Local Budget Process, Principles, Budgetary Requirements Roll-out of Budget Operations Manual for LGUs
Presentation Outline 1 LGU PFM Overview 2 Budget Process; Principles 3 Budgetary Requirements General Limitations 4 Local Government Support Fund
What is Public Financial Management? PFM is a system of Rules For government to manage finances effectively and efficiency Proce- dures Practices
What is PFM? Public Financial Management is the system by which financial resources of the government are planned, directed and controlled to enable and influence the efficient and effective delivery of public services
Why do we bother? Poorer people need public services more than anyone. Sound PFM systems are crucial to the delivery of these public services, and improving the lives of everyone. PFM is therefore an essential part of every government, the governance process, and the development of a vibrant, inclusive economy with opportunities for all.
LGU PFM Roadmap Effective and Accountable PFM SOCIAL Transparency & accountability in LGU financial operations
The Vision . . . 7 Elements “A sound public financial management system for effective, efficient and economical delivery of public services.”
DBM-Issued PFM Manuals
Coming soon – eBudget System for LGUs Free of charge for LGUs interested in automating budget preparation
Politics and Budgeting Budgeting lies at the heart of the political process. It records the struggle between the chief executive and legislature over control of funds – over whose preferences will prevail 10 10 3/16/2017
Budget’s Role Budget directs everything a government does. Its process arbitrate over the allocation of scarce resources among competing demands of the offices/operating units whose business it is to see that public demands are fulfilled. 11 3/16/2017
The Budget Process . . the arena where decisions regarding the use of public funds take place, where the Government faces trade-offs regarding the use of its resources and (ideally) allocates them to their most efficient uses 12 3/16/2017
LGU Budget Cycle AIP Appropriation Executive Preparation Ordinance Budget Accountability Authorization Phases Reporting; Budget Auditing Operative or Inoperative Project Execution Review Implementation; Releases; Disbursement
Budget Principle Government money shall be spent for public purpose [Sec. 305(b)] General Welfare Objectives Basic Services and Facilities
General Welfare Objectives Sec. 16 Preservation and enrichment of culture Promotion of health and safety Enhancing right to balanced ecology Self-reliant scientific/technological capability Improvement of public morale Economic prosperity & social justice Promotion of full employment Peace and order Comfort and convenience
Basic Services and Facilities – Sec 17(b) Municipality Province Agriculture and fishery extension and research Agricultural extension, on-site research, farmers/fishermen assistance Community based forestry projects, Industrial research, technology transfer tree parks Enforcement of laws on forestry, small Health services – primary, maternal, scale mining, pollution control child care Tertiary health services, hospitals Social welfares services – rebel Social welfare – child, family, women returnees, relief operation, population Provincial bldg, parks, assembly areas Solid waste disposal, environmental Provl roads, bridges, other Infra Infra management Low cost housing, mass dwellings Investment support, credit financing Municipal bldg, parks, playground, sports Upgrading/modernization of tax information, collection services thru Infrastructures – roads, bridges, schools computerization Inter-municipal communication Market, cemetery, slaughterhouse, LEEs services Tourism development and promotion Tourism, sites for jail, police, fire station
Budget Authorization No money to be paid out of treasury except in pursuance of an appropriation ordinance or law [Sec. 305(a)] Expenditure Appropriation Program Ordinance or Law
Balanced Budget Concept LGUs shall endeavor to have a balanced budget (Sec 305[m]. The aggregate amount appropriated shall not exceed the estimates of income (Sec. 324[a]) Improve tax collection Borrowing Expenditure New tax imposition Credit Financing cuts/economy Cost recovery/users fee Bond Floatation measures Entrepreneurial BOT/PPP W/hold releases Asset sale/privatization (Sec 295-303) 18 3/16/2017
Heads up . . . DILG MC 2017-23: Suspension of LGU Imposition and Collection of Illegal Fees and Taxes Pursuant to Section 133(e) of LG Code, Local Chief Executives hereby enjoined to: Refrain from enforcing ordinance authorizing levy of fees and taxes on inter-province transport of goods, regulatory fees from passenger in local ports and other additional fees and charges in any form upon transporting goods and passengers Cause immediate repeal of ordinance imposing these taxes and fees
PERFORMANCE BUDGETING in LGUs LGUs shall formulate sound financial plans and local budget shall be based on functions, activities and projects, in terms of expected results [Sec. 305(g)]
