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NINETEENTH CONGRESS OF THE ] 
REPUBLIC OF THE PHILIPPINES ] 
First Regular Session 
]
SENATE
s.B. No. 2067
23 ABR12 P5:12
(lSV
RECEIVED B^. 
y
Introduced by SEN. WIN GATCHALIAN
AN ACT
INSTITUTIONALIZING THE AUTOMATIC INCOME CLASSIFICATION OF 
PROVINCES, CITIES, AND MUNICIPALITIES, AMENDING FOR THE 
PURPOSE SECTION 8 OF REPUBLIC ACT NO. 7160, OTHERWISE KNOWN 
AS THE LOCAL GOVERNMENT CODE OF 1991, AS AMENDED
EXPLANATORY NOTE
Section 9 of Executive Order (EO) No. 249, series of 1987, passed on July 25, 
1987, grants the Secretary of Finance (SOF) the administrative authority to review and 
recommend the appropriate changes of the income ranges of the income 
classifications of the cities, provinces, and municipalities, at least once every four 
years. Section 8 of the Local Government Code of 1991, passed on October 10, 1991, 
provides that the income classification of local government units (LGUs) be updated 
within six (6) months from the effectivity of this Code to reflect the changes in their 
financial position resulting from increased revenues. The latest issuance by the DOF 
Secretary on re-classification was Department Order No. 23-08, dated 29 July 2008, 
Prescribing the New Income Brackets for the Re-ciassification of Provinces, Cities and 
Municipalities and Amending for the Purpose DOF Order No. 20-05, dated Juiy 29, 
2005.
However, the Department of Justice (DOJ) issued DOJ Opinion No. 68, series 
of 2012, dated September 21, 2012, interpreting EO No. 249, which provides that the 
SOF has the authority to reclassify, every four years, all provinces, cities (except Manila 
and Quezon City) and municipalities based on the schedule of their annual income


during the last four consecutive calendar years but his authority with respect to 
revising or modifying such schedule of income or "income ranges" only 
extends to recommending such appropriate changes or revisions to the 
proper authority, the Philippine Congress. This was reaffirmed in DOJ Opinion 
No. 020, s. 2015, dated March 25, 2015 which declared that a congressional 
amendment of EO No. 249 is needed in order for the income benchmarks in the said 
executive order be adjusted, and that the concerned LGUs, through Bureau of Local 
Government Finance (BLGF), were advised to continue the usage of the general 
income reclassification of 2008 until a new general reclassification is used by Congress.
Consequently, these DOJ Opinions resulted in the abeyance of the income 
reclassifications in 2012 and the succeeding cycles. Almost 15 years after the last DOF 
income brackets reclassification in 2008, the unchanged income classifications are not 
congruent with the prevailing economic conditions and actual financial standing of 
these LGUs.
Accordingly, this bill will address the DOJ requirement of a Congressional action 
on LGU income reclassification, to finally resolve this quandary. Moreover, this bill 
aims to effectively and systematically determine the LGUs financial capability and 
fiscal position that are reflective of the economy and the state of local development 
by: (1) granting the mandate and clear authority to the SOF to set income targets for 
the periodic automatic income reclassification of LGUs; (2) having a system of 
automatic income reclassification (upgrade/downgrade) of LGUs every two (2) years 
based on the updated table of income classifications to be released by the BLGF, and 
(3) utilizing the BLGF's Statement of Receipts and Expenditures for purposes of the 
LGUs' automatic income reclassification.
In view of the foregoing, the passage of this measure iS/darne^ly sought.


