TO BE KNOWN AS THE DECREE ON CREDIT FINANCING FOR LOCAL GOVERNMENTS

WHEREAS, it is an essential feature of the overall
development strategy to sustain socio-economic growth through, among
others, the timely execution of select priority projects at the local
government levels;

WHEREAS, the financial resources now available to the local
governments although augmented by increased national allotments and
broader taxing powers are deemed still insufficient to finance the
immediate prosecution of physical infrastructure and other
socio-economic projects that require massive capital investments;

WHEREAS, it has become necessary and opportune as a matter
of fiscal policy to extend greater credit facilities to the local
governments in order that through reasonable and moderate borrowings
they may raise additional funds to meet the capital outlay requirements
of priority developmental projects;

NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the
Philippines, by virtue of the powers vested in me by the Constitution,
do hereby adopt and promulgate as part of the law of the land, this
Decree, the full text of which follows:

SECTION 1. Title and Scope.—This Decree shall be
known as the Decree on Credit Financing for Local Governments, which
shall govern the conduct and management of the credit transactions
and borrowings of provinces, cities, and municipalities.

SEC. 2. Policy Pronouncements.—It shall be the basic
policy that any local government may avail of credit facilities and
resort to borrowings only if the local funds are not sufficient to
finance the prosecution, completion, expansion, operation, and
maintenance of local infrastructures and other socio-economic
developmental projects.

In times of emergency or of an impending financial dislocation
that may prejudice the dispensation of public services in the locality,
provincial, city and municipal governments may likewise secure
provisional advances in the manner prescribed herein or avail of credit
lines that government banks and other national lending institutions may
extend to them for the purpose of stabilizing local finances.

SEC. 3. Provincial Advances.—Upon recommendation
of the Secretary of Finance, provincial, city and municipal governments
may secure from the Central Bank of the Philippines and/or any other
duly authorized government bank or depository provisional advances in
amounts not exceeding, in their aggregate, fifteen per cent of the
average annual income actually realized from regular sources by the
borrowing local government unit for the last three fiscal years, the
amount granted to be released to the provincial or city treasurer
concerned. Provisional advances, including the interest accruals
thereon, shall be payable within the first quarter of the fiscal year
following the grant thereof.

Provincial advances shall not be taken up as revenue available
for appropriation by the local government and shall be spent and
disbursed solely to finance expenditures covered by duly authorized
appropriations in the approved budgets of the borrowing entity for the
current fiscal year.

In case of failure of the borrowing local
government to settle in full said provisional advances within the
prescribed time for payment, the Secretary of Finance is hereby
authorized to order the withholding of the internal revenue allotments
and/or specific tax allotments accruing to the local government
concerned and the direct remittance of the amount involved to the
lending bank or institution in settlement of the outstanding obligation.

SEC. 4. Domestic Loans, Credits, and Other Forms of
Indebtedness.—(a) Provincial, city and municipal governments may
upon recommendation of the Secretary of Finance contract loans, credits,
and other forms of indebtedness with the Philippine National Bank, the
Development Bank of the Philippines, the Government Service Insurance
System, and/or any other national lending institution to finance the
construction, installation, improvement, expansion, operation, or
maintenance of electric light and power plants, public markets and
slaughterhouse, waterworks and irrigation systems, telephone and radio
communications systems, government housing projects, the purchase of
rural and urban estates and other capital investment projects, subject
to such terms and conditions as may be prescribed by law and the
provisions of the respective charters of the aforesaid banks and lending
institutions.

2. Provincial, city and municipal governments may likewise
   secure from the Land Bank of the Philippines short, medium and long
   term loans and advances against security of real estate and/or other
   acceptable assets for the establishment, development or expansion of
   agricultural industrial, home building or home financing projects and
   other productive enterprises.
3. The Philippine National Bank, the Development Bank of
   the Philippines, the Government Service Insurance System, the Land
   Bank of the Philippines and other national lending institutions
   are hereby authorized to grant to the local governments the
   loans, credits and other forms of indebtedness herein referred to
   for the purposes specified above out of their loanable and/or investible
   funds, subject to such terms and conditions as may be prescribed by
   law and the pertinent provisions of their respective charters and to
   such policies, rules and regulations that their governing Boards
   may promulgate for the purpose.
4. The provincial, city and municipal governments shall
   provide in their respective budgets the necessary appropriations
   for the payment of the principal and interest on the loans or other
   forms of indebtedness contracted under this Section as they fall due
   and become payable until the total obligation shall have been paid in
   full.

