FAQs for LGUs' Budgeting
A. Budget Preparation
1. Can the LGU appropriate for Monetization of Leave Credits?
Generally, Monetization of Leave Credits is chargeable against savings. However, under CSC-DBM Joint Circular No. 2, s.2003, Monetization of Leave
Credits, CNA Incentive Bonus, Overtime Pay, and such other benefits that are authorized by law but are chargeable against savings of the LGUs may also be
included by direct appropriation either in the annual budget or supplemental budget of the LGU concerned, provided these are within the PS Limitation as
stipulated under Section 325 (a) of R.A. No. 7160.
2. Section 315 of R.A. No. 7160 provides that the local treasurer shall submit a certified statement covering the income and expenditures of the preceding
fiscal year, the actual income and expenditures of the 1 st two quarters of the current year, and the estimated income and expenditures for the last two
quarters of the current year. Article 411 of the IRR of R.A. No. 7160 provides that all such statements of income and expenditures shall be jointly
certified by the local treasurer and the local accountant.
· Can the LCE revise the amounts indicated in the Certification issued by the Treasurer?
· Can the Treasurer object to such decision/action of the LCE? What is the remedy of the Treasurer?
In case the treasurer does not concur with the decision/action of the LCE, he should state so in writing. Section 342 of R.A. No. 7160 may be applied by
analogy, which states that, “Unless he registers his objection in writing, the local treasurer, accountant, budget officer, or other accountable officer shall not be
relieved of liability for illegal or improper use or application or deposit of government funds or property by reason of his having acted upon the direction of a
superior officer, elective or appointive, or upon participation of other department heads or officers of equivalent rank. The superior officer directing, or the
department head participating in such illegal or improper use or application or deposit of government funds or property, shall be jointly and severally liable with
the local treasurer, accountant, budget officer, or other accountable officer for the sum or property so illegally or improperly used, applied or deposited.”
3. Can appropriation for development projects of no less than twenty percent (20%) of the IRA be appropriated in lump-sum amount?
No. The said 20% appropriation should cover itemized projects. Section 287 of R.A. No. 7160 provides that each LGU shall appropriate in its annual budget no
less than 20% of its annual IRA for development projects. Article 384 of its IRR provides further that the local development projects to be funded are those
embodied or contained in the local development plans.
Article 410 further provides that the “LDCs shall submit to the local finance committee a copy of the local development plan and annual investment program
prepared and approved during the fiscal year before the calendar for budget preparation in accordance with applicable laws, specifying therein projects proposed
for inclusion in the local government budget…. x x x. The local finance committee shall use the plan to ensure that projects proposed for local funding are
included in the budget.”
4. Is an Appropriation Ordinance necessary to authorize utilization of R.A. No. 7171 Funds?
There are two components of the R.A. No. 7171 shares of LGUs:
· Direct shares
· Congressional shares
The direct shares of LGUs from R.A. No. 7171 Funds are released without specifying the projects/purposes covered thereby. Accordingly, an Appropriation
Ordinance is necessary to authorize the use of the said share to cover the projects/purposes enumerated under R.A. No. 7171, as implemented by Memorandum
Circular (MC) No. 61-A of the Office of the President.
The Congressional shares of the district from R.A. No. 7171 Funds are released with specific projects/purposes identified by the legislator concerned. Thus, they
are considered as Trust Funds.
A trust fund shall only be used for the specific purpose for which it was created or for which it came into the possession of the local government unit” (Section
309, R.A. No. 7160). Trust Funds are “Special Funds” that are deemed automatically appropriated for purposes indicated therefor (Article 448 [b], IRR of R.A.
Accordingly, such congressional shares no longer require Appropriation Ordinances.
5. Is an Appropriation Ordinance necessary to authorize utilization of loan proceeds?
Loans, interests, bond issues, and other contributions for specific purposes are considered as special accounts in the general fund (Section 313, R.A. No.
7160). A special account in the general fund requires an Appropriation Ordinance for its utilization.
6. Is an Appropriation Ordinance necessary to authorize the use of the shares in the proceeds fromthe development and utilization of the national
Yes. Article 391 of the IRR of R.A. No. 7160 provides that the proceeds from the shares of LGUs in the proceeds from the development and utilization of the
national wealth shall be appropriated by their respective Sanggunian to finance local development and livelihood projects. Article 454 (d) of the same IRR
reiterates this mandate and provides further that disbursements from such special accounts under the General Fund shall proceed from itemized appropriations in
the budgets of LGU instead of by lump-sum. Such itemized appropriations shall be for specific development projects/activities embodied in the local
development plan and/or public investment program formulated and prioritized by the LDC and approved by the Sanggunian concerned.
B. Budget Authorization
1. Are the voting and procedural requirements of the ordinance authorizing the use of savings and augmentation under Section 336 of R.A. No. 7160 the
same as those for the ordinance authorizing the use of savings as a fund source for a supplemental budget under Article 417 of R.A. No. 7160, as
amended by A.O. No. 47 dated 12 April 1993 (implementing Section 321 of R.A. No. 7160)?
As to voting requirement - The affirmative vote of a majority of all the Sanggunian members is required to pass an Appropriation Ordinance, whether for annual
or supplemental budgets, under Article 107 (g) of the IRR of R.A. No. 7160. Relatedly, the use of savings and augmentation within the same expense class falls
under the category of “Use of Appropriated Funds and Savings” under Section 336 of the same law. Hence, if the Appropriation Ordinance requires absolute
majority in its passage, it follows that any modification in said appropriation will have to comply with the same requirement.
As to procedural requirement – A supplemental budget is not required in passing an ordinance authorizing the use of savings and augmentation within the same
expense class under Section 336 of R.A. No. 7160 since the law merely requires the authority “by ordinance.”
Considering the foregoing, while the ordinance under Section 336 and an Appropriation Ordinance have the same voting requirements, each has a different
procedural requirement. Further, the ordinance under Section 336 may have a regular format simply stating that the LCE and/or the Presiding Officer of the
Sanggunian is authorized to augment any item in the approved annual budget for their respective offices from savings in other items within the same expense
class of their respective appropriations, as opposed to the use of savings considered as funds actually available to be covered by a supplemental budget as
provided under Article 417 of R.A. No. 7160, as amended by A.O. No. 47 (implementing Section 321 of R.A. No. 7160).
Nevertheless, it is suggested that, for convenience, should the Sanggunian decide to grant the LCE and/or the Presiding Officer of the Sanggunian with the
authority to use savings and augment within the same expense class in their respective appropriations, the said authorization may be included as a general
provision/section in the ordinance authorizing the annual appropriations.
2. What is the difference between the use of savings as a fund source for a supplemental budget under Article 417 of the IRR of R.A. No. 7160 as
amended by A.O. No. 47 (implementing Section 321 of R.A. No. 7160) and the use of savings for augmentation under Section 336 of R.A. No. 7160?
The use of savings under Article 417 of the IRR as amended by A.O. No. 47, implementing Section 321 of R.A. No. 7160, will require the enactment of an
ordinance authorizing supplemental appropriations (supplemental budget). Under A.O. No. 47, an ordinance providing for a supplemental budget may be
enacted when supported by funds actually available as certified by the local treasurer. Said A.O. further provides that funds are likewise deemed actually
available when there are savings.
In this case, the usual process of authorizing a supplemental budget will always apply. The supplemental budget will involve the reversion of the savings and its
corresponding re-appropriation to any item of expenditure under any expense class.
On the other hand, the use of savings for augmentation under Section 336 will require the enactment of an ordinance, without the necessity of a supplemental
budget submitted by the LCE. The ordinance will give the omnibus authority to the LCE or the Presiding Officer of the Sanggunian to augment any item in the
approved annual budget for their respective offices from savings in other items within the same expense class of their respective appropriations.
