Letting go: Congress has practically abdicated the power to thoroughly study and plan the country's budget to the executive branch. Source: www.flickr.com/ photos/bikoy/4175577463/

The annual national budget is said to be the most powerful public articulation of the government’s policy. It lays out the government’s course of actions for the country for that year. And as pundits would say it, the budget is the development policy expressed in peso terms.

The budget, after all, is the engine, the prime mover. Without it, any development plan cannot set into motion. Thus, given the magnitude of its importance, no less than the Constitution specifically provides that the budget proposed by the Executive must go through an exhaustive check in Congress before it is approved.

In theory, the Congress, being composed of the people’s representatives, goes through the process of holding public hearings and discussions on various aspects of the budget each year. Every item is scrutinized and heads of various departments and agencies are meticulously questioned to ensure that the proposed budgets are justified.

But in practice, studies and fiscal experts claim, Congress has practically abdicated the power of the purse to the executive branch.

A United Nations-financed study shows that Congress has failed to scrutinize the annual national budget thoroughly and in the process, has in fact, facilitated corruption.

“Congress is given four months to debate the budget. But, more often than not, debates—particularly in the House of Representatives—deal not with policy but rather parochial concerns,” said the 2008/2009 Philippine Human Development Report.

Social Watch Philippines (SWP) sees the same observation. SWP is a nongovernmental group pushing for national budget reforms in Congress. It leads the Alternative Budget Initiative (ABI), a campaign involving 60 NGOs which has been trying to monitor the budget process in the legislature since 1996.

It says the country’s annual budget process is so lacking in transparency and oversight it effectively helps to ensure huge amounts of public money is lost through corruption and mismanagement.

Budget process

The budget cycle is a long process that for the most part is hidden from public view: Given the space and time it subsequently devotes to covering alleged financial scandals, the media has shown surprisingly little interest in scrutinizing it in any serious way.

Budget preparation runs from January to July when the administration engages in vigorous planning and debate with the different government agencies.

“The President determines the allocation and those who are close to the president get a better deal,” says SWP co-convenor Leonor Magtolis-Briones, former national treasurer.

While agencies are free to propose their own budgets, it is the chief executive who calls the shots. Usually, this depends on the President’s priority programs for the year, the expected revenue targets, and amount of debt the government can source out to fund the budget.

The authorization stage of the budgetary process for the following year runs from August to December when it is presented to and piloted through Congress. This stage is also called the budget legislation.

Under the Constitution, Congress is given the “power of the purse.” In reality however, only a few legislators scrutinize the entire budget. It has been widely observed that the Arroyo administration has a very compliant Congress with the majority of members allied to the President.

To all extent and purposes therefore, from a practical point of view, by the time it reaches Congress, the real work has been done and only amendments are made.

“As long as they get their pork barrel, they’re okay. They don’t look at the total picture. The result is a blank check for Malacañang,” claims Magtolis-Briones.

“Only the chairs of the Senate committee on finance and of the House appropriations committee meet regularly to discuss the budget,” she says. “There are no minutes of these meetings.” As a result, serious mistakes are sometimes made – like that of the controversial C-5 Road project, which was reportedly twice awarded PhP 200 million (USD 4.5 million) within the 2008 budget.

According to the late budget secretary Emilia Boncodin, such serious mistakes are due to a weak oversight process of the legislative branch.

In her presentation on the vulnerabilities of public financial management system of the Philippines in May last year at the University of the Philippines, she said oversight process by legislative committees only come to life when there are reactive investigations in aid of legislation. Other than this, it’s practically dead.

There is also no dedicated oversight over intelligence and confidential funds. And regular reports submitted to Congress by different agencies are generally ignored as there is no unit that analyzes these reports, Boncodin had claimed.

January to December is the budget execution stage when the budget for that year should have already been approved, released and used as appropriated by Congress.

The accountability stage is supposed to run concurrently – and yet it is often disregarded because by then the agencies are busy preparing for the new budget: So the budget cycle starts all over again.