SEC. 5. Deferred-Payment Financing Schemes.—Provincial,
city and municipal governments may likewise acquire heavy equipment,
plant machinery and such necessary accessories under a supplier’s credit
or deferred-payment plan, subject to the law on purchasing and such
other rules and regulations that the Secretary of Finance may promulgate
with the concurrence of the Chairman, Commission on Audit.

No local government entity shall enter into a purchase
contract under a deferred-payment plan unless previous loans secured
elsewhere shall have been paid in full or are being paid in accordance
with approved amortization schedules.

SEC. 6. Bonds And Other Long Term Securities.—(a)
Provinces and cities are hereby authorized to issue bonds, debentures,
securities, collaterals, notes and other obligations to finance
self-liquidating and/or income-producing development projects pursuant
to the priorities established in the development program as certified to
by the National Economic and Development Authority, but in no case to
exceed at any one time an aggregate amount equivalent to one-half of one
per cent of the total assessed value of taxable real property within
the territorial jurisdiction of the local government unit. Whenever any
province or city deems it necessary to issue such bonds, debentures,
securities, collaterals, notes and other obligations, the Provincial
Board or Municipal Board/ City Council shall, by resolution, so declare
and state the terms and condition of the bonds and the purpose for which
the proposed indebtedness is to be incurred. For such resolution to be
valid, it shall be passed by the affirmative vote of majority of all the
Members of the local Board/Council and approved by the President of the
Philippines, upon recommendation of the Secretary of Finance after
consultation with the Monetary Board of the Central Bank of the
Philippines and the National Economic and Development Authority.

2. Local government bonds shall be issued under the following
   conditions:

1. They shall be in registered form and transferable at
   the Central Bank of the Philippines;
2. They shall not be sold at less than face value;
3. They shall be redeemable ten years or more from the date of
   issue as may be determined by the Secretary of Finance before their
   issuance, but may be redeemed earlier by the local
   government upon approval by a majority of all the members of the local
   board or council;
4. Before issuance of the bonds, the Secretary of Finance upon
   consultation with the Monetary Board of the Central Bank of the
   Philippines shall fix the annual rate of interest payable on the
   bonds, as well as the mode of payment of the interest accruals
   thereon; and
5. Both the principal and interest on the bonds shall be pay
   able in legal tender of the Republic of the Philippines.

3. Local government bonds issued under the authority of this
   Section shall be exempt from all taxes levied by the Republic of the
   Philippines, or by any authority, branch, division or political
   subdivision thereof, which facts shall be stated upon the face of the
   bonds.
4. Local government bonds shall be acceptable and received as
   security in any transaction with the government where such security is
   required.
5. The local board or council concerned shall establish a sinking
   fund for the purpose of redeeming at maturity the bonds issued under
   this Section.
6. The annual contributions to the sinking fund shall cover in
   full the principal and interest due on the bonds issued and the local
   board or council shall set aside in the annual budgets of the local
   government the corresponding appropriations therefor. The Secretary of
   Finance may, upon request of the local board or council, determine and
   fix the amount of annual contributions herein referred to.
7. Said sinking fund shall be under the custody of the Central
   Bank of the Philippines which may invest the same in such manner as the
   Monetary Board may approve. Said sinking fund shall be charged for all
   expenses incurred in investing the same or portions thereof and credited
   with the earnings and interest income arising from such investments.
8. The Republic of the Philippines hereby guarantee the payment by
   the provincial or city government of both the principal and the
   interest of the bonds issued by said provincial or city government by
   virtue of this Section, and shall pay such principal and interest in
   case the provincial or city government fails to do so, and there are
   hereby appropriated, out of the general funds in the National Treasury
   not otherwise appropriated, the sums necessary to make the payments
   guaranteed under this Section: Provided, That the sums so paid by
   the Republic of the Philippines shall be refunded by the provincial or
   city government concerned through the sanctions provided for herein.

SEC. 7. Inter-Local Government Loans.—Provinces,
cities and municipalities may extend loans to other provinces, cities
and municipalities for such public purposes as the repair and
rehabilitation of government property damaged by typhoons, floods, fire,
or other natural calamity; the purchase of relief goods, foodstuff and
medicine during emergencies; and the beautification of parks, plazas,
monuments and shrines in amounts not exceeding, in their aggregate, five
per cent of the general fund income from regular sources of the lending
entity actually realized during the next preceding fiscal year, as
certified to by the local treasurer and attested by the auditor
concerned, under such terms and conditions as may be agreed upon by the
parties, payable within a period of not exceeding twenty-four months
from the date of release of the full amount and at an interest rate of
not exceeding twelve per cent per annum.