3. Does the proposed ordinance covering the grant of authority to the LCE and/or the Presiding Officer of the Sanggunian to use savings and augment
within the same expense class in their respective appropriations under Section 336 of R.A. No. 7160 need to emanate from the LCE like that of a
No. The proposed ordinance granting the authority to use savings under Section 336 of R.A. No. 7160 need not emanate from the LCE unlike that of a
A supplemental budget reflects changes in the annual budget under the conditions provided in Section 321 of R.A. No. 7160 and Article 417 of its IRR as
amended by A.O. No. 47. Accordingly, since the annual budget emanates from the LCE as provided under Section 318 of R.A. No. 7160, the supplemental
budget should likewise emanate from the LCE.
On the other hand, the proposed ordinance granting authority to use savings under Section 336 is not a budget, thus, need not emanate from the LCE.
4. Summary of the distinctions between the use of savings and augmentation under Section 336 and the use of the savings as funds actually available for
supplemental budget under Article 417 of R.A. No. 7160, as amended by A.O. No. 47 (implementing Section 321 of R.A. No. 7160).
The following are the distinctions:
Requirement Section 336 Section 321
What is the instrument
Ordinance Ordinance covering a
required for authority?
Is there a need for a No need for a Supplemental budget
supplemental budget? supplemental budget needed
What is the purpose of
For augmentation of
the savings? For re-appropriation –
existing item/s of
may be to a different
expenditure within the
same expense class
Where should the From the LCE or the
From the LCE only
proposal emanate? Sanggunian
5. Can the LGU pass an ordinance authorizing use of savings and augmentation under Section 336 of R. A. No. 7160 when operating under a reenacted
No. Use of savings and augmentation under Section 336 of R.A. No. 7160 is possible only when there is an “approved annual budget” for the current year, not a
6. Can the Sanggunian increase items of appropriation in the executive budget?
Yes, provided that the aggregate increase does not cause an excess over the total proposed amount in the executive budget pursuant to Article 415 (a) of the IRR
of R.A. No. 7160.
7. Can the Sanggunian introduce/include new items in the executive budget?
Yes, but only to provide for statutory and contractual obligations and it does not cause an excess over the total proposed amount in the executive budget
pursuant to Article 415 (a) of the IRR of R.A. No. 7160.
As reference to questions 6 and 7 hereof, the doctrine enunciated in the case of Sarmiento, et al. vs. The Treasurer of the Philippines, et al. (GR Nos. 125680 and
126313, September 04, 2001) may be applied where the Supreme Court ruled that under Section 25 (1), Article VI of the 1987 Constitution, Congress is
enjoined from increasing the total budget for the operation of the Government as recommended by the President, not the individual items of
appropriations. Records of the 1986 Constitutional Commission reveal that the purpose of the provision is to avoid the possibility of a big budget deficit if
Congress were given an unbridled hand in passing upon the appropriations recommended by the President as specified in the budget. The constitutional
prohibition against such increase is an assurance that the expected income of the government will be sufficient for the operational expenses of its different
agencies and projects specified in the appropriations law.
It may be noted that the subject provision of R.A. No. 7160 prohibiting the increase in the proposed amount in the executive budget is similar to the provision in
Executive Order No. 292 (the Administrative Code of 1987), particularly Section 24, Chapter 4 on Budget Authorization, Book VI, in the case of national
government budgeting, to wit:
“SEC. 24. Prohibition Against the Increase of Appropriation. – The Congress shall in no case increase the appropriation of any project or program of any
department, bureau, agency or office of the Government over the amount submitted by the President in his budget proposal. In case of any reduction in the
proposed appropriation for a project or program, a corresponding reduction shall be made in the total appropriation of the department, office or agency
concerned and in the total of the General Appropriations Bill.”
8. Can the Sanggunian pass an Appropriation Ordinance covering a supplemental budget for the current fiscal year after December 31?
No. The Sanggunian cannot pass an Appropriation Ordinance covering a supplemental budget for the current fiscal year after December 31.
Supplemental budgets cover changes in the annual budget, thus, they should be authorized within the fiscal year covered by the annual budget. Article 455 of the
IRR of R.A. No. 7160 provides that “the official fiscal year of LGUs shall be the period beginning with the first (1 st) day of January and ending with the thirty-
first (31st) day of December of the same year.”
Further, the reversion of funds under Section 322 of R.A. No. 7160 is at the end of the fiscal year (except in cases of continuing appropriations when the capital
outlay projects are not yet completed).
9. In Section 320 of R.A. No. 7160, “The ordinance enacting the annual budget shall take effect at the beginning of the ensuing calendar year. An
ordinance enacting a supplemental budget, however, shall take effect upon its approval or on the date fixed therein.” What about the requirement of
publication under Section 59 of R.A. No. 7160 and Article 113 of its IRR?
Posting and/or publication, as the case may be, of an ordinance is required under Section 59 of R.A. No. 7160. The mandatory word “shall” was used by the law
without any qualification or exemption, as follows:
“(a) Unless otherwise stated in the ordinance or resolution approving the local development plan and public investment program, the same shall take effect after
ten (10) days from the date a copy thereof is posted in a bulletin board at the entrance of the provincial capitol or city, municipal, or barangay hall, as the case
may be, and in at least two (2) other conspicuous places in the local government unit concerned.”
“(d) In the case of highly urbanized and independent component cities, the main features of the ordinance or resolution duly enacted or adopted shall, in addition
to being posted, be published once in a local newspaper of general circulation within the city, provided, that in the absence thereof, the ordinance or resolution
shall be published in any newspaper of general circulation.”
10. What is the effect if the Appropriation Ordinance is not posted or published? Is posting/publication a requirement for the effectivity of the
Section 59 of R.A. No. 7160 entitled, “Effectivity of Ordinances or Resolutions” provides, among others, that unless otherwise stated in the ordinance or
resolution approving the local development plan and public investment program, the same shall take effect after ten (10) days from the date a copy thereof is
posted in a bulletin board at the entrance of the provincial capitol or city or municipal hall, as the case may be, and in at least two (2) other conspicuous places in
the LGU concerned. Further, in the case of highly urbanized and independent component cities, the main features of the ordinance or resolution duly enacted or
adopted shall, in addition to being posted, be published once in a local newspaper of general circulation within the city, provided, that in the absence thereof, the
ordinance or resolution shall be published in any newspaper of general circulation.
If the Appropriation Ordinance is not posted and/or published, as the case may be, its validity may be questioned. However, in practice, we observe the principle
of presumption of regularity and validity of laws, ordinances and other issuances, until invalidated by courts.
11. In the exercise of the veto power, the reenacted figure results in a situation where the expenditure is greater than the estimated income, what figure or
procedure would the LGU adopt?
By analogy, the rule under Section 323 of R.A. No. 7160 may be applied. The reenacted figure should necessarily not exceed the estimated income since the
basic rule is that the aggregate amount appropriated shall not exceed the estimates of income (Section 324 [a], R.A. No. 7160).
12. One of the functions of the Secretary to the Sanggunian is to keep the seal of the LGU and affix the same with his signature to all ordinances,
resolutions, and other official acts of the Sanggunian. What is the effect on the ordinance if the Secretary to the Sanggunian does not sign the
The law provides that the Secretary to the Sanggunian shall affix his signature to all ordinances and present the same to the Presiding Officer for his signature
(Section 469 [c (2)], R.A. No. 7160; Article 122 [a (3) (ii)], IRR of R.A. No. 7160). Hence, such requirement is mandatory.
Accordingly, the Secretary to the Sanggunian cannot refuse to sign the Appropriation Ordinance. Otherwise, he/she may be liable under applicable laws.
Nevertheless, in case the Secretary to the Sanggunian refuses to sign, such refusal will not affect the validity of the Appropriation Ordinance duly passed by the
Sanggunian. Otherwise, that would be tantamount to giving the Secretary to the Sanggunian the “veto power” or the control in deciding whether the
Appropriation Ordinance will be valid or not, and if it will be submitted for the consideration of the LCE.
