1 
Republic of the Philippines 
HOUSE OF REPRESENTATIVES 
Quezon City, Metro Manila 
NINETEENTH CONGRESS 
First Regular Session 
House Bill No. _________ 
Introduced by Representative Richard I. Gomez 
EXPLANATORY NOTE 
In 2019, the Supreme Court ruled in favor of the Mandanas-Garcia petitions, granting 
substantial, additional and proportional increases in the National Tax Allotment (NTA) formerly 
known as Internal Revenue Allotment (IRA). This prompted the issuance of  Executive Order No. 
138: “Full Devolution of Certain Functions of the Executive Branch to Local Governments, 
Creation of a Committee on Devolution, and For Other Purposes.”  With this executive order, 
along with National Budget Memorandum No. 138, national government agencies (NGAs) were 
ordered to cease funding assistance for devolved programs in all local government units in the 1st 
to 4th income brackets, beginning fiscal year 2022. 
However, the question remains: “Is the result of the Supreme Court’s ruling on the 
Mandanas-Garcia petitions sufficient enough for the efficient, effective and just execution of full 
devolution of certain functions, pursuant to Section 17 of the Local Government Code of 1991?” 
This representation maintains that we have not yet attained the optimal conditions for full 
devolution. Much as it seems that additional, yet proportional NTAs for each LGU would solve 
the budget gaps in each LGU, it is not as simple as that. At the onset of the full devolution process, 
various issues have arisen, that signal a fiscal crisis among LGUs, especially in the next two years. 
Most glaring of these issues is the fact there is simply no peso for peso correspondence 
between the added NTA and the added funds required to finance full devolution, pursuant to RA 
7160. In many cases, the added funds required to finance fully devolved programs is more than 
the additional NTA.  
September 28, 2022
2:48 pm
5225


2 
 
 
This misalignment in sources and uses of funds at the LGU level, emanates from a systemic 
issue that can be traced from how NTAs are derived per LGU, as mandated in RA 7160. In the 
Local Government Code, the factors used to calculated NTAs are largely not related to the factors 
that determine the funds needed for devolved programs. With this systemic issue, there is bound 
to be fiscal misalignment at the LGU level.  
 
To exacerbate this, the NTAs are also calculated using a three-year lagged national income 
as base. This is especially significant, as years 2020 and 2021, were particularly challenging years 
in terms of national growth and national income. This means that the NTAs in years 2023 and 
2024 would be substantially lower than in 2022, which was still based on pre-pandemic national 
income. 
 
To address these issues in the immediate term, this bill proposes the creation of a fund that 
would provide gap financing for LGUs incurring deficits in the periods leading to full devolution 
of programs pursuant to RA 7160. This fund, to be called, “Local Government Units Full 
Devolution Gap Financing Fund,” would service all LGUs regardless of income brackets, as long 
as they comply with the criteria, to be laid out in the Act’s Implementing Rules and Regulations.  
 
This bill also calls for the conversion of the Growth Equity Fund (GEF), created by virtue 
of Executive Order 138, as initial component to the Local Government Units Full Devolution Gap 
Financing Fund. The Fund would also allow LGUs with budget surpluses to invest in the Fund, as 
capital for soft loans to LGUs in deficits. This way, LGUs are given an opportunity to help one 
another, at the same time, the scheme eases the additional burden on the national budget.  
 
With the enactment of this bill, this representation hopes that all LGUs will be able to 
achieve full devolution with ample funding. In view of the foregoing, the approval of this bill is 
earnestly sought. 
 
 
 
RICHARD I. GOMEZ, DPA 
 
 


3 
Republic of the Philippines 
HOUSE OF REPRESENTATIVES 
Quezon City 
NINETEENTH CONGRESS 
First Regular Session 
House Bill No. _________________ 
______________________________________________________________________________ 
Introduced by Representative Richard I. Gomez 
AN ACT EXTENDING THE COVERAGE OF AND CONVERTING THE GROWTH 
EQUITY FUND INTO THE LOCAL GOVERNMENT UNITS FULL DEVOLUTION 
GAP FINANCING FUND AND APPROPRIATING FUNDS THEREFOR  
Be it enacted by the Senate and the House of Representatives of the Philippines in 
Congress assembled: 
SECTION. 1. Title. — This Act shall be known as the “LGU Full Devolution Gap 
Financing Fund Act.”  
SEC. 2. Local Government Units Full Devolution Gap Financing Fund.— The Growth 
Equity Fund (GEF) created by virtue of Section 8 of Executive Order 138, is hereby converted 
to constitute the establishment of the “Local Government Units Full Devolution Gap Financing 
Fund,” as a special fund in the National Treasury for the provision of gap financing to local 
government units (LGUs) during the period of transition to full devolution of certain functions, 
pursuant to Section 17 of Republic Act No. 7160, otherwise known as the “Local Government 
Code of 1991.” 
SEC. 3. Objectives. — The Local Government Units Full Devolution Gap Financing 
Fund (LGU-FDGFF) aims to attain  the following objectives:  
(A) Ensure that public services in all local government units (LGUs) are not compromised
due to lack of funding during the transition period to full devolution of certain functions
pursuant to Section 17 of Republic Act No. 7160;
(B) Provide additional funds to LGUs that incur budget deficits during the transition period
to full devolution of certain functions pursuant to Section 17 of Republic Act No. 7160;
5225


4 
 
(C) Provide gap financing to aforementioned LGUs by way of: (a) augmentation of 
National Tax Allotment (NTA) and/or (b) short- to medium-term soft loans; and  
(D) Provide a venue for LGUs with budget surpluses to ‘invest’ excess funds through the 
LGU-FDGFF, as capital for soft loans.  
 
     
SEC. 4. Mechanics of the Fund.— The Local Government Units Full Devolution Gap 
Financing Fund (LGU-FDGFF) shall have the following (but not limited to) features:  
(A) Extend gap financing assistance to LGUs of all income brackets that comply with the 
LGU-FDGFF’s implementation criteria; 
(B) The Fund shall limit financing to budget gaps in transitioning to full devolution of 
functions, pursuant tot Section 17 of the Local Government Code of 1991; 
(C) The Fund shall provide both NTA augmentation and soft loans as methods of 
providing gap financing to LGUs with budget deficits; and 
(D) Use of financial facilities of the Fund are subject to compliance with the 
Implementing Rules and Regulations of this Act. 
SEC. 5. Implementing Rules and Regulations. — Within ninety (90) days after the effectivity 
of this Act, the Committee on Devolution, Department of Budget and Management (DBM) and 
the Department of the Interior and Local Government (DILG) shall promulgate the necessary 
rules and regulations for the effective implementation of this Act. 
SEC. 6. Appropriations. — The appropriations for the Growth Equity Fund shall constitute 
as part of the initial funds of the LGU-FDGFF. The amount of Five billion pesos shall be 
appropriated in the General Appropriations Act of  2024.  
SEC. 7. Separability Clause. — If any provision of this Act is held invalid or unconstitutional, 
the other provisions not so declared shall remain in force and in effect. 
SEC. 8. Repealing Clause. — Any other law, issuance or part thereof inconsistent with this 
Act are hereby repealed or modified accordingly.  
SEC. 9. Effectivity Clause. — This Act shall take fifteen (15) days after its publication in the 
Official Gazette or in two (2) newspapers of general circulation.