Performance Budgeting Allows flexibility – reversion of funds and use of savings thru augmentation Includes system of incentive and rewards for good performance (PEI, Merit increase, Content Title YEB, MYB, PBB, CNA Incentive) Content Title ISSUE: How to reconcile performance budgeting with political budgeting? Content Title The extent to which performance budgeting can succeed is limited by the extent to which politicians who ultimately control budgets care about outcomes and outputs
Performance Concepts – Results Chain Outputs are goods or services – which a government entity delivers to external parties. This usually means services delivered to or for the direct benefit of the community Major Final Output (MFO) Outcomes are the intended impacts of outputs – more precisely, the changes brought about by public programs upon individuals, social structures. OUTPUT: Criminal investigations OUTCOME: Reduced crime Inputs, refer to all financial, assets and capabilities which are needed in the production process to deliver the outputs and outcomes desired 22 05/03/15
Performance Concepts – Results Chain Performance information refers to information on results achieved, and/or costs of achieving those those results. There are two basic types of performance information: performance measures and evaluation Performance indicators are quantitative measures which provide information on the effectiveness and efficiency of programs and organizations. There is no difference between a “performance indicator” and a “performance measure” 23 05/03/15
PERFORMANCE INDICATORS explicit measure used to determine performance; measures what actually happened against what has been planned QUANTITY How many/much? QUALITY How well? TIMELINESS How soon? EFFICIENCY What’s the cost? OUTCOME Over-all Results
Plan-Budget Link Annual This is pursuant to Investment Section 305 (i) of RA Program as 7160 which provides basis of budget that “ Local budgets preparation shall operationalize approved local development plans.”
PFM Element: Policy-based Budgeting LDC to formulate long-term, medium term Section 109 and annual socio-economic development RA 7160 plans and policies and investment programs Policies, programs and projects proposed Section 114 by the LDC shall be submitted to the RA 7160 Sanggunian concerned for appropriate action The AIP shall be prepared and approved Article 410 before the start of budget preparation Debt IRR, RA 7160 phase. Local budget shall fund DRRM Service Programs, Projects, Activities in the AIP
Budget Principle Local budget plans and goals shall, as far as practicable, be harmonized with national development plans, goals and strategies in order to optimize utilization of resources and avoid duplication in the use of fiscal and physical resources [Sec. 305 (h)]
LGUs should endeavor to allocate resources in support of the New Administration’s Economic Agenda National and local budgets shall be able to sustain the President’s 0+10-Point Socio- economic Agenda: 0 there means PEACE and ORDER plus
10-Point Economic Agenda Continue and maintain the current macroeconomic 1 policies, including fiscal, monetary and trade policies 2 Institute progressive tax reform, more effective tax collection, and indexing taxes to inflation TRAIN Invest in infrastructure spending at the target 5%-6% 3 of GDP with the help of Public Private Partnership (PPP)
Tax Reform for Acceleration and Inclusion VAT exemption (SC/PWD) limited to raw food & necessities Correct income creeping Increase excise tax on POL & index to inflation (P6/liter) Simplified PIT system Update excise tax on Content 03 automobiles Max tax rate to 25% Complementary Measures: Donor’s tax single rate of 6% - P10 tax on sugar sweetened beverage - Adjust MV user charge to cumulative inflation from 2004 to 2017 Estate tax single rate of 6%
Simplified Tax System
Simplified Tax System
10-Point Economic Agenda Increase the country’s competitiveness and ease in doing 4 business drawn from successful models and relaxation of Constitutional restrictions on foreign ownership to attract FDIs Promote rural and value chain development towards increasing 5 agricultural and rural enterprises productivity and rural tourism 6 Ensure security of land tenure to encourage investment and address bottlenecks in land administration and titling agencies
10-Point Economic Agenda Invest in human capital development including health and education systems, match skills and training to 7 ensure businesses’ demand for skilled individuals to ensure that people will have work to sustain them and in turn boost economic growth Promote Science, Technology and creative arts to enhance innovation 8 and creative capacity towards self- sustaining inclusive development
10-Point Economic Agenda Strengthen Social Protection programs including Conditional Cash Transfer (CCT) to address poverty and protect the poor against 9 instability and economic shock (2017 increased to P72.6 B w/ P23.4 B for Rice subsidy) PPA 2016 2017 Cash Grant 62.7 B 49.2 B Rice 23.4 B Allowance - @600/mo TOTAL 62.7 B 72.6 B Strengthen implementation of Responsible Parenthood and 10 Reproductive Health Law (RH Law) to help couples from poor families to have informed choices to plan their families (RA 10354
