Allocation to Local Government Units (ALGU) in the Philippines: Definition, Legal Foundations, and Distribution
I. Overview
“Allocation to Local Government Units” (ALGU) is the collective term used in every annual General Appropriations Act (GAA) for all national-government transfers that must, by constitutional or statutory mandate, flow to local government units (LGUs). ALGU is not a single fund; it is a budget basket that currently groups:
- The National Tax Allotment (NTA) – the constitutionally-mandated share of LGUs in national taxes (called the “Internal Revenue Allotment,” or IRA, until FY 2022).
- Special Shares in the Proceeds of National Wealth – e.g., excise taxes on tobacco, excise taxes on mineral products, geothermal royalties, and the like.
- The Local Government Support Fund (LGSF) and other ad-hoc transfers that Congress periodically provides (e.g., Assistance to Cities, Financial Assistance to Provinces, Barangay Development Program).
- Block Grants – at present, the annual Annual Block Grant and Special Development Fund of the Bangsamoro Autonomous Region in Muslim Mindanao (BARMM) under R.A. 11054.
II. Constitutional Framework
| Provision | Key Mandate |
|---|---|
| Art. X, §6 (1987 Constitution) | LGUs “shall have a just share, as determined by law, in the national taxes which shall be automatically released to them.” |
| Art. X, §7 | LGUs are also entitled to an “equitable share in the proceeds of the utilization and development of the national wealth within their respective areas.” |
These clauses establish automatic release and equitable sharing as constitutional rights of LGUs, limiting executive or congressional discretion to withhold, delay, or arbitrarily re-allocate the funds.
III. Statutory Basis
Local Government Code of 1991 (R.A. 7160)
- §§284–290: original IRA computation, distribution ratios, and release schedule.
- §§289–292: formulae for LGU shares in national wealth (mining, forestry, geothermal, etc.).
Supreme Court Mandanas-Garcia Decision
- GR Nos. 199802 & 208488 (Decision: 03 July 2018; Entry of Judgment: 10 April 2019) clarified that the “just share” is based on all national taxes collected, not only internal revenue (BIR) taxes.
- Implemented starting FY 2022 via the FY 2022 GAA and Executive Order 138 (2021) on “Full Devolution.”
Sector- or Region-Specific Laws
- R.A. 11054 (Bangsamoro Organic Law) – BARMM Block Grant.
- R.A. 7171 / 8240 – 15%/15% LGU shares from Virginia cigarette excise taxes.
- R.A. 9136 (EPIRA) & R.A. 9513 (RE Act) – LGU shares from power-related royalties and taxes.
Annual GAAs
- Always contain an ALGU chapter detailing line-item amounts, release mechanics, and special provisions (e.g., allowable uses, reporting, sanctions).
IV. Components in Detail
| Component | Legal Source | Beneficiaries | Distribution & Key Rules |
|---|---|---|---|
| National Tax Allotment (NTA) | Const. Art. X §6, R.A. 7160 §284 (as modified by Mandanas) | Provinces, cities, municipalities, barangays | (a) Share = 40% of actual collections three years prior (e.g., FY 2025 NTA is from FY 2022 collections). (b) Post-Mandanas base includes: BIR taxes, customs duties, sin taxes, VAT on imports, excises on oil, etc., plus 50% of national taxes collected by BARMM in its area. (c) Distribution ratio (after deducting the barangay share of basic real property tax): 23% provinces, 23% cities, 34% municipalities, 20% barangays. |
| Special Shares in National Wealth | R.A. 7160 §§289–292 and sector laws | Host LGUs of mines, energy projects, tobacco-growing provinces, etc. | Calculated project-by-project. E.g., mining LGUs get 40% of the “basic” government share; power host LGUs get 1% of gross sales or 1-centavo/kWh. Shares bypass NTA formula and go directly to qualified LGUs. |
| Local Government Support Fund (LGSF) | Annual GAAs, often special purpose | Any LGU, via DBM criteria or earmarks | Purely congressional/executive policy; amounts vary yearly. Common sub-programs: Financial Assistance to LGUs, Assistance to Municipalities, Seal of Good Local Governance (SGLG) Incentive, LGSF-Others. No automatic entitlement. |
| BARMM Block Grant & Special Development Fund | R.A. 11054 §§15–17 | Bangsamoro Government | Block Grant = 5% of the NG revenue collections minus BTr interest income of the third preceding fiscal year; SDF = ₱5 billion annually for ten years (FY 2020-2029). Released quarterly, automatic. |
V. NTA Computation & Distribution Mechanics
Determine the base year:
- t-3 rule under §284, i.e., FY 2022 collections → FY 2025 NTA.
