LGU Budget Process
Republic Act 7160 or the Local Government Code
Section 129. Power to Create Sources of Revenue. - Each local government unit shall exercise its
power to create its own sources of revenue and to levy taxes, fees, and charges subject to the
provisions herein, consistent with the basic policy of local autonomy. Such taxes, fees, and charges
shall accrue exclusively to the local government units
Potential LGU Revenue Sources
Land-based tools
Real Property Tax
Special Education Fund
Idle Land Tax
Public Land Use Tax
Land Sale of Foreclosed Real Properties
Land Development Permit Fee
Land Re-classification
Community Activity based tools
Business Tax
Community Tax
Franchise Tax
Professional Tax
Amusement Tax
Infrastructure based tools
Public Utility Taxes
Toll Fees or charges
Revenue sharing tools
Share in mining, fishery, and forestry taxes
Share in the gross sales or taxes collected by GOCC
Congressional funds
RA No. 7160 explicitly requires all LGUs to have a multi-sectoral development plan, which shall be
translated into programs, projects and activities (PPAs) through investment programs.
For provinces (e.g. Rizal) and highly-urbanized cities (e.g. Baguio):
Provincial Development and Physical Framework Plan (PDPFP)
Provincial Development Investment Program (PDIP)
For component cities and municipalities:
Comprehensive Development Plan (CDP) – a multi-sectoral plan formulated at the city or
municipal level, which embodies the vision, sectoral goals, objectives, development strategies
and policies within the terms of LGU officials and the medium-term. The CDP contains: (1)
Ecological Profile; (2) Sectoral Development Plan; and (3) Implementing instruments.
The Budget Process
The budget process in LGUs is divided into five (5) phases: (1) Budget Preparation; (2) Budget
Authorization; (3) Budget Review; (4) Budget Execution and (5) Budget Accountability. These phases
are interrelated and sequential, as can be seen from Figure 4 below:
Budget preparation is the first phase of the local budget process. It involves cost estimation per
programs, projects, and activities (PPA), preparation of budget proposals, executive review of budget
proposals, and preparation of the Budget Message.
This phase starts with the issuance of the Budget Call, and ends with submission of the Executive
Budget to the Sanggunian on or before October 16 of each year.
Key Players
Local Chief Executive (LCE)
The LCE shall prepare the executive budget for the ensuing fiscal year upon receipt of the
statements of income and expenditure from the treasurer, the budget proposals from the
heads of various departments and offices and the estimates of revenue and budgetary
ceilings from the Local Finance Committee.
LCE submits the Executive Budget to the Sanggunian concerned not later than the 16th of
October of the current fiscal year.
Local Finance Committee (LFC)
The LFC composed of the Local Planning and Development Coordinator, Local Budget Officer and
the Local Treasurer shall have, among others, the following functions:
Determine the income reasonably projected as collectible for the ensuing fiscal year;
Recommend the appropriate tax and other revenue measures or borrowings considered
realistic and feasible to support the budget;
Recommend to the LCE the level of annual expenditures and ceilings of spending for
economic, social, and general public services based on the approved local development plan;
Recommend to the LCE the proper allocation of expenditures for each development
project/activity and between current operating expenditures and capital outlays; and
Recommend to the LCE the amount to be allocated for capital outlay.
Local Treasurer
The Local Treasurer shall submit to the LCE a certified statement covering the income and
expenditures of the preceding fiscal year, the actual income and expenditures of the first two (2)
quarters of the current year, and the estimated income and expenditures for the last two (2) quarters
of the current year.
Local Budget Officer (LBO)
The LBO shall review and consolidate the budget proposals of different departments and
offices of the LGU.
Prepare the draft Budget Message and the LEP, in coordination with other members of the
LFC
Local Planning and Development Coordinator (LPDC)
The LPDC shall analyze the income and expenditure patterns, and recommend fiscal plan
and policies for consideration of the local finance committee of the LGU
Local Accountant
Together with the Local Treasurer shall certify all statement of income and expenditure of the
preceding fiscal year, the actual income and expenditures of the first two (2) quarters of the
current year and the estimated income and expenditure for the last two (2) quarters of the
current year
Heads of Departments and Offices/Heads of LEEs/Pus
The Heads of Departments and Offices shall submit budget proposals for their respective
departments or offices to the LCE thru the LFC on or before the 15th of July of each year.
Budget Preparation Flow Chart
Step 1: Budget Call
The Budget Call signals the start of the budget preparation period.
A budget call is a directive from the LCE specifying the objectives, policy decisions strategies,
financing requirements and prioritized project, programs, and activities by
Provides clear guidelines in the preparation of individual budget proposals.
To be disseminated not later than June 16 to allow more time for the Department Heads to
submit reasonable proposals for the budget year.
