Technical Assistance Report Project Number: 39516 Policy and Advisory Technical Assistance (PATA) December 2009 Republic of the Philippines: Support to Local Government Financing The views expressed herein are those of the consultant and do not necessarily represent those of ADB s members, Board of Directors, Management, or staff, and may be preliminary in nature.
CURRENCY EQUIVALENTS (as of 11 November 2009) Currency Unit peso (P) P1.00 = $0.0212332 $1.00 = P47.0960 ABBREVIATIONS ADB Asian Development Bank BLGF Bureau of Local Government Finance CCD Coordination Committee on Decentralization CCS competency certification system DBM Department of Budget and Management DILG Department of the Interior and Local Government DOF Department of Finance LGFBR Local Government Financing and Budget Reform LGFBR 2 Second Local Government Financing and Budget Reform Program LGPMS Local Governance Performance Management System LGU local government unit MDC Mayor s Development Center MDFO Municipal Development Fund Office NEDA National Economic and Development Authority PSC project steering committee SRE statement of receipts and expenditures TA technical assistance UBOM updated budget operations manual TECHNICAL ASSISTANCE CLASSIFICATION Type Policy and advisory technical assistance (PATA) Targeting classification General intervention Sector (subsectors) Public sector management (decentralization, public expenditure and fiscal management) Themes (subthemes) Governance (public administration [national, decentralized, and regional]), economic growth, capacity development (institutional development) Location impact National (high), regional (high) NOTE In this report, $ refers to US dollars. Vice-President C. Lawrence Greenwood, Jr., Operations 2 Director General A. Thapan, Southeast Asia Department (SERD) Director J. Ahmed, Financial Sector, Public Management, and Trade Division, SERD Team leader Team member T. Niazi, Senior Public Sector Management Specialist, SERD C. Buentjen, Senior Governance and Capacity Development Specialist, Philippines Country Office, SERD In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.
I. INTRODUCTION 1. Strengthening of decentralization policy and enhancing the ability of local government units (LGUs) to deliver services are core elements of the Government s Medium-Term Philippine Development Plan, 2004 2010. 1 These objectives also represent one of the key pillars of the country strategy and program 2005 2007 and country operations business plan 2010 2012 of the Asian Development Bank (ADB). 2 This policy and advisory technical assistance (TA) falls under the long-standing Local Government Financing and Budget Reform (LGFBR) Program and is linked to supporting achievement of important policy actions for the proposed Second Local Government Financing and Budget Reform Program (LGFBR 2) scheduled in 2012. The TA follows on from several earlier TA projects under the LGFBR series of programs, with additional support warranted by the breadth and depth of the decentralization reform program being pursued. Preparation of this TA is referenced in the report and recommendation of the President for the proposed LGFBR subprogram 2, which will be discussed by the ADB Board of Directors in November 2009. 3 A fact-finding mission for the TA was fielded from 8 to 19 June 2009, and agreement was reached with the Government on the purpose, scope, implementation arrangements, and financing of the TA. The design and monitoring framework is in Appendix 1. 4 II. ISSUES 2. Since the 1990s, the Government has pursued major decentralization reforms through devolution of authority, functional assignments, and funding to LGUs. An estimated 25% of all public expenditures in the Philippines are now managed directly by LGUs. Since 2004, one ADB loan, along with several TA projects, has been approved to support decentralization efforts. 5 A joint study on decentralized service delivery was conducted by ADB and the World Bank, which established the issues that served as a basis for support through the LGFBR program. 6 The LGFBR subprogram 1 loan, covering 2006 2007, focused on legal, regulatory, and policy reforms in five core areas: (i) intergovernmental fiscal relations; (ii) fiscal management, planning, and expenditure management; (iii) LGU performance measurement and service delivery; (iv) credit financing; and (v) local own source revenues. A single tranche program loan of $300 million was disbursed in late 2007 based on achievement of agreed actions over 2006 2007. 3. The LGFBR program contributed to fiscal consolidation, good governance, and achieving the Millennium Development Goals by (i) lessening LGU dependence on national government transfers through enhanced predictability of resource flows and improved mobilization of own source revenues, (ii) supporting improved delivery of essential services through better LGU access to developmental credit, and (iii) supporting improved governance by establishing transparent and accountable LGU financial and administrative management 1 Government of Philippines, National Economic and Development Authority. 2004. Medium-Term Philippine Development Plan 2004 2010. Manila 2 ADB. 2005. Country Strategy and Program: Philippines, 2005 2007. Manila; and ADB. 2009. Country Operations Business Plan: Philippines, 2010 2012. Manila. 3 ADB. 2009. Report and Recommendation of the President to the Board of Directors: Proposed Program Loan to the Republic of the Philippines for the Local Government Financing and Budget Reform Program Cluster (Subprogram 2). Manila (Loan 39516-02-PHI, for $225 million, Board consideration on 27 November). 4 The TA first appeared in the business opportunities section of ADB s website on 27 November 2009. 5 ADB. 2007. Report and Recommendation of the President to the Board to the Board of Directors: Proposed Program Loan and Technical Assistance Grant to the Republic of the Philippines for the Local Government Financing and Budget Reform Program Cluster (Subprogram 1). Manila (Loan 2387 and TA 7019-PHI, for $300 million and $800,000, approved on 13 December). 6 ADB and World Bank. 2005. Decentralization in the Philippines. Manila.
