WHEREAS, it
is an essential feature on the overall development strategy to sustain
socio-economic growth through, among others, the timely execution of
select priority projects at the local government levels;chanroblesvirtualawlibrary
WHEREAS, the financial resources now available to the local governments
although augmented by increased national allotments and broader taxing
powers are deemed still insufficient to finance the immediate
prosecution of physical infrastructure and other socio-economic
projects that require massive capital investments; chanroblesvirtualawlibrary
WHEREAS, it has become necessary and opportune as a matter of fiscal
policy to extend greater credit facilities to the local governments in
order that through reasonable and moderate borrowings they may raise
additional funds to meet the capital outlay requirements of priority
developmental projects;chanroblesvirtualawlibrary
NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines,
by virtue of the powers vested in me by the Constitution, do hereby
adopt and promulgate as part of the law of the land, this Decree, the
full text of which follows:cralaw:red
Section 1. Title and Scope. — This Decree shall be
known as the decree on Credit Financing for Local Governments, which
shall govern the conduct and management of the credit transactions and
borrowings of provinces, cities, and municipalities. chanroblesvirtualawlibrary
Section 2. Policy Pronouncements. — It shall be the
basic policy that any local government may avail of credit facilities
and resort to borrowings only if the local funds are not sufficient to
finance the prosecution, completion, expansion, operation, and
maintenance of local infrastructures and other socio-economic
developmental projects.
In times of emergency or of an impending financial dislocation that may
prejudice the dispensation of public services in the locality,
provincial, city and municipal governments may likewise secure
provisional advances in the manner prescribed herein or avail of credit
lines that government banks and other national lending institutions may
extend to them for the purpose of stabilizing local finances.
Section 3. Provisional Advances. — Upon
recommendation of the Secretary of Finance, provincial, city and
municipal governments may secure from the Central Bank of the
Philippines and/or any other duly authorized government bank or
depository provisional advances in amounts not exceeding, in their
aggregate, fifteen per cent of the average annual income actually
realized from regular sources by the borrowing local government unit
for the last three fiscal years, the amount granted to be released to
the provincial or city treasurer concerned. Provisional advances,
including the interest accruals thereon, shall be payable within the
first quarter of the fiscal year following the grant thereof.
Provincial advances shall not be taken up as revenue available for
appropriation by the local government and shall be spent and disbursed
solely to finance expenditures covered by duly authorized
appropriations in the approved budgets of the borrowings entity for the
current fiscal year.
In case of failure of the borrowing local government to settle in full
said provisional advances within the prescribed time for payment, the
Secretary of Finance is hereby authorized to order the withholding of
the internal revenue allotments and/or specific tax allotments accruing
to the local government concerned and the direct remittance of the
amount involved to the lending bank or institution in settlement of the
outstanding obligation. chanroblesvirtualawlibrary
Section 4. Domestic Loans, Credits, and Other Forms
of Indebtedness. — (a) Provincial, city and municipal governments may
upon recommendation of the Secretary of Finance contract loans,
credits, and other forms of indebtedness with the Philippine National
Bank, the Development Bank of the Philippines, the Government Service
Insurance System, and/or any other national lending institution to
finance the construction, installation, improvement, expansion,
operation, or maintenance of electric light and power plants, public
markets and slaughter-houses, waterworks and irrigation systems,
telephone and radio communications systems, government housing
projects, the purchase of rural and urban estates and other capital
investment projects, subject to such terms and conditions as may be
prescribed by law and the provisions of the respective charters of the
aforesaid banks and lending institutions. chanroblesvirtualawlibrary
(b) Provincial, city and municipal governments may
likewise secure from the Land Bank of the Philippines short, medium and
long term loans and advances against security of real estate and/or
other acceptable assets for the establishment, development or expansion
of agricultural, industrial, home building or home financing projects
and other productive enterprises.
(c) The Philippine National Bank, the Development
Bank of the Philippines, the Government Service Insurance System, and
Land Bank of the Philippines and other national lending institutions
are hereby authorized to grant to the local governments the loans,
credits and other forms of indebtedness herein referred to for the
purposes specified above out of their loanable and/or investible funds,
subject to such terms and conditions as may be prescribed by law and
the pertinent provisions of their respective charters and to such
policies, rules and regulations that their governing Boards may
promulgate for the purpose. chanroblesvirtualawlibrary
(d) The provincial, city and municipal governments
shall provide in their respective budgets the necessary appropriations
for the payment of the principal and interest on the loans or other
forms of indebtedness contracted under this Section as they fall due
and become payable until the total obligation shall have been paid in
full.
