By Cai Ordinario, August 31 2018; Business Mirror


Image Credit to Business Mirror

THE shift to federalism could cost the national government an additional P243 billion annually, according to the National Economic and Development Authority (Neda). This is almost double the initial estimates made by experts of the true cost of shifting to federalism.

Neda Undersecretary for Planning and Policy Rosemarie G. Edillon said the central planning agency recommended a 15-year transition period to shift to a federal form of government to allow the country to adjust to the structural changes brought by the new charter.

“[The] incremental cost assumes the structure in the draft Charter,” Edillon told the BusinessMirror via SMS on Thursday. “[The costs will kick in] once [the federal government is] operational, once FRs [Federated Regions], the RLAs [Regional Legislative Assembly] and the new judiciary offices are in place.”

Based on the presentation to the Economic Development Council and some Consultative Committee (Con-com)  members on Wednesday, the Neda said  he recurring expense for Personnel Services and Maintenance and other Operating Expenses would reach some P156.6 billion under a minimum scenario and P243.5 billion under the  maximtum scenario.

However, in the first year of implementation, Edillon said the government needs to spend an additional P10 billion to finance the construction of various government offices. This was based on an estimate of P100 million per building, and the number of agencies that still do not have buildings.

Edillon said computing the recurring expense involved the functions and responsibilities of the Federal Government (FG) and the FRs and their cost sharing for these functions.

She added that the estimates also took note of the shared functions of the FG and FRs particularly education, health and law enforcement, among others.

Both estimates included the equalization fund which accounts for 3 percent of the annual General Appropriations Act. The equalization fund aims to help FRs become economically viable.

“[The cost] would be somewhere in between [the two scenarios]. But our basis for saying that it will definitely be higher than the scrap and build scenario [scenario 1] is we were looking at the structure, we were looking at the staffing requirement of the ARMM,”
Edillon said.

“If the ARMM will be used as the pattern for regional governments, then this means having regional Cabinet secretaries have the rank of a Usec [Undersecretary]. In regional offices today, heads would only have a rank of Director 4. This means ranks and salaries will have to be increased. After that, you need a number of Asecs [Assistant Secretary] and we think that because there will be additional responsibility, there should be additional personnel as well,” she explained.


Based on Neda’s proposal, the first year of the transition period should involve the amendment of the Local Government Code and the Administrative Code.

The amendment of these laws will start the transition process for Local Government Units to become more independent. This includes training on fiscal responsibility and accountability.

It will also mean introducing courses such as Urban Planning and Governance in all state universities and colleges to prepare for the necessary manpower needed
in FRs.

Under Phase 1 of the transition road map, Neda said this will take one year and will involve the analysis of socioeconomic and political landscapes.

It will also be the time when the government will make an accounting of government work force and functions; mapping of existing laws and regulations and policies; and identifying Constitutional issues in the 1987 Constitution that need to be addressed.

Phase 2, Edillon said, will take five years to complete. It will lay down the foundation for federalism such as the adoption of the transitional period Charter and establishment of the Federal Transition Commission.

This will also involve rationalizing government structures and functions; preparing regions; and civic education and public consultation.

The third phase which will take three years to complete focuses on the activation of the transitional government. It means preparing the bureaucracy for genuine devolution and formulating amendments to the 1987 Constitution.

The second to the last phase, which will take five years, will operationalize more developed regions based on readiness and willingness. By this time, the Bangsamoro region may become operational.

The last phase will take one year and move for the ratification of the amended Constitution for full transition to Federalism. This will deactivate the transitional government; Regional Development Councils will start serving as interim regional governments; and the continuation of the capacity building of subnational government agencies.

“Even the Palace and the Concom, they realize that this is a working draft. In fact they would have wanted to have this parang revalida [like a group critique] with us before they submit it to the President,” Edillon said.


Edillon said, however, that the draft Constitution was able to improve on some aspects of the 1987 Constitution. This included using indigenous peoples compared to indigenous communities.

The only problem there entailed the responsibility given to the FRs instead of the FG. Edillon said this could be a problem for nomadic indigenous peoples.

Other concerns include the rising cost of doing business since FRs will be the one in charge for the regulation and licensing of professionals as well as tax collection from professional taxes, among other functions.

Further, costs involved in the sharing between the FG and the FRs, based on Neda’s estimates, is nowhere near the Con-com’s 50-50 sharing. Based on Neda’s estimates, the cost sharing could be 80 to 20 with the FG taking the lion’s share of the costs.

“Estimates show that the split in the spending between FG and FR is not 50:50 but 60:40. Estimation did not include subsidy, tax expenditures, interest payments, net lending, financial expense and capital outlay. If included the split in spending would be around 80:20,” the Neda presentation stated.

“Mismatch in funds and spending, especially for FG, will impede the delivery of goods and services under its jurisdiction,” Neda added.