of the LGPMS as on-line system and the completion of the LGPMS utilization manual which provides guidance to users in maximizing the LGPMS information in LGU planning, budgeting and capacity development planning.

23. The table below present the recommendations of Component A for succeeding technical assistance.

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Table 1: Component A – Next Steps: Activities and Expected Outputs

Activities Expected Outputs Main Task 1: Provide Technical Support for i. Finalization of CCD Medium-Term the interim CCD and the interim-CCD and Roadmap consolidating policy CCD Agenda: concerns from other stakeholders for presentation to next administration. ii. Finalization of CCD short-term policy agenda. iii. Provision of policy advise on CCD policy matters. iv. CCD Meetings.

24. The table below present the recommendations of Component B for succeeding technical assistance in the areas of local capacity building.

Table 2: Component B – Next Steps: Activities and Expected Outputs

Activities Expected Outputs

1. Enhanced Guide to CDP Preparation a) Style editing to make it more user- friendly.

2. Harmonization of CLUP and CDP a) Formulation of Implementing Rules and Guidelines Regulations of JMC No. 001 series of 2009

b) Development and printing of Supplemental Guide to CLUP Preparation leading to the production of a Code-compliant CLUP prepared within the framework of the RPS and JMC No. 001 series of 2007.

c) Development of training modules, session guides and conduct of training program on the preparation of Code- compliant CLUP using the Supplemental Guide on CLUP Preparation.

d) Development of CLUP Review Guidelines, to be used by the Provincial Land Use Committee (PLUC), that will ensure harmonization and vertical integration of the CLUP with the Provincial Development and Physical Framework Plan (PDPFP). e) Development and printing of Manuals for the preparation of a Provincial Comprehensive Land Use Plan and a Provincial Development Plan as alternative guidebook for formulating two separate plans as mandated by the Local Government Code. 3. Mainstreaming of Sectoral/ Cross- Technical assistance to National Sectoral/Thematic Concerns in the CDP Government Agencies and LGUs in and CLUP developing guidebooks/manuals for mainstreaming sectoral/cross-sectoral/ thematic concerns in the CLUP and CDP. Continuous dialogue with DBM re: adoption of common definition of terms used in investment programming 4. Manual on Local Planning Database Manual – Project End May 2010.

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25. The fundamental steps for maximizing the LGPMS results in LGU management functions such as in planning, budgeting and policy development are put in place in this TA through the LGPMS Utilization Manual. The manual needs to be integrated into the other LGPMS manuals and disseminated and popularized accordingly with the intended users. The core DILG staff at the regional and provincial levels should start testing/using the manual particularly its links to budgeting and capacity development planning. The link of the LGPMS in development planning can also be put test after next year’s elections. Training and coaching modules should be developed for this purpose.

26. With regards to the system’s performance, this needs to be fully tested especially prior to the conduct of the next round of planning cycle after the 2010 elections. The current data entry should be technically assessed to prepare the system for a wider and intensive use in 2010.

27. The table below outlines some of the key activities that need to be completed to ensure a wider acceptance and utilization of the LGPMS by LGU users.

Table 3: Component C – Next Steps: Activities and Expected Outputs Activities Expected Outputs Integration of the LGPMS Utilization Manual with the LGPMS User Wider utilization of the LGPMS Manual manual Dissemination and training DILG expertise in facilitating the use of LGPMS To further strengthen capacity, improve system performance, and Improvement of the LGPMS System operations of the system, the following activities are necessary as Design follows: . Assessment of system usage by users . Development of a data management plan . Formulation of a system security plan . Development of disaster and recovery plan . Finalization of the LGPMS operational plan

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I. Introduction and Overview

1. This final report for ADB TA 7019-PHI: Local Government Financing and Budget Reform Project summarizes the project‘s accomplishments from May 19, 2008-May 14, 2010 which concludes all activities for Component A, B and C, originally planned and additional requested, and outlines the recommendations for the next steps for the concluded activities. The contents of this final report were described in the project‘s consolidated fourth and fifth quarter report submitted last October 2009 and agreed upon in the second variation approval which was approved in November 2009.

2. This main report is divided into six sections. The first section is the introduction and provides a brief overview of the project as presented in the Inception Report. The second section discusses the issues and the objectives of the project also as reported in the Inception Report. The third section discusses the project deliverables, the rationale or relation to the objectives of the project and their performance in the project. The fourth section discusses the project outcomes – what were the assumed to be, what actually happened, and their implications. The fifth section provides the conclusions and the next steps. The final section presents a report of the use of consultant and workshop/consultation resources up to the writing of this report. In order to avoid a voluminous report, only project outputs completed after the consolidated fourth and fifth quarter report will be included in the appendices. The reader is referred to the first, second, consolidated third quarter and mid- term report, and consolidated fourth and fifth quarter reports for previous project outputs.

3. An appendix providing the final outputs of Component A, B and C are included in this report. Volume 2 contains the finalized training modules for Component B. Volume 3 contains the finalized Enhanced Guide to Comprehensive Development Plan (CDP) Preparation. Volume 4 contain the Guide to Ecological Profiling. Volume 5 contains the report on Rationalizing the Local Planning System. Volume 6 contains finalized Study on the Local Planning Database Management System. Volume 7 contains the outputs of Component C which includes the LGPMS User‘s Manual and sample output. Volume 8 contains the Legislative Agenda for the Comprehensive Study on the Status of Decentralization under Component A.

4. Under the Inception Report, the focus of Component A is to 1) facilitate the creation or institutionalization of the Coordinating Committee on Decentralization; 2) provide technical support for the CCD Policy Agenda; and 3) facilitate the creation of the CCD technical secretariat to replace the project support team. It was determined during project design and reconfirmed during the inception period that there was a need for a coordinating body composed of the oversight central government agencies – the Department of the Interior and Local Government (DILG), the Department of Finance (DOF), the Department of Budget and Management (DBM) and the National Economic and Development Authority (NEDA)—and the local government leagues – the League of Provinces of the Philippines (LPP), the League of Cities of the Philippines (LCP), the League of Municipalities of the Philippines (LMP), the Liga ng mga Barangay (LnB), and Union of Local Authorities of the Philippines (ULAP) to address interrelated issues in fiscal decentralization, local financial management, local expenditure management and planning, local revenue generation, and local governance. Although under the Local Government Code of 1991, such a coordinating body was created, it met very rarely, with last recorded meeting held in 2005, and was difficult to organize due to the size of it‘s membership which spanned all levels of government including the legislature. It was determined that a smaller body composed of the abovementioned agencies could address a majority of the local government issues and could elevate the more difficult ones to the LGC created body or Oversight Committee on Devolution (OCD). In order to further support this new body, technical support and assistance for the creation of a technical secretariat was needed.

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5. The focus of Component B is to provide 1) a deeper appreciation by the DILG Local Government Operations Officers (LGOOs) and other key actors in the extension of planning assistance to LGUs, e.g., Provincial Planning and Development Coordinators and HLURB field personnel at the regional and provincial levels of the concepts and principles of the rationalized local planning system and the JMC No. 001 series of 2007;Improved competencies of the DILG LGOOs to exercise their functions as coaches/trainors for LGUs in the preparation of CDPs, and as collaborators/facilitators in the preparation of Code- compliant CLUPs in their respective LGUs; and improved data management system (collection, storage, retrieval)

6. The focus of Component C of TA 7019 is for improving revenue and service delivery through an improved implementation of the Local Governance Performance Management System (LGPMS). The LGPMS is one of the major innovations in improving local governance in the country. The purpose of the system is to evolve a performance-based management system and strengthen a culture of performance amongst local governments.

II. Issues and Objectives of the Project

A. Component A

7. The passage of the Local Government Code of 1991 was a considered a landmark legislation because it not only transferred the responsibility for the provision of basic services from the central government to LGUs but also provided the resources to perform these functions through a system of intergovernmental fiscal transfers (e.g., IRA) and increased powers to generate own-source revenues, both tax and non-tax (e.g., economic enterprises). Although the intent was to promote greater local autonomy based on the principle of Subsidiarity and principles set forth in 1987 Philippine Constitution, the implementation of the Code was far from smooth and seamless. Even after almost 17 years of the implementation of the Code, some problems persist not only with regards to the implementation of the Code‘s provisions but also with respect to relevance and validity of some provisions given current and changing fiscal, administrative and political realities.

8. As part of the process of designing the LGFBR program loan, the ADB team conducted a comprehensive assessment of the fiscal issues in the LGU sector. The following summarizes the various key issues:

a. Unclear expenditure assignments and overlapping service delivery mandates – Although the main responsibility for the delivery of basic services have been devolved to LGUs, the institutional arrangements are often not clear. National government agencies still play a key role in the planning and delivery of public services that have been devolved under the Code. This can partly be blamed on the Code itself. Section 17 (b) of the Code enumerates the basic services that the LGUs are expected to deliver. But Section 17 (c) and (f) allows both the LGUs and the national government agencies to initiate devolved activities. This complicates what should have been a clear-cut assignment of service delivery and expenditure responsibilities. This is further complicated by incentives on the part of both the national government agencies and the LGUs to maintain the ambiguity. On the part of the NGAs, engaging in direct service delivery for devolved functions gives them the justification to ask for increases in their annual budgets. On the part of the LGUs, it allows them to save on resources that are insufficient to allow to perform their functions under the Code. The latter is exacerbated by the presence of unfunded mandates left to them by the National Government such as providing budgetary support like additional personnel benefits to many national

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government agencies operating at the same level (e.g., police, fire protection, etc.).

b. Lack of completeness, timeliness, and transparency in intergovernmental transfers – LGUs under the Code receive a share of national tax collections as well as grants. Of these intergovernmental transfers, the most common and significant is the Internal Revenue Allotments or IRA. Under the Code, LGUs have a 40% of all national internal revenue collections except for some selected taxes such as fuel. This 40% is divided among all LGUs first by level (i.e., provinces, cities, municipalities and barangays) then based on a formula which takes into account population, land area and equal sharing. For lower income class LGU, the IRA can constitute as much as 88% to 95% of their regular income. This level of dependency make it critical that the IRA is delivered completely and in a timely manner. However, this was not the case in some years. In 4 of the 6 years between 1998 and 2004, the mandated IRA was either not appropriated in full or released in full. The gap between appropriation and obligation ranged from Php 1.5 billion to as much as Php 16.5 billion. This is further complicated by deficiencies in the Codal formula itself which caused the IRA of many provinces and municipalities to be insufficient to even cover the cost of devolved functions. With regards to other intergovernmental transfers, technical and complicated administrative procedures have delayed if not prevented the release of some LGUs shares in national wealth. Under the Code, LGUs have a 40% share in taxes collected for the exploitation of national resources within their jurisdiction. Complications in accurately estimating the taxes as well as lack of information on the situs of the tax has created uncertainty in this source of intergovernmental revenue. The latter is moreso with regards to the LGU‘s share in the incremental value added tax (VAT). Finally, there is a lack of transparency in reporting congressional grants such as the Priority Development Assistance Fund (PDAF).

c. Weak governance and systems in public financial management, local development planning, and expenditure management. - Weak coordination between the Government and LGU planning has resulted in a break in the planning chain occurring between the regional and provincial levels. Local officials report that their investment plans are formulated independent of regional and national investment plans and vice versa. Less than 70% of provinces have up-to-date local development plans (LDPs) and annual investment plans (AIPs), which are oftentimes not linked to each other. Furthermore, AIPs do not appear to be anchored in clear goals, strategies, and programs since many LGUs, including cities and municipalities, do not perform systematic evaluation of projects‘ costs and benefits. In addition, the integrity of local budgeting is distorted by poor revenue estimates during the budget formulation process.

d. Lack of effective performance measurement system – An effective performance measurement system is an indispensable tool not only to monitor and encourage LGUs to better perform their function in local service delivery but also to enhance local development planning. A good LGU performance measurement system not only provides inputs to planning but should also provide the LGU with information on planning outputs and outcomes. Of the many performance measurement system for LGUs currently existing, the most promising has been the Local Government Performance Measurement System or LGPMS. This system is currently being enhanced under an existing ADB TA (TA 4778) and linked to the BLGF‘s local financial

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measurement system, LFPMS. However, its use for the purpose of local planning is still undeveloped.

e. Lack of LGUs to Credit Financing – LGUs use credit financing to support development in infrastructure, capital investment, and part of operating expenses. More than three-fourths of LGU credit financing is provided by government financial institutions, mainly the Land Bank of the Philippines, while the government direct-lending facility, the MDFO accounts for about 7%. The balance is shared by some institutional sources (e.g., GSIS) and private source through bond floatation. Currently, there is no direct lending to LGUs by private commercial banks because of an interpretation of Section 299 of the Code giving preference to government banks as depository banks for the LGU‘s IRA transfers. Since a creditor-borrower relationship cannot be clearly established, private banks are reluctant to lend to LGUs. This is further exacerbated by the lack of accurate financial data on which to evaluate LGUs as potential clients.

f. Inadequate own-source revenues and inefficient tax administration – Although the Code has provided the LGUs with greater taxing powers, problems exist within and without the law which hamper improvements in own-source revenues and tax administration. Studies have shown that LGUs have created revenue codes with a huge array of taxes, fees, and charges. Because of this, taxes are often under-collected or not collected at all. In addition, many low yielding taxes impose substantial collection and administrative costs and contribute to a lack of transparency. However, complicated tax collection processes are not only the result of local legislation. The Code‘s provisions for the collection of business taxes imposes a complicated schedule of rates based on gross sales and type of establishment that encourages rent seeking behaviour on the part of collectors. The same is also true with respect to the collection of real property taxes which is further complicated by the lack of transparency in valuation procedures. For LGUs intent on improving tax collections, the lack of tax information and inconsistent financial policy guidelines coming from the DOF has been a hindrance. Local tax administration has been plagued by i) low professional qualifications of staff; ii) inadequate automation of core tasks; and iii) weaknesses in supporting policies at the national level. The low capacity of LGU staff is manifested by inadequate cash controls, weak internal audit, absence of effective management, and lack of independent oversight. Although some LGUs have invested in improvements in information technology to automate their core tasks, for many this is still an expensive proposition. Finally, policies at the national level have been lukewarm in their support for local taxes as a result of their attempt to balance LGU and private industry interests.

9. After the Code took effect in 1992, an Oversight Committee on Devolution or OCD was formed pursuant to Section 533 of the Code. The section provides that ―the President shall convene the Oversight Committee that shall formulate and issue the appropriate rules and regulations necessary for the efficient and effective implementation of any and all provisions of this Code thereby ensuring compliance with the principles for local autonomy as defined under the Constitution.‖ The Committee was a joint executive-legislative body which had the Executive Secretary as the chairman, three members from the Senate, three members of the House of Representatives, the Secretary of Interior and Local Government, Secretary of Finance, the Secretary of Budget and Management, and representatives from the League of Province, the League of Cities, the League of Municipalities, and the Liga ng mga Barangay. A technical staff composed of regular employees from both Congress and

Page | 4 ADB TA 7019: Local Government Financing and Budget Reform Project Final Report May 2010 the Executive was formed to support the activities of the OCD. The OCD eventually faded away as the transition problems were addressed. However, the OCD was no longer operational when the transition problems were replaced by implementation issues.

10. The importance of the OCD or a similar body to address LGU fiscal issues was highlighted in the LGFBR policy matrix as noted in the previous section. The Philippine government has committed to forming a Coordination Committee on Decentralization as a clearinghouse for various LGU fiscal issues that have consequences on delivery of basic public services. It is intended that through greater coordination among the national government oversight agencies, a more effective and efficient if not timely resolution of these issues may be achieved.

11. Based on consultations with the DILG and the Inception Workshops, the emphasis has shifted from the LGFBR policy matrix as the centrepiece of this Component to the Coordination Committee for Decentralization. It was therefore decided to re-title the Component ―Decentralization and Institutionalizing the LGFBR Policy Matrix‖ to ―Pursuing and Institutionalizing Reforms in Decentralization through the Coordination Committee on Decentralization‖. It was therefore envisioned that the major policy objectives of the LGFBR Policy Matrix would be pursued through the CCD.

12. As a result of the consultations and the two (2) inception workshops, the objectives have been restated as follows:

a. To facilitate the creation of an evolving body at the Executive Level that will address issues arising from decentralization and pursue reforms embodied under the scope of the LGFBR policy matrix. (Task 1: Facilitate the creation of the Coordination Committee on Decentralization (CCD).

b. To facilitate the actualization of selected mature decentralization reforms and open dialogue on other less advanced reforms in the abovementioned body. (Task 2: Provide Technical Support for CCD Agenda)

c. To assist in the creation of a technical support group that will replace the project team after project termination and provide continuity to the reforms. (Task 3: Facilitate the creation of a CCD Technical Secretariat)

13. As a result, it was decided to revise the general approach from developing the CCD early on in the project to the second semester or after 2 quarters. There was a need to acclimate the pre-CCD members to working on reform issues before establishing a structure around them. It is only when there is some comfort among the members on how they can pursue these reforms can a more structured organization be proposed and institutionalized. In order to operationalize this approach, the pre-CCD members will pursue an initial set of reform issues which they have mutually agreed to address. The CCD members will appreciate the need for institutionalizing the CCD or buy into it when they can see value in the mechanism in the pursuit of the reforms they are most concerned with. In effect, it is institutionalizing the CCD by institutionalizing the process by which the stakeholders pursue the reforms.This approach would reduce the resistance to formalizing the body as well as build a strong collegial relationship among the members.

14. Since the MOU on the JMC 2007-1 has established a collegial body, this ―pre-CCD‖ group can be the basis for addressing LGU and Devolution reform issues through an consensus agreement on what their agenda should be, what their job is, and who should they consult to pursue these reforms.

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15. As part of the organizational agenda, there is also a need to look into how the CCD will eventually address coordination with other coordinating bodies (e.g., sectoral) as well as open dialogue on how these coordinating bodies should relate to each other. In addition, there is also a need to look at other operational issues such as how the CCD will relate to other bodies at the regional level. Finally, there should also be flexibility in the event that an opportunity should arise that the CCD could eventually become and oversight body.

16. Based on this, the methodology was used is as follows:

a. Work with the existing body created by the Memorandum of Understanding covered by JMC 2007-1 as an interim-CCD body as the formal CCD is being designed. This is to allow the timely pursuit of reforms without having to wait for the operationalization of the formal CCD.

b. Pursue interim set of reforms (i.e., interim-CCD reforms) with the DILG and the interim CCD and, through the DILG, concerned partners (e.g., LGU Leagues) that have reached a state of maturity and cannot wait for the formal CCD body also as a means of providing an ―OJT‖-experience for the interim CCD members on the pursuit of these reforms as a body.

c. Identify a minimum set of policy deliverables (e.g., tax amendments to the Code) that this Component should deliver so that other policy agenda items can be substituted for those CCD members strongly feel should be included in the agenda.

d. Coordinate with ADB TA 4778 for inputs that are necessary for the CCD agenda and the creation of the CCD technical secretariat.

e. Network with other ADB projects (e.g., NEDA Harmonization TA Phase II) to mitigate potential conflicts as well as other members of the Philippine Development Forum Working Group on Local Governance and Decentralization.

17. To provide the interim-CCD with a selection of policy issues to address, this inception report outlines below a set of proposed policy issues for the CCD‘s Medium Term Agenda:

a. Harmonization of JMC 2007-1 and accompanying MOU. (Non-Legislative)

b. Harmonization of Land Use Planning and Management – LGU-NG co- management issues. ( Non-Legislative)

c. Review of improvements in the release of intergovernmental fiscal transfers – IRA, special shares, and VAT. (Non-Legislative)

d. Advocacy of the tax/fiscal amendments to the Local Government Code of 1991. (Legislative)

e. Review of non-tax, fiscal amendments to the Local Government Code of 1991 – IRA formula, share of LGUs in national wealth, basis of IRA computation, LGU depository accounts in private banks, share of LGUs in road users fund, etc. (Non-Legislative and Legislative)

f. Review of the non-fiscal amendments to the Local Government Code of 1991. (Legislative)

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g. Implementation of further devolution without legislative action in the Department of Agriculture, Department of Environment and Natural Resources, Department of Health, and Department of Social Welfare and Development as recommended by the LGU Leagues. (Non-Legislative)

h. Review of further devolution without legislative action in other key national government agencies such as the Department of Public Works and Highways, (Non-Legislative)

i. Federalism by the year 2012. (Legislative)

j. Other issues that may be recommended by the CCD (e.g., institutionalization of the OPIF at the LGU level).

B. Component B

Competency Enhancement on the Rationalized Local Planning System for Local Government Units

18. The DILG has commissioned the crafting of the Rationalized Local Planning System (RPS) in pursuit of its mandate ―to establish and formulate plans, policies and programs to strengthen the technical, fiscal and administrative capabilities of LGUs and to formulate local planning guidelines in coordination with NEDA and the Leagues”1. It launched the RPS as the framework for preparing both the comprehensive land use plan (CLUP) and comprehensive development plan (CDP), both of which are mandated under Republic Act 7160 or the Local Government Code of 1991 (hereinafter referred to as ―Code‖ for brevity). It has a two-fold objective: implementation of the full implications of the Code pertaining to planning, and institutionalization of planning as an important aspect of governance.

19. Matters involving CLUP, from formulation of guidelines and standards to extension of technical assistance to local government units (LGUs), fall under the jurisdiction of the Housing and Land Use Regulatory Board (HLURB); while the CDP is under the institutional responsibility of DILG.

20. The RPS offers fresh insights, concepts, approaches, tools and methodologies for preparing the CDP and its primary implementing instrument, the Local Development Investment Program (LDIP). It also clarifies, reinforces and elaborates on existing ones that are currently being used by local government units (LGUs). Further, it introduces Plan Monitoring as a component of the comprehensive planning cycle and defines the role of Local Government Operations Officers of DILG in making the planning system work. To enable the field officers (Local Government Operations Officers or LGOOs) of DILG to advocate the adoption of the RPS by the LGUs, and to make it possible for them to properly extend technical assistance to LGUs in adopting the RPS and formulating their CDPs and LDIPs, they have to be equipped first with the appropriate skills and competencies in using the tools and techniques offered in the RPS Sourcebook.

21. Component B of TA 7019 involves undertaking a competency enhancement program for Local Government Operations Officers (LGOOs) of DILG. It includes the following:

a. Conduct of two (2) types of training programs:

1 Refers to the Leagues of Cities, Municipalities and Provinces

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i. Introductory Course on Comprehensive Development Plan Formulation; and

ii. Intensive Course which focuses on hands-on exercises on the application of suggested tools and techniques for Comprehensive Development Planning

b. Finalization of the Enhanced Guide to CDP Preparation – This will serve as a facilitator‘s reference document in extending technical assistance to LGUs in the preparation of their CDPs.

c. Conduct of a study on the improvement of the local planning database management system.

C. Component C:

22. The use of performance measurement system as a management tool is sparingly utilized amongst LGUs in the Philippines. Most often, performance measurement is completed for reporting and for compliance purposes only. In recent years, there has been increased interest on the part of LGUs, government agencies, and international organizations in the assessment of LGU performances particularly in the areas of service delivery and financial management. New systems were developed and improved to address the concerns of improving LGU performance. The nature of these tools varied from LGU self-assessment to national data collection and assessment.

23. The Local Government Performance Measurement System (LGPMS) of the DILG is one of the more recent systems introduced to LGUs. First implemented on a national scale in 2004, the LGPMS is innovative in many ways. One, it was a pioneering system which utilized the power of information technology as a means accessing the database. Two, the development of the system involved consultative processes and mechanisms especially in the identification of performance indicators. Third, it emphasizes on LGU self-assessment and local teams as opposed to the traditional national data collection processes.

24. The LGPMS performance framework covers two assessment concerns. First, the LGPMS guides LGUs in assessing organizational performance by determining strengths and weaknesses in the performance of their roles and responsibilities and service delivery across 5 performance areas and 17 service areas. Second, the system also provides the LGUs with an instrument for determining the socio-economic and environmental development in a locality using selected outcome or development indicators.

25. After several years of implementation, the system experienced errors in connectivity affecting data entry and report generation capabilities. At the start of Component C, the following issues were encountered during the re-development process:

. LGPMS not accessible to all defined and target users . Improvement of the infrastructure support to LGPMS . No concrete data management plan . Capacity of users in system management

26. In addition, understanding the real purpose of the system was also misunderstood. Many LGUs mistook the self-assessment intention of the system for scorecard thereby affecting the integrity of data collection and assessment. The obvious lack of database in many LGUs also affected the data capturing process, as LGus have no available data to respond to the LGPMS performance indicators.

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The DILG, with the technical assistance of the Asian Development Bank (ADB), is currently addressing these concerns. The LGPMS is now back as an internet database system. The LGPMS indicators were reviewed and revised to be more user-friendly and to address the unavailability of some indicators. Financial indicators coming from the Bureau of Local Government Finance‘s (BLGF) Local Governance Financial Performance Measurement System (LGFPMS) were also incorporated as part of the performance indicators of the LGPMS. The system‘s administration and management systems are also being strengthened.

27. The main challenge for the system, however, lies in the utilization of the LGPMS performance reports for improving overall LGU management particularly in service delivery and improving financial performance. Component C of ADB TA 7019 would complement other ADB TA on LGPMS. Component C objectives are as follows:

a. To improve the LGPMS Manual with the incorporation of new LGPMS indicators developed under the TA 4778

b. To improve the system for monitoring and analyzing overall LGU performance through the development of a framework for analysis that links governance with revenue performance and service delivery

c. To promote utilization of LGPMS data through the annual LGU Performance Report

d. To improve the LGPMS system design specifically in the areas of system usability, performance and scalability, infrastructure and system management

. III. Project Deliverables: Rationale and Performance

A. Component A

28. The deliverables of Component A were calibrated to meet the three objectives: a) the creation or institutionalization of the Coordinating Committee on Decentralization, b) progress on selected LGFBR-related policy reforms, and c) the creation and capacitating of the CCD technical secretariat. The achievement of the second objectives is related to the achievement of the first since it was by jointly working at these key reforms that the members of the CCD moved towards institutionalizing the body. The following table presents the deliverables in the Inception Report versus the Actual Deliverables:

Table 1: Component A - Summary of Project Deliverables: Actual Vs. Expected. EXPECTED ACTUAL REMARKS Main Task 1: Provide Technical Support for the interim CCD and the interim-CCD and CCD Agenda: 1. Draft first year (1-year) CCD 1.1 Draft first year agenda for Completed on schedule. interim agenda for approval of Interim CCD. DILG and interim CCD. 2. Draft medium-term agenda (5- 2. LGU Medium-Term Agenda, Draft version under review by years) for CCD. 2010-2015. CCD. Finalization by project end. Agenda is being prepared for next administration and will apply to activities within and outside of the CCD. 3. Workshop/consultation with 3. First consultation conducted Completed but more CCD members on medium-term in October 2009. consultations will be conducted agenda to finalize.

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Table 1: Component A - Summary of Project Deliverables: Actual Vs. Expected. EXPECTED ACTUAL REMARKS 4. Finalized medium-term Ongoing. Finalization in 2010. agenda for CCD. 5. Technical/Policy/Advocacy 5.1 Policy note and Draft Joint Completed. As per request of Advisory Reports (TPAAR): Memorandum Circular for DILG, a JMC was drafted to Harmonization of JMC 2007-1 DILG and DBM on the impose sanctions for LGU Implementation of Section projects funded by local budgets 287 of Local Government that are not included in the Code of 1991. Comprehensive Development 5.2 Status Report on JMC Roll- Plan (CDP). Sanctions will be Out (Presentation for CCD implemented by DBM as Executive Committee). provided under the Code. 6. Technical/Policy/Advocacy No longer taken up. The CCD focused on more Advisory Reports (TPAAR): pressing issues. Land use Harmonization of Land Use planning was addressed under Planning –LGU-NG Co- Component B. Management Issues 7. Technical/Policy/Advocacy 7.1 Revised Draft Bill Amending Completed ahead of schedule. Advisory Reports (TPAAR): Tax Tax Provisions of the Local The bill underwent several Amendments to the Local Government Code of 1991 reiterations before endorsement Government Code – House Version. by CCD. 7.2 Revised Draft Bill Amending Tax Provisions of the Local Government Code of 1991 – Senate Version. 7.3 Highlights of the Proposed Local Tax Amendments to the Local Government Code of 1991 (PowerPoint Presentation). 7.4 Advocacy Plan for Book II Amendments. 8. Technical/Policy/Advocacy 8.1 Technical Report No. 3: Review of IRA study requested Advisory Reports (TPAAR): Initial Comments on JICA- by DILG for inclusion in CCD Review of improvements in the funded Study on the agenda and LGU Medium-Term release of intergovernmental Improvement of the Internal Roadmap, 2010-2015. transfers – IRA, special shares, Revenue Allotment (IRA) VAT System in the Philippines. 8.2 Briefing Material on IRA Study (for Legislature). 8.3 Legal Comments on the Study on the Improvement of the Internal Revenue Allotment (IRA) System in the Philippines. 8.4 Comments on IRA Study Additional Work. 8.5 Reformulating the Internal Revenue Allotment: Prospects for Cities (Presentation for the League of Cities of the Philippines by DILG Undersecretary Austere Panadero). 9. Technical/Policy/Advocacy 9.1 First Policy Memo on Draft policy position paper to be Advisory Reports (TPAAR): Further Devolution in distributed to LGU Leagues in Implementation of further Selected National December 2009. Consultation to devolution without legislative Government Agencies: be held in January 2010. Final action in the Department of Initial Observations and draft to be completed in January Agriculture, Department of Next Steps. 2010 for endorsement by LGU Environment and Natural 9.2 Position Papers for Leagues to next administration. Resources, Department of Further Devolution of Health, and Department of Service Delivery: Selected Social Welfare and Development Agencies under Executive

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Table 1: Component A - Summary of Project Deliverables: Actual Vs. Expected. EXPECTED ACTUAL REMARKS as recommended by the LGU Order 444 (Presentation for Leagues. Working Group on Decentralization and Local Government, Government Side (NG and LGU)) 9.3 Draft Policy Position paper on Further Devolution in Agriculture, Environment and Natural Resources, Health and Social Welfare and Development. 10. Technical/Policy/Advocacy Policy paper completed in May Completed study outputs of ADB Advisory Reports (TPAAR): 2010. TA 4778 will be integrated into a Review of non-tax, fiscal policy paper for completion in amendments to the Local February 2010 and inclusion in Government Code of 1991 – IRA LGU Medium-Term Roadmap, formula, share of LGUs in 2010-2015 in February 2010. national wealth, basis of IRA However, selected policy computation, LGU depository reforms have been accounts in private banks, share recommended by the Team to of LGUs in road users fund, etc. the LGFBR-2 policy reform agenda including policy reforms on local government financing and access of LGUs to Official Development Assistance (ODA). 11. Technical/Policy/Advocacy Policy paper completed in March Resulting from the review of Advisory Reports (TPAAR): 2010. policy position paper on first four Review of further devolution pilot sectoral agencies, without legislative action in other substitutions for the four key national government agencies will be discussed (e.g., agencies such as the Public Works in place of Department of Public Works and Agriculture). Completion in Highways, January 2010. 12. Technical/Policy/Advocacy 14.1 Terms of Reference on Completed ahead of schedule. Advisory Reports (TPAAR): Economic Impact of Policy memo replaced by TOR Federalism by the year 2012. Federalism. as per request of DILG. 14.2 Technical Paper No. 1: Local Tax Reform Initiatives and the Drive towards Federalism in the Philippines. 13. Technical/Policy/Advocacy Ongoing. Awaiting final outputs Completed study outputs of ADB Advisory Reports (TPAAR): of ADB TA 4778, TA 4778 will be integrated into a Review of the non-fiscal policy paper for completion in amendments to the Local February 2010 and inclusion in Government Code of 1991. LGU Medium-Term Roadmap, 2010-2015 in February 2010. 14. Draft Memorandum of Draft position papers completed. Output was redefined in Mid- Agreement between LGU Term Report as LGU Leagues Leagues and Department of Endorsed position papers on Agriculture, Department of further devolution in four (4) Environment and Natural sectoral agencies. Position Resources, Department of papers will be prepared for Health, and Department of consideration of next Social Welfare and Development administration. Completion of on further devolution of functions drafts – January 2010. to LGUs. 15. Technical/Policy/Advocacy 15.1 First Policy Memo on Completed. Policy support Advisory Reports (TPAAR): Devolution and Local included quick-policy response Issues recommended by CCD Government Trust Fund. for legislative initiatives requiring 15.2 Second Policy Memo on DILG positions and assistance Devolution and Local for CCD policy reforms. Number Government Trust Fund. of additional reforms issues addressed are 2.4 times more

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Table 1: Component A - Summary of Project Deliverables: Actual Vs. Expected. EXPECTED ACTUAL REMARKS 15.3 Local Service Delivery that of original policy issues (10). Study Terms of Reference. 15.4 Policy Memorandum on House and Senate Bills on Special Education Fund and the Amusement Tax. 15.5 Comments on House Committee on Local Government Substitute Bill for House Bills Nos. 389, 742, 1250, 2183, 2625, 3505, and 4367 Amending the Amusement Tax Provision in the Local Government Code of 1991. 15.6 Comments on House Bill No. 2452 and Senate Bill No, 1645 – the Valuation Reform Act (VRA) and House Bill 3514 – the Real Estate Service Act. 15.7 Technical Paper No. 2: Towards A Cost Effective System for Effecting Real Property Valuation Reforms in the Philippines. 15.8 A Technical Note on the Local Governance Performance Management System (LGPMS) and the Community-Based Monitoring System (CBMS). 15.9 Remaining Issues on LGPMS-CBMS Technical Note. 15.10 Stakeholder Coordination in Activities Supporting Decentralization and Local Governance in the Philippines: Initial Thoughts on Status and Issues. 15.11 Stakeholder Coordination in Activities Supporting Decentralization and Local Governance in the Philippines: Initial Thoughts on Status and Issues (PowerPoint Presentation). 15.12 Comments on ADB PHCO LGU TAs for 2009 and 2010 Pipeline. 15.13 Technical Paper No. 1 (Revised for Legislature Use): The Need for Local Government Finance Reforms in the Face of Charter Change Initiatives. 15.14 LGU Credit and Financing Issues and Recommendations (Revised for CCD Executive Committee)

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Table 1: Component A - Summary of Project Deliverables: Actual Vs. Expected. EXPECTED ACTUAL REMARKS 15.15 Overview of Accomplishments on Local Government and Emerging Work Activities for 2009- 2010 Onwards (Working Group on Decentralization and Local Government, Government Side – Presentation for CCD Executive Committee). 15.16 Mobilization of ODA Support (Presentation for CCD Executive Committee). 15.17 Decentralization Experience of the Philippines: Challenges and Implications on Local Government Finance (Working Group on Decentralization and Local Government, Government Side – Presentation for CCD Executive Committee). 15.18 Policy Memorandum – 10 March 2009: Comments on Disaster Risk Management (DRM) Program Memo. 15.19 LGFBR Issue Paper No. 1 – Towards Enhancing the Ability of LGUs to Generate Revenues from Business Taxes. 15.20 Initial Future LGFBR Recommended Policy Reforms 15.21 Initial LGFBR Sub- program 3 Policy Inputs 15.22 Policy Memorandum – June 1, 2009: Comments on NEDA Letter on Imposition of the Idle Land Tax. 15.23 Policy Memorandum – August 12, 2009: Comments on Overseas Farm Investments. 15.24 Proposed 2009-2010 Work Plan – Final Version (September 3, 2009). 16. CCD Meetings and Completed with two (2) Since project start there have Workshops additional CCD meetings been twelve (14) CCD meetings completed by May 2010. conducted not counting small group meetings and consultations of the technical staff. th 17. Consultation, Completed during 13 CCD Policy agenda to be revised prior reformulation and finalization of meeting. to project termination. CCD Medium-Term Roadmap consolidating policy concerns from ADB TA 4556, ADB TA 4778 and LGFBR-2.

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Table 1: Component A - Summary of Project Deliverables: Actual Vs. Expected. EXPECTED ACTUAL REMARKS 18. Drafting of policy paper Completed in May 2010. Paper electronically submitted to consolidating policy issues on DILG for distribution. decentralization from recent ADB and other donor studies.

th 19. Consultation and Completed after 13 CCD Policy agenda submitted to finalization of CCD short-term meeting. CCD. policy agenda. 20. Publication of Completed in May 2010. 500 copies submitted to DILG. Decentralization Studies completed under ADB TA 7019. 21. Conduct of legal study on Completed in May 2010. Three (3) copies submitted to recommendations of ADB TA DILG. 7019 Status of Devolution Study. Main Task 2 – Facilitate the creation of the Coordination Committee on Decentralization (CCD):

1. Draft concept paper for 1. Policy Memorandum on JMC Completed. expanding the agenda of the 2007-1 Executive Committee as MOU‘s Executive Committee. Interim CCD. 2. Draft implementing guidelines 2. Review of DILG-DBM-DOF- Review found the IRR to be for JMC 2007-1 and MOU, if NEDA JMC 2007-1 MOU. unnecessary since agenda could necessary not be legally expanded under the JMC 2007-1. 3. Discussion paper on 3. CCD Briefing Material. CCD Briefing material contained modalities for CCD structure. the various modalities and was subject to several iterations before finalization. 4. Workshop on modalities for 4. CCD Meetings. Completed. CCD structure including relationship with other coordinating committees and first year agenda. 5. Draft organizational structure CCD Final Memorandum of Completed and signed – for CCD with technical Understanding. November 2009. secretariat based on chosen modality. 6. Draft operational guidelines CCD Final Memorandum of Completed and signed – for CCD. Understanding. November 2009. 7. Terms of reference for CCD Final Memorandum of Completed and signed – technical secretariat Understanding. November 2009. 8. Workshop/consultation with CCD Meeting. Completed. CCD members on draft operational guidelines. 9. Finalized operational CCD Final Memorandum of Completed and signed – guidelines. Understanding. November 2009. 10. Draft executive issuance for CCD Final Memorandum of Completed and signed – creation of CCD. Understanding. November 2009.

Main Task 3 - Facilitate the creation of a CCD Technical Secretariat:

1. Draft Manual of Operations Operating Guidelines and Completed in April 2010. and Continuing Research Recommendations for further Agenda for CCD Secretariat capacitation of CCD Technical Secretariat. 2. Orientation Workshop for Training Workshop. Completed in April 2010. CCD Secretariat 3. Finalized draft manual of Operating Guidelines and Completed in May 2010. operations and continuing Recommendations for further research agenda for CCD capacitation of CCD Technical secretariat Secretariat.

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29. The deliverables for main task 1 were designed to provide the DILG and CCD members with technical assistance on both a pre-selected set of policy concerns for the purpose of addressing these concerns as well as acclimate them to working with each other as a body paving the way for the formalization of the CCD. As noted in the table above, only one policy concern (i.e., NG-LGU Co-Management Issues) did not meet the interest of either the DILG or the CCD. At the beginning of the project, ten (10) policy issues were pre- identified but nine (9) were actively taken up with at one policy outputs generated for the policy issue and twenty-four (24) additional policy outputs generated for policy issues outside of the original ten. By this writing of this report, the number of policy outputs generated exceeded the original count by at least 2.4 times. The additional policy outputs were either quick-policy response memorandum requested by the DILG for urgent policy issues such as legislative measures to decrease the local Amusement Tax and creating an additional bureaucracy for land valuation to issues papers on LGU Access to ODA and local credit financing and the formulation of the government‘s (i.e., National and Local Government) position for the Philippine Development Forum Working Group on Decentralization and Local Government annual workplan.

30. The deliverables for main task 2 were designed to formalize the Coordinating Committee on Decentralization, its membership and structure, scope of work, relation to other agencies, and technical secretariat. After much deliberation, the legal instrument decided upon was a Memorandum of Understanding which was signed by both the oversight agency members (i.e., DILG, DOF, DBM, and NEDA) and the LGU Leagues (i.e., LPP, LMP, LCP, LnB, and ULAP) last November 2009. A welcome development occurred during the deliberations which resulted in the agreed expansion of the powers of the CCD. In earlier deliberations, it was agreed that the role of the CCD was to address issues which did not require the reconstitution of the much larger, multi-sectoral Oversight Committee on Devolution (OCD). However, upon the request of the DBM, the group has decided to become the body which would trigger the reconvening of the OCD to address policy issues that is beyond the authority of the CCD members. An example of such policy issue is the determination of the release of the IRA shares based on new census data. This policy issue will be discussed in the next CCD meeting as well as an agreement on how to trigger the recovening of the CCD possibly through a CCD resolution and a MOU with the Office of the President.

31. The deliverables for the third task have been completed by project end with recommendations for further assistance to the CCD Technical Secretariat included in this final report. However, part of this assistance is being provided in the upcoming LGFBR Subprogram 2 TA.

B. Component B

32. The principal deliverables under Component consist of the following:

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Expected output from this engagement is a Joint Memorandum Circular between DILG and HLURB articulating the above.

33. Discussions with DBM are expected to yield the following results:

a. Funnelling of the five (5) development sectors of the CDP into the three (3) budgetary sectors.

b. Agreement of the definition of ―investment program‖ and other terms used in local development investment programming.

34. Meetings with other national government agencies are envisioned to draw out consensus on how thematic/cross-sectoral or sectoral concerns can be mainstreamed or integrated not only in the CDP preparation process but more importantly, in the rationalized local planning system.

35. Some of the agencies identified for this purpose are the National Council on the Role of Filipino Women (NCRFW) for Gender and Development; National Disaster Coordinating Council (NDCC) for Disaster Risk Reduction and Management Plan; National Commission on Indigenous Peoples (NCIP) for the Ancestral Domain Sustainable Development and Protection Plan (ADSDPP); Council for the Welfare of Children for the protection of children and promotion of children‘s rights; National Police Commission/National Security Council for the Peace and Security Plan; etc.

Table 2: Component B - Summary of Project Deliverables: Actual Vs. Expected. Expected Actual Remarks 1. Training Modules and 1. Training Modules and The training modules and Session Guides for the Session Guides for the session guides have been Introductory Course on Introductory Course on updated and revised based RPS and CDP RPS and CDP on comments and Preparation Preparation suggestions forwarded by 2. Training Modules and 2. Training Modules and the participants. They have Session ides for the Session ides for the also undergone further Intensive Course on RPS Intensive Course on refinements based and CDP Preparation RPS and CDP innovations conceived by the Preparation Consultants as the training programs were being conducted in order to simplify and make them more user-friendly. 3. Enhanced Guide to CDP 3. Enhanced Guide to CDP A Guide to Ecological Preparation Preparation and Guide Profiling was also prepared to Ecological Profiling as a companion document

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Table 2: Component B - Summary of Project Deliverables: Actual Vs. Expected. Expected Actual Remarks instead of being integrated in the Enhanced Guide to CDP Preparation. This is in response to suggestions that a Guide to Ecological Profiling be packaged separately from the Guide to CDP Preparation.

