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The first part of the revised Budget

Operations Manual for Local Government

Units (LGUs) advocates the principle of

participative governance, specifically in the

budget process. It attempts to persuade local

thinking on the benefits of allowing Non-

Government Organizations (NGOs), civil

society groups, and the private sector in

collective decision-making. Parallel with

participative budgeting is the relevance of

connecting the plan to the budget. Planning-

budgeting linkage promotes continuity,

transparency, and accountability in fiscal

management. If practised locally, it will

give meaning and importance to planning as

a function that should precede the budget.

PART I. ADVOCACIES ON PARTICIPATIVE

BUDGETING AND PLAN-BUDGET

LINKAGE

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Chapter 1. Participative Budgeting in Local

Governance

1.0 Introduction

2.0 Legal Basis of Participative Budgeting

3.0 Sustainable Human Development and Good Governance 3.1 Good Governance: the New Approach

3.2 Basic Principles of Good Governance

4.0 Guidelines on Participative Budgeting

5.0 Benefits of Participative Governance in the Budget Process

6.0 Identification of Stakeholders

7.0 Role of Stakeholders in the Budget Process

8.0 Elements of Quality Participation

9.0 Best Practices in Participative Budgeting

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The participation of the private sector in local governance, particularly

in the delivery of basic services, shall be encouraged to ensure the

viability of local autonomy as an alternative strategy for sustainable development (Section 3 [1], R.A. No. 7160).

Local government units shall promote the establishment and operation

of peoples and non-governmental organizations to become active partners in the pursuit of local autonomy (Section 34, R.A. No. 7160)

Participative Budgeting in Local Governance

1.0 Introduction

The first chapter of the Manual introduces the user to the general guidelines and concepts of good governance as advocated by the United

Nations Development Program (UNDP). The specific process in the

application of participative budgeting is laid down step by step as part of

the LGU-wide initiative to make fiscal administration in LGUs more transparent.

2.0 Legal Basis

Figure 1. Why Participation is Necessary

3.0 Sustainable Human Development and Good Governance

Sustainable human development is the new approach to local development. This approach depends on good governance, and the

empowerment and participation of individuals and communities in

Empowerment

Commitment

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decisions that affect their lives and the well-being of their communities.

LGUs are encouraged to adopt the new approach.

3.1 Good Governance: the New Approach

3.1.1 Good governance is the exercise of economic, political and administrative authority to manage local government affairs. It comprises the mechanism, processes and institutions

through which citizens and groups articulate their interests,

exercise their legal rights, meet their obligations and mediate their differences. (UNDP Policy Paper on Governance).

3.1.2 Good governance is being close to the people as in a democratic government of the people, by the people and for the people. Its bedrock is the Rule of Law and Justice rather than that of mans whims or caprices.

3.1.3 Good governance enables and empowers people to participate more directly in decision-making processes that

respond to their needs. It involves civil society organizations and the private sector as partners in local development. It

makes development more sustainable as people can claim

ownership of it.

3.1.4 Good governance demands efficiency in public

management. It emphasizes high standards of integrity and

identified needs, and continuous quality capacity-building activities to formulate goals, policies, strategies and

processes that capture consensus and support from

stakeholders.

3.1.5 Consensus and effective participation, allow community-

driven local development in which people can have direct

control over key project decisions, including management of investment funds.

3.1.6 The harmonization of local planning, investment programming, revenue administration, budgeting and expenditures management institutionalized under DBM-

NEDA-DILG-DOF Joint Memorandum Circular (JMC) No.

1, Series of 2007 (March 8, 2007) reduces the number of plans prepared by LGUs to be provided with budgetary

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allocations and integrates strategic responses to local issues

through collective decision-making which is in keeping with good governance.

3.1.7 Through the participative process, planning and budgeting linkage is institutionalized in LGUs. This linkage is provided through the harmonized concept of the Annual

Investment Program (AIP) as clarified under the

aforementioned JMC.

3.2 Basic Principles of Good Governance

Some basic principles of good governance:

3.2.1 Respect for human rights, including the rights of women and children;

3.2.2 Respect for the rule of law, political openness, participation and tolerance;

3.2.3 Accountability and transparency; and

3.2.4 Administrative and bureaucratic capacity and efficiency.

4.0 Guidelines on Participative Budgeting

4.1 LGUs shall allow and practise genuine participation of people in

the planning and budgeting processes to promote and establish transparency and accountability in all their fiscal transactions.

4.2 LGUs shall expand participation and involvement of people in Local Development Councils (LDC) and Local Finance

Committees (LFC) in the sharing of ideas, information, and

experiences in setting directions and allocating available resources.

The purpose is to draw concerned citizens together to participate in decision-making.

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4.3 LGUs shall apply democratic principles in group decision-making techniques in arriving at choices and preferences that are genuinely responsive to peoples needs, especially to those of the marginalized and disadvantaged segments of society:

Decision 1. Priority development issues that need to be resolved

Decision 2. Vision and goal to be achieved

Decision 3. Objectives, policies, and strategies that will lead to the goal

Decision 4. Specific PPAs to be implemented Decision 5. Projects and activities to be prioritized

Decision 6. Available resources to be used

4.4 LGUs shall embody decisions arrived at in the plan and budget as

products of broad-based consultation and participation that

engender peoples collective consensus, commitment, and ownership.

4.5 LGUs are encouraged to enhance participative planning and budgeting in different venues:

Digital Governance

Formal Institutions

Local Development Council (LDC)

Local School Board (LSB) Local Health Board (LHB)

Workshops

Figure 2. How Decisions in Planning and Budgeting are Made

4.6 LGUs shall establish priorities and allocate resources during investment programming of PPAs as major links to budgeting.

The ranked PPAs and their corresponding resource requirements

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become the bases for preparing annual budget proposals. The

expected results in each phase of the budget process are shown in the table below to indicate the relevance of participation and

involvement of stakeholders in local government budgeting.

Table 1. Expected Results of the Budget Process

Budget Process

Expected Results

Projections of Income

and Expenditures and Establishment

of Priorities

Income and Expenditure levels

Ranked Development PPAs

AIP Preparation

Approved AIP for the Budget Year by the Local Sanggunian

Budget Preparation

Executive Budget

Budget Authorization

Approved Appropriation Ordinance

Budget Review

Review action

Budget Execution

PPAs Implemented and Major Final Outputs Produced/Delivered

Budget Accountability

LGU Performance Measured

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5.0 Benefits of Participative Governance in the Budget Process

LGUs are encouraged to allow stakeholders to participate in the budget

process because of the benefits arising from their involvement:

Service gaps due to fund or resource constraints may be addressed by the

private sector or civil society groups.

Delays in project implementation are most often caused by conflicts arising

from concerned groups who were not

involved in the formulation of the project.

Bringing the government closer to the

people enhances partnership in all government undertakings.

People who have ownership of the plan are committed to its effective

implementation until completion even

when there is a change in leadership.

The vigilance of stakeholders in

monitoring the status of approved PPAs from the authorization, review, execution

and accountability phases of the budget

will ensure the successful delivery of goods and services to target clients.

6.0 Identification of Stakeholders

Decisions involving sources of financing, defining priorities in the use of

funds and arriving at a rational allocation of scarce resources call for

stakeholders who can share ideas and information on sound fiscal administration. Stakeholders may come from either within or outside the

LGU.

Helps the LGU

maximize the use

of resources

Reduces delay

in the

implementation

of urgent projects

Develops trust in government

Ensures continuity and sustainability

of plans and

budgets

Ensures

the integration and implementation

of the approved

AIP

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Internal stakeholders like department heads, planning and budgeting staff, LDC, and the Sanggunian may be invited through formal invitation or

internal memorandum to all staff to participate in the consultation

process.

External stakeholders may include representatives from NGOs and from

national line agencies assigned in the area; community leaders; members

of the academe, the private/business sector, and the basic sectors such as women, farmers, fishermen, senior citizens, differently-abled persons and

other disadvantaged groups. Such stakeholders may be invited via print

media, radio/TV broadcast, or formal invitation-letters.

The participation of stakeholders may be engaged in all phases of the

budget process.

7.0 Role of Stakeholders in the Budget Process

Step 1 Stakeholders, such as civil society groups, NGOs, the private sector, etc. as observers of the LFC, shall represent the

aggregate needs of the people, particularly the weak and the

disadvantaged. These observers may provide relevant inputs

to the LFC and the LCE in the formulation of policy decisions that are embodied in the AIP.