Identify eligible national taxes:
- Post-Mandanas list issued by the DBM-DOF Joint Circular, covering all taxes levied under the National Internal Revenue Code, Customs Modernization Act, and other tariff/statutes.
Apply the 40 % sharing ratio to total collections.
Allocation among LGU levels – after setting aside the Barangay share of basic RPT (1% of assessed value collected by provinces/cities):
- 23 % ➔ Provinces
- 23 % ➔ Cities
- 34 % ➔ Municipalities
- 20 % ➔ Barangays
Formula within each level:
Factor Provinces/Cities/Municipalities Barangays Population 50 % 60 % Land Area 25 % — Equal Sharing 25 % 40 % Release modality:
- Automatic quarterly credits to LGU bank accounts (Sec. 286, LGC) – usually by January, April, July, October.
- The DBM issues Local Budget Memorandum (LBM) tables with the exact peso amounts per LGU.
VI. Permissible Uses & Fiscal Controls
| Rule | Source | Notes |
|---|---|---|
| General Limitation | Const. Art. X §2; R.A. 7160 | LGUs enjoy local fiscal autonomy: they decide how to spend the NTA subject to LGC budget rules (20 % minimum for development projects, 5 % Disaster Risk Reduction and Management Fund, Sangguniang Kabataan Fund, Personal Services cap, etc.). |
| Earmarks for Certain Shares | Sector laws | Tobacco excise shares are earmarked for livelihood; mining shares must fund environmental and social projects; BARMM block grant is for devolved functions. |
| Audit & Transparency | R.A. 3591, R.A. 6713, R.A. 9184 | COA audits; LGUs must post budgets and utilization reports (Full Disclosure Policy; DBM/COA JMC 2011-1). |
| Withholding Prohibitions | R.A. 7160 §286 | National agencies may not impose any lien or holdback except as expressly allowed (e.g., COA disallowance, GSIS/PhilHealth arrears). |
VII. Impact of the Mandanas-Garcia Ruling
| Item | Pre-Mandanas (IRA) | Post-Mandanas (NTA) |
|---|---|---|
| Base Taxes | BIR taxes only | All national taxes incl. customs, excise on imports, etc. |
| Effective Share | ~ 11 % of NG revenues | ~ 14 % of NG revenues (40 % of bigger base) |
| Nominal Increase | FY 2021 IRA: ₱695 B | FY 2022 NTA: ₱959 B (↑ 38 %) |
| Policy Response | EO 138 directing full devolution of certain national functions; DILG-DBM Devolution Transition Plans (DTPs) | LGUs must absorb devolved health, agri, social services; NG to provide Growth Equity Fund (GEF) for poorer LGUs. |
VIII. Special Issues and Controversies
- Absorptive-capacity gap – smaller LGUs struggle to design and execute projects that justify the windfall increase.
- Overlap with ad-hoc transfers – Congress continues to insert LGSF earmarks, raising fiscal-discipline questions.
- Disparity across LGUs – land-area factor favors geographically large but sparsely populated provinces; highly urbanized cities argue the 23 % cap is outdated.
- Climate-related expenditure needs – push to earmark a slug of the NTA for adaptation/mitigation projects.
- Future of revenue assignment – moves to grant LGUs a share in excise taxes on fuel or digital-services VAT.
IX. Recent & Pending Reforms
| Proposal / Instrument | Status | Salient Point |
|---|---|---|
| House Bill 7354 (“BLGF Modernization”) | Pending 19ᵗʰ Congress | Strengthens LGU fiscal monitoring to match post-Mandanas devolution. |
| Automatic Appropriation Bill for NTA | Draft bills filed | Would remove the NTA from the annual GAA to insulate it from budgetary negotiations. |
| Joint DBM-DOF Circular on LGU Borrowing | Issued 2023 | Updates debt-service ceilings now that NTA base is larger. |
| Supreme Court review of “equal protection” claims by coastal LGUs | Petitions filed | Challenges the omission of “coastline length” as a distribution factor. |
X. Conclusion
The ALGU architecture operationalizes fiscal decentralization promised by the 1987 Constitution. Over three decades, jurisprudence (especially Mandanas-Garcia) and periodic statutory tweaking have steadily expanded both the size of the pot and the rules governing its distribution. The current regime rests on three pillars:
- Automatic, formula-based NTA to fund devolved basic services;
- Earmarked special shares recognizing “fiscal fairness” for resource-hosting LGUs; and
- Policy-driven support funds to address vertical and horizontal imbalances.
Whether ALGU genuinely translates into better local public services depends on complementary reforms—capacity building, transparent procurement, performance-based grants, and, ultimately, political will at both national and local levels.