LGUs and their IRAs
Posted by butalidnl on 30 March 2010
The IRA (Internal Revenue Allotments) are a major source of income of many LGUs (Local Government Units). The IRA is, in effect, the share of the LGU out of the country’s overall revenue collections; and this share is spelled out in the Local Government Code.
Forty percent of total internal revenues will be divided among the various LGUs. Of this amount, 23% will be divided by the country’s 80 provinces, 23% among the 138 cities, 34% among the 1497 municipalities, and 20% among the 41,995 baranggays. The amount is not divided equally among them; the shares of the various government levels is divided among them by the formula: population – 50%; land area – 25%; and “equal sharing” – 25%. This means that provinces, cities, etc which are relatively bigger, or have more population get a bigger share of the IRA.
There are a number of problems that I see with the formulas for IRAs. In the first place, it pays (a lot) for a municipality to be reclassified as a city; and politicians will do all they can to get their municipality reclassified so as to get at this money. Let us illustrate: (if we assume “average sizes”) a municipality is entitled to 0.022712% of the total IRA, while the same municipality as a city to 0.166666% of total IRA – or about 7 times bigger. As an illustration, Maasin’s IRA jumped from PhP 38 million to Php 200 million simply because it became a city in 1998.
Thus, it becomes important to exactly define when a municipality becomes a city. The law is clear: a city has annual revenue collections worth PhP 100 million for two consecutive years, and either a population of 100 thousand people or a land area of at least 100 square kilometers. The city then has to have the people approve its charter in a referendum after being approved for cityhood by Congress.
But the problem is that some politicians push for “city” status prematurely in order to get a bigger IRA.
Equal sharing seems like a good principle – an expression of solidarity among provinces, cities, municipalities and baranggays – in that the smaller ones get a bigger portion of the IRA than otherwise would be the case. The problem, though, comes in the fact that “equal sharing” in effect props up smaller LGUs, and provide an incentive to divide LGUs to be ever smaller.
On first sight, 25% equal sharing seems reasonable; but if we look at it more closely, this only means that 25% of IRA for that level is divided equally. The actual share of “equal sharing” for smaller provinces and municipalities would amount to 50% or more of their total IRA. The net effect would be that smaller LGUs would get too much money, while many of the bigger LGUs would get too little.
When a municipality is split into two, both parts would receive practically the same “equal share” as before, but smaller allotments due to land area and population. If the “equal share” was 50% of the total IRA received before, both parts will receive that amount, plus say half of the amount for territory and population. This would mean that either half will receive almost 75% of the amount received previously. So, of course there is this perverse drive to split provinces, municipalities and baranggays – in order to maximize the IRA received.
Change the percentage sharing, force performance
The way to avoid these problems: that of the tendency to split, and the underfunding and overfunding of LGUs is to change the percentage for division of the IRA within the levels – thus from the present 50-25-25 (50% for population, 25% for territory, and 25% equal sharing) to a 2/3 – 1/3 scheme (2/3 for population, and 1/3 for territory). Thus, the bigger towns etc will get more money, and the smaller less – perhaps resulting in certain sparsely populated towns to merge. Bigger LGUs need more money for operations, since things like health care and education are directly proportional to the population, and roads or electrification costs directly proportional to territory.
Of course, this should be done gradually, so that the smaller LGUs will not suffer too much from the drop in IRA (or even not at all, given that the total revenue collection may rise and negate the reduction in the percentage given).
Then there is also a need for more national control over how LGUs spend their money. While I agree that the disbursement should remain automatic, as it is at present; the Local Government Code should specify minimum facilities that the LGUs should provide e.g. school facilities for all children, clinics (plus target doctor, nurse, hospital bed ratios per population), etc. The requirements listed at present in the LGC are too general and “optional”. One way to impose these performance levels is that in cases where the LGU spends too little on building schools, for example, is that the national government then builds schools and charge the LGU (or collects from the IRA directly) for doing so.