Chapter 6: The State of Revenue Generation in Cities - LGRC DILG 10

6THE STATE OF REVENUEGENERATION IN CITIESThe passage of LGC of 1991 or RA 7160 has broadened the taxing powers of LGUs.Among the different LGUs in the country, the cities have the most number ofassigned taxes, which include those slapped on real estate, business establishments,and even on delivery vans and trucks. The state of revenue generation among the cities inthe Philippines presents how this level of local government makes the said LGUs copewith the increased responsibilities and powers as mandated under the LGC. The ability ofcities to generate their own resources, in addition to the internal revenue allotment (IRA)from the National Government (NG), will determine the extent of the programs andservices that they could deliver to their respective constituents.The crux of the revenue generation service area of LGPMS is for the cities to collectsufficient income for their respective local development, including the delivery of basicservices to their constituents. The presence of the Comprehensive Revenue GenerationPlan (CRGP) and the efficient Real Property Tax Assessment and Collection (RPTAC)determine the capacities of the cities in accomplishing the said service area. On the otherhand, the percentage of annual revenue realized (ARR), the real property tax (RPT)collection efficiency rate, the percentage of IRA to total income, and the profitability ofpublic enterprises determine the productivity of cities in revenue generation.A DMINISTRATIVE C APACITIESThe presence of CRGP and theefficiency of RPTAC system areused as determinants in measuringthe administrative capacities of citiesin generating sufficient localrevenues for their development anddelivery of services. The existenceof a CRGP provides strategies for acity to achieve high revenuegeneration. The RPT has alwaysbeen a major source of local incomehence, the efficiency of the systemfor assessment and collection willhelp a great deal in generatingenough resources for localdevelopment and service delivery.Figure 6.1 Administrative Capacities of 116 Cities RegardingState of Revenue Generation, PY 20046(5%)4(3%)76(66%)5(4%)25(22%)Very High High Medium Low Very LowSTATE OF CITIES OF THE PHILIPPINES 29Administrative Capacities, Productivity and Development Conditions

In 2004, it appears that the cities in the Philippines were highly capacitated in revenuegeneration considering that 76 out of the 116 cities attained high level capacities, whileanother 25 achieved even higher.Comprehensive Revenue GenerationPlans. In 2004, there were 110 citieswith respective CRGPs (see Figure6.2). Of those with CGRPs, 98 ofthem or 89% had plans that can beconsidered with very high quality.This means that, most if not all, theelements were present in theirCRGPs. There were only few citieswherein some sub-indicators wereabsent.Figure 6.2 Performance Levels of 110 Cities Regarding thePresence of Comprehensive Revenue Generation Plans, PY 200421(2%)(1%)The cities showed performancelevels ranging from high to veryhigh with a national average of 4.80for all the 110 cities across thecountry (see Figure 6.3). The citiesVery High High Medium Low Very Lowin the MLUB and CP had performance levels, that ranged from 4.73 to 4.79, thoughlower than the national average, were still within the high capacity levels. The cities inthe MSR showed an average performance level of 4.87, which was slightly higher thanthe national average, and was the highest among the super regions.7(6%)2(2%)98(89%)Figure 6.3 Average Performance Levels of the Super Regions Regarding the Presence of ComprehensiveRevenue Generation Plans in 110 Cities, PY 2004Average Performance Levels5432104.73 4.794.80 4.76NationalAv erageNorthernLuzonAgribusinessQuadrangleMetro LuzonUrbanBeltw ayCentralPhilippines4.87MindanaoSuper RegionSuper RegionsThere are performance elements that must be present in a CRGP to make it more than just30 THE STATE OF REVENUE GENERATION IN CITIES

