Thursday, July 24, 2014

DAP if you do, DAP if you don’t: A question of constitutionality

By Obiter07

This is a ninety-two page decision, excluding the separate opinions.  But it can be distilled to the basic findings in its dispositive portion.   The following acts under the Development Acceleration Program (“DAP”) of the Executive Department were declared unconstitutional in the case of Araullo, et al. vs. Aquino, et al. G.R. No. 209287:

(a)    The withdrawal of unobligated allotments from the implementing agencies, and the declaration of the withdrawn unobligated allotments and without complying with the statutory definition of savings contained in the General Appropriations Acts;
(b)    The cross-border transfers of the savings of the Executive to augment the appropriations of other offices outside the Executive; and
(c)     The funding of projects, activities and programs that were not covered by any appropriation in the General Appropriations Act.

In addition, the Court declared void the “use of unprogrammed  funds despite the absence of a certification by the National Treasurer that the revenue collections exceeded the revenue targets for non-compliance with the conditions provided in the relevant General Appropriations Acts”.

Interestingly, the decision begins with the privilege speech of currently-detained Senator Jinggoy Estrada declaring that Senators, including himself, had been allotted P50M for voting in favor of the impeachment of a former Chief Justice. To which Secretary Abad of the Department of Budget and Management responded, justifying the DAP as a “program designed to ramp up spending to accelerate economic expansion.”  Ironically, a DAP beneficiary would start the ball rolling for this declaration of unconstitutionality by the Supreme Court.  The President has defended the DAP anew notwithstanding the opinion of the Court. 

The DAP while constitutional as a plan was implemented contrary to the Constitution

We proceed directly to the issues with respect to the DAP.  The Court correctly stated that while the Executive has some discretion with respect to the budget, any transfer or appropriation of funds has to conform with Section 25(5) of Article VI of the Constitution which provides:

“Section 25. x x x
x x x x
5) No law shall be passed authorizing any transfer of appropriations; however, the President, the President of the Senate, the Speaker of the House of Representatives, the Chief Justice of the Supreme Court, and the heads of Constitutional Commissions may, by law, be authorized to augment any item in the general appropriations law for their respective offices from savings in other items of their respective appropriations.
x x x x”

This was intended to keep a “tight rein on the exercise of the power to transfer funds appropriated by Congress, by the President and the other high officials of the Government named therein.” The limit on the authority to transfer savings only to augment another item in the appropriations is “strictly but reasonably construed as exclusive.”  The phrase “by law” would be crucial to the determination made by the Court.

For a transfer of funds that have already been appropriated to be valid under this constitutional provision, the following are the requisites: (1) a law authorizing the transfer of funds within their respective offices (a law like the GAA); (2) the funds are savings generated from the appropriations for their respective offices; and (3) the purpose for the transfer is to augment an item in the general appropriations law for their respective offices.

Requisites for the valid transfer of appropriated funds under the Constitution -

1.      There must be a law authorizing the transfer funds within respective offices

While the 2011 and 2012 GAAs allowed the augmentation of items, these failed to include the phrase “for their respective offices” as stated in the Constitution.   Thus, the GAAs invalidly allowed the transfers of funds for any item even if to an office not belonging to the Executive. Hence, these particular GAAs could not be relied upon to justify the transfer of funds.

The 2013 GAA sought to remedy the lack of legal authorization in the 2011 and 2012 GAAs by indicating that the augmentation of deficiencies refers only to any item of an office’s respective appropriation. 

2.      The funds to be transferred must be savings generated from the appropriations for their respective offices

At the outset, the Court found that there were no savings to speak of which the Executive could have juggled.  First of all, it is Congress that has the power of the purse, deciding on how the budget will be spent consisting of the projects to be funded and the amounts allocated for the same.  The Executive is expected to execute the GAA and to spend the budget accordingly.  In allowing the Executive to augment items in the GAA, it is given flexibility but not to the extent of overriding the authority of Congress.

Thus, the 2011 – 2013 GAAs contain a definition of savings:

“Savings refer to portions or balances of any programmed appropriation in this Act free from any obligation or encumbrance which are: (i) still available after the completion or final discontinuance or abandonment of the work, activity or purpose for which the appropriation is authorized; (ii) from appropriations balances arising  from unpaid compensation and related costs pertaining to vacant positions and leaves of absence without pay; and (iii) from appropriations balances realized from the implementation of measures resulting in improved systems and efficiencies and thus enabled agencies to meet and deliver the required or planned targets, programs and services approved in this Act at a lesser cost.” [emphasis supplied]

There are savings only when the purpose for an appropriation has been fulfilled or if the need for the appropriation no longer exists. The three possible sources of savings have been outlined above.  There can be savings only when the appropriation was already obligated and released. It is only at the agency level where it could be said whether the program, activity or project (“PAP”) was completed, discontinued or abandoned, if there are vacant positions or leaves without pay or if the required targets, programs and services were realized at lesser cost.  Unobligated allotments should also fall under any of the three aforementioned instances before these can be considered as savings.

The DBM admitted that part of the savings came from “pooling of unreleased appropriations such as unreleased Personnel Services appropriations which will lapse at the end of the year, unreleased appropriations of slow moving projects and discontinued projects per Zero-Based Budgeting findings.” In this case, unreleased appropriations were treated as savings.  The Court found that these, in fact, only refer to appropriations with allotments albeit without disbursement authority.  It could not subscribe to the definition espoused by the Executive as this would undermine Congress’ power of the purse.  In effect, funds were used for the DAP when the purpose for those funds had not yet been finally discontinued or abandoned.   With the purpose still unfulfilled or otherwise existing, there could have been no declaration of savings from these funds. The Executive even shortened the availability of the funds for their original purposes, in order to declare them as savings. The Court ruled that there can be no withdrawal and transfer of unobligated allotments and no pooling of unreleased appropriations as there is no legal basis for the same.  Section 38 of the Administrative Code cannot be relied upon to justify the withdrawal of unobligated allotments as it only allows the suspension or stoppage of expenditures, not the transfer of funds to other PAPs.

