Who's got the power? The Congress, says the Constitution, is supposed to have it when it comes to the budget, but Presidential Decree 1177 continues to give the President excessive discretion over lump sum funds and savings and the authority when to suspend its release, as reportedly shown in the previous administration. JES AZNAR (www.jesaznar.com)

While the 1987 Philippine Constitution gives Congress the power of appropriations, provisions in Presidential Decree No. 1177 give the President discretion over certain appropriations such as  lump sum appropriations, the authority to suspend the release of funds, and use of savings in appropriations to cover deficits. These are powers sourced from this decree issued during the dictatorial rule of President Marcos and not sanctioned by the 1987 Philippine Constitution.

It is a decree that should ideally be rescinded and struck down by this administration in the interests of public transparency and accountability since it gives any president massive powers to switch around and manipulate funds regardless of any decisions or restrictions initially put on approved monies by the legislature.

And it appears to have been a key instrument used to facilitate many of the alleged scandals in recent years.

Under the Constitution, the power of the purse belongs to Congress. Article VI, Section 29(1) provides that no money shall be paid out of the Treasury except in pursuance of an appropriation made by law.  An appropriation has been defined as a statute the primary or specific purpose of which is to authorize the release of public funds from the treasury.^[1] These appropriation measures may be classified into general or special. The general appropriations law passed annually is intended to provide for the