6.2 Operations and Revenue Mobilization of Local Economic Enterprises (LEEs)

6.2 Operations and Revenue Mobilization of Local Economic Enterprises (LEEs)

Quick Answer: Local Economic Enterprises (LEEs) are commercial ventures owned and operated by LGUs under proprietary authority to deliver public utilities, catalyze local economic activity, and generate sustainable non-tax revenue. Common LEEs include public markets, abattoirs/slaughterhouses, bus terminals, cemeteries, and water utilities. Under Section 313 of RA 7160, LGUs must maintain separate Special Accounts in the General Fund (SAGF) for each enterprise to isolate operational profits and losses and eliminate hidden municipal subsidies. Pricing must follow a full-cost recovery model (covering operating expenses, overhead, depreciation, and debt service). Treasury controls require a strict organizational separation between the Market Administrator (operations) and the Local Treasurer (revenue collection, stall lease contracts, cash ticketing, and arrears adjudication).

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1. Statutory Concept, Nature, and Objectives of LEEs

Local government units possess a dual legal personality recognized in Philippine administrative law:

1. Governmental / Sovereign Personality: The exercise of political powers to maintain public order, administer justice, protect health and safety, and legislate local ordinances.
2. Proprietary / Corporate Personality: The exercise of private or commercial powers to acquire property, enter into contracts, and operate revenue-generating businesses for the comfort and convenience of the local community.

Local Economic Enterprises (LEEs) represent the institutionalized expression of an LGU's proprietary personality. Anchored in Sections 18, 22, and 147 of Republic Act No. 7160, an LEE is defined as a viable public facility or service undertaking operated by an LGU using commercial business principles. The Bureau of Local Government Finance (BLGF), in its Manual on the Operation of Local Economic Enterprises (MOLEE), underscores three foundational objectives for LEEs:

• Self-Sufficiency and Commercial Viability: Generating sufficient non-tax revenues to pay for all operating costs and capital outlays without draining general municipal tax funds.
• Socio-Economic Development: Providing modern public utility infrastructure (such as clean abattoirs, organized transport hubs, and hygienic wet markets) that stimulates private commerce.
• Fiscal Diversification: Expanding the local revenue base beyond traditional Real Property Taxes (RPT) and Local Business Taxes (LBT).

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2. Core Typologies of Local Economic Enterprises

Philippine LGUs operate diverse commercial facilities, each governed by specialized operational and regulatory standards:

1. Public Markets

Public markets represent the most widespread LEE in Philippine municipalities and cities. They are functionally divided into distinct commercial zones:

• Wet Market Section: Fresh fish, seafood, dressed poultry, pork, beef, and perishable agricultural products requiring daily drainage, cold storage, and concrete counters.
• Semi-Wet Section: Fruits, root crops, vegetables, and tofu.
• Dry Market Section: Textiles, dry goods, shoes, kitchenware, hardware, and groceries (sari-sari).
• Food Court / Commercial Service Section: Eateries (carinderias), tailoring shops, repair booths, and commercial banks or pawnshops on the perimeter.

Revenue streams comprise fixed monthly stall rentals, transient vendor cash tickets, commercial utility surcharges (water and electricity sub-metering), and parking fees.

2. Slaughterhouses (Abattoirs)

Slaughterhouses are critical public health facilities regulated under Republic Act No. 9296 (The Meat Inspection Code of the Philippines, as amended by Republic Act No. 10536) and administered in close coordination with the National Meat Inspection Service (NMIS). Abattoirs are classified into three official categories:

Slaughterhouse revenues include: (a) Ante-mortem inspection fees; (b) Post-mortem inspection fees; (c) Slaughtering/dressing fees; (d) Holding corral fees; and (e) Meat transport permits.

3. Commercial Transport Terminals

Integrated bus, jeepney, and van terminals generate substantial non-tax revenues through departure fees per dispatch, overnight parking fees, stall rentals for retail stalls inside the terminal building, and commercial billboard advertising.

4. Municipal Cemeteries and Memorial Parks

Local cemeteries provide tiered burial accommodations: traditional in-ground burial plots, multi-tiered apartment niches, bone crypts, columbariums, and crematoriums. Revenues include initial lease or purchase fees, annual perpetual care/maintenance dues, burial permit fees, exhumation fees, and transfer of cadaver fees.

5. Local Waterworks and Public Utilities

Municipal water distribution systems, public ice plants, sports complexes, and multi-level parking garages operate on metered consumption tariffs or tiered hourly user charges.

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3. Full-Cost Recovery Pricing and Tariff Setting

A chronic historical deficiency in Philippine local finance was the subsidization of public enterprises through general tax revenues due to underpriced user fees. To prevent hidden deficits, the BLGF mandates the Full-Cost Recovery Pricing Model for all LEE operations.