2 systems for coordinated development planning. One of the key lessons coming out of the LGFBR program is the need for continuous capacity building through new TA projects for local finance reforms to take hold. A new approach would be to establish LGU learning networks that will allow stronger LGUs to mentor weaker ones through structured training programs. The Mayor s Development Center (MDC) established by the League of Municipalities has already taken steps in this area by sharing the expertise of ex-mayors who have performed well to its members through funding by various development partners. The proposed TA will work with MDC and examine the feasibility of establishing and utilizing such networks for a program of training and mentoring. Such programs can also result in the institutionalization of formal performance improvement contracts similar to those used in Naga City. 7 4. The LGFBR subprogram 2 loan covering 2008 2009 was approved on 26 November 2009. The regulatory framework, including lower-level instruments, has almost been finalized, policy reform has been enhanced to remove distortions and anomalies, and local capacity building programs have been launched. Various TA projects have helped continue the policy dialogue, addressing gaps and constraints in the five LGFBR core areas as well as building capacity. 8 On local own-source revenues and credit financing, Local Government Finance and Budget Reform TA laid a firm foundation for fiscal management tools and systems to be used by the Bureau of Local Government Finance (BLGF) and LGUs to improve LGU access to financing. Key among these is refinement of the statement of receipts and expenditures (SRE), which is part of the creditworthiness indicators system and is used for creditworthiness evaluation by public and private creditors. 5. On intergovernmental fiscal relations, local resource mobilization, expenditure management, and LGU performance measurement, the TA on Local Governance and Fiscal Management significantly reduced the release time for LGU shares in national wealth, recommended improvements in the use of the Special Education Fund, and refined the architecture of the Local Governance Performance Management System (LGPMS). On planning, Strengthening Provincial and Local Planning and Expenditure Management TA is supporting implementation of Joint Memorandum Circular No. 1 of 2007. 9 The TA will use provincial and local planning and expenditure management guidelines to produce outputs, i.e., provincial development and physical framework plans, provincial development investment programs, and feasibility studies of important projects. The Local Government Finance and Budget Reform TA is addressing gaps in planning and performance measurement by training trainers for cities and municipalities and improving the reporting system for the LGPMS. In addition, the TA facilitated formalization of the Coordination Committee on Decentralization (CCD), which is now the national and local forum for brainstorming policies and programs in the LGU sector. 7 Naga City is a first income class city in the Bicol Region (Region 5) of the Philippines. It has the most advanced and transparent governance monitoring of any local government in the country. The local government entered into a customer service covenant with it s constituents and regularly posts the achievements of the service delivery outcome such as infrastructure and business and investments as well as financial and expenditure data on their website. For more information, see http://www.naga.gov.ph/. 8 ADB. 2004. Technical Assistance to the Republic of the Philippines for Local Government Finance and Budget Reform. Manila (TA 4556-PHI, for $850,000, approved on 23 December); ADB. 2006. Technical Assistance to the Republic of the Philippines for Local Governance and Fiscal Management. Manila (TA 4778-PHI, for $1.8 million, approved on 3 April); and ADB. 2008. Technical Assistance to the Republic of the Philippines for Strengthening Provincial and Local Planning and Expenditure Management Phase 2. Manila (TA 7074-PHI, for $650,000, approved on 4 April). 9 The joint memorandum circular cosigned by the Department of the Interior and Local Government (DILG), Department of Finance (DOF), Department of Budget and Management (DBM), and National Economic and Development Authority (NEDA) provides guidelines on LGU planning, investment programming, revenue administration, budgeting, and expenditure management.
3 6. The proposed LGFBR 2 focuses on central government institutional strengthening and local government capacity building, and deepening reforms in four core areas: (i) fiscal management, planning, and public expenditure management; (ii) performance measurement and service delivery; (iii) credit financing; and (iv) local own source revenues. Building on the results of the previous TA projects, the proposed TA will facilitate completion of the LGFBR 2 policy triggers, which are designed to address remaining gaps and constraints. On financial management, the TA will refine the SRE by developing cash flow forecasting templates for LGUs and implementing a competency certification system. On credit financing, the TA will enhance the use of creditworthiness indicators by drafting guidelines for its use in prioritization and investment programming. On own source revenues, the TA will improve collection of local business taxes by using presumptive business tax methods. The TA will continue to assist the CCD in addressing policy issues and constraints not only related to the LGFBR program but also for the broader LGU medium-term agenda of the next administration (Appendix 4 maps the capacity-building areas of the ongoing and proposed TA projects to LGFBR 2). 7. Development partner coordination was achieved through participation in the Philippines Development Forum and consultation with key government agencies (footnote 8). Forum discussions provided the spectrum of projects related to the four core areas in which other development partners are working (Appendix 4, Table A4); the government agencies provided recommendations for priority activities within the four core areas. Participation in the forum and consultation with key agencies has not only prevented duplication of effort but also ensured best value addition. The support to the CCD also ensured that development partner interventions in the same policy area are complementary. For example, the CCD is discussing measures to advance LGU credit access reforms identified in the official development assistance study of ADB 10 and the policy-based grant system report of the World Bank. 11 III. THE TECHNICAL ASSISTANCE A. Impact and Outcome 8. The impact of the TA will be increased efficiency and effectiveness of basic public services delivered by LGUs to their constituent communities. The expected outcome of the TA is to assist LGUs to develop enhanced capacities to plan and budget for the general welfare of their constituent communities in a transparent and accountable way. B. Methodology and Key Activities 9. The TA will be implemented with intermittent inputs over 18 months, commencing in April 2010. It will provide analytical inputs, system development, and institutional capacitybuilding support to BLGF and Municipal Development Fund Office (MDFO), Department of Budget and Management (DBM), and Department of the Interior and Local Government (DILG), as CCD chair, to further strengthen their capabilities to support LGUs in improving local resource mobilization, expenditure management, and service delivery reforms. The three key components or outputs are as follows: 1. Enhancing Efficiency and Accountability in Financial Management, Planning, and Expenditure Management at the Local Level The views expressed herein are those of the consultant and do not necessarily represent those of ADB s members, Board of Directors, Management, or staff, and may be preliminary in nature. 10 C. Soriano and A. Pelligrini. Forthcoming. Strengthening LGU Access to ODA Financing. Manila. 11 World Bank. 2008. Study on the Preliminary Design Work for the Development of a Performance Grant System for Local Government Units. Manila.
4 10. This component will (i) provide support to DBM to develop supplemental budgeting guidelines for LGUs to harmonize the Updated Budget Operations Manual (UBOM) with the multiyear planning and revenue mobilization guidelines of the National Economic and Development Authority (NEDA) and Department of Finance (DOF); (ii) develop a cash flow forecasting template for LGUs; (iii) design a comprehensive competency profile of local budget officers and develop a competency certification system (CCS) for local budget officers; (iv) provide support to BLGF for (a) refinement and rollout of statement of receipts and expenditures, (b) use of BLGF s fiscal capacity model for LGU revenue forecasting and target setting, and (c) implementation of the CCS for local treasurers; (v) in collaboration with MDC through BLGF and DILG, design the mechanics of an LGU learning network allowing stronger LGUs to mentor weaker ones by developing structured programs of twinning and training with performance improvement contracts possibly linked to grants and/or loans; and (vi) provide support to the CCD technical secretariat through DILG by assisting in the documentation of meetings, preparation of agenda and briefing materials, providing quick policy response to key issues, and preparation of terms of reference for research and other TA. 2. Improving Access to Public and Private Sources of Capital for Financing of Policy Reforms and Development Projects 11. This component will assist BLGF and MDFO to (i) design and conduct a regional office-based trainers training involving BLGF regional staff on the use of financing modalities and debt management manuals and BLGF s creditworthiness and debt capacity certification process; (ii) prepare guidelines on the use of creditworthiness indicators as prioritization criteria for development investment programming; (iii) support the system design and programming services for computerization of all MDFO administrative and operational functions, including loan applications and processing; (iv) train MDFO personnel on the application of the financing modalities manual, debt management manual, and on the conduct of project financial and economic evaluation for prototype projects; and (v) provide technical advisory services to MDFO Program Governing Board for policy formulation and review, especially covering (a) policy for syndication of LGU loans with private financial institutions, (b) revised interest rate policy, and (c) policy for addressing delinquent LGUs. 3. Reducing Dependency on Internal Revenue Allotment by Developing Buoyant Sources of Revenue at the Local Level 12. This component will support BLGF and DBM to (i) develop guidelines for building a local business taxpayer database to be issued to LGU treasurers; the guidelines will be field validated in a province, a city, a first second class municipality, and a third sixth class municipality; 12 (ii) develop guidelines on the use of presumptive gross sales figures to calculate the business tax liability of business establishments to be issued to LGU treasurers; 12 LGUs are categorized into six classes on the basis of income; first class being the richest.