Step 2. Prepare and Submit Budget Proposals
The budget proposals of various departments and offices shall be prepared using uniform templates
to ensure the completeness and comprehensiveness of budget information, as well as to facilitate the
consolidation of all proposals in an accurate and timely manner.
There are three types of costs that may be reflected in the budget: 1) the current operating
expenditures (e.g. employee wages and salaries); 2) financial expenses (e.g. bank charges, interest
charges, etc.); and 3) the capital costs or CO (e.g., equipment or structures that add to the fixed
assets of the LGU).
Prepare the Project Procurement Management Plan (PPMP) for the Budget Year
The PPMP shall be prepared by all Departments/Offices for all PPAs with proposed procurement of
goods, civil works and consulting services. This shall be done by firming up the PPMP prepared
based on the approved AIP, taking into consideration the available resources, particularly the budget
ceilings, of the Department/Office concerned.
Step 3. Conduct Budget Hearings and Evaluate Budget Proposals
1. The hearing and evaluation of budget proposals for at least ten (10) working days (August 15
to 25).
2. Members of the LFC to evaluate budget proposals
Step 4. Prepare Local Expenditure Program (LEP) The Local Expenditure Program
(LEP)/Executive Budget shall primarily consist of two (2) parts: estimates of receipts; and the
proposed appropriations for the budget year.
The first part of the LEP is the Receipts Program. The receipts structure shall cover the immediate
past year, the current year and the budget year.
The second part of the LEP is the Expenditure Program. The details of the expenditure program shall
include:
Performance Information - to be submitted by each Department
Proposed New Appropriations by Object of Expenditures
Special Purpose Appropriations (e.g. appropriation for disaster risk reduction and
management program)
Step 5. Prepare the Budget Message
A Budget Message is a summary of the proposed executive budget prepared by the LCE.
The Budget Message provides justification for the policy decisions contained in the proposed
executive budget. It should include, among others, the following: lProposed budget by sector, office
and expenditure class; Justification for the need to expand (increased number of beneficiaries)
without sacrificing quality of service delivery; lIdentification of new/additional beneficiaries if service
delivery is expanded; and lJustification for new PPAs to be implemented during the budget year.
Step 6. Submit Local Expenditure Program
The LEP shall be submitted not later than the 16th of October of the current year with the following:
Budget Message;
Plantilla of Personnel;
Statement of Indebtedness;
Annual Operating Budget of Local Economic Enterprise(s), if any;
Annual Investment Program
BUDGET AUTHORIZATION PHASE
Budget Authorization is the second phase in the local budget process. This phase starts from the time
the Sanggunian receives the Local Expenditure Program (LEP) submitted by the LCE, and ends with
the enactment of the Appropriation Ordinance and approval thereof by the LCE.
Authorization of the budget is done through an Appropriation Ordinance enacted by the Local
Sanggunian in accordance with the fundamental principle that, “No money shall be paid out of the
local treasury except in pursuance of an Appropriation Ordinance or law” (Section 305 (a), RA No.
7160).
KEY PLAYERS IN BUDGET AUTHORIZATION
Local Chief Executive
The LCE shall submit the Local Expenditure Program (LEP) to the Sanggunian for
authorization.
After the enactment of the Appropriation Ordinance, the LCE shall approve or veto the same.
Sanggunian
As the legislative body of the LGU, the Sanggunian shall enact the annual and supplemental
budgets and appropriate funds for specific programs, projects, services and activities, or for
other purposes not contrary to law, in order to promote the general welfare of the locality and
its inhabitants
The Sanggunian may, by ordinance, authorize 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
The Sanggunian may not increase the proposed amount in the executive budget nor include
new items except to provide for statutory and contractual obligations but in no case shall it
exceed the total appropriations in the executive budget
Sanggunian shall consider the LEP as a priority measure, if certified as urgent by the LCE,
thus, shall take precedence over all other pending and proposed measures. As a public rule,
all Sanggunian sessions shall be open to the public, unless otherwise provided by law
During budget deliberation, the Sanggunian may use the following guide questions, among
others:
o Is the proposed expenditure program within the recommended ceiling for economic,
social and general public services?
o Does the budget adequately provide funds for the delivery of basic services and
maintenance of facilities?
o Are there expenditures that need to be reduced to ensure reasonable economy in
local government operations?
Committee on Appropriations/Finance
The Committee on Appropriations/Finance, as one of the standing committees of the
Sanggunian, shall be responsible for conducting a preliminary review and evaluation of the
Local Expenditure Program
It shall submit its report and recommendation to the Sanggunian proper.
Secretary to the Sanggunian
The Secretary to the Sanggunian shall stamp the Appropriation Ordinance with the seal of the
Sanggunian and record the same in a book kept for the purpose.
