Political Law Constitutional Law Separation of Powers Fund Realignment Constitutionality of the

Disbursement Acceleration Program

Power of the Purse Executive Impoundment

When President Benigno Aquino III took office, his administration noticed the sluggish growth of the
economy. The World Bank advised that the economy needed a stimulus plan. Budget Secretary
Florencio Butch Abad then came up with a program called the Disbursement Acceleration Program
(DAP).

The DAP was seen as a remedy to speed up the funding of government projects. DAP enables the
Executive to realign funds from slow moving projects to priority projects instead of waiting for next
years appropriation. So what happens under the DAP was that if a certain government project is being
undertaken slowly by a certain executive agency, the funds allotted therefor will be withdrawn by the
Executive. Once withdrawn, these funds are declared as savings by the Executive and said funds will
then be reallotted to other priority projects. The DAP program did work to stimulate the economy as
economic growth was in fact reported and portion of such growth was attributed to the DAP (as noted
by the Supreme Court).

Other sources of the DAP include the unprogrammed funds from the General Appropriations Act (GAA).
Unprogrammed funds are standby appropriations made by Congress in the GAA.

Meanwhile, in September 2013, Senator Jinggoy Estrada made an expos claiming that he, and other
Senators, received Php50M from the President as an incentive for voting in favor of the impeachment of
then Chief Justice Renato Corona. Secretary Abad claimed that the money was taken from the DAP but
was disbursed upon the request of the Senators.

This apparently opened a can of worms as it turns out that the DAP does not only realign funds within
the Executive. It turns out that some non-Executive projects were also funded; to name a few: Php1.5B
for the CPLA (Cordillera Peoples Liberation Army), Php1.8B for the MNLF (Moro National Liberation
Front), P700M for the Quezon Province, P50-P100M for certain Senators each, P10B for Relocation
Projects, etc.

This prompted Maria Carolina Araullo, Chairperson of the Bagong Alyansang Makabayan, and several
other concerned citizens to file various petitions with the Supreme Court questioning the validity of the
DAP. Among their contentions was:

DAP is unconstitutional because it violates the constitutional rule which provides that no money shall
be paid out of the Treasury except in pursuance of an appropriation made by law.

Secretary Abad argued that the DAP is based on certain laws particularly the GAA (savings and
augmentation provisions thereof), Sec. 25(5), Art. VI of the Constitution (power of the President to
augment), Secs. 38 and 49 of Executive Order 292 (power of the President to suspend expenditures and
authority to use savings, respectively).

Issues:

I. Whether or not the DAP violates the principle no money shall be paid out of the Treasury except in
pursuance of an appropriation made by law (Sec. 29(1), Art. VI, Constitution).
II. Whether or not the DAP realignments can be considered as impoundments by the executive.

III. Whether or not the DAP realignments/transfers are constitutional.

IV. Whether or not the sourcing of unprogrammed funds to the DAP is constitutional.

V. Whether or not the Doctrine of Operative Fact is applicable.

HELD:

I. No, the DAP did not violate Section 29(1), Art. VI of the Constitution. DAP was merely a program by
the Executive and is not a fund nor is it an appropriation. It is a program for prioritizing government
spending. As such, it did not violate the Constitutional provision cited in Section 29(1), Art. VI of the
Constitution. In DAP no additional funds were withdrawn from the Treasury otherwise, an appropriation
made by law would have been required. Funds, which were already appropriated for by the GAA, were
merely being realigned via the DAP.

II. No, there is no executive impoundment in the DAP. Impoundment of funds refers to the Presidents
power to refuse to spend appropriations or to retain or deduct appropriations for whatever reason.
Impoundment is actually prohibited by the GAA unless there will be an unmanageable national
government budget deficit (which did not happen). Nevertheless, theres no impoundment in the case
at bar because whats involved in the DAP was the transfer of funds.

III. No, the transfers made through the DAP were unconstitutional. It is true that the President (and even
the heads of the other branches of the government) are allowed by the Constitution to make
realignment of funds, however, such transfer or realignment should only be made within their
respective offices. Thus, no cross-border transfers/augmentations may be allowed. But under the DAP,
this was violated because funds appropriated by the GAA for the Executive were being transferred to
the Legislative and other non-Executive agencies.

