Introduction to Investment Programming and Revenue Generation : Introduction to Investment Programming and Revenue Generation Preparing the Provincial Development Investment Program (PDIP) Outline of the Presentation : NR Ramos 11/18/08 PDIP Guidelines 2 Outline of the Presentation Overview of the PDIP
What is a development investment ?
What is a PDIP ?
What are the benefits of a PDIP ?
Vertical integration of investment programs
The PDIP Preparation Process
The 7-Step PDIP Preparation Process
Lessons from the Case Studies
The LGU Revenue Toolkit
Why its use is critical ?
What need to be done ?
Probable LGU Infrastructure Financing Options
Review Points for Key Local Revenue Forecasts Overview of the PDIP : NR Ramos 11/18/08 PDIP Guidelines 3 Overview of the PDIP What is a development investment ?
Expensive, do not recur annually, have a multi-year service life
Future annual MOOE required by the development investments should be considered as part of the costs of development investments. Overview of the PDIP : NR Ramos 11/18/08 PDIP Guidelines 4 Overview of the PDIP Sample LGU Development Concerns and Investment Responses Overview of the PDIP : NR Ramos 11/18/08 PDIP Guidelines 5 Overview of the PDIP What is a PDIP ?
Document that formalizes and ranks PPAs identified in the PDPFP and matches the prioritized project list with the investment financing capacity of the province in an iterative manner.
Six-year rolling investment program. Overview of the PDIP : NR Ramos 11/18/08 PDIP Guidelines 6 Overview of the PDIP What are the benefits of a PDIP ?
Improves coordination of development investments with the PDPFP.
Provides a structured mechanism for development investment decision-making at the provincial level.
Serves as a key provincial management tool.
Improves credit rating.
Improves provincial administration.
Promotes intra-provincial cooperation. Overview of the PDIP : NR Ramos 11/18/08 PDIP Guidelines 7 Overview of the PDIP Vertical Integration of Investment Programs PDIP Preparation Process : NR Ramos 11/18/08 PDIP Guidelines 8 PDIP Preparation Process The Organization
PDIP Committee to lay out policies, directions, and the action plan that will guide the preparation of the PDIP.
PDIP Technical Secretariat to provide technical and administrative support to the PDIP Committee.
PDIP Coordinator to coordinate and monitor the PDIP process in behalf of the PDIP Committee. PDIP Preparation Process : NR Ramos 11/18/08 PDIP Guidelines 9 PDIP Preparation Process The PDIP Committee
EXECOM of the Provincial Development Council (PDC) as provided in Sec. 111 of the LGC.
Provincial Finance Committee (PFC).
Other local officials who can provide substantive inputs to the formulation of the PDIP.
Other members of the PDC who can provide substantive inputs to the formulation of the PDIP. PDIP Preparation Process : NR Ramos 11/18/08 PDIP Guidelines 10 PDIP Preparation Process The PDIP Committee
Within the PDIP Committee, its is suggested that a PDIP Finance Sub-committee acting as an expanded PFC be constituted.
Chairman of the Committee on Appropriations of the SP
Representative from the banking sector
The PDIP Finance Sub-committee will be responsible for multi-year revenue and expenditure forecasts, assessing the development investment capacity of the province, and developing appropriate financing strategies for consideration by the PDIP Committee. PDIP Preparation Process : NR Ramos 11/18/08 PDIP Guidelines 11 PDIP Preparation Process 7-Step PDIP Preparation Process PDIP Preparation Process : NR Ramos 11/18/08 PDIP Guidelines 12 PDIP Preparation Process Step 1: Establish PDIP policies
Investment policies must be within the overall planning, institutional and legal framework governing the operations of LGUs, especially the 1991 LGC. Examples:
Prioritization criteria will be limited to the development objectives set out in the PDPFP.
Approximately 6% of the annual regular revenues of the province will be allocated to PDIP project financing.
The amount from the annual regular revenues available for PDIP projects will be leveraged via direct loans or bond flotation.
Alternative PDIP financing tools will be evaluated based on total financing costs including all financial and time-related transaction costs.
