P H I L I P P I N E S U R B A N I Z AT I O N R E V I E W P O L I C Y N OT E S M AY 2017 Strengthening Institutions for Urban and Metropolitan Management and Service Delivery* 1. Introduction and Context Strong institutions are critical to the effective management of institutional framework. Institutional fragmentation among cities, the delivery of efficient urban services and infrastructure, various oversight and sectoral agencies at the national and the establishment of an enabling environment for level has exacerbated the weak institutional environment business and job creation. Strong institutions are needed to for urban development. The continuing expansion and design and support policies for land and housing markets, population growth of urban areas throughout the country raise and equitably redistribute revenues, and promote a heightens the urgency for adopting comprehensive urban safe and sustainable urban environment both at the national policy and institutional reforms that will enable the country and local levels. In practice, there are many challenges to harness the benefits of urban development and mitigate in governing cities, particularly for metropolitan areas negative externalities. that include multiple jurisdictions, and require numerous municipalities for collaborative planning, decision-making, Urban areas in the Philippines are characterized by higher and implementation. Examples of core urban issues that levels of metropolitan fragmentation compared to the spill over across municipal boundaries include urban rest of countries in East Asia.1 As a consequence of rapid transport, urban infrastructure, disaster risk mitigation and urbanization, urban growth inevitably expands beyond the management, and climate change adaptation. original boundaries of cities to neighboring jurisdictions. Among urban areas in the Philippines with populations A number of underlying institutional and governance issues exceeding 100,000, only one-third are “contained” within a at both the national and metropolitan levels in the Philippines single jurisdiction compared to an average of 60 percent in stand out as binding constraints which have limited the the rest of East Asia. Specifically among the smallest urban country from optimizing the benefits of urban development. areas with populations ranging from 100,000 to 500,000, Even as the share of the national population living in urban which are classified as “contained” in almost 80 percent of areas has expanded to around 50 percent, urbanization in cases in East Asia, only 37.5 percent are “contained” in the the country has never been guided by a comprehensive Philippines. urban development policy supported by a clearly defined * This policy note is part of a broader study, “Philippines Urbanization Review: Fostering Competitive, Sustainable and Inclusive Cities, 2017 The World Bank. 1 Metropolitan fragmentation describes the transition from “contained” urban areas, where the built up area is contained within a single municipal boundary, to “spillover” and “fragmented” urban areas (World Bank 2015). For “spillover” urban areas, one jurisdiction contains more than 50 percent of the total built up area while the remaining urban area is divided among smaller jurisdictions (e.g., Hangzhou in China, Nha Trang in Vietnam, and Bandung in Indonesia). For “fragmented” urban areas, no jurisdiction accounts for more than half of the built-up area (e.g., Jakarta, Tokyo, and the Pearl River Delta urban area in China). WORLDBANK.ORG/PHILIPPINES/URBANIZATION 1 STRENGTHENING INSTITUTIONS FOR URBAN AND METROPOLITAN MANAGEMENT AND SERVICE DELIVERY Metro Manila provides a prime example of the challenges urban area of Metro Manila encompasses 84 cities and of metropolitan fragmentation wherein the socio-economic municipalities with an aggregate urban population of 16.5 and functional urban space does not correspond to a single million. In the cases of Cebu and Angeles, the respective jurisdiction. Officially, Metro Manila is a special development metropolitan areas are each spread out over 13 individual and administrative region composed of 16 cities and one cities and municipalities. municipality. However, in reality, the contiguous built-up Table 1. Fragmentation among Urban Areas in the Philippines URBAN AREAS URBAN LAND AREA WITHIN ADMIN URBAN POPULATION NUMBER OF LGUS (SQ. KM.) BOUNDARY (SQ. KM.) (THOUSANDS) TOTAL CITIES MUNIS Fragmented Manila 1,275.0 6,037.8 16,521,948 84 30 54 Cebu 161.4 1,014.2 1,527,407 13 6 7 Angeles 185.8 1,386.8 683,176 13 3 10 Dagupan 36.6 323.8 213,323 7 1 6 Spillover Bacolod 78.6 902.2 538,628 4 4 0 Iloilo 39.4 220.4 337,552 4 1 3 Baguio 46.4 875.1 316,654 4 1 3 Cagayan de Oro 47.3 643.4 268,087 3 1 2 Cotabato 11.8 298.1 242,993 2 1 1 Marawi 6.0 145.4 136,994 3 1 2 Tarlac 43.8 943.2 133,092 3 1 2 Cabanatuan 27.6 333.8 112,614 2 1 1 Batangas 26.6 365.1 114,349 3 1 2 Kabankalan 25.6 984.3 114,300 2 1 1 Contained Davao 76.3 2,228.0 826,172 1 1 0 Zamboanga 39.1 1,468.4 350,889 1 1 0 General Santos 67.8 477.0 269,341 1 1 0 Lucena 15.8 91.1 185,455 1 1 0 Iligan 13.1 652.5 141,727 1 1 0 Tagum 21.2 181.3 138,986 1 1 0 Butuan 12.1 670.0 106,491 1 1 0 Source: World Bank 2015 2 WORLDBANK.ORG/PHILIPPINES/URBANIZATION Increasing mismatches between socio-economic (functional) 2007). For urban infrastructure (such as roads) and services areas and administrative (spatial) jurisdictions within rapidly (such as air pollution regulation) that create have spillover expanding urban areas require effective governance impacts to non-residents, individual jurisdictions will tend solutions at the metropolitan level that are currently missing to undersupply the infrastructure and service because they in the Philippines. The effective and efficient provision of will only account for the costs and benefits accruing to them core urban services with metropolitan-wide dimensions without fully considering the external impacts of budgetary requires formal and functional mechanisms for effective and policy decisions (Bahl 2013). inter-jurisdictional coordination. Cost efficiencies rooted in leveraging economies of scale in the delivery of urban However, with the exception of Metro Manila, there are services represent a primary motivation for adopting a no other metropolitan areas in the Philippines that have metropolitan-wide governance structure. For capital- formal institutional structures enacted through national intensive services such as transport infrastructure, solid policies (Manasan and Mercado 1998). In the case of the waste disposal, water supply, and sewerage, the cost per Metro Manila Development Authority (MMDA), which was unit of providing services tends to decrease as the quantity established to coordinate planning and service delivery in of the service provide increases (Bahl 2013). The need to Metro Manila, the chronically poor quality of metropolitan- manage externalities among certain urban services within wide core urban services, such as traffic management, solid a metropolitan area, whereby the benefits or costs of a waste management, road infrastructure, and flood control specific service in one jurisdiction spill over to the residents and drainage, clearly indicates that the current metropolitan of another jurisdiction, is another reason to consider the governance model has not functioned effectively. adoption of a metropolitan-wide governance structure (Slack PHILIPPINES URBANIZATION REVIEW POLICY NOTES 3 STRENGTHENING INSTITUTIONS FOR URBAN AND METROPOLITAN MANAGEMENT AND SERVICE DELIVERY 2. Key Challenges There are a number of key challenges related to governance and institutions that are hampering successful urbanization. These include: (i) absence of a comprehensive national urban policy; (ii) absence of a lead agency for urban development; (iii) weaknesses in the fiscal decentralization framework; and (iv) metropolitan fragmentation and weak mechanisms for inter- jurisdictional coordination. 2.1 Absence of a Comprehensive National Urban Policy An effective national urban policy (NUP)—including legal The development and adoption of a national urban policy foundations, capable institutions, and financial instruments— is critical as the Philippines continues along a path of is critical to design and build productive, livable, and rapid urbanization. The Housing and Urban Development resilient cities (UN Habitat 2014). An NUP defines the overall Coordinating Council (HUDCC), through the Housing and intentions and policies of the national government with Land Use Regulatory Board (HLURB), one of its attached respect to cities and metropolitan regions to make them agencies, is mandated to prepare a National Urban function better—economically, socially and ecologically; to Development and Housing Framework (NUDHF) to provide leverage the urbanization process for national development; a macro framework for urban development and housing.2 and to guide it towards sustainable patterns. While three iterations of the NUDHF have been prepared since 1992, its adoption as an effective policy framework The Philippines has historically lacked an effective and has not been prioritized by administrations governing the comprehensive national urban policy that defines a vision for country. By itself, HUDCC has been constrained in its ability urban development that is supported by strategies and linked to implement NUDHF recommendations due to its limited actions to realize the potential and to tackle the problems capacity and authority as a coordinating body, and its focus arising from the concentrated growth of population and on housing issues as the main priority for its policymaking economic activity. The spatial pattern of urbanization in and operations. the Philippines has evolved with an over-concentration of development in Metro Manila and an underdevelopment of As a result, the NUDHF has not functioned in practice as an secondary cities, a result of the lack of a vision and defined effective policy instrument for the national government to strategies for proactively managing urban development and guide urban development and direct public interventions in expansion. Furthermore, the absence of well-functioning urban areas. Essentially, the NUDHF serves as a strategy paper inter-jurisdictional coordinating mechanisms within that is not linked to an overarching national urban policy that metropolitan areas in the country can also be attributed to defines the overall intentions of the national government the absence of a national urban policy. with regard to urban development, including the institutional framework defining the roles and responsibilities of key 2 The current version of the NUDHF for 2009-16 lays out a vision for “an urban system that (i) facilitates economic production; (ii) develops and strengthens local comparative advantages; and (iii) provides all urban residents with an improving quality of life” and includes recommendations in five areas: urban competitiveness; poverty reduction; affordable housing; sustainable communities; and performance-oriented governance. 4 WORLDBANK.ORG/PHILIPPINES/URBANIZATION national oversight and sectoral agencies. Without a national country. In practice though, NEDA has minimal authority urban policy on which it can be anchored, the NUDHF will to enforce the NFPP; hence, relevant National Government remain a severely limited policy instrument. Agencies (NGAs) and Local Government Units (LGUs) have not uniformly adopted the framework. Other national-level plans are potentially relevant for urban development but due to the absence of a Key lessons from international experience indicate that it is comprehensive national urban policy, their effectiveness as not sufficient for a national urban policy for the Philippines to policy instruments is limited. The National Economic and include just technical prescriptions, such as those detailed in Development Authority (NEDA) is responsible for preparing the NUDHF and NFPP. As elaborated in Box 5.1, it is essential a six-year Philippine Development Plans (PDP) to correspond that a national urban policy takes into account critical political to development priorities of ruling administrations. However, and institutional issues and defines a political champion as well NEDA’s focus on urban development has been weak in recent as the proper institutional and administrative arrangements decades. In the current PDP for 2011-16, a set of “urban to enable its effective implementation. In the context of a development policies and strategies” based on the NUDHF unitary state such as the Philippines, the development and is merely a short sub-section within a much longer section implementation of a national urban policy is likely to be on Social Development. The National Framework for Physical limited without a formally-designated institutional leader Planning (NFPP) for 2001-30, in theory, serves as a strategic within the structure of the central government. urban development framework for land-use planning in the Box 1. Guiding Principles for the Development of a National Urban Policy The development of an NUP must be responsive to the national context and sensitive to the political culture and dynamics in a country. While global experience indicates that there is no single model or approach guaranteed to produce a desirable outcome that can be replicated in different situations, there are several key lessons and principles that emerge from global experiences. Firstly, it is imperative that central governments recognize the unique threats and opportunities from rapid urban growth and understand that the complex challenges faced by cities cannot be solved by spatially blind sectoral policies. Secondly, a political champion for the urban agenda can have different institutional locations, and there is no perfect model. Whatever structure is created has to be able to win support across different departments to ensure that sufficient resources of all kinds are mobilized to make a difference. Any structure also requires leaders who believe in the