The Peoples Budget

IV. Basics of Budgeting

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The Peoples Budget

IV. Basics of Budgeting

a. The National Budget The National Budget is the financial translation of approved government plans and programs which are to be supported by government resources (revenues and borrowings). Budgeting enables the government to plan and manage its scarce financial resources in order to support the priority programs and projects aimed at promoting economic growth and providing basic services to the people. In other words, it is in budgeting where the government seeks to put its money where its mouth is. Income, Expenditures, Deficit. The national budget consists of the estimated income and planned expenditures in a given year. The governments income is composed of tax and non-tax revenues. Tax revenues include individual and corporate income taxes, value-added tax on the sale of goods and services, special taxes such as the motor vehicle tax and travel tax, among others. Non-tax revenues come from fees, charges and other collections of government in exchange of services it rendered, penalties imposed, among others. In certain cases, non-tax revenues also include the privatization of government assets. Meanwhile, expenditures are the implementation costs of programs, activities, and projects. Expenditures may be classified as operating expenses or those incurred in the exercise of government administration, regulatory or service functions; or capital expenses that refer to the purchase of goods and services, the benefits of which extend beyond the fiscal year and which add to the governments assets. W the governments income is not hen sufficient to finance the expenditures, government incurs a fiscal deficit. In this situation, government resorts to borrowing from domestic and foreign sources.

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Coverage. The national budget covers the totality of the budgets of national government agencies: not only those of the Executive branch, but also of the Lgislative and J dicial e u branches as well as other Constitutional bodies such as the Civil Service Commission, Commission on Elections, and the Commission on Audit. The national budget also covers the budgetary support that the national government gives to local government units (L U), in particular, the Internal Revenue Allotment (IRA); as Gs well as to government-owned or controlled corporations (GOCCs) and government financial institutions (GFIs). Components. The National Budget for a given year is composed of the following: New General Appropriations this is legislated by Congress and enacted by the President for every fiscal year as the General Appropriations Act (GAA). The GAA enacts both programmed and unprogrammed general appropriations. Programmed appropriations are those which are supported by corresponding resources; while unprogrammed appropriations refer to stand-by authority which can only be released when revenue collections exceed revenue targets. Automatic Appropriations under specific laws, certain types of expenditure (e.g. interest payments, L U IRA) are automatically appropriated. Gs Continuing Appropriations these are unexpended/ nreleased balances of previous u years GAA which continue to be valid until the subseq ent year. Currently, u appropriations for capital outlays and maintenance and other operating expenditures have a validity of two years. Three-Year Perspective. Even as the National Budget is prepared annually, the government adopts a three-year perspective. Uing the Forward Estimate process, the s government takes account of future costs of approved and ongoing programs as well as valid commitments. This process ensures that in managing its resources, the National Government acts strategically and not in a shortsighted manner. b. The National Budget Cycle

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The Peoples Budget

There are four phases in the management of the National Budget: 1. Preparation Executive prepares the proposed National Budget; 2. Legislation Congress authorizes the General Appropriations Act; 3. Execution Agencies utilize their approved budgets; 4. Accountability Executive monitors and evaluates the use of the budget. These phases overlap in continuing cycles every year. For instance, while the Executive is implementing the budget for the current year, it is also preparing the budget for the next fiscal year or defending it before Congress. Meanwhile, the execution and accountability phases are implemented simultaneously throughout the year. Budget Preparation. This phase of the Budget Cycle starts with the issuance of a Budget Call, and ends with the Presidents submission of the proposed budget to Congress.

1.0 The Budget Call At the beginning of the budget preparation phase, the Department of Budget and Management (DBM) issues the National Budget Call to all agencies (including state universities and colleges) and a separate Corporate Budget Call to all GOCCs and GFIs. The Budget Call contains budget parameters (including macroeconomic and fiscal targets, and agency budget ceilings) as approved by the Development Budget Coordination Committee (DBCC); and policy guidelines and procedures in the preparation and submission of agency budget proposals. The DBM also conducts Budget Fora with agencies and other stakeholders to further explain and discuss the budget parameters, policy guidelines and procedures for the preparation of the agency budget proposals. 2.0 Stakeholder Consultations As a new feature of the budget preparation process, departments and agencies have been tasked to consult with civil society organizations (CSOs) and other citizen-stakeholders in preparing their budget proposals. These consultations are done at the national level and regionally via the Regional Development Councils (RDCs). Consultations with RDCs have also been introduced in order to incorporate regional development plans in the agency budget proposals.

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New Budget Preparation Calendar. Starting with the preparation of the proposed 2012 National Budget, the DBM has established a new Budget Preparation Calendar which moves the process earlier: The Budget Call issuance to January (versus around April in the past); and the submission of the Presidents budget a day after the State of the Nation Address (unlike before when it is done at the latter part of the 30-day period that the Constitution prescribes).