Section 5. Deferred-Payment Financing Schemes. —
Provincial, city and municipal governments may likewise acquire heavy
equipment, plant machinery and such necessary accessories under a
supplier's credit or deferred-payment plan, subject to the law on
purchasing and such other rules and regulations that the Secretary of
Finance may promulgate with the concurrence of the Chairman, Commission
on Audit.
No local government entity shall enter into a purchase contract under a
deferred-payment plan unless previous loans secured elsewhere shall
have been paid in full or are being paid in accordance with approved
amortization schedules.
Section 6. Bonds And Other Long Term Securities. —
(a) Provinces and cities are hereby authorized to issue bonds,
debentures, securities, collaterals, notes and other obligations to
finance self-liquidating and/or income-producing development projects
pursuant to the priorities established in the development programs as
certified to by the National Economic Development Authority, but in no
case to exceed at any time an aggregate amount equivalent to one-half
of one per cent of the total assessed value of taxable real property
within the territorial jurisdiction of the local government unit.
Whenever any province or city deems it necessary to issue such bonds,
debentures, securities, collaterals, notes and other obligations, the
Provincial Board or Municipal Board/City Council shall, by resolution,
so declare and state the terms and condition of the bonds and the
purpose for which the proposed indebtedness is to be incurred. For such
resolution to be valid, it shall be passed by the affirmative vote of
majority of all the Members of the local Board/Council and approved by
the President of the Philippines, upon recommendation of the Secretary
of Finance after consultation with the Monetary Board of the Central
Bank of the Philippines and the National Economic Development
Authority. chanroblesvirtualawlibrary
(b) Local government bonds shall be issued under the
following conditions:cralaw:red
1) They shall be in registered form and transferable
at the Central Bank of the Philippines;chanroblesvirtualawlibrary
2) They shall not be sold at less than face
value; chanroblesvirtualawlibrary
3) They shall be redeemable ten years or more from
the date of issue as may be determined by the Secretary of Finance
before their issuance, but may be redeemed earlier by the local
government upon approval by a majority of all the members of the local
board council;chanroblesvirtualawlibrary
4) Before issuance of the bonds, the Secretary of
Finance upon consultation with the Monetary Board of the Central Bank
of the Philippines shall fix the annual rate of interest payable on the
bonds, as well as the mode of payment of the interest accruals thereon;
and
5) Both the principal and interest on the bonds
shall be payable in legal tender of the Republic of the Philippines.
(c) Local government bonds issued under the
authority of this Section shall be exempt from all taxes levied by the
Republic of the Philippines, or by any authority, branch, division or
political subdivision thereof, which facts shall be stated upon the
face of the bonds. chanroblesvirtualawlibrary
(d) Local government bonds shall be acceptable and
received as security in any transaction with the government where such
security is required.
(e) The local board or council concerned shall
establish a sinking fund for the purpose of redeeming at maturity the
bonds issued under this Section.
(f) The annual contributions to the sinking fund
shall cover in full the principal and interest due on the bonds issued
and the local board or council shall set aside in the annual budgets of
the local government the corresponding appropriations therefor. The
Secretary of Finance may, upon request of the local board or council,
determine and fix the amount of annual contributions herein referred to.
(g) Said sinking fund shall be under the custody of
the Central Bank of the Philippines which may invest the same in such
manner as the Monetary Board may approve. Said sinking fund shall be
charged for all expenses incurred in investing the same or portions
thereof and credited with the earnings and interest income arising from
such investments. chanroblesvirtualawlibrary
(h) The Republic of the Philippines hereby
guarantees the payment by the provincial or city government of both the
principal and the interest of the bonds issued by said provincial or
city government by virtue of this Section, and shall pay such principal
and interest in case the provincial or city government fails to do so,
and there are hereby appropriated, out of the general funds in the
National Treasury not otherwise appropriated, the sum necessary to make
the payments guaranteed under this Section: Provided, That the sums so
paid by the Republic of the Philippines shall be refunded by the
provincial or city government concerned through the sanctions provided
for herein.
Section 7. Inter-Local Government Loans. —
Provinces, cities and municipalities may extend loans to other
provinces, cities and municipalities for such purposes as the repair
and rehabilitation of government property damaged by the typhoons,
floods, fire, or other natural calamity; the purchase of relief goods,
foodstuff and medicine during emergencies; and the beautification of
parks, plazas, monuments and shrines in amounts not exceeding, in their
aggregate, five per cent of the general fund income from regular
sources of the lending entity actually realized during the next
preceding fiscal year, as certified to by the local treasurer and
attested by the auditor concerned, under such terms and conditions as
may be agreed upon by the parties, payable within a period of not
exceeding twenty-four months from the date of release of the full
amount and at an interest rate of not exceeding twelve per cent per
annum.