Step 2 Stakeholders may also provide inputs to department heads of

line agencies that could help these decision makers in the

accurate determination of targets or in the identification of beneficiaries in the delivery of agency services.

Budget Preparation

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Step 3 Stakeholders may participate in the Sanggunian deliberation

of the Executive Budget during public or committee hearings

and consultation with specific sector groups affected by the

budget.

Step 4 Stakeholders may clarify or ask questions on changes in the

executive budget not found in the approved AIP.

Step 5 Stakeholders may relay information to the reviewing authority on the consistency or inconsistency of the budget

with the AIP.

Step 6 Stakeholders may assist implementors in advocating the

benefits of the PPAs to prospective clients.

Step 7 Stakeholders may also assist the LGU in providing for the

service gaps due to fund constraint.

Step 8 Stakeholders shall see to it that the standards of service

delivery, in terms of quality and proper specifications, are

observed by the LGU.

Step 9 Stakeholders shall serve as monitors during PPA

implementation to ensure that services and goods are

properly delivered to target beneficiaries.

8.0 Elements of Quality Participation

In participative budgeting, it is important that LGUs shall give premium to the quality of participation.

The consultation process shall have the following elements to ensure quality participation of stakeholders.

Budget Authorization

Budget Execution

Budget Review

Budget Accountability

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8.1 Skilled Facilitators

There must be a facilitator or group of facilitators skilled in the

application of the Technology of Participation (ToP). Facilitators

from within the LGU may be trained to use the ToP tool to elicit effective participation from the stakeholders.

ToP is a unique method of facilitation that helps groups think, talk and work together and provides group facilitators with structured

methods that recognize and honor contributions of all, let a group

deal with more data in less time, pool individual contributions into

larger more informative matters, and welcome diversity while minimizing polarization and conflict.

ToP covers three methods of facilitation developed by the Institute of Cultural Affairs (ICA), a US-based organization long involved

in organizing works in marginalized communities. These methods

include (a) the Focused Group Discussion Method (b) Consensus

Workshop Method, and (c) the Action Planning Method.*

8.2 Consciousness of Issues

Stakeholders are not only aware of the issues to be discussed, but are also willing to share ideas and information in an atmosphere of

mutual respect and cordial relationship.

8.3 Focus on Issue

All discussions shall be guided by a focus question, or issue, to be

resolved. At the end of the day, every stakeholder is satisfied with the collective decision made by the group on how the issue will be

resolved.

8.4 Persons of Authority as Resource Persons

The LFC members shall be the resource persons during the

consultation process. As stakeholders themselves, they shall be ready to share all the plan-budget information necessary to arrive at

good decisions.

_____________ *Barcillano, Malu C., Ph.D. The Technology of Participation (ToP) and its Application

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9.0 Best Practices in Participative Budgeting

Local Resource Management and Fiscal Sustainability: The Case of Naga City1

The Naga City case illustrates effective fiscal and financial management strategies

which are anchored on a governance framework that involves strong and active multi-

stakeholder participation in urban governance. Naga Citys strategy is built on the philosophy that economic growth and improvement in the lives of the people should go hand

in hand and that good governance is the trigger. By capitalizing on three key factors, namely,

its progressive development perspective, functional partnerships with stakeholders, and

people participation, Naga City has built on individual and institutional capabilities and

mainstreamed their roles in local development. The city government adopted productivity

and service excellence programs to reorient its personnel to business and customer service

orientation and foster efficient and quality service for its constituents.

One important innovation made by Naga City was the codification in 2004 of its

Revenue Code, compiling and effectively revising tax-related ordinances dating back to

1975. Majority of business tax rates and user fees were reconsidered and the presumptive

income approach to business taxation was adopted under the Code. On real property

taxation, the city government remains conservative in increasing its assessment levels and tax

rates. However, market values of properties have soared, indicating economic progress as

evidenced by the influx of investments and business activities. The citys adoption of the Investment Code in 1997 may also have contributed to the influx of investments.

Computerization has been an important support mechanism to the citys efforts to foster transparency, efficiency, and effective governance. Its computerization efforts such as

the i-Governance and city website, GIS, SMS-facilitated reporting mechanism, i-Serve

project have helped to improve local resource generation and quality of government service.

By mobilizing all factors in city governance towards attracting investments and

buoying up business activities, Naga City has generated local income without the necessity of

putting too much tax burden on its constituencies. For the past ten years (1996-2005), tax

revenues, specifically business taxes, have been the major income generator of the City.

Consistent with the adopted governance framework, the city government has also observed

prudent utilization of government resources through its doing more with less approach and

a budget programming strategy which is aligned to the Citys vision and mission.

1 Perla A. Segovia with Nino B. Alvina, Local Resource Management and Fiscal Sustainability: The Case of

Naga City. Sourcebook 4, Selected Case Studies on Strengthening Local Government Resource Management.

Small Projects Facility, European Commission-Philippines Partnership.

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Mandaluyong Citys Marketplace: A Joint Venture with the Private Sector2

Background of the Project

A public market is the most common local enterprise operated by local government

units (LGUs), particularly cities and municipalities in the Philippines. The number and size

of the public market of a city or municipality is an indicator of its level of economic

development as many economic activities are carried out in this facility. All cities have one

or more public markets but not in the case of municipalities. Lower-income class

municipalities, for instance, do not own a public market facility.

The operation of a public market is also considered a public service. Thus, Philippine

cities and municipalities are mandated by the 1991 Local Government Code (Sec 17) to

provide this basic facility and service.

Mandaluyong City faced the problem of providing a new infrastructure facility when

its public market was gutted by fire in August 1990. Confronted with the necessity and

urgency to provide this facility/service to his constituents and constrained financially to

construct a new market, Mayor Benjamin Abalos, the Citys local chief executive, decided to implement stopgap measures while mulling over what would best address the problem. He

studied all options that could be done. Meantime, temporary stalls for vendors were

constructed along the sidewalks of the street perpendicular to the burned market. Stalls were

also built in one part of a city park.

This measure brought about untold inconvenience to the public. It created traffic

congestion as market goers and commuters alike milled along the busy street. Market goers

also complained about the inconvenience of going to a street market especially during the

rainy days. Since only the stalls had roofs, only the vendors were protected from the

elements. Such set up also created health and sanitation problems. As a result, numerous

complaints from residents and offices along that street were a daily fare for the city

government. This situation continued for more than a year.

The city government was under tremendous pressure from the vendors and other

constituents to build a new market. The Mayor, in consultation with the City Council,

decided to construct a multi-storey shopping mall cum market. This decision was premised

on certain considerations. One was the strong desire of the Mayor for the city to have a

shopping mall or commercial complex of its own. Two, he knew very well that the place

where the mall would be built is strategically located as it is along a major artery of the city.

Three, he was convinced that a project confined to the construction of a public market project

(i.e. without the commercial complex component) would not attract private sector investors

because of the high risk involved. It was likely that it would take a long period of time (more

than 10 years) for the investor to recover the investment. The revenue stream expected from

the operation of the market would not be very substantial since the city government could not

rely on increasing stall rentals as such cost increases would surely be passed on by the

vendors to the buying public.

Tapping the Private Sector Through the Build-Operate-Transfer Scheme

The Mayors dream for the city to own a shopping mall seemed to many to be an impossibility because the city government did not have the financial means to fund a capital-

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intensive infrastructure project. Where to get the funding for the construction of a

commercial complex was a primary problem. The city government ruled out taking a huge

long-term loan from commercial banks because a significant portion of city funds would be

tied up to yearly loan amortizations rather than being used to support other basic services of

the city.

The strong political will of the Mayor to pursue his dream for his city propelled him

to go for a Build-Operate-Transfer (BOT) scheme. At that time, the Philippine Congress had

just passed the BOT law and there were no implementing rules and regulations that could be

used by the city government as a guide. Even government agencies like the Commission on

Audit and the Department of Finance were at that time clueless about how to help the city

government implement a BOT programme.

Nonetheless, this did not deter the city government from pursuing its dream. The

Mayor scouted for developers, investors, and businessmen who might be interested in the

BOT project. The invitation to pre-qualify for the BOT project was advertised in major

newspapers for several weeks in May 1991. It called for the construction of a seven-storey

building.