5 (iii) (iv) develop a prototype program for LGUs for the local business taxpayer database and for application of the presumptive business income tax at the LGU level; and develop a technical supplement to the UBOM setting out implementation details for establishing local government economic enterprises. B. Cost and Financing 13. The TA is estimated to cost $1,000,000 equivalent, of which $700,000 equivalent will be financed on a grant basis by ADB s Technical Assistance Special Fund (TASF-other sources). The government will finance the remaining $300,000 equivalent in kind as office space and staff time. C. Implementation Arrangements 14. The executing agency for the TA will be BLGF whereas DBM, MDFO, and DILG (as CCD chair) will be the implementing agencies. An interagency project steering committee (PSC) will be organized to coordinate the TA activities; its membership will be drawn from BLGF, DBM, MDFO, DILG, LGU leagues, and participating LGUs. The PSC, together with the ADB project officer and project team leader, will meet at least quarterly to review written project assessments of implementation progress, including actions to rectify problems as recommended by a technical review committee (TRC) comprising four senior staff members one each from DBM, BLGF, DILG, and MDFO. The TRC will also conduct the staff review of the TA outputs prior to the meeting with the PSC. 15. To implement the TA, the following consulting services will be required: 52 personmonths of national consultants will be hired through a firm selected on a quality (80%) and cost (20%) basis in the areas of LGU finance, including debt management; accounting and financial management; human resource management, including training design and execution; development financing; monitoring and evaluation; and information and communication technology. Two consultants (for 12 person-months) will be hired on an individual basis, as the distinct areas of expertise involved may not be available through a single firm. The individual consultants will be the LGU finance adviser (6 person-months) and the adviser on debt management (6 person-months). The outputs of the TA will be monitored on the basis of program indicators and TA-specific output milestones. All the consultants will be national, as expertise needed in the output areas is nationally available. The outline terms of reference are in Appendix 2. ADB will engage consultants in accordance with its Guidelines on the Use of Consultants (2007, as amended from time to time) using the simplified technical proposal for the recruitment of firms. Disbursements under the TA will be done in accordance with ADB s Technical Assistance Disbursement Handbook. 13 Any equipment assets purchased will be procured in accordance with ADB s Procurement Guidelines (2007, as amended from time to time); upon completion of the TA, they will be handed over to BLGF. 16. The TA is expected to be implemented over 18 months, commencing around April 2010 with completion expected in October 2011. The outputs of the TA will be monitored on the basis of TA-specific output milestones. TA outputs will be disseminated mainly in the form of study and policy reports and policy-related seminars and workshops that will be held. The outputs will also be uploaded on the BLGF website. The team leader will assist ADB to provide quality control and outcome evaluation. In consultation with the government, the more significant policy reports The views may expressed be published herein for are dissemination those of the consultant to a wider and audience do not necessarily including represent national those and of regional ADB s members, Board of Directors, Management, or staff, and may be preliminary in nature. policy makers, academia, and development partners. 13 ADB. 1998. Technical Assistance Disbursement Handbook. Manila.
6 17. BLGF has agreed to identify adequate furnished office accommodation for the TA team, including telephone and fax lines and internet connection facilities. In total, the TA will employ nine national consultants. All consultants will to a significant extent work intermittently and some consultants will spend considerable time in BLGF, DBM, DILG, and MDFO. Accordingly, it was agreed that office accommodation and furniture in BLGF would adequately cater for five persons while DBM, DILG, and MDFO would provide adequate desk space for consultants working from there from time to time. IV. THE PRESIDENT S DECISION 18. The President, acting under the authority delegated by the Board, has approved the provision of technical assistance not exceeding the equivalent of $700,000 on a grant basis to the Government of the Philippines for Support to Local Government Financing, and hereby reports this action to the Board.
Appendix 1 7 DESIGN AND MONITORING FRAMEWORK Design Summary Impact Increased efficiency and effectiveness of basic public services delivered by LGUs to their constituent communities. Outcome LGUs avail of enhanced capacities to plan and budget for the general welfare of their constituent communities in a transparent and accountable way Performance Targets and/or Indicators More than half of the aggregate LGU level indicators (below) improve by one-fifth to one-tenth of 2009 results by 2014: (i) ratio of health facilities to population; (ii) access to basic services such as water and electricity, (iii) sanitation condition, (iv) extent of solid waste collection and disposal, and (v) presence of sewerage facility Real local government revenues, including access to public and private sources of credit, increase by at least 4% annually at all levels of government between 2012 and 2016 in two-thirds of all provinces and highly urbanized cities, and in the majority of fourth to sixth income class other LGUs a Number of fraudulent cases reported by Commission on Audit decreases by at least 20% at all levels of government. Data Sources and/or Reporting Mechanisms Relevant indicators of Local Governance Performance Measurement System dataset BLGF SRE data Assumptions and Risks Assumption LGUs use enhanced resources for investments in basic public services. Risk A significant share of government resources is not channeled to LGUs through IRA, official development assistance, or other means. Assumption Mechanisms are in place in LGUs at all levels to provide incentives to make use of enhanced resources and capacities to plan and budget for the general welfare of constituent communities. Risk Delays may be experienced in engaging oversight agencies and LGUs because of the elections scheduled to be held in May 2010. Outputs 1. Financial management, planning, and expenditure management at the LGU level is more efficient and accountable 2. LGU access to public and private sources of capital for financing of policy reforms and development projects is improved Supplemental budgeting guidelines for LGUs to harmonize the UBOM with the multiyear planning and revenue mobilization guidelines of NEDA and DOF