By Luisa Maria Jacinta C. Jocson, Reporter

The National Government (NG) needs to open up more avenues for discussion with local government units (LGUs) in order to efficiently devolve its functions, a city official said.

“The main challenge there is we’re not able to talk with the national agencies on the (functions that) will be given to us. There is a certain part of the Mandanas-Garcia ruling (where) certain functions will be devolved to the cities, but we haven’t heard from the NG,” Tagbilaran City Administrator Cathelyn O. Torremocha told BusinessWorld on the sidelines of a forum last week.

“It would have been better if there was also coordination and collaboration and meetings with these national agencies (whose) functions will be devolved to us,” she added.

The Supreme Court’s Mandanas-Garcia ruling granted LGUs a larger share of national taxes. In response, the NG sought to push some of its functions to the local level, to reflect the greater level of funding that the ruling placed in the hands of LGUs.

The devolution process was initially expected to be completed by 2024. Early this year, President Ferdinand R. Marcos, Jr. ordered officials to study prolonging the devolution timetable to give LGUs more time to transition.

The Department of Budget and Management (DBM) said it is studying the possibility of extending the devolution to 2027.

Ms. Torremocha said that fully devolving by 2027 would be feasible if the devolution process was “properly coordinated and the transition is smooth.”

She said the readiness of LGUs must be taken into account. “Many will be affected. We have employees that will be affected by those positions the NG will devolve. Where will they go? Are they going to be in the local government? It’s difficult. (The process) should be smooth,” she said.

Ms. Torremocha said Tagbilaran City is continuing to prepare for the devolution.

“We prepared the offices and also the budget of these positions we have to create in order to address the functions that will be devolved to us. That was (sometime) during 2022. In 2023, we have the budget for all those devolved (functions), especially those in the health sector, engineering, and agriculture,” she said.

USAID Urban Connect Activity Chief of Party Alex B. Brillantes, Jr. said that the timetable for devolution should be reviewed.

“It should be recalibrated. We cannot rush the local government units. It takes a mindset change. The NG is willing to give, but having said that, we have to look at the absorptive capacity of the LGUs,” he said at the sidelines of a forum last week.

Bienvenido S. Oplas, Jr., president of a research consultancy and of the Minimal Government Thinkers think tank, said that the NG should encourage more competition to better capacitate LGUs.

“Encourage more LGUs competition. Infrastructure competition, peace and order competition, power generation and distribution competition, tax competition, etc. to attract more tourism and investments,” Mr. Oplas said in a Viber message.

“When there is no LGU competition, there is no self reliance. LGUs are dependent on the NG for more funding yearly. If there is competition, it’s up to them, so that national government funding will only complement their local revenue mobilization because they want to do more,” he added.

Mr. Oplas also said the devolution process should be done as early as 2025.

“For me, the problem is that many national agencies, the departments of Health, Education, and Social Welfare and Development, still want more national central planning and implementation of socio-economic projects and do not want their powers and funding to be reduced via devolution,” he said.

The DBM has announced that the National Tax Allotment (NTA) to be set aside for LGUs next year is pegged at P871.38 billion.

The NTA is an automatic allocation and is equivalent to 40% of the national taxes collected three years prior.

This is 6.23% higher than this year’s NTA. The number of LGUs is at 43,670, consisting of 83 provinces, 148 cities, 1,486 municipalities and 41,953 barangays.

Municipalities are entitled to an NTA of P295.47 billion. The correspondng amounts for cities, provinces, and barangays are P201.22 billion, P200.42 billion, and P174.28 billion, respectively.

According to the DBM,  LGUs are required to appropriate at least 20% of their NTA on development projects and at least 5% of their estimated revenue from regular sources to their Local Disaster Risk Reduction and Management Fund.

Meanwhile, the Department of Finance (DoF) said that the recently signed law updating the income classification of LGUs will help boost local revenue and improve fiscal management.

“This law is a significant milestone that resolves the long-standing issue of outdated LGU income classification. It paves the way for a more responsive approach to foster local autonomy and empower LGUs to unleash their full economic potential,” Finance Secretary Benjamin E. Diokno said in a statement.

It will also help the DoF “efficiently and systematically determine LGUs’ financial capabilities and fiscal positions in line with the economy and local development.”

Last week, President Ferdinand R. Marcos, Jr. signed into law Republic Act (RA) No. 11964 or the “Automatic Income Classification of Local Government Units Act.”

The law sets guidelines for an “equitable and rational system of income classification to effectively accelerate and improve the quality of economic growth and distribute national resources based on the needs of communities.”

Under the law, provinces, cities, and municipalities are classified into five classes based on their average annual regular income.

“The Secretary of Finance, in consultation with the National Economic and Development Authority and the concerned LGU League, will have the authority to adjust the income brackets according to the actual growth rate of the annual regular income from the last income reclassification,” according to the law.

The reclassification is conducted every three years to “conform with the prevailing economic conditions and overall financial status of local governments.”

The first general income reclassification is to be carried out within six months of the law becoming effective.

The Bureau of Local Government Finance has reported that the operating income of LGUs rose 26% to P1.1 trillion last year.