Finance Secretary Benjamin Diokno said over the weekend the recently enacted Republic Act 11964, or the Automatic Income Classification of Local Government Units Act, will help boost the revenues of local government units and ensure their fiscal sustainability.
Signed into law by President Ferdinand Marcos, Jr. on Oct. 26, 2023, the law updates the income classification of LGUs according to their current financial capabilities. It empowers the DOF to efficiently and systematically determine LGUs’ financial capabilities and fiscal positions in line with the economy and local development.
“This law is a significant milestone that resolves the long-standing issue of outdated LGU income classification for over a decade. It paves the way for a more responsive approach to foster local autonomy and empower LGUs to unleash their full economic potential,” Diokno said.
RA 11964 classifies provinces, cities and municipalities into five classes according to their income ranges, based on the average annual regular income for three fiscal years preceding a general income reclassification.
Diokno, in consultation with the National Economic and Development Authority (NEDA) and the concerned LGUs League, will have the authority to adjust the income brackets according to the actual growth rate of the annual regular income from the last income reclassification.
The DOF is designated to carry out LGU income reclassification once every three years so that such conforms with the current economic conditions.
The classification will serve as basis for determining LGU capability to undertake development programs and projects, as well as adjustment of compensation for LGU personnel pursuant to the Salary Standardization Law of 2019.
According to the law, the first general income reclassification will be made within six months after its effectivity and every three years thereafter.
The first income reclassification of provinces, cities and municipalities will take effect on Jan. 1 of the immediate succeeding year following the release of the table of income classification by the Secretary of Finance.
The DOF will craft the law’s implementing rules and regulations (IRR) within three months from its effectivity, in coordination with the Department of Budget and Management (DBM) and in consultation with LGU Leagues.
The Bureau of Local Government Finance (BLGF) under the DOF said RA No. 11964 paves the way for fiscal decentralization for LGUs, enabling the Bureau to enhance its oversight functions for provinces, cities, and municipalities by promoting data-driven and performance-informed policy and decision making at both national and local levels.