Budget Reform: Where We Are, Where We

Should BeBenjamin E. Diokno, Ph.D.

OUTLINE• Implications of the Supreme

Court rulings on PDAF and DAP• Pork Barrel Has Not Gone Away.

It Is Alive and Kicking. • Budget Reforms• Concluding Remarks

Core Issues• Separation of powers: on the budget,

the President prepares and implements the budget, Congress authorizes it, and the Supreme Court interprets the law

• Encroachment and/or usurpation of responsibilities: On the PDAF, has Congress exercised the presidential power of budget implementation? On other funds and DAP, has the President usurped the congressional power to authorize appropriations?

What's unconstitutional? PDAF -- "it has allowed legislators to wield,

in varying gradations, non-oversight, post-enactment authority in vital areas of budget execution, it has violated the principle of separation of powers; in so far as it has conferred discretionary funds from which they are able to fund specific projects which they themselves determine it has similarly violated the principle of non-delegability of legislative power; …

What's unconstitutional? …in so far as it has created a system of

budgeting wherein items are not textualized into the appropriations bill, it has flouted the prescribed procedure of presentment and, in the process, denied the President the power to veto items; insofar as it has diluted the effectiveness of congressional oversight by giving legislators a stake in the affairs of budget execution, an aspect of governance which they may be called to monitor and scrutinize the system has equally impaired public accountability; ..."

What's unconstitutional? Malampaya Fund -- "insofar as it has

conferred to the President the power to appropriate funds intended by law for energy -related purposes only to other purposes he may deem fit;"

PAGCOR Fund -- "as well as other public funds under the broad classification of "priority infrastructure development project, " it has once more transgressed the principle of NON-DELEGABILITY."

What happened to PDAF in 2014?BESF BESF GAA 2014GAA 2014

DifferenceDifference

DOH--OsecDOH--Osec 80,171,300,080,171,300,00000

83,720,921,083,720,921,00000

3,549,621,003,549,621,0000

DILG OsecDILG Osec 9,539,506,009,539,506,0000

10,132,472,010,132,472,00000 592,966,000592,966,000

DOLE--Osec DOLE--Osec 3,531,819,003,531,819,0000

4,553,819,004,553,819,0000

1,022,000,001,022,000,0000

TESDATESDA 4,091,192,004,091,192,0000

5,117,192,005,117,192,0000

1,026,000,001,026,000,0000

DSWD--OsecDSWD--Osec 78,686,306,078,686,306,00000

83,114,075,083,114,075,00000

4,427,769,004,427,769,0000

DPWHDPWH 200,265,553,200,265,553,000000

206,634,047,206,634,047,000000

6,368,494,006,368,494,0000

CHEDCHED 2,816,841,002,816,841,0000

6,941,041,006,941,041,0000

4.124.200,004.124.200,0000

PDAF is alive and kicking The unmistakable conclusion is that

despite the Supreme Court decision that PDAF is unconstitutional, the pork barrel system is very much alive and kicking.

DILG

Congress increased the DILG budget for locally funded projects by P593.0 million, from P9.5 billion to P10.1 billion.

DOLE Congress increased the budget for

Employment Facilitation by P1.0 billion, from P3.5 billion to P4.5 billion.

TESDA

Congress increased the TESDA budget to P5.1 billion from P4.1 billion, or by P1.0 billion.

DSWD

Congress increased the DSWD budget -- to P83.1 billion from P78.7 billion, or by P4.4 billion.

DPWH

Congress increased the budget for DPWH -- to P206.6 billion from P200.3 billion, or by a staggering P6.4 billion!

Commission on Higher Education

Congress increased the budget for CHED-- to P6.9 billion from P2.8 billion, by a staggering P4.1 billion, or by 146%.

Question: How can the augmented amount (P4.1 billion) be bigger than the original budget request (P2.8 billion)? Ridiculous.

But increasing the authorized appropriations of the 5

departments and 2 agencies is unconstitutional!

The 1987 Constitution provides that Congress may decrease but not increase the budget as submitted by the President.

Wisdom of the Budget Rule The President knows best: If the President

chooses to submit a budget of say P10 billion for Department XYZ, Congress has no business telling the President that he needs more than P10 billion to run the said Department. After all, the President has more and better information on the requirements of the Executive Department, the capacity of his men, and the available tax and non-tax revenues. The President, more than any other top elective officials in government, understands the macroeconomic implications of the overall size of public spending and the deficit.

What's the justification for the P6.9 billion additional assistance to local government

units (LGUs)? LGUs already receive an annual grant from the

National Government in the nature of the Internal Revenue Allotment (IRA). The IRA is formula-based and automatically appropriated. In 2014, the IRA is worth P341.5 billion.

The discretionary grant to LGUs makes local officials politically indebted to the President and the DILG secretary. Sadly, this goes against the goal of promoting local autonomy. Local authorities are discouraged from observing hard budget constraint -- that is, living within their means.

