Governing Cities

Asia's Urban Transformation

Kris Hartley, Glen Kuecker, Michael Waschak, Jun Jie Woo, Charles Chao Rong Phua, Kris Hartley, Glen Kuecker, Michael Waschak, Jun Jie Woo, Charles Chao Rong Phua

• Publisher: Routledge
• Year: 2020
• ISBN:
  9780429801532
• Edition: 1
• Topic: Economics
• Subtopic: Economic Theory
• Index: Economics

This book presents the latest research on three issues of crucial importance to Asian cities: governance, livability, and sustainability. Together, these issues canvass the salient trends defining Asian urbanization and are explored through an eclectic compendium of studies that represent the many voices of this diverse region. Examining the processes and implications of Asian urbanization, the book interweaves practical cases with theories and empirical rigor while lending insight and complexity into the towering challenges of urban governance. The book targets a broad audience including thinkers, practitioners, and students.

Part 1
Transitions in governance

1
Improving city government performance in the era of decentralization

The experiences of Indonesia and the Philippines

Mulya Amri

Introduction

Increasing awareness of urbanization and the important role that cities play in a nation’s economy (Dobbs et al., 2011; Glaeser, 2011) has shifted the spotlight onto city governments and city leaders (Barber, 2013). Issues related to “managing fast growing cities” have been well-documented (see, e.g., Devas and Rakodi, 1993). Central to tackling these challenges is the capacity of city governments to plan for, finance, and manage change. In the developed and developing worlds alike, city governments and leaders are expected to deliver not just performance but also innovations to deal with new problems and/or old problems of unprecedented scale.

Decentralization leads to more efficient allocation of resources, more responsive public service, and improved economic development at the local level, proponents claim (Oates, 1972; Tiebout, 1956). Local governments are considered to be better at identifying and serving local needs and more easily held accountable to the public. Different configurations of offers by the local government will keep existing firms and residents while attracting new ones, thus creating a situation where city governments compete with each other by offering the most desirable social and business environments.

The Philippines and Indonesia are notable for their adoption of direct democracy and extensive decentralization within a short period of time. This transformation started with the Philippines’ “people power revolution” in 1986 and Indonesia’s Reformasi in 1998. Along with this phenomenon came a drastic change in the way governance takes place at the local level. Mayors are increasingly taking center stage, and local democracy is gradually institutionalized, albeit to various extents and at different speeds. Despite claims of association between decentralization and improvement in local public services, the link between the two is not a direct one. After more than 25 years of decentralization in the Philippines and 15 years in Indonesia, improvement in local government performance has been debatable (Lewis 2010) and economic growth at the local level remains disputable (McCulloch and Malesky 2011). But as Indonesia and the Philippines slowly tinker with their incentive systems and implement more measures to encourage or incentivize local governments to deliver quality public services, we are seeing some positive changes in the way such incentive systems are utilized.

This chapter highlights the presence of two types of incentives to improve city government performance in the context of decentralization. The first is top-down incentives in the form of administrative measurements and rankings conducted by the central government; the second is bottom-up incentives in the form of citizens’ political support (votes) for local leaders who perform well and deliver quality public services. The remainder of the chapter will be presented as a case study comparing the Philippines and Indonesia, exploring decentralization, top-down incentives, and bottom-up incentives for local performance first in the Philippines and then in Indonesia. The final section provides a conclusion and agenda for future research.

Decentralization and local public performance incentives in the Philippines

Decentralization

The Philippines’ “people power revolution” toppled Ferdinand Marcos’ authoritarian regime in 1986 and brought forth a new era of democracy at both the national and the local level. The country’s new 1987 Constitution institutionalized reforms that limit the power of the executive and mandated Congress to enact a code that gave more autonomy to local government units (LGUs). This code was later enacted as Republic Act No. 7160, also known as the Local Government Code (LGC) of 1991.

