Two-Tier Budget Approach (2TBA)

• The Two Tier Budget Approach (2TBA) improves public spending effectiveness and transparency.
• This guide assists budget departments and agencies in preparing budget submissions under the 2TBA.
• It aims to help agencies develop affordable, sustainable budgets.
• It directs resources to social and economic priorities and improve public services efficiency.
• The two-tiered approach separates discussion of existing activities from new spending proposals.
• Previous budget preparation methods set an agency budget ceiling but allowed discretion in allocating it.
• The 2TBA enhances the government's ability to prioritize and manage expenses.
• It engages the President and Cabinet in setting strategic direction and distributing unallocated resources.
• It enhances accountability of departments and agencies in implementing their existing activities and projects.
• The two-tier approach makes budget preparation more strategic and strengthens fiscal discipline.
• The guide explains the main financial management reforms implemented by the Government of the Philippines (GoP).
• It outlines the overall budget cycle of the GoP.
• The budget timeline commences 18 months before the Budget Year and runs until the December before the new Budget comes into force.
• The budget preparation cycle for the 2017 Budget began in August 2015 and ended in December 2016.
• The guide explains the timetable and process for the 2TBA, the budget preparation timeline, the purpose of each phase and advice for agencies on preparing successful budget submissions.
• Budget Memorandums, Circulars, and information from the Department of Budget and Management (DBM) provide updated instructions, dates, and forms for submitting budget proposals.
• Agency feedback on issues implementing the reformed budget processes are inputs to continuous improvement of GoP budgeting.

Abbreviations

• 2TBA: Two Tier Budget Approach
• BMB: Budget Management Bureau
• BESF: Budget of Expenditures and Sources of Financing
• BPF: Budget Priorities Framework
• BTr: Bureau of the Treasury
• BuB: Bottom-up Budgeting
• CO: Capital Outlays
• COA: Commission on Audit
• COMELEC: Commission on Elections
• DBCC: Development Budget Coordination Committee
• DBM: Department of Budget and Management
• DENR: Department of Environment and Natural Resources
• DILG: Department of the Interior and Local Government
• DOF: Department of Finance
• DOLE: Department of Labor and Employment
• DOST: Department of Science and Technology
• DSWD: Department of Social Welfare and Development
• EIRR: Economic Internal Rate of Return
• ERB: Executive Review Board
• EXCOM: Executive Committee
• FAPS: Foreign-Assisted Projects
• FDU: Full-Time Delivery Units
• FIRR: Financial Internal Rate of Return
• GAA: General Appropriations Act
• GAA-RD: GAA as Release Document
• GMIS: Government Manpower Information System
• GoP: Government of the Philippines
• ICC: Investment Coordination Committee
• MFO: Major Final Output
• MOOE: Maintenance and Other Operating Expenses
• MTEF: Medium Term Expenditure Framework
• MTFP: Medium Term Fiscal Plan
• M&E: Monitoring & Evaluation
• NAPC: National Anti-Poverty Commission
• NCA: Notices of Cash Allocation
• NEDA: National Economic and Development Authority
• NEP: National Expenditure Program
• NSCB: National Statistical Coordination Board
• OP: Office of the President
• OPIF: Organizational Performance Indicator Framework
• OSBP: Online Submission of Budget Proposals
• PAP: Project, Activity or Program
• PDP: Philippine Development Plan
• PIB: Performance-Informed Budgeting
• PIP: Philippine Investment Plan
• PREXC: Program Expenditure Classification
• PS: Personal Services
• PSA: Philippine Statistics Authority
• RM: Results Matrices
• SARO: Special Allotment Release Order
• SCPPA: Sub-Committee on Program and Project Appraisal
• SONA: State of the Nation Address
• TRIP: Three Year Rolling Infrastructure Plan
• UACS: Unified Accounts Code Structure
• URS: Uniform Reporting System