Further, transfers within their respective offices also contemplate realignment of funds to an existing
project in the GAA. Under the DAP, even though some projects were within the Executive, these
projects are non-existent insofar as the GAA is concerned because no funds were appropriated to them
in the GAA. Although some of these projects may be legitimate, they are still non-existent under the
GAA because they were not provided for by the GAA. As such, transfer to such projects is
unconstitutional and is without legal basis.

On the issue of what are savings

These DAP transfers are not savings contrary to what was being declared by the Executive. Under the
definition of savings in the GAA, savings only occur, among other instances, when there is an excess in
the funding of a certain project once it is completed, finally discontinued, or finally abandoned. The GAA
does not refer to savings as funds withdrawn from a slow moving project. Thus, since the statutory
definition of savings was not complied with under the DAP, there is no basis at all for the
transfers. Further, savings should only be declared at the end of the fiscal year. But under the DAP,
funds are already being withdrawn from certain projects in the middle of the year and then being
declared as savings by the Executive particularly by the DBM.
IV. No. Unprogrammed funds from the GAA cannot be used as money source for the DAP because under
the law, such funds may only be used if there is a certification from the National Treasurer to the effect
that the revenue collections have exceeded the revenue targets. In this case, no such certification was
secured before unprogrammed funds were used.

V. Yes. The Doctrine of Operative Fact, which recognizes the legal effects of an act prior to it being
declared as unconstitutional by the Supreme Court, is applicable. The DAP has definitely helped
stimulate the economy. It has funded numerous projects. If the Executive is ordered to reverse all
actions under the DAP, then it may cause more harm than good. The DAP effects can no longer be
undone. The beneficiaries of the DAP cannot be asked to return what they received especially so that
they relied on the validity of the DAP. However, the Doctrine of Operative Fact may not be applicable to
the authors, implementers, and proponents of the DAP if it is so found in the appropriate tribunals (civil,
criminal, or administrative) that they have not acted in good faith.

ARAULLO V. AQUINO (MR)

Published by admin on February 21, 2015 | Leave a response

ARAULLO, et.al., Petitioners,

vs.

AQUINO, et.al., Respondents.

G.R. Nos. 209287,et.al. January 3, 2015

(Motion for Reconsideration)

PONENTE: Bersamin

TOPIC: Constitutionality of DAP, cross-border transfer

RULING OF THE COURT:

1.) The Courts power of judicial review

Argument: The respondents argue that the Executive has not violated the GAA because
savings as a concept is an ordinary species of interpretation that calls for legislative,
instead of judicial, determination.

Held: Untenable. The interpretation of the GAA and its definition of savings is a
foremost judicial function. This is because the power of judicial review vested in the Court
is exclusive.

Endencia and Jugo v. David: The interpretation and application of said laws belong
exclusively to the Judicial department. And this authority to interpret and apply the laws
extends to the Constitution. Before the courts can determine whether a law
is constitutional or not, it will have to interpret and ascertain the meaning not only of said
law, but also of the pertinent portion of the Constitution in order to decide whether there
is a conflict between the two, because if there is, then the law will have to give way and
has to be declared invalid and unconstitutional.

2.) Strict construction on the accumulation and utilization of savings

The exercise of the power to augment shall be strictly construed by virtue of its being an
exception to the general rule that the funding of PAPs shall be limited to the amount fixed
by Congress for the purpose. Necessarily, savings, their utilization and their management
will also be strictly construed against expanding the scope of the power to augment.15
Such a strict interpretation is essential in order to keep the Executive and other budget
implementors within the limits of their prerogatives during budget execution, and to
prevent them from unduly transgressing Congress power of the purse.

Pertinent provisions

Section 25(5), Article VI of the Constitution states:

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.

xxxx

Section 38 and Section 39, Chapter 5, Book VI of the Administrative Code

provide:

Section 38. Suspension of Expenditure of Appropriations. Except as otherwise

provided in the General Appropriations Act and whenever in his judgment the public
interest so requires, the President, upon notice to the head of office concerned,
is authorized to suspend or otherwise stop further expenditure of funds allotted for any
agency, or any other expenditure authorized in the General Appropriations Act, except for
personal services appropriations used for permanent officials and

employees.

Section 39. Authority to Use Savings in Appropriations to Cover Deficits.