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NINETEENTH CONGRESS OF THE 
REPUBLIC OF THE PHILIPPINES 
First Regular Session
SENATE
S. B. No. 2067
23 ABR 12 P5 :1
RECEIVED
Introduced by SEN. WIN GATCHALIAN
AN ACT
INSTITUTIONALIZING THE AUTOMATIC INCOME CLASSIFICATION 
OF PROVINCES, CITIES, AND MUNICIPALITIES, AMENDING FOR THE 
PURPOSE SECTION 8 OF REPUBLIC ACT NO. 7160, OTHERWISE 
KNOWN AS THE LOCAL GOVERNMENT CODE OF 1991, AS AMENDED
Be it enacted by the Senate and the House of Representatives of the Phiiippines 
in Congress assembied:
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SECTION 1.Short Tide. - This Act shall be known as the "Automatic
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Income Classification Act for Local Go vernment Unitd'.
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SEC. 2. Section 8 of Republic Act (RA) No. 7160, otherwise known as the
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"Local Government Code of 1991", as amended, is hereby amended to read as
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follows:
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"Section. 8. Division,[and] Merger, AND AUTOMA TIC
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INCOME CLASSIFICA TION AND RECLASSIFICA TION. -
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{N)DIVISION AND MERGER. - Division and merger of
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existing local government units shall comply with the same
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requirements herein prescribed for their creation: Provided
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however. That such division shall not reduce the income,
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population, or land area of the local government unit or units
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concerned to less than the minimum requirements prescribed in
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this Code: Provided, further. That the income classification of


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the original local government unit or units shall not fall below its 
current classification prior to such division.
[The income classification of local government units shall be
updated within six (6) months form the effectivity of this Code
to-reflect the changes of their finonciaI-p€>sit-ion-resulting from
the increased revenues as provided herein.]"
(B) INCOME CLASSIFICA TION
1. CLASSIFICATION OF PROVINCES. - PROVINCES 
SHALL BE CLASSIFIED INTO SIX (6) CLASSES, 
ACCORDING TO THEIR INCOME RANGES, UTILIZING AS 
BASIS THE AVERAGE ANNUAL REGULAR INCOME FOR 
TWO (2) FISCAL YEARS PRECEDING AN AUTOMATIC 
INCOME RECLASSIFICATION. THE CLASSIFICATION 
SHALL BE AS FOLLOWS:
a. 
FIRST CLASS - PROVINCES THAT HAVE OBTAINED 
AN AVERAGE ANNUAL REGULAR INCOME OF ONE 
BILLION TWO HUNDRED MILLION PESOS 
(Pl,200,000,000.00) OR MORE;
b. 
SECOND CLASS - PROVINCES THAT HAVE 
OBTAINED AN AVERAGE ANNUAL REGULAR 
INCOME OF NINE HUNDRED MILLION PESOS 
(P900,000,000.00) OR MORE, BUT LESS THAN 
ONE BILLION TWO HUNDRED MILLION PESOS 
( P1,200,000,000.00);
C. THIRD CLASS - PROVINCES THAT HAVE 
OBTAINED AN AVERAGE ANNUAL REGULAR 
INCOME OF SEVEN HUNDRED MILLION PESOS 
(P700,000,000.00) OR MORE, BUT LESS THAN 
NINE HUNDRED MILLION PESOS 
(P900,000,000.00);
d. FOURTH CLASS - PROVINCES THAT HAVE 
OBTAINED AN AVERAGE ANNUAL REGULAR


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INCOME OF FIVE HUNDRED MILLION PESOS 
(P500/000f000.00) OR MORE, BUT LESS THAN 
SEVEN 
HUNDRED 
MILLION 
PESOS
(P700,000,000.00);
e. 
FIFTH CLASS - PROVINCES THAT HAVE OBTAINED
AN AVERAGE ANNUAL REGULAR INCOME OF 
THREE 
HUNDRED 
MILLION 
PESOS
(P300,000,000.00) OR MORE, BUT LESS THAN 
FIVE HUNDRED MILLION PESOS 
(P500,000,000.00); AND
f. 
SIXTH CLASS - PROVINCES THAT HAVE 
OBTAINED AN AVERAGE ANNUAL REGULAR 
INCOME OF LESS THAN THREE HUNDRED 
MILLION PESOS (P300,000,000.00).
2. CLASSIFICATION OF CITIES. - CITIES SHALL BE 
CLASSIFIED INTO SEVEN (7) CLASSES, ACCORDING TO 
THEIR INCOME RANGES, UTILIZING AS BASIS THE 
AVERAGE ANNUAL REGULAR INCOME FOR TWO (2) 
FISCAL YEARS PRECEDING AN AUTOMATIC INCOME 
RECLASSIFICATION. THE CLASSIFICATION SHALL BE 
AS FOLLOWS:
a. 
SPECIAL CLASS - CITIES THAT HAVE OBTAINED 
AN AVERAGE ANNUAL REGULAR INCOME OF 
TWELVE BILLION PESOS (P12,000,000,000.00) 
OR MORE;
b. 
FIRST CLASS - CITIES THAT HAVE OBTAINED AN 
AVERAGE ANNUAL REGULAR INCOME OF ONE 
BILLION ONE HUNDRED MILLION PESOS 
(Pl,100,000,000.00) OR MORE, BUT LESS THAN 
TWELVE BILLION PESOS (P12,000,000,000.00);
C. SECOND CLASS - CITIES THAT HAVE OBTAINED 
AN AVERAGE ANNUAL REGULAR INCOME OF NINE


