ICLTE-A.1-Data Analytics - Investment Programming and FRM

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Investment Programming and Financial

Resource Mobilization
Guidepoints in the Preparation of the Local
Development Investment Program (LDIP)
Outline of the Presentation
• Overview of the LDIP
– What is a development investment ?
– What is a LDIP ?
– What are the benefits of a LDIP ?

• Watch-out Points in LDIP Preparation


– Establish LDIP policies
– Formalize and rank the list of proposed development investment
projects from the CDP
– Establish the Development Investment Financing Capacity
– Develop the LDIP Financing Plan and Finalize the Investment Schedule
– Legally adopt the LDIP
– Update the LDIP
– Probable LGU Infrastructure Financing Options
– Review Points for Key Local Revenue Forecasts

LDIP Preparation Guidepoints


Overview of the LDIP

• What is a development investment ?

– Expensive, do not recur annually, have a multi-year service life

– Include
• Hard assets
• Soft assets

– Future annual MOOE required by the development investments should


be considered as part of the costs of development investments.

LDIP Preparation Guidepoints


Overview of the LDIP
Concern PPAs
“Hard” “Soft”
Financial Resource Mass Assessment of All Properties
Mobilization Subject to Appraisal
Conduct of business tax mapping
Formulation of a 5-year Development
Plan.
Team-Based Reward System for
Achievers in Income Generation
Administrative Support LGU Computerization Program/E- LGU Computerization Program/E-
Services governance (Hardware component) governance (Software and training
Construction of a covered quadrangle component)
for use of LGU clients Promotion of a client friendliness
program
Employee Competency Assessment
Program
Public Information and Setting up of information and advisory Printing and dissemination of LGU
Education billboards brochures
Development and continuous
upgrading of LGU website

Sample LGU
Development of Interactive
Information Booth
Economic Enterprises Construction of a public market Launching of LGU product caravans
Construction of a sports complex
Construction and setting up of a
livelihood training center
Participation in product exhibits
Printing of LGU postal stamps
Launching of regular job fairs
Development
Public Safety and Security Construction of a Public Safety Center
(including acquisition and installation
Promotion of a home safety program
Year round training of public safety Concerns and
of modern equipment) personnel
Development of river flooding watch
towers including a public warning
Community watch program Investment
Health and Environment
system
Setting up and proper operation and
maintenance of a:
Comprehensive waste segregation
and reduction program
Responses
- Sanitary land fill Health privilege cards
- Diagnostic / Specialty Center for Continuing Dog Vaccination
Specialized Medical Services Anti- Smoke belching Campaign
- Senior Citizens Healthy Lifestyle Continuous Rounding-up of Stray
Center Animals
- Public Toilets
Urban Utilities and Construction of new roads and bridges Anti-jaywalking campaign
Transportation Construction of a river dike Driver education campaign
Concreting of sidewalks
Road traffic signalization including
appropriate signages
Drainage improvements including the
setting up of pumping stations
Construction of a transport terminal
Construction of artesian wells
Citizens’ Affairs Setting up and full operationalization of Fast tracking of Community Mortgage
a Women’s Center Program (CMP) projects
Construction and leasing of public Updating of homeowners’
housing to informal dwellers associations directory

LDIP Preparation Guidepoints


Overview of the LDIP

• What is a LDIP ?

– Document that formalizes and ranks PPAs identified in the


CDP and matches the prioritized project list with the
investment financing capacity of the LGU in an iterative
manner.

– Multi-year rolling investment program.

LDIP Preparation Guidepoints


Overview of the LDIP

• What are the benefits of a LDIP ?


– Improves coordination of development investments with the
CDP.
– Provides a structured mechanism for development
investment decision-making at the municipal/city level.
– Serves as a key LGU management tool.
– Improves credit rating.
– Improves LGU administration.
– Promotes intra-LGU cooperation.

LDIP Preparation Guidepoints


Watch out Points in the LDIP
Preparation Process
• Establish LDIP policies • Examples:
– Prioritization criteria will be limited to the
development objectives set out in the
– Investment policies CDP.
– Approximately 15 % of the annual
regular revenues of the LGU will be
• Financing methods allocated to LDIP project financing.
• Prioritization policies – The amount from the annual regular
revenues available for LDIP projects will
be leveraged via direct loans or bond
flotation.
– Investment policies must be within – Alternative LDIP financing tools will be
the overall planning, institutional evaluated based on total financing costs
and legal framework governing the including all financial and time-related
operations of LGUs, especially the transaction costs.
– Land readjustment and special
1992 LGC. assessment will be the major cost
recovery tools for urban road and
drainage projects.
– There will be full cost recovery for
economic enterprise projects under the
LDIP.

