A Citizen’s Guide to Understanding Local Government Units’ Finances, Systems and Functions

By Jocelyn C. Cuaresma and Alvic Padilla  


GOVERNMENT FINANCIAL SYSTEMS are traditionally inaccessible to people who are not public officials or employees. The best example of a closed financial system is the budget process. At both national and local levels, the budget process starting from budget preparation to budget accountability and audit does not call on the participation of civil society or the private sector. Typically, the private sector participates in government transactions only as bidders for government projects, vendors of goods and services, investors availing of government fiscal incentives and as taxpayers. Civil society and the general public participate as taxpayers, recipients of government programs and projects; attendees to general assemblies and public hearings on the budget and as spectators during public deliberations and consultations.

Only recently have the national government and local government units (LGUs) started opening up their financial systems to citizens in pursuit of the policy and principles of participatory governance.

This article discusses the financial systems in local governments, identifies the offices in charge of local finances and who may exercise the power of the purse; identifies the flaws and weaknesses in the financial systems; determines how these flaws may be addressed, and how citizens may participate and exercise the authority and responsibility assigned to them by the state under the 1991 Local Government Code.

Fiscal powers of local governments

The power of the purse can be favourably (or unfavourably) exercised by government officials and is strongly associated with the power and authority to propose, appropriate and release government funds to certain agencies, offices, programs and/or projects.

Traditionally, the exercise of the power of the purse is associated with legislative policy making over government budgets, taxes, fiscal incentives, grant or franchises and use of government facilities and similar resources (i.e., human resource, physical facilities, land and other real properties). At the national government level, it is said that the power of the purse rightfully belongs to the Congress, but the power of the Executive Department over the national budget is properly acknowledged. “The national budget remains as a tool in implementing national priorities for public interest while maintaining the bureaucracy’s efficiency and to guard it against abuses.” (USAID 2009:1).

The exercise of the power of the purse by local governments is governed by the following provisions in Article X on Local Government in the 1987 Philippine Constitution: 

  • Section 5. Each local government unit shall have the power to create its own sources of revenues and to levy taxes, fees and charges subject to such guidelines and limitations as the Congress may provide, consistent with the basic policy of local autonomy. Such taxes, fees, and charges shall accrue exclusively to the local governments;
  • Section 6. Local government units shall have a just share, as determined by law, in the national taxes which shall be automatically released to them; and
  • Section 7. Local governments shall be entitled to an equitable share in the proceeds of the utilization and development of the national wealth within their respective areas, in the manner provided by law, including sharing the same with the inhabitants by way of direct benefits.

To better understand the exercise of the power of the purse at the local government level, one must understand the local financial systems and local budget process.

Local fiscal administration systems 

Local financial systems are drawn from the theory and practice of local fiscal administration in the Philippines. Local fiscal administration encompasses the systems of development planning, taxation and revenue generation, budgeting and spending, borrowing, budget accountability and audit. 

Fiscal systems and citizen participation

Local governments in the Philippines are classified into four: provinces, cities, municipalities and barangays. Each type of local government has a set of officials, both elective and appointive, and performs a well-defined set of executive or legislative functions.

The Governor or Mayor is the chief executive officer of a province, city and municipality, and the barangay captain is the chief executive of the barangay government. On the side of the legislative branch, the Local <i> Sanggunian </i> (Council) headed by the Vice-Governor in provinces or the Vice Mayor in cities and municipalities, together with the members of the Sanggunian, exercise the power of legislation. The Sanggunian makes policies through ordinances and resolutions, and approves among others, the Annual Budget, the Local Revenue Code, the Local Development Plan, the Annual Investment Program, and the Comprehensive Land Use Plan.

Citizen representation in the Sanggunian is mandated in the 1991 Local Government Code. As shown in Table 1, sectoral representatives must serve as regular members of the provincial, city and Municipal Sanggunian. At the barangay level, members of the Sangguniang Barangay are elected at large and could represent various sectors. 

Table 1. LGU Elected Officials and Members of the Sanggunian (RA 7160)


Executive Branch

Legislature: The Sanggunian and its Composition







Sangguniang Panlalawigan

- Vice Governor

- Board members (number varies from 6  to 12 depending on income class)

- President of the provincial chapter of the Liga ng mga Barangay

- President of the provincial federation of the Sangguniang Kabataan

- Sectoral representatives







Sangguniang Panlungsod

- Vice Mayor

- Councilors (number varies from 10 to 36 councilors, depending on the number of districts and the number of councilors per district)

- President of the city chapter of the Liga ng mga Barangay

- President of the city federation of the Sangguniang Kabataan

- Sectoral representatives







Sangguniang Bayan

- Vice Mayor

- Councilors (number varies from 8 to 12)

- President of the municipal chapter of the Liga ng mga Barangay

- President of the municipal federation of the Sangguniang Kabataan

- Sectoral representatives





Barangay Captain

Sangguniang Barangay

- Barangay Captain

- 7 members elected at-large

- Sangguniang Kabataan chairperson

SK Chairperson

Sangguniang Kabataan

- Sangguniang Kabataan Chairperson

- 7 members elected at-large

Local development planning system 

This system provides the framework for the pursuit of local development. Two plans that local governments must formulate and legislate are the Comprehensive Development Plan (CDP) and the Comprehensive Land Use Plan (CLUP).

