Public Choice: Local autonomy or federalism?

By 2034 there could be 58 M living in our cities, so what will candidates do to improve local governance?

It is perhaps unprecedented that in the 2016 race for the presidency we have two former mayors gunning for the top job. With the growth of our mega cities attracting millions of migrants from the countryside, it is no surprise that local executives are rising to national prominence.

In this series I have entitled “Public Choice”, I will be highlighting principled policy platforms taken by the candidates. To be considered a true policy option, a candidate must put forth, not just pie in the sky statements, but specific actions he or she might take.

In this edition, I will be focusing on local government and fiscal autonomy.

Problem and context

Urban growth in the Philippines has been phenomenal. The urban population rose from 32.9 million in 1994 to 44.1 million in 2014. At the current rate of growth, there will be a staggering 58.1 million people residing in our cities by the year 2034.

The growth of our cities brings problems associated with public health and safety. Typhoon Ondoy demonstrated the risks posed by natural disasters to urban communities living in vulnerable areas near waterways due to a lack of affordable housing, urban planning and efficient mass transport.

As more Filipinos cram into our cities, local government units (LGUs) will face the brunt of our developmental challenges, becoming responsible for attracting investment, providing employment, housing, transport, education and health services, crime prevention, disaster risk management and preparedness.


To deal with these challenges, the local government act of 1991 allocated 40% of the national government revenues to LGUs through a mechanism known as the internal revenue allotment (IRA). LGUs were also given the authority to generate their own revenue, although until now most still depend on their IRAs as their main source of income. This has led to a situation where LGUs with inadequate fiscal capacity are then unable to find solutions to their development needs, leading to a larger disparity with their richer counterparts.

Proposed Solutions

Of the 5 main candidates, only 3 have released some specific ideas on how to reform the current system to better empower local government units to deal with these challenges. These three are Mar Roxas, who proposes more of the same, Jojo Binay who intends to re-jig the current system, and Rody Duterte, who plans to scrap the current system entirely, and replace it with a new one. Miriam Santiago and Grace Poe have just offered critques. Here in a nutshell are their respective policy positions:

Mar Roxas: “BuB’s your uncle!”

Mar Roxas has indicated that he intends to expand the Bottom-up Budgeting (BuB) program and rebadge it by calling it the Karapatan Fund with an annual allocation of 100 billion pesos. The fund would be apportioned to each LGU on a pro-rata basis, based on the size of its population with an allocation of 1,000 pesos per capita. The money would then be spent on local development projects identified by residents, community organizations and executives.

Previously under BuB, the funding of local projects was a reward payment for improved local governance. It was contingent on attaining the seal of “good housekeeping” from the Department of Interior and Local Government. The concept behind this came from the seminal work of A/Prof JJ Capuno of the UP School of Economics which showed that improved local governance capability led to improved local development.

By allocating spending automatically on a per capita basis, Mar Roxas is duplicating the IRA, except that apart from population, IRA distribution takes into account other meaningful factors such as the land area of the LGU. Furthermore, the fixed allotment per capita would not deal with the problems of disparity already discussed. Mr Roxas uses a very blunt instrument, that is unable to discriminate between rich and poor LGUs.

Grace Poe: “What’s with all the hubBub?”

After originally endorsing the approach taken by the Aquino administration, the campaign of Sen. Poe through Rep. Ace Durano of Cebu attacked it for having little impact. This came after the release of the Interim Reporting Mechanism 2013-2015 report which showed that less than a quarter of projects funded under BuB were completed. This is perhaps a policy backflip on her part, and the camp of Ms. Poe hasn’t stated how she would address the lack of development at the local level after retracting her support for BuB.

Miriam Santiago: “Show me the money!”

Sen. Santiago’s record in the senate shows that she has been opposed to the slow and selective release of IRAs to LGUs. Her running-mate Sen. Bongbong Marcos, the chair of senate committee on local government has criticised the current approach of the Aquino administration, saying it is too centralised, subject to the tyranny of experts from “imperial Manila”.

He claims that making the availability of BuB contingent on meeting the governance requirements of the national government via the seal of good housekeeping, makes it less likely for poorer locales with weaker governance capacity to access the much needed funds. It is they who are most in need of development finance that would be denied this. Despite criticizing the current approach, neither senator has offered a tangible solution.

Jojo Binay: “Spread the love.”

Vice President Binay proposes to rejig the IRA formula for apportioning funds so that poorer LGUs receive a larger share compared to what they are receiving now. This would be a way to institutionalize the sister-city agreements he practiced as mayor in which Makati was able to give grants to poorer cities to help them acquire equipment and better facilities. Redistribution helps address the problem of the growing gap between haves and have nots, according to Binay.

In addition, Mr. Binay has promised one mega project per region, and one major project per city, to be identified, implemented and monitored by each regional development council. This would help alleviate some of the infrastructure bottlenecks that are occurring in cities due to a lack of spending by the national government.

Rody Duterte: “Let’s break it down.”

Mr Duterte’s central policy plank is to wipe the current slate clean and institute a federal form of government. The former mayor of Davao sees it as a way of breaking loose the island of Minadanao from the central authority of Manila. The problem is, there is hardly any detail attached to this policy. Will revenue collection be fully decentralized, including the collection of income taxes and custom duties? If so, what share would the national government receive from each state?

How would he divide the country into different states? How would the delivery of services be split between the federal government and the states? Who will take charge of administering the national capital region? Will there be some form of fiscal equalization among rich and poor jurisdictions? There seems to be no specifics coming from his campaign at the moment, which is surprising, given how central this is to him.

The Bottom-line

Since the enactment of the local government code of 1991, LGUs nationwide have been part of an experiment in devolving authority to the local level. In general, this experiment has been a success. Greater responsiveness to local development needs resulting from local autonomy has been borne out by study after study. The central question here is how to resolve some of the gaps of the current system, which involve a lack of revenue raising capacity by poorer jurisdictions, and how to improve local governance overall.

Three candidates have offered three alternative solutions. With the growth of our urban centers, there is a need to address many complex problems facing the nation at the local level. Those problems are not going away. Which of these options would provide the best avenue for doing that? One seeks to provide a local development fund, apportioned on a strict per capita basis. Another seeks to provide fiscal transfers from richer jurisdictions to poorer ones to fund projects but also for general expenses. A third seeks to constitute LGUs into federal states with greater fiscal autonomy.

It is up to us to judge which of these solutions would improve local governance and enable local communities to adapt to the challenges they face before these difficulties outrun them, and cause our cities to become “fatally uninhabitable”.