BUDGETING
The budgeting phase of the planning process resolves the question: “How much money or fund is available for each program, project or activity?”
All decision makers and planners are faced with the dilemma of harmonizing what they want with what their organization can afford. Every organization is faced with problem of adjusting needs against available resources. But a problem arises when resources are scarce but needs are great.
Definition of Budgeting and Budgeting Orientations
Budgeting is the process of allocating financial resources for intended programs, projects, services, and activities to empower the organization to carry out stated goals and objectives (Briones, 1996). The product of this process is the financial or budget plan of the institution.
Budgeting concepts mostly originate from government. Budgeting approaches or modes and techniques used in the Philippine government are characterized into three major orientations, namely: 1) control, 2) management, and 3) planning.
Control-orientation in budgeting is the process of enforcing or applying limitations and conditions that are set in the budget and in appropriation and at the same time securing compliance with the spending restrictions imposed by central authorities. Management-oriented budgeting involves the use of budgetary authority at both agency levels to ensure the efficient use of resources in the conduct of authorized activities. The focus is on the agency outputs – what is being done and produced and what cost and how performance compare with the budget goal. Thus, it is more concerned with operations and results that control, that is, with the efficiency rather than the legality of expenditures.
Finally, planning-orientation in budgeting is the process of determining public objectives and the evaluation of alternative programs. To use the budget for planning, authorities must have the information concerning the purpose and effectiveness to the program. They should also be informed of multi-year spending plans and of the linkage between planning, spending, and public benefits (Schick, 2001).
Approaches in Budgeting
There are four budgeting methods used in the Philippines since 1937. Briones (1996) enumerates these as follows: 1) line-item budgeting; 2) performance budgeting; and 3) planning, programming and budgeting system (PPBS); and 4) zero-based budgeting (ZBB).
1. Line-Item Budgeting
The line-item budgeting approach emphasizes listing of objects for itemized expenditure such as personnel, supplies, and equipment without much regard for the purpose of programs or projects for which such items are proposed. It also controls expenditures at the department or agency level giving emphasis on the accounting aspect of the government operations in terms of items bought or paid (Miclat, 2005).
2. Performance Budgeting
In performance budgeting, objects of expenditures are grouped into categories related to the specific services or products an institution produces, as against objects it purchases, and the development of product cost measurements of activities or services so that managers can measure the efficiency or productivity of spending agencies (Ibid.).
3. Planning, Programming and Budgeting System
PPBS is an answer to the need for an economic allocation of resources and the undertaking of government policy, program analysis, and cost utility analysis to improve the policy decision process of government. The scheme requires agency managers to identify program objectives, develop measuring program output, calculate total program costs over the long-run, prepare detailed multi-year program and financial plans, and analyze the costs and benefits of alternative program designs. The system provides a strong linkage between planning and budgeting (Ibid.).
4. Zero-Based Budgeting
ZBB is an operating, planning, and budgeting method which requires every agency manager to justify his entire budget systems in detail and transfers the burden of proof to each manager why he should spend any money. It underscores the analysis of all budgetary expenditures to answer effectiveness in achieving organizational goals. The term “zero-based” refers to the yearly analysis, evaluation, and justification of each program/project/activity starting form zero performance level.
The idea is to “zero-in” on only the most important activities in the program or project for inclusion in the budget or on the least important or lowest priority activities which may be removed in the event that resources are not sufficient. In this way, the most important programs and projects are allocated enough funding rather than distribute the resources thinly among the many activities and achieve nothing in the end (Ibid.).
The Budget Cycle
A budget is a financial plan. It is an estimate of institution’s income and expenditures for a definite future, e.g. fiscal year. It is what the institution plans to spend for its priority programs and projects. Thus the national budget is the financial translation of approved national government plans and programs which are supposed to be supported by the resources of the government (Ibid.).
The national government budget cycle consists of four phases, namely: 1) budget preparation, 2) budget legislation or authorization, 3) budget execution or implementation, and 4) budget accountability (Briones, 1996):
- Budget Preparation
This involves the formulation or devisement of a national budget based on budgetary priorities and activities given available revenues and borrowing limits.
The Development Budget Coordination Committee (DBCC), an interagency body, conducts consultations and studies on fiscal and financial issues with the objective of determining overall expenditure levels, revenue projection, deficit levels, and the financing plan. These are then forwarded to the cabinet and the President for approval. After approval by the President, the Department of Budget and Management (DBM) issues a Budget Call. The call usually issued in November directs the different agencies to prepare their respective budget proposals in accordance with approved budget ceilings.
