THE Cebu City Government got the concurrence of the Department of Finance-Bureau of Local Government Finance (BLGF) over its decision to pay off in advance its loan balance for the South Road Properties (SRP) amounting to more than P2.4 billion.
BLGF, however, has required the City to do four measures to make sure the City’s plan will be in order and will promote the general welfare of its constituents.
BLGF also affirmed that the prepayment of the loan is not covered by the restriction on cap-for-debt payments since the funds will not be taken from regular income sources but from the sale of the SRP lots.
The City already earned an initial P8.3 billion, which served as down payment, from three developers who won the bidding for the 45.2-hectare property.
In a letter to Mayor Michael Rama, dated Sept. 26, BLGF Officer-In-Charge Executive Director Salvador del Castillo said the prepayment of the loan is a “good and prudent fund management approach.”
“It will generate savings by effectively reducing the City’s annual debt-servicing costs and, therefore, enable the City to use such savings to fund other basic services or programs for the local constituency,” he said.
This is also within the power of the City, he added.
Del Castillo cited Section 458 of Republic Act (RA) 7160, or the Local Government Code (LGC), which gives local government units (LGU) the power to “generate and maximize the use of resources and revenues for the development plans, program objectives and priorities of the city.”
Aside from that, del Castillo said the prepayment of the loan will not violate the 20-percent debt-servicing limit for LGUs, as provided for under RA 7160, since it will be funded by the sale of the City’s assets, which is a non-regular income source.
“The LGC is clear that the 20-percent debt-service ceiling pertains only to the regular income,” he said.
Del Castillo invoked Section 324, which states that “the amount of appropriations for debt servicing shall not exceed 20 percent of the regular income of the LGU concerned.”
“In view of the foregoing, we concur in principle with your position in regard to the proposed debt prepayment with Jica (Japan International Cooperation Agency),” he said.
It was Jica that lent the City 12.315 billion yen in 1995 to implement the SRP. The loan is payable in 30 years, ending in 2025.
However, del Castillo said that their concurrence is subject to four recommended measures.
He asked the City to review first its existing loan agreement with Jica to ensure that the prepayment, including any associated costs, is allowed.
He also said an ordinance, or resolution, should be enacted by the City Council that authorizes the mayor to negotiate with Jica for the prepayment.
An appropriation ordinance, annual or supplemental, should also be passed, authorizing the prepayment of the loan.
Lastly, del Castillo said the other clearances issued by the National Government, if any, to the City when the Jica loan was negotiated should be reviewed.
As to the issuance of a certification from BLGF that the proposed prepayment is within the City’s debt-servicing limit, he advised the City to have the matter taken up with the Department of Budget and Management (DBM) in the course of its review and approval of the appropriation ordinance, authorizing the prepayment.
Following the concurrence of the BLGF, Mayor Michael Rama said he wants the council to approve the proposed the P2.8-billion first supplemental budget (SB 1) this year, which covers the loan prepayment.
“Pass the ordinance first. Anyway, the matter will be taken up by the DBM for review,” he said in Cebuano.
The approval of SB 1 has been put on hold due to the case filed by Romulo Torres of Basak San Nicolas seeking to stop the City from spending the P8.3-billion down payment.
For the mayor, the concurrence from the BLGF for the prepayment of the loan was one of the important requirements for the transaction to materialize.