Failure of the borrowing local government to appropriate the annual
amortizations and interest accruals of the loans contracted under this
Section shall constitute a ground for declaring inoperative its budgets
pursuant to the pertinent provisions of Presidential Decree No. 477.
Section 8. Loans from Funds Secured by the National
Government from Foreign Sources. — (a) The President of the
Philippines, or his duly authorized representative, may negotiate and
contract loans with foreign financial institutions or other
international organizations belonging to countries with which the
Philippines has diplomatic or trade relations, or from foreign
governments which are members of the United Nations and, subject to
such conditions as he may impose, extend therefrom, upon recommendation
of the Secretary of Finance and the National Economic Development
Authority, one or several loans to any provincial or city government
through the Development Bank of the Philippines of the Land Bank of the
Philippines for the purpose of financing the acquisition, construction,
installation, improvement and expansion of capital improvement
projects, such as electric power plants, waterworks and irrigation
systems, flood control systems, sewerage systems, composing plants, and
telephone and radio communications systems.
(b) Loan amortizations or repayments, including
accrued interest thereon, may be financed partly from the income of the
projects or services and from the regular income of the borrowing local
government unit, which must be provided for and appropriated regularly
in its budgets until the loan and the interests thereon shall have been
repaid in full. chanroblesvirtualawlibrary
(c) The pertinent provisions of Republic Act No.
4860, as amended by the Presidential Decrees Nos. 81, 150 and 351,
shall likewise be complied with in the re-lending to the local
governments of proceeds of loans from foreign sources.
(d) Any two or more provinces, cities and/or
municipalities may jointly and severally undertake capital improvement
projects commonly beneficial to them and for the purpose may negotiate
and contract for loans in accordance with the provisions of the
foregoing paragraph, subject to the provisions of Letter of Instruction
No. 158.
Section 9. Financing Contracts with Private Persons.
— (a) Any provincial, city or municipal government may enter into and
bind itself by, contract with any private person, natural or juridical,
for financing such self-liquidating or income-producing projects as the
construction of toll roads and bridges, the installation of transport
systems, as well as the operation and maintenance of such projects,
subject to the approval of the National Economic and Development
Authority, upon recommendation of the Secretary of Finance: Provided,
That the aggregate amounts of financing contracts that a local
government may enter into by virtue of this Section shall not exceed
the legal borrowing capacity of said local government as certified to
by the Commission on Audit.
(b) The Construction and prosecution of projects
under the authority of this Section shall be subject to the following
terms and conditions:cralaw:red
1) The provincial, city or municipal engineer, as
the case may be, upon the formal request in writing by the local chief
executive, shall prepare the plans and specifications for the proposed
project, which shall be subject to the approval of the local board or
council. In the absence of a municipal engineer, the plans and
specifications of the proposed project shall be prepared by the
provincial engineer.
2) Upon approval by the local board or council of
the project plans and specifications, the provincial, city or municipal
engineer concerned shall forthwith cause to be published once every
week for three consecutive weeks in at least two newspapers of general
circulation, a notice inviting all eligible contractors to participate
in a public bidding or the projects so approved. The contract shall be
awarded to the lowest qualified bidder: Provided, That the winning bid
shall not exceed by fifteen per cent the estimated cost of the project
as computed by the local engineer. The conduct of public bidding and
award of contracts for local government projects under this Section
shall be in accordance with existing laws and pertinent rules and
regulations. chanroblesvirtualawlibrary
3) Any contractor who shall undertake the
prosecution of any project under this Section shall post bonds to
protect the interest of the province, city or municipality in such
amounts as may be fixed by the local board or council and the
provincial, city or municipal engineer of the locality shall not allow
any contractor to initiate the prosecution of projects under this
Section unless such contractor shall present proof or evidence that he
has posted the required bond.