FY 2012 BUDGET PREPARATION CALENDAR

ACTIVITY 1. Issuance of Budget Call 2. Budget Forum i. National Government Agencies ii. DBM Officials and Staff iii. Corporate Budget Forum 3. DBM-RO/Agency ROs Budget Forum on the FY 2012 National Budget 4. Issuance of Indicative Budget Ceilings and Macroeconomic Assumptions and Fiscal Targets 5. Consultations with Regional Development Councils/Civil Society Organizations of Agencies On-going Programs and Projects 6. Deadline of Submission of B.P. Form No. 201 A, B, C - Past Years Actual Obligation and Current Year Appropriation 7. Deadline of Submission of FY 2012 Budget Proposals 8. Technical Budget Hearings with Agencies 9. DBM Budget Review 10. DBCC Deliberation 11. Confirmation of Budgets with Agencies 12. Presentation to the President and the Cabinet of the FY 2012 Proposed Budget Levels of Department/Agency/Special Purpose Funds DATE December 30, 2010 January 6, 2011 AM January 7, 2011 AM January 7, 2011 PM January 10 & 11, 2011 January 28, 2011 February, 2011 March 15, 2011 April 8, 2011 April 11-22, 2011 May 9-31, 2011 June 16-17, 2011 June 21-22, 2011 June 29, 2011

13. Finalization of National Expenditure Program (NEP), Budget of Expenditures June 29-July 6, 2011 and Sources of Financing (BESF) Tables, Staffing Summary, Budget Message, Details of Selected Programs/Projects, Organizational Performance Indicator Framework (OPIF) Book 14. Printing of FY 2012 Budget Documents 15. Submission of the FY 2012 Budget Documents to the President 16. Submission of the Presidents Budget to Congress July 8-21, 2011 July 22, 2011 July 26, 2011

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This new process, which seeks to create greater space for citizens in the budget process, was piloted in the preparation of the proposed budget for 2012. 3.0 Technical Budget Hearings and Executive Review. After departments and agencies submit their Agency Budget Proposals to the DBM, Technical Budget Hearings are conducted. During these hearings, agencies defend their proposed budgets before

CSO and RDC Consultations: Pilot Departments and GOCCs Department of Education Department of Health Department of Social Welfare and Development Department of Public Works and Highways Department of Agriculture Department of Agrarian Reform National Food Authority National Housing Authority National Home Mortgage and Finance Corporation

a technical panel of DBM on the basis of performance indicators or output targets and absorptive capacity. After this, the DBM bureaus review the agency proposals and craft recommendations. These are then presented before an Executive Review Board, composed of the Secretary, all Undersecretaries and Assistant Secretaries. Deliberations before the Executive Review Board entail a careful prioritization of programs and corresponding support, vis--vis the priority agenda of the national government. Implementation issues are also discussed and resolved. 4.0 Consolidation, Validation and Confirmation. DBM then consolidates the recommended agency budgets and recommendations into a National Expenditure Program and a Budget of Expenditures and Sources of Financing (BESF). Part of the consolidation process is the deliberations by the DBCC to determine the agency and sectoral allocation of the total expenditure ceiling approved in line with the macroeconomic and fiscal program. The heads of major departments may be invited to this meeting. 5.0 Presentation to President and Cabinet. The proposed budget is presented by DBM, together with the DBCC, to the President and Cabinet for further refinements or reprioritization. After the President and Cabinet approve the proposed National Expenditure Plan, the DBM prepares and finalizes the budget documents to be submitted to Congress.

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6.0 The Presidents Budget. The budget preparation phase ends with the submission of the proposed national budgetthe Presidents Budgetto Congress. The Presidents Budget consists of the following documents, which help legislators analyze the contents of the proposed budget: a. b. c. National Expenditure Program (NEP) This document, containing the details of spending of each department and agency by program, activity or project, is submitted in the form of a proposed General Appropriations Act. Details of Selected Programs and Projects This contains more detailed disaggregation of key programs, projects and activities in the NEP to flesh out lump-sum allocations in terms of project listing and their locations. Budget of Expenditures and Sources of Financing (BESF) Mandated by the Constitution, this document contains the macroeconomic assumptions, public sector context (including overviews of LGU and GOCC financial positions), breakdown of the expenditures and funding sources for the budget year, the current and the previous years. Staffing Summary This contains a summary of the staffing complement of each department and agency; including number of positions and amounts allocated for the same. Presidents Budget Message (PBM) This is a document where the President explains the policy framework and priorities in the budget.

d. e.