13. Can the Sanggunian withdraw the proposed Appropriation Ordinance which was already submitted to the LCE for approval? If yes, when, how, and
There appears to be no legal provision in such a case. However, it may be assumed that the withdrawal of the proposed Appropriation Ordinance may not be
allowed since the legislation process by the Sanggunian at such point is already completed. Thus, the executive consideration of the proposed Appropriation
Ordinance should take its course.
14. What amount may the LGUs appropriate in their annual /supplemental budgets (ABs/SBs) covering proceeds from loans? Particularly, in the case of
SBs, what amount will be certified as actually available by the local treasurer and when is the fund considered actually available?
Whether the total amount of the loan as approved (but actually to be released in tranches) may already be considered as “funds actually available” or
only those amounts that are released to and actually received by the LGU.
Some LGUs contend that if the amount to be appropriated will be based on the loan proceeds released to and actually received by the LGU, then the
LGU will have to conduct a separate procurement for every loan proceeds received, in view of the provisions of R.A. No. 9184. They claim that this
may not be practical especially when the loan covers only one project in that it may result to one project having several contractors.
The total amount of the approved loan even if it would be received in tranches may be the subject of appropriations under the AB or SB.
Section 316 (b) of R.A. No. 7160 provides that the LFC shall recommend the appropriate tax and other revenue measures or borrowing which may be
appropriate to support the budget.
Further, SB may be enacted when it is supported by new revenue sources pursuant to Section 321 of R.A. No. 7160. It may be gleaned from Article 417 of the
IRR of the same law as amended by A.O. No. 47 that approved loans may be considered as a new revenue source when it has not been included in the estimate
of income which served as basis for the AB or not taken into account during the preparation and enactment of the AB.
For SB supported by funds actually available as certified by the local treasurer, the amounts to be certified are only those actually collected at any given point
during the fiscal year, which is over and above the estimated income collection for that point in the year. Thus, funds are actually available to be certified by the
local treasurer only when realized income exceeds estimated income as of the said fiscal year.
Thus, a separate procurement for every loan proceeds released and actually received is unnecessary. Under Section 5 of R.A. No. 9184, the Approved Budget
for the Contract is the budget for the contract approved by the Sanggunian. In addition, to ensure that obligations to be incurred will not exceed appropriations
and to guarantee that they will be backed up by cash, procurements should be made only after allotments have been released for the purpose.
15. Section 323 of R.A. No. 7160 provides the consequences in case the Sanggunian fails to enact the annual appropriations, among which, is the reenacted
budget. In this case, only the annual appropriations for salaries and wages of existing positions, statutory and contractual obligations, and essential
operating expenses authorized in the annual and supplemental budgets for the preceding year shall be deemed reenacted.
Further, the local treasurer is required to exclude from the estimates of income for the preceding fiscal year those realized from nonrecurring sources,
like national aids, proceeds from loans, sale of assets, prior year adjustments, and other analogous sources of income.
Relatedly, in case the revised income estimates be less than the aggregate reenacted appropriations, the local treasurer shall accordingly advise the
Sanggunian which shall, within ten (10) days from receipt of such advice, make the necessary adjustments or reductions. The revised appropriations
authorized by the Sanggunian shall then be the basis for disbursements.
What instrument is required from the Sanggunian in authorizing the revised appropriations in case the revised income estimates be less than the
aggregate reenacted appropriations?
Legislative actions of a general and permanent character are enacted in the form of ordinances, while those of temporary character are passed in the form of
resolutions (Article 107 [a], IRR of R.A. No. 7160). Using these definitions, it may be opined that the instrument required from the Sanggunian for authorizing
revised appropriations in case the revised income estimates be less than the aggregated reenacted appropriations is a resolution inasmuch as a reenacted budget
may be considered as of temporary nature only pending the enactment of the Appropriation Ordinance authorizing the annual budget.
16. Whose signatures are required in the Appropriation Ordinance? Will the Appropriation Ordinance need the signature of all the members of the
Sanggunian or only those who have voted in favor of its passage?
As long as the Appropriation Ordinance was duly enacted by the Sanggunian, the minimum signatures required therein are those of the Secretary to the
Sanggunian, the Presiding Officer, and the LCE.
However, the Internal Rules of Procedure may provide additional requirements for signatures in the Appropriation Ordinance.
17. One of the functions of the Secretary to the Sanggunian is to keep the seal of the LGU and affix the same with his signature to all ordinances,
resolutions, and other official acts of the Sanggunian and present the same to the Presiding Officer for his signature. What if the Presiding Officer does
not sign the ordinance? What is the effect on the ordinance?
There is no specific provision directly mandating the regular Presiding Officer of the Sanggunian to sign the ordinance, etc. However, Section 469 (c  and
) of R.A. No. 7160 substantially states as follows:
The Secretary to the Sanggunian shall affix his signature to all ordinances and present the same to the Presiding Officer for his signature (Section 469 [c (2)],
R.A. No. 7160; Article 122 [a (3) (ii)], IRR).
The Secretary to the Sanggunian shall forward to the LCE for approval, copies of ordinances enacted by the Sanggunian and duly certified by the Presiding
Officer (Section 469 [c (3)], R.A. No. 7160; Article 122 [a (3) (iii)], IRR).
Further, Section 49 provides that the temporary Presiding Officer “shall certify within 10 days from the passage of the ordinance….”
Consequently, if the Presiding Officer refuses to sign, it may be manifested by the Secretary to the Sanggunian by certifying to the fact of the Presiding Officer’s
refusal to sign.
Such refusal, however, will not affect the validity of the Appropriation Ordinance duly passed by the Sanggunian since the Presiding Officer has no veto power.
18. When the LCE exercises his veto power in writing and has returned the Appropriation Ordinance together with his veto within the prescribed period,
what is the status of the vetoed items in the meantime that the Sanggunian has not acted on the veto?
Can the LCE implement the “reenacted items” immediately even before the Sanggunian attempts to override the veto?
Under Section 55 of R.A. No. 7160 and Article 415 of its IRR, the vetoed items or items shall not take effect unless the Sanggunian overrides the veto in the
manner provided in the same law. Otherwise, the item or items in the Appropriation Ordinance of the previous year corresponding to those vetoed, if any, shall
be deemed reenacted.
Considering such provision, it may be inferred that there must be an attempt by the Sanggunian to override the veto and the same was unsuccessful, thus,
resulting to the reenactment of the items from the previous year’s Appropriation Ordinances (covering annual and supplemental budgets) corresponding to those
Accordingly, the vetoed items shall not take effect, unless the veto is overridden. Nevertheless, if the attempt to override was unsuccessful, this will result to the
reenactment of the items corresponding to those vetoed.
19. What are the disadvantages of a reenacted budget in case of failure of the Sanggunian to enact the annual appropriations?
Only the annual appropriations for salaries and wages of existing positions, statutory and contractual obligations, and essential operating expenses authorized in
the annual and supplemental budgets for the preceding year shall be deemed reenacted and disbursement of funds shall be in accordance therewith (Section 323,
R.A. No. 7160; Article 415, IRR of R.A. No. 7160).
Accordingly, a reenacted budget will have implied disadvantages, such as but not limited to, the following:
· No creation of positions
· No filling of positions
· No new programs, projects and activities
· The increase in IRA allocation for the year cannot be utilized since the same is not covered by an Appropriation Ordinance
· Non-recurring activities cannot be undertaken no matter how vital they may be
20. Is the appropriation for development projects of no less than twenty percent (20%) of the IRA included in the reenacted items?
No. Only the annual appropriations for salaries and wages of existing positions, statutory and contractual obligations, and essential operating expenses
authorized in the annual and supplemental budgets for the preceding year shall be deemed reenacted and disbursement of funds shall be in accordance therewith
(Section 323, R.A. No. 7160; Article 415, IRR of R.A. No. 7160).
Accordingly, there can be no implementation of new projects under a reenacted budget.
C. Budget Review
1. Should an ordinance authorizing supplemental appropriations (supplemental budget) submitted after the fiscal year be reviewed?
