LGUs should not depend on windfall from Mandanas ruling – Escudero

Sorsogon Gov. Francis Escudero. This photo was taken when he was still a senator, a post he is running for again in May 2022. (File photo by GRIG C. MONTEGRANDE / Philippine Daily Inquirer)

MANILA, Philippines — Local government units (LGUs) should not rely on the additional P234 billion in internal revenue allotment (IRA) projected this year under the Mandanas ruling because the cost of devolution will be higher than the amount they will actually receive, Sorsogon Gov. Francis “Chiz” Escudero said in a statement issued on Sunday.

“LGUs should not rely on the said windfall from the Mandanas ruling because the windfall of their employment and expenses is more severe due to [Executive Order] 138,” Escudero, who is seeking a Senate comeback in the May 2022 elections, said in Filipino.

“Just as we have experienced in the current COVID-19 pandemic and the recent Typhoon Odette, LGUs have their own approach to address the needs of their constituents. The same thing is what we expect will happen in full devolution,” he added.

Earlier, the Department of Budget and Management (DBM) said that the total IRA for LGUs is projected to increase by 55.7 percent — from P695.49 billion in 2021 to P1.083 trillion in 2022, which is 4.75 percent of the country’s gross domestic product (GDP).

According to Escudero, however, the cost of the full devolution of services mandated by EO 138 would be twice as much as what LGUs are entitled to receive from the national tax collection.

He said that the gap between the increased IRA and the increased cost of newly devolved services will result in LGUs still having insufficient funding.

“I listed them one by one in the national budget of 2021 because it is a line item of the budget. The total amount they are devolving to the LGU is about P1.3-trillion, while the additional IRA provided by the Mandanas ruling is only P695 billion,” Escudero said.

“In other words, they devolved double the amount of what they will be giving LGUs. With that alone, LGUs will have insufficient funding,” he added.

The Mandanas ruling stemmed from petitions lodged by Batangas Gov. Hermilando Mandanas and former Bataan Gov. Enrique Garcia Jr. seeking a share of LGUs in all national taxes — not just from taxes collected by the Bureau of Internal Revenue (BIR) but also duties from the Bureau of Customs (BoC).

Because of this, an LGU’s share in the IRA is expected to increase to at least 60 percent from the current 40 percent, leaving less money for the national government.

However, to mitigate this impact of the Mandanas ruling, the Duterte administration, through EO 138 signed in June 2021, decided to implement the full devolution of functions, services, and facilities to the LGUs no later than 2024, instructing LGUs to prepare devolution transition plans and capacity development agenda.

According to Escudero, however, those attaching permanent functions and services to an unstable source of funds could be detrimental and counter-productive in the long run.

LGUs, he said, should be extra cautious in their spending because, while the devolved functions and services will remain steady in the coming years, the source of revenue will not.

“LGUs should not create recurring expenditure or permanent positions because next year, they might not have the budget for those,” Escudero said.

“By 2023, the IRA will be based on the 2020 national revenue, and we all know the Philippines had its worst economic performance that year due to the pandemic. Our GDP shrank by 9.5 percent in 2020, the worst since 1947, which means we may also see the worst IRA since then,” he emphasized.

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