Title
Release of P17.5B Unprogrammed IRA to LGUs
Law
Executive Order No. 494
Decision Date
Jan 18, 2006
Executive Order No. 494 authorizes the release of P17.5 billion in unprogrammed Internal Revenue Allotment to local government units, following a previous Supreme Court ruling declaring the withholding of the IRA amount as unconstitutional.
release
local government units
withholding

Constitutional basis and legal background

  • The Constitution guarantees that LGUs have a just share, determined by law, in national taxes that are automatically released to them.
  • Alternative Center for Organizational Reforms, et al. vs. Hon Ronaldo Zamora, et al. (G.R. No. 144256) declares unconstitutional the practice of setting aside portions of the IRA as part of an Unprogrammed Fund.
  • Secretary of Justice Opinion No. 50, Series of 2005 clarifies that, in view of the Supreme Court’s declaration, the withheld IRA balance of P17.5 billion should be released to LGUs.
  • The Executive Order releases the IRA balance of P17.5 billion to LGUs to comply with the constitutional mandate while maintaining fiscal targets and macroeconomic stability.

Policy and purpose of the release

  • The Executive Order directs the government to ensure LGUs receive their respective shares from the P17.5 billion Unprogrammed IRA for CYs 2000 and 2001.
  • The Executive Order provides a structured release plan on an installment basis and also allows LGUs to access their shares in advance through monetization.

Core directive: IRA release plan

  • The Department of Finance (DOF), Department of Budget and Management (DBM), and Department of the Interior and Local Government (DILG) must take the necessary steps to ensure LGUs receive their shares from the P17.5 billion.
  • The installment release must cover CY 2007 up to CY 2013, for a total period of seven (7) years.
  • LGUs may instead avail in advance of their unreleased IRA shares through an IRA Monetization Program. (Section 1)

IRA Monetization Program mechanics

  • The IRA Monetization Program is a scheme initiated by the various leagues that gives LGUs an option to collect in advance from a trustee bank their shares from the unreleased IRA.
  • Advance collection under the program is at a discounted value, net of interest and other charges from the trustee bank. (Section 2)

Assigned responsibilities for implementation

  • DBM (Notice of Payment Schedule and share computation):

    • DBM must determine the share of each LGU in the unpaid IRA using the formula prescribed in the Local Government Code.
    • DBM must issue a Notice of Payment Schedule (NPS) informing LGUs of their share and the schedule of payment. (Section 3.A)

  • DOF (national government confirmation and program support):

    • DOF must provide a letter of confirmation of the National Government that the P17.5 billion constitutes an obligation of the Republic of the Philippines, subject to existing laws and regulations.
    • DOF must favorably endorse the Joint Issue Managers’ application to the National Government agency concerned or to the Bangko Sentral ng Pilipinas, as applicable, to secure the needed financial features for the issuance of investment certificates to improve the net proceeds for the beneficiaries.
    • DOF must make arrangements with the trustee bank on requirements for opening a Special Trust Account.
    • DOF must make available Bureau of Treasury facilities for the program’s auctioning and implementation processes, including Registry of Scripless Securities (RoSS), Automated Debt Auction Processing System (ADAPS), and other facilities as may be required. (Section 3.B)

  • DILG (LGU assistance and program coordination):

    • DILG must assist LGUs that opt to monetize through dissemination, distribution, collection, and monitoring of accomplished Subscription Agreements (SAs) accompanied by the corresponding Sangguniang Resolution of the concerned LGU.
    • DILG must inform DBM of LGUs that will avail of the monetization program. (Section 3.C)

  • Government Financial Institutions (trustee banks and trust account):

    • GFIs must serve as trustee banks for monetizing LGU IRA shares.
    • GFIs must establish a Special Trust Account for the monetization purpose.
    • All transactions must be undertaken under the existing accounting, auditing, and budgeting rules and regulations. (Section 3.D)

  • Local Government Units (enrollment documents):

    • LGUs that enroll in the monetization scheme must accomplish and submit the pertinent documents required in the monetization program. (Section 3.E)

  • Commission on Audit (accounting guidelines):

    • COA must provide guidelines for recording the obligation in the books of account of the National Government. (Section 3.F)

Separability

  • If any section or provision is declared unconstitutional or invalid, the remaining sections or provisions continue in full force and effect. (Section 4)

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