LAND GOVERNANCE ASSESSMENT FRAMEWORK IN THE PHILIPPINES THEMATIC AREA 2. LAND USE PLANNING, MANAGEMENT AND TAXATION

LAND GOVERNANCE ASSESSMENT FRAMEWORK IN THE PHILIPPINES THEMATIC AREA 2. LAND USE PLANNING, MANAGEMENT AND TAXATION June 2013

Theme 2: Land Use Planning, Management and Taxation Indicators Dimensions LGI-7: Transparency of land use restrictions Public input on urban land use plan changes Public input on rural land use plan changes Value capture by public from land use changes Speed of land use change LGI-8: Efficiency of land use planning LGI-9: Speed and predictability of enforcement of restricted land uses LGI-10: Transparency of valuations Urban development in largest city Urban development in 3 next largest cities Ability to cope with urban growth Plot size adherence Planned use aligned to actual Building requirements are realistic Issuance of building permits Transparent valuation Valuation rolls are available LGI-11: Tax collection efficiency Exemptions are justified Tax roll is comprehensive Assessed taxes are collected Property taxes greater than cost

LGI-7. Transparency of land use restrictions This indicator assesses the extent to which land use and management regulations are justified and transparent.

LGI-7 Dimension (i) - Urban Land Use Plans, Changes and Public Input Assessment A Public input is sought in preparing and amending land use plans and the public responses are explicitly referenced in the report prepared by the public body responsible for preparing the new public plans. This report is publicly accessible. B Public input is sought in preparing and amending land use plans and the public responses are used by the public body responsible for finalizing the new public plans, but the process for doing this is unclear or the report is not publicly accessible. C Public input is sought in preparing and amending land use plans but the public comments are largely ignored in the finalization of the land use plans. D Public input is not sought in preparing and amending land use plans.

Findings Public consultation to solicit inputs in planning or plan revision is a requirement in government-issued planning guidelines, but the manner of compliance varies widely across LGUs. One approach which is rather exceptional is that of Naga City wherein participation was sought in every step of the CLUP formulation process. Quite a few others embedded participation in the process through the multi-stakeholder composition of the working committees that were involved in preparing the plan. In the majority of cases public consultation is conducted when the draft plan is already prepared usually by hired preparers. Due to the lack of consistency in the practice the panel gave this dimension a rating of B.

Recommendations Include meaningful public participation as one of the governance indicators to ensure greater LGU compliance. DILG and HLURB should extend technical assistance and capability building programs to LGUs to enable them to regularly update their plans in a participatory way. Include relevant LGAF dimensions in monitoring land governance at the LGU level.

LGI-7 Dimension (ii) - In rural areas, land use plans and changes in these plans are based on public input Assessment A Public input is sought in preparing and amending land use plans and the public responses are explicitly referenced in the report prepared by the public body responsible for preparing the new public plans. This report is publicly accessible. B Public input is sought in preparing and amending land use plans and the public responses are used by the public body responsible for finalizing the new public plans, but the process for doing this is unclear or the report is not publicly accessible. C Public input is sought in preparing and amending land use plans but the public comments are largely ignored in the finalization of the land use plans. D Public input is not sought in preparing and amending land use plans.

Findings Four major activities are cited as examples of land use planning in the rural areas: basic land classification, forest land use planning, delineation of ancestral domains, and establishment of protected areas. Each of these processes entails varying degrees of public input. Land classification determines the final forest boundaries as well as which part of the territory will be released for titling. A highly technical process, it requires little public input. When demarcating boundaries on the ground affected communities and LGUs are consulted Forest land use planning is undertaken by LGUs and extensive consultations with upland dwellers. The resulting co-management arrangement further provides opportunities for public participation in forest management. Ancestral domains are self-delineated by the particular ethnic community with technical inputs from government and NGO representatives. Establishment of protected areas follows a 13-step process stipulated in the NIPAS Act. Little participation is needed in the technical assessment and delineation but extensive consultations are required in the planning and management of the established protected area. The panel rated this dimension B.

