Integrate the Informal Economy

Squatters have gained some kind of legitimacy as a result of the Philippines’ political process. In exchange for electoral support, many mayors protect squatters in their municipalities from demolition.  Economically, however, squatters and others who take part in the ‘informal economy’ are far from being integrated. This means that the country does not get the maximum possible benefit from their economic activities.

Rent
It may seem strange to collect rent from squatters. Local Government Units (LGUs) don’t collect rent from those squatting on government land because they fear that by doing so, squatters acquire some sort of right to stay.  They also feel that this is an added burden on the poor people.  Reality does not support the latter argument. Gangs regularly collect ‘rent’ from squatters, and the people readily pay them. They have the money to pay rent.

Collecting rent does not bestow renters a right to stay indefinitely. People who rent rooms or apartments can be told to leave, and so should people who rent land. The municipal government could make it clear that the land could still be used for another purpose, and that it will give something like a 3-month notice if it decides to do so. Collecting rent, however, changes the status of people from ‘squatters’ to renters; and this makes it easier to deliver other services to the area.  Part of the rent collected could also be shared with the local barangay (perhaps 1/5 of the rent). They could help ensure that nobody else collects rent from the people. The share of the rent could partly be used to pay for part-time barangay tanods to help police the neighborhood (who, among other things, would make sure that the gangs don’t collect ‘rental’ money anymore).

Vendors
Street vendors of all types should be licensed. And the license fee should be rather high; after all, it would not be possible to collect VAT or business taxes from them. With the license, the vendors will no longer be harassed by the police. Corrupt police regularly milk vendors, and if they don’t pay they are arrested. The license fee will be welcomed by vendors, just to avoid paying the informal tax to the police. Licensing vendors also clears the way for the government to enforce health standards for food sales and some other regulations.

Public Parking
Many people suffer from the hassle of street kinds forcing their ‘Watch Your Car’ services on them. If you don’t pay the kids, something bad may happen to your car. In Cebu City, the government issues parking ticket booklets, which are sold through street kids. The kid who sold you the parking ticket also watches over your car; because the moment your car leaves, another car would need to be sold a parking ticket. The city gains money from this arrangement, and so do the street kids. And the car owners at least have a structured way of making sure that someone is watching over their car. I think that this is an example that other cities could emulate.

Water and Electricity
Extending water and electricity services to slums helps to improve the quality of life in slums, and greatly reduces illegal taps on water and electricity lines. But measures need to be made to make this work well. The barangay, or a barangay-level organization, should ‘buy’ electricity and water from the wholesale providers and distribute these within a given slum area, and collect the payments. The cost of illegal taps or leaks will effectively be distributed among neighbors, providing people with an incentive to report illegal taps, and to demand action against these.

On Robredo’s LGU Transparency Project

Secretary Robredo of the DILG (Dept of the Interior and Local Government) said that he will encourage LGUs (local government units) to post their income and expenses in the DILG website. This is to promote transparency in the management of LGUs.

I think that Robredo’s plan is a good idea. However, there are a number of things that may delay or could frustrate a good outcome of the plan. First among this is the fact that Robredo cannot compel LGUs to actually report their incomes and expenses. Robredo’s idea is that LGUs who don’t report will be shamed into reporting, since otherwise they will be accused of “hiding something”. This is well and good, but this will work only when the great majority of LGUs do report, and we don’t know if they will, or when they will, report. Thus, if only a few report, the rest can always say that they have practical problems in reporting, so they can’t report this year, or something like that. And since the DILG can’t force them to actually report, they may go on saying this for a number of years.

And of course, even if LGUs do actually report their expenses, we cannot expect them to be detailed below the project level. Thus, at best, we will know how specific projects cost, but we will not get details as to what exactly the project consisted of. And, thus, it would be quite difficult for outsiders to judge if the money had indeed been well spent, for most projects.

And then, there are expense items which could not be judged even if reported.  Take for example, municipal employee’s salaries. How are we to know how many of these employees actually appear for work (and how many are merely “15-30” employees, because they appear only to collect their pay checks)? Or that they are doing their work efficiently?

Citizens’ Participation
I think that  Robredo’s plan would not work automatically, and that citizens should participate in this plan of getting LGUs to be more transparent. Citizens residing in the provinces and towns themselves would be in a good position to judge whether the reported expenses are well spent.  And this means that someone local should review their LGU’s report, and investigate if it is correct, and if the items are not overpriced.