LDIP Preparation Guidepoints


Watch out Points in the LDIP
Preparation Process
• Formalize and rank the list • Formalization involves the following:
of proposed development – A “status review” of previously approved
development investment projects is done.
investment projects from – The project proponents, primarily the
the CDP departments of the LGU, will be asked to
officially confirm the PPAs identified in the
CDP through the submission of formal
project proposals.
– A technical review of the project proposals
PPAs generated by the CDP get with inputs from the LDIP finance group
translated to a formal list of and key LGU planning, finance, engineering
and architectural staff specialists will then be
development investment needs conducted.
through the estimation of corresponding • All project proposals that pass the
time-phased cost estimates and formalization process will be registered as
identified source of funding using projects proposals for prioritization.
information supplied by the project • Prioritization will have to follow the
proponents in their project proposals. procedures and weights established
based on the ranking and scoring system
set out in the CDP/LDIP guide

LDIP Preparation Guidepoints


Watch out Points in the LDIP
Preparation Process
• Establish the Development
Investment Financing Capacity

Item Projection Year


2017 2018 2019 2020 2021 2022
1.0 Projected Total Revenues
Less:
2.0 Projected Mandatory Expenditures
2.1 Personal Services
2.2 MOOE
2.3 Committed Capital Outlays
2.4 Obligated Debt Service
2.5 5% Calamity Fund
3.0 N ew Development Investment
Financing Potential (3.0 = 1.0 – 2.0)

Items 1.0 and 2.0 will have to come from the revenue and expenditure projections developed using the tools
and techniques set out in BLGF’s RMM.
The initial — “without LDIP” estimate of the new development investment financing potential (Item 3.0) — is
the difference between the projected revenues and the projected expenditures that can be regarded as a must
for the LGU concerned.
The estimates of new development financing potential (Item 3.0) is what is going to initially matched with the
investment and MOOE requirements of the proposed LDIP projects.
LDIP Preparation Guidepoints
Watch out Points in the LDIP
Preparation Process

1. Components of “ without LDIP” revenue projection


a. IRA
b. Locally sourced revenues
c. Non LDIP related external sources of project financing
2. Components of “ with LDIP” revenue projection
1. “ Without LDIP” revenue forecasts
2. Externally-sourced LDIP financing sources
3. Local revenue effects of LDIP – generally the local revenue effects of LDIP projects lag
behind the implementation of the LDIP by at least the construction period.

LDIP Preparation Guidepoints


Watch out Points in the LDIP
Preparation Process

Available tools for generating revenue forecasts for LDIP purposes


1. BLGF central office econometric fiscal capacity model capable of generating LGU-level
local revenue forecasts.
2. An EXCEL based annual revenue forecasting and a corresponding quarterly cash inflow
template to be rolled out by BLGF to LGUs.
3. Techniques for forecasting IRA and special shares in national revenues to rolled out in
DBM’s Budget Operations Manual (BOM)
4. LGU-developed forecasts based on time series analysis set out in this presentation. The
techniques described here are based on the tools and techniques set out in BLGF’s
Revenue Mobilization Manuals (RMM) to be rolled out to LGUs

LDIP Preparation Guidepoints


Watch out Points in the LDIP
Preparation Process
• Preparing the “without LDIP” Revenue Forecasts – based on
the RMM LGU template

1. Compute the yearly increase in total LGU revenues (or LGU


expenditures) and its components. Compute also the
compounded average annual growth year in the last 3 years.
– The growth rate of revk between year t and year (t-1) is given by:
grrevkt/t-1 = (revkt / revk(t-1) – 1) * 100.
– The compounded annual growth rate of revenue component k between
year (t - n) and year t is equal to (1 minus the nth root of (revkt / revk(t-n))) *
100.
– In Excel, enter the following: “= (((revkt / revk(t-n))^(1/n))-1)*100” to arrive at
the desired result.