Recommendations Public participation in technical processes of boundary delineations should be minimized to avoid chaos. Extensive participation should be the norm when it comes to planning for and determining the uses of areas according to their legal status.

LGI 7 Dimension (iii) Public Benefits from Changes in Permitted Land Use Assesses existence and transparency of mechanisms to allow the public to capture significant part of the gains from changing land use. Assessment A Mechanisms to allow the public to capture significant share of the gains from changing land use are regularly used and applied transparently based on clear regulation. B Mechanisms to allow the public to capture significant share of the gains from changing land use are applied transparently but not always used. C Mechanisms to allow the public to capture significant share of the gains from changing land use are rarely used or applied in a discretionary manner. D Mechanisms to allow the public to capture significant share of the gains from changing land use are not used or not applied transparently.

Findings The twin principle of worsement compensation and betterment levy is not adopted in full in the Philippines. On the issue of worsement compensation government performance record is pockmarked with backlogs in ROW payments and many properties affected by expropriation are not compensated fairly. On the matter of betterment levy, both national and local governments have not availed of their opportunity to finance up to 60% of the cost of their projects from special assessments as authorized by law (CA 470, PD 464, RA 7160). Default by the government has emboldened vested interests to unduly influence the location of government projects for their own benefit. The practice by some property owners to donate a portion of their land for use by government projects in anticipation of future windfall benefits serves as a de facto application of the betterment levy. But the act of donating is highly discretionary and binds the donee to eternal debt of gratitude. In view of these observations the panel has rated this dimension C.

Recommendations Government should implement the provisions of Sec. 240-245 of the Local Government Code regarding the imposition of special benefit assessments. The BLGF can assist by conducting pilot studies and developing specific guidelines and providing appropriate training for local Assessors.

LGI 7 Dimension (iv) - Speed of Land Use Change Assesses whether majority of land where land use has changed is transferred to its destined use within a period of 3 years. Assessment A More than 70% of the land that has had a change in land use assignment in the past 3 years has changed to the destined use. B Between 50% and 70% of the land that has had a change in land use assignment in the past 3 years has changed to the destined use. C Between 30% and 50% of the land that has had a change in land use assignment in the past 3 years has changed to the destined use. D Less than 30% of the land that has had a change in land use assignment in the past 3 years has changed to the destined use.

Findings No systematic monitoring of land use change is undertaken in the Philippines, hence, the difficulty of determining the rate of change. It can be assumed that the speed of land use change is directly related to the rate of urbanization, therefore it can be assumed that it is highest in Metro Manila and environs. Such changes are influenced largely by national government investments in road construction and by private investments, big and small. Local governments, on whose shoulders land use regulation falls, tend to be passive onlookers rather than proactively determining the direction and pace of development through their land use plans. Unplanned development also results in inefficiencies in land use allocation. Accordingly, the panel gave this dimension a rating of C.

Recommendations LGUs should be more proactive in urban planning, making sound projections on directions, scope and extent of urban growth so that services and infrastructures can be projected in advance. Observe consistency of plans across LGU boundaries and within provinces and economic regions through a hierarchy of land use policies to better guide local governments. Enact the National Land Use Act.

LGI-8. Efficiency in the land use planning process This indicator assesses the adequacy of land use plans and regulations.

LGI 8 Dimension (i) - Control of Urban Spatial Expansion in the Largest City A process for planned urban development is followed in practice in the largest city in the country. Assessment A In the largest city in the country urban spatial expansion is controlled effectively by a hierarchy of regional/detailed land use plans that are kept up-to-date. B In the largest city in the country, while a hierarchy of regional/detailed land use plans is specified by law, in practice urban spatial expansion is guided by the provision of infrastructure without full implementation of the land use plans. C In the largest city in the country, while a hierarchy of regional/detailed land use plans is specified by law, in practice urban spatial expansion occurs in an ad hoc manner with infrastructure provided some time after urbanization. D In the largest city in the country a hierarchy of regional/detailed land use plans may or may not be specified by law and in practice urban spatial expansion occurs in an ad hoc manner with little if any infrastructure provided in most newly developing areas.