available by January 2011 Cash flow forecasting template available to all LGUs by January 2011 Creditworthiness indicators established as prioritization criteria for development investment programming by January 2011 Syndication of LGU loans with private financial institutions based on clearly established policy by January 2011 Budgeting guidelines Cash flow template Indicators guidelines Policy paper Assumption Limited understanding by oversight agencies of capacity development roles for LGUs Risk Incentives for coordination of capacity development activities between oversight agencies weaken over time Assumption Willingness of LGUs to provide quality performance data increases over time. Risk Private sector financing does not augment with increased availability of financial information on LGUs Policy for addressing delinquent Policy paper The views expressed herein are those of the consultant and do not necessarily represent those of ADB s LGUs by January 2011 members, Board of Directors, Management, or staff, and may be preliminary in nature. Assumption 3. Local government Business taxpayer liabilities Business tax guidelines Business tax revenue base of dependency on IRA is established based on agreed and LGUs is sufficient to justify reduced transparent criteria collection costs
8 Appendix 1 Design Summary Performance Targets and/or Indicators Implementation details for establishing local enterprises established Data Sources and/or Reporting Mechanisms Technical supplement to UBOM Assumptions and Risks Activities with Milestones Inputs 1.1 Provide support to DBM to develop supplemental budgeting guidelines for LGUs to harmonize the UBOM with the multiyear planning and revenue mobilization guidelines of NEDA and DOF by January 2011. 1.2 Develop a cash flow forecasting template for LGUs by May 2011. 1.3 Design a comprehensive competency profile of local budget officers and develop a CCS for local budget officers by September 2010. 1.4 Provide support to BLGF for refinement and rollout of SRE by August 2010. 1.5 Provide support to BLGF for use of BLGF s fiscal capacity model for LGU revenue forecasting and target setting by December 2010. 1.6 Provide support to BLGF for implementation of the CCS for local treasurers by April 2011. 1.7 In collaboration with MDC, design the mechanics of an LGU learning network allowing stronger LGUs to mentor weaker ones by developing structured programs of twinning and training with performance improvement contracts possibly linked to grants and/or loans by June 2011. 1.8 Provide support to the CCD technical secretariat through DILG by assisting in the documentation of meetings, preparation of agenda and briefing materials, providing quickpolicy response to key issues, and preparation of terms of reference for research and other TA by October 2011. ADB $700,000 Government $300,000 Consultants (64 person-months national): $384,000 Equipment: $80,000 Training, seminars, and conferences: $110,000 Local travel, reports, communications, miscellaneous administration and support costs: $58,000 Contingencies: $68,000 2.1 Design and conduct regional office-based trainer s training involving BLGF regional staff on the use of financing modalities and debt management manuals and BLGF s creditworthiness and debt capacity certification process by July 2011. 2.2 Prepare guidelines on the use of creditworthiness indicators as prioritization criteria for development investment programming by October 2011. 2.3 Support the system design and programming services for computerization of all MDFO administrative and operational functions, including loan applications and processing, by July 2011. 2.4 Train MDFO personnel on the application of the financing modalities manual, debt management manual, and on the conduct of project financial and economic evaluation for prototype projects by October 2011. 2.5 Provide technical advisory services to MDFO Program Governing Board for policy formulation and review especially those covering (i) policy for syndication of LGU loans with private financial institutions, (ii) revised interest rate policy, and (iii) policy for addressing delinquent LGUs by January 2011. 3.1 Develop guidelines for building a local business taxpayer database to be issued and piloted in a province, a city, a 1st 2nd class municipality, and a 3rd 6th class municipality by June 2011. 3.2 Develop guidelines on the use of presumptive gross sales figures to calculate the business tax liability of business establishments to be issued to LGU treasurers by June 2011. 3.3 Develop a prototype program for LGUs for local business taxpayer database and for application of presumptive business income tax at the LGU level by May 2011. 3.4 Develop a technical supplement to UBOM setting out implementation details for establishing local economic enterprises by July 2011. BLGF = Bureau of Local Government Finance, CCD = Coordination Committee on Decentralization, CCS = competency certification system, DILG = Department of the Interior and Local Government, DOF = Department of Finance, IRA = internal revenue allotment, LGU = local government unit, MDC = Mayor s Development Center, MDFO = Municipal Development Fund Office, NEDA = National Economic and Development Authority, SRE = statement of receipts and expenditures, UBOM = updated budget operations manual. a LGUs are categorized into six classes on the basis of income; first class being the richest.
Appendix 2 9 COST ESTIMATES AND FINANCING PLAN ($ 000) Total Item Cost A. Asian Development Bank Financing a 1. Consultants a. Remuneration and per diem i. National consultants 384.00 b. Local travel 18.00 c. Reports and communications 15.00 2. Equipment b 80.00 3. Training, seminars, and conferences c a. Facilitators 15.00 b. Training program 95.00 4. Miscellaneous administration and support costs 25.00 5. Contingencies 68.00 Subtotal (A) 700.00 B. Government Financing 1. Office accommodation and transport 90.00 2. Remuneration and per diem of counterpart staff 150.00 3. Others 60.00 Subtotal (B) 300.00 Total 1,000.00 a Financed by the Asian Development Bank s Technical Assistance Special Fund (TASF-other sources). b To be further defined and agreed to during the inception phase but likely to include (i) two desktop computers, (ii) two laptop computers, (iii) photocopier, (iv) scanner, (v) three printers, (v) filing cabinets, (vi) generic software and networking, and (vii) miscellaneous office equipment. c To be further defined and agreed to in the inception phase but likely to include (i) around 15 large workshops (3 for each component), (ii) commissioning of several training courses by local universities and institutions, and (iii) consultations and meetings of the Coordination Committee on Decentralization. Source: Asian Development Bank estimates. The views expressed herein are those of the consultant and do not necessarily represent those of ADB s members, Board of Directors, Management, or staff, and may be preliminary in nature.