The CDP is a comprehensive multi-sectoral development plan that must be duly approved by the Sanggunian. The CLUP, enacted through zoning ordinances, is to be the primary and dominant bases for the future use of land resources, providing particularly for the requirements of food production, human settlements, and industrial expansion. The CDP, the CLUP and the Local Development and Physical Framework Plan (LDPFP), if available, are implemented through the Local Development Investment Plan (LDIP), Annual Investment Plan (AIP) and the Executive-Legislative Agenda (ELA), and other thematic plans such as the Local Poverty Reduction Action Plan (LPRAT), Disaster Risk Reduction and Management Plan (DRRMP), Gender and Development Plan (Serote 2012).

In local finance, the LGU formulates the Local Revenue Code and the Annual Appropriations Ordinance. These are implemented through the Revenue Generation Plan, the Annual Procurement Plan, and actual disbursements and delivery of services.

Development planning is the mandate of the Local Development Council (LDC). Considered as the mother of all special local bodies, the importance, power and authority vested in the LDC are mirrored in the significance of the development planning documents that it must formulate and their implementation monitored, since these documents define the future and growth of the local economy and contain the basis for the formulation and spending of the local General Fund or the Annual Budget, the Special Education Fund, and Local Trust Funds of the local government.

The LDC is tasked to appraise and prioritize programs and projects, and coordinate, monitor and evaluate the implementation of development plans and projects. When the LDC is not in session, the LDC-Executive Committee is active, ensures that LDC decisions are faithfully carried out, and acts on matters needing immediate attention by the LDC. It formulates plans, policies and programs based on principles and priorities laid out by the LDC. 

The LDC is assisted by the LDC Secretariat, which provides technical support, documents LDC proceedings and prepares reports for the LDC. Assisting the LDC in the conduct of its functions are the various LDC Sectoral Committees such as the Social Sector, Economic Sector, Infrastructure, Environment and Natural Resources, and the Institutional Sector Committees. The sectoral committees provide the LDC with data and information essential to the formulation of plans, programs, projects, & activities (PPPAs), define sectoral or functional objectives, set targets, collate and analyse data, conduct studies, conduct public hearings, and monitor and evaluate PPPAs’ status.

The number of civil society representatives in the LDC should not be less than 25 percent of the total LDC regular membership. Serote (2012) suggests that the composition of LDC-Sectoral Committees Technical Working Group (TWG) could grow from the Core TWG, to an Expanded-TWG, and to a Full-Blown TWG as summarized in Table 2.

In addition to the Core TWG, membership of the Sectoral Committees may expand to include other government officials from the local and national levels operating in the locality, and important non-government organizations whose functions and advocacies are highly connected to the particular sector. In addition, the full-blown TWG may include other groups and individuals from the non-government sectors who have a stake in local development and who can enrich the committees’ capability.

Table 2. Suggested LDC-Sectoral Committees’ Composition (Serote 2012)

Sectoral Committee

Core TWG (Must be there)

Expanded TWG (nice to have participating)

Full-blown TWG (the more the merrier)

Social Development

MPDO Staff


LDC Rep. (Barangay)

District Supervisor

Sanggunian representative



LDC representative (CSO)

PTA Federation

Police Chief

Local Civil Registrar


Housing Board representative

Manager GSIS/SSS

Fire Marshall

Population Officer

Nutrition Officer


Sports organization

Religious leaders

Media representative

Inner Wheel Club

Charitable organizations

Labor groups

Senior citizens


School principals

Economic Development


Tourism Officer

MPDO staff

LDC representative (CSO)


Coop Development Officer

LDC representative (barangay)

Sanggunian Rep.

Chamber of Commerce & Industry

DTI Rep.

Bank Managers

Sidewalk Vendors

Transport Orgs.

Trade Unions

Market Vendors


Lions club

Rotary Club



Other interested groups


Physical/Land Use Development

Mun. Engineer

MPDO staff

LDC representative (CSO)

Mun. Architect

Zoning officer

LDC Rep (barangay)

Sanggunian Rep.

Electric Coop representative

Real Estate Developers

Professional Orgs.

Telecomm. companies

Water district representative



Other interested groups & individuals

Environmental Management

MPDO staff

LDC representative (barangay)

General Services Head

Sanggunian Representative

 LDC representative (CSO)


Sanitary Inspector


FARMC Representatives

Heads of private hospitals



BFAR representative

Environmental advocates

Other interested groups & individuals

Institutional Development

MPDO staff

LDC representative (Barangay)

LDC representative (CSO)


Local Administrator

Sanggunian Representative



Budget Officer



Religious groups

Good governance advocates

Other interested groups & individuals


Local tax system

Taxation is one of the inherent powers of the state, exercised through the national and local government offices and units.

