The Mandanas Ruling and Full Devolution

For a long time in the Philippines, devolution and decentralization have stalled. The inclusion of local autonomy provisions in the 1987 Constitution and the enactment of the Local Government Code (LGC) in 1991 were milestone achievements in dispersing power from a centralized National Government (NG), shifting instead towards community-based local government units (LGUs). Concomitant to this transfer of power was the responsibility of LGUs to deliver basic public services and facilities to their locales. And yet for nearly three decades, the NG took on the brunt of service delivery while the LGUs developed with vastly different results. A few were able to raise their own revenues, effectively plan and manage their funds, and even take on their own share of public services. Most, however, struggled to properly plan, spend, and monitor their automatic appropriations, with very little local earnings.

 

Because most of the services were delivered by the NG, a huge chunk of public funds remained lodged in national agencies, while a smaller portion was automatically set aside and released to LGUs. It appeared as if things would remain this way until the Supreme Court promulgated its landmark decision in Mandanas v. Ochoa.[1] The 2018 case jumpstarted important and urgent talks on devolution, as both the national and local governments scrambled to adjust and comply with the Court’s ruling.

 

Distinguishing Mandanas from Full Devolution

 

The Mandanas ruling is often conflated with the NG’s push for full devolution. While they may overlap, they are actually distinct acts made by separate branches of government.

 

The Mandanas case arose from local government officials seeking to declare certain provisions of the LGC unconstitutional by filing a petition before the Supreme Court. Sec. 6, Art. X of the Constitution declared that LGUs shall have a “just share, as determined by law, in the national taxes which shall automatically be released to them,” but Sec. 284 of the LGC instead provided that LGUs would partake in “national internal revenue taxes.” The LGC effectively excluded other national taxes, like those collected by the Bureau of Customs, from the base amount from which the LGU shares would be computed. The Court declared that it was indeed illegal to exclude such national taxes, except for those levied for a special purpose. In a 2019 Resolution, it was clarified that the new computations would begin for the fiscal year 2022. Simply put, the Mandanas ruling declared that more money should be transferred to the LGUs.

 

The implications of the Mandanas decision would prove to be quite expansive. For example, the National Tax Allotment (NTA)[2] of LGUs is set to increase to PhP959.04 billion in 2022, compared to PhP695.49 billion in 2021.[3] If all things were to remain constant, the NG would have significantly less funding despite providing the same plethora of services and facilities.

 

As such, the President issued E.O. No. 138, which directed national agencies to review the functions they perform and identify which among these should be devolved to LGUs.[4] This is the chief source of the recent full devolution push, and is a direct response to the Mandanas ruling. Effectively, the NG asserted that it would no longer keep exerting the same level of effort. If LGUs were to receive top-ups to their automatic appropriations, then they should also begin performing the functions and services outlined for them in the LGC.

 

Key Issues and Concerns

 

The sudden and immediate timeline for full devolution surfaced multiple issues and concerns. Upon review, most of the critical problems arising from the said policy can be traced back to the dysfunctions of national and local governments.

 

The NG, for example, will foreseeably struggle in finding its new role of monitoring and supporting the devolved functions of local governments. Despite suffering from chronic absorptive capacity issues of their own, national agencies will be expected to develop and oversee the planning, spending, and governing mechanisms of LGUs.

 

LGUs, meanwhile, will be forced to marshal meager resources to fulfill heightened expectations, despite varying greatly in terms of location, population, culture, income, and vulnerability. For instance, a 2020 PIDS study estimated that the incremental funding from Mandanas will be insufficient to provide comparable levels of services for 81.5% of provinces, 29.7% of cities, and 10.8% of municipalities.[5] With the release of the devolution guidelines under DBM Local Budget Memo No. 82,[6] these estimates are expected to further change.

 

The matrix below provides a summary of the specific issues and concerns observed and anticipated in the planning and implementation of full devolution.

