Budget expert

I got a letter from a staff of Congressman Guingona, who is reading my articles on the budget.
Here is her email message:

Dear Jay,

I am Tina Mendoza, Media Liason Officer of Cong. TG Guingona.

I was able to read your article "Breathing Space" when I was still in Dumaguete and brought it with me here in Manila. The article "Understanding the Budget" is close to my heart because my boss is "a budget reform advocate." It's just unfortunate that we never have the chance to see each other when I went to your place although, I was able to talked to you over the phone and I am thanking you for that. Thank you also for the interview...

I am sharing with you some files on budget and an article below. I hope it can contribute to your many other refferences..

Very truly yours,
Tina

P.S.
Should you need a speaker or guest to any budget (govnt spending) speaking engagement in your place, juz give us a ring...

Lump sum budgeting

Lump sum budgeting is a phrase I coined which describes a peculiar kind of making government appropriations.
I have very serious legal issues about lump sum budgeting.
This invites graft and corruption of horrific magnitude.

Lump sum family budgeting

Let’s go back to family budgeting.
For example, in the family budget, the mother lists down one of the expenses as: “food expenses, say P1,000 ”.
But this kind of expense or appropriation is very general.
Mother has to specify what food she is referring to.
She has to list down: Canned goods (P100), vegetables (P100), rice (P500), chicken (P200), pork (P100).
In other words, instead of just listing P1,000 for food expenses, if would be better for mother to “itemize” how the P1,000 food expense would be spent.
So it would be better for mother to “itemize” the family budget, instead of listing a lump-sum expense of “food.”

Lump-sum government budgeting

This should also be followed by government.
Government should not sprinkle the budget with lump-sum appropriations.
Lump-sum appropriations discards transparency.
If you look at the national government budget, or the general appropriations law, you will encounter appropriations like: “P2,000,000,000 for maintenance of roads and bridges.”
We, the people, will not know what are these specific roads and bridges that will be maintained.
Another common lump-sum appropriation in the national budget: P200,000,000 for construction of school buildings.”
We will not know where these school buildings will be constructed, and what type of school buildings will be constructed.

Lump-sum budgeting invites corruption

Lump sum budgeting invites graft and corruption.
There is no transparency.
Everything is in lump sum.
It is very important that the people insist that appropriations must be itemized, and specific in the budget.
We should say no to lump-sum appropriations.
As I said the biggest corruption that is happening in government, starts with the lump-sum appropriations in the budget.
It runs into billions of pesos.
And the favorite department that contains billions of pesos of lump-sum appropriations is the department of public works and highways.
You need proof?
Very easy, just read the chapter of the budget pertaining to DPWH.
Read also the budget for the Department of Education.

Legal issues

I have legal questions on lump-sum budgeting.
The constitution provides:
The constitution provides in Section 25(2) Article VI on the Legislative Department:

(2) No provision or enactment shall be embraced in the general appropriations bill unless it relates specifically to some particular appropriation therein.

I don’t think there is any intendment of the constitution to allow lump sum appropriations.
With lump sum appropriations, the people will never know exactly how and where it is going to be spent.
What we read are motherhood appropriations like “repair and maintenance of national secondary roads”, “construction of classrooms”, “construction of school buildings”.
Lump sum provisions allow so much latitude for executive officials to play with peoples’ money.
The solution is to do away with lump sum appropriations and let the executive department explain in detail their proposed appropriations so every single centavo will be properly accounted for, and monitored.
Until this is done, widespread anomalies running into billions of pesos will hound the government.
Study the budget, and you get to study wholesale graft and corruption.

Government budgeting

We can transpose the concept of family budgeting to government budgeting.
It’s not so different, if we consider the fundamentals.
Government budgeting is also like family budgeting.
The government derives income.
This income is taken from the taxes that are paid by the people.
For local governments, they have what we call Internal revenue allotment, or IRA.
Local governments hugely rely on their IRAs to survive.
There are also other sources of income other than taxes.
These are called non-tax revenues.
For example, if the local government has a huge tourism industry, and collects fees from visitors, and patrons, then the local government has a form of “non-tax” revenues.
The rent collections from use of market stalls is also a form of “non-tax” revenue.

Government Expenditures

Out of these income derived by the government, the amounts will have to be used to cover the expenses of government, just like covering the expenses of the family.