Tax policies shall follow the principles of uniformity, equity, progressivity, justice, not contrary to law and public policy, and must not be in restraint of trade. These tax principles are not necessarily homogenous, but must be pursued with vigor. Having been given the power to impose local taxes and to generate their own sources of income, local governments have to develop a system of taxation and revenue and income generation through the imposition of local taxes, fees and charges,  operate markets and other local enterprises, borrow for purposes of development, partner with the private sector in undertaking infrastructure investments and income-generating activities, and assist the national government in the collection of national taxes from which LGUs get a fair share of the proceeds.

To facilitate tax assessment, tax collection, and tax records management, computerized systems are adopted and installed in the offices of the Assessor, Business Permits and Licenses, Treasury, Registry of Deeds, among others and personnel from the same offices are trained in the management of tax information system.

The power to impose taxes is exercised by the Local Sanggunian. The Sanggunian is further authorized to grant tax exemptions, give incentives or relief from taxes under certain terms and conditions. The Sanggunian passes the appropriate tax or revenue ordinance and specifies the subjects or objects of taxation and the rates and penalties for noncompliance. Each level of local government has its own set of taxing powers as shown in Table 3. The proceeds of certain taxes in provinces and cities are shared with component local governments shown in Table 4.

Table 3. Taxes by Type of Local Government (RA 7160)

Provincial Taxes

Taxes in Cities & Metro Manila Municipalities

Municipal Taxes

Barangay Taxes

  • Additional 1% SEF tax
  • Amusement tax
  • Annual fixed tax on delivery trucks or vans
  • Franchise tax
  • Idle land tax
  • Income tax on banks & financial institutions
  • Professional tax
  • Public utility charges
  • Real property tax
  • Special levy on real property
  • Tax on business of printing & publication
  • Tax on sand and gravel
  • Tax on transfer of real property ownership
  • Tool fees & charges



All provincial and municipal taxes may
be levied  


  • Amusement tax
  • Community tax
  • Fees and charges on business & occupation
  • Fees for sealing & licensing of weights & measures
  • Fishery rentals, fees & charges
  • Income tax on banks & financial institutions
  • Public utility charges
  • Special levy on lands benefited by public works
  • Tax on business
  • Tool fees & charges
  • Barangay clearance fee
  • Fees & chares on billboards, signboards, neon signs, & outdoor advertisements
  • Fees & charges on commercial breeding of fighting cocks, on cockfights, & on cockpits
  • Fees & charges on places of recreation that charge admission fees
  • Public utility charges
  • Service fees
  • Taxes on stores & retailers
  • Tool fees & charges
  • Barangay clearance fee
  • Fees & chares on billboards, signboards, neon signs, & outdoor advertisements
  • Fees & charges on commercial breeding of fighting cocks, on cockfights, & on cockpits
  • Fees & charges on places of recreation that charge admission fees
  • Public utility charges
  • Service fees
  • Taxes on stores & retailers
  • Tool fees & charges

Table 4. Local Taxes with Shared Proceeds (RA 7160)

Taxes with shared proceeds

Provincial taxes

Provincial share

Municipal share

Barangay share

Provincial taxes

Tax on Sand, Gravel & Quarry Resources




Amusement Tax




Basic Real Property Tax




Additional 1% RPT for SEF

50% to Provincial School Board

50% to Municipal School Board



City taxes

City share

Barangay share

City taxes

Sand & Gravel Tax


40%, where quarry is located

Basic Real Property Tax




MM-Municipal Taxes

MMDA share

Municipal share

Barangay share

Taxes in Metro Manila Municipalities

Sand & Gravel Tax



40%, where quarry is located

Basic Real Property Tax




Idle Land Tax




The local budget system: who is in charge?

Each local government maintains three different types of funds: the General Fund (GF) or Annual Budget; the Special Education Fund (SEF) and Trust Funds.

When people talk of the local government budget, they typically mean the GF or Annual Budget. The GF consists of monies and resources which are available for the payment of expenditures, obligations or purposes not specifically declared by law as accruing and chargeable to, or payable from, any other fund. The SEF consists of the respective shares of provinces, cities, municipalities and barangays in the proceeds of tax on real property. Trust Funds meantime consist of private and public monies which have officially come into the possession of the local government or of a local government official as trustee, agent or administrator, or which have been received as a guaranty for the fulfilment of obligations. 

Control over the local government budget should be discussed in line with the budget process. In budget preparation, the power to propose the annual budget, set budget ceilings and allocation criteria, is vested on the Local Chief Executive (LCE). The Governor or Mayor as chief executive issues budget policy and guidelines in conformity with the Local Development Plan and budget ceilings set by the Local Finance Committee (LFC). This becomes the basis of each department head in preparing his or her own budgets which are then submitted to the LCE on or before July 15th of each year.

The LCE puts together the different department budgets into the proposed annual budget, with the technical assistance of the LFC composed of the Treasurer, the Planning and Development Officer, and the Budget Officer. The membership of the LFC shows that the budget preparation phase is a closed process. No citizens, individuals or groups who are not officials or employees of the local government may participate in this stage of the budget process. The proposed budget is then submitted to the Sanggunian not later than October 16th for approval into a Budget Ordinance. The Sanggunian led by the Vice-Governor or Vice-Mayor, exercises the power to legislate the annual budget into an ordinance on the basis of the estimates of income and expenditures submitted by the LCE.    

