To Be Known As The Decree On Credit Financing For Local Governments

Case Overview and Summary

Summary of Presidential Decree No. 752

Title and Scope (Section 1):
- This Decree shall be known as the decree on Credit Financing for Local Governments, which shall govern the credit transactions and borrowings of provinces, cities, and municipalities.

Policy Pronouncements (Section 2):
- Local governments may avail of credit facilities and resort to borrowings only if local funds are insufficient to finance developmental projects.
- In emergencies or financial dislocations, local governments may secure provisional advances or credit lines to stabilize local finances.

Provisional Advances (Section 3):
- Local governments may secure provisional advances from the Central Bank or government banks, not exceeding 15% of their average annual income from regular sources for the last 3 fiscal years.
- Provisional advances shall be payable within the first quarter of the following fiscal year.
- Failure to settle provisional advances will allow the Secretary of Finance to withhold internal revenue allotments and remit the amount to the lending institution.

Domestic Loans, Credits, and Other Forms of Indebtedness (Section 4):
- Local governments may contract loans, credits, and other forms of indebtedness with national lending institutions to finance capital investment projects, subject to terms and conditions prescribed by law and the institutions' charters.
- Local governments shall provide appropriations in their budgets for the payment of principal and interest on these loans.

Deferred-Payment Financing Schemes (Section 5):
- Local governments may acquire heavy equipment, plant machinery, and accessories under a supplier's credit or deferred-payment plan, subject to purchasing laws and rules by the Secretary of Finance.
- No local government shall enter into a deferred-payment plan unless previous loans are paid in full or being paid according to amortization schedules.

Bonds and Other Long Term Securities (Section 6):
- Provinces and cities are authorized to issue bonds, debentures, securities, and other obligations to finance self-liquidating and/or income-producing development projects, not exceeding 0.5% of the total assessed value of taxable real property within their jurisdiction.
- Local government bonds shall be issued under specific conditions, including registered form, minimum selling price, redemption period, interest rate, and tax exemption.
- Local governments shall establish a sinking fund for redeeming the bonds, with annual contributions covering principal and interest.
- The Republic of the Philippines guarantees the payment of principal and interest on local government bonds.

Inter-Local Government Loans (Section 7):
- Local governments may extend loans to other local governments for purposes such as repair of damaged property, purchase of relief goods, and beautification of parks and monuments, not exceeding 5% of the lending entity's general fund income from regular sources in the preceding fiscal year.
- Loans shall be payable within 24 months from the date of release, with an interest rate not exceeding 12% per annum.
- Failure to appropriate annual amortizations and interest shall be a ground for declaring the borrowing entity's budget inoperative.

Loans from Funds Secured by the National Government from Foreign Sources (Section 8):
- The President may negotiate and contract loans with foreign financial institutions or international organizations, and extend these loans to local governments through the Development Bank of the Philippines or Land Bank of the Philippines for financing capital improvement projects.
- Loan amortizations and interest may be financed partly from project income and regular income of the borrowing local government.
- Provisions of Republic Act No. 4860, as amended, shall be complied with in re-lending foreign loan proceeds to local governments.
- Two or more local governments may jointly undertake capital improvement projects and contract for loans, subject to Letter of Instruction No. 158.

Financing Contracts with Private Persons (Section 9):
- Local governments may enter into contracts with private persons for financing self-liquidating or income-producing projects, such as toll roads and bridges, transport systems, and their operation and maintenance, subject to approval by the National Economic and Development Authority and recommendation by the Secretary of Finance.
- The aggregate amounts of financing contracts shall not exceed the local government's legal borrowing capacity, as certified by the Commission on Audit.
- Specific terms and conditions are provided for the construction and prosecution of projects under this Section, including public bidding, posting of bonds, toll or fee collection, and supervision by local engineers.
- It is unlawful for public officials or employees and their relatives to be interested in these contracts, with penalties of removal from office and imprisonment.

Remedies, Sanctions and Penalties (Section 10):
- Local governments shall appropriate in their annual budgets amounts sufficient to service loans, borrowings, and obligations under this Decree.
- Failure to provide appropriations shall be a ground to declare the borrowing entity's budget inoperative.
- The Secretary of Finance may enforce payment of due obligations by withholding internal revenue allotments or drawing against the defaulting local government's depository accounts.
- Elective and appointive officials who refuse to pay, obstruct payment, or cause unnecessary delay in repayment shall be liable to a fine of P10,000 to P50,000 or imprisonment from 2 to 5 years, or both.

Administrative Authority of the Secretary of Finance (Section 11):
- The Secretary of Finance shall promulgate rules and regulations necessary for the proper and effective implementation of this Decree.

Separability Clause (Section 12):
- If any section or provision of this Decree is held unconstitutional or invalid, other sections or provisions shall not be affected.

Repealing Clause (Section 13):
- All laws and parts of laws contrary to or inconsistent with this Decree are repealed and/or modified accordingly, without abridging existing rights and powers of local governments.
- Vested rights arising out of existing contracts between local governments and third parties shall continue to be governed by the original terms and provisions.

Effectivity Clause (Section 14):
- This Decree shall take effect upon approval.