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HUNDRED MILLION PESOS (PSOO^OOO,000.00) OR 
MORE, BUT LESS THAN ONE BILLION ONE 
HUNDRED MILLION PESOS (Pl,100,000,000.00);
d. 
THIRD CLASS - CITIES THAT HAVE OBTAINED AN 
AVERAGE ANNUAL REGULAR INCOME OF SEVEN 
HUNDRED MILLION PESOS (P700,000,000.00) OR 
MORE BUT LESS THAN NINE HUNDRED MILLION 
PESOS (P900,000,000.00);
e. 
FOURTH CLASS - CITIES THAT HAVE OBTAINED 
AN AVERAGE ANNUAL REGULAR INCOME OF FIVE 
HUNDRED MILLION PESOS (P500,000,000.00) OR 
MORE, BUT LESS THAN SEVEN HUNDRED MILLION 
PESOS (P700,000,000.00);
f. 
FIFTH CLASS - CITIES THAT HAVE OBTAINED AN 
AVERAGE ANNUAL REGULAR INCOME OF THREE 
HUNDRED MILLION PESOS (P300,000,000.00) OR 
MORE, BUT LESS THAN FIVE HUNDRED MILLION 
PESOS (P500,000,000.00); AND
g. 
SIXTH CLASS - CITIES THAT HAVE OBTAINED AN 
AVERAGE ANNUAL REGULAR INCOME OF LESS 
THAN THREE HUNDRED MILLION PESOS 
(P300,000,000.00).
3. CLASSIFICATION OF MUNICIPALITIES, 
MUNICIPALITIES SHALL BE CLASSIFIED INTO SIX (6) 
CLASSES, ACCORDING TO THEIR INCOME RANGES, 
UTILIZING AS BASIS THE AVERAGE ANNUAL REGULAR 
INCOME FOR TWO (2) FISCAL YEARS PRECEDING AN 
AUTOMATIC INCOME RECLASSIFICATION. THE 
CLASSIFICATION SHALL BE AS FOLLOWS: 
a. FIRST CLASS - MUNICIPALITIES THAT HAVE 
OBTAINED AN AVERAGE ANNUAL REGULAR


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INCOME OF ONE HUNDRED FIFTY MILLION PESOS 
(P150a000,000.00) OR MORE; 
b. SECOND CLASS - MUNICIPALITIES THAT HAVE 
OBTAINED AN AVERAGE ANNUAL REGULAR 
INCOME OF ONE HUNDRED MILLION PESOS 
(PIOO.OOO^OOO.OO) OR MORE, BUT LESS THAN 
ONE HUNDRED FIFTY MILLION PESOS 
(P150,000,000.00);
C. 
THIRD CLASS - THE MUNICIPALITIES THAT HAVE
OBTAINED 
AN AVERAGE ANNUAL 
REGULAR
INCOME 
OF NINETY 
MILLION 
PESOS
(P90,000,000.00) OR MORE BUT LESS THAN ONE 
HUNDRED MILLION PESOS (P100,000,000.00);
d. 
FOURTH CLASS - MUNICIPALITIES THAT HAVE
OBTAINED 
AN AVERAGE ANNUAL 
REGULAR
INCOME 
OF 
SIXTY 
MILLION 
PESOS
(P60,000,000.00) OR MORE, BUT LESS THAN 
NINETY MILLION PESOS (P90,000,000.00);
e. 
FIFTH CLASS -MUNICIPALITIES THAT HAVE
OBTAINED 
AN AVERAGE ANNUAL 
REGULAR
INCOME 
OF FORTY 
MILLION 
PESOS
(P40,000,000.00) OR MORE, BUT LESS THAN 
SIXTY MILLION PESOS (P60,000,000.00); AND
f. 
SIXTH CLASS - MUNICIPALITIES THAT HAVE
OBTAINED 
AN AVERAGE ANNUAL 
REGULAR
INCOME OF LESS THAN FORTY MILLION PESOS 
(P40,000,000.00).
WITHIN THIRTY (30) DAYS UPON EFFECTTVITY OF 
THIS ACT, THE SECRETARY OF FINANCE SHALL CAUSE 
THE PUBLICATION OF THE FIRST GENERAL INCOME 
RECLASSIFICATION OF ALL EXISTING LOCAL 
GOVERNMENT UNITS BASED ON THE INCOME RANGES