Land readjustment and special assessment will be major cost recovery tools for urban road and drainage projects. The will be full cost recovery for economic enterprise projects under the PDIP. PDIP Preparation Process : NR Ramos 11/18/08 PDIP Guidelines 13 PDIP Preparation Process Step 2: Develop and define the prioritization approach Criteria should:
Provide information that is clear PDIP formulation participants and to the PDIP users.
Minimize double counting of evaluative criteria.
Be practical in terms of cost, time and personnel involved. PDIP Preparation Process : NR Ramos 11/18/08 PDIP Guidelines 14 PDIP Preparation Process Step 2: Develop and define the prioritization approach Setting objectives, criteria and criteria weights PDIP Preparation Process : NR Ramos 11/18/08 PDIP Guidelines 15 PDIP Preparation Process Step 2: Develop and define the prioritization approach Project Scoring and Ranking Discuss each project proposal in relation to each of the selected criteria, and give each project a rating of 1 to 10 based on how effectively it satisfies each criterion. Treat the ratings as the raw scores for each criterion.
b. Multiply the project raw score for each criterion by the weight for that criterion to arrive at the net score for the project for each of the criterion. Total the net scores for each of the project.
c. Depending on the extent to which the project under consideration meets the criteria, points could be assigned as follows:
to a great extent [7 - 10] points;
to somewhat great extent [4 - 6] points; and
to a little extent [1 - 3] points.
d. Final project ranking. Rank the projects based on total net scores with the highest score getting rank 1, the next highest with rank 2, etc. PDIP Preparation Process : NR Ramos 11/18/08 PDIP Guidelines 16 PDIP Preparation Process Step 3:Formalize and rank the list of development investment projects Formalization involves the following:
A “status review” of previously approved development investment projects is done by the PDIP Committee.
The project proponents, primarily the departments of the provincial government, will be asked to officially confirm the PPAs identified in the PDPFP through the submission of formal project proposals.
The Technical Secretariat will then conduct a technical review of the project proposals with inputs from the PDIP finance group and key LGU planning, finance, engineering and architectural staff specialists.
All project proposals that pass the formalization process will be registered as projects proposals for prioritization.
Prioritization will have to follow the procedures and weights set by the PDIP Committee based on the ranking and scoring system set out in Step 3 of the PDIP process. PPAs generated by the PDPFP get translated to a formal list of development investment needs through the estimation of a corresponding time-phased cost estimates and identified source of funding using information supplied by the project proponents in their project proposals. PDIP Preparation Process : NR Ramos 11/18/08 PDIP Guidelines 17 PDIP Preparation Process Step 4: Analyze the Development Investment Financing Capacity Items 1.0 and 2.0 will have to come from the revenue and expenditure projections developed using the tools and techniques set out in Vol. 4 of the guidelines.
The initial — “without PDIP” estimate of the new development investment financing potential (Item 3.0) — is the difference between the projected revenues and the projected expenditures that can be regarded as a must for the LGU concerned.
The estimates of new development financing potential (Item 3.0) is what is going to initially matched with the investment and MOOE requirements of the proposed PDIP projects. PDIP Preparation Process : NR Ramos 11/18/08 PDIP Guidelines 18 PDIP Preparation Process Step 5: Develop the PDIP Financing Plan and Finalize the Investment Schedule Iterative procedure goes on until annual total project costs matches annual investment financing capacity .
On reaching such a balance, the PDIP financing plan and investment schedule is finalized and inputted to the draft PDIP PDIP Preparation Process : NR Ramos 11/18/08 PDIP Guidelines 19 PDIP Preparation Process Step 5: Develop the PDIP Financing Plan and Finalize the Investment Schedule PDIP Preparation Process : NR Ramos 11/18/08 PDIP Guidelines 20 PDIP Preparation Process Step 5: Develop the PDIP Financing Plan and Finalize the Investment Schedule Finalizing the Investment Schedule
The annual balance between PDIP project costs and expected available funds for PDIP financing will generally determine the final investment schedule.