Identifying the Right Private Sector Partner

Two conferences with interested parties/investors were held in 1991, one year after

the burning of the public market. Thirteen interested developers and investors attended the

first conference. The concept of BOT was explained to them. They were made to understand

that they have to shoulder all the costs in the construction of the commercial mall and that

ownership of the facility would have to be turned over to the city government upon

completion of its construction. Subsequently, another conference was held. This time only

five of the 13 attended. The eight others backed out immediately after the first conference.

When the bidding for pre-qualification was finally held, the number of interested parties

dwindled to two. One of them, the Market Realty Development and Credit Funders

Corporation won the bid. To further expand its capitalization, this business entity merged

with nine other firms forming a business consortium with the name Macro Funders and

Developers Incorporated (MFD). It was formed purposely for the BOT project. The Mayor

was instrumental in the formation of this group and it was he who enlisted the help of his

friends in the private sector to form the consortium (Interview with Atty. Ernesto Santos,

March 20, 2002).

The contract for the development, financing, construction and operation of the

commercial center was awarded on August 29, 1991, one year after the burning of the old

public market. The total cost was P377,468,932 (or US$ 12.5M). When the project was fully

completed, the cost was almost P600M or (US$ 24.6M).

Negotiating with the Private Sector Partner

The cooperation of the private sector in financing this capital-intensive piece of urban

infrastructure was made possible through the negotiation skills of the city government headed

by the Mayor himself. The Mayor was assisted by the citys Administrator not just in the

conceptualization of the project but throughout its implementation. According to the former

administrator of the city government, there were actually no demands made by MFD, the

private partner. It was, in fact, the city government itself that offered the private partner a

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two-year moratorium from payment of mayors permit and building permits (Interview with Atty. Ernesto Santos, March 25, 2002). This strategy would enable the private partner to

attract business establishments to locate in the commercial complex. The city government

also contracted the services of MFD to provide maintenance and security of the public market

located on the ground floor of the commercial complex. For five years, it was MFD which

maintained and secured the public market.

Problems Encountered

Engaging the participation of the private sector in the provision of a public facility

and service that requires enormous capital outlays was not an easy task for the city

government of Mandaluyong. The major problems it encountered were the following:

Getting the trust and confidence of the private sector. This was the most

significant problem. It took the city government more than six months to

convince a private contractor to enter into a joint venture where the city would

provide the land and the private contractor to provide the capital and expertise in

the construction and management of the BOT project.

Difficulty on the part of the private contractor to obtain loans from the commercial banks. The MFD, the business consortium, could not use the land

where the infrastructure was to be built as collateral because it was owned by the

city government. By obtaining loans from commercial banks on an individual

basis, the business consortium remedied the problem. This meant that each

member of the consortium was able to obtain a loan on its individual financial

capacity to pay. (Interview with Atty. Eusebio Santos, March 20, 2002).

Much paperwork entailed by the BOT. This was a secondary problem encountered in the BOT project in connection with the reports on technical and

economic data requirements prepared for the pre-qualification and bidding

process. The paper work was taxing on the part of the city government and

represented a hidden cost to the project.

Benefits of the Partnership

The beauty of this BOT project is that it provided mutual benefits for the public and

private sector partners. The joint project could not have been successful if only one party

received benefits from it.

Benefits for the City Government

The BOT scheme allowed the city government to develop and own the needed urban infrastructure without incurring a substantial financial burden. It was the

private sector partner that provided the funds for the project. The city government

was thus freed from paying loan amortizations, which fund could be utilized for

other development projects and services.

Conservative estimates of around P10M-P20M revenues per annum from the

public market and business establishments in the commercial complex are now

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accruing to the city government coffers. This additional income is plowed back to

city coffers for the improvement of city government services.

A new commercial district was developed. The increased activity in the area led

to the appreciation of land value in its vicinity. Before the construction of the

complex, the land in the area cost P8,000 per square meter. At present, it costs

P28,000 to P30,000 per square meter. This can be translated into higher real

property taxes for the city government.

Benefits for the Private Sector Partner

The terms of the contract between the local government and the private sector

developer allowed the latter to benefit from the project in the following ways:

The MFD is now earning revenues from the operation of the numerous business

establishments in the commercial complex. It was given the right to operate the

complex for 40 years with the option for renewal. At present, the commercial

complex registers 95 percent occupancy. Technically, the MFD is a lessee of the

commercial complex since ownership belongs to the city government. However,

it is not paying rent to enable it to recoup its investment. According to the Vice-

President of the firm who used to be the Administrator of the city government, the

firm, which is now on its seventh year of operating the complex, has almost

recovered its investment. Ninety-percent (90 percent) of its loans have already

been paid (Interview with Catty. Ernesto Santos, March 25, 2002).

It is also exempted from paying real property taxes (around P10M annually) since

it is the city government that owns the lot and the edifice.

Other Socio-Economic Benefits

External to both the local government unit and its private partner are other benefits

brought about by the joint venture.

The commercial complex not only services the city population of Mandaluyong

but also around 10 percent of the population of its neighboring LGUs like San

Juan, Sta. Ana, and Sta. Mesa, Manila.

The commercial complex provides for a public market with all the facilities and

amenities of a modern public market operated under the most convenient,

sanitary, and secure conditions.

The market is controlled and supervised exclusively by the city government. The

rental rates are fixed by the city government to guarantee that the goods are sold at

the lowest possible prices and within the reach of low-income groups.

The building of the commercial complex cum market generated employment.

More than 1,000 laborers are employed there to date.

The perennial traffic problem in the area was solved. The commercial complex provided for a two-level parking facility. Flooding, pollution, and garbage

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problems were likewise solved by providing for a centralized collection and

spillway and wastewater and pollution control systems integrated into the project.

Lessons Learned

As can be gleaned from the case presented, several lessons illustrating the success of

the partnership can be drawn:

The strong political will of a public sector leader to pursue the PPP through BOT

made a lot of difference. Undeniably, Mayor Abalos of Mandaluyong City played

a crucial role in the realization of the BOT project. He left no stone unturned

when wooing the private sector into a joint venture. He was able to convince his

friends in the business community about the importance and value of the project

The city government and its private sector partner shared the risks of the project.

The former offered concessions to the latter to compensate for project risks (like

cost overruns) it bore. For instance, a two-year moratorium from payment of

some taxes (Mayors permit, building permit) was offered to the investor. Moreover, the city government does not share in the revenues from the operation

of the commercial complex. Since the city government operates the public

market, it bears the risk of having all stall collections fall below the operating cost

of the public market. In effect, the project risks were borne by both parties.

The city government recognized the need for flexibility in project packaging. It allowed the private investor to repackage the public market to make it financially

attractive.

The presence of at least one component authority that provided support to the

Mayor in all negotiations contributed to the success of the project. Mayor Abalos

utilized his Administrator, both a certified public accountant and a lawyer, in

negotiations with the private partner. The local governments Administrator played a key role since it was he who saw to it that the details of the agreements

between the two parties were carried out.

In conclusion, the partnership of the city government and the public sector investor

succeeded because the joint venture was beneficial to both parties. The BOT case of

Mandaluyong City is a concrete example of a win-win project.

2 Alicia B. Celestino, Public-Private Sector Partnership for Urban Infrastructure: The Build-Operate-Transfer

Program of Mandaluyong City. Sourcebook 1, Perspective and Approaches in Local Government Resource

Management. Small Projects Facility, European Commission-Philippines Partnership.

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Chapter 2. Plan - Budget Linkage

1.0 Introduction

2.0 Legal Basis of Plan-Budget Linkage

3.0 Harmonizing Plans with the Budget

3.1 Development Plan for Provinces and Highly-Urbanized

Cities

3.2 Development Plan for Cities and Municipalities 3.3 Local Development Investment Program

3.4 Annual Investment Program

3.5 Policy Guides on a Plan-Budget Linkage

3.6 Synchronizing the Plan-Budget Calendar 4.0 The Plan-Budget Cycle

5.0 AIP Preparation

5.1 Key Players in AIP Preparation

5.2 The AIP Process Flow Chart

5.3 Guidelines on AIP Preparation

6.0 The PPA Structure

6.1 What is a PPA Structure? 6.2 Samples of a PPA Structure

6.3 Review of Existing PPA Structure

6.4 Redesigning of Current PPA Structure

6.5 PPA Performance

7.0 Reforms in Local Government Budgeting

7.1 Public Expenditure Management (PEM) Reforms

Medium Term Expenditure Framework (MTEF)

Organizational Performance Indicator Framework (OPIF)

OPIF Process

Formulation of Major Final Output (MFO)

Identification of PPAs

Performance Indicators (PIs)

Suggested Steps in Determining PIs

Sample Illustration of Department/Office Logical Framework

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Local budget plans and goals shall, as far as practicable, be harmonized with national development plans, goals and strategies in order to

optimize the utilization of resources and to avoid duplication in the use

of fiscal and physical resources (Section 305 [h], R.A. No. 7160).