4. Results of Consultation- Dialogues/Discussion Conferences with Selected National Government Agencies

With HLURB: This covers discussions to: Joint Memorandum Circular a. clarify and forge a a) Joint Memorandum No. 001 series of 2009 collaborative Circular to define roles (Guidelines on the arrangement between and responsibilities Harmonization of the CLUP DILG and HLURB between DILG and and CDP Preparation) signed towards dovetailing the HLURB in the local on October 19, 2009 CDP preparation process planning process with the CLUP and vice- versa;

b) Strategies for planning b. to explore the assistance under possibility of utilizing a various planning common training scenarios in the LGU, module for both the i.e., where there is an CLUP and CDP existing CLUP but no process to facilitate CDP; where the present such collaboration; and CLUP covers the elements of the CDP; c. to define the roles and where there is only an responsibilities of each CDP, but no CDP, etc. agency in relation to land use and c) A common training comprehensive program on the plan development planning. formulation process where shared activities Items b) and c) under the 1st and points of departure Column will be tackled in are identified to yield subsequent dialogues with two plan documents: HLURB which may be the CLUP and the CDP. undertaken beyond the term of TA 7019. These dialogues are envisioned to yield a set of Implementing Rules and Regulations of the JMC With DBM

a) Harmonization and a) Memorandum Circular The section on LDIP in the integration of the five (5) No. 2008-154 dated CDP Guide has been development sectors in October 16, 2008, transmitted to DBM for their the CDP and the three entitled Reconciliation review and comments prior (3) sectors as indicated of the Five to actual face-to-face in the UBOM Development Sectors discussions. The very tight in the Comprehensive schedule of DBM officers did b) Agreement on the Development Plan and not allow enough time to definition of terms used Three Sectoral deliberate on these items. in local development Classifications with the Cursory exchanges of ideas, investment programming Annual Investment however, resulted in enunciated in the RPS Program agreements in principle.

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Table 2: Component B - Summary of Project Deliverables: Actual Vs. Expected. Expected Actual Remarks and adopted in the Further discussions have to Enhanced Guide to CDP be pursued and official Preparation statements from both DILG and DBM approving and adopting these terms are desired.

With Selected National NGAs concerned agreed to Government Agencies consider and take the necessary actions to Consensus on Mainstreaming Series of dialogues and mainstream their concerns in Sectoral, Cross-Sectoral and consultation-coordination the RPS and CDP process, Thematic Concerns in the meetings conducted. e.g. NCRFW has already RPS and CDP drafted its Supplemental Guide to mainstream GAD in the RPS and CDP; POPDEV has also embarked on the same initiative; NCIP also committed to review and consider harmonizing the ADSDPP preparation process with that of the CDP within the framework of the RPS.

With Selected National Follow-up sessions with Government Agencies other agencies, e.g., DA, (Cont‘d.) DENR, CWC, National Council for Disability Affairs Consensus on Mainstreaming have to be pursued to Sectoral, Cross-Sectoral and address the multiplicity of Thematic Concerns in the plans and duplication of plan RPS and CDP preparation processes at the local level and to ensure the adoption of the RPS as the local planning framework.

4. Cross-Referencing Review and Comments on To avoid duplication of Guide for CDP the Cross-Referencing Guide efforts, the development of a Preparation Prepared under the auspices Cross-Referencing Guide of the Deutsche Gesellschaft was dropped in deference to für Technische the initiative made by GTZ in Zusammenarbeit (GTZ) preparing such Guide. submitted for consideration and possible incorporation in the Guide.

5. Manual on Local Draft completed. Final version completed in Planning Database May 2010.

36. In the course of the project period, Component B conducted twelve (11) training activities covering all regions except for the Autonomous Region of Muslim Mindanao. The total number of person trained is 658 which is 54.8% higher than the 425 persons trained committed under the Inception Report.

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Table 3: Summary of Training Activities under Component B

No. Of Intensive Course Workshop Participants Regions No. Of Pax Cluster I Reg. I, II, III, IVb, V, CAR , NCR 7 21 Reg. IVa, VI, VII, VIII, IX, X, XI, Cluster II XII, CARAGA 9 27

Introductory Course Workshops

Cluster I Reg. VI, VII, VIII 3 97 Cluster II Reg. II, III 2 72 Cluster III Reg. IX, XII 2 50 Cluster IV Reg. X, XI, CARAGA (XIII) 3 68 Cluster V Reg. I, CAR 2 58 Cluster VI Reg. IVa, IVb, V 3 83 Cluster VII NCR 1 88 Total 16 516

Reg. I, II, III, IVA, IVB, V, VI, VII, Writeshop on Utilizing VIII, IX, X, XI, XII, CARAGA, CAR, Ecological Profile on CDP DILG C.O. 16 67

Harmonization of CLUP and Reg. I, II, III, IVa, IVb, NCR , DILG CDP C.O. 27

Grand Total 658

Findings of Local Planning Database Management Study Report

37. The Study was initiated by Undersecretary Austere Panadero of the Department of Interior and Local Government (DILG) as a component of ADB Technical Assistance 7019, Local Government Finance and Budget Reform Project. Undersecretary Panadero sought to assess the status of local databases in view of its thrust to implement the Joint Memorandum Circular on Local Planning. The objective of this Study is to assess the status of local databases and data management systems and determine areas for improvement to provide local planning initiatives with reliable, adequate and updated data.

38. The Study covers the following activities:

1.1.1 Determine status of database for planning at the Local Government Unit (LGU) level in terms of:

a) available existing primary and secondary data. Identify sources of such data,

b) additional/inadequate/lacking required primary and secondary data,

c) identify sources of such data,

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d) assess status of data in terms of scope of data, level of aggregation and frequency of generation/updating, and

e) determine availability/presence of local data systems such as Community Based Monitoring System (CBMS) and Minimum Basic Needs (MBN) among others.

1.1.2 Determine status of data management systems in each class/type of LGU, among LGUs, between LGUs and external agencies/sources such as National Government Agencies (NGAs), Non-government Organizations (NGOs) and community organizations.

1.1.3 Identify and assess institutional arrangements for:

a) data generation, collection and updating b) data collation, data processing and analysis c) data storage and management d) data usage

1.1.4 Formulate manual for improving local databases and data management systems comprising of data generation, collection, collation, processing, management, storage and retrieval systems.

a) Determine data management systems requirements by type/class of LGU. b) Determine financial and technical assistance requirements for improving local data systems. c) Develop and pilot test improved local database and data management system in at least three LGUs

39. As a result of the survey of the study LGUs, the following strategic principles have been identified for the manual:

a. It is imperative that adequate, accurate and timely data be made available in local governments in a comprehensible and readily usable form at all times. The database should address specific needs and functional requirements of different types of local governments and should not be collected to complete an ideal, comprehensive data set.

b. The database for different types of local governments should be appropriate to their technical and financial capability while providing them with the database that fulfils their specific needs. It should also conform to the tight manpower and financial resources; and culture of multi-tasking in local governments. Thus, the database management system should be simple, user-friendly and cost efficient.

c. Local governments are not presently inclined to invest time and resources to establishing and operating a database management system. In the total spectrum of needs of their constituencies and range of demands for limited resources, database management system is definitely not a priority. Though the need for it is acknowledged by some local officials, its importance is not widely appreciated and much less understood. Countless programs and projects have been thrown local governments‘ way but many have fallen by the wayside as white elephants; have been largely ignored

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by local governments; or have failed miserably to attain their purported objectives and goals. Thus, a program on improving database management systems should be local government driven and not national government or donor driven. Policy gaps which hamper improved performance and local governance should be addressed in a comprehensive and integrated manner. The incentive framework to promote local development; improved local governance and greater equity among local governments should be evaluated, improved and efficiently adopted.

40. Based on these principles, the local database management system must be anchored on the following pillars:

a. Collection of accurate and timely data both at the barangay (primary) and sectoral office level (secondary).

b. Processing of data in a systematic fashion, regular basis and in a readily accessible, usable and comprehensible form.

c. Formulation of policy framework and incentive mechanisms to foster greater understanding among local government officials of the importance and benefit of local database management systems; to encourage and promote its use; and to support local governments establish, operate and maintain database management systems.

41. This will result in a local database management system with the following components:

a. Collection of accurate and timely data

i. Delineation of set of core data according to specific data needs of local governments by type (city or municipality); by class (say, Highly Urbanized City, Ist Class City/Municipality; 2nd and 3rd Class City/Municipality; 4th and 5th Class City/Municipality). An initial set of core data2 has been identified in consultation with local governments met during the Validation Survey and staff of the League of Cities and League of Municipalities. Further discussions with local government officials will be undertaken and consultation with local government experts will be held to get a wider view of what the core data set should be.

ii. Design of barangay survey based on set of core data

iii. Design of system for collecting data from sectoral offices

iv. Determination of frequency of updating specific data and formulation of methodology/design of system for updating barangay and sectoral office data.

b. Processing of data into readily accessible, usable and comprehensible form

2 Annex 3 – List of Core Data.

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i. Formulation of manual to process barangay based and data generated by sectoral offices

ii. Determination of data requirements (based on set of core data identified) for each functional use. Based on discussions with local government officials and staff and the results of the surveys, the following are the main functional uses of data:

ii.1. provide data for planning;

ii.2. provide a basis for efficient, well-targeted service delivery;

ii.3. serve as a platform for identification of key issues and critical problems both at the community/barangay and city/ municipal level;

ii.4. provide an empirical basis for sound decision-making of the Mayors and Sanggunians including budget review, preparation and approval;

ii.5. present a basis for identification of benchmarks and performance indicators;

ii.6. provide a basis for program and project identification, preparation, prioritization, programming and design;

ii.7. maximization of resource mobilization and revenue generation potential;

ii.8. provide basis for local economic development planning, product marketing and investment promotion.

c. Design of report forms for each type of functional use.

i. Formulation of proposals for improving policy framework and incentive mechanism for local database management.

C. Component C:

42. The highlights of the Component C activities are the following:

a. Enhance/develop analytical framework for utilizing LGPMS assessment results in LGU operations including planning and budgeting, monitoring and evaluation, capacity development, application in performance-based grant system, policy development.

b. Develop utilization manual for LGPMS that links LGU performance data to LGU planning and budgeting.

c. Train select core DILG personnel on the practical application of LGPMS.

d. Provision of technical assistance in the development of the LGPMS on- line database system

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43. These activities were completed in the pursuit of completing the deliverables of the component. Overall, the key component deliverables were accomplished. The following table summarizes the actual accomplishments for Component C compared to the expected deliverables.

Table 4: Component C - Summary of Project Deliverables: Actual Vs. Expected. Expected Deliverables Actual Accomplishment Remarks An analytical framework and The final manual LGPMS utilization Various uses of the LGPMS manual on strengthening the manual is completed and submitted were introduced and enhanced strategic links of the LGPMS incorporating the analytical in the course of the CDP results for improving LGU framework for utilizing the various training under component B overall performance in LGPMS on-line reports service delivery and revenue generation Promotion and advocacy on The use of LGPMS data particularly Core DILG staff were trained the use of the LGPMS data in comprehensive development on LGPMS information planning (CDP) was introduced and utilization by linking utilizing advocated during the CDP training. LGPMS reports to CDP The CDP training was participated by processes and in capacity DILG regional and provincial focal development planning persons as well as select LGU participants. The training were conducted in cluster to wit: Regions 6,7 & 8) held in Cebu City Regions 2 & 3 – held in Clark, Pampanga Regions 9 & 12 – held in Zamboanga City Regions 10, 11 & 13 – held in Davao City Regions 1 & CAR held in Baguio City Regions 4a, 4b & 5 held in Quezon City NCR held in Quezon City

In addition, 2 intensive courses were also conducted for the DILG training facilitators. Recommendations on the Drafted administrative and administrative mechanism/ sustainability mechanisms for the institutional linkages LGPMS between LGUs, BLGS, Reviewed the management regional offices and other system for LGPMS concerned NGAs Presented recommendations for improving existing management structure with the end view of sustaining the LGPMS operations and processes within the DILG. Recommendations on the Recommendations on the LGPMS- Delays in the LGPMS system LGPMS and LGFPMS LGFPMS complementation are development affected the system linkages for data highlighted by the following: testing and exploration of sharing possible functional Incorporation of the 11 out of the complementation of the 2 19 finance indicators into the systems. At this time, the LGPMS integration is based on the Initial agreements on the use of key financial indicators possible data sharing for the 2 as part of the performance systems indicators of the LGPMS. Conduct of the initial assessment for the technical requirements of the possible data sharing between the LGPMS and the

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Table 4: Component C - Summary of Project Deliverables: Actual Vs. Expected. Expected Deliverables Actual Accomplishment Remarks LGFPMS Operational requirement for the system complementation is affected by the different data updating requirement of the LGPMS and the LGFPMS. LGPMS is LGU based assessment while the LGFPMS is based on centralized analysis based on the submission of the LGU statement of Income and Expenditures (SIE). Another key question is the data entry timing specifically whether the SIE will be available during the data capture during 3rd quarter or early 4th quarter. Basic recommendation for integration includes that the data gathering and entry of the 11 finance indicators at the LGU level. This means that the LGU proceed with the data capture using the LGPMS data capture. Another suggestion is for a data review of data sources for the finance indicators be done to properly guide the LGUs in referencing the LGPMS data capture. The objective of the review is to minimize the possible discrepancy in data sources for the both the LGPMS and LGFPMS. Recommendations on the Support to system development Inputs in this deliverables improvement of LGPMS completed and delivered particularly were coordinated with the system design and with the following services: designated system developer, accessibility the ASIAGATE, which was . Provision of technical inputs to already contracted at the start system design and architecture of the component activities . Technical coordination on with DILG-BLGS and ASIAGATE on the system development and implementation . Support in the analysis of LGPMS system infrastructure requirements . Research and provision of advisory service on the selection of a hosting service provider and hardware requirements . Consultations and coaching activities for the completion of the LGPMS data management plan . Recommendations on LGPMS system management and sustainability plan

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IV. Outcome and Assessment of Project Deliverables

A. Component A

44. As a result of the outputs of Component A, the following outcomes are being targeted:

a. Fully-functioning Coordinating Committee on Devolution (CCD) that meets every month and institutionalized through an executive issuance.

b. Approved medium-term agenda for CCD.

c. Fully-functioning CCD Technical Secretariat.

d. Legislation passed on the Executive and LGU League-endorsed tax amendments to the Local Government Code of 1991.

The table below presents the assessment of the outcomes.

Table 5: Component A - Deliverables, Expected Outcome, Actual Outcome and Assessment Deliverable Expected Outcome Actual Outcome Assessment Main Task 1: Provide 1.1 Legislation Draft consensus In spite of Technical Support for passed on the Congressional and overwhelming support the interim CCD and Executive and LGU Senate bill was from the oversight the interim-CCD and League-endorsed tax completed with support agencies and the LGU CCD Agenda: amendments to the from oversight agencies Leagues, the draft Local Government and LGU Leagues. In legislation failed to pass Code of 1991. addition, draft bill was due to inaction from the submitted with legislature. Although endorsements from the the legislature was Secretary of the DILG, consulted in various the Leagues of stages of the bill Provinces, and the drafting, support for the League of Cities. filing of the bill was not However, House explicit. Although one Committee on Local claim was that Government declined congressman felt that on filing the bill due to the bill had too many the claim that this amendments, these would not be supported were mostly of the by congressmen due to same nature (e.g., the number of increases in existing measures. Bills are local tax rates). There currently still endorsed was an unanticipated by the CCD and will dynamic between the passed on to the next LGUs and the Administration and legislature which the Congress. project could not identify and could only be attributed to conflicting interests among the parties. It could also be the case that the measure did not provide any incentive for the

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legislature to work on. On the other hand, the bill remains in the agenda of the CCD which may find a better chance of passing with a new set of legislators.

1.2 Signed As of the mid-term The probability of Memorandum of report it was attaining MOA between Agreements between recommended by the the LGUs and the LGU Leagues and the DILG that the objective selected sectoral Department of was to draft position agencies weakened Agriculture, Department papers for further when resources for the of Environment and devolution in selected re-engineering of the Natural Resources, sectoral agencies which bureaucracy became Department of Social would be endorsed by scarce. Furthermore, Welfare and the LGU Leagues to the policy environments in Development, and next administration. agencies such as the Department of Health Drafts have been Department of on further devolution of completed for the Agriculture undertook a functions to LGUs. review of the LGU reversal when senior Leagues and management moved finalization in 2010. toward recentralizing functions. The position papers will be more useful when a new administration is in place and more open to further decentralization.

1.3 Approved Draft completed on Draft will be finalized medium-term agenda LGU Medium-Term after additional inputs for CCD. Roadmap, 2010-2015. are included from the CCD members. Main Task 2 – 2.1 Fully- CCD institutionalized The approach of having Facilitate the creation functioning through Memorandum the members get used of the Coordination Coordinating of Understanding to working on policy Committee on Committee on between oversight issues together before Decentralization Devolution (CCD) that agencies and LGU formalizing the body (CCD) meets every month and Leagues. was very effective in institutionalized through building consensus an executive issuance. even among resistant members. However, continuous technical assistance on policy issues from donors is needed to support the body.

Main Task 3 - 3.1 Fully- CCD technical The technical Facilitate the creation functioning CCD secretariat legally secretariat will most of a CCD Technical Technical Secretariat. created in CCD MOU. effective as agenda and Secretariat Capacity building to be technical assistance provided in 2010. managers given the limited number of personnel that can be provided within the bureaucracy. Given this, continuous technical assistance on policy issues from donors is needed to support the technical secretariat and the CCD.

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45. Based on the table above, 3 out of the 5 outcomes have been achieved in full by the end of the project in May 2009. These are the creation of the CCD, the creation of the CCD Technical Secretariat, and the development and approval of a medium-term agenda. The first two were completed through a signed Memorandum of Understanding and the third was finalized as the LGU Medium-Term Roadmap, 2010-2015 for submission to the next administration.

46. Two outcomes – the passage of legislation for increasing local taxes and memorandum of agreement for further decentralization in selected national government agencies such as Agriculture, Environment and Natural Resources, Health, and Social Welfare and Development were substantially achieved. This means that the policy reform is in place and will continue to be pursued with a likelihood of being achieved some time after the project has concluded and in the next administration. With respect to legislation on improving local taxes, it was the assessment of the team that although consensus and support was achieved among the CCD members, it could not anticipate nor compensate for the dynamic between the LGUs and the legislature. It was reported that there exists underlying friction and competition between some members of Congress, who are also members of the House Committee on Local Government, and local chief executives. This resulted in resistance on the part of the legislature to file bills that would improve local resource generation from taxes. This resistance was strong enough to bar the draft bill in spite of consultations with the House Committee and letters of endorsements from the DILG Secretary and the President of the League of Provinces of the Philippines and the League of Municipalities of the Philippines. On the other hand, the CCD has not given up on the proposed measures and will continue to pursue the filing of the bill and the advocacy of the reform in the next administration when new congressional members will be elected. However, this project also recommends that any pursuit of this reform in the next administration study what incentives can motivate and be instituted in order to generate congressional support for the reforms.

47. A critical lesson learned from this project is the need to identify incentives on the part of the legislature in the pursuit of policy reforms. A good example can be found in the passing of legislation for the lowering of the local amusement tax. In spite of opposition from the DILG, BLGF and the LGU Leagues, the legislature, both the Senate and the House of Representatives passed the measure which contravenes the intent of the Local Government Code of 1991 to improve local revenue generation. The local amusement tax is one of the taxing powers of the province and city. However, strong support came from both Houses of Congress because the measure was requested by the local entertainment industry composed of film producers, actors, and theatre owners. Since local legislators gain electoral mileage when endorsed by film celebrities, they ensured that the bill passed quickly into law.

48. On the matter of further decentralization in selected national government agencies, executive support in the form of resources for re-engineering the bureaucracy was no longer available thereby weakening the initiative. Movement in the policy agenda was heavily contingent on the momentum brought about by the re-engineering agenda of the National Government. This would provide the incentive for opening up the devolution of functions and resources to the LGUs by ensuring that redundant central government agency function and personnel would be compensated with a adequate retirement or separation package. However, lack of resources, partly due to the financial crises, weakened executive support for the agenda and the flow of resources. In addition, policy reversals were also being implemented in some agencies such as the Department of Agriculture which was moving towards re-nationalizing the devolved functions as well as calls on the part of some provincial LGUs to re-nationalize their hospitals since they did not have the resources to support their operation. By the mid-term report of this project, discussions with DILG moved towards ensuring that the LGUs would have a position paper on further devolution in

Page | 27 ADB TA 7019: Local Government Financing and Budget Reform Project Final Report May 2010 selected sectoral agencies that they could present to the next administration for discussion. The CCD has agreed to support the dialogue and move towards greater decentralization of the functions with the position papers as the base. As with the local tax legislation, this policy agenda is in place and has a likelihood of being achieved but sometime after the project has terminated.

B. Component B

49. Overall, the desired ultimate outcomes of Component B are the adoption of Code- compliant CDP borne out of enhanced competencies of LGOOs to extend technical assistance to LGUs and LPDCs in CDP and LDIP formulation within the framework of the RPS and JMC No. 001 series of 2007; strengthened plan-to-budget linkage through the investment program; integration of sectoral, cross-sectoral and/or thematic concerns and plan documents mandated by law or advocated by some national government agencies in the RPS and the CLUP and CDP.

Table 6: Component B - Deliverables, Expected Outcome, Actual Outcome and Assessment ACTUAL OUTCOME & DELIVERABLES EXPECTED OUTCOME ASSESSMENT

Training Modules and Session LGOOs who participated in Assessment of the course in terms Guides for the Introductory either course: of content, usefulness in current and Intensive Courses on job, delivery of presentations was RPS and CDP Preparation a) obtained deeper conducted using evaluation forms appreciation and designed for the purpose. This was understanding of the administered for each session at processes, the end of each module, at mid- methodologies, tools course and at the end of the and techniques for CDP course. (Please refer to preparation; Assessment Results) b) acquired adequate facilitation skills for rolling out and echoing the course at the LGU level; and c) attained satisfactory level of competency in extending technical assistance to LGUs in the formulation of Code- compliant CDPs and LDIPs.

LGU and HLURB representatives who were invited during the Introductory Course gained new insights from the introduction of the RPS, JMC, CDP process and the CLUP-CDP Interface.

Enhanced Guide to CDP Facility in echoing training This has yet to be determined after Presentation programs on CDP and LDIP one planning cycle. Preparation, as well as Plan Monitoring and Evaluation and extending technical assistance to LGUs on the same components of the comprehensive development planning cycle. Joint Memorandum Circular to Harmonization of CLUP and This has yet to be determined after

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Table 6: Component B - Deliverables, Expected Outcome, Actual Outcome and Assessment ACTUAL OUTCOME & DELIVERABLES EXPECTED OUTCOME ASSESSMENT define roles and CDP preparation process formulation and approval of the responsibilities between DILG and guidebooks towards Implementing Rules and and HLURB in the local completion and adoption of Regulations of JMC No. 001 series planning process Code-compliant CLUPs and of 2009. CDPs. Orientation-briefing on this JMC participated in by selected technical staff of HLURB and DILG was conducted. Suggested inputs to the IRR were submitted. Harmonization and integration Effective and strengthened This has yet to be determined after of the five (5) development plan-to-budget linkage at least one planning cycle. sectors in the CDP and the through the investment three (3) sectors as indicated program. in the UBOM Cross-Referencing Guide for Facility in the utilization of This has yet to be determined after CDP Preparation suggested tools, techniques at least one planning cycle. and methodologies for planning, investment programming, revenue administration, and budgeting and expenditure managements based on the RPS Sourcebook and Enhanced Guide to CDP preparation and the manuals and guidebooks prepared by NEDA, DBM and DOF.

C. Component C:

50. Modest outcomes are generated based on the Component C accomplishments and deliverables. The highlights of these outcomes are the re-establishment of the LGPMS as on-line system and the completion of the LGPMS utilization manual which provides guidance to users in maximizing the LGPMS information in LGU planning, budgeting and capacity development planning.

51. The table below summarizes the deliverables, outcomes and assessment of the component C accomplishments.

Table 7: Component C - Deliverables, Expected Outcome, Actual Outcome and Assessment Deliverables Expected Actual outcome Assessment Outcome An analytical framework and Enhanced LGPMS utilization manual The manual needs to be manual on strengthening the analytical completed and properly disseminated, strategic links of the LGPMS framework and demonstrates the various advocated and tested to results for improving LGU utilization of the uses of the LGPMS in LGUs and other users to overall performance in LGPMS reports relation to LGU basic fully appreciate the utility service delivery and revenue functions such as in of the tool. generation planning and budgeting Promotion and advocacy on Core DILG staff Trained core DILG staff The training participants the use of the LGPMS data trained on the and selected LGU in the acquired additional utilization of the utilization of LGPMS in knowledge and skills in LGPMS which is CDP and in LGU demonstrating the use of critical in budgeting and capacity LGPMS in development advocating the use development planning planning and budgeting. of the system for Training participants have LGU management improved knowledge and appreciation of the purpose of the LGPMS beyond the submission of

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Table 7: Component C - Deliverables, Expected Outcome, Actual Outcome and Assessment Deliverables Expected Actual outcome Assessment Outcome LGU performance reports. Recommendations on the Recommendation Drafted recommendation Management and administrative mechanism/ for system for improving system sustainability measures institutional linkages management and management and needs to be formalized between LGUs, BLGS, sustainability sustainability and approved for regional offices and other implementation by DILG concerned NGAs management Recommendations on the Functional and Recommended basic Full integration is affected LGPMS and LGFPMS operational operational integration for by different system system linkages for data integration of the the 2 systems requirements and data sharing LGPMS and entry timetables LGFPMS Recommendations on the Improved system . LGPMS now The new LGPMS version improvement of LGPMS infrastructure accessible to users is now accessible as an system design and support and easier as internet-based on-line internet based accessibility access to the database system database. LGPMS database . Improved hardware and system The systems changes bandwidth allocation includes a revised data . Enhance system user entry timeline which is requirements now pegged between definition, systems September/ October application design, period to give LGUs ‗real- security and technical time‘ data of their architecture to assessment and thus address scalability, should be linked to LGU performance & budget period availability

V. Recommendations for Next Steps.

A. Component A

52. The table below present the recommendations of Component A for succeeding technical assistance.

Table 8: Component A – Next Steps: Activities and Expected Outputs

Activities Expected Outputs Main Task 1: Provide Technical Support for i. Finalization of CCD Medium-Term Roadmap the interim CCD and the interim-CCD and consolidating policy concerns from other CCD Agenda: stakeholders for presentation to next administration.

ii. Finalization of CCD short-term policy agenda.

iii. Provision of policy advise on CCD policy matters.

iv. CCD Meetings.

B. Component B

53. The table below present the recommendations of Component B for succeeding technical assistance in the areas of local capacity building.

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Table 9: Component B – Next Steps: Activities and Expected Outputs

Activities Expected Outputs

1. Enhanced Guide to CDP Preparation a) Style editing to make it more user-friendly.

2. Harmonization of CLUP and CDP a) Formulation of Implementing Rules and Guidelines Regulations of JMC No. 001 series of 2009

b) Development and printing of Supplemental Guide to CLUP Preparation leading to the production of a Code-compliant CLUP prepared within the framework of the RPS and JMC No. 001 series of 2007.

c) Development of training modules, session guides and conduct of training program on the preparation of Code-compliant CLUP using the Supplemental Guide on CLUP Preparation.

e) Development and printing of Manuals for the preparation of a Provincial Comprehensive Land Use Plan and a Provincial Development Plan as alternative guidebook for formulating two separate plans as mandated by the Local Government Code.

3. Mainstreaming of Sectoral/ Cross- Technical assistance to National Government Sectoral/Thematic Concerns in the CDP and Agencies and LGUs in developing CLUP guidebooks/manuals for mainstreaming sectoral/cross-sectoral/ thematic concerns in the CLUP and CDP.

Continuous dialogue with DBM re: adoption of common definition of terms used in investment programming

4. Manual on Local Planning Database Manual – Project End May 2010.

C. Component C:

54. The fundamental steps for maximizing the LGPMS results in LGU management functions such as in planning, budgeting and policy development are put in place in this TA through the LGPMS Utilization Manual. The manual needs to be integrated into the other LGPMS manuals and disseminated and popularized accordingly with the intended users. The core DILG staff at the regional and provincial levels should start testing/using the manual particularly its links to budgeting and capacity development planning. The link of the LGPMS in development planning can also be put test after next year‘s elections. Training and coaching modules should be developed for this purpose.

55. With regards to the system‘s performance, this needs to be fully tested especially prior to the conduct of the next round of planning cycle after the 2010 elections. The current

Page | 31 ADB TA 7019: Local Government Financing and Budget Reform Project Final Report May 2010 data entry should be technically assessed to prepare the system for a wider and intensive use in 2010.

56. The table below outlines some of the key activities that need to be completed to ensure a wider acceptance and utilization of the LGPMS by LGU users.

Table 10: Component C – Next Steps: Activities and Expected Outputs Activities Expected Outputs Integration of the LGPMS Utilization Manual with Wider utilization of the LGPMS manual the LGPMS User Manual Dissemination and training DILG expertise in facilitating the use of LGPMS To further strengthen capacity, improve system Improvement of the LGPMS System Design performance, and operations of the system, the following activities are necessary as follows:

. Assessment of system usage by users . Development of a data management plan . Formulation of a system security plan . Development of disaster and recovery plan . Finalization of the LGPMS operational plan

VI. Summary of Resources Used:

Table 11: Summary of Level of Effort (LOE) Usage (as of May 14, 2010)

Name LOE EXPENDED %USED 18 18 100% 1 Raymund Fabre

Team Leader/ Decentralization Policy and Change Mgmt Specialist 6 6 100% 2 Ma. Cecilia Soriano

Institutional/Organizational Development Sp. 0.4091 0.4091 100% 3 Sofronio Ursal

Legal Specialist 6 6 100% 4 Jose Antonio League

LGU Investment Programming Specialist 9 9 100% 5 Ernesto Serrote

Local Development Specialist 10 10 100% 6 Liza-Marie P. Elum

LGU Capacity Development Specialist 0.3636 0.3636 100% 7 Erlito Pardo

LGU Budget,Revenue Mobilization, Cost Accounting Specialist 6 6 100% 8 Rizalino Barandino

LGU Performance Management Specialist 6 6 100% 9 Jay Lowell Payuyo

System Analyst TOTAL 61.7727 61.7727 100%

Page | 32 ADB TA 7019: Local Government Financing and Budget Reform Project Final Report May 2010

Table 12: Summary of Equipment and Workshop Resources Used (As of May 14, 2010) Progress Payment AMOUNT BILLED BALANCE

1200 Equipment 22,000.00 15,492.16 6,507.84

1300 Seminars, Conferences 205,000.00 Add: VO1 21,400.00 226,400.00 197,877.68 28,522.32

Page | 33 ADB TA 7019: PHI - LOCAL GOVERNMENT FINANCING AND BUDGET REFORM (LGFBR) PROJECT

FIRST EXIT WORKSHOP Mandarin Oriental Suites, Gateway, Cubao, Quezon City January 8, 2010

Accomplishments: 19 May 2008 to 30 April 2010

Contents 1. Objectives

2. Deliverables: Targeted and Actual

3. Assessments

4. Next Steps to Project End

Component A Accomplishments of 11 ADB TA 7019: PHI - LOCAL GOVERNMENT FINANCING AND BUDGET REFORM (LGFBR) PROJECT

FIRST EXIT WORKSHOP Mandarin Oriental Suites, Gateway, Cubao, Quezon City January 8, 2010

Objectives

1. Task 1: Provide Technical Support for the interim CCD and the interim‐CCD and CCD Agenda

2. Task 2:Facilitate the creation of the Coordination Committee on Decentralization (CCD)

3. Task 3: Facilitate the creation of a CCD Technical Secretariat

Deliverables Targeted Actual Main Task 1: Provide Technical Support for the interim CCD and the interim‐ CCD and CCD Agenda: 1. Draft first year (1-year) CCD interim agenda for 1.1 Draft first year agenda for Interim CCD. approval of DILG and interim CCD.

2. Draft medium-term agenda (5-years) for CCD. 2. LGU Medium-Term Agenda, 2010-2015.

3. Workshop/consultation with CCD members on 3. First consultation conducted in October 2009. medium-term agenda 4. Finalized medium-term agenda for CCD. Ongoing.

5. Technical/Policy/Advocacy Advisory Reports 5.1 Policy note and Draft Joint Memorandum Circular (TPAAR): Harmonization of JMC 2007-1 for DILG and DBM on the Implementation of Section 287 of Local Government Code of 1991. 5.2 Status Report on JMC Roll-Out (Presentation for CCD Executive Committee).

Component A Accomplishments of 11 ADB TA 7019: PHI - LOCAL GOVERNMENT FINANCING AND BUDGET REFORM (LGFBR) PROJECT

FIRST EXIT WORKSHOP Mandarin Oriental Suites, Gateway, Cubao, Quezon City January 8, 2010

Deliverables

Targeted Actual Main Task 1: Provide Technical Support for the interim CCD and the interim‐ CCD and CCD Agenda: 6. Technical/Policy/Advocacy Advisory Reports (TPAAR): No longer taken up. Harmonization of Land Use Planning –LGU-NG Co-Management Issues 7. Technical/Policy/Advocacy Advisory Reports (TPAAR): Tax 1. Revised Draft Bill Amending Tax Provisions of the Local Amendments to the Local Government Code Government Code of 1991 – House Version. 2. Revised Draft Bill Amending Tax Provisions of the Local Government Code of 1991 – Senate Version. 3. Highlights of the Proposed Local Tax Amendments to the Local Government Code of 1991 (PowerPoint Presentation). 4. Advocacy Plan for Book II Amendments.

8. Technical/Policy/Advocacy Advisory Reports (TPAAR): Review of 1. Technical Report No. 3: Initial Comments on JICA-funded improvements in the release of intergovernmental transfers – IRA, Study on the Improvement of the Internal Revenue special shares, VAT Allotment (IRA) System in the Philippines. 2. Briefing Material on IRA Study (for Legislature). 3. Legal Comments on the Study on the Improvement of the Internal Revenue Allotment (IRA) System in the Philippines. 4. Comments on IRA Study Additional Work. 5. Reformulating the Internal Revenue Allotment: Prospects for Cities (Presentation for the League of Cities of the Philippines by DILG Undersecretary Austere Panadero).

Deliverables Targeted Actual Main Task 1: Provide Technical Support for the interim CCD and the interim‐ CCD and CCD Agenda: 9. Technical/Policy/Advocacy Advisory Reports (TPAAR): 1. First Policy Memo on Further Devolution in Selected Implementation of further devolution without legislative action in National Government Agencies: Initial Observations the Department of Agriculture, Department of Environment and and Next Steps. Natural Resources, Department of Health, and Department of 2. Position Papers for Further Devolution of Service Social Welfare and Development as recommended by the LGU Delivery: Selected Agencies under Executive Order Leagues. 444 (Presentation for Working Group on Decentralization and Local Government, Government Side (NG and LGU)) 3. Draft Policy Position paper on Further Devolution in Agriculture, Environment and Natural Resources, Health and Social Welfare and Development.

10. Technical/Policy/Advocacy Advisory Reports (TPAAR): Ongoing. Awaiting final outputs of ADB TA 4778, Review of non-tax, fiscal amendments to the Local Government Code of 1991 – IRA formula, share of LGUs in national wealth, basis of IRA computation, LGU depository accounts in private banks, share of LGUs in road users fund, etc.

Component A Accomplishments of 11 ADB TA 7019: PHI - LOCAL GOVERNMENT FINANCING AND BUDGET REFORM (LGFBR) PROJECT

FIRST EXIT WORKSHOP Mandarin Oriental Suites, Gateway, Cubao, Quezon City January 8, 2010

Deliverables Targeted Actual Main Task 1: Provide Technical Support for the interim CCD and the interim‐ CCD and CCD Agenda: 11. Technical/Policy/Advocacy Advisory Reports (TPAAR): Ongoing. Review of further devolution without legislative action in other key national government agencies such as the Department of Public Works and Highways,

12. Technical/Policy/Advocacy Advisory Reports (TPAAR): 12.1 Terms of Reference on Economic Impact of Federalism. Federalism by the year 2012. 12.2 Technical Paper No. 1: Local Tax Reform Initiatives and the Drive towards Federalism in the Philippines.

13. Technical/Policy/Advocacy Advisory Reports (TPAAR): Ongoing. Awaiting final outputs of ADB TA 4778, Review of the non-fiscal amendments to the Local Government Code of 1991. 14. Draft Memorandum of Agreement between LGU Leagues Ongoing. and Department of Agriculture, Department of Environment and Natural Resources, Department of Health, and Department of Social Welfare and Development on further devolution of functions to LGUs.

Deliverables Targeted Actual Main Task 1: Provide Technical Support for the interim CCD and the interim‐ CCD and CCD Agenda: 15. Technical/Policy/Advocacy Advisory Reports 1. First Policy Memo on Devolution and Local (TPAAR): Issues recommended by CCD – Number of Government Trust Fund. policy outputs exceeded by at least 2.4 tines.

2. Second Policy Memo on Devolution and Local Government Trust Fund.

3. Local Service Delivery Study Terms of Reference.

4. Policy Memorandum on House and Senate Bills on Special Education Fund and the Amusement Tax.

5. Comments on House Committee on Local Government Substitute Bill for House Bills Nos. 389, 742, 1250, 2183, 2625, 3505, and 4367 Amending the Amusement Tax Provision in the Local Government Code of 1991.

Component A Accomplishments of 11 ADB TA 7019: PHI - LOCAL GOVERNMENT FINANCING AND BUDGET REFORM (LGFBR) PROJECT

FIRST EXIT WORKSHOP Mandarin Oriental Suites, Gateway, Cubao, Quezon City January 8, 2010

Deliverables Targeted Actual Main Task 1: Provide Technical Support for the interim CCD and the interim‐ CCD and CCD Agenda: 15. Technical/Policy/Advocacy Advisory Reports 6. Comments on House Bill No. 2452 and Senate Bill (TPAAR): Issues recommended by CCD No, 1645 –the Valuation Reform Act (VRA) and House Bill 3514 –the Real Estate Service Act.

7. Technical Paper No. 2: Towards A Cost Effective System for Effecting Real Property Valuation Reforms in the Philippines. 8. A Technical Note on the Local Governance Performance Management System (LGPMS) and the Community‐Based Monitoring System (CBMS).

9. Remaining Issues on LGPMS‐CBMS Technical Note.

10. Stakeholder Coordination in Activities Supporting Decentralization and Local Governance in the Philippines: Initial Thoughts

Deliverables Targeted Actual Main Task 1: Provide Technical Support for the interim CCD and the interim‐ CCD and CCD Agenda: 15. Technical/Policy/Advocacy Advisory Reports 11. Stakeholder Coordination in Activities Supporting (TPAAR): Issues recommended by CCD Decentralization and Local Governance in the Philippines: Initial Thoughts on Status and Issues (PowerPoint Presentation). 12. Comments on ADB PHCO LGU TAs for 2009 and 2010 Pipeline. 13. Technical Paper No. 1 (Revised for Legislature Use): The Need for Local Government Finance Reforms in the Face of Charter Change Initiatives.

14. LGU Credit and Financing Issues and Recommendations (Revised for CCD Executive Committee)

15. Overview of Accomplishments on Local Government and Emerging Work Activities for 2009‐ 2010 Onwards (Working Group on Decentralization and Local Government, Government Side – Presentation for CCD Executive Committee).

Component A Accomplishments of 11 ADB TA 7019: PHI - LOCAL GOVERNMENT FINANCING AND BUDGET REFORM (LGFBR) PROJECT

FIRST EXIT WORKSHOP Mandarin Oriental Suites, Gateway, Cubao, Quezon City January 8, 2010

Deliverables Targeted Actual Main Task 1: Provide Technical Support for the interim CCD and the interim‐ CCD and CCD Agenda: 15. Technical/Policy/Advocacy Advisory Reports 16. Mobilization of ODA Support (Presentation for CCD (TPAAR): Issues recommended by CCD Executive Committee).

17. Decentralization Experience of the Philippines: Challenges and Implications on Local Government Finance (Working Group on Decentralization and Local Government, Government Side – Presentation for CCD Executive Committee).

18. Policy Memorandum –10 March 2009: Comments on Disaster Risk Management (DRM) Program Memo.

19. LGFBR Issue Paper No. 1 –Towards Enhancing the Ability of LGUs to Generate Revenues from Business Taxes.

20. Initial Future LGFBR Recommended Policy Reforms

Deliverables Targeted Actual Main Task 1: Provide Technical Support for the interim CCD and the interim‐CCD and CCD Agenda: 15. Technical/Policy/Advocacy Advisory Reports 21. Initial LGFBR Sub‐program 3 Policy Inputs (TPAAR): Issues recommended by CCD

22. Policy Memorandum –June 1, 2009: Comments on NEDA Letter on Imposition of the Idle Land Tax.

23. Policy Memorandum – August 12, 2009: Comments on Overseas Farm Investments.

24. Proposed 2009‐2010 Work Plan –Final Version (September 3, 2009).

16. CCD Meetings and Workshops 12 conducted. Ongoing.

Component A Accomplishments of 11 ADB TA 7019: PHI - LOCAL GOVERNMENT FINANCING AND BUDGET REFORM (LGFBR) PROJECT

FIRST EXIT WORKSHOP Mandarin Oriental Suites, Gateway, Cubao, Quezon City January 8, 2010

Deliverables Targeted Actual Main Task 2 – Facilitate the creation of the Coordination Committee on Decentralization (CCD): 1. Draft concept paper for expanding the agenda of the 1. Policy Memorandum on JMC 2007-1 Executive MOU’s Executive Committee. Committee as Interim CCD. 2. Draft implementing guidelines for JMC 2007-1 and 2. Review of DILG-DBM-DOF-NEDA JMC 2007-1 MOU, if necessary MOU. 3. Discussion paper on modalities for CCD structure. 3. CCD Briefing Material.

4. Workshop on modalities for CCD structure including 4. CCD Meetings. relationship with other coordinating committees and first year agenda.

5. Draft organizational structure for CCD with technical 5. CCD Final Memorandum of Understanding. secretariat based on chosen modality.

