A VIEW FROM THE CENTER: Regional net worth in a federal structure beginnersfinancialreport.blogspot.com

A VIEW FROM THE CENTER: Regional net worth in a federal structure Featured

As the Philippines transits to a Federal State (hopefully by a Constitutional Convention) it will become important to start thinking of government assets and facilities in terms of their being Federal or Regional in character. While some government assets and facilities are clearly National like the NAIA airport or military camps, others, like the Clark Development Corporation (CDC) OR SBMA are clearly only Regional in character, meaning the impact of operations hardly goes beyond the region.

The thinking behind classification of government assets and facilities as to being national or regional is in order to allocate the national debt (the part of which was used to build those facilities) or liability to the Region since the asset will now be considered a Regional Asset for which it has to manage wisely in order to pay for its efficient operations and service the debt. Income from the transferred asset accrues to the Regional Government (with likely minor sharing with the Federal Government).

This then opens the interesting possibility of thinking about fashioning a Regional Balance Sheet with not only man-made assets (infrastructure) but, since the Region now “owns” the natural resources within the Region, to also include the whole ecosystem, physical geosphere and municipal waters as Regional Assets in it’s balance sheet. The Regional Government’s management goals would of course now include the sound management of the assets in order that citizens there can generate more income from the assets being well maintained. Take for example, if the Regional Government understands the hydrology and geology of its territory and manages it soundly, there will be less risk from destructive floods and landslides and the livelihood and incomes of the locals become more stable. Therefore, the tax revenue of the Regional Government is also stable.

But without a concept of a Balance Sheet to be managed, the Regional Government (presently the National Government) might blindly grant an ecosystem-destructive mining concession and which the operation causes landslides and floods destroying the livelihood of rice farmers, fishpond owners and others in the path of heavy siltation. However, with a Balance Sheet, it will be clear what ecosystem asset values are being destroyed in exchange for a tiny share of the mining income and whatever trickles out of the mining benefits. If from the point of view of the Regional Balance Sheet, the Asset degradation will result in a negative Net Worth then something has got to give. And of course, no one wants their Net Worth to become negative as that is what the constituent communities in a Region rely on in the event of hard times.

So, the allocation of government assets and facilities by Region will also help fashion which Provinces and Cities are part of which Region in the event it is seen as wise to allocate airports, seaports, etc. in a dispersed manner.

And also, it will help determine the fair sharing of tax revenues and spending between the Federal and Regional Governments as it can reflect the asset and liability transfers above.

And so why not extend the concept further and have each Regional Government also clearly manage its Income Statement and Cash flow like a corporation? This is in the spirit of the wise words from House Speaker Pantaleon Alvarez that with Federalism, Regional governments will become competitive and therefore more efficient and business friendly measures will be pursued. Well, why not be quantitative about it as long as we do not stick only with accounting definitions of assets and liabilities and as long as the assumptions and standards on putting a “value” are clear and consistent.

With this rule, one could list other assets such as: absence of conflict or peace and order, level of trust in the government, etc. as well as liabilities such as: drug menace extent, criminality impacts, flood prone areas, destroyed watershed; so that a Regional Government is a genuine “Area Manager”, ensuring that the totality of government services results in an area that is conducive to living a full, peaceful, and productive life and that is sustainable for succeeding generations.

Now, just as economist Sixto K. Roxas has been advocating for 50 years, the constituent households and communities can also become conscious of their own Balance Sheet, their Assets and Liabilities, they too can, with simplified IT tools, (maybe delivered by apps on inexpensive smartphones), determine their own balance sheets to know their net worth’s performance (going up or down?). The totality of all of the Households Net Worth in the Region then also becomes added to the Net Worth of the Region as an Area (government + households).

So, if we are going toward a radical shift in governance structure we might as well go even further and think in terms of assets and liabilities to guide all levels of government. For example, if we just give up our claims to the Spratlys and Scarborough what a hit our Net Worth would take! Regional Government leaders will hire the best economic and social managers to maximize the Region’s competitiveness and score the highest growth, not just in Regional Gross Domestic Product only, but the more integrative figure, the Regional Net Worth.

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The author: Philip Camara is a Co-Convenor of Subsidiarity Movement International, and The author Federalist Forum of the Philippines. He advocates for the bottom-up development model as well as proper decentralization; and the strengthening of regional governance. He served for 12 years in the Regional Development Council of Central Luzon as Chair of the Economic Committee. He was a consultant at Philippine Alternative Fuels Corp (PAFC) and was on the Board of Trustees of the HARIBON Foundation. He is currently a member of the Board of Advisors of CDPI.

source: http://www.manilatimes.net/regional-net-worth-in-a-federal-structure/277782/

Read 2534 times Last modified on Friday, 05 August 2016 11:30
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