PRIME CUTS: Dissecting the presidential pork barrel

Prepared by Kabataan Partylist The escalating controversy surrounding the misuse of over P10 billion under the Priority Development Assistance Fund (PDAF) has sparked greater public scrutiny for public funds. With wingman-turned-fugitive Janet Napoles on the run and President Benigno Aquino III announcing that the Executive Department would be suspending the release of PDAF for congressmen and senators pending the investigation of the issue, many people have joined the call for the abolition of the PDAF, which both the media and several opinion leaders have pointed to as the root of all evil. They point out that the PDAF scam actually involves more public funds than the Arroyo-era P728-million fertilizer fund scam and the corruption-laden NBNZTE deal which was allegedly overpriced by $130 million or some P6 billion to fund “commissions.” Public outrage over the PDAF scam has spread like wildfire, with President Aquino steering away from the controversy, and his PR team trying in vain to disassociate him from the allegations of corruption and fund misuse. Yet, only a few people realize that the PDAF scam is just the tip of the iceberg, or to use a more apt expression – it barely greases the pan. A closer scrutiny of the national budget and the government’s public fund management reveals a more compelling story, with the president emerging not as a naïve victim but the mastermind of the pork mafia. Defining pork barrel When we talk about “pork barrel,” it is not enough to point to the P25-billion PDAF allocation given to congressmen and senators annually. The pork barrel system is an elaborate labyrinth of discretionary funding and shadowy allocation of public funds that lead to unscrupulous use of taxpayers’ money. To fully comprehend the vast scope of the pork barrel system, we need to unite with a concrete definition of pork barrel funds. To classify as pork barrel, the fund or line item should meet at least one of the following criteria: 1. It is a lump-sum allocation in the National Expenditure Program (NEP) that is vulnerable to corruption and political maneuvering. 2. Funds of which the manner of allocation and disbursement are left to the sole discretion of the President and the Executive Department he leads, thereby leading to the funding of programs and projects that favor his select allies instead of directly financing social services such as education and health. 3. Public funds not reflected in the national budget yet are collected and used by public agencies particularly those in the Executive Department, with little to no financial oversight at all.

With these criteria firmly set, we can then proceed to identifying what funds can be considered as part of the president’s pork, and more or less ascertain how much that pork barrel really amounts to. Lump-sums Bulk of the budgetary accounts that can be classified under the first criteria fall under two types of accounts, the first one being what is collectively known as “Special Purpose Funds” (SPF), which the budget department defines as “appropriations provided to cover expenditures for specific purposes for which recipient agencies/departments have not yet been identified during budget preparation.” The second type is the automatic appropriations, which include lump-sum funds that do not undergo congressional scrutiny as these are automatically considered approved by virtue of pertinent laws. a. SPFs - The Table below shows the breakdown of the SPFs for 2014: Proposed New Appropriations (In Thousand Pesos) Maintenance Personnel and Other Capital Total Services Operating Outlays Expenses 42,859,935 18,301,051 3,450,000 740,000 3,738,459 400,000 11,160,000 1,889,204 82,538,649 82,538,649 9,102,744 91,641,393 14,080,000 589,696 26,276,298 26,276,298 130,625,215 156,901,513 3,836,762 1,382,655 4,050,000 260,000 1,000,000 1,077,185 46,696,697 19,705,022 7,500,000 1,000,000 1,000,000 4,815,644 80,713,614 400,000 120,495,952 25,240,000 2,478,900 310,045,829 2,072 310,047,901 139,903,759 449,951,660


SPFs – Programmed Budgetary Support to Gov’t Corps Allocation to LGUs 21,316 Calamity Fund Contingent Fund DepEd School Building Program International Commitments Fund Miscellaneous Personnel Benefits Fund 80,713,614 Feasibility Studies Fund Pension and Gratuity Fund 120,495,952 Priority Development Assistance Fund E-Government Fund Total SPF, Programmed 201,230,882 Retirement and Life Insurance Premium 2,072 Total SPF, Programmed Inclusive of RLIP 201,232,954 Unprogrammed Fund 175,800 Grand Total 201,408,754 (Source: 2014 National Expenditure Program, Table 1-B)

