CHAPTER V

PERFORMANCE BUDGETING IN THE PHILIPPINES

A significant change took place in Philippines budgeting when, in 1953, it was disclosed among others that:
the overhead expenses of the agencies of the national government were out of proportion to the direct cost of the
service rendered to the people; the expenditures program was not balanced; and there was an immediate need for
modernizing and improving the fiscal and revenue administration services. In view of this situation, the Upper House
of Congress adopted Senate Resolution No. May 8, 1953.
Under said resolution, the Senate Committee on Finance was constituted as a special committee and directed to
give serious attention, without limiting the scope of its studies and investigations, to the study and/or the preparation
proposed legislation on the following aspects:
1. A modern budget system for the Philippines
2. Improvement of revenue administration
3. Improvement of fiscal administration
4. Central purchasing
5. Central motor pool
6. Records management
7. Improvement of the accounting and auditing service
8. Relative merits of alternative uses of public funds with a view to eliminating duplication and overlapping of
services, activities and functions, consolidating those of similar nature and abolishing those that are
unnecessary
9. Personnel administration and
10. Standard, quality and effectiveness of government services, activities and functions.

Soon after the termination of the regular session is 1953, the Senate Finance Committee under Senator Gil J.
Puyat conducted the necessary studies and researches on budgeting in order to supply the details of proposed
legislation which would refashion the line-item budget into one that will “focus the attention on the ends to be serviced
by the Government” rather than one the means of achieving those ends. As a result of their efforts, S. Bill No. 45 was
introduced by Senator Puyat during the first session of the Second Congress. The insufficiency of materials and lack of
information on the new concept of performance budgeting to his colleagues. The bill was finally passed on third
reading on May 17, 1954. The day after, a counterpart bill was passed on the Lower House.
In the House of Representatives, H. Bill No. 254 was introduced by Congressmen Tobias R. Fornier and
Ramon P. Mitra, Chairman and Vice-Chairman, respectively, of the House Committee on Appropriations. They
justified adoption of the performance budget, thus:
“During the postwar years tremendous and improvements have been made in the budget by leading
congressional and parliamentary governments. The idea is to present a more responsive and comprehensive
budget to the people in line with the expanding activities and changing needs of government. At the same time,
the budget is no longer looked upon as a book of expenditures alone but rather as an instrument where fiscal
policies are coordinate and embodied. This new concept of the budget would reflect both the work plan and
financial plan and, more specifically, spell out the functions, activities and projects of the government.”
The conference committee of the two chamber adopted S. Bill No. 45. The only amendment to it was on the
effectivety of the law. The Budget Commission was given two years within which to fully implement the provisions of
the law.

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CONCEPT OF THE PHILIPPINES BUDGET SYSTEM
Most of the concepts which govern our budget system are found in two statutes, namely, the Budget Act of
1937 (Commission wealth Act No. 246) and the Revised Budget Act of 1954 (Republic Act No. 992). The Budget Act
of 1937 provided that basic framework from the modern budget system. While it has been superseded in some parts by
Republic Act No. 992, its provisions still control much of the budget system today. The Revised Budget Act, however,
shifted the emphasis in budgeting from the things to be acquired to the government services to be performed. Section 2
of this law provide that “the whole budgetary concept of the Government be Based on functions, activities and projects,
in terms of expected results”. It has also added the concept of “obligations” as a principal control and reporting point in
budgeting. With this concept, financial commitments are determined and recorded at the time they are made rather than
when they are paid. Unlike “payments,” obligation are more useful in determining budgetary status. Also emphasized
in our present budget system is the concept of “balance” limiting monies spent to monies received. Income
expenditures should match, that is, all proposed action must be evaluated and appropriations made in terms of the
government’s finances. Another facet of this concept is the apportionment of the nation’s limited financial resources
among the programs deemed most essential to the national welfare.

THE PERFORMANCE BUDGET

Unlike the line-term type of budget which center attention on the thing to be acquired, such as personnel
services, supplies, and equipment, specified in great detail, the performance type stresses the purposes or the end-
products to be achieved. The all-important thing that performance budgeting stresses is the work or the service to be
accomplished and how much it will cost. In performance budgeting the objects of expenditures are deemed as
significant factors in relation to what they are used for and not in relation to their specific character. For example,
lumber is potential material for a hospital, or hiring additional teachers means facilitating the education of children.
While at some point the performance budget must be concerned with the thing bought or with objects, it differs from
the line-term budget in the way objects are viewed. The objects of expenditures are linked to planned work service.
Thus, the accomplishment of the planned activity becomes the overriding objective in a performance budget in effect
the work plan of the government to be accomplished during the fiscal year.
In recommending the adoption of a budget for the United Sates based on functions, activities and projects, the
Hoover Commission pointed out several advantages:
1. More comprehensive and reliable information is made available to the President, congress and the general
public
2. It helps the congressmen to understand what is Government is doing, how much it is doing and what the costs
are.
3. Congressional examination of budgetary requirements is improved, enabling them to decide more easily the
basic expenditure issues each year,
4. It makes possible the submission and consideration of the budget for a shorter length of time.
5. Responsibility can be placed upon subordinate officials by administrators for the clear execution of the
provisions made by Congress.

The adoption of the performance budget by the Philippines government elicited an editorial comment from
Manila Time. “The same animal – only bigger.” The comment referred to the sum of money involved but it could have
every well applied to the size of the document itself.
The budget has maintained its voluminous size up to the present. It covers the President’s Budget Message,
Resume and Summary Financial Statement, Detailed Estimates of Department and Agencies, General Provisions, and
Appendices.
The President’s Budget Message discusses in general terms the fiscal plan of the government and provides the
policy framework upon which the budget constructed. Here one finds the function which are the broad division of the
total organized effort of the government. Functions identity distinct and separate major services provided to the public.
In the Philippines, the functional classification is made up of the following:

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 Economic Development
Agriculture and natural resource
Commerce and industry
Transportation and communications
Other economic development
Social Development
Education
Public health and medical care
Labor and welfare
National Defense
National defense
Maintenance of peace and order
General Government
Legislative services
Administration of justice
General government
Pensions and gratuities
Debt Service

The section, Resume and Financial Statements, supports in greater detail the budget message. The data
significant for an understanding of the total financial program are grouped into seven major tables: are resume of
receipts and expenditures; a comparative budget statement which contains a breakdown of receipts and expenditures,
and surplus for the different fund categories; the public debt; the cash position of the national Treasury; a summary of
income; appropriation and authorization; and a summary of expenditures by departments with each fund considered
separately and all consolidated and a summary of expenditures by object classification.
The General Provisions section of the budget document specifies the conditions, limitations and/or
qualifications governing the use of funds by all agencies when such are not to be found in basic statutes
The remaining pages of the volume are taken up by the Appendices. These are financial statements
supplementary to the Resume Summary Financial Statement section of the budget.
The budget is made up for the most part by the Detailed Estimates of Departments and Agencies. This part
shows the budget estimates of bureau and offices under the various executive departments and those independent
agencies, the legislative and judicial departments. The appropriation language also cites and authority such as statutes
and executive orders, for the work to be done. Under each program, amount available fro expenditure are shown
through a schedule that includes appropriation and authorizations by funds and adjustments for savings.
Included too are data on the following:
1. Obligation by projects – a breakdown of program cost by projects, describing the work to be done.
2. Program obligation by object by expenditure – a schedule of program costs by personal services, travel,
supplies and other objects;
3. Analysis of changes in estimated obligations between current and budget years – a schedule in capsule from
showing the reasons for changes in expenditures between the current and coming fiscal years with the amount
for each reasons by project, permitting ready understanding of underlying causes for increased or decreased
expenditures, and
4. Schedule of the personnel expenditure – the manpower cost actually needed to perform the work planned by
showing positions and their salaries and wages.

From the standpoint of Congress role of policy-making, the performance budget allows for the establishment of the
kind, quantity and cost of services to be provided to the people. To assume control of policy, that established policy is
being followed in an effective and economical manner.
The performance budget supplies the following facts to Congress:
a. Expenditures related to which they are appropriated
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 b. Expenditures related to appropriated funds, to assure compliance with congressional limitations;
c. Transfer of funds among appropriated amounts, to assure soundness of necessary changes in plans.
d. Amount of work accomplished, to assure effectiveness of services
e. Cost of wok accomplished, to assure economical expenditures of fund. In summary, the performance budget
makes possible, for Congress, a comprehensive appraisal of the need for services, an analysis of program
expenditures, and the control of funds in terms of services rendered.