The budget calendar often gets disrupted by delays in the passage of the current year budget. From 2001 to 2010, the enactment of the General Appropriations Act (GAA) was delayed seven times. The non-implementation or delay in implementation of projects results in service disruption. And when this happens, the budget laws give the sitting president a wide discretion in terms of realignment of budget savings.

Budget pie

As said earlier, the budget primarily depends on the President’s priority programs for the year. In 2008, the budget was about sustaining economic momentum, according to Malacañang. This came as the Philippines posted a gross domestic product growth rate of 7.3 percent a year earlier, making the country one of the fastest-growing economies in Asia.

The budget was consequently strong in investments for infrastructure, education, health, housing, as well as for science and technology.

In 2009, the budget was meant to cover an economic resiliency program in the midst of a global economic crisis that was raging through the most developed economies of the world. So a special purpose fund for ‘economic stimulus’ worth PhP 10.07 billion (USD 227 million) was included in the budget. This is on top of the increased allocations granted to the departments of public works and highways, agriculture, and the social welfare and development.

And in 2010, the budget, according to Malacañang, is aimed to leave a “legacy of hope and promise of a better future” by an outgoing president. So, the Department of Education is given the highest allocation among other agencies.

But the annual national budgets (Please see attached list of annual budgets 2008-2010) show that the highest allocation actually goes to debt service-interest payment. It’s more than 70 percent higher than the budget for education for 2010.

Put together, the budgets for the different executive departments and offices comprise the major share of the budget pie. These include the budgets for the offices of the President and the Vice President.

For the Office of the President, year 2010 gets an additional PhP 1 million (USD 22,727) confidential and intelligence funds provided for the National Telecommunications Commission. This makes a total of PhP 651 million (USD 15 million) intelligence and confidential funds that should be released only upon the President’s approval. PhP 500 million (USD 11 million) goes to the Philippine Anti-Organized Crime Commission and PhP 150 million (USD 3 million) is for the President’s general administration and support services.

Allocation for Congress, including the House of Representatives, doubled since 2009. This is on top of the Priority Development Assistance Fund (PDAF) that goes straight to each senator or representative. The PDAF has consistently grown higher as the national budget goes bigger.

Except for the Commission on Elections’ budget, which has doubled this year due to the conduct of the first automated national elections in May, the allocation for the judiciary and all other independent offices in government has practically remained unchanged for the last two or three years.

The annual budgets are also a showcase of lump sum appropriations for special purposes, known as Special Purpose Funds (SPF). The SPF, for fiscal analysts, is the much more consequential instrument in the national budget. These are lump-sum appropriations governed by special provisions and their release is subject to presidential discretion.

Next to debt-servicing, ‘Unprogrammed Fund’ gets the highest allocation in the SPFs. For 2010, it has a budget four times higher than the health department. PDAF, calamity and contingent funds are also part of these SPFs.

There are also special budgets that are earmarked funds specifically provided by law like the Modernization Fund of the Armed Forces of the Philippines.

It’s the beef

In theory, these SPFs are an effective tool to cover contingencies and provide flexibility in operations. But in practice, these special budgets suffer from general lack of transparency and abuse of discretion.

“The beef has always been that SPFs, being ‘lump–sum’ rather than ‘line budgeted’ items, are less transparent and are one of the main faults why a national budget can become less effective, less ethical and less equitable,” according to Zoilo Dejaresco III, financial adviser of the Philippine Center for National Budget Legislation.

From 2002 to 2008, the trend in the administration was to increase the amount that came under the category SPFs.

According to Bukidnon Rep. Teofisto Guingona III, last year, the World Bank stepped in to criticize the practice, so the percentage of funds allocated under SPFs decreased.

“The World Bank intervened and told the Philippines to reform. The government listened for it is beholden to the World Bank. It’s where we get our loans,” says Guingona.

But it isn’t for long. This year, it’s back to its old habits.

Unprogrammed funds

The most glaring are the Unprogrammed Funds, which hit a record high PhP 119 billion (USD 2.7 billion) this year, representing a hefty hike from only PhP 76 billion (USD 1.7 billion) in 2009 when the World Bank supposedly intervened. In 2008, its budget was PhP 115 billion (USD 2.6 billion).