urban agenda and who are capable of persuading others to support the case – building a coalition of interests. Without high-level political support and vision, an NUP may achieve little in practice because of inertia and resistance to change. Thirdly, implementing an NUP means a sustained technical process of building the legal foundations, institutional capabilities, administrative procedure and financial instruments to pursue this agenda effectively. A NUP may also need aspects of established legislation (such as old land-use planning regulations and laws governing the ownership, use, and development of land) to be altered so that it is more relevant to contemporary conditions and better equipped to deal with growing informality. Fourthly, the proactive engagement of cities is critical to achieve national urban policy goals. Effectively implementing an NUP requires strong partnerships among national and sub-national governments as well as the decentralization of selected powers, responsibilities, and resources to city and metropolitan-level institutions. Source: UN Habitat, 2014 PHILIPPINES URBANIZATION REVIEW POLICY NOTES 5 STRENGTHENING INSTITUTIONS FOR URBAN AND METROPOLITAN MANAGEMENT AND SERVICE DELIVERY 2.2 Absence of a Lead Agency for Urban Development Institutional fragmentation among various oversight and sectoral agencies) and vertical coordination (between sectoral agencies at the national level has exacerbated national agencies and LGUs) within urban areas are very the dysfunctional institutional environment for urban weak. Given the unitary system of government in the development. The absence of a functional institutional Philippines, various sectoral agencies play major roles in framework, including a clearly designated national agency the key urban sectors, including transport management, accountable for urban development and formally defined roads and bridges, solid waste management, housing, and coordination mechanisms for relevant oversight and sectoral social services. From the perspective of LGUs, the cumulative agencies within metropolitan and urban areas, has led bureaucratic and administrative costs of coordinating with to duplications and overlapping mandates among these numerous sectoral NGAs4 are significant for capacity- agencies and LGUs (ADB 2014). strained local bureaucracies. Weak coordination between national and local government, both functionally and Although several oversight national agencies have spatially, for planning, regulation, service provision, and responsibilities directly related to urban issues, no single investments contributes to the poor planning and quality of agency is fully accountable for the development and urban infrastructure and services in cities and urban areas. enforcement of urban development policies. HUDCC is notionally responsible for overseeing urban development The creation and empowerment of a lead agency mandated issues in the Philippines but its focus has historically been to oversee urban development in the Philippines is needed on the administration and delivery of housing, specifically to ensure the effective development and implementation the supervision and coordination of four shelter agencies.3 of a national urban policy, which is essential to reverse the The Department of the Interior and Local Government (DILG) poor urbanization outcomes related to competitiveness, exercises extensive oversight authority over LGUs. However, mobility, poverty and inequality, and environmental quality. its mandate is not specific to cities and urban areas; hence, Such an entity is needed to directly address the fragmented its policies and programs are designed for and implemented institutional structure at the national and local levels. A lead among the broad universe of LGUs. Finally, in its capacity as agency is crucial to oversee the implementation of a national the national economic development and planning agency, urban policy, including providing oversight and support for NEDA has not focused on urban development as a strategic the development of functional metropolitan governance priority in recent medium-term development plans. arrangements among the major urban areas in the country. Such institutions have been created in developing countries Due to the absence of a lead agency for urban development, in recent years to address urban issues. formal mechanisms for both horizontal coordination (across 3 These are the National Housing Authority, the National Home Mortgage Finance Corporation, the Home Guaranty Corporation, and the Home Development Mutual Fund. 4 These include the departments of Transport & Communication (DOTC), Public Works & Highways (DPWH), Environment & Natural Resources (DENR), Health (DOH), Social Welfare & Development (DSWD), and National Housing Authority (NHA). 6 WORLDBANK.ORG/PHILIPPINES/URBANIZATION Box 2. Examples of National Urban Policies South Korea’s NUP has evolved through three phases. The first involved explicit spatial concentration and sectoral focus because resource limitations prevented spreading investment more evenly across the country. The country’s rapid socio-economic development is attributable in large part to an industrial modernization strategy pursued by the government from the 1960s to the 1980s, geared largely to boosting exports. Due growth pressures and high infrastructure costs, the government sought to de-concentrate jobs and people away from the Capital Area in the 1980s and 1990s to pursue “balanced territorial development.” Finally, growth demands and inflated house prices in the Capital Area forced the government to respond by constructing five additional new cities around Seoul in order to relieve the housing shortages, accompanied by a massive increase in apartment building. The government’s housing program was accompanied by a policy to relax government controls on mortgage lending by financial institutions, allowing more people to afford home ownership. Both initiatives contributed to a dramatic increase in the supply of housing over a relatively short period. During the 2000s, South Korea’s NUP shifted again towards trying to improve the quality of urban development, including livability, amenities, safety and environmental quality. This was partly a response to the previous emphasis on quantitative economic growth and the resulting inferior character of the built environment in many urban areas. One of the main lessons emerging from South Korea’s experience is the importance of aligning territorial planning, urban policy, housing programs and the provision of land for development. This example demonstrates the substantial benefits that can be derived if urban policy reinforces and contributes to economic development, with sufficient land and housing made available in the right places. Following the adoption of the 1988 Constitution, which included a chapter on urban policy, Brazil enacted a law called the Statute of the City in 2001 to promote equity and access to urban land. The law facilitated more democratic city management by making land-use planning mandatory throughout each city and subjecting development decisions to social control and participation. Furthermore, the law ensured that the social function of urban land and buildings was put before their commercial value by removing part of the land from the market. Urban planning has henceforth been seen as a collaborative process of shared decision-making and negotiation among different interests, rather than a top-down, technocratic activity undertaken by government experts, private developers or commercial investors. Colombia is a highly urbanized (75-80 per cent) country that has gradually developed a NUP to match the scale of its urban challenges. Two successive national development plans have set clear priorities for urban development. These are reflected in the 2005 “Livable Cities” Strategy, which focused on improving access to affordable land and housing, increasing water and sanitation services, and improving public transport. The strategy was reinforced when government responded to the global financial crisis with a major program of public investment to enable the construction of a million houses over a five-year period, starting in 2011. Additional reforms sought to develop new and innovative ways to finance urban infrastructure, such as public-private partnerships. Colombia has also learned from Brazil’s Constitution and urban laws by taking steps to facilitate more effective land readjustment and redevelopment. Special Zones of Social Interest were established to reduce the legal minimum plot size for houses and allow informal settlers to regularize dwelling conditions with less threat of speculation and eviction. Australia’s first broad-based NUP was approved in 2011 following a period of extensive research and consultation. It was a response to a series of looming challenges in the major cities, including the escalating cost of housing, rising fuel costs, urban sprawl and its impact on infrastructure networks, transport systems, road congestion, uneven access to job opportunities and the natural environment. National government involvement was vital because of the limited fiscal capacity of the states and local government. The NUP sought to address the broader issues of managing the big cities better, improving their contribution to national economic performance, and reducing their carbon emissions. It had four pillars - productivity, sustainability, livability and governance. A novel feature of the NUP was the clear rationale established for the national government to get directly involved in a way that went well beyond that of a single, stand-alone department or spending program, as in the previous urban initiatives. Coordination went to the heart of the NUP in order to ensure a wide- ranging, sustained impact on mainstream government policy, in particular to ensure that urban infrastructure considerations became a more important feature of the government’s agenda. This was achieved by setting up an elaborate architecture for institutional alignment across key departments and agencies, including special committees and reporting arrangements. Ghana is an example of a country that has prioritized the adoption of its NUP as its urban population has grown beyond 50 percent. After a four-year period of technical analysis, policy reviews, workshops and extensive domestic and international consultation, the first ever NUP was launched in March 2013, along with a five-year detailed Action Plan. The preparatory work included a public advocacy campaign to make the case for better-managed urbanization. The broad aim of the NUP is to promote sustainable, spatially integrated and orderly development of urban settlements, with adequate housing and services, and efficient institutions. Extensive investment in urban infrastructure funded by national government and managed by municipalities is intended to alleviate severe congestion in the big cities and create a sound living and working environment to accelerate the country’s all-round development. The implementation of the NUP is supposed to be coordinated by the Urban Development Unit within the Department of Local Government and Rural Development; however, there are no institutional mechanisms in place to encourage other government departments to follow the NUP. Consequently, the NUP at present is a coherent policy without an institution to implement it effectively. National and local forums have been set up to put urban issues on the agenda of other departments and external stakeholders but it is too soon to assess their effectiveness. Source: UN Habitat, 2014 PHILIPPINES URBANIZATION REVIEW POLICY NOTES 7 STRENGTHENING INSTITUTIONS FOR URBAN AND METROPOLITAN MANAGEMENT AND SERVICE DELIVERY 2.3 Weaknesses in the Fiscal Decentralization Framework Contribute to the Poor Enabling Environment for Urban Service Delivery The intergovernmental fiscal system supporting local • Community-based forestry government units (LGUs) has not been conducive to • Investment support services improving local service delivery. Structural weaknesses in the • Industrial research and development services institutional and legal framework for fiscal decentralization • Municipal buildings, cultural centers, and parks constrain the capacities of LGUs to effectively and efficiently • Municipal infrastructure (local roads & bridges, provide urban services. Furthermore, an institutional school buildings, health facilities, housing, water environment characterized by overlapping accountabilities supply, communal irrigation, drainage, sewerage, across levels of government, the absence of standards for flood control) service delivery, and poor availability of information on • Public markets, public cemetery, slaughterhouses service delivery provides weak demand-side and supply-side and municipal enterprises incentives for LGU performance. • Sites for police and fire stations and substations and the municipal jail a. Misalignments Between Local Expenditure and • Support for education, police & fire services & Revenue Assignments facilities • Communication and transportation facilities • Tourism facilities and other tourist attractions Misalignments between expenditure assignments and local revenue assignments undermine local government capacity for efficient local service delivery. The Local Government Local tax assignments in the Philippines are weak in Code of 1991 (LGC) statutorily devolved to LGUs the principal terms of providing local fiscal autonomy to LGUs. Local responsibility for providing and financing services in a wide tax assignment in the Philippines has been assessed to range of areas: be generally consistent with the conventional criteria for assessing appropriateness: economic efficiency, equity, and • Land use planning administrative feasibility (Manasan 2004). However, among • Enforcement of laws on environment protection, the local tax bases, only the real property and business tax pollution control, small-scale mining, and forestry bases