LGUs are allowed to pursue a wide array of modalities to implement PPAs identified during the LGU Development Planning and Programming Process. In implementing projects, it is common that LGUs tap traditional funding modalities, namely: Internal Revenue Allotment (IRA), income generating sources - tax and non-tax revenues, grants and loans. The IRA is an apportioned share of the national wealth intended to be used to carry out the LGU's mandated tasks and responsibilities as indicated in the LGC. On the other hand, LGUs' income generating sources emanate from the LGC Sections 18, 22 and 23 which authorize them to collect taxes, charge fees for services and locally regulated industries, enter into contracts, secure loans from financial intermediaries, seek official development assistance (ODA), issue bonds and other borrowing instruments and, employ other means of securing resources needed for public service delivery. These modalities mainly address the financial requirements of the LGU to implement their projects.
Table 1-5: Traditional Funding Modalities and PPP
| Traditional Funding Modalities | |
| Provides limited role of the private sector in local infrastructure and development projects | Recognizes the essential role of the private sector as the main engine for national growth and development |
| Provides important services as designed by the public sector without considering the revenue stream | Enhances provision of services by utilizing the most appropriate technology and expertise which can be transferred to the public sector |
| Limited coverage to implement local infrastructure and development projects due to availability of funds | Can implement priority infrastructure projects without the burden of raising funds; Allows the public sector to utilize its funds for other purposes; Faster project implementation and ensured operating efficiency |
| High probability of absorbing risk by the government | Delegation of responsibility and risk between the public and private sector - lessened risk on the part of the government due to risk-shared allocation |
| Defined cost ceiling for projects depending on the traditional funding modality | Cost ceiling is more reliant on the project's viable revenue stream |
| Financing option is defined and structured | Flexible financing, including use of private capital; Ready source of funds during lean periods |
Compared to the traditional funding modalities, PPP as a strategy is more than just addressing the financial requirements of infrastructure and development projects. It is a synergistic approach which can improve public sector service delivery by bringing on board technology, processes and expertise from the private sector in project implementation. Note however that in PPP, the public sector should be able to clearly illustrate the 'sustainability' of a project to entice private sector participation. As such, local projects should demonstrate a solid revenue stream which allows the private sector to bear certain risks in project implementation. The participation of the private sector in public sector projects bring forth potential benefits in implementation as listed in Box 1-3.
Box 1-3: Potential Benefits of Venturing into Public-Private Partnership
| • Access to private sector financial resources, technology, technical expertise and operating competence • Mitigation of fiscal and resource limitations • Prospective operational cost savings for local governments • Reallocation of LGU resources for other priority needs • Flexibility in management of LGU assets • Cost-based/market-based fares, fees and charges for greater service sustainability • Professionalization of personnel and organizational structures • Profit motivation impetus to ensure efficiency and effectiveness in service delivery • Protection of projects from possible adverse political interferences in service delivery • Investment incentives |