10 Appendix 3 A. Introduction OUTLINE TERMS OF REFERENCE FOR CONSULTANTS 1. These outline terms of reference allow flexibility in aligning the consultants tasks with the emerging needs of the Government of the Philippines for achieving the policy triggers and milestones for the Second Local Government Financing and Budget Reform (LGFBR 2) Program. The technical assistance (TA) experts will need to provide inputs and expertise flexibly in the implementation of such actions. Hence, the tasks may be modified subject to evolving needs of the government and Asian Development Bank (ADB). 2. The TA will require national experts who are experienced with the Philippine decentralization approaches and framework, and who have the skills required for the particular positions in the advisory TA fiscal policy aspects of decentralization, municipal and local finance aspects of decentralization, financing and debt arrangements, systems programming, and capacity development and certification systems. About 64 person-months of national consulting inputs will be required. Six consultants for 52 person-months, including the team leader, will be hired through a firm. Two consultants for 12 person-months the local government unit (LGU) finance adviser and the adviser on debt management will be hired on an individual basis. B. National Consultants 1. Fiscal and Municipal Finance Adviser and Team Leader (12 person-months) 3. The adviser/team leader will have appropriate postgraduate qualifications in economics and finance and be experienced in the management of large TA teams, preferably in the Philippines. Significant experience is required in fiscal aspects of decentralization, particularly with regard to fiscal and municipal financing arrangements including fiscal modeling, budgeting, and design of forward estimates, preferably with Philippine experience. The main tasks to be undertaken by the adviser/team leader as follows: (i) (ii) (iii) (iv) (v) (vi) (vii) Lead, manage, and coordinate all aspects of the TA, including monitoring and evaluation of all outputs. Provide quality control over all milestones and outputs prepared by the TA. Report as required to the executing agency, the Department of Budget and Management (DBM), the project steering committee (PSC), and the ADB project officer. Act as the point of contact between DBM, the Bureau of Local Government Finance (BLGF), the Municipal Development Fund Office (MDFO), LGU leagues, and ADB with regard to project activities. Develop a technical supplement to the updated budget operations manual (UBOM) to enable LGUs to come up with multiyear budget estimates incorporating the multiyear investment programs developed from the programs, projects, and plans identified in the comprehensive development and physical framework plans. Develop a technical supplement to the UBOM to set out a spreadsheet template for LGU cash flow forecasting that follows on from the LGU revenue forecasts developed using BLGF s revenue forecasting guidelines. Support DBM and BLGF staff in their technical discussions with other oversight agencies such as the National Economic and Development Authority (NEDA)
Appendix 3 11 (viii) (ix) (x) and Department of the Interior and Local Government (DILG) as well as the LGU leagues with regard to (a) harmonization issues related to the implementation of Joint Memorandum Circular No. 1 Series of 2007, (b) interagency issues related to the systems to be designed under the TA, and (c) advocacy work with LGU leagues. Develop a technical supplement to the UBOM for LGUs, setting out implementation details on the establishment of local government economic enterprises. In coordination with the capacity building expert and the Mayor s Development Center, design the mechanics of an LGU learning network by developing structured programs of twinning and training with performance improvement contracts possibly linked to grants and/or loans. Provide support to the Coordination Committee on Decentralization technical secretariat through DILG by assisting in the documentation of meetings, preparation of agenda and briefing materials, providing quick-policy response to key issues, and preparation of terms of reference for research and other TA. 2. Expert on Local Budgeting (6 person-months) 4. This expert will have appropriate qualifications in economics, public finance, accountancy or a closely related decentralization discipline, and will be experienced in local budgeting processes and Philippine public sector financial reporting systems. He/she will have a strong background in the medium-term expenditure framework and the budget process in the Philippines. This expert will work closely with and under the supervision of the team leader to develop forecasting options and multiyear budget estimates. The consultant s main tasks include the following: (i) (ii) (iii) Support the team leader in developing a technical supplement to the UBOM to enable LGUs to come up with multiyear budget estimates incorporating the multiyear investment programs developed from the programs, projects, and plans identified in the comprehensive development and physical framework plans. Support the team leader in developing a technical supplement to the UBOM to set out a spreadsheet template for LGU cash flow forecasting that follows on from the LGU revenue forecasts developed using BLGF s revenue forecasting guidelines. Support the team leader in developing a technical supplement to the UBOM for LGUs, setting out implementation details on the establishment of local government economic enterprises. 3. Local Government Unit Finance Adviser (6 person-months, individual consultant) 5. This adviser will have appropriate qualifications in economics, public finance, or a closely related decentralization discipline, and will be experienced in designing fiscal capacity models The views for expressed LGU revenue herein forecasting, are those of financial the consultant resource and do mobilization not necessarily for LGUs, represent and those development of ADB s of members, a presumptive Board of Directors, business Management, income taxation or staff, system and may for be LGUs. preliminary The in expert nature. will perform the following tasks:
