The City’s Purse: A Special Report on Cebu City’s Financial Situation

Cebu City Mayor Michael Rama proposed a P10.5 billion budget for the city for 2014 because he plans to implement several projects.

How will the city raise the amount?

Aside from tax collection, the mayor is depending on the proceeds of the sale of the city-owned lots at the South Road Properties (SRP), to cover P6 billion or over half the mayor’s proposed budget for next year.

Councilor Margarita “Margot” Osmeña, head of the City Council’s Committee on Budget and Finance, said the daily budget hearings shall be conducted starting next week.

The Cebu City Council has already invited the members of the Local Finance Committee (LFC) to appear during their budget hearings to discuss the mayor’s proposed budget.

The Local Finance Committee is composed of the Budget Officer, City Treasurer and the City Planning and Development Officer, who prepared the proposed budget that was approved by the mayor.
The law requires the local chief executive (the mayor or the governor) to submit their executive budgets to their legislative departments for further scrutiny.

Vice Mayor Edgardo Labella, who presides the City Council session, said the local chief executive is allowed by law to support a proposed annual budget with just an estimate of the revenue collections. Supplemental budgets, on the other hand have to be supported with actual funds.

Osmeña said the City Council needs to discuss the source of funds for the mayor’s proposed budget so they will know how the executive department can raise the needed funds.

The Local Finance Committee explained that P6 billion of the entire proposed budget will be sourced from the proceeds from the sales of government lots, particularly at the South Road Properties.

Aside from the P6 billion that will be raised from the so-called “Capital/Investment Receipts,” the LFC said the city also expects to raise P2.4 billion in tax revenues, P700 million in non-tax revenues, P1.233 billion from the Internal Revenue Allotment (IRA) and P200 million in taxes from firms categorized under the ecozones.

After the discussion on the sources of funds, the City Council will also deliberate on the mayor’s proposed expenditures, particularly those items with huge budget allocations.

Under the mayor’s proposed budget, P4.3 billion is allocated for infrastructure projects and purchase of additional vehicles, P3.4 billion for the Maintenance and Other Operating Expenses, P947 million for the salaries and benefits of the city’s 5,000 employees, P912 million subsidy to some of the city’s departments under the special accounts and P502 million for other expenses.

Osmeña assured that even if the City Council is dominated by the members of the Bando Osmeña Pundok Kauswagan (BOPK), they will approve the proposed budget once they are convinced that the executive department is capable of raising the needed amount.

PREVIOUS PROPOSED BUDGETS

This is not the first time that Mayor Rama proposed a huge budget to implement his dream projects. Rama had also proposed an P11.8 billion budget in 2012, but the City Council only approved P5.3 billion. The city only raised P4 billion in revenues that year.

Again, the mayor proposed a P6.7-billion budget for 2013 and only P5.2 billion was approved by the City Council. Although there are still two months left, there is already an indication that the city may not be able to raise the amount.

As of October 12 2013, the city’s total tax and revenue collection is still a little over P3.9 billion, even if the amount already includes the IRA and the proceeds from the installment payments of the previous year’s sales of lots at the South Road Properties (SRP).

Since January, the city had received P932.2 million IRA or the city’s share from the collected taxes by the national government in Cebu City. The city also has P833.6 million from the installment payments of SRP lots from SM Prime Holdings Corporation and Filinvest Land Inc. Part of the amount, however, are advance payments intended for next year.

PROJECTS FOR 2014

In his budget message to the City Council, Rama said that his proposed budget for next year is “balanced, adequate, responsive and effective.”

Rama said that he proposed a huge budget for next year because it is his goal to improve the delivery of basic services and to build more infrastructure projects that could benefit the public.

The mayor said, “The budget for 2014 aims to add more farm-to-market roads and bridges that will bring us closer to the vision. The funds that we receive from the national government shall also be used to improve, widen, pave and create more roads to decongest traffic.”

But because his administration may not be able to raise the needed funds from tax collections alone to support the P10.5 billion budget, Rama wants the city legislators to help him sell SRP lots.

He said the SRP was built using the people’s money because the city is paying about P700 million every year for its loan from Japan and it is only right that the people would benefit from its fruits.

“We should not deprive the city the wherewithal and the means to deliver basic services to the people because of capricious and irrational arguments. The SRP belongs to the people and it is only right that they benefit from its fruits now and in the years to come,” he said.

