Budgeting an Essential Component of Educational Finance

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Chapter 9

Budgeting an Essential Component of Educational Finance

After knowing all the expenses for each area we will be wondering how all these should be prepared and spent to attain quality education. One solution I offer is the preparation of a budget that will reflect all of these for a specified calendar year.

But first, let us define what budgeting means.

According to Franco (1994), budgeting is the translation of programs, projects and activities into their resource requirements which are expressed in monetary/financial term. It allocates resources to specific actions deemed necessary to achieve predetermined objectives. A time element is introduced within which resources are made available and activities are to be carried out.

Essential Steps of Budgeting

1. Identification of programs, projects and activities to be implemented during the budget period. These are largely drawn from the planning process wherein specific interventions are formulated to respond to problems and issues to attain specific targets.

2. Identification of resources – manpower, financial, physical and other resources required to carry out the programs, projects and activities and the quantities for each resources.

3. Costing of resources which would translate the resource requirements into their monetary values.

4. Preparation of the budget in accordance with the mandated form and content spelled out in guidelines issued for this purpose.

5. Securing official authorization to allocate and use resources.

Types of Budgeting according to Bacani (1994)

1.  Line-Item Budgeting

When a budget is referred to as conventional or traditional, it means that the format is that of a line-item budget.

This line-item of budgeting is not goal-oriented. The budget merely consists of a listing of items of every agency of the government to be funded. It also contain the statements of estimated receipts and expenditures for the fiscal year for which it is intended based on the results of operation during the preceding year. The emphasis of this type of budgeting is on what is to be expended and not on what to be achieved.

2.  Performance Budgeting

Performance Budgeting is a management-oriented system of budgeting which measures actual or estimated results in terms of benefits accruing to the public and their unit costs.

In contrast to the line-system of budgeting, performance budgeting is based on receipts and expenditures but also includes brief description of what is to be achieved after each item of expenditure. It is a goal oriented design.

The first performance budget of the national government was the 1978 budget. Its programs and projects and their corresponding work measurement units are indicated to facilitate easy evaluation. Since that time the national budget of the national government have been based on the performance budgeting system.

The National Budget Process by Bacani (1994)

A.  Budget Preparation

The National Budget is prepared pursuant to the provision of the Constitution which provides that no funds may be paid out of the Treasury except in pursuance of an appropriation made by law. In line with this provision, all agencies of the National Government are directly involved in budget preparation. The Department of Budget and Management (DBM) issues a call for the submission of the budget estimated of any agency. P.D. No. 1177 – the Budget Reform Decree – provides that the budget of the national government shall be prepared on the basis of budget proposals of different regional offices of the national government agencies. The proposals are discussed by the Regional Development Council on a regional basis before submission to the agency or central office. The Central Office of an agency reviews and finalizes the proposals and submits these to the DBM which conducts technical hearings. From the DBM the proposals are submitted to the President and the Cabinet for approval. The proposed budget will be submitted by the President to Congress for final deliberation and for enactment into General Appropriation Law.

1.  In the preparation of the budget, each department or agency of the government is given a ceiling or budget level. The Development budget Coordination Committee (DBCC), a NEDA Board Committee, determines the budget level. It is composed of the Secretaries of the Budget, NEDA, Finance, and the Governor of the Central Bank of the Philippines.

2.  The DBCC estimates the anticipated revenues of the government on the basis of historical performance projections of economic conditions in the incoming year and revenue impact of proposed revenue measures. It likewise estimates the cost needed in implementing the projects that will achieve the established goals in the development plan.

B.  Budget Authorization

Congress discusses the budget with focus on policy, budget levels, thrust and strategy. The legislative body is prohibited from increasing the total appropriation submitted by the President in the budget proposal.

1.  All expenditures for (a) personal retirement premiums, government service insurance and other similar fixed expenditures, (b) principal interest on public debt, (c) nation government guarantees of obligation which are automatically appropriated are mandatorily provided for.

2.  Unexpected balances of appropriations that are authorized in the General Appropriation Act will be reverted to unappropriated surplus of the General Fund at the end of fiscal year and will not be available for expendium except by subsequent legislative enactment.

3.  However, appropriations for capitals outlays will remain valid until fully spent or reverted.

4.  The balances of continuing appropriations will be reviewed as part of the annual budget preparation process and the DBM may approve reversion of fund for certain activity provided in the Appropriation Act.

C.  Budget Execution

Another major phase of the budget process is the budget execution. Authorized appropriations can only be available after complying with established guidelines or procedures, explains Bacani.

1.  The Head of an agency should submit a request for allotment and funds in the Secretary of the Budget showing the estimated amounts needed for each function, activity, purpose for which the funds are to be expected, during the applicable allotment period using the forms prescribed by the DBM. Submission will be within the proper time period prescribed.

2.  Based on the allotment system, the fiscal year is divided into four quarters, with the quarters starting on the first day of January, April, July and October.

3.  Request for allotment will be approved by the Secretary of the Budget after determining that such amount will be spent for the purpose as approved. However, in some instances he is authorized by the President to approved amounts different from the agency estimates, if necessary, to conform with the term of the appropriation and the perspective needs of the Ministry, Office or Agency.

4.  At the end of every quarter, the head of each department, office or agency will report to the Budget Secretary the current status of its appropriation, cumulative allotments/obligations incurred/liquidated, total disbursement, and unliquidated obligations, unobligated and unexpected balances and the results of expended appropriations. Such department, agency or office can request for a change or allotments in order to adjust and alter conditions, subjects to such rules and regulations as may be issued by the Budget Secretary.