provide substantial local revenues. The LGC limits • solid waste disposal system the power of LGUs to set tax rates by specifying floors and • Primary and tertiary health care services & hospitals ceilings on the tax rates. Furthermore, the LGC allows LGUs • Social welfare services to adjust tax rates only once every 5 years and by no more • Low-cost housing and mass dwellings than 10 percent. • Agricultural & fishery research & extension services 8 WORLDBANK.ORG/PHILIPPINES/URBANIZATION In general, relative to other types of LGUs, cities enjoy 2013, aggregate local revenues of cities averaged 0.77 percent productive property and business tax bases and are of GDP while the corresponding averages for provinces less dependent on fiscal transfers to finance recurring and municipalities were just 0.14 percent and 0.24 percent, expenditures. Importantly, cities are generally allowed to set respectively (Manasan and Avila 2014). On average, cities higher tax rates compared to provinces and municipalities. are able to raise local revenues (mainly from real property The broader discretion in rate-setting together with the and business taxes, which comprise 75 percent of own- larger tax bases inherent in most Philippine cities due to the source revenues) to fund the majority of local expenditures concentration of economic activity has led to wide disparities whereas provinces and municipalities are heavily reliant on in local revenue mobilization between cities, on one hand, the internal revenue allotment (IRA) for approximately 80 and municipalities and provinces, on the other. From 2001 to percent of operating income. Table 2. LGU Own-Source Revenues as a Share of Total Operating Income 2011 2012 2013 2014 Provinces 17.1% 18.8% 19.3% 18.8% Cities 52.2% 55.7% 57.2% 55.7% Municipalities 19.2% 19.2% 20.7% 19.2% Total 32.1% 34.8% 36.0% 34.8% Source: Bureau of Local Government Finance, Department of Finance PHILIPPINES URBANIZATION REVIEW POLICY NOTES 9 STRENGTHENING INSTITUTIONS FOR URBAN AND METROPOLITAN MANAGEMENT AND SERVICE DELIVERY Box 3. Overview of Intergovernmental Transfers Internal Revenue Allotment. The Local Government Code institutionalized the internal revenue allotment (IRA), which is the primary transfer of shared revenues from the national government to LGUs. The Code mandates that 40 percent of national internal revenues based on the collections of the third fiscal year preceding the current fiscal year shall be allotted to LGUs. The IRA is first subdivided among the different levels of LGUs using the following distribution: provinces (23 percent), cities (23 percent), municipalities (34 percent), and barangays (20 percent). The shares for each level of LGU are then allocated horizontal for provinces, cities and municipalities based on the following formula: population (50 percent), land area (25 percent), and equal sharing (25 percent). For barangays, the horizontal sharing is based on: population (60 percent) and equal sharing (40 percent). The IRA is an unconditional block grant that is automatically released to the LGUs five days after the end of each quarter. The LGC provides conditions for the national government to withhold a portion of the IRA during periods of national fiscal distress, although these cases have been very rare and there have been such cases in the past 15 years. The key restriction imposed by the LGC is for LGUs to set aside 20 percent of their IRA allocation for a local development fund. The IRA represents the primary source of income for the vast majority of LGUs (see Table 5.2). However, the current formula does a poor job of compensating for the varying levels of fiscal capacities across LGUs, often worsening the horizontal resource imbalances across LGUs. (Manasan, 2007). The data shows that on average the IRA distribution to the provinces is highly regressive, allowing those provinces with the highest own-source revenues to receive three times more IRA than those with the least own-source revenues. The distribution becomes somewhat less regressive for municipalities and progressive for cities. Non-IRA Transfers: LGUs also benefit from ad hoc grants from national government agencies, legislative funds, and foreign donors and creditors to support various local services. While these non-IRA transfers are cumulatively much smaller in scale compared to the IRA, there is no consolidated central tracking of data available that can be used to estimate the scale and distribution of such transfers. A study conducted to analyze the quantity and composition of non-IRA transfers to LGUs in 2003 estimated that the aggregate total for these transfers was equivalent to over 20 percent of the total IRA transfer for that year. The largest component of this total, comprising 61 percent, was funded by Priority Development Assistance Funds (PDAF) of legislators and the funds were mainly used to finance local infrastructure. However, the PDAF was declared unconstitutional in 2013 and has been discontinued beginning in fiscal year 2014. There is generally less transparency in the non-IRA funding systems, which has adverse effects on LGU planning and budgeting, and less information available for these miscellaneous transfers. In the past five years (2011-2016), reforms were initiated by key oversight national government agencies that have attempted to utilize additional fiscal transfers to LGUs as leverage to strengthen both supply-side and demand-side systems for local government accountability and created a space for genuine participation in municipal and city planning. • Through the Performance Challenge Fund (PCF), DILG provides small capital grants as incentives for LGUs that meet minimum standards in transparency and financial accountability (through the annual assessment of a “Seal of Good Financial Housekeeping”). • On a much larger scale, the Bottom-Up Budgeting (BUB) program was jointly developed by DBM, DILG, NAPC, and DSWD to facilitate poverty reduction by providing funding for local poverty reduction programs of LGUs that are conditioned on an annual participatory planning process where municipal and city governments identify priority poverty reduction projects jointly with local civil society organizations, leading to the development of annual Poverty Reduction Action Plans that are funded by transfers. The program was piloted in April 2012 in 600 cities and municipalities with high concentrations of poverty. The program has been scaled up since to cover 1,590 LGUs as of 2016 (covering all LGUs in the country except for those in the Autonomous Region of Muslim Mindanao), with an annual budget allocation of approximately PhP 24 billion, which is equivalent to 5.5 percent of the IRA allocation for 2016. 10 WORLDBANK.ORG/PHILIPPINES/URBANIZATION The largest cities with relatively more expansive fiscal bases account for approximately 70 percent of total operating are more fiscally autonomous compared to smaller, secondary income, with the rate being even higher among the 16 cities cities. The aggregate fiscal data hides discrepancies among of Metro Manila. In contrast, the remaining 111 cities that are the 145 LGUs in the Philippines that are classified as cities. For relatively smaller and less urbanized remain heavily reliant on the 33 relatively large and urbanized cities that are classified the IRA for almost two-thirds of their operating income. as highly urbanized cities (HUCs), own-source revenues Table 3. City-Level Own-Source Revenues as a Share of Total Operating Income 2011 2012 2013 2014 Highly Urbanized Cities (33) 65.0% 70.5% 70.7% 69.8% • Metro Manila (16) 75.5% 78.5% 79.7% 79.3% • Non-Metro Manila (17) 42.9% 51.4% 50.0% 47.5% Component Cities (111) 30.5% 35.2% 35.1% 34.7% Source: Bureau of Local Government Finance, Department of Finance PHILIPPINES URBANIZATION REVIEW POLICY NOTES 11 STRENGTHENING INSTITUTIONS FOR URBAN AND METROPOLITAN MANAGEMENT AND SERVICE DELIVERY Nonetheless, cities generally lack the fiscal capacity to b. Weak Performance Orientation of the independently undertake major urban infrastructure Intergovernmental Fiscal System projects. Even the largest cities in the Philippines remain reliant on the national government for major public Evidence suggests that the intergovernmental fiscal transfer infrastructure investments, such as major road and bridge system provides weak incentives for optimizing local taxing construction, drainage and flood control facilities, housing, powers. Studies have consistently found that LGUs have not and solid waste management facilities. In 2014, aggregate maximized the revenue-raising powers afforded to them capital expenditures of cities totaled less than USD500 by the LGC (Manasan 2007 and ADB 2012). Although LGUs million, which was equivalent to just 0.18 percent of GDP. are required to update their schedules of market values Importantly, as evidence of the preeminent role of the every three years, data from 2014 indicates that more than national government in public infrastructure investment, 72 percent of cities maintained schedules of market values the aggregate capital expenditures of cities was equivalent that were more than 5 years old (Manasan and Avila 2014). to just 5.6 percent of budgeted infrastructure outlays of the Furthermore, very few LGUs have revised their local revenue national government in 2014. Critical reforms to the LGC are codes since the passage of the LGC in 1991 even though necessary to strengthen local revenue autonomy, including they are allowed to adjust rates every 5 years and some taxes the constrained taxing authority with respect to rate setting, are not indexed to inflation. the limited productivity of devolved tax bases, and the complexity of the local business tax structure and other user fees (Manasan and Avila 2014). Table 4. Distribution of Provinces & Cities by Age of Real Property Values, as of June 2014 AGE OF REAL PROPERTY VALUES PROVINCES CITIES NUMBER SHARE NUMBER SHARE Over 10 years 19 23.8% 58 40.3% 6-10 years 28 35.0% 46 31.9% 5 years or less 33 41.3% 40 27.8% TOTAL 80 100.0% 144 100.0% Source: Bureau of Local Government Finance, Department of Finance; Manasan and Avila, 2014 12 WORLDBANK.ORG/PHILIPPINES/URBANIZATION In spite of the relatively large real property tax bases of cities, In general, land management issues and weak technical evidence suggests that they have not fully optimized local capacity at the LGU level are also additional constraints revenue collections. As part of its heightened LGU fiscal to maximizing real property tax collections. The complex performance assessments, the Bureau of Local Government structure of local business taxes also constrains the local tax Finance (BLGF) of the Department of Finance recently began administration capacity of LGUs (Manasan and Avila 2014). publishing real property tax accomplishment rates (RPTAR) The resistance to update schedules of market values and local for LGUs, which are calculated using actual real property tax revenue codes is also attributed to political resistance from collections and collection targets based on assessed real constituents and the fear of losing residents and businesses property values. In 2014, only 30.5 percent of assessed cities to other jurisdictions due to tax competition. achieved the BLGF RPTAR performance target of 90 percent. In fact, only half of the assessed cities were able to achieve c. Ambiguity in Local Service Delivery an RPTAR of 75 percent. Among Metro Manila cities, only five Responsibilities were able to achieve the BLGF performance target while a total of 10 out the 16 cities were able to reach the 75 percent De facto ambiguity in service delivery arrangements threshold. between national and local government weaken systems for public accountability. While core local public services were The presence of significant unconditional central transfers statutorily devolved to LGUs, broad exceptions in the legal through the Internal Revenue Allotment (IRA) has been framework allow national government agencies to implement found to create disincentive effects for local revenue public works and infrastructure projects and supplement mobilization (Manasan 2004). Data from BLGF indicates local service delivery (Manasan 2004). As a result, sectoral that cities that were on the first quintile in terms of IRA per national agencies retain significant roles in the provision of capita allocation in 2014 (i.e., cities which enjoy the highest sub-national infrastructure and services, creating a complex average IRA transfers per capita) have a lower average Real institutional environment that undermines the establishment Property Tax Accomplishment Rate (RPTAR) of 73 percent of clear lines of accountability. Particularly in metropolitan compared to cities on the fifth quintile (i.e., cities with the areas where the need for coordination is heightened, the lowest average IRA transfers per capita), which have an absence of a lead agency for urban development means average RPTAR of 84 percent. Furthermore, national survey that there is no single national government agency tasked to data from 2011 and 2012 indicates high rates of “Satisfaction coordinate the delivery of urban services. Issues of ambiguity with the city/municipal government” (75 and 73 percent, in service delivery arrangements and weak national-local respectively) as well as high rates of “Satisfaction with local coordination mechanisms have been assessed in detail for officials (Mayor)” (82 and 76 percent, respectively) (Social other critical urban services such as solid waste management Weather Station 2012). Collectively, these findings suggest (NEDA 2008), water and sanitation (World Bank 2013), urban that the IRA and other national assistance appear to provide transportation (ADB 2012, JICA 2014, and World Bank 2009), sufficient resources for many LGUs to provide a minimum and health (World Bank 2011). level of service without having to optimize local revenue bases. PHILIPPINES URBANIZATION REVIEW POLICY NOTES 13 STRENGTHENING INSTITUTIONS FOR URBAN AND METROPOLITAN