LGU bond flotation: A road less travelled an analysis of bond flotation as a project-financing alternative for local government units

• Main Author: Dela Cruz, Erlene Luz Villanueva
• Format: text
• Language: English
• Published: Animo Repository 2015
• Subjects: Municipal bonds > Philippines; Local government > Philippines; Finance, Public > Philippines; Banking and Finance Law; Finance and Financial Management
• Online Access: https://animorepository.dlsu.edu.ph/etd_masteral/7175
• Institution: De La Salle University

The enactment of the Local Government Code of 1991 guaranteed a fixed national budget allocation for LGUs. However, this does not totally solve the problem of local government units (LGUs) in financing local development projects. Traditionally, LGUs have depended on three sources of revenue: (1) the Internal Revenue Allotment (IRA) from the national government; (2) local tax revenues; and (3) non-tax sources such as grants. These three sources, however, have proven to be inadequate in satisfying the financing needs of LGU-initiated development projects. An innovative borrowing alternative is Bond flotation. Its purpose is to raise funds to finance projects and services, which would in effect lessen the LGU’s reliance on the IRA. The need to increase the access of local government units (provinces, cities and municipalities) to resources has always been recognized. (Saldana, 1992) After the enactment of the Local Government Code of 1991, LGUs were given greater autonomy not only in mobilizing resources but also in allocating them. Under Article 200 of the Code, local government units were encouraged to venture into credit financing, build-operate-transfer schemes, bond flotation and other innovative means to finance local development projects. Juris Doctor-Master of Business Administration Program Based on the interviews gathered during the study, only a limited number of LGUs have ventured into bond flotation in financing projects mainly because of the perceived complexity of the process. This paper also account the bond flotation experience of a selected LGU with the aim of developing the LGU’s capacity to finance projects through partnerships between and among the sectors of society. This study is intended to significantly contribute to the current literature on bond flotation by studying an LGU’s experience and evaluating its overall applicability in the Philippine local government scenarios. To achieve this goal, the study used semi-structured interview and research. The interviews and research generated information on the bond flotation implementation, the strategies that were adopted, the stakeholders involved, and the reasons for bond flotation. The study concludes by laying out recommendations to improve the bond flotation process in the local government scenario, and with the hope that it could possibly contribute to fiscal sustainability of the LGUs in the Philippines.