The power to review the annual and supplemental budgets of component cities and municipalities is vested on the Sangguniang Panlalawigan where the cities/municipalities belong. The Department of Budget and Management (DBM) exercises the power to review the annual and supplemental budget ordinances of provinces, highly-urbanized cities, independent component cities, and municipalities within Metro Manila. Budgets of cities and provinces, in turn, are reviewed by the Secretary of the Department of the Interior and Local Government (DILG). The purpose of the review is to ensure compliance with the budgetary requirements and general limitations set forth in Sections 324 and 325, respectively, of the 1991 Local Government Code. The budgetary requirements and general limitations that must be complied with in annual budgets are summarized in the Table 5 below.

Table 5. Budgetary Requirements and General Limitation on Local Budgets set in RA 7160

Legal basis  

Details of Provisions

RA 7160, Section 287; 
DBM & DILG Joint Circular
No. 1, s 2005 dated 20 September 2005

  • Each P/C/M shall appropriate in its Annual Budget no less than 20% of the IRA for Development Projects. The 20% Development Fund is a Special Account in the GF, and is maintained with separate subsidiary ledgers for easier preparation of the financial statements. 


RA 7160, Section 294

  • At least 80% of the proceeds from the development and utilization of hydrothermal, geothermal and other sources of energy in the P/C/M/B shall be applied solely to lower the cost of electricity in the LGU where such source of energy is located.

RA 7160, Section 324. Budgetary requirements

  • The aggregate amount appropriated shall not exceed the estimates of income;
  • Full provision shall be made for all statutory and contractual obligations of the LGU;
  • The appropriations for debt service shall not exceed twenty percent (20%) of the regular income of the LGU concerned;
  • In the budget of provinces, cities, and municipalities (P/C/M), aid to component barangays shall  not be less than One thousand pesos (P1,000.00) per barangay; and
  • Five percent (5%) of the estimated revenue from regular sources shall be set aside as an annual lump sum appropriation for calamities.

RA 7160, Section 325. General Limitations

  • The annual appropriations for Personal Services shall not exceed forty-five percent (45%) in the case of first to third class P/C/M, and fifty- five percent (55%) in the case of fourth class or lower, of the total annual income from regular sources realized in the next preceding fiscal year.
  • The annual Discretionary Fund of the LCE shall not exceed two percent (2%) of the actual receipts derived from basic real property tax in the next preceding calendar year. 

RA 10121 Phil. Disaster Risk Reduction & Management  (PDRRM) Act of 2010

  • Not less than 5% of estimated revenue from regular sources shall be set aside as Local Disaster Risk Reduction & Management fund (LDRRMF), of which 30% shall be allocated as Quick Response Fund, and the remaining 70% as Special Trust Fund.

Budget execution and budget accountability are vested primarily on the LCE. Additional or supplemental budget proposals may be proposed by the LCE duly supported by new or additional income or revenue sources as certified by the Local Treasurer. In case of a calamity, a supplemental budget by way of budgetary realignment may be proposed by the LCE to set aside appropriations for the purchase of exceptionally urgent supplies and materials, and payment of indispensable services for use in areas of the LGU declared by the President to be in a state of calamity.

In revenue generation, the LCE is tasked to initiate the general revision of real property assessment values, the updating of the revenue code and the codification of tax ordinances. It should also initiate the submission to the Sanggunian of a list of delinquent taxpayers and the posting of notice of tax delinquency (COA AFR 2012:121).

The LCE and his financial team are then in charge of implementing the annual budget. The local financial management team must maintain a “system of accounting and reporting which provides for the necessary internal controls to ensure that transactions are properly authorized, recorded, assets are safeguarded against unauthorized use or disposition, and liabilities recognized” (2011 COA AFR:37). The expanded financial management team in each LGU is composed of the following government officials:

  • The Local Budget Officer
  • The Local Assessor
  • The Local Treasurer
  • The Local Accountant
  • The Local Planning and Development Officer.

The Provincial/City/Municipal (P/C/M) Budget Officer reviews and consolidates the budget proposals of the different departments and offices of the LGU, assists the LCE in the preparation of the budget, provides technical assistance during budget hearings, study and evaluate the budgetary implications of proposed legislation and give his/her comments and recommendations, and assists the Sanggunian in reviewing the approved budgets of component LGUs,

The P/C/M Assessor performs appraisal and assessment of real properties for purposes of taxation. The Office of the Assessor must be able to establish a systematic, preferably computerized, system of real property tax administration, including an efficient tax mapping system, and an up-to-date real property identification and accounting system because real property taxes are one of two most productive local taxes. The other one is the business taxes, whose administration (assessment and collection) could similarly benefit from tax mapping and computerization. It is the duty of the Local Assessor to keep the assessment records on real property up-to-date.