Yes, provided the ordinance authorizing the supplemental appropriations was enacted within the fiscal year covered by the annual budget, inasmuch as
supplemental budgets cover changes in the annual budget as authorized under Section 321 of R.A. No. 7160, as implemented by Article 417 of its IRR as
amended by A.O. No. 47 dated 12 April 1993.
2. May the provision for lump-sum before its legal basis is issued, like salary adjustments, be allowed in budget review?
If a legal basis exists during the review of the Appropriation Ordinance, the provision for the lump-sum may be allowed. Nevertheless, a condition that
subsequent provisions should be made only when there is an existing legal basis at the time of enactment of the Appropriation Ordinance shall be imposed in the
review action. Otherwise, in the absence of a legal basis at the time of the budget review, the lump-sum will be disallowed.
3. What happens if the Appropriation Ordinance or AIP is not reviewed by the higher Sanggunian because it did not comply with the 3-day prescriptive
period for its submission by the Secretary to the (lower) Sanggunian for review?
Can the higher Sanggunian refuse to review the Appropriation Ordinance or AIP? or
What can be the review action in this case?
For component cities and municipalities – “Within three (3) days after approval, the Secretary to the sangguniang panlungsod or sangguniang bayan, as the case
may be, shall transmit to the sangguniang panlalawigan for review, copies of approved ordinances and the resolutions approving the local development plans
and public investment programs formulated by the local development councils.” (Section 56 [a], R.A. No. 7160)
“Within thirty (30) days after receipt of copies of such ordinances and resolutions, the sangguniang panlalawigan shall examine the documents or transmit them
to the provincial attorney, or if there be none, to the provincial prosecutor, for prompt examination. The provincial attorney or provincial prosecutor shall, within
a period of ten (10) days from receipt of the documents, inform the sangguniang panlalawigan in writing of his comments or recommendations, which may be
considered by the sangguniang panlalawigan in making its decision.” (Section 56 [b], R.A. No. 7160)
“If the sangguniang panlalawigan finds that such an ordinance or resolution is beyond the power conferred upon the sangguniang panlungsod or sangguniang
bayan concerned, it shall declare such ordinance or resolution invalid in whole or in part. The sangguniang panlalawigan shall enter its action in the minutes and
shall advise the corresponding city or municipal authorities ofthe action it has taken.” (Section 56 [c], R.A. No. 7160)
“If no action has been taken by the sangguniang panlalawigan within thirty (30) days after submission of such an ordinance or resolution, the same shall be
presumed consistent with law and therefore valid.” (Section 56 [d], R.A. No. 7160)
In view of the foregoing, the Sangguniang Panlalawigan may refuse to review the Appropriation Ordinance or Resolution approving the AIP and return the same
to the Sangguniang Panlungsod or Sangguniang Bayan concerned.
In turn, the Sangguniang Panlungsod or Sangguniang Bayan concerned may enact another Appropriation Ordinance or pass another Resolution approving the
AIP, and submit such Appropriation Ordinance or Resolution approving the AIP to the Sangguniang Panlalawigan for review within the three 3-day
4. Can the LCE or Sanggunian withdraw an Appropriation Ordinance already submitted to a reviewing body? If yes, when, how and by whom?
No. The enactment of the Appropriation Ordinance has already been completed at the LGU level. Hence, the review process must take its course.
D. Items of Appropriations Included, by Attribution, in the General Fund Annual Budget
1. What are the items of appropriations that shall be included, by attribution, in the General Fund Annual Budget?
The following items of appropriations shall be included, by attribution, in the General Fund Annual Budget:
a. Gender and Development (GAD) Plan with its programs, projects and activities (PPAs) that specify women’s needs and GAD concerns pursuant to R.A. No.
7192 (Women in Development and Nation-Building Act), the Department of Budget and Management (DBM), National Economic and Development Authority
(NEDA), and National Commission on the Role of Filipino Women (NCRFW) Joint Circular (JC) No. 2004-1 issued in 2004 (superseding DBM-NEDA-
NCRFW JC No. 2001-1 dated August 15, 2001), and Department of the Interior and Local Government (DILG)-DBM-NCRFW JC No. 2001-01 dated
December 19, 2001;
b. Plans, PPAs and services that will address the needs of senior citizens and differently-abled persons pursuant to the applicable provisions in the annual General
Appropriations Act (GAA) and R.A. No. 7432 (An Act to Maximize the Contribution of Senior Citizens to Nation Building, Grant Benefits and Special
Privileges and for Other Purposes), R.A. No. 7876 (An Act Establishing a Senior Citizens Center in All Cities and Municipalities of the Philippines, and
Appropriating Funds Therefor), and R.A. No. 7277 (Magna Carta for Disabled Persons) as amended by R.A. No. 9442;
c. Facilities that will enhance the mobility, safety and welfare of differently-abled persons pursuant to R.A. No. 7277 and Batas Pambansa Blg. 344;
d. Community-based Human Immunodeficiency Virus/Acquired Immune Deficiency Syndrome (HIV/AIDS) prevention and care services pursuant to R.A. No.
8504 (Philippine AIDS Prevention and Control Act of 1998);
e. Implementation of basic social services responsive to the Millennium Development Goals (MDGs), such as:
· Poverty reduction projects;
· Nutrition services;
· Basic education services;
· Maternal and child health services;
· Health services to combat HIV/AIDS, malaria and other major diseases; and
· Safe drinking water.
f. Implementation of the programs of the Local Councils for the Protection of Children (LCPC) pursuant to R.A. No. 9344 (Juvenile Justice and Welfare Act of
2006). One percent (1%) of the IRA of barangays, municipalities and cities shall be allocated for the strengthening and implementation of the programs of the
LCPC: Provided, that the disbursement of the fund shall be made by the LGU concerned.
E. Intelligence and/or Confidential Expenses
1. What are Confidential and Intelligence Expenses?
Intelligence Expenses refers to expenses related to intelligence information gathering activities of uniformed personnel and intelligence practitioners that have
direct impact to national/local security.
Confidential Expenses refers to expenses related to surveillance activities in civilian department/agencies that are intended to support the mandate/operations of
2. What are the legal bases for the allocation and use of funds for intelligence and confidential purposes?
The general welfare clause under Section 16 of R.A. No. 7160 states, among others, that, LGUs shall “…maintain peace and order, and preserve the comfort
and convenience of their inhabitants.”
Accordingly, the DILG in its capacity and general supervisory authority over LGUs as delegated by the President pursuant to Administrative Order (A.O.) No.
267 series of 1992 issued Memorandum Circular (MC) No. 99-65 dated April 23, 1999 providing policies and guidelines relative to the utilization of funds for
intelligence or confidential purposes. These guidelines were further supplemented by DILG MC No. 99-100 dated June 15, 1999.
The Commission on Audit (COA) has strengthened the use of public funds for intelligence and/or confidential purposes when it issued COA Circular No. 92-
385 dated October 1, 1992 and COA Circular No. 2003-003 dated July 30, 2003 relative to the audit and liquidation guidelines and documentary requirements
of Intelligence and/or Confidential Funds. It further prescribed separate accounts in the Revised New Government Accounting System (NGAS) Chart of
Accounts under COA Circular No. 2003-001 dated June 17, 2003. Hence, the General Fund Books of Accounts of LGUs have separate accounts for
Confidential Expenses (881) and Intelligence Expenses (882) under a common heading, “Confidential, Intelligence, Extraordinary and Miscellaneous
3. What are the guidelines in the allocation and/or confidential purposes and use of public funds for intelligence?
The guidelines in the allocation and use of public funds for intelligence and/or confidential purposes are prescribed under DILG MC No. 99-65 as supplemented
by DILG MC No. 99-100. The following provisions thereof may be emphasized:
a. An allocation for peace and order concerns may be provided in the annual budget of an LGU. Provided, that peace and order is a priority investment area.
b. The total annual amount appropriated for intelligence or confidential undertakings shall not exceed thirty percent (30%) of the total annual amount allocated for
peace and order efforts or three percent (3%) of the total annual appropriations, whichever is lower.
