Public Services as Socio-Economic Enterprises .... BANE or BOON ?

Public Enterprises as Socio-Economic Enterprises... BANE or BOON?     

Background

 One of the fundamental state policies enshrined in the Philippine Constitution is the autonomy of local government units. (Const., Art. II, Sec. 25). Pursuant to the mandate given by the Constitution, the Philippine Congress enacted Republic Act No. 7160, otherwise known as the Local Government Code of 1991 which replaced Batas Pambansa Blg. 337, which is the old local government code.

 Under the Local Government Code of 1991 (LGC), more public services and responsibilities were devolved to the Local Government Units some of which are complex and costly to undertake, such as primary health care (hospitals and clinics), public education, peace and order and environmental management, among others.

In the Philippines, pure public services are either provided by the LGUs free or partly operated with minimal user charges, which means fully or partly subsidized by budgetary appropriation. This free public service has been traditionally practiced by the LGUs, ever since up to the present.

Republic Act 2425 on the other hand, directs the LGUs to see to it that the minimum basic needs (MBN) of the citizens are provided for. The Social Reform Agenda (SRA) defines MBN as “the needs of Filipino family pertaining to survival (food and nutrition, health, water and sanitation, clothing), security (shelter, peace and order, public safety, income and livelihood) and its enabling needs (basic education).

It will be noted that the implementation of the MBN, especially the highlighted ones, can be effectively carried out effectively through socio- economic enterprises. This is of course easier said than done because of one major constraint,  limited and/or lack of financial resources, the proverbial and traditional scapegoat of LGUs for failing to adequately, if not effectively, carry out the delivery of local public utilities as mandated by the LGC and the MBN/SRA.

Lately, R.A. Act 9003 ordered the mandatory requirement for LGU’s to establish solid waste sanitary landfill as an additional public service. Aside from being complex and budget dependent, these capital intensive functions have no direct sources of revenues to finance their administrative and technical operations. The LGU’s can collect fees and charges to a certain extent though, but barely enough even to pay the salaries of personnel and related administrative costs, let alone procurement of supplies and materials, capital improvements, etc.

Historical records show that 70-80 percent of annual expenditures of the LGUs are for administrative and recurrent maintenance activities. The remaining 20% is competitively shared by capital expenditure, economic investments, human resource development, and the surplus, if any, to pay for additional personnel benefits at the end of the year. In most LGU’s in the country, research and development is a far thing from their plans.

It is sad to note that the inter-local government cooperation and effort sharing as authorized in the LGC have not been exercised nor even initiated yet by the LGUs. There is no effort on the part of the LGUs, it appears, to draft memorandum of agreements or operating procedures and mechanics to activate “dormant potential” tool for economic development and delivery of services, especially the local socio-economic enterprises.

Many LGU chief executives and elected officials have still the wrong hypothesis that effective governance is equal to have year-end surplus or savings  in the local treasury, that is, the bigger the savings, the higher their performances are. On the contrary, many basic public services have been neglected. To me, that is a myopic view of good governance. Some local chief executives are afraid to invest public funds for public services, to which the people’s money is intended to, in the first place. 

THE INTERNAL REVENUE ALLOTMENT

The internal revenue allotment (IRA) has made the LGUs dependent on the national government especially the poor municipalities and provinces. But worse than this, the LGUs become subservient and hostage to the central government, since the release and use of such allotment are subject to national government decisions and control. The national government can withhold or reduce or regulate the releases. Consequently, the delivery of public services suffers the most at the same time that economic development is stunted. As an example, the impending reduction of the LGU’s IRA share for 2012 to the tune of 78M is a typical kind of this dilemma that LGU’s have to confront.