The P/C/M Treasurer advises the LCE, the Sanggunian and other local officials on matters relative to public finance including the disposition of government funds and property. The Treasurer or his/her duly authorized deputies are in charge of collecting all local taxes, fees and charges. In relation to these functions, the Treasurer exercises the authority to examine the books, accounts, and other pertinent records of any person, partnership, corporation, or association subject to local taxes, fees and charges in order to ascertain, assess, and collect amount of taxes, fees, and charges. Specific to taxation, Local Treasurers must keep the Taxpayer’s Index Cards up to date for easy determination of potential tax collection and tax delinquencies (Section 171, Chapter III, RA 7160).

To facilitate revenue collection, the Office of the Treasurer should maintain and update the tax information system of the LGU. The Treasurer or duly authorized representatives may seize or confiscate any personal property of a person who failed to pay any local tax, fee, or charge within a required time period, to satisfy the amount of tax, fee or charge in question together with any increment cost incident to delinquency and the expenses of seizure (Section 175 [a] Chapter III, RA7160). Treasurers are tasked to disseminate information on newly approved tax ordinances and revenue measures.

The P/C/M Accountant performs the dual role of accounting and internal control. The Office of the Accountant must install and maintain an internal audit system, prepare and submit financial statements, appraise the Sanggunian and the LCE on the financial condition and operations of the LGU. The office prepares, for each fund, the financial statements such as: (1) Balance sheet; (2) Statement of Income and Expenses; and (3) Statement of Cash Flows, as well as (4) Consolidated Financial Statements for all funds and the (5) Notes to the Financial Statements.  The Accountant must certify to the availability of budgetary allotment to which expenditures and obligations may be properly charged.

The P/C/M Planning and Development Officer (LPDO) must be included in the financial management team of the LGU, he/she being a member of the Local Finance Committee (LFC). The LPDO performs planning and zoning functions and assists in the attainment of other development concerns of the LGU. The LPDO is primarily tasked with the formulation of integrated economic, social, physical and other development plans and policies for consideration of the LDC. As a member of the LFC, the LPDO is an important fiscal officer who is likewise tasked to analyse income and expenditure patterns, and formulate and recommend fiscal plans and policies for consideration of the LFC and the LCE. He/she or his office is further tasked to promote citizen participation in development planning. The development plans and the CLUP prepared by the LPDO serve as basis for the annual budget, investment program, revenue generation program, and other thematic plans/programs of the local government.

The LPDO, the Budget Officer, and the Local Treasurer are members of the Committee LFC. The LFC is highly active during budget preparation and budget legislation as it makes income estimates, recommends appropriate tax and other revenue or borrowing measures to support the budget, and recommends to the LCE the level of annual expenditures and spending ceilings based on the approved LDP. In budget execution, the Budget Officer exercises the authority to certify the existence of a duly approved appropriation in support of every disbursement. The Accountant is duty bound to obligate said appropriation. The Treasurer certifies to the availability of funds for the purpose.

The barangay budget system 

At the barangay level, the income of each barangay accrues to the Barangay General Fund. Ten percent of the general fund of the barangay is set aside for the <i> Sangguniang Kabataan </i> (Youth Council).

The power to prepare the barangay budget is exercised by the Barangay Chairman, who proposes the barangay budget for the ensuing fiscal year, and submits this to the Sangguniang Barangay for legislative enactment. The Barangay Chairman bases the proposed budget on the statement of income and expenditures prepared by the Barangay Treasurer also on the basis of the statement of income and expenditures issued by the city/municipal treasurer. In turn, the Sangguniang Barangay exercises the power to approve the budget into a barangay ordinance.

Local enterprise system 

Local governments may own public utilities and economic enterprises such as public markets, slaughterhouses, transport terminals, cemeteries, water systems, and the like. Such utilities and economic enterprises shall be operated and maintained independently of the LGU concerned. This means that the local enterprises generate their own income, maintain their respective budgets, appropriate for salaries, wages, representation and transportation allowances of officials and employees of the public utilities and economic enterprises. The appropriations for the personal services of economic enterprises shall be charged to their respective budgets and are excluded in the annual budget of the LGU and in the computation of the maximum amount of allocation for personal services.

Local government loans and loan-financed projects

Title IV of RA 7160 authorized LGUs to incur debt and avail of credit facilities to finance local infrastructure and other socio-economic development projects. Debt-funded projects must be in accordance with the approved Local Development Plan and the Public Annual Investment Program.

Interestingly, Section 296 on the general policy on incurring LGU debt does not specify the entity (LCE or the Sanggunian) that may exercise such power. Section 297 on “Loans, Credits, and Other Forms of Indebtedness of LGUs” also did not specify who is to exercise such authority to incur loans, credits and other forms of indebtedness with any government or domestic private banks and other lending institution. Section 298 likewise did not specify who, between the LCE and the Sanggunian, may enter into “Deferred-Payment and other Financial Schemes”.