When it comes to providing services, the performance budget makes available information on the purpose to
be achieved expressed in tangible term, the amount of worked expected. Required under the system of performance
budgeting services are the units of work expressed as goals for each responsible supervisor and the funds available
divided among all supervisors in relation to work goals. Also provide are the principal facts needed by the executive
branch for controlling operation within authorized limits. Under the performance budget system, management is enable
to see to it that:
a. Expenditure are related to purpose to be achieved
b. Expenditure are related to income and appropriated funds
c. Expenditure are related to work accomplished
d. Work accomplished is related to goals.

THE PHILIPPINES EXPERIENCE

In 1955, the Magsaysay Administration placed twelve agencies on a performance budget for Fiscal Year 1956
and directed that the remaining executive units adopt this system for Fiscal Year 1957. The twelve offices, representing
ten executive department, were: Bureau of Civil Services, Bureau of Internal Revenue Land Registration Commission
Bureau of Telecommunication, Bureau of Public Libraries, Bureau of Labor Wage Administration Service, Industrial
Safety Engineering Division, Armed Forces of the Philippines, and Bureau of the Health and Bureau of Commerce.
This proposal was vigorously objected to buy several congressmen who maintained that performance budgeting took
away from congress its traditional control over the purse since the budget requests were made in the form of projects
and programs with lump-sum estimates.
The report suggested a simpler presentation of the budget which would also work along the lines of
performance budgeting. It recommended the inclusion of the major programs and their costs in the main text of the
budget and leaving the supplementary details in a appendix. It was reasoned out that, due to the nature of their work
and interest, congressmen concern themselves only on major questions of programs and costs leaving the technical
details to their staff. The lack of information by some members of the Lower House on performance budgeting which
made it naturally much more complicated than line-item budgeting might have also spurred the request for a simpler
from of a budget performance. The Budget Commissioner however, demurred, having at that time already contracted
an American management consulting firm to institute the new system. With their recommendation turned down and
based on the flaws of performance budgeting mentioned in its report, the House Committee on Appropriations required
the Budget Commission to submit an alternate line-item budget for Fiscal Year 1957, a practice that has been
maintained to the present.
An attempt to completely dislodge the performance budget system in the Philippines took place in 1963. The
same sponsors of the bill in the House of Representatives who made performance budgeting possible, Congressmen
Fornier and Miltra, sponsored House Bill No. 4704.the bill sought to eliminate “the performance report features of the
budget submitted by the President of the Philippines to Congress annually.” The proposals which passed the Lower
House on May 21, 1964. Gave the following justifications:
“ In contrast to the simplicity and clarity of the line-term method the performance-report budget is
complicated. In the line-item budget, even the uninitiated can find any item of appropriation without any
difficulty. On other hand, in the case of the performance report budget, an except without the aid of the volume
containing the itemization of the appropriation cannot pinpoint a particular item of appropriation.
In the preparation of this performance report, considerable valuable time of executive officials which
should otherwise we spent in more important work, is devoted to something like propaganda job. In the
different bureau and offices and in the Budget Commission numerous employees do nothing throughout the
year that gather data and consolidated statement needed for the preparation of the performance budget. These
employees can be assigned to other activities if we return line-item budgeting.
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 Lastly, the cost of preparing and printing the performance budget and its appendices is something to
reckon with. It costs the taxpayers 104 per single copy of the performance-report budget. The line-item budget
which consist of only volume costs very much less than this amount. ”
Since the enactment of the Revised Budget Act, only the appropriations of 42 out of 172 agencies have been
authorized by Congress on a completely performance basis. The President in this budget message for fiscal year 1969
stated that experience “shows that performance budgeting is an effective instrument for improving the management of
the Government and for controlling the expenditure of public funds.” This statement has been borne out by the
enthusiastic response of the agencies on performance budgeting. In a questionnaire survey, 80.6 percent of the total
agencies rated their experience in performance budgeting as successful (See Table 1). Not one in this group, or the 8.3
percent.

TABLE 1
APPRAISAL OF AGENCIES EXPERIENCE WITH
PERFORMANCE BUDGETING
Percentage
Appr aisal Number Distribution
Total 36 1000
Successful 29 80.6
Not successful 3 8.3
No opinion 4 11.3

Constituting those who rated their experience in performance budgeting as not successful, suggested reversion
to the line-item budget. Based on their experience, 63.9 percent of the agencies suggested that all government offices
should adopted only by certain agencies (See Table 2).