MANAGEMENT AND SERVICE DELIVERY d. Inadequate Data and Standards for Local Service of national agencies rather than the jurisdictional Delivery decentralization of local governments. As part of its oversight functions over LGUs, DILG has made strides in recent years Lack of timely and reliable data on local service delivery as to develop performance-monitoring systems (see Box 4.4 well as the absence of uniform service standards further below) but progress has been slow and, as discussed earlier, weakens incentives for local service delivery. The absence of its expansive mandate to oversee all LGUs prevents it from an effective performance monitoring system prevents the concentrating on monitoring urban service delivery. Hence, assessment of service delivery at the local level (Manasan it has been very difficult to empirically assess correlations 1998, ADB and AfD 2012). While the Commission on Audit between local expenditure allocations and socio-economic (COA) and BLGF regularly prepare annual reports on LGU development outcomes. These formidable data constraints fiscal performance, there are no comparable data sources prevent the establishment of uniform service standards, for local service delivery from sectoral and oversight national which would be a potentially powerful tool for strengthening agencies at present. Furthermore, socio-economic statistics local accountability for the quality of urban services and in the Philippines are disaggregated to the regional level, designing performance-oriented, conditional transfers to corresponding to the administrative deconcentration LGUs to complement the IRA. Box 4. DILG Performance Monitoring of LGUs Since the mid-2000s, DILG has maintained the Local Government Performance Management System (LGPMS), a web-based system comprised of numerous indicators to help LGUs assess their capabilities and performance in the delivery of essential services. However, LGPMS is severely constrained by the fact that it is a self-administered tool, wherein the data entered is generated by the LGU itself, and access to its database is strictly restricted to the LGUs and DILG, which prevents the public from accessing and scrutinizing the data (World Bank 2012). More recently, DILG introduced the Seal of Good Local Governance (SGLG), which recognizes exemplary LGU performance based on an assessment of basic inputs and outputs for six broad areas: financial management and transparency, disaster preparedness, social protection, peace and order, environmental management, and business friendliness. The SGLG signals an increasing focus on the part of DILG to monitor local service delivery, however the initiative is still in the incipient stage (the first set of awardees were announced at the end of 2015) and DILG has not made the raw data used in the assessments available to the public. 14 WORLDBANK.ORG/PHILIPPINES/URBANIZATION e. Constraints to Debt Financing for Local Infrastructure Investment Box 5. What Explains the Low Level of LGU Indebtedness? Demand-side and supply-side issues limit cities from optimizing debt financing for local infrastructure. Despite Local governments in the Philippines are light borrowers the legal authority to access credit financing for capital and appear to restrict lending to relatively small projects investment needs, sub-national borrowing levels have or to meeting occasional cash flow needs. Several factors explain the smaller borrowing appetite of LGUs: historically been low, with the stock of outstanding debt hovering at around 0.7 percent of GDP (World Bank 2014) • Limited functions assigned to LGUs that require infrastructure spending notwithstanding the local compared to an average level of 5 percent for developing autonomy and devolution introduced by the Local and transitioning countries (Liu, Llanto and Peterson Government Code. 2013). Unsurprisingly, LGU capital investment levels have • Continuing major role of the central government in the consistently been very low, declining to 0.3 percent of GDP delivery and finance of local services. in 2012 (World Bank 2014). • Significant institutional and managerial barriers to planning and managing major projects. Overall, the same weak local political incentives for service • Reluctance of local governments to borrow due to natural conservatism and also partly to congressional delivery and local infrastructure investment also dampen the allocations (“pork barrel”) that have historically demand for debt. These issues are summarized in a recent substituted as source of financing for small projects. study on LGU borrowing. • Poorer LGUs having a low fiscal capacity to leverage borrowing. On the supply-side, inefficiencies in the implementation of • Impact of various financial oversight mechanisms that procedural controls by national oversight bodies (namely, constrain LGU borrowing. BLGF and the Monetary Board of the Central Bank) have • The policy framework for inter-jurisdictional raised the bureaucratic hurdles for LGUs to access loans. collaboration is inadequate in terms of defining the juridical personality of the inter-LGU grouping These include: 1) the lack of clarity on the income base for in accessing the credit market, which effectively assessing the debt capacities of LGUs; 2) the irrelevance constrains the ability of LGUs to take advantage of economies of scale needed for large infrastructure and redundancy of documentary requirements of oversight investments. bodies; and 3) time-consuming review and approval • Lack of competition in a sub-national debt market procedures (World Bank 2014). Furthermore, statutory dominated by government financial institutions restrictions on commercial banks essentially confine LGU borrowing to government financial institutions. This Source: Liu, Llanto, and Petersen, 2013 effectively constrains the supply of credit for sub-national borrowing and reduces the competition in the credit market. PHILIPPINES URBANIZATION REVIEW POLICY NOTES 15 STRENGTHENING INSTITUTIONS FOR URBAN AND METROPOLITAN MANAGEMENT AND SERVICE DELIVERY 2.4 Metropolitan Fragmentation and Weak Mechanisms for Inter-jurisdictional Coordination Urban areas in the Philippines face the same broad issues MMDA mandate, as written, is very expansive and should, of metropolitan fragmentation that are confronted by in principle, empower the agency to effectively meet the metropolitan regions across world. As urban expansion metropolitan-wide demands created by urban growth in leads to mismatches between socio-economic (functional) Metro Manila. However, the MMDA does not receive sufficient areas and administrative (spatial) jurisdictions, city and funding to fulfill its mandate, which includes formulating, municipal mayors have to grapple with the demands for planning, implementing, and monitoring policies, programs, inter-jurisdictional coordination to effectively and efficiently projects, and standards. It also lacks staff with the technical provide core urban services with metropolitan-wide expertise to manage the mandate. Based on a study dimensions (i.e., economies of scale and externalities), such conducted in 2014 assessing MMDA staffing within a certain as traffic management, solid waste and environmental division, 32 out of 59 allocated positions remained vacant management, and road infrastructure. while among the 27 filled positions, only 11 were held by those with the expertise required for the position (World With the urban transport crisis in Metro Manila and the Bank 2014). increasing demand for inter-jurisdictional coordination in urban areas like Metro Cebu, the issue of institutional While the MMDA has a clear mandate for functions fragmentation within a metropolitan region is well known concerning metropolitan issues, it does not have the political among policymakers. Yet there have been no substantive authority to lead the agenda. For one, the LGC provides policy reforms initiated to address metropolitan governance LGUs with strong local autonomy. Metro Manila mayors are in Metro Manila. Further, there have been no national members of the Metro Manila Council, the governing board government efforts to establish formal metropolitan of the MMDA, thus any project or policy can be rejected arrangements in urban areas outside of Metro Manila if individual mayors do not approve it. This has made it (Manasan and Mercado 1998). For these secondary urban highly challenging to undertake metropolitan-wide land areas, the component LGUs have been left to voluntarily use planning or transport development. The fact that the pursue coordination arrangements with minimal support President appoints the MMDA Chairman can cause further and facilitation from the national government. politicization of the MMDA’s agenda, pitting the Chairman against certain mayors affiliated with different political a. Metropolitan Governance Challenges parties. in Metro Manila The MMDA has overlapping mandates with national The experience of the Metropolitan Manila Development government agencies causing inefficiencies and delays Authority shows that a metropolitan authority created in fulfilling the mandate. One such case is evident with without the proper resources, both financial and technical, regards to any transportation agenda. The Department has limited potential to fulfill a comprehensive role. The of Transportation (DOTr) is tasked with the development 16 WORLDBANK.ORG/PHILIPPINES/URBANIZATION and regulation of transportation systems nationwide while In the absence of a designated authority, inter-jurisdictional the MMDA has a similar mandate in Metro Manila specific coordination is often handled at the provincial level and the to transport operations and systems. Although national attention to issues of this nature depends on the interest and agencies like DOTr do not have mandates to do projects in strategic priorities of the provincial governor. In the case of highly urbanized or metropolitan regions, they are allocated Metro Cebu, while the governor supported the movement, budgets for projects at the metropolitan level, often for the provincial government did not act as an instigator. The much larger amounts than the allocation of the MMDA. It Regional Development Council (RDC), which is convened then becomes unclear who is responsible for managing and by NEDA, can assume this role but the RDCs tend to act as implementing projects at the metropolitan level. coordinating bodies in creating and overseeing regional development plans. There are no specific requirements for b. Metropolitan Governance Challenges urban or metropolitan planning to address issues specific to in Secondary Urban Areas rapidly expanding urban areas. In Metro Cebu, where a private entity organized stakeholders and leveraged international assistance in developing a strategy and roadmap for Cities outside of Metro Manila undertake inter-jurisdictional metropolitan growth, the RDC was able to adopt the coordination on a project-by-project basis, resulting in proposed metropolitan agenda to the regional development varied quality of urban service delivery and management. plan. However, there have not been similar movements in The secondary urban areas do not have legally mandated other cities. Governors and RDCs do not appear to be taking authorities and therefore negotiate for metropolitan wide the lead to incorporate metropolitan agendas into broader projects usually through memoranda of agreement. Some regional development plans. areas, such as Metro Cebu and Metro Iloilo, have strong private sector and citizen movements to lobby for and develop metropolitan strategies and plans, including the Cities and regions without designated metropolitan proposed formation of formal metropolitan authorities. authorities rely on funding from specific national agencies for However, other emerging urban areas, such as Metro needs that are urban or metropolitan in nature, yet there is a Cagayan de Oro, are not self-organizing. While no broad- perceived lack of support and coordination at the local level. based analysis across provinces has been undertaken Informants from city planning offices complain of misaligned recently, it appears that there are weak underlying incentives priorities between national and local governments. In some in the current intergovernmental fiscal system to induce cases, LGUs submit project proposals to NGAs but, even provincial governors to take the initiative of facilitating inter- with the endorsement of RDCs and the regional offices of jurisdictional coordination within metropolitan areas. Hence, the NGAs, a different list of projects is eventually approved without a national urban policy guiding and supporting at the central level. Without clear planning and institutional metropolitan-wide coordination, cities and municipalities arrangements between LGUs and sectoral agencies in such urban areas are likely to continue coordinating on regarding urban or metropolitan issues, there will continue an ad hoc manner, with varying levels of support from the to be gaps and inefficiencies in urban service delivery and provincial governments. infrastructure development. PHILIPPINES URBANIZATION REVIEW POLICY NOTES 17 STRENGTHENING INSTITUTIONS FOR URBAN AND METROPOLITAN MANAGEMENT AND SERVICE DELIVERY 3. Recommendations Addressing the core underlying institutional challenges • The NUP should clearly define the respective roles of that greatly inhibit urban development in the Philippines the national and local governments in the planning, is a top priority for the country. A number of specific financing, and provision of core urban infrastructure recommendations are outlined below. and services. Strengthen the institutional framework supporting urban »» The NUP should specify the set of core urban development through the adoption of a Philippine National services for which the national government will Urban Policy and the establishment of a lead agency for provide support to cities and urban areas, which urban development and housing may include land use planning, urban transport (including roads and bridges), affordable a. The development and adoption of a comprehensive housing, solid waste management, drainage national urban policy for the Philippines is the necessary and flood control, water supply and sanitation, starting point for strengthening institutions and and disaster risk management and mitigation. governance for more productive urban development and more effective urban management and service »» The NUP should provide a policy framework delivery. Importantly, global experience indicates that for co-financing of urban infrastructure and there is no single model or approach guaranteed to services that strengthen incentives for cities to produce a desirable outcome that can be replicated in effectively and efficiently provide local public different situations. An NUP for the Philippines should services. This can build on existing policies and take into account for the inherent capacity constraints at programs that have been utilized in the past to the national and sub-national levels, the existing public channel funding from the national level to local planning and financing systems, and the prevailing governments for capital investments (such as institutional and political context. Nonetheless, based the Performance Challenge Fund, the Bottom- on the findings from this study, there are fundamental Up Budgeting Program, and the National-Local areas that must be covered by such a policy framework: Government Financing Framework). • The NUP should identify the urban development »» The NUP should also define a policy framework priorities of the country. This includes specifying for new and innovative financing instruments how urban development is integrated into broader that cities and metropolitan areas can leverage national development goals and defining a vision to accelerate the sub-national finance of for the sustainable spatial expansion of urban areas municipal public infrastructure investments across the country. (including possible new local tax bases, municipal bonds and bond pooling, local infrastructure investment funds, and public- private partnerships). 18 WORLDBANK.ORG/PHILIPPINES/URBANIZATION • The NUP should provide for a comprehensive administrations to comprehensive urban development urban planning framework that integrates national issues, it is critical that at the initial stage, strong advocacy and level development objectives and strategies information dissemination activities are undertaken to build with metropolitan- and city-level land use and the necessary political support for prioritizing and pursuing development plans. A thorough review of national, a comprehensive NUP for the Philippines. Importantly, a regional, and local planning frameworks should be push to enact an NUP would be strongly aligned with the undertaken to determine how the NUP, under which new administration’s broader push for deeper devolution (in the NUDHF can be maintained as the medium-term the context of a shift to a federal system of government) as national urban development planning instrument, well as on-going efforts to promote convergence among will be integrated in the context of the broader sectoral agencies for implementing multi-sectoral national medium-term national development planning programs and streamline the bureaucracy. Mobilizing a system. coalition of private sector and civil society stakeholders to create bottom-up demand for urban development reforms • The NUP should specify principles for the national is critical to overcome the inherent inertia and resistance to government to support metropolitan governance change among policymakers. arrangements for major urban areas of the country, including a framework for the defining and Political commitment at the highest level (Office of the classifying metropolitan areas outside of Metro President) is needed to push for the development and Manila requiring special oversight of the national adoption of a national urban policy for the Philippines. To government. The criteria to assess metropolitan ensure its prioritization, a national urban policy should be areas should consider various factors including enacted as an Executive Order (EO) of the President. This population size and density, land area, and level of would specify the policy prescriptions of the NUP while metropolitan fragmentation. also detailing the required legislative actions (e.g., the establishment of a lead agency) and follow-up executive and • The NUP should specify a national monitoring administrative actions among both national government framework at the city and metropolitan level for agencies and local governments. collecting standardized data to assess the quality of service delivery for the identified core urban b. The implementation of a national urban policy in the services. Philippines requires the establishment of a lead agency for urban development. The experiences from the Consistent with global experiences, the effective development current institutional arrangement where there is no and implementation requires strong partnerships between clear lead agency accountable for urban issues strongly national and local governments as well as the private sector suggest that the establishment of a champion within and civil society. Given the relative indifference of past the national government structure is a prerequisite PHILIPPINES URBANIZATION REVIEW POLICY NOTES 19 STRENGTHENING INSTITUTIONS FOR URBAN AND METROPOLITAN MANAGEMENT AND SERVICE DELIVERY • The lead agency should be empowered to provide capacity building, technical assistance, and policymaking support to cities and metropolitan areas. The lead agency would help to address widespread weaknesses among cities with regard to technical and administrative capacities for urban planning (including the timely preparation and implementation of comprehensive land use plans that integrate climate change and disaster-risk management and mitigation measures), municipal finance, and urban service delivery. The assumption of these responsibilities by the lead agency for urban development and housing will fill up an existing gap in technical support to urban LGUs that DILG and BLGF have not been able to adequately provide. to the effective development and implementation of a comprehensive national policy, as is proposed with • Consistent with on-going policy discussions to the NUP. The mandates of the lead agency would be consolidate all the key shelter agencies under one consistent with the key elements of the proposed NUP. national government agency, the lead agency for urban development should assume full • The lead agency should be responsible and responsibility for the housing sector. Specifically, accountable for the implementation of the the lead agency should be responsible for the policy goals and priorities identified in the NUP. coordination, supervision, and integration of all The primary role of the lead agency would be public sector policies, plans, and programs in the focused on: i) planning, in terms of developing and housing sector, including oversight for the key updating the long-term NUP and the preparation shelter agencies. and implementation of medium-term NUDHFs; ii) coordinating, both horizontally among national • The lead agency should spearhead the development sector agencies, and vertically between the national and facilitate the implementation of the NUDHF, government and LGUs in major urban areas for which should serve as the term-based, medium-term the delivery of urban services and infrastructure planning framework that articulates NUP’s urban investments; and iii) monitoring and regulation, development and housing goals and strategies in terms on overseeing the efficient and effective into priority programs for a six-year period. The lead provision of quality urban services. agency must collaborate with key NGAs and LGUs as well as private sector and civil society stakeholders in the development of the NUDHF given that the 20 WORLDBANK.ORG/PHILIPPINES/URBANIZATION implementation of the plans and programs will etc.). As needed, the lead agency will be require partnerships between the public, private, responsible for addressing institutional and and civil society actors at the national and local levels. coordination challenges with LGUs to facilitate Importantly, the lead agency must work closely with the implementation of priority programs, NEDA to ensure that the NUDHF is integrated with projects, and investments under the NUDHF national medium-term development plans (i.e., the Philippine Development Plan and Philippine »» The lead agency should lead the implementation Investment Plan). of multi-sectoral, inter-jurisdictional urban infrastructure projects in metropolitan areas • In terms of implementing the NUDHF, the lead where no single national sector agency is agency should lead the horizontal coordination positioned to implement such projects and among national oversight and sectoral agencies the LGUs lack the fiscal capacities and the inter- and vertical coordination between the national jurisdictional structures to undertake such government and cities and metropolitan areas for investments. integrated planning, financing, and implementation of national urban and housing programs in cities »» The lead agency will be responsible for and metropolitan areas. In effect, the lead agency developing financing instruments for co- should address the institutional fragmentation that financing of urban infrastructure and services is prevalent within the national government such that strengthen incentives for both the national that cities and metropolitan areas would no longer and local governments to effectively and have to deal with numerous sector and oversight efficiently provide quality urban services. Such agencies at the national level and can just deal with financing instruments may include the design the lead agency as a single point of contact at the of new fiscal categorical and/or conditional national level to resolve coordination and policy transfers targeted to cities and metropolitan issues in relation to urban development and the areas, new local tax bases, and innovative priority programs, projects, and investments under municipal financing vehicles (including the NUDHF. municipal bonds and bond pooling, local infrastructure investment funds, and public- »» The lead agency should serve as the key private partnerships). Such policy reforms champion within the national government that would be developed by the lead agency in will ensure that the implementation of sector- collaboration with the Department of Finance, specific programs in cities and metropolitan and in particularly, BLGF. areas are prioritized by the responsible sector agencies (e.g., urban transport investments • The lead agency will develop and implement a under DOT, telecommunications and performing monitoring system at the city and information technology investments under metropolitan levels for collecting standardized data DICT, urban poverty programs under DSWD, on the quality of service delivery for core urban PHILIPPINES URBANIZATION REVIEW POLICY NOTES 21 STRENGTHENING INSTITUTIONS FOR URBAN AND METROPOLITAN MANAGEMENT AND SERVICE DELIVERY services, eventually leading to the development of department also includes urban development in its mandate, service standards. In this regard, the lead agency the scope defined in the proposed legislation reflects a would assume the responsibility for monitoring the very narrow conceptualization of urban development that urban service delivery of all cities as well as those is limited to “the process of occupation and use of land or municipalities that are components of formally space for such activities as residential, industrial, commercial, classified metropolitan areas, as specified in the NUP. and the like or their combinations, necessary to carry out the Through the collection and analysis of data, the lead functions of urban living… (and) the building or rebuilding agency will then be in a position to develop service of more or less permanent structures over land… resulting in standards that are appropriate to different cities the creation of a built environment.” and metropolitan governments, which will be key to strengthening accountability systems for service Given the broader and more inter-connected nature of delivery. The lead agency will need to coordinate urban development issues, the passage of a law establishing with DILG as well as relevant sector national agencies of a Department of Housing and Urban Development should in the design and implementation of a performance ensure that the new entity has a wider mandate for both monitoring system for urban service delivery, which urban development and housing. The on-going discussions would subsequently allow DILG to concentrate its about consolidating the various shelter agencies into a single local service delivery monitoring on the non-urban national agency is consistent with the thrust of the new LGUs. administration to streamline the bureaucracy and promote convergence within government. At this juncture, it is critical • The lead agency will support the establishment that as part of the policy dialogue and advocacy activities and operationalization of formal inter-jurisdictional on urban development policy, the integrated nature of coordination and governance arrangements urban issues, including housing, connectivity, productivity, in metropolitan areas outside of Metro Manila, spatial expansion, and poverty reduction, are fully taken including the development and enforcement of into account in determining the appropriate institutional metropolitan-wide spatial and land-use plans. reform to be undertaken. While global experiences on the Under this responsibility, the lead agency will define adoption of NUPs and the establishment of national urban and classify inter-jurisdictional metropolitan areas ministries can provide valuable lessons, ultimately the outside of Metro Manila based on criteria to be “appropriate” solution will necessarily need to account for specified in the NUP. the specific political and institutional context prevailing in the Philippines. Nonetheless, a Department of Housing and There are on-going policy discussions to create a Department Urban Development with a more comprehensively defined of Housing and Urban Development but, as proposed, the new mandate will be better placed to manage the diverse and entity would maintain a primary focus on housing issues. The dynamic range of urban development and metropolitan proposed legislation (House Bill 6194) seeks to consolidate governance issues, while assuming the responsibilities for HUDCC and the HLURB while essentially combining the policymaking, regulation, and development of the housing mandates of the two existing entities. Although the new sector. 