Mathematical Structure of Full-Cost Pricing

When formulating local revenue ordinances for an economic enterprise, the tariff must be calculated using the following formula:

$\text{Target Enterprise Tariff} = \text{Direct PS} + \text{MOOE} + \text{Depreciation (PPE)} + \text{Debt Service} + \text{Capital Margin}$

Where:

1. Personnel Services (PS): The direct salaries, wages, allowances, overtime pay, and social security contributions of all personnel dedicated to the enterprise.
2. Maintenance and Other Operating Expenses (MOOE): Daily expenditures including electricity, water utilities, janitorial and security services, chemical sanitation, office supplies, and repairs.
3. Depreciation of Property, Plant, and Equipment (PPE): Non-cash operational expense recognizing the physical wear, tear, and obsolescence of the physical buildings, cold storage equipment, pumps, and slaughter lines over their estimated useful lives (in accordance with Philippine Public Sector Accounting Standards / PPSAS).
4. Debt Service Amortization: Annual principal and interest payments on bank loans contracted to build or upgrade the enterprise facility.
5. Capital Reserve / Contingency Margin: A reasonable surplus margin (typically 5% to 15%) retained for capital refurbishment, equipment replacement, and future expansion.

Social Pricing vs. Subsidies

While LGUs may consider the socio-economic capacity of low-income vendors (social pricing), setting rates below operational costs constitutes an unbudgeted municipal subsidy. If the Sanggunian chooses to offer subsidized rates, the exact subsidy amount must be explicitly appropriated from the General Fund rather than hidden in operational deficits.

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4. Mandatory Fund Accounting under Section 313: Special Accounts in the General Fund (SAGF)

Section 313 of Republic Act No. 7160 is a primary technical accounting mandate governing local treasury operations:

"Local government units shall maintain special accounts in the general fund for the following: (a) Public utilities and other economic enterprises; (b) Loans, interests, bond issues, and other contributions for specific purposes; and (c) Development projects funded from the share of the local government unit concerned in the internal revenue allotment..."

Core Operational Functions of SAGF for LEEs

Maintaining a dedicated Special Account in the General Fund for each economic enterprise achieves critical fiscal controls:

• Elimination of Commingling: Enterprise collections are credited strictly to the specific SAGF ledger, preventing commercial receipts from being swallowed into the general municipal pool.
• True Profit and Loss Determination: At the close of each fiscal year, the Local Treasurer and Local Accountant can prepare an isolated Income Statement for the enterprise, measuring true net operating profit or net operating loss.
• Elimination of Hidden Subsidies: If an enterprise incurs an operational loss, the deficit cannot be quietly absorbed; the Local Chief Executive must submit a formal request to the Sanggunian for an explicit General Fund subsidy.

Treatment of Net Operating Profits

Under Section 313, any net operating profit generated by an LEE at the end of the fiscal year may be utilized in two authorized ways:

1. Transfer to General Fund Surplus: Transferred to the unappropriated surplus of the General Fund to support general social services and public infrastructure.
2. Retention in Enterprise Capital Reserve: Kept within the special account as a revolving or capital improvement fund for the rehabilitation, modernization, and technological upgrading of the enterprise upon enactment of an appropriation ordinance by the Sanggunian.

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5. Treasury Administration, Internal Controls, and Stallholder Lease Governance

Sound governance of local economic enterprises requires a rigorous system of internal treasury controls and administrative checks and balances:

Strict Separation of Functions

• Market Administrator / Enterprise Manager: Vested with physical operational control—overseeing cleanliness, security, garbage collection, facility maintenance, and enforcing space boundaries. The Market Administrator is strictly prohibited from assessing taxes, collecting cash rentals, or issuing official receipts.
• Local Treasurer: Possesses exclusive statutory authority over revenue billing, cash collection, custody of accountable forms, receipt issuance, and banking deposits. Collections are handled exclusively by bonded treasury collectors.

Accountable Forms and Cash Ticketing Protocols

Local treasuries utilize two distinct accountable forms for LEE collections:

1. Official Receipts (Form No. 51 / BLGF Electronic Receipts): Mandatory for collecting fixed monthly stall rentals, utility reimbursements, commercial lease advances, and annual abattoir license fees.
2. Cash Tickets (Official Accountable Form No. 51-C): Used exclusively for collecting daily transient fees from ambulant vendors, flea-market sellers, and hourly parking users.

The Anti-Recirculation Rule: To prevent fraud and theft, collection officers issuing cash tickets must punch or tear the ticket across the serial number and date in the presence of the vendor. An untorn or unpunched ticket found in the possession of an ambulant vendor is presumed to be re-circulated, constituting prima facie evidence of fraud against the collecting officer.

Market Stall Lease Administration and Adjudication

• The Market Committee: Public market stalls are awarded through public bidding or lottery by the Market Committee, composed of the Local Chief Executive (or representative), the Local Treasurer, the Sanggunian Chairman of the Committee on Market/Trade, the Market Administrator, and a representative of the market stallholders association.
• Prohibition against Subleasing: Stall awards are personal privileges. Standard market codes strictly prohibit awardees from selling, subleasing, or transferring stallholder rights without prior official approval from the Sanggunian.
• Revocation for Delinquency: Under standard municipal revenue codes, failure to pay stall rentals for two (2) consecutive months (or 60 cumulative days) results in automatic lease termination. Following written notice and a 15-day grace period, the Local Treasurer and Market Administrator padlock and repossess the stall, declare it vacant, and re-award the space through the Market Committee.