I. Basic Concepts in Budgeting
BASIC CONCEPTS IN BUDGETING
1.
What is a fund?
The word "fund" in government has taken several meanings or connotations. It is sometimes used to refer an appropriation which is a legislative authorization to spend or an allotment which is an authorization by the Department of Budget and Management (DBM) to obligate, or as actual cash available.
2.
What basis law governs the use of government funds?
The following provision of the Philippines Constitution sets the basic rule for the use of government funds:
"Art. VI, Sec. 29. No money shall be paid by the Treasury except in pursuance of an appropriation made by law."
The aforequoted provision of the Constitution also establishes the need for all government entities to undergo the budgeting process to secure funds for use in carrying out their mandated functions, programs and activities.
3.
How are government funds appropriated?
Funds for the use of government entities are appropriated or authorized following a process with the following major steps : 1) individual agencies prepare their estimates of expenditures or proposed budgets for the
succeeding year and submit these estimates or proposals contained in required budget forms to the DBM following baseline figures, guidelines and timetable earlier set; 2) agencies justify details of their proposed budgets before DBM technical review panels; 3) DBM reviews and consolidates proposed budgets of all agencies for inclusion in the President's proposed budget for submission to Congress; 4) agencies explain the details of their proposed budgets in
separate hearings called by the House of Representatives and the Senate for inclusion in the General Appropriation Bill; and 5) the President signs the General Appropriation Bill into law or what is known as the General Appropriations Act (GAA).
4.
What is a government budget?
In general, a government budget is the financial plan of a government for a given period, usually for a fiscal year, which shows what its resources are, and how they will be generated and used over the fiscal period. The budget is the government's key instrument for promoting its socio-economic objectives. The government budget also refers to the income, expenditures and sources of borrowings of the National Government (NG) that are used to achieve national objectives, strategies and programs.
Section 22, Article VII of the Constitution states that:
"The President shall submit to the Congress within 30 days from the opening
of every regular session, as the basis of the general appropriation bill (GAB), a budget of expenditures and sources of financing including receipts from existing and proposed revenue measures."
5.
What is the expenditure program?
The expenditure program is that portion of the national budget that refers to the current operating expenditures and capital outlays necessary for the operation of the programs, projects and activities of the various government departments and agencies.
6.
What is the financing program?
The financing program includes the projected revenues from both existing and new measures, the planned borrowings to finance budgetary transactions and the payment of debt principal failing due.
7.
What is referred to by the term "national government budget"?
The National Government budget (also known simply as the budget) refers to the totality of the budgets of various departments of the national government including the NG support to Local Government Units (LGUs) and Government-Owned and Controlled Corporations (GOCCs). It is what the national
government plans to spend for its programs and projects, and the sources of what it projects to have as funds, either from revenues or from borrowings with which to finance such expenditures.
8.
On what is the national government budget spent?
The national budget is allocated for the implementation of various government programs and projects, the operation of government offices, payment of salaries of government employees, and payment of public debts. These expenditures are classified by expense class, sector and implementing unit of government.
9.
Why does the government prepare a new budget every year?
The preparation of the government's budget every year is in accordance with the provision of the Constitution which requires the President to submit a budget of expenditure and sources of financing within 30 days from the opening of every regular session of Congress.
The yearly preparation of the budget is also in consonance with the principle which requires all government spendings to be justified anew each year. This principle ensures that government entities continuously evaluate and review the allocation of resources to project/activities for cost efficiency and effectiveness.
10.
What are the sources of appropriations that make up the annual
budget?
Appropriations Act (GAA); and 2) existing appropriations previously authorized by Congress. Under the Constitution, Article VI, Section 29, no money can be withdrawn from the Treasury except in pursuance of an appropriation made by law.
11. What are the existing or continuing appropriations?
Existing or continuing appropriations are those which have been previously enacted by Congress and which continue to remain valid as an appropriation authority for the expenditure of public funds. There are two type of existing appropriations :1) continuing and 2) automatic.
Continuing appropriations refer to appropriations available to support
obligations for a specified purpose or project, such as multi-year construction projects which require the incurrence of obligations even beyond the budget year. Examples of continuing appropriations are those from existing laws such as : RA 8150, otherwise known as the Public Works Act of 1995; and Republic Act No. 6657 and Republic Act 8532 which set funds specifically for the Agrarian Reform Program (ARP). Currently, appropriations for capital outlays and maintenance and other operating expenses are considered as continuing appropriations but only for a period of 2 years.
