On 26 October, President Ferdinand R. Marcos Jr. signed Republic Act No. 11964, which institutionalized the automatic income classification of provinces, cities, and municipalities.
The law, known as the Automatic Income Classification of Local Government Units Act, has the policy "to provide a more responsive approach to promote local autonomy and enable local government units to realize their full economic potential. In line with this, the State recognizes the need to determine the financial capability and fiscal position of LGUs."
LGUs are different from one another, and the law understands this. Resources can't be allocated equally due to differences in their land area, population, and economic development. So, the State is now being called upon to formulate policies and guidelines for an equitable and rational income classification system to effectively accelerate and improve the quality of economic growth and distribute national resources based on the needs of affected communities.
LGUs will be classified as First Class, Second Class, Third Class, Fourth Class, and Fifth Class, depending on their average annual regular income for three fiscal years preceding a general income reclassification.
RA 11964 mandates that the Secretary of Finance, in consultation with the National Economic and Development Authority or NEDA and the LGU leagues concerned, shall have the power to adjust income ranges based on the actual growth rate of the annual regular income from the last reclassification. They will then undertake regular income reclassifications every three years so that the LGU income classification conforms to the prevailing economic conditions and the LGUs' overall financial status.
The law also directs that the first general income reclassification shall be made within six months after the effectivity of the law and every three years thereafter.
The expected practical effects of the new law include: the LGU income classification will serve as the basis for the identification of administrative and statutory aid, financial grants, and other forms of assistance to LGUs; the determination of the financial capability of the LGUs to undertake development programs and projects; the total annual or supplemental appropriation for personal services of an LGU; and compensation adjustments for LGU personnel, pursuant to Republic Act No. 11466, or the Salary Standardization Law of 2019.
It could also serve as the basis for the creation of new LGUs; setting the number of elective members in the Sangguniang Panlalawigan and the Sangguniang Bayan; the issuance of free patent titles to residential lands; establishing the minimum wage of domestic workers; insuring LGU properties with the Government Service Insurance System; setting limitations to the percentage of agricultural land area that can be reclassified and the manner of their utilization; and such other beneficial purposes as provided under existing laws and regulations.
According to this new legislation, the first income reclassification of provinces, cities, and municipalities will take effect on 1 January of the immediately succeeding year following the issuance of the table of income classification by the Finance Secretary.
To underscore the new law's sense of urgency and to realize in as short a time as possible its good intentions, the Department of Finance, in coordination with the Department of Budget and Management and consultation with LGU Leagues, has been tasked to craft the law's implementing rules and regulations within three months of its effectivity.
As an Undersecretary in the Department of the Interior and Local Government, I applaud this law as it benefits the LGUs and the citizens therein. As I mentioned, not all LGUs are equally situated; some are more developed and advanced than others.
This law is expected to give the LGUs needing more investment, development, and State support a chance to advance. Equal distribution is good, but equitable distribution is better and more necessary, in my opinion.
You can count on the DILG to fully assist in implementing this law.
