Marcos signs law on LGUs’ automatic income classification

MANILA, Philippines — President Ferdinand “Bongbong” Marcos Jr. has signed into law a bill creating an automatic income classification system for local government units (LGU) — a measure creating a more updated assessment of LGUs' financial capacities 14 years after their last income classification.

Malacañang announced Friday that the president has signed Republic Act 11964 or the “Automatic Income Classification of Local Government Units Act,” which gives the finance secretary the power to regularly undertake income reclassification of provinces, cities, and municipalities and address any inaccuracies in the evaluation of LGUs' income class.

The bill, which Marcos tagged as a priority measure, will task the finance secretary with adjusting the income ranges based on the actual growth rate of the annual regular income from the last income reclassification.

The LGU income classification system serves as the basis for the government’s computation of how much administrative and statutory aid, financial grants, and other forms of assistance will be provided to an LGU. An LGU’s income classification is used to determine its financial capacity to implement programs and projects, as well as how it will implement salary laws and administrative issuances on allowances.

The first general income reclassification would be made within six months after the effectivity of RA 11964, and every three years thereafter, said Communication Secretary Cheloy Garafil in a statement.

Under RA 11964, municipalities would be classified into five classes:

• First class municipalities earn an annual average income of P200,000,000
• Second-class municipalities earn an average annual income of P160,000,000 to P200,000,000;
• Third-class municipalities earn an average annual income of P130,000,000 to P160,000,000
• Fourth-class municipalities earn an annual average income of P90,000 to P130,000,000; 
• Fifth-class municipalities earn an annual average income of less than P90,000,000

The measure is a “legislative milestone” that would “address the long-standing issue of non-updating of LGUs’ income classification for the last 14 years, the Department of Finance said upon the bill’s third reading approval in the Senate.

“This will improve LGUs’ fiscal performance and allow our frontline government units to recruit skilled professionals for quality public service delivery,” Finance Secretary Benjamin E. Diokno said.

Bureau of Local Government Finance (BLGF) Executive Director Niño Raymond B. Alvina also said that the law will help usher in the fiscal decentralization policy for LGUs. 

“The updated fiscal indicators will equip the BLGF to improve its oversight functions for provinces, cities and municipalities towards data-driven and performance-informed policy and decision-making at the national and local levels,” Alvina said.