4) The contractor shall be entitled to the contract
price based on the winning bid plus interest on the unpaid balance
thereof not exceeding twelve per cent per annum. The provincial,
municipal or city government concerned is authorized to charge and
collect reasonable toll or fees, in the presence of a duly authorized
representative of the contractor, for the use of finished projects,
which collections shall be turned over to the contractor at the end of
every week for a period not exceeding twenty years. In the case of
roads or bridges constructed pursuant to this Section, tolls shall be
collected only on motor vehicles using the same and automatic traffic
counters shall be installed in the entrance, terminal and intermediate
toll gates. chanroblesvirtualawlibrary
5) The tolls or fees that will be charged for the
use of roads, bridges, telephone systems, land transport systems,
ferries and watercraft constructed, installed or acquired in accordance
with this Section shall be levied in an appropriate local tax ordinance
which shall be enacted by the local board or council, approved by the
local chief executive and reviewed by the Secretary of Finance or the
Provincial Treasurer pursuant to the pertinent provisions of the Local
Tax Code, as amended. Any change in the schedule or rates of such tolls
and fees shall likewise be made through the enactment of an appropriate
local tax ordinance.
6) Collections from the tolls or fee authorized to
be collected under this Section shall first be applied to the interest
and the remainder to the principal in the accounting of the receipts
from such tolls or fees. chanroblesvirtualawlibrary
7) The imposition and collection of tolls or fees
shall be discontinued after the principal expended on the project, and
the interest thereof, shall have been collected as certified to by the
provincial, city and municipal treasurer concerned, and from that time
the contract for such project shall be deemed extinguished.
8) The projects undertaken under this Section shall
be prosecuted under the supervision of the provincial, city or
municipal engineer of the province, city or municipality, as the case
may be, or if there be no municipal engineer, by the provincial
engineer of the province to which the municipality belongs, in
accordance with the plans and specifications of the project as approved
by the local board or council.
(c) The Provincial Attorney or City Legal Officer or
Municipal Attorney, as the case may be, shall pass upon contracts
executed pursuant to this Section to determine their legality and
correctness of form. In the absence of the above-named officials, the
responsibility shall devolve upon the provincial or city fiscal
concerned.
(d) It shall be unlawful for any public official or
employee in the provincial, city or municipal government, or their
relatives within the fourth civil degree of consanguinity or affinity,
to enter into, or be in any way interested in, the contract for the
construction, prosecution, acquisition, operation or maintenance of any
project awarded pursuant to the provisions of this Section or for the
furnishing of any supplies, materials or equipment of any kind, to be
used in the project. Any person who violates the provisions of this
Section shall be removed from office, any provisions of law to the
contrary notwithstanding, and suffer imprisonment not exceeding five
years. chanroblesvirtualawlibrary
Section 10. Remedies, Sanctions and Penalties. —
Provinces, cities and municipalities shall appropriate in their
respective annual budgets such amounts as are sufficient and required
to service loans and borrowings and/or redeem or retire bonds,
debentures, securities, notes and other obligations issued by said
local government units under this Decree, and their failure to provide
the appropriations herein required shall be a ground to declare
inoperative the corresponding budgets of the borrowing entity.
Furthermore, the Secretary of Finance is hereby empowered to enforce
payment of obligations incurred under this Decree which have become due
and demandable by withholding the corresponding amounts from internal
revenue allotments and/or specific tax allotments, or by drawing
against the depository accounts of the defaulting local government unit.
The above remedies, notwithstanding, elective and appointive officials
who shall refuse to pay, obstruct the payment, or cause unnecessary
delay in the repayment of the above-stated loans, indebtedness and
obligations shall be personally and jointly or severally, liable to pay
a fine of not less than P10,000.00 but not more than P50,000.00 or
suffer imprisonment from 2 years to 5 years, or both fine and
imprisonment, at the discretion of the court.
Section 11. Administrative Authority of the Secretary
of Finance. — The Secretary of Finance shall promulgate, from time to
time, such rules and regulations as he may deem necessary for the
proper and effective implementation of this Decree.
Section 12. Separability Clause. — If, for any
reason, any section or provision of this Decree shall be held to be
unconstitutional or invalid, not other section or provision hereof
shall be affected thereby.
Section 13. Repealing Clause. — All laws and parts of
law and pertinent portions of City Charters, contrary to or
inconsistent with the provisions of this Decree, are hereby repealed
and/or modified accordingly; Provided, That rights already acquired and
existing at the time of the promulgation of this Decree shall not, in
any way, be abridged, modified or affected; and Provided, further, That
nothing in this Decree shall be construed as depriving any province,
city or municipality of any power presently enjoyed or already
exercised by it or as diminishing its economy. chanroblesvirtualawlibrary
Vested rights existing at the time of the promulgation of this Decree
arising out of a contract between the province, city or municipality,
on one hand, and a third party, on the other, shall continue to be
governed by the original terms and provisions thereof.
Section 14. Effectivity Clause. — This Decree shall
take effect upon approval.
Done in the City of Manila,
this 25th day of July, in the year of Our Lord, nineteen hundred and
seventy-five.
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