Mandanas-Garcia Ruling; Unconstitutionality of the Internal Revenue Allotment (IRA); and the National Government and Fiscal Autonomy of Local Government Units

LGUs should not celebrate too early by embarking on expensive projects that they cannot sustain. LGUs should always review Art. 17 of RA 7160 to both guide them in choosing projects to implement and manage the expectations of their stakeholders.

One of the key features of the Philippine 1987 Constitution is its push towards decentralization of government and local autonomy. Local autonomy has two facets, the administrative and the fiscal. Fiscal autonomy means that local governments have the power to create their own sources of revenue in addition to their equitable share in the national taxes released by the National Government, as well as the power to allocate their resources in accordance with their own priorities. Such autonomy is as indispensable to the viability of the policy of decentralization as the other.

Implementing the constitutional mandate for decentralization and local autonomy, Congress enacted Republic Act No. 7160 (RA 7160), otherwise known as the Local Government Code (LGC), in order to guarantee the fiscal autonomy of the LGUs by specifically have a share in the national internal revenue taxes. The internal revenue allotment (IRA) is determined on the basis of the actual collections of the National Internal Revenue Taxes (NIRTs) as certified by the Bureau of Internal Revenue (BIR).

Mandanas and his group as well as Garcia challenged the national government by filing a case in the Supreme Court to address whether or not the exclusion of certain national taxes from the base amount for the computation of the just share of the LGUs in the national taxes is constitutional. Mandanas’ group and Garcia filed a petitioned to release the additional and unpaid IRA, respectively to LGUs.

Mandanas et. al Petition – Following the Petitioned Base Amount of LGU Shares in FY 2012
Release of the additional amount of to the LGUs as their IRA for FY 2012P60,750,000,000.00
Release of the  total unpaid IRA for FY 1992 to FY 2011P438,103,906,675.73

To know more about the Mandanas-Garcia Ruling check out https://cityplanningcoordinator.blog/2021/07/09/mandanas-garcia-vs-executive-secretary-case-digest/

Let us simplify the story.

Imagine you are the head of your family. A person promised to pay you yearly a certain amount that you will use to provide for the needs of your family. Eventually, you realized that the amount being paid to you for almost two decades is not the agreed amount that should have been given to you and your family. You filed a case in court and it took several years before the court decided that the amount being paid to you is not the right amount.

You started to look back and imagined how your family should have benefitted from the withheld payment. You thought that with the said amount, you could have provided your children very good education and health care as well as widened possible opportunities (opportunity cost). But, all is well, you’ve won, you are right in asserting what is just.

However, the court ruled that this person would not pay anymore the two decades withheld amount and will just give the correct (just share) amount the following year. You cannot argue with the court because that is their final decision and must respect it. You are excited that you’ve won your case, proved you are right, and will have more resources for your family the following year.

But there’s more, the person realized that since you will be getting more, there is a need to give you more responsibilities that will entail additional expenditures on your part. This person is thinking of ways on how to give you more/additional tasks or responsibilities so that your just share (not additional) is spent according to what they want you to spend on your family.

In fairness, in the last two decades, the said person, aside from giving you your yearly agreed support, helps your family by providing casual assistance in different forms.

This is the current situation of the Local Government Units (LGUs) in the Philippines. The family is the LGU, the person is the national government, the children are the LGU constituents, and the support is the Internal Revenue Allotment (IRA) which is now called the National Tax Allocation (NTA).

Executive Order 138

The National Government enacted Executive Order No. 138 entitled “Full Devolution of Certain Functions of the Executive Branch to Local Governments, Creation of a Committee on Devolution, and for other purposes” on June 1, 2021 in response to the Mandanas-Garcia ruling.

To know more about EO 138 check out https://www.officialgazette.gov.ph/2021/06/01/executive-order-no-138-s-2021/

The recitals of EO No. 138 state that in the Constitution, LGUs shall have a just share, as determined by law, in the national taxes which shall be automatically released to them and that the President shall exercise general supervision over local governments; that RA 7160 devolved the delivery of certain basic services from national to LGUS (Section 17, RA 7160) in accordance with established national policies, guidelines and standards; and that the total shares of the LGUs from the national taxes is expected to significantly increase starting FY 2022 in line with the implementation of the Mandanas ruling; among others.

The general policy of EO 138 is that the National Government (NG) is fully committed to the policy of decentralization enshrined in the Constitution and relevant laws which are aimed at the following:

  1. Developing capabilities of local governments to deliver basic social services and critical facilities to their constituents, increase productivity and employment, and promote local economic growth.
  2. Ensuring accountability, competence, professionalism and transparency of local leaders through the development of institutional systems that uphold good governance and strengthen their capacities for managing public resources.