Shall affix his signature to the enacted Appropriation Ordinance and present the same to the
Presiding Officer for his signature and forward copies thereof to the LCE for approval
Shall cause the posting of an ordinance or resolution in the bulletin board at the entrance of
the provincial capitol and the city, municipal, or barangay hall in at least two (2) conspicuous
places in the local government unit concerned not later than five (5) days after approval
Local Finance Committee
The LFC shall assist the Sanggunian in the analysis and review of the annual and
supplemental budgets to determine compliance with statutory and administrative
requirements
Heads of Departments and Offices
Upon request of the Sanggunian through the LCE, Heads of Departments and Offices may
appear before the body or the Committee on Appropriations/Finance to explain or justify their
proposals.
Appropriation ordinance
An Appropriation is defined under Section 306(b) of RA No. 7160 as “an authorization made
by ordinance directing the payment of goods and services from local government funds.”
Article 107(g) of RA No. 7160: “xxx Any ordinance or resolution directing the payment of
money . . ., shall require the affirmative vote of a majority of all the Sanggunian members for
its passage.”
The Appropriation Ordinance shall take effect after ten (10) days from the date a copy thereof
is posted in the bulletin board at the entrance of the provincial capitol and the city, municipal,
or barangay hall as the case may be, and in at least two (2) other conspicuous places in the
government unit concerned.
Provided that the Appropriation Ordinance already contains sufficient detail of the project/s
and the cost/s thereof, the Appropriation Ordinance will serve as the sanggunian authorization
for the local chief executive to enter into contracts, thus, considered as sufficient compliance
of the requirement under Section 22 (c) of RA No. 7160
Sec 22 (c) of RA 7160: “xxx Unless otherwise provided in this Code, no contract may be
entered into by the local chief executive in behalf of the local government unit without prior
authorization by the sanggunian concerned. A legible copy of such contract shall be posted at
a conspicuous place in the provincial capitol or the city, municipal or barangay hall.”
A resolution (or ordinance) authorizing the local chief executive to enter into contract/s
involves the creation of liability on the part of the LGU, thus, it requires the majority vote of all
members of the sanggunian pursuant to Article 107 of the IRR if RA No. 7160.
The enactment of the proposed Appropriation Ordinance shall be governed by the rules prescribed
under Section 54 of RA No. 7160, Article 107 of its IRR, as well as the Internal Rules of Procedure by
the Sanggunian concerned, to wit:
A majority of all the members of the Sanggunian who have been elected and qualified shall
constitute a quorum to transact official business.
The proposed Appropriation Ordinance shall be accompanied by a brief explanatory note
containing the justification for its approval
The proposed Appropriation Ordinance shall be signed by the author or authors and
submitted to the Secretary to the Sanggunian who shall report the same to the Sanggunian at
its next meeting
The Secretary to the Sanggunian shall prepare copies of the proposed Appropriation
Ordinance in the form it was passed during the second reading and shall distribute to each
Sanggunian member a copy thereof for the third reading and final consideration
The approved Appropriation Ordinance shall be stamped with the seal of the Sanggunian and
recorded in a book kept for the purpose
The Secretary to the Sanggunian shall affix his signature to the enacted Appropriation
Ordinance and present the same to the Presiding Officer for his signature
The Secretary to the Sanggunian shall forward the Appropriation Ordinance enacted by the
Sanggunian and duly certified by the Presiding Officer to the LCE for approval
In case the Sanggunian concerned fails to pass the ordinance authorizing the annual appropriations
at the beginning of the ensuing fiscal year, the ordinance authorizing the appropriations of the
preceding year shall be deemed re-enacted. The Sanggunian shall continue to hold sessions,
without additional remuneration for its members, until the ordinance authorizing the annual
appropriations is approved, and no other business may be taken up during such sessions
Veto power of the LCE
The LCE may veto any ordinance on the ground that it is ultra vires (i.e., “beyond the powers”) or
prejudicial to the public welfare, stating his reasons therefore in writing.
The veto shall not affect the item or items that are not objected to. The LCE has to sign the
Appropriation Ordinance even if he has vetoed certain items in the Appropriation Ordinance.The
vetoed item or items shall not take effect unless the Sanggunian overrides the veto; otherwise, the
item or items in the Appropriation Ordinance of the previous year corresponding to those vetoed, if
any, shall be deemed re-enacted
The LCE may veto an ordinance or resolution only once
The Sanggunian may override the veto of the LCE by two-thirds (2/3) vote of all its members
Changes in the budget
All budgetary proposals shall be included and considered in the budget preparation process. After the
LCE shall have submitted the executive budget to the Sanggunian, no ordinance providing for a
supplemental budget shall be enacted
Except:
When supported by funds actually available as certified by the local treasurer
If covered by new revenue sources
In times of public calamity
