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What is Bottom-Up Budgeting?

What is Bottom-Up Budgeting?

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Published by Paul Eugenio
Bottom-Up Budgeting in the Philippine context.
Bottom-Up Budgeting in the Philippine context.

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Published by: Paul Eugenio on Oct 02, 2013
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12/09/2013

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Introduction to Bottom-up Budgeting in National Government Agencies
In line with the current government's aim to ensure transparency and inclusionin how public finances are handled, the concept of 
bottom-up budgeting
has beenintroduced in government operations. This deviates from the norm of having thenational government directly creating the budget proposals for all concerned agenciesand their projects. Instead, input from local communities are expected to be used to build the budget.Starting from the budget preparations for the fiscal year 2013, the governmenthas started to integrate bottom-up budgeting in its social welfare and developmentprograms, with the aim of involving the poorest communities in identifying projects thatthey believe would be beneficial to them. The strategy is currently being rolled-out in 18national government agencies and related government owned-and controlledcorporations.This paper is concerned in documenting the important aspects of bottom-up budgeting, from its definition, legal framework and how it is currently beingimplemented. It also aims to inform about the scheme's major processes and identify strengths and pitfalls, as well as current political and social developments that entail forthe implementation of the scheme as government policy.
Definition of Bottom-up budgeting
 Bottom-up budgeting
is a budgeting system in which the involved budget holdersare given the opportunity to participate in the process of settling their own budgets. It isusually defined as an approach to budget-setting in which managers determine how much is needed to achieve each of their planned objectives; these amounts are thencombined to establish the total operating budget.
1
In contrast to the top-down budgeting, all of the budgets that are prepared before-hand by the department heads are made into one for the needs of the entirecompany or organization.The idea of bottom-up approach is that the budgeting proposals come from the"people who do the work", or the grassroots. As opposed to the top-down budgetingapproach which is based on managerial judgments and historical data from previous
1 Monash Dictionary of Business (2013).
 
projects with similar actual costs adjusted for the current ones, overheard, projectreserves, and profit figures have to be contributed for bottom-up approach.
3
Some of the advantages of bottom-up budgeting is its perceived accuracy sincethe elements are more detailed. There is also the benefits pitched in with participativemanagement, and the difference in opinions can be resolved since the people outside theofficials are involved.
2
But it also has its own perceived disadvantages. First, it is time consuming andthe initial requests are not realistic. Second, the process has an inherent bias forincreasing expenditures as all new programmes, or expansion of existing programmes,are financed by new requests. There is no system for reallocation and there are no pre-set spending limits. Finally, it is difficult to reflect political priorities as it is a bottom-upexercise with the budget “emerging” at the end of this process.
3
Bottom-up approach in the Philippines
In the past, local government units, through their local development councils were required to formulate Public Investment Programs (PIPs) as required by Title Six,Section 109 of the Local Government Code of 1991 (RA 7160). These plans are thensubmitted to regional development councils for consideration for the nationalgovernment agencies' budgets. However, in such a system, the PIPs often arrive too lateto be integrated in the national budget, most often arriving in July when the Presidentalready submitted the General Appropriations Act to Congress by June.
4
In his visit to Tacloban City, Secretary Florencio Abad of the Department of Budget and Management announced the adoption a bottom-up budgeting approach forthe budget preparation process, as opposed to the conventional top-down process.
5
 Thisapplication is in line with the goal of the current adminisatration to reduce poverty rateincidence in accordance to some of the United Nation’s Millennium Development Goals(MDGs) by 2015.
2
 
Organization for Economic Cooperation and Development (2008).
 Performance Budgeting: A Users’ Guide.
Retrieved at: http://www.oecd.org/governance/budgeting/40357919.pdf 3 Blondal, Jon. (2003).
 Budget Reform in OECD Member Countries:Common Trends.
Retrieved at: http://www.oecd.org/gov/budgeting/43505551.pdf 4 Official Gazette (2012).
 Bottom-up approach defines 2013 process.
Retrieved at:http://www.gov.ph/2012/01/19/bottom-up-approach-defines-2013-budget-process/5 Philippine Information Agency (2012).
 Feature: The ‘Bottom-Up’ approach for 2013 budget preparation process.
Retrieved at: http://r08.pia.gov.ph/index.php?article=1141329193496
 
The government has identified 300 to 400 of the poorest municipalities that will be engaged in crafting community-level poverty reduction and empowerment plans. Asthe bottom-up budgeting will focus on rural development programs and the conditionalcash transfer program, the adjustment process would involve the participation of “pilotagenciesthat will consider and include each of these involved communities’ plans intheir proposed budgets. These have been identified as:
a.) Rural Development agencies
(Departments of Agriculture, AgrarianReform, and Environment and Natural Resources) and
 b.) Conditional Cash Transfer Program agencies
(Departments of Social Welfare and Development, Education, and Health).
6
Secretary Abad also mentioned that the budget preparations would be driven by and towards the needs identified and reported by the grassroots so as making the 2013 budget more people-centric, with the aim of helping in reducing poverty incidence morethan just the usual deciding on the allocation of resources. This will allow the actualcommunities to communicate their needs and have the proposed budget meet theirminimum requirements. In line with these, Secretary Abad added that this will becomplemented with the expansion and fortification of the civil service organizations.
Legal Framework 
The bottom-up budgeting scheme could be considered to be ultimately compatible with principles laid down in the country's constitution. Article II, Section 9of the 1987 Constitution expresses the desire of the state to “promote a just and dynamicsocial order” that will ensure prosperity and free people from poverty through policiesthat provide adequate social services. Section 21 advocates rural development andSection 23 mandates the state to encourage non-governmental, community-based, orsectoral organizations that promote the welfare of the nation. In addition, Article X,Section 14 provides powers for the creation of regional development councils for thepurpose of decentralization and acceleration of economic and social growth anddevelopment.The bottom-up budgeting strategy was implemented in line with the Aquinoadministration’s goal to reduce poverty and achieve the United Nations Millennium
6 Official Gazette (2012).

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