Of the P449 billion allotted for SPFs, a total of P310 billion are part of programmed appropriations, meaning the said funds are already included in the line-item budget of various agencies. Meanwhile, P139.9 billion is specified as unprogrammed appropriations, which is “released only when revenue collections exceed original revenue targets,” subject to approval of Executive Department. When compared to the allocation for 2013, here are some significant observations:

Calamity and contingent funds remain practically unchanged. The same goes for the DepEd School Building Program.  E-Government Fund increased from the current P1 billion to P2.479 billion in 2014  International Commitments Fund (fund for commitments and pledges to international organizations and hosting of conferences) increased from the current P2.637 billion to P4.816 billion in 2014.  MPBF increased from the current P69.09 billion to P80.7 billion.  PDAF increased from the current P24.79 billion to P25.24 billion. Particular focus should be given to unprogrammed funds, as this amount is used to augment the budget of particular agencies that the Executive Department chooses once either of the two conditions (revenue collections exceed targets, or foreign funds are generated) are supposedly met. During the Aquino presidency, unprogrammed funds increased exponentially, both as amounts proposed in the annual NEP and as amounts actually utilized:      2010: Proposed unprogrammed funds amounted to P68.9 billion, of which P5.86 billion was eventually utilized. 2011: Proposed unprogrammed funds amounted to P66.9 billion, of which P20.4 billion was eventually utilized. 2012: Proposed unprogrammed funds amounted to P161.69 billion (no data on final amount utilized) 2013: Current unprogrammed funds amount to P117.5 billion 2014: Proposed unprogrammed funds amounts to P139.9 billion

At this juncture, we should also observe that the much-debated PDAF is only a miniscule portion of the SPFs. The whole budget for PDAF can technically be considered part of the president’s pork barrel as the said fund has historically been used by the Executive Department as a carrot-and-stick method to gain support and patronage. It works like this: PDAF releases can only be made through a Special Allotment Release Order (SARO) which the Department of Budget and Management (DBM) processes. Without the SARO, no funds from the PDAF will be released. Despite the inclusion of a “no impounding of funds” clause in the General Appropriations Act of previous years, DBM systematically withholds PDAF releases to administration critics, while favored allies receive even more than what is allotted to them. Clearly, this is discretionary spending at its finest. b. Automatic appropriations - Meanwhile, automatic appropriations amount to P796 billion which constitutes 35 percent of the total P2.26 trillion national budget. These automatically appropriated items include: 1. Interest payments for debt service amounting to P352.7 billion 2. Net lending or funds used for the servicing of government-guaranteed corporate debt amounting to P24.9 billion 3. Internal revenue allotment for local government units amounting to P341.5 billion 4. Government counterpart contribution for employees’ retirement and life insurance premiums (RLIP) amounting to P28.9 billion 5. Special accounts in the general fund (SAGFs)totalling P21.1 billion

6. Tax expenditures amounting to P26.9 billion The practice of automatically appropriating funds for interest payments and the like bars Congress or any oversight agency for that matter to scrutinize where these supposed automatic funds are really going. Funds under automatic appropriations are treated as if they were preordained by some mystic force and therefore cannot be discussed further, much less be deducted. The Executive Department can thus literally get away with any nefarious deed under these accounts without anyone knowing. Of particular concern are SAGF accounts, which are funds coming from specific revenue measures and grants that are earmarked by law for specific priority projects. SAGFs are automatically-appropriated, and are thereby funded annually without much public scrutiny. There are currently 56 SAGFs created by various laws, presidential decrees and executive orders that are highly suspicious for they do not undergo strict audit rules and thus are prone to abuse. Examples of SAGFs include the Malampaya fund and the fertilizer fund, both of which got entangled in large-scale corruption issues. Presidential pork count: Together, SPFs (including unprogrammed funds) and automatic appropriations already amount to P1.246 trillion, or over 55 percent of the total P2.26 trillion national budget for 2014. Questionable in-budget items Aside from automatic appropriations and SPFs, there are also specific funds in the national budget that can be classified as part of the president’s pork barrel for being under the direct discretion of the executive department. These are: a. Fund for confidential and intelligence expenses– These funds are under the maintenance and other operating expenses budget of various agencies. These funds are inserted in the agency budgets for specific purposes: 1. Confidential Funds– These are funds for surveillance activities in civilian departments and agencies. Not all agencies are provided with confidential funds, as during budget preparation, the Executive Department exercises its discretion on which departments will be given funds for confidential expenses. Agencies with Confidential Funds in 2014 - Office of the President: P250 million - Department of Environment and Natural Resources: P13.9 million - Department of Finance: P15.5 million - Department of Interior and Local Government: P20 million - Department of Justice: P200.4 million - Department of National Defense: P23 million - Department of Transportation and Communications: P10.9 million - Anti-Money Laundering Council:P5 million - National Intelligence Coordinating Agency: P1 million


