LOCAL GOVERNMENT UNITS (LGUs) should boost their capacity to implement projects or risk delays in the implementation of certain functions that will be devolved to them starting next year, according to experts.

“I think there will be a slowdown (in project implementation) especially for LGUs who have lower capacity compared to bigger and highly urbanized LGUs,” Zy-za Nadine Suzara, executive director of the think tank Institute for Leadership, Empowerment, and Democracy (iLEAD), said in a mix of English and Tagalog over a phone call recently.

Ms. Suzara noted the National Government had identified the functions that will be devolved to LGUs quite late, putting added pressure on local units that are already constrained due to limited knowledge in planning, budgeting and implementation.

“LGUs need a huge capacity-building because they are going to receive funds and it’s supposed to benefit their constituencies, but how will their constituencies benefit directly from those higher fund allocations from the National Government if in the first place, they don’t know how to plan, budget, and they don’t have the technical capacity,” she added.

In response to a Supreme Court ruling on Mandanas case that increased the LGUs’ share from national taxes, President Rodrigo R. Duterte issued Executive Order No. 138 in June mandating the National Government to begin transferring certain functions to local units next year.

Budget data showed LGUs will be receiving P959.041 billion in national tax allotments (NTA) — or their share from national tax collections — in 2022. Broken down, this will mean allocations of P220.6 billion to 82 provinces; P220.6 billion to 146 cities; P326.1 billion to 1,488 municipalities; and P191.81 billion to 41,933 barangays.

“Based on our analysis of LGU budget data, absorptive capacity is a concern, particularly for capital outlay projects such as infrastructure investments,” World Bank Country Economist Kevin Cruz said in an e-mail.

“On average, only half of LGU budgets on capital outlays is spent, and this ratio tends to decline as the budget for infrastructure increases. The increase in underspending due to limited absorptive capacity, particularly for capital outlays, was one of the main risks,” Mr. Cruz said.

In a special chapter of a June report, the World Bank estimated LGU underspending could rise by up to P155 billion next year if their project implementation capacities will not be improved.

Despite these challenges, the experts believe that devolving functions to LGUs remains to be the most efficient way for the government to deal with the fiscal impact of the Mandanas ruling, instead of other measures like a tax hike to raise more funds.

“Increasing revenues (such as new taxes) in response to the increase in transfers to Local Government Units is not ideal given the current circumstances of the economy. Raising revenues is certainly an option, but it isn’t the ideal response right now,” Mr. Cruz said.

Ms. Suzara said raising taxes could also negate the move of the government to lower the personal and corporate income taxes under its comprehensive tax reform program.

“It’s less of a fiscal issue, it’s more a question of service delivery, especially those that will be devolved from the National Government. The Department of Finance already factored in the lower tax collections,” she said, adding the National Government and LGUs should develop stronger coordination while they are in the process of transferring key functions.

World Bank’s Mr. Chua said the government can also create an environment that will encourage LGUs to be more transparent and accountable, especially after the funds will be increased because of the Mandanas ruling.

“In general, we recommend policies which would focus on mechanisms which improve citizen participation in the budgeting process, leaning on digitalization initiatives to boost transparency and accountability, civic monitoring of intergovernmental transfers; and monitoring of local service provision,” he added.

BusinessWorld sought the Department of Budget and Management (DBM) for comment but did not get a response.

A DBM circular showed LGUs were mandated to formulate their own Devolution Transition Plans that will be used as a guide in monitoring and assessing their performances, while a capacity development agenda will be developed to further guide the local units. — BML