News and Events

Bringing the 'public' back into 'Public Finance'

Posted: 2013-09-09
Category: Opinion

by Ronald U. Mendoza and Monica Melchor
Posted in Rappler on 09/08/2013 9:51 AM  | Updated 09/09/2013 2:32 PM

Perhaps for the first time since the pork barrel was introduced in our democracy in the 1920s there appears to be a wide opening to rethink not just the pork barrel, but how we conduct public finance in this country.

We have come to this point because of the blatant distortions and corruption that pork barrel has created in our democracy. (Perhaps some small mercies from the present scandal.)

Academics and experts including Prof Tony La Viña of the Ateneo School of Government, Prof Edna Co of UP-NCPAG, and Prof Julio Teehankee of De La Salle University, as well as journalists including Malou Mangahas and Ed Lingao of the Philippine Center for Investigative Journalism (PCIJ), have for many years uncovered evidence and produced analyses on the detrimental features of pork barrel politics. Here we attempt to synthesize without necessarily implicating them:

  1. Pork barrel politics is characterized by significant (and often sole) discretion to the politicians managing these funds. And this has weakened accountability in ways that allocations are no longer necessarily made according to voters’ preferences and development targets (or made coherent with national or regional development plans).
  2. (Many) politicians seem to also demonstrate a strong sense of entitlement for their pork barrel funds—rationalizing their use in providing various types of support for their poor and low-income constituents. And the pork barrel has also become part of certain politicians’ self-promotion strategies. They routinely credit themselves for “helping the poor” while most people lose sight of the fact that taxpayers provided that help.
  3. Finally, politicians are also often able to exert strong influence on selecting who the implementing entity or contractor will be for pork barrel financed projects. This once again opens the door for abuse, given the possible collusion between the contracting party (e.g. an NGO providing a public service or a private contractor building infrastructure) and the politician.

Incidentally, some of these features are not necessarily limited to the pork barrel, which is just a shade over 1% of the total public sector budget. The pork barrel fiasco represents the tip of the proverbial iceberg as far as potential abuse of taxpayers’ money is concerned. Even as many public finance management features have changed in the last several years due to reforms like zero-based and performance-based budgeting (both geared to shave the excess fat and waste in the public sector), opportunities for abuse remain. The solutions must therefore address the abovementioned fundamental flaws, and hopefully extend throughout the public financial system itself.

ALTERNATIVES TO PORK

If we are to make a break from pork barrel politics, it’s important to understand the options and how these provide a different dynamic from what’s described above. The following presents a brief synthesis of recent proposals.

PUTTING DECISION-MAKING IN THE HANDS OF THE PEOPLE

  • Bottom-up Budgeting. The Bottom-Up Budgeting (BUB) approach initiated by the Department of Budget and Management (DBM) involves citizens and civil society groups at the local level in budget preparation and identifying priority areas for public spending. An estimated PhP 8.4 billion pesos for programs and projects intending to benefit 595 of the poorest municipalities was allocated in the 2013 national budget through the bottom-up budgeting process. The intended result is a needs-based, “people-centric budget” which seeks to achieve both a proper allocation of resources as well as a substantial reduction of poverty. Some supporters of the BUB suggest that the pork barrel moneys be channeled through the BUB process. This approach is fundamentally different from the pork barrel system because it takes discretion away from politicians and builds in more direct and participatory governance. Nevertheless, the implementation of the BUB must overcome challenges such as unclear guidelines, time and procedural constraints, as well as a lack of a level playing field for civil society organizations (CSOs) at the local level.
  • People’s Fund. Senator Bam Aquino recently proposed the creation of a People’s Fund, which would provide greater involvement for taxpayers in selecting where a portion of their income taxes would go. The people’s fund would allow taxpayers to select beneficiaries upon filing their annual income tax returns through a mechanism to be established by the Bureau of Internal Revenue (BIR). Taxpayers would be able to allocate 5% of their income tax to an accredited charitable institution or civil society organization, a national or local priority government project, or a legitimate political party. The eligibility of these organizations and the conditions and requirements for their receipt and use of funds would be determined by an inter-agency committee headed by the DBM. This proposal seeks to empower citizens and create greater stakeholding in civil society organizations, development programs, and political parties. Careful attention to putting up very clear guidelines and mechanisms for determining fund eligibility, effective disbursement and ensuring transparency and accountability in the implementation of the Fund would have to be put in place to ensure that poorly governed political parties and fly-by-night NGOs do not gain access to the funds.