Deliverables Targeted Actual Main Task 2 – Facilitate the creation of the Coordination Committee on Decentralization (CCD): 6. Draft operational guidelines for CCD. CCD Final Memorandum of Understanding signed November 2009. 7. Terms of reference for technical secretariat CCD Final Memorandum of Understanding signed November 2009. 8. Workshop/consultation with CCD members on draft CCD Meeting. operational guidelines. 9. Finalized operational guidelines. CCD Final Memorandum of Understanding signed November 2009. 10. Draft executive issuance for creation of CCD. CCD Final Memorandum of Understanding signed November 2009.

Component A Accomplishments of 11 ADB TA 7019: PHI - LOCAL GOVERNMENT FINANCING AND BUDGET REFORM (LGFBR) PROJECT

FIRST EXIT WORKSHOP Mandarin Oriental Suites, Gateway, Cubao, Quezon City January 8, 2010

Deliverables Targeted Actual Main Task 3 ‐ Facilitate the creation of a CCD Technical Secretariat:

1. Draft Manual of Operations and Continuing Ongoing. Completion in March 2010. Research Agenda for CCD Secretariat

2. Orientation Workshop for CCD Secretariat Ongoing. Completion in March 2010.

3. Finalized draft manual of operations and Ongoing. Completion in March 2010. continuing research agenda for CCD secretariat

Assessment

Expected Outcome Actual Outcome Assessment

Main Task 1: Provide Technical Support for the interim CCD and the interim‐CCD and CCD Agenda: Legislation passed on the Executive and Draft consensus Congressional and In spite of overwhelming support from the LGU League-endorsed tax amendments Senate bill was completed with support oversight agencies and the LGU Leagues, to the Local Government Code of 1991. from oversight agencies and LGU the draft legislation failed to pass due to Leagues. In addition, draft bill was inaction from the legislature. Although the submitted with endorsements from the legislature was consulted in various Secretary of the DILG, the Leagues of stages of the bill drafting, support for the Provinces, and the League of Cities. filing of the bill was not explicit. Although However, House Committee on Local one claim was that congressman felt that Government declined on filing the bill the bill had too many amendments, these due to the claim that this would not be were mostly of the same nature (e.g., supported by congressmen due to the increases in existing local tax rates). number of measures. Bills are currently There was an unanticipated dynamic still endorsed by the CCD and will between the LGUs and the legislature passed on to the next Administration and which the project could not identify and Congress. could only be attributed to conflicting interests among the parties. It could also be the case that the measure did not provide any incentive for the legislature to work on. On the other hand, the bill remains in the agenda of the CCD which may find a better chance of passing with a new set of legislators.

Component A Accomplishments of 11 ADB TA 7019: PHI - LOCAL GOVERNMENT FINANCING AND BUDGET REFORM (LGFBR) PROJECT

FIRST EXIT WORKSHOP Mandarin Oriental Suites, Gateway, Cubao, Quezon City January 8, 2010

Assessment Expected Outcome Actual Outcome Assessment

Main Task 1: Provide Technical Support for the interim CCD and the interim‐CCD and CCD Agenda: Signed Memorandum of As of the mid-term report it was The probability of attaining MOA Agreements between LGU recommended by the DILG that the between the LGUs and the selected Leagues and the Department of objective was to draft position sectoral agencies weakened when Agriculture, Department of papers for further devolution in resources for the re-engineering of Environment and Natural selected sectoral agencies which the bureaucracy became scarce. Resources, Department of Social would be endorsed by the LGU Furthermore, policy environments in Welfare and Development, and Leagues to the next administration. agencies such as the Department of Department of Health on further Drafts have been completed for the Agriculture undertook a reversal devolution of functions to LGUs. review of the LGU Leagues and when senior management moved finalization in 2010. toward recentralizing functions. The position papers will be more useful when a new administration is in place and more open to further decentralization.

Assessment Expected Outcome Actual Outcome Assessment

Main Task 1: Provide Technical Support for the interim CCD and the interim‐CCD and CCD Agenda:

1. Approved medium-term Draft completed on LGU Medium- Draft will be finalized after additional agenda for CCD. Term Roadmap, 2010-2015. inputs are included from the CCD members.

Component A Accomplishments of 11 ADB TA 7019: PHI - LOCAL GOVERNMENT FINANCING AND BUDGET REFORM (LGFBR) PROJECT

FIRST EXIT WORKSHOP Mandarin Oriental Suites, Gateway, Cubao, Quezon City January 8, 2010

Assessment Expected Outcome Actual Outcome Assessment

Main Task 2 – Facilitate the creation of the Coordination Committee on Decentralization (CCD) 1. Fully-functioning CCD institutionalized through The approach of having the Coordinating Committee Memorandum of Understanding members get used to working on on Devolution (CCD) that between oversight agencies and policy issues together before meets every month and LGU Leagues. formalizing the body was very institutionalized through effective in building consensus even an executive issuance. among resistant members. However, continuous technical assistance on policy issues from donors is needed to support the body.

Assessment Expected Outcome Actual Outcome Assessment

Main Task 3 ‐ Facilitate the creation of a CCD Technical Secretariat 1. Fully-functioning CCD CCD technical secretariat legally The technical secretariat will most Technical Secretariat. created in CCD MOU. Capacity effective as agenda and technical building to be provided in 2010. assistance managers given the limited number of personnel that can be provided within the bureaucracy. Given this, continuous technical assistance on policy issues from donors is needed to support the technical secretariat and the CCD.

Component A Accomplishments of 11 ADB TA 7019: PHI - LOCAL GOVERNMENT FINANCING AND BUDGET REFORM (LGFBR) PROJECT

FIRST EXIT WORKSHOP Mandarin Oriental Suites, Gateway, Cubao, Quezon City January 8, 2010

Project End Final Activities Activities Deliverables Main Task 1: Provide Technical Support for the 1. Consultation, reformulation and finalization of interim CCD and the interim-CCD and CCD CCD Medium-Term Roadmap consolidating policy Agenda: concerns from ADB TA 4556, ADB TA 4778 and LGFBR-2. 2. Drafting of policy paper consolidating policy issues on decentralization from recent ADB and other donor studies. 3. Legal study on Decentralization Study Recommendations. 4. Publication of ADB TA 4778 Studies. 5. Consultation and finalization of CCD short-term policy agenda. 6. CCD Meetings. Main Task 3 - Facilitate the creation of a CCD 1. Draft Operations Guidelines and Continuing Technical Secretariat Research Agenda for CCD Secretariat. 2. Orientation Workshop for CCD Secretariat 3. Finalized operations guidelines and continuing research agenda for CCD secretariat

Raymund C. Fabre Team Leader ADB TA 7019

Component A Accomplishments of 11 Operating Protocols

PROTOCOLS ‐ GENERAL

1. The CCD Executive Committee (CCD Execom) will meet every semester or twice a year. A CCD Executive Committee meeting may be called by the DILG Undersecretary upon the recommendation of the CCD Policy Dialogue Group should a policy issue need to be decided upon by the CCD Execom. 2. The CCD Policy Dialogue Group (CCD PDG) and LGU Dialogue Partners will meet every quarter or 4 times a year. Special meetings may also be organized as the need arises. 3. The CCD Technical Secretariat (CCD TC) will prepare the agenda for each meeting based on the recommendations of the CCD Execom or CCD PDG and LGU Dialogue Partners. PROTOCOLS ‐GENERAL 4. The CCD TC will be responsible for documenting the minutes of the meeting including issues, comments and agreements and prepare any briefing documents and invite any resource persons needed by the CCD. 5. The technical secretariat will be responsible for providing the logistical support for all CCD meetings. 6. The CCD Execom will only be considered in quorum if all the Undersecretaries representing the CCD EC are present.

PROTOCOLS ‐ GENERAL 7. For the CCD In order for there to be a quorum, there must be at least four (4) other members, excluding the DILG, of the CCD present at any meeting with at least one (1) member coming from the national government except for the DILG and at least one (1) member from the LGU Leagues. 8. The DILG Undersecretary or the BLGD Director, as his designate, must be present to chair the CCD PDG meeting. PROTOCOLS ‐ GENERAL 9. The minutes of the previous meeting will be reviewed and approved as well as business from the previous meeting discussed before any new agenda will be taken up. 10. The minutes will be considered approved with a move from any member of the CCD calling for the approval and another member seconding the approval.

PROTOCOLS ‐ GENERAL 11. Policy issues will be assigned to the relevant agency or agencies or LGU League (e.g., revenue generation –BLGF) for the purpose of preparing the policy agenda and briefing documents. 12. Each agency and LGU League will designate one (1) point person and one (1) alternative for follow‐ups on agenda issues and briefing documents by the CCD Technical Secretariat. 13. Each agency and LGU League will be assigned one (1) point person within the CCD Technical Secretariat. PURPOSE OF AGENDA 1. Information‐Sharing 2. Follow‐up of Previous Business 3. Coordination Matters (Policy, Operational, Project, and Technical Assistance) 4. Decision‐Making

FUNCTIONS OF THE TECHNICAL SECRETARIAT

• TECHNICAL

• ADMINISTRATIVE TECHNICAL

1. Support to meetings a. Preparation of the minutes b. Agenda setting c. Preparation of technical documents for the agenda folder 2. Implementation of the decisions of the CCD a. Monitoring/tracking of agreements during meetings b. Coordination and monitoring of CCD Workplan

ADMINISTRATIVE

1. Logistical Support 2. Word processing, filing and telephone/fax services 3. Preparation (compilation and packaging) of agenda folders COORDINATING COMMITTEE ON DECENTRALIZATION (CCD) Operating Guidelines

A. Definitions:

1. The Coordinating Committee on Decentralization (CCD) shall be composed of an Executive Committee (Execom) and a Policy Dialogue Group (PDG) to facilitate the implementation of decentralization under the Local Government Code of 1991, enhance local autonomy, and promote further devolution.

2. The Executive Committee shall be composed of the Secretaries of the Oversight Agencies (OAs) or their representatives to be chaired by the DILG. The Oversight Agencies are the Department of the Interior and Local Government, the Department of Finance, the Department of Budget and Management, and the National Economic and Development Authority. Serve as an approving authority on recommendations from the Policy Dialogue Group (PDG); and provide advisory function in connection with the activities of the CCD.

3. The Policy Dialogue Group shall be composed of the Oversight Agency Technical Group and the Local Government Dialogue Partners chaired by the Undersecretary for Local Government of the DILG. The Policy Dialogue Group shall support the Executive Committee by acting as a review and recommendation panel for matters that shall be elevated to the Executive Committee for appropriate action.

4. The Oversight Agency Technical Working Group shall be composed of the Director of the Bureau of Local Government Development (BLGD) of the DILG, the Executive Director of the Bureau of Local Government Finance (BLGF), the Director of the Budget and Management Bureau G (Bureau G) of the DBM, and the Director of the Regional Development Coordination Staff (RDCS) of the NEDA.

5. The Local Government Dialogue Partners shall be composed of Executive Director of the League of Provinces of the Philippines (LPP), the Executive Director of the League of Cities of the Philippines (LCP), the Executive Director of the League of Municipalities of the Philippines (LMP), the Executive Director of the Liga ng mga Barangay (LnB), and the Executive Director of the Union of Local Authorities of the Philippines (ULAP).

B. Functions of the CCD:

6. Act as an inter-governmental body for coordinating and harmonizing policies and operational activities related to decentralization and devolution;

7. Provide a forum for discussing LGU issues and policies and for sharing relevant information;

8. Collectively formulate, implement and advocate solutions and policy reforms within the powers and authorities of its member agencies;

9. Explore consensus and build support for policy reforms related to improving local governance, local service delivery, and devolution;

10. Elevate issues and recommendations to the Oversight Committee on Devolution (OCD) and other appropriate agencies, bodies and boards for policy decision and action; and

11. Initiate studies on LGU issues for the purpose of identifying, formulating, implementing and advocating policy reforms.

C. Scope of the CCD Agenda:

12. Capacity-Building;

13. Credit and Non-Traditional Local Government Finance;

14. Local Government Fiscal Matters and Policy including but not limited to Donor Financing, Intergovernmental Fiscal Relations; and Own-Source Revenue Generation;

15. Budget and Expenditure Policy;

16. Local Planning;

17. Local Service Delivery;

18. Performance Measurement; and

19. Devolution Reforms.

D. CCD Meetings and Quorum

20. The CCD Executive Committee (CCD Execom) will meet every semester or twice a year. A CCD Executive Committee meeting may be called by the DILG Undersecretary upon the recommendation of the CCD Policy Dialogue Group should a policy issue need to be decided upon by the CCD Execom.

21. The CCD Execom will only be considered in quorum if all the Undersecretaries or their duly designated representatives are present.

22. The CCD Policy Dialogue Group (CCD PDG) and LGU Dialogue Partners will meet quarterly every 2nd week of the 2nd month of each quarter. Special meetings may also be organized as the need arises.

23. In order to declare a quorum during meetings, all 4 members of Policy Dialogue Group must be present and at least two (2) members from the LGU Leagues.

24. The DILG Undersecretary or the designated co-chair for the year must be present to chair the CCD meeting. The co-chairmanship shall revolve among the other CCD oversight agencies.

25. Other policy dialogue partners may be invited during CCD meetings as resource person, but invited resource persons shall have no voting power.

26. All CCD members shall take turns hosting the CCD meetings.

27. The minutes of the previous meeting will be reviewed and approved as well as business from the previous meeting discussed before any new agenda will be taken up.

28. The minutes will be considered approved with a move from any member of the CCD calling for the approval and another member seconding the approval.

E. Policy Agenda Items for Discussion during CCD Meeting

29. The agenda items and prioritization of items for the meeting will be agreed upon by the CCD members at the close of the previous meeting.

30. Additional agenda items shall be submitted to the CCD Technical Secretariat three (3) weeks before the CCD meeting for inclusion in the final agenda.

31. The CCD Technical Secretariat will circulate the final agenda items to all CCD members two (2) weeks before the CCD meeting for comment. The CCD meeting agenda will be considered final one (1) week before the CCD meeting. Absence of a response from any CCD member to the agenda one (1) week before the CCD meeting will be considered as acceptance of the circulated agenda.

32. Policy issues will be assigned to the relevant agency or LGU League (e.g., revenue generation – BLGF). The proponent agency will provide the technical inputs, supporting documents and recommendations for resource persons to the CCD Technical Secretariat for the CCD meeting.

33. Each agency and LGU League will designate one (1) point person and one (1) alternate for follow-ups on agenda issues and briefing documents by the CCD Technical Secretariat.

34. Each agency and LGU League will be assigned one (1) point person within the CCD Technical Secretariat.

35. Proponent agencies for policy agenda items shall submit technical inputs to the CCD Technical Secretariat no later than three (3) weeks from the CCD meeting for the preparation of the agenda item’s policy brief. Proponent agencies shall also submit supporting documents and relevant studies to the CCD Technical Secretariat at least two (2) weeks before the CCD meeting. Proponent agencies shall also submit to the CCD Technical Secretariat the names and contact information of resource persons and agencies needed for the CCD meeting at least three (3) weeks before the CCD meeting.

36. Any CCD member may make a motion to place a policy recommendation to a vote. All CCD members present in the meeting have to agree unanimously to

place a policy recommendation to a vote. A simple majority is needed to determine the acceptance or rejection of the policy recommendation.

F. Duties and Functions of CCD Technical Secretariat

C.1 Technical:

37. Support to meetings

a) Preparation of the minutes b) Agenda preparation c) Preparation of technical documents such as policy briefs and supporting documents for the agenda folder

38. Implementation of the decisions of the CCD

a) Monitoring/tracking of agreements during meetings b) Coordination and monitoring of CCD Workplan

C.2 Administrative:

39. Logistical Support

40. Word processing, filing and telephone/fax services

41. Preparation (compilation and packaging) of agenda folders

G. CCD Protocols for the Convening of the Oversight Committee on Devolution

42. The CCD shall elevate any policy recommendations on decentralization issues which require higher authority decision/approval/action to the Oversight Committee on Devolution (OCD).

43. Any member agency or agencies of the CCD may raise the issue to the CCD during a regular or special meeting for recommendation to the OCD.

44. The member agency or agencies of the CCD that raised the issue and/or is directly involved by virtue of its mandate will be responsible for furnishing the CCD Technical Secretariat with technical inputs and supporting documents to accompany the CCD recommendation to the OCD.

45. The CCD resolution shall be forwarded to the OCD in a letter to be signed by the CCD Chair.

46. The CCD Technical Secretariat will be responsible for submitting the recommendation to the Office of the President and to follow up on an approved date for the convening of the OCD.

47. The CCD will coordinate closely with the OCD on documentation requirements and resource persons/agencies for the meeting and action taken by the OCD.

HIGHLIGHTS OF THE 3rd COORDINATING COMMITTEE ON DECENTRALIZATION (CCD)MEETING March 30, 2010, 9:30am Astoria Plaza, Escriva Drive, Pasig City

Members Present : 1) USEC. Austere Panadero ‐ DILG 2) Jose Arnold Tan ‐ BLGF (representing Exe. Dir Presentacion Montessa) 3) Jun Moises ‐ DBM‐BMB‐G (representing Dir. Carmencita Delantar) 4) Faisal Abdul ‐ NEDA RDCS (representing Dir. Susan Rachel Jose) 5) Atty. Monina Camacho ‐ ULAP 6) Hilda Corpuz ‐ LCP 7) Rommel Martinez ‐ LMP 8) Robert Limbago ‐ LPP

Member/s Absent LnB

Others Present 9) ASEC Rolando Acosta ‐ DILG 10) Priscella Mejillano ‐ DILG‐BLGD 11) Ma. Pamela Quizon ‐ BLGF‐DOF 12) Rea Ann S. Rojo ‐ BLGS 13) Maria Consolacion S. Buena ‐ BLGS 14) Raymund Fabre ‐ ADB Consultant 15) Jojo Flores ‐ ADB Staff

Technical Secretariat 16) Asst. Director Anna Liza Bonagua ‐ DILG‐BLGD 17) BLGD Policy Team ‐ CCD Secretariat

I. CALL TO ORDER AND QUORUM

There being a quorum, the meeting was called to order at 9:30 am by DILG Undersecretary and CCD Chair Austere A. Panadero.

II. APPROVAL OF THE PREVIOUS MINUTES OF THE MEETING

There being no other comments or matter for correction, the highlights of the previous meeting was approved /adopted.

III. MATTERS ARISING FROM THE PREVIOUS MINUTES OF THE MEETING

Usec Panadero presented the matters arising from the minutes of the previous meeting last January 8, 2010 at Gateway Suites, Quezon City.

AGREEMENTS STATUS

Updates on Computerization for LGUs

Ms. Pam Quizon of DOF update the group that the BLGF shall convene the meeting on LGU Guidelines on Computerization was printed out June 4, 2010 at the Heritage Hotel. and ready for distribution to LGUs and partner agencies. Said guidelines will help LGUs assess what Details shall be provided by BLGF‐ software and/or service provider to adopt. DOF during the next CCD meeting.

CCD Secretariat was tasked to convene a meeting with DOF, CICT, and LGU Leagues regarding the computerization of financial systems of LGUs. BLGF was tasked to lead the forum, prepare the agenda and policy questions to resolve.

IV. HIGHLIGHTS OF THE PREVIOUS MEETING

Issue(s)/ Discussion Agreements/ Area(s) of Concern Recommendations Validation of Land ASEC Rolando Acosta presented It was agreed for the committee Area Survey Of 2007 the highlights of validation of on land area survey validation to as Basis of IRA land area measurements done by fine‐tune recommendations for Computation the committee to validate the submission to the Office of the land area survey composed of President taking into DILG‐BLGS, MANRIA and LMB. consideration the following:

Based on the presentation, the 1. To continue using 2001 land committee, after initial area survey. evaluation proposed the 2. Region ARMM to come up following recommendations: with estimate for the 1. Land area information of computation and as long as 2001 might have to be used we are not to exceed to the for the next 5 years and total land area of mother there seems to be no logic in LGUs. validating 2007 land data 3. Newly created LGUs should 2. Using the NAMRIA base map know the maximum area and of 30M has., LMB to project divide it using estimate by land areas of provinces, LMB. cities and municipalities, 4. LMB to continue Cadastral instead of resorting to never Survey using the NAMRIA ending estimations base map of 30M has. 3. Completion of projection using NAMRIA base maps might take 5 year and some dedicated investments on the part of the national government.

However, 2001 land survey does not include info on newly created LGUs. DBM computes for their IRA based on official land data.

Memorandum Assistant Director Anna Bonagua It was agreed that DILG and DOF Circular Encouraging discussed the following NLUC shall issue a joint issuance to Cities & request for DILG Actions: encourage LGUs to be efficient Municipalities to 1. Propose amendment to LGC and effective in the collection of Impose Idle Land Tax to provide municipality with a Idle Land Tax as well as remind share of the idle land tax. LGUs to improve collection of all 2. Issuance of memorandum other local taxes and fees. circular to LGUs to collect idle land tax On the issue raised regarding the different interpretation of On item #1, the LGU Leagues DBM and DOF on the during the consultation on the computation of additional 1% proposed amendment to LGC levy on Real Property for the made an agreement to maintain Special Education Fund (SEF), it a status quo on their sharing of was agreed that DBM and DOF taxes including idle land tax. harmonize their policies.

On item #2, DILG is seeking recommendation of DOF‐BLGF on the possibility of a DILG‐DOF Joint Issuance for LGUs to collect idle land tax.

Updates on JMC Ms. Priscella Mejillano, DILG‐ Issues and updates on programs No.001‐2009: BLGD presented the updates on on Disaster management and Guidelines on the JMC No. 001‐2009 on CLUP and Climate Change Adaptation for Harmonization of CDP harmonization, the need to LGUs was suggested to be tabled CLUP and CDP detail the JMC and the output on as agenda for the next meeting. Preparation the Workshop on detailing JMC.

JMC No. 1‐2009 was primarily intended to provide mechanisms on the harmonization of steps and processes in the preparation of CLUP and CDP and clarify and establish points of convergence and divergence for spatial and multi‐sectoral planning.

Per information from Mr. Abdul of NEDA, 70 out of 79 Provinces have CDCP.

There’s a need to convince LGUs (starting from the 27 high risk LGUs) to revisit their CLUP to integrate disaster migitation and climate change adaption measures into their CLUPs translated in their Zoning Ordinance.

Concerns were raised whether Zoning Ordinances and Building Codes are enforced as well as monitoring of buildings constructed before the Building Code?

Update on FMOC Assistant Director Anna Liza F. A portion from the DIALOG Fund DIALOG Fund Meeting Bonagua presented the updates can be used to fund proposals in on the FMOC Meeting held last pursuing devolution. Hence, it was February 9, 2010, to wit: suggested that Leagues submit proposal after the re‐organization of their respective chapters. • FMOC adopted the Operating

guidelines on the DIALOG Trust

Fund In view of the coming election, it is • FMOC collapsed the ten (10) urgent to prioritized support to proposed activities into seven (7) namely: NEO Program. 1. Capacity Building on NEO 2. Capacity Building for the utilization and Analysis of the LGPMS 3. Improving on the Integrity and Quality of LGU Statistical Data 4. Institute Reforms to Improve Local Economic Enterprise 5. Definition of Policy and Legal Framework on the Extent of LGU Corporate Powers 6. Review on Decentralization related Laws Specially on those Affecting Fiscal Operations at LGUs and Implement Measures to Improve Executive Legislative Liaison 7. Action Plan for Decentralization • The project concept note proposal on Capacity‐Building for NEO was submitted to World Bank for refinement and approval. • Three more concept notes were submitted to WB for consideration: 1. Review of consistency of National Laws and Local Regulations focusing on Fiscal Incentives/Tax Exemptions being granted by NG 2. Definition of Policy and Legal Framework on the Extent of LGU Corporate Powers 3. Action Plan for Further Decentralization • No concept notes had been submitted on the remaining 2 other activities.

Proposed Roadmap for Mr. Raymund Fabre presented To ensure that local governance Deepening Medium –Term LogFrame 2010‐ policy reforms are included in the Decentralization 2016. Which included: priority of the administration it was Reforms 1. Short to Medium Term suggested to explore the inclusion Scenario of a chapter on Local Governance in 2. The 2011‐2016 Log frame the MTPDP. with showing Impact Outcome Outputs Inputs Per Information from Mr Abdul, and Activities MPTDP will be updated in the third quarter of this year. Mr. Martinez of LMP suggested to use the MDGs as basis for the targeting for LGU Roadmap.

There were also suggestion to include the following in LGU Roadmap:

1. Enhancing Competency of Treasurers 2. Review devolved function the without corresponding budget like DOH devolved services. Determination of cost to deliver such services

V. OTHER MATTERS

The Committee agreed that the CCD would convene quarterly. A tentative schedule of CCD quarterly meetings was presented for the guidance of CCD members.

Schedule of next CCD meetings was set on April 26, 2010.

VI. ADJOURNMENT

The meeting adjourned at 1:00 in the afternoon.

Prepared by the CCD Technical Secretariat

Attested by:

AUSTERE A. PANADERO DILG Undersecretary and CCD Chair

Efficient and Effective Mobilization and Management of Resources by LGUs

In recent years, the incomes of LGUs have generally been declining. This has mainly been the result of two declining trends: (a) that of the Internal Revenue Allotments (IRA) which, in turn, are caused by the persistent decrease in the BIR tax collection effort, as well as (b) that of the LGUs own revenue efforts. Consequently, LGU spending has shrunk. The outstanding long-term debts of LGUs have also almost doubled and some LGUs have resorted to the frequent restructuring of their loans.

The fall in revenue has certainly limited the ability of LGUs to deliver the needed services to the people. This has meant, among other effects, less and weaker economic stimulation and therefore more unemployment and weaker livelihood, poorer social services, and worse peace and order situation. The country's ever- increasing population and recent economic difficulties brought about by the global financial crisis have increased the pressure on LGUs to make up for the decline in their revenues and then gain access and mobilize even more.

And, in the current play of things, where the responsibility of seeing to the economic, social and political development of the country has shifted and is now partially the LGUs', addressing the need for LGUs to access more resources to deliver the required government services has taken on dramatically more significance to the country's well-being.

Gaining access to more resources so that they can effectively fulfill their vital role in the country's development requires that LGUs (a) internally generate more revenues, (b) use current resources more efficiently, and (c) access and mobilize more external resources. Among the more specific ways they can do so are the following:

1. Improving public expenditure management, so that resources can be allocated more efficiently, thus allowing them to do more with less; 2. Managing their personal services (PS) expenditures better, thus making more efficient use of their largest budget allocation; 3. Operating local economic enterprises (LEEs) more efficiently, thus reducing and even eliminating operating losses; 4. Using the Special Education Fund (SEF) more effectively, thereby making the resources available to them for improving education in their jurisdictions mean more; 5. Accessing more official development assistance (ODA); and 6. Mobilizing external resources through the exercise of their corporate powers.

I. Improving Public Expenditure Management

Fiscal discipline helps improve the allocation of resources by allowing LGUs to prioritize their activities based on a realistic appreciation of how much resources they have to spend, and when..

A. Principles of public expenditure management

Public expenditure management is based on three basic principles: (i) fiscal discipline, (ii) allocative efficiency, and (iii) operational efficiency. Fiscal discipline 2 provides that the demand for government spending be matched with the available resources. Allocative efficiency, meanwhile, asks that LGU spending be aligned with policies and priorities by reallocating resources (i) from programs, projects and activities (PPAs) that are of lower priority to those of higher priority, and (ii) from less effective to more effective PPAs. Operational efficiency calls for delivering goods and services in a manner that is efficient and economical.

Fiscal discipline helps improve the allocation of resources by allowing LGUs to prioritize their activities based on a realistic appreciation of their budget constraints. It creates an environment that encourages allocative and operational efficiency, thus allowing LGUs to do more with less. Throughout the world, therefore, fiscal rules require governments to balance their budgets or to subject certain fiscal aggregates to very specific targets.

Local governments in the Philippines are likewise subject to some form of balanced budget constraint, although this constraint is weaker than those in other countries. Under this constraint, proposed and approved budget appropriations for current operating expenditures must not exceed current revenues. The operating fiscal balance or current fiscal balance is not allowed to be in deficit. The actual results of budget execution must be balanced so that the total expenses is not more than the sum of current revenues, “cash at the end of the previous period,” and borrowings, provided borrowings are incurred for the sole purpose of financing capital outlays.

B. Current trends in LGU public expenditure management

The following characterize public expenditure management among LGUs in the Philippines:

1. Current and overall fiscal balances

LGUs as a whole had current fiscal surpluses in 2002-2007, these surpluses being equal to 16% of total LGU income. Meanwhile, the overall fiscal balance of all LGUs was equal to 0.4% of GDP or 10.9% of total LGU income. Both current and overall fiscal balances declined during election years, and then recover the succeeding years.

These surpluses are the result of the following factors:

a. the cautious fiscal stance of many LGUs because they are not allowed to incur deficits, thus making them very conservative in their income estimates and/or very strict in their expenditure controls,

b. the unused portion of their calamity fund which they are required to keep intact until the end of the fiscal year unless a calamity/ disaster does occur, and

c. delays in the implementation of projects.

Because the surpluses are caused by these factors, experts argue that such surpluses are illusory. They say that once LGUs actually realize a fiscal surplus at the end of any given fiscal year, the LGUs immediately appropriate the full amount that is available for appropriation by enacting a supplemental budget.

2. Cash reserves

The growth in “cash at the end of the period” of all LGUs is consistent with the movement in the overall balance. When expressed as a percentage of GDP or total LGU income, cash reserves of all LGUs remained fairly stable at 1.2%-1.3% of GDP and 33%-37% of total LGU income during the period.

3. Debt financing of capital outlays

The capital outlays of all LGUs combined were fully financed by the net result of operating activities in 2002-2003 and in 2005-2006. This trend is consistent with the observed accumulation of fiscal surpluses by all LGUs during these years. In 2004 and 2007, however, capital outlays were financed partly by net borrowings. In 2007, capital outlays were also financed by a drawdown of accumulated surpluses.

These trends appears to support claims that elective LGU officials tend to spend their surpluses in earlier years and then incur more debt during election years. Some observers raise the concern that local chief executives tend to borrow more as their terms are about to end at the expense of incoming officials who are left to pay off such indebtedness. However, the trend in outstanding long-term liabilities of all LGUs does not appear to strongly support these apprehensions.

4. Cash inflows from new debt and cash outflows to redeem existing debt

While the outstanding long-term debt of all LGUs did increase between 2002 and 2007, it did so only slightly. It went up from 0.14% to 0.17% of total LGU income during the period despite the fact that the nominal level of outstanding long-term liabilities of LGUs almost doubled.

There have been claims that a number of LGUs have incurred debt which they cannot service without exceeding their debt cap. To cope with the problem, these LGUs (with concurrence of the creditor banks) re-structure their debt. In 2007, cash outflow for the amortization/retirement of old debt accounted for at least 50% of the cash inflow from loan proceeds in 10% of provinces, 21% of cities and 5% of municipalities. This finding provides some evidence that indeed the number of LGUs which may be having problems servicing their debt are not as insignificant as one would initially expect given the balanced budget rules in the Local Government Code.

C. Measures that would improve LGU public expenditure management

Improving the LGUs public expenditure management requires that (a) the resources available for allocation be measured appropriately, and that (b) the fiscal position be managed properly.

1. Properly measuring resources that are available for appropriation

Arriving at good estimates of the amount of “resources available for appropriation or operation at the end of previous year” will contribute significantly to the improvement of public expenditure management system. It will define better the total amount of resources the LGU can allocate and use. This measure is perhaps even more critical than properly measuring the current or overall fiscal balance, not only in enforcing fiscal discipline but also in improving resource allocation and operational efficiency as it promotes total resource budgeting.

Unfortunately, the amount of resources available for appropriation at the end of the previous year cannot be read off easily from any of the existing financial reports that LGUs are required to submit. Moreover, despite guidance in the UBOM to the contrary, budget officers do not include an estimate of the amount of resources available for appropriation at the end of the previous year when they prepare the budget proposal for the incoming year. Instead, they only look at estimates of current revenue/income vis-à-vis proposed spending.

The amount available for appropriation at the end of the year is equal to the amount available for appropriation at beginning of the year plus revenues/income in the current year less current and capital expenditures in the current year less accounts payable less the value of continuing appropriation. During the period 2002- 2007, this amount varied from 4% - 9% of total LGU income and was consistently larger than the overall fiscal surplus during the period.

LGUs which have negative “amount available for appropriation” have accounts payable that are significantly larger than their cash reserves. Moreover, if the amount is negative, it is more likely that the LGU will post an overall fiscal deficit. However, if the LGU has an overall fiscal surplus, then it is more likely that the amount available for appropriation in the LGU is also positive.

2. Managing the fiscal position

Properly managing the fiscal position requires having realistic income estimates and implementing the required expenditure controls.

a. Realistic income estimates

Good public expenditure management means that budget preparation starts with a realistic estimate of the amount of resources that are going to be available. Income estimates that are too pessimistic tend to result in the very conservative formulation and implementation of the budget, thereby resulting in large budget surpluses and the non-implementation of much needed programs. On the other hand, overly optimistic income estimates lead to the sequestration of allotments, delays in the obligation of expenditure authorization and, subsequently, delays in project implementation. Furthermore, the appropriation does not necessarily reflect actual fund utilization and the budget becomes non-transparent.

In practice, income/ revenue estimates on which the annual budget is based tend to be poor. Many local treasurers do not appear to follow a systematic approach in coming up with their income estimates.

There is a need to upgrade the technical capacity of LGUs in formulating honest and realistic estimates of income and sources of budget finance, including the amount available for appropriation at the end of each fiscal year. It should be emphasized, however, that the problem does not only come from the lack of technical capacity of LGU personnel but also from bureaucratic inertia and the desire of politicians to keep an excessive number of programs during budget preparation. This underscores the need for communicating the public expenditure management framework at the local level.

b. Expenditure controls

Once the budget is passed, the budget enters the budget execution phase. Good budget execution calls for: (i) ensuring that the budget will be implemented in conformity with the budget legislation; (ii) adapting the budget to changes in the economic environment; and (iii) managing the use of resources efficiently and effectively. In turn, fiscal discipline, allocative efficiency and operational efficiency require that (i) effective controls at each phase of budget execution are in place to ensure that obligations and disbursements do not exceed appropriations; (ii) an adequate and transparent reporting system showing all movements on appropriation/ allotment/ obligation/ cash expenditure is installed to track transactions at each stage; and (iii) budget funds are released in a timely manner to support implementation of government programs.

In practice, the allotment system is one way of ensuring that obligations do not exceed authorized levels. But perhaps more importantly, the system aligns the release of spending authority with the projected inflow of tax collections and other revenues. The UBOM (DBM 2005) specifies the use of the Local Budget Matrix (LBM), the Cash Program and Physical Performance Targets as the control devices in the allotment system.

The LBM reflects the overall plan of the LGU for the release of allotments by department/office/program/project and by object of expenditure. It also paces the release of allotment advice by categorizing the different expenditure items in the appropriation ordinance into those not needing clearance (NNC) and those needing clearance (NC) prior to the release of the allotment advice. Thus, the classification determines how easy it is to get the allotment advice for the different expenditure items. The release of the “for later release” portion of the allotments for said items depends on the results of the periodic evaluation of the physical and financial performance of the department/ office/ project concerned.

The LBM also allows the imposition of reserves. It may set aside a certain portion of the authorized appropriation of every department/program to cover for any possible shortfall in revenue.

As discussed in the UBOM, the allotment system requires a system of cash monitoring and programming through the use of periodic Cash Flow Forecast and Cash Flow Analysis. These tools are essential to ensure that allotments are safely covered by cash or by future collections and that cash is available when it is needed to pay obligations.

On the other hand, the Physical Performance Targets contains the targeted performance indicators of each department/office of the LGU. These performance indicators serve as standards/guides for the physical and financial performance of a department/office.

By focusing on the control of allotment releases, the allotment system forms the first line of defense in expenditure control. However, while the UBOM outlines the specific steps LGUs have to take and the specific forms LGUs have to use in the preparation of the Cash Flow Forecast and Cash Flow Analysis, there is little guidance available on the technical aspects of cash flow forecasting and cash follow analysis.

D. Recommendations1

1. An LGU public expenditure monitoring system must be instituted.

Because of the balanced budget provision in the LGC, the fiscal performance indicators in the Local Government Performance Monitoring System should include the current fiscal balance as a measure of LGU savings and its contribution to the pool of resources that is available for investment. Still another measure of fiscal performance which may be included is the overall fiscal balance as a summary measure of LGU’s borrowing requirement. The overall fiscal balance allows government to focus on the financing constraint which has traditionally been viewed as government’s most binding constraint. In addition, some debt management indicators may also be considered, e.g., a measure that assesses the size of debt service relative to LGU income and one that compares the amount of cash outflows to amortize/ redeem past debt relative to amount of cash inflows from the incurrence of new debt.

At the same time, the amount available for appropriation is another important indicator of fiscal performance that should be monitored on a regular basis. It is also important for LGUs to be able to arrive at good estimates of this measure in order for them to be able to delimit how much they can legitimately subject to further appropriation.

The monitoring of these indicators would give the oversight agencies Department of Interior and Local Government, Department of Finance, and National Economic Development Authority a better appreciation of the performance of LGUs in managing their respective and collective budgets and thus institute more efficient and effective measures of ensuring that optimal results are achieved.

2. The public expenditure management capacity of LGUs must be strengthened.

It is clear from the description of the current LGU public expenditure management practices that there is an urgent need to equip LGUs with the knowledge and skills necessary for them to be able to execute the processes that would make public expenditure management more efficient.

The guidelines, processes and procedures governing the preparation, review and execution of the budget are well laid out in the Updated Budget Operations Manual. It outlines the specific steps LGUs have to take and the specific forms LGUs have to use as they go through the budget cycle in a manner that will ensure that they comply with the process and documentation requirements of law on local budgeting.

However, there is a need for a handbook to complement the UBOM. The handbook should aim to (i) communicate a policy framework for LGU budgeting that is anchored on the basic principles of public expenditure management, and (ii) provide LGUs with tools and techniques that will help them incorporate these tenets in their budget processes. Explaining the policy framework is important there is a need to put into proper perspective the various processes that are part of local budgeting, and to provide the motivation for undertaking these processes. On the

1 All the recommendations in this paper are summarized in the Attachment.

7 other hand, there is also a need to equip LGUs with the tools that will assist them on the more technical aspects of budgeting.

In particular, there is a need to upgrade the technical capacity of LGUs in formulating honest and realistic estimates of income and sources of budget finance, including the amount available for appropriation at the end of each fiscal year. There is also a need to build up the technical capacity of LGUs to do cash flow forecasting and cash flow analysis. These are essential inputs to a better functioning allotment system that will assist LGUs strike the right balance between fiscal conservatism and the need to provide the services that local communities are in dire need of.

Simple spreadsheet models for cash flow forecasting and cash flow analysis have been developed. To further assist LGUs, the DBM may also wish to establish benchmarks against which LGUs can compare the results of their cash flow forecasts and cash flow analysis to aid their decision making process as to the timing of the release of reserves, revisiting the revenue generation strategies of the LGU, and revising the methodology for revenue forecasting.

The DBM may also wish to consider providing guidance on what steps LGUs need to take in the event of an impending fiscal deficit. For instance, is there need for Sanggunian action or resolution authorizing the local chief executive to reduce allotments without need for further consultation with the Sanggunian once it is established that actual revenues for the fiscal year will be lower than the estimates of income that were used in preparing the budget? Are the existing guidelines pertaining to the allotment system not enough to address this problem?

II. Managing the LGUs' Personal Services Expenditures Better

LGUs' allocation for personal services (PS) accounts for almost half of their total budget. There therefore has to be an effective control especially over this expenditure item, otherwise the quality and quantity of local services provided by LGUs would deteriorate. Any increase in this expenditure will mean lesser resources for non-PS items, namely, maintenance and other operating expenses (MOOE) and capital outlays (CO), both of which are equally important in enabling LGUs to deliver services to their respective constituencies. Yet, excessive control over PS expenditures may mean LGUs not being able to recruit and retain quality staff, encourage productivity, and avoid corruption.

A. The current situation in PS expenditures of LGUs

The World Bank notes that, as a rule of thumb, when the expenses for personal services (PS) of the public sector rises over 25% of total spending, governments risk reducing their effectiveness by cutting down expenditure for non- wage costs such as those for goods and services, maintenance, and capital expenditure. In the Philippines, PS accounted for an average of 45% of total LGU spending in 2000-2007 while MOOE and CO accounted for 37% and 18%, respectively. The budget share of PS was highest for municipalities (53%), followed by provinces (46%) and cities (41%). Lower income class municipalities tend to have higher PS spending. The situation is worse in LGUs which use job order hirees (who are charged against MOOE) to work on tasks that would normally be assigned to regular employees in order to avoid exceeding the PS cap. Section 325 of the Local

Government Code (LGC) provides that 1st to 3rd income class LGUs should not budget more than 45% of its total annual income from regular sources in the preceding fiscal year on PS. For 4th to 6th class LGUs, the limit is 55%.

Many LGUs fail to comply with the PS cap. Fifty-eight percent of provinces, 40% of cities and 75% of municipalities exceeded the PS cap prior to the application of the waivers in 2007 on certain PS expenditure items from the computations to measure compliance with the PS cap. Regardless of level of local government, the percentage of LGUs that are not able to meet the PS cap requirement tends to be higher for LGUs belonging to the lower income categories than for those belonging to the higher income categories.

B. Factors Hindering LGU Compliance with the PS Cap

The inability of LGUs to comply with the PS cap has been the result of factors related to staffing and compensation levels.

1. Staffing concerns

Issues on LGU staffing include (i) the overall size of the LGU personnel complement, (ii) the existence of too many casuals and contractuals, and (iii) the existence of too many unfilled regular positions. The rise in PS expenditures of LGUs may partly be due to the expansion of the LGU organizational structure and increases in the total number of positions in LGU plantilla as a result of the devolution of government functions to the local level under the LGC. Other operating units have also been created, mainly to handle local economic enterprises (LEEs). Both factors have exacerbated the already problematic situation brought about by the need of local chief executives (LCEs) to be the "employer of last resort” by hiring large numbers of employees/ casuals in the lowest salary grades as a response to the lack of employment opportunities in their jurisdictions.

a. Overall size of LGU personnel complement.

The number of personnel in LGUs has increased considerably from 189,878 in 1984 to 316,023 in 1994 and 377,227 in 2004. This implies that the population-to- personnel ratio went down from 286 in 1984 to 211 in 1994 and 220 in 2004.

Affordability is a major factor that influences the decisions of LGUs on how many, who, and at what position, to hire. Higher income class LGUs generally have larger staff complement. Moreover, the size of the LGU population clearly has some impact on decisions regarding the appropriate size of its staff complement.

