Low on results, local government decentralization heads for tweaks—or the backburner

A fiscal decentralization strategy to help empower local-level governments towards boosting economic activity and reducing poverty levels in their respective communities has so far yielded mixed results. Not only have the pace of progress been too slow and the benefits too limited to make an impact on people’s social conditions in the countryside, the decentralization effort launched over 20 years ago appears to be now relegated to the backburner as the Aquino government takes on more pressing priorities in its campaign against corruption and poverty. Thus, even various proposals for strategic revisions in the decentralization program to make it a better tool for improving good governance in the ranks of local executives are not showing in the radars of public debate. Under the scheme enunciated in the Local Government Code of 1991, the national government would devolve a package of functions, powers and resources to local government units (LGUs) as a way of enabling officials of provinces, cities, municipalities and barangays across the archipelago to better address economic and basic services needs in their areas. Local governments, now enjoying autonomy in deciding the composition of their expenditures and revenues in accordance to their respective development targets, are largely responsible for most basic public services like primary health care, social welfare services, and hospital care. They can also pursue infrastructure projects in tandem with national government plans. On the other hand, the provision of education to citizens—one area where results over the years have particularly been poor—continues to be under the control largely of the national government, although local governments contribute about half of capital spending, mainly on school buildings. RESULTS THUS FAR While similar devolution schemes in many other countries had led to largely improved management of public finances and economic development in local communities, results in the Philippines have not been as significant. Decentralization has hardly been a factor towards correcting inequality of incomes and social conditions in the country. For instance, in the National Capital Region where per capita GDP was over 11 times that of the Autonomous Region of Muslim Mindanao, poverty rate in 2006 was 10.4 percent in NCR and 62 percent in ARMM, according to a June 2011 World Bank study on public expenditures in the Philippines. Now, some experts like UP School of Economics professor Benjamin Diokno argue that income redistribution, poverty reduction, and fiscal equalization can be “best addressed under a centralized, rather than a decentralized regime.” Central to Diokno’s argument, which he aired in a paper at a forum on fiscal decentralization last week, is a perceived potential for large shortfalls in government revenues against expenditures related to the Aquino administration’s goal of achieving high-growth rates in the economy on an inclusive and sustained basis. This threat of fiscal shortfalls, he added, looms on account of the possible fallout from the recent global economic crisis which has already caused a number of economies across the globe to experience large deficits and deeper poverty.   Decentralization’s mixed results thus far were also noted in another presentation by Philippine Institute for Development Studies senior research fellow Gilbert Llanto at last week’s forum, which was jointly sponsored by the public economics, policy and regulation think-tank Philippine Center for Economic Development - Institute of Public Economics and Regulation (PIPER) and Germany’s Gesellschaft für Internationale Zusammenarbeit (GIZ), a federal entity that extends “assistance towards sustainable development and international education work around the globe.” Llanto, citing previous academic studies, said the mixed results were the product of “varying local fiscal capacity, managerial and technical expertise, and governance.” As a result, many local areas “continue to have problems with access  to potable water, affordable electricity, good roads, and other public goods and services.” BONE OF CONTENTION To be sure, there have been winners and losers among LGUs during the decentralization process of the past 20 years. Both Diokno and Llanto agree that owing to their increased shares in the Internal Revenue Allotment (IRA) system, the newly created cities emerged as “the big winners” at the expense of provinces and municipalities. The IRA, the portion of the national government tax revenues that is distributed to LGUs under the decentralization program, has been a high-coveted but much-criticized element, mainly on the system’s ability to achieve equitability in spreading resources around compared to devolved functions. For instance, provinces, under the present system, have shouldered 37 percent of the new functions they got from the national government but their share of the IRA has reached only 23 percent, using current computation methods. Municipalities now pay for 38.5 percent of devolved functions and 23 percent of the IRA, and barangays share 18.8 percent of the functions but get 20 percent of the IRA. Cities, meanwhile, now get 5.7 percent of the devolved national government functions and a 23 percent share of the IRA. As a result of this system, there’s been a rush among municipalities to convert into cities. The number of cities nationwide has grown to 138 by the end of September in 2011, compared to 115 in 2003 and 66 in 1991 when the Local Government Code was implemented. A number of bills have been filed in Congress to address this trend, although