a mere document. The presence of all the elements indicates a very high capacity level.On the contrary, the existence of only one element implies a very low capacity level.Evidently, 101 of the 110 cities had their respective CRGPs satisfied all the performanceelements (see Figure 6.4).All the 110 cities across thecountry identified all theirpotential sources ofrevenues in their respectiveCRGPs. One city, however,did not include in its CRGPthe estimated or projectedamount that it would begenerating. Having a targetamount for revenuegeneration is crucial whenit comes to the allocation ofsuch potential income to thecompeting expenditures ofa city.Figure 6.4 Performance Elements Present in a Comprehensive RevenueGeneration Plan Met by 110 Cities, PY 2004Number of Cities1101081061041021009896A total of 107 cities hadIdentifies the city officials and/or department personnel responsibletheir listings of strategies orSets the policy directions in local rev enue administrationprograms to undertake inServ es as basis in updating the Rev enue Codeorder to yield the estimatedamount of revenues to becollected based on their respective CRGPs. Six cities, however, did not identify the localofficials or personnel responsible for such strategies. Noticeably, nine cities were notmaking use of their respective CRGPs for purposes of setting fiscal policy directions.Also, the same number of cities were not making their CRGPs as bases in updating theirrespective Local Revenue Codes (LRCs).1101091071041Performance ElementsIdentifies all potential sources of rev enues of the city101 101Includes the amount of rev enues projected or estimatedLists all the strategies or programsSystem for Real Property Tax Assessment and Collection. The efficiency of the systemregarding RPTAC in the cities is crucial. This was because RPT comprise the majority ofthe local income, not just of cities, but of provinces and municipalities as well. TheLGPMS identified the following elements as determinants of an efficient system ofRPTAC: Uses an updated LRC as a guide, which should not be more than three years old; Utilizes the latest RPT maps for property identification; Employs an indexing system that facilitates, at the very least time possible, access torecords of real property owners per barangay according to name, location, status ofproperty, and other relevant information; Provides on-line computer-based information to taxpayers; Operates in a network that is interlinked with the computers in the offices of the cityassessor and the treasurer;STATE OF CITIES OF THE PHILIPPINES 31Administrative Capacities, Productivity and Development Conditions

Involves the participation of local officials and other key sectors in the informationdissemination to ensure that the people are properly consulted prior to the impositionof the RPT, and that they are updated with the schedule of market values used for theassessment of their properties; Offers an incentive program for local officials or personnel involved, and for thetaxpayers (e.g. giving of cash and other forms of rewards and publication of names)to promote efficiency of RPTAC; Enforces revenue collection program both for current taxes and delinquencies; and Imposes penalties or sanctions to delinquent taxpayers.The presence of at least eight ofthe abovementioned elements ofan efficient system of RPTACsignifies a very high capacitylevel, while the absence of suchmeans a very low capacity level.The system of RPTAC in thecities can be generally consideredas highly efficient. In 2004, totalof 25 cities had very high capacitylevels while 51 cities had highcapacity levels for RPTAC. Therewere, however, 37 cities whereintheir performances were justwithin the benchmark level ofLGPMS (see Figure 6.5).Figure 6.5 Performance Levels of 116 Cities Regarding RealProperty Tax Assessment and Collection Efficiency, PY 200437(32%)3(3%)51(43%)25(22%)Very High High Medium Low Very LowThe national average performance level for the efficiency of the RPTAC system was 3.89(see Figure 6.6). There seems to be more rooms for improvement for the system to makeit much efficient in many cities in the country. The efficiency ratings of the cities in thesuper regions were almost the same, except those located in the NLAQ. Notably, thecities in the NLAQ performed comparatively higher than those in the other super regions.Moreover, they had high capacity levels compared with their counterparts in the othersuper regions, with average performance levels of falling within the benchmark line.32 THE STATE OF REVENUE GENERATION IN CITIES

