Business World, 13 May 2014

Real budget reform needs congressional approval or, at the very least, concurrence. Otherwise, the reform will be faddish, short-lived and unsustainable.

Seventh, the Performance Challenge Fund (PCF) is not a budget reform. It is more of a political tool to increase the administration party’s influence among local officials. The amount of P754 million was used to augment the resources of 516 local government units, which will attain a “Seal of Good Housekeeping” in various areas of governance.

The rating system is flawed in the sense that it is self-rating rather than done by an independent, unbiased think tank or academic institution. It makes good political sense since local authorities that received financial grants over and above their share from the Internal Revenue Allotment (IRA) would be indebted to the Department of Interior and Local Government officials.

The Fund goes against the grain of promoting fiscal autonomy, an objective of the 1991 Local Government Code. Local officials should learn to live within their means and to confront a “hard budget constraint.” Local government units already get 40% of all internal taxes. In 2014, the IRA will be P309 billion, or 13.6% of total national budget.

Eighth, Executive Order No. 80, which seeks to further strengthen performance monitoring and appraisal systems, is only a marginally useful tool for improving performance rather than improving budget allocation. It rewards performance through the grant of performance-based bonuses.

It was preceded by Administrative Order No. 25 which aims to rationalize, harmonize, streamline, simplify, integrate, and unify efforts to monitor performance of government agencies. It created an interagency task force (IATF) that will develop a common set performance scorecard and government executive information system. It mandates that all government agencies should create a Performance Management Team (PMT).

Ninth, the Bottom-up Budgeting (BuB) approach is an extension of previous initiatives to involve the regional development councils in the budget process; it appears to be more a political tool to get the support of favored civil society organizations (CSOs). Under previous administrations there were initiatives to institutionalize a comprehensive and decentralized project monitoring and evaluation systems through the Regional Project Monitoring and Evaluation Systems (RPMES).

The focal point of RPMES is the regional development councils (RDCs), agencies that are expressly recognized in the Philippine Constitution. During his administration, President Ramos introduced the Regional Budget Allocation Scheme (RBAS) which gives RDCs a direct role in the determining actual programs and projects to be implemented in their respective region, provided these were consistent with overall development and investment plans. These plans were those that were not prioritized by local governments or national agencies.

The RBAS commands the Development Budget Coordination Committee (DBCC) to set aside a Regional Allocable Fund (RAF) for the 15 regions’ proposed priorities or plans. The DBCC is a Cabinet-level committee chaired by the DBM Secretary. The RBAS has not been sustained since members of Congress came to view the RAF as an election fund.

By contrast, the focal point of the BuB is an amorphous body of some 40,000 CSOs. Joint Memorandum Circular No. 1, Series of 2012 requires the endorsement of CSOs from the community for any funding.

The purpose of the BuB initiative is to provide policy guidelines, processes, responsibilities, and timelines to guide the participating agencies and selected focus LGUs in the bottom-up planning and budgeting approach to be applied in the preparation of the 2013 budget.

The intended beneficiaries are at least 300 of the 609 selected focus cities and municipalities identified and approved by the Human Development and Poverty Reduction Cluster (headed by the Secretary of the Department of Social Welfare and Development [DSWD]). In 2013, the authorized budget was P8.397 billion. In 2014, the coverage of the BuB program was expanded to cover 1,233 cities and municipalities with an appropriation of P20.031 billion.

In practice, the BuB is a tedious and time-consuming process. The biggest program beneficiaries have been the Departments of Agriculture (41.6%), DSWD (13.2%), Department of the Interior and Local Government (11.2%) and the Autonomous Region of Muslim Mindanao (6.7%) — all headed by favored allies of the administration.

The BuB programs violates the essence of representative democracy where citizens elect their representatives to make policy decisions for them. This process is made more complicated by the existence of some 40,000 CSOs in the country. (Which CSO will represent what sector of society?) Effectively, the scheme gives national government officials the power to choose who among the many CSOs can participate in the BuB program. One may judge this as not real budget reform but a scheme for political consolidation.

Finally, the reform to use the General Appropriations Act as the basis for obligational authority, though not novel, is a move in the right direction. This was already adopted during the truncated term of Mr. Estrada in what was called a “What-You-See-Is-What-You-Get” budget release procedure. What the public pronouncement did not make clear is that the special allotment release order (SARO) are still needed to obligate appropriations funded out of special funds and of lump-sum appropriations in agency budgets.

Any real reform needs to be well thought out and cannot be whimsical or arbitrary. This means reform has to be the product of broad consultation with the affected stakeholders — citizens, bureaucrats, heads of departments, and members of the legislature if the reform were to require legislation.

Since Congress exercises the “power of the purse,” its concurrence is needed in any major change in the budget process. A reform that seeks to realign the power structure must be done within the legal, constitutional framework. The key message is that one cannot ignore the politics of change. Otherwise, the reform will be short-lived and unsustainable.

For any public sector reform to succeed — and this includes budget reform — a “champion” at the highest level of government is required. The Local Government Code of 1991 is an example. What was arguably the most sweeping law to change intergovernmental structure and fiscal rules in the Philippines was championed by then President Corazon Aquino and had the support of both the Speaker of the House and the Senate President.

In like manner, the successful approval of the Public Procurement Reform Act can be attributed to the strong political support at that time by then-President Joseph Estrada and Gloria Macapagal Arroyo, and Congress.

Meanwhile, one may argue that the failure to pass the Freedom of Information (FoI) Act, an essential piece of legislation that would promote transparency and fiscal accountability in government, is largely due to the lack of political support from President Aquino III. Despite his 2010 campaign promise to push for FoI’s approval, Aquino’s attitude towards the FoI bill has been lukewarm, at best, and hostile, at worst. It comes as no surprise that the FOI bill has languished in Congress for almost four years.

Of the list of budget reforms being pushed by the Aquino administration however, the two that would give the highest potential payoffs are the Fiscal Responsibility Act and the Performance-Based Budgeting System which includes the Medium-Term Expenditure Framework and the Organizational Performance Indicators Framework. Both of these require new legislation. In addition, Performance-Based Budgeting requires better and more relevant outputs and outcomes indicators for all agencies.