3.      The purpose of the transfer must be to augment a GAA item  for their respective offices

The 2011-2013 GAAs defined augmentation, to wit:

            “x x x Augmentation implies the existence in this Act of a program, activity, or project with an appropriation, which upon implementation, or subsequent evaluation of needed resources, is determined to be deficient. In no case shall a non-existent program, activity, or project, be funded by augmentation from savings or by the use of appropriations otherwise authorized in this Act.

But the so-called savings pooled under the DAP were allocated to projects that were not covered by any appropriation in the GAAs. In one instance, the DAP allocated for one project funds in excess of 300% of what Congress originally appropriated.

In effect, the Executive “substituted its will” over Congress.  While the Executive can spend in line with its mandate to execute the laws, this does not translate to an “unfettered discretion” that would allow the President to “substitute his own will for that of Congress.”  He still has to abide by the GAA as the power to spend is with Congress and not the Executive consistent with the principle of separation of powers. As opined by the Court:

“Congress acts as the guardian of the public treasury in faithful discharge of its power of the purse whenever it deliberates and acts on the budget proposal submitted by the Executive. Its power of the purse is touted as the very foundation of its institutional strength, and underpins “all other legislative decisions and regulating the balance of influence between the legislative and executive branches of government.” Such enormous power encompasses the capacity to generate money for the Government, to appropriate public funds, and to spend the money. Pertinently, when it exercises its power of the purse, Congress wields control by specifying the PAPs for which public money should be spent.

It is the President who proposes the budget but it is Congress that has the final say on matters of appropriations. xxx”

4.      No Cross-border transfers

As transfers under the DAP, for example, were made from the Executive to the COA, to the House and even to the COMELEC, the Court said that the Constitution mandates that any augmentation should only be for their respective offices and there can be no cross-border transfers or cross-border augmentations. 

Respondent tried to reason out that cross-border transfers in the form of aid and not augmentation do not fall under Section 25(5) of the Constitution.

The Court said that the Section 25 (5) prohibits cross-border transfers regardless of how they are characterized.

Sourcing DAP funds from unprogrammed funds (not savings) requires revenue collections to exceed the total of revenue targets

Funds from the DAP were also sourced from unprogrammed funds in the GAAs albeit not as “savings.”  However, these were supposed to be available only: (i) if revenue collections exceed revenue targets based on the total of revenue targets stated in the Budget of Expenditures and Sources of Financing (“BESF”) and (ii) from newly-approved loans or when conditions were triggered for other sources of funds such as perfected loan agreements for foreign-assisted projects.  The requirement in the BESF for the use of unprogrammed funds is for revenue collections to exceed the total of the original revenue target, not just the collection from a particular revenue source.  Hence, the release of unprogrammed funds could not be justified by a certification that revenue collection had been exceeded for only one identified source of revenue – that of dividends from shares in government-owned and controlled corporations.

As for funds from loans, there is no need to exceed revenue targets before these can be used.

Unprogrammed funds were intended as standby appropriations to support additional expenditures for priority PAPs if revenue collections exceed targets or if loan proceeds are realized.  Revenue targets are to be considered as a whole, not individually.  It would contravene the surplus budget policy if excess revenue from only one source would justify the release of unprogrammed funds.

An attempt was made to include a third source for unprogrammed funds: new revenues that were collected or realized from sources not originally considered in the BESF, to justify the sourcing of these monies for the DAP.  But this source was not in the BESF or GAAs, hence, this item could not serve as basis for the release of unprogrammed funds for the DAP.

So what happens to all the DAP projects? The Court declared that despite the infirmity of the DAP and its implementing issuances, the “doctrine of operative fact recognizes the existence of the law or executive act prior to the determination of its unconstitutionality as an operative fact that produced consequences that cannot always be erased, ignored or disregarded. In short, it nullifies the void law or executive act but sustains its effects. It provides an exception to the general rule that a void or unconstitutional law produces no effect.  xxx.”  Hence, the positive results of the DAP such as the construction of public infrastructure need not be undone.

But while the doctrine of operative fact can apply to the beneficiaries who “relied in good faith on the validity of the DAP”, it does not apply “to the authors, proponents and implementors of the DAP, unless there are concrete findings of good faith in their favor by the proper tribunals determining their criminal, civil, administrative and other liabilities.” Fortunately for them, the Revised Rules on Evidence does provide for a disputable presumption “That official duty has been regularly performed (Section 3 (m), Rule 131).”  And “in the absence of evidence to the contrary, there is a presumption that public officers performed their official duties regularly and legally and in compliance with applicable laws, in good faith, and in the exercise of sound judgment (]BUKLOD vs. E. M. RAMOS, G.R. No. 131481.  March 16, 2011)”.

For the layman, what is this case all about? The President decided to deviate from the shopping list of projects given to him by Congress, the body which has the power under the Constitution to make this list and to fund each item appearing on it.  He argues that he meant well and this actually did some good. The question is, do good intentions trump what the law and the Constitution require?  The President has challenged the Supreme Court for this ruling.  He may do well to examine what the words of his oath of office say.  It does include his promise to “preserve and defend” the Constitution and to execute the country’s laws.