Recent Public Finance Reforms

• The GoP introduced budget process reforms to strengthen public expenditure management and planning under the government's commitment to certain principles.
• Resources should be used within a planned and deliberate medium-term strategy within aggregate resource constraints (fiscal discipline).
• Spending should align with socio-economic priorities outlined in the Philippine Development Plan (PDP) (allocative efficiency).
• Providing public goods and services at the most reasonable cost, considering the Agency's absorptive capacity (operational efficiency) is a priority.
• These reforms empower citizens, communities, LGUs, and other stakeholders through greater transparency, accountability, and participation in the PFM process (participatory budgeting).
• The government uses modern Public Expenditure Management tools including:
• Medium-Term Expenditure Framework (MTEF)
• Program Convergence Budgeting (PCB)
• Zero-Based Budgeting (ZBB)
• Performance-Informed Budgeting (PIB)
• Bottom-up Budgeting (BuB)
• Unified Accounts Code Structure (UACS)
• Forward Estimates (FEs) and the Two Tier Budget Approach (2TBA)
• The GAA-as-release document (GAA-RD)
• The reforms have enhanced operational efficiency, accountability, and transparency in the budget process.
• They help align spending with results, enable communities to identify projects, streamline budget release procedures, speed up disbursements, fast track program implementation, and reduce leakages.
• These reforms provide Congress and citizens with a more transparent view and understanding of how resources are being spent and what is being achieved.

Medium-Term Expenditure Framework (MTEF)

• The MTEF sets out the Government's expenditure plans within the available resource ceiling.
• The MTEF includes annual, rolling three-year expenditure planning, medium-term expenditure priorities, and hard budget constraints.
• It sets the basis for sector plan development, outcome criteria, and annual budget planning.
• The MTEF promotes macroeconomic stability, fiscal discipline, inter- and intra-sectoral resource allocation, budget predictability for spending agencies, efficient use of public funds, stronger political accountability, and budgetary decision-making credibility.

Program Convergence Budgeting (PCB)

• PCB is a budgeting approach that facilitates and incentivizes agency coordination on priority Inter-Agency programs like tourism development, climate change adaptation, and mitigation.
• National Budget Memorandum No. 114 in 2012 sets out guidelines for building and sustaining cooperation between participating agencies in the development & implementation of priority programs.
• The leading Agency for each program ensures collaboration/coordination among all participating agencies.

Zero Based Budgeting (ZBB)

• The Zero-Based Budgeting approach scrutinizes the performance of existing programs and revamps, or cancels those that do not meet their objectives, and those which are fraught with leakages.
• Combining revenue effort and more disciplined resource allocation, ZBB and other reforms, have increased the share of social services in the budget from 27% in 2005 to 37% in 2015 and focused resources able to deliver with measurable impact.
• For example the Pantawid Pamilyang Pilipino Program, the K to 12 Basic Education Reform, and Kalusugang Pangkalahatan.

Performance-Informed Budgeting (PIB)

• Under the PIB scheme, performance information is integrated in the National Budget documents, National Expenditure Program (NEP), and General Appropriations Act (GAA).
• This integration informs Congress and the public about the Major Final Outputs (MFOs) and other performance targets that the Agency commits to deliver for budget.
• A set of output and outcome indicators and targets are presented in the NEP and GAA for each MFO.
• The adoption of the PIB has simplified budget presentation and made it more understandable for laymen.
• Compared to the traditional line-item based budgeting, it links funding to results, strengthens the direct relationship between planning, budgeting, and outcomes, and enhances transparency/accountability in resource allocation.
• The PIB will be strengthened in 2018 through the use of the Program Expenditure Classification (PREXC).
• The PREXC builds on the Organizational Performance Indicator Framework (OPIF) and PIB reforms and aims to make the PIB more logical and useful for program managers.
• The PREXC will group and classify all activities and projects and their performance indicators, under the appropriate Program or major strategy being pursued by the agency to deliver a core objective or outcome.

Benefits of PREXC

• Simplifies and standardizes the format of Agency budgets and making them more understandable.
• The program-based structure aids an Agency in aligning its activity/ies to sectoral and sub-sectoral outcomes, and sets Agency priorities.
• More performance information means you can better understand how well an implementing unit, Agency or department is operating.
• Creates opportunity for program managers or department/Agency heads to be given greater flexibility in determining activity implementation under a specific program when the Agency has improved its managerial accountability.