Who benefited from higher budget allocation for CHED?

Congress increased the budget of CHED by a whopping P4.1 billion. Who benefited from this huge budgetary allocation for scholarship? The best and the brightest young men and women or the sons and daughters of politicians and their political supporters?

I have no objection if scholarships were granted on the basis of academic performance and standard tests. But if scholarships were granted of the basis of political connection, then it is likely to be a waste of taxpayers’ money.

Presidential Pork The presidential pork was increased too. Congress authorized a new special purpose

fund, not originally included in the President's Budget -- the P20-billion Rehabilitation and Reconstruction Program (RRP)

The P20-billion RRP was sourced from the Miscellaneous Personnel Benefits Fund (MPBF). Does this mean that there was a P20-billion FAT deliberately hidden in the 2014 President's Budget?

Other Adjustments

Congress increased the Calamity Fund for 2014 from P7.5 Billion to P13.0 Billion. Remember: the Calamity Fund is intended for immediate relief and rehabilitation due to calamities that are going to take place 2014, and not for calamities in prior years.

SC ruling: through the DAP, the President usurped the congressional

power of the purse• A fundamental feature of the

Philippine Constitution is the separation of power. On the budget, this means the President prepares and implements the budget, Congress authorizes it, and the Supreme Court interprets the law.

Core Issues in the Disbursement Acceleration Program (DAP)

• Was there transfer of appropriations?• Was there real savings?• Was the augmentation process

appropriately done? Specifically were the conditions for augmentation specified in the Constitution and other laws strictly observed?

The Constitution prohibits any law authorizing any transfer of appropriations • Article VI, Section 25(5) provides: No law shall

be passed authorizing any transfer of appropriations; however, the President, the President of the Senate, the Speaker of the House of Representatives, the Chief Justice of the Supreme Court, and the Heads of Constitutional Commissions may, by law, be authorized to augment any item in the general appropriations law for their respective offices from savings in other items of their respective appropriations.

Meaning of Savings• Savings refer to portions or balances of

any programmed appropriation in this Act free from any obligation or encumbrance which are:

• (i) still available after the completion or final discontinuance or abandonment of the work, activity or purpose for which the appropriations is authorized;

• (ii) from appropriations balances arising from unpaid compensation and related costs pertaining to vacant positions and leaves of absence without pay;

Meaning of Savings• (iii) from appropriations balances realized

from the implementation of measures resulting in improved systems and efficiencies and thus enabled agencies to meet and deliver the required or planned targets, programs and services approved in this Act or at a lesser cost.

Conditions for Augmentation• Section 25(5), Article VI of the Constitution

authorizes the transfer of savings as defined to “augment” other items in the General Appropriations Act (GAA), provided the following conditions are present and observed:

• (a) there is/are actual savings declared as defined in the GAAs to be transferred;

• (b) the item(s) to be augmented by the saving(s) exist in the GAA are “determined deficient”;

Conditions for Augmentation …

• (c) the source(s) of savings and the item(s) augmented must be within the appropriations of the authorized official; and

• (d) “In no case shall a non-existent program, activity or project, be funded by augmentation from savings or by the use of appropriations authorized in this Act”

“Cross-border” augmentation is unconstitutional

• The Executive Department augmented out of its ‘savings’ the budget of the Commission on Audit (COA). On November 16, 2013, the COA Chairman admitted in a Senate hearing that in 2012, COA received P140 million for the funding of computers, hiring of consultants and purchase of vehicles for Commissioners/Directors. This act is unconstitutional.

“Cross-border” augmentation is unconstitutional

• The national government augmented the budget of the House of Representatives using overall savings of the Executive Department, This act is unconstitutional.

• Using overall savings of the Executive Department, DBM augmented the budget of the Commission on Elections. This, too, is unconstitutional.

DAP financed 119 separate budget activities amounting to PHP149 billion

from Q4/2011 to Q2/2013. Below are a few examples of DAP

releases

P6.5 billion to LGUs which are almost completely dependent on IRA for the construction of arterial roads to connect to

national roads• Budget for the Office of the

Secretary ...P2.575 billion• How can the DILG-OSEC generate P6.5 billion

out of an appropriation of P2.575 billion?• From the Financial subsidy to LGUs (p.979)?

But that has an appropriation of only P200m.

P11.05 billion for NHA for various housing projects

• Congress authorized P4.375 billion for NHA. How can NHA generate savings of P11.05 billion out of an appropriation of P4.375 billion? Why is the augmentation bigger than the initial appropriation?

• There is another item --Budget support to government corporations -Others. But it has an appropriation of only P13.6 million.

PhP 750* million as development assistance to

the Province of Quezon• This item does not exist in the 2011 GAA• The closest possible source of augmentation is

Financial Subsidy to Local Government Units. But this budget item has an appropriation of only PHP200 million.