Philippine Drug Enforcement Agency: P73.6 million ARMM: P420,000 Commission on Audit: P10 million Office of the Ombudsman: P3 million Commission on Human Rights: P1 million

To tighten the secrecy in the use of said funds, all disbursements or releases from this fund should have the immediate approval of the department secretary concerned (i.e. the alter ego of the president himself). 2. Intelligence Funds – These are funds for “intelligence information gathering activities of uniformed personnel and intelligence practitioners that have direct impact to national security.” Like confidential funds, intelligence funds are given to agencies during the budget preparation process subject to the discretion of the Chief Executive. Apart from that, intelligence funds can only be released upon approval of no less than the president himself. Details of the expenditures are kept secret, and all reports of the utilization of intelligence funds are submitted directly to the president. Agencies with Intelligence Funds in 2014 - Office of the President: P250 million - Department of Interior and Local Government: P306 million - Department of National Defense: P246.4 million - Department of Transportation and Communications: P10 million - National Intelligence Coordinating Agency: P20.2 million - Philippine Drug Enforcement Agency: P73.6 million The secretive nature of these funds explicitly bars the public from scrutinizing how these funds are used. Below is a comparison of confidential and intelligence funds for years 2012-2013: FUND Confidential expenses Intelligence expenses TOTAL 2012 (ACTUAL) 840,881,000 555,864,000 1,396,745,000 2013 (ADJUSTED) 602,735,000 801,926,000 1,404,661,000 2014 (PROPOSED) 627,793,000 832,626,000 1,460,419,000

b. PAMANA funds – Funds for the Payapa at MasaganangPamayanan (PAMANA) program totalling P7.22 billion are subdivided to several government agencies. Yet, if one scrutinizes the Special Provisions governing PAMANA funds that are can be found in the NEP, it is explicitly stated that funds appropriated for the said program – which by the way is the government’s primary counterinsurgency program – can only be “used exclusively to implement projects in conflict-affected areas already identified by the Office of the Presidential Adviser on the Peace Process (OPAPP).” It is clear, therefore, that the president has direct discretionary power over this fund.