Failure of the borrowing local government to appropriate the
annual amortizations and interest accruals of, the loans contracted
under this Section shall constitute a ground for declaring in operative
its budgets pursuant to the pertinent provisions of Presidential Decree
No. 477.

SEC. 8. Loans from Funds Secured by the National
Government from Foreign Sources.—(a) The President of the
Philippines, or his duly authorized representative may negotiate and
contract loans with foreign financial institutions or other
international organizations belonging to countries with which the
Philippines has diplomatic or trade relations, or from foreign
governments which are members of the United Nations and, subject to such
conditions as he may impose, extend therefrom, upon recommendation of
the Secretary of Finance and the National Economic and Development
Authority, one or several loans to any provincial or city government
through the Development Bank of the Philippines or the Land Bank of the
Philippines for the purpose of financing the acquisition, construction,
installation, improvement and expansion of capital improvement projects,
such as electric power plants, waterworks and irrigation systems, flood
control systems, sewerage systems, composting plants, the telephone and
radio communications systems.

2. Loan amortizations or repayments, including accrued interest
   thereon, may be financed partly from the income of the projects or
   services funded and from the regular income of the borrowing local
   government unit, which must be provided for and appropriated regularly
   in its budgets until the loan and the interests thereon shall have been
   repaid in full.
3. The pertinent provisions of Republic Act No. 4860, as amended
   by Presidential Decrees Nos. 81, 150 and 351, shall likewise be complied
   with in the re-lending to the local governments of proceeds of
   loans from foreign sources.
4. Any two or more provinces, cities and/or municipalities may
   jointly and severally undertake capital improvement projects commonly
   beneficial to them and for the purpose may negotiate and contract for
   loans in accordance with the provisions of the foregoing paragraphs,
   subject to the provisions of Letter of Instruction No. 158.

SEC. 9. Financing Contracts with Private Persons.—(a)
Any provincial, city or municipal government may enter into, and bind
itself by, contract with any private person, natural or juridical, for
financing such self-liquidating or income-producing projects as the
construction of toll roads and bridges, the installation of telephone
systems, the acquisition of land and water transport systems, as well as
the operation and maintenance of such projects, subject to the approval
of the National Economic and Development Authority, upon recommendation
of the Secretary of Finance: Provided, That the aggregate
amounts of financing contracts that a local government may enter into by
virtue of this Section shall not exceed the legal borrowing capacity
and said local government as certified to by the Commission on Audit.

2. The construction and prosecution of projects under the
   authority of this Section shall be subject to the following terms and
   conditions:

1. The provincial, city or municipal engineer, as the case may
   be, upon formal request in writing by the local chief
   executive, shall prepare the plans and specifications for the
   proposed projects, which shall be subject to the approval of
   the local board or council. In the absence of a
   municipal engineer, the plans and specifications of the
   proposed project shall be prepared by the provincial
   engineer.
2. Upon approval by the local board or council of the project
   plans and specifications, the provincial, city or municipal engineer
   concerned shall forthwith cause to be published once every
   week for three consecutive weeks in at least two newspapers of general
   circulation, a notice inviting all eligible contractors to
   participate in a public bidding or the projects so
   approved. The contract shall be awarded to the lowest
   qualified bidder: Provided, That the winning bid shall not
   exceed by fifteen per cent the estimated cost of the project as
   computed by the local engineer. The conduct of public bidding
   and award of contracts for local government projects under
   this Section shall be in accordance with existing laws and
   pertinent rules and regulations.
3. Any contractor who shall undertake the prosecution of any
   project under this Section shall post bonds to project the interest of
   the province, city or municipality in such amounts as may be fixed
   by the local board or council and the provincial, city or
   municipal engineer of the locality shall not allow any
   contractor to initiate the prosecution of projects under this
   Section unless such contractor shall present proof or evidence
   that he has posted the required bond.
4. The contractor shall be entitled to the contract price
   based on the winning bid plus interest on the unpaid balance thereof not
   exceeding twelve per cent per annum. The provincial
   municipal or city government concerned is authorized to charge and
   collect reasonable tolls or fees, in the presence of a duly
   authorized representative of the contractor, for the use of
   finished projects, which collections shall be turned over to
   the contractor at the end of every week for a period not
   exceeding twenty years. In the case of roads or bridges constructed
   pursuant to this Section, tolls shall be collected only on motor
   vehicles using the same and automatic traffic counters shall be
   installed in the entrance, terminal and intermediate toll gates.
5. The tolls or fees that will be charged for the use of
   roads, bridges, telephone systems, land transport systems,
   ferries and watercraft constructed installed or acquired in
   accordance with this Section shall be levied in an
   appropriate local tax ordinance which shall be enacted by the local
   board or council, approved by the local chief executive and reviewed by
   the Secretary of Finance or the Provincial Treasurer pursuant to the
   pertinent provisions of the Local Tax Code, as amended. Any change in
   the schedule or rates of such tolls and fees shall likewise be made
   through the enactment of an appropriate local tax ordinance.
6. Collections from the tolls or fee authorized to be collected
   under this Section shall first be applied to the interest and the
   remainder to the principal in the accounting of the receipts from such
   tolls or fees.
7. The imposition and collection of tolls or fees shall be
   discontinued after the principal expended on the project, and the
   interest thereof, shall have been collected as certified to by
   the provincial, city and municipal treasurer concerned, and from that
   time the contract for such project shall be deemed extinguished
8. The projects undertaken under this Section shall be
   prosecuted under the supervision of the provincial, city or municipal
   engineer of the province, city or municipality, as the case may be, or
   if there be no municipal engineer, by the provincial engineer of the
   province to which the municipality belongs, in accordance with the plans
   and specifications of the project as approved by the local board or
   council.

