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 1st 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. No. 7160).

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 wealth?

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 supplemental budget?

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 supplemental budget.

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

Appropriation Ordinance
What is the instrument
Ordinance covering a supplemental
required for authority?
budget
Is there a need for a No need for a supplemental Supplemental budget
supplemental budget? budget needed
What is the purpose of the For augmentation of
For re-appropriation –
savings? existing item/s of
may be to a different
expenditure within the same
expense class
expense class
Where should the proposal From the LCE or the
From the LCE only
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 budget?

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 reenacted budget.

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 Appropriation Ordinance?

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 ordinance?

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 by whom?

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 [2] and [3]) 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 vetoed.

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 reglementary period.

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 the agency/LGU.

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 Expenses.”

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.

For example:

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. No. 8185.

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 (OFWs);

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 follows:

"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. No. 8185.

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 President.

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 their creation.

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 requirement?

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 3rd 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 and 50% 50%
onwards)
4th to 6th class LGUs
1st and 2nd years of
program 90% 10%
implementation
3rd year of program
80% 20%
implementation
4th year of program
70% 30%
implementation
5th year of program
60% 40%
implementation
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 barangays.

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; and

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 GAD Budget.

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 the community;
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:

“3.0 Coverage

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;”

“SEC. 331. Preparation of the Barangay Budget. –

 xxx

(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][1][viii];
Section 458 [a][1][viii]; and Section 468 [a][1][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;

xxx
 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;
c. Cemeteries;
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 term.

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 reached.

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.