According to the EO the role of the NG is to set the national policy, development strategy, and service delivery standards, and to assist, oversee and supervise the LGUs, complementary to the stronger implementing role that the LGUs shall assume by reason of devolution; to determine functional assignments between and among different levels of government; to formulate and pursue an institutional development program in collaboration and to support the LGUs in order to strengthen their capacities and capabilities to fully assume the devolved functions based on RA 7160 and other relevant laws; and to resolve any ambiguity as to the interpretation of the power granted to an LGU in favor of devolution.

According to EO 138, the role of LGUs include the preparation of their Devolution Transition Plans (DTPs) in Close Coordination with the NGAs concerned, formulation of their Capacity Development Agenda based on the assessment framework and guidelines issued by the Department of Interior and Local Government – Local Government Academy (DILG-LGA), and the formulation of their respective Communications Plans and Strategies which are aligned and complementary to the communications plan formulated and approved by the Committee on Devolution.

The Mandanas-Garcia ruling prompted the national Government to enact EO 138 to ensure full devolution of certain functions. However, specific functions were already devolved to LGUS in 1992 via RA 7160. Did RA7160 only mandate partial devolution? Why is it called full devolution? Is there something new to devolve?

For me, EO 138 showed obvious realities at the LGU levels.

First is that the NG is aware that there are LGUs that cannot provide all the required devolved services to them as enumerated in Sec. 17 RA7160 due to inadequate financial resources. This is the reason NG provides Assistance to LGU programs and projects.

Second is that the Mandanas-Garcia ruling will help promote LGUs further pursue their desired development. Align with the concept of local autonomy and with the just share of the national taxes, LGUs can now fund their needed projects.

Third is that with the transfer of the remaining “just share” of the LGUs from the NG, wherein the NGs enjoyed the said share for almost two decades, the NG is worried that some of their programs will be affected by the decrease in their available fund, thus, the NG is clearly delineating projects that will be funded by them and by the LGUs and in part ensure that the LGUs perform their devolved services or add to those already devolved services.

Department of Budget and Management Local Budget Memorandum No. 82-2021

The DBM LBM No. 82 – 2021 entitled “Indicative FY 2022 National Tax Allotment (NTA) Shares of LGUs and Guidelines on the Preparation of the FY 2022 Annual Budgets of LGUs” was released on June 14, 2021.

To know more about DBM LBM No. 82 – 2021 check out https://www.dbm.gov.ph/index.php/279-latest-issuances/local-budget-memorandum/local-budget-memorandum-2021/1887-local-budget-memorandum-no-82

According to DBM LBM No. 82 – 2021, the NTA shares of LGUs significantly increased in FY 2022 as a result of the implementation of the SC decision on the Mandanas-Garcia Case. Consequently, starting FY 2022, there shall be scaling down of the financial subsidy of National Government Agencies (NGAs) for local programs and projects of LGU.

However the memorandum reminds LGUs to consider the expected down trend of NTA in the succeeding years, specifically in FYs 2023-2024. This is because of the lower revenue collections of the Government in FY 2020 and possibly in FY 2021 as a result of the continuous imposition of community quarantines and restrictions on the mobility of the general public due to the COVID-19 pandemic.

DBM LBM No. 82 – 2021 showed the NTA allotment of LGUs for fiscal year 2022. LGUs will have more resources to fund their preferred projects (if not negatively affected by the impact of EO 138). However, LGUs should be very careful in choosing projects that will require the same resources to maintain or sustain. The memorandum warned LGUs that their just share in 2023-2024 will be lower than in 2022.

What are its implications?

First is if the LGU embarks on big projects like building hospitals, hiring more personnel, etc., it may afford to implement it on 2022 but will have difficulty sustaining it in 2023-2024.

Second is that the LGUs are still recovering from their unplanned expenses brought about by the illegal drug war and the pandemic. 2022 is the time wherein hopefully they can resume their programs related to their desired local development with the help of its “just share” from the NG.

The Pandemic displayed how LGUs stepped-up to the global problem by taking care of its constituents. The NG and LGUs partnered in delivering support (food and health) to ensure the survival of the people. It may be enough or ideal but I believe they are doing their best specially the LGUs.

Just Share and Beyond

The “just share” is not an additional fund. It is the right fund that should have been given to LGUs to ensure to reach their self-determination via their political and fiscal autonomy. It is not correct to treat it as an additional fund. It is also not proper to add responsibilities to the LGUs because they will now get what they should have gotten yearly in the past two decades.

