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Unlocking the secrets of cash-based budgeting

unlocking the secrets of cash based budgeting - Unlocking the secrets of cash-based budgeting

2019 YearEnder Logo 012420 300x205 - Unlocking the secrets of cash-based budgeting

By Charmaine A. Tadalan
Reporter

LEGISLATORS claim to have spotted another flaw in the cash-based budgeting system, which obliges project funds to be used within one year — a reluctance to start new projects in the third quarter.

The Department of Budget and Management (DBM) has acknowledged this scenario, but calls it preventable if government agencies comply with the rules governing the one-year obligation period for budget funds.

The 2020 National Expenditure Program (NEP) was put into place in the second year of cash-based budgeting, after the much-delayed 2019 budget was held hostage over concerns that project funds might be unspendable due to the one-year limit.

The system allows a three-month Extended Payment Period, provided the goods and services have been delivered, verified and inspected within the fiscal year.

The new budget framework is designed to improve fiscal management, but Finance Committee Chairman and Senator Juan Edgardo M. Angara said agencies might not be inclined to implement new projects beginning September.

“It will force agencies to prepare better and process projects faster,” Mr. Angara said in a Nov. 22 mobile phone message.

“But it’s double-edged because come September or October, agencies may have second thoughts about starting projects knowing the may not be completed by end of that year.”

As late as December, the House of Representatives and the Senate were still deliberating the P4.1-trillion national budget for 2020 at the bicameral conference committee level, before eventually passing the bill on to President Rodrigo R. Duterte, who signed it earlier this month.

The House approved its version, House Bill No. 4228, on Sept. 20; while the Senate passed its version of the spending plan on Nov. 27. The bill had been certified by the President as an urgent measure allowing both Chambers to approve their respective versions on second- and third-reading on the same session day.

Representative Jose Ma. Clemente S. Salceda of Albay’s second district said this “reluctance” reflects the need to ensure that implementing agencies have improved planning capacity as they adopt the new framework.

“Cash-based budgeting assumes there is good planning capacity inside the departments,” Mr. Salceda, who is also House Appropriations Committee Vice Chairman, said in a Nov. 27 interview with BusinessWorld.

“The planning capacity of implementing agencies may need to be boosted in order to comply with, para ’yung nasa budget exact na sa ma-e-execute nila for the year (in order for them to utilize the full budget for the year).”

Another aspect that needs to be improved is the government’s right-of-way acquisition, which has hampered development of key infrastructure projects for years.

Malaking kawalan sa ekonomiya kasi nga (It’s a great loss to the economy because delayed projects) deprive the economy of the stimulus coming from infrastructure, which are generally job-producing and create GVA (Gross Value Added),” Mr. Salceda said.

Public works “expand the capacity of the economy to produce output via the provision of public goods, which will serve as basis for investment as well as basis for the mobility of goods and services and people.”

He said many such delays could be addressed through the proposed Real Property Valuation and Assessment Reform Act, which seeks to centralize valuation and assessment to provide a uniform valuation standard. This will then serve as the basis for appraisers and assessors in adjusting property taxes in their respective local government units.

The measure forms part of the administration’s comprehensive tax reform program, which Mr. Duterte mentioned in his fourth State of the Nation Address on July 22. The proposal is embodied in House Bill No. 4664, which won final approval at the House on Nov. 25; but its equivalent legislation remains pending at the Senate Committee on Ways and Means.

At present, most local government units utilize outdated real property values which result in valuation disputes that take years to settle.

Case in point is the Marikina Bridge and Access Road, which took 17 years to resolve. Mr. Salceda reported that between 2000 to 2017, assessors valued the property at P6,000-P37,050 per square meter as a result of conflicting assessment methods.

“For the benefits of a cash-based budgeting to be felt and to become real, you need other elements to come in and I will always go back to planning capacity, then right-of-way acquisition,” Mr. Salceda said.

The DBM, meanwhile, allayed concerns about government agencies hesitating to implement new projects around September or October; but for the most part, encouraged agencies to prepare their budgetary plans for the succeeding year beginning July to August.

“In the cases that for one reason or another, may nangyari sa procurement (in case procurement is delayed), you can start the project as well by September or October, but that means you’ve got to be able to appropriate the same project for the next year para may (so that there will be) continuity,” Undersecretary Laura B. Pascua said in a Dec. 5 interview with BusinessWorld.

“You just have to be able to anticipate which project schedules will flow to the next budget and be sure there are appropriations for that.”

Ms. Pascua leads the Department’s Budget Policy and Strategy Group, and the Supervision of the Fiscal Planning and Reforms and Budget Information and Training Services.

The DBM officially kicked off the shift to a cash-based budgeting system in 2019 from the multi-year obligation budgeting system, as affirmed under Executive Order No. 91, s. 2019. Prior to this the DBM eased in the transition by beginning to limit budget validity to two years for the 2017 spending plan and to one year for 2018.

Ms. Pascua noted that based on DBM assessment, obligation rates of agencies improved in 2017-2018 against their performance in 2015-2016. In 2017, agencies’ obligation rate rose to 95.6% from 85.4% and 84.6% in 2015 and 2016, respectively.

Rates declined to 93.1% in 2018, which the DBM attributed to late procurement activity and failed bids.

“The essence (of a cash-based system) is you focus on the implementation for the year, which means that: one, you do your planning way ahead of time,” she said.

“And number two, procurement is very important. That’s why we encourage agencies to do their procurement during the last half of the year,” she said, noting that ideally agencies should begin procurement activities once the President submits the NEP to Congress for deliberation.

Ms. Pascua said at this time, government agencies may begin early procurement activity concerning items that the DBM has already included in the budget. The Government Procurement Policy Board, for its part, constantly updates the implementing rules and regulations of the Government Procurement Reform Act of 2003, or Republic Act No. 9184.

The GPPB also capacitates government agencies through training and regular consultations on the procurement process to complement the new budget framework.

“The Government Procurement Policy Board (GPPB) ang ginagawa nila (what they’re doing is), they’re doing the rounds of departments training, they consult regions kung ano ’yung mga problema sa (on problems regarding) procurement,” she said.

On top of this, the 18th Congress can aid in improving the procurement law by doing away with the lowest-bidder policy, which assumes that the most advantageous bid is the contract the offers the least cost.

“They think that government only procures on the basis of cost, but you should also consider the same spec(ifications) and then you compare the cost,” she said.

“To discourage that way of thinking that government only procures on the basis of cost, gagawin na lang (instead we will change the policy to) ‘most advantageous bid’ to consider the specs and the cost.”

Currently, only Senator Aquilino L. Pimentel has filed a Senate Bill that proposes the same; but no such measure has emerged in the House of Representatives. The measure was not tackled in the 17th Congress as it was not backed by then-DBM Secretary Benjamin E. Diokno.

The DBM also disclosed it will be pushing for the institutionalization of the cash-based system, which it hopes the 18th Congress approves before the first regular session closes on June 5.

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