22 WORLDBANK.ORG/PHILIPPINES/URBANIZATION Box 6. Examples of National Urban Development Agencies Brazil’s Ministry of Cities is responsible for urban development policy and sectoral policies for housing, sanitation and urban transportation. In January 2003, the Brazilian government created the Ministry of Cities with the objective of formulating national housing, environmental sanitation, and urban mobility policies that have a strong impact in urban development. The National Secretary of Transportation and Urban Mobility was created and the Brazilian Urban Train Company, which was part of the Ministry of Transportation, and the National Traffic Department, which was part of the Ministry of Justice, were incorporated by the Ministry of Cities to elaborate and implement urban mobility policy. The Ministry of Cities is charged with designing and implementing a national policy to upgrade informal and precarious settlements in conjunction with state and municipal governments, which are responsible for its execution. The Ministry of Cities is also tasked with strengthening municipal capabilities and a National Council of Cities engages diverse stakeholders in discussing national urban policy. In Chile, in the early 1960s, there were at least 28 institutions and eight different departments that intervened in matters of housing, urbanization, and equipment. To deal with this situation, the Ministry of Housing and Urban Planning was created in 1965 with the goal of improving and renewing the deteriorated areas of cities through rehabilitation and urban development programs. Among the priorities of the Ministry of Housing and Urban Planning is to address issues of urban equality, combat spatial segregation, and ensure that all residents benefit from the city, especially the most vulnerable. The ministry expanded programs to improve neighborhoods and condominiums, promoted a new program focused on interventions on small towns, and invested in infrastructure – all with a strategic vision and relevance to Chile’s distinct regions. In Colombia, a national Ministry of Housing, City and Territory was formed in 2011 and was tasked with the responsibilities for formulating, implementing, and orienting housing policy, urban planning, and water and sanitation services, particularly in the major cities. Prior to this, urban and housing issues were subsumed under a broader mandate of the Ministry of the Environment, Housing and Territorial Development. With the establishment of a separate Ministry of Housing, City, and Territory, the national government now has a focal agency responsible for housing and urban development issues, including disaster risk management. The Ministry of Urban Development is the apex authority of Government of India at the national level to formulate policies and programs and to coordinate the activities of various central ministries, state governments, and other nodal authorities concerning all the issues of urban development in the country. The Ministry was attached on and off with the Ministry of Housing and Urban Poverty Alleviation on many occasions, before finally becoming independent in 2004. Source: UN Habitat, 2015 Strengthen metropolitan governance and service challenges of metropolitan fragmentation remain. Globally, delivery through the reform of metropolitan coordination there have been various institutional approaches that have arrangements in Metro Manila and secondary urban areas emerged in response to the challenges of metropolitan- wide governance. Given the experience of MMDA, which a. Possible Directions for Metropolitan Governance illustrates the limitations of a comprehensive metropolitan Reforms in Metro Manila authority with constrained political authority and weak financial and technical resources, the Philippines may draw lessons on metropolitan governance from the experiences While a formal metropolitan governance structure has long of mega-cities around the world. been established in Metro Manila, it is apparent that the PHILIPPINES URBANIZATION REVIEW POLICY NOTES 23 STRENGTHENING INSTITUTIONS FOR URBAN AND METROPOLITAN MANAGEMENT AND SERVICE DELIVERY Box 7. Global Approaches to Metropolitan Governance A common institutional approach in response to the challenge of metropolitan-wide governance has been simply to maintain jurisdictional fragmentation. In such cases, multiple jurisdictions function within a metropolitan area with some level of autonomy (Bahl 2013). • In a one-tier fragmented government model, a metropolitan area has a number of autonomous local government units responsible for delivering services within their own boundaries, which often leads to poor coordination among the various government units for critical metropolitan-wide issues such as economic development, environmental quality, social and spatial disparities, and the level of service delivery (Slack 2007). Jurisdictional fragmentation is prevalent in the United States, where there is a strong desire for local autonomy, and generally describes the metropolitan governance models of Mumbai and Sao Paulo. • Horizontal cooperation among local governments (which may take the form of case-by-case joint initiatives; contracting among local governments; and ad hoc committees, commissions, working groups, and consultative platforms) is a common approach to mitigate coordination issues within jurisdictionally fragmented metropolitan areas (Andersson 2014). However, voluntary cooperation is contingent on policy-makers of the various local governments having shared policy objectives. In cases where there are diverse objectives and motivations among local governments within a metropolitan area, voluntary cooperation is unlikely to succeed. Furthermore, given the magnitude of the challenges confronted by metropolitan areas (such as traffic congestion, pollution, global competition, and fiscal disparities) the required solutions are likely to require a more permanent institutional status. (Slack 2007). An alternative metropolitan governance structure is functional fragmentation, wherein the delivery of a single service or cluster of services is assigned to an autonomous agency (Bahl 2013). This approach may result in technical and cost efficiencies in service delivery because the autonomous agency would be able to specialize on a particular service while potentially leveraging economies of scale in providing services across a wider spatial jurisdiction. • The public service enterprise may take the form of a metropolitan-wide/regional authority or a special purpose district and, as is frequently the case in the United States as well as in the cities of Bangkok and Buenos Aires, different autonomous agencies may be established to deliver different urban services within a metropolitan area. Since it is unlikely that the spillover boundaries are uniform across different services (e.g., a regional transit authority may have a different spatial coverage than a solid waste management district), the advantage of such autonomous entities is that the externalities for each service can be addressed on an individual basis (Slack 2007). However, while there are economic efficiencies to be gained from pursuing metropolitan-wide authorities, this approach has also been criticized for reducing citizen control and local accountability for service delivery given that these autonomous entities are generally not directly under the control of any single local jurisdiction. Further, when independent special purpose bodies proliferate within a metropolitan area, it may become difficult to coordinate interrelated activities among them and to mitigate tradeoffs between competing investments and policies among sectors (e.g., transit infrastructure and water and sewer infrastructure). A more comprehensive governance structure is a metropolitan government where urban services are administered on a metropolitan-wide area (Bahl 2013). • Under a one-tier consolidated model, urban service delivery over an entire urban area is consolidated under a single metropolitan government, which allows it to leverage economies of scale and to internalize externalities to a greater degree compared to fragmented metropolitan governance structures. Such a structure also provides more potential for equalizing disparities in service delivery throughout the metropolitan area. Large single-tier governments have been created through the amalgamation of multiple local governments within an existing region or the annexation of a jurisdiction (or a portion of a jurisdiction) by an adjacent jurisdiction (Slack 2007). A diverse range of metropolitan areas has adopted this model globally, including Toronto, Shanghai, Cape Town, and Abidjan (Andersson 2014). • Another model of metropolitan government is a two-tier model where an upper-tier metropolitan body provides region-wide services while lower-tier jurisdictions are maintained to provide services of a local nature, such as local parks and amenities (Slack 2007). In such a model, the upper tier assumes responsibility for services that benefit from economies of scale, generate externalities, and are redistributive in nature. Examples of metropolitan areas that utilize this approach are Tokyo, Madrid, Istanbul, and Portland (Andersson 2014). 24 WORLDBANK.ORG/PHILIPPINES/URBANIZATION Given the strong history of and legal protections for the amalgamation of metropolitan functions within the MMDA local autonomy of LGUs, a renewed approach to the or a single-tier, consolidated metropolitan government is more effective metropolitan governance of Metro Manila unlikely to be politically feasible (even in the context of a requires a balance of maintaining the local autonomy of the possible shift to a federal system of government). Hence, the constituent LGUs while adopting politically and technically effort to determine the “appropriate” model for Metro Manila feasible compromises for the more effective and efficient must account for the distinct political and institutional delivery of critical urban services. It is unrealistic to expect context of Metro Manila as well as the technical and that the LGC can be revised to reduce the local autonomy administrative constraints that MMDA has historically faced, of LGUs. Moreover, there is little evidence to suggest that while balancing the desire of political stakeholders and the national government will increase support and devote constituents to preserve local autonomy with the need to more resources to the MMDA to realize its comprehensive strengthen the quality and efficiency of metropolitan-wide statutory mandate, as written in the current law. Further, the urban service delivery. Box 8. Key Issues in Metropolitan Governance While there is a wide range of experience globally in attempting to deal with the challenges of metropolitan fragmentation, there is no consensus on a single “best” approach for governing metropolitan areas. As Bahl, Linn, and Wetzel (2013) observe, “the great variation in practice that exists among developing countries suggests that almost any arrangement can work, if ‘work’ means that local services do not collapse.” Indeed, the key lesson from international experience is that the “appropriate” metropolitan governance model depends on national and local context (Slack 2007), including the strength of the desire for local autonomy vs. more efficiency in service delivery. A metropolitan government model where urban services are administered on a metropolitan-wide area would, in principle, be the ideal solution. However, in the context of developing countries, the option to adopt a comprehensive metropolitan-wide governance model is likely to be unrealistic because of rapid population growth, scarce resources, and the reluctance of central government to shift away from fiscal centralization (Bahl, Linn and Wetzel 2013). Even in cases of metropolitan consolidation in developed countries, the resulting metropolitan governments typically do not cover the entire metropolitan region (OECD 2006). For developing countries that are rapidly urbanizing, economic boundaries will continue to expand over time making it inevitable that even consolidated cities would still need to coordinate services such as transportation and economic development with neighboring municipalities (Slack 2007). Voluntary cooperation for the provision of some services may be more achievable than a full-scale metropolitan government in circumstances where a metropolitan area is too big to be acceptable as a political or administrative unit or where local autonomy is paramount and prevents a consolidation (Slack 2007). In such cases, politics are more likely to dictate outcomes than efficiency or equity considerations. However, these approaches generally do not work well when objectives differ among local governments nor do they provide the needed regional foundation for metropolitan areas to coordinate service delivery. In many cases, adopting a metropolitan-wide/regional authority or a special purpose district to deliver different urban services within a metropolitan area may be a more politically and technically feasible compromise for a metropolitan region. In designing such arrangements, a key consideration is the need to balance between the