TABLE 2
RECOMMENDATION ON PERFORMANCE BUDGETING
BASED ON EXPERIENCED
Percentage
Recommendation Number
Distribution
Total 36 100.0
All agencies of the national
23 63.9
government should adopt it.
Only certain agencies of the national
13 36.1
government should adopt it

These result, however, should not be taken as the application that the executive branch is without problems in
the application of performance budgeting is in general favourable agencies towards performance budgeting is in
general favorable (77.8, percent), there are apparently still some who are not completely convinced of its merits (11.1
percent) for one reason or another (See Table 3) it is important that all heads of agencies

TABLE 3
ATTITUDES OF THE HEADSS OF AGENCIES TOWARDS
PERFORMANCE BUDGETING
Percentage
Attitudes Number
Distribution
Total 36 100.0
1. Favorable or to performance budgeting 28 77.8
2. Not fully aware of the good side of
4 11.1
performance budgeting or indifferent
3. No comment/no opinion 4 11.1

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Should be made aware of the value of performance budgeting in the executive of programs for which their agencies are
primarily responsible. Despite the fact that the main cause given for the non-implementation of programs under the
performance budget is inadequate financing, the importance of the role which the heads plays in the accomplishment of
an agency’s goals cannot be over emphasized. This observation is substantiated by two of the reasons given by
agencies which rated performance budgeting as not successful: indifference in the execution of program and lack of
understanding on the part of key operating officials.
This unit work measurement are generally considered as being of three principal types:
1. Work volume
2. Work results
3. Work accomplishment

The three types are given in the Philippines Budget Operations Manual:
Units of work volume – relates to the internal actions which are taken by an agency to secure a desired result.
They are concerned, for example, with the number of classes held in a school rather than the number of student trained.
Units of work results – relate to complete actions which are taken by an agency and which have a direct effect
in a training a desired objective. They constitute direct services to the clientele served. These measure are concerned,
for example, with the number students trained rather than the number of classes held.
Units of work accomplishment – relate to program goals of an agency which are acceptable objectives of
public policy. These measures are concerned, for example, with raising the literally rate among the population rather
than with the number of classes held or the number of student trained.

Each of these units of work measurement has its appropriate place in budgeting but, as required under Republic
Act No. 992, the budgetary unit of work measurement is work results.
The survey of agencies whose appropriations are on a performance budget basis revealed that 80.5 percent of
the agencies have not changed their original units of measurement. There of this group reported that he unit of
measurement they are using are unrealistic and another felt that is unit of measurement could be improved. Of the 19.5
percent that have changed their units of measurement, one agency rated the unit of measurement using as unrealistic
and another agency also rated as unrealistic some its unit of measurement. This was reiterated in the modifications
preferred by the agencies to improve performance budgeting which include changing or adding units of measurement.
One agency commented that its present unit of measurement is vague and does not lend itself to proper accounting and
statistical methods. Such indications, although minimal, point to a need for a continuing appraisal of the
appropriateness of units of measurement being used by the different agencies on performance budgeting.
Care in section in called for to ensure that the units of work chosen will portray physical accomplishments in a
manner that will assist in strengthening managerial control, aid improving operating practices and procedures, and
provide a sound basis for planning work and determining requirements.
It appears from the survey conducted that the fill potential of the reporting system to improve operational
effectiveness has not been exploited. Although it is admitted that a performance reporting system in and of itself will
not produce desired management improvements, it should be able to furnish an incentive for criterion of relevance too
little is said on the questions that require review analysis and positive corrective action.
The relatively good impression that one gets from the reply of the surveyed agencies that the Budget
Commission reviews the progress of budget programs (77.8 percent) is watered down by the diversified answer of the
same as to the frequency of this review. A group constituting 39.6 percent put down the frequency to once a year.
Running close was the group (35.7 percent) that answer quarterly. The other respondents (25 percent) had varying
answers of monthly, yearly and monthly, quarterly and monthly; one even answered that it had no knowledge
whatsoever of a review being made by the Budget Commission. As to the thoroughness and adequacy of the review
done by the Budget Commission, less than ½ or 41.7 percent answered in the affirmative, 13.9 percent answered no to
the question, and named an officials within the agency as the person who reviews the program’ and 44.4 either did not
answer the question or had no opinion on the matter. These figures cannot solely be taken as a bad reflection on the
Budget Commission. It could also be surmised from the answer that the agency are not fully aware of the operations
involved in performance budgeting.