There is, however, a leeway to fine tune the investment schedule in terms of timing and staging based on the following considerations:
a. Projects should be staged so as to take maximum advantage of alternative financing opportunities;
b. Certain projects may be coordinated and combined during implementation to maximize cost savings and minimize inconvenience and disruptions; and
c. Adequate time must be provided for preparing plans and specifications; arranging financing; the public competitive bidding process PDIP Preparation Process : NR Ramos 11/18/08 PDIP Guidelines 21 PDIP Preparation Process Step 6: Legally adopt the PDIP. The final PDIP financing plan and investment schedule has to be packaged into a draft PDIP for review and endorsement by the PDC en banc to the SP.
The SP then deliberates on the PDC-endorsed PDIP and thereafter, legally adopts the PDIP through an appropriate council resolution.
The current year slice or AIP should be endorsed for consideration in the annual provincial budget.
The succeeding years’ slices will be subject to review and updating during the pre-budget period of the succeeding years PDIP Preparation Process : NR Ramos 11/18/08 PDIP Guidelines 22 PDIP Preparation Process Step 7: Update the PDIP. The sources of PDIP updates include:
a. AIP projects left out of the current year capital budget during the budget hearings because of reduced budget allocation for development investments.
b. Projects included in the current year capital budget that were not implemented during the year because of revenue short-falls or unforeseen delays.
c. Occurrence of emergencies such as calamities, unforeseen circumstances, and unanticipated revenue shortfalls.
d. Projects included in latter years’ PDIP implemented in the current year.
e. Projects which have already been subjected to the PDIP evaluation process but were left out of the current 6-year PDIP because of lack of funds.
f. New projects or changes in existing PDIP projects arising from adjustments/changes in the PDPFP. Why Update?
There is a need to maintain a ready 6-year development investment portfolio attuned to the development needs of the LGU;
b. PDIP allocations may change over time due to the following:
i. Anticipated funding may not materialize.
ii. Emergencies and unanticipated circumstances may result in allocating financial resources to projects not listed in the PDIP.
iii. New development investment needs may be identified by the PDPFP. PDIP Preparation Process : NR Ramos 11/18/08 PDIP Guidelines 23 PDIP Preparation Process Step 7: Update the PDIP. PDIP as a 6-year rolling plan, PDIP Preparation Process : NR Ramos 11/18/08 PDIP Guidelines 24 PDIP Preparation Process Step 7: Update the PDIP. The proposed PDIP review and updating process will cover the following:
a. The PDIP will be updated annually to reflect changing field and financing conditions, and to include new project requests arising from changes/adjustments in the PDPFP.
b. The PDIP secretariat will come up and furnish the PDIP committee with quarterly reports tracking the status of project implementation and revenue sources collected for the project.
c. The PDIP secretariat will monitor and conduct an evaluation of project results within 6 months after completion of a PDIP project.
d. Current year projects left out in the capital budget or were not implemented because of revenue shortfalls or because of unforeseen circumstances should be considered next year.
e. Latter years’ PDIP projects implemented in the current year will be replaced in the relevant year by the highest priority project (s) of the succeeding year.
f. Scale, cost and timing adjustments for existing PDIP projects will be inputted directly into the PDIP without having to undergo the PDIP process.
g. Emergency projects such as damage repairs/rehabilitation for existing infrastructure will be inputted directly into the current year AIP without any need to undergo the PDIP process.
h. Projects already subjected to the PDIP evaluation process but left out of the current PDIP because of lack of sufficient funding will be put into the portfolio of stand-by projects, and will be included as part of the 6th year PDIP in the updated PDIP of the succeeding year.
i. New project proposals generated by changes/adjustments in the PDPFP will go into a portfolio of stand-by projects to be subjected to the PDIP process before inclusion into the PDIP.
j. The entire PDIP will be subjected to a major update every three years based on the three-year review and update of the PDPFP. The time frame for the major update will have to be done such that the AIP will be available for the budget call of the succeeding year. Assuming that the major update of the PDPFP is started towards the end of Year 3 up to the first quarter of Year 4, the major PDIP update including the required Year 4 AIP should be ready for the Year 4 budget call in July. The Case Studies : NR Ramos 11/18/08 PDIP Guidelines 25 The Case Studies The two cases illustrate the vital link between physical planning, investment programming and revenue mobilization.