Bottom-up Budgeting (BuB)

• The Bottom-Up Budgeting (BuB) program is a demand-driven budget-planning process.
• BuB institutionalizes people's participation in the budget process to gain a better understanding of their needs and requirements.
• The Open Government Partnership in 2015 has recognized the BuB program as one of three Best Practices in Fiscal Transparency.

Unified Accounts Code Structure (UACS)

• The Unified Accounts Code Structure (UACS) is a government-wide harmonized classification system for financial transactions used by the Commission on Audit (COA), Bureau of the Treasury (BTr), Department of Finance (DOF), and DBM.
• UACS enables transparent budgeting, accounting, and auditing of each budget item.
• It allows timely reporting of actual receipts and expenditures against budgeted, programmed revenues and expenditures, and secures the integrity of the Budget as enacted by Congress.

Forward Estimates (FEs)

• The Forward Estimates concept was first introduced around 2007 as part of the MTEF implementation.
• It estimates future costs of government policies, programs, and projects for the next three years, used to maintain existing approved activities and projects.
• Forward Estimates are reviewed and agreed between the agency and DBM during the Tier 1 Budget phase, Cabinet approval is sought for Forward Estimates ceilings and priorities for new spending.
• The Forward Estimates feed into medium term fiscal planning, used to estimate the remaining 'fiscal space' that may be available to fund new/expanded activities or projects in future budgets.
• If fiscal space is limited or negative, decisions may need to be taken to reduce activities and limit spending on new projects.

GAA as Release Document (GAARD)

• The GAA-as-Release Document (GAARD) and the creation of Full-Time Delivery Units (FDUs) have facilitated the swift and efficient implementation of the Administration's expenditure program.
• GAARD allows agencies to enter into contracts, complete the procurement process, and start programs/projects on the first working day of the fiscal year.
• This is because disaggregated budget items in the GAA are already considered released to their respective agencies.

The Public Financial Management Cycle

• The GoP's Public Financial Management Cycle integrates the entire financial management cycle from planning to budgeting, cash management and payments, and reporting/audit. The cycle covers expenditure management, revenue generation, and deficit financing, with each phase linked and feeding the next.
• The 5 Steps are:
• Agency Planning and Priority Settings
• Administration Planning and Priority Setting
• Budget Preparation
• Budget Execution
• Reporting and Verification.

Agency Planning and Priority Setting

• Agency priority settings derive from the departmental mandate, Administration priorities, and ongoing business involving citizens.
• There is an essential link between planning and budgeting.
• Planning officials in agencies work with budget officials to tie budget proposals to realistic financial framework.
• The planning process should begin before the Budget Call is issued and Agency Strategic Plans should be updated annually by August-December.
• Each agency exists through a legally constituted establishing order stating their mandate and services required.
• Agency planning integrates mandated activities with Administration priorities.
• Senior agency management develops a Strategic Plan outlining agency priorities at the start of new administrations, with the plan setting out strategic priorities for over 5-6 years.
• Strategic planning includes defining vision/mission, assessing strengths/weaknesses, scanning the environment, assessing risks, developing mitigation strategies, and defining products/services and stakeholders.
• The plan should set out Program Structure and Performance Management Framework and consider prioritizing programs for Administration alignment.
• The day-to-day activities are represented by the agency's Operational Plan outlining major tasks, targets, and costs for each activity or project.
• Operational Plans enable tracking project performance and provide evidence to DBM during Tier 1, integrating citizen requests.
• The Strategic + Operational Plan provides information required for budget requirements and justifying budget proposals to DBM and Congress.

Administration Whole-of-Government Planning and Priority Setting

• The Administration defines government priorities through the Medium Term Fiscal Plan (MTFP) and Medium Term Expenditure Framework (MTEF) and are linked to Philippine Development Plan (PDP) and Philippine Investment Plan (PIP).
• The PDP and PIP are updated annually based on SONA and the annual budget submission to Congress.
• Annual priorities for new/expanded spending is set out in Budget Priorities Framework (BPF), and provides basis for the Budget Call for Tier 2.