Findings The largest city in terms of population is Quezon City. The physical development and spatial expansion of QC can be divided into two phases: QC as a planned national capital and QC as an ordinary suburb of Manila. During the first phase QC benefited from technical planning services of the national government and the city s physical development was effectively controlled. During the second phase QC reverted to an ordinary city. It lost the national government support services and failed to control its urban expansion and growth. Failing to link up its efforts with the national government investments in radial and circumferential arterials that triggered the suburban expansion of Manila, QC s later development exhibited an ad hoc unplanned character. Based on these observations the panel s rating for this dimension is C.

Recommendations The current effort of Quezon City to regain its position of prominence among Philippine cities through proper management of planned change deserves support from higher level authorities.

LGI 8 Dimension (ii) - Planned Urban Development in the Three Largest Cities Assesses whether a process for planned urban development is followed in practice in the 4 largest cities other than the largest city in the country. Assessment A In the four major cities urban development is controlled effectively by a hierarchy of regional/detailed land use plans that are kept up-to-date. B In the 4 major cities, while a hierarchy of regional/detailed land use plans is specified by law, in practice urban devt is guided by the provision of infrastructure which implements only a part of the land use plans. C In the four major cities in the country, while a hierarchy of regional/detailed land use plans is specified by law, in practice urban development occurs in an ad hoc manner with infrastructure provided some time after urbanization. D In the four major cities in the country a hierarchy of regional/detailed land use plans may or may not be specified by law and in practice urban development occurs in an ad hoc manner with little if any infrastructure provided in most newly developing areas.

Findings The next four largest cities in terms of population are Davao, Manila, Caloocan and Cebu. The same observations about the ineffectiveness of land use planning to control the pace, direction and intensity of urban development generally apply to these four cities and most other cities. Reasons: - Mistaken belief by local officials that government cannot regulate the use of land that is privately owned. - LGUs do not own significant amount of of urban land nor are they taking steps to increase their landholdings. - In the absence of a national law on land use cities and municipalities are left to their own devices to regulate land use. - Provincial governments, though they are mandated to approve component LGUs plans and zoning ordinances are not jointly responsible for their enforcement. In view of these observations the panel rated this dimension C.

Recommendations LGUs should seek to increase their landholdings to give them a stronger hand in leveraging compliance with socially desirable patterns of urban development. Regulation of ownership, acquisition and disposition of property and not use only should be devolved to LGUs. Make provinces and their component cities and municipalities jointly responsible in regulating land use within their territorial jurisdiction.

LGI 8 Dimension (iii) - Coping with Urban Growth Assesses the ability of urban planning to cope with urban growth. Assessment A In the largest city in the country, the urban planning process/authority is able to cope with increasing demand for serviced units/land as evidenced by the fact that almost all new dwellings are formal. B In the largest city in the country, the urban planning process/authority is able to cope to some extent with the increasing demand for serviced units/land as evidenced by the fact that most new dwellings are formal. C In the largest city in the country, the urban planning process/authority is struggling to cope with the increasing demand for serviced units/land as evidenced by the fact that most new dwellings are formal. D In the largest city in the country, the urban planning process/authority cannot cope with the increasing demand for serviced units/land as evidenced by the fact that most new dwellings are formal.

Findings The panel found the indicator number of new formal dwellings inadequate to assess the ability of urban planning to cope with urban growth in the Philippines for the following reasons: - There is a seeming over-supply of formal sector housing particularly high rise condominium units and yet there remains a huge unmet demand for housing. - Production of formal dwelling units is not geared toward meeting housing need but rather responds to speculative demands for investment among segments of the population who are not exactly in need of housing. These observed conditions point to the inability of urban planning in the Philippines to cope with urban growth. The panel rated this dimension C.

Recommendations Develop more appropriate indicators for the ability of urban planning to cope with urban growth. NHA and HUDCC should encourage LGUs and the private sector to invest more in meeting the housing need of the lower and middle income groups to effectively reduce informality. Clarify the mandate of municipal governments with respect to socialized housing provision.