While the connections were largely arrived at by the case study LGUs in an “ad-hoc”, “zigzagging” and “trial and error” manner, the “hind sights” highlighted in the lessons learned indicate the potential development pay-offs to a properly and systematically prepared PDIP following the process set out in this guideline.
Also, similarly situated LGUs can learn from the hind-sights, and hopefully avoid future costly “history repeating” scenarios Case No. 1 — Calatagan, Batangas — illustrates how a then fifth class municipality can “dream big”, “plan realistically”, and cooperatively work together to realize in a step-by-step manner their grand dream, and be recognized by the credit market as a good market risk. The case of Calatagan is regarded as a success story in bond flotation.
Case No. 2 — Province of Cagayan — how a province can take advantage of a strategically-located idle property within a component city, and commercially redevelop it, making it a lever to help move the province. Local Revenue Toolkit : NR Ramos 11/18/08 PDIP Guidelines 26 Local Revenue Toolkit Under the 1991 LGC, the province, as a political and corporate unit of government serves as a dynamic mechanism for the “effective governance” and development of component cities and municipalities within its territorial jurisdiction. The 1991 LGC provides LGUs with powerful resource mobilization tools that can be grouped into five distinct classes of potential revenue sources. These are:
I. Land-based Tools;
II. Community Activity-based Tools;
III. Infrastructure-based Tools;
IV. Debt-based Tools; and
V. Revenue sharing Tools. Why Improved Revenue Mobilization is Critical to Provinces : NR Ramos 11/18/08 PDIP Guidelines 27 Why Improved Revenue Mobilization is Critical to Provinces While own-source revenues for provinces as a group have increased in absolute terms between 1992 (the first year of implementation of the LGC) and 2006, the degree of improvements whether in annual absolute terms or in annual percentage changes has been subject to fluctuations around a relatively horizontal trend line. Annual Percentage Changes in LGU Own-Source Revenues,Provinces: 1992-2006 Why Improved Revenue Mobilization is Critical to Provinces : NR Ramos 11/18/08 PDIP Guidelines 28 Why Improved Revenue Mobilization is Critical to Provinces Actual and Simulated Annual Percentage Changes in LGU Own-Source Revenues,All LGUs: 1992-2012 Even with the economy growing at government targeted growth rates, the annual growth performance in % terms of LGU revenues and expenditures could oscillate around a declining trend line.
Impact of structural problems as indicated by key revenue sources being relatively inelastic with respect to the economic base.
Impact of 3-year election cycle. Seriously affected are major LGU revenue sources -- real property taxes, business taxes, and economic enterprises.
LGU fiscal policies that encourage exuberant spending in good times may make it difficult to undo the deficits and debt built up during economic downturns. What need to be done ? : NR Ramos 11/18/08 PDIP Guidelines 29 What need to be done ? These structural problems urgently require the following:
Durable revenue reforms such as expanding the base of existing sources and introducing new taxes and fees/charges that may require “politically costly” legislations; and
Sound commitment to a stable multi-year spending program that may require seemingly absent strong political will and public backing. Without such urgent reforms, Philippine LGUs cannot attain meaningful fiscal autonomy that will enable them to effectively:
Provide the basic fundamental services that their residents demand. The streets must be policed, the trash collected, and the children educated; and
Promote and protect the wealth of their citizens. Probable Infrastructure Financing Options for LGUs : NR Ramos 11/18/08 PDIP Guidelines 30 Probable Infrastructure Financing Options for LGUs Additional domestic revenue for infrastructure investment can be realized through:
the introduction of new taxes and revenue sources,
expansion of the base of existing ones,
improvements in tax administration, and the
introduction or expansion of user fees. Review Points for Key Local Revenue Forecasts : NR Ramos 11/18/08 PDIP Guidelines 31 Review Points for Key Local Revenue Forecasts Review Points for Key Local Revenue Forecasts : NR Ramos 11/18/08 PDIP Guidelines 32 Review Points for Key Local Revenue Forecasts Thank you : NR Ramos 11/18/08 PDIP Guidelines 33 Thank you