LDIP Preparation Guidepoints


Computing & Summarizing Annual Growth
Rates
Arithmetic Average Annual Growth Rate
Annual Growth Rate for Years covered by the analyses

2 equivalent ways of [AGR (06) + (AGR (07) + (AGR (08)]/3


= (0.044+0.096+1.066)/3 =0.402* 100
computing the annual growth = 40.2.%
rate

Total Tax Method 2


Method 1
Year Revenues in [R(t)-R(t-1)] /
[R(t)/R(t-1)]-1
Mill Php R(t-1)]
2005 25.0
2006 26.1 4.4% 4.4%
2007 28.6 9.6% 9.6%
2008 59.1 106.6% 106.6%

Average Annual Growth Rate (AAGR) 40.2% 40.2%


Computing & Summarizing Annual Growth
Rates
Annual Compound Growth
Rate
EXP((LN(R(08)/R(05))/(2008-2005)-1)*100
=EXP(LN(59.1/25.0)/3)-1)*100 = 33.2%

Total Tax
Year Revenues in Mill
Php
2005 25.0
2006 26.1
2007 28.6
2008 59.1
Annual Compound Growth
33.2%
Rate (ACGR)
Watch out Points in the LDIP
Preparation Process
• Preparing the “without LDIP” Revenue Forecasts – based on the RMM LGU
template

2. Apply the average compounded annual growth rates derived


from the analysis of LGU revenues previously described to the
estimates for the current year of the various components of
regular LGU income with the exception of the IRA. The
forecast value for revenue component k for the budget year
(revkby) maybe expressed as:

revkby = erevkcy * (1 +grrevk)

– where erevkcy is the estimated revenue from component k in the current


year, and
– gk is the average yearly growth rate of revenue component k.

LDIP Preparation Guidepoints


Watch out Points in the LDIP
Preparation Process
• Preparing the “without LDIP” Revenue Forecasts – based on
the RMM LGU template

• In like manner, the forecast value for revenue component k in


the year (by + 1) and the year (by +2) is computed as:

revk (by+1) = erevkcy * (1 +grrevk)2, and
revk (by+2) = erevkcy * (1 +grrevk)3.

• If new revenue measures have been introduced in the current


year, the estimated revenue yield from such measures should
then be added to the forecasts of the relevant revenue
component as derived above.

LDIP Preparation Guidepoints


Watch out Points in the LDIP
Preparation Process
• Preparing the “without LDIP” Revenue
Forecasts – based on the RMM LGU template

• Warning! The mechanistic application of the compounded average annual


growth rate to derive revenue forecasts should not be applied to RPT
revenues if a general revision in schedule of market values of real property
was implemented in the period under consideration.

• Instead of applying the compounded average annual growth rate, use the
simply arithmetic average growth rate for the off-years, i.e., years during
which no general revision in assessments of real property were put into
effect.

• For instance, if the general revision of assessments was done in year 3, the
arithmetic average grRPT = (grRPT1 + grRPT2)/ 2.

LDIP Preparation Guidepoints


Watch out Points in the LDIP
Preparation Process
• Preparing the “without LDIP” Revenue
Forecasts – based on the RMM LGU template

3. Extrapolate IRA for the multi-year budget.


• The IRA for the budget year is based on BIR collections 3 years back.
Data on actual BIR collections in previous years are available from the
website of the Bureau of Treasury (www.treasury.gov.ph).
• If we are preparing the multi-year budget of 2017-2019, the IRA for 2017
may be estimated by applying the actual growth rate of BIR revenues
between 2013 and 2015 to the IRA level for 2016.
• For 2018, the relevant growth rate is that between 2014 and 2016 and
applied to the estimated IRA level for 2017.
• For 2019, the relevant growth rate is that between 2015 and 2017 and
applied to the estimated IRA level for 2018.
• Beyond 2019, use the conservative assumption of keeping the IRA level
constant, in this case the estimated 2019 level

LDIP Preparation Guidepoints


Watch out Points in the LDIP
Preparation Process
• Preparing the “without LDIP” Revenue
Forecasts – based on the RMM LGU template

4. Estimate the non-recurring revenue items.


– To forecast capital revenues, one needs to know about the LGU’s plans
with respect to the sale of property and other capital assets during the
period under consideration.
– In like manner, to forecast interest income (the major component of
other non-operating income), one needs to know not just what the
interest rate will be but also the size of the principal that is invested.
– Forecasts of revenues from the LGU’s share in national wealth,
economic zones, tobacco excise tax, etc. will depend on prior
information that the LGU may have received from the national
government on when and how much has been programmed for release
in the budget year and the two outer years.

LDIP Preparation Guidepoints


Watch out Points in the LDIP
Preparation Process
• Preparing the “without LDIP” Revenue
Forecasts – based on the RMM LGU template

5. Sum up the projected items to arrive at the projected total


revenues.

