Reenacted budget: what does it mean?

The author is Research Fellow of the Philippine Institute for Development Studies.

In the United States, Congress is duty-bound at all times to legislate
an appropriations act on time. When it fails to do this, federal
agencies and programs literally shut down. In the Philippines, in
contrast, Congress is not subject to the same kind of pressure.
Government agencies simply operate on the basis of the previous year’s
budget when the passage of the general appropriations act is delayed.

For instance, because of the Estrada impeachment, Congress failed to
pass a General Appropriations Act for 2001 before the end of December
2000. When it assumed power, the Arroyo administration then decided not
to press Congress to enact a GAA but opted instead to operate on a
re-enacted 2000 budget.

This time around, some members of the House of Representatives have for
various reasons announced that they would push not for the passage of a
new GAA for 2004 but rather for the reenactment of the 2003 budget.
What are the implications of such a move? Among the
departments/agencies, which are the gainers and which are the losers?

In general, the departments/ agencies that would have received
additional funding for the operation of new programs or for the
expansion of existing ones under the proposed President’s Budget for
2004 would clearly lose if government would be forced to work on the
basis of a re-enacted 2003 budget this year. Thus, the biggest losers:

  • Pension and Gratuity Fund (which will lose P4.5 billion intended
    for the retirement gratuity and terminal leave benefits of national
    government personnel);
  • Department of Education (which will lose a total of P3.9 billion
    meant for the hiring of new teachers, the construction of additional
    classrooms, the expansion of the GASTPE and the increase in school
    level MOOE);
  • LGUs (which will lose P2.6 billion from their IRA share and share in the proceeds of national wealth);
  • the e-Government Fund (which will lose P1 billion);
  • National Housing Authority (which will lose 540 million);
  • National Home Mortgage and Finance Corporation (which will lose P500 million);
  • ARMM (which will lose P308 million);
  • Office of the President (which will lose P328 million); and
  • Bureau of Jail Management and Penology and Bureau of Corrections (which will lose P292 million combined).

Without the P5-billion supplemental budget that has already been
approved in the House last November 21, 2003, the Armed Forces (i.e.,
the Philippine Army, the Philippine Navy and Philippine Air Force
combined) would have lost P2.5 billion, and the Commission on Election
P2.4 billion. In fact, the budget increment given to Comelec under the
supplemental budget was even P844 million bigger than what was proposed
under the 2004 President’s Budget. At the same time, the total
available appropriations for the DAR will increase by P4.5 billion with
a reenacted budget.

On the other hand, with a re-enacted budget, the biggest winners are
DPWH (in whose case most of the increase will be on account of
so-called projects with a zip code, i.e., pork barrel projects, the
Priority Development Assistance Fund and the DAR. Total available
appropriations for these agencies and program will increase by P11.7
billion, P4.8 billion and P4.5 billion, respectively.

In addition, numerous departments and agencies whose budgets were
similarly cut under the proposed President’s Budget stand to gain from
a reenacted budget in 2004. These include the DA (which will gain P465
million), Bureau of Fisheries and Aquatic Resources (which will gain
P754 million), and DENR (which will gain P235 million).

It is also notable the allocation for the Priority Development
Assistance Fund (PDAF), the major source pork, is cut by P4.8 billion
in the 2004 President’s Budget. Also, the budget for “other local
infrastructure projects” that is widely perceived to be an important
source of pork barrel funds also declined by some P6 billion.

Will it increase or decrease the aggregate obligation program? On the
whole, should the National Government operate on the basis of the
reenacted 2003 GAA and the P5- billion supplemental budget in 2004, the
national government expenditure program will be larger than what was
originally proposed under the President’s Budget by P9 billion. Other
things being equal, this development will further strain the national
government’s ability to meet its fiscal deficit target in 2004.

In the continuous battle between the executive branch and the
legislative branch for the power of the purse, which side gets the
upper hand (i.e., exercise greater discretion)? At first glance, a
reenacted budget in 2004 would clearly benefit congressmen and senators
since it would cause funding for pork barrel projects to increase by
some P11 billion relative to what would have been available under the
President’s Budget. From this perspective then, a reenacted budget will
be compatible with incumbent politicians who need to bring home the
bacon, particularly during an election year.

However, because the expenditure program implied by a reenacted budget
is underfunded, it is easy for fiscal authorities to justify the
sequestration or impoundment of appropriations by calling on the need
for fiscal discipline. Necessarily, this will give the executive branch
the upper hand during budget execution phase. At the end of the day,
the budget department will have the discretion in deciding how to
implement the budget cuts. The selective rationing of allotment
authority and/or cash allocation tends to politicize the prioritization
process as different stakeholders jockey for favors in the release of
spending authorization and/or cash allocations (Schiavo-Campo and
Tommasi 1999).

The timing of the release of the allotment authority and the cash
allocation matters as well and has been used in the past to impose
discipline on members of the incumbent political coalition. Even if the
budget department decides to impose across-the-board budget cuts, it
still gets to exercise a lot of discretion in terms of identifying
projects that will continue to be funded under a reenacted project.
This is especially true in the case of nonrecurring activities and
capital projects.

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