c. Conditional cash transfer funds –The Conditional Cash Transfer (CCT) program is the country’s flagship poverty alleviation program, which basically allots cash grants to the poorest households in exchange for following certain conditions, such as ensuring that the school-age child in the family goes to class. The budget for conditional cash transfers has grown exponentially over the years. From P10.5 billion in 2010, P21.2 billion in 2011, P39.5 billion in 2012, and P44.3 billion for 2013, the government now proposes a whopping P62.6 billion for 2014. Aside from being criticized as a palliative solution to the crippling poverty affecting almost a third of the population, CCT funds are considered vulnerable due to a couple of factors. One of this is the selection process for beneficiaries. In various studies, including one done by Emma Dadap of the International Institute of Social Studies in The Netherlands, it was revealed that even with the implementation of the P1.7-billion National Household Targeting System for Poverty Reduction, targeting for CCT beneficiaries remain largely politicized. “Indeed, targeting looks objective and non-partisan one paper, but the key informant from the DSWD revealed that for the third expansion districts had to be included as target areas because some congress representatives complained about the exclusion of their constituents who, they said, were very poor and deserving of the assistance,” Dadap said in her paper published in 2011. Participants of her study also revealed that the targeting is not at all accurate, leaving out at times the poorest households. CCT funds can be considered part of the presidential pork barrel as the decision on the targeting of beneficiaries mainly fall onto the Department of Social Welfare and Development’s discretion, along with inputs from other presidential commissions like the Presidential Commission for the Urban Poor. As such, CCT funds open a wide door for the president to influence millions of families, and to target beneficiaries in a politically-motivated manner. The fact that CCTs are also given out in cash opens wider room for misuse, especially in areas where the cash transfers are accessed through rural banks that are owned by the local elite. d. Bottom-up Budgeting (BuB) Approach–This is one of the more innovative ways that the Executive Department has utilized to expand its discretionary power over the budget allocation of various agencies. BuB is a participative approach started for the 2013 budget whereinthe Executive Department identifies various programs and projects addressing the development needs of poorest cities and municipalities in the country. The BuB approach supposedly widened the role of civil society organizations (CSOs) in the preparation of the budget. However, the BuB is replete with loopholes that made its supposed participatory approach a mere PR trick. First of all, the government’s choice of CSO partners is already questionable. Apart from that, BuB is clearly fashioned after the PDAF, as under this approach, specific projects for cities and municipalities are identified. The big difference between BuB and PDAF, of course, is that the projects identified under BuB are already incorporated in the national budget, unlike in PDAF wherein legislators need to “nominate” choice projects. The BuB approach clearly expanded not the participation of grassroots organizations, but the president’s discretion over local projects, meaning it’s the Executive Department’s new pork barrel fund. In effect, projects identified under BuB are Aquino’s very own pork barrel projects.

In the 2013 budget, the fund under BuB reached P8.4 billion spread over 595 municipalities. For 2014, the budget under BuBwas expanded to reach a total of P20.03 billion spread over 1,226 municipalities, almost at par with the PDAF (which stands at P25.2 billion for 2014). Presidential pork count: Adding P1.46 billion for confidential and intelligence funds, P7.22 billion for PAMANA, P62.6 billion under CCT, and P20.03 billion under BuB to the previous P1.246 trillion total (SPFs+automatic appropriations), our pork count now totals P1.337 trillion. But wait, there’s more! Realigned savings Now, the president’s unprecedented control of the national budget does not end with the passage of the General Appropriations Act. Actually, more nefarious activities occur after that. If for some reason, an agency was not able to use (or was not allowed to – read: DBM not releasing budget) parts of its allocation during a particular fiscal year, the laws of the land bestow upon the president the power to realign funds to any item of expenditure in any agency that he wants to. This power is actually grounded in Article VI, Section 25 of the 1987 Constitution wherein the president, along with the Senate President, the House Speaker and heads of Constitutional Commissions are authorized to "augment any item in their in the general appropriations law for their respective offices from savings in other items of their respective appropriations.” The problem, however, lies in the interpretation of the term Office of the President, which has been liberally interpreted as any agency under the Executive Department. DBM has, in fact, released a memorandum circular explaining the president’s power to reallocate savings. In National Budget Circular 541, DBM was empowered to “centralize” unobligated funds to “cover additional funding for other existing projects.” This resulted to the realignment of P75 billion unobligated funds from fiscal year (FY) 2012 and P27 billion from FY 2013. What does this broad fiscal power of the executive entail? Simple – it means that the government can simply withhold parts of allocations of specific agencies for a particular year, tag these funds as “savings” and realign these funds to favored programs and projects. Being the department in charge with the preparation and eventual disbursement of the national budget, the Executive can thus have access to unlimited funds anytime of the year. It is important to note, at this point, that if the abolition of the PDAF pushes through without the abolition of all the other components of the pork barrel system and without the necessary realignment of funds directly to social services, President Aquino can still dab his greasy hand in the spoils of PDAF – for it will only become part of the so-called savings and would be realigned for other purposes. That’s why our call should always be doubleedged: abolish the pork barrel system, then realign funds directly to social services.