There are wide variations in the average number of personnel and the population-to-personnel ratios across different levels and income classes of LGUs. These variations point to the need to rationalize of the size of the LGU staff component. It is, however, worthy to note that, while there are indeed indications of overstaffing in some LGUs, skills shortage in specific sectors, particularly the health sector, in many LGUs cannot be denied. Nonetheless, some LGU officials have expressed interest in seeking guidance on organizational structure, staffing pattern, and appropriate size of an LGU personnel complement.

b. The existence of too many casuals.

The average number of casual employees per LGU rose from 157 in 2006 to 182 in 2008; from 207 to 215 for cities; and from 18 to 23 for municipalities. This

9 growth in the number of casuals in terms of absolute numbers appears to be minimal and may even be consistent with the growth in population.

However, non-regular employees, consisting mostly of casual employees, account for a significant percentage of the total number of LGU personnel. In 2007, provinces had an average of 168 non-regular employees or 18% of total, cities had an average of 304 or 30% of total, and municipalities had 27 or 25% of total The compensation of non-regular employees in provinces, cities and municipalities remains very close to the minimum wage.

The large number of casuals in LGU plantilla is partly the result of the hiring of such personnel to pay political debts. After hiring these personnel, LCEs are then forced to "make" or "create" work for them. Thus, some casuals are assigned to do regular technical work, sometimes with less-then-optimal competency.

The situation is made worse by the existence of many “permanent” casuals whose contracts are renewed continuously. These casuals exist because many of them do not meet the qualification standards of plantilla positions. Some LGU officials also prefer to retain the status of casual employees as these tend to be more productive and efficient than their permanent counterparts because of the fear of being fired anytime.

c. The existence of too many unfilled plantilla positions.

Casual employees substitute for permanent employees. Regular positions are not filled intentionally to accommodate the hiring of these non-regular employees.

2. Pay and compensation concerns

Public sector compensation policy should be focused on arriving at "“a level of pay that is consistent with the operation of a motivated and professional public service at a scale the government can afford on a sustained financing basis.” Thus, fiscal sustainability should be primordial in the LGUs’ hierarchy of objectives in coming up with such a policy. The same policy must also involve:

a Bringing pay in line with government’s overall policy objectives; b Determining the basis for pay which consists of the appropriate mix of primary factors (e.g., affordability, job content) and secondary factors (e.g., cost of living, market-based pay, qualifications, and individual performance); c Establishing an appropriate “compression ratio” between the pay of the highest and lowest positions; and d Striking a balance among pay, other benefits (including pensions) and allowances.

The issues regarding LGU pay and compensation policy include the: (i) PS cap, (ii) differentiated salary schedules, (iii) the existence of too many allowances, (iv) Magna Carta benefits for public health workers and public social workers, (v) grant of unanticipated extra year-end benefits, and (vi) grant of allowances/ honoraria to NG personnel.

a. Compliance with the PS cap prior to waivers

Provinces which successfully adhered to the PS cap allocated 34%, 45% and 21% of their budgets in 2007 to PS, MOOE and CO, respectively. Those that did not allocated 50%, 41% and 10% to the same expense items. In like manner, municipalities which comply with the PS cap allocated 42%, 46% and 12% to PS, MOOE and CO, respectively, compared to the 54%, 35% and 10% that non- compliant municipalities provide. These figures underscore the negative impact of non-compliance to the PS cap and provide a strong argument for sustaining the budgetary limitations on PS spending that are now found in the LGC.

b. Adoption of a salary schedule of higher-class LGUs

Senate and House of Representatives Joint Resolution No. 1 of 1994 allowed LGUs other than special cities and first income class provinces and cities to adopt the salary schedules of higher class LGUs, subject to prescribed conditions and limitations. Meanwhile, the Manual on Position Classification and Compensation System of the DBM provides that when an LGU which has adopted a higher salary schedule finds that it can no longer afford to sustain such schedule, it may revert to the prescribed or lower salary schedule. However, it must ensure that no diminution in personnel pay results from the effort.

The ban against diminutions in the salaries of incumbents effectively ensures that reverting to a lower salary schedule would have little impact on PS spending in the near to medium terms. Moreover, allowing the adoption of higher salary schedules, together with the many waivers in computing compliance to the PS cap, weakens the pressure on LGUs to work within hard budget limits and nullifies the fiscal discipline imposed by the PS cap. Thus, 78% of provinces which adopted salary schedules higher than their own in 2007, exceeded the PS cap while only 50% of those which implemented the schedule of their own income class.

c. Differentiated salary schedules for LGUs

There are two levels of differentiation in rates of pay for the same positions in LGUs. One is based on the income classification of the LGU, and the other, on the kind of city (i.e., highly urbanized cities/ independent component cities vis-a-vis component cities), the income class of the municipality, and whether or not the said position is in the province, city or municipality. One could argue that the first level of differentiation is based on the principle that the LGU staffing and compensation structures should be set at levels that are fiscally sustainable for the LGU. However, the premise of the second level of salary differentiation is not as obvious, and should therefore be revisited and reviewed.

d. Waivers to the application of the PS cap

Because different agencies review the LGU budgets and therefore the ways the waivers to the application of the PS cap are applied, the enforcement of the waivers lacks consistency. Thus, there had been claims that compliance to Local Budget Circular (LBC) 75 of 2002, which allows the waivers, is a farce.

e. The grant of allowances and other benefits

The grant of allowances and other benefits should be rationalized. This would help LGUs live within the PS cap and thus move closer to attaining a balanced budget.

i. Too many allowances

There are at least 10 allowances mandated by various rules and regulations. Some of these allowances can be embedded in the base pay. Also, there is a need to evaluate the other allowances so that those similar could be integrated or consolidated.

ii. The grant of “unanticipated” year-end extra benefits

The grant of year-end bonuses is practice has encouraged LGUs to deliberately generate “savings” from its regular activities, sometimes sacrificing the delivery of government services.

iii. The grant of PHW Magna Carta benefits to PHWs

Under the Magna Carta of Public Health Workers (Republic Act 7305), PHWs are granted subsistence allowance, laundry allowance, night-shift differential, hazard pay, and longevity pay. These benefits being substantial, many LGUs have not been giving them all and/or in full. Less than 50% of provinces, cities and municipalities gave the subsistence and the laundry allowance at the prescribed rates in 2007. The number of LGUs giving the hazard pay at the correct rates is even smaller.

The Magna Carta of PHW is a especially sensitive matter at the local level as it creates conflict between the LCE and other officials, on one hand, and the PHWs, on the other, when the Magna Carta allowances are not granted in full or not granted at all. There are many reports of cases filed in the courts or Ombudsman against LCEs and other officials by PHWs due to non-implementation of the Magna Carta benefits.

iv. The grant of allowances to national government personnel

The LGC allows LGUs to grant additional allowances and benefits to certain national government officials stationed or assigned in their areas, when LGU finances allow. Although the granting of these allowances is not required, LGUs are put under extreme pressure to actually grant them. The grant of these allowances imposes a heavy burden on LGU resources, especially that of poorer LGUs. It also creates the anomalous situation where the national government personnel actually get allowances from a number of sources (from different LGUs as well as from their own mother unit).

C. Impact of various PS cost items on the ability of LGUs to comply with the PS Cap

Of all the cost items under the PS budgets of LGUs, the Magna Carta benefits to PHWs appears to have the smallest impact on the ability of LGUs, regardless of level, to comply with the PS cap. In contrast, the number of non-regular employees appears to have the biggest impact, especially in the case of cities and municipalities. The proportion of cities which would not be able to comply with the PS cap is estimated to go down from 40% to 16% if the PS cost of non-regular employees is excluded from LGUs’ actual PS expenditures. The decrease in the number of similar municipalities is from 75% to 66%. The impact of the adoption of higher salary schedules is found to be also significant. The proportion of cities which would not be able to comply with the PS cap is estimated to go down from 40% to 31% if all LGUs adopt the salary schedules that are prescribed for their own income

12 class. The decrease in number among municipalities is from 75% to 68% while that for provinces is 58% to 52%.

D. The impact of the third phase of the salary standardization program

There is a proposal pending in Congress to adjust the government salary schedule upwards as part of the third wave of salary standardization . This proposal, known as SSL3, aims to correct the erosion of real public sector wages and salaries in recent years and to decompress the wage structure in the public sector. Its full implementation, however, will increase the LGUs' wage bill by 82%-102% for municipalities, by 78%-94% for cities, and by some 69% for provinces. It will therefore make it difficult for LGUs to keep their PS spending below the PS cap.

E. Recommendations

The following measures are recommended to help ensure that LGUs could effectively control their PS expenditures while making sure that they have enough qualified personnel to enable deliver the needed services to their constituencies and while improving salaries and benefits to attract and retain qualified technical, professional and managerial staff.

1. The cap on LGU spending on PS should be retained and strictly enforced.

This recommendation, which should put more pressure on LGUs to live within hard budget constraints, is based on the premise that service delivery requires a mix of both wage and non-wage spending. If spending is too much in favor of PS, service delivery suffers because supplies, travel and other resources, all of which are needed to complement personnel resources as well as to provide for local public infrastructure needed for local economic development, are sacrificed.

2. LGUs should be allowed to choose any of the eight alternative salary schedules provided in Section 10 of RA 6758..

LGUs should be allowed to choose which among the eight alternative salary schedules provided in Section 10 of RA 6758 it would adopt based on what they think is best suited to their particular situation, considering, among other factors, their fiscal capacity, and provided that they comply strictly with the PS cap. In other words, LGUs should be given the flexibility to set their own compensation and pay policy as long as they work within the constraints imposed by the fiscal resources that are actually available to them.

3. Most, if not all, of the waivers to the application of the PS cap should be eliminated as they seriously undermine fiscal discipline.

4. The parameters that form the basis for assigning different salary grades for higher level positions in LGUs of different income class and different levels should be reviewed and, if warranted, amended.

5. The practice of granting additional/extra year-end benefits subject to the availability of funds at the level of the operating unit as the budget year closes should be discontinued. This would help improve public expenditure management at the local level.

6. The relevant sections of the LGC should be amended to disallow the grant of additional allowances and benefits to national government officials assigned to LGUs. This provision puts undue pressure on LGUs to provide such allowances at the expense of local service delivery.

7. The implementation of benefits under various Magna Carta legislations should be coordinated with the implementation of the overall compensation structure of government, especially under SSL3.

Congress should consider the granting of Magna Carta-type benefits to all government employees instead of special groups only. The desire to provide higher pay to PHWs, particularly doctors and nurses, who are deemed to be underpaid relative to the demand for their services in the local as well as foreign labor markets is understandable. However, this concern might be addressed better by adjusting the salary grades that are currently assigned to these positions instead of providing blanket salary top-ups to all PHWs.

8. The model organizational structures for LGUs should be reviewed and, if necessary, redefined with corresponding staffing patterns (by level and income class).

The model staffing patterns may indicate the minimum and maximum numbers and the levels of positions for each LGU level and income class. Moreover, there is a need to establish criteria and/ or benchmarks that LGUs can refer to in deciding on the staffing pattern that is appropriate for their particular situation.

This effort could possibly lead to a more compact list of plantilla positions that include only positions that are needed for the delivery of the core mandates of LGUs. Fixed-term employment contracts may then be considered for personnel who are focused on the delivery of priorities that are not part of the core mandates of the LGU. The tenure of department heads and heads of the various offices may also have to be reviewed, weighing the trade-off between the need for personnel who have the full trust and confidence of the LCE, and the need to promote continuity in public administration at the local level.

III. Operating Local Economic Enterprises More Efficiently

For most LGUs, local economic enterprises (LEEs) represent a drain in resources as these operate continuously at a loss which, in most cases, is substantial. Limiting the losses from these enterprises would mean more resources freed up for the delivery of more and better government services.

A. Status of Local Economic Enterprises

The LEEs has been increasing considerably over time. In addition to the traditional LEEs like markets, slaughterhouses, and water service facilities, today’s LEEs include enterprises that produce goods and services that are usually provided by the private sector, such as shopping malls and buildings for lease. These LEEs involve more complex operations than the more traditional ones. Moreover, many

LGUs are now operating more than one LEE. On the average, cities operate more than four; municipalities. more than three; and provinces, two.

Markets and slaughterhouses are still the most popular forms of LEEs, with at least 90% of municipalities and cities operating markets, and at least 70% operating slaughterhouses. However, a sizable number of LGUs also operate the more non- traditional types of LEEs, such as public transport terminals, garbage collection and disposal facilities, and parking lots.

There are primarily three reasons why LGUs create and operate LEEs. First, LGUs are looking for more sources of income. LEEs accounts for 11%-12% of the total own-source revenue of all LGUs and around 4% of their total income in 2005- 2007. Second, LGUs need to have “catalytic” investments, which LEEs are, to generate greater local economic development. Third, some LGUs need to hire more personnel without going over the personal services (PS) expenditure cap in the LGC and to be able to grant allowances to LEE employees.

LGUs operate LEEs at a loss, with 77% of provinces, 63% of cities, and 56% of municipalities posting net losses on their LEE operations in 2007. These losses totaled PhP 11.8 to 13.4 billion that year. The total income from LEEs accounted for less than a third of their total cost of operations.

All hospitals and heavy equipment motor pools operated by LGUs as LEEs are unprofitable; so are 86% of tertiary schools and 50% of all slaughterhouses, markets, and cemeteries. In contrast, 60% of water systems would be profitable.

A number of factors lead to net loses in LEE operations. One is the weak institutional support, mainly in the form of policy and infrastructure, given by the LGUs towards their LEE operations. Another factor is the weak technical capability of the LGUs in assessing the feasibility of LEEs and later, in the setting and collection of fees, and in the overall management of the enterprise.

B. Outstanding Issues and Recommendations

The LGUs management of LEEs can be made more efficient and therefore profitable if (1) a clear policy framework for the creation and continued operation of LEEs is established, (2) how LEEs are to be treated in budgeting is made clearer; and (3) the LGUs' capacity to operate LEEs is strengthened.

1. The need for a clear policy framework for the creation and continued operation of LEEs

Setting a clear policy framework for LEEs starts with a clear definition of what LEEs are, something which is lacking in the laws and rules and regulations concerning these enterprises. Both the LGC and the Manual on the New Government Accounting System (NGAS) for LGUs do not have an explicit definition of the term “economic enterprise.” Meanwhile, the definition of the Updated Budget Operations Manual or UBOM is vague and does not emphasize the need for LEEs to earn enough for their operations. Taking this enterprise dimension into consideration, it is proposed that the oversight agencies (DBM, DOF/ BLGF, DILG, and NEDA) define LEEs as local government owned economic entities that generate the bulk of their revenues from selling goods and services.

There is also a need to clarify why these enterprises are created. The UBOM provides that LEEs must (a) satisfy both the economic and social objectives of the

15 concerned LGU; (b) fill in service gaps not adequately provided by the private sector; (c) operate with a lean and mean staffing complement to satisfy the income objective of the economic enterprise/ public utility; and (d) operate like a corporate body with a separate strategic plan and budget. These guidelines, however, seems to be biased for LEEs being operated by LGUs and do not provide (a) guidance on what the different alternatives to the creation of LEEs are, and (b) cautionary statement on potential government failures that may arise with the establishment and continued operation of LEEs.

As a result of the weaknesses in the LEE policy framework, LEEs have not been limited to producing goods/services not being provided by the private sector and actually compete directly with private sector enterprises. They have also not achieved any level of cost recovery and do lose year after year. Finally, they have not operated like a corporate body and thus failed to achieve efficiencies and independence from political interference.

It is therefore recommended that a new policy framework be constructed that would revolve around the following principles: (a) that LGUs need to focus on their core functions; (b) that private sector-led development is superior to government-led development unless a strong case can be made for government intervention; (c) that some marketable goods/services are better delivered by the central government rather than LGUs; and (d) that LEEs are only one of a number of ways of delivering service.

Thus, when an LGU is confronted with the need to decide whether or not to provide a given good/service, it should first check whether or not delivering the good or service is aligned with its goals and core functions. Once it decides that it is, it should assess whether or not government should be the one to deliver the good or service. If it decides that it should be government, it should decide if it is an LGU or the central government which should deliver the good or service.

If it is the LGU that could best deliver the good or service, it could do so either (a) through external organizations like private sector enterprises and non- governmental organizations (NGOs) via various types of public-private partnerships arrangements like service contracts, management contracts, leases, concessions, and licenses or (b) directly, either through an LEE or through a regular unit or office inside its organization. In deciding if it should take on the responsibility of providing the service or good by itself, the LGU must strike a balance between the need to ensure that LEEs operate efficiently and at least recover their operating costs, on one hand, and the need to promote the public interest, on the other. It is widely believed that LGUs, more than LEEs, can make services or goods more accessible and affordable to the poorer segments of the community. The LGU must also consider if it can afford doing so with its present fiscal position being what it is. If it determines it could not, it should abandon the plan.

In engaging in public-private partnerships, LGUs must bear in mind that public-private partnerships may be limited by (a) the availability and capacity of the private organizations to deliver services, and (b) the capacity of the LGU to manage the contractual and regulatory arrangements which can be both complex and costly at times. They must also remember that, based on international experience, public- private partnerships tend to be successful when (a) the LGU does not assume all of the financial risks in the partnership while being able to maintain control over the delivery of the services; (b) the LGU is able to come up with a precise definition of the required service delivery levels; (c) there is transparency in the regulation of the external providers’ performance; and (d) the LGU has access to the technology,

16 expertise and experience that is more often available to the external provider. However, these advantages exist only if (a) there are several providers capable of providing the service at comparable cost and performance; (b) the LGU can properly assess the external service provider's performance; and (c) corruption and other ethical problems do not come into play.

The new policy framework should provide explicit guidance on the creation of LEEs. The guidance should specify that LEEs should be established by enacting an ordinance that specifies, in unequivocal terms, (a) the LGU policy on the degree of cost-recovery that the LEE needs to achieve, (b) tariff rates or user charges that will be charged for goods/ services provided by LEE, and (ci) who will be subsidized and by how much, including the schedule of rates by income bracket of clients where applicable.

The decision-making process for the establishment of LEEs is illustrated in the figure below. Figure 1. Graphical Presentation of LGU Decision Making Process Relative to Creation of LEEs

Does the service contribute Alternative Service Delivery Options to achievement of LGU goals? Privatization Yes No Abandon Service Shedding Is there a legitimate and Divestiture necessary role for government in this service?

Yes

Should the LGU have primary No responsibility for this Pass to NG service? Public Partnership – i.e. Shared Services Yes Contracting Out Could, or should, this service Yes Service, Management, Lease & Concession Contracts be provided in whole or in Partner Built Operate Transfer part by the private or i.e. BT, BLT, BOT, BOO voluntary sector? Public/Private Partnerships & Joint Ventures Including with private‐not‐for‐profit entities No (NGOs/CSOs) No Is the service affordable Abandon within fiscal realities?

Yes Yes Congress Government Owned and Controlled Corporations Is corporatization feasible creates GOCC i.e., LGU Inc. and desirable? No Local Economic Enterprise LGU creates LEE Organic Unit in LGU

Adapted from: SEQUUS. 2003. “Developing the Public Economic Enterprise in the Philippines – The LGSP Way”, Draft report submitted to the Local Government Support Program (LGSP), Canadian International Development Agency (CIDA).

The new policy framework should likewise reiterate the importance of the maintenance of special accounts for LEEs as prescribed by the COA under the NGAS. The maintenance of special accounts for LEEs is essential in tracking the

17 results of LEE operations and how closely LGUs follow their intent for creating LEEs. In addition, the framework should institutionalize the periodic review of the operation of existing LEEs to help LGUs decide whether or not these LEEs deserve to continue their operations.

2. The need to clarify the treatment of LEEs in the LGU budget

In practice, different LGUs treat LEEs in different ways when they prepare and execute their budgets. There are LGUs that treat their LEEs just like any other unit/office when they prepare their. The income of their LEEs is shown as part of the income estimate for the General Fund while all expenditure proposals related to LEE operations are shown as part of the expense items in the proposed budget.

Some other LGUs treat their LEEs off-budget so that the LEEs' income and proposed expenditures do not form part of their total income estimates and proposed budgets, while subsidies (if any) are shown as an expenditure item in their proposed budget. LEE incomes are then credited to an intra-agency receivable account known as “due from operating units account” while LEE operating expenditures are debited from the same account. In this way, income derived from the operation of LEEs is used in the payment of operating expenses without passing the usual budget procedures.

This practice is in direct violation of the basic principle of local fiscal administration that no money shall be paid out of the local treasury except in pursuance of an appropriations ordinance. It is also not consistent with the “one fund” principle under which the government’s budget should cover all transactions financed with public funds. It should be stressed that the one-fund principle applies to LEE expenditures because LEEs do not have a separate legal persona as they cannot be corporations under the existing legal framework. Instead, under the LGC, LEEs are still part of the General Fund. However, special accounts within the General Fund should be maintained for each LEE.

Despite these problems, it has been argued that the practice be allowed and even encouraged since it allows LEEs to retain at least a significant portion of their income so that they will have the incentive to improve their efficiency. To take this concern into account, at least partially, while at the same time emphasizing transparency and accountability, it is recommended that the LGU budget be presented in 3 parts. Part 1 would show the income estimates and spending proposals (including subsidy to LEE) for the General Fund Proper. Part 2 would show the income estimate and spending proposal for the LEE. This implies that Sanggunian authorization for LEE spending is required. Part 3 would show the consolidation of Parts 1 and 2. This budget format is not only more transparent than current practice, it also provides incentives for LEE managers to improve their collections since they are better able to isolate their earnings from the rest of the General Fund Proper.

Aside from the need to more clearly prescribe how LEE budgets are to be treated in the budget preparation and execution of LGUs, there is also the need to lessen, if not prevent, the abuse of the provision in the LGC that excludes the PS expenditures of LEEs from the total PS expenditure of an LGU. This provision had created the incentive for some LGUs to use LEEs to circumvent the current prohibition for PS expenditures not to exceed 45% or 55% of an LGU's total annual income, depending on the income classification of the LGU.

To address this concern, it is recommended that the favorable treatment given to the PS spending of LEEs be retained but that its application be limited to LEEs which are created by ordinance and which have a well-defined policy on cost recovery.

3. The need to strengthen LGU capability relative to the creation and operation of LEEs

LGU capacity in the following areas needs to be strengthened if LEEs are to be managed more efficiently, and it is recommended that measures be undertaken to develop and implement human resources development initiatives toward this end:

a. evaluating alternative modes of public-private partnerships; b. evaluating when to create new LEEs or when to continue the operations of existing ones; c. drafting of ordinances for the creation of new LEEs, including the formulation of the subvention policy; d. improving LEE operations in:

i. development/evaluation of feasibility studies, especially the forecasting of demand, ii. tariff setting, iii. collection procedures and systems, and iv. evaluating alternative organizational structures for the management and monitoring of LEEs;

e. conduct of periodic review of existing LEEs; and f. evaluating alternative divestment modes.

These needs can be answered by the conduct of appropriate training and other capability-building programs, including giving LEE personnel the opportunity to acquire more education in the required areas. They can also be answered by recruiting personnel with the correct qualifications.

There are a number of actions that LGUs can implement to make their running of existing LEEs more efficient and therefore allow these enterprises to recover costs. Among the more important of these actions is the adoption of corporate business practices through the:

a. Use of market-oriented pricing of services based on:

i. market surveys; ii. all identified costs to be recovered, e.g., MOOE, depreciation, amortization of capital and interest expense; and iii. the inherent advantage of LGUs in LEEs such as exemption from taxation and some regulatory requirements, best sites/locations and security arrangements;

b. Establishment of sound financial management by:

i. improving collection performance by collecting monthly charges regularly and promptly, collecting overdue collectibles, and stricting enforcing of internal control measures, e.g., closer

supervision of collectors thru regular reshuffling and daily liquidation of collections; and ii. preparing quarterly statements of income and expenses and year-end financial statements consisting of the Balance Sheet, Statement of Income and Expense, and Statement of Cash Flows for each LEE; and

c. Implementation of proper asset inventory and management by the renting out of under-utilized assets and leveraging for the more productive use of assets and facilities that are not effectively used.

In planning for new LEEs, LGUs should also adopt corporate business practices. It should:

b. Justify the proposed LEE within the approved Local Development Plan; and

c. Conduct pre-feasibility analysis that determines the following:

i. technical viability and preliminary design; ii. financial viability tested against project revenue, project cost to include cost of mitigating environmental, social and other impacts and of course risks, and other quantitative indicators of profitability or non-profitability, such as discounted cash flow, internal rate of return, payback period, and results of a cost-benefit analysis; and iii. economic viability measured against local and national economics, as indicated by the Economic Internal Rate of Return (EIRR), which is measured based on the project’s effect on local employment and the public and health sectors.

In both existing and planned LEEs, having the correct organizational structure for their management is vital. The following structures are suggested:

a. An LEE unit (LEEU), which is charged with the management of LEEs, is placed in the office of the mayor under the immediate supervision of the local administrator. This arrangement is appropriate for some LGUs with markets and slaughterhouses only as their LEEs;

b. The LEEU under the supervision of the local treasurer. This arrangement would be acceptable in small LGUs where the office of the local mayor is not adequately staffed; and

c. A separate department for LEE operations in the LGU bureaucracy. This is the preferred structure where a number of enterprises have been established by the LGU.

IV. Using the Special Education Fund More Effectively

The SEF is not being spent where it ought to to be spent if it is to address the most urgent problems in public education today.

A. The Fund

The Special Education Fund (SEF) of all LGUs grew from PhP 8.5 billion in 2001 to PhP 14.2 billion in 2007, so did SEF expenditures which increased from PhP 7.8 billion to PhP 12.1 billion in the same period. While it does not seem large when compared to either total government spending on education (7%-9%) or total Department of Education (DepEd) spending (7%-10%), SEF expenditures are substantial compared to what DepEd spends for non-personal services (41%-86%) or for maintenance and operating expense or MOOE (71%-142%). Moreover, SEF expenditures are estimated to be about 2.4 times the total DepEd allocation for school level MOOE.

B. Allocation Patterns of the SEF

These substantial resources, however, are not spent efficiently. They are not being spent on what needs to be funded most, where they could do the most good.

1. Allocation for teachers

The Department of Education (DepEd) had reduced the number of teachers needed nationwide, from 37,986 in school year (SY) 2003-2004 to 9,333 in SY 2007- 2008. Despite this development, LGUs nationwide spent more of their SEFs on hiring teachers, allocating 29% of their SEF on personnel services in 2008 as compared to 27% in 2006. The number of SEF-funded teachers who were assigned to public elementary schools rose by 24%, from 2004 to 2007, while the number of locally funded teachers charged against the General Fund (GF) of LGUs increased by 33%. The trend was the same among secondary schools.

What makes matters worse is that LGU/SEF-funded teachers are not deployed as they should be. The total number of LGU-funded elementary teachers hired in SY 2007-2008 was 5,648 more than the number of teachers needed nationwide. A total of 12,017 of these teachers were assigned in schools that had more teachers than they could use. At the same time, the number of teachers who were assigned in public elementary schools that lack teachers was 6,369 less than what was needed. Meanwhile, at the secondary school level, the actual number of teachers funded out of LGUs’ GFs and SEFs was 8,915 less than the required number in all teacher-deficit public schools in SY 2007-2008. In contrast, the actual number of LGU/ SEF-funded teachers in all teacher-rich public secondary schools exceeded the required number by 8,006.

2. Allocation for capital outlays

Despite the fact that the lack of classrooms continue to be serious, the share of capital outlays in the total SEF declined from 30% in 2006 to 23% in 2008. Expenditures for the building and repair of classrooms are charged against Capital Outlays.

3. Allocation for sports competitions

Still another misalignment of SEF spending is the amount of funds allocated to sports competition, which account for from 10% to 30% of the budget of an LSB. This level of support persists even if RA 9155 had already transferred all functions, programs and activities of the DepEd related to sports competition to the Philippine Sports Commission.

4. Allocation for Citizen Development programs and co-curricular activities

Although it varies across LGUs, the allocation for citizen development programs and co-curricular activities in LSB budgets ranges from 5% to 25% of the total. The activities supported under citizen development and co-curricular programs include academic competitions at various levels including quiz bee, math contests, science fairs, cultural contests, music festivals, and press conferences. The holding of these activities must be rationalized because they are not only costly to support but also because they take the time of teachers and students away from the classroom.

5. Use of the SEF to pay for the cost of tax collection

Finally, a number of LGUs charge against the SEF some expenses related to the cost of SEF collections like the cost of accountable forms (e.g., receipts) and personnel doing work related to either RPT assessment and/or collection. The charging of these costs is in violation of the LCG.

C. Factors Hindering the Optimal Allocation of the SEF

That the potential of SEF spending is not maximized is mainly the result of three factors:

1. The LSB budget allocation process

How the SEF is allocated depends on what the DepEd division superintendents/ district supervisors recommend. Many local chief executives (LCEs) and Sanggunian representatives to the LSBs follow what the DepEd representatives to the LSBs propose since they presume the former to be better informed of the “needs” of the schools. However, under RA 9155, the school district supervisor's job is largely limited to curriculum and instructional supervision. Meanwhile the division superintendents are tasked with using funds provided to the schools under their respective jurisdictions, including those provided by the LGUs, and implementing the division education development plan. It is the school heads that are made responsible and held accountable by RA 9155 for preparing and implementing school improvement plans and for administering and managing the fiscal resources of the school. The school heads are therefore better equipped to represent the needs of schools to the school boards.

2. The mismatch between the indicators of educational performance and SEF expenditure patterns

The DepEd had installed various instruments and protocols (mostly based on the Basic Education Information System), such as the teacher deployment analysis and the classroom shortage analysis, to measure education performance. The results of these analyses are available and should provide good support for evidenced-based resource allocation at the school level. Unfortunately, these

22 feedback have not be used extensively, if at all, in determining what priority areas get SEF resources through LSB budgets.

3. Unclear policy regarding the priorities mandated for the SEF

The LGC mandates that priority be given to, among other activities, sports activities at the division, district, municipal, and barangay levels. However, RA 9155 transferred all functions, programs and activities of the DepEd related to sports competition to the Philippine Sports Commission (PSC) while retaining school sports and physical fitness as part of the basic education curriculum. There appears to be some confusion on where one exactly draws the line between school sports and physical fitness and sports development/ sports competition.

Moreover, the use of the term “operation and maintenance of public schools” in Section 272 of the LGC is the subject of varying interpretations. On the one hand, the ambiguity in the use of the term “operation and maintenance” gives LSBs greater flexibility to respond to actual needs at the school. On the other hand, one of the guiding principles of good expenditure assignment in fiscal decentralization is the need for greater clarity in the assignment of functions across levels of government. This stems from the fact that if all levels are made responsible for the same functions, it becomes extremely difficult to exact accountability from any one level of government.

Related to this, there is a need to clarify expenditure assignment in the education sub-sector across different levels of government.

D. Recommendations

The following measures are recommended to improve the efficiency and efficacy of the utilization of the SEF:

1. The guidelines on the use of the SEF should be strengthened.

The guidelines for the use of the SEF must be strengthened by improving the existing guidelines that govern SEF allocation, either by the “rules-based” or the "market-based" approach. The former involves the joint issuance by the DBM, DepEd and DILG of new guidelines containing either a positive list of the types of expenditure items that may be charged against the SEF, a negative list of expenditure items that are not allowed to be charged against the SEF, or both a positive list and a negative list of expenditure items. In the meantime, the latter involves the oversight agencies recalling all existing guidelines on SEF utilization and giving LSBs full discretion in the allocation of the SEF while strengthening the capability of the boards to plan and budget the SEF.

2. Institutional arrangements should be improved.

The flow of information between the schools and the district supervisors must be improved to allow the latter to better represent the interests of the former. Clearer connection must be established between the various instruments and protocols in the BEIS and the BESRA and the school improvement plan, on the one hand, and LSB allocation process, on the other hand. In the medium term, there is a need to re-think DepEd representation in MSBs. The need to have school level representation in the MSBs would have to be weighed against the practicality of increasing the number of MSB members. There is also a need to consider expanding the membership of the LSB to include the head of the cluster of secondary schools in the district as well as

23 the local budget officer. Finally, there is a need to expand the membership of the LSB to include NGOs, business chambers, and private schools as non-voting members.

3. Definitions and use of terms in the LGC and RA 9155 should be clarified.

There is a need to delineate the line that separates school sports and physical fitness from sports development/sports competition and thus clarify the extent of school participation that is expected in the barangay, district, division, regional and national level of the Palarong Pambansa.

4. Expenditure assignments in the Basic Education Sector should also be clarified.

Actual utilization of the SEF overlaps with DepEd expenditure items. The following insights from experience in other countries may be considered in this effort.

a. Standard setting, curriculum design. Worldwide, the central government is generally considered to be better equipped than state and local governments in formulating a common minimum educational standard, including curriculum design, and in addressing equity issues such as the distribution of teachers and technical assistance to underperforming areas.

b. Textbook procurement. Textbook production and distribution is usually centralized in order to harmonize textbooks with the curriculum design and the development process, although textbook distribution may be more efficient if left to sub- national institutions.

c. Teacher salaries. Teacher salaries, even in highly centralized systems, are usually paid from the recurrent budget of the administrative level to which teachers report. The true extent of local control over teachers depends on whether or not the teachers are members of a unified national civil service with pay scales set by the relevant service commission.

d. Construction and maintenance. School building construction and maintenance are traditionally among the most decentralized education sub-functions in many countries, although responsibilities are often divided in some, with the provinces providing for construction and major rehabilitation, while lower level local government units conducting routine maintenance. Responsibilities also tend to be divided according to the level of schooling. For instance, in some countries, lower level local governments are responsible for primary schools, mid-level governments for secondary schools, and central governments for tertiary education.

5. Accountability in, and the membership to, LSBs must be improved.

The experience of the Synergeia project sites indicates that the following elements are key to “re-inventing” the LSBs:

a. Performance assessment at the school level and the reporting of the results of the assessment to the parents and the community, which tends to improve the accountability of the school heads by exerting pressure on them to manage school resources more effectively and efficiently;

b. The holding of participative events where school officials, teachers, parents and the community come together to discuss the current status of basic education, the constraints and problems faced by the school, and the alternative solutions for these constraints and problems; and

c. The expansion of the LSB membership to include NGOs, business chambers, and private schools as non-voting members, and thus tap expertise available outside of the traditional LSB membership, and secure additional resources.

V. Mobilizing ODA Resources

Official Development Assistance or ODA, which are contributions of donor governments to developing countries and to multilateral institutions to promote the economic development and welfare of the recipient countries, is often considered the best source of external funds for LGUs because it consists of grants, loans with low interest rates and long repayment periods, and both. Soft loans have interest rates ranging from 0%-7%; maturity periods of from 10 years to 50 years; and grace periods of from 5 years to 10 years. These are used for projects which are revenue generating and lead to capital formation. ODA grants, on the other hand, are consultant/expert services, equipment, commodities and training which are provided for free. These are preferred for development projects in the social sectors as well as for technical assistance types of projects.

A. ODA Distribution

Practically all provinces have received ODA assistance. However, of the ten provinces with the most number of ODA projects, the majority is in Mindanao (11) and the rest, in the Visayas (7). Meanwhile, of the seven (7) provinces with the least number of ODA projects, the majority is located in Luzon. Except for one, the five regions with the least number of ODA projects are all in Luzon.

Of the sectors funded by ODA accessed by LGUs, agriculture/agrarian reform accounted for the most number of ODA projects, followed closely by infrastructure and then health. Education and social services had the least number of projects

B. ODA Grants

ODA grants have historically comprised at most 10% of total ODA flows and their proceeds have accounted for less than 2% of allocations for foreign-assisted projects, which, in turn, accounted for less than 10% of all projects for 2008 and 2009. The value and share of grant funds to total ODA have been declining, and so

25 has the number of grant projects, which decreased from 237 in 1997 to only 89 in 2007. At the same time, the number of LGUs has been growing, thus increasing the competition for the increasingly scarce ODA grant funds. To make matters worse, LGUs also have to compete with the large number of agencies of the NG, both line and oversight, for ODA. Thus, the the chance of an LGU securing an ODA grant is low compared to that of getting a locally-funded project.

C. ODA Loans

ODA loans are a much better prospect for LGUs as sources of funds than grants. These constitute a much larger share of ODA resources and there are many loan projects that are meant for collaboration with LGUs. Moreover, the share of ODA loan-financed projects with LGU participation to total ODA loan projects have been increasing, from 16.7% in 2000 to 21.1% in 2008. However, the absolute amount of loans with LGU participation has been declining, even without adjusting for inflation, mainly because the Philippine Government and its major donor partners have been moving away from project loans towards program loans. The total amount of ODA commitments has also been declining, from US$13.3 billion in 2000 to only US$9.7 billion in 2007 and then bouncing back only slightly to US$10.0 billion in 2008. This decline is partly due to the improving fiscal situation in the country.

1. ODA-sourced Loans to LGUs through GFIs

a. Access by LGU Type

i. Number of Loans

As of 31 March 2009, a total of 323 LGUs have availed of ODA-sourced loans from the GFIs Land Bank of the Philippines (LBP) and Development Bank of the Philippines (DBP). Of this total, 248 or 76.8% of the total are municipalities, 54 (16.7%) are cities, and 21 (6.5%) are provinces.

Despite being large, the number of municipalities that have availed of ODA- sourced loans represents only a small portion of the total municipalities in the country. Those availing of ODA loans from the LBP account for 12.6% of the total municipalities while those borrowers of DBP account for 4%. The number of provinces that have availed of the same kinds of loans, meanwhile, from the LBP represents 21.8% of all provinces nationwide, while the number of DBP borrowers among provinces represents 5.1%. It is the cities which have the highest ratios. The number of cities with ODA-sourced loans from LBP account for 32.5% of total, while that of cities with ODA loans from DBP represents 13.7%.

ii. Loan Amount

Of the total amount of ODA-sourced loans, cities account for the largest share. These LGUs got 63% or PhP 8.2 billion of the PhP 13 billion lent by LBP and 33% or PhP 1.2 billion of the PhP 3.6 billion lent by DBP. Municipalities account for the next largest share, getting 29% or PhP 3.8 billion of LBP's ODA-sourced loan portfolio and 28% or PhP 1 billion of DBP's. Provinces got the smallest share, with 8% or PhP 1 billion of the LBP and 39% or PhP 1.4 billion of the DBP portfolios.

b. Access by LGU Income Class

I. Number of Loans

First class LGUs have the largest share in the total number of ODA-sourced loans lent by GFIs. They account for 25% and 35% of the ODA loans lent by LBP and DBP, respectively. Fourth class LGUs have the second largest share, getting 25% of the ODA loans from LBP and 27.5% of the ODA from DBP. The third largest share goes to 3rd class LGUs which have 25% and 19% of the LBP and DBP portfolios, respectively. Meanwhile, 2nd class LGUs got 14% each of the same portfolios and 5th class LGUs got 11% and 5%, respectively.

ii. Loan Amount

By a great margin, 1st class LGUs got the largest share of the amount of ODA-sourced loans from GFIs. These government units got 66% and 74% of the total loan amounts lent by LBP and DBP, respectively. Fourth class LGUs got the second largest proportion, accounting for 12% and 10% of the ODA loan portfolios of LBP and DBP. These LGUs are followed in descending order by 3rd, 2nd, and 5th class LGUs.

c. Access by Region

Most regions have 15 to 26 LGUs with access to ODA-sourced loans through LBP. The exceptions to these are Region V and the Autonomous Region of Muslim Mindanao (ARMM) which have only 9 or 10 and CAR and NCR which have only one each.

In the case of the DBP ODA-sourced loan portfolio, Regions II and X had 10 each, Region XII had 9 loans, Regions IV-B and VIII had 8 each, and Region VI had 7. The other regions had five or less loans. These include ARMM and CAR.

d. Types of Funded Projects

Of the ODA-sourced loan projects funded by the LBP, the most numerous were water systems (75), solid waste management (SWM) projects (36), public markets (34), drainage (32) systems, and heavy equipment acquisition (20). In terms of loan amounts, water systems accounted for PhP 2.1 billion or over 16% of the PhP 13 billion total, followed by drainage projects with close to PhP 1.4 billion or 10.5%, public markets with PhP 1.1 billion or 8.5% and SWM projects with PhP 0.95 billion or 7.3%. Infrastructure projects totaled PhP5.755 billion or 44.2%, primarily due to the road projects of Cebu City under the Metro Cebu Development Project.

Of those projects funded by DBP, water systems were the most numerous (19), followed by heavy equipment acquisition (15), SWM projects (14), and public markets (11). In terms of loan amounts, the IT park project of one 1st class province accounts for over PhP 1 billion or 30% of the PhP 3.6 billion total. SWM projects amounted to PhP 885 million (25%), heavy equipment to PhP 580 million (16%), and water systems to PhP 447 million (12%).

D. LGU Access to ODA

Despite the concessionary terms these resources carry,, LGUs have not been able to avail of ODA loans and grants. As of 2006, national government agencies had the biggest share of the ODA pie at 65%, followed by government-owned and controlled corporations (GOCCs) and government financing institutions (GFIs) which got 22% and 13%, respectively. LGUs received less than one percent (1%).

E. Factors Hindering LGU Access to ODA

Three main factors contribute to the LGUs' lack of access to ODA. One is the requirement imposed by international lending institutions that the national government issues a sovereign guarantee on LGU loans. However, the Foreign Borrowings Act (RA. 4860) states that the guarantee of the Philippine Government could be issued only for loans granted to GOCCs and GFIs. There is nothing in the provisions of the law that says that a guarantee could be provided to external borrowings of LGUs, which is why the official legal opinion is that such a guarantee is not allowed.

1. The selection process for LGUs participating in ODA loan projects

Despite the dwindling of ODA resources, stories abound in the mass media of successful implementation of various projects involving LGUs, usually funded by bilateral aid agencies. This is mainly the result of efforts by both donors and beneficiary LGUs to gain visibility and project a positive image for themselves. Because of this need to gain visibility, bilateral aid agencies tend to prefer that their projects be implemented in areas where they may have had some previous exposure, especially in areas where previous successes had been achieved. Moreover, they look for the following in the LGUs they prefer as venues for their projects:

a. Dynamic leadership of the local chief executive; b. Unitity in vision and ability to gain consensus; c. Clear development goals; d. Competence of staff involved in project development and implementation, especially the Provincial Planning and Development Officer (PPDO); e. Good information to support decision making and funding applications; f. Proactive effort in attracting ODA; g. Counterpart support that anticipates needs to make the partnership work, including a specific allocation of counterpart funds; h. Active effort in coordinating projects at all levels; i. Active seeking of ways to develop public-private sector partnerships; and j. Policy environment that encourages building on initiatives of previous administrations.

These stringent criteria severely limits LGU access to ODA projects and creates the situation of donor agencies converging on the few LGUs that qualify, thus resulting in wasteful duplication of efforts.

