A little more honest, but...

MY FORMER City Hall colleague, Jessie Natividad, must have been following my ongoing conversation with Atty. Che Carpio.

When I woke up this morning, I got an email from him containing the link to Carpio's latest column, which Vox Bikol published in its website a day after our face-to-face at the Ateneo when he talked about Kaantabay sa Kauswagan, Naga's urban poor housing project.

I of course obliged him with the following reply:

Dear Attorney Carpio:

This pertains to your latest column entitled “Tinimbang Ka Ngunit Kulang,” which continues to amuse me.

First off, this is an ongoing conversation between us. Since I first emailed you last Jan 17, you will take note that the message came from my email address; and it was my name that appeared as its author. It is only in your mind that it was Mayor Jesse Robredo responding, not I.

Having said that, anyone interested in finding out what I emailed you the second time around can check my weblog. I stand by what I wrote; if your or anybody else’s sensibilities are offended, then I’m sorry for that and the attending hurt or discomfort. But I will never apologize for correcting distortions and data selectivity that would amount to intellectual dishonesty.

Let me now address your clarifications point by point:

1. The only reason why the S&P report is not available in the website is because S&P marked it confidential. That much is clear from my email to Julma when I forwarded it to her per your request.

2. To the contrary, your claim that “intermediate is a dismal 50% rating” and a “failing mark”” is what I will call a spin. Because nowhere in that report did S&P conclude that way. They were your simplistic conclusions that do not do justice at all to the report in its entirety.

Consider, for example, the following snippets from the Financial Management Assessment (FMA) Report’s “Overview of Naga City’s key strengths and weakness” (underscoring mine):

Not withstanding the systemic constraints and institutional weaknesses afflicting Naga City, the strongest areas of financial management which drive the overall score for the city government include annual budgeting at Intermediate, financial reporting and disclosure at Intermediate Plus and debt management at Intermediate Minus.

Despite the lack of budgeting or accounting software, the city has been accurate in its budgeting performance on both revenue and expenditure. And as mentioned, its audited financial statements are free of material qualifications, a rarity among Philippines LGUs. This is a significant driving factor behind the city’s overall score as well. Naga city has also proven to have the capacity to managed debt and demonstrated a relatively high level of quality in its debt monitoring.

…

The city’s financial statements had received clean audit opinions from COA in the last few years. No notable discrepancies appeared on Naga’s audited statements except for the usual inconsistency in the valuation of physical assets, and COA reported that the city is expected to resolve them by end 2008. Naga’s transparency in its reporting of financial performance is also noteworthy, with the comprehensive publishing of its annual budget, interim annual and quarterly financial statements released on a timely basis on the city website. However its financial reporting score is constrained by the lack of accounting software that would potentially reduce paperwork and offer easier access to financial information within the city administration. Nonetheless, Naga has still managed to consistently produce reliable financial statements despite the lack of electronic solutions.

Likewise, despite the absence of any budgeting software, Naga’s annual budgeting performances have been strong and demonstrated relative accuracy on both revenue and expenditure planning. It is conservative on revenue budgeting, with final outcome more often than not exceeding initial budgeted amount. Correspondingly, expenditure outturn has been lower by an average of 1.6% from budgeted amounts in the period 2005-2007 (albeit with some volatility from year to year). Though Naga’s annual budgeting process is still largely characterized by incremental-based, it is one of the few LGUs to have at least adopt some form of programmatic expenditure planning. Currently, around 15%-20% of the city’s budget is estimated to be program-based.

The Naga city government demonstrate adequate capacity in debt management. Unlike most LGUs who have monthly debt repayment automatically deducted from their monthly IRA transfers, the Naga administration keeps good track of its amortization schedule and issue checks on timely basis to directly repay lending banks. Furthermore, all of the city’s loans are negotiated with clauses that allow prepayment without penalties. The city government actively monitors borrowing rates and would seek cheaper refinancing whenever the opportunity arises. However, like most LGUs, Naga’s debt management score is weakened by the lack of a coherent and explicit debt policy. Alleviating this is that the city’s medium-term investment plan (LDIP) has acted as a pseudo-debt policy of the current administration.