But even before that, there needs to be a network using both traditional and alternative media in which citizens would pressure LGUs to really disclose their income and expenses. This will not be easy, but we really need to do this as citizens. I think we need to form something like a “LGU Transparency Watch” (composed of bloggers, tweeters, newspaper, radio, etc)  to monitor and compel LGUs, through public opinion, to disclose their income/expense accounts. Later, when more of them report regularly, we can even try looking into these accounts to see if their money is spent correctly.  Also, those LGUs which hold out (i.e. don’t report their income/expenses) should really be exposed through this network.

I think Robredo’s plan should work. With the national government and citizens pushing for it from opposite ends, LGUs should eventually become more transparent.

LGUs and their IRAs

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”
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.

Universal Health Care in the Philippines?

Universal health care in the Philippines? Well, probably not right away. But we could work on it a little. I was thinking more in terms of providing a basic publicly funded health service for most of the population, at affordable prices.

A basic ingredient to this health service is to provide health care professionals all throughout the country, especially in the countryside.  A key to doing this, I think, will be to make sure that there are enough doctors who will stay put in the countryside posts that they will be assigned to. Then, it will be an easier task to make sure that urban public hospitals are well staffed.

The emphasis should be on doctors, since nurses are in abundance these days, at least in the cities. I propose that the government take care of the education of a certain percentage of doctors that the country produces.  Let 10% of medical students be government funded. The government will pay for most of their education (leaving perhaps PhP 20,000/year as student contribution, and covering the remaining PhP 100,000/year tuition), and in return, the doctors are required to spend 5 years in a rural posting, with the option to stay on, on a government salary.

A result of this would be that in a matter of 5 years or so, the country will have a steady supply of rural doctors ready to be assigned anywhere in the country.  And that they will not have a need to charge high fees even when they are released from government service, since they didn’t spend so much to study medicine.

The funding for health services would come from the IRA (Internal Revenue Allotment) that local governments receive.  LGUs receive these funds automatically; and it was sort of understood that in turn they would provide certain services to their constituents. However, many of them aren’t.  I think the national government should pass a law requiring all municipalities to provide public health facilities – e.g. clinics staffed with doctors, nurses and midwives, and enough medicines and other supplies.

And lastly, I think the government should set up public pharmacies in all towns; so as to service the needs of the far-flung rural population. These pharmacies should make available generic drugs where possible, and branded drugs that have been discounted.

With these things in place, we may not yet have universal health care, but we sure would be well on our way to providing it.

Reduce IRAs of “non-performing” LGUs?

On 8 February, Noynoy Aquino proposed that the Internal Revenue Allotments of  Local Government Units (LGUs) which do not do their work well should be trimmed down. It’s a nice thought, coming from the idea of reducing waste in government expenditure. The problem with it, however, is that to do so would mean an increase in the president’s prerogatives, of which he has already too many. And if the president will be the one to decide which LGUs to cut the IRAs of, he could very well reduce the IRAs of provinces, cities or municipalities ruled by the opposition.

The Local Government Code, which among other things, provides for the Internal Revenue Allotments of LGUs, also provides for the automatic release of these funds. And with reason. This is to prevent national government tinkering with these funds in order to control the LGUs. I think it is a good idea for the release of these funds to be automatic.

Perhaps it would be a good idea to set up rules (or even pass a law amending the Local Government Code) which would spell out what it means to have a “non-performing LGU”, and then to prescribe exactly how much IRA reduction that will be imposed on it, and what the LGU needs to do to get its allotment restored. This way, the reduction of IRA will go about in an automatic way – that is, devoid of “presidential prerogative”.

Looking into the Local Government Code provision on IRAs, it specifies that the  allotment per LGU is determined on the basis of 50% population, 25% land area, and 25% equal sharing – this, after the initial division of the total internal revenue taxes by: provinces (23%), cities (23%), municipalities (34%) and baranggays (20%) . Now, I see the 25% “equal sharing” as unfairly benefitting small, less populous LGUs.  I suspect that many of the “not well spent” IRAs is connected to this amount given to small LGUs. Why not just eliminate this item altogether? And then make the division into 2/3 population, and 1/3 territory. This would make the allotments go more to the more populous and bigger LGUs who actually need more of the money, and perhaps are finding it hard to finance all their expenses.

And perhaps the IRA amounts should be published by the government on the internet,  as a step towards transparency. This way, the IRA amounts will be known to be public. Of course, it would be best if the full accounts of LGUs  also be on the internet.