Except as otherwise provided in the General Appropriations Act, any savings in the
regular appropriations authorized in the General Appropriations Act for
programs and projects of any department, office or agency, may, with the
approval of the President, be used to cover a deficit in any other item of the
regular appropriations: Provided, that the creation of new positions or increase of
salaries shall not be allowed to be funded from budgetary savings except when
specifically authorized by law: Provided, further, that whenever authorized positions are
transferred from one program or project to another within the same department, office
or agency, the corresponding amounts appropriated for personal services are also deemed
transferred, without, however increasing the total outlay for personal services of the
department, office or agency concerned.

Section 38 refers to the authority of the President to suspend or otherwise stop further
expenditure of funds allotted for any agency, or any other expenditure authorized in the
General Appropriations Act. When the President suspends or stops expenditure of funds,
savings are not automatically generated until it has been established that such funds or
appropriations are free from any obligation or encumbrance, and that the work, activity
or purpose for which the appropriation is authorized has been
completed, discontinued or abandoned.

Although the withdrawal of unobligated allotments may have effectively resulted in the
suspension or stoppage of expenditures through the issuance of negative
Special Allotment Release Orders (SARO), the reissuance of withdrawn allotments to the
original programs and projects is a clear indication that the program or project from
which the allotments were withdrawn has not been discontinued or abandoned.

At this point, it is likewise important to underscore that the reversion to the General Fund
of unexpended balances of appropriations savings included pursuant to Section 28
Chapter IV, Book VI of the Administrative Code does not apply to
the Constitutional Fiscal Autonomy Group (CFAG), which include the Judiciary, Civil
Service Commission, Commission on Audit, Commission on Elections, Commission on
Human Rights, and the Office of the Ombudsman.

On the other hand, Section 39 is evidently in conflict with the plain text of
Section 25(5), Article VI of the Constitution because it allows the President
to approve the use of any savings in the regular appropriations authorized in
the GAA for programs and projects of any department, office or agency to
cover a deficit in any other item of the regular appropriations. As such,
Section 39 violates the mandate of Section 25(5) because the latter expressly
limits the authority of the President to augment an item in the GAA to only
those in his own Department out of the savings in other items of his own
Departments appropriations. Accordingly, Section 39 cannot serve as a valid
authority to justify cross-border transfers under the DAP.

Augmentations under the DAP which are made by the Executive within its
department shall, however, remain valid so long as the requisites under
Section 25(5) are complied with.

3.) The power to augment cannot be used to fund non-existent provisions in

the GAA

Argument: The respondents assert, however, that there is

no constitutional requirement for Congress to create allotment classes within an item.
What is required is for Congress to create items to comply with the line-item veto of the
President.

Held: Tenable. The Court reversed its ruling.

Indeed, Section 25(5) of the 1987 Constitution mentions of the term item that may be the
object of augmentation by the President, the Senate President, the Speaker of the House,
the Chief Justice, and the heads of the Constitutional Commissions. In Belgica v. Ochoa,
we said that an item that is the distinct and several part of the appropriation bill, in line
with the item veto power of the President, must contain specific appropriations of
money and not be only general provisions.

Item, definition: the particulars, the details, the distinct and severable parts of the
appropriation or of the bill. an item of appropriation must be an item characterized by
singular correspondence meaning an allocation of a specified singular amount for a
specified singular purpose, otherwise known as a line-item. This treatment not only
allows the item to be consistent with its definition as a specific appropriation of money
but also ensures that the President may discernibly veto the same.

Accordingly, the item referred to by Section 25(5) of the Constitution is the last and
indivisible purpose of a program in the appropriation law, which is distinct from the
expense category or allotment class. There is no specificity, indeed, either in the
Constitution or in the relevant GAAs that the object of augmentation should
be the expense category or allotment class. In the same vein, the President cannot
exercise his veto power over an expense category; he may only veto the item to which that
expense category belongs to.

Further, in Nazareth v. Villar, we clarified that there must be an existing item,

project or activity, purpose or object of expenditure with an appropriation to
 which savings may be transferred for the purpose of augmentation.
Accordingly, so long as there is an item in the GAA for which Congress had
set aside a specified amount of public fund, savings may be transferred
thereto for augmentation purposes.

Nonetheless, this modified interpretation does not take away the caveat that only DAP
projects found in the appropriate GAAs may be the subject of augmentation
by legally accumulated savings. Whether or not the 116 DAP-funded projects had
appropriation cover and were validly augmented require factual determination that is not
within the scope of the present consolidated petitions under Rule 65.

4. Cross-border transfers are constitutionally impermissible

Argument: Section 25(5), Article VI of the Constitution prohibits only the transfer of
appropriation, not savings.