But majority of the city councilors, who are allied with the BOPK, the political group founded by former mayor and congressman Tomas “Tommy” Osmeña, argued that Rama has failed to find even a single investor who is interested to buy lots at the SRP during his term.

Tommy had suggested that it is much better if the city would resume selling the SRP lots after the completion of the ongoing infrastructure projects of SM Prime Holdings Inc. and Filinvest Land Corporation (FLI) because the price of the lots, now at P15,000 per square meter, would double.

Councilor Osmeña said the City Council is very willing to discuss proposals from interested buyers of SRP lots, but Mayor Rama failed to bring any investors for SRP. The councilor added that the mayor has been using the BOPK-dominated City Council as an alibi, saying they are blocking his intention to sell SRP lots.

Osmeña said that while Mayor Rama wants a huge budget for his dream projects, he failed to push the city’s tax collectors to improve tax collection.

Osmeña, the City Council’s majority floor leader, explained that even if the city legislators would approve the entire budget proposed by the mayor, several projects can’t be implemented because the executive department cannot raise the amount.

REAL PROPERTY TAXES

With the construction of several new high-rise hotels and buildings throughout the city, the city’s real property taxes should also increase.

But the city’s real property tax collection from January to October 12 of this year is only P281.5 million, which is much lesser compared to the P1.3 billion business tax collections for the same period.

The Bureau of Local Government-Finance (BLGF), which supervises the fiscal management of all local government units, had already called up the attention of city officials because of its lackluster performance in the field of real property tax collection.

The BLGF said the real property tax is considered as the lifeblood of a local government unit.

Acting City Treasurer Diwa Cuevas said she already called up the attention of City Assessor Eustaquio Cesa and asked him that the two of them should work together to improve the collection of real property taxes from the city’s 234,827 Real Property Units.

Every land title, as well as registration of buildings and machineries is called Real Property Unit (RPU) and its owner is required by law to pay real property tax for each RPU.

Cuevas said the city lawyers are now investigating the possibility that some City Hall personnel are conniving with the owners of RPUs so they would not pay the correct taxes and get favors in return.

The city treasurer said they have gathered City Hall documents that show that there are some building owners in the city who paid taxes that are lesser than what they should be paying because their machineries were not recorded.

“Dunay dokumento nga among nakuha nga ang building walay elevators apan pag-inspection sa among mga sakop nasakpan nga wala diay ibutang sa documents nga dunay elevators,” Cuevas said.

Elevator and heavy-duty generators that are being used in some buildings are considered machineries and its owners are required to pay real property taxes for every unit.

Because of the poor performance of the city’s tax collectors, there are already some members of the Cebu City Council who are thinking of not approving the entire P10.5 billion annual budget of the city for next year.

The city councilors, who are mostly allies of the Bando Osmeña Pundok Kauswagan (BOPK), described Mayor Michael Rama’s proposed annual budget as unattainable because the P6 billion projected sales of lots at the South Road Properties (SRP) is highly “speculative.”

During the budget hearings at the City Council, the members of the Local Finance Committee, headed by Councilor Margarita “Margot” Osmeña, compared the city’s tax and revenue collection performance in 2010, 2011 and 2012.

The city collected taxes and other revenues amounting to P3.960 billion in 2010. Taxes and revenue collected went down to P3.863 billion in 2011 and further decreased to P3.479 billion in 2012. From January until October 12 this year, the total collection was still P3.967 billion.

For the past four years, the city’s tax collectors have failed to reach the amount needed to support the annual budgets, which is why several projects were not implemented by the Rama administration.

SOURCES OF FUNDS

Councilor Osmeña, however, assured that if in case the City Council will not approve the entire proposed budget, the council will approve all supplemental budget requests, if the source of funding is available.

She explained that her committee recommended the approval of only P124 million of the P256 million Supplemental Budget No. 2 proposed by Mayor Rama because the city did not have enough funds to support the additional budget.

Osmeña said that although Acting City Treasurer Diwa Cuevas certified that the city has P120 million surplus or excess collections from business taxes, the city still failed to reach the P5.2 billion annual budget.

“We can only spend what we actually have,” Osmeña said when she delivered a privilege speech before the City Council. The mayor quickly reacted “Kon dili nila aprobahan ang akong budget, dili man ako ang maigo ana, ang mga tawo man.”