LGI 8 Dimension (iv) - Residential Plot Size Adherence in Urban Areas Measures the share of the population that violates plot size restrictions is low. Assessment A Existing requirements for residential plot sizes are met in at least 90% of plots. B Existing requirements for residential plot sizes are met between 70% and 90% of plots. C Existing requirements for residential plot sizes are met between 50% and 70% of plots. D Existing requirements for residential plot sizes are met in less than 50% of plots.

Findings There are existing laws that prescribe lot sizes as well as standards for physical development of subdivisions (PD 957, BP 220). Rampant practice of informal subdivision is largely unmonitored and unregulated by the local governments. There are wide deviations between allowed and actual residential lot sizes. The panel rated this dimension C.

Recommendations Proper zoning and monitoring of subdivisions should be made to ensure adherence to plot size standards. Restrictions on plot sizes should be revisited in terms of how it contributes to the objective of urban land reform and providing equal opportunity for all Filipinos to own land or at least have access to adequate urban space.

LGI 8 Dimension (v) - Use plans for specific land classes are in line with use Verifies that the proportion of land use in contravention of existing regulations or land use plans in rural areas is small. Assessment A The share of land set aside for specific use that is used for a nonspecified purpose in contravention of existing regulations is less than 10%. B The share of land set aside for specific use that is used for a nonspecified purpose in contravention of existing regulations is between 10% and 30%. C The share of land set aside for specific use that is used for a non-specified purpose in contravention of existing regulations is between 30% and 50%. D The share of land set aside for specific use that is used for a nonspecified purpose in contravention of existing regulations is greater than 50%.

Findings In the case of areas under the public domain such as forest lands and protected areas, use plans are not in line with actual use. This is due to the fact that classifications are legal statutes based on technical criteria and not necessarily on actual use. For example, a good proportion of forest lands are not necessarily covered with forest. In view of this, the panel rated this dimension C.

Recommendations The general public needs to be educated on the meaning and purpose of the legal classification of land to raise the level of their compliance.

LGI-9. Speed and transparency of enforcement of restricted land uses This indicator assesses the transparency and efficiency in the process for the delivery of permissions for restricted land uses.

LGI 9 Dimension (i) Applications for Building Permits The requirements for building permits for residential dwellings are clearly disseminated and applications are affordable and processed in a non-discretionary manner. Assessment A Requirements to obtain a building permit are technically justified, affordable, and clearly disseminated. B Requirements to obtain a building permit are technically justified and affordable but not clearly disseminated. C Requirements to obtain a building permit are technically justified but not affordable for the majority of those affected. D Requirements to obtain a building permit are overengineered technically.

Findings The panel unanimously rated this dimension A because the requirements and procedures for securing residential building permits are almost uniformly enforced and complied with.

Recommendations Continue with present practices and procedures.

LGI 9 Dimension (ii) - Time Required to Obtain a Building Permit The time needed to obtain a building permit for residential dwellings is short. Assessment A All applications for building permits receive a decision within 3 months. B All applications for building permits receive a decision within 6 months. C All applications for building permits receive a decision within 12 months. D All applications for building permits receive a decision after a period exceeding 12 months.

Findings The panel found that building permits are issued well within the cut-off period of 3 months provided are requirements are complied with. The panel rated this dimension A.

Recommendation Continue present procedures and practices.

LGI-10. Transparency of valuations This indicator assesses the transparency, accuracy, and public availability of land and property valuations.

LGI 10 Dimension (i) - Process of Property Valuation Assesses the extent to which the process of property valuation for tax purposes is clear, transparent, and comprehensive, and if based largely on market prices and regularly updated. Assessment A The assessment of land/property values for tax purposes is based on market prices with minimal differences between recorded values and market prices across different uses and types of users and valuation rolls are regularly updated (at least every 5 years). B The assessment of land/property for tax purposes is based on market prices, but there are significant differences between recorded values and market prices across different uses and types of users or valuation rolls are not updated regularly or frequently (greater than every 5 years). C The assessment of land/property for tax purposes has some relationship to market prices, but there are significant differences between recorded values and market prices across different uses or types of users and valuation rolls are not updated regularly. D The assessment of land/property for tax purposes is not clearly based on market prices.

