Editorial: Another look at LGU debt

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Tuesday, April 22, 2014

FOR two years, the Cebu City Government spent more than it should have on paying for debts, the Bureau of Local Government Finance (BLGF) observed.

It pointed out in the Iskor ng ‘yong Bayan website (http://iskor.blgf.gov.ph) that in 2010, Cebu City spent around 45 percent of its regular income on debt servicing; in 2011, it spent 21.7 percent. For local governments to pass this item, one of several in the fiscal sustainability scorecard, it should spend no more than 20 percent of its regular income to pay for its debts.

In contrast, Cebu Province spent nothing at all on debt servicing in 2011 and 2012.


At first glance, the report may add to the pressure Cebu City now faces to raise its revenues, such as by selling more parcels of the South Road Properties—something Cebu City Mayor Michael Rama has yet to convince the City Council to let him do in nearly four years as mayor.

Yet not all debt is bad; some amount may even be necessary for certain local government units (LGUs) that have urgent constituents’ needs to address, but lack the resources to do so.

The finance department’s scorecard acknowledges this by measuring other factors—aside from the debt service ratio—in assessing how well an LGU has managed its expenses.

It also considered how much of its Internal Revenue Allotment an LGU spent on local development projects; whether it stayed within the limit for personnel services; and the total expenditure per capita, or the rough estimate of how much the LGU spent for each constituent.

Here’s another area where Cebu City’s scores proved interesting.

In 2010, the same year it failed to limit its debt service ratio to less than 20 percent, Cebu City earned a “high” rating in total expenditure per capita. That year, an estimated P5,050 in public goods and services went to the city’s constituents.

The next year, the City’s rating dropped to “fair” or average; the total expenditure per capita in 2011 amounted to P4,381.

And yet in both years, the City spent less than the required 20 percent for local development projects. Imagine, then, how much more Cebu City’s constituents could have received, had the City found more ways to raise and collect revenue, or had it been held back less by its debts.

Published in the Sun.Star Cebu newspaper on April 23, 2014.


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