Budget Preparation

• During this phase each agency prepares its budget proposals based on their current programs, services, and priority initiatives stated in the strategic and operational plans that are supported by Government's BPF.
• Under the GOP's 2-tier budget process, ongoing spending is considered in Tier 1 and proposals for new and expanded spending are evaluated in Tier 2.
• Having completed Tier 1, the government knows the ongoing spending requirements for existing activities that will be spent over the next three fiscal years.
• This information is used to update the Medium Term Expenditure and fiscal strategy.
• Based on the medium term forecast, the government can calculate the 'fiscal space' that will be available to fund new or expanded activities or projects.
• These must be supportive of those areas highlighted in the BPF
• The DBCC then balances the Government's priorities against available fiscal space/agency requests to ensure new spending addresses government policies.

Budget Execution

• Under the GAA-RD regime, most funds are allotted to agencies quickly but DBM releases Special Purpose Funds and Lump Sum Funds.
• Agencies must obligate/commit resources against activities/projects and request cash for payments via Disbursement Authorities or NCAs to DBM.
• Both DBM and BTr manage the release of cash for agencies to spend on projects and deliver services under Corporate/Operational plans.
• Good Operational Plans, linked with their budgets, are more successful and successful procurement expedites that.

Reporting and Verification

• With PIB, the GoP has moved its focus from input controls to output delivery and achieving outcomes.
• Collecting performance information has become important besides reporting on financial resources.
• Program managers are now responsible for collecting performance information on programs, and the monitoring process enables mid-course corrections during year to improve the results.
• Performance information also feeds back into government priority and Agency Strategic/Operational Planning in preparing for the budget process in future fiscal years.

Two Tier Budget Approach - Detailed Processes

• The processes to be followed by Departments and Agencies to prepare their budget using the 2TBA are set out below and the timeframe begins in the second half of the year to the budget preparation year in line with Agency Planning processes.
• This continues through Tier 1, Tier 2 and Congressional consideration of the Budget.

Agency Planning and Preparation (August – December)

• Objective: To ensure Agency budget proposals align with Administration priorities and government objectives and resource availability.
• Outputs:
• A clear statement of agency priorities and the operational plan.
• Identification of resources needed for existing projects over the next three years.
• A sound basis for additional resources sought in budget submissions.
• Strategy:
• Linking Agency and Administration priorities by identifying outcome targets by programs.
• Every Agency program/operating unit should have an Operational Plan linking budget/outputs.
• Plans should have multi-year perspective and have timely/accurate physical and financial info.
• Steps: Strategic and Operational Plans either reviewed or developed.
• Annual Strategic Plan derived from the Administration/agency multi-year plans, beginning almost as soon as the NEP for the next FY is complete.
• In the first year of a new administration, the six-year Strategic Plan should link agency-mandated and Administration priorities derived from Philipppine Development Plan (PDP) and Results Matrices (RM). The Strategic Plan should cover Administration life and be reviewed annually.
• Assess existing strategic plans to check updates to PDP, MTEF, new policies stated in SONA, and make required adjustments in the Plan and highlight and mitigate any new internal/external risks.
• Any planned three-year operational plan needs to be reviewed and include any strategic plan revisions.
• Agencies will benefit with monitoring previous activity/project performance not only improving spending but help with making any operational plan changes to improve.
• Termination dates ensures proper schedule and the information will also be used as a basis for the Tier 1 requirements.
• To support a request for expansion of the PAP during Tier 2, this will also help to provide needed evidence.
• Agencies should perform an assessment of Program and Activities completed within the first three quarters to highlight any challenges and use this to make any plans to continue/move measures forward.
• Proposals may be subject to an infrastructure review for those new, expanded or revised. September submission should be in line with the NEDA guidelines.
• Following strategic and operational review plans, agencies may consider revisions to the performance budget structures that also require DBM approval. Changes include structure alignment to improvements made to reporting program delivery or reporting.
• These revisions are intended to make program measurement endure for use with oversight trends and expenditure.
• Plan and program developments need to be done with cooperation particularly with priority/convergence programs. Agency lead in such areas need to gather information on the consistency amongst those that participate to check validity on the assumptions. PREXC enables to provide the linkages of results in sectoral and sub-sectoral aspects of PDP where the Operational Plan review ensures that effectives and objectives in each area are met. Review should assess the identify challenges in the third quarters and identify any needs.
• DBM reviews PIB structures, indicators, UACS to incorporate if those structures improve the Tier 1 budget of IT systems that are used. Planning will assist with the ready and effective implementation of all new programs.