Findings The Local Government Code clearly prescribes that assessment of properties subject to taxation should be based on market prices but determining market values has, until recently, been implemented rather loosely and not in accordance with international valuation practices. The Manual on Real Property Appraisal and Assessment Operations that was used by assessors in the past provided a formula to determine market value but the data were based on sales submitted to the Assessor s office which were understated by property owners to avoid paying the appropriate taxes; thus, the values derived did not correspond to market prices resulting in SMVs that significantly deviated from the true market values for almost all types of properties. With the issuance of the Philippine Valuation Standards and the Mass Appraisal Guidebook by the Department of Finance, local assessors are now mandated to implement a reformed valuation process following international standards but the process still has to take roots with assessors all over the country. Regular updating of the SMV is not strictly followed mainly because the local legislative councils are the ones approving the Schedule and they equate SMV revision to political suicide based on the notion that increased market values will automatically result in higher property tax burdens.

Recommendations Continuing professionalization of assessors and their intensive training in the use of the reformed valuation process. Removal of the political dimension in the development and approval of the SMV through renewed support to the Valuation Reform Act bill which gives back to the DOF the authority to approve SMVs and also provides for a mechanism for certification that proposed SMVs comply with valuation standards. Providing sanctions in the non-revision of the SMV (the VRA bill provides that LGUs that do not regularly update their SMVs shall not be authorized to collect real property taxes). Review and rationalize the taxation of property ownership and transfers to remove the incentive for property owners to understate property values.

LGI 10 Dimension (ii) - Public availability of valuation rolls Assess public accessibility of Valuation rolls. Assessment A There is a policy that valuation rolls be publicly accessible and this policy is effective for all properties that are considered for taxation. B There is a policy that valuation rolls be publicly accessible and this policy is effective for most of the properties that are considered for taxation. C There is a policy that valuation rolls be publicly accessible and this policy is effective for a minority of properties that are considered for taxation. D There is no policy that valuation rolls be publicly accessible.

Findings The local governments SMVs and the Bureau of Internal Revenue s Zonal Values are available to the public and may be accessed online in the case of the BIR s zonal values. Hard copy documents may be requested from individual LGUs.

Recommendations BLGF to collect all SMVs and upload them to its website for easier access by the public.

Theme 2: Land Use Planning, Management and Taxation Dimensions Indicators LGI-7: Transparency of land use restrictions Public input on urban land use plan changes Public input on rural land use plan changes Value capture by public from land use changes Speed of land use change LGI-8: Efficiency of land use planning LGI-9: Speed and predictability of enforcement of restricted land uses LGI-10: Transparency of valuations Urban development in largest city Urban development in 3 next largest cities Ability to cope with urban growth Plot size adherence Planned use aligned to actual Building requirements are realistic Issuance of building permits Transparent valuation Valuation rolls are available LGI-11: Tax collection efficiency Exemptions are justified Tax roll is comprehensive Assessed taxes are collected Property taxes greater than cost

LGI-11. Collection efficiency Indicator assesses the extent to which authorities effectively implement tax collection.

LGI 11 Dimension (i) - Exemptions from property taxes are justified and transparent Checks that tax proceeds are not significantly reduced by a high number of exemptions to the payment of land and property taxes. Assessment A There are limited exemptions to the payment of land/property taxes, and the exemptions that exist are clearly based on equity or efficiency grounds and applied in a transparent and consistent manner. B There are limited exemptions to the payment of land/property taxes, and the exemptions that exist are clearly based on equity or efficiency grounds but are not applied in a transparent and consistent manner. C The exemptions to the payment of land/property taxes are not always clearly based on equity or efficiency grounds and are not always applied in a transparent and consistent manner. D It is not clear what rationale is applied in granting an exemption to the payment of land/property taxes and there is considerable discretion in the granting of such exemptions. Application in a transparent and consistent manner means that the basis for the exemption is clearly defined, widely disseminated and uniformly applied.