LDIP Preparation Guidepoints


Watch out Points in the LDIP
Preparation Process
• Preparing the “without LDIP” COE Forecasts

The cost of ongoing programs may be estimated on the basis of the actual
budget allocations for said programs in the budget year and consists of:
a. Salaries/ wages of plantilla positions,
b. MOOE that is needed by the various departments/ offices to undertake
their regular functions, including the recurrent cost of new programs
introduced in the current year, and
c. Minor capital outlays.
These costs will essentially determine the “baseline” ceiling of the various
departments/ offices

LDIP Preparation Guidepoints


Watch out Points in the LDIP
Preparation Process
• Develop the LDIP
Financing Plan and
Finalize the Investment
Schedule

Iterative procedure goes on


until annual total project costs
matches annual investment
financing capacity .
On reaching such a balance,
the LDIP financing plan and
investment schedule is
finalized and inputted to the
draft LDIP

LDIP Preparation Guidepoints


Watch out Points in the LDIP
Preparation Process
• Develop the LDIP Step Option

Financing Plan and Costed and


Ranked PDIP
projects

Finalize the Investment Categorize


project
General urban
services
Public utilities & local
services
Social services

Schedule services

Identify cost Local Taxes - Fees & Charges - SEF


recovery - Existing - Special - LGU share in
source - Anticipated Assessment national wealth
- Development - IRA
Charges - Other grants &
- LGU subsidy donations

Hard Pay as you Hard Pay as you


Select use use
investment Pay as you go
financing
strategy
Soft Pay as you go Soft Pay as you go

Select Pay as you use Pay as you use Pay as you go


investment
financing - loans from private - loans from private - IRA
instrument financing institutions, financing institutions, - Congressional funds
from Local GFIs, other government GFIs, other government - LGU savings
Revenue lending windows, lending windows, - Other local and
Tool Kit international international foreign grants
development financing development financing
institutions institutions
- suppliers’/contractors’ - suppliers’/contractors’
credit credit
- other deferred payment - other deferred payment
schemes schemes
- equipment lease-to-own - equipment lease-to-own
arrangements arrangements
- infrastructure & - bond floats
development grants - infrastructure &
development grants

Pay as you go
- LGU savings
- LGU current tax
revenues

LDIP Preparation Guidepoints


Watch out Points in the LDIP
Preparation Process
• Develop the LDIP Finalizing the Investment Schedule
– The annual balance between LDIP
Financing Plan and project costs and expected available
funds for LDIP financing will generally
Finalize the Investment determine the final investment
Schedule schedule.
– There is, however, a leeway to fine
tune the investment schedule in terms
of timing and staging based on the
following considerations:
• a. Projects should be staged so as to
take maximum advantage of
alternative financing opportunities;
• b. Certain projects may be coordinated
and combined during implementation to
maximize cost savings and minimize
inconvenience and disruptions; and
• c. Adequate time must be provided
for preparing plans and
specifications; arranging financing;
the public competitive bidding
process

LDIP Preparation Guidepoints


Watch out Points in the LDIP
Preparation Process
• The final LDIP financing plan and
• Legally adopt the LDIP. investment schedule has to be packaged
into a draft LDIP for review and
endorsement by the LDC en banc to the
SP.

• The SP then deliberates on the LDC-


endorsed LDIP and thereafter, legally
adopts the LDIP through an appropriate
council resolution.

• The current year slice or AIP should be


endorsed for consideration in the annual
LGU budget.

• The succeeding years’ slices will be subject


to review and updating during the pre-
budget period of the succeeding years

LDIP Preparation Guidepoints


Watch out Points in the LDIP
Preparation Process
• Update the LDIP.
Why Update? The sources of LDIP updates include:
a. There is a need to maintain a ready
6-year development investment a. AIP projects left out of the current year
capital budget during the budget hearings
portfolio attuned to the development because of reduced budget allocation for
needs of the LGU; development investments.
b. Projects included in the current year
capital budget that were not implemented
b. LDIP allocations may change over during the year because of revenue short-
falls or unforeseen delays.
time due to the following: c. Occurrence of emergencies such as
i. Anticipated funding may not calamities, unforeseen circumstances,
and unanticipated revenue shortfalls.
materialize. d. Projects included in latter years’ LDIP
ii. Emergencies and unanticipated implemented in the current year.
circumstances may result in e. Projects which have already been subjected
to the LDIP evaluation process but were left
allocating financial resources to out of the current 6-year LDIP because of
lack of funds.
projects not listed in the LDIP. f. New projects or changes in existing LDIP
iii. New development investment projects arising from adjustments/changes in
the CDP.
needs may be identified by the
CDP.
LDIP Preparation Guidepoints
Watch out Points in the LDIP
Preparation Process
• Update the LDIP.
The proposed LDIP review and updating process will cover the following:

