House leader wants cash-based budgeting scrapped

Published February 17, 2019, 5:27 PM

by Dhel Nazario, Jeffrey G. Damicog, and Rey G. Panaligan

By Charissa Luci-Atienza

The chairman of the House Committee on Appropriations demanded Sunday the total scrapping of the cash-based budgeting system, saying that its implementation would institutionalize corruption in the Department of Public Works and Highways (DPWH).

Camarines Sur Rep. Rolando “Nonoy” Andaya, Jr. cautioned that the supposed insistence of Budget Secretary Benjamin Diokno to implement cash-based budgeting system under the proposed 2019 P3.757-trillion national budget would further breed and worsen corruption.

House Majority Leader Rolando Andaya (Facebook / MANILA BULLETIN)
House Committee on Appropriations, former House Majority Floor Leader and Camarines Sur Rep. Rolando “Nonoy” Andaya Jr. (FILE / FACEBOOK / MANILA BULLETIN)

“Sa halip na labanan ang korupsiyon, lalong titindi at lalaganap ito dahil sa cash-based budgeting system ni Sec. Diokno. This will institutionalize corruption in the DPWH (Department of Public Works and Highays). And who will benefit? Small ill-equipped suppliers/contractors just like Aremar Construction, which is partly-owned by Sec. Diokno’s son-in-law,” the former secretary of the Department of Budget and Management (DBM) said.

Citing the letter of former Public Works Secretary Babes Singson, dated January 25, 2019, to the investigating panel, cash-based budgeting system will only encourage corruption in government contracts.

“During my term, I purposely package construction contracts above P150 million so that DPWH could attract qualified contractors who would be required to provide proper equipment considering that their contracts are big enough to warrant investing in good equipment. That is why we now see many of the contractors with concrete or asphalt pavers and invested in appropriate construction equipment,” Singson said in a letter.

“However, because of the one-year cash budgeting, contracts will again tend to be less that P50 million contracts which will not entice the qualified well-equipped contractors because of the small contracts. I believe this policy of one-year cash budgeting will only be more prone to corruption, result to poor quality national infra projects, engaging small ill-equipped suppliers/contractors, or just end up being subcontracted and will increase the cost of doing infra projects,” the former DPWH secretary pointed out.

Andaya said Diokno should respect Congress’s decision to adopt the present obligation-based budgeting system wherein the government can spread out the appropriations across two years to enable projects’ completion.

“I find it disturbing that up to this point in time, Sec. Ben Diokno has no idea on the amount of DBM payables from 2018. If the DBM Secretary remains clueless on the total amount of government’s debt to contractors and suppliers, then we are in deep trouble,” he said.

“Equally alarming is Sec. Diokno’s statement that he will still push for a cash-based budget system for 2019 despite the decision of the Senate and the House of Representatives to scrap such system in the 2019 national budget,” he said.

The House leader earlier noted that the total amount of unpaid contracts for 2018 infrastructure projects have risen from P44 billion last November to more than P100 billion at the end of the year, which allegedly breed corruption in the payment of DPWH contracts for 2018 projects.

“Had Congress been duped into adopting the one-year cash-based system,then we would have been part of a failed experiment similar to one experienced in the United Kingdom,” Andaya said.

“I suggest that the DBM Secretary got a copy of the 2017 PIDS discussion paper of Rene Santiago, a fellow at the Foundation for Economic Freedom,” he said.

He noted that Santiago’s study on planning and programming of capital projects at the agency level cites the bad example UK had with cash-based budgeting.

To meet its one-year time constraint, agencies were forced to cluster expenditures in the last few months of the year, he said.

“From the standpoint of the UK Finance Ministry, funds uptake improved, but the quality of projects on the ground deteriorated. UK eventually reverted to obligation-based budgeting. Cash-based budgeting cannot correct for the lack of absorptive capacity in government agencies,” Andaya said.

“Most grand infrastructure build up programs, e.g. raising infra budget as a percent of GDP above 5 percent created actual infra capital that is valued at 5O percent of infra expenditures. The infrastructure expenditure efficiency is only 0.5. South Korea’s infrastructure program was less than 5 percent of GDP, but they were targeted to connect manufacturing and production centers to ports, airports, and major business centers,” he said.

Andaya said he was informed that when Santiago was doing his study, DBM proposed a budget reform law which proposed a shift from obligation based budgeting to cash based budgeting.

“When the bill got snagged in Congress, DBM reinterpreted its mandate that they already have the authority to implement the cash based budgeting system without the budget reform law,” he said.