Findings The LGC repealed all RPT exemptions previously given under special laws and now allows only 5 types of properties to be exempt (properties owned by the government, those used for religious, charitable or educational purposes, machineries and equipment used by LGUs and GOCCs in the supply and distribution of water and electric power, properties owned by registered cooperatives, and machineries/equipment used for pollution control and environmental protection). Despite specific exemptions in the LGC, many LGUs offer RPT exemptions, fully or partially, to attract investors into their locality. Many LGUs also give tax amnesties which are not authorized under the law mainly to increase collections.

Recommendations BLGF/DOF, together with DILG and the DOJ, should review the power of LGUs to grant RPT exemptions and their use to attract investments. In the meantime that no definitive official position is in place, BLGF should be more pro-active in giving advice to LGUs in the correct implementation of the RPT exemption authority allowed to them.

LGI 11 Dimension (ii) - Property holders liable to pay property tax are listed on the tax roll Assessment A More than 80% of property holders liable for land/property tax are listed on the tax roll. B Between 70% and 80% of property holder liable for land/property tax are listed on the tax roll. C Between 50% and 70% of property holder liable for land/property tax are listed on the tax roll. D Less than 50% of property holders liable for land/property tax are listed on the tax roll.

Findings Assessors are unable to fully accomplish their task of listing all properties and their owners in the assessment roll because they are highly dependent on the reporting of property owners and do not vigorously pursue the discovery of new properties through ocular inspections and investigations. Some government officials and private persons (Register of Deeds, building officials, geodetic engineers, notaries public) do not provide the assessors with information relating to property ownerships and transfers as mandated under the LGC.

Recommendations More vigorous implementation of LGC provisions requiring certain government officials and private persons to provide information to assessors (if possible, provide sanctions for non-compliance by those concerned). Require assessors to regularly update their tax maps and tax rolls by going to the field and conducting inspections and investigations and making use of new technology (GIS) to discover new properties not yet listed in the assessment roll.

LGI 11 Dimension (iii) - Assessed property taxes are collected Measures the closeness amount of tax revenue collected to the potential. Assessment A More than 80% of assessed property taxes are collected. B Between 70% and 80% of assessed property taxes are collected. C Between 50% and 70% of assessed property taxes are collected. D Less than 50% of assessed property taxes are collected.

Findings An NTRC study revealed that for the period 2003 to 2010, the average RPT collection efficiency for the country is only 59%. One reason for the non-vigorous collection of RPT is too much dependence of many LGUs on the Internal Revenue Allotment (IRA) provinces and municipalities are IRA-dependent to the extent of 79.3% and 76.1%, respectively, while cities are 43.2% IRAdependent. Administrative and judicial remedies provided in the LGC for the collection of delinquent RPT are not rigorously implemented. Sanctions for local officials (primarily the treasurer and his staff) for not collecting the RPT are not utilized.

Recommendations Treasurers should be required to seriously carry out their task of ensuring that all property taxes that are due are collected and appropriate sanctions should be meted out for non-compliance. To assist treasurers in their task, BLGF should conduct intensive trainings on the use of administrative and judicial remedies for collecting delinquent taxes. Adopt integrated computerized systems for property tax assessment and collection. LGUs should regularly conduct tax compliance studies to determine their collection efficiency and serve as basis for developing an improved revenue collection program. Review the IRA so that it does not serve as a disincentive for collecting the RPT; explore the use of collection efficiency as a factor in developing a new IRA formula.

LGI 11 Dimension (iv) - Property taxes correspondence to costs of collection Assesses how reasonable are tax collection costs in view of the amount that is collected. Not Assessed A The amount of property taxes collected exceeds the cost of staff in charge of collection by a factor of more than 5. B The amount of property taxes collected is between 3 and 5 times cost of staff in charge of collection. C The amount of property taxes collected is between 1 and 3 times cost of staff in charge of collection. D The amount of property taxes collected is less than the cost of staff in charge of collection.

Findings There is no comprehensive study that can provide information on the tax collection costs relative to the amount of property taxes collected. Under LAMP2, a review of national and local land-related taxes and fees was conducted but it was not able to derive the ratio of the cost of collection to revenues collected for lack of empirical data.

Recommendations A study estimating the ratio of the cost of collecting both national and local property taxes to actual collections should be undertaken to serve as baseline information.

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