Unprogrammed Funds are standby appropriations which authorize additional agency expenditures for priority programs and projects in excess of the original budget. And like everything inside SPF, these funds require presidential approval.

For Dejaresco, these funds sit within the questionable SPF allocations. What makes it more controversial is the Contingency Funds, which are separate from Unprogrammed Funds. PhP 800 million (USD 18 million) is available in this Fund for 2010.

Pork barrel

With SPF being the beef, the PDAF is just it – the pork.

More commonly known as “pork barrel,” – PDAF is widely seen as an old style fiscal instrument still employed in the budget that helps to foster continuing graft and corruption.

Every year, members of the House of Representatives receive a PDAF worth PhP 70 million (USD 1.6 million) each. A senator meantime receives PhP 200 million (USD 4.5 million). The money is for wholly discretionary spending.

As the name suggests, the PDAF is intended for priority development projects such as clean water, education and health care, and poverty alleviation. However, many legislators end up spending their allocations on trivial projects like waiting sheds or basketball courts.

Trivial or worthy, the use of pork barrel funds allows ample opportunities to defraud the state by irregular contracting procedures; by inflating prices – or by agreeing and securing kick-backs – where the winning contractor will illegally return a percentage of the funds paid out.

Yet according to Guingona, the country’s pork barrel is merely the tip of one enormous problem as it represents around one percent of the entire national budget.

Re-enacted budget

Even if a noncompliant Congress rejects the budget, the President is allowed a veto. And in the event no budget is approved, the administration can, under the Constitution, reenact – re-spend- the preceding national budget.

At the end of the day, it remains the President’s budget. And a reenacted budget favors the chief executive even more than one that is approved.

“A reenacted budget is like getting away with murder,” says Guingona.

Apart from the fact that a reenacted budget no longer conforms to the cost of goods and services of the current year, it also leaves new projects unfunded.

In cases of those projects that have already been funded the previous year, it means the allocated funds appear automatically as savings. Yet these savings are not necessarily channeled back to the national treasury. The sitting president is instead allowed to use these ‘savings’ to fund things which may not be identified in the national budget. This can be done without first securing Congressional approval.

Since President Arroyo stepped into office in 2001, there has not been a single year that her administration did not operate on a reenacted budget for at least part of the time. For seven years -including 2010- the government operated on a reenacted budget for up to four months of each year. The three other years -- 2001, 2004 and 2006 -- the government used a reenacted budget for the entire fiscal year.

For Rep. Guingona, a reenacted budget is a “badge of shame” for lawmakers. Given the many working hours, it’s a shame that they are not able to pass a very important legislation, the General Appropriations Act, he says.

“But this is purposely done. It’s with a sinister purpose, and not out of laziness,” claims Guingona.

2001 was when then-president Joseph Estrada was ousted from power and Vice President Gloria Macapagal Arroyo took over. 2004 was an election year. It was the same year when Arroyo ran for the presidency and was declared winner, but not without subsequently facing impeachment claims and charges that she was responsible for engineering a massive electoral fraud. 2006 started the campaign season for the 2007 elections.

“You can only guess where the savings of the reenacted budget went,” claims Guingona.

Impounded budget

Alongside the re-enactment of budget, impoundment is another common practice that can be used as a mechanism to funnel funds into savings, all for presidential use.

Impoundment is the refusal of the chief executive to release and spend funds that have already been appropriated.

Typically, when the phrase ‘savings,’ are mentioned, it is not so much about funds that have been managed so effectively that there remains money left over – but that the money has not actually been released to pay for what was intended.

In 2008, according to SWP, the Arroyo administration registered an all-time high over-all savings of PhP 140 billion (USD 3.18 billion) from impounded funds. It dislodges from the spot the year 2007 when pooled savings amounted to PhP 106.11 billion) (USD 2.41 billion).

“President Arroyo transferred PhP 178 billion (USD 4 billion) from different agencies to overall savings. On the other hand, a total of PhP 38 billion (USD 864 million) was transferred from Overall Savings to different agencies. This resulted to a net transfer of PhP 140 billion (USD 3.18 billion), which are recorded as Unreleased Appropriations. Presumably, this amount is carried over to 2009,” Magtolis-Briones says in a press statement.