Decentralization in the Philippines has been taking place since 1992 according to the provisions of LGC 1991. It has taken the form of devolution, whereby LGUs (provinces, cities, and municipalities) are given considerable autonomy to decide their development priorities and implement relevant programs. The sectors that are now within the purview of the LGUs are wide-ranging: agriculture, industrial development, environmental protection, health services, social welfare, local infrastructure, land use, and tourism. For cities, specifically, communications, transportation, education, and civil defense are also included in the LGU remit.

The transfer of authority from the national government to LGUs is supported by transfer of personnel and fiscal resources. In 1992, at the onset of decentralization, about 60% of staff from the Department of Agriculture, Department of Health, and Department of Social Welfare and Development were transferred from the national government to various local governments (Wallich et al., 2007). In the period 1992–2003, the average yearly expenditure of the Philippines’ LGUs was about 23% of the country’s total public expenditure. This is a substantial increase compared to the yearly average of 11% before decentralization (1985–1991). By 2009, the proportion had risen even further to 25% (Martinez-Vazquez and Vaillancourt, 2011).

Despite having more resources to spend, LGUs’ authority to generate revenue remains limited. Most of the substantial taxes (i.e., personal and corporate income tax, consumption tax) are collected by the national government as part of the Philippines’ internal revenue. LGUs, on the other hand, collect real property tax, property transfer tax, and amusement tax. LGUs are also able to impose fees for services (e.g., yearly renewal of business permits), as well as charge for the public utilities that they provide.

Of the internal revenue collected by the national government, 40% is redistributed to LGUs according to a simple formula based on each LGU’s land area and population. This is called the Internal Revenue Allotment (IRA). For the most part, LGUs have the autonomy to plan and decide what to do with their IRA. The IRA is large enough to enable LGUs to pay staff salary costs and provide very basic services but not enough to carry out substantial development schemes or programs. As a result, LGUs that lack motivation or pressure may just be able to survive, providing a minimal level of service, while those that are more motivated would be encouraged to generate additional revenue to complement the IRA.

Devolution as assigned by LGC 1991 follows a hierarchy in which provinces are identified as first-tier LGUs, municipalities and component cities are second-tier, and barangays – the smallest administrative unit in the Philippines – are third-tier. Cities fall into one of three possible legal classes: “component”, “independent component”, or “highly urbanized”.¹ Component cities, together with municipalities, occupy the second-tier hierarchy under the provincial government. However, highly urbanized and independent component cities occupy the first-tier hierarchy, on a par with provinces. These higher-tiered cities do not report or share any of their tax revenues with the provincial government (neither do their citizens vote for provincial government officials). Instead, independent component and highly urbanized cities report directly to the national government and coordinate with their respective provinces.

Based on the 2015 census, there are 17 regions, 81 provinces, 145 cities, and 1,488 municipalities in the Philippines.² Of the 145 cities, 35 are “highly urbanized” and five are “independent component” cities. In terms of population, four cities had more than 1 million inhabitants in 2015 (three of which are in the National Capital Region, NCR), 16 cities had between 500,000 and 1 million, 94 cities had between 100,000 and 500,000, and 31 cities had a population under 100,000. The average population of Philippine cities was 282,240 and the median 168,110.

Top-down administrative incentives

It is generally acknowledged that decentralization in the Philippines has worked to a certain extent in enabling civic involvement in local public affairs and innovations in the ways that local public services can be financed and delivered (Brillantes, 2003). However, at the same time there is a sense that much more could be achieved and improved. Local government performance remains uneven, and there are at least as many or more bad practices as there are good ones. Possible explanations for variation in local government performance have been explored. Some also argue that economic development level may play a role in determining the quality of public services – as much as we would like to acknowledge that better public services are likely to trigger local development (Capuno, 2005).