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AREAS OF REFORM
Legislative Authorization of the budget. Congress, in resolving the policy issues in the budget, needs to
develop better means for a broad discussion of the programs found in it. To achieve a comprehensive fiscal review, the
expenditures and revenue aspects of the budget must be considered together. No formal machinery exists in Congress
to achieve a balanced consideration of expenditures and revenue measures. As a result of the separation of jurisdiction
over revenue and expenditures, one of the requirements of budgeting escapes the security of Congress – the
worthwhileness of a government expenditures program whether the benefits to expect from it justify its costs.
Every year the budget contains new programs increasing the tempo of existing activities. However, there has
been a slower pace in improving the status of government revenues with which to finance government programs. The
constitution of a joint committee with presentation from revenue and expenditures committee and the party leaders to
go over the financing and expenditures aspects of the budget is worth exploring.
When the committees discover evidence of waste, inefficiency or anomalies, or when they get complaints from
constituents, they tend to cut appropriation request or place restriction on their use. Appropriation cuts frequently
produce program cuts rather than efficiency. Even restrictions on the use of appropriations do not always result in
efficiency. Rather, such restrictions often deprive administrators of the incentive to improve their own procedures on
account of the undue attention they give in observing the restrictions to the letter rather than in conducting their
operations efficiency.
Adequacy of information. Of necessity, one has to mention at this point another suggestion which hardly is
within the realm of congressional procedures but properly belongs to budget preparation. Adequacy of information
found in the budget document is just as important in the evaluation of government programs in relation to costs, such
that it should have a place in any set of suggestions to improve congressional consideration of the budget.
If the information in the budget document is inadequate in some respects, it is at the same time too detailed in
others. A consolidation of small and relatively unimportant programs with larger programs will go a long way towards
improving the contents of the budget. The major budget issue would be clearer id the great amount of details now
found in the budget document were deleted. It is worthwhile to consider the inclusion of only the major programs in
the budget and leave the supplementary details in yearly efficiency reports of the agencies as suggested earlier.
Program execution and performance review. The ultimate effectiveness of the budget will depend on the
skill in which program are administered and the extent to which it can provide a reliable basis for appraising
performance. At present, the main emphasis of programs execution is on the principle that appropriation should not be
overspent. Comparatively speaking, little attentions has been given to the achievement of objectives in relation to the
money spent
To accomplish this, heads of department need not know the minute details of each bureau’s operations under
them but they would require means to ensure coordinated achievement of the objectives set for their respective
departments. Within departments, there should be a strong and competent management staff to provide a regular check
on the management operations of the bureaus. Not only will such a staff examine operating procedures more critically
then the bureau personnel who are directly involved in operations, but it can also follow through suggestions on
improvement of efficiency. Improvements in management techniques have to be diffused by such a staff to overcome
habit and inertia of groups of individuals that do not wish to be disturbed. The efforts to improve efficiency in program
execution will be more fruitful if past performance and current efficiency are reviewed regularly.
Just important releasing money within the revenue estimates of the government, the Bureau Commission must
ensure that the progress achieved as reported by the operating agencies is accurate and in relation to stated objectives.
Accuracy of performance reports is necessary to gain the confidence of and support for future programs by the
legislative branch. It is also critical to enable the Budget Commission to relate the Achievement of objectives to the
money spent which is the key question of performance and therefore the raison deter of performance budgeting.
Through these periodic reviews by the Commission, a basis adjusting old goals and formulating new ones can
be evolved. Congress will have better information with which to gauge what has been accomplished with the money it
has appropriated and the need to amend legislation and enact new measures that will conform to the policies it has set.
On the other hand, agencies could be helped in improving their operations.

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 References

Buck, A. E. Public Budgeting. New York Harper & Brothers, Publisher, 1929.
Burhead, Jesse, Government Budgeting. New York: John Wiley & Son, Inc., 1966.
Committee for Education Development, Budgeting for National Objective, January, 1966
Republic of the Philippines, Budget Operations Manual. Manila: Bureau of Printing 1968.
Republic Act No. 992.
Smithies Arthur, The Budgetary Process in the United States New York: McGraw-Hill Book Company, Inc.,
1955.
Soberano, Jose D. and Waldby, H. Odell, eds. Philippines Public Fiscal Administration (Reading and
Documents). Manila: UP Graduate School of Public Administration, 1965. Part Four.

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