Cebu City skyline. CDN Digital photo | Brian J. Ochoa
CEBU CITY, Philippines— Cebu City lacks the necessary cash reserves to support its ambition of transforming into a city-state akin to Singapore, the Commission on Audit (COA) said.
The now preventively suspended Cebu City Mayor Michael Rama has been vocal about his vision of transforming Cebu City into a city-state like Singapore.
In pursuit of this ambitious goal, Rama proposed a P51.4 billion annual budget for 2023. This budget aimed to fund various developmental projects and infrastructure improvements to elevate Cebu City’s status.
However, COA’s recent audit report has cast doubts on the feasibility of this vision. It highlights the city’s “overestimated” income projections and “insufficient” cash reserves to support the proposed budget.
In its 2023 annual audit report, COA reported that Cebu City’s income projections have been consistently “unrealistic” for the past five years, with the 2023 fiscal year being “the most aggressive.”
COA’s findings indicate that the Local Finance Committee (LFC) of Cebu City projected an income that far exceeded realistic expectations, particularly relying heavily on Real Property Tax (RPT) as a primary revenue source for the P50 billion budget for 2023.
“The City’s Local Finance Committee (LFC) income projection for the past five years showed to be consistently unrealistic with FY 2023 as the most aggressive, which is not in keeping with relevant provisions of Title V of RA No. 7160, potentially compromising budget execution due to insufficient cash back-up to support the appropriated expenditures,” the report stated.
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Overestimated projections
The audit revealed that the RPT income projection for 2023 was the most inflated.
Despite the actual RPT income only slightly exceeding P500 million annually from 2019 to 2022, the finance committee boldly forecasted approximately P42 billion for the 2023 budget. This overestimation raised concerns about the city’s financial planning and stability.
Further scrutiny of the COA report shows that Cebu City’s income projections have consistently fallen short of actual income over the past five years.
The discrepancies ranged from a deficit of P131 million in 2019 to a staggering P42 billion in 2023, which translates to an “abnormal” financial projection that could affect the city’s ability to formulate a sound financial plan as required under Paragraph (g), Section 305 of the law.
“Except for the year 2019 where the deficit of actual income over estimate was only around P131 million, the succeeding years rose to over a billion to two billion pesos, with the year 2023 as the most aggressive since the deficiency skyrocketed to around P42 billion. This already shows abnormal financial projection which can obviously affect the City’s capability to formulate a sound financial plan as required under Paragraph (g), Section 305 of the law,” the report read.
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Major income sources
In COA’s findings, Cebu City has reported overestimating its income across several revenue sources.
The major sources of income for the city include Real Property Tax, business taxes, and other regulatory fees. However, the aggressive income projections, particularly those without a solid revenue-raising ordinance, do not align with Section 314 of the Local Government Code (LGC).
“Income projection that is anchored on a non-existing revenue-raising ordinance is not in accord with Section 314 of the LGC,” the report emphasized.
This overly optimistic financial forecasting, COA said, has undermined the importance of budgeting in the overall planning and management of government financial resources, potentially affecting the prioritization of programs and projects due to insufficient financial support.
Cebu City’s Response
In response to COA’s findings, Cebu City’s Local Finance Committee Chairman, in a detailed reply dated April 24, 2024, defended the income projections for FY 2023.
The chairman argued that the projections were legally substantiated and founded on solid fiscal bases, including proposed ordinances for revising fair market value rates and updating business taxes and regulatory fees, which are expected to generate significant additional revenue.
The response also highlighted other revenue-generating initiatives such as the Strategic Assessment for Your Assets and Worth (Sayaw sa Buhis) program and substantial credit lines from major national banks.
“The income projections of Cebu City for FY 2023 have also taken into account the major and current joint ventures of the City with Filinvest Land, Inc. and Nustar Resort and Casino,” the LFC chairman stated.
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COA’s recommendation
The COA advised Cebu City’s Local Finance Committee (LFC) to exercise greater caution in crafting income estimates, as these projections form the foundation for the city’s budget formulation each fiscal year.
The COA further recommended ensuring that income estimates are closely aligned with actual income to enable the city to develop a sound financial plan, adhering to prevailing economic conditions.
“In doing so, the committee may analyze the trend using the City’s past data together with other economic factors and indicators that may likely affect or influence income projection,” the report stated.