5.  The Budget Secretary is authorized to modify and amend any allotment previously issued if funds are less than the anticipated receipts from taxes or other sources.

6.  The approved expenditures programs will be the basis for fund release during the fiscal period subject to the policies, rules and regulations.

7.  The DBM may authorized the use of savings realized by an agency during a given year to meet non-recurring expenditures in a subsequent year.

D.  Budget Accountability

The concept of accountability in budgeting gives emphasis to the results of expenditures allocated and incurred. It refers to the evaluation of the quantitative and qualitative measures of an agency performance as reflected in the units of work measurement and other indicators of agency performance.

1.  The Commission on Audit (COA) conducts a continuing review of the budgetary program and project structure of each agency or ministry. Results of such review will be the basis for modifying the program or structure.

2.  The heads of ministries or agencies of the government submit a semi-annual report of their accomplishment to the Secretary of the Budget and to COA on the both work and financial results. These reports will be used for the following:

a.  Monitoring the efficiency and effectiveness with which the funds are being utilized, and

b.  Verifying the attainment of goals established in the budget.

3.  Accountability constitutes:

a.  Periodic reporting by agencies of performance under their approved budget.

b.  Top management review of government activities and the fiscal policy limitation thereof.

c.  Actions of the Commission on Audit in assuring fidelity of officials and employees carrying the intent of Legislative Body and the President with regards to the handling of receipt of expenditures.

Budgeting for the Education Sector

Before presenting in detail the procedures and steps in preparing reduction budgets, Bacani discusses the uniqueness of education budgets and general considerations and principles in education sector budgeting.

A.  Peculiarities of the Education Budget

Several peculiarities characterizing the education sector largely influence the budget preparation process. to a certain extent these also constrain the ability to make the budget a potent instrument for implementing the educational plan. Among these characteristics are the following:

1.  A sizeable portion of the education budget is already predetermined by fixed expenditure, commitments. For instance, 70-75 percent of the budget is allocated to salaries and wages and other personal benefits. This characteristic is applicable at the institutional level as well as the aggregation on the government level.

2.  Considerable pressure is exerted on the education budget by inflation and enrollment growth. Ideally real levels of expenditures should be maintained, not just for the current student population but also for the expected growth in the student population.

3.  The Constitutional mandate for the public elementary and high secondary education dictates that government should aim to provide schooling for the population in these school age groups. Access to elementary and secondary education can therefore be considered a basic human right which must be respected by the state. Relatedly, the Local Government Code stipulates the establishment of a public elementary school in every barangay and a public high school in every municipality.

4.  The law on assistance to private education further exerts additional pressure on the education budget. Not only should the education budget provide for the requirements of the public school system by also for the requirements of private schools meeting the criteria for assistance. This mandate must be fulfilled notwithstanding the fact that the public school system is already underfunded and that the education budget is largely committed to fixed or mandatory expenditures.

B.  General Principles and Considerations in Preparing the Education Budget

The forgoing peculiarities of the education budget call for a rational approach to budgeting if we wish to maximize the use of the education budget as a tool for achieving the objectives and targets of the education plan. The following principles and areas of consideration should be taken into account:

1.  The budget has a maintenance as well as developmental function. While the bulk of the education budget is allocated to personnel benefits and a minimum level of maintenance expenses to sustain the operation benefits and a minimum level of maintenance expenses to sustain the operation of the school system, the uncommitted portion should be utilized for development programs and projects identified through the planning process.

2.  Maintaining real per capita expenditures at the same levels should be targeted as a minimum. This means that adjustments for inflations and provisions for enrollment expansion should be factored into the budget proposal and the growth rate in the proposed budget should be at least be equal to the sum of the inflation rate and the public school enrollment growth rate.

3.  The recurrent component of the education budget should be an aggregation of the estimated cost of operating the individual schools in the area plus the cost for overhead and supervision. Budget proposals coming from the lower administrative levels can be consolidated to obtain an initial approximation of the budget proposal of the country, region or province, as the case may be.

4.  The various educational resource requirements, e.g., teachers, school buildings, desks, instructional materials and equipment, should be provided by for the budget estimate ideally as package in order to prevent imbalances in the supply of these resources. Planning standards relating these resources to enrollment are the basis for estimating total requirements for the whole year.

5.  In line with the policy on Education for All and other mandates to give greater attention to education and training provided outside the formal school setting, education plans and budgets must necessarily allocate resources to nonformal education delivery schemes to reach out-of-school youth and adult illiterates and unemployed.

6.  Budgetary resources to support assistance programs for private education should be integrated in the budget proposal at the central and regional levels, even in the midst of financial inadequacy of the public school system.

7.  Local government budgeting should substantiate the provisions on education of the Local Government Code through both the General Fund budget and the Special Education Fund budget. The General Fund budget is sourced from all revenues accruing to local governments such as the share of national taxes and internally generated revenues. The Special education Fund budget is sourced from the Special Education Fund which is derived from the additional levy on real estate property (over and above the basic real property tax).

C.  Procedures and Steps in Preparing the Education Budget

For purposes of presenting the detailed procedures in preparing the education budget, the education budget will be divided into two components – (i) the recurrent budget which consist primarily of the cost of operating school system and, (ii) the development budget which includes the cost of expanding and/or improving the school system through development programs and projects.

1.  Preparing the Recurrent Budget

As Bacani explains, a substantial portion of the education budget is committed to personnel benefits and a minimum level of maintenance and operating expenses for the present personnel complement and existing institutions. This constitutes largely the recurrent budget and the procedures of bases for estimating their budgetary requirements are as follows: