Can we use future tax today?

What I write today is a subject which lies beyond the ken of my ordinary understanding. My purpose in trying to dwell on this topic is to challenge the legal eagles in our midst to help clarify. I am speaking about the reported agreement between our city government and the SM Corporation under which the latter will advance its tax payments so that the said money can be used by the city to fund the present various projects "at the North Reclamation Area". It's difficult to comprehend the nuances and the implications of the deal.

First, pardon my little learning, but from my reading of Section 224 of the Local Government Code, I have always thought that "an annual budget of a local government unit for any fiscal year x x x shall not exceed the estimates of income". That, by the way, is a verbatim quote of the legal provision, if only to avoid the chance of a misreading. I suppose the income referred to here is the revenue for the same fiscal year. Sound fiscal policy dictates that only what the government may earn in a year may it spend for that year. In other words, any local government may not include in its current budget its expected income for the next years.

This is precisely the nature of the agreement between our city and the SM Corp. The P53 million which the city, in this contract, is supposed to get from SM is its expected income in 2007. Differently worded, today (2006) SM pays to the city its future (2007) tax liability and because the money is delivered now, it is going to be used to defray the cost of this year's projects.

It is horrible to imagine a theoretical possibility flowing from this contract. If this were not a flawed agreement, it could happen that the same SM Corporation may enter into another arrangement with our city government whereby it pays, this year 2006, all its similar tax liabilities in the years 2008, 2009 and 2010, and having received the revenue, the city uses it this year to fund projects.

I am terrified by the possibility that the city administrations of the future shall definitely be financially hamstrung. They will have less income to use in the pursuit of their own projects because, the theory underlying the agreement, says such funds are now expended.

Second. The kind of agreement, if upheld, allows the taxpayer to determine where his taxes go. Consequently, it effectively removes from the City Council its power over the purse. In this instant case of the city's contract with SM Corporation, the latter is assured that the taxes it pays today, even if applied against its future tax liabilities, are used only to improve a specific area of the city, the North Reclamation Area. We, of course, know that the center of SM's operations in Cebu is at the site and that is probably why it is willing to part with its tax now. Should it wait for the time the taxes are due and paid in the regular process, that money becomes part of the general fund which is available for all kinds of projects not necessarily for the reclamation area.

Let's try to apply the context of this contract with other taxpayers. It is theoretically possible that say, the Ayala group of companies will offer to pay its future (meaning 2007 - 2010) taxes to Cebu City and the agreement it shall enter into with the city shall stipulate that the funds paid be used to improve the infrastructure within the Cebu Business Center, Ayala's hub. What then can prevent the Aboitizes, the Gokongweis, the Gaisanos and other large corporations from entering into similar agreements with the city on condition that their future taxes (but paid in advance) be solely used to fund projects within the vicinities of their businesses.

These are two of the possible consequences of the Cebu City-SM Corp. deal. I believe there are more profound repercussions. Even then, Cebu City has the best legal minds. They can look into the agreement our city has with SM Corp. and if they find some gray areas of concern, they should do whatever there is to do, not excluding a legal action, to protect the interest of the city.