Held: Section 25(5) is clear. The Court stood by its previous pronouncement.

MA. CAROLINA P. ARAULLO ET AL. v.

BENIGNO SIMEON C. AQUINO III ET AL.,
G.R. NO. 209287, July 1, 2014
In a Decision dated July 1, 2014, the Supreme Court partially granted the consolidated petitions for
certiorari and prohibition and declared the following acts and practices under the Disbursement
Acceleration Program (DAP), National Budget Circular No. 541 and related executive issuances
unconstitutional for violating Section 25(5), Article VI of the 1987 Constitution and the doctrine of
separation of powers, namely:

(a) The withdrawal of unobligated allotments from the implementing agencies, and the declaration of
the withdrawn unobligated allotments and unreleased appropriations as savings prior to the end of
the fiscal year 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 Acts.

The Court further 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 (GAAs).
Remedial law; Certiorari and prohibition. The remedies of certiorari and prohibition are necessarily
broader in scope and reach, and the writ of certiorari or prohibition may be issued to correct errors of
jurisdiction committed not only by a tribunal, corporation, board or officer exercising judicial, quasi-
judicial or ministerial functions but also to set right, undo and restrain any act of grave abuse of
discretion amounting to lack or excess of jurisdiction by any branch or instrumentality of the
Government, even if the latter does not exercise judicial, quasi-judicial or ministerial functions. Thus,
petitions for certiorari and prohibition are appropriate remedies to raise constitutional issues and to
review and/or prohibit or nullify the acts of legislative and executive officials.

Remedial law; Locus standi. Citing De Castro v. Judicial and Bar Council, the Supreme Court ruled
that the assertion of a public right as a predicate for challenging a supposedly illegal or
unconstitutional executive or legislative action rests on the theory that the petitioner represents
the public in general. Although such petitioner may not be as adversely affected by the action
complained against as are others, it is enough that he sufficiently demonstrates in his petition that he
is entitled to protection or relief from the Court in the vindication of a public right. The Court likewise
cited Agan, Jr. v. Philippine International Air Terminals Co., Inc., to explain that [s]tanding is a
peculiar concept in constitutional law because in some cases, suits are not brought by parties who
have been personally injured by the operation of a law or any other government act but by
concerned citizens, taxpayers or voters who actually sue in the public interest.

Transcendental importance as a ground to waive locus standi. Each of the petitioners

has established sufficient interest in the outcome of the controversy as to confer locus standi on
each of them. In addition, considering that the issues center on the extent of the power of the Chief
Executive to disburse and allocate public funds, whether appropriated by Congress or not, these
cases pose issues that are of transcendental importance to the entire Nation, the petitioners
included. As such, the determination of such important issues call for the Courts exercise of its
broad and wise discretion to waive the requirement and so remove the impediment to its addressing
and resolving the serious constitutional questions raised.

Administrative law; Budget process; Implementation and funding of the Disbursement Allocation
Program (DAP). Four phases comprise the Philippine budget process, specifically: (1) Budget
Preparation; (2) Budget Legislation; (3) Budget Execution; and (4) Accountability.

The DAP was to be implemented and funded (1) by declaring savings coming from the various
departments and agencies derived from pooling unobligated allotments and withdrawing unreleased
appropriations; (2) releasing unprogrammed funds; and (3) applying the savings and
unprogrammed funds to augment existing [program, activity or project] or to support other priority
PAPs.

Administrative law; Nature of the DAP. The DAP was a government policy or strategy designed to
stimulate the economy through accelerated spending. In the context of the DAPs adoption and
implementation being a function pertaining to the Executive as the main actor during the Budget
Execution Stage under its constitutional mandate to faithfully execute the laws, including the GAAs,
Congress did not need to legislate to adopt or to implement the DAP.

Constitutional law; The DAP is not an appropriation measure and does not contravene Section
29(1), Article VI. The President, in keeping with his duty to faithfully execute the laws, had sufficient
discretion during the execution of the budget to adapt the budget to changes in the countrys
economic situation. He could adopt a plan like the DAP for the purpose. He could pool the
savings and identify the PAPs to be funded under the DAP. The pooling of savings pursuant to the
DAP, and the identification of the PAPs to be funded under the DAP did not involve appropriation
in the strict sense because the money had been already set apart from the public treasury by
Congress through the GAAs. In such actions, the Executive did not usurp the power vested
in Congress under Section 29(1), Article VI of the Constitution [that no money shall be paid out of the
Treasury except in pursuance of an appropriation made by law].

