Finance 101 for the city and province

Before the new elected Cebu City mayor and provincial governor assumed office in July 1, 2025, the outgoing mayor and governor issued statements that they are leaving their offices with the fiscal/financial conditions of their respective government units in good shape. Outgoing Cebu City mayor Raymond Garcia said that the City had ?12 billion in bank deposits and outgoing Cebu governor Gwen Garcia maintained that Cebu Province is the richest province in the Philippines.

When Mayor Archival assumed office and had a closer look into the city’s financial records, he opined that the city is actually in a fiscal deficit because the unpaid obligations/accounts payable are more than the cash balances of the city, and the forthcoming revenues aren’t enough to cover the operating expenses of the city government. In the provincial government, outgoing Gwen hurriedly pushed for additional budget appropriations and trust fund allocations, which will drain the bank balances of the provincial government and may result in a deficit.

Considering that the 2024 functional literacy rate of Filipinos is at 70% but the financial literacy rate is at 25%, there is really need to clarify the assertions and accusations for the electorate/public appreciation. We would like to presume that politicians/government officials have higher financial literacy since they have to file their Statement of Assets, Liabilities and Net Worth, (SALN) every year, so they can defend/justify the statements on the city and province financial situation. Since they haven’t been forthcoming, we will propose a definition and hope for an explanation, while awaiting a full audit.

Deficit means an excess of expenditures or liabilities over income and or assets in given period of time. In any financial statements, it can refer to deficits in the balance sheet, in the income statement or in the cash flow statement. In the balance sheet it is a deficit or capital shortage because there are more liabilities than assets. In the income statement it is net loss (income deficit), as the expenses are more than the revenues. In the cash flow statement it is a cash deficit, as the available cash inflow is less than the cash outflow. From the accusations of the incoming and outgoing city and provincial executives, the deficits may be in some or all of these statements.

So far, the claim of former mayor Garcia of a ?12-billion surplus deposit is untenable as existing accounts payable/obligated appropriations are much more than the bank balances and the expected revenues for the period. There is also no certainty that there will be an increase in revenues or cash flow to cover the operating expenses and capital expenditures of the city, or if additional loans or capital infusion are forthcoming. To continue its operation, the city will defer, postpone, or not pay some of their payables, reduce operating expenses, forego capex for a few years, and increase all sources of revenues.

For Cebu Province which claims ?300 billion in assets and ?7 billion in liabilities, if these assets are validated and properly appraised and valued, the deficits will only happen in the income statement and cash flow statement. These deficits will occur if these assets aren’t really generating the optimum revenues and cash flows, as these aren’t productive assets and the provincial government isn’t spending on programs and projects that generate more taxes and revenues/fees for the province.

There are enough competent accountants and finance people in the city and provincial government to audit and validate the financial statements of the city and province, but politicians have tendencies to purposely muddle the true and validated assets, liabilities, revenues, expenses and cash flow for their own reasons. Transparency and accountability which are the basics of good governance is the answer, and people must demand them from government officials they elected.