Core
Business World, 24 November 2015

 

The 2016 national budget is a mess. President Benigno S. C. Aquino III and Budget secretary Florencio B. Abad, with the support of their allies in Congress, are pushing for a 2016 budget that is clearly bloated, littered with huge lump sum appropriations, and openly defies the budget principles enunciated in the recent Supreme Court decision on the Disbursement Acceleration Program (DAP)

The underspending of the Aquino administration is legendary. For the last five years, it has missed its spending targets by a mile.

In 2011 it asked Congress for a budget of P1.711 trillion. Congress obliged, but the administration underspent by P154 billion.

In 2012, it asked Congress for a budget of P1.854 trillion. Congress obliged again, but the administration underspent by P76 billion.

In 2013, it asked Congress for a budget of P2.021 trillion. Once more Congress obliged, yet the administration underspent by P141 billion.

In 2014, it asked Congress for a budget of P2.281 trillion. Congress went along, but underspending ballooned to P299 billion.

That’s a total of P670 billion in just four years. This year, the spending performance is even worse. Planned spending from January to September 2015 was P1.997 trillion. But actual spending was P1.631 trillion, for a colossal underspending of P276 billion in just the first three quarters of the year.

It is not as if the Aquino III administration is able to deliver its promised outputs and outcomes for less. On the contrary, it has simply underperformed, and it continues to fail to deliver its promises to the Filipino people.

Yet, the Philippines suffers in comparison with its ASEAN-5 (Association of Southeast Asian Nations) neighbors in terms of public infrastructure. It has the worst roads, airports, sea ports, most expensive and unreliable power supply and the slowest and most expensive internet connections among its neighbors.

It has the worst unemployment rates. And it is the poorest in terms of per capita gross domestic product and proportion of poor people below the poverty line.

With so much public needs, why does it continue to underspend? (A) sheer incompetence; (B) deliberatively bloating the budget request so it can play around with the artificial ‘savings’; (C) poor budget planning by including in the budget projects that are not implementation-ready; or (D) All of the above.

Below are some random notes on the 2016 proposed budget.

First, given the Aquino III administration’s past spending behavior, the 2016 national budget appears too ambitious.

Next year, the Aquino administration proposes a P3.0-trillion budget, P447 billion higher than the 2015 budget, or an increase of 17.4%.

I think the planned spending is too ambitious for three reasons.

First is the administration’s demonstrated failure to execute its own plans and programs. What has it done lately to convince the public that there has been a dramatic change in the competency of the Aquino administration?

Second, there is an election ban before and after the presidential and local elections in May 2016. The ban would surely slow down spending for public infrastructure.

Third, a new administration will come to power on July 1, 2016. Historically, public spending tends to be lower during the first four quarters of a new administration.

Second, the entire 2016 budget is littered with “lump-sum” appropriations, some nationwide and some region-wide. This is one of the reasons for the delay in project execution.

Especially lethal are those that would be released “upon submission by the agency concerned to the Department of Budget and Management of special budget(s) detailing the actual program, activity, or project, and actual amount to be expended, the rationale and purposes approved by the President.

Every time a lump sum appropriation exists, it potentially means that the original budget approved by Congress, the general appropriations act (GAA), is illegally superseded and replaced by a mechanism created by one department or agency. This “budget within the budget” is a “pseudo” appropriations made without Congressional approval.

Third, some special provisions extend to the head of the heads of departments and agencies a power they do not have. By allowing the usurpation of the congressional power of the purse, this illegal delegation of authority violates the principle of separation of powers.

Some heads of agencies in the Executive Branch are given the authority to modify and realign the programs, activities, and projects as authorized by Congress through the general appropriations act. But realignment of allotment, reprioritization of items of appropriations, and reallocation of funds are species of transfer or augmentation prohibited under Section 25 (5), Article VI of the Constitution. Under Section 25 (5), Article VI of the Constitution. only the specific officers mentioned are authorized by law to transfer, inclusive of realignment and reprioritization of appropriations in their respective appropriations by way of augmentation.

For example, the budget of the Department of Agriculture has this special provision:

9. Project Modification. The Secretary of Agriculture is authorized to change the location and/or scope of work of Farm-to-Market Road Projects in order to ensure compliance with the Budget Priorities Framework, subject to the following: (i) the allotment released has not been obligated; (ii) may only be done once and until June 30, 2016, except if due to the occurrence of calamities; (iii) of the same project category; (iv) within the same legislative district and (v) undertaken by the same operating unit.

Similarly, the budget of the Department of Public Works and Highways (DPWH) has this special provision:

19. Project Modification/Realignment. The Secretary of Public Works and Highways is authorized to modify and realign the details within a program, activity or project covered by an allotment released from appropriations of the DPWH, subject to the following: (i) the allotment released has not been obligated; (ii) may only be done once and until June 30, 2016, except if due to the occurrence of calamities; (iii) of the same project category; (iv) within the same legislative district and (v) undertaken by the same operating unit.