several other issues pertaining to IRA continue to affect the decentralization effort. These include, according to Llanto: questions on the predictability and stability of IRA as a revenue source for LGUs; the “disincentive effect” of IRA on local tax effort; the inability of IRA to substitute for local revenues and for stimulating greater public spending, and a variety of complaints about IRA inadequacy and inequality of shares under the current distribution formula. However, there seems to be a shortage of serious deliberations on a range of recommendations that include, according to Llanto, clearer and definitive assignment of expenditure assignments, fiscal responsibility through proposed spending with identified sources of funds and revenues, and greter LGU flexibility in determining and adjusting tax rates, tax base sharing (whether to adapt a surcharge or supplementary rate on a national tax base). CAN THEY MANAGE? Apart from these policy challenges that hamstring decentralization efforts, there is also the matter of leadership and management competence levels among local officials. Using scores from a Human Development Index (HDI) matrix, a World Bank discussion note publicly released last year showed a wide disparity in performance levels among provinces, for instance. Of the 74 provinces analyzed, only eight managed to improve their records enough to move up to the next higher level of development, and three registered declines in their performance rating. The same study, citing research findings by economist Arsenio Balisacan, also noted that growth in provincial income since decentralization has had “a weak impact on poverty reduction, suggesting that LGUs have proven unable to translate growth at the provincial level into poverty reduction through more effective service delivery.” Weak systems for LGU accountability, a high level of fragmentation among LGUs, and inequities in the LGUs’ resource base were listed in the study as critical concerns that should be addressed to improve the decentralization process. Recent proposals for these issues include a public disclosure of performance ratings of local-level officials against their set targets. One such proposal, cited by Diokno last week, is a “Hall of Fame, Hall of Shame” list that will reveal the best and worst performers among local officials for a particular period. This list, he said, could help voters make more intelligent choices of leaders during elections. This suggestion, however, seems to ignore the “guns, gold, goons” culture that guide politicians’ campaigns in many parts of the country. Whether the “Hall of Fame, Hall of Shame” list can succeed in correcting this anomaly remains to be seen. GOOD GOVERNANCE INDEX There is a “Good Governance Index (GGI)” developed by the National Statistical Coordination Board (NSCB) that measures “good governance outcomes” through certain sets of statistics on the performance of national and local officials in a range of economic and social areas under three major categories—economic, administrative, and political governance. Although already a comprehensive system, the GGI still does not include, however, indicators on elimination of graft and corruption, improved transparency and accountability, ICT readiness and improvement of technology, and continuous building of LGU capacities, NSCB Secretary General Romulo Virola said when he led the launching of the project late last year. It would be interesting to know how the voters will use the GGI results for making decisions in coming elections—or if those scores will be used as guides at all. In the 2010 elections, voter preferences indicated, according to Virola, that “bad governance is not necessarily rejected by voters.” In the NSCB scores for 2010, the three provinces with the highest GGI in Luzon were Kalinga, Benguet, and Batanes. For Visayas, the top three were Siquijor, Biliran, and Northern Samar, and for Mindanao the best records were those of Camiguin, Compostela Valley, and Davao del Sur. Here are some highlights of the NSCB findings comparing election results and local officials’ performance as measured by the GGI: In the case of provinces, governors of seven of the 10 provinces with the highest GGI in 2008 got reelected in the 2010 elections, while three lost. Of the 10 provinces with the lowest GGI scores in 2008, six governors got reelected in 2010 while the other four lost. In the case of the 10 provinces with the “highest improvement” in the GGI between 2005 and 2008, seven got reelected and three lost. On the other hand, of the 10 provinces with the “least improvement” in GGI, six governors got reelected and four lost. IN THE TOWNS Among the 1,496 municipalities across the country, the mayors of 19 of the 30 with the highest GGI in 2008 got reelected in 2010, one lost, and 10 did not stand for reelection. On the other hand, of the 30 municipalities with the lowest GGI in 2008, 18 got reelected, two lost, and 10 did not run for reelection. Mayors of the 21 of the 30 municipalities with the highest performance in GGI between 2005 and 2008 got reelected, two lost, and seven did not run, while mayors of 14 of the 30 municipalities with the least improvement in GGI got reelected, four lost, and 12 did not run for reelection. These findings, said Virola, replicated results obtained in previous studies and they “demonstrate, or at least indicate, the need to continue to advocate for better behavior among voters.” All these simply show how arduous the decentralization process has been—and will continue to be—towards achieving the government’s objective of attaining a more equitable distribution of incomes and social services among the Filipino people.