In the case of bond flotation, the Sanggunian is identified to exercise the power to approve and state the purpose, terms and conditions for bond flotation. In inter-LGU loans, grants and subsidies, the Sanggunian of the LGU concerned is the approving authority.  The exercise of power to borrow by local governments is limited by the provision on debt service allocation, which sets an amount not to exceed 20 percent of the regular income of the LGU concerned at the same time that it must fully provide for all statutory and contractual obligations.

The Department of Finance-Bureau of Local Government Finance (DOF-BLGF) sets guidelines on local government borrowing renders technical assistance and determines LGU creditworthiness.  As of 2008, LGU borrowing of PhP 5.196 billion comprised 1.89 percent of total LGU income (Padilla, May 2010). While the amount of annual local borrowing as a percentage of total annual local income may yet be considered relatively low, the nominal amount is already significant and there is much evidence that LGUs have increasingly tapped borrowing as a fiscal tool. As of 2011, the total loans payable of LGUs  a total of PhP 72.039 billion, of which PhP 36.906 billion (or 51.2 percent) is payable to the Land Bank of the Philippines (COA AFR 2011).

Citizen participation in local special bodies 

In the LDC and in the Sanggunian, civil society representation is mandatory. In other local special bodies such as the Local School Board (LSB), Local Health Board (LHB), Prequalification, Bids and Awards Committee (PBAC), and the Local Peace and Order Council (LPOC), the participation of civil society organizations (CSOs) and the private sector may be made possible through the passage by the Sanggunian of rules on CSO/private sector accreditation and guidelines on citizen participation and representation in local special bodies.  

Citizen participation in the LSB is important because the LSB exercises the power over the preparation, deliberation and approval of the Special Education Fund (SEF) Budget. The LSB determines the annual supplementary budgetary needs for the operation and maintenance of public schools within the LGU. It is noted that the SEF Budget is not approved by the Sanggunian, but instead by the LSB, which is chaired by the governor or mayor and the school supervisor. Citizen representation could be expanded to include representatives from the women, youth and cultural sectors, among others.

Table 6. Composition of the Local School Board (RA 7160)

Local School Board: Chairmen



Provincial School Board



Governor  and Division Superintendent of Schools


Chairman of the Education Committee of the Sangguniang Panlalawigan

Provincial treasurer

Representative of the Pederasyon ng mga Sangguniang Kabataan in the Sangguniang Panlalawigan

Duly-elected President of the Provincial Federation of Parents-Teachers Association

Duly- elected Representative of the Teachers' Organization in the Province, and

Duly-elected Representative of the Non-Academic Personnel of Public Schools in the Province


City School Board



City Mayor and

City Superintendent of Schools  

Chairman of the Education Committee of the Sangguniang Panlungsod

City Treasurer

Representative of the Pederasyon ng mga Sangguniang Kabataan in the Sangguniang Panlungsod

Duly Elected President of the City Federation of Parents-Teachers Associations

Duly Elected Representative of the Teachers' Organizations in the city, and

Duly Elected Representative of the Non-Academic Personnel of Public Schools in the city


Municipal School Board



Municipal Mayor and the District Supervisor of Schools

Chairman of the Education Committee of the Sangguniang Bayan

Municipal Treasurer

Representative of the Pederasyon ng mga Sangguniang Kabataan in the Sangguniang Bayan

Duly Elected President of the Municipal Federation of Parents-Teachers Associations

Duly Elected Representative of the Teachers' Organizations in the Municipality, and

Duly Elected Representative of the Non-Academic Personnel of Public Schools in the city

The LHB’s budget is included in the General Fund Budget of the LGU. The Sanggunian decides on the amount of allocation for health and other offices and sectors of the local government. As shown in table 7, an NGO or private sector representative is regular member of the LHB, and not simply an observer.

Citizen participation is important in the LHB because it proposes the annual budgetary allocation for the operation and maintenance of health facilities and services in the LGU. The LHB and its committees perform advisory functions to the Local Health Office on matters of personnel (selection, promotion, grievances, discipline), bids and awards, budget review, operations review and similar functions.

Table 7. Composition of the Local Health Board (RA 7160)


Chairman & Vice-Chairman


Provincial Health Board

Chairman: Governor 

Vice-Chairman: Provincial Health Officer

Chairman of the Committee on Health of the Sangguniang Panlalawigan

Representative from the private sector or non-governmental organizations involved in health services, and

Representative of the Department of Health in the province

City Health Board

Chairman: City Mayor

Vice-Chairman: City Health Officer

Chairman of the Committee on Health of the Sangguniang Panlungsod

Representative from the private sector or non-governmental organizations involved in health services, and

Representative of the Department of Health in the city

Municipal Health Board

Chairman: Municipal Mayor

Vice-Chairman: Municipal Health Officer

Chairman of the Committee on Health of the Sangguniang Bayan

Representative from the private sector or non-governmental organizations involved in health services, and

Representative of the Department of Health in the municipality

Public Bids and Awards Committee and the local procurement system 

The Public Bids and Awards Committee (PBAC) is present in every province, city and municipality, and is assigned the power and authority to ensure the prequalification of contractors, bidding, the evaluation of bids, and the recommendation of awards concerning local infrastructure projects. The chair is the Governor or Mayor, and the following are members.