3. The Provincial Attorney or City Legal Officer or Municipal
   Attorney, as the case may be, shall pass upon contracts executed
   pursuant to this Section to determine their legality and correctness of
   form. In the absence of the above-named officials, the responsibility
   shall devolve upon the provincial or city fiscal concerned.
4. It shall be unlawful for any public official or employee in the
   provincial, city or municipal government, or their relatives within the
   fourth civil degree of con sanguinity or affinity, to enter into, or be
   in any way interested in, the contract for the construction,
   prosecution, acquisition, operation or maintenance of any project
   awarded pursuant to the provisions of this Section or for the furnishing
   of any supplies, materials or equipment of any kind, to be used in the
   project. Any person who violates the provisions of this Section shall
   be removed from office, any provisions of law to the contrary not
   withstanding, and suffer imprisonment not exceeding five years.

SEC. 10. Remedies, Sanctions and Penalties.—Provinces,
cities and municipalities shall appropriate in their respective annual
budgets such amounts as are sufficient and required to service loans and
borrowings and/or redeem or retire bonds, debentures, securities, notes
and other obligations issued by said local government units under this
Decree, and their failure to provide the appropriations herein required
shall be a ground to declare inoperative the corresponding budgets of
the borrowing entity. Furthermore, the Secretary of Finance is hereby
empowered to enforce payment of obligations incurred under this Decree
which have become due and demandable by withholding the corresponding
amounts from internal revenue allotments and/or specific tax allotments,
or by drawing against the depository accounts of the defaulting local
government unit.

The above remedies, notwithstanding, elective and appointive
officials who shall refuse to pay, obstruct the payment, or cause
unnecessary delay in the repayment of the above-stated loans,
indebtedness and obligations shall be personally and jointly or
severally, liable to pay a fine of not less than P10,000.00 but not more
than P50,000.00 or suffer imprisonment from 2 years to 5 years,
or both fine and imprisonment, at the discretion of the court.

SEC. 11. Administrative Authority of the Secretary of
Finance.—The Secretary of Finance shall promulgate, from time to
time, such rules and regulations as he may deem necessary for the proper
and effective implementation of this Decree.

SEC. 12. Separability Clause.—If, for any reason,
any section or provision of this Decree shall be held to be
unconstitutional or invalid, no other section or provision hereof shall
be affected thereby.

SEC. 13. Repealing Clause.—All laws and parts of
law and pertinent portions of City Charters, contrary to or inconsistent
with the provisions of this Decree, are hereby repealed and/or modified
accordingly; Provided, That rights already acquired and existing
at the time of the promulgation of this Decree shall not, in any way,
be abridged, modified or affected; and Provided, Further, that
nothing in this Decree shall be construed as depriving any province,
city or municipality of any power presently enjoyed or already exercised
by it or as diminishing its autonomy.

Vested rights existing at the time of the promulgation of this
Decree arising out of a contract between the province, city or
municipality, on one hand, and a third party, on the other, shall
continue to be governed by the original terms and provisions thereof.

SEC. 14. Effectivity Clause.—This Decree shall take
effect upon approval.

Done in the City of Manila, this 25th day of July, in the year
of Our Lord, nineteen hundred and seventy-five.