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UNDER SUBPARAGRAPH (B) OF THIS SECTION: 
PROVIDED, THAT, THE EFFECTS OF THE FIRST GENERAL 
INCOME RECLASSIFICATION SHALL BE APPLICABLE ON 
THE FIRST DAY OF JANUARY OF THE IMMEDIATELY 
SUCCEEDING YEAR FOLLOWING ITS PUBLICATION BY 
THE SECRETARY OF FINANCE.
(C) AUTOMATIC RECLASSIFICATION - THE ANNUAL 
REGULAR INCOME SHALL BE COMPUTED FROM THE 
STATEMENT OF RECEIPTS AND EXPENDITURES (SRE) 
MAINTAINED BY THE BUREAU OF LOCAL GOVERNMENT 
FINANCE (BLGF). THE ANNUAL REGULAR INCOME 
REFERS TO REVENUES, INCLUDING FEES AND RECEIPTS 
ACTUALLY REALIZED WHICH ARE REPORTED YEARLY 
ON CASH BASIS BY PROVINCES, CITIES, AND 
MUNICIPALITIES FROM REGULAR SOURCES, 
INCLUDING THE NATIONAL TAX ALLOTMENT (NTA) AND 
OTHER SHARES IN NATIONAL WEALTH BUT EXCLUSIVE 
OF NON-RECURRING RECEIPTS, SUCH AS NATIONAL 
AIDS, GRANTS, FINANCIAL ASSISTANCE, LOAN 
PROCEEDS, SALES OF ASSETS, MISCELLANEOUS 
INCOME, AND OTHER SIMILAR RECEIPTS OF LOCAL 
GOVERNMENT UNITS. FOR PURPOSES OF THIS 
SECTION, SHARES FROM NATIONAL WEALTH, EXCISE 
TAX ON TOBACCO, INCREMENTAL COLLECTION FROM 
VALUE ADDED TAX (VAT) UNDER REPUBLIC ACT NO. 
7643, AND THE GROSS INCOME TAX PAID BY BUSINESS 
AND ENTERPRISES IN SPECIAL ECONOMIC ZONE 
UNDER REPUBLIC ACT NO. 7916, AS AMENDED, AND 
SUCH OTHER SHARES AS MAY BE GRANTED BY LAW TO 
THE PROVINCE, CITY OR MUNICIPALITY, SHALL BE 
CONSIDERED AS PART OF THE ANNUAL REGULAR 
INCOME.


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EVERY SIX (6) YEARS FROM THE FIRST GENERAL 
INCOME RECLASSIFICATION, THE SECRETARY OF 
FINANCE SHALL UPDATE THE INCOME RANGES FOR THE 
INCOME CLASSIFICATION OF ALL PROVINCES, CITIES 
AND MUNICIPALITIES SET IN SUBSECTIONS 1, 2, AND 
3 OF SUBPARAGRAPH (B) BASED ON THE ANNUAL 
REGULAR INCOME GROWTH RATE.
EVERY TWO (2) YEARS FOLLOWING THE FIRST 
GENERAL INCOME RECLASSIFICATION, THE 
SECRETARY OF FINANCE SHALL AUTOMATICALLY 
UPDATE THE INCOME CLASSIFICATION WITHIN SIXTY 
(60) DAYS FROM THE DEADLINE FOR SUBMISSION OF 
THE YEAR-END REPORT.
A LOCAL GOVERNMENT UNIT SHALL BE UPGRADED 
WHEN ITS AVERAGE ANNUAL REGULAR INCOME FOR 
TWO (2) FISCAL YEARS EXCEEDS THE INCOME RANGE 
SET FOR US CURRENT INCOME CLASS. WHERE THE 
AVERAGE ANNUAL REGULAR INCOME OF AN LGU FALLS 
BELOW THE INCOME RANGE OF ITS CURRENT INCOME 
CLASS, U SHALL BE GIVEN A DOWNGRADE WARNING 
STATUS BY THE SECRETARY OF FINANCE. IF IT 
CONUNUES TO FALL BELOW THE INCOME RANGE IN 
THE NEXT INCOME RECLASSIFICATION, THE 
CONCERNED LOCAL GOVERNMENT UNU SHALL BE 
DOWNGRADED TO ITS CORRESPONDING INCOME 
CLASS.
THE BUREAU OF LOCAL GOVERNMENT FINANCE 
(BLGF) SHALL ISSUE A CERTIFICATION OF THE INCOME 
RECLASSIFICATION OF AN LGU; PROVIDED HOWEVER, 
THAT THE NON-ISSUANCE OF THE CERTIFICATION