Figure 6.6 Average Performance Levels of the Super Regions Regarding the Real Property TaxAssessment and Collection Efficiency, PY 2004Average PerformanceLevels5432104.123.89 3.82 3.82 3.83NationalAv erageNorthernLuzonAgribusinessQuadrangleMetro LuzonUrbanBeltw aySuper RegionsCentralMindanaoPhilippines Super RegionMost cities, that is, 102 or 87.93% of the 116, used updated RPT maps for propertyidentification (see Figure 6.7). About 94% or 109 of the 116 cities had indexing systemsthat facilitated the access torecords of real propertyowners per barangayaccording to name, location,status of property, and otherrelevant information at thevery least time possible. Atotal of 104 cities or about90% had participativeprocesses that allow localofficials and other key sectorsto take part in informationdissemination to ensure thatthe people are properlyconsulted prior to theimposition of RPT, and thatthe taxpayers should beupdated with the schedule ofmarket values used for theassessment. There were 113cities that enforced revenuecollection programs for bothcurrent taxes anddelinquencies, while 108 citieshad mechanisms in imposingpenalties or sanctions todelinquent taxpayers.Figure 6.7 Performance Elements Present in an Efficient System of RealProperty Tax Assessment and Collection Met by 116 Cities, PY 2004Number of Cities12010080604020077102 109 58Updated Local Rev enue CodeUpdated real property tax mapsIndex ing sy stem71104751 Performance ElementsOn-line computer-based information to tax pay ersNetw ork interlinked w ith computersParticipation of city officials and other key sectorsIncentiv e program113 108Rev enue collection program both for current tax es and delinquenciesMechanism to impose penalties or sanctions to delinquent tax pay ersSTATE OF CITIES OF THE PHILIPPINES 33Administrative Capacities, Productivity and Development Conditions

Looking at the elements enumerated above, it was obvious that there were cities thatrelatively failed in making their RPTAC systems highly efficient. A clear manifestationwas the absence of online computer-based information to taxpayers in half of the totalcities. That is, only 58 cities or 50% had computer-based information systems. Thenumber of cities that operated in a network interlinked with computers in the offices ofthe assessor and the treasurer also showed that there were needs for improvement. Onlyabout 61% or 71 cities operated in such computer-based network environment. Anotherrevealing fact was that only 77 cities or 66% were guided by an updated LRC in theirRPTAC. The absence of the abovementioned important inputs definitely affected theefficiency of the respective RPTAC systems of the cities in the Philippines.P RODUCTIVITYIn order to determine the productivity of the cities regarding revenue generation, thefollowing LGPMS output indicators were used: Percentage of ARR, RPT collection efficiency rate, Percentage of IRA to totalannual income, and Public enterprise profitabilityrate.Generally, the cities hadperformed well in terms ofoutput indicators. A little morethan half of the cities had highproductivity levels while about37% of them were within thebenchmark productivity level(see Figure 6.8). It wasnoticeable, however, that 13% ofthe cities fell below thebenchmark performance level.Figure 6.8 Performance Levels of 115 Cities Regarding State ofRevenue Generation, PY 200443(37%)11(10%)3(3%)Very High High Medium Low Very Low58(50%)Annual Revenue Realized. The rates of attainment of the revenue targets of the citiesdetermine not just their efficiencies in realizing their incomes but also their capabilities tocome up with feasible targets. To determine the productivity levels of the cities, thefollowing scheme for target accomplishment was used: 81% and above target accomplishment rate - very high 61% to 80% - high 41% to 60% - medium/ benchmark 21% to 40% - low 20% and below – very low34 THE STATE OF REVENUE GENERATION IN CITIES

Using the LGPMS performancelevel scheme above, the citiesgenerally had very highproductivity levels in terms ofrealizing their annual revenues.About 81% or 93 cities showedvery high productivity levels(see Figure 6.9). There were,however, eight cities or 7% thathad very low productivity levels.Figure 6.9 Performance Levels of 114 Cities Regarding Percentagesof Annual Revenues Realized, PY 200412(11%)Except for those in the MSR, thecities in the other super regionshad average numericalperformance levels higher than4.00. The cities in the NLAQVery High High Medium Low Very Lowand CP had average performance levels slightly higher than the national average of 4.73while those in the MLUB registered 4.57. The performance of the cities in the MSR wasthe lowest with a numerical level of only 3.95, but still above the benchmark performancelevel (see Figure 6.10).1(1%)8(7%)93(81%)Figure 6.10 Performance Levels of the Super Regions Regarding the Percentages of Annual RevenuesRealized, PY 2004Average Performance Levels5432104.73NationalAv erage4.774.57Northern Metro LuzonLuzon UrbanAgribusiness Beltw ayQuadrangle4.90CentralPhilippines3.95MindanaoSuper RegionSuper RegionsThe same pattern was observed concerning the performances of cities in terms ofpercentage of ARR. Only the cities in the NLAQ and CP exceeded the 94.55% nationalaverage with 97.43% and 101.08%, respectively (see Figure 6.11). The cities in theMLUB performed way below the national average, with only 86.03% of annual revenuebeing realized in 2004. Meanwhile, the cities in the MSR had the lowest percentages ofrealized revenue, having an average of 79.28%, which was about 14% lower than thenational average.STATE OF CITIES OF THE PHILIPPINES 35Administrative Capacities, Productivity and Development Conditions