Local budgets shall operationalize approved local development plans

(Section 305 [i], R.A. No. 7160).

Local governments shall formulate sound financial plans, and the local budgets shall be based on functions, projects and activities in terms of

expected results (Section 305 [g], R.A. No. 7160).

Budgets of LGUs shall include a brief description of the functions,

projects and activities for the ensuing fiscal year; expected results for

each function, project and activity; and the nature of work to be

performed, including the objects of expenditure for each function,

project and activity (Section 317 [b] [3], R.A. No. 7160).

Plan-Budget Linkage

1.0 Introduction

This chapter discusses the general concepts and procedural guidelines on

how local plans are linked to the budget that should harmonize with

national development goals and objectives. It provides specific guideposts in the application of the Annual Investment Program (AIP) as

a tool that connects the plan to the budget; introduces the program-

project-activity (PPA) structure, Major Final Output (MFO) and

Performance Indicators as new budget tools in local government budgeting; and finally it outlines the plan-budget linkage through a

synchronized local planning and budgeting calendar.

2.0 Legal Basis

3.0 Harmonizing Plans with the Budget

The purpose of harmonizing local plans with budgets is clearly provided

in DBM-NEDA-DILG-DOF JMC No. 1, Series of 2007 dated 08 March

2007. It will set a common direction in the implementation and achievement of local endeavors in harmony with national development

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goals and objectives. It will strengthen the interface and complementation

between LGUs, national government agencies (NGAs), among all LGUs in all levels (vertically and horizontally), and funding institutions and

donor agencies in the planning, investment programming, budgeting and

expenditure management, and revenue administration.

The harmonization of local plans with national development goals is

essential in achieving efficiency and effectiveness in the allocation of

resources. It starts with the preparation of a development plan at least for 6 years for provinces.

3.1 Development Plan for Provinces and Highly-Urbanized Cities

The Provincial Development and Physical Framework Plan

(PDPFP) is a six-year plan that merges the traditionally separate provincial physical framework plan and provincial development plan to address the disconnection between spatial and sectoral

factors and between medium-and long-term concerns. The PDPFP

contains the long-term vision of the province, and identifies

development goals, strategies, objectives/targets and corresponding PPAs which serve as primary inputs to provincial investment

programming and subsequent budgeting and plan implementation

(DBM-NEDA-DILG-DOF JMC No. 1, Series of 2007).

3.2 Development Plan for Cities and Municipalities

The long-term development plan for cities and municipalities is called the Comprehensive Development Plan (CDP). The CDP is

a multi-sectoral plan formulated at the city/municipal level

embodying the vision, sectoral goals, objectives, development

strategies, and policies within the term of LGU officials and the medium-term. It contains corresponding PPAs which serve as

primary inputs to investment programming and subsequent

budgeting and implementation of projects for the growth and development of local government territories (DBM-NEDA-DILG-

DOF JMC No. 1, Series of 2007).

3.3 Local Development Investment Program

Section 305 (i) of R.A. No. 7160 explicitly provides that local

budgets shall operationalize approved local development plans. This implies that the preparation of local plans shall precede the

preparation of local budgets. On the basis, therefore, of the

21

approved PDPFP for provinces and CDP for cities and

municipalities, a programming document called the Local Development Investment Program (LDIP) shall be prepared.

Investment programming covers 3 to 6 years. The LDIP at the

provincial level is a six-year rolling program coinciding with the

time frame of the PDPFP.

The LDIP is a basic document linking the local plan to the budget.

It contains a prioritized list of PPAs which are derived from the CDP in the case of cities and municipalities, and the PDPFP in the

case of the provinces, matched with financing resources, and to be

implemented annually within a three to six-year period. The first

three (3) years of the LDIP shall be firmed up along with the priorities of the incumbent LCEs (DBM-NEDA-DILG-DOF JMC

No. 1, Series of 2007).

3.4 Annual Investment Program

Another document to be submitted by the LDC to the LFC as

mandated under Article 410 of the IRR of R.A. No. 7160 is the AIP prepared and approved during the fiscal year before budget

preparation.

The AIP refers to the annual slice of the LDIP which constitutes the total resource requirements for all PPAs, consisting of the annual

capital expenditure and regular operating requirements of the LGU.

The AIP, therefore, is the yearly program of expenditures both for

capital and current operating requirements of the LGU that will

serve as basis for the preparation of Annual and Supplemental

Budgets. As a document reflecting the total resource requirements for the year, the AIP is a document that reinforces plan-budget

linkage.

22

The plan-budget linkage is shown in the following diagram:

Figure 3. Plan-Budget Link Model

LLDDIIPP

LLIINNKK

DDEEVVEELLOOPPMMEENNTT

PPLLAANNNNIINNGG

((66--1155 YYeeaarrss))

((33--66 YYeeaarrss))

IINNVVEESSTTMMEENNTT

PPRROOGGRRAAMMMMIINNGG

((11 YYeeaarr))

BBUUDDGGEETTIINNGG

((11 YYeeaarr))

AAIIPP

PPDDPPFFPP//CCDDPP

AANNNNUUAALL BBUUDDGGEETT

AANNDD

SSUUPPPPLLEEMMEENNTTAALL

BBUUDDGGEETT

PPLLAANN

BBUUDDGGEETT

23

3.5 Policy Guides on a PlanBudget Linkage

3.5.1 Development planning shall not be limited to projects and

activities to be funded by the 20% Development Fund. The

entire annual/supplemental budgets shall be dedicated to

sustainable human development in order to achieve the twin goals of eliminating poverty and promoting economic

growth. Development planning in general is medium-term

and for provinces, covers a six-year period rolling plan.

3.5.2 Local elective officials shall develop the capacity to

mobilize resources and ensure program sustainability. It is

their responsibility to develop the capabilities of their people in the long-term so that the well-being of present and

future generations is not undermined.

3.5.3 Local budgets shall be policy-driven and performancebased. Policy formulation shall include:

Explicit policy directions to eliminate poverty and unemployment; and

Policies on how the budget shall be financed in the medium-term and how it shall be allocated among

priority PPAs in the short-term. The LFC shall

recommend to the LCE alternative sources of financing the budget and a rational criteria for allocating available

resources.

3.6 Synchronizing the Plan-Budget Calendar

The budget calendar is presented separately for provinces and highly-urbanized cities and for cities and municipalities for easy

execution of the plan-budget calendar as synchronized.

24

Table 2. SYNCHRONIZED LOCAL PLANNING-BUDGETING

CALENDAR

PERIOD

COVERED ACTIVITY OUTPUT/S

ACTOR/S

January (First

Week)

PPDC sets guidelines for data

gathering

Guidelines for

data

Gathering

PPDCs

January to

March

Updating of planning and

budgeting

Database (socioeconomic,

physical resources, time series

revenue and expenditure data,

project profiles/ status, among

others)

Update planning,

Budgeting and

Financial database

LPDCs, budget

Officers,

Treasurers,

Department

Heads, NGAs/

RLAs

April-May Analysis of planning

environment for plan

preparation/review/updating

Draft situational

analysis and

assessment of plan

implementation

LPDCs, NGAs/

RLAs

April to May

June 1 to 15

Not later than

First Week of

August

Updating of appropriate AIP

in the LDIP as input to

budgeting

Preparation of the AIP using

the AIP Summary Form

(Annex A) for the budget

year

Approval of the AIP

Indicative AIP

(the first year of

the LDIP in the

case of election

year)