IssueDescription
Capacity gaps in NG and LGUs

Both the NG and LGUs are expected to perform new functions. National agencies will transition from providing basic services and facilities to supporting and enabling LGUs. This is foreseen to be a struggle especially for the most “implementation-heavy” agencies, the chief expertise of which lie in planning, obligating, and disbursing programs, and not in formulating and ensuring compliance with harmonized service standards.

 

LGUs are expected to take on the implementation work, with which even the NG has struggled despite resources and years of institutional experience. These will not be fixed simply by acquiring more money. The nature of budget and fiscal planning and execution would also change, given the additional programs the LGUs will take on. This shortage in technical expertise is accompanied by weak transparency and accountability mechanisms, including the dearth of citizen participation and monitoring at the local level.

Differences among LGUsAll LGUs will receive increases in their NTAs, but not all have the capacity to keep up with the demands of full devolution. The wide variance among the LGUs immediately calls for the rejection of a one-size-fits-all approach. Instead, a more nuanced and targeted framework will be required in determining the pace and degree of devolution, to ensure the non-impairment of public services and facilities.
Information gapsIn planning the devolution process, data must come not only from national agencies, but also from the LGUs. The lack of granularity in planning and spending reports of LGUs presents a threat to proper function-and-capacity matching. The feasibility of the Devolution Transition Plans (DTPs), which national agencies and LGUs have been required to submit, can only be reasonably tested if national and local data are sufficiently particularized. It would also be difficult to estimate allocations for equalization funds without proper data and reporting mechanisms.
Lack of strategic investment and integrationNational and local modes of service delivery have yet to incorporate extensive vertical integration in terms of planning and execution. It is foreseen that full devolution will require significant “handholding,” especially for the LGUs that have been barely scraping by due to several constraints (e.g., corruption, unprofessional bureaucracy, insufficient resources, etc.). LGUs will also have to quickly learn how to attract and facilitate private investments, and forge public-private partnerships.
Lagging IT infrastructureLGUs have yet to be fully IT-enabled, presenting challenges in efficient governance and administration. The lack of complete, interoperable databases will hinder program formulation, targeting, implementation, and monitoring. This also limits the NG’s monitoring and support efforts.

 

Other Approaches to Full Devolution

 

It is worth noting that the current direction of full devolution, as provided by E.O. No. 138, tends towards treating the fiscal space as an almost zero-sum game, such that if funding is to be transferred from national to local, there should also be a transfer of functions and services. However, as the above cited PIDS study pointed out, there are other more accommodative approaches. The NG could either create additional revenue measures, or increase the medium-term fiscal deficit. In both cases, the additional funding would be enough to cover the increased NTA, with no immediate transfer of functions. This allows disadvantaged LGUs some room to learn, adapt, and catch up before being heaped with additional responsibilities. These approaches come with their own set of risks and rewards.

 

Ultimately, the challenge lies in finding a way to successfully navigate the transfer of functions, while ensuring that services are still properly and efficiently delivered, and that the dysfunctions which haunt the national and local government are minimized, if not eliminated.

 

[1] G.R. No. 199802 and 208488, July 3, 2018 (Decision); Apr. 10, 2019 (Resolution).

[2] NTA is the revised term which refers to the share of LGUs in the national taxes collected. Prior to the Mandanas ruling, the term used was Internal Revenue Allotment (IRA).

[3] Department of Budget and Management Local Budget Memorandum No. 82, ¶ 2.2.1 (June 14, 2021).

[4] Exec. Order No. 138 (June 1, 2021).

[5] Rosario Manasan, Fiscal Sustainability, Equity, and Allocative Efficiency in the Light of the 2019 Supreme Court Ruling on the LGUs’ Share in National Taxes, Philippine Institute for Development Studies Discussion Paper Series No. 2020-18, 12 (June 2020), available at https://pidswebs.pids.gov.ph/CDN/PUBLICATIONS/pidsdps2018.pdf.

[6] Supra note 3.