Figure 6.11 Target Accomplishment Rates of the Super Regions Regarding Percentages of AnnualRevenues Realized, PY 2004Average Accomplishment Rates10090807094.55NationalAv erage97.43NorthernLuzonAgribusinessQuadrangle86.03Metro LuzonUrbanBeltw ay101.0879.28CentralPhilippinesMindanaoSuper RegionSuper RegionsIn sum, most of the cities in the MLUB and MSR had relatively inferior performancescompared to those in the NLAQ and CP in terms of realizing annual revenues. Suchglaring difference is calling for further improvements on the cities located in the MLUBand MSR.Real Property Tax CollectionEfficiency Rate. Under the LGC, onlythe cities and provinces are allowed tolevy real property taxes, which theythen share with other LGUs.Traditionally, RPTs are the largestsources of revenues of the cities asidefrom the IRA they receive from NG.The performances of the citiesconcerning their RPT collections affectthe levels of their independence fromNG - both imaginary and real – interms of their own revenue generation.Figure 6.12 Performance Levels of 109 Cities RegardingReal Property Tax Collection Efficiency Rates, PY 200437(3%)(6%)3(3%)3(3%)93(85%)Very High High Medium Low Very LowMost cities had very high efficiencyrates in their RPT collections whereinabout 85% or 93 cities had efficiencyrates of at least 81% (see Figure 6.12). Seven or 6% of the cities were still considerablyefficient with average rates of 61% to 80%. Meanwhile, nine cities or about 9% still hadto further improve their efficiency rates to catch up with the rest.The national average for RPT collection efficiency rate was higher than the ideal 100%,having posted an average of 103.13% with the cities located in the NLAQ reached thehighest at 129.49% compared with those in the other super regions (see Figure 6.13). The36 THE STATE OF REVENUE GENERATION IN CITIES

cities in the MLUB, CP, and MSR registered relatively lower average efficiency rates ofabout 95%. Nevertheless, such rates were still considered as highly efficient ones. Anostensible caveat would be some cities might have very low RPT collection targets vis-àvisactual collectibles, and that arrears in RPT collections would still be included in thecomputation.Figure 6.13 Average Real Property Tax Collection Efficiency Rates of the Super Regions, PY 2004ates100103.13129.49Average Efficiency R908070NationalAv erage92.58Northern Metro LuzonLuzon UrbanAgribusiness Beltw ayQuadrangle96.79 95.75Central MindanaoPhilippines Super RegionSuper RegionsBased on their average performance levels, the cities were considered highly productive,which indicated efficient RPT collections. The national average performance levelregarding RPT collection efficiency was 4.53 (see Figure 6.14). Notable were the citieslocated in the NLAQ, which had a performance level that surpassed the national average.The performance of the cities in the other super regions, although lower than the nationalaverage, were still within the national average range, and were considered highly efficientin their RPT collections.Figure 6.14 Performance Levels of the Super Regions Regarding Real Property Tax CollectionEfficiency Rates, PY 2004Average Performance Levels543210NationalAv erage4.534.754.46 4.34 4.53Northern Metro Luzon Central MindanaoLuzon Urban Philippines Super RegionAgribusiness Beltw ayQuadrangleSuper RegionsSTATE OF CITIES OF THE PHILIPPINES 37Administrative Capacities, Productivity and Development Conditions