AIP Summary

Form

AIP for the Budget Year

LDCs, LPDCs

LPDCs, local

budget officers

Sanggunian

1st week of July

during election

year

Whole month of

July

PDPFP/CDP Preparation

Reconstitution of the LDC

based on initial guidelines,

including mechanism for

choosing private sector

representatives, prepared by

LPDC

Formulation of development

vision, goals, strategies,

objectives/targets and

identification of PPAs

Timetable and

tasking for plan

preparation/

updating

Vision, goals,

Strategies,

Objectives/Targets

and PPAs

LCEs

LDCs, LPDC,

Department

Heads,

NGAs/RLAs

25

PERIOD

COVERED ACTIVITY OUTPUT/S

ACTOR/S

Harmonization and

complementation of

development vision, goals,

strategic direction between

and among province and

component

cities/municipalities

Approval of the PDPFP/CDP

Harmonized

vision, goals and

strategic direction

PDPFP/CDP

Jointly by the

province and

component

LGUs

Sanggunian

June to July 1-31

during election

year

LDIP Preparation

Identification of areas for

complementation of PPAs

between and among

provinces and their

component

cities/municipalities

Prioritization of PPAs

Matching of PPAs with

available financing resources

and determination of

additional revenue sources to

finance the PPAs

Approval of LDIP Prioritized

PPAs

LDIP, revenue generation

measures

Approved LDIP

Joint programs/

projects

Prioritized PPAs

LDIP, revenue

generation

measures

Approved LDIP

Provinces and

their component

cities and

municipalities,

NGAs/RLAs

LDC, LFC,

NGAs/RLAs

LDC, LFC,

NGAs/RLAs

Sanggunian

June 16 to 30 0r

1st week of July

during election

year

Budget Preparation

Issuance of Budget Call

Budget Call

LCEs of

Provinces, Cities,

Municipalities

July 1 -15

Submission to LCE of

detailed 3-year statement of

income and expenditures

Certified

statement of

income and

expenditures

Local Treasurers

(Province, Cities,

Municipalities)

26

PERIOD

COVERED ACTIVITY OUTPUT/S

ACTOR/S

Preparation and submission

of budget proposals

Budget Proposals Local department

heads

July 16 August 31

Conduct to technical budget

hearings on budget proposals

submitted by Department

Heads

Reviewed budget

proposals

LFCs and LCEs

On or before the

15th day of

September

Submission to the Punong

Barangay of the estimated

Income and Expenditure for

the ensuing fiscal year

Certified

Statement of

Income and

Expenditure

Barangay

Treasurer

September 16 to

30

Consolidation of Budget

Proposals into the Local

Expenditure Program and

preparation of the BESF

LEP and BESF

LFC

Not later than

October 16

Preparation of the Budget

Message and Submission of

Executive Budget to the

Sanggunian

Budget Message

and Executive

Budget

LCEs (Provinces,

Cities,

Municipalities)

October 17

onwards

Enactment of the Annual

Budget of the ensuing fiscal

year by the Sanggunian

concerned

Enacted Annual

Budget

Sanggunian

(Provinces,

Cities,

Municipalities

and barangays)

Within three (3)

days from the

approval by the

LCE of the

annual

supplemental

budget

Submission of the Annual or

Supplemental Budgets of

Provinces, Cities and

Municipalities to appropriate

reviewing authority

Annual

Supplemental

Budget submitted

for review

Secretary to the

Sanggunian

Within ten (10)

days from the

approval by the

Punong

Barangay of the

Annual or

Supplemental

Budgets of

Barangays

Submission of the Annual or

Supplemental Budgets for

review

Annual or

Supplemental

Budgets submitted

for review

Sanggunian

27

PERIOD

COVERED ACTIVITY OUTPUT/S

ACTOR/S

Within sixty (60)

days from receipt

of the submitted

Annual or

Supplemental

Budgets of

barangays for

review

Review of the Annual or

Supplemental Budgets of

Barangays

Reviewed Annual

or Supplemental

Budgets of

Barangays

Sangguniang

Panlungsod,

Sangguniang

Bayan, City or

Municipality

Budget Officers

Within ninety

(90) days from

the receipt of the

submitted

Annual or

Supplemental

Budgets for

review of

Provinces, Cities

and

Municipalities

Review of the Annual or

Supplemental Budgets of

Provinces, Cities and

Municipalities

Reviewed Annual

or Supplemental

Budgets of

Provinces, Cities

and Municipalities

DBM Regional

Offices,

Sangguniang

Panlalawigan

January 1 to

December 31

Implementation/Execution of

the Annual or Supplemental

Budgets

Annual of

Supplemental

Budgets

LCEs or

Provinces,

Cities

Municipalities

And Barangays

NOTE: Detailed activities will be provided through subsequent guidelines, including cross-referencing to the technical guides/manuals such as

the RPS-CDP/ELA, PLPEM, UBOM and Revenue Administration.

28

4.0 The Plan-Budget Cycle

4.1 The planning-budgeting cycle is a continuous process of improving

and evolving a systematic and logical procedure of validating data

from the field to come up with an accurate database necessary for selecting the best alternative choice in planning and decision-

making.

4.2 The plan needs to be linked to the budget. LGU plans and budgets

must see to it that development issues are clearly identified within

the context of improving general welfare and basic services

delivery. PPAs to be implemented must be consistent with the plan objectives. They must determine the extent to which these

objectives can be achieved on the basis of available resources.

4.3 Flexibility in adjusting local plans and budgets with national goals

is an important ingredient in planning. However, the ability to

adjust to new programs coming from the national government must

be matched with the financial capacity and resource endowment of LGUs.

4.4 LGUs shall determine what MFOs or goods and services will

impact on the long-term goals. They shall evaluate what goods and services are within their capability to produce. Priority projects

and activities of LGUs whose funding/technical requirements are

beyond their capacity to implement may be proposed to a higher-level LGU or to the NGA concerned or to civil society for possible

assistance.

4.5 The annual projected output or targets of PPAs to be implemented during the budget year as reflected in the AIP shall be

synchronized with outputs of NGAs in the regions, provinces,

cities and municipalities to determine their synergy and impact on society.

4.6 Lessons learned in the plan-budget execution shall be input data in

the next plan-budget cycle, shown in the following diagram.

29

Figure 4. PlanBudget Cycle

5.0 AIP Preparation

5.1 Key Players

5.1.1 Local Development Council The LDC, through its technical secretariat, the PPDO/CPDO/MPDO for provinces,

cities and municipalities respectively shall:

align development plan with current development issues;

cull out the current slice of the LDIP as input and annual component of the Capital Expenditure (CapEx) into the AIP Summary Form;

CURRENT YEAR

(Jan.-June) BUDGET YEAR

(Jan.-Dec.)

CURRENT YEAR

(July-Dec.)

BUDGET ACCOUNTABILITY

DEVELOPMENT PLANNING (6-15 years)

INVESTMENT PROGRAMMING

(3-5 years)

BUDGET EXECUTION

BUDGET REVIEW

BUDGET AUTHORIZATION

ION

BUDGET PREPARATION

AIP

(1 year)

30

determine resource requirements of PPAs for basic services delivery; and

prepare draft AIP Summary Form and present to the LCE for comment/review.

5.1.2 Local Planning and Development Coordinator The LPDC shall input the annual component of the Capital Expenditure (Capex) into the AIP Summary Form.

5.1.3 Local Budget Officer The LBO shall integrate the Capex together with the PS, MOOE, and other CO into the total

resource AIP to be reflected in the AIP Summary Form.

5.1.4 Local Chief Executive The LCE shall present the AIP Summary Form to LDC for deliberation and concurs with

the AIP Summary Form as agreed upon by the LDC.

5.1.5 Sanggunian The Sanggunian shall approve the AIP.

5.1.6 NGOs, Civil Society Groups and Other Stakeholders NGOs, civil society groups and other stakeholders shall serve as key informants on major development issues in the

LGU. They shall provide relevant information in the

identification and prioritization of PPAs for inclusion in the

AIP.

5.2 The AIP Process Flow Chart

As an annual slice of the LDIP, the AIP shall be updated by the

Planning and Development Coordinator or an LDIP committee

prior to the yearly budgeting exercise to take into account new

developments as well as to consider PPAs from the previous year which were not implemented. The AIP is prepared jointly by the

LPDC who does consistency analysis of the priorities and

objectives for a particular year with the PPAs programmed for the same year in its LDIP and the LBO who determines the expected

outputs and financial requirements of the PPAs, including source

of funds. This draft AIP is discussed with the LCE for comments

before they are finalized for deliberation by the LDC. Once consensus is arrived at the LDC level, the AIP is endorsed to the

Local Sanggunian for approval and enactment.