  • Chairman of the Appropriations Committee of the Sanggunian;
  • Representative of the minority party in the Sanggunian, or one (1) chosen by the Sanggunian from among its members;
  • Local treasurer;
  • Two (2) NGO representatives in the LDC, to be chosen by the organizations themselves; and
  • Any practicing certified public accountant from the private sector, to be designated by the local chapter of the Philippine Institute of Certified Public Accountants.

NGO representatives on the PBAC sit as regular members and not as observers.

With regard to the procurement of property and supplies, the general rule on award of contracts on procurement of supplies is to award the contract to the lowest complying and responsible bidder who meets all the terms and conditions of the contract or undertaking. The procurement of “supplies” such as equipment, furniture, stationary materials for construction or personal property and maintenance of equipment and furniture, as well as trucking, hauling, janitorial, security, and related services shall all undergo a bidding process. 

Procurement of supplies without public bidding is allowed under Title VI Section 366 of the 1991 Local Government Code. Procurement without bidding can be done through: (1) personal canvass; (2) emergency purchase; (3) negotiated purchase; (4) direct purchase from manufacturers or exclusive distributors; and (5) purchase from other government entities. However, these options are subject to the approval of the Committee on Awards and the rules and limitations listed in Table 8.

Table 8. Mechanisms for Procurement of Supplies without Bidding and Rules and Limitations (RA 7160)

Procurement of supplies without bidding

Rules and Limitations

Personal canvass

In P/C/M in MM, the value shall not exceed the following amounts:

1st & 2nd class – not >P150,000

3rd & 4th class – not > P100,000

5th & 6th class – not > P50,000

In Municipalities, the value shall not exceed the following amount:

1st class municipalities – P60,000

2nd & 3rd class – P40,000

4th class & below – P20,000

Emergency purchase

Resorted to in cases of emergency where the need for the supplies is exceptionally urgent or absolutely indispensable and only to prevent imminent danger to, or loss of, life or property, regardless of amount

Negotiated purchase

Resorted to in cases where public biddings have failed for two (2) consecutive times and no suppliers have qualified to participate or win the bidding, regardless of amount

Procurement from duly licensed manufacturer & from exclusive Philippine agents or distributors

In case of locally manufactured goods, procurement may be made directly from the duly licensed manufacturers. In case of supplies of foreign origin, procurement may be made directly from exclusive Philippine agents or distributors

Procurement from government entities

Direct procurement may be made from the government entities producing the required supplies. Procurement of supplies from units or agencies of foreign governments with which the Philippines maintains diplomatic relations may be made with prior authority from the Office of the President.


LGU partnership with the private sector 

The power to approve such proposed partnerships with the private sector is vested in the Sanggunian. The local government through the LCE may enter into contract with private contractors for the financing, construction, and maintenance of any financially viable infrastructure facilities under the build-operate-transfer (BOT) agreement, subject to the provisions of RA 6957 or the BOT law. A check on the exercise of this power is the requirement that the project to be undertaken under a BOT arrangement shall be duly included in the LDP and the AIP.

Additional audit and accountability policies 

Policies on audit and accountability in LGUs are contained in the Commission on Audit (COA) Manual on the New Government Accounting System for use in LGUs under COA Circular No. 2002-003 issued on June 20, 2002, the 2008 DBM-issued Updated Budget Operations Manual (UBOM) for LGUs, and the Statement of Receipts and Expenditures of the Department of Finance-Bureau of Local Government Finance (DOF-BLGF), and other pertinent rules issued by these three agencies (COA AFR 2011:1).

The DILG similarly issued financial management policies to enhance transparency and accountability, particularly the Full Disclosure Policy (FDP) of Local Budget and Finances, and Bids and Public Offerings under Memorandum Circular No. 2010-83 issued on August 31, 2010 by then DILG Secretary Jesse M. Robredo.

Attached to the FDP are the Seal of Good Housekeeping (SGH) Award and the Performance Challenge Fund (PCF). The SGH award is conferred on LGUs found to adhere to sound fiscal management evidenced by the absence of an Adverse or Disclaimer Audit Opinion by COA and on Accountable and Transparent Governance in compliance to the FDP.

The financial incentive for being a good housekeeper is the PCF established under DILG-MC No. 2011-02 issued on April 27, 2011 to give due recognition to LGUs’ “good performance in the areas of planning, fiscal management, transparency, accountability and valuing performance management”. LGUs that have been conferred the SGH award may avail of the PCF to finance the undertaking of capital investment projects. The SGH award as well as the PCF has stirred LGUs to improve internal control and financial management, although much remains to be desired.

As mentioned above, the LGU maintains at least three funds: the General Fund/Annual Budget; Special Education Fund, and Trust funds. Local treasurers and other accountable officers should keep these funds distinct and separate. Each fund has its own money source intended for distinct purposes, and must be recorded in separate books and depository accounts.