Percentage of the Internal Revenue Allotment to Total Annual Income. Dependency onNG can be observed from among the various levels of LGUs especially in terms of theIRA shares in their annual revenues. It appears that most LGUs have become dependentfrom NG for their source of income. Even cities tend to be reliant from NG when itcomes to their incomes. About 68% of the cities had low productivity levels in terms ofpercentage of IRA to their respective total annual income (see Figure 6.15). Such can betranslated to 38 and 40 cities having low and very low productivity levels, respectively.Only 15% of cities were able to attain productivity levels higher than the benchmark.On the average, about 70% of thetotal annual income of cities camefrom IRA while the rest was derivedfrom other sources (see Figure 6.16).This was a manifestation of theimportance of the IRA in theoperations of city governments. Thedelay in the release of the IRAresults is a substantial setback to thedelivery of basic social services andto the development of the cities ingeneral.Cities in the MSR were moredependent on NG because 79.54%of their total annual income for 2004was IRA (see Figure 6.17). On theother hand, cities in the NLAQ,MLUB, and CP had 62% to 71% oftheir total annual incomes derivedfrom IRA. Cities in the MLUB seemhad less dependency on NGconsidering their IRA at 62.20% only.The performances of the cities had toreach the desirable level because oftheir low productivity level. Thenational average performance level in2004 was only 2.06, which wasconsiderably lower than thebenchmark 3.00 (see Figure 6.18).The cities in the NLAQ performedthe best with an average of 2.45.Figure 6.15 Performance Levels of 115 Cities RegardingPercentages of Internal Revenue Allotments to Total AnnualIncome, PY 200440(35%)5(4%)38(33%)13(11%)Very High High Medium Low Very Low19(17%)Figure 6.16 Average Percentage Distribution of TotalAnnual Income By Source, PY 200430%IRAOther Income70%38 THE STATE OF REVENUE GENERATION IN CITIES

Figure 6.17 Percentages of Internal Revenue Allotments to Total Annual Income of 115 Cities in theSuper Regions, PY 2004908079.54Percent7070.1170.316063.7262.2050NationalAv erageNorthernLuzonAgribusinessQuadrangleMetro LuzonUrbanBeltw ayCentralPhilippinesMindanaoSuper RegionSuper RegionsMeanwhile, the cities in the MLUB came close second with 2.31. The cities in the MSR,on the other hand, had very low productivity, having an average numerical performancelevel of only 1.63.Figure 6.18 Average Performance Levels of 115 Cities in the Super Regions Regarding the Percentages ofInternal Revenue Allotments to Total Annual Income, PY 20045Average Performance Levels43210NationalAv erage2.452.062.312.031.63Northern Metro Luzon Central MindanaoLuzon Urban Philippines Super RegionAgribusiness Beltw ayQuadrangleSuper RegionsIn sum, the cities have yet to free themselves from being dependent on NG consideringthat a significant slice of their total income still dominated by IRA. The factor of highpopulation in the urban areas may be put forward by some as the reason behind the highIRA share of the cities. This, however, does not explain in absolute terms thesignificantly high share of IRA to the total income of cities vis-à-vis the opportunities andpowers that the LGC has provided them in terms of generating locally sourced revenues.STATE OF CITIES OF THE PHILIPPINES 39Administrative Capacities, Productivity and Development Conditions

Public Enterprise AnnualProfitability Rate. Among theinnovations introduced recently isthe involvement of LGUs in publicenterprises. This has promisedadditional income for the LGUs anda guaranteed less dependence fromNG.Figure 6.19 Performance Levels of 110 Cities Regarding PublicEnterprise Annual Profitability Rates, PY 200420(18%)348(3%)(44%)The LGPMS has the followingperformance level scheme indetermining the productivity ofcities regarding the annualprofitability rates of the publicenterprises operated and managed bythe cities: Above 20% profitability rate - very high 11% to 20% - high -10% to 10% - medium/ benchmark -20% to -11% - low Below -20% - very low30(27%)9(8%)Very High High Medium Low Very LowIn 2004, only 48 cities or 44% had very high profitability rates (See Figure 6.19).Twenty cities or 18% of the total, on the other hand, had very low profitability rates.Furthermore, a total of 30 cities or 27% were within the benchmark performance level forprofitability of public enterprises.Figure 6.20 Performance Levels of the Super Regions Regarding Public Enterprise Annual Profitability Rates,PY 20045Average Performance Levels43213.844.344.08 4.083.210NationalAv erageNorthern Luzon Metro LuzonAgribusiness Urban Beltw ayQuadrangleCentralPhilippinesMindanao SuperRegionSuper Regions40 THE STATE OF REVENUE GENERATION IN CITIES