Similar special provisions allowing project modifications by the head of the agency are provided for in the budgets of the Department of Education, Department of Health, Department of Transportation and Communications, and the National Irrigation Authority.

Fourth, the President and his allies in Congress redefined savings and augmentation in open defiance of the unanimous Supreme Court ruling on the DAP. The high courts rulings become part of the laws of the land, and they should be embraced and supported, not defied, especially by lawmakers.

Unfortunately, the definition of savings (Section 65 of the General Provisions and augmentation (Section 66 of the General Provisions) skirts the Supreme Court ruling (Araullo v. Aquino, GR No. 209287, July 1. 2014) against DAP. The high court ruled that savings can be declared only when there are still funds available after the final discontinuance or abandonment of the program, activity or project (P/A/P; underscoring mine).

House Bill 6131 (the 2016 General Appropriations Bill) redefined savings as: “…portions or balances of any released appropriations in this Act which have not been obligated as a result of the following:

(a) final discontinuance or abandonment of a P/A/P by the head of the agency concerned due to causes not attributable to the fault or negligence of the said agency which would render it possible for the agency to implement said P/A/P during the validity of the appropriations;

(b) non-commencement of the P/A/P for which the appropriations is released. For this purpose, non-commencement shall refer to the inability of the agency or its duly authorized procurement agent to obligate the released allotment and implement the P/A/P due to natural or man-made calamities or other causes not attributable to the fault of negligence of the agency concerned during the validity of the appropriations;

(c) decreased cost resulting from improved efficiency during the implementation or until the completion by agencies of their P/A/Ps: PROVIDED that the agencies will still be able to deliver the targets or services as approved in this Act; and

(d) Difference between the approved budget for the contract and the contract award price including any variations required for the project.

PROVIDED, however, that savings may likewise refer to available balances of appropriations arising from unused compensation and related costs pertaining to (i) unfilled vacant or abolished positions; (ii) non-entitlement to allowances and benefits; (iii) leaves of absence without pay; and (iv) unutilized pension and retirement benefits arising from death of pensioners, decrease in the number of retirees, or other related costs.

Programmed appropriations which have not been released or allotments not obligated due to the fault of the agency concerned shall not be considered savings.”

Paragraphs (a) and (b) gives the head of the agency the discretion to continue or abandon the P/A/P as authorized by Congress allegedly on justifiable grounds during the validity of the appropriations (one year for personal services and maintenance and other operating expenses, and two years for capital outlays. This is contrary to the power of the purse vested in Congress as it scrutinizes and approves the National Expenditure Program as submitted by the President. After the GAA has been enacted into law, the head of the agency can longer modify or realign the specific budget item.

Paragraph (d) is flawed because savings is not necessarily assured after the contract award price has been determined. In practice, there may be some contract variations during project implementation. Only when the project is completed can savings be determined, not when the contract price has been determined.

Balances of appropriations arising from unused compensation and related costs cannot, and should not be considered savings, because it creates perverse fiscal behavior. The agency head may choose not to hire personnel (teachers, policemen, judges, and so on) when public interests require that they should, presumably so they can create savings within his/her agency. It may also create incentives for the Budget secretary to bloat the personnel requirements so he can generate savings in the hope that later, savings can be used to augment other items in the budget. It should be noted that the proposed 2016 budget request a huge P92.258 billion for the lump-sum Miscellaneous Personnel Benefits Fund.

It would be good budget practice not to treat balances of appropriations from lump-sum funds (Miscellaneous Personnel Benefits Fund; MPBF), the National Disaster and Risk Reduction and Management Fund (P38.896 billion), the Pension and Gratuity Fund (P113.977 billion) as savings.

On Justice Marvic M. V. F. Leonen’s concurring opinion in the DAP case, he said “for there to be valid savings of every centavo in the pooled funds, there must be a showing (a) that the activity has been completed, finally discontinued and abandoned; and (b) why such activity was finally discontinued and abandoned and its consistency with existing statutes.”

Congress should correct this brazen attempt to circumvent the high court’s ruling on the definition by reverting to the definition of savings used in the 2011, 2012 and 2013 GAAs, namely:

“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 appropriation is authorized; (ii) from appropriations balances arising from unpaid compensation and related costs pertaining to vacant positions and leaves of absence without pay; and (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 at a lesser cost.”

Past administrations have lived with such definition of savings, why can’t the Aquino III administration do the same?

The 2015 and 2016 formulations of savings were meant to circumvent the Supreme Court decision on the DAP. Congress should not be a party to this attempt to defy the high court, especially since it limits its congressional power of the purse.

Finally, in order to limit the Executive abuse of the budget by deliberately creating a huge slack in the budget, the balance of appropriations from the MPBF, the National Disaster and Risk Reduction and Management Fund the Pension and Gratuity Fund should not be considered savings.