potentials for economies of scale, externalities, and service coordination efficiency with the impact on residents’ access to their government and its responsiveness and accountability (Andersson 2014). Also, each urban service will likely achieve the lowest per-unit cost at a different scale of production, potentially leading to variations in the boundaries of different services (Slack 2007). While there is no single solution that is right for all countries, addressing governance issues of metropolitan fragmentation must begin with the central government taking a metropolitan-wide view of reform (Bahl, Linn and Wetzel 2013). Ultimately, central governments raise most of the tax money, spend the largest share of the public budget, and make rules on how sub-national governments operate. Hence, the road to better metropolitan governance and fiscal outcomes in metropolitan areas begins with national governments, which must consider that constantly changing conditions (such population growth, economic globalization, and climate change) demand a continuous evolution of metropolitan governance arrangements over time (Slack 2007, Yaro and Ronderos 2011). PHILIPPINES URBANIZATION REVIEW POLICY NOTES 25 STRENGTHENING INSTITUTIONS FOR URBAN AND METROPOLITAN MANAGEMENT AND SERVICE DELIVERY The adoption of metropolitan authorities to deliver specific the performance of specific sectors, such as transportation urban services within Metro Manila may be a more politically and traffic management, solid waste disposal and and technically feasible compromise. This option would management, and water and sanitation. Services provided potentially allow the constituent cities and municipalities by metropolitan authorities are typically financed by user to largely retain local political autonomy and responsibility fees and other charges, as well as intra-local transfers, and for local services while allowing for the establishment of these models are usually overseen in regulatory terms technically competent and financially viable metropolitan- by the national government. A key advantage of such wide authorities to be accountable for the efficient delivery autonomous entities is that the externalities for each service of services in key urban sectors that are inter-jurisdictional in can be addressed on an individual basis given the likelihood nature, such as urban transport and traffic management, and that the spillover boundaries are different uniform across solid waste disposal and management. Such metropolitan different services (for example, the coverage of a solid waste authorities would be established as government-owned and management authority may be smaller and contained to controlled corporations (GOCCs) that would not be under the the 16 cities and one municipality of Metro Manila while direct control of single jurisdiction; however, the governance the coverage of a transport and traffic authority may extend structure would include the mayors of the constituent LGUs beyond Metro Manila to include Greater Metro Manila, to ensure that local concerns are adequately addressed. which would encompass 84 cities and municipalities). The Philippines may draw lessons from successful examples of metropolitan service authorities should it consider this Under metropolitan authorities, territorial fragmentation reform path. persists but specific sector-based integration overcomes it in 26 WORLDBANK.ORG/PHILIPPINES/URBANIZATION Box 9. Examples of Metropolitan Service Authorities The institutional arrangement for the Barcelona, Spain, is a result and governance of London became responsibility of central government of the cooperation of the different local governments within the ministers, using ad hoc arrangements for regional planning. Since 2000, region on specific sector based issues, including transportation and London has again a city-wide government with elected members of a the environment. In 1997, following the dissolution of the Barcelona Greater London Authority (GLA) and since 2002 also a directly elected Metropolitan Corporation, given local and home rule concerns by the mayor. The GLA Act created two new elected bodies – the 25-member underlying local governments, three sectoral institutions were created in Assembly elected from two different electoral bases (14 on a constituency the metropolitan sphere, which city councils in the Barcelona area may basis and 11 London-wide) and the Mayor (who is not a member of the join on a voluntary basis. Because affiliation was voluntary, the territorial Assembly). Together, the Mayor and the Assembly constitute the GLA. sphere of the three organizations was different. GLA is a higher-level strategic authority whose principal purpose • The Mancomunitat de Municipis was tasked to bring a common is to promote economic development and wealth creation, social metropolitan perspective to those jurisdictional areas decided development, and the environment. GLA and the local governments have upon by the municipalities. It acted in the area of planning and the little fiscal autonomy; more than 80 percent of their revenues come from improvement of metropolitan infrastructures, public space, housing central government grants. There are four functions that are separate and land. from the Assembly but accountable to it through the GLA: • The metropolitan transport organization, Entitat Metropolitana del • Transport for London (TFL) is responsible for roads, buses, trains, Transport (EMT) was responsible for the organization, management subways, traffic lights, regulation of taxis (metered) and mini-cabs and planning of the public transport system; the provision of the (unmetred and unmarked). subway service in seven municipalities; and the organization and control of the taxi system and traffic and road-network • The London Development Agency (LDA) coordinates economic programming. development and regeneration. It promotes business and works in partnership with industry, public and voluntary sectors. • The organization for the Environment, Entitat Metropolitana del Medi Ambient was responsible for the construction and • The Metropolitan Police Authority (MPA) has 23 members of whom maintenance of hydraulic infrastructures; water supply; drainage 12 are Assembly members, one is appointed by the Home Secretary, and wastewater and the treatment of urban and industrial waste. four are magistrates, and six are independent Londoners. In 2011 the new Barcelona Metropolitan Area (BMA) organization was • The London Fire and Emergency Planning Authority (LFEPA) is formed and encompasses and absorbs the three existing voluntary responsible for fire and emergency services. transportation, planning, and environmental organizations in a two-tier council structure to better coordinate efforts. The emerging BMA defines The Metropolitan Area of Buenos Aires (Gran Buenos Aires), Argentina, its competencies as territorial management, such as planning, territorial comprises the city of Buenos Aires, consisting of 48 neighborhoods policy, housing, infrastructure and services and political coordination occupying about 200 square kilometers, and 33 adjacent municipalities. among the 35 local governments. It also includes the competencies of The population of the City of Buenos Aires is 2.9 million, plus an estimated transport, environmental issues and planning and absorbs the previously 1.6 million commuters, while the rest of Gran Buenos Aires has a existing metropolitan arrangements. These have been the purview population of 9.9 million. In 1978, a public company was created, named of the three previous organizations that are being merged. Economic CEAMSE (Coordinación Ecológica del Área Metropolitana Sociedad del Development and strategic planning are new competencies being added Estado), by the province of Buenos Aires and the city of Buenos Aires with to the new model. the responsibility for the collection, treatment, and final disposal of solid waste generated in Buenos Aires and the 33 municipalities of the greater The BMA is financed through a diverse set of resources, including metropolitan area. taxes, charges and other fees and transfers from the municipalities to the BMA, which assigns these resources to the planning, transport or CEAMSE collects more than 435,000 tons of residues per month, which environmental functions within its jurisdiction. Each local government is the equivalent of the residues generated by 13.0 million habitants. has a representative, principally the executive, within the Metropolitan CEAMSE has inter-jurisdictional character, since its capital stock is shared Council who elects the executive of the BMA organization. in equal parts by the Government of the Province of Buenos Aires and the Government of the Independent City of Buenos Aires. Buenos Aires’ London, United Kingdom, was governed by a two-level structure from Solid Waste Management Plan was a winner at the C40 Cities’ City Climate 1964 to 1986, the Greater London Council (GLC) and 32 local governments Leadership Awards 2014, which honour cities for their leadership in (each with its own mayor and council). In 1986, the GLC was abolished tackling climate change. Source: Andersson, 2014; Slack 2007; Yaro and Ronderos 2011 PHILIPPINES URBANIZATION REVIEW POLICY NOTES 27 STRENGTHENING INSTITUTIONS FOR URBAN AND METROPOLITAN MANAGEMENT AND SERVICE DELIVERY A transition to a Metro Manila governance model wherein mandated for planning at the metropolitan level and it is metropolitan service authorities are adopted to provide one area in which it has arguably functioned adequately, strategic urban services (such as transport and traffic as evidenced by the successful integration of disaster risk management, and solid waste disposal and management) management into the comprehensive land use plans in several across Metro Manila and, as the case may be, Greater Metro cities of Metro Manila. The responsibility for implementation Manila will require a shift in the role of MMDA to focus on and service delivery functions for strategic urban services, metropolitan wide development and land use planning and which are currently statutorily included in MMDA’s mandate, coordination. The functions of MMDA as an implementing will be relegated to the new metropolitan service authorities agency with responsibilities for direct service provision and, in some cases, sector national agencies. The conversion would thus be greatly reduced, allowing it to focus on its of MMDA to a metropolitan planning and coordinating core competencies. MMDA has been the only organization agency builds on global experiences and good practices. Box 10. Examples of Metropolitan-wide Planning Authorities Separate agency for planning and development has been established for In Chicago, USA, the Chicago Metropolitan Agency for Planning (CMAP) was some cities; some with a mandate focused on land use and master planning created in 2006 to address development and transport challenges in seven (Delhi Development Authority in India, and Dhaka Capital Development counties in north-eastern Illinois. Its aim is to plan for public and private Authority in Bangladesh), others with broader city development mandates investments in the area and integrate plans for land use and transport. The such as Lagos Mega-City Development Authority in Nigeria, and London CMAP merged the operations of the Chicago Area Transportation Study Development Agency in the UK, recently incorporated into the Greater (CATS) and the Northeastern Illinois Planning Commission (NIPC). CMAP is London Authority to which the Mayor of London reports. responsible for developing a comprehensive regional plan at least every five years that integrates land use and transport. This plan presents the The institutional arrangement for Mexico City, Mexico, provides a bridge goals, policies, guidelines and recommendations to guide the physical between the State and multiple local governments creating a set of sector development of the region. Based on this plan, a listing of proposed public based committees that coordinate metropolitan planning. The Statute investment priorities in transport and other facilities and utilities is made. In of the Federal District authorizes that the Metropolitan Coordination addition, the comprehensive regional plan can contain proposals for model Executive Committee is responsible for the “planning and execution of ordinances and agreements that may be enacted by local governments, coordinated actions with the Federation, States and Municipalities in as well as recommendations for legislation that may be necessary to the outlying city areas of Mexico City, in the areas of human settlements; implement the plan. CMAP’s official forecasts and plans are the foundation environmental protection, preservation and restoration of the ecological for all planning in the region, whilst units of local governments continue to balance; transport; drinking and drainage water; the collection, treatment maintain control over land use and zoning decisions. and disposal of solid waste and public security”. Key lessons from these examples highlight the need to: In New York City, USA, the Regional Plan Association (RPA) was convened • Include representation of all local governments of the metropolitan as an ad hoc group in 1922 to develop the Regional Plan for New York and area in the government organs of the planning authority its Environs –the world’s first comprehensive, long-range metropolitan plan. This First Regional Plan was completed in 1929 and the Association • Specify technical profiles for technical and management staff was incorporated as a permanent non-profit organization later that year to • Design management periods with a different duration than those of oversee the plan’s implementation. In response to new economic, mobility, the local or national authorities environmental and social challenges, the Second and Third Regional Plans were completed by RPA in 1968 and 1996 to address these concerns. • Provide long-term programs of work RPA serves the New York–New