Cities that have experienced significant cuts in their revenue shares starting this year due to the creation of new cities are likely to lose their competitiveness and, as a consequence, miss opportunities to attract investments.

This was the opinion expressed by local governance experts and local officials at the recent launch of the 2007 Philippine Cities Competitiveness Report (PCCR) of the Asian Institute of Management (AIM) in Makati City.

Done every other year, it was the fifth time that the AIM measured the business-friendliness of select cities in terms of infrastructure, cost of doing business, dynamism of the local economy, human resources and training, responsiveness of the LGUs to business needs, and quality of life.

The study classified this year 90 cities into three categories: Metro cities, or those comprising metropolitan areas in Manila, Davao, and Cebu; mid-sized cities, or non-Metro cities with population more than 200,000 residents; and small-sized cities, or those with less than 200,000 residents.

Wholesale conversion

Experts and local officials said the almost wholesale conversion of municipalities into cities in the past two years has reduced the old cities’ share in national taxes or the Internal Revenue Allotment (IRA), which is used by LGUs to finance their operation and deliver basic services.

The direct effects of less IRA on infrastructure development, and consequently on the cities’ general competitiveness, may show in the next round of surveys to be conducted by the AIM Policy Center.

Under the Arroyo administration, an average of three cities are being created every year, the most compared to past governments. The biggest batch of new cities—18—was approved in 2007, thus canceling hundreds of millions of pesos from the expected IRA increases of existing cities.

The League of Cities of the Philippines (LCP) has a pending petition before the Supreme Court to nullify the conversion of 16 of these 18 new cities due to their failure to meet the requirements for conversion under the law.

Drivers of growth

Federico Macaranas, executive director of the AIM Policy Center, told abs-cbnNews/Newsbreak the cuts on the IRA share diminished the funding for infrastructure, which is an indicator of a city’s competitiveness.

Mandaluyong City Mayor Benhur Abalos, who is also LCP president, said that the reduction in the cities’ IRA share did not only diminish their funds but also affected their sustainable development and the delivery of basic services, like education and health.

“The cities are the economic drivers and they have to maintain their sustainability,” Abalos told abs-cbnNews.com/Newsbreak. He said that urban areas and cities contribute around 80 percent of the country’s gross domestic product.

The IRA has been the lifeblood and main source of financing of most LGUs, with some of them having an 80- to 90-percent IRA dependency. Some cities, particularly in Mindanao, that have experienced IRA cuts are forced to cut down spending on basic services by as much as 40 percent and to lay off workers to cope with the IRA cuts.

The LCP argues that the new cities have eaten up the IRA share of old cities. For instance, Puerto Princesa is receiving an IRA increase of only P1.7 million this year instead of the expected P146.1 million before the creation of new cities.

Davao City will be getting an IRA increase of only P69 million instead of the originally expected P263.5 million. Zamboanga City’s expected IRA increase of P150.84 million has been slashed to P35.87 million.

Not an excuse

Nathaniel von Einsiedel, former regional coordinator for Asia Pacific of the United Nations Urban Management Programme, said that the scenario occurred because the IRA pie to the cities did not increase proportionate to the number of cities added. “The number of cities increased but the pie did not.”

Marikina City Mayor Ma. Lourdes Fernando, however, said that a small fund should not deter a city to be competitive.

“Initially, it will have an effect but it’s not always the case,” Fernando told abs-cbnNews.com/Newsbreak, adding that there are some small cities that have little fund but are still competitive. “In the end, governance is still important.”

Small is manageable

The study also showed that smaller cities are more competitive—the “mid-sized cities did better than metro cities on the average.” 

Metro cities got an average competitiveness score of 6.21 points out of a perfect score of 10. Mid-sized and small cities got 6.47 and 6.42 points, respectively.

“If there is no urban classification, small cities occupy the top spots when all the drivers are taken into consideration,” the study read. “However, the cities have obvious differences that justify their classification.”

Macaranas said that this might be attributed to the fact that metro cities are more difficult to manage because they have bigger population and more needs. (abs-cbnNEWS.com/Newsbreak)

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• Most Competitive Cities
• Cities Contemplate Tax Boycott, Work Stoppage
• Too Much Autonomy Makes RP Cities Less Business-Friendly
• Less IRA Forcing Mindanao Cities To Cut Down on Services, Workers

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