Most of the bilateral grant projects are small and thus limited initially to a few LGUs so that they could be more focused. Their project design often involves some innovation in local development that, if proven to be successful, may be graduated or scaled up to the national level, usually by the national government on its own, or with

28 assistance from multilateral institutions such as the World Bank and the Asian Development Bank.

Precisely because donor agencies want to have success stories to tell, many ODA grant projects at the LGU level tend to be coddled or cared for by both the donor and the recipient LGU to increase the chances of the projects being successful. However, when replicated in other LGUs during the scaling up and implementation in a larger area, the project’s actual performance falls short of the level of success achieved in the pilot LGUs. There is even the prior problem of finding enough LGUs to participate in the scaling up. In scaled up projects, participating LGUs are expected to put up most of the resources (in cash or in kind, as equity or as loan) that were given by the donor partner to the pilot LGUs.

2. The prohibition on the NG from providing sovereign guarantee to LGU-contracted ODA loans

International lending institutions require that the national government issues a sovereign guarantee on LGU loans. However, the Foreign Borrowings Act (RA. 4860) states that the guarantee of the Philippine Government could be issued only for loans granted to GOCCs and GFIs. It has no provision either for foreign borrowings of local governments or for the issuance of a guarantee from the President, on behalf of the Philippine government, for such loans.

3. The absence of a generally-accepted mechanism for the transfer of ODA loan funds from the NG to LGUs

Funds for the transfer of ODA loan funds from NG agencies to LGUs are available, but no mechanism for doing so is acceptable to both MDFO and DBM. These two agencies have not agreed on the how much the equity contribution would be from participating LGUs. A number of equity sharing schemes therefore exists across projects involving ODA loan funds.

4. Occasional cash flow problems of the NG

Cash flow problems experienced by the national government delays the transfer of ODA loan funds to LGUs.

5. Inability of LGUs to provide counterpart financing

LGUs are generally unable to put up the equity required for an ODA loan. A number of LGUs have withdrawn participation in such projects due to the NG-LGU cost sharing scheme for LGU-devolved programs.

6. Lack of technical capacity among LGUs to participate in ODA projects

The limited technical capacity of LGUs has likewise affected LGU access to ODA. Some LGUs have had difficulties in complying with pre-qualification requirements, documentary requirements for clearances, and the need for detailed engineering designs. One of these requirements is the Bureau of Local Government Finance (BLGF) good debt service capability certification, which is needed to avail of MDFO financing facilities.

7. The tedious and lengthy processes and procedures for availing of ODA loans through the MDFO

Compared to those imposed by other GFIs and private banks, the processes and procedures imposed by the MDFO on LGUs for availing of ODA loans are tedious and lengthy and thus have served either as a hindrance to the easy and fast access of LGUs to ODA loans or as a disincentives for LGUs to seek ODA loans. The MDFO also imposes high interest rates, primarily because of some built-in technical assistance and capacity building for recipient LGUs.

F. Recommendations

The following measures are recommended to increase LGU access to private sources of funds which should lessen the dependence of LGUs on ODA and, more importantly, develop a sustainable LGU financing system:

1. Government should review its policy of encouraging private funding of creditworthy LGU projects.

The ODA Act provides that ODA must be used where there are no comparative financial instruments available. Using domestic commercial financing would free ODA for priority sectors fo which commercial financing is not available. It also introduces new fund sources and instruments and thus help develop sustainable financing of LGUs.

2. LGUs should be allowed to use private commercial banks as depository institutions.

Once the prohibition against LGUs using commercial banks as depositories is lifted, LGUs will be able to develop a closer working relationship with private commercial banks, which will compete for LGU business by way of offering higher interest on deposits, lower interest on loans, and better banking services in general. For many areas in the countryside, the LGU has been the single biggest potential banking client. With the opening of access to LGU accounts, more private banks will establish branches in the regions.

3. BLGF, DILG, AND LGUs should strengthen the dissemination of information on LGUs’ creditworthiness.

Initiatives toward this goal include harmonizing financial reporting systems, more specifically the electronic linkage among the Local Government Performance Monitoring System, the Local Government Financial Performance Monitoring System, and the creditworthiness rating system developed under ADB TA 4556. Once adopted, the latter can provide additional relevant information to prospective lenders as well as to assist the BLGF and bank regulators in ensuring that bank lenders and LGU borrowers are engaging in prudent and responsible lending and borrowing practices, respectively.

4. Support should be given to MDFO to pursue initiatives for mobilizing private capital for LGU projects and to strengthen its operational capacity to support LGU financing.

The MDFO may consider tapping long-term domestic capital by securitizing its loan portfolio or issuing a pooled bond on behalf of selected LGUs. Both loan

30 portfolio and pooled bond could be secured by, among other credit enhancements, a reserve fund using its Second Generation Fund. In the meantime, the government should strengthen MDFO’s operational capacity to support LGU financing by approving the latter’s organizational rationalization plan as an attached agency of the DOF.

5. Government needs to ire-invigorate the LGU bond market.

After an initial round of bond flotations, the LGU bond market is now inactive. The primary reason is cost. Most LGU borrowings are small and the high fixed cost of issuing bonds means that it is cheaper to obtain a bank loan. The government could look into modalities such as bond pooling and establishing a liquidity facility to help bolster interest in LGU bonds.

6. Government needs to acquaint LGUs of sources of local public investment funds other than direct ODA grants.

These sources include the Priority Development Assistance Fund (PDAF) as well as the programs, activities and projects of NG line agencies.

The following measures, meanwhile, are being recommended to make the use of ODA resources more efficient and, thus, effective

1. The government and its ODA partners should design projects and programs that would leverage ODA funds for LGUs with domestic commercial financing. It should also ensure that commercial financing is not crowded out.

Much of the ODA for LGUs is channeled through GFIs and other government financing institutions which act as intermediaries and on-lend these funds to eligible LGUs. However, ODA and GFI funds are not enough to meet the potential demand from LGUs. Private financial institutions and other forms of private capital can help to meet additional LGU needs. IFIs should therefore be given a relevant role in the design of projects that use ODA to bring in more domestic players and financing instruments.

2. The pricing and terms of ODA funds channeled through GFIs must be reviewed and a more transparent system needs to be adopted for determining who should benefit from the low cost and longer terms of ODA loans.

There is currently no policy on the final terms for the way GFIs receive ODA funds, with each ODA source providing funds to GFIs under different terms and conditions. The current practice is for the GFI to retain the benefits of the low cost and longer terms of the ODA. This system lacks transparency in the allocation of the benefits of the loans. When the GFIs on-lend the ODA-sourced funds to LGUs at “market prices,” this can result in a substantial profit for the GFIs. It is necessary for GFIs and other government lending institutions to differentiate their use of ODA from the use of their internal funds to minimize the possibility of ODA crowding out PFI lending to LGUs and other sub-national entities like water districts.

3. The possibility of allowing LGUs to directly access ODA without any sovereign guarantee by the national government should be explored.

This used to be a moot issue before, when practically all donor partners, multilateral and bilateral, refused to lend without sovereign guarantee. Lately, however, ADB has been open to relaxing this condition.

4. Government must fast-track the implementation of Executive Order 809.

The administrative fiat directs the DILG and the DOF to implement the LGU Financing Framework, under which first-tier LGUs, or those provinces, cities, and municipalities whose average regular and locally-source funds for the past three years comprise 60% of their total income, may borrow directly from multilateral agencies ". . .without any direct or indirect National Government guarantee.” Although borrowing without any national government guarantee may add on some 1.5 percentage points to the cost of funds to the LGU as this is the current charge of the LGU Guarantee Corporation, the LGUs are nevertheless expected to enjoy a lower cost of funds if they are able to borrow directly from ODA sources. Moreover and perhaps more importantly, LGUs would be able to define its own public investment needs and priorities, without these being distorted by national priorities, which happens when they access ODA funds through relending from NG agencies.

5. The implementation of a performance-based grant system must be a priority.

There is a need to evaluate the NG-LGU cost sharing policy, harmonize it with other grant programs, pilot-test the performance-based incentive policy, and finalize the design of the performance-based grant system.

6. Government needs to develop the LGUs' capacity to prepare and operate projects that would be suitable for ODA and commercial financing.

Managers of financial institutions say that there are funds available to meet the capital financing needs of LGUs. They believe that the constraint is the lack of well-prepared project proposals. Many LGUs do not have a system of setting priorities for capital investment and the capacity and/or resources to prepare project feasibility studies. In some cases, LGUs are not too familiar with the process of accessing ODA. Government needs to strengthen its efforts to educate LGUs on how to access ODA. It may also wish to consider the establishment of a project feasibility study fund and a ready pool of consultants for the use of LGUs to conduct feasibility studies. It may likewise consider streamlining the development and approval processes for small subprojects so that templates can be used for small subloans, e.g., P3 million and below, instead of full-blown feasibility studies.

7. There is a need to use ODA more strategically and effectively.

Government could make its development strategies and priorities clearer to ODA providers. It may want to indicate where its own resources are going and where and in what form ODA is most needed to complement domestic resources. It could guide its ODA partners in how they can best help, including specifying which regions, provinces, or sectors should be given priority. In terms of mobilization of financial resources, ODA for LGUs could be used to pilot-test and catalyze

32 sustainable mechanisms for local government access to domestic capital and should not be focused only on short-term transfer of ODA through projects where ODA is simply on-lent to LGUs on a one-to-one basis or goes directly into projects. The levels of concessionality of ODA could be considered more carefully at the programming stage so that the more concessional ODA can be directed towards the sectors and locations that need it more. Government could also exert best efforts to ensure that all programmed or committed funds are negotiated and converted into loan agreements.

VI. Mobilizing Internal and External Resources through the Exercise of LGU Corporate Powers

Exercising their corporate powers would allow LGUs to access and mobilize the resources of the private sector and, in instances when this is warranted, use these resources in combination with their own to engage in enterprises that would be of benefit to the community.

A. LGU Corporate Powers

Having corporate powers means that LGUs can:

1. have continuous succession in its corporate name; 2. sue and be sued; 3. have and use a corporate seal; 4. acquire and convey real or personal property; 5. enter into contracts; and 6. exercise such other powers as are granted to corporations, subject to the limitations provided in the Code and other laws.

More specifically, they can, among other powers:

1. create their own sources of revenues; acquire, develop, lease, encumber, alienate or otherwise dispose of real or personal property held by them in their proprietary capacity; and to apply their resources and assets for productive, developmental or welfare purposes in the exercise of their governmental or proprietary powers and functions;

2. negotiate and secure grants to support basic services and community facilities;

3. borrow from financial markets, through loans, credits and other forms of indebtedness, in advance of revenues;

4. acquire property, plant, machinery equipment and such necessary accessories through a supplier’s credit, deferred payment plan, or other financial scheme;

5. issue bonds, debentures, securities, collateral notes and other obligations to finance self-liquidating, income-producing development or livelihood projects pursuant to the priorities established in the approved local development plan;

6. extend loans, grants, or subsidies to other local government units;

7. enter into contracts with any duly pre-qualified individual or contractor for the financing, construction, operation and maintenance of financially viable infrastructure facilities under the Build-Operate- Transfer (BOT) agreement, subject to the applicable provisions of Republic Act 6957 as amended by Republic Act 7718; and

8. enter into joint ventures and other cooperative arrangements with non- governmental organization (NGOs) and People’s Organization (POs) for social and economic purposes.

B. Manifestations of LGU Corporate Powers

The most concrete and visible signs of the LGUs' exercise of their corporate powers are their efforts to mobilize resources. LGUs do this by operating local economic enterprises (LEEs), which are the subject of a separate section, and by engaging in non-traditional forms of resource mobilization. The non-traditional forms of resource mobilization are private-private partnership (PPP), inter-LGU cooperation schemes, and corporatizing service facilities.

1. Public-Private Partnerships

Public-private partnerships (PPPs) are collaborative efforts of government and the private sector to deliver services and/or engage in enterprises. Among the PPP arrangements that are slowly becoming popular among LGUs in the country are the "Build-Operate-Transfer" (BOT) and "Build and Transfer (BT) schemes, and partnerships with community organizations.

There are significant advantages in LGUs allowing the private sector to participate in the delivery of government services. The following are the most important:

a. It enables the LGUs to implement priority projects without having to raise the funds for their implementation.

b. It frees LGU funds for other priority development projects which may not be eligible for credit financing, e.g., social and environmental projects.

c. It allows flexible financing and private sector partnership in local development.

d. It provides access to superior technology transfer and training.

e. It enables LGU to own the infrastructure facility after a fixed term.

f. It hastens project implementation and assures operating efficiency.

g. It provides potential source of funds if a revenue sharing scheme is built into the BOT contract.

There are seven possible arrangements for PPPs that could be used by LGUs. These are (a) service contract, (b) management contract, (c) lease, (d) concession, (e) license, (f) funding agreement, and (g) joint venure. These models

34 differ in the following areas: (a) ownership of the assets, (b) responsibility for capital investment, (c) responsibility for operation and maintenance, (d) relationship to the consumer/citizens, (e) regulation of user charges or tariffs, (6) receipt of operating revenue, (f) sharing of financial risks, (g) degree of LGU subsidy, and (h) extent of monopoly rights.

a. Service Contracts

The LGU may contract an external organization to deliver a service. The LGU continues to own the assets needed to deliver the service but the service contractor is responsible for the repair and maintenance of these assets and usually for the replacement of some equipment necessary for the delivery of the service. The operating income is controlled by the LGU and goes to its accounts. The contractor is simply paid for the service based on the agreed price.

b. Management Contracts

Management contracts provide for the LGU to either share or not share with the service provider the income from the service delivery. If there is no sharing of income, the LGU maintains ownership of the assets and is responsible for investments into the assets. It also sets the tariffs for the service, is directly responsible to the citizen for the service, and assumes all financial risks. The operation and maintenance costs are met from the income received for the service. Any operating surplus or deficit is the responsibility of the LGU. The service contractor, on the other hand, is simply paid a fixed fee for the service.

If the revenue received from the delivery of the service is shared between the LGU and service contractor, the LGU has the same responsibilities and risks as in the “no-income-sharing” approach. However, the service contractor usually has discretion to charge less (but not more) than the regulated tariffs. It also receives a fixed percentage share of the operating surplus on top of the fixed contract fee.

c. Leasing

The LGU may lease some of the assets it owns to a service provider in exchange for a rental price which may be a straight rental price, a percentage share of the revenue, or both. The service provider is responsible to the consumers of the service and thus bears all the financial risks associated with the operation of the service. It collects the revenue from the delivery of the service through tariffs which the LGU may set. It also meets the operating costs. It is likewise responsible for operation, repair and maintenance, and for the replacement of short-life equipment. It must return the assets to the LGU in good condition at the end of the lease period, less normal wear and tear on equipment.

d. Concessions

In a concession, a service contractor is given by the LGU the exclusive right to provide a service for a fixed period of time. It has to invest in constructing and providing the necessary infrastructure and is responsible for all costs, including capital, repair, operation and maintenance. It is also responsible to the consumers of the service and thus bears all the financial risks. The LGU, meantime, sets the levels of quality and/or quantity of the service to be provided by the service contractor, and may fix or negotiate with the service provider the charges the latter collects for the service. The charges are usually indexed to inflation or some level of return on

35 investment. The LGU get back ownership of the assets after the concession period. A Build-Operate-Transfer (BOT) scheme is a form of concession.

e. Licensing

A service provider may be licensed to invest in, and operate, a service on the same conditions as a concession, except that it does not have the exclusive rights to provide the service. It, however, retains the assets used in the delivery of the service, after the license has expired. This arrangement is resorted to where there is potential for competition and the service requires lower investment costs.

f. Funding Agreement

LGUs may enter into a contract with non-profit organizations under which the former provides the latter a grant to provide certain services, such as the management of social, sports, recreation, or cultural activities. The organization is responsible for all investment and operating costs, owns the assets used and bears the financial risks.

g. Joint Ventures

Another mode of public-private partnership is the Joint Venture (JV), which is a contractual arrangement whereby a private sector entity or a group of private sector entities and, in this particular case, an LGU contribute money/capital, services, and assets while sharing risks to jointly undertake an enterprise. The JV may either be a contractual JV, or a corporate JV. A JV company is an entity registered with the Securities and Exchange Commission (SEC) by the JV partners that shall perform the primary functions and obligations of the JV as stipulated in the JV Agreement. Meanwhile, a contractual JV is a legal and binding agreement under which the JV partners shall perform the primary functions and obligations under the JV Agreement without forming a JV Company.

Because there are legal impediments for LGUs to establish private corporations, it is recommended that JVs with the private sector be in the form of contractual Joint Venture, adopting applicable provisions of Executive Order (E0) No. 423 dated 30 April 2005.

2. Inter-LGU Cooperation Schemes

Inter-LGU cooperation schemes involve two or more LGUs engaged in collaborative efforts in planning and implementing projects and programs, and in service delivery. These schemes allow participating LGUs to take advantage of synergies in resources and capacities that cooperation among them create.

3. Corporatizing Service Facility

A number of LGUs (e.g., Misamis Oriental and Quezon City) have attempted to operate their LEEs by registering their LEEs as corporations with the Securities and Exchange Commission (SEC) under the Corporation Code. However, the Department of Interior and Local Government (DILG), in an opinion dated July 22, 1997, asserts that an LGU, being a juridical person by virtue of it being a corporation itself, cannot be an incorporator of a private corporation. This opinion is based on the fact that Section 10 of the Corporation Code provides that: “Any number of natural persons not less than five but more than fifteen, all of legal age x x x may form a private corporation for any lawful purpose or purposes x x x.”

Meanwhile, the COA points out that government corporations can only be created by Congress (Sec. 16 Art. XII of the Philippine Constitution). It also says that the LGC does not vest in the Sangguniang Bayan the power to create corporations (Supreme Court in Engr. Ranulfo Feliciano, Leyte Metropolitan Water District vs. COA, GR No. 147402, dated January 14, 2004).

In the face of these difficulties, LGUs seeking to create corporations out of LEEs ought to seek legislation which provide such corporations a separate charter as a government-owned and –controlled corporation..

C. Enhancing the Corporate Capacities of LGUs

Efforts to harness and enhance the corporate capacities of LGUs requires the dynamic interplay of policy support, capacity building, and sustaining actions consisting of advocacy and technical assistance, monitoring and evaluation, as well as funding support. It also needs to have an institutional framework for the mobilization of stakeholder support.

1. Policy Support

There are external factors that impact on LGUs’ exercise of corporate powers, mainly related to policy and oversight support. There are a number of laws and policies governing the LGUs’ exercise of corporate powers that are vague on LGUs’ mandate to establish LEEs. Moreover, policies on organizational and financial systems for LEEs are not in tune with industry standards. The policies on LGUs’ exercise of corporate powers must be responsive to LGU needs and more enabling of LGU initiatives. Furthermore, policies suffer from gaps in their interpretation and implementation at the operational/local level. All these needs must be addressed in order for a policy environment that supports the promotion of the exercise of LGU corporate powers is to be created.

2. Capacity Building

Capacity building has three inter-related dimensions: a) institutional interrelations; b) organizational capacities; and c) individual competencies. However, attempts at rationalizing or strengthening institutional interrelations and organizational capacities are often viewed as threatening and thus resisted. In contrast, training in individual competencies is generally viewed as non-threatening and is thus often supported. In any case, training in identifying investment and economic potentials and potential economic niches, in entrepreneurship and enterprise management, business planning, management skills, financial management and risk management, among others, can be used as an “entry point” for pursuing the other dimensions of capacity building. The LGA should be allowed to play a vital role in the training of individual personnel of LGUs, as well as in the strengthening of institutional reorganization and the strengthening of organizational capacities.

3. Sustaining Actions: Advocacy and Technical Assistance

The successful exercise of LGU corporate powers would require not only the necessary policy support but also sustained advocacy and adequate technical and funding assistance. LGUs would need some assistance in identifying and then accessing sources of investment. The OPDS can take the lead, in collaboration with the DILG’s Regional Offices, DTI, and the Small and Medium Enterprise

Development (SMED) Council, in promoting LGUs’ exercise of corporate powers and in providing them the necessary technical assistance in identifying its economic potentials, potential economic niches, needs and demands, and in managing LEEs. These entities can likewise act as broker for LGUs in sourcing financing for its projects and initiatives in line with LGUs’ exercise of corporate powers.

4. Sustaining Actions: Monitoring and Evaluation

In collaboration with the DILG Regional Directors and Local Government Officers, the BLGS shall have overall responsibility for collecting data and monitoring results. It shall, in collaboration with the concerned DILG and local officials, establish the baseline data needed for the continuing monitoring and evaluation of the LGUs' performance of their corporate powers. This monitoring and evaluation exercise could be part of DILG’s LGPMS and its results will be incorporated into the DILG’s overall management information system, and shall be used to implement the performance-based grant on LGUs’ exercise of corporate powers. Community monitoring tools could also be developed by DILG to be actively used by accredited civil society organizations and private sector organizations to promote better governance and transparency in project activities.

5. Sustaining Actions: Funding Support

A fund, to be called the LGU Corporate Powers Challenge Fund (LCPCF), is proposed to provide financial support for innovative instances of the exercise of corporate powers by LGUs. It is proposed to be capitalized with P300M from budgetary appropriation to be sourced by DILG and is to be established as a window in the Municipal Development Fund Office (MDFO). Ten percent of this fund is to be spent on capacity building while the rest would be given as grants to LGUs to promote their exercise of their corporate powers.

Other sources of funding support include the following:

a. The Local Economic Development Project funded by the Canadian International Development Agency (CIDA) to support LGU capacity building for the next eight years; b. The Spanish Grant intended for Regions 5 and 13 to support capacity building on resource mobilization, financial management and economic enterprise management; c. The forthcoming Philippine Basic Urban Services Sector Project funded by the Asian Development Bank; and d. The Municipal Development Fund particularly the PROLEND Program, a program lending window designed to promote and support policy reforms in local governance.

6. Institutional Framework

To set the stage and create a platform for LGUs’ effective exercise of corporate powers, an institutional framework is hereby envisioned where the DILG, in collaboration with the other oversight agencies and concerned institutions such as NEDA, DOF, DBM, DTI, DA, DOJ, ULAP and PCCI, shall establish a Coordinating Council for LGU Corporate Powers (CCLCP). The CCLCP shall:

a. be created through an Executive Order;

b. formulate policies and provide guidance on LGUs’ exercise of corporate powers; c. serve as the clearinghouse of policies and implementing rules and regulations as regards LGUs’ exercise of corporate powers; d. act as a collegial body to review, approve or disapprove applications of LGUs to LCPCF; e. review and amend LCPCF policy guidelines after a prescribed period of operation; and f. be assisted by a core support group composed of representatives from OPDS, BLGD, BLGS and LGA which shall serve as its secretariat.

As members of the CCLCP Secretariat, the different bureaus and offices of the DILG can provide the policy and promotional support for the program. The Office of Project Development Services (OPDS), as DILG’s conduit with multilateral and bilateral institutions, can take the lead in the promotional and advocacy initiatives in LGUs' exercise of corporate powers. It can also assist LGUs in packaging programs and projects and in funneling funding support along these initiatives. The Bureau of Local Government Development (BLGD) can be the focal office in policy review, policy consultation and policy formulation, with respect to LGUs’ corporate powers. The Local Government Academy (LGA), in collaboration with other institutions, on the other hand, can take the lead in institutional capacity building initiatives to enhance LGUs’ exercise of corporate powers. The Bureau of Local Government Supervision (BLGS) can provide the framework for effective monitoring and evaluation of LGUs’ initiatives in the exercise of corporate powers.

COORDINATING COMMITTEE ON DECENTRALIZATION (CCD)

Raymund C. Fabre ADB TA 7019

Contents

1. History 2. Highlights of the MOU: Legal Basis 3. Highlights of the MOU: Purpose 4. Highlights of the MOU: Structure 5. Highlights of the MOU: Scope HISTORY y The concept of a coordinating body for LGU and decentralization issues with members from the oversight agencies is not new. y An informal version of this body was responsible for eventually drafting and facilitating the issuance of Joint Memorandum Agreement 2007‐1. y However, there was always the intent to formalize the body and, originally, to become a revival of the Oversight Committee on Devolution.

HISTORY y However, based on a recent quick legal review, the OCD was never dissolved nor did the Local Government Code of 1991 provide for a “sunset” clause. y The OCD continued to be convened after the issuance of the Code’s IRR but only to rule on issues such as the manner on how the IRA is to be released. y However, there a number of coordination and policy issues aside from the IRA which should be addressed by a regularly convened inter‐agency body. HISTORY y These issues included reforms on the local taxing powers of LGUs, LGU access to official development assistance, LGU access to credit, the implementation of JMC 2007‐1 or harmonization in the provision of capacity building to LGUs, and the government’s positions on the Philippine Development Forum 2009‐2010 workplan. y Over time this coalition become comfortable in working together towards addressing these issues and seeking reforms.

HISTORY y In a meeting held last June 22, 2009, the group agreed to formalize their relationship through a memorandum of agreement (MOU) which would include the four oversight agencies, the LGU Leagues and the Union of Local Authorities of the Philippines as signatories. y After several consultations, the final form of the MOU was circulated among the CCD members for final approval on October 16, 2009. Highlights of the MOU: Legal Basis

AGENCY LEGAL BASIS Department of the Interior and Local Section 3(3), Chapter 1, Title XII of Executive Government (DILG) Order 292 (Administrative Code of 1987); Section 533 of RA 7160 (Local Government Code of 1991) National Economic and Development Executive Order 230, s.1987; Section 114 (b) Authority (NEDA) of RA 7160 (Local Government Code of 1991) Department of Budget and Management Section 2, Chapter 1, Title XVII of Executive (DBM) Order 292 (Administrative Code of 1987); Section 354 and Section 533 of RA 7160 (Local Government Code of 1991) Department of Finance (DOF) Section 1, Chapter 1, Title II of Executive Order 291 (Administrative Code of 1987); Section 288 and Section 533 of RA 7160 (Local Government Code of 1991)

Highlights of the MOU: Legal Basis

AGENCY LEGAL BASIS League of Provinces of the Philippines (LPP) Title 6, Chapter 1, Article Four and Section 533 of RA 7160 (Local Government Code of 1991) League of Cities of the Philippines (LCP) Title 6, Chapter 1, Article Three and Section 114 (b) of RA 7160 (Local Government Code of 1991) League of Municipalities of the Pilippines Title 6, Chapter 1, Article Two and Section (LMP) 533 of RA 7160 (Local Government Code of 1991) Ligal ng mga Barangay (LnB) Title 6, Chapter 1, Article One and Section 533 of RA 7160 (Local Government Code of 1991) Union of Local Authorities of the SEC Registration A199900861 Philippines (ULAP) Legal Basis

AGENCY LEGAL BASIS Department of the establish and prescribe rules, regulations and other issuances Interior and Local and implementing laws on the general supervision of LGUs , Government (DILG) promotion of local autonomy and monitor compliance

National Economic and responsible for coordinating the formulation of continuing and Development Authority integrated socioeconomic development plans, policies, and (NEDA) programs

Department of Budget promulgate a Budget Operation Manual for LGUs to improve and Management (DBM) and systematize budget preparation, authorization, execution and accountability

Department of Finance formulate, institutionalize, and administer fiscal policies and (DOF) for supervision of revenue operations of all LGUs with the objective of making these entities less dependent from the national government

Legal Basis

AGENCY LEGAL BASIS League of Provinces of ventilate, articulate and crystallize issues affecting their the Philippines (LPP), respective LGU, and securing through proper means solutions League of Cities of the thereto Philippines (LCP), League of Municipalities of the Pilippines (LMP), and Liga ng mga Barangay (LnB)

Union of Local strengthen the organization and promote fellowship and Authorities of the unity among local authorities Philippines (ULAP) Highlights of the MOU: Purpose 1. To act as an inter‐governmental body for coordinating and harmonizing policies and operational activities related to decentralization and devolution. 2. To act as a forum for discussing LGU issues and policies and for sharing relevant information. 3. To collectively formulate, implement and advocate solutions and policy reforms within the powers and authority of the member agencies.

Highlights of the MOU: Purpose

4. To explore consensus and build support for policy reforms related to improving local governance, local service delivery and devolution. 5. To elevate issues and recommendations to the OCD and other appropriate agencies, bodies and boards for policy decision and action; and . 6. To initiate studies on LGU issues for the purpose of identifying, formulating, implementing and advocating policy reforms. Purpose of the CCD

DILG harmonized policies and DOF operational activities

DBM policy reforms on local NEDA governance, local service delivery and devolution

ULAP

LnB policy issues and LMP recommendations to the OCD LCP

LPP studies on LGU Coordinating Committee issues on Decentralization

Highlights of the MOU: Structure

1. The CCD is composed of three main components: an Executive Committee (Execom), a Policy Dialogue Group, and a Technical Secretariat. 2. The Executive Committee is composed of the Undersecretaries of the Department of Interior and Local Government (DILG), the Department of Finance (DOF), the Department of Budget and Management (DBM), and the National Economic and Development Authority (NEDA). The Chairman of the Execom will be the DILG Undersecretary. Highlights of the MOU: Structure

3. The Policy Dialogue Group is composed of the Undersecretary of the DILG as Chairman, the Oversight Agency Technical Working Group and the Local Government Dialogue Partners. 4. The Oversight Agency Technical Working Group is composed of the Director of the Bureau of Local Government Development (BLGD) of the DILG, the Executive Director of the Bureau of Local Government Finance of the DOF, the Director of Budget and Management Bureau G of the DBM, and the Director of the Regional Development Coordination Staff (RDCS) of NEDA.

Highlights of the MOU: Structure

5. The Local Government Dialogue Partners are composed of Executive Director s of the League of Provinces of the Philippines (LPP), the League of Cities of the Philippines (LCP), the League of Municipalities of the Philippines (LMP), Liga ng mga Barangay (LnB), and the Union of Local Authorities of the Philippines (ULAP). Highlights of the MOU: Structure

6. The CCD Technical Secretariat is the Bureau of Local Government Development (BLGD) of the DILG with the BLGD Director serving as Executive Secretary on an ex officio basis.

CCD Structure

EXECUTIVE COMMITTEE ‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐ Undersecretaries of DILG, DOF, DBM and NEDA

POLICY DIALOGUE GROUP

Oversight Agency TWG: LG DIALOGUE PARTNERS: ‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐ ‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐ BLGD‐ ILG, DBM‐ROCS (DBM‐ LPP. LCP. LMP. LnB, and G), DOF‐BLGF, NEDA‐RDCS ULAP

TECHNICAL SECRETARIAT ‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐ BLGD‐DILG Scope

1. Capacity‐Building 2. Local Service Delivery 3. Performance Measurement 4. Devolution Reforms 5. Expenditure and Budget Policy 6. Local Government Finance (Credit and Non‐ Traditional) 7. Local Government Fiscal Policy (Intergovernmental Transfers, Donor Grants and Own‐Source Revenues)

THANK YOU Decentralization Policy Notes

Francisco A. Magno

Introduction

The Local Government Code was passed in 1991 with the goal of improving the delivery of frontline services to citizens and communities through the decentralization of powers from the nation-state to local governments in the Philippines. This study will examine the opportunities and challenges in further decentralizing environmental, health, social welfare, and agricultural services to sub-national units of governance. It will consider the new roles to be played by the central government and local governments in the context of efforts to redraw governance borders and deepen the decentralization process. In this regard, the key question is why further decentralization is needed despite the transfer of significant authority to local governments for the past 18 years.

Decentralization is not an end but a process leading to good governance. Structural and policy reforms implemented towards decentralization are manifested through four major types (political, administrative, market, and fiscal) and changes have resulted in terms of improvements in local governance, delivery of services, allocation of fiscal resources, and promoting public participation (Brillantes and Cuachon 2002). Domestic and international pressures for democratization have led to a new emphasis on forms of governance below the nation-state level (Angeles and Magno 2004).

A concern with local government capacity does suggest that there are two directions in which the reform of this sector can proceed. On the one hand, it can proceed in a minimalist direction as the reformers seek to close a capacity gap by limiting local authorities to their core business functions and constraining their ability to undertake these functions in a fiscally irresponsible way. On the other hand, it may be recognized that the application of avant-garde management principles and financial disciplines at the local level may enable councils to play a more catalytic role in the economic and social development of their communities. A more activist approach to local government reform may seek to build on these developments to enhance the capacity and discretion of local authorities to take on more functions, engage community participation to a greater degree in their decision making and play a more significant role in the delivery of the central government’s domestic policy agenda (Dollery and Wallis 2001).

Elected local government is but one element of what has become known as local governance, a term which seeks to capture the shift away from a system in which local authorities were the key actors in their localities to one where decision-making authority and service provision is shared among a range of agencies. Local authorities are increasingly working alongside other public, private and voluntary sector organizations in providing services for a locality (Pratchett and Wilson 1996).

Appropriate governance is essential to implementing agreed-on goals and to facilitating and institutionalizing new norms of practice and performance – both key elements in meaningful reform. Altering incentives through formal structures will improve performance only if the changes are made in a way designed to affect how informal authority influences the behavior of subordinate managers and primary workers. To improve program performance or to change core organizational practices, it may be necessary to make changes in governance within a comprehensive framework designed to change core values and commitments (Lynn, Heinrich and Hill 2000).

Decentralization, as mandated by RA 7160 or the Local Government Code of 1991 (LGC) involves the transfer of both responsibility and resources for several functional areas from national government agencies to local government units. Eighteen years after its implementation, complete devolution of identified responsibilities has not yet been accomplished due to various reasons. These policy notes will cover the devolution of four sectors namely environment and natural resources, health, social welfare and development, and agriculture. The outcomes of devolution in these areas have been culled from various studies and literature on decentralization. Finally, suggestions and recommendations were consolidated.

Environment

In a devolved setting, the Department of Environment and Natural Resources (DENR) shall prescribe the conditions of environment and natural resources that shall obtain in the jurisdiction of all LGUs in the country. They are tasked to set the methods and procedures for ensuring good governance of environment and natural resources, including technical processes that need to be observed. DENR shall recommend the processes for how LGUs might develop a program of action to achieve prescribed conditions of their environment. Moreover, they are assigned to monitor LGU performance and compliance to national policies and standards and to how they conduct the prescribed methods and procedures for governing environmental amenities and natural resources.

LGUs on the other hand had been assigned to perform functions various devolved from the DENR. Under the Local Government Code, provinces are authorized to enforce forestry laws limited to community-based projects, pollution control law, small-scale mining law, and other laws on the protection of the environment. Provincial governments can establish mini hydroelectric projects for local purposes. On the other hand, municipalities are tasked to implement community-based forestry projects which include integrated social forestry, programs and similar projects. They are also mandated form environmental managements systems and solid waste disposal and can manage and control communal forests with an area not exceeding 50 square kilometers; and to establish tree parks, greenbelts, and similar forest development projects. The barangays are expected to provide services and facilities related to general hygiene and sanitation, beautification, and solid waste collection.

Various studies in the decentralization of ENR functions time and again however point out to serious conflicts and gaps in the devolution of functions mandated by the LGC of 1991. Compared with the other provisions, the ENR (and public works) provisions of the LGC are not as explicit and as clear. In many occasions, national government agencies still maintain the

2 power to control, supervise, and review many of the supposedly devolved services even as LGUs are held responsible for them resulting in confusion, overlaps, and duplication of functions. The accomplishments and state of decentralization in the ENR sector has been described as at best “partial” and at worst “miniscule” and “insignificant” and hardly able to involve the bulk of functions stipulated in the LGC (Leagues of Municipalities, 2006).

The effective involvement of LGUs in ENR efforts had been hampered by challenges, in human resource, financial, organizational and political capabilities and resources. For one, the resources and personnel transferred to LGUs were not commensurate to the cost of the devolved functions. It is estimated that provinces absorbed 45.6 percent of the total cost of devolved functions, municipalities 47.4 percent, cities 7.0 percent, and barangays O percent. In contrast, the shares of LGUs in the IRA are provinces 23 percent, cities 23 percent, municipalities 34 percent, and barangays 20 percent (Manasan 2002). Among government agencies, the DENR has the lowest number of personnel devolved to LGUs at around 4.2 percent (ADB and World Bank, 2004).

The findings of the National Capacity Self-Assessment Project of the Government of the Philippines, UNDP and GEF, suggested that most LGUs currently have low capacities to address environmental matters relating to, climate change, biodiversity conservation, land degradation ,and drought (GOP, UNDP, GEF, 2005; LMP, undated). LGUs have to face both lack of personnel and lack of technical capacity since specialized knowledge, skills, technical knowhow, as well as experience (e.g. in cadastral survey, environmental planning) were largely lodged in the staff bureaus at the central office (Gonzales as cited by Manasan 2002; Brilantes 2009). Personnel transferred did not assume the inherent functions (e.g., Community Development Officers) for the LGU. Furthermore, support mechanisms such as IEC, financial assistance, and infrastructure & facilities are lacking. In several instances, functions supposedly devolved already reverted back to national DENR offices. Lastly, a monitoring scheme to determine status of devolved functions is absent.

At the institutional level, it has been observed that instead of a support role, national agencies still intervened in the way LGUs managed implementation of devolved tasks, policies, and programs (LMP, 2006). The lack of a clear prevailing regulatory framework permitted and encouraged the existence of a two-track delivery system, where both national government agencies and LGUs can initiate devolved activities (Manasan 2002). In addition to international commitments, numerous environmental laws and issuances have engendered policy conflicts. There was an instance where a protected area intended for mining development was at the same time claimed as an ancestral domain (Brillantes 2009).

The good news however is despite these challenges LGUs were able to effectively absorb some ENR functions. The DENR points out that of the eight devolved functions identified, “regulation of fishing in municipal waters” and “ESWM” were perceived as successfully and effectively performed by LGUs (DENR, 2008). Successful efforts to protect and sustainably use environmental assets (like water bodies, parks, seascapes and landscapes) and natural resources (like forests, fisheries, minerals, soils, water, and renewable energy) have been initiated by LGUs and recognized by award bodies such as the Galing Pook Awards. Generally, the absorptive capacities of LGUs however vary due to factors which include uneven commitment and capacities.

The LGC mandates that LGUs receive 40 percent share of such collections. LGUs however have experienced delays and non-release of mandated shares of local governments from natural resources fees and taxes collected by the national government for the utilization and development of national wealth in their jurisdiction (Manasan 2002). In the case of the Malampaya natural gas project in Palawan, the province has not yet received its due despite the project being in operation since 2001.

Towards Further Devolution

Recognizing that there is much to be done, LGUs, civil society, the national government, as well as the academe is pushing towards further devolution of ENR functions in accordance with the letter and spirit of the local government code. Enumerated are ENR functions that warrant further devolution:

According to the League of Municipalities, the tasks of forest management, protected area supervision, land registration, water resource management, mineral resource development, and environmental impact assessment should be devolved to the LGUs within the next 6 years.

Within the next 12 months, local governments are expected to regulate and develop natural forests and forestlands within the jurisdictions of the LGUs. Local forest management will cover old-growth, residual and plantation forests and pasture lands in the public domain, in accordance to existing regulations and standards of management prescribed by law.

The local government units can supervise protected areas by administering declared and enacted protected areas having portions of their boundaries found within the jurisdiction of LGUs. For protected areas that extend to more than one LGU jurisdiction, they shall be administered jointly by all hosting LGUs.

Within the next three years, the services of land registration and mineral resources development will be devolved. All processes and procedures to register lands shall be regulated by the LGU within whose area and jurisdiction the land is located. The principal repository of patents and titles shall be the LGU, but with official copies of the same deposited in the National Statistics Office.

Under devolution, water resource management shall be subject to the principal authority and regulatory supervision of LGUs. Subject to procedures, standards and specifications to be issued by the national government, LGUs shall create multi-sector Water Regulatory Boards to ensure the water security of their citizens. The localization of mineral resource development and environmental impact assessment (EIA) is expected within six years. In a decentralized environment, the final approval for all mineral extraction activities – at any scale – shall be reposed on LGUs, subject to check-and-balance standards and procedures to be set up by competent national authorities or by law. On the other hand, all EIA processes and certifications shall be reposed upon LGUs (singly or jointly) where a subject development project is to be located.

4 Several conditions need to be met in order to ensure that the goals of decentralization of the ENR functions are accomplished. These include the consolidation of policy and the policy direction, the clarification of roles and relationship of both LGU and DENR (and also among LGU levels) in ENR matters, appropriation of adequate resources, and capacity building and development.

In terms of policy and policy direction, there is clearly a need for both the national government and LGUs to renew their commitment to decentralization and pursue further devolution in line with the LGC. First on the agenda should be clarification of the policy, as well as the respective roles of NGAs and LGUs in ENR. Because the LGC was not very explicit and clear about the delineation of roles as well as administrative matters, all the agencies, as well as local government units involved in ENR need to sit together and finalize the direction and the manner with which they shall proceed.

In line with reinventing government principles advanced by Osborne and Gaebler in the book Reinventing Government, the League of Municipalities strongly advocates for a “steering” role for the national government and a rowing role for LGUs. They propose that DENR should shift from regulatory mode to a development mode and that DENR relinquish control of LGUs in the devolved areas.

For them, the steering” role of national government and DENR includes the following: (1) Policy determination and international relations, (2) Setting of guidelines and standards, (3) Generation of knowledge and technical information, (4) Implementation of national-level programs, (5) Monitoring and evaluation of ENR policies, programs, (6) Resource allocation for ENR, and (7) Accreditation and certification of LGUs and ENR personnel.

On the other hand, there is a preference for strengthening regional offices of DENR. Under the premise that regional offices may be able to better monitor, assist, and provide the necessary technical guidance and support to LGUs, existing Regional Offices of the DENR should be converted into Regional Technical Centers to support and monitor LGU ENR functions within the region. They shall derive technical guidance and assistance from DENR bureaus and perform the following roles (LMP, 2006): (1) Technical support, (2) Oversight and monitoring, (3) Coordination and liaison with ENR Bureaus, and (4) Personnel training.

LGUs are expected to “row” by translating national policies to local needs as well as managing devolved tasks. The proposed role and functions of LGUs include: (1) Policy implementation through adoption of national policy in local development and program/project formulation; (2) Adoption of local policies and legislation in accordance with national policy and local priorities; (3) Administration and regulation of devolved functional areas; (4) Generation of funds for local ENR operations; and (5) Serve as partner in the implementation of national programs in their jurisdiction.

Institutional arrangement

The difficulty of addressing ENR concerns with an area wide impact not divisible by local boundaries (e.g. soil erosion, water quality deterioration) as well as the demonstrated success of

5 inter-LGU cooperation has led to proposals in formalizing this mechanism and coming up with inter-LGU organizations and higher level regional bodies (Elazegui, undated ).