Together with the FMA is the Credit Rating Report on Naga, whose section entitled “Comparative Analysis” contains the following:

International peers
The Russian entities of Nizhny Novgorod (BB-/Stable/--) and Tver Oblast (B+/Negative/--), as well as the Ukrainian capital city of Kyiv (CCC+/Watch Neg/--) and the Turkish city of Istanbul (BB-/Negative/--) are suitable international peers for the City of Naga (which is was given a credit rating of BB-/Stable)

…

Like some of its peers, the City of Naga has been able to partially fund aggressive capital expenditure programs in recent years with operating surpluses, which has helped to limit its borrowing requirements. However, the overall average level of capital expenditure relative to total expenditure reported by Naga (18.5%) is still below that for its international peers (30%) from 2005-2007. Although its physical infrastructure is relatively well-maintained by national standards, it is largely inadequate in the international context.

Naga’s direct debt level has been steadily declining, unlike Istanbul’s. Coupled with a healthy and fast-rising cash position, the city’s overall debt profile is favourable and compares well to that of Nizhny Novgorod. Likewise, Naga’s strong budgetary performance stands out among its peer group. However, this is in part a function of the city’s weaker capacity to administer capital projects (stemming from lack of benefits of scale), and also a function of the systemic borrowing constraints faced by Philippine local governments.

Local peers
Unlike its domestic peers who are located in Metro Manila like Quezon City, Taguig and Mandaluyong, who have relatively more diversified service-base economies, Naga is predominately engaged in the agrarian sector. The lack of a distinct geographic or industrial advantage has resulted in lower property value and smaller-scale businesses operating in Naga, which in turn limits the city’s real property and business tax collection. In mitigation, its local economy has been relatively more insulated than Metro Manila peers in this current global downturn. In addition, outside the capital region, Naga’s tax base and per capita income would compare more favorably than those of Iligan and Tacloban.

…

The city’s budgetary performance is nevertheless stronger than all rated Philippines cities, despite the fact that other cities have far more revenue streams at their disposal. This reflects to some extent the more advanced financial management practices of the Naga city government than its peers. Likewise, despite its more limited resources, Naga has been able to maintain robust liquidity coverage and a direct debt burden better than the average for its peer group.

This is hardly the picture of a “failing” city and its local government.

This is precisely why I challenged Vox Bikol to publish it wholly and let its readers decide. To me, it is an unadulterated take on the strengths and weaknesses of the city’s economy and the city government’s stewardship of its financial resources.

I will have to check if our point person in this credit rating project has already secured the needed clearance from S&P to publish the report in the city website. If yes, rest assured that we will make it available. Nonetheless, I am uploading the report in my blog, albeit unofficially, because I believe that its potential to educate us clearly outweighs its confidential nature.

3. I am happy that you have now acknowledged Naga’s score relative to its peers, the glaring omission that actually prompted that “intellectual dishonesty” remark in my previous email. Consequently, I will now gladly reconsider that assertion.

4. I will concede your point on the scope of that World Bank-funded pilot project, which is only limited to eight cities thus far. But I am confident that this inference is in order for the following reasons:

• To have been considered, and more importantly, included in a pilot project on the credit rating of Philippine cities (out of the 120, because the League of Cities of the Philippines is still contesting the controversial SC decision affirming the cityhood of the other 16) already says enough about Naga. The mayor’s SOCR already covered this. But clearly, there is something about Naga that merited the Bank’s attention.
• Quezon City, the richest LGU in the Philippines today, is among the pilot cities. So are Marikina, incidentally the most innovative and most awarded city in Metro Manila; Mandaluyong, Malabon and Taguig. But as you yourself acknowledged, albeit grudgingly, Naga more than held its own compared to these richer localities and their much more diversified economies. Unlike you, I therefore like our chances.
  
• Your asides about transparency notwithstanding, the report clearly recognized, and it bears repeating here, that “Naga City is the only city assessed so far to have consistently received a clean opinion from COA on its financial statements, which placed the quality of its financial reporting considerably above domestic peers.” I have every reason to believe we will continue to be so, even if credit rating covers the entire universe of Philippine LGUs.
  
• My experience with Philippine local governments -- and my work on public education has brought me to a number -- is that for the most part, they have continuing difficulty with disclosure and openness in regard to their finances. (For instance, I will be very interested to see whether the CWC is making money or not. By the way, I have written COA twice, requesting that it put online its 2008 Audit Reports for the Bicol cities and provinces; thus far, they have only obliged us with Masbate province and city.) To my knowledge, and of course I will be happy to be corrected on this matter, only Naga publishes its proposed and approved annual budget, as well as its quarterly financial statements.