*Three separate releases: (1) PhP49,254,000, (2) PhP154,000,000 + (3)PhP546,750,000

PhP30-billion capital subscription of the National Gov’t to BSP*

•This item does not exist in the 2010 and 2011 GAAs

•Where did DBM get the PhP30 billion savings?

There is a lump-sum item in the budget called Budgetary Support to Government Corporations – Others with an appropriation of only P13.6 million. UNLIKELY SOURCE.

*Three separate releases: (1) PhP10,000,000 (from 2010 GAA, SARO issued on 10/26/2001); (2) PhP2,523,485,000 (from 2011 GAA, SARO issued on 12/28/2002); and (3) PhP17,476,515,000 (from 2012 GAA, issued on 12/28,2012).

PhP625 million for the conduct of a National Survey of Farmers and

Fisherfolks released to DBM

•A non-existent budget item.•DBM's authorized budget in 2011 was PhP729.7 million. How can PhP 625 million savings be generated from the PhP 729.7-billion budget?

II. The pork barrel

continues. It is now embedded in the

national budget. The Presidential discretion

as to who will be its recipients is absolute.

But the pork barrel system is alive and kicking. Source: DBM, various budget documentsIn million pesos

Agency 2014 2015 2016BESF GAA Revised Proposed

DOH-OSEC 80,171 83,721 87,767 124,264DILG-OSEC 9,540 10,133 16,004 13,586DOLE-OSEC 3,532 4,554 4,461 6,787TESDA 4,091 5,117 5,442 6,516DSWD-OSEC 78,686 83,114 107,938 103,760DPWH-OSEC 200,266 206,634 303,164 291,167CHED 2,817 6,941 3,402 10,533

After a huge adjustment in 2014, the agency budget

keeps soaring

After a huge adjustment in 2014, the agency budget

keeps soaring

III. Budget Reforms

• To push these reforms, what is needed is a President who thinks of the common good (hence, above politics), forward-looking, totally dedicated to strengthening democratic institutions, and deeply committed to openness in government

Budget Reforms• What is needed is to institutionalize the

Supreme Court’s decisions on PDAF and DAP. • What is needed is for all ‘actors’ – the

President and agency heads, on the part of the Executive Department, and legislators from both Houses of Congress -- to take their respective roles in the budget process seriously and responsibly. They should embrace, rather than resist, the Supreme Courts decisions.

Budget Initiatives• There should be a triennial fiscal plan

(Fiscal Framework) to be presented by the President to Congress, which Congress, through a Joint Resolution, shall approved, and which the President shall sign into law.

• The Fiscal Framework shall coincide with the life (three years) of a given Congress.

Budget Initiatives• The budget approval process will

continue to be annual. But the congressional review will focus on the consistency of the annual budget with the triennual Fiscal Framework.

• After all, most of the programs and projects being pursued by government cannot be done within one year.

Budget Initiatives• Create a high-caliber congressional think-tank

staffed by trained professionals, to provide technical assistance to both houses of Congress on fiscal matters (budget, taxation, and public debt). The bicameral congressional office should be able to provide quality advice at the level of the Development Budget Coordination Committee. Congress could then assert its independence from the President in its review and evaluation of the President’s budget.

Budget Initiatives• Consistent with the Supreme Court’s ruling on

PDAF and DAP, Congress should pass, and the President should sign, a Budget Impoundment and Control Act (BICA). The President may impound (not release appropriations authorized by Congress) only if both Houses of Congress, through a joint resolution, agrees to the President’s proposed rescissions. If Congress fails to concur with the President’s proposal, the appropriations passed by Congress have to be obligated.

Budget Initiatives• What’s the impact of the BICA? The President

will be more careful and serious in planning and preparing the national budget. At the very least, it should not contain programs and projects that are not ready for implementation in any given fiscal year. Congress, on the other hand, will not approve the national budget blindly, knowing that what it authorizes will, unless formally rescinded, be obligated. Careless or ad hoc budgeting, and hence serious underspending, will be avoided.

IV. Concluding Remarks• The President has usurped the congressional

power of the purse. The act of appropriation is purely legislative in nature. The creation of the DAP violates the fundamental precept that only Congress wields legislative power.

• The Supreme Court said: “Only Congress, acting as a bicameral body, and the people, through the process of initiative and referendum, may constitutionally wield legislative power and no other.”

Concluding Remarks• Building a Strong Republic is like erecting

a strong house. Every President starting with the late President Cory Aquino should have added, brick by brick, a solid foundation for strong democratic institutions. It is the responsibility of every President to uphold and respect the Constitution and the rule of law in order to strengthen the democratic institutions that we, the Filipino people, restored in 1986.

Concluding Remarks

• Sadly, twenty-nine years after EDSA 1, our national leaders have yet to learn to uphold and protect the Constitution. Many political leaders do so only when it is convenient, but ignore it with impunity when inconvenient.