LGUs will benefit in the establish and strengthening of inter-local cooperation especially in common service areas such as environmental governance, integrated area planning, information and communications technology adoption, procurement, human resource development, and financial management (Magno, 2009)

Of course, given the current limitations of the LGC, there is a need to set the appropriate policy framework and guidelines for inter-local cooperation. This will guide LGUs who wish to enter into inter-LGU arrangements as well as make inter-LGU arrangements binding and less susceptible to sudden changes in people or priorities of sitting officials.

In order to maximize resources as well as improve coordination and overall management, there is a need for a more rationalized organizational set-up with minimal overlap and duplication of roles. LGUs through the LMP, is advocating for the management of ENR offices at the provincial, city, or municipal level. Provincial Environment and Natural Resource Offices (PENROs) as well as City Environment and Natural Resource Offices (PENROs) should be placed under supervision of LGUs (LMP 2006). Initially, DENR personnel transferred to LGUs be funded by the national government initially for 5 years, then absorbed by the LGU on the 10th year (LMP 2006).

Resources

Lack of resources is often cited as the primary reason why LGUs are not able to successfully manage devolved functions. Because budget allocation for ENR functions at the LGU is not explicitly provided, it is not unusual for local executives to underfund it. Also, despite provisions allowing them to charge user fees and environmental taxes, LGUs have generally been unable (or ineffective) to generate sufficient resources to augment their IRA allotment and fund their ENR programs.

LGUs propose cost-sharing between national and local government for ENR programs. One way is to reactivate the NGA-LGU cost sharing arrangement adopted by the NEDA Board in 2003. Geologue proposed formulation of a national policy prescribing local budgetary allocations for ENR purposes (Geologue, undated). Manasan on the other hand proposes the design of a matching grant for ENR management. In this arrangement, the national government can provide LGUs with grants they will match and can use for a specific purpose only (Manasan 2002). They also propose setting a minimum IRA allocation for local ENR functions.

In addition to cost-sharing, there is also a push for greater local fiscal autonomy. As the LGC does not impose caps on fees and user charges that may be imposed by LGUs, national government agencies should remove prescribed caps on fees that may be charged by LGUs. NGAs should avoid as much as possible to dictate how to use local funds especially for activities that are locally funded (e.g. DBM placed a P900/ day cap on budget for training and seminars). LGUs also look forward to regular and automatic release of LGU shares in national wealth and other taxes.

6 Capacity

Recognizing the disparity in the capacity of various LGUs to manage ENR roles and functions, the LMP proposes a capacity-based transfer of roles. LMP proposes that a certification system for LGUs be prepared by the DENR, DILG, and the local government through the Leagues to assess and certify LGUs in terms of capacity to assume specific devolved functions on schedule (LMP, 2006). Devolution of roles will be made gradually based on capacity to assume but with the end view that all appropriate functions will eventually be devolved. Geollegue, suggest that highly technical functions in which LGUs demonstratively lack technical capacity should be returned to the central offices altogether (Geollegue undated).

Local fiscal autonomy also requires developing capacity of LGUs for revenue generation. Pampanga, under the leadership of Fr. Ed Panlilio has shown the vast potential of judiciously- applied and well-managed environmental tax systems to contribute to local finance (Torneo 2008). Technical assistance in this area may have a significant impact on LGU financial performance.

A complementary proposal is to utilize funds from Official Development Assistance (ODA) and Government Financial Institutions (GFI) to catalyze public-private partnerships and effectively assist lower-income class LGUs (Magno 2008). LGUs are also challenged to find ways to stimulate private financing of ENR programs/projects. Lastly, LGUs can ensure that taxes collected from a declared protected area go directly to the protected area management board. (Elazegui, et al., 2002)

There is also a pressing need to build local capacity to take on the devolved roles (Magno 2008; Brillantes 2009). Capacity development towards local autonomy entails the development of the following:

Environment and Development Planning Administrative Governance Resource Allocation and Utilization Resource Mobilization Financial Accountability Stakeholder Participation

Health

Provinces are mandated by the LGC to provide health services which include hospitals and other tertiary health services. Municipalities are tasked to provide services which include the implementation of programs and projects on primary health care, maternal and child care, and communicable and non-communicable disease control services; access to secondary and tertiary health services; purchase of medicines; medical supplies, and equipment needed to carry out the services. Barangays are tasked to render health and social welfare services which include the maintenance of barangay health center and day-care center.

7 Grundy, Healy and Sandig points out that the devolution of health care services (HCS) have three main goals. The first goal is to increase the resource base for primary care, by moving resources from the center to peripheral locations. The second goal is improving responsiveness of authorities of local officials to local health needs and situations by broadening the ‘decision making space’ of middle and lower level managers. The third goal is to enhance the efficiency and effectiveness of health services by bringing management closer to the recipients for prompt action (Grundy, Healy and Sandig, 2003). The results of the devolution of HCS have been mixed so far.

A three country study found that based on a set criteria, the Philippines demonstrate one of the most extensive levels of decision-making in an administrative sense relative to Indonesia and Vietnam. There is evidence however to suggest that decision-making often can be constrained by a) politically-based priority setting of local officials, which at times are viewed by health managers to be in conflict with priority setting based on health needs and b) low availability of funding limits the capacity of middle-level managers to exercise decision-making powers (Grundy, Healy and Sandig, 2003).

In terms of efficiency and effectiveness perceived results are mixed with some studies suggesting improvements in service and others suggesting decline (). Devolution has resulted in numerous challenges. For example, the perceived limitations to mobility (in terms of promotion) of devolved personnel as well the decline of number of scholarships for health workers have affected morale. Coordination and referral among health units have also suffered. Some LGUs ride on the availability and proximity of hospitals and other health services in nearby LGUs. The inability of some provinces to cope with the high costs of maintaining tertiary level hospitals has led to the renationalization of several hospital facilities. Corruption, especially in the procurement of medicines and other supplies continued in a localized setting (Liga ng mga Barangay 2006).

Similar to the ENR sector, most often cited impediment to the effective devolution of the health sector is budget constraint (Brillantes 2009; Magno 2001; Mankila 2006; Liga ng mga Baranggay 2006; Ferrer, 2006). Although initially, there has been nominal increase in the funding for health services by LGUs after they received their IRA allocations from 1995 to 1998 (Schwartz, Racelis, and Guilkey 2000), the budget allotted for devolved health services through the IRA is not commensurate to the cost of the devolved functions (Magno 2001; Mankila 2006). Furthermore, LGUs in general heavily depend on the IRA and have been unable to generate enough revenues to cover operational costs. Despite LGC provisions on revenue generation, ADB according to Mankila reports that in 2006, revenue collection accounted for less than 10 percent of total expenditures in HCS among LGUs. Some studies also suggest that there is significant underspending by LGUs for health services as LGUs shift priorities (Magno 2001). Financing shortfalls in some cases has resulted into the diversion of health funds to other priorities.

The impact of resource constraints in health services is deep. For one, the limited resource base has been cited as a major impediment in the decision-making process of local health managers (Grundy, et. al 2003)). There are reports of short supplies of medicines, equipments, and a perceived decline in health care in some cases. Several localized hospitals devolved to LGUs

8 have been renationalized. Local health workers are also complaining about low wages and not receiving the commensurate salaries and benefits due to non-compliance of some LGUs with the Magna Carta for Health Care Workers as well as the Barangay Health Workers Benefits and Incentives Act.

Some LGUs fund the additional wages and benefits of health workers from savings, a practice that does not guarantee proper compensation and is contrary to law. Scholarship programs for health workers, which were widely available prior to decentralization, have also been scarce. As thousands of nurses and other medical personnel leave the country, LGUs are finding it increasingly difficult to retain health workers.

Despite challenges, there is a general push for greater devolution of health services in accordance with the LGC. In 2006, the League of Baranggays prepared a position paper pushing for further devolution accompanied with the corresponding resource, technical, as well as capability support from the national government. They are proposing the following (Liga ng mga Barangay 2006):

Localization of programs such as malaria control, leprosy, filariasis and schistosomiasis eradication within the next 6 years. Assumption of cities and municipalities of regulatory functions such as the issuance of permits to drug stores, dental and medical clinics should be devolved since the LGU already issues the business permits of these establishments within 2 to 3 years. Maintenance of a health information and surveillance system that will immediately attend to the situation at the ground level. The return to local control and management of renationalized hospitals, particularly those categorized as primary and secondary hospitals (the national government, on the other hand, should retain existing national hospitals and other training hospitals with tertiary capabilities) is a devolution priority. There are also demands to devolve public health service provision in terms of personnel management, capacity building, institutional/ organizational development, financial management, and governance and participation.

A major question however is, whether the DOH is prepared and whether LGUs are capable of further absorbing the abovementioned functions given their current status. Many LGUs presently face common problems. These include resource constraints in construction and improvement of health facilities, health workers’ benefits; inefficiency and politicization in the management of some resources for public health, like medicine procurement; and the general lack of local government health personnel and facilities (Atienza, 2004).

Resources

There are several proposals brought up to address resource issues in DHS. These include recommendations for the national government to share in the financial burden created by the benefits and salaries (i.e. as defined the Magna Carta for Health Workers ) as well as the implementation of, and other non-monetary benefits such as continuing education. DOH or the national government may be requested to provide matching grants to support enhancement of these services (Lieberman et. al., 2005).

The percentage of budget allotted to health be raised to 5 percent of both national government and LGUs and pegging the Internal Revenue Allotment (IRA) for health to a fixed percentage. It is expected that setting health budget as a percentage of budget will compel both the national government and LGUs to allocate budget for DHS and not set it aside as low priority, as have been observed in some cases. It will also protect the budget for health services from being subjected to politically-based diversion or non-prioritization of local officials.

The Department of Health (DOH) and the national government should provide greater fiscal autonomy to hospitals to reduce their dependence on direct subsidies from government. One way is to amend auditing procedures for hospitals run by LGUs in order to allow for greater flexibility and innovation in terms of financial management. The current system follows that for the national government which hinders innovative and efficient hospital management (8th RFA as cited by Brillantes 2009). Provincial hospitals should be allowed to retain their income as trust fund to enable them to sustain their operations without unduly burdening the national and provincial governments.

The capability of LGUs to generate revenues and manage finance should be developed. So far, the assessment is that generally, LGUs have not been able to maximize their taxing powers as well as their authority to impose of user charges. Lieberman recommends implementing carefully designed user charges in order to raise funds to sustain health programs and subsidize the health needs of the poor. Pricing, billing and collection systems of devolved facilities can also benefit greatly from technical assistance (PIDS 1998) Of course, LGUs need to improve service quality if they are to charge higher fees.

Personnel

Other personnel issues and concerns have also surfaced after devolution. As mentioned before, there is a lack of career path and reduction in the upward mobility (in terms of promotion) of devolved health personnel. The reduced number of scholarships also limits the development of health professionals and their capacity to manage health programs and services. Another issue is a lack of health personnel and services especially in far-flung rural areas.

In order to address these, it is proposed that career paths for local health officials and personnel be developed, possibly in cooperation with the Civil Service Commission (CSC) and the DOH (Liga ng mga Barangay 2006).

More opportunities for capacity building (e.g. scholarship, training and continuing education) need to be opened to local health professionals. It is expected that health professionals who know more about health programs and projects at the local level should manage health services. Acquisition of capacities to formulate coherent health plans and budgets to enable LGUs to effectively attend to the health requirements of their people are needed (Liga ng mga Barangay 2006). Training personnel in hospital administration, public health or other fields is important in preparing them for higher positions.

10 LGUs should fill up vacant positions for rural health practice and tap OJTs (on the job trainees) to address inadequacies in manpower. LnB also proposes that LGUs also develop a system to encourage doctors, nurses and midwives to continue their work even outside Metro Manila and other urban centers. One approach is to encourage or even require medical and paramedical students and fresh graduates to render rural or urban poor service (Liga ng mga Barangay 2006).

Funds for implementing the Magna Carta for health workers should be prioritized in the budget of LGUs. There is also a demand for an increase in the benefits and salaries of doctors, nurses and other health care professionals, and their exemption from the Salary Standardization Law (Brillantes 2009).

Institutional Arrangements

Health concerns transcend political and administrative boundaries and coordination is necessary among health units. Magno points out that devolution has aggravated the lack of coordination between LGUs and resulted into free-riding and negative externalities (Magno 2001). LGUs need to develop a system of collaboration and referral among the different levels of government health-service providers to attend to the needs of their constituents. Devolution requires redefinition of the functional relationship between regional offices and LGUs in the provision of technical assistance and the setting of standards (Liga ng mga Barangay 2006).

Grundy, et al. found that in the Philippines the health referral system lost cohesion after devolution. Specifically, logistics, transport, patient referral protocol, distinctions between levels of service were all disrupted by the unclear arrangements regarding local government cooperation as well as under-financing. This is consistent with findings in other research which show that ‘grey areas’ of responsibility as well as lack of preparation, complicate efforts to come up with a rational arrangement for health services in the process of devolution (Grundy et. al. 2003).

While there are the prospects for health service delivery devolution, the DOH still faces major hurdles to full localization. There is difficulty in integrating of health services because of separate administrative control. This stems from several problems such as the disconnection in the information management between national and local units; inadequacy in distributed health resources; gap in the referral/ networking system; non-maximization of regulatory powers; and the absence of financial leveraging mechanisms. Government agencies are anticipated to strengthen inter-agency cooperation on various aspects of health research (Health Intelligence Service, PCHRD, Department of Science and Technology).

The proposals are to:

Establish and strengthen inter-local health systems and their subsystems (integrated health planning, referral system, health information system, drug management, human resource development, and financial management).

At the Baranggay level, some LGUs have effectively employed a clustering strategy. Galing Pook winner, Cotabato Office of Health Services, grouped its 37 barangays into seven clusters

11 with each cluster under the supervision of a coordinator to simplify the task of supervision and monitoring and allow them to immediately respond to the concerns of the barangays within their jurisdiction. (PIDS 1998)

Institutionalize information/ public information units down to the barangay level to improve the gathering of health intelligence/statistics. To incorporate and support a computer network for health information and surveillance, referrals and logistics (Liga ng mga Barangay 2006).

Develop a policy and program to consolidate all emergency medical services in the country with regard to disaster preparedness (Liga ng mga Barangay 2006).

Develop a system of collaboration and referral among the different levels of government health- service providers to attend to the needs of their constituents (Liga ng mga Barangay 2006).

Redefine the functional relationship between regional offices and LGUs in the provision of technical assistance and the setting of standards (Liga ng mga Barangay 2006). The role of the regional health office is limited to managing the regional hospitals and assisting the national agency in the implementation of public health programs. (Magno 2001).

Other Recommendations

According to the 7th Rapid Field Appraisal (RFA) conducted by ARD/GOLD, Local Health Boards are not yet fully functional in many areas. Efforts should be made to assist LGUs in activating their local boards. The mandate and functions of local boards should be reviewed and communicated to localities through more creative information, education and communication (RFA as cited by Brillantes 2009).

Furthermore, DOH Field Offices and the Population Commission’s Provincial Offices is not yet geared to provide technical assistance to LGUs (ARD/GOLD as cited by Brillantes 2009).

The municipalities also urge the review the National Health Insurance Act to make it more responsive to the needs of the urban and rural poor. The LGUs also see that the impact and effects of devolution on health services should be evaluated once every three years in a Health Summit attended by all stakeholders. They also emphasized the importance of providing greater power to the local health board

In reference to the lessons learned by the DOH in their devolution experience, the success of localizing public health service provision is highly dependent on the readiness of LGUs to absorb the management of a devolved health system. It is important to strengthen health Systems to make devolution work.

Social Welfare

The Local Government Code devolves to provinces the implementation of social welfare services which include programs and projects on rebel returnees and evacuees; relief operations; and population development services. Municipalities are expected to provide social welfare

12 services which include programs and projects on child and youth welfare, family and community welfare, women’s welfare, and welfare of the elderly and disabled persons. They also manage community-based rehabilitation programs for vagrants, beggar, street children, scavengers, juvenile delinquents, and victims of drug abuse; livelihood and other pro-poor projects; nutrition services; and family planning services.

The initial outcome of the devolution process is the restatement of the Department of Social Welfare and Development (DSWD) mission. The new mission statement highlighted the need to build partnerships with local government units, non-government organizations and people’s organizations in social welfare and development service delivery.

Devolution required the agency to restructure. Shifts of tasks from Sectoral Bureaus to Functional Bureaus at the Central Office Level ensued. 14 Field Offices as extension units of the Office of the Secretary with focus on field monitoring and technical assistance were also established.

The devolution called for an increased role of LGUs in collaboration with the national office in social welfare and development (SWD) Policy and Plan Formulation, Social Technology Development, Standard Setting and Compliance Monitoring, Technical Assistance and Resource Augmentation, Institutional Strengthening and Management.

Even though devolution of DSWD resulted in several restructuring of the national agency to accommodate local needs, the Department confronts several challenges.

First, less priority is given to SWD concerns in local development plans (Magno, 2009; Brillantes 2009). The result is that allocation of resources for SWD programs, projects, and activities has experienced a decline since devolution. ADB and WB, found that LGU contribution to overall SWD expenditures have declined from 11 to 10 percent despite the fact that 60 percent of DSWD personnel were devolved (ADB and WB 2006). The gap between actual need and funding is especially visible in low-income municipalities (Brillantes 2009). Second, LGUs tend to prioritize infrastructure development over total human development (increased capacity of people to participate and decide in the allocation of LGU budget). More than fifty percent of SWD expenditures of LGUs are personnel costs of devolved SWD staff, leaving little for SWD programs and projects (ADB and WB 2006). Third, there is weak compliance to DSWD reports at the local level. Program reporting is not prioritized by local workers due to heavy workload. LGUs are seen as having low appreciation for local SWD reports as bases for effective planning and advocacy for larger share in local resources. Fourth, there are SWD worker issues that need to be addressed. For instance, the creation of the Municipal Social Welfare and Development Officer (MSWDO) position is not considered mandatory under the Local Government Code. Some municipalities therefore opt not to appoint an MSWDO. Service providers are usually overworked with very low compensation. There is limited MOOE support which also limits access to capability building opportunities. Fifth, Laws such as the Juvenile Justice and Welfare Act, Magna Carta for Disabled Persons, and the Senior Citizens Act, among others, are seen as unfunded mandates from the national government (Brillantes 2009). Sixth, partisan political considerations influence the selection of

13 program beneficiaries particularly during campaign periods. Lastly, there is lack of facilities and ICT resources to accommodate the growing needs of SWD clients.

Much of the resources for programs and projects flow from foreign assisted national programs and projects such as the Countrywide Integrated Delivery of Social Services (CIDSS), and more recently the Pantawid sa Pamilyang Pilipino Program (or P4).

To address the post devolution challenges, DSWD has started various initiatives. The agency has implemented the systematic assistance to local government units through the assessment of their capacity and willingness to invest in SWD programs/ services. This serves as basis for the formulation of DSWD Technical Assistance and Resource Augmentation Plan.

The Department has also initiated the formulation of a national policy framework for social protection to harmonize the initiatives of intermediaries and stakeholders. They also have continuously enhanced the Medium Term Expenditure Plan (MTEP) to secure funding (in the General Appropriations Act) for unfunded social welfare and safety net programs emanating from social legislations. The DSWD Policy and Planning Department also initiated an assessment study of devolved SWD programs and services to determine LGUs degree of compliance in the implementation (Brillantes 2009).

The DSWD has started working towards the institutionalization of an objective and transparent targeting mechanism to identify beneficiaries of social protection programs at both household and community levels. They have encouraged the participation of intermediaries in standards enhancement and compliance monitoring (i.e. Area Based Standards Network).

The Department created mediums for intermediaries’ continuing education and learning across regions (i.e. SWD Learning Networks). They have continuously developed training modules based on the results of competency assessment for DSWD personnel, partners and intermediaries. Social marketing plans in support of sectoral plans and completed social technologies were formulated. Furthermore, the Agency has accessed internal and external assistance to complement the available but limited resources of local government units and non- government organizations to implement SWD programs and services.

Agriculture

Under the Local Government Code, the devolved functions for the province include agricultural extension and on-site research services and facilities which include the prevention and control of plant and animal pests and diseases; dairy farms, livestock markets, animal breeding stations, and artificial insemination centers; and assistance in the organization of farmers and fisherman’s cooperatives and other collective organizations, as well the transfer of appropriate technology.

For the municipality, the devolved functions include extension and on-site research services and facilities related to agriculture and fishery activities which include dispersal of livestock and poultry, fingerlings, and other seeding materials for aquaculture; palay, corn, and vegetable seed farms; medicinal plant gardens; fruit tree, coconut, and other kinds of seedlings nurseries; demonstration farms; quality control of copra and improvement and development of local

14 distribution channels, preferably through cooperatives; inter-barangay irrigation systems; water and soil resources utilization and conservation projects; and enforcement of fishery laws in municipal waters including the conservation of mangroves. Barangays are tasked to provide agricultural support services which include planting materials distribution system and operation of farm produce collection and buying stations.

According to the Department of Agriculture (DA), the devolution process had mixed results. Localization trimmed down their technical personnel from 37,000 to a little over 15,000. The devolution resulted in the decrease in the DA’s control over the actual implementation of the national programs in the field level. Financial resources were limited to target programmed areas that provides higher agricultural production. Furthermore, achieving the goals of food sufficiency slowed down due to non-prioritization of local executives.

There are issues and challenges the DA need to address in terms of the devolution of agricultural functions. The nature of decentralization remains unclear. There are questions with regard the allocation and definition of responsibilities and functional relationships. Linkages in training, research and extension are also seen as weak (Manero as cited by Magno 2001). LGUs and farmer-clientele still depend on the DA at the national level when it comes to technical assistance, provision of planting materials, and provision of animals for production stations and centers.

The devolution of the agricultural sector showed that interests and prioritization of the LGU officials vary (Brillantes 2009). When asked in a survey to assess their level of compliance, Barangays responses were banked towards “seldom” and “never” degree when it comes to implementing the agriculture mandate of the LGC; municipalities gravitates toward the “sometimes” column; the provinces, figures are relatively high in the “always” column. Services such as the provision of livestock markets, animal breeding stations and artificial insemination appeared had similar ratings for both provinces and municipalities in both the “always” and the “never” columns (League of Provinces of the Philippines 2006).

The same set of survey also came produced the top ten (10) problems that are “always” encountered by LGUs in performing agriculture related tasks (League of Provinces of the Philippines 2006). These include:

Financial Constraints Financial Constraints of Clientele Insufficient/Delayed Transportation Allowance Politics Lack of Transportation Facilities Repayment of Loans Dole Out Mentality of Farmers Marketing Devolution Related Problems with the Bureaucracy

15 As with the other devolved sectors, funding is cited as a major factor in the implementation of devolved functions in the agricultural sector. Funding has not supported devolution as much as might have been desired. In the case of DA, the central office retained the bulk of the funds despite devolution of a large number of personnel. In 1997, only 6 percent of budget has been appropriated for DA regional offices despite the expectation that they will absorb the bulk of coordinative, technical and support functions under devolution (Magno 2001). LGUs receive low technical support from these regional offices (Siamwalla 2001).

The DA makes available funding for programs supporting national programs and goals. In order to access these funds, however, LGUs have to adjust their local plans to fit the national agenda even when it does not necessarily match local goals (Cabanilla 2006).

Extension workers at the local level do not have the authority to provide policy, allocate extension resources, and monitor the implementation of agricultural extension programs (Brillantes 2009). Devolved agricultural workers are at times assigned lower salary levels compared to employees of the national government and local government units (LGUs). In some cases, they are displaced or assigned to other (non-agricultural) positions as the municipal agricultural officer position (MAO) is not mandatory for cities and municipalities (HOR 2006; Siamwalla 2001). Unsurprisingly, lack of motivation among the devolved personnel has been observed in several occasions.

Moreover, it is seen that a number of extension workers in LGUs are slowly deteriorating because of lack of opportunity for technical trainings, lack of scholarship grants, non-motivation from local leaders, and the politicization of the sector at the local level (Magno 2001; Brillantes 2009; Siamwalla 2001).

Issues in funding, linkage, and personnel have negative implications on the capability of LGUs to plan manage and address issues in agriculture and fisheries. Local government units are required to prepare both a yearly Food Security Plan as well as a Comprehensive Land Use Plan. In the absence of capable personnel, very few are able to make use of updated methodologies and technology (Cabanila 2006). In cases of municipalities without a municipal agriculture officer, the responsibility of coordinating agriculture programs may likely fall to someone without expertise in the field.

LGUs have participated in efforts to assess and set the direction for further devolution of the agricultural sector. Collated results of two self-administered surveys of the Committee on Devolution of E.O. 444 and the League of Provinces of the Philippines in cooperation with the Philippine Institute for Development Studies (PIDS), and the Economic Policy Reform and Advocacy (EPRA) Project of the Ateneo School of Economics revealed varying levels of compliance.

Policy

In order to steer, the DA need to formulate a National Agriculture and Fisheries Policy and Strategic Plan in consultation with LGUs. This will specify the guidelines, technical assistance,

16 funding and monitoring and evaluation systems that shall guide LGUs in implementing and coming up with agriculture programs and projects (League of Provinces of the Philippines 2006).

Provinces need to come up with their Provincial Agricultural Development Strategic Plan incorporating the necessary guidelines, technical assistance, funding and monitoring and evaluation systems for their component cities and municipalities. Municipalities/cities on the other hand may come up with their own agricultural development strategic plan. An Annual Performance Plan may be developed parallel to these programs (League of Provinces of the Philippines 2006).

The DA and LGUs need to revisit and redefine their mandates. The DA, as a national agency, should shift its focus from a commodity (“production”) to “goals” within the framework of RA 8435, or the Agriculture and Fisheries Modernization Act (AFMA) of 1997. These goals include: 1)Prosperity of Farmers; 2) Competitiveness; 3) Food Security; 4) Sustainable Production Systems (League of Provinces of the Philippines 2006).

Institutional Arrangements

Plans and programs need to be integrated at all levels from baranggay, to municipal/city, provincial level up to the DA. Bottom-up planning, consultation and participation of the stakeholders is needed. LGUs need to be able to coordinate, collaborate, complement, and consolidate efforts and agree on accountability and resource sharing mechanisms. They must be able to translate national goals and define specific roles and targets for local development programs and projects. LGUs should be able to define their specific roles in rendering appropriate extension service, setting their regulatory scope, formulating their research and development niche, and contributing to information, education, and communications campaigns.

The DA needs to identify viable areas of operation (e.g. province, municipal clusters, etc.) and coordinate accordingly. The LPP pointed out that provinces are currently the most viable areas or units of operation and recommends that the DA should coordinate at this level.

Capacity

The DA needs to strengthen its capacity to deliver extension services, provide capability- building/technical support to LGUs, and perform effective regulatory functions and state-of-the- art research and development (League of Provinces of the Philippines 2006). Focusing on building the capability of regional level offices, which oversee and provide support to large functional clusters may be the more practical and cost-effective approach.

Resources

LGUs need to allocate and utilize resources from their Internal Revenue Allocation (IRA) shares and grants for national and local programs. Funds for implementation must accompany national programs implemented through LGUs. A National Fund Transfer System (NFTS), a funding facility, must be established. This should prioritize those who are in need and allow capable

17 LGUs to “buy into” grants thereby ensuring equitability of resources and incentivizing good performance (League of Provinces of the Philippines 2006).

Other Recommendations

While the problems of devolution are ever present, the DA has identified several reform directions. Involved are the conduct of several consultation dialogues with stakeholders; development of the national agriculture and fisheries research and extension program; and the transfer of the Central Office of major operating units in the different parts of the country to ensure closer supervision, coordination, and monitoring of agricultural programs (Magno 2009).

Continuous process of communication between LGUs and national government regarding the programs and thrusts for economic development must be facilitated. Decentralization, as examined from the experience of the DA should have mechanisms to fully prepare the personnel economically, socially, and emotionally.

In addressing the present challenges, the DA should strengthen partnership with LGUs and the national government. The national agency should grant financial incentives to the DA-LGU Centers. The Department should develop comprehensive trainings and retooling programs. It is expected to redefine the roles of Provincial Agricultural Extension Services. Continuous coordination between the DA and LGUs is required for the programs and thrusts of agriculture down to the local level to achieve greater productivity (Magno 2009).

Conclusion

Although reviews are mixed, there is no denying that decentralization has accomplished much in terms of brining government and resources closer to communities. Devolution has redefined the roles of both national and local governments, promoted self-management and accountability, and promoted local leadership . The Galing Pook, Gawad Pamana, Clean and Green, Lingkod Bayan, Magsaysay Awards, Konrad Adenauer Medal of Excellence, Local Government Leadership Award has done much to recognize successful innovations of local leaders and government units.

In order for decentralization to be successful, a number of conditions effective and sustainable need to be present. Cistulli considers the following as among the most important requirements: adequate financial resources to ensure the performance of the tasks under the responsibility of the local and decentralized institutions; actual empowerment of decentralized institutions and enough power and authority to influence the political system and development activities; accountability mechanisms such as local elections supporting transparency and representation; legal framework clearly specifying the powers and responsibilities of local governments to avoid interference and overlapping with central government; and adequate capacities of local institutions to perform the appropriate services.

Clearly, decentralization in the Philippines has not yet met all of these conditions. Several cross- cutting issues are prominent in the devolution of health, environment, agriculture and social

18 welfare. First, resource allocations from the national government did not correspond to the cost of devolved functions. While resources transferred by the IRA to LGUs were generally sufficient only to cover personnel costs in the four areas of ENR, SWD, DHS, and Agriculture, there is little left for the development of programs and projects. Despite provisions for revenue generation, LGUs have generally not been able to generate sufficient revenue to cover operational costs of devolved functions and majority are still dependent on the IRA from the national government. The problem is further exacerbated by unfunded mandates or laws that pose added costs but does not come with corresponding budgets.

Second, devolution has resulted in fragmentation, loss of coordinative efficiency, as well as gaps in information dissemination and transfer among the various levels and units of the devolved sectors. There are still plenty of grey areas and undefined jurisdictions. This is especially true in concerns which transcend geographical and political boundaries such as health and environment.

Third, national agencies have not yet geared operations towards full devolution of functions defined in the LGC and LGUs are not yet fully empowered to take on those roles. There is a tendency for national agencies to maintain control of programs and field implementation units instead of focusing on policy and standard setting, technical support, and oversight. LGUs also tend to depend on the national agencies. Roles and responsibilities are not clear. At the present, interference, grey areas, and overlaps in jurisdiction are observable. Accountability as well as expectations for meeting national goals are not jointly shared with LGUs and lean towards national agencies.

Fourth, there is a serious need to address personnel issues. Low salaries coupled with the loss of career paths, upward vertical mobility, as well as opportunities for education and growth among devolved personnel has lead to the demoralization and deterioration of vital human resources. Despite these issues however, there is a consensus among stakeholders that further devolution is necessary in order to reap the benefits of enhanced local autonomy. Various recommendations and proposals have been forwarded by both the national agencies, LGUs though the various leagues, as well as scholars of local governance. The specifics for health, agriculture, environment, as well as social welfare had already been outlined in the earlier sections. Just as there are cross-cutting issues however, there are also cross-cutting proposals and solutions put forwards by the various stakeholders in devolution. Moves toward further devolution will benefit from considering these proposals.

The first step towards further devolution is to clarify in as clear a language as possible policies, lines of authority, jurisdictions, as well as sharing of accountability between and among LGUs as well as between LGUs and national agencies. This should be followed by a corresponding rationalization of organization as well as appropriate distribution of resources in order to eliminate overlaps and maximize resources.

As has been clearly articulated in numerous studies, there is clearly a need to reform the IRA to ensure in order to promote equitable distribution of resources as well as ensure that devolved mandates are funded. LGUs will greatly benefit from cost sharing schemes with the national government, such as that promulgated by NEDA in 2003.

19 A more long-term solution however is to temper the dependence of LGUs on IRA and focus on building the capacity of LGUs to generate revenues using the mechanisms provided by the LGC to support operations. The IRA was after all, originally intended only to augment LGU resources and promotes equitability among LGUs - not fund the whole operation of LGUs as some officials seem to think. Judicious application of taxes, fees, and user charges combined with graft and corruption-free management of funds is necessary in order to promote local fiscal autonomy. Revenue generation and fiscal should be prioritized in the capacity-building programs of the DILG.

Further devolution necessitates the transfer of thousands of employees from the national government to LGUs. There are still pending personnel issues however. Clearly, there is a need for a personnel development plan with clear career paths and which allows lateral as well as vertical movements for local personnel. The DILG can work this out with LGUs, employee unions, and the CSC.

Regional offices of national agencies have a very high potential to bridge the gap between national policies and local goals and priorities. Regional offices benefit from coverage, economies of scale, their proximity to LGUs, and direct linkage with national offices. They may be in the best position to perform monitoring, technical support and capacity building. Developing regional offices to provide oversight, technical support, centers of research and development, and serve as interface between LGUs and the national government in the sectors of health, agriculture, social welfare, and environment might be a worthwhile strategy. There is also a need to consolidate local development plans from the bottom up. Information parameters need to be shared across LGUs and databases need to be linked together in order to facilitate effective planning and implementation of programs.

Inter-LGU and inter-agency alliances offer another promising mechanism especially in addressing concerns that transcend political boundaries such as health and environment. There is a need however to establish the appropriate framework, guidelines and mechanisms to guide LGUs and to make such arrangements legally binding. Local governments can agree to work together in a variety of ways. Contracts forged between local governments where one jurisdiction purchases services from another is one option. Several jurisdictions can enter into a joint agreement to pool financial resources and personnel as well as equipment (Deller 1998).

Decentralization reform can proceed in a minimalist direction as the reformers seek to close a capacity gap by limiting local authorities to their core business functions. A more pro-active approach may seek to enhance the capacity and discretion of local authorities to take on more functions, engage community participation, and play a greater role in the delivery of development programs. A middle range approach, espoused by the Leagues, recommends that LGU preparedness (and corollary assumption of functions) should be determined through certification procedures. Individual LGUs shall be certified for which functions they are ready or not to assume. That LGUs vary in terms of priorities and capacities of LGUs to implement devolved functions is a given. The important thing is to ensure that technical as well as financial support is made available to LGUs with weaker capacities.

20 In the Philippines, there are four tiers or layers of local governments: provinces, cities, municipalities, and barangays. The move to advance decentralization in the environment, health, asocial welfare, and agricultural sectors would require identifying the local tier that would assume the devolved functions. This would involve further research involving the application of certain principles in determining the specific functions to be assigned to provinces, cities, municipalities, and barangays.

The first principle governing the assignment of devolved functions would be the concept of subsidiarity. This principle states that public service responsibilities must be exercised by the lowest level of government unless a convincing case can be made for higher level assignment (Shah and Thompson 2004). The normative rule holds that public services should be delivered at the most local level possible so that services can be tailored to the needs and preferences of the local population. The implicit assumption is that local populations will be able to exercise choice in demanding and defining local service requirements. Another implicit assumption is that the people know their preferences and priorities better than regional or national governing bodies, which are better suited to issues of national scope, such as military and trade affairs (Lindaman and Thurmaier 2002).

Each public service should be provided by the jurisdiction having control over the minimum geographic area that would internalize the benefits and costs of such provision (Oates 1972). It is quite plausible to argue that in the matter of service deliveries as well as in local business development, control rights in governance structures should be assigned to people who have the requisite information and incentives and at the same time will bear responsibility for the (political and economic) consequences of their decisions. In many situations, this insight calls for more devolution of power to local authorities and communities. The state may have to play certain activist roles: enabling mobilization of people in local participatory development; neutralizing the power of local oligarchs; providing supralocal support in the form of pump priming local finance; supplying technical and professional services toward building local capacity; acting as a watchdog for service quality standards; evaluation and auditing; investing in larger infrastructure; and providing some coordination in the face of externalities across localities (Bardhan 2002).

The LGC and the 1998 Fisheries Code transfer a substantial amount of responsibility to local governments, in particular to the coastal municipalities and cities to engage in coastal management within a defined jurisdictional area of coastal lands and municipal waters to15 km offshore. Municipal and city governments have both executive (Mayor, Municipal Planning and Development Office (MPDO), Municipal Agriculture Office (MAO), and other staff) and legislative (Vice Mayor, Municipal Council) branches of local government. Municipal and city governments have the primary responsibility for planning and implementing ICM programs, including establishing marine protected areas, and enacting and enforcing fishery and coastal resource-related ordinances. Municipal and city governments receive an internal revenue allocation from the national government-based population size, land area, and an equal sharing factor (Lowry, Kem, Alan White, Catherine Courtney (2005).

At the city level, the acceptance and implementation of agricultural services would depend on the level of urbanization of the area. In Angeles City, services pertaining to the dispersal of

21 livestock and poultry, palay, corn, vegetable seed farms, quality control of copra, enforcement of fishing laws in municipal waters, dairy farms, and the livestock market are not devolved (Legaspi and Santiago 2010).

Provincial government has both executive (Governor, Provincial Planning and Development Office, and other staff) and legislative (Vice Governor, Provincial Council) branches of government. While the role of provincial LGUs under both the LGC and 1998 Fisheries Code is not well defined; many provinces are beginning to fulfill an important coastal management gap to harmonize coastal management policy through the enactment of Provincial Environmental Codes, developing coordinating mechanisms between municipalities, NGOs, and academic institutions, to identify and address coastal management issues, and providing technical and financial assistance to LGUs implementing coastal management. The provincial mandate to directly implement ICM activities is limited and thus implementation occurs mostly through municipal and city governments. (Lowry, Kem, Alan White, Catherine Courtney (2005).

This model also argues for service delivery based on the benefits principle of public finance, namely, that, as much as possible, services should be funded through user fees, and basic community services such as police and fire protection (which have significant externalities) can be funded through local taxes. Services mandated for delivery by the central and regional governments are properly funded through grants in the form of intergovernmental transfers (Lindaman and Thurmaier 2002).

In contrast to central controls and extensive earmarks of local funding, decentralization should give local officials increased authority to shift funds to improve service delivery. Decentralization should be associated with improved service delivery. The performance of services and the decentralization process itself should be monitored and evaluated by citizen groups through surveys and social audits (Guess 2005). Much of the planning at the local level is done at the provincial and municipal/city levels. It is at the barangay level where strategic, comprehensive and area-based planning is not usually implemented, which is unfortunate because poverty interventions are targeted at the barangay level. What is submitted as the barangay development plan is just a listing of projects (Atinc, Ndegwa, Taliercio, MacAntony and Mailei 2004).

Generally, the central government should be involved with overall policy, setting standards, and auditing; state governments should have an oversight function; and local governments should be involved in the provision of infrastructure and services. Assignment of public services to local or regional governments can be based on factors such as economies of scale, economies of scope (appropriate bundling of public services to improve efficiency through information and coordination economies and enhanced accountability through voter participation and cost recovery), cost-benefit spillovers, proximity to beneficiaries, consumer preferences, and flexibility in budgetary choices on composition of public spending. Assignment of responsibilities to various local governments could be asymmetric, based on population size, rural-urban classification, and fiscal capacity. Higher levels of government might exercise a regulatory or policy role, while lower levels of government are responsible for service delivery (Litvack and Seddon 1998).

22 References

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Angeles, Leonora and Francisco Magno. 2004. “The Philippines: Decentralization, Local Governments, and Citizen Action.” In Philip Oxhorn, Joseph Tulchin, and Andrew Selee, eds. Decentralization, Democratic Governance, and Civil Society in Comparative Perspective: Africa, Asia, and Latin America. Baltimore: Johns Hopkins University Press, pp. 211-265.

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Deller, Steven. 1998. “Local Government Structure, Devolution, and Privatization.” Review of Agricultural Economies. 20, 1 (Spring-Summer): 135-154.

23 Department of Health. 2003. Comparative analysis of five inter-local health zones: Current practices, policy, and program directions. The Managers Electronic Resource Center. http://erc.msh.org/hsr/LinkSites/lhs/ComparativeAnalysis.pdf.

Dollery, Brian and Joe Wallis. 2001. The Political Economy of Local Government. Cheltenham, UK: Edward Elgar.

Elazegui, Dulce, Agnes Rola, and Ian Coxhead. 2004. “Policy Imperatives for Natural Resource Management under a Decentralized Regime: The Philippine Case.” Philippine Development Forum. http://pdf.dec.org/pdf_docs/Pnacw734.pdf

Esguerra, Josefin. July 24, 2006. Growth & Development Revisited: Governance Issues and Reform Imperatives for Rural Growth, 52 pp. World Bank.

Faylon Patricio and Eileen Cardona. 2007. Philippine Agriculture: Retrospect and Prospects in Good Agricultural Practices Amid Globalization. Philippine Council for Agriculture.

Ferrer, Carmille. November 23, 2006. “LGUs Under radical devolution: The Biggest Losers.” [Analysis] Institute for Popular Democracy. http://ipd.org.ph/main/index.php?option=com_contentandtask=viewandid=42andItemid=32. 23. Accessed August 20, 2009.

Flewwelling, Peter and Gilles Hosch. January 2004. “Country Review: Philippines.” Review of the State of World Marine Capture Fisheries Management: Pacific Ocean. www.apfic.org/modules/xfsection/download.php?fileid=164. Accessed August 20, 2009.

Geollegue, Raoul T. 2000. “A Tale of Two provinces: Implementation of decentralized forestry functions by two Provinces in the Philippines.” Food and Agriculture Organization. http://www.fao.org/docrep/003/X6898E/x6898e06a.htm. Accessed August 20, 2009.

Grundy, J., V. Healy, L. Gorgolon, and E. Sandig. July 1, 2003. “Overview of devolution of health services in the Philippines.” Rural and Remote Health: The International Electronic Journal of Rural and Remote Health Research, Education, Practice, and Policy. http://www.rrh.org.au/publishedarticles/article_print_220.pdf. Accessed August 20, 2009.

Guess, George. 2005. “Comparative Decentralization Lessons from Pakistan, Indonesia, and the Philippines.” Public Administration Review 65, 2 (March-April): 217-230.

Habito, Cielito F. and Roehlano M. Briones. 2005. Philippine agriculture over the years: Performance, policies and pitfalls. Paper presented at the Conference on Policies to Strenghthen Productivity in the Philippines, Sponsored by the Asia-Europe Meeting Trust Fund, AIM Policy Center, Foreign Investment Advisory Service, PIDS and World Bank. Makatic City, June 27, 2005. http://siteresources.worldbank.org/INTPHILIPPINES/Resources/Habito-word.pdf. Accessed August 10, 2009.

Health Committee, House of Representatives, 14th Congress of the Philippines. September 19, 2005. Full devolution of health care service urged. Committee News, Vol. 13(70). http://www.congress.gov.ph/committees/commnews/commnews_det.php?newsid=424

24 Lariosa, T.R. February 1999. UNDP/World Bank/WHO Special Programme for Research and Training in Tropical Diseases (TDR). http://www.who.int/tdrold/research/finalreps/pdf/fr9.pdf. February 1999. Accessed August 20, 2009.