She adds, instead of a supplemental budget that would only increase the country’s deficit, Malacañang should have used the remaining balances in the SPFs and accumulated savings which are handled by the Office of the President through the Department of Budget and Management to increase the calamity fund in 2009 amidst disasters hitting the country.

Per ABI’s data, the impounded funds from the 2008 budget include those for health and agriculture programs. These are the PhP 1.8 billion (USD 41 million) for family health program, PhP 400 million (USD 9 million) for the tuberculosis program, PhP 100 million (USD 2.3 million) for purchase of autoclaves (machinery for sterilization in public hospitals), PhP 100 million (USD 2.3 million) for the promotion of organic agriculture, and PhP 2 million (USD 45,454) for the small farmers’ training on system of rice intensification.

From the 2009 budget, environmental programs are among the casualty. These include the PhP 95 million (USD 2.16 million) for protected areas and wildlife management and PhP 1 billion (USD 22.7 million) for reforestation.

“Once impounded as ‘forced savings,’ congressional initiative allocations may never see the light of day or the impounded amounts constitute an off-budget new lump sum, which can be used by the Executive to fund projects which may not even find anchorage in the General Appropriations Act,” says Rep. Edcel Lagman, vice chairman of the Committee on Appropriations, in his sponsorship speech during the plenary debates on the 2010 national budget.

Monitoring

SWP calls on congressmen and senators to fully exercise their power of the purse over the 2010 national budget by supporting monitoring of public funds by impartial civil society groups.

“It is within times of economic crises and national elections. This means more work for Senators and Congressmen to ensure that the budget is actually released to the most vulnerable sectors of society,” Magtolis-Briones says.

“This is a crucial fiscal year as diversion of public funds is rampant during election period,” she adds.

But it’s not just a problem of a lack or an absence of monitoring. Much of the problem is also about accounting and audit.

In terms of accounting, there is no agency performing controllership function that will oversee the implementation of budgeting, internal control, accounting and auditing rules, including the preparation of financial statements and actual results of operations by the government.

Government accounting system is not fully computerized and integrated; manual accounting still exist, creating difficulties and delays in expenditure tracking.

The financial reporting system is also weak. The annual report from the Commission on Audit is either delayed or incomplete. And it is not available during the Budget Preparation period. Thus, its audit opinions are generally ignored or have no impact on agency operations.

Faulty budget process

The faulty budget process originated from budgetary laws passed during the years of martial law which have not yet been repealed. It is based on a decree by the dictatorial regime of President Ferdinand Marcos.

The constitution mandates the President to veto specific items in the budget bill created by the Senate and House of Representatives. On the implementation of the approved budget, the President can transfer items as deemed necessary.

And so this budget process has benefited not just President Arroyo, but all the presidents starting with Marcos.

It is this kind of system -- no check and balance -- that experts say, breeds corruption, monopoly and tax evasion and hampers the government’s efforts to attain pro-poor targets.

Budget reform bills have been filed in Congress, but none have yet been passed. The bills include those aiming to prohibit unprogrammed funds, bills providing guidelines for reenacted budgets and for national budget savings. There are also bills seeking transparency in bicameral meetings – as well as a bill that pushes for people’s participation in budget deliberations.

“Ownership of the budget must be returned to the people by enabling them to take part in the budget process,” says Magtolis-Briones.

But since these bills are expected to clip the powers of the President, and as majority in Congress are allies of the incumbent chief executive, advocates of reform do not hold out much hope of seeing any change before President Arroyo’s term expires.

But from the sounds of it, those vying to replace her do not appear to be impatient to challenge a process that encourages massive waste and corruption.

One reason of course may be the huge power of patronage it provides the lucky incumbent. And so all the more that the civil society, the legislators, and even the media should work together so that when the next administration comes, third party monitoring will finally be institutionalized. After all, poverty alleviation rests upon how the national budget is crafted and implemented. Philippine Public Transparency Reporting Project

(The author is a television news reporter of GMA Network and is a regular contributor of special reports on women, children, education, health, human rights, and the environment to the network’s news website GMANews.TV.)

Download Budget from 2008-2010