BUDGET LEGISLATION PROCESS

House Hearing/ Debate (Aug-Nov) House approval and Submission to Senate (Nov) Senate Hearing/ Debate (Aug-Nov)

Senate Approval (Dec)

Conference Committee (Dec)

President signs the GAA (Dec)

Budget Legislation. The legislation or authorization phase starts upon the House Speakers receipt of the Presidents Budget and ends with the Presidents enactment of the General Appropriations Act. 1. House Deliberations. The House of Representatives, in plenary, assigns the Presidents Budget to the House Appropriations Committee. The Committee and its Sub-Committees then schedule and conduct hearings on the budgets of the departments and agencies and scrutinize their respective programs and projects. It then crafts the General Appropriations Bill (GAB).

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In plenary session, the GAB is sponsored, presented and defended by the Appropriations Committee and Sub-Committee Chairmen. As in all other laws, the GAB is approved on Second and Third Reading before transmittal to the Senate. (Note, the First Reading is when the GAB is assigned by the House Speaker to the Appropriations Committee) 2. Senate Deliberations. As in the House process, the Senate conducts its own committee hearings and plenary deliberations on the GAB. Budget deliberations in the Senate formally start after the House of Representatives transmits the GAB. But for expediency, the Senate Finance Committee and Sub-Committees usually start hearings on the GAB even simultaneously as House deliberations are still ongoing. The Committee submits its proposed amendments to the GAB to plenary only after it has been formally transmitted by the House. A Senate Version is thereafter approved on Second and Third Reading. 3. Bicameral Deliberations and Ratification. Once both Houses of Congress have finished their deliberations, they will each constitute a panel to the Bicameral Conference Committee. This committee will then discuss and harmonize the conflicting provisions of the House and Senate versions of the GAB. After which, a harmonized version of the GAB is produced. The Harmonized or Bicam version is then submitted to both Houses, for ratification, through votation, to come up with the final GAB to be submitted to the President. 4. Enrollment, Veto and Enactment. Once submitted to the President for his approval, the GAB then is considered as enrolled. The President and DBM then review the GAB and prepare a Veto Message, as necessary. Under the Constitution, the GAB is the only legislative measure where the President can effect a line-veto (usually, a law is either approved or vetoed in

Reenacted Budgets. When the GAA is not enacted before the fiscal year starts, the previous years GAA is automatically re-enacted until such time that a new GAA is enacted. In other words, the budgets of agencies for their programs, activities and projects remain the same. Funding for programs or projects that have been terminated already is realigned for other expenditures. As this process of reenactment is tedious and prone to abuse, the Aquino Administrationwith the support of Congresshas committed to ensure a fresh GAA enacted on time every year.

full). The budget legislation phase ends when the General Appropriations Act (GAA) is signed by the President into law. Ideally, enactment should happen not later than December 31 of the GAAs fiscal year. Else, the previous years budget is reenacted in part; or worse, in full if no new budget is approved.

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Reforms in Executing the 2011 Budget. After the 2011 Reform Budget was enacted, the DBM issued reforms to expedite the release of the budget for critical programs and projects; at the same time, to tighten agencies compliance with transparency and accountabilty requirements. Full Release of Agency Budgets. For the first time in many years, 100 percent of agency allotments that do not need prior clearance have been released to agencies. This corresponds to some P717 billion or 74 percent of the GAA net of automatic appropriations. In the past, 25 percent of items classified as such were withheld pending Agency Performance Review in the third quarter, causing delays in implementation. (Please see sub-section on Allotment Release) Authority to Incur Overdrafts. The DBM authorized agencies to undertake the bidding and award of contracts for items already spelled-out in the GAA, and even before they receive their respective Agency Budget Matrices (Please see sub-section on Allotment Release). This new policy was also intended to jumpstart budget execution early. No report, no release. DBM issued a policy that additional funds will not be released to agencies if they do not comply with regular reportorial requirements; in particular, the Budget Execution Document by February 15 and the quarterly Budget Accountability Reports (Please see sub-section on the Budget Accountability Phase). Transparency. In line with the new transparency provisions in the 2011 GAA, the DBM has mandated the posting of accountability reports submitted by agencies, as well as their compliance with reportorial requirements, for the public to scrutinize.

Budget Execution. This is where the peoples money is actually spent. As soon as the GAA is enacted, the government can implement its priority programs, and projects. 1. 2. Release Guidelines and Program. The budget execution phase begins with DBMs issuance of guidelines on the release and utilization of funds. Budget Execution Documents (BEDs). At the beginning of budget execution, agencies are required to submit their BEDs. These documents outline the agencies plans and performance targets. These BEDs include: physical and financial plan; monthly cash program; estimate of monthly income; and list of obligations which are not yet due and demandable. To ensure that releases are within the approved Fiscal Program, the DBM prepares an Allotment Release Program (ARP) to set the maximum allotment that can be issued to an agency and on the aggregate. The ARP of each agency corresponds to the total amount of the agency-specific budget under the GAA, and Automatic Appropriations. A Cash Release Program (CRP) is also formulated alongside that, to set a guide for the level of disbursement for the year and for every month/quarter.