The local treasurer is responsible for maintaining depository accounts in the name of the LGU with banks, preferably government-owned, located in or nearest to the LGU. Under the GF are special accounts for the following purposes: (1) public utilities and other economic enterprises; (2) loans, interest, bond issues, and other contributions; and (3) development projects funded from the share of the LGU in the Internal Revenue Allotment (IRA). Other special accounts may be created by law or ordinance as the need arises.

Raising the capability of citizens 

Citizens and taxpayers have the right and the responsibility to exact accountability from government. Citizen participation is a partnership between the people, the government, the private sector and all other sectors of society. While government is expected to be honest and efficient, the reality is that substantial amount of government resources are wasted in illegal expenditures resulting in low quantity and low quality public services leading to poorer quality of life. In pursuit of good governance, all sectors of society have a part to play in ensuring society’s growth and protection. Government typically performs better under informed public scrutiny and citizens needed to participate in fiscal processes as major stakeholders.

Citizen participation can only be effective if government legislates for it.  On one hand, local governments must pass orders, ordinances, rules and regulations defining the mechanisms through which participation may happen. It must accredit civil society organizations (CSOs) where necessary; activate local special bodies, and allow CSOs full membership in the local special bodies and in the Sanggunian, and not just as observers, as mandated in the Local Government Code.

On the other hand, citizens and CSOs must have the willingness to perform their role as citizens. They should develop awareness of the scope of authority of the local government, its officials, its programs, projects and activities. They should strive to acquire the technical knowledge and skills that may help them exercise responsible citizenship. People should develop a sense of belonging to local government, and a concern for what is happening in the local community, neighbouring localities, and beyond.

Periodic visits to the barangay hall, city/municipal hall and provincial capitol can help build knowledge on projects and activities undertaken by local governments. Listening to broadcast media (radio and television), reading newspapers, becoming aware of activities in the neighbourhood, visiting the barangay hall on a regular basis, joining associations of residents, and participating in community events could be done with very little  effort or at little extra cost.

Among the websites that citizens may access to monitor government projects and activities are the websites of the DBM, the National Economic Development Authority (NEDA), COA, DOF, DILG and their respective local governments.

The DBM publishes in its website information on the General Appropriations Act, which contains information on the IRA and similar allocations to LGUs. The NEDA website contains information on Official Development Assistance (ODA) and ODA-funded programs and projects intended for local governments. The DOF website is a wealthy source of information on the country’s fiscal performance and the government’s fiscal policy, with links to the websites of DOF-bureaus and attached agencies including the Bureau of Local Government Finance (BLGF). The BLGF website is amply loaded with information on policies, assistance, services, facilities and related information that are useful to local governments.

The DILG website is a rich source of information on policy issuances and comparative information on LGU performances and very useful information of interest and benefit to LGUs. The COA website contains findings on audit of operations of all government agencies including local governments. There is much information that citizens can access that will truly help them better understand and appreciate their local governments.

Local governments have their respective websites which they have to populate with relevant information particularly on the budget and their financial performance. The posting on bulletin boards and websites of the financial statements and reports and similar documents of LGUs has been required by the DILG under the Full Disclosure Policy. LGUs are duty bound to comply with this directive.

It is now up to citizens and civil society organizations to examine the programs and performance of LGUs using this information. Citizens can take pro-active stance in requiring the LGU to comply with the provisions in the 1991 Local Government Code on citizen participation and participate in the overall management of the local government through the Sanggunian, local special bodies, and similar mechanisms that the LGUs have created.  Citizen Action Network for Accountability


Padilla, Alvic. May 24, 2010. Understanding Incomes and Expenditures of Local Government Units. http://peranatinito.net/

Serote, Ernesto. 18 April 2012. Planning in Local Governance. UP SURP. Land Equity International, accessible through www.landequity.com.ph.

United States Agency for International Development (USAID). 2009. Power of the Purse Reform in the Philippines: Proposed Revisions to the 1987 Administrative Code. July 2009, pp. 1-24, accessible through http://incitegov.org/wp-content/uploads/2011/05/INCITEGov-Power-of-the-Purse.pdf.

Commission on Audit. 2011 Annual Financial Report of Local Government Units.

Commission on Audit. COA Manual on the New Accounting System for use in LGUs under COA Circular No. 2002-003 issued on June 20, 2002.

Department of Budget and Management. 2008. DBM-issued Updated Budget Operations Manual (UBOM) for LGUs.

Department of Finance-Bureau of Local Government Finance (DOF-BLGF). Statement of Receipts and Expenditures.

Department of the Interior and Local Government. DILG Memorandum Circular No. 2010-83 issued on August 31, 2010 Full Disclosure Policy (FDP) of Local Budget and Finances, and Bids and Public Offerings

DBM and DILG Joint Circular No. 1, s 2005 dated 20 September 2005.

DILG-MC No. 2011-02 issued on April 27, 2011, creating the Performance Challenge Fund.

1987 Philippine Constitution.

Executive Order No. 292 or the Administrative Code of 1987.

RA 6957 or the Build-Operate-Transfer (BOT) Law, as amended by RA 7718.

RA 7160 or the 1991 Local Government Code.

RA 10121 Philippine Disaster Risk Reduction & Management (PDRRM) Act of 2010