Expenditures on functions, which have been devolved to Local Governments under the 1991 Local Government Code and subsequent legislation, are funded from three chief sources: a. The Internal Revenue Allotment (IRA), the main fiscal transfer to local governments; b. Own Source Revenues (including borrowing) and smaller shared revenues; and c. expenditures by national government departments and agencies on devolved functions and activities. The internal revenue allotment and own source revenues have been the focus of much analytic attention recently and are reasonably well-understood. This study, however, focuses on both non-IRA transfers to local governments as well as the direct spending by national government agencies and corporations on devolved functions and activities. The study aims to generate some initial concepts and options for the future design of a more performance-based grant allocation system and/or a system focusing more on supporting the poorer local government units. Separate notes provide an outline of the basic concept of performance-based grant systems, and of the critical design issues to be considered if a more performance-based transfer system is pursued.