- Budget Authorization or Legislation
In this phase of the budget cycle, the budget is reviewed by the House of Representatives and followed by the Senate through consultation and justification by department and agency heads of their budget proposals. Conflicting provisions are worked out and harmonized by a conference committee. Once a common budget bill has been approved by both chambers, it is submitted to the President for approval. The product of the President’s approval of the proposed budget legislation is the General Appropriations Act (GAA).
- Budget Execution
This phase of budget cycle is the implementation of the General Appropriations Act. The Department of Budget and Management (DBM) implements the national budget through the administrative supervision of the President. The Bureau of Treasury of the Department of Finance (DOF) coordinates with the DBM so that cash releases by the latter are based on collected revenues by DOF.
- Budget Accountability
Budget accountability is the analysis and review of the agency operating performance, systems and procedures, and the evaluation of agency accomplishments relative to cost incurred. It compares actual expenditures and performance with the planned expenditures and predetermined targets of the organization.
Expenditures by Class and Object
The national budget is allocated and earmarked for the implementation of various government programs and projects, the operation of government offices and payments of salaries of government officials and employees, maintenance and operations, and payment of public debts. These expenditures may be in terms of expense class, budgetary object, sector, and implementing unit of national government and in the region.
Briones (1969) enumerates two different expense classes and several budgetary objects under each class. These are:
1. Current Operating Expenses (COE)
COEs are appropriations for the purchase of goods and services for the conduct of normal operations within a budget year. The different budgetary objects are:
Nature of Expenditures Object Number
Personal Services (PS) 100
Salaries of permanent positions 110A
Contractual, casual, and emergency personnel 115A
Substitute teachers 115B
Lump sum for new positions 120C
Terminal leave benefits 130
PAG-IBIG contributions 320
Medicare premiums 330
Employee compensation insurance program 340
RATA 500A
Honoraria 500B
Training and personnel improvement 600
Year-end bonus and cash gift 800
Step increment for length of service 900A
Personnel Economic Relief Allowance (PERA) 900D
Additional P500 allowance 900E
Clothing uniform allowance 900J
Student labor 900R
Productivity incentive bonus 900U
Magna Carta of Public Health Workers 900V
Others 900W
Maintenance and Other
Operating Expenses (MOOE) 200
Traveling Expenses 02
Communication services 03
Repair and maintenance of other facilities 04
Repair and maintenance of motor vehicles 05
Transportation services 06
Other supplies and materials 07E
Rents 08
Other grants, subsidies and contributions 10C
Water, illumination, power services 14
Training and Seminar expenses 17
Extraordinary and miscellaneous expenses 18
Library books and materials 27
Other services 29
2. Capital Outlays (CO)
COs are appropriations for the purchase of goods and services the benefits of which go beyond the budget year which add to the government physical assets. These include infrastructure projects such as construction of roads, school buildings, laboratories, gymnasiums, sports facilities and others. The acquisition of equipment like laboratory apparatuses, computer units and peripherals, duplicating machines, motor vehicles, and others falls under CO. The budgetary objects under CO are:
Nature of Expenditures Object Number
Lands and Land Improvement 34
Buildings and Structures 35
Furniture, Fixtures, Equipment and Books 36
Budgeting Structure and Processes
In a college or university, the budgeting process is as important as planning. But budgeting can only proceed with a strategic plan. There has got to be a budget council to undertake budgeting activity. But the more logical thing to do is to integrate the Planning Council and the Budget Council into one.
Actual costing of programs, projects, and activities for annual action plans, on one hand, and short- or long-term plans, on the other, differ. For the former, certain traditional indicators and rules and regulations should be determined and observed, like enrolment, class size, cost per student by educational level, and number of faculty members and support staff.
The more radical indicators are the output- or outcome-oriented ones, such as number of graduates who passed the licensure examinations, number of employed graduates or trainees and others. Examples of rules and regulations are set expenditure ceilings, moratorium on some expense class and budgetary objects, and austerity policies. Undoubtedly, these indicators and regulations dictate the amount of budgetary expenditures a university or college is allocated in a given year (Miclat, 2005).
For two-year and beyond plans, the more practical way of budgeting is making projections by expense class and budgetary objects. The results of such projections would indicate which expense classes and objects are used more often and those used sparingly by the agency.
Projections can be made if previous data and statistics preferably during the last five years are made available.
There are several ways of making projections. The more popular ones are geometric rate of growth, exponential growth rate, average annual percent increase, and Sprague formula. Depending on which type of projections one adopts or uses, rates of increases are arrived at. Projections made under each expense class and budgetary objects as well as on the total budget estimates for each operating year should be explained. Said reasons should include various parameters on such areas as social, economic, political, natural and technological. With these parameters, more realistic rates of projections can be set and adopted (Ibid.).