A. Total Allocation for Peace and Order P10M
Multiply by 30% 30%
Allocation for Intelligence/Confidential Fund P 3M
B. Total Appropriations (Annual Budget) P200M
Multiply by 3% 3%
Allocation for Intelligence/Confidential Fund P 6M
In this case, the computation yielding the lower amount (i.e., letter A) shall be used as basis in the allocation for intelligence/confidential purposes.
The funds appropriated for Intelligence an/or Confidential activities shall be used purposely for the conduct of intelligence and/or confidential operations and
shall be limited to the following:
· purchase of information;
· payment of rewards;
· rental and other incidental expenses relative to the maintenance of safehouses; and
· purchase of supplies and ammunitions, provision of medical and food aid, as well as, payment of incentives or travelling expenses relative to the conduct of
intelligence or confidential operations.
F. Calamity Fund
1. What is a Calamity?
R.A. No. 8185 defined “Calamity” as follows:
Calamity is a state of extreme distress or misfortune, produced by some adverse circumstance or event or any great misfortune or cause or loss or misery caused
by natural forces.
2. What is the legal basis of the Calamity Fund?
The Calamity Fund is one of the budgetary requirements prescribed under Section 324 (d) of R.A. No. 7160. Said Section was subsequently amended by R.A.
Section 1 of R.A. No. 8185 provides:
"SECTION 1. Section 324 (d) of Republic Act No. 7160 is hereby amended to read, as follows:
(d) Five percent (5%) of the estimated revenue from regular sources shall be set aside as annual lump sum appropriations for relief, rehabilitation,
reconstruction and other works or services in connection with calamities which may occur during the budget year. Provided, however, That such fund shall be
used only in the area, or a portion thereof, of the local government unit or other areas affected by a disaster or a calamity, as determined and declared by the
local sanggunian concerned.
The local development council shall monitor the use and disbursement of the local calamity fund."
3. What are the guidelines on the use of the Calamity Fund?
Pursuant to Section 324 (d) of R.A. No. 7160 (as amended by R.A. No. 8185), the Calamity Fund may be used for the following activities:
a. For relief, rehabilitation, reconstruction and other works or services in connection with calamities which may occur during the budget year. Provided, however,
that such Fund shall be used only in the area, or a portion thereof, of the LGU or other areas affected by a disaster or calamity, as determined and declared by the
local Sanggunian concerned;
b. In case of fire or conflagration, the Calamity Fund shall be used only for relief operations.
DBM-DILG Joint Memorandum Circular (JMC) No. 2003-1 (Use of Local Calamity Fund Appropriation for Man-Made Disaster Relief and Mitigation) dated
March 20, 2003 was issued to expand the utilization of the 5% Calamity Fund.
The Fund may now also be validly used for relief, rehabilitation, reconstruction and other works or services in connection with man-made disasters resulting
from unlawful acts of insurgents, terrorists and other criminals, as well as for disaster preparedness and other pre-disaster activities.
Such relief, rehabilitation, reconstruction and other works or services including pre-disaster activities in connection with such man-made disasters may, at the
discretion of the LGU concerned, include the following:
a. Medical assistance, death and funeral benefits to the victims, their dependents and immediate families, including victims who are Overseas Filipino Workers
b. Financial assistance and other services for medical, rescue and relief workers who have been tasked to attend to the victims; and
c. Preparation of relocation sites/facilities, disaster preparedness training and other pre-disaster activities.
An undated DBM-DILG JMC was issued to provide clarificatory guidelines on the use of the 5% Calamity Fund, the pertinent provisions of which read, as
"1.0 Pursuant to the provisions of RA 8185, otherwise known as „An Act Amending Section 324 (d) of RA 7160, otherwise known as the Local Government Code of
1991‟, (sic) its Implementing Rules and Regulations, and Executive Order No. 201 dated 26 April 2003, it is hereby clarified that the 5% local calamity fund of
every local government unit (LGU) shall be utilized only for the relief, reconstruction, rehabilitation and other works and services, in connection with a
calamity which occurred during the budget year. Under the aforesaid Act, calamity has been defined as a state of extreme distress or great misfortune caused by
adverse event or natural force, causing widespread loss or extensive damage to livestocks, lives, crops and properties. Accordingly, any adverse event, such as
but not limited to, acts of terrorism and spread of Severe Acute Respiratory Syndrome (SARS) or other endemics, that could fall within the ambit of the
definition of calamity defined by law, can be a legal basis for LGUs concerned to declare their own state of calamity.
2.0 The calamity fund may also be utilized for undertaking disaster preparedness activities and measures, provided that the sanggunian concerned shall declare an
imminent danger of calamity. In extreme cases and under extra-ordinary circumstances, such as but not limited to, acts of terrorism and outbreak of dangerous
and highly communicable diseases such as SARS, the calamity fund may also be utilized for disaster preparedness without need of a sanggunian declaration of
calamity provided that there is a Presidential proclamation of the existence of an adverse event that would warrant the declaration of the entire country to be
under the state of national calamity, which needs to be prevented and suppressed.”
It must be emphasized, however, that all unexpended balances of the Calamity Fund shall be reverted to the unappropriated surplus for re-appropriation during
the succeeding budget year. This is provided under Item b.4 of the IRR of R.A. No. 8185, as follows:
“b.4 Any unexpended balance of the Calamity Fund at the end of the Current Year shall revert to the Unappropriated Surplus for re-appropriation during the
succeeding budget year.
Provided, that the appropriation for capital outlays shall remain valid until fully spent or reverted.
Provided, further, that in cases as may be determined by the Sanggunian concerned, the unexpended balance of the maintenance and other operating expenses
portion of the aforesaid fund in support for the relief, rehabilitation, reconstruction and other works and services undertaken during the year in connection with
the occurrence of the calamities, the effective implementation of which may extend beyond the calendar year subject to accounting and auditing rules and
regulations being observed for the purpose."
4. Can motor vehicles (including ambulances) be purchased from the Calamity Fund?
No. The purchase of motor vehicles, including ambulances, is not among the purposes for which the Calamity Fund may be used.
5. Can drugs and medicines be purchased out of the Calamity Fund?
Yes. Drugs and medicines may be purchased out of the Calamity Fund, provided, that the same is necessary for the conduct of relief operations in connection
with a calamity which occurred during the budget year, in accordance with the other requirements under Section 324 (d) of R.A. No. 7160, as amended by R.A.
6. Can the purchase of drugs and medicines be included as part of pre-disaster activities for which the Calamity Fund may be used?
Yes. Purchase of drugs and medicines may be included as part of pre-disaster activities for which the Calamity Fund may be used.
A DBM-DILG JMC re Clarificatory Guidelines on the Use of the 5% Calamity Fund, provides, among others, as follows:
“2.0 The calamity fund may also be utilized for undertaking disaster preparedness activities and measures, provided that the sanggunian concerned shall declare an
imminent danger of calamity. In extreme cases and under extra-ordinary circumstances, such as but not limited to, acts of terrorism and outbreak of dangerous
and highly communicable diseases such as SARS, the calamity fund may also be utilized for disaster preparedness without need of a sanggunian declaration of
calamity provided that there is a Presidential proclamation of the existence of an adverse event that would warrant the declaration of the entire country to be
under the state of national calamity, which needs to be prevented and suppressed.” (emphasis supplied)
7. Can the provision for Calamity Fund exceed 5% of the estimated revenue from regular sources?
No. Section 324 (d) of R.A. No. 7160 prescribes that 5% of the estimated revenue from regular sources shall be set aside as an annual lump sum appropriation
for unforeseen expenditures arising from the occurrence of calamities. Accordingly, LGUs should provide the exact 5% requirement.