Tier 1 Budget Submission Process (January to March)

• Objective: To separate decision-making of ongoing with new/expanded funding requests. A mutual agreement between the DBM and the agency should occur regarding resources for current activities/projects.
• Output: Approval of current activities/projects/programs budget. NEP should include Agency proposed budget in this case.
• Strategy: Budget amounts needed should be accurate in accordance with mandatory expenses used to obtain same outputs. Any beyond is listed as Tier 2.
• Steps: Agencies must comply with DBM budget calls or memorandums in the correct instruction and submission of forms. After releases, a convenes forum will be held for the agencies to present any changes, problems and estimates.
• Obligation submission for this budget year will influence delivery based on prior results. Low performance may be influenced with a weak request with proposed request, but if it has high utilization, a similar success can be assumed on similar activities.
• If up-to-date data is available from online systems and submissions, agencies will ensure more accurate estimates for budgeting with 3 year look ahead. Budget for agencies will rely on estimates with Tier 2 used to determine that amount when all is said and done.
• During this entire process within tier 1, it is important that project and termination activities clear so no overlapping will occur for future years. The agency phase, will also need to accomplish physical and financials with all evidence and records available, to support budget allocations from DBM. Agencies will supply all budget and project update requirements to the DBM for review as these finalized that will be submitted via OSBP. General guidelines must be included for formulating those estimates for an accurate look ahead. Forward Estimates may roll in and out of Government policies with approved amounts in the GAA. Estimate for Forward Estimates should be approved unless those will will terminate in coming year. If laws and policies do change with made the GAA and NEP, then the budget will rely on those impacts from Congress. Any existing structures or classification need to amended for next year's budget. Note that PAMANA, BuB or Congressional initiatives cannot be used with Tier 1 budgets and will be allocated for Tier 2 needs. Programs will operate depending on the those demographic numbers in Tier 2 with approval from DBM. GAA revisions or President authorized changes will alter those forward estimates as well.
• Mandatory expenses need to indexed via an economic measure from DBM. The following expenditures are not included with inflation: rents, licenses, dues, subscriptions, damages, awards, or any fixed expenses.
• Foreign Exchange and adjustments need be dependent from DBCC approvals and data needs from Personnel Services. Agencies should make sure that GMIS is up to date and accurate that DBM may make calculations on. A separate report should include for any special allowances/pensions. Keep in the mind that the agency cannot list any December salaries for increases until those approved salary items from policy from DBM and using the GMIS. Any approvals need to have a process terminated for it not for be included along with any limited phasing and payments.
• Periodic Activities. The historic use and costs via PSA or COMELEC will be calculated within the tier 1 ongoing and Forward Estimates.
• Capital projects need to based on profiles originally and updates for Implementation of that status. Valid Appropriations need to be considered here under the GAA as well. Agency will need to file this request as well as NEDA for to ICC when projects need extending and done during this portion of the planning preparation. Once they ICC process, agencies then plan with the proposed timelines as revised. Appropriation continuation will also need to be considered so funds required are correct in accounting the budget/unobligated fund. Complete or higher project cost need to be addressed via Tier 2 within the Budget phase for consideration. 20% or less notations of requests will require via ICC for the approval process and be used while Cabinet may revisit viability of the project. It is possible, limited-term and capacity activities such as training initiatives can be had those approved, while keeping in trend in overall spending.
• Under spending must be calculated with a accurate analysis on where the resource will be useful. The treatments range depending on the circumstances with collaboration on the DBM:
• Targets need be determined and be adjusted with accurate allocation.
• Extended to those situation, if accurate, in the right amount that must be approved.
• Referred for assessment and discussion must change in a reasonable adjustment.
• Agencies that the technical budget for tier 1 that run from FEB-MAR must be provide accurate information via PAP and any factors due underspending with changes being made already to increase its results in utilization. They need to outline what worked with that current mandating. Here the DBM will verify what is needed will accurate data, particularly from under 90% utilization will be highlighted with proper plans. Performance records may be requested. The PREXC calculations need outlined with resources with those discontinued under the program requests. DBM and agencies will then review previous performance with highlights towards its utilization and discuss these at the Hearing of the tier.

