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.

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)

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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.

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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.

• 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.

‘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.

Dear Attorney Carpio,

I am amused by your latest column entitled "The insolence of office."

1. I don't think even Shakespeare can help you mask the fact that you have cherry-picked your data to support a tenuous claim. This is a clear case of intellectual dishonesty.

2. You may be entitled to your own opinion, but definitely not your own set of facts. In support of the quote from the report (summary) which I highlighted in my previous email, you surely must have seen the Final Credit Rating Report and the accompanying spreadsheet comparing the Philippine cities covered by the pilot World Bank project on rating Philippine cities, which I emailed to Julma (Narvadez) per your request.

Only a biased columnist driven by the need to cherry-pick data favorable to his preconceived opinion will deliberately ignore the report's contents in its entirety. On this note, why doesn't Vox Bikol publish the main text of the (whole) Credit Rating Report so that its readers can judge for themselves who is really engaged in spinning lies and half-truths? Let's see if Fr. Wilmer Tria will be up to it.:)

3. I don't think disparaging the Standard and Poor's methods will help you get out of this mess. Not happy with its message, so you now want to shoot the messenger? Is this how a "liberal" strives to find the truth?

4. Finally, nice try on that SPUKOI issue to muddle our conversation; Rolly Campillos of the Urban Poor Affairs Office (UPAO) is more competent to clarify that matter. But no, let's stick to the topic, please; the least that will come out of it is the education of Bicol Mail's editorial writer who swallowed your propaganda hook, line and sinker.:)