Jersey–Connecticut Metropolitan Region, • Detail clear mechanisms to link technical studies with public works which is comprised of 31 Counties. It is an independent metropolitan and private developments policy, research and advocacy group, which performs most of the regional planning functions, partly funded by the area Counties. Source: Andersson, 2014; Slack 2007; Yaro and Ronderos 2011 28 WORLDBANK.ORG/PHILIPPINES/URBANIZATION If MMDA is converted into metropolitan-wide development authorities and the reformed MMDA; v) institutional and land use planning and coordination body, the Metro arrangements among the new metropolitan service Manila Council should continue to serve as the governing authorities, the reformed MMDA, national sector agencies body but its membership should be expanded to include (including the proposed Department of Housing and voting representatives from the national agencies with Urban Development), LGUs, and the private sector and corresponding responsibilities, as well as private sector civil society organizations; and vi) the legal requirements and civil society organizations. Currently, the Metro Manila and follow-up executive and administrative actions among Council places the decisions about metropolitan issues in the both national government agencies and local governments hands of elected representatives from individual localities needed to enact the coordinated series of reforms. Political and the MMDA Chairman, who is a Presidential appointee commitment at the highest level (Office of the President) is and, historically, has usually been a career politician. The needed to push for such a comprehensive reform of Metro recommendation is to open the voting powers of the council Manila’s metropolitan governance structure, which would to reflect a wider range of other interests and concerns, as well be fully consistent with the development and adoption of a as appoint a Chairperson with a technical and professional comprehensive NUP for the Philippines. background (as opposed to a political background). Regional development authorities such as the Regional b. Directions for Metropolitan Governance Reforms in Plan Association, the non-profit planning organization Secondary Urban Areas responsible for developing metropolitan strategies for the New York, New Jersey, and Connecticut metropolitan region, is managed by a diverse board and committees that For metropolitan areas outside of Metro Manila, which are include civic, community and business leaders. In Sao Paolo, much smaller in scale and are predominantly “spillover” rather the Regional Development Agency is led with a board of than “fragmented” urban areas, a more nuanced approach directors comprised of private sector members who control should be provided for under the proposed NUP that allows 51 percent of board and the Inter-municipal Consortium for more flexibility and innovation. with the remaining 49 percent. • In relatively large-scale, “fragmented” metropolitan areas, Importantly, steps towards adopting metropolitan particularly Metro Cebu or Metro Angeles in Pampanga, authority model for Metro Manila, with MMDA serving as a adopting the same approach proposed for Metro Manila development and land use planning and coordinating body, may be beneficial. In these cases, metropolitan-wide will require a thorough technical and institutional review. planning bodies may be established to coordinate inter- Fundamental questions would need to be studied regarding: jurisdictional development and land use planning and i) the specific sectors to be delegated to new metropolitan to lead the coordination between the metropolitan service authorities and, as the case may be, to sector national area and the national government for service delivery agencies; ii) the scope of responsibilities to be retained by and large-scale public infrastructure investments. MMDA; iii) the spatial and jurisdictional coverage of the new Concurrently, metropolitan service authorities may metropolitan service authorities and the reformed MMDA; established (as appropriate to the specific needs of each iv) the governance framework, organizational structures, metropolitan area) to deliver strategic, inter-jurisdictional and financing frameworks of the new metropolitan service urban services across each metropolitan area. In each PHILIPPINES URBANIZATION REVIEW POLICY NOTES 29 STRENGTHENING INSTITUTIONS FOR URBAN AND METROPOLITAN MANAGEMENT AND SERVICE DELIVERY case, a comprehensive technical and institutional review supporting the establishment and operationalization of should be undertaken to design the appropriate model, formal inter-jurisdictional coordination and governance as consistent with the broad goals of the proposed NUP. arrangements in metropolitan areas outside of Metro Manila. Within the context of metropolitan areas, the NUP should specify the specific roles of the national government • For smaller-scale, “spillover” metropolitan areas, formally (including the proposed Department of Urban Development establishing a separate planning and service delivery as well as relevant sectoral agencies), metropolitan body authorities may not be necessary and cost-efficient in (in whatever form it is established), and the component the medium-term. The more practical approach may LGUs for metropolitan-wide planning, service delivery, and be to strengthen formal mechanisms and incentives infrastructure development. for inter-local coordination for spatial and land-use planning and collaboration for service delivery. Such reforms have already been subject to extensive policy The NUP should clearly define and classify metropolitan discussions and analysis by DILG in recent years (AusAID areas outside of Metro Manila, that is, urban areas that attain 2008, European Union 2010). Models and lessons from a certain scale requiring special oversight by the national examples of successful inter-jurisdictional coordination government. The criteria to assess metropolitan areas should within urban areas, such as Metro Iloilo and Metro Naga, include population size and density, land area, and level should be studied and replicated in urban areas with of metropolitan fragmentation. As seen with the cases of similar characteristics. Metro Cebu and Metro CDO, voluntary coordination through project-by-project agreement only works in a limited manner for pro-active, self-organizing stakeholders. Therefore, the The enactment of the NUP and establishment of a new NUP should specify guiding principles for establishing and Department of Housing and Urban Development will create supporting formal inter-jurisdictional coordination and the appropriate enabling environment for implementing governance arrangements based on the classification of financing and institutional reforms to enable effective inter- metropolitan areas that achieve a minimum scale. LGU cooperation within metropolitan areas, These would include: i) establishing a legal framework for the creation Strengthen accountability systems for local service delivery and operation of inter-local enterprises, ii) developing through fiscal decentralization reforms financing instruments to finance inter-local enterprises, and ii) providing capacity and institutional development and financial incentives to support to operationalize inter-local Structural reforms to the intergovernmental fiscal system of enterprises. the Philippines requires legislative actions and must hence be considered as part of a long-term agenda given the lack of substantive revisions to the LGC since it was enacted 25 years For metropolitan areas outside of Metro Manila, the NUP ago. In recent years, DILG has undertaken a comprehensive should provide policy guidelines for the national government review of the fiscal decentralization system leading to the to foster the appropriate governance structures necessary to submission in 2015 of a proposed a package of legislative evolve from urban clusters to formal metropolitan status and revisions to the LGC: function. The proposed Department of Housing and Urban Development should be tasked with the responsibility for 30 WORLDBANK.ORG/PHILIPPINES/URBANIZATION • In terms of improving revenue assignments: a) transfer the authority to approve the schedule of market values of real properties from the LGUs to the Department of Finance while retaining the autonomy of LGUs to set tax rates and assessment levels; and b) simplify the differentiated and graduated local business tax structure. • In terms of improving expenditure assignments: clarify functional assignments by differentiating between fully devolved functions, for which LGUs will assume exclusive responsibility for service provision, and delegated functions, for which the national government retains primary responsibility but which are to implemented by LGUs. • In terms of improving the progressivity of the IRA: development and housing will help to address weak systems revise the IRA formula to take into account disparities in of accountability that stem from structural issues in the the revenue raising capacity of LGUs in line with their decentralization system. expenditure needs. • The establishment of a Department of Housing and However, as has been the case in past attempts to revise the Urban Development will serve to clarify the respective LGC, the proposed legislative reforms from DILG were not responsibilities of NGAs and LGUs for the provision of classified as a priority bill in the last Congressional session core urban services and investments within cities and and were subsequently not seriously debated. With the metropolitan areas. current political discussions regarding the possible shift from a unitary system of government to a federal system, it • Designating the Department of Housing and Urban is possible that structural reforms to the LGC will be given Development with the responsibility to develop serious consideration. However, such reforms must navigate and implement a monitoring system at the city and very expansive and diverse sets of interest among local and metropolitan level for collecting standardized data on national government stakeholders and will likely remain core urban services will address the issue of the lack of highly challenging to enact. service delivery data at the local level. Nonetheless, executive actions that accompany the • The collection of critical data on urban service delivery proposed enactment of a national urbanization policy and outputs and outcomes will allow the Department of establishment of a Department of a lead agency for urban Housing and Urban Development to develop service PHILIPPINES URBANIZATION REVIEW POLICY NOTES 31 STRENGTHENING INSTITUTIONS FOR URBAN AND METROPOLITAN MANAGEMENT AND SERVICE DELIVERY standards for core urban services over the medium- comprehensive package of institutional reforms for urban term. This would represent a major step towards development and metropolitan governance are intended to strengthening incentives for better service delivery and strengthen the institutional environment for urban service providing local chief executives with management tools delivery. In theory, this would increase the incentives for to improve service delivery. cities to optimize local tax bases and to utilize debt financing to accelerate local infrastructure development. However, capacity building and policy reforms can further address • The availability of urban service data will also serve as weaknesses in local fiscal autonomy of cities. a platform for designing more effective LGU financing instruments based on the prescribed roles of the national and local governments in the planning, financing, and • Capacity building support and advocacy activities provision of core urban infrastructure and services as targeted to cities can help to facilitate the regular specified in the NUP. For example, performance-based updating of schedules of market values and local and/or conditional transfers to LGUs in metropolitan revenue codes, the adoption of modern tax mapping regions could be designed to finance investments in and GIS tools, and the streamlining of business permits strategic core urban infrastructure and services. Such and licensing systems. transfers would serve as important tools for addressing the financing gap in key sectors (e.g., major road and • Supply-side interventions requiring executive actions bridge construction, drainage and flood control facilities, are needed to facilitate LGU borrowing. Specifically, BLGF housing, and solid waste management facilities) while and the Monetary Board must coordinate to lower the concurrently strengthening accountability systems. bureaucratic hurdles and shorten the processing time Furthermore, innovative municipal financing instruments for LGUs to access loans. Furthermore, the Department that are absent from the current intergovernmental fiscal of Finance should eliminate unnecessary restrictions system (including municipal bonds and bond pooling, on commercial bank lending to LGUs. The continued local infrastructure investment funds, and public-private restriction of commercial banks reduces competition partnerships) may be developed to strengthen the in the LGU credit market and may prevent cities from fiscal autonomy of cities to finance local infrastructure accessing more affordable credit. priorities. Near-term reforms should be pursued to support the capacity building of cities for local revenue administration and to improve the institutional environment for debt financing. The This work is a product of the staff of the World Bank Group with external contributions. The findings, interpretations, and conclusions expressed in this volume do not necessarily reflect the views of the Executive Directors of The World Bank Group or the governments they represent. The World Bank Group does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank Group concerning the legal status of any territory or the endorsement or acceptance of such boundaries. 32 WORLDBANK.ORG/PHILIPPINES/URBANIZATION