On the other hand, any additional requirement may be provided through the enactment of a supplemental budget. Section 321 of R.A. No. 7160, as implemented
by Article 417of its IRR as amended by A.O. No. 47, provides that in times of public calamity, a supplemental budget may be enacted by way of budgetary
realignment to set aside appropriations for the purchase of supplies and materials or the payment of services, which are exceptionally urgent or absolutely
indispensable to prevent imminent danger to, or loss of, life or property, in the jurisdiction of the LGU or in other areas declared in a state of calamity by the
G. Allocation to Local Government Units
1. Are barangays created by local government units after the effectivity of R.A. No. 7160 entitled to IRA shares?
No. The financial requirements of barangays created by local government units after the effectivity of R.A. No. 7160 shall be the responsibility of the local
government unit concerned (Section 285, R.A. No. 7160)
2. When are LGUs created in the ARMM entitled to IRA shares allotted to LGUs under R.A. No. 7160?
LGUS created in the ARMM are entitled to IRA shares allotted to LGUs under R.A. No. 7160 when the standards prescribed in the same Act are observed in
Section 19 of R.A. No. 9054, entitled, “The Organic Act for Autonomous Region in Muslim Mindanao” in part, provides:
“x x x Provinces, cities, municipalities, or barangays created, divided, merged, or whose boundaries are altered without observing the standards prescribed by
Republic Act No. 7160, the Local Government Code of 1991, shall not be entitled to any share of the taxes that are allotted to the local government units
under the provision of the Code.” (Emphasis supplied)
3. If LGUs under the ARMM were created without observing the standards prescribed under R.A. No. 7160, where shall they get their financial
Pursuant to Section 19 of R.A. No. 9054, the financial requirements of the provinces, cities, municipalities, or barangays so created, divided or merged shall be
provided by the Regional Assembly out of the general funds of the Regional Government.
4. For purposes of determining the IRA allocation of LGUs based on land area, can the DBM adjust the IRA of the LGU concerned based on the
individual certification issued by the Land Management Bureau (LMB) to LGUs?
Under the Local Government Code (LGC), all issues affecting land area falls under the function of the LMB-DENR. For purposes of IRA computation based on
land area, any change in the land area shall be made every 3 rd year after 1999 per the consolidated masterlist of land area to be submitted by the LMB-DENR to
DBM on or before December 15.
In the ARMM, the request of the LMB-ARMM for land area adjustment of LGU shall be endorsed by the DENR-ARMM and approved by the Regional ARMM
Governor for final endorsement/submission to the Secretary DENR-Central.
H. Aid to Barangays
1. What is the legal basis for the provision of Aid to Barangays?
Section 324 (c) of R.A. No. 7160 provides that, “In the case of provinces, cities, and municipalities, aid to component barangays shall be provided in amounts of
not less than One thousand pesos (P1,000.00) per barangay;”
I. Premium Subsidy for Indigents under the National Health Insurance Program
1. What is the legal basis for providing Premium Subsidy for Indigents under the National Health Insurance Program?
The legal basis for providing Premium Subsidy for Indigents under the National Health Insurance Program is R.A. No. 7875 dated July 25, 1994 entitled, “An
Act Instituting a National Health Insurance Program for All Filipinos and Establishing the Philippine Health Insurance Corporation for the Purpose.”
Premium Sharing Scheme Between the
National Government (NG) and LGUs
Particulars NG LGU
1st to 3rd class LGUs (1st – 6th year
4th to 6th class LGUs
1st and 2nd years of program
3rd year of program
4th year of program
5th year of program
6th year and onwards 50% 50%
2. What is the purpose of the Fund?
The amount appropriated in the GAA represents financial assistance to LGUs as National Government (NG) counterpart for the premium contributions of
indigents enrolled in the National Health Insurance Program in accordance with the premium sharing scheme between the NG and the LGUs.
J. Gender and Development (GAD)
1. What is GAD?
GAD is an approach to development that focuses on how social, economic, political and cultural forces determine how differently women and men participate
in, benefit from, and control resources and activities for development. It recognizes the different roles, responsibilities, expectations, interests, needs, and
contributions of men and women in society and integrates these gender concerns in the development planning process. GAD recognizes women as agents of
development and not merely as passive recipients of development assistance.
2. What are the legal bases for GAD, and GAD Planning and Budgeting?
R.A. No. 7192 and Executive Order (E.O.) No. 273 mandate agencies, including LGUs to institutionalize GAD in government by incorporating the GAD
concerns in their planning, programming and budgeting process.
The allocation of funds for the implementation of a GAD Plan is a statutory requirement that must be complied with by provinces, cities, municipalities and
The Philippine Plan for Gender-Responsive Development (PPGD), 1995-2025, which was adopted through E.O. No. 273, specifies the services that must be
implemented for women in relation to those stipulated in R.A. No. 7160.
DBM-NEDA-NCRFW JC No. 2004-1 (superseding DBM-NEDA-NCRFW JC No. 2001-01), provides the guidelines for the preparation of annual GAD Plan
and Budget and Accomplishment Report to implement the Section on programs/projects related to GAD as provided in the annual GAA.
For a more comprehensive discussion on GAD, refer to the Primer on Gender Mainstreaming and Institutionalization in the Budgeting Process, August 2002,
issued jointly by the DBM and NCRFW through the support of the Canadian International Development Agency.
3. What is a GAD Plan?
A GAD Plan is a tool for gender mainstreaming. A GAD Plan is a systematically designed set of PPAs carried out by agencies for a given period of time to
address gender issues and concerns of their respective sectors and constituents, specifying the targets to be achieved and identifying the performance indicators
that will measure their accomplishments.
The GAD Plan is viewed as an integral part of the overall LGU plan. The formulation of a GAD Plan shall follow the regular planning and budget
calendar/schedule of LGUs and shall be anchored on the existing Comprehensive Land Use Plan, Provincial Development and Physical Framework
Plan/Comprehensive Development Plan, Local Development Investment Program and Annual Investment Program (AIP) preparation.
4. What is a GAD Budget?
A GAD Budget is the total amount provided in the General Fund Budget of the LGU to finance the PPAs in the GAD Plan.
The earmarking of at least 5% of the total annual appropriation for GAD-related activities is an indicative figure that should be attributed in the existing
PPAs of LGUs’ budgets.
Accordingly, the GAD budget must not be interpreted as an additional and separate fund that will be provided by the national or local government.
5. How is the GAD Budget prepared?
The GAD Budget is prepared based on the estimated costs of functions and PPAs translated from the demands/commitments identified in the GAD Plan. The
GAD Focal Point Chairperson, in close coordination with the LGU’s Budget Officer, shall be responsible for the preparation of the GAD Budget. The review of
the GAD budget proposal is done following the regular evaluation process applicable to the regular budget proposal, of which the GAD Budget is a component.
In the determination of expenditure ceilings in terms of sectoral service and nature of expenditure as basis for budget preparation, the LFC shall ensure that the
GAD Plan, approved by the LDC and the Sanggunian, are considered as among the primary source documents used.
The costs of functions and PPAs to implement the GAD Plan may include any or all of the following items:
· Personal Services;
· Maintenance and Other Operating Expenses; and
· Capital Outlays.
The GAD PPAs may be classified into:
b. Organization-focused, where efforts are geared to respond to gender issues that affect the welfare and performance of women and men employees of the LGU;
c. Client-focused, where efforts address gender issues that affect LGU’s clients and/or constituents.
6. When is the GAD Budget implemented?
Inasmuch as the GAD Budget is attributed in the existing PPAs of LGUs’ budgets, the implementation of such PPAs would mean the implementation of the
7. How are the GAD Plan and Budget reported and monitored?
As required under DILG-DBM-NCRFW JC No. 2001-01, LGUs shall submit to the DILG Provincial/City and Municipal Offices their GAD accomplishment
reports not later than the end of January of the ensuing year.
The subsequent reporting and monitoring activities to be undertaken by the DILG are specified in the said JC.
