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MEETING OF THE UCLG COMMITTEE ON LOCAL FINANCE AND DEVELOPMENT (CLFD)June 11 -12, 2007, Barcelona, Spain

MEETING OF THE UCLG COMMITTEE ON LOCAL FINANCE AND DEVELOPMENT (CLFD)June 11 -12, 2007, Barcelona, Spain

"Challenges in Financing Local Infrastructure in Makati City,

Philippines"

"Challenges in Financing Local Infrastructure in Makati City,

Philippines"

Violeta Somera SevaSenior Advisor, Office of the Mayor

Makati City, Philippines

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MAKATI CITY PROFILEMAKATI CITY PROFILE 2000 Census: 471,379 Growth Rate: 0.4% 2007 projected population:

533,715 Daytime Population: 3.7 Million

2000 Census: 471,379 Growth Rate: 0.4% 2007 projected population:

533,715 Daytime Population: 3.7 Million

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• Metropolitan Manila: 17 cities and municipalities• Makati is one of the component cities• Metropolitan Manila: 17 cities and municipalities• Makati is one of the component cities

LAND AREA : 27.36 sq km (2,736 has) (4.3% of Metro Manila’s land area)

LAND AREA : 27.36 sq km (2,736 has) (4.3% of Metro Manila’s land area)

MAKATI

AIRPORT

Metro Manila

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• Governed by a policy making body called the

Metro Manila Council:

• 17 Metro Manila Mayors,

• President of the Vice Mayors League ,

• President of the Metro Manila Councilors League

• Secretaries of the national line departments with

non voting powers

Metro ManilaMetro Manila

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Services requiring local infrastructure and financingServices requiring local infrastructure and financing

LOCAL GOVERNMENT CODE OF THE PHILIPPINES: Devolved certain functions and responsibilities of the national government to LGUs

• Solid waste management

• Health services

• Social services

• Transportation and traffic management

• Water and waste water management

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But in Metro Manila…But in Metro Manila…• DPWH (Dept. of Public Works and Highways)

– roads and bridges– Major flood control projects

• DOTC (Dept. of Transportation and Communication) – rail based transport facilities

• MMDA (Metro Manila Development Authority)– solid waste disposal facilities

• DepEd (Department of Education) – School buildings – (LGUs) Makati City build schools to augment the lack of educational

facilities• Metro Manila Water and Sewerage

Administration – Water and Wastewater – privatized in favor of two concessionaires Manila Water and Maynilad.

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Makati’s Infrastructure RequirementsMakati’s Infrastructure Requirements• Local road construction and maintenance• Drainage• Street lighting• School buildings• Health centers • Hospitals• Barangay halls/ community centers• Public housing

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Makati 21- City Development AgendaMakati 21- City Development Agenda

• Identified public infrastructure requirements of the City for the next 5 years

• A set of strategic directions were formulated through a series of consultation meetings with key stakeholders:– Business retention, promotion expansion,

privatization and redevelopment of potential satellite business districts/ communities

– Human Resource Development and Enhancement– Expansion of Financial resources and its Revenue

Base

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Priority programs and projects requiring financing beyond the internal capacity of the city:

Priority programs and projects requiring financing beyond the internal capacity of the city:• Makati Urban Transportation Integration Program• Housing Development Program• Development of Satellite Business Districts• Development of Community Commercial Zones in the

barangays• Urban Strip Development• Makati Heritage Zone Project

$ 240 M = (P 11.3 Billion ) short and medium term

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• These projects would initially require studies: – market, technical, physical, environmental, organizational,

economic, and financial feasibility.

• Counterpart funding from donor agencies to secure foreign and local

experts to compose the study team.

• The best alternative financing schemes shall be explored:– direct financing from the city budget,– joint financing with national government agencies and

government owned or controlled corporations, – BOT, – joint ventures with local and foreign partners, – bond offerings, – long term loans from local and foreign sources and – community corporate ownerships.

• The studies shall also explore cost recovery and income generating possibilities .

Project Feasibility StudiesProject Feasibility Studies

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Bankability : Makati CityBankability : Makati City• a first class, highly urbanized city • City assets: US$ 420 M (P20 Billion)• Ranked third in terms of income amongst Philippines Cities

Sources of Revenue (2006)

US$ M Percent

Tax on Business 72.1

42%

Real Property Tax 74.7

43%

Misc. Fees & Charges 12.6 7%

Economic Enterprises

3.4 2%

Internal Revenue Allotment 9.7 6%

Borrowings

0.9 1%

Total 173.3 100% • compared to other cities, Makati is not heavily dependent

on national subsidies.

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Challenges Faced in pursuit of Makati’s Livability

• inadequacy of open spaces • supply of housing facilities

• improve air quality • discharge of waste water

• garbage in waterways • severe traffic congestion

• existence of informal settlers

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1. Inadequate local government capacity. – lack of sufficient number of technically able staff – Heavy reliance on consultants

2. Credit environment is not LGU friendly. – pass on rate to LGs is high and expensive. – Direct lending to LGs from international funding institutions is not

allowed or is constrained by national laws and regulations.

3. Home grown hedging by LGs not allowed – stifling the potential of entrepreneurial LGs to exercise proprietary

functions.

4. Bureaucratic red tape in availing foreign loans by multifarious national agency and bank requirements – causing delay in project approval and implementation

5. Coordination issues on projects pursued by national agencies, private sector and the LGs itself. – Plans and projects have to be synchronized to avoid overlaps and

duplication to save on valuable resources .

Issues and Challenges Faced in Financing Urban InfrastructureIssues and Challenges Faced in Financing Urban Infrastructure

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Recommendations and ConclusionRecommendations and Conclusion• Adopt innovative revenue generation and resource

mobilization schemes – improve revenue collection, – maximize utilization of the city’s financial resources – tap other potential sources of funds.

• Institutional, legal and administrative issues have to be addressed

• LGU friendly financial regime or environment

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Recommendations and ConclusionRecommendations and Conclusion1. Enhance capability of staff through capacity programs

– seminars, workshops, trainings, technical staff exchanges, city to city cooperation, exchange of information and knowledge

2. Lobby for review and repeal or amendment of laws or regulations that inhibit the local governments from engaging in entrepreneurial projects.

3. Lobby for direct access of local authorities to facilities of international funding institutions

4. Establish clear agreements to cut on bureaucratic red tape

– not only in the country but with International banking institutions and other organizations dealing with local finance.

5. Strengthen coordination mechanisms to improve the planning and implementation of infrastructure projects to avoid wastage of valuable resources.

UCLG Local Finance and Development efforts: a Welcome Development

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Thank you and Mabuhay!!!

Thank you and Mabuhay!!!