Presidential pork count: As the amount realigned as savings vary each year, it is difficult to ascertain the total funds which will be realigned for 2014 (unless you’re the president of course, because somehow, you might have already done the math!) So let’s add a plus sign (+) to our previous count to account for this item, thereby putting the count at P1.337+ trillion. But the presidential pork barrel doesn’t end there. Off-budget accounts So far, we’ve discussed the scope of the presidential pork barrel under the annually appropriated national budget. But did you know that there are such things as off-budget accounts, or funds collected and utilized by government agencies but are not reflected in the annual budget documents? Off-budget accounts (OBAs) have been quite permanent fixtures in the Philippine government’s budgeting system. Bulk of OBAs are earmarked revenues, or funds collected by government agencies for specific uses predetermined by an existing law. In a paper unsurprisingly titled “Off-budget Accounts” released by the US Agency for International Development (USAID) in 2009, it was revealed that OBAs represent less than 5 percent of the national budget each year. For 2007, it was estimated to be around P56 billion. Using the same percentage, this means that for 2014, it is possible that OBAs can clock in to about P110 to P113 billion. And that’s not reflected in the national budget! Aside from being virtually invisible in the NEP, the government does not provide an official list of OBAs. We may call them the government’s “hidden wealth,” as these funds are usually not reflected in the national budget and thus are shielded from public scrutiny. The list of OBAs in the Budget of Expenditures and Sources of Financing is incomplete, and generally includes only funds that constitute the revolving fund of several agencies. According to USAID, there are more than 300 OBAs existing, with at least 367 accounts identified in 2007. “These accounts are highly vulnerable to improper, if not illegal, acts on account of the generally nontransparent nature of their operations,” the USAID said. Most of the funds are discretionary in nature, and the internal control procedures for most funds are generally lax, with disbursement of funds generally needing only the mere order and signature of at most two officials, USAID noted. Some glaring examples of OBAs include the President’s Social Fund, an off-budget account sourced from the income of the Philippine Amusement and Gaming Corporation (PAGCOR) and Philippine Charity Sweepstakes Office (PCSO) which is utilized for priority projects of the president. Under PAGCOR and PCSO’s charter, they are mandated to remit parts of their revenues to the Social Fund annually. PAGCOR estimates that it will be able to remit around P2.3-2.4 billion to the said OBA in 2014. Another controversy-ridden OBA is PCSO’s charity fund, which is also utilized by the Office of the President as pork barrel. According to the PCSO website, the charity fund is “a trust and liability account and is used exclusively to finance and support health programs, medical assistance and services and/or charities of national

character. Presently, any disbursements from the Charity Fund must not only be authorized by the PCSO Board of Directors but must also be approved by the Office of the President, regardless of the amount thereof.” PCSO is mandated by its charter to remit to the charity fund 30 percent of its gross receipts from the sale of sweepstakes tickets, including all unclaimed prize money. This means that for every one peso earned by PCSO from sweepstakes ticket sales, 30 centavos automatically goes to the charity fund. According to the 2011 Annual Audit Report of the Commission on Audit (COA), PCSO has set aside P8.127 billion for the charity fund for the said year. COA noted that PCSO disbursed some P5.39 billion under the said fund for questionable expenses. “Review of 2011 disbursements revealed that… expenses which are not related to health programs, medical assistance and services and/or charities or national character were charged to Charity Fund,” COA said. Meanwhile, PCSO’s income statements from the year 2012 to present remain a mystery, as the said agency has consistently failed to submit said documents to DBM. Presidential pork count: Let’s add another plus sign (+) to our total amount to account for this item, as it is difficult – even for the World Bank and USAID – to determine how much these mysterious OBAs actually amount to. So the presidential pork barrel now rests at P1.337++ trillion Cutting the fat Counting savings and OBAs in, the total presidential pork barrel lies somewhere in between P1.3-1.5 trillion, which is anywhere between 58 to almost 70 percent of the total national budget! The very fact that we cannot ascertain the actual amount is proof of the pork barrel system’s circuitous and wily character. Imagine how much of those funds are lost to corruption, and go straight to the pockets of officials of the Executive Department, particularly the president himself. After explaining in length the various components of the presidential pork barrel, the question now left for us to answer is how we can push for its abolition and eventual rechanneling to direct spending for social services. It is important to note that some funds included in the computation for the presidential pork barrel are grounded on pertinent laws, including automatic appropriations and OBAs. However, even if we subtract these amounts, the presidential pork barrel would still be sufficiently large to warrant stricter financial oversight and public scrutiny. Concretely speaking, it would be easy for the Executive Department to remove the SPFs, as these funds are not covered by existing laws, except the annual General Appropriations Act. In fact, COA has advised DBM in the past to “refrain from transferring funds from one lump-sum/special purpose fund (SPF) to another, or utilizing the appropriation of one Fund for purposes of another Fund, otherwise the intentions of the appropriation law will be circumvented.” If the government is sincere in its anti-corruption drive, it could easily dissolve the SPFs and return the funds directly to agencies. The MPBF, for example, can be returned as line items in the personnel service budget of