The existing IRA formula will continue to make the LGUs dependent on national grants and budgetary assistance. The rich and highly developed LGUs will enjoy the bountiful benefits from the inequities of a defective IRA formula. The poor and undeveloped LGUs, 4th to 5th class will become poorer and less and less capable to deliver the basic public services. The undesirable outcome of this imbalance and inequitable economic growth of LGUs would of course lead to urban pull-rural push syndrome, because of better services, greater job opportunities, good living environment, availability of social amenities and security in urban areas.

While we dwell on the thought that this situation might be good for the urbanizing LGUs, such as San Fernando, Naga, Laoag, Bacolod, Iloilo and Cagayan de Oro cities, in the sense that this will increase their IRA, we must also think that in the final analysis this will lead to increasing demand for public services, quality wise, and more alarmingly quantity wise. The demand may become so competitive and even cutthroat, that adequate solutions might need central government intervention. We are now confronting these problems, flooding, environmental degradation, housing, peace and order, traffic, solid waste disposal, power supply, unemployment, urban blight and the like. These economic ills and social decadence are actually being experienced now by highly urbanized and metropolitan LGUs in the whole country.

ESTABLISHMENT OF SOCIO-ECONOMIC ENTERPRISE UNITS

For aforementioned reason, many LGU’s have decided to operate some public services as socio-economic enterprise units.  A public socio- economic enterprise is a government department/unit that is operated like a private business entity and is projected to contribute to the sustainable quality of service delivery goals of the local government unit (LGU).

Since their inception and implementation, local socio-economic enterprises have been treated basically as political obligations and administrative functions of the LGUs, rather than as a tool or means of economic growth and development. Thus, local socio-economic enterprises were always included as part of regular annual budget rather than as multi-year economic development or financial investments plans, distorting the true objective of their existence. 

Public markets are the most common government service units that are operated under the socio-economic enterprise model. These local socio-economic enterprises (SEEU) are authorized to collect fees and other charges as sources of revenues. Under this concept, it is supposed to be understood that these SEEUs should be self-sustaining, that is, they should be able to generate revenues to cover costs of administration and operations. Sad to note however that most if not all of SEEU’s in the country operate at a loss and are subsidized by the local government, except for a few that are properly managed.

PERFORMANCE OF SEEU’s IN THE PHILIPPINES

Research project studies have concluded that most, if not all, of the existing socio-economic enterprises all over the country operate at a loss resulting from very low revenue collection efficiencies. These SEEU’s are oftentimes subsidized by the local government budgets. Rental deficiencies of public market stalls and spaces have accumulated to many millions of pesos and is continuously increasing each year. Fees in many slaughterhouses in the country have not been adjusted to correspond to the increase of its operating expenses. Consequently, these public markets and slaughterhouses are unsanitary, unhygienic, congested, fire hazards, deteriorated and poorly maintained, conditions that fall short of the MBN requirements on health and public safety.

Although, big cities and highly urbanized municipalities are able to cope with the required standards of maintenance most of them are having difficulties to sustain the standards. It is distressing to note that while cost of maintenance and prices of commodities are increasing the user charges and fees remain constant due to legal constraints and procedural compliance. And although some are not charging below the allowable ceiling, it takes time before the rates can be increased as it will go through the legislative mill and public consultation process, sometime even through court proceedings.

One of the most successful LGU in terms of establishing public economic enterprises is Tagum City, capital city of Davao del Norte. It has been reported that the current City Mayor Rey T. Uy, has the appropriate corporate background proven to be an advantage in local governance especially in the administration of the Public Economic Enterprises. “With his business acumen he has been able to impose reforms on traditional practices and policies to improve over-all performance making the economic enterprises more profitable yet effective in responding to the needs of the people and efficient in the delivery of public services.”

 “With our fast-gaining economic enterprises under Mayor Uy's avant-garde leadership, LGUs from different cities and municipalities have sought partnership with Tagum City to learn good and replicable practices that can improve the operation and administration of their own economic enterprises.”

ROGELIO G. BALO Ph. D.

Sept. 3, 2014

Central Valley, California, USA