LGUs should not celebrate too early by embarking on expensive projects that they cannot sustain. LGUs should always review Art. 17 of RA 7160 to both guide them in choosing projects to implement and manage the expectations of their stakeholders.

Devolved Services (RA 7160 Sec. 17)
BarangayMunicipalityProvince
(i) Agricultural support services which include planting materials distribution system and operation of farm produce collection and buying stations;   (ii) Health and social welfare services which include maintenance of barangay health center and day-care center;   (iii) Services and facilities related to general hygiene and sanitation, beautification, and solid waste collection;   (iv) Maintenance of katarungang pambarangay;   (v) Maintenance of barangay roads and bridges and water supply systems;   (vi) Infrastructure facilities such as multi-purpose hall, multi-purpose pavement, plaza, sports center, and other similar facilities;   (vii) Information and reading center; and   (viii) Satellite or public market, where viable;    

     
Devolved Services to Municipalities + Provinces
= Devolved Services to Cities
(i) 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 seedling nurseries; demonstration farms; quality control of copra and improvement and development of local distribution channels, preferably through cooperatives; interbarangay irrigation systems; water and soil resource utilization and conservation projects; and enforcement of fishery laws in municipal waters including the conservation of mangroves;   (ii) Pursuant to national policies and subject to supervision, control and review of the DENR, implementation of community-based forestry projects which include integrated social forestry programs and similar projects; management and control of communal forests with an area not exceeding fifty (50) square kilometers; establishment of tree parks, greenbelts, and similar forest development projects;   (iii) Subject to the provisions of Title Five, Book I of this Code, health 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 herein enumerated;   (iv) Social welfare services which include programs and projects on child and youth welfare, family and community welfare, women’s welfare, welfare of the elderly and disabled persons;  community-based rehabilitation programs for vagrants, beggars, street children, scavengers, juvenile delinquents, and victims of drug abuse; livelihood and other pro-poor projects; nutrition services; and family planning services;   (v) Information services which include investments and job placement information systems, tax and marketing information systems, and maintenance of a public library;   (vi) Solid waste disposal system or environmental management system and services or facilities related to general hygiene and sanitation;   (vii) Municipal buildings, cultural centers, public parks including freedom parks, playgrounds, and other sports facilities and equipment, and other similar facilities;   (viii) Infrastructure facilities intended primarily to service the needs of the residents of the municipality and which are funded out of municipal funds including, but not limited to, municipal roads and bridges; school buildings and other facilities for public elementary and secondary schools; clinics, health centers and other health facilities necessary to carry out health services; communal irrigation, small water impounding projects and other similar projects; fish ports; artesian wells, spring development, rainwater collectors and water supply systems; seawalls, dikes, drainage and sewerage, and flood control; traffic signals and road signs; and similar facilities;   (ix) Public markets, slaughterhouses and other municipal enterprises;   (x) Public cemetery;   (xi) Tourism facilities and other tourist attractions, including the acquisition of equipment, regulation and supervision of business concessions, and security services for such facilities; and   (xii) Sites for police and fire stations and substations and municipal jail;(i) 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 fishermen’s cooperatives and other collective organizations, as well as the transfer of appropriate technology;   (ii) Industrial research and development services, as well as the transfer of appropriate technology;   (iii) Pursuant to national policies and subject to supervision, control and review of the DENR, enforcement of forestry laws limited to community-based forestry projects, pollution control law, small-scale mining law, and other laws on the protection of the environment; and mini-hydroelectric projects for local purposes;   (iv) Subject to the provisions of Title Five, Book I of this Code, health services which include hospitals and other tertiary health services;   (v) Social welfare services which include programs and projects on rebel returnees and evacuees; relief operations; and population development services;   (vi) Provincial buildings, provincial jails, freedom parks and other public assembly areas, and similar facilities;   (vii) Infrastructure facilities intended to service the needs of the residents of the province and which are funded out of provincial funds including, but not limited to, provincial roads and bridges; inter-municipal waterworks, drainage and sewerage, flood control, and irrigation systems; reclamation projects; and similar facilities;   (viii) Programs and projects for low-cost housing and other mass dwellings, except those funded by the Social Security System (SSS), Government Service Insurance System (GSIS), and the Home Development Mutual Fund (HDMF); Provided, That national funds for these programs and projects shall be equitably allocated among the regions in proportion to the ratio of the homeless to the population;   (ix) Investment support services, including access to credit financing;   (x) Upgrading and modernization of tax information and collection services through the use of computer hardware and software and other means;   (xi) Inter-municipal telecommunications services, subject to national policy guidelines; and   (xii) Tourism development and promotion programs;
Devolved Services to LGUs (RA 7160)