Automatic appropriations, on the other hand, refer to appropriations
programmed annually or for some other period prescribed by law, by virtue of outstanding legislation which does now require periodic action by Congress. Falling under this category are expenditures authorized under Presidential Decree (PD) 1967, RA 4860 and RA 245, as amended, for the servicing of domestic and foreign debts, Commonwealth Act 186 and RA 660, for the retirement and insurance premiums of government employees, PD 1177 and Executive Order 292, for net lending to government corporations, and PD 1234, for various special accounts and funds.
12. Are all appropriations supported by resources and allocable
during the budget year?
No, only programmed appropriations are supported by corresponding
resources, that is, they already have definite funding sources and are readily implementable. Unprogrammed appropriatons are not yet supported by corresponding resources and are nevertheless included by Congress in the General Appropriations Act. These are called standby appropriations which authorize additional agency expenditures for priority programs and projects in excess of the original budget only but only when revenue collections exceed the resource targets assumed in the budget or when additional foreign project loan proceeds are realized.
13. What is the "one-fund" concept?
The "one-fund" concept is the policy enunciated through PD 1177 which requires that all income and revenues of the government must accrue to the General Fund and thus can be freely allocated to fund programs and projects of government as prioritized.
14. Why is the "one-fund" concept important?
The "one-fund" concept is a fiscal management policy requiring that as much as possible, all revenues and other receipts of the government must enter the
General Fund and their utilization and disbursement subject to the budgeting process. The one-fund concept is significant in that it serves as an avenue through which fiscal authorities may properly allocate scarce government resources in accordance with the priorities in the over-all program of economic development.
It likewise provides a mechanism to control drawdowns on pooled resources. Regularly, the level of funds disbursed are monitored against the level of revenues generated. This way, we are able to stick to the targeted level of disbursement for a given period and avoid incurring a deficit. It also alerts us of possible revenue shortfalls.
15. What is a balanced budget? What happens when the budget is
not balanced?
In the context of government budgeting, a budget is said to be balanced when revenues match expenditures or disbursements.
When expenditures exceed revenues, the government incurs a deficit which may result in the following situations:
The government borrows money either from foreign sources or from the domestic capital market which increases the debt stock of the NG and its debt servicing requirements;
The government borrows money from the Bangko Sentral ng Pilipinas; or,
The government withdraws funds from its cash balances in the Treasur
16. What has been the government's fiscal policy?
Historically, national government expenditures have always exceeded total revenues resulting in annual budget deficits. Thus, the national government had to resort to borrowing to cover said deficits which resulted in the
ballooning of foreign and domestic debts. However, in 1994, the government broke the deficit trend by posting a budget surplus of P16 billion through an aggressive privatization and revenue generation program and a prudent expenditure program. Since then, the government has been exerting efforts to maintain the surplus budget policy.
17. Why is surplus budgeting necessary?
The surplus budget policy is important to encourage economic growth. The less the government borrow from the public, the lesser the pressure on interest and inflation rates and the more funds are made available in the financial market. Such funds may be used by businessmen to build factories, hire workers, buy equipment and open more employment opportunities. By keeping more funds in the hands of the private sector rather than competing
for credit, the government helps make financing available for families who want to own homes, buy cars, or support their children's education. The government also needs to generate a budget surplus to repay the huge debt it has accumulated over the years. The reduction of the national budget debt will correspondingly lessen government's requirements for interest and principal payments. This becomes important particularly during periods of rising interest rates and unstable exchange rates.
18. What is the total resource budget concept and its significance?
Total resource budgeting is a concept adopted by the present budgeting system which requires the preparation of the national government within the framework of the total impact of all government entities on the national economy. Under this concept, the National Government (NG) budget is considered as only one component of the entire public sector resources. Government-Owned and Controlled Corporations (GOCCs) and Local Government Units (LGUs) are also considered as substantial contributors to total public resources.
GOCCs and LGUs are therefore required to prepare their budget consistent in form and timing with that of the NG to facilitate comprehensive evaluation of the overall budget.
In total resource budgeting, the energies and capabilities of all public entities are harnessed in drawing up the optimal package of goods and services that can be sustained by available resources.
19. What is the consolidated public sector fiscal position?
The consolidated public sector fiscal position (CPSFP) refers to the net deficit or surplus calculated after summing-up the budget balances of all government entities, namely the national government, the non-financial government corporations (usually includes only the 14 major GOCCs), government financial institutions, local government units, the social security institutions, the Oil Price Stabilization Fund, the Bangko Sentral ng Pilipinas, and the Central Bank-Board of Liquidators.