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3.

Allotment Release: ABM and SARO. The release of an allotment means that the appropriated budget of each agency is made available to them for their use. The allotments are released through the Agency Budget Matrix (ABM) and Special Allotment Release Orders (SAROs): documents that authorize the agency to enter into an obligation or commitment. ABM. This document disaggregates all the programmed appropriations for each agency into two main expenditure categories: not needing clearance and needing clearance. The ABM serves as the comprehensive allotment release document for appropriations which are not needing clearance or those which have already been itemized and fleshed-out in the GAA. The ABM is prepared by the DBM in consultation with the agencies concerned. SARO. Items which are categorized as needing clearance are those which, under specific laws and regulations, require the approval of the DBM or the President or are subject to compliance with certain documentary requirements, as the case may be (for instance, lump sum funds and confidential and intelligence funds). For such items, an agency needs to submit a Special Budget Request to the DBM, with supporting documents. Once approved, a SARO is issued. The SARO is a specific authority issued to an agency to incur obligations not exceeding a given amount during a specified period for the purpose indicated.

4.

Incurring Obligations. In implementing programs, activities and projects, agencies incur liabilities on behalf of the Government. Obligations are liabilities legally incurred and committed to be paid for by the government either immediately or in the future. There are various ways that an agency obligates: for example, when it hires staff (an obligation to pay salaries), avails of utilities (water, electricity, etc.), or enters into a contract with an entity for the supply of goods or services. Settlement of Obligations/Disbursement. To pay the obligations incurred by agencies, the DBM issues a disbursement authority in the form of a Notice of Cash Allocation (NCA), Non-Cash Availment Authority (NCAA) and Cash Disbursement Ceiling (CDC). NCA. This document is a cash authority directy issued periodically by the DBM to operating units of agencies (central, regional and provincial offices) to cover their cash requirements. The NCA specifies the maximum amount of cash that an agency can withdraw from a government servicing bank for the period indicated. The release of NCAs by DBM is based on the submission by the agency of its Monthly Cash Program and other required budget execution documents. Starting 2010, NCAs for operating expenditures have been issued for a six-month period but with monthly breakdown. NCAA. As NCAs cover cash disbursements, NCAAs cover for what are referred to as non-cash disbursements. The NCAA is a document issued by DBM to a government agency to account for the cash equivalent of loan proceeds availed of through suppliers credit or constructive cash. CDC. This is an authority issued by the DBM to departments with overseas operations, such as the Department of Foreign Affairs and Department of Labor and Employment, to utilize the income collected by their foreign posts to cover for their operating requirements but not to exceed the released allotment to the said post.

5.

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Report Budget Accountability Scheme Under Results oriented Budgeting required to be submitted (BEDs & BARs)

Review of agency reports by the DBM to be used for: - Evaluation of request for fund release - performance assestment - input for budget preparation

Report on agency performance, suggestions for improvement, recommendations

Budget Accountability. This phase of the budget cycle happens alongside the budget execution phase. It is a crucial phase, for it is where the DBM monitors the efficiency of governments fund utilization, assesses agency performance and provides a vital basis for budget preparation and policy- and reforms-making.

Budget Accountability Reports Budget Accountability Repor ts

REPORT
1. Quarterly Physical Report of Operation (BAR 1) 2. Quarterly Financial Report of Operation (BAR 2) 3. Quarterly Report of Income (BAR 3) 4. Statement of Allotments, Obligations and Balances (BAR 4) 5. Monthly Report of Disbursements

DUE DATE
On or before the 10th day of the following quarter -do-doOn or before the 10th day of the following month

FREQUENCY
Quarterly -do-doMonthly - do -

Budget Accountability Reports (BARs). Agencies are required to submit monthly and quarterly BARs, which are reports on how the agencies have utilized funds released to them and their corresponding physical accomplishments. These BARs include: quarterly physical and financial reports of operations; quarterly report of income, monthly statement of allotments, obligations and balances; and monthly report of disbursements. The BEDs and BARs are used by DBM as basis in conducting the APR, a tool to measure agency performance. The APR assesses agency performance in terms of its financial utilization, physical accompishment of targeted outputs, as well as revenue generation. The APR will give DBM information as to how and what cost government provides for goods and services to the public to track resource leakages and implementation delays and identify possible solutions thereon. It also serves as guide in deciding whether reallocation of funds or additional release is necessary. Audit. The conduct of audit is not the responsibility of the DBM but of the Commission on Audit (COA), the supreme audit authority of the government. Nonetheless, audit is an important step in ensuring the agencies accountability in the use of public funds. The DBM uses the COAs audit reports in confirming agency performance, determining the budgetary levels of agencies and addressing issues in the use of public funds.

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