The Rise of Home-Based Entrepreneurs during the Strict 3-month (Covid 19) Quarantine Period

If there is anything good that came out from the Pandemic, it is the increase of home-based businesses. The limited supplies, suspension of public transport and the strict quarantine policies made it hard for families to acquire/buy their needs in supermarkets. Housewives, teens, and families filled this gap (specially for food items) by preparing and selling home-made meals, snacks, fruits, vegetables and others. They started marketing their products using social media (mostly thru Facebook). They started selling in their subdivisions and communities.

On March 16, 2020, the President of the Philippines declared the whole Island of Luzon including Metro Manila under Enhanced Community Quarantine (ECQ) to prevent the spread of COVID 19 infection. The ECQ is the highest form of quarantine. It was extended several times and up to May 30, 2020. The ECQ lasted for almost two and a half months. It was downgraded to general community quarantine (GCQ) and later last year to modified General Community Quarantine (MGCQ). Quarantine Policies were implemented strictly in all communities.

People stuck in their homes are desperately looking for news specially about what is happening within their communities. Most people relied to Social Media for local news and activities. There is an increase in the formation of Facebook group chats wherein people in the community can interact with each other without the risk of being infected (physical face to face). These group chats served as a venue for marketing and selling home made products. Because people during the quarantine have the time and are active in social media, it became an effective medium, a great marketplace.

There are so many different products being sold in the group chats. Home-made local specialties like what your grandmother used to cook (local Philippine dishes and delicacies), barbeques, rice meals, pizzas, milkteas, snacks and nuts and even raw meats and vegetables are being delivered in your doorstep. The delivery decreases the risk of people getting infected by the virus specially if they go to crowded places like markets and grocery stores. It also gave motorcycle owners (riders) short-term livelihood by delivering different products (orders) in the community.

I will share a good and personal example of my observation. My wife and I are both working as city government employees. We are both full time employees and do not own a business. When the government declared the quarantine we were forced to work from home. Because of the scarcity of loaf breads that time, my wife thought of baking different type of breads for the family. She loves to bake but doesn’t have time before the quarantine. With the help of Youtube videos and the small oven I gave to her as a Christmas gift in 2013, she started baking different kind of pastries. Most of her baked goods turned out great and some are good (I cannot say “bad” because I might get into trouble when she reads this!). Sometimes we have excess baked pastries which we share with our friends. Our friends convinced her to sell the product and market it in the different group chats in our village.

Hence, Derek’s Delight Cakes and Pastries was born (named after our youngest son). People started ordering her products, specially her baked Soft and Fluffy Ensaymada. She also started getting cake orders. In a way, the side income modestly helped in our finances.

I saw many stories similar to her story. The Pandemic provided a short-term opportunity to small businesses to level the field with big corporations and capture their community market. Social media became a Free tool to market local home-based products. The local (community) economy adapted and developed in its unique way.

The economy and activities are now beginning to normalize. I observed a decrease in activities (marketing/selling) in the groupchats. Probably because the micro entrepreneurs are now back in their full-time jobs (employment) and don’t have the anymore time to prepare/sell their products. Probably the people grew tired of the group chats (instead of community news, the group chats are now full of product advertisements). After being forced to stay at home, people are also excited to go out of their houses to eat at restaurants or visit supermarkets. Another possible reason is that the big corporations are taking back their clients after a very long quarantine period.

As for Derek’s Delight, we got a lot of orders last Christmas and New Year. My wife that time didn’t sleep for 24-36 hours – baking! We do not know how the small business will perform this 2021. Nevertheless, we thank 2020 for the opportunity. I just hope and pray that we can sustain the gains we got from 2020.

I hope that more small businesses survive and apply their experience and learnings from 2020. I hope that many become big businesses with a good story to tell.

As an urban planner, I see this as a good thing. A thriving local (community) economy promotes social interaction, cohesion, and cooperation; job availability; and diverse and expanded product choices (quality and affordable) for the consumers; among others. As for big corporations, I hope they partner with the small businesses so they can sell their products in their establishments. Both of them will earn this way. Partnering instead of competition.

I always make it a point to order regularly from different sellers in the group chat. In my small way I support/encourage them to continue their businesses and in return I get access to their tasty and delicious local products (watch the diet!).

Everybody wins.