From the central government’s point of view, a performance management system is needed to ensure that LGUs deliver quality public services at the local level. The Philippines had already established the Local Productivity and Performance Management System (LPPMS) in the 1980s, but when decentralization began much of the focus was on local government capacity building rather than performance monitoring. The LPPMS was revived in 1998, and since then it has been further developed and supplemented with other systems. One of these is the Local Government Performance Management System (LGPMS), which helps LGUs to conduct self-assessment of how they are performing in their functions. Other systems include the Citizens’ Satisfaction Index, the Seal of Good Housekeeping, and Seal of Good Local Governance (Adriano and Estimada, 2014; Medina-Guce, 2016). A list of the tools to measure and improve LGU performance that have been implemented in the Philippines has been compiled by Capuno (2005).

The Seal of Good Local Governance (SGLG), which expands on the earlier Seal of Good Financial Housekeeping (SGFH), is awarded to LGUs that show satisfactory performance in three “core components” (good financial housekeeping, disaster preparedness, and social protection) and three “essential components” (business friendliness and competitiveness, peace and order, and environmental management) (Medina-Guce, 2016). The more comprehensive SGLG has raised the bar for performance: while as many as 1,535 LGUs passed the Seal of Good Financial Housekeeping in 2016, only 306 LGUs passed the SGLG that year.³

Aside from the standard, compliance-related performance management system described previously, the Philippines is also implementing the Performance Challenge Fund (PCF). This is a fiscal incentive for LGUs that initially pass the SGFH and ultimately the SGLG by providing a maximum of 50% “counterpart funding” for larger-scale local development projects that otherwise do not have sufficient resources for implementation.⁴ There are four categories of PCF-eligible projects: those that aim to improve the achievement of (1) the Millennium Development Goals, (2) local economic development, (3) disaster risk reduction and management, and (4) ecological solid waste management. The PCF started small in 2010 with a budget of P 30 million for 30 municipalities. In financial year 2015, as much as P 982 million was budgeted to 254 LGUs that qualified. As of May 2017, PCF had recorded a total of 2,698 encoded projects, of which 2,585 had been completed.⁵

A good performance management system does not reward only compliance but also innovations. In the developing world, the Philippines is among the first to acknowledge local public-sector innovations through awards. Started in 1993, not long after the country embarked on decentralization, the Galing Pook (GP) Awards were launched to “recognize innovation and excellence in local governance” (Brillantes, 2003). This started as a joint initiative of the Department of Interior and Local Government, with support from the Ford Foundation and other high-profile national and local figures. Four judging criteria were used to determine the award winners: positive results and impact, promotion of people’s participation and empowerment, innovativeness, and efforts to ensure transferability and sustainability of the program. Now in its 24th year, the award organizers hold a wealth of data on innovative city governments and programs in the Philippines. Every year, the GP Awards are given to 16–20 local programs, reaching a total of 338 awardees as of 2015.⁶ These 338 local programs are spread over multiple sectors, ranging from economics/livelihoods to environmental protection and to community involvement in public affairs. The awarded programs have come from various regions of the Philippines, conducted by barangays, cities, municipalities, and provinces alike.

Some LGUs have won more awards than others. As many as 35 out of 81 provinces (43.2%), 59 out of 145 cities (40.9%), and 99 out of 1,488 municipalities (6.6%) have won a GP award at least once. Between 1993 and 2015, 14 cities won an award three or more times, and eight cities won at least four times: Naga City in Camarines Sur (ten times), Marikina City in the NCR (eight), Quezon City in the NCR (seven), Cebu City in Cebu (six), San Carlos City in Negros Occidental (six), Puerto Princessa in Palawan (five), Mandaluyong in the NCR (four), and Muntinlupa in the NCR (four).

Bottom-up political incentives

While national directives and incentives to improve local performance are indeed helpful, they address only one of the two characteristics that make the concepts of federalism...

Table of contents

• Cover
• Half Title
• Series Page
• Title Page
• Copyright Page
• Contents
• List of figures
• List of tables
• Foreword
• List of contributors
• Introduction
• PART 1 Transitions in governance
• PART 2 Delivering public value
• PART 3 Toward sustainable futures
• Conclusion: the future of Asian cities in an age of disruption
• Index