31

LDC Local Chief Executive (LCE) / Local Sanggunian

PPDO/CPDO/MPDO/LBO Local Development Council (LDC

Figure 5. The AIP Process Flow Chart

LDC Deliberates on/

Endorses AIP

to Local Sanggunian

Aligns Development

Plan/ELA (PDPFP/CDP)

with Current

Development Issues

Determines Annual

Resource Requirements

of Priority Development

Projects from LDIP

Funded from 20%

of IRA, General Fund

and Other Sources Funds

Determines Resource

Requirements of PPAs

for Basic Services

Delivery

and Administrative/

Legislative Services

Prepares Draft AIP

and present to LCE

for Review

LCE Presents AIP

to LDC

for Deliberation

Approves AIP

for the Budget Year

Updates AIP

to consider new

and

unimplemented PPAs

32

5.3 Guidelines on AIP Preparation

5.3.1 The AIP shall be categorized under general public, social,

economic and other services sector (Section 317 [a], R.A.

No. 7160). Pursuant to the New Government Accounting

System (NGAS) of the Commission on Audit, the services falling under each of these basic sectors are as follows.

5.3.1.1 General Public Service Sector

Executive Services

Legislative Services

Planning and Development Coordination Services

Budgeting Services

Treasury Services

Accounting Services

Administrative Service

Civil Registry Services

General Services

Assessment of Real Property Services

Auditing Services

Information Services

Legal Services

Prosecution Services

Administration of Justice Services

Land Registration Services

Mining Claim Registration Services

Police Services

Fire Protection Services

Repair Maintenance of Government Facilities

5.3.1.2 Social Services Sector

Education and Manpower Development Public Education Services Medical Subsidiary Services

Manpower Development Services

Sports Center, Athletic Field, and

Playground Maintenance Services

Cultural Project Services

33

Cultural/Conference/Convention Center

Operation Services

Health Health Services Field Projects (Immigration, Inoculation,

Blood Donor Services)

Day Care Clinic

Hospital Services Chest Clinic

Housing and Community Development Housing Projects

Sanitary Services

Street Cleaning Garbage Collection

Sewerage and Drainage

Street Lighting

Community Development Services

Social Welfare Social Welfare Services

Family Planning Services

Miscellaneous and Other Social Services

5.3.1.3 Economic Services Sector

Agricultural Services

Veterinary Services

Natural Resources Services

Architectural Services

Engineering Services

Economic Enterprises and Public Utilities Operation Services

Tourism Services

5.3.1.4 Other Services

Services that cannot be categorized in any of the

sectors identified above shall be under other

services.

34

5.3.2 The AIP Summary Form

The AIP Summary Form (Figure 6) is prescribed under DBM-

NEDA-DILG-DOF JMC No, 1, Series of 2007 (Annex A),

containing the following information:

5.3.2.1 AIP Reference Code (Column 1) - The AIP

Reference Code is vital to the Plan-Budget Linkage process.

The sectoral code classification is consistent with the NGAS/sectoral coding of the Commission on Audit, with its

three (3) major sectors, including the five (5) sub-sectors

under social services.

SECTOR CODE (Denoted by 4 digits)

General Public Services Sector 1000

Social Services Sector 3000

Sub-Sector

Education and Manpower Development 3000-100 Health, Nutrition and Population Control 3000- 200

Labor and Employment 3000- 300

Housing and Community Development 3000- 400 Social Security, Social Services and Welfare 3000-500

Economic Services Sector 8000

Other Services 9000

AIP Reference Coding

A sector is denoted by the first 4 digits 1000 to 9000

A program is denoted by a fifth digit in numerical order 1,2,3,4,5,6 as there are many programs in a particular sector.

A Project/Activity is denoted by a sixth digit also in numerical order 1,2,3,4,5 as there are many projects/activities in a particular program.

Illustrative Example:

1000 1 1 Project/Activity - - Tax Mapping

Program - - - - - - - Real Property Tax Administration

Sector - - - - - - - - General Public Services

35

5.3.2.2 Program/Project/Activity Description (Column 2) - The PPA is a brief and concise description of the work to

be done in a particular sector which includes both the short

and long-term results of the program.

Example of PPAs under the Agricultural Services Program

Extension and On-Site Research Services

Demonstration/Farm Nurseries

Operation of Farm Equipment Pool

Quality Control of Agricultural Products

Construction of Small Irrigation System

5.3.2.3 Implementing Office/Department (Column 3) -

The Implementing Office/Department refers to the

Office/Department responsible for implementing the PPAs and for delivering the services as mandated by the Local

Government Code of 1991. The implementing

Office/Department should be presented by sector.

5.3.2.4 Schedule of Implementation (Columns 4 and 5) -

The implementation schedule is categorized by PPAs: 1)

PPAs that are implemented regularly and 2) PPAs which have specific time frames for the starting dates (month/year)

and completion dates (month/year).

Examples:

PPAs Implemented Regularly

Extension and On-site Research Services - January 2009 to December 2009

Operation of Demonstration Farm

- January 2009 to December 2009

PPAs with a Time Frame

Construction of San Jose Irrigation Dam - April 2009 to November 2009.

5.3.2.5 Expected Outputs (Column 6) All PPAs to be implemented may have one or two MFOs or results (goods

and services) to be produced. Each MFO, in turn, shall have

36

at least two (2) Performance Indicators that will serve as

measures of change or development over the years. For example:

MFO: Agricultural Services PIs: Number of farmer

beneficiaries Extension Services Percentage increase in

harvest/production

5.3.2.6 Funding Source (Column 7) All PPAs described in the AIP shall have their corresponding funding sources

ranked in the following order:

Specific Sources of Fund Tax revenue, non-tax revenue, other sources of revenue that accrue to the

General Fund.

Financial Assistance/Aid from Other LGUs - consists of financial assistance, aid or grant from other local governments whose purpose is not defined or specified.

Financial Assistance/Aid from National Government Agencies (NGAs) - grants or subsidy from the national

government which are released for a specific purpose or

for the general operating requirements of the recipient LGU.

Loan Proceeds - receipts of funds coming from approved loans negotiated for a specific purpose, usually for

infrastructure purposes or for the acquisition of heavy

equipment.

5.3.2.7 Estimated Cost (Columns 8, 9, 10, and 11) - The

total cost of the PPA is broken down into PS, MOOE, and

CO.

For purposes of the AIP, the total PS and MOOE costs of a

particular program or office, both line departments and administrative/legislative support services, shall represent

the current operating cost for all regular activities. Costs

which add to the fixed assets of the LGU are categorized as

capital outlays.

37

Province/City/Municipality/Barangay:________________________

Prepared By: Attested by:

Planning Officer/PLDC Budget Officer Local Chief Executive

Date: Date: _____________ Date: _______________

Personal

Services

(PS)

(8)

FUNDING

SOURCE

(7)

Social Services

(30)

Annex A

Summary Form

Capital Out lay

(CO) (10)

TOTAL

(11)

General Public Services

(10)

Economic Services

(80)

STARTING

DATE

(4)

COM LETION

DATE

(5)

AM OUNT (in thousand pesos)

M aintenance

and Other

Operat ing

Expenses

(M OOE)

CY ______ Annual Investment Program (AIP)

By Program/Project/Activity by Sector

As of _______________________

AIP REFERENCE

CODE (1)

PROGRAM /PROJECT/ACTIVITY

DESCRIPTION (2)

IM PLEM ENTING

OFFICE/DEPARTM ENT

(3)

SCHEDULE OF IMPLEMENTATION

EXPECTED

OUTPUTS

(6)

The identification of the expected outputs, sources of funds

and the breakdown of the costs by PS and MOOE is the responsibility of the LBO. The LPDC, on the other hand,

shall be responsible for accomplishing the reference code,

PPA description, and implementing office/department as

well as implementation schedule.

Figure 6. The AIP Summary Form

6.0 The PPA Structure

The translation into specific budgetary language of development

objectives, strategies and results are given flesh through the formulation and development of a PPA structure.

38

PROGRAM - a homogenous group of activities necessary

for the performance of a major purpose for which the government agency is established,

for the basic maintenance of the agencys administrative operations, or for the provision of staff support to the agencys administrative operations or the agencys line functions.