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SHALL NOT SUSPEND THE EFFECTS OF THE AUTOMATIC 
INCOME RECLASSIFICATION.
IN CASES OF UNMANAGEABLE PUBLIC SECTOR 
DEFICIT, THE SECRETARY OF FINANCE MAY RETAIN 
THE EXISTING INCOME CLASSIFICATION OR ORDER 
THE RE-COMPUTATION AND REVISION OF THE INCOME 
CLASSIFICATION OF PROVINCES, CITIES AND 
MUNICIPALITIES TO REFLECT THE ACTUAL FINANCIAL 
SITUATION OF THE LOCAL GOVERNMENT UNITS; 
PROVIDED THAT, A PROVINCE, CITY OR 
MUNICIPALITY, WHICH HAS BEEN IN EXISTENCE FORA 
PERIOD OF LESS THAN TWO (2) FISCAL YEARS 
IMMEDIATELY PRECEDING THE AUTOMATIC INCOME 
RECLASSIFICATION OF LOCAL GOVERNMENT UNITS, AS 
HEREIN PROVIDED, SHALL BE CLASSIFIED ON THE 
BASIS OF ITS AVERAGE ANNUAL REGULAR INCOME FOR 
THE FISCAL YEAR OF ITS EXISTENCE; PROVIDED 
FURTHER THAT, IF A PROVINCE OR MUNICIPALITY IS 
CREATED BEFORE THE YEAR OF THE AUTOMATIC 
RECLASSIFICATION OF LOCAL GOVERNMENT UNITS, IT 
SHALL BE CLASSIFIED ON THE BASIS OF THE 
ESTIMATED AGGREGATE NET SHARE OF INCOME FROM 
REGULAR SOURCES OF ITS COMPONENT CITIES AND 
MUNICIPALITIES IN THE CASE OF A PROVINCE, OR ITS 
COMPONENT BARANGAYS IN THE CASE OF A 
MUNICIPALITY, INCLUDING THE CORRESPONDING 
ESTIMATED NTA OF THE NEWLY CREATED PROVINCE 
OR MUNICIPALITY PURSUANT TO SECTION 285 THIS 
ACT, DURING THE FISCAL YEAR IMMEDIATELY 
PRECEDING ITS CREATION. THIS RULE SHALL 
LIKEWISE APPLY TO A MUNICIPALITY THAT IS