League of Municipalities of the Philippines. 2007. “Devolve ENR Functions Now,” A Position Paper of Local Governments on the Imperatives of Devolving Environment and Natural Resources (ENR) Governance Functions and on Rationalizing the Structure of the DENR.

League of Provinces of the Philippines. 2006. Strengthening agriculture and fisheries services of local government units: A framework for Department of Agriculture and local governments partnership.

League of Provinces of the Philippines. May 2008. DA to tap farm technicians of LGUs for rice sufficiency plan. http://www.lpp.gov.ph/may08-news4.html.

Legaspi, Perla and Eden Santiago. 1998. “The State of the Devolution Process: The Implementation of the 1991 Local Government Code.” In Tapales, Proserpina Domingo, Jocelyn Cuaresma, and Wilhelmina Cabo, eds. Local Government in the Philippines. Quezon City: U.P. National College of Public Administration and Governance, vol. 2, Pp. 537-549.

Lieberman, Samuel, Joseph J. Capuno, and Hoang Van Minh. 2005. Decentralizing health: Lessons from Indonesia, the Philippines, and Vietnam. in Chapter 8, East Asia Decentralizes: Making Local Government Work, June 2005. Washington D.C.: The World Bank. http://siteresources.worldbank.org/INTEAPDECEN/Resources/Chapter-8.pdf . Accessed August 20, 2009.

Liga ng mga Barangay. 2006. Position paper of the Liga ng mga Barangay on health care services and the rationalization of the Department of Health.

Liga ng mga Barangay. 2006. Proposed position paper on the devolved function on the delivery of health services. Philippines Development Forum. 20 January 2006. http://pdf.ph/downloads/decentralization/Jan_18_Agenda_VII_1_LnB_Paper_on_Health.pdf.

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Lowry, Kem, Alan White, and Catherine Courtney. 2005. “National and Local Agency Roles in Integrated Coastal Management in the Philippines.” Ocean and Coastal Management. 48: 314– 335.

Lynn, Laurence Jr., Carolyn Heinrich, and Carolyn Hill. 2000. “Studying Governance and Public Management: Why? How?” in Carolyn Heinrich and Laurence Lynn Jr. eds. Governance and Performance. Washington, D.C.: Georgetown University Press, pp. 1-33.

25 Magno, Cielo. 2001. The Devolution of Agricultural and Health Services. Social Watch- Philippines 2001 Report.

Makilan, Aubrey SC. 4 – 10 December 2005. Devolution and corporatization of services. Bulatlat Vol. V (43). http://www.bulatlat.com/news/5-43/5-43-services.htm.

Manasan, Rosario 2002. “Devolution of environmental and natural resource management in the Philippines: Analytical and policy issues.” Philippine Journal of Development. Vol. 29, Issue 1, pp. 33-52.

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Schwartz, J. Brad, Rachel Racelis, and David K. Guilkey. 2000. Decentralization and Local Government Health Expenditures in the Philippines. Working Paper, The Measure Project, Carolina Population Center, November 15, 2000. http://pdf.usaid.gov/pdf_docs/PNACM559.pdf. Accessed August 20, 2009.

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26 United Nations Development Programme, and Global Environment Fund. 2005. The national capacity self-assessment project of the Philippines. (GOP-UNDP-GEF). http://ncsa.undp.org/docs/276.pdf. Accessed August 20, 2009.

World Bank and Asian Development Bank. March 3, 2005. Decentralization in the Philippines: Strengthening local government financing and Resource management in the short term. Poverty Reduction and Economic Management Sector Unit, East Asia and Pacific Region, Philippines Country Office and South East Asia Region, The World Bank and Asian Development Bank. http://www.adb.org/Documents/Reports/PHCO/decentralization-report-phi.pdf.

27 Sustaining the CCD: Capacitating CCD Technical Secretariat End of Contract Report

For : Mr. Raymund Fabre

From : Dr. Aser B. Javier

Subject: End of Contract Report Capacitating CCD Technical Secretariat on Policy Briefs Preparation

Date: April 29, 2010

I. Background of the Engagement

The Coordinating Committee on Decentralization (CCD) acts as an inter-governmental body for coordinating and harmonizing policies and operational activities related to decentralization and devolution in the Philippines. The DILG, particularly the BLGD was tasked to act at the Technical Secretariat to the CCD. As part of the functions of the technical secretariat to the CCD, the DILG-BLGD was tasked to provide policy papers/policy briefs that will assist the CCD. The policy briefs are envisioned to serve as background documents to the CCD during deliberation meetings.

A major output of the engagement is the guidance of the CCD Technical Secretariat in crafting policy briefs on selected policy issues. This focus of the engagement also expands to the awareness, precision and updating of the policy agenda.

The objectives of the engagement aims to capacitate the DILG BLGD as a Policy Group as CCD Technical Secretariat. Specifically, 1. To orient the them on the CCD, its mandate and functions, and its roadmap 2. To update them on the prevailing policy issues and concerns on related to decentralization, and local governments units 3. To assist them develop policy brief /papers to serve as background papers for deliberation during CCD meetings

II. Methodology

The capacitation in preparation of Policy Briefs was carried out through 1) lectures on the steps in the policy process and crafting policy briefs; and 2) preparation of a policy analysis framework that will guide the Policy Group in the definition, generation of alternatives and setting the policy agenda for the CCD and 3) critiquing of the policy briefs prepared by the CCD Technical Secretariat. Sustaining the CCD: Capacitating CCD Technical Secretariat End of Contract Report

Lecture and coaching during workshop was done on April 27, 2010 and the critiquing was done on April 28, 2010. The level of effort allocated to the Policy Consultant is two (2) person days.

III. Tasks and Deliverables

Task 1. Develop local governance and decentralization policy analysis framework for presentation to the BLGD Policy Group – the Coordinating Committee on Decentralization Technical Secretariat

To guide in preparing policy briefs, I have structured the public policy analysis process into three steps- problem definition, alternatives generation and setting the policy agenda. Step 1 includes the stage of problem identification and policy testing. Step 2 includes the stage of policy review and policy alternatives generation. Step 3 includes recommending policies and identification of policy stakeholders. Figure 1, graphically presents the framework.

Figure 1. Public Policy Analysis Framework

Problem Identification Policy Review Policy Recommendation Problems confronting the What are the prior efforts Which among the alternatives organization made to solve the policy may best solve the problem? problem?

Policy Testing Is the problem defined a Policy Alternatives Policy Stakeholders strategic policy? What are the pertinent What are roles of the courses of action that maybe stakeholders identified in the taken? policy recommendation?

Step 1: Step 2: Step 3: Problem Definition Alternatives Generation Policy Agenda Setting

Task 2. Act as resource person to provide an overview on policy analysis and development and its practical application by DILG as the oversight agency for local governments. Sustaining the CCD: Capacitating CCD Technical Secretariat End of Contract Report

As a resource person, I delivered the policy process basics which include the policy process, basic analysis and alternatives generation. I also provided workshop mechanics and coaching during the session on policy briefs preparation.

In the presentation of the policy briefs, together with other members of the oversight agencies, critiquing was provided in to enhance and sharpen the policy issue focus and identification.

Task 3. Guide BLGD Policy Group in the development of draft policy briefs/outline on selected policy issues of the CCD

A writing guide in Policy Briefs Preparation was developed to guide the DILG BLGD Policy Group. It consists of five major sections and contents of each section with corresponding number of paragraphs were suggested as a policy brief template. Table 1 show the template used in crafting policy briefs.

Table 1 Policy Brief Template Number of Major Sections Suggested Contents Paragraphs/ Pages Describes what is the policy problem and the general scope of problem the researcher is interested in i.e. decentralization issues in the local government units. A. Background of the This section contains the essential facts how the policy problem came 2 paragraphs Policy problem about and the decision maker needs to know about the policy problem and situation.

B. Problem Statement What is the problem related to the theme is the researcher/ author 2 paragraphs trying to solve? These are the issues and concerns that the local government unit or the DILG and other concerned institution are facing given their scope and mandate, relative to the problem. This section contains the direct description of the problematic situation.

What are the policies or prior efforts that have been made to solve the problem. What is the analysis of the researcher on the policies that have C. Review of Pre- been made? 3 paragraphs existing Policies This section should match the objectives and the problem statement.

D. Policy Alternatives What are the possible solutions to the problem, as perceived by the 1 page researcher? What is/are the proposed solution(s) to the issue(s) and concern(s)? Factor(s) for selecting the said solution(s) over the others? What are the results of the study?

This section should ANSWER the objectives and the problem statement.

E. Concerned Who are the major actors in coming up and finalizing the solution? 1 paragraph Stakeholders What are the roles (regulation, facilitation, enabling, direct provision, Sustaining the CCD: Capacitating CCD Technical Secretariat End of Contract Report

etc) of these actors? This section describes the stakeholder’s roles and their point of integration relative to the LGUs and the researchers’ viewpoint?

`Maximum Total Number of Pages: 2-3 pages

Task 4. Prepare recommendations to further capacitate the BLGD Policy Group.

The following are the recommendations for an improved Policy Briefs Preparation and utilization for both the DILG-BLGD as the CCD Secretariat and the Oversight Agencies as members of the CCD.

1. The major issues which have been identified by various oversight agencies including the local government leagues represented in the CCD cuts across three types of the policy process. These are the following: a. Analycentric- approach focuses on individual problems and its solutions; its scope is the micro-scale and its problem interpretation is usually of a technical nature. One good example raised is identified by the BLGF i.e. treasurers competencies.

b. Policy process- its focal point onto political processes and involved stakeholders; its scope is the meso-scale and its problem interpretation is usually of a political nature. One good example raised is the creation of cities made by the League of Cities.

c. Meta-policy approach is a systems and context approach; i.e., its scope is the macro-scale and its problem interpretation is usually of a structural nature. One good example raised is the increased resources and access to LGU financing.

The cutting across of the policy issues identified means that the BLGD Policy Group as the CCD Secretariat will have to be adept with all three types of the policy process. Capacitation will have to be made in the future on the analysis based on these three types of the policy process.

2. Oversight agencies and LGUs through the LGU Leagues need to adopt an agreed upon CCD policy analysis framework in the short-run. This is to provide a common policy analysis platform among oversight agencies. This is to shape as early as possible the policy development and analysis culture among oversight agencies.

3. Oversight agencies and LGUs through the LGU Leagues need to adopt a common decision criterion to determine policy endorsement, formulation and adoption among the identified policy issues. This is to provide the foundation for a CCD Sustaining the CCD: Capacitating CCD Technical Secretariat End of Contract Report

collective prioritization of the many major policy issues on decentralization and local governance it is faced. This is also to avoid the oversight agencies advocating only policy issues based on their own mandates.

4. Oversight agencies and LGUs through the LGU Leagues should make available its various officials and staffs who are experts in the policy areas the CCD Secretariat are writing on. Reference materials for policy analysis in crafting policy briefs by the CCD Secretariat also need to be made available. This can be included as part of the CCD operating guidelines, where each of the oversight committee should provide the necessary knowledge product i.e. previous research, guidelines, manuals and other available public documents to the CCD Secretariat prior to the tabling of a policy issue in the deliberation schedule of the CCD. Corollary to this, related materials for policy development can be made part of the various databases of the oversight agencies and LGUs through the LGU Leagues which can easily be accessed not only by the CCD Secretariat but by the publics as well. This is for easy referencing not only of the BLGD Policy Group but other researchers interested to do policy studies.

4. Oversight agencies and LGUs through the LGU Leagues can provide access to cooperation among the members of the academe to be part of the policy development process as part of the continuing education on policy development. It can establish a research network to enhance access to information, research conducted and expertise on subject matter not within the specialization of the CCD Secretariat. In the long haul the DILG-BLGD will have to develop various expertises on major issues of the CCD. This has to be matched with the offices mandate where the policy group members are connected. This can be done by providing basic online education courses on finance and economic management which are key issues identified by the oversight agencies.

IV. Policy Brief Output of the CCD Secretariat

Three policy briefs were prepared by the CCD Secretariat on major policy issues on Utilization of the Special Education Funds, Defining Corporate Powers of the LGUs and Operation and Management of Local Economic Enterprises.

Policy Brief 1

Improved Utilization of the Special Education Fund (SEF)

Background of the Problem Sustaining the CCD: Capacitating CCD Technical Secretariat End of Contract Report

The lackluster performance overall of the Philippine basic education subsector in the last 20 years has been underscored in a number of studies (PPES, EDCOM, etc.) In fact, many literature and analysis agree that the basic education subsector is in crisis today. Evidences include decline in enrolment rate from 92.7% in 2000 to 84.8% in 2007 at the elementary level and from 62.3% in to 2000 to 61.9% to 2007 at the secondary level. At the same time, the outcomes of basic education achievement tests have been erratic during the period.

The low performance on the education sector could be based on the budget allocated to the education sector particularly out of the Special Education Fund (SEF).

Problem/Issue Statement There appears to be a mismatch between what appears to be the actual needs of the school based on school level data and how the SEF is spent by the LGUs. The SEF priority currently given to sports competition, infrastructure and other operating expenses do not contribute to improve school level performance.

Pre-Existing Policies

RA 7160 (LG Code of 1991) – gives LGUs access to a financing source, the Special Education Fund, which is earmarked for the operation and maintenance of public schools. Because of this, the provision of basic education arguably became the shared responsibility of the central government and local government units. The LGC of 1991 contains two provisions that pertain to how the SEF is to be allocated: 1. Section 100 provides that the annual school board budget shall give priority to the following: Construction, repair, and maintenance of school buildings and other facilities of public elementary and secondary schools; e The Local Government Code contains two provisions that pertain to how the SEF is to be allocated:

2. Section 100 provides that the annual school board budget shall give priority to the following: Construction, repair, and maintenance of school buildings and other facilities of public elementary and secondary schools; Establishment and maintenance of extension classes where necessary; Sports activities at the division, district, municipal and barangays levels

Further, Section 272 provides that “the proceeds[of the SEF] shall be allocated for the operation and maintenance of public schools, construction and repair of school buildings, facilities and equipment, educational research, purchase of books and periodicals, and sports development as determined and approved by the Local School Board

Republic Act 5447- An Act Creating a Special Education Fund to be Constituted from the Proceeds of an Additional Real Property Tax and a certain Portion of the Taxes on Virginia-type cigarettes and duties on imported Leaf Tobacco Defining the Activities to Sustaining the CCD: Capacitating CCD Technical Secretariat End of Contract Report

be Financed, Creating School Boards for the Purpose and Appropriating Funds there from” which took effect in 1969.

Republic Act 9155- Basic Education governance Act of 2001- “envisions a different kind of decentralization in the basic education sub-sector. It calls for the empowerment of schools in making decisions that improve quality of learning and for the establishment of school and community networks, emphasizing the need for the greater participation of parents, teachers and the community itself in the governance of the schools.

Alternatives The following three (3) alternatives shall be included in the proposed amendments of Sections 100 and 272 of the LG Code. Alternative 1- Rules Based Approach “Rules-based” approach- involves the joint issuance by the DBM, DepEd and DILG of new guidelines containing either a positive list type of expenditure items that may be charged against SEF or a negative list of expenditure items that are not allowed to be charge against the SEF. Alternatively, the new guidelines may contain both positive and negative list of expenditure items.

Alternative 2: Market-based Approach “Market-based” approach – LSBs as the primary entity responsible for determining annual supplementary budget, may be given full discretion in the allocation of SEF while support mechanism that enhance planning and budgeting of the SEF is strengthened. These will promotes greater flexibility of the LSBs to address the varying needs of the schools at any point in time.

Alternative 3: Harmonization of Legislated Laws Harmonization of RA 7160 and RA 9155 on the utilization of SEF -key to improving the utilization of the SEF and better alignment of the provision for the LGC on the membership in the LSB and the allocation of the SEF - Stakeholders • Parents, teachers and students – to participate in policy and decision-making process • DBM – approved LGUs proposed budget on education • DILG and CCD- to formulate and push the implementation of the new guidelines on the utilization of the SEF • Local School Boards (LSBs) – shall be responsible for determining the annual supplementary budgetary requirements of the public schools in their locality • Department of Education (DepED)- through its regional offices shall see to it that the LSBs are furnished with copies of the individual school’s allocation for the year from the national budget including programmed school buildings and other capital outlays

Sustaining the CCD: Capacitating CCD Technical Secretariat End of Contract Report

Policy Brief 2

DEFINITION AND EXTENT OF LGU CORPORATE POWER

BACKGROUND OF THE PROBLEM: The Local Government Code of 1991 (RA7160) provides reference on the nature, scope and origins of the corporate powers of LGUs e.g. Section 14 sets the beginning of LGU corporate existence and Section 22 outlines the scope of the LGUs’ corporate power. The Code, however, did not explicitly include a clear definition of what a “corporate power” is. It merely enumerates an example of fundamental powers that constitute the exercise of corporate power.

There is no study yet that clearly define corporate powers. What abounds are case studies of best practices mostly pertaining to extent of LGU borrowing, revenue generation, management of local economic enterprises, collaborative undertakings with private sectors among others.

PROBLEM STATEMENT While the Code set the policy environment necessary for the LGU to exercise their corporate powers, there is a need to clearly define corporate powers and the extent of exercising the same to enable the LGU craft strategic policy directions for implementation of its programs and activities towards attaining economic development in the context of local autonomy. This would also allow national agencies concerned to have a clear focus in assessing the needs of the LGUs and identify necessary and appropriate technical assistance to enhance the capacity of the LGUs in providing services, leadership and innovation in the community for economic development.

REVIEW OF PRE-EXISTING POLICIES Several studies (Pardo and Zipagan, December 2008) on the current trends of LGU exercise of corporate power had been observed and documented. These studies dwelt on policies issued by BLGF-DOF regarding LGU borrowing from government financing institution, bond flotation, and financial performance of local economic enterprises. Case studies on the emerging models of LGUs exercise of corporate powers, such as, Inter-Local Cooperation (Partido development Authority in Cam. Sur created by an act of Congress providing legal framework for inter-LGU cooperation; Corporatization of Basic Services (La Union Medical Center – an act of Congress corporatizing La Union Provincial Hospital); Corporatization of Public Utility ( Corporatization of Misamis Oriental Telephone System (MISORTEL) as initiated by Misamis Oriental Province to ensure efficiency & viability of MISORTEL. The corporation has Sustaining the CCD: Capacitating CCD Technical Secretariat End of Contract Report

been registered with SEC); Institutionalization of the Operation of Local Economic Enterprises (Tagum City’s operation of the LEEs (public market, overland transport integrated terminal, slaughterhouse, public cemetery, cultural & trade center, and livestock center)

POLICY ALTERNATIVES 1. Review the Implementing Rules and Regulation of RA 7160 particularly Section 22 (Corporate Powers) and other related provisions to include a clear an unambiguous definition of corporate powers. CCD to undertake consultations, public hearings, round table discussions and entertain proposals relative to the amendment of Sec. 22 of RA 7160 setting the powers of a corporate entity should be consistent with the Philippine Corporation Code. CCD shall submit a common position on corporate powers to the Oversight Committee on Devolution recommending amendment to IRR of the LG Code relative to Sec. 22 to include the parameters and criteria on what should be included in LGU corporate powers.

2. Conduct of massive and substantial capacity building activities to Local Chief Executives and functionaries towards understanding LGU corporate powers based on the current and innovative practices. Current practices may include best practices on the management of local economic enterprises and inter-local cooperation and undertakings among others. Innovative practices are a demand driven practice.

CONCERNED STAKEHOLDERS The concerned national government agencies, local government units and other stakeholders that play a vital role in setting the directions on the clear interpretation and provision of criteria and parameters on the exercise of corporate powers of the LGUs vis a vis its effective application towards economic development.

Policy Brief 3 IMPROVING OPERATION AND MANAGEMENT OF LOCAL ECONOMIC ENTERPRISES I BACKGROUND Local Economic Enterprises (LEEs) are local government owned economic entities that generate revenues from selling goods and services (DILG, DBM, NEDA , DOF/BLGF). The character of LEEs has evolved over the years. Traditional LEEs provide municipal services like markets, slaughterhouses, cemeteries and water services, today’s LEEs include enterprises that produce goods and services that are more in the realm of private Sustaining the CCD: Capacitating CCD Technical Secretariat End of Contract Report

goods (i.e. good and services which are normally provided by the private sector) like shopping malls, buildings for lease, hotels and recreational facilities.

Manasan and Castel, 2009 identifies three reasons for LGU operation of LEEs. First, LGUs are looking for more diversified sources of local revenues. Second, LEEs are desirable because of the need for LGU to have (catalytic investments) in order to generate greater local economic development. Third, some LGUs operate certain activities because they have difficulty complying with the Personal Services (PS) expenditure cap in the local government code.

II. PROBLEM STATEMENT LEEs run by LGUs incur losses due to a number of factors: weak institutional support e LEEs and technical capability, low tariffs, poor collection efficiency. Given the issues surrounding (1) what policy framework is needed for the effective and efficient operation and management of LEEs? (2) How can the LGU capacity in operating and management of LEEs be enhanced to be efficient?

III. REVIEW OF PRE-EXISTING POLICIES The DBM UBOM elaborates the rationale and criteria for the establishment and operation of LEEs: (1) LEE satisfies both the economic and social objectives of the concerned LGU; (2) It fills in service gaps not adequately provided by the private sector; (3) It shall operate with a lean and mean staffing complement to satisfy the income objective of the LEE; (4) It shall operate like a corporate body with a separate strategic plan and budget.

The LG Code of 1991, the NGAs and the UBOM is generally consistent with World Bank’s definition of a “state-owned enterprise” which refers to government-owned or government controlled economic entities that generate the weight of their revenues from selling goods and services (Jones, 1982, World Bank 1998). The definition emphasizes two distinct characteristics of LEEs namely: public dimension which relates to government ownership, control and/or management and enterprise dimension which limits the application of the term to entities that produce marketable outputs such as goods and services for which prices /fees may be charged.

The LGC of 1991 provides that total appropriations whether annual or supplemental, for personal services of an LGU shall have a 45%-55% cap. The appropriations for the PS of such LEEs shall be charged to their respective budgets (Sec 325-a). The preferential treatment given to PS expenditures of LEEs by exempting the same in the computation of compliance with the PS cap has encourage abuse of the provision as a cover- up to exceeding the cap.

Sustaining the CCD: Capacitating CCD Technical Secretariat End of Contract Report

Also, NGAS emphasizes the importance of maintaining special accounts for LEEs. This is essential in tracking results of LEE operations and how closely LGUs follow their intent for establishing LEEs. Under the LG Code. LEEs are part of the General Fund but special accounts within the General Fund should be maintained for each LEE.

IV. POLICY ALTERNATIVES To resolve the issues pertaining to poor or ineffective operation and management of LEEs, the following policy alternatives are being proposed: 1. Guidance on Creation of LEEs The guidance should specify that LEEs should be established by enacting an ordinance that specifies : (1) LGU policy on degree of cost-recovery ( 2) classification of LEEs (for service delivery ?or for revenue generation?) 2. Strengthen LGU Capability on LEE Operation and Management

Enterprise Development Management System Entrepreneurial Leadership Improvement 9 Development /evaluation 9 Establishing a LED Office 9 Professionalizing the LEE of FS specially forecasting 9 Provide a clear and legal management and Staff of demand regulatory framework for 9 Changing mindsets of 9 Supporting PPP LEEs LCEs towards 9 Considering 9 Adopt a system of entrepreneurial approaches Alternative Methods for forecasting and pricing. 9 Promotion and marketing Delivering Public Charges must be based on of LEE products and Services Full Cost Recovery. services 9 Tariff setting 9 Re-defining LEEs in the 9 Collection procedure and System context of LED 9 Evaluating alternative organizational structure 9 Defining role of the for the management and provinces as steward for monitoring of LEEs LED 9 Institutionalize a system for performance monitoring and evaluation including organizational management performance evaluation and feed backing

V. CONCERNED STAKEHOLDERS The primary stakeholders are 1) LGUs since they are the direct beneficiaries of the propose policy, 2)NGAs(DOF, DBM, COA, CSC,DILG) since they are the ones who will provide the policy guidance on improving LEEs operations and management by LGUs.

Sustaining the CCD: Capacitating CCD Technical Secretariat End of Contract Report

ICT Forum Discussion

Objectives of the Forum • Creation of an inter‐agency committee to take on coordination, knowledge sharing, efficiency in tax administration and other relevant LGU IT applied tax related function; and provide more inputs and continuously improve the LGU Guide on Computerization;

• Formal creation of the TWG for the adoption of a uniform ICT Policies and Standards for the NGAs and LGUs to ensure proper ICT asset management under secure environment;

• Future of applying ICT in LGU Tax related Functions. Approach • Panel Discussion

• Break‐out Groups

• Presentation of Topics

Suggested Conveners and Participants • Conveners: – DOF‐BLG – DILG – CICT‐NCC • Participants: – CCD members: DILG, DBM, DOF‐BLGF, NEDA, Leagues – Donor Agencies: CIDA, GTZ, ADB, AusAID, JICA, WB, etc. – Other NGAs Suggested Resource Topics during the Forum (Presentation Program) • Discussion and promotion of the ‘LGU Guide to Computerization’ ‐ BLGF • CICT Initiatives ‐ CICT • Philippine ICT Road Map 2010 – 2015 ‐ CICT • ICT Research or Cooperation with various related sector ‐ UN or EU

Suggested Resource Topics during the Forum (Presentation Program) • Information Security (Creation of a Policy on Information Security in Government) ‐ NBI • Information Management –Land Sector Development particularly on Valuation and Taxation ‐ LAMP2 • Getting ready for the internet protocol version 6 ‐ NCC • Funding facility for LGU Tax Related ICT Initiatives ‐ ADB, GTZ, CIDA, JICA, WB, etc Major Policy Questions:

1. Is there sufficient policy framework to enable NGAs and LGUs to effectively implement ICT initiatives in Tax Related Functions? 2. Do we have sufficient implementing rules and regulation to guide NGAs and LGUs to support the policy framework?

Issues in LGU Computerization of Tax Related Function 1. Coordination of Initiatives 2. Knowledge Sharing 3. Standards and Best Practices 4. Technical Assistance 5. Technical Support 6. Code of Conduct of IT Professionals in Government (and in Private) 7. Professionalization of IT practitioners in Government, etc. 8. No Data Exchange Standard to support linkages between LGU to LGU, LGU‐BLGF, BIR, etc. 9. Data standards not monitored and enforced 10.Low private sector cooperation 11.Insufficient Analysis Tools to support fiscal policy reforms in LGUs 12.No standard data sets or report format to support management level analysis

13. National LGU Real Property Information Database for broad reviews to support policy reforms 14. National LGU financial information database for broad reviews to support policy reforms 15. Determine data sets / statistical information relevant to investor 16. Information not available to investors locally and in national level 17. Insufficient information to support Government / LGU Decision 18. ICT solution in LGU tax related function are under utilized 19. No standard relevant spatial data required for LGU tax related function 20. Low focus on land valuation and assessment 21. Best practices or methods to improve tax collection efficiency in LGUs 22. Enhance cooperation with private sector and provide reliable framework reference for their planning and investment strategies 23. Establish or provide relevant statistical information for specific and broad investment opportunities 24. Develop human capital to ensure proactive, sustainable and continuous improvement in ICT initiatives in LGU Tax related function advancement

25. Comprehensive LGU property and financial information not available to both government and public. i.e. property inventory, economic enterprise inventory, etc. 26. Guide to LGUs on equitable revenue potentials and opportunities 27. Low revenue generation even to LGUs with computerized systems 28. Erroneous property information in LGU databases being maintained 29. No standard procedure in dealing with peculiar property record / situation. i.e. mixed use, multiple actual use 30. ICT assets, design, procedures not well documented 31.Insufficient Disaster Recovery Policies and Procedures 32.Services limited to Physical Access. Encourage online transactions 33.Level of services inconsistent across agencies 34.Excessive procedures in transactions 35.Limited high level ICT expertise in LGUs 36.Technical resolutions on ICT and Tax related issues and concern

Clarification Points in reference to the 3rd CCD Meeting on the LGU Guide to Computerization 1. The purpose of the Guide book is to provide information and advice to the LGUs contemplating the procurement, development or upgrading of tax related systems. 2. NCC is a member of the TWG of the guide. Seeking the input of CICT is also highly recommended. 3. The benchmark described in the guide is intended to ensure that critical data element and processing thereof will support BLGF and LGU functional and output requirement. The guide does not endorse any product nor restrict any rights of any entity, therefore, should not be subjected to any risk of criticism or legal action. 4. Participation of the private sector providers and donor agencies is highly recommended to ensure wider participation in the advancement of IS solutions for LGUs.

5. Government agencies are prohibited from endorsing any product or service solutions from any private entity whether it is FREE or not. Any forum should encourage cooperation among and within the industry and promote free trade and fair competition.

6. Set of minimum standards however can be set by BLGF and CICT or any related agency on Tax related functions of LGUs

7. The suggestion of adopting a “middleware” may not be feasible at this time. This may require resources, resolution on development, custodian and data privacy issues. What the forum needs however is set data exchange standards to ensure there is a common key across all agencies for purpose of information exchange and linkages. Discussion points in reference to the Issues, Challenges and Next Steps discussed in the Tax Forum organized by GTZ last May 27, 2008 1. The concerns raised in the Tax Forum on the lack of relevant information to guide them in adopting IT systems in tax related functions is very much valid and it is evident in various LGU computerization in the country. This issue however, had been given appropriate attention by the BLGF. The LGU guide on computerization clearly discusses the considerations in computerization, approaches, features and functionalities required, the IT readiness assessment tool and guide on how to achieve that readiness.

2. Though the idea of creating or reviving an inter‐agency committee as a vehicle for coordinating initiatives, knowledge and resource sharing is another key factor for LGUs in efficient tax administration. This has been proven in the past that such initiative requires more than willingness, commitment and scheduling of meetings. For this inter‐ agency committee to be sustainable, one agency that has the clear mandate to address this concern should own the function of regularly collecting information, distributing the information and conduct regular meetings or forum to discuss various issues of the subject matter. 3. Ensuring sustainability is already discussed in the LGU guide on computerization. Though it is also true that resource sharing, LGU‐IT professional network or any similar big‐brother approach for technical support is a major concern, this solution may not be reliable or ensures quality. 4. A clear and successful factor to ensure sustainability is for LGUs to prepare their ISSPs and have it approved, provide sufficient MOOEs for IT requirements and follow the LGU guide. 5. IT students can be considered however for purpose of hardware troubleshooting support only. Students cannot be held accountable for any potential loss or damage to data or property of LGUs arising out of that public service act. IT Professors can be resorted to but nothing is free. Draft: 30 March 2010 Page 1 of 11

SHORT TO MEDIUM-TERM SCENARIO

A. Economic:

• Slow economic recovery due to uncertain pace of world recovery and fragile fiscal condition preventing a more vigorous government stimulus program to push economic growth:

o Protectionist tendencies in industrial countries with slow employment recovery o High cost of international finance o Very competitive conditions o Wait-and-see attitude of investors in 2010

• Mixed prospects for regions

o Export-dependent regions and provinces (e.g. NCR, Regions 3, 4A and 7) on the recovery track o Agriculture-dependent areas plagued by drought and possibly La Nina; face issues related to AFTA implementation and sluggish demand for sugar

B. Social

• Worsening poverty due to poor agriculture performance

• Increasing pressure for social services but NG resources for welfare and expansionary expenditures are limited

Draft: 30 March 2010 Page 2 of 11

MEDIUM-TERM LGU POLICY LOGFRAME, 2010-2016 Design Assumptions Summary and Risks Performance Data Sources and/or Targets and/or Reporting Indicators Mechanisms Impact __% decline in poverty NSO, NSCB, DOH, UN Assumptions incidence by 2016. Delivery of Central Government Social Welfare and Goods and Services are Poverty Reduction at the ___% increase in average improved. Local Level is improved. life expectancy by 2016. No major national calamities or ___% decrease in infant natural disasters in the next five mortality by 2016. years.

___% increase in the Risks Human Development

Index by 2016. Another financial crisis occurs in the next 5 years.

Bad weather may cause reduction in agricultural growth.

(Note: Outcome + Assumptions and Risks contribute to Impact) Outcome NSO, NSCB, DILG, DBM, Assumptions ___ % increase in local DOF, COA, NEDA Delivery of Public Goods spending In health Oversight agencies and LGUs and Services at the Local services in 70% of all through LGU Leagues are Level is enhanced. provinces, cities and supportive of the reform agenda municipalities by 2016. and monitor carefully reform progress. ____% increase in local spending in road Majority of LGUs are open to infrastructure in 70% of all having their performance provinces, cities and monitored. municipalities by 2016. NG provides incentives for good ___%increase in local fiscal and expenditure spending for other public performance. infrastructure in 70% of all provinces, cities and Risks municipalities by 2016.

Incentives for good behavior ____% increase in local insufficient to encourage LGUs education spending in all due to lack of available provinces, cities, and resources at the national level. municipalities by 2016.

(Note: Outputs + Assumptions ___% increase in local and Risks = Outcome) spending in all provinces, cities and municipalities for environmental projects by 2016.

___provinces, cities and municipalities passing environmental measures by 2016.

___%increase in spending in all provinces, cities and Draft: 30 March 2010 Page 3 of 11

municipalities for economic services by 2016.

Outputs/Sub- NSO, NSCB, DILG, DBM, Assumptions Outputs DOF, COA, NEDA, HOR, Senate Roll-out of capacity building is timely provided by oversight 1. Increased resources Executive Issuances agencies. and access to Departmental issuances. financing for Local Appropriate Legislation Resources are available for Government Units. (Republic Act) capacity building.

1.1 Efficient, timely, ___%increase in business Executive and Legislature is complete, and tax revenues in all supportive of policy reforms. transparent release provinces, cities and of municipalities by 2016. intergovernmental Risks fiscal transfers – ____%increase in real IRA, Special property tax revenues in Legislature may not prioritize Shares, PDF, and all provinces, cities and LGU reform agenda. Grants. municipalities by 2016. 1.2 Improved revenues Localized calamities and/or from local taxes ___%increase in revenues disasters may place undue and user charges. from economic enterprises burden on available resources 1.3 Increased revenues in all provinces, cities, and for rescue and rehabilitation. from economic municipalities by 2016. enterprises and other non-tax ___% increase in the sources. number of provinces, (Note: Inputs/Activities + 1.4 Improved access to cities and municipalities credit financing. Assumptions and Risks = accessing credit and non- Outputs) 1.5 Improved access to traditional credit financing non-traditional by 2016. credit financing. 1.6 Improved access to __%increase in the grants and ODA. number of provinces and municipalities with access to grants and ODA by 2016.

2. Efficient, effective and Executive Issuances, transparent planning, Departmental issuances. financial, budget and Appropriate Legislation. expenditure management ___% decrease in COA cases by 2016. 2.1 Efficient and transparent ___% of provinces, cities financial and municipalities management and submitting CDP and reporting CLUP consistent local 2.2. Effective, plans by 2016. responsive, transparent and ___% of all provinces, rationalized cities, and municipalities planning and planning, budgets and budgeting. expenditures consistent 2.3 Efficient and by 2016. transparent expenditure ____% of all provinces, management. cities and municipalities 2.4 Effective and submitting regular data to transparent local the LGPMS for at least 3 Draft: 30 March 2010 Page 4 of 11

performance years by 2016. management and monitoring. ___% of all provinces, cities and municipalities with actively maintained local database management systems for planning and performance monitoring.

___% of all provinces, cities and municipalities with CBMS by 2016.

___% of all provinces, cities and municipalities conducting annual service delivery performance surveys at the barangay- level by 2016.

3. Efficient, responsive and Executive Issuances, accountable local Departmental issuances. administration. Appropriate Legislation.

3.1. Efficient, ___% decrease in cases capacitated, filed by the Ombudsman incentivized and for local executives. professionalized local bureaucracy. ___% of all treasurers 3.2. Efficient, timely, passing BLGF transparent, competency exams by responsive, 2016. business-friendly and performance- Assessors in ___% of measurable provinces, cities and bureaucratic municipalities passed processes. accreditation exams by 2016.

___ provinces, cities and municipalities implementing business- friendly measures.

___ provinces, cities and municipalities utilizing service delivery contracts and customer service surveys by 2106. 4. Rationalized and time- bound process of fiscal Executive Issuances, decentralization. Departmental issuances. Appropriate Legislation. 4.1 Rationalized Studies completed. process of Multi-sectoral devolving functions consultations conducted and adequate and agreements reached resources and and documented. revenue generating powers based on ___ LGUs pilot-tested for local capacities. phased decentralization 4.2 Realistic time-table by 2016. for devolving functions and resources to appropriate LGU Draft: 30 March 2010 Page 5 of 11

levels. 4.3 Accurate monitoring and measurement of the impact and performance of devolving functions and resources.

Inputs/Activities Responsible Agencies/Resources 1.1.1. Drafting and issuance of IRRs and Joint Memorandum Circulars between DBM, BIR, DILG, DENR, MGB, DBM and concerned agencies for the LGUs special shares harmonizing and DA, DOE. streamlining the procedures and schedules for the submission of information for the computation and release of the LGUs special shares. (PC/PR) 1.1.2. Reconsider the target date for the submission of the estimates (i.e., between DBM March 15 and May 15) and adopt a common date as suited within the DBM budget preparation timeframe.(PC) 1.1.3. Review and revise policy to allow barangays where the income for the DILG special share is being generated a portion of the mother LGU’s share and include these barangays in the DILG Master List. (PR/PC) 1.1.4. Widely disseminate, especially to central government sub-units, the basic DBM, LMB, DILG, NSO data and information used in the computation of the shares, besides the DILG Master List of LGUs, the NSO Census of Population adopted under a Proclamation Order and the LMB Certified Master List of Land Area. If necessary, issue a memorandum of understanding to institutionalize this arrangement. (PC) 1.1.5. Disallow the use of unofficial sources for the computation of the special DBM shares. (PR/PC) 1.1.6. Provide in the annual National Expenditure Program an amount under the DBM Allocation to Local Government Units based on the robust estimates submitted by the revenue collecting agencies for the particular special share: BIR, for mining taxes; DOE, for energy resources production; DENR, for forest charges; and MGB, for royalties from mineral products for the share from the utilization and development of national wealth; and other collecting agencies concerned, for the Tobacco Excise Tax, Ecozones, VAT, Franchise Tax, as well as taxes from mini-hydroelectric power developers. (PC) 1.1.7. Avoid giving preliminary or unofficial information to the, as there is always DBM the possibility that the advance information given to the LGUs would not match the figures finally released. (PC) 1.1.8. Coordinate with the LGUs and other key agencies (e.g., BIR) for the DBM, LGU Leagues, BIR information needed to compute problematic special shares such as the incremental VAT. (PC) 1.1.9. Apply the policy on the programming of funds for the release of LGU shares DBM, OP to the shares from this tax in order to avoid the additional step of getting a referral from the OP. (PC) 1.1.10. Provide or disseminate information on the established policy for the DBM prioritization of the arrearages (aging, type of special share) before the releases were made , including to LGUs with claims for the years immediately after the issuance of the LGC or for those years before the issuance of the pertinent implementing guidelines. (PC) 1.1.11. Clarify the role of the Regional Offices in processing of the release DBM documents. DBM ROCS shall continue consolidating and integrating the regional dimensions of the special shares for prioritizing/programming purposes. It shall be responsible for preparing the instruments in seeking clearance/approval for the release where needed. It should not, however, involve itself, and by extension the DBM ROs, in the computation of the shares, but rather leave this to the collecting agencies as their full responsibility. (PC) 1.1.12. Determine the shortest time it would be able to process the release of the DBM shares to the LGUs. As an alternative, a schedule could be agreed upon among the agencies concerned, as to when all of the needed documentation can be submitted to DBM for a one time processing and release. (PC)

1.2.1. 1.3.1. Adoption of the oversight agencies (DBM, DOF/ BLGF, DILG, NEDA) of a DILG, DBM, DOF, BLGF, NEDA Draft: 30 March 2010 Page 6 of 11

common definition of the term “local economic enterprise” emphasizing enterprise dimension. In this regard, the definition of Jones (1982) and the World Bank (1995) may be adopted: LEEs are local government owned economic entities that generate the bulk of their revenues from selling goods and services. (PR) 1.3.2. Establish a clearer and more comprehensive policy framework to govern the DILG, DBM, BLGF, NEDA creation of new LEEs. Although, many of the elements of the existing framework will still be part of the new framework, a number of new features will have to be put in place. First, the new policy framework should be anchored on the basic principle that LGUs need to focus on their core functions and premised on the superiority of private-sector led development unless a strong case can be made for government intervention. Second, the new policy framework should also provide LGUs guidance on the criteria that they may use in analyzing the advantages/ disadvantages of using external organizations to deliver public services as opposed to direct service delivery by the LGU itself. Third, the new policy framework should reiterate and re-emphasize the importance of the maintenance of special accounts for LEEs as prescribed by the COA under the NGAS. (PR) 1.3.3. Conduct an information dissemination/ advocacy campaign targeted to LGU DILG and oversight agencies officials in order to generate better appreciation and understanding of the new policy framework for LEEs. (PW) 1.3.4. Develop a policy framework to govern the exercise of LGU’s corporate DILG powers by conducting the following activities: (PW) o Review existing policies on LGUs’ exercise of corporate powers o Identify areas of reform o Organize consultative workshops o Formulate appropriate policies o Review and approve proposed policies by the Coordinating Council for LGU Corporate Powers (CCLCP) o Issue appropriate guidelines by BLGD-DILG (for policies that can be promulgated through Administrative Issuances).

Draft the proposed legislation for policies that would need o Congressional Action.

DILG, NEDA, DOF, DBM, DTI, 1.3.5. Create and institutionalize the Coordinating Council for LGU Corporate DOJ, DA, TESDA, ULAP, PCCI Powers (CCLCP). (PR)

1.3.6. Enhance LGU capabilities in the proper exercise of their corporate powers LGA through the following activities: (PW)

Conduct surveys to determine/identify training needs on local o enterprise management and ,public-private partnerships

o Develop the training design and appropriate capacity building interventions o Develop and print training materials o Conduct Central Office (CO) and Regional Office (RO) staff training workshop on LGUs’ corporate powers o Implement RO roll-out to provinces and cities o Develop orientation and promotional materials on LGUs’ corporate powers for municipalities o Implement Roll-out to municipalities (c/o LGU) o Document and compile best practices/models in LGUs’ exercise of corporate powers (“Kaban Galing” and “Galing Pook”) o Replicate best practices/models in LGUs’ exercise of corporate powers–Good Governance-Facility for Adoption and Replication (GO- FAR)–through mentoring and coaching in collaboration with OPDS [P500,000 per model]

1.3.7.