5. Finally, that “consuelo de bobo” thing again highlights the fundamental difference in our respective positions: you may have become a little more honest in laying down the facts, but the “half-empty” perspective continues to color your opinion.

In your static world view, that condescending put-down (that Naga merely topped the class of Philippine failures) is consistent with your negative perspective; if one reads closely, it smugly implies that Philippine cities do not have what it takes to be world-class -- simply because their best started out with a measly “Intermediate” rating when S&P first came to local shores, courtesy of the World Bank.

In that world view, its credit rating of BB-/Stable for foreign currencies -- mind you, better than the capital cities of Ukraine and Turkey; BB+/Stable for local currencies; and AA+ in the national rating system -- only a shade lower than AAA, S&P’s top investment grade given to “the best quality borrowers, reliable and stable” -- it proposes for Philippine local governments do not matter at all.

Unfortunately for you, the Naga city government not only looks at the glass half-full, but believes it is our responsibility to fill it up the brim. Instead of sulking and fault-finding, we celebrate affirmations that come our way, like that S&P report, because they tell us we must have doing some things well and right all along. Thankfully, its FMA points out precisely where and what we need to do make the system better. I am confident that our current and next leaders are as bullish about the future and have the same positive, can-do attitude.

Again, I will not take it against you: you are entitled to your beliefs, in the same manner that I am entitled to a vigorous defense of the city’s position against continuing distortions that mask reality.

And I don’t have be a Mayor Robredo to be able to do it.:)

Those interested in the S&P report can go check the following:

Credit Analysis of Naga City

Financial Management Assessment (FMA) Report on Naga City

Appendix - Overview of the Philippine Inter-Government System

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Malolos City is short, however one looks at it

INTRIGUED by the close 7-6 vote by the Supreme Court on the voided law creating a separate Malolos City congressional district, I checked the dissenting opinion penned by Associate Justice Roberto A. Abad.

I have a feeling these are more or less the arguments that were invoked or will be invoked by Rep. Dato Arroyo and his PALAKA cohorts in support of their reapportionment of Camarines Sur's former 1st and 2nd congressional districts.

The money quotes (underscoring mine):

The Court has always been reluctant to act like a third chamber of Congress and second guess its work. Only when the lawmakers commit grave abuse of discretion in their passage of the law can the Court step in. But the lawmakers must not only abuse this discretion, they must do so with grave consequences.

Here, nothing in Section 5, Article VI of the Constitution prohibits the use of estimates or population projections in the creation of legislative districts. As argued by the Solicitor General, the standard to be adopted in determining compliance with the population requirement involves a political question. In the absence of grave abuse of discretion or patent violation of established legal parameters, the Court cannot intrude into the wisdom of the standard adopted by the legislature.

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R.A. 9591 is based on a “legislative” finding of fact that Malolos will have a population of over 250,000 by the year 2010. The rules of legislative inquiry or investigation are unique to each house of Congress. Neither the Supreme Court nor the Executive Department can dictate on Congress the kind of evidence that will satisfy its law-making requirement. It would be foolhardy for the Court to suggest that the legislature consider only evidence admissible in a court of law or under the rules passed by the Office of the President. Obviously, the Judicial Department will resist a mandate from Congress on what evidence its courts may receive to support its decisions.

It is however Paragraph (c) of Justice Abad's disquisition as to why a Ramos-issued executive order governing the use of NSO demographic projections that I find flawed mathematically. It relies on the annual application of the 1995-2000 population growth rate (PGR) of Malolos City (certified at 3.78% annually by NSO Region III Director Alberto Miranda) from 2001 to 2010, which would conveniently yield a projected population of 254,036 this year -- enough to meet the minimum 250,000 threshhold.

But it is not an accurate projection for two reasons:

1. It does not square with the actual 2007 NSO count. The 2007 NSO census for Malolos (223,069), which is available here, is 4,208 lower than the projected count of 227,277 -- putting the 3.78% certified PGR at the high side.

2. The PGR between 2000 and 2007 should have been used. It would have yielded a more accurate projection, being closer to the year in question. Demographers and city planners can easily compute this, using either geometric or exponential formulas.

I plugged these formulas and the basic data in this spreadsheet, which I uploaded to Google Docs. I will urge you to check it for accuracy. In sum, my computations yielded a PGR between 3.44% (geometric) and 3.5% (exponential), significantly lower than what Director Miranda certified.

In both instances, Malolos City falls short of the threshhold by a low of around 3,600 to a high of around 4,000.