INCENTIVIZING GOOD GOVERNANCE, ECONOMIC COMPETITIVENESS AND JOB CREATION

  • District Performance Incentive Fund. Camarines Sur Representative Maria Leonor “Leni” Robredo has proposed an output-based mechanism for allocating the Priority Development Assistance Fund (PDAF) through a “District Performance Incentive Fund.” Local government units demonstrating good governance would be granted greater access to funds. In turn, District Development Councils (DDC) would assess the merit of prospective projects. The DDC, modeled after the People’s Council piloted in Naga City, would curb the discretionary budgetary power of legislators and constrain their deliberative autonomy by providing more oversight over project selection. This mechanism seeks to solidify the constitutional separation of powers as the executive would be charged with the implementation of projects. If this will work, it would be critical to protect the DDC from “capture” in the same way that political dynasties have begun to exert strong influence over public finance in many local governments.
  • Performance Challenge Fund. The government’s Performance Challenge Fund (PCF) provides additional resources to the least developed municipalities that take concrete steps to boost transparency and accountability. In 2010, thirty 4th to 6th class municipalities were the initial beneficiaries of this fund. One proposal seeks to expand the performance challenge fund so that it would not just boost transparency and accountability, but also incentivize the creation of a business friendly environment and boost public services that would support private sector investments and job generation in the countryside. This enhanced challenge fund will be directed to LGUs with demonstrated improvements in good governance and economic competitiveness, based on clear metrics such as those used by the World Bank’s Doing Business Indicators or the National Competitiveness Council’s Philippine Cities Competitiveness Ranking Project. These performance metrics could also be made to reinforce the Philippine Development Plan (PDP) so that it’s fully implemented. In short, LGUs must first demonstrate these improvements BEFORE funds could be awarded to them. The overall effect on the policy environment would be to transform local public finance from a perverse one (encouraging rent seeking and promoting patronage, while frittering away taxpayer money on projects not necessarily coherent with the Philippine Development Plan) to a very positive one (encouraging investments in human capital and improved competitiveness so that it could leverage even more resources from private sector investments and be made to cohere with over-all development objectives).

FREEDOM OF INFORMATION IS THE KEY INGREDIENT

All these proposals significantly limit the discretion of politicians (notably legislators) from controlling pork. Approaches like bottom up budgeting and the people’s fund concept put decision-making in the hands of the people. On the other hand, access to challenge funds is premised on LGUs meeting certain conditions, which are in turn anchored on clear and measurable outcomes linked to policy objectives. Challenge funds provide a strong incentive for LGUs to gain access, and quite possibly also provide an equally compelling signal of good governance and economic competitiveness to the private sector as well.

By encouraging citizens to engage and setting incentives right, these proposals may also begin to enlighten citizens that taxpayers are financing these projects, and that politicians should not feel “entitled” to taxpayers’ resources (i.e. the second point mentioned above). Who knows, we might even arrive at better and more implementable laws when legislators only have to focus on their mandate?

However, when it comes to stopping politicians’ influence on the contracting and service provision process (the third point mentioned above), it appears that this area is still potentially vulnerable to abuse. Citizens, civil society groups and investigative journalists armed with information and evidence on these projects could help address this challenge. FOI (Freedom of Information) could be a critical ingredient in empowering transparency and accountability groups as watchdogs for these projects.

As elements of public finance reform in the broader sense (not just pork barrel moneys), these proposals will only work if we citizens engage in the design and implementation of the public budget. As Secretary Butch Abad of DBM noted, uncovering and exposing the present pork barrel scandal may actually turn out to be the best thing that has happened for public sector budgeting in this country, as citizens become better informed and more engaged with the government budget. - Rappler.com

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The views herein are the authors’ and do not necessarily reflect those of the Asian Institute of Management (AIM). Questions and comments on this article could be addressed to: policycenter@aim.edu.

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Published in Rappler's Thought Leaders section, http://www.rappler.com/thought-leaders/38375-bringing-the-public-back-into-public-finance

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