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IRA Formula Makes Local Governments Complacent

Written by Miriam Grace A. Go
Thursday, 27 September 2007
Next year, the share of local government units (LGUs) in the internal revenue allotment (IRA) will amount to a total of P183.94 billion. It will be the 17th year that provinces, cities, towns, and barangays can expect—in fact, demand, because it’s in the law—a specific amount from the national government to fund their operations. (For the amount of IRA released to each province, city, and municipality from 2004 to 2006, please visit the Local Government section of Newsbreak’s Democracy and Governance website). IRA shares of individual LGUs in preceding years will be uploaded as they become available.) In turn, the LGUs are bound by a fixed formula on how to divide this annual allotment among themselves, according to three factors: population, land area, and equal sharing. (Click here for the shares received by LGUs through the years according to these three factors.) Experts in local governance, however, have been proposing for some time now that this formula be changed to factor in the performance of the LGUs. In other words, for those able to deliver services to get bigger shares. Of the LGUs’ share in the IRA every year, 23 percent goes to the provinces, 23 percent to the cities, 34 percent to the municipalities, and 20 percent to the barangays. Within every level of LGU, the allocation is divided according to the 50-25-25 formula—half of the amount based on the LGUs’ population, a fourth based on land areas, and another fourth divided equally among the LGUs within that level. Taking the 2008 IRA as example, P42.31 billion will go to the provinces. In the P21.15 billion of this amount, each province will get a share proportionate to the size of its population. In P10.75 billion, each will get a share corresponding to its land area. The remaining P10.75 billion will be divided equally among the 81 provinces. This formula encourages most LGUs to be complacent. The IRA can cover an LGU’s operational costs and a little service delivery. The governor, mayor, or barangay chair can practically just sit around in his office doing nothing and the IRA that fuels the LGU’s operations will come. An LGU’s land area, for instance, won’t change in decades unless the province or municipality is fragmented or merged, or if a court decides a boundary dispute between LGUs. Going back to the 2008 IRA for provinces, a province with vast vacant or idle lands therefore gets a bigger share in the P10.75 billion than a smaller province that cultivates its land. Population, too, is something that expands or shrinks beyond the control of the local chief executive. People, Not Land During weekdays, for example, Makati City serves a bigger population that includes transients—because employees in offices work there the whole day or even stay in apartments and dormitories during the weekdays. Yet, Makati’s share in the IRA’s allocation for population is based on the smaller population figure—its registered residents. Why not re-think the formula then to exclude land area and instead factor in the tax collection performance of an LGU? This has been the idea of former Budget Undersecretary Cynthia Castel. Castel has said in forums that the IRA is supposed to fund services to people. It is logical then that the number of people in an LGU, instead of its land area, be given more weight in computing how much IRA that locality will get. The former budget department official, who’s now a consultant of several LGUs, has also suggested that if lands are to be considered in the computation of IRA shares, it should be according to how much real estate taxes the LGUs get to collect from these properties. Real property taxes are one of the major local revenue sources of LGUs, but many of them neglect this tax base. Castel’s idea is that LGUs that aggressively collect real property taxes should get bigger IRA shares. Naga City Mayor Jesse Robredo once mentioned the same idea to Newsbreak. The national government, he said, should determine the potential income of an LGU according to its existing tax base. If the LGU’s collection falls short of what’s expected of it, that LGU should get less of the IRA. This formula can work two ways. LGUs will get a higher IRA share if they remit more taxes to the national government. It will also make the LGUs less dependent on the IRA because they will learn how to tap local sources of income. Former Tagaytay City Mayor Francis Tolentino has been proposing that the human development index (HDI) of a locality be a factor in the computation of its IRA share. Some LGUs, regardless of the resources available, try to manage these resources well so they can ensure that their constituents live a long and healthy life, have access to quality education, and have a decent standard of living. He says rewarding higher HDI with a bigger IRA share will encourage a province or town to improve further the basic services it delivers to its constituents. Tolentino’s sample formula for provinces is the following: 25 percent according to HDI; 25 percent, population density; 25 percent, efficiency in real property tax collection; and 25 percent, equal sharing. Dean Alex Brillantes Jr. of the UP National College of Public Administration and Governance has a “socialized” formula for the computation of IRA shares. He wants a poverty index to be considered. LGUs with more poor residents should get higher IRA. Until poverty is reduced, he said, LGUs will focus more on social welfare obligations rather than economic enterprises and aggressive tax collection campaigns.—Research by Jesus Llanto This article was made possible with support provided by the United Nations Democracy Fund and the United Nations Development Programme in the Philippines. The opinions expressed here are those of the author(s) and Newsbreak and do not necessarily reflect the views of the United Nations Democracy Fund and the United Nations Development Programme in the Philippines. INTERACT WITH THIS ARTICLE
Last Updated ( Thursday, 24 January 2008 )

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