Three categories

Although it may look complicated, government expenses or expenditures can be simplified if we categorize it properly.
In the government budget the main categories of expenditures are (1) personnel services (2) maintenance and other operating expenses and (3) special purposes appropriation.

Personnel services

Personnel services is an amount set aside to pay for the personnel (employees) of the government.
The personnel are needed to run and operate the government so that basic services can be delivered to the people.
This is like the family, when a part of the income is paid to pay for the househelp.
Personnel services as a government expense is quite regularly because year-in, year-out, the government has to pay the salaries of government employees.


M.O.O.E.

“MOOE” means maintenance and other operating expenses.
This is the second main category of government expense.
This kind of expense is used to operate the government.
Government has to pay electricity, other utilities, buy bond paper, buy computers, or any other thing that is used to operate the daily affairs of government.
The MOOE is also one category that is regular year-in-year out because each year the government needs money for operating expenses.

Special purpose appropriations

The third category is the most flexible, the most controversial.
This is the so-called special purpose appropriations, or special purpose funds.
The phrase speaks for itself.
It is money set aside for “special purposes”
Government needs to fund activities for special purposes like social services, health services, and all other services that the creative mind can think of.
This is also prone to abuse, due to its flexibility.
That is why, the people must guard this aspect of budgeting: special purpose funds.
It doesn’t matter whether it is the national or local government budget that people are watching or monitoring.
Special purpose appropriations are flexible because there are not hard and fast rules in determine what constitutes “special purpose” that needs to be funded.

Lump sum budgeting

This is also the most controversial category because this is where we find the so-called “lump-sum” appropriations.
It is in the special purpose funds, where appropriations are juggled from one item to another, or one department to another, or one purpose to another.
Lump-sum appropriations are amounts in millions of pesos identified for a general purpose, but does not contain an itemized list as to how exactly the millions will be present.
You want to know where the biggest corruption is happening in government?
Ask some of our quiet, but sly, witty congressmen.
(There are only a very few congressmen who know this trade).
Welcome to the exciting world of “lump-sum” budgeting.
Next week: Let’s discuss lump-sum budgeting

Understanding the budget

One of the most interesting, yet dreadful aspects of governance is the budgeting process.
Government budgeting is one of the most important, yet one of the most controversial processes in the operation of the government.
Many in public policy will say that budgeting is so complicated.
However, there is also a way to simplify our understanding of the budget.
Think of government budgeting, in the way the family does the budgeting.

Family, gov’t budgeting similar
The fundamentals are similar.
In the family, usually the father works to gain income for the family.
When he received his salary he gives income to the wife or mother.
Often the mother is the one who budgets the family income.
The income will be used to pay for the usual expenses of the family.
The mother will then set aside part of the income to put food on the table.
She will set aside part of the income to pay the utilities, like electricity, water bills.
She will set aside money for the children’s education, and their ba-on and transpo fare.
An amount is also set aside to maintain the family motorcycle, or car.
A part of the income will also be set aside to pay for the househelp’s sweldo, if there is one.
If the family has a loan (utang) from the cooperative, or the 5-6 (bombay), then an amount is also set aside for loan payment.
That is family budgeting.

Balancing the budget
What can be difficult for the mother is how to balance the family’s budget.
In other words, the income must be sufficient to cover the regular monthly expenses of the family.
This is the hard part.
So it is important, that the father does not have many vices like smoking, drinking, bulang (cockfighting), mahjong, “good time.”
If the income is channeled to the vices, then all the more, it would be difficult for the mother to balance the budget.
If the income is not sufficient to cover the expenses, the result is what we call “deficit.”
If the father’s income is way too low, that it cannot cover the family expenses, then the father may have to resort to “utang” from lenders and the loansharks or 5-6 (I am not talking about height here).
It is important that there should be “responsible budgeting.”
The idea is to have a “balanced” budget.
One of the most effective ways to maintain a balanced budget is to cut-off on unnecessary expenses, eliminate the vices, and most significant, live simply or “simplified living.”.
Next: Government budgeting.