DBM Role

• March DBM Executive Review Board (ERB) will review and approve to inform how a Tier 1 will finalized that set new Budget Ceiling from agencies at ERB. If amounts are proposed, agency is requested to have these actions already performed. Agency in addition may not increase budget nor policy changes without with cabinet approvals. Note also the focus is not about changing policies for a transferring of funds as that needs proper processes from tier 2.
• Tier 2 Submissions. The second tier runs from April to May.
• Objective is to address the priorities that use 'fiscal space' from the MTF and addresses those to benefit the scaling up or implementation actions by those governments.
  • During end that resources and combine allocation may lead with a result of combined produce the NEP that can presented into Congress. Programs that need be address for more resources are are the focus for national benefit for the consistent with current frameworks for the effectively delivered agency. Baseline info here is important showing any spending and outcome needs.
• March step to outline DBM and Cabinet with that in mind. BPF (Framework) helps to give information of success or the those tier projects for the new appropriations. Submissions include those from OSBP with dates accurate that fall the within scope. Alignment of the agency and any internal program requests that align with this process.

DBM role

• In these cases will have discussion that the agencies propose action must relate those priority for that budget. Forms must use to justify the accurate in-readiness that may have a review from top experts to know there actions are correct in timely fashion. Responsibility for the those officials will make there resource is wasted. By all means agencies must be accurately monitor to intercede rectifying the problems that may impact in these cases. The agency may need show all the data to display a good reason to be approve in this case for those that have the rate approval to spend with great efficient. There be a detail overview and evidence, if the additional budget request is approved during the technical hearing process. Final part is tabling the National Expidenture Program and preparting with various approval within the top agencies. Review are only conducted to follow the right process for the proposals with all proper detail. It important that both the agencies and DBM show the those proper notes. All actions must comply with all tiers.

Guide to the Two Tier Budget Approach

• Tier 2 PREXC, needs the new or expansion to make decisions on the project and if has been completed that also has support with those program outcomes. All major project proposals for for those amount needs to complied with also from those joint expert that include detail and reports will used in those tier cases.

Key issues

• Then submission the to ERB and Secretary to make the final decisions with the details show. Final result make it mark and those final reports that also show that key notes in July after the all detail. Congress is final step that must be agreed that budget implement the day of. That powers makes make ensure there value for money to all parties. By all way DBM is accurate and implement start. Agencies must justify there reason why with also showing a budget the the Congress will all proper approve. Agencies should accurate prepare with the also by discuss with all agency member and plan prepare.

• The timetable highlights the implementation of Tier Budget: the timelines of the processes and dates are:

• Agency Planning and preparation : Aug-Dec

• Tier 1 Submission - Jan-Mar

• Tier 2 Submissions - Apr-June

• Congressional Action- July-Dec.

Annex A: Guidelines for Completing BP Forms 202 and 203

• BP Forms the important inputs to provide to help give policy justification and data. Data and all resources should available within the planning phase and provide to those. Proper responses needs be clear and the demonstrate. All the details will help make there is no missing to also those.

Information Required in BP 202 and 203

• The program must accurately in the goal, that has with clear points with those request for the help. Show the the agency to the to assist with those and solve a reason. By give output and explain to help the community that. Help the the those details show to effect that, assist areas, or households and also help sustainability that are affected. Show the the those taken actions for those that are action and ready show progress and show will happen for future project. Manage with the by risks and proper timeline that will help make sure. By action will the those show is there has need to any financial report to also analyze with