PROJECT - a special undertaking to be carried out within

a definite time frame which is intended to result in some pre-determined measure of

goods and services.

ACTIVITY - a work process designed to contribute to the accomplishment of specific objectives and

the implementation of a program, sub-

program, or project.

6.1 What is a PPA Structure?

A PPA structure consists of programs, projects and activities

designed to achieve specific objectives or MFOs with

corresponding Performance Indicators.

6.2 Samples of a PPA Structure

GENERAL PUBLIC SECTOR

PROGRAM: Public Order and Safety

Policy Objectives: This program shall accomplish the following:

Provide a safe, secure and peaceful community.

Protect lives and property Expected Output:

Low incidence of crime against persons and properties

Zero casualty in man-made disasters

PROJECTS: Purchase of patrol cars, fire trucks and firefighting

equipment

Conduct of training programs, security and safety

drills for firemen and police officers

ACTIVITIES:

24-hour police surveillance and monitoring activities

Public awareness on peace and security measures

Seminars, training and orientation courses for firemen

and law enforcement officers

39

SOCIAL SECTOR

PROGRAM: Health

Policy Objectives:

This program shall accomplish the following:

Increase access to quality and affordable health services.

Improve the knowledge and competency of public health personnel.

Expected Output: Increased number of patients diagnosed and treated

for emergency and non-emergency cases

Increased knowledge and competency skills of

public health personnel

PROJECTS: Construction of additional health facilities

Purchase of medical equipment .

ACTIVITIES: Public health awareness activities

Health care assistance

Training of public health personnel on the latest

medical technology

ECONOMIC SECTOR

PROGRAM: Agriculture

Policy Objectives: This program shall accomplish the following:

Increase agricultural productivity by 15 percent.

Accelerate agricultural income of marginalized farmers by 20 percent.

Expected Output: Increased production in agriculture

Increased yield per hectare

PROJECTS: Construction of Irrigation Facilities

ACTIVITIES: Agricultural Extension in Palay Production

Demonstration Farms Research Activities

Training on New Farm Technologies

40

6.3 Review of Existing PPA Structure

Local budgeting shall include a periodic review (at least every

three years) and evaluation of the PPA structure to determine the

programs capacity to produce desired results. Performance indicators shall be identified in LGU budget proposals to serve as bases for measuring annual performance. The review of existing

programs should ascertain the relevance of present operations to

the wider policy objectives of the LGU as approved by the Local Sanggunian.

The review of the current PPA structure follows a process as

shown in the diagram.

Figure 7. PPA Structure Review Process

6.4 Redesigning of Current PPA Structure

Current PPA structure found inconsistent with strategic policy objectives as planned shall be redesigned following these steps:

Step 1. Review the existing regular activities or projects of a

specific program.

What are the objectives of the program?

Are the projects/activities relevant to the mission?

What are the output indicators of the program?

Are the results consistent with program objectives?

What activities/projects must be redesigned/abolished?

AANNAALLYYZZEE RREESSUULLTTSS// OOUUTTPPUUTTSS

OOFF PPPPAAss

SSTTAATTUUSS

QQUUOO

RREEDDEESSIIGGNN PPRROOGGRRAAMM

SSTTRRUUCCTTUURREE

Relevant to or Consistent with

PPOOLLIICCYY OOBBJJEECCTTIIVVEESS

YYEESS // NNOO

DDEETTEERRMMIINNEE

CCAAUUSSEE//SS

IIff NNOO

IIff YYEESS

41

Step 2. Design the proper organization structure that will best carry out the program objectives.

What are the tasks to be performed?

What is the optimum number of personnel that can carry out the tasks efficiently and effectively?

What qualifications are required of personnel to perform the tasks well?

Step 3. Redesign cost allocation and financial reporting systems to improve efficiency.

What projects/activities produce results relevant to the program objective?

What are the relevant costs/inputs that produce results?

What is the cost (direct/indirect) on a per unit of output?

Is the output cost effective?

What is the actual cost per activity/project for one semester? Are there variances between budget and

actual cost?

What is the actual output per activity/project? Are there variances between target output and actual

results?

Are the existing financial reporting systems useful for management decision-making purposes?

6.5 PPA Performance

The PPA structure is the primary link between the plan and budget.

It should be understood, however, that the strength or weakness of

this linkage depends on the efficiency, effectiveness, and quality of service delivery.

The review of PPA structures shall ensure that there is a clear policy statement of objectives that define the purpose of the

program and the expected results to be used as basis in assessing

performance.

42

7.0 Reforms in Local Government Budgeting

The major budget reform introduced in the national government in the

late 1990s is the Public Expenditure Management (PEM) which is

operationalized by two basic frameworks:

The Medium-Term Expenditure Framework (MTEF) and

The Organizational Performance Indicator Framework (OPIF)

7.1 PEM reforms have been introduced/cascaded in local government

budgeting in 2005 by giving focus to an output-based and policy-driven budget. PEM has three (3) basic outcomes aggregate fiscal discipline (living within means), allocative efficiency

(spending on the right things), and operational efficiency

(obtaining value for money).

7.1.1 MTEF One of the means to achieve the three basic outcomes of PEM is through MTEF which seeks to improve

predictability of funding and to identify strategic funding priorities. It is both a top-down resource allocation approach

(expenditures are driven by credible policy priorities and

disciplined by reasonably projected revenues) and a bottom-up estimation of the medium-term (3 years) cost of existing

policies of on-going PPAs. MTEF tries to link policies and

plans with the Medium Term Development Plan and its 3-

year expenditure program. It has two main components:

Forward Estimates (FEs) and

Paper on Budget Strategy (PBS)

FE is a computation of the 3-year future costs of existing approved programs which are automatically rolled over into

budgeting allocations on an annual basis. At the local level,

this annual slice is the plan and budget integrated into the

AIP.

PBS is a budget document that contains the status of the

development priorities of government, the macroeconomic outlook, budget performance and the projected budget

ceilings in the medium-term. It assists government to link

policy priorities, budget allocations and budget performance

to the preparation of the annual budget.

43

7.1.2 OPIF aims to account for outputs at the organization

level/perspective to measure LGU performance. It is an

expenditure management approach which allows the

strategic allocation and direction of resources towards the achievement of desired outputs and results. It also provides

a mechanism for specifying and documenting expected

performance of each department/office in the LGU and establishing its accountability.

7.1.3 The OPIF Process

The process discussed here is not rigidly structured. It is

simplified as an evolving process until it matures and

becomes part of the organizational culture. The OPIF process includes the following:

Figure 8. The OPIF Process

7.1.4 The building of a logical framework (Logframe) is the first basic step in OPIF. It gives the LGU a clear and logical

description why it exists, whom it will serve, what

goods/services are to be provided, how services/goods will

lead to the societal and sectoral goals. The formulation of the logframe is shown in the following analytical

framework:

Formulation of a logical framework

Formulation of MFOs

Identification of PPAs

Determination of Performance Indicators

44

7.1.5 The formulation of MFO is the key basic element of the

OPIF. This means analyzing the agency/LGU mandate and

determining the goods and services it is expected to deliver to its clients and understanding why the output is so.

7.1.6 Identification of PPAs constitutes the strategy for the delivery of MFOs. In this step, it is basic that the programs,

projects and activities shall be established as directly

connected and aligned to MFOs to determine which are

directly relevant and contributory to MFO delivery. With budget allocated at the PPA level, expenditure may be

integrated at the MFO targets.

7.1.7 Performance Indicators are units of measures that best

represent the effectiveness and efficiency of a

department/office in a LGU in the delivery of is MFO. It is

also a measure to determine performance of a department/office. It is a means of measuring what actually

happened against what has been planned in terms of quantity

and quality. At the MFO level, the quantity question will refer to How much service/good did we deliver? while the quality question will refer to How well did we deliver it?

ANALYTICAL FRAMEWORK

OF OPIF

SOCIETAL GOALS

SECTORAL GOALS

ORGANIZATIONAL OUTCOME

MAJOR FINAL OUTPUT

PPAs

BUDGET

PERFORMANCE

INDICATORS

TARGETS

IMPACT

OUTCOME

OUTPUTS

STRATEGIES

INPUTS

WHY?

WHAT?

WHO?

HOW?