Section 305(l) RA 7160 – Fiscal Responsibility Sharing of Fiscal Responsibility by all those exercising authority over the financial affairs, transactions and operations of LGUs Accountable Officials jointly & severally liable for misuse, illegal use of fund Local Chief Executive or property official primarily responsible should render public disclosure Treasurer, Budget Officer Accountant secondarily responsible Officials free of any liability if objection is registered in writing
Budgetary Requirements – Sec 324 LGC LGUs shall provide in their budgets Special Purpose Account in the General Fund Proper 1 20% of the IRA Development Projects DRRM 5% of General 2 Fund Income programs projects 3 Fin. Assistance to Minimum of Barangays P1,000
20% DEVELOPMENT FUND Legal Basis Section 287 LGUs shall appropriate no RA 7160 less than 20% of IRA for development projects Appropriation itemized in the budget for specific projects Article 454 embodied in the development RRI plan/ investment program formulated by the LDC and approved by the Sanggunian
Implementing Guidelines To provide guidelines on the appropriation and utilization of 20% IRA for development projects DILG-DBM Joint To enhance Memorandum Circular No. 2011-1 transparency; accountability of LGUs in undertaking development projects To include projects in addressing and Updated guidelines responding to natural and man- is being finalized by made disasters and calamities DILG and DBM
General Policies – per Updated Guidelines Fund application Finance priority programs or projects embodied in the duly approved LDP and AIP – directly supportive with the PDP and PIP Priority Projects to be Funded Shall contribute to attainment of desirable socio- economic development and environmental management outcomes . Nature of Projects Partakes the nature of investment or capital expenditures .
Project Menu SOCIAL DEVELOPMENT Construction or rehabilitation of health Health centers, rural health units or hospitals, and purchase of ambulance and medical equipment Construction or rehabilitation of LGU- Water owned potable water supply system DRRM Construction or rehabilitation of evacuation centers
Project Menu SOCIAL DEVELOPMENT Purchase/repair of area-wide DRRM calamity related alarm or warning system Purchase/repair of calamity- DRRM related rescue operations equipment Purchase/development of land for DRRM relocation of informal settlers and victims of calamities
Projects Menu SOCIAL DEVELOPMENT Rehabilitation of historical sites Historical classified as such by the NHCP Social Establishment or rehabilitation of Protection Manpower Development Center Social Construction/rehabilitation of multi- Protection purpose hall Debt Street DRRM Service Lighting Installation of street lighting
Projects Menu ECONOMIC DEVELOPMENT Construction/rehabilitation of communal Agriculture irrigation, water impounding system Purchase or lease of post harvest facilities like Agriculture farm or hand tractors w/ trailer, thresher, mechanical driers Construction/rehabilitation of local roads, Infra bridges; purchase of engineering equipment like dump trucks, graders and pay loaders Capital expenditures related to implementation Livelihood livelihood and entrepreneurship/local economic development projects
Projects Menu ECONOMIC DEVELOPMENT Principal & interest? Amortization of loans used to finance projects Debt cited in this JMC, subject to 20% debt service Service cap per Section 324(b) of RA 7160 Infra Development of alternative power or energy Energy such as but not limited to renewable power plants
Projects Menu ENVIRONMENTAL MANAGEMENT Solid Construction/rehabilitation of sanitary landfills, material recovery facility and purchase of garbage Waste truck and related equipment for EMP Greening Reforestation and urban greening projects Implementation of flood and erosion control Sewage projects such as drainage systems, de-clogging of canals or de-silting of rivers Anti Projects that promote air and water quality, and Pollution productivity of coastal or freshwater habitat, agricultural and forest lands - waste water treatment for re-use; air pollution control devices
Items not allowed – Item 4.0 Expenses not related to and/or not connected with implementation of devt. Projects shall not be paid out of the Fund Admin expenses – cash gift, bonuses, food allowance medical assistance, uniforms, supplies, meetings, communication, water and light, petroleum products Salaries, wages, OT Travelling expenses domestic or foreign Registration fees in seminars, trainings, conferences, conventions Purchase of admin office furnitures, fixtures, equipment or appliances Purchase, maintenance, repair of motor vehicles or motor cycles, other than those specified in Item 3.0
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