12 Appendix 3 (i) (ii) (iii) (iv) (v) (vi) (vii) (viii) Provide specialized investment programming inputs in the development of a technical supplement to the UBOM for LGUs to enable LGUs to come up with multiyear budget estimates, incorporating the multiyear investment programs developed from programs, projects, and activities identified in the comprehensive development and physical framework plans. Assist BLGF in making the fiscal capacity model developed under Local Government Finance and Budget Reform 1 an effective tool for LGU (provincial, city, municipal level) multiyear revenue forecasting: (a) Develop a detailed set of guidelines on use of the BLGF fiscal capacity model for LGU revenue forecasting and target setting, including the linkages of the forecasts/targets to the LGU development investment programming and the budgeting processes. The guidelines will also cover the BLGF regional office-based reconciliation process to reconcile the initial central office-generated LGU-level targets with the LGU-prepared set of targets and come up with a harmonized set of revenue forecasts/targets to be used as inputs to the investment programming and annual budgeting processes. (b) Develop a rollout/training design for the BLGF fiscal capacity model and act as principal resource person during BLGF central office and regional office training. Design the rollout strategy for financing modalities manual, debt management manual, and BLGF s creditworthiness and debt certification process for BLGF regional staff. Act as resource person in BLGF regional office-based trainers training for regional staff on the use of the financing modalities manual, debt management manual, and BLGF s creditworthiness and debt capacity certification system. Train MDFO personnel on application of the financing modalities manual, debt management manual, and on the conduct of project financial and economic evaluation for MDFO prototype projects. Provide technical advisory services to the MDFO Program Governing Board for policy formulation and review, especially those covering, wherever needed: (a) policy for syndication of LGU loans with private financial institutions, (b) revised interest rate policy, and (c) policy for addressing delinquent LGUs. Prepare guidelines for use of creditworthiness indicators as prioritization criteria for developing investment programming as part of the provincial and local planning and expenditure management process. Develop guidelines on the buildup of a local business taxpayer database and the use of presumptive gross sales figures by LGU treasurers to calculate the business tax liability of business establishments. 4. Adviser on Debt Management (6 person-months, individual consultant) 6. This adviser will have appropriate qualifications in economics, public finance, or a closely related decentralization discipline, and must be familiar with BLGF s statement of receipts and expenditures (SRE) and the accounting system of the electronic New Government Accounting System (e-ngas). The main tasks are as follows: 1 ADB. 2004. Technical Assistance to the Republic of the Philippines for the Local Government Finance and Budget Reform. Manila (TA 4556-PHI, for $850,000, approved on 23 December).
Appendix 3 13 (i) (ii) (iii) Refine and support the rollout of the SRE in terms of (a) incorporation of upcoming account changes by the Commission on Audit; (b) incorporation of an LGU debt monitoring module; (c) incorporation of additional Millennium Development Goal indicators; (d) design of an analytical report template for the SRE and the resulting calculated Local Government Financial Performance Measurement System (LGFPMS) and creditworthiness indicators; (e) design of a detailed and sustainable rollout strategy including training design for the refined SRE system at the national, regional, and LGU levels; (f) provide advisory and training services during the rollout by (1) acting as principal resource person at the regional level trainers training for BLGF regional staff and selected treasury staff from provinces and cities within the region; (2) participating as observer/adviser in at least three provincial level trainings involving municipalities within the province a first class province, a third class 2 province, and a province experiencing reporting problems for the previous statement of income and expenses such as those in regions IX, XII, and the Autonomous Region in Muslim Mindanao; and (3) assisting BLGF in problem-solving sessions related to the conduct of the SRE rollout. Provide inputs to the team leader in harmonizing the UBOM financial accounts. Provide support during the rollout and training of BLGF regional staff on SRE, the financing modalities manual, debt management manual, and creditworthiness, as well as training of MDFO personnel on the use of the financing modalities manual and debt management manual in terms of a familiarization module for accounting terms, tools, and interpretation of accounting figures. 5. Capacity Building Expert (12 person-months) 7. This expert will have appropriate qualifications in public administration, human resource management, economics, finance, or other closely related decentralization disciplines and be experienced in developing Public Financial Management training modules, imparting budget training, and developing certification systems for functional positions. The expert will profile and assess the competencies of LGU budget officers and design an appropriate competency certification system (CCS) for the local budget officers. He/she must be highly experienced in the design of human resource programs for LGUs, particularly professional skills upgrading, and in the conduct of trainings, particularly facilitation and documentation. The following are the main tasks: (i) Profile and assess the competencies of LGU budget officers. (ii) Design an appropriate competency certification and recertification system for local budget officers. (iii) Provide technical advisory services to the BLGF-constituted Competency Certification System (CCS) Committee in the formulation of detailed guidelines and implementation details of the CCS for LGU treasurers. (iv) Provide training on supplemental budget and cash flow forecasting systems. The views (v) expressed Provide herein technical are those advice of the consultant and support and do to not DBM necessarily and BLGF represent during those meetings, of ADB s members, Board discussions, of Directors, Management, and forums related or staff, to and the may CCS. be preliminary in nature. (vi) Provide facilitation and documentation services during the training of MDFO 2 LGUs are categorized into six classes on the basis of income; first class being the richest.