K. Senior Citizens and the Differently-Abled
1. What are the legal bases for providing a budget for senior citizens and the differently-abled?
In support of the Philippine Plan of Action for Older Persons, 2005-2009, the cost of implementing plans, programs and projects intended to address the
concerns of senior citizens and the differently-abled shall be at least one percent (1%) of the agency’s total annual appropriations. This is anchored on the
provisions of various laws and administrative issuances, as follows:
a. E.O. No. 266, “Approving and Adopting the Philippine Plan of Action for Older Persons (PPAOP), 1999-2004,” created an Inter-Agency Committee chaired by
the DSWD to ensure, coordinate, monitor and evaluate the implementation of the PPAOP;
b. R.A. No. 7432, “An Act to Maximize the Contribution of Senior Citizens to Nation Building, Grant Benefits and Special Privileges and for Other Purposes,”
motivating and encouraging senior citizens to contribute to nation building and to mobilize their families and community, among others;
c. R.A. No. 7876, “An Act Establishing a Senior Citizens Center in All Cities and Municipalities of the Philippines, and Appropriating Funds Therefor,” wherein
senior citizens centers are intended to be used as venues for the delivery of integrated and comprehensive social services to senior citizens and other members of
d. R.A. No. 7277, the “Magna Carta for Disabled Persons,” declaring the rights and privileges of persons with disabilities to equal opportunities in employment,
education, health, auxiliary social services, telecommunications, accessibility and political and civil exercises; and
e. Proclamation No. 240 - Declaring the Period from the Year 2003 to the Year 2012 as the Philippine Decade of Persons With Disabilities and citing the 1% of the
agency appropriations as fund source, as required under the applicable provision of the annual GAA.
f. DBM-Department of Social Welfare and Development (DSWD) JC No. 2003-01 dated April 28, 2003, which states:
The provisions of this Joint Circular shall cover all national government agencies, executive departments, bureaus, offices, agencies, commissions, state
universities and colleges.
Consistent with the provisions stated in section 29, government financial institutions, government-owned and –controlled corporations andlocal government
units, shall issue separate guidelines to their respective Boards or Sangguniang Bayans.”
L. Personal Services Limitation
1. What is Personal Services?
Personal Services (PS) refers to appropriations for the payment of salaries, wages and other compensation of permanent, temporary, contractual, and casual
employees of the LGU (Section 306 [k], R.A. No. 7160).
For purposes of computing the 45%/55% PS Limitation, the "other compensation" as referred to therein and as determined pursuant to A.O. No. 42 dated March
3, 1993 issued by the President consists of the following:
a. Statutory and Contractual Obligations
i. Employees Compensation Insurance Premiums (ECIP);
ii. Health Insurance Contributions (HIC);
iii. Pag-IBIG Contributions (Pag-IBIG);
iv. Life and Retirement Insurance Contributions (LRIC); and
v. Retirement Gratuity and Terminal Leave (RG/TL) Benefits.
b. Authorized Allowances/Benefits
i. Additional Compensation (ADCOM);
ii. Personnel Economic Relief Allowance (PERA);
iii. Uniform/Clothing Allowance (U/CA);
iv. Productivity Incentive Benefits (PIB);
v. Commutable and Representation and Transportation Allowances (RATA);
vi. Year-end Benefits (YEB);
vii. Step Increments for Length of Service;
viii. Magna Carta Benefits of PHWs;
ix. Per diem of LGU officials/employees;
x. Specialists' Fees and Allowances (when there is employer-employee relationship); and
xi. All other legally authorized allowances/benefits of officials and employees of LGUs.
c. Lump-sum Appropriations
i. Lump-sum for Salary Adjustments;
ii. Lump-sum for Creation of New Positions;
iii. Lump-sum for Casual/Contractual Positions; and
iv. Lump-sum for Adoption of Higher Salary Schedule.
2. What is the legal basis for Personal Services (PS) Limitation?
The limitation of appropriations for PS for LGUs is provided under Section 325 (a) for provinces, cities and municipalities, and Section 331 (b) for barangays,
of R.A. No. 7160, which respectively provides, as follows:
“SEC. 325. General Limitations. – The use of the provincial, city, and municipal funds shall be subject to the following limitations:
(a) The total appropriations, whether annual or supplemental, for personal services of a local government unit for one (1) fiscal year shall not exceed forty-five
percent (45%) in the case of first to third class provinces, cities, and municipalities, and fifty-five percent (55%) in the case of fourth class or lower, of the total
annual income from regular sources realized in the next preceding fiscal year. The appropriations for salaries, wages, representation and transportation
allowances of officials and employees of the public utilities and economic enterprises owned, operated, and maintained by the local government unit concerned
shall not be included in the annual budget or in the computation of the maximum amount for personal services. The appropriations for the personal services of
such economic enterprises shall be charged to their respective budget;”
31. Preparation of the Barangay Budget. –
(b) The total appropriations for personal services of a barangay for one (1) fiscal year shall not exceed fifty-five (55%) of the total annual income
actually realized from local sources during the next preceding fiscal year.”
3. What are the guidelines on PS Limitation?
Local Budget Circular (LBC) No. 75 dated July 12, 2002 was issued to provide the guidelines on the preparation and review of the PS component of the annual
and supplemental budgets of LGUs, in relation to the waiver on the PS Limitation under Sections 325 (a) and 331 (b) of R.A. No. 7160.
a. The PS Limitation/Cap is the amount equivalent to 45% of the total income from regular sources earned in the next preceding fiscal year for 1st to 3rd class
provinces/cities/municipalities, or 55% for lower class LGUs, including barangays.
b. In formulating the budget of LGUs, the total allowable PS level must first be computed. For example:
LGU A (4th Class Municipality) Budget Year 2008
Total Income from Regular
Sources realized in FY 2006 P50,000,000
Multiply by PS Limitation/Cap Rate 55%_
Allowable PS Level P27,500,000
c. The second step is to determine the total PS cost that provides for the following priorities:
· Salaries of existing regular personnel
(including devolved and mandatory positions)
· Statutory and contractual obligations
(ECIP, HIC, Pag-IBIG, RLIP [now, LRIC],
RG and TL Benefits)
· Authorized allowances/benefits
(including Magna Carta Benefits of Public Health Workers [PHWs])
· Waived items
d. If the total PS cost as prioritized exceeds the PS Limitation/Cap (e.g., total PS cost for LGU A above is P30,000,000 vs. computed PS Cap of P27,500,000),
the LGU can no longer provide for additional PS items until such time that the PS Cap is observed. However, if the PS Cap is not exceeded after providing for
the priorities (e.g., total PS cost for LGU A above is P26,000,000 vs. computed PS Cap of P27,500,000), the LGU may still be allowed to provide additional PS
items to the extent of the difference between the computed PS cost and the PS Cap.
4. What are the PS items that are waived?
The PS Limitation/Cap shall be waived on the following PS items and activities mandated by law:
a. Absorption of national government personnel transferred on account of devolution;
b. Absorption of the cost of devolved hospital services transferred from the province, in the case of newly-created cities;
c. Creation of mandatory positions specified under R.A. No. 7160;
d. Continued implementation of the Compensation Standardization Law authorized under R.A. No. 6758, as amended, for provinces, cities and municipalities as
provided under existing standards, guidelines, rules and regulations;
e. Provision of minimum honoraria under R.A. No. 7160 and cash gifts for barangay officials;
f. Payment of the Magna Carta benefits of PHWs;
g. Payment of the RG/TL benefits; and
h. Payment of the monetization of leave credits of employees.
M. Creation of Positions
1. What is the general rule on creation of positions in LGUs?
Section 76 of R.A. No. 7160 empowers LGUs to design and implement their own organizational structure and staffing pattern that will effectively address their
respective developmental plans, programs, objectives and priorities. The creation of positions shall be consistent with the rules and regulations established under
Civil Service Commission (CSC) Memorandum Circular No. 19, series of 1992.