a. The LDIP will be updated annually to reflect changing field and financing conditions, and to include new project requests
arising from changes/adjustments in the CDP.
b. The LDIP secretariat will come up and furnish the LDIP committee with quarterly reports tracking the status of project
implementation and revenue sources collected for the project.
c. The LDIP secretariat will monitor and conduct an evaluation of project results within 6 months after completion of a
LDIP project.
d. Current year projects left out in the capital budget or were not implemented because of revenue shortfalls or because of
unforeseen circumstances should be considered next year.
e. Latter years’ LDIP projects implemented in the current year will be replaced in the relevant year by the highest
priority project (s) of the succeeding year.
f. Scale, cost and timing adjustments for existing LDIP projects will be inputted directly into the LDIP without having to
undergo the LDIP process.
g. Emergency projects such as damage repairs/rehabilitation for existing infrastructure will be inputted directly into the
current year AIP without any need to undergo the LDIP process.
h. Projects already subjected to the LDIP evaluation process but left out of the current LDIP because of lack of sufficient
funding will be put into the portfolio of stand-by projects, and will be included as part of the 6th year LDIP in the
updated LDIP of the succeeding year.
i. New project proposals generated by changes/adjustments in the CDP will go into a portfolio of stand-by projects to
be subjected to the LDIP process before inclusion into the LDIP.
j. The entire LDIP will be subjected to a major update every three years based on the three-year review and update of the
CDP. The time frame for the major update will have to be done such that the AIP will be available for the budget call of
the succeeding year. Assuming that the major update of the CDP is started towards the end of Year 3 up to the first
quarter of Year 4, the major LDIP update including the required Year 4 AIP should be ready for the Year 4 budget call in
July.

LDIP Preparation Guidepoints


Probable Infrastructure Financing Options
for LGUs
Additional LGU
revenue for
infrastructure Over the Next 3 Years Next 6 Years Over 6 Years
investment can
be realized Regular Tax Sources Concessions Additional National Revenue
through: (Property and Business Taxes) Sharing
– the
introduction of
Conveyance of Development Special Assessments Other Special Taxes and
new taxes and Rights Charges like congestion
revenue charges, higher vehicle
sources,
– expansion of ownership fees
the base of Debt Instruments including Bonds Development Impact
existing ones,
– improvements Fees
in tax Tax Incentives and Government Land Readjustment
administration, Guarantees
and the
– introduction or User Fees and Charges
expansion of
user fees.

LDIP Preparation Guidepoints


Review Points for Key Local Revenue Forecasts

LDIP Preparation Guidepoints


Review Points for Key Local Revenue Forecasts
Local Revenue LGU Support Data/Document to support their Indicative Explanations to
Item claim for revenue forecasts Benchmarks to justify revenue
serve as take- forecasts
off discussion
points
Regulatory Fees Regulatory fees and user charges (F & C) Forecast for the Explanation should
and User collected over the past 3 years and the LGU-set year should focus on:
Charges target for the forecast year itemized as follows: result in no
reduction in per - Is lowered
Total F & C = Per Capita F & C * Pop’n capita forecast due to a
regulatory fees reduced growth in
and charges. the LGU
population or is it
Forecast growth due to a reduced
rate ≥ per capita F & C or
- Prov.: 9.6% both?
- City: 12.7%
- Mun.:4.1% - If so what are the
local factors that
caused this?
Economic Total Revenues from economic enterprises for the Forecast growth Explanation should
Enterprises past 3 years and the LGU-set target for the rate ≥ focus on:
forecast year. immediate 3-
year annual - Is lowered
average growth forecast due to a
of GRDP for the reduced growth in
region in which the economic
the LGU is activity?
located
- If so what are the
local factors that
caused this?
Forecast growth
rate ≥

- Prov.: 7.2%
- City: 6.2%
- Mun.: 4.5%

LDIP Preparation Guidepoints


Thank you

Prepared by
Norman R. Ramos
Decentralization Expert
EU PFM 2 Technical Assistance Team (TAT)

LDIP Preparation Guidepoints

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