45

Other attributes integrated into the measures include:

accessibility and timeliness of the service delivery

cost efficiency or cost of producing a unit of output

Performance Indicators should have the SMART attributes:

Specific (results the department/office is trying to

achieve) Measurable (stated in quantifiable terms)

Achievable (realistic or capable of being achieved)

Relevant (logically related to the MFO)

Time-bound (with specific target dates)

Performance Indicators should have the CREAM attributes:

Clear, precise, unambiguous Relevant, appropriate, timely

Economic, available at reasonable cost

Adequate, sufficient for performance assessment Monitorable, or can be independently measured

7.1.8 Suggested steps in determining Performance Indicators

1. Involve policy-makers, planners, financial managers and

implementers in evolving relevant Performance

Indicators for a particular MFO. Make process more interactive.

2. Develop Performance Indicators for MFOs before

determining impact and outcome indicators. For budgeting concern develop Performance Indicators for

MFOs, to be evaluated and measured on a regular basis

(quarterly) to enable policy-makers to arrive at informed decision for strategic planning and prioritizing PPAs for

resource allocation.

3. Develop Performance Indicators for impact and outcome. These are necessary to measure and validate

organizational outcomes and confirm the sectoral and

societal goals

46

Performance

Indicators

-

.

7.1.9 Sample illustration of a department/office logframe. Logical Framework (Agriculture Office)

SOCIETAL GOAL

SECTORAL

GOALS

ORGANIZATIONAL

OUTCOMES

MFOs

PPAs

7.1.10 Sample illustration of an MFO and Performance Indicator

Office - Agricultural Office

MFO - Agricultural Services

Farmer beneficiaries served

Percentage reduction in cost of agricultural inputs

Percentage increase in wages of agricultural workers

Percentage increase in export

Poverty Reduction and Improved Standard of Living

Food

Security

Global Competitiveness

Increased

Rural Income

Sustainable

Development

Increased

agricultural

production/

productivity

Reduced cost

of primary

inputs

Improved

quality of

agricultural

products

Increased

employment

in agriculture

Research and Development

Services

Plans and Policies

Development

Services

Agricultural

Support

Services

Operation of

Research Center

for Agriculture

Formulation of

Plans and Policies Development

Seed Production

and Distribution

47

The core of the Manual is the updated

Budget Process. The Manual attempts to

integrate into the local budget process some

budget reforms introduced at the national

government level, e.g. the shift from an

input-based budget to a policy-driven and

output-based budget, preparation of local

expenditure program and budget of

expenditures and sources of financing in

budget preparation, the use of the local

budget matrix and allotment release order in

budget execution, and evaluation of budget

performance in budget accountability.

PART II. THE LOCAL BUDGET PROCESS

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The Budget Process

The budget process in Local Government Units (LGUs) consists of five (5) phases. These are: (1) Budget Preparation; (2) Budget Authorization; (3)

Budget Review; (4) Budget Execution; and (5) Budget Accountability.

These phases are all part of a continuing process as shown in the diagram

below.

Figure 9. The Budget Process

BUDGET

PREPARATION

BUDGET AUTHORIZATION

BUDGET ACCOUNTABILITY

BUDGET REVIEW

BUDGET

EXECUTION

49

Chapter 1. Budget Preparation Phase

1.0 Introduction

2.0 Legal Basis of Budget Preparation

3.0 Key Players in Budget Preparation

4.0 The Budget Preparation Flow Chart

5.0 Steps in the Budget Preparation Phase

Step 1. Issue the Budget Call

What is a Budget Call?

Why is the Budget Call Important?

Conduct Budget Forum Step 2. Prepare and Submit Budget Proposals

2.1 Determine Expected Outputs for the Budget Year

2.2 Estimate Costs for the Budget Year 2.3 Prepare the Project Procurement Management Plan

for the Budget Year

Review and Consolidation of Budget Proposals Step 3. Conduct Budget Hearings and Evaluate Budget Proposals

3.1 Conduct Technical Budget Hearings

3.2 Evaluate Budget Proposals Step 4. Prepare the Local Expenditure Program (LEP)

Legal Basis of the LEP

Guidelines in the Preparation of the LEP Step 5. Prepare the Budget Message and Budget

of Expenditures and Sources of Financing (BESF)

Legal Basis of the Budget Message

What is a Budget Message?

Contents of the Budget Message

How to Prepare the Budget Message

Legal Basis of the BESF

What is the BESF?

Purposes of the BESF Step 6. Submit Executive Budget to the Sanggunian

50

BESF Tables

BESF Table No. 1 - Summary of Statement on Receipts and Expenditures

BESF Table No. 2 - Estimated Expenditures by PPA and by Sector

BESF Table No. 3 - Actual and Estimated Expenditure Program by Sector/Office

BESF Table No. 4 - Staffing Summary

BESF Table No. 5 - Summary Statement of Statutory and Contractual Obligations and Budgetary Requirements

BESF Table No. 6 - Summary Statement of Long-term Obligations and Indebtedness

6.0 Local Budget Preparation Forms

LBP Form No. 1 - Statement of Receipts

LBP Form No. 2 - Statement of Receipts and Expenditures

LBP Form No. 3 - Programmed Appropriation and Obligation by Object of Expenditure

LBP Form No. 3A Consolidated Programmed Appropriation and Obligation by Object of Expenditure

LBP Form No. 4 - Personnel Schedule

LBP Form No. 5 - Functional Statements, Objectives and Expected Results

LBP Form No. 6 - Statement of Debt Service

LBP Form No. 7 - Statement of Statutory and Contractual Obligations and Budgetary Requirements

LBP Form No. 8 - Statement of Fund Operation Supplemental Budget Preparation Forms

LBP Form No. 9 - Certified Statement of Funding Sources

LBP Form No. 10 - Statement of Supplemental Appropriation 7.0 Illustrative Example of a Budget Call

8.0 Illustrative Example of a Local Expenditure Program

9.0 Illustrative Example of a Budget Message

10.0 Technical Notes on Budget Preparation

51

The local chief executive shall prepare the executive budget for the

ensuing fiscal year (Section 318, R.A. No. 7160).

Budget Preparation Phase

1.0 Introduction

The budget preparation is the first phase in the local budget process. It

involves cost estimation per PPAs, preparation of budget proposals,

executive review of budget proposals, and preparation of the Budget Message, Local Expenditure Program (LEP), and the Budget of

Expenditures and Sources of Financing (BESF). The last three (3)

documents comprise the Executive Budget. This phase starts with the

issuance of Budget Call and ends with the submission of the executive budget to the Sanggunian on or before October 16 of each year.

2.0 Legal Basis

3.0 Key Players in Budget Preparation

3.1 Local Chief Executive The LCE shall prepare the executive budget for the ensuing fiscal year upon receipt of the statements of

income and expenditure from the treasurer, the budget proposals from the heads of departments and offices, and the estimates of

income and budgetary ceilings from the LFC. He shall submit the

said executive budget to the Sanggunian concerned not later than the 16

th of October of the current fiscal year (Section 318, R.A. No.

7160).

3.2 Local Finance Committee The LFC composed of the LPDC, LBO, and the Local Treasurer shall, among others, have the

following functions:

a. Determine the income reasonably projected as collectible for

the ensuing fiscal year;

b. Recommend the appropriate tax and other revenue measures or borrowings which may be appropriate to support the budget;

52

c. Recommend to the LCE the level of annual expenditures and ceilings of spending for economic, social, and general public services based on the approved local development plan;

d. Recommend to the LCE concerned the proper allocation of expenditures for each development activity between current

operating expenditures and capital outlays; and e. Recommend to the LCE concerned the amount to be allocated

for capital outlay under each development activity or

infrastructure project (Section 316, R.A. No. 7160).

3.3 Local Treasurer The Local Treasurer shall submit to the LCE a certified statement covering the income and expenditures of the

preceding fiscal year, the actual income and expenditures of the first two (2) quarters of the current year, and the estimated income

and expenditures for the last two (2) quarters of the current year

(Section 315, R.A. No. 7160).

3.4 Local Budget Officer - The LBO shall review and consolidate the

budget proposals of different departments and offices of the LGU.

Assist the LCE in the preparation of the budget and during budget hearings (Section 475 [b (2-3)], R.A. No. 7160).

He shall prepare the draft Budget Message, the LEP, and the BESF

in coordination with the other members of the LFC prior to the submission of said documents to the LCE.

3.5 Local Planning and Development Coordinator The LPDC shall analyze the income and expenditure patterns, and formulate

and