Question & AnswerQ&A (DEPARTMENT ORDER NO. 031-2018)
Sections 7, 8, and 9 of Republic Act No. 7160, known as the Local Government Code of 1991, form the legal bases for Department Order No. 031-2018, along with RA No. 9009.
The three verifiable indicators are: (i) income, (ii) population, and (iii) land area.
The minimum required locally generated average annual income for conversion into a component city is at least One Hundred Million Pesos (Php100,000,000.00), based on 2000 constant prices.
The provincial treasurer certifies the income for the creation of municipalities, and the city treasurer certifies the income for the classification of a city into a highly urbanized city.
Special funds, trust funds, transfers, and non-recurring income are excluded from the computation of average annual income.
Annual Income = Real Property Tax (General Fund) + Tax on Business + Other Taxes + Regulatory Fees + Service/User Charges + Receipts from Economic Enterprises + Interest Income + Shares from PEZA + Internal Revenue Allotment (IRA).
The Department Order requires indexing of income using CPI factors to adjust incomes at current prices to constant prices to ensure uniformity and accuracy in income computations.
The BLGF is responsible for updating the CPI factor annually, providing CPI tables to treasurers, issuing certificates of average annual income, capacitating local treasurers, issuing clarificatory guidelines, and providing annual reports to the Department of Finance.
The division or creation shall not be allowed if it reduces the income classification of the original local government unit or units to less than the minimum requirements prescribed in the Local Government Code.
The required average annual income for the creation of a municipality or conversion of a barangay into a municipality is at least Two Million Five Hundred Thousand Pesos (Php2,500,000.00) based on 1991 constant prices.
It is based on the average Annual Regular Income of the original LGU or LGUs less the shares from the proposed LGU at current prices, following the DOF's existing income classification policy.
The electronic Statement of Receipts and Expenditures (eSRE) maintained by the DOF-BLGF is prescribed as the official reporting system.