Focusing on the National Budget

I am here at the Mactan International Airport about to board the flight back to Manila.
I am here for for court hearings, but it gave me a little respite from the hectic schedule I had in Manila.
Yesterday, before I left from Manila to Cebu, we had a presentation on the national budget to the Probe Team, a television production.
I am part of a new non-government entity that is studying the national budget.
It is called the Center for National Budget Legislation founded by Joseph Ranola.
He worked in Congress and for the last sisxteen years has focused his energies on studying the budget and trying to make ways to improve budget legislation in the country.
As a new organization, the center is concentrating on introducing itself to let the sectors know what it has been doing, in relation to budget legislation.

Trouble with the MVUC

If you are a vehicle owner, then MVUC should be your concern.
MVUC stands for Motor Vehicle User’s Charge.
It is a monetary ‘charge’ by the government upon vehicle owners.
It is a regularly collected on an annual basis.
As a vehicle owner, you will find this motor vehicle user’s charge in the LTO official receipt or the “O.R.” as it is commonly called.
The basic question we are asking on this issue of the M.V.U.C. is: Where does this M.V.U.C. that vehicle owners pay every year to the government go?
First: Why there is there a charge on vehicle use?
The government wants to ensure the adequate maintenance of the country’s roads.
To provide funding for this purpose, the government enacted this revenue measure in 2001, Republic Act No. 8794 entitled “An act imposing a motor vehicle user’s charge on owners of all types of motor vehicles”
The rationale is that since vehicle owners are primarily the ones who use the roads in our country, then they must help provide funding to maintain these roads.
Second How much is the MVUC collection of the government?
The M.V.U.C. is the third largest source of revenue for the government, next only to the Bureau of Internal Revenue (BIR) and Bureau of Customs (BoC).
Since the enactment of RA 8794 in 2001, the government has collected P42-billion, based on the L.T.O. Report on M.V.U.C. collections for 2007
Yearly, the government collects more than P7-billion from the M.V.U.C.
Where do these collections go?R.A. 8794 mandates that collections from M.V.U.C. must be placed in four special trust accounts.
Eighty percent (80%) of the annual collections are deposited in a special account called Special Support Fund.
Five percent (5%) of the annual collections are deposited in another special account called Special Local Road Fund
Seven and one half percent (7.5%) of the annual collections are deposited in another special account called Special Road Safety Fund
Seven and one half percent (7.5%) of the annual collections are deposited in another special account called Special Vehicle Pollution Control Fund.
Two departments control the M.V.U.C. Funds. These are the Department of Public Highways (DPWH) and the Department of Transportation and Communications (DOTC)
The bulk of the M.V.U.C. collections is controlled by the DPWH consisting of 92.5% of the collections.
The trust accounts in the Special Support Fund (80%), Special Local Road Fund (5%) and Special Road Safety Fund is under the DPWH (7.5%).
The mandate of the M.V.U.C.
The M.V.U.C. collections of P7.7-billion a year is in addition to the annual budget of the DPWH for road maintenance.
Thus, in the national budget, there is already a specific appropriation for road maintenance.
The M.V.U.C. is supposed to be on top of the appropriations for road maintenance by the DPWH.
The M.V.U.C. cannot be found in the general appropriations act.
Unfortunately, you cannot find any provision of the M.V.U.C. collections and its appropriations in the general appropriation act.
This despite a specific constitutional mandate that no money shall be paid out of the Treasury except in pursuance of an appropriation made by law.
Since the enactment of the R.A. 8794, the M.V.U.C. only appeared in the GAA once, in 2003.
The question now is, how will the people, the vehicle owners, through their representatives Congress be able to know how the money is spent if this is not found in the GAA?
How can our legislators scrutinize the M.V.U.C. expenditures during budget deliberations, when it is not submitted by the executive department in their proposed general appropriations bill?
The Executive Department Report: Only P4.6-billion of M.V.U.C. collections left
What is very alarming is the report by the Executive Department that as of December 31 2006, only P4.6.-billion of the M.V.U.C. collections are left
Based on figures from the Budget of Expenditures and Sources of Financing (B.E.S.F.), as of December 31, 2006, the total collections of M.V.U.C. should have already amounted to P34.4 billion pesos.
If, as of December 31, 2006, only P4.6-billion of M.V.U.C. collections are left, where did the money go?
How was it spent?
There is no breakdown of the expenditures of these funds
Congress doesn’t know because it was never submitted to it (except in 2003) for scrutiny during budget deliberations.
Gargantuan budget for road maintenance in DPWH
The DPWH receives a gargantuan budget for road maintenance every year.
Under the GAA of 2007, the DPWH received a total lump-sum appropriation of P6-billion for road maintenance.
To compare, the entire budget of the Department of Tourism for 2007 was only P1.5-billion; Department of Energy was only P350-million; DBM budget was only P699-million
Lump sum appropriations in itself are constitutionally questionable.
However in the 2007 GAA (national budget) P2-billion (lump sum) was appropriated for “routine maintenance of national roads & bridges (See Item A.III.a.1.d. 2007 GAA or page 657 of the Official Gazette March 16, 2008).
There was no breakdown as to how these lump-sum appropriation was to be spent.
Another P4-billion (lump sum) was appropriated for “preventive maintenance of national roads and bridges” (See A.III.a.1.e of 2007 GAA or page 657 of the Official Gazette March 16, 2008 )
There was no breakdown as to how these lump-sum appropriation was to be spent.
The P6-billion budget in the DPWH for road maintenance does not yet include the P7.7-billion annual collections from the M.V.U.C.
If this is added, then the total budget for road maintenance supposedly should amount to more than P13-billion YEARLY.
The question is: Why are the country’s roads still in a state of perpetual deterioration?
If P13-billion is spent YEARLY for road maintenance, then the country should already have the best roads.
The COA findings provide answers
The findings of the Commission on Audit give a clue as to how the M.V.U.C. collections were mis-spent.
In the 2005 COA Report, it was found out that the M.V.U.C. funds were spent for expenses not related to road maintenance such as:
Employee benefits (P145-million)
CNA Incentive Bonus (1.9 billion )
Employee benefits were mis-recorded as “repairs and maintenance-Roads”
Prior years expenses were also erroneously recorded as current expenditures in 2004, thus overstating the account by over P161-million (source: Item No. 7 2004 COA report)
The C.O.A. also found out that expenses totaling P57-million were spent which was not related to road maintenance and anti-pollution programs (source: Item No. 12 2005 COA Report)
Thus with this presentation, what we can see clearly is an urgent need for people involvement in monitoring how taxpayer’s money are spent.
We see that the people are groping in the dark as to where the money they give to the government goes.
There is clearly a need for greater transparency in the budget process.
We must question the expenditures of every single centavo that we pay the government.
We must participate.