Further, per existing policy, creation of non-mandatory positions and offices in LGUs may be allowed subject to the following conditions:
· That they are priority needs as identified by the LCE, the Sanggunian and/or LDCs concerned consistent with Section 17 of R.A. No. 7160;
· All mandatory positions stipulated under R.A. No. 7160 have been created and provided;
· The SSL has been fully implemented;
· The devolution has been fully effected;
· The general limitations on PS expenditures are not exceeded; and
· The classification of the positions is consistent with the standards and implementing rules and regulations of R.A. No. 6758.
2. Can the LGU create new positions without corresponding appropriations?
R.A. No. 7160 provides that the Sanggunian shall determine the positions and the salaries, wages, allowances and other emoluments and benefits of officials and
employees paid wholly or mainly from local funds and provide for expenditures necessary for the proper conduct of programs, projects, services and activities
of the local government (Section 447 [a][viii]; Section 458 [a][viii]; and Section 468 [a][viii], R.A. No. 7160).
Accordingly, any position created in the LGU shall be adequately provided with funding requirements for basic salary, including the associated compensation
attached to the position such as allowances, RATA if entitled thereto, year-end benefits, etc., for it to be considered a properly created position. Otherwise, a
position is not deemed properly created if such had not been fully provided corresponding appropriations for basic salary and other compensation.
3. Are unfunded positions considered vacant and deemed to be abolished?
A vacant position is an authorized position in the official plantilla which is unfilled. Although vacant, the same is covered by adequate appropriation for salaries
and associated compensation costs.
On the other hand, unfunded positions, that is, those not covered by funds for salaries and associated compensation costs, should be deleted in the plantilla since
there are no appropriations to back up their legal existence.
It has been observed that the creation of positions without providing appropriations is a pervasive practice among LGUs, for which the rationale has not been
established and, therefore, is inimical to sound public administration. Said practice should be discouraged since creation of positions in LGUs is based on
priority needs as identified by the LCE or Sanggunian bodies concerned. Therefore, there appears no rhyme or reason on the creation of positions which are not
provided with appropriations and are not filled anyway.
N. Local Government Economic Enterprises and Public Utilities
1. What are the legal bases for the establishment and development of Local Economic Enterprises and Public Utilities?
The bases for the establishment and development of local economic enterprises and public utilities are contained in Section 22 (d), Section 313 and Section 325
(a) of R.A. No. 7160, quoted as follows:
“SEC. 22. Corporate Powers. – x x x
a) Local government units shall enjoy full autonomy in the exercise of their proprietary functions and in the management of their economic enterprises, subject to
the limitations provided in this Code and other applicable laws.”
“SEC. 313. Special Accounts to be Maintained in the General
Fund. – Local government units shall maintain special accounts in the general fund for the following:
(a) Public utilities and other economic enterprises;
Profits or income derived from the operation of public utilities and other economic enterprises, after deduction for the cost of improvement, repair
and other related expenses of the public utility or economic enterprise concerned, shall first be applied for the return of the advances or loans made
therefor. Any excess shall form part of the general fund of the local government unit concerned.”
“SEC. 325. General Limitations. - x x x
(a)…The appropriations for salaries, wages, representation and transportation allowances of officials and employees of public utilities and economic enterprises
owned, operated, and maintained by the local government unit concerned shall not be included in the annual budget or in the computation of the maximum
amount for personal services. The appropriations for the personal services of such economic enterprises shall be charged to their respective budgets;”
2. How may Local Economic Enterprises and Public Utilities be differentiated?
Economic Enterprises are income-generating establishments created for the purpose of improving production and delivery of basic goods or services for a
specific market or client group, which may include, but are not limited to:
a. Public markets or shopping malls;
b. Slaughter houses;
d. Sports, cultural and recreation centers;
e. Parking lots;
f. Ice plants;
g. Hospitals; and
h. Special and tertiary schools.
Public Utilities are revenue-raising undertakings created for the purpose of providing a basic need or service to the general public which otherwise cannot be
provided adequately by the private sector which may include, but are not limited to:
a. Water and sewerage services;
b. Garbage collection and disposal;
c. Telephone system;
d. Electric and power services; and
e. Public transport and terminal station services.
3. What are the general guidelines for the establishment of Local Economic Enterprises and Public Utilities?
An economic enterprise or public utility may be established after the conduct of a feasibility study showing proof of its economic and social viability in the long
A business development plan for the economic enterprise should be prepared (long-term, medium-term and annual plan) stating its mission or purpose, clients or
beneficiaries, strategies, activities and projects, organizational structure, financial plan or budget and expected returns.
The rationale and criteria for the establishment and operation of local economic enterprises and public utilities shall be as follows:
a. It satisfies both the economic and social objectives of concerned local government unit (LGU).
b. It fills-in service gaps not adequately provided by the private sector.
c. It shall operate with a lean and mean staffing complement to satisfy its income objective.
d. It shall operate like a corporate body with a separate strategic plan and budget.
Economic enterprises and public utilities shall be adopted and approved by the Local Development Council (LDC) after subjecting the proposal to public
hearings and deliberations by concerned sectors and stakeholders.
The local Sanggunian shall authorize the creation of an economic enterprise or public utility through the enactment of an ordinance citing the justifications
thereto, as to its viability or capacity to exist on its own funds.
The budget for economic enterprise and public utility shall be presented separately under the General Fund Annual Budget of the local government, subject to
the usual accounting and budgeting processes.
The initial operating requirements of economic enterprises and public utilities may be treated as advances or loans to be specifically appropriated by the
concerned local government in its Annual Budget. After two years of operation, or as reflected in its business development plan, the funding requirements of
economic enterprises and public utilities shall be sourced from its operating income or user fees.
The determination of the rates to be charged as user fees shall use the criteria of affordability, economic viability and social responsibility.
A balance between economic and social gains shall be the guiding principle in the final establishment of economic enterprises and public utilities. To attain this,
proper consultation with stakeholders and beneficiaries of the project shall be conducted through formal public hearings until a final consensus or agreement is
No user fees shall be charged unless a majority of the stakeholders have agreed on the rates to be charged. An ordinance relative to user fees shall be enacted by
the local Sanggunian and elevated to a higher Sanggunian level for final approval.
The capital outlay requirements (buildings, equipments, land, etc.) of economic enterprises and public utilities shall be treated as an investment or part of the
development project of the LGU, which may be charged against the 20% of the IRA for development projects. If viable and bankable, the economic
enterprise/public utility capital outlay requirements may be financed through any of the credit financing conduits.
Local economic enterprises and public utilities may be staffed initially with any of the following:
· Casual or contractual personnel hired for the economic enterprise/public utility
· Regular staff of the LGU on detail
Only when the economic enterprise/public utility has become viable may regular positions be created for the purpose. These regular positions shall be funded
solely from the income of the economic enterprise/public utility which is separate from the budget of the LGU. The Personal Services (PS) requirements of
economic enterprises and public utilities shall not be included in the computation of the maximum amount for PS of the LGU for purposes of determining the PS
Limitation provided under Section 325 (a) of R.A. No. 7160.
Nevertheless, PS requirements of regular staff of the LGU on detail with the economic enterprise/public utility shall be included in the computation of the PS
Limitation of the LGU concerned.
LGUs shall maintain special accounts in the General Fund for the economic enterprises and public utilities that it operates, as provided in Section 313 of R.A.
No. 7160. Profits or income derived from the operation of economic enterprises and public utilities shall first be applied for the following:
§ Cost of improvement, repair, and other related expenses of the public utility or economic enterprise concerned; and
§ Return of the advances or loans made for the public utility or economic enterprise.
Any excess shall form part of the General Fund of the LGU concerned.
4. Should the budget for a Local Economic Enterprise/Public Utility be submitted for authorization by the Sanggunian?
Yes. The budget for a local economic enterprise/public utility should be authorized by the Sanggunian through an Appropriation Ordinance pursuant to Section
325 of R.A. No. 7160.