Through the CPSFP, the government is able to assure itself that all public resources are mobilized and used in magnitudes that are consistent with overall macroeconomic targets and the government's economic priorities.
20. What is the planning-programming-budgeting system (PPBS)?
The planning-programming-budgeting system (PPBS) is a concept that stresses the importance of establishing a strong linkage between planning and budgeting. It emanates from the policy of the government to formulate and implement a national budget that is an instrument of national development, reflective of national objectives, strategies and plans. Under the PPBS concept, the budget is anchored on the degree by which the accomplishment of economic plans and the attainment of target contained in the Medium-Term Philippine Development Plan (MTPDP) and the Medium-Term Public Investment Program (MTPIP) are supported.
II. A. The Budgeting Process
THE BUDGETING PROCESS
1.
What is government budgeting?
Government budgeting is the critical exercise of allocating revenues and borrowed funds to attain the economic and socia l goals of the country. It also entails the management of government expenditures in such a way that will create the most economic impact from the production and delivery of goods and services while supporting a healthy fiscal position.
2.
Why is government budgeting important?
Government budgeting is important because it enables the government to plan and manage its financial resources to support the implementation of various programs and projects that best promote the development of the country. Through the budget, the government can prioritize and put into action its plants, programs and policies within the constraints of its financial capability as dictated by economic conditions.
3.
What are the major processes involved in national government
budgeting?
Budgeting for the national government involves four (4) distinct processes or phases : budget preparation, budget authorization, budget
execution andaccountability.
While distinctly separate, these processes overlap in the implementation during a budget year.
Budget preparation for the next budget year proceeds while government agencies are executing the budget for the current year and at the same time engaged in budget accountability and review of the past year's budget.
4.
How is the annual national budget prepared?
The preparation of the annual budget involves a series of steps that begins with the determination of the overall economic targets, expenditure levels, revenue projection and the financing plan by the Development Budget
Coordinating Committee (DBCC). The DBCC is an inter-agency body composed of the DBM Secretary as Chairman and the Bangko Sentral Governor, the Secretary of the Department of Finance, the Director General of the National Economic and Development Authority and a representative of the Office of the President as members. The major activities involved in the preparation of the annual national budget include the following:
Determination of overall economic targets, expenditure levels and budget framework by the DBCC;
Issuance by the DBM of the Budget Call which defines the budget
framework; sets economic and fiscal targets; prescribe the priority thrusts and budget levels; and spells out the guidelines and procedures, technical instructions and the timetable for budget preparation;
Preparation by various government agencies of their detailed budget estimates ranking programs, projects and activities using the capital budgeting approach and submission of the same to DBM;
Conduct a budget hearings were agencies are called to justify their proposed budgets before DBM technical panels;
Submission of the proposed expenditure program of
department/agencies/special for confirmation by department/agency heads.
Presentation of the proposed budget levels of department/agencies/special purpose funds to the DBCC for approval.
Review and approval of the proposed budget by the President and the Cabinet;
Submission by the President of proposed budget to Congress.
To meet the Constitutional requirement for the submission of the President's budget with 30 days from the opening of each regular session of Congress, the budget preparation phase is guided by a budget calendar.
5.
How does the budget become a law?
In accordance with the requirements of the Constitution, the President submits his/her proposed annual budget in the form of Budget of Expenditure and Sources of Financing (BESF) supported by details of proposed expenditures in the form of a National Expenditure Program (NEP) and the President's Budget Message which summarizes the budget policy thrusts and priorities for the year.
In Congress, the proposed budget goes first to the House of Representatives, which assigns the task of initial budget review to its Appropriation Committee. The Appropriation Committee together with the other House Sub-Committee conduct hearings on the budgets of departments/agencies and scrutinize their respective programs/projects. Consequently, the amended budget proposal is presented to the House body as the General Appropriations Bill.
While budget hearings are on-going in the House of Representatives, the Senate Finance Committee, through its different subcommittees also starts to conduct its own review and scrutiny of the proposed budget and proposes amendments to the House Budget Bill to the Senate body for approval. To thresh out differences and arrive at a common version of the General Appropriations Bill, the House and the Senate creates a Bicameral Conference Committee that finalizes the General Appropriations Bill.
6.
What is the General Appropriations Act?
The General Appropriations Act (GAA) is the legislative authorization that contains the new appropriations in terms of specific amounts for salaries, wages and other personnel benefits; maintenance and other operating
expenses; and capital outlays authorized to be spent for the implementation of various programs/projects and activities of all departments, bureaus and offices of the government for a given year.
