Procedure for Classification of Provinces and Cities
- The Secretary of Finance shall classify provinces and cities every four fiscal years based on average revenues certified by the Commission on Audit.
- Classification takes effect on July 1, 1974, for the first cycle.
- New provinces or cities with less than four years of existence shall be classified based on income since their establishment.
- Reclassifications shall not occur more often than every four years unless there is a decrease in revenue warranting earlier action.
Subclassification of First-Class Provinces and Cities
- Every two years, the Secretary of Finance shall subclassify first-class provinces and cities according to average income from regular sources over the last two fiscal years:
- First Class-A: ₱7,000,000 or more
- First Class-B: ₱5,000,000 - less than ₱7,000,000
- First Class-C: ₱3,000,000 - less than ₱5,000,000
Classification Criteria for Municipalities
- Municipalities are classified into six classes by their average annual income over the last four fiscal years:
- First Class: ₱1,500,000 or more
- Second Class: ₱1,000,000 to less than ₱1,500,000
- Third Class: ₱500,000 to less than ₱1,000,000
- Fourth Class: ₱300,000 to less than ₱500,000
- Fifth Class: ₱100,000 to less than ₱300,000
- Sixth Class: less than ₱100,000
- Revenue definitions are analogous to those for provinces and cities.
Procedure for Classification of Municipalities
- The Secretary of Finance shall classify municipalities every four fiscal years using revenues certified by the Commission on Audit.
- The first classification is effective July 1, 1974.
- Municipalities with less than four years in existence are classified based on income to date.
- Reclassifications occur no more than once every four years, except where revenue decline justifies earlier adjustment.
Subclassification of First-Class Municipalities
- Every two years, first-class municipalities are subclassified by income over the last two fiscal years:
- First Class-A: ₱5,000,000 or more
- First Class-B: ₱3,500,000 to less than ₱5,000,000
- First Class-C: ₱1,500,000 to less than ₱3,500,000
Limits on Salaries and Wages Expenditure
- Annual salaries and wages expenditure for officials and employees shall not exceed:
- 45% of total annual income from regular sources for first and second-class local government units
- 55% for units below second class
- Income considered is actual revenue from the previous fiscal year or certified current estimates, whichever is lower.
- Salaries and wages for officials/employees of public schools, hospitals, health/agricultural services, public utilities, markets, slaughterhouses, and other economic enterprises are excluded from this calculation.
- The Secretary of Finance may authorize excess expenditure up to 25% beyond the limit, except during overdraft situations.
Salary Rates of Local Officials
- Salary rates for elective and appointive local officials remain governed by existing laws (RA No. 4477 for provinces and cities; RA No. 6414 for municipalities) based on classifications as of June 30, 1973.
Repeal and Effectivity
- Sections of Republic Acts No. 4477 and 2368 contradicted by this Decree are expressly repealed.
- Conflicting laws, executive orders, or regulations are likewise repealed or modified.
- The Decree takes effect on July 1, 1974.