1.4.1. Study why LGUs in some regions have much fewer loans. Is it a matter of DILG, DOF, NEDA preference or need (demand factors) or lack of access or accessibility (supply limitations)? (PW) 1.4.2. Simplify loan eligibility requirements and streamline loan approval process DOF, MDFO, DILG and develop templates for on-lending facilities of the GFIs to reduce project development costs. (PR) 1.4.3. Clarify NG policy on the role of private sector financing for LGUs. (PW/PR) DOF Draft: 30 March 2010 Page 7 of 11

1.4.4. Conduct programs that would develop capacity at the LGU level to prepare BLGF, DILG and operate projects that would be suitable for ODA and for commercial financing. (PW) 1.4.5. Strengthen MDFO’s operational capacity to support LGU financing by DOF approving the proposal to make it an ‘Attached Agency’ of DOF and approving its rationalization plan. (PW/PR) 1.4.6. Set up an MDFO website for greater transparency and to widen the reach of MDFO the facility. (PW) 1.4.7. Evaluate the NG-LGU cost sharing policy, pilot-test the performance-based DOF, NEDA, DBM, DILG, incentive policy and finalize design of the performance-based grant system NEDA which should include third-party assessments of performance and creditworthiness of the LGU borrower. (PR) 1.4.8. Enjoin MDFO to continue initiatives for mobilizing private capital for LGU MDFO projects. (PC) 1.4.9. Require BLGF and DILG to enhance initiatives for disseminating BLGF, DILG information about LGUs’ creditworthiness and achievements. (PW) 1.4.10. Simplify loan eligibility requirements and streamline loan approval process MDFO and develop templates for on-lending facilities of the MDFO to reduce project development costs. (PC) 1.4.11. Facilitate the availability of a pool of consultants who can assist LGUs in MDFO preparing application requirements for MDFO project loans. (PW)

1.5.1. Study and implement policies to re-invigorate the LGU bond market. DOF (PW/PR) 1.5.2. Implement the program for sub-sovereign lending – Executive Order 809. DOF (PR) 1.5.3. Design and implement a project development and financing framework for DOF, BLGF, MDFO, DILG LGUs intending to exercise their corporate powers which have but are not limited to the following features: (PW) o Assist in packaging proposed LEEs for possible funding o Provide technical assistance in project identification, pre-feasibility study, and assessment of both financial and technical viability o Assist LGUs in identifying various options for the operation of LEEs o Assist LGUs in identifying appropriate options for financing and service delivery under the principle of public-private partnership o Document good practices on LGUs’ exercise of corporate powers in collaboration with LGA o Replicate models on LGUs’ exercise of corporate powers in collaboration with LGA [P500,000 per model as per GO-FAR].

Commission a corporate lawyer/consultant to draw a legal roadmap on o how to engage in public-private partnership on certain LGU service

deliveries

1.5.4. Establish the LGU Corporate Powers Challenge Fund with a capitalization of DOF, DBM, DILG, MDFO P300 million where 10% would be used for capacity building and 90% as a grant. (PR)

1.6.1. Review the pricing of ODA funds provided to GFIs including whether GFIs DOF, NEDA should bear the foreign exchange risk. (PR) 1.6.2. Finance income-generating projects of LGUs with the internal funds of the DOF GFIs and even by the PFIs and study whether donor funds should still be used for these projects. (PR) 1.6.3. Clarify government policy on the use of ODA for LGUs towards complementing NG and private sector resources instead of competing. (PR) DOF, NEDA 1.6.4. Develop and implement a policy where concessional ODA is directed DOF, NEDA towards the sectors that need it most. (PR) 1.6.5. Ask the donors to design and program projects that would leverage ODA DOF, NEDA, DILG funds destined for LGUs with domestic commercial financing. (PR) 1.6.6. Issue and implement a policy where for projects requiring longer term DOF financing, where PFIs or other commercial finance is potentially available (perhaps with the support of MDFO or LGUGC), GFIs and other government lending institutions should not use ODA funds to compete with these private funding. (PR) 1.6.7. Issue and implement a policy which would require that ODA funds will not be DOF, NEDA used for projects that require financing for ten (10) years of less in order not Draft: 30 March 2010 Page 8 of 11

to compete with the private sector. (PR) 1.6.8. Issue and implement a policy that even where there is no commercial DOF, NEDA financing interest in longer term LGU projects, ODA project design should seek to leverage the internal funds of GFIs and other government lending institutions and to allow the LGU borrowers to benefit as much as possible from the long tenor of ODA funds. (PR) 1.6.9. Rationalize grants and lending facilities in order to avoid unwanted DOF, NEDA competition with private sources. (PR) 1.6.10. Conduct programs that would develop capacity at the LGU level to prepare BLGF, DILG and operate projects that would be suitable for ODA and for commercial financing. (PW) 1.6.11. Establish a monitoring system between NEDA, DILG, and DOF for ODA- NEDA, DOF, DILG funded local government projects. (PC) 1.6.12. Promote PDAF and CIs as budgetary sources for local projects. (PR) BLGF, DILG, NEDA 1.6.13. Encourage LGU participation in Regional Development Councils. (PC) NEDA 1.6.14. Facilitate the representation of or invite LGUs to observe and/or participate NEDA in bilateral and multilateral donor consultations on country programming. (PC)

2.1.1. Implement a training module on revenue mobilization developed under ADB BLGF TA 4778. (PW) 2.1.2. Improve LGU capacity in operating LEEs in the following areas: (PW) BLGF, DILG evaluating alternative modes of public-private partnerships evaluating when to create new LEEs or when to continue operations of existing ones drafting of ordinances for the creation of new LEEs including formulation of subvention policy improving LEE operations ¾ development/ evaluation of feasibility studies, especially forecasting of demand ¾ tariff setting ¾ collection procedures and systems ¾ evaluating alternative organizational structures for the management and monitoring of LEEs conduct of periodic review of existing LEEs evaluating alternative divestment modes. 2.1.3. Increase technical and concessional financial assistance to improve revenue BLGF, DILG generation and project prioritization and preparation. (PW)

2.2.1. Divide the budget into three parts. Part 1 will show the income estimates DBM and spending proposals (including subsidy to LEE) for the General Fund Proper. Part 2 will show the income estimate and spending proposal for the LEE. This implies that Sanggunian authorization for LEE spending is required. Part 3 will show the consolidation of Parts 1 and 2. This budget format is not only more transparent than current practice, it also provides incentives for LEE managers to improve their collections since they are better able to isolate their earnings from the rest of the General Fund Proper. (PR) 2.2.2. Implement simple spreadsheet models for cash flow forecasting and cash DBM flow analysis have been developed by Manasan (2006). Two, establish benchmarks against which LGUs can compare the results of their cash flow forecasts and cash flow analysis to aid their decision making process as to the timing of the release of reserves, revisiting the revenue generation strategies of the LGU, and revising the methodology for revenue forecasting. Three, provide guidance on what steps LGUs need to take in the event of an impending fiscal deficit. For example, is there need for Sanggunian action or resolution authorizing the local chief executive to reduce allotments without need for further consultation with the Sanggunian once it is established that actual revenues for the fiscal year will be lower than the estimates of income that were used in preparing the budget? Are the existing guidelines pertaining to the allotment system not enough to address this problem? (PW) 2.2.3. Develop and implement approaches to forecasting the amount available for DBM appropriation in the current year so that this estimate can be included in the preparation of the budget for the incoming year. These approaches would involve the close monitoring of cash flows and utilization/ obligation of appropriations and allotments which are prescribed in the UBOM and the Draft: 30 March 2010 Page 9 of 11

NGAS even now. Implement simple spreadsheet models for cash flow forecasting and cash flow analysis have been developed by Manasan (2006). (PW) 2.2.4. Establish benchmarks against which LGUs can compare the results of their DBM cash flow forecasts and cash flow analysis to aid their decision making process as to the timing of the release of reserves, revisiting the revenue generation strategies of the LGU, and revising the methodology for revenue forecasting. Three, provide guidance on what steps LGUs need to take in the event of an impending fiscal deficit. For example, is there need for Sanggunian action or resolution authorizing the local chief executive to reduce allotments without need for further consultation with the Sanggunian once it is established that actual revenues for the fiscal year will be lower than the estimates of income that were used in preparing the budget? Are the existing guidelines pertaining to the allotment system not enough to address this problem? (PC) 2.2.5. Develop and disseminate a handbook to complement the UBOM. The DBM handbook should aim (i) to communicate a policy framework for LGU budgeting that is anchored on the basic principles of public expenditure management, and (ii) to provide LGUs with tools and techniques that will help them incorporate these tenets in their budget processes. (PW)

2.3.1. Enhance the efficiency and effectiveness of the utilization of the SEF by DBM improving the existing guidelines that govern SEF allocation. Corrective action/s in this regard may a “rules-based” approach. It involves the joint issuance by the DBM, DepEd and DILG of new guidelines containing either a positive list of type of expenditure items that may be charged against the SEF or a negative list of expenditure items that are not allowed to be charged against the SEF. Alternatively, the new guidelines may contain both a positive list and a negative list of expenditure items. (PW) 2.3.2. Establish a clearer connection between the various instruments and DBM protocols in the BEIS and the BESRA like the teacher deployment analysis and the school improvement plan, on the one hand, and LSB allocation process, on the other hand. (PC) 2.3.3. Re-think DepEd representation in the municipal school boards (MSBs) and DBM, DepEd expand the LSB membership to include NGOs, business chambers, and private schools as non-voting members has been found to beneficial in terms of expanding the pool of allies and advocates, in tapping expertise available outside of the traditional LSB membership, and in securing additional resources for the schools. Include the local budget officer in the LSB will ensure a more symmetrical treatment of the SEF relative to the General Fund and consequently budget execution. This will help promote better financial management in the utilization of the SEF.(PR) 2.3.4. Delineate the line that separate school sports and physical fitness from DBM, DepEd sports development/ sports competition. This clarification is needed because many division superintendents and district supervisors interpret the provisions of the LGC to mean that participation in the barangay, district, division, regional and national level of the Palarong Pambansa should be one of the priorities of the SEF especially in the light of schools’ continued mandate from the DepEd to participate in the Palaro Pambansa but with little or no budgetary support from the central government. (PR) 2.3.5. Given the existing policy on centralized textbook procurement, de-list DBM, DepEd textbooks from the list of expenditure items chargeable against the SEF. (PR) 2.3.6. Retain the favourable treatment given to the personal services spending of DBM, DILG LEEs as provided under Section 325 (a). But limit its application to LEEs which are created by ordinance and which have well articulated policies on cost recovery. (PR) 2.3.7.

2.4.1. Include in the fiscal performance indicators in the Local Governance BLGS Performance Management System the current fiscal balance as a measure of LGU savings and its contribution to the pool of resources that is available for investment. This measure can be read off easily from the COA Statement of Cash Flows. (PC) 2.4.2. Develop objective measures for the performance of LGUs in the exercise of BLGD their corporate powers through the following activities: (PW)

Draft: 30 March 2010 Page 10 of 11

o Develop performance indicators on LGUs’ exercise of corporate powers o Establish performance standards for LEEs (benchmarking) o Monitor LGU performance against the indicators o Monitor LGU compliance with DILG guidelines on LGUs’ exercise of corporate powers o Summarize findings for management purposes

3.1.1. Review and define model organizational structures for LGUs with DILG, LGU Leagues corresponding staffing pattern (by level and by income class) with the amended model organization structures should be indicative rather than prescriptive. The model staffing patterns may indicate minimum and maximum number and level of positions for each LGU level and income class. There is also a need to establish criteria and/ or benchmarks that LGUs can refer to in deciding on the staffing pattern that is appropriate for their particular situation. Fixed-term employment contracts may then be considered for personnel who are focused on the delivery of the priorities of the current administration but which are not part of the core mandates of the LGU. The tenure of department heads and heads of the various offices may also have to be revisited, weighing the trade-off between the need for personnel who have the full trust and confidence of the LCE, on the one hand, and the need to promote continuity in public administration at the local level, on the other hand. (PW) 3.1.2. Provide a wage that will be commensurate to the work required and DBM, DILG, CSC motivating for a public servant. (PR) 3.1.3. Retain the PS cap. This recommendation is anchored on the premise that DBM service delivery requires a mix of both wage and non-wage spending. If spending is too skewed in favor of personal services, service delivery suffers because of the squeeze on supplies, travel and other resources that are needed to complement personnel resources as well as local public infrastructure needed for local economic development. (PR) 3.1.4. Allow the LGUs the discretion to choose any which one of the eight DBM, CSC, DILG alternative salary schedules which is provided in Section 10 of RA 6758 and what they think is best suited to their particular situation guided by their fiscal capacity and subject to their complying strictly with the PS cap. In line with this, it is also recommend that most if not all of the waivers to the application of the PS cap be eliminated. The presence of these waivers seriously undermines fiscal discipline. (PR) 3.1.5. Revisit the parameters that form the basis for assigning different salary DBM, CSC, DILG grades for higher level positions in LGUs of different income class and different levels. (PW) 3.1.6. Coordinate the implementation of benefits under various Magna Carta DBM, CSC, DILG legislations with implementation of the overall compensation structure of government, especially under SSL3. Congress should revisit the desirability of grant of Magna Carta-type MC benefits to all government employees instead of special groups only. The desire to provide higher pay to public health workers, particularly doctors and nurses, who are deemed to be underpaid relative to the demand for their services in the local as well as foreign labor markets is understandable. This concern might be addressed better by adjusting the salary grades that currently assigned to these positions instead of providing blanket salary top-ups to all PHWs. Moreover, the experience with the implementation Magna Carta of PHWs shows that legislation of this type can be counterproductive. (PW) 3.1.7. Discontinue the practice of granting additional/ extra year-end benefits DBM subject to the availability of funds at the level of the operating unit as the budget year is about to come to a close in order to improve public expenditure management at the local level. (PR) 3.1.8. Amend the pertinent section of the LGC to disallow the grant of additional DBM allowances and benefits to national government officials. This provision puts undue pressure on LGUs to provide such allowances at the expense of local service delivery. (PR) 3.1.9. Conduct programs that would develop capacity at the LGU level to prepare DILG, BLGF and operate projects that would be suitable for ODA and for commercial financing. (PW) 3.1.10. Forge a partnership between the DILG’s Local Government Academy and LGA, DILG other training institutions to ensure accessibility of training services. (PW) Draft: 30 March 2010 Page 11 of 11

3.2.1. 4.1.1. 4.2.1. 4.3.1.

Notes:

PC - Procedural Changes PR - Policy Reform PW - Preparatory Work

BIR - Bureau of Internal Revenue BLGD - Bureau of Local Government Development BLGF - Bureau of Local Government Finance BLGS - Bureau of Local Government Supervision DA - Department of Agriculture DBM - Department of Budget and Management DENR - Department of the Environment and Natural Resources DepEd - Department of Education DILG - Department of the Interior and Local Government DOE - Department of Energy DOF - Department of Finance DOJ - Department of Justice DTI - Department of Trade and Industry COA - Commission on Audit CSC - Civil Service Commission LnB - Liga ng mga Barangay LCP - League of Cities of the Philippines LGA - Local Government Academy LMB - Land Management Bureau LMP - League of Municipalities of the Philippines LPP - League of Provinces of the Philippines MDFO - Municipal Development Fund Office MGB - Mines and Geosciences Bureau NEDA - National Economic and Development Authority NSCB - National Statistics Coordinating Board NSO - National Statistics Office PCCI - Philippine Chamber of Commerce and Industry TESDA - Technical Education and Skills Development Authority ULAP - Union of Local Authorities of the Philippines

LGU Leagues - LPP, LMP, LCP, LnB, ULAP

PolicyPolicy BriefBrief PreparationPreparation Coordinating Committee on Decentralization

Aser B. Javier, PhD

What is a Policy Brief?

A policy brief is a written document and a position paper that clearly state the position or opinion of an organization (or a coalition of organizations) about a particular issue.

Source: William Dunn, Public Policy Analysis: An Introduction Public Policy Analysis Framework

Problem Identification Policy Review Policy Recommendation Problems confronting What are the prior efforts Which among the the organization made to solve the policy alternatives may best solve problem the problem?

Policy Testing Policy Alternatives Policy Stakeholders Is the problem defined a What are the pertinent What are roles of the a strategic policy? courses of action that stakeholders identified in maybe taken? the policy recommendation?

Step 1: Step 2: Step 3: Problem Definition Alternatives Generation Policy Agenda Setting

Policy Identification Source: An adaptation from the Local Government Resource Handbook, October 2000

• What are the issues confronting the organization? What's wrong? • Who considers this to be an issue? • What are the consequences of not addressing this issue? Policy Problem Testing Worksheet Policy problem:

When How broad What How Will Will What level will this of an impact will sensitive solution solution of issue impact will this issue is the require require manag confront these have on policy improve major ement can the office? issues the issue ments in facility have on office’s relative staff constructi the 1.Immediat issue e the office? financial to the compete on/ be 2.next year 1.Entire resources environm ncy? renovatio DILG resolv 3.three ? 1.Major, ent? 1.Yes n? 2.Division/Bur 2.Moderate, ed? years from 1.Major, 2.No 1.Yes eau 3.Minor 2.Moderate 1.Secretary 2.No now? 3. Single unit, , 3.Minor 2.Director 3.Chief

Divide total score by 7. Those issues between 1-1.25 are strategic policy issues.

Pre‐Existing Policy

•Reviews the existing policies that was intended to solve the policy problem • Summarizes what has been done by the others and the client organization to solve the policy problem Policy Alternatives Source: An adaptation from the Local Government Resource Handbook, October 2000

1. What are the practical alternatives the organization might pursue to address this policy issue?

2. What are the barriers to the realization of these policy alternatives?

3. What are the major proposals to achieve the alternatives or overcome the barriers?

Steps in Identifying Policy Alternatives 1.It is the development of pertinent and acceptable proposed courses of actions for dealing with public problems. 2.It asks two major questions: (1) what should be done about a problem? (2) How should the activities, proposed courses of action agreed‐upon principles or statements drafted? Elements of a Policy Brief Source: An adaptation from Prof. Tsai, 2005 and W. Dunn, Public Policy Analysis: An Introduction

Elements of a Content Guide Questions Policy Brief 1.Background 1. Contains the 1. Are the dimensions of the description of the of the Problem problematic problematic situation, the situation outcomes of prior described? efforts to resolve 2. Have outcomes of the problem. prior 2. Contains essential efforts/policy to facts a decision resolve the maker needs to problems know. described?

Elements of a Policy Brief Source: An adaptation from Prof. Tsai, 2005 and W. Dunn, Public Policy Analysis: An Introduction

Elements of a Content Guide Questions Policy Brief 2. Problem/ Problem statements refer 1. Is the problem Issue to a "problem" to be clearly stated? Statement solved. 2. Are goals clearly 1. A concise statement of specified? the question that your 4. Are all major policy tackles; stakeholders 2. Justification, by direct identified reference to the 5. Is the problematic previous section, that situations your question is analyzed? previously unanswered Elements of a Policy Brief Source: An adaptation from Prof. Tsai, 2005 and W. Dunn, Public Policy Analysis: An Introduction

Elements of a Content Guide Questions Policy Brief 3. Pre existing 1. Summarizes what 1. What are the Policies has been done by the interventions others and the client made and what organization. are the actions 2. The objective is to pursued? inform the readers that policy options have already been pursued, if any.

Elements of a Policy Brief Source: An adaptation from Prof. Tsai, 2005 and W. Dunn, Public Policy Analysis: An Introduction Elements of a Content Guide Questions Policy Brief 4. Policy 1. This part of the policy 1. Are alternative policy Alternatives paper is to convince solutions described the decision makers and specified? that you answered or 2. Are all relevant solved the problem. constraints taken 2. This part delineates the into account? possible courses of 3. Are possible action the client consequences taken organization may take. into account? 4. Are strategies laid out to solve the problem? Elements of a Policy Brief Source: An adaptation from Prof. Tsai, 2005 and W. Dunn, Public Policy Analysis: An Introduction

Elements of a Content Guide Questions Policy Brief 5. 1. This part contains the 1. Who are the Stakeholders identification of the affected parties stakeholders to be of your policy? affected by your policy

Guide to Writing Policy Briefs

Objectives: Capacitate the DILG Policy Group to act as CCD Technical Secretariat to develop policy brief /papers on decentralization and local governance to serve as background papers for deliberation during CCD meetings.

Number of Major Sections Suggested Contents Pages Describes what is the policy problem and the general scope of problem the researcher is interested in i.e. decentralization issues in the local government A. Background of the units. This section contains the essential facts how the policy problem came 2 paragraphs Policy problem about and the decision maker needs to know about the policy problem and situation. B. Problem What is the problem related to the theme is the researcher/ author trying to solve? 2 paragraphs Statement These are the issues and concerns that the local government unit or the DILG and other concerned institution are facing given their scope and mandate, relative to the problem. This section contains the direct description of the problematic situation. What are the policies or prior efforts that have been made to solve the problem. C. Review of Pre- What is the analysis of the researcher on the policies that have been made? 3 paragraphs existing Policies This section should match the objectives and the problem statement. D. Policy Alternatives What are the possible solutions to the problem, as perceived by the researcher? 1 page What is/are the proposed solution(s) to the issue(s) and concern(s)? Factor(s) for selecting the said solution(s) over the others? What are the results of the study? This section should ANSWER the objectives and the problem statement. E. Concerned Who are the major actors in coming up and finalizing the solution? What are the 1 paragraph Stakeholders roles (regulation, facilitation, enabling, direct provision, etc) of these actors? This section describes the stakeholders roles and their point of integration relative to the LGUs and the researchers’ viewpoint? 9 Functions of a Secretariat 9 Preparing Minutes of the Meeting 9 Agenda Setting

Functions of a Secretariat

Technical

Administrative

1 Functions of a Secretariat

Technical

Support to meetings Preparation of the minutes Agenda setting Preparation of technical documents for the agenda folder

Implementation of the decisions of the CCD Monitoring/tracking of agreements during meetings Coordination and monitoring of CCD Workplan

Functions of a Secretariat

Technical

Initiation of studies and research related to programmes for the most appropriate, expeditious and efficient ways of achieving the objectives of the CCD

2 Functions of a Secretariat

Administrative

Logistical Support

Word processing, filing and telephone/fax services

Preparation (compilation and packaging) of agenda folders

Preparing Minutes of the Meeting

Proposed Template

3 Preparing Minutes of the Meeting

Some Pointers For Processing Information

Difficulty funneling information or discussions? Write down everythingÆ sort, right after the meeting.

Always take the cue from the chairman especially for the agreements.

Anything the chairman picks up for discussion should be reflected in the minutes.

Preparing Minutes of the Meeting Some Pointers For Processing Information

There are discussions that should not be explicitly noted in the minutes

For tracking/monitoring assignments, state in positive tone non compliance of members.

Matters Arising from Previous Meeting cover items that may need follow through discussions or activities and should be included in the activities that the secretariat should monitor or undertake.

4 Preparing Minutes of the Meeting

Some Pointers Use the agenda as guide or outline in taking down notes. Do not discard notes, even marginal notes on papers until the minutes have been approved. Set your own envelope for each meeting. Use tapes, or electronic recorders as back up.

Agenda Setting

How do you go about identifying the list of items for the agenda for the CCD meetings? • Minutes of the meeting • CCD Workplan • Policy dialogue group specifically the oversight agency technical working group and the local government dialogue partners • Directions from the Chairman

5 PROPOSED LGU MEDIUM‐ TERM LOGFRAME, 2010‐2016 ADB TA 7019‐PHI

1 REVISED VERSION: 3 0 MARCH 2010

LOGFRAME STRUCUTURE

IMPACT

Assumption Risks s OUTCOME

Assumptions Risks

OUTPUTS

Assumption Risks s INPUTS/ ACTIVITIES

2 REVISED VERSION: 30 MARCH 2010 SHORT TO MEDIUM‐TERM SCENARIO

A. Economic: y y Slow economic recovery due to uncertain pace of world recovery and fragile fiscal condition preventing a more vigorous government stimulus program to push economic growth: y ¾ Protectionist tendencies in industrial countries with slow employment recovery ¾ High cost of international finance ¾ Very competitive conditions ¾ Wait‐and‐see attitude of investors in 2010 y y Mixed prospects for regions y ¾ Export‐dependent regions and provinces (e.g. NCR, Regions 3, 4A and 7) on the recovery track ¾ Agriculture‐dependent areas plagued by drought and possibly La Nina; face issues related to AFTA implementation and sluggish demand for sugar

3 REVISED VERSION: 30 MARCH 2010

SHORT TO MEDIUM‐TERM SCENARIO

B. Social

y Worsening poverty due to poor agriculture performance

y Increasing pressure for social services but NG resources for welfare and expansionary expenditures are limited

4 REVISED VERSION: 30 MARCH 2010 IMPACT y Social Welfare and Reduced Poverty at the Local Level is improved. Assumptions ¾ Delivery of Central Government Goods and Services are improved. ¾ No major national calamities or natural disasters in the next five years. Risks ¾ Another financial crisis occurs in the next 5 years. ¾ Bad weather may cause reduction in agricultural growth.

5 REVISED VERSION: 30 MARCH 2010

IMPACT : PROPOSED INDICATORS

__% decline in poverty incidence by 2016. ___% increase in average life expectancy by 2016. ___% decrease in infant mortality by 2016. ___% increase in the Human Development Index by 2016.

6 REVISED VERSION: 30 MARCH 2010 OUTCOME y Delivery of Public Goods and Services at the Local Level is enhanced. Assumptions ¾ Oversight agencies and LGUs through LGU Leagues are supportive of the reform agenda and monitor carefully reform progress. ¾ Majority of LGUs are open to having their performance monitored. ¾ NG provides incentives for good fiscal and expenditure performance.

Risks ¾ Incentives for good behavior insufficient to encourage LGUs due to lack of available resources at the national level.

7 REVISED VERSION: 30 MARCH 2010

OUTCOME: PROPOSED INDICATORS

___ % increase in local spending In health services in 70% of all provinces, cities and municipalities by 2016. ____% increase in local spending in road infrastructure in 70% of all provinces, cities and municipalities by 2016. ___% increase in local spending for other public infrastructure in 70% of all provinces, cities and municipalities by 2016. ____% increase in local education spending in all provinces, cities, and municipalities by 2016. ___% increase in local spending in all provinces, cities and municipalities for environmental projects by 2016. ___provinces, cities and municipalities passing environmental measures by 2016. ___% increase in spending in all provinces, cities and municipalities for economic services by 2016.

8 REVISED VERSION: 30 MARCH 2010 OUTPUTS/SUB‐OUTPUTS

1. Increased resources and access to financing for Local Government Units. a. Efficient, timely, complete, and transparent release of intergovernmental fiscal transfers –IRA, Special Shares, PDF, and Grants. b. Improved revenues from local taxes and user charges. c. Increased revenues from economic enterprises and other non‐tax sources. d. Improved access to credit financing. e. Improved access to non‐traditional credit financing. f. Improved access to grants and ODA.

9 REVISED VERSION: 30 MARCH 2010

OUTPUT 1: PROPOSED INDICATORS

Executive Issuances Departmental issuances. Appropriate Legislation (Republic Act) ___% increase in business tax revenues in all provinces, cities and municipalities by 2016. ____% increase in real property tax revenues in all provinces, cities and municipalities by 2016. ___% increase in revenues from economic enterprises in all provinces, cities, and municipalities by 2016. ___% increase in the number of provinces, cities and municipalities accessing credit and non‐traditional credit financing by 2016. __% increase in the number of provinces and municipalities with access to grants and ODA by 2016.

10 REVISED VERSION: 30 MARCH 2010 OUTPUTS/SUB‐OUTPUTS

2. Efficient, effective and transparent planning, financial, budget and expenditure management a. Efficient and transparent financial management and reporting b. Effective, responsive, transparent and rationalized planning and budgeting. c. Efficient and transparent expenditure management. d. Effective and transparent local performance management and monitoring.

11 REVISED VERSION: 30 MARCH 2010

OUTPUT 2: PROPOSED INDICATORS

Executive Issuances, Departmental issuances. Appropriate Legislation. ___% decrease in COA cases by 2016. ___% of all provinces, cities and municipalities submitting CDP and CLUP consistent local plans by 2016. ___% of all provinces, cities, and municipalities planning, budgets and expenditures consistent by 2016. ____% of all provinces, cities and municipalities submitting regular data to the LGPMS for at least 3 years by 2016. ___% of all provinces, cities and municipalities with actively maintained local database management systems for planning and performance monitoring. ___% of all provinces, cities and municipalities with CBMS by 2016. ___% of all provinces, cities and municipalities conducting annual service delivery performance surveys at the barangay‐level by 2016.

12 REVISED VERSION: 30 MARCH 2010 OUTPUTS/SUB‐OUTPUTS

3. Efficient, responsive and accountable local administration. a. Efficient, capacitated, incentivized and professionalized local bureaucracy. b. Efficient, timely, transparent, responsive and performance‐measurable bureaucratic processes.

13 REVISED VERSION: 30 MARCH 2010

OUTPUT 3: PROPOSED INDICATORS

Executive Issuances, Departmental issuances. Appropriate Legislation. ___% decrease in cases filed by the Ombudsman for local executives. ___% of all treasurers passing BLGF competency exams by 2016. Assessors in ___% of provinces, cities and municipalities passed accreditation exams by 2016. ___ provinces, cities and municipalities implementing business‐ friendly measures. ___ provinces, cities and municipalities utilizing service delivery contracts and customer service surveys by 2106.

14 REVISED VERSION: 30 MARCH 2010 OUTPUTS/SUB‐OUTPUTS

4. Rationalized and time‐bound process of fiscal decentralization. a. Rationalized process of devolving functions and adequate resources and revenue generating powers based on local capacities. b. Realistic time‐table for devolving functions and resources to appropriate LGU levels. c. Accurate monitoring and measurement of the impact and performance of devolving functions and resources.

15 REVISED VERSION: 30 MARCH 2010

OUTPUT 4: PROPOSED INDICATORS

Executive Issuances, Departmental issuances. Appropriate Legislation. Studies completed. Multi‐sectoral consultations conducted and agreements reached and documented. __ LGUs pilot‐tested for phased decentralization by 2016.

16 REVISED VERSION: 30 MARCH 2010 OUTPUTS

Assumptions

¾ Roll‐out of capacity building is timely provided by oversight agencies. ¾ Resources are available for capacity building. ¾ Executive and Legislature is supportive of policy reforms.

Risks ¾ Legislature may not prioritize LGU reform agenda. ¾ Localized calamities and/or disasters may place undue burden on available resources for rescue and rehabilitation.

17 REVISED VERSION: 30 MARCH 2010

INPUTS/ACTIVITIES y See LGU LOGFRAME Summary Matrix for detailed inputs/activities. y The LOGFRAME only includes policy recommendations from the six (6) ADB TA 4778 studies and the two (2) ADB studies on LGU credit financing and LGU access to ODA.

18 REVISED VERSION: 30 MARCH 2010 NEXT STEPS y Discuss with CCD members for further comments. y Revise LOGFRAME to include recommendations from: ¾ Other recent studies ¾ CCD initiatives –e.g., Amendments to tax provisions of the Local Government Code of 1991 ¾ Initiatives from Oversight Agencies ¾ Initiatives from LGU Leagues ¾ LGFBR‐2 Policy Matrix y Conduct consultations with other stakeholders for comments and other inputs. y Include in new MTPDP and/or endorsement of CCD to next administration. y Launch policy agenda during Code’s 19th Anniversary as a prelude to 20th Anniversary in 2011.

19 REVISED VERSION: 30 MARCH 2010

THANK YOU

Raymund C. Fabre –3 March 2010

20 REVISED VERSION: 30 MARCH 2010 A Sample Matrix of Issue(s)/Areas of Concern(s), Discussions/Comment(s) and Agreements/Recommendations

Note: This was culled from a recent USAID workshop proceeding, which was participated in by more than 200 health project staff. This explains the reference to the province or region instead of the person/ cooperating agency raising the comments or making the suggestions.

II. MATRIX OF ISSUES-CONCERNS/DISCUSSIONS/RECOMMENDATIONS- AGREEMENTS

The following matrix provides the observations, issues, discussions and agreements/ recommendations on the island group presentations made on the outputs of Workshop 1 (Identifying Core Problems and Most Significant Opportunity) as well as the process and outputs for Workshop 2b (Identification of Gaps and Overlaps of TAs provided by all CAs).

AGREEMENTS/ AREA OF CONCERN DISCUSSIONS RECOMMENDATIONS

Workshop 1. Identifying Core Problems and Most Significant Opportunities

Common areas of concern on The identified common LGU input workshop 1 output area is demand generation. The identified common core problem is prevalent in CHD. The common opportunity identified are the MNCHN grants and PHIC programs.

Saranganni's FP supply In case of Saranganni's FP requirements supply requirements, forecasting demand would aid in ensuring the availability of needed supplies.

Piecemeal versus integrated There is a need to look at the approach to providing services provision of health services in a holistic manner. It was noted that the natural progression of the TA provided are already leading to an integrated provision of services.

Exploring the option of sharing It was mentioned that there are breast milk under EBF indicator members of breastfeeding organizations who are willing to share their milk with other children. This can be explored as an option to improve EBF. However, its cultural implications should be taken into consideration (i.e. milk sharing is considered a sensitive issue in ARMM). AGREEMENTS/ AREA OF CONCERN DISCUSSIONS RECOMMENDATIONS

Revising LGU input area (Davao There was a query on whether Due to time constraints, del Sur) participants can change their LGU indicators and LGU input input area brought about by their areas were pre assigned in Day 1 CA meeting. workshop 1. However, in the succeeding workshops, these would not be limited to just the assigned LGU input area. Furthermore, the participants were reminded that the workshop does not preclude further discussions on all input areas among the various CAs.

Workshop 2b. Identifying Gaps and Overlaps Among the TAs provided by all CAs

On the Workshop 2bProcess Participants raised that it would be It was agreed that long idea too tedious to write on the idea cards would be used for TAs card the TAs that cut across input that cut across input areas areas and indicators. and indicators.

Points for Convergence per The following were identified as province areas for convergence among CAs per province (i.e. these were identified as possible areas for collaboration for the various CAs):

Agusan del Norte

• Quality Assurance • LAPM • Strategic Planning

Compostela Valley Compostela Valley • PHIC accreditation • MNCHN There is a need to discuss • PIPH possible roll out of the • CSR+ planning, appropriate interventions in implementation and policy the Family Health Book to formulation other areas in the province.

• SDIR

• ICV

• SDExH

Davao del Sur

• AIP and AOP process • NHIP enrollment • Integrating improving Vit A in CSR+ planning, implementation and policy formulation • Adoption of TB Linc technology • Vitamin A in workplace

AGREEMENTS/ AREA OF CONCERN DISCUSSIONS RECOMMENDATIONS Lanao del Sur

• Mass Media • LEC Training

Marawi City

• CSR+ planning, implementation and policy formulation • TA on advocacy on TB • Development of local health policy/ordinance • DOH-ARMM HNIP (MOA and Manual of Operation) • AIPH/AOP (EBF)

• Strengthening FHSIS (EBF)

• Establishment of advisory

bodies (EBF)

Sarangani

• ACSM • Generating resources for PIPH • CSR+ planning, implementation and policy formulation • MNCHN Strategy • Capacity Building

South Cotabato

• MNCHN • PIPH • Provision of FP commodities • Changing health seeking behavior of IP communities • TA on addressing CDR/CR

Gaps and Duplication of TAs Agusan del Norte

No duplication of TAs. TA may seem to be overlapping, but they are more of a collaboration among PRISM2, Health Gov, HPDP and A2Z.

Compostela Valley and Saranggani

While there is no overlapping TA on IEC and demand generation, the need to look into the details and engage in further discussions on the various TAs from the AGREEMENTS/ AREA OF CONCERN DISCUSSIONS RECOMMENDATIONS perspective of PHO and CHD was raised. This is to ensure that overlapping TAs and areas for collaboration may further be identified.

Davao del Sur

No duplication of TAs. TA may seem to be overlapping, but they are more of a collaboration among HealthGov, HealthPro, A2Z and PRISM2.

Lanao del Sur Lanao del Sur

No overlapping TAs.

Despite the inclusion of necessary Resource generation through infrastructure and personnel in the PHIC was suggested to be PIPH, these were still identified as included to address the gap. gaps in the province.

Maguindanao Maguindanao

SHIELD and HealthPro are Per HealthPro's COP, they will providing the same technical have to find a non SHIELD assistance in the province in terms area in Maguindanao instead of community mobilization, among of duplicating TA services others. within province.

Marawi City

Duplication of TAs are more on demand generation in terms of advocacy and community mobilization.

Gaps identified were on facilities and equipments, commodities and supply for MCH and FP.

Sarangani

No duplication of TAs. TAs on human resource and demand generation may seem to overlap but it should be noted that TAs provided by CAs such as PRISM2, HealthPro and HealthGov have different target groups.

South Cotabato

There is no TA overlap in the province. It is a convergence site for the TA efforts of PRISM 2, AGREEMENTS/ AREA OF CONCERN DISCUSSIONS RECOMMENDATIONS HealthGov, HealthPro and A2Z.

On TA's responsiveness to the The core problem identified is core problem in Agusan del within SBA. Most TAs focus on Norte CPR and MNCHN strategy which address the maternal death issue.

MINUTES OF THE _TH MEETING OF THE COORDINATING COMMITTEE ON DECENTRALIZATION Date of Meeting Place of Meeting

I Preliminaries 1 Call to Order 2 Attendance

II Approval of the Previous Minutes of the Meeting III Matters Arising from the Previous Minutes of the Meeting IV Highlights of Discussion

Issue(s)/ Discussion Agreements/ Area(s) of Concern Recommendations

V Other Matters VI Adjournment

Department of the Interior and Local Government-BLGD 05.14.10

DILG Law (RA 6975) provides the Department’s oversight functions over the LGUs; develop their technical, fiscal and administrative capabilities

Climate Change Act (RA 9729) directs DILG and LGA to facilitate the development and provision of a training program on CC, to include socioeconomic, geophysical, policy .. to address prevailing forecasted conditions and risks

DRR and Management Act ( HB No. 8985 and SB No. 3086) assigns DILG as vice-chair for Disaster Preparedness Background:

The TA supports a wide range of capacity building interventions to cover institutional, technical, operational, and financial to enable a comprehensive reform consistent with DRRM

Capacities are defined to cover (a) RIAM, (b) RR, (c) RFT, (d) EPR; and (e) SR

Background: Translations of the five pillars will cut across the four components1) local structures, 2) local planning process and outputs, 3) authority levers or tools to implement the plans and 4) community mobilization

Implementation Period: June 2010- June 2011 General Objective:

To expand and scale up government’s efforts by focusing on the identification and implementation of mainstreaming tools and instruments, following the DILG framework of interventions

(To be systematically rolled out among the local governments in the country)

Specific Objectives: To integrate DRRM into physical and multi-sectoral planning (CLUP and CDP), policy and decision- making, prioritization, investment programming and budgeting, enforcement , monitoring and evaluation;

To support the formulation of a risk finance strategy that seeks to reduce the financial burden of the government arising from natural disasters. The Pilot LGUS:

To undertake the concrete actions arising from the capacity building interventions: DRRM/CCA- responsive CLUP and CDP

To lead the detailed planning for the sub-projects that will be implemented in their jurisdictions

(All trainings will be designed as a coaching program for DILG field officers who will then be responsible in rolling out with the pilot LGUs)

DILG: MAINSTREAMING DRM/DRR/CCA IN LOCAL GOVERNANCE Local Planning LGU Authority Structure Local Planning Process and Outputs Levers Political CLUP Component Long –term Locational Zoning goals Principles & Ordinance, LDC of physical Land/Water •Deliberates Development Use Policies Dev’t • Lays down Vision Regulations policies •Takes Statement Sectoral decisions Sectoral PPAs LDIP/ Objectives AIP/ Analysis of Goals & Targets Budget The Planning Technical Environment CDP New Component Legislation •Sectoral and s Monitoring and Functional Evaluation EWS Committees CBDRM (Outputs, Outcomes, LGU Equipage (Section 112, Impacts ) LGC of 1991) Environmental Mgt. Disaster CLUP / CDP Contingency / MITIGATION / Safe Building PREVENTION Management Plan Construction Early Warning Systems

•Livelihood RECOVER / •Housing REHABILITATION RESPONSE •Lifelines • Search and •Education Rescue •Infrastructures Relief • Temporary Shelter

Stronger operational interface in rescue and relief efforts among DILG units such as the PNP, BFP and LGUs

Establishment of Disaster Risk Management Offices, Operations Centers Application of current disaster contingency measures » Generation, compilation , analysis of vulnerability indicators (5 dev’t sectors and maps) » Capacity build-up of DILG and HLURB trainers on harmonization of CLUP and CDP preparation (JMC No. 001, S. 2009) » LGU coaching on preparation of DRM-responsive CLUPS and CDPs (in select provinces)

¾ Enhancing Compliance/Enforcement of Policies Impacting on Disaster Risk Reduction : review existing policies on safe building regulations

¾ Promoting LGU compliance through periodic disaster preparedness audit, establishment of accountability mechanism (analytical tools to track LGU compliance to ZO, building codes, etc.)

¾ Facilitating Risk Transfer and Financing » CBDRM- Community Based Disaster Risk Management » Trainings and application of Community- Based Disaster Risk Assessment (DRA) for planning » Improvement of EWS and equipage of LGUs

Updates

The project was launched through an orientation- briefing (April 30)

DILG program on Climate Change Capacity Development and Administrative Oversight will be factored into the processes.

LGUs are required to submit their specific requests for assistance following the DILG mainstreaming framework and strategies Updates

Commitment setting with pilot LGUs in June

Work planning with LGUs (through DILG regions and provinces) to start in June

Region III – Pampanga and Zambales IV-A – Laguna VII – Bohol VIII- Leyte XIII – S. Norte and S. Sur (plus 3 LGUs per province= 21)

Provinces are entry points but component LGUs are units of analysis Mainstreaming DRM/DRR/CCA in Comprehensive Plans CLUP CDP

Detailed/ Master Plans Implementation Plan Area / System/ Thematic ELA/ LDIP/ AIP/ Cap Dev

REGULATORY PROGRAMS NON-PROJECTS / MEASURES / PROJECTS SERVICES •Zoning •LGU Funded •LGU Dept. / office •Other Local •LCE Detectives Ordinances •NGA Funded •National •Adm. •Joint Funding legislation Issuance •Nat. •National Laws •Private Sector Administration •Inter- Investments Issuances Jurisdictional •NGA Policies Assessments

Thank You