Requisites of a valid transfer of appropriated funds under Section 25(5), Article VI. The transfer of
appropriated funds, to be valid under Section 25(5), [Article VI of the Constitution], must be made
upon a concurrence of the following requisites, namely: (1) There is a law authorizing 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 the Constitutional Commissions to transfer funds within their
respective offices; (2) The funds to be transferred are savings generated from the appropriations for
their respective offices; and (3) The purpose of the transfer is to augment an item in the general
appropriations law for their respective offices.

It is then indubitable that the power to augment was to be used only when the purpose for which the
funds had been allocated were already satisfied, or the need for such funds had ceased to exist, for
only then could savings be properly realized. This interpretation prevents the Executive from unduly
transgressing Congress power of the purse.

Savings, defined. The definition of savings under the 2011, 2012 and 2013 GAAs 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.

The Court agreed with petitioners that respondents were forcing the generation of savings in order to
have a larger fund available for discretionary spending. Respondents, by withdrawing unobligated
allotments in the middle of the fiscal year, in effect deprived funding for PAPs with existing
appropriations under the GAAs.

The mandate of Section 28, Chapter IV, Book VI of the Administrative Code is to revert to the
General Fund balances of appropriations that remained unexpended at the end of the fiscal
year. The Executive could not circumvent this provision by declaring unreleased appropriations and
unobligated allotments as savings prior to the end of the fiscal year.

Augmentation is valid only when funding is deficient. The GAAs for 2011, 2012 and 2013 set as a
condition for augmentation that the appropriation for the PAP item to be augmented must be
deficient, 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.

The President cannot substitute his own will for that of Congress. The Court held that the savings
pooled under the DAP were allocated to PAPs that were not covered by any appropriations in
the pertinent GAAs. Although the [Office of the Solicitor General] rightly contends that the Executive
was authorized to spend in line with its mandate to faithfully execute the laws (which included the
GAAs), such authority did not translate to unfettered discretion that allowed the President to
substitute his own will for that of Congress. He was still required to remain faithful to the provisions
of the GAAs, given that his power to spend pursuant to the GAAs was but a delegation to him from
Congress. Verily, the power to spend the public wealth resided in Congress, not in the
Executive. Moreover, leaving the spending power of the Executive unrestricted would threaten to
undo the principle of separation of powers.

Cross-border transfers or augmentations are prohibited. By providing that 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 the Constitutional Commissions may be authorized to augment
any item in the GAA for their respective offices, Section 25(5) has delineated borders between their
offices, such that funds appropriated for one office are prohibited from crossing over to another office
even in the guise of augmentation of a deficient item or items. Thus, we call such transfers of funds
cross-border transfers or cross-border augmentations.

Regardless of the variant characterizations of the cross-border transfers of funds, the plain text of
Section 25(5) disallowing cross-border transfers was disobeyed. Cross-border transfers, whether as
augmentation, or as aid, are prohibited under Section 25(5).

No violation of equal protection. Petitioners claim that the Executive discriminated against some
legislators on the ground alone of their receiving less than the others could not of itself warrant a
finding of contravention of the Equal Protection Clause. The denial of equal protection of any law
should be an issue to be raised only by parties who supposedly suffer it, and, in these cases, such
parties would be the few legislators claimed to have been discriminated against in the releases of
funds under the DAP. The reason for the requirement is that only such affected legislators could
properly and fully bring to the fore when and how the denial of equal protection occurred, and
explain why there was a denial in their situation. The requirement was not met here.

Operative fact doctrine. 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. But its use must be subjected to great scrutiny and
circumspection, and it cannot be invoked to validate an unconstitutional law or executive act, but is
resorted to only as a matter of equity and fair play. It applies only to cases where
extraordinary circumstances exist, and only when the extraordinary circumstances have met the
stringent conditions that will permit its application.

The operative fact doctrine applies to the implementation of the DAP. To declare the implementation
of the DAP unconstitutional without recognizing that its prior implementation constituted an operative
fact that produced consequences in the real as well as juristic worlds of the Government and the
Nation is to be impractical and unfair. Unless the doctrine is held to apply, the Executive as the
disburser and the offices under it and elsewhere as the recipients could be required to undo
everything that they had implemented in good faith under the DAP. That scenario would be
enormously burdensome for the Government. Equity alleviates such burden.