2008 Nat'l Budget approved

President Gloria Macapagal Arroyo has recently signed into law the 2008 national budget.
It has been published in the official gazette, I think last March 16.
The national budget being a law, formally a Republic Act, No. 9498.
This year's national budget is the largest in the country's history.
This year's the budget reached the trillion peso mark.
The national budget is the most important single piece of legislation that the Congress passes every year.
It is also called the General Appropriations Act.
Each year the Executive department and Congress devote a lot of work time deliberating about the following year's budget.
In a small scale, national budgeting is no different from making and balancing the family budget.
In a family, mother usually budgets the family income so that it would be sufficient to cover the needs of the family.
In a family there must be enough for daily food sustenance, clothing, for vitamins and health needs of the children, maintenance of the household fixtures, etc.
The father who often works to generate income will have to report his income so that the family will know what are the resources that will be matched agasint the expenses to sustain the needs of the family.
That is basic budgeting.
Expand that to a larger scale, the nation is like one big family.
The government determines how much is the income, as derived from the the taxes paid, as well as other income generating resources, such as tourism revenues.
Then these revenues are matched against expenditures to sustain the needs of the people.
So budgeting by and for a single family and budgeting by and for the nation are not that different, except on the magnitude.
The members of the family have to make sure that money is not put to waste.
In the same manner every citizen, you and I, must make sure that none of the money for public expenditures must be put to waste or worse, to corruption.
Every citizen must be vigilant and be informed about the national budget.
We need to monitor what has been stipulated in the general appropriations act, and ultimately its implementation.
Admittedly though, the national budget is a very thick piece of law.
The printed version of the law is about two inches thick.
Nonetheless, we should learn to read and understand it, so that we can monitor how our taxes are being spent.
All of us a stakeholders in having an efficient budget that translates to services and benefits to our people.