14 Appendix 3 (vii) (viii) personnel on the use of the financing modalities manual and debt management manual. Develop related modules and organize and conduct training for oversight agencies and LGU staff in consultation with the team leader and other consultants. In coordination with the team leader and the Mayor s Development Center, design the mechanics of an LGU learning network by developing structured programs of twinning and training with performance improvement contracts possibly linked to grants and/or loans. 6. Systems Analyst (10 person-months) 8. The systems analyst must have extensive experience in systems analysis and design of computer programs, particularly for government finance agencies and LGUs. He must be familiar with database, Java programming, and webpage design as well as with MDFO, BLGF, Commission on Audit, DBM, and LGU accounts, systems, and processes. Care will be taken to link new software with existing information technology systems. A user requirement definition report will be produced. He/she will have the following tasks: (i) (ii) (iii) (iv) (v) Analyze and design the required program for computerization of all MDFO administrative and operational functions, including loan application and processing. Develop a prototype program for the buildup of a local business taxpayer database for LGUs. Develop a prototype program for the application of presumptive business income taxation at the LGU level. Work on SRE system redesign requirements that may arise to accommodate account additions/changes and other necessary improvements. Assist the LGU finance adviser in the rollout of the fiscal capacity model. 7. Database Programmers (two programmers, 6 person-months each) 9. Two database programmers will write the required computer programs for computerization of all MDFO administrative and operational functions, a prototype computer program for the buildup of a local business taxpayer database, and the application of presumptive business income taxation. Program development will factor in a user requirements definition report. The programmers must have experience in database, Java programming, and webpage design. Care will be taken to link new software with existing information technology systems. They will perform the following tasks: (i) (ii) (iii) (iv) Prepare required program codes to incorporate account changes and enhancements/improvements in the SRE computer program. Write the required program(s) for computerization of all MDFO administrative and operational functions, including loan application and processing. Write the prototype program for buildup of a local business taxpayer database for LGUs. Write the prototype program for application of presumptive business income taxation at the LGU level.
Appendix 4 15 MAPPING OF CAPACITY-BUILDING AREAS The Local Government Financing and Budget Reform (LGFBR) Program the umbrella program for local government finance and governance reforms being pursued by the Government of the Philippines provides a platform for identifying capacity-building needs and areas for further policy and technical work by the Asian Development Bank (ADB), development partners, and the government. Figure A4 maps out the main program policy areas to the main components of the ongoing technical assistance (TA) projects and the proposed policy and advisory TA. Table A4 maps the bolded actions in the program policy matrix to the components of the (i) ongoing and proposed TA projects, (ii) policy and advisory TA, and (iii) broader development partner support. Figure A4: Map of Technical Assistance Components to Program Broad Policy Areas New Cluster Broad Policy Areas Policy and Advisory TA Components Ongoing TAs a 1. Fiscal management, planning, and public expenditure management 2. LGU performance measurement and service delivery 1. Implementation of SRE 2. Implementation of CCS 3. Improvement in expenditure forecasting 1. Implementation of joint memorandum circular 2. Development of CCS 3. Study and implementation of personal expenditure reforms 4. Study and implementation of LGU surplus reforms 1. Facilitation of SEF reforms 2. Improvement of LGPMS 3. Credit financing 1. Improvement of MDFO operations 2. Implementation of creditworthiness system 1. Facilitation of official development assistance reforms 2. Advocacy for MDFO reforms 3. Development of creditworthiness system 4. Local own source revenues 1. Implementation of local taxpayer database 2. Development of framework for local economic enterprises 1. Development of local taxpayer database framework 2. Policy advocacy for professionalizing local assessment 3. Development of local economic enterprise guidelines 4. Advocacy for local economic enterprise reforms CCS = competency certification system, LGPMS = Local Governance Performance Management System, LGU = local government unit, MDFO = municipal development fund office, SEF = special education fund, SRE = statement of receipts and expenditures, TA = technical assistance. a ADB. 2006. Technical Assistance to the Republic of the Philippines for the Local Governance and Fiscal Management Project. Manila (TA 4778-PHI, $1.8 million); TA attached to ADB. 2007. Report and Recommendation of the President to the Board of Directors: Proposed Program Loan and Technical Assistance Grant to the Republic of the Philippines for the Local Government Financing and Budget Reform Program Cluster (Subprogram 1). Manila (TA 7019-PHI for $800,00). Source: Asian Development Bank estimates.