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CONVERTED INTO A CITY, OR A CITY THAT IS CREATED 
OUT OF EXISTING MUNICIPALITIES OR BARANGAYS.
THE INCOME CLASSIFICATION OF PROVINCES, 
CITIES, AND MUNICIPALITIES SHALL, AMONG OTHER 
PURPOSES, SERVE AS BASIS FOR:
1. THE DETERMINATION OF ADMINISTRATIVE AND 
STATUTORY AIDS, FINANCIAL GRANTS, AND OTHER 
FORMS OF ASSISTANCE TO LOCAL GOVERNMENTS;
2. 
THE DETERMINATION OF THE FINANCIAL 
CAPABILITY OF LOCAL GOVERNMENT UNITS TO 
UNDERTAKE DEVELOPMENTAL PROGRAMS AND 
PRIORITY PROJECTS;
3. 
THE TOTAL ANNUAL OR SUPPLEMENTAL 
APPROPRIATION FOR PERSONAL SERVICES OF A LOCAL 
GOVERNMENT UNIT TO ONE (1) FISCAL YEAR AS 
PROVIDED IN SECTION 325 (A) OF LGC OF 1991;
4. COMPENSATION ADJUSTMENT FOR LGU PERSONNEL 
AS PROVIDED UNDER SECTION 10 OF EXECUTIVE 
ORDER NO. 201 (SALARY STANDARDIZATION LAW OF 
2015);
5. THE CREATION OF A NEW LOCAL GOVERNMENT UNIT 
WHEREIN SECTION 8 OF THE LGC OF 1991 PROVIDES 
THAT THE DIVISION AND MERGER OF EXISTING LOCAL 
GOVERNMENT UNIT SHALL NOT DOWNGRADE THE 
INCOME CLASSIFICATION OF THE ORIGINAL UNIT;
6. THE NUMBER OF ELECTIVE MEMBERS IN THE 
SANGGUNIANG BAYAN AS PROVIDED UNDER SECTION 
2 OF RA NO. 6637;
7. ISSUANCE OF A FREE PATENT TITLE TO RESIDENTIAL 
LANDS AS PROVIDED UNDER REPUBLIC ACT NO. 10023;


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8. THE MINIMUM WAGE OF DOMESTIC WORKERS AS
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PROVIDED UNDER SECTION 24 OF RA NO. 10361;
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9. LGUS TO INSURE ITS PROPERTIES WITH GSIS IN
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COMPLIANCE WITH SECTION 5 OF RA NO. 656 OR
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PROPERTY INSURANCE LAW;
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10. SETTING LIMITATIONS ON THE PERCENTAGE OF
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AGRICULTURAL LAND THAT CAN BE RECLASSIFIED AND
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PROVIDED FOR THE MANNER OF THEIR UTILIZATION
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OR DISPOSITION AS STIPULATED IN SECTION 20 OF
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THIS CODE; AND
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11. SUCH OTHER PURPOSES AS MAY BE PROVIDED
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UNDER EXISTING LAWS AND REGULATIONS.
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FOR PURPOSES OF IMPLEMENTING THIS SECTION, THE
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SECRETARY OF FINANCE SHALL ISSUE SUCH RULES
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AND REGULATIONS AS MAY BE DEEMED NECESSARY
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AND THE APPROPRIATE DEPARTMENT ORDERS FOR
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THE AUTOMATIC INCOME CLASSIFICATION 
OF
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PROVINCES, CITIES AND MUNICIPALITIES."
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SEC. 4. Guidelines in Cases Where a Fourth or Lower Income Class
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Province, City, or Municipality Receives a Third or Higher Income Class
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Designation as a Result of the First General Income Reclassification - A fourth
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or lower income class province, city or municipality which is reclassified as First,
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Second, or Third income class following the first general income reclassification
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shall not be required to provide for additional personal services and it may
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maintain its existing personnel complement prior to the reclassification,
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pursuant to civil service rules and regulations, until the next automatic income
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reclassification. In case of personnel transfers, resignations, or deaths, the LGU
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concerned may not fill up the vacant position or provide for its funding until the
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next succeeding general reclassification.
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The local government units which exceeded the limitations provided in 
Section 325 (a) of the Local Government Code of 1991 despite maintaining the 
status quo after it received a first, second, or third income class designation 
following the first general income reclassification shall not be considered in 
violation of Section 325 of the Local Government Code.
SEC. S.Transitory Provision. - All existing income classifications of 
provinces, cities and municipalities shall continue to be in force and effect until 
superseded by the issuance of the first general income reclassification by the 
Secretary of Finance pursuant to this Act. Nothing herein shall be construed to 
eliminate or in any way diminish existing salaries and benefits granted by LGUs.
SEC. 6. Repeaiing Ciause. - Executive Order No. 249, dated July 25, 
1987 is hereby repealed. Section 8 of the Local Government Code of 1991, as 
amended, is hereby amended. All laws, presidential decrees, executive orders, 
presidential proclamations, rules and regulations which are inconsistent with 
this Act are hereby repealed, or amended accordingly.
SEC. 7. Effectivity. - This Act shall take effect fifteen (15) days after its 
complete publication in the Oificiai Gazette or in a newspaper of general 
circulation.
Approved,
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