They only reinforce the majority decision penned by Associate Justice Antonio Carpio, which spells trouble ahead for the PALAKA coalition in Camarines Sur.

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A pyrrhic victory for PALAKA?

UPDATE (1:35 PM): The SC decision voiding the Malolos City congressional district is now accessible here.

THIS PHILIPPINE STAR story should give pause to the unabated media war being prosecuted by the media groups of Rep. Dato Arroyo and San Fernando Mayor Perry Mabulo, aided by Gov. L-Ray "Bebe Ko" Villafuerte.

If the SC decision penned by Justice Antonio Carpio were to serve as precedent, they may just end up -- together with DBM Secretary Nonoy Andaya and Rep. Luis Villafuerte, author of the bill reapportioning what used to be the 1st and 2nd Districts of Camarines Sur -- holding an empty bag, owners of a pyrrhic victory that caps the total unraveling of yet another best-laid scheme of mice and men by the Partido Lakas-Kampi (PALAKA) coalition.

The key portion of the story, found towards the end, deserves to be quoted fully:

‘Invalidate splitting of Camsur’

Meanwhile, sources in the House of Representatives said the SC could also invalidate the splitting of the first congressional district of Camarines Sur.

They said like Malolos, the two districts do not meet the population requirement of 250,000 per legislative constituency as prescribed by the Constitution.

President Arroyo’s son Diosdado is the incumbent representative of Camarines Sur’s first district, which has been split into two.

The new district is composed of the towns of Libmanan, Pamplona, Pasacao, Minalabac, and San Fernando, and the second district has the towns of Gainza and Milaor.

Libmanan is Rep. Arroyo’s adopted town. He is seeking reelection in the new legislative constituency, now denominated as the second district.

What remained in the original first district are the towns of Del Gallego, Ragay, Lupi, Sipocot, and Cabusao.

Budget Secretary Rolando Andaya Jr., who represented the district for nearly nine years, is seeking to reclaim his House seat. The Andayas are from Ragay.

The present second district becomes the third district and is composed of the remaining towns of Pili, Campo, Camaligan, Canaman, Magarao, Bombon, and Calabanga, and Naga City.

Rep. Luis Villafuerte, author of the law splitting the first district, represents the second (now third) district.

The third district becomes the fourth. It will continue to compose the towns of Caramoan, Garchitorena, Goa, Lagonoy, Presentacion, Sangay, San Jose, Tigaon, Tinambac, and Siruma.

The fourth district becomes fifth. Like the fourth, its composition -- Iriga City and the towns of Baao, Bato, Buhi, Bula, and Nabua – remains intact.

Secretary Andaya, a lawyer, said if he and Rep. Arroyo win on May 10, they would both lose their congressional seats if the Supreme Courts declares the splitting of the first district as unconstitutional.

Sen. Benigno “Noynoy” Aquino III and Naga City Mayor Jesse Robredo have asked the Supreme Court to invalidate the division of the first district for failing to meet the population requirement.

Local officials, led by Gov. Luis Raymond Villafuerte, Rep. Villafuerte’s son, initially opposed the splitting of the first district because they wanted a general redistricting of the province, which they said was entitled to six districts, instead of five.

In their letter to the Senate, they said Rep. Villafuerte’s bill would cripple the existing first district in terms of population.

“The remaining towns of Del Gallego, Lupi, Ragay, Sipocot, and Cabusao have a combined population of 176,383, 30 percent short of the population requirement prescribed by the Constitution,” they said.

When Rep. Villafuerte’s bill was pending in the Senate, Aquino had suggested that all the existing districts be reconstituted so that each would hurdle the population standard and the province would be entitled to six, instead of five districts. But his suggestion was ignored.

As my friend from Minalabac puts it colorfully, "gurang nang komedyante, nasuwi sa entablado."

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Choosing to see the glass half-empty

THROUGH my Newswires widget. I came across this Vox Bikol column by Atty. Jose Maria "Che" Carpio. The article is taking issue with the 2009 State of the City Report of the Robredo administration, which can be accessed here.

To set the records straight, I sent him the following email:

"Dear Attorney Carpio,

"I just read your Vox Bikol column, which raises the question: "Is 'Intermediate' the 'Best'?”

"I cannot fault you for taking a negative stance on the matter. It's the classic hall-full glass: in your effort to find fault with the city government, you have chosen to ignore the obvious, which I am quoting below. Funny how you can miss this when it is found on the very same page quoted in your column.

The overall FMA score of ‘Intermediate’ for Naga City reflects its moderately developed level of financial reporting and fairly high level of disclosure, adequate performance in annual budgeting and debt management skills which are more sophisticated than most local peers. On the other hand, the score takes into account the basic practices of Naga in elements of FMA like expenditure management and medium-term planning.

Notably, Naga City’s overall FMA score is the highest among assessed Philippines LGUs to date, reflecting the city’s more balanced developments in its FMA practices for most key areas, as opposed to some local peers who may demonstrate sound practices in certain elements such as revenue management, but at the same time scoring poorly in other areas like debt management, budgeting etc. Nevertheless, the Naga city government’s lack of computerization in most aspects of financial management such as annual budgeting, financial reporting, tax collection and disbursement have emerged as a constraint on these respective scores. A comprehensive computerization of the city’s system could potentially see improvement in Naga’s overall FMA and individual element scores. (Underscoring mine)

"So, to answer your question, an "Intermediate" score is the best among Philippine LGUs according to that S&P report. But you opted not to see that, and would not accept it, because you chose to see the glass half-empty, as you always have with the city government."

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Show me the money!

TV INFOMERCIALS of the leading presidentiables suddenly flooding the airwaves last night forced me to check their platforms, whose links Manolo conveniently put up here.

After reading through them, I felt somewhat like Cuba Gooding, Jr's Rod Tidwell character in Jerry Maguire and shout at Noynoy Aquino, Manny Villar, Gibo Teodoro and Dick Gordon: "Show me the money!"

C'mon, guys! You're promising us heaven (especially Manny Villar, who proclaims he will finally write finis to poverty as we know it). But from the looks of it, whoever wins will be so cash-strapped his administration wouldn't even have enough money to support the current level of basic government programs and services.

I did some pencil pushing using data on the proposed 2010 national budget, which can be found at the DBM website. You can see for yourselves the tables, including my notes, assumptions and computations, which I uploaded as a Google spreadsheet. Sheet 4 contains the table reproduced above.

Assuming my calculations are accurate, the incoming administration, when it prepares its first budget proposal for 2011, will barely have P125 billion left to fund P174 billion worth of other obligations in the 2010 budget, assuming these are carried over next year.

This "free resource" -- arrived at after taking out personal services (salaries and wages for government employees, which will be pushed upwards by at least P50 billion annually over the next four years, thanks but no thanks to the Salary Standardization 3 law), the allocation to local governments (including their Internal Revenue Allotment or IRA), debt servicing, pension and gratuity for retirees, and the maintenance and other operating expenses for government agencies in the executive, legislative, judiciary and other constitutional offices -- further dwindles to P69 billion in 2012, and to only P9 billion in 2013.

What are these other obligations? Table II-2, which details the Special Purpose Funds included in the budget, includes the following:

• Budgetary Support to Government Corporations, which include GOCCs like the National Food Authority; specialized hospitals like the Lung, Kidney, Heart and Children Center; the Philippine Convention and Visitors Center; the Philippine National Railways; the housing agencies NHA, NHMFC and Home Guaranty Corporation; Cultural Center of the Philippines; and research instituions like the PIDS and the DAP.
• AFP Modernization Program
• Calamity Fund
• DepEd-School Building Program
• E-Government Fund
• International Commitments Fund, and
• the Priority Development Assistance Fund, more popularly known as the pork barrel of the Senate and the House

And this assumes that government is able to fully fund its annual expenditure program; in other words, the BIR, the Bureau of Customs and the LTO are finally able to meet their annual revenue targets. Otherwise, it will continue to finance these deficits (which reached P234 billion in 2008 and should easily breach P300 in 2009) through another borrowing binge. Which will of course add more pressure on our debt position.

Several questions therefore I would like to ask our esteemed presidentiables:

1. Given these constraints, how are you going to fund the programs you committed to undertake in your respective platforms, particularly the money-draining populist ones intended to win you votes?

2. How will you plug the deficit, which will surely plague your administration?

3. If it is by raising more revenues, what new taxes will you certify to Congress as urgent? Which government properties will you sell or privatize? And what makes you think you will squeeze out more of BIR, BOC and LTO and other revenue generating arms of the national government?

4. If it is by reducing costs, which agencies will face the chopping block first?

It's time to cut through the bull, guys.

We deserve better than the motherhoods you've been serving up so far.

Show us the money, baby!

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