agencies, with specific guidelines on how it should be utilized. The PDAF, meanwhile, can be rechanneled to fund social services directly, such as augmenting the meagre budget of public hospitals and state schools. Removing SPFs would cut the presidential pork by some P450 billion. Now these concrete steps are largely technical and bureaucratic in nature, and there is no guarantee that corruption would be eradicated if these reforms push through. Reforms are not the end-all, be-all solution for the widespread corruption beleaguering our nation. Rather, we should keep in mind that apart from laws and statutes that enabled the presidential pork barrel to continue growing, it is the country’s bankrupt political system – buttressed by the very people who benefit from it – that’s nursing this monster. And we can only slay the beast that is corruption if we overthrow and conquer the hand that feeds and nourishes it. Moving forward With the components of the presidential pork barrel now clearly delineated and concrete steps for its abolition outlined, it would already sound silly to call only for the abolition of the PDAF. Doing so would be ignoring the elephant in the room. Clearly, what we need is a major restructuring of our public financial management system, and an overhaul of our laws and guidelines that helped institutionalize this monstrous pork barrel system. Also, to properly assess and comprehend the gravity of the situation, we need to put the issue of pork barrel in the context of a national budget that has, for decades, followed the dictates of big business and international funding institutions. The proposed P2.268-trillion national budget is laden with big-ticket infrastructure projects, with DBM allotting a total of P399.4 billion for infrastructure development, representing a 35.5 percent increase from the current P294.7 billion budget. Aside from serving as a larger feeding ground for corruption, bulk of these infrastructure funds will undergo the Public-Private Partnership (PPP) scheme, wherein the government allows the private sector to invest and partly finance public projects. With neoliberal policies firmly in place, out sprouted a system wherein private business ventures are given incentives and guarantees by the government through the PPP Framework and other agreements, while direct funding to social services continue to dwindle. While every nook and cranny of the 2014 budget has been made into a ready source of corruption, our state hospitals and state schools are left to feast on scraps. For 2014, the president’s pork barrel will get a big boost, while 79 SUCs will suffer budget cuts. With a president not keen on abolishing PDAF, much less the whole pork barrel system, the people have no choice left but to fight back. For we deserve better. Our urgent tasks: 1. Instead of focusing on the PDAF issue which is only the tip of the iceberg, we need to expose the full scope of the presidential pork barrel and explain to the people why it needs to be abolished.

2. Hold officials and agencies – particularly the President and his cohorts – accountable for systematically sustaining the pork barrel behemoth for their own selfish interests. 3. Intensify our two-fold call for the abolition of the presidential pork barrel and the rechanneling of government funds directly to social services. ABOLISH THE PRESIDENTIAL PORK BARREL! RECHANNEL PORK BARREL FUNDS TO SOCIAL SERVICES!

1. 2. 3. 4. 5. 6. “National Expenditure Program, Fiscal Year 2014.” Published by the Department of Budget and Management, July 2013. “Budget of Expenditures and Sources of Financing (Tables), Fiscal Year 2014.” Published by the Department of Budget and Management, July 2013. “Off-Budget Accounts.” Publication produced for review by the United States Agency for International Development, July 2009. “National Budget Circular 541: Adoption of Operational Efficiency Measure – Withdrawal of Agencies’ Unobligated Allotments as of June 30, 2012.” Released by the Department of Budget and Management, July 18, 2012. “The Politics of Conditional Cash Transfers of the Philippines.” Research paper by Emma Lynn Dadap, 2011. International Institute of Social Studies, The Hague, The Netherlands. “Report No. 54584-PH: Philippines Public Expenditure and Financial Accountability.” Published by the World Bank Poverty Reduction and Economic Management Sector Unit, May 2010.

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