President Ferdinand Marcos Jr. has signed a new law that introduces an income-based classification system for local government units (LGUs) to serve as a foundation for financial grants and various forms of assistance.
Republic Act (RA) No. 11964 is designed to formalize the automatic categorization of LGUs according to their income, adopting a “more adaptive approach” to boost local economies and empower LGUs to harness their complete economic potential.
“In accordance with this, the State acknowledges the necessity of assessing the financial capacity and fiscal standing of local government units,” as stated in the newly enacted law.
Under this legislation, municipalities will be organized into five distinct classes based on their income brackets and the average annual regular income over three fiscal years before the reclassification of the LGU’s general income. The five categories and their corresponding annual average incomes are as follows:
- First Class – ₱200 million
- Second Class – ₱160 million or more but less than ₱200 million
- Third Class – ₱130 million or more but less than ₱160 million
- Fourth Class – ₱90 million or more but less than ₱130 million
- Fifth Class – less than ₱90 million
This classification will function as the basis for identifying administrative and statutory assistance, financial grants, and other forms of support for LGUs. It will also determine the LGU’s capability to execute development programs and projects and the total annual supplemental appropriation for personal services.
Additionally, compensation adjustments for LGU personnel in accordance with the “Salary Standardization Law of 2019” will be contingent on this classification.
The classification will also have far-reaching implications, such as determining the grounds for establishing a new LGU, defining the number of elective members in the Sangguniang Panlalawigan and the Sangguniang Bayan, issuing free patent titles for residential lands, setting the minimum wage for domestic workers, insuring LGU properties through the Government Service Insurance System, and establishing the limit on the percentage of agricultural land area that can be reclassified and its utilization.
The initial general income reclassification will be completed within six months of the law’s enactment and repeated every three years thereafter.
The first income reclassification of provinces, cities, and municipalities will become effective on January 1 of the immediate year following the release of the income classification table by the Finance Secretary.
The Department of Finance, in collaboration with the Department of Budget and Management and with input from LGU Leagues, will craft the implementing rules and regulations of the law within three months of its enactment.
