Frequently Asked Questions: Budget Review Process

The Budget Review Process ensures that local government budgets comply with legal, financial, and operational requirements. During this phase, the budget may be declared either operative or inoperative based on its compliance with fiscal regulations. Below are frequently asked questions about the Budget Review Process, with specific details on inoperative budgets.

1. What is the Budget Review Process?

The Budget Review Process begins when the local government’s Appropriation Ordinance (AO) is submitted for review. The Department of Budget and Management (DBM) or the Sangguniang Panlalawigan examines the AO to ensure it complies with the Local Government Code (LGC) and other relevant financial guidelines. The review concludes with a declaration of the budget as either operative or inoperative.

2. What is an Inoperative Budget?

An inoperative budget refers to a budget that has been found to violate legal, financial, or operational rules. The DBM or Sangguniang Panlalawigan may declare a budget inoperative in whole or in part, meaning that certain portions of the budget or the entire budget cannot be implemented until corrections are made.

3. What Causes a Budget to Be Declared Inoperative?

Several issues can lead to a budget being declared inoperative. Common reasons include:

• Exceeding the allowable budget for Personnel Services: Local governments are limited in how much they can allocate for personnel expenses. Exceeding these limits will result in an inoperative declaration.
• Improper allocation of Special Funds: Specific funds, such as the Special Education Fund (SEF) or the Development Fund, must be used strictly for their designated purposes. Misallocating these funds will make the budget inoperative.
• Failure to Meet Debt Servicing Requirements: LGUs are required to allocate a portion of their budget to pay off existing debts. Failure to include this in the budget can result in an inoperative declaration.
• Non-compliance with Statutory Allocations: The LGC mandates certain allocations, such as for disaster risk reduction, local development projects, and emergency reserves. If the budget does not meet these allocations, it will be declared inoperative.

4. What Happens When a Budget is Declared Inoperative?

When a budget is declared inoperative, it means that the local government cannot implement the budget or the specific parts that were declared inoperative. The DBM or Sangguniang Panlalawigan will issue a detailed report outlining the specific reasons for the inoperative status. The local government must:

• Revise the Budget: The LGU must make the necessary adjustments based on the feedback from the DBM or Sangguniang Panlalawigan.
• Resubmit for Approval: After making the corrections, the revised budget must be resubmitted for approval before it can be implemented.

Only the portions of the budget that are declared operative can proceed, while the inoperative sections must be revised before any further action is taken.

5. How Can a Local Government Fix an Inoperative Budget?

The local government must revise the inoperative portions of the budget according to the review body’s feedback. This might involve:

• Reducing Personnel Services allocations to comply with the allowable limits.
• Reallocating Special Funds to their correct purposes, such as ensuring that SEF is used for educational expenses.
• Incorporating Debt Servicing and Emergency Reserves to comply with mandatory allocations.

Once the necessary revisions are made, the LGU can resubmit the revised budget for final approval. After resubmission and approval, the inoperative sections can be implemented.

6. Why is Declaring a Budget Inoperative Important?

Declaring a budget inoperative ensures that local governments are held accountable for following fiscal laws and regulations. It prevents the misuse of public funds, ensures that legal financial limits are respected, and promotes transparency in the budget process.

An inoperative budget indicates that adjustments are required to ensure compliance with fiscal laws. The Budget Review Process safeguards public resources by ensuring that local government budgets meet all legal and financial standards. By addressing the inoperative portions and making the necessary corrections, LGUs can proceed with their financial plans while maintaining fiscal responsibility.

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