Based on the daily cash flow as of last November 5, the city still has P1.145 billion in banks, but only P467.8 million is under the General Fund, which can be used for any expense. The P434.6 million is placed in trust fund, P215.9 million is allocated for the Special Education Fund (SEF), while the P27.2 million is allocated for barangay funds.

Osmeña said that when she reviewed the city’s daily cash flow, she learned that of the P467.8 million under the General Fund, P165 million cannot be used by the city anytime because it is placed under a five-year time deposit that will mature in 2016.

She said that until now, the city treasurer’s office still failed to comply with the instruction of the Commission on Audit (COA) that the unused P85.3 million Calamity Budget in 2012 be transferred to the Local Disaster-Risk Reduction Management Fund (LDRRMF) to ensure that it will be used only for calamity-related expenses.

The city treasurer’s office also has yet to transfer to the account of the Special Education Fund (SEF) the P58 million, which is still in the general fund.

City Treasurer Cuevas said the P85.3 million that is transferrable to the LDRRMF and the P58 million for the SEF are part of the P147.1 million payables still pending for check issuance.

Despite the present state of the city’s finances, Mayor Rama said the city is not bankrupt because it is receiving taxes and other revenues every day.

For his part, City Administrator Jose Marie Poblete told reporters that the city has so many properties worth billions of pesos and it can never be bankrupt, although he admitted that there are some pending payables.

“Maayo man og dunganon nato na og bayad ang tanan. Ang pagdumala sa city government pareho ra gud na atong balay nga kon duna ta’y mga bayranan dili man nato dunganon og bayad, duna g’yuy i-prioritized,” Poblete said.

For the 2014 budget, Mayor Rama proposed to increase the financial assistance for senior citizens from P600 million to P780 million to give way to his earlier promise that effective 2014 each senior citizen in the city will already receive P12,000 assistance for the entire year.

The mayor also proposed to increase the budget for the city scholars to P360 million next year from the present P300 million. City scholars get P10,000 scholarship grant every semester, and P1,000 for school supply allowance every semester.

TAX COLLECTION

Mayor Rama said he wants to enhance tax collection by intensifying tax information campaign and to intensify tax-mapping efforts to collect the correct taxes from those who converted their residential properties to commercial establishments.

Based on the records from the Bureau of Local Government-Finance (BLGF), Cebu City only ranked 11th in 2010, 13th in 2011 and 11th in 2012 in the collection performance of real property taxes among the 16 cities in Central Visayas.

Although Cebu City has the highest collection of real property taxes amounting to P672 million in 2012, it did not meet its estimated target collection.

Owners of properties that are being used for commercial purposes are required to pay more compared to owners of residential properties.

“Kini g’yud maoy among paspasan. Makig-coordinate g’yud ko ni Assessor Eustaquio Cesa aron mosaka ang ilang collection sa real property tax,” said City Treasurer Cuevas.
Engr. Hilario Alicante, head of the Land and Building Division of the City Assessor’s Office, explained why their real property tax collection is low despite the many buildings in the city.

Alicante said there are 234,827 Real Property Units (RPUs) in the city. These are buildings, land and machineries.

However, 50,682 buildings are exempted from the payment of taxes. These are buildings that are being used for religious and charitable purposes, owned by cooperatives and government-owned schools.

All landowners are required to pay real property taxes. Those who own houses that cost below P175,000 are exempted from the payment of real property taxes, but they are required to pay a garbage fee at P365 per year.

Records from the City Hall’s Management Information Computer Service (MICS) show that the taxable RPUs in the city are 44,505 buildings, 112,608 parcels of lands and 1,588 different kinds of machineries or a total of 158,701 RPUs.

City Treasurer Cuevas admitted that there are several delinquent RPU owners in the city. The Local Government Code empowers the city and municipalities to conduct public auction of all delinquent properties as one way to compel its owners to pay their taxes.

According to City Assessor Eustaquio Cesa, he already created 12 teams composed of 24 personnel to conduct initial tax-mapping of real properties in selected barangays.

“Sa pila ka buwan nila nga pag-operate nakadiskobre ang teams og daghang mga bag-ong Real Property Units nga wala pa gayud ma-declare mao nga naka-assess sila og dugang P100 million nga real property tax,” Cesa said.