7.
How is the budget implemented?
Budget implementation starts with the release of funds to the agencies. To accelerate the implementation of government programs and projects and ensure the judicious use of budgeted government funds, the government
adopted the Simplified Fund Release System (SFRS) beginning 1995. In contrast to the previous system of releasing funds based on individual agency requests, the SFRS is a policy-driven system which standardized the release of funds across agencies which are similarly situated in line with specific policy initiatives of the government.
Following the SFRS, the agency budget matrix (ABM) is prepared by the DBM in consultation with the agencies at the beginning of each budget year, upon approval of the annual General Appropriations Act. The ABM is a
disaggregation of all the programmed appropriations for each agency into various expenditure categories. As such, the ABM serves as a blueprint which provides the basis for determining the timing, composition and magnitude of the release of the budget.
Based on updated resources and economic development thrusts and consistent with the cash budget program, the Allotment Release Program (ARP) which prescribes the guidelines in the prioritization of fund releases is prepared. The ARP serves as basis for the issuance of either a General Allotment Release Order (GARO) or a Special Allotment Release Order (SARO), as the case maybe, to authorize agencies to incur obligations.
Subsequently, the DBM releases the Notice of Cash Allocation (NCA) on a monthly or quarterly basis. The NCA specifies the maximum amount of withdrawal that an agency can make from a government bank for the period indicated. The Bureau of the Treasury (BTr), replenishes daily the government servicing banks with funds equivalent to the amount of negotiated checks presented to the government servicing banks by implementing agencies. The release of NCAs by the DBM is based on: 1) the financial requirements of agencies as indicated in their ABMs, cash plans and reports such as the Summary List of Checks Issued (SLCI); and 2) the cash budget program of government and updates on projected resources.
Agencies utilize the released NCAs following the "Common Fund" concept. Under this concept of fund release, agencies are given a maximum flexibility in the use of their cash allocations provided that the authorized allotment for a specific purpose is not exceeded. Project implementation is thus made faster.
8.
Why are adjustments made on the budget program?
Adjustments are made on the budget even during implementation primarily because of the following:
Enactment of new laws - Within the fiscal year, new legislations with corresponding identified new revenue sources are passed which necessitate adjustments in the budget program.
Adjustments in macroeconomic parameters - The macroeconomic targets considered in the budget are periodically reviewed and updated to reflect the impact of recent developments in the projected performance of the national economy and on the set fiscal program for the year. The relevant indicators affecting the budget aggregates include the following: the Gross National Product (GNP), inflation rate, interest rate, foreign exchange rate, oil prices, and the level of imports. Thus, a sensitivity measure on the
impact of these parameters on the budget will determine whether recent macroeconomic developments have a negative or favorable effect on the budget.
Change in resources availabilities - Budget adjustments are undertaken when additional resources becomes available such as new grants, proceeds from newly negotiated loans and grants. Corresponding budget
adjustments are also made when resources generation falls below the targets.
9.
What mechanism ensure that funds have been properly allocated
and spent?
Cognizant of the fact that no propitious results can be obtained, even with maximum funding, if agency efficiency is low and funds are wastefully spent, systems and procedures are set in place to monitor and evaluate the
performance and cost effectiveness of agencies. These activities are subsumed within the fourth and the last phase of the budget process-the budget
accountability phase. At the agency level, budget accountability takes the form of management's review of actual performance or work accomplishment in relation to the work targets of the agency vis-à-vis the financial resources made available.
Also, detailed examinations of each agency's book of accounts are undertaken by a resident representative of the Commission on Audit (COA) to ensure that all expenses have been disbursed in accordance with accounting regulations and the purpose(s) for which the funds have been authorized.
10. Is the role of the DBM in the budgeting process limited to
national government agencies?
No, the role of the DBM in the budgeting process is not limited to national government agencies. It coordinates all three levels of government-national government department/agencies, government-owned and controlled
corporations (GOCCs) and local government units (LGUs) - in the preparation, execution and control of expenditures of their corresponding components entities.
The DBM reviews the corporate operating budgets of GOCCs and ensures the proper allocation of cash. The DBM likewise formulates and recommends the budget policy covering the allowable deficit and the criteria for the
determination of the appropriate subsidy and equity of GOCCs.
For LGUs, the DBM reviews the annual and supplemental budgets of provinces, and highly urbanized cities and manages the proper allocation and release of the Internal Revenue Allotment (IRA) of LGUs and their share in the utilization of national wealth.
