What’s the difference between Appropriation and Allotment?

(Part 1 of 3 parts article)

What is an Appropriation?

An appropriation is an authorization pursuant to laws or other legislative enactment directing the payment of goods and services out of government funds under specified conditions or for specified purposes.

The reason why there is a need for an appropriation law is because the Constitution restricts the use of public funds without a legislative enactment.

The Constitution provides that no money shall be paid out of any public treasury or depository except in pursuance of an appropriation law or other specific statutory authority.

An example of an appropriation law is a General Appropriations Act (GAA) which is commonly known as the National Budget. The National Budget contains, among others, the budget of national government agencies for the payment of salaries, allowances and benefits of government officials and employees, the budget of the government for its day to day operations, and the budget of the government for its programs such as social and health services, and projects like roads, bridges, airports, dams, etc..

In the local government units (LGUs), appropriation law is in the form of an Appropriation Ordinance. Just like in the national goverment, LGUs also spend their budget in almost the same manner.

What are common types of Appropriation?

There are several types of appropriations. The most common is the New General Appropriation. This appropriation is an authorization for incurring obligations during a specified budget year as contained in the GAA.

Another type of appropriation is an Automatic Appropriation. This type of appropriation is a one-time legislative authorization to provide funds for a specified purpose, for which the amount may or may not be fixed by law, and is made automatically available and set aside as needed. Since it is already covered by a separate law, it does not require periodic action by Congress, and need not be included in the legislation of annual appropriations.

Examples of Automatic Appropriation, includes, among others: a) Interest payments for foreign and domestic debt which is commonly known as Debt Service (per P.D. No. 1967, R.A. 4860, and R.A. 245 as amended); b) Net Lending to GOCCs (per P.D. 1177 and E.O. 292); c) Special Accounts – per specific laws, e.g., Wildlife Management Fund (DENR-R.A. 9147) sourced from fines etc. relating to the implementation of the Wildlife Act; and d) government share in the Retirement and Life Insurance Premium (RLIP) of government employees and officials.

Again, automatic appropriations need no periodic action (i.e., yearly enactment), as compared to the general appropriations which are usually enacted on a yearly basis, since they are already covered by specific special laws.

One more type of appropriation, although starting FY 2018, the government discontinued the use of the same, is a Continuing Appropriation.

Continuing Appropriation is an authorization that supports obligations (expenditures incurred and committed to be paid by the government) for a specific purpose or project, even when these obligations are incurred beyond the budget year. The reason why it is called Continuing Appropriation is because the validity of certain part of the appropriation extends beyond the year the appropriation was enacted. For instance, the budgets for Maintenance and Other Operating Expenses and Capital Outlay are valid for two years which means any unspent amount during the first year may still be used in the succeeding year. Again, there are no more continuing appropriations in FY 2018, and maybe in the succeeding years, depending on what the Congress provides.

What is an Allotment?

In simple terms, an allotment is a chunk of an appropriation. If appropriation is a whole pizza, an allotment represents a slice or share of a government agency from the pizza.

In technical terms, allotment is an authorization issued by the Department of Budget and Management (DBM) to an agency, through authority contained in the General Appropriations Act (GAA) or the release of Special Allotment Release Order (SARO), permitting the agency to commit/incur obligation and/or pay out funds within a specified period of time within the amount specified for the purpose indicated therein.

Unlike in previous years, where agencies can only enter into contract or incur obligation when the DBM issued their respective Agency Budget Matrix (ABM), now the GAA already serves as the authority of government agencies to incur obligations, except for certain items in the GAA that requires fulfillment of certain conditions before it can be released.

What are allotment classes?

There are four (4) allotment classes. They are: 1) Personnel Services (formerly called Personal Services); 2) Maintenance and Other Operating Expenses (MOOE); 3) Financial Expenses (FE); and 4) Capital Outlay.

Personnel Services (PS) is the budget set aside by the government for the payment of salaries, wages and other compensation of government officials and employees.

Maintenance and Other Operating Expenses (MOOE) on the other hand is the budget of the government to cover its day to day operations. These are expenses for supplies and materials; transportation and travel; utilities (water, power, etc.) and the repairs, etc.

Financial Expenses (FE) is a new expense category. These expenses refer to management supervision/trusteeship fees, interest expenses, gurantee fees, bank charges, commitment fees and other financial charges incurred in owning or borrowing an asset property.

Capital Outlays (CO) or Capital Expenditures is commonly known as the budget for the construction and rehabilitation of roads, bridges, ports, airports, dams, public facilities, etc. It also includes budget for the purchase of motor vehicles, certain office equipment, information and communication technology equipment, and the like.

In summary, appropriation represents the level of authority given by the government to its agencies, specified in certain amount and purpose, usually corresponding to what has been proposed by the agency as its annual budget, while allotment represents the amount already released by the DBM to the agency out of the agency’s appropriation. Whatever amount of approriatuon that has not been released at the end of the year will be reported in the Agency’s books and registries as unreleased approriations.

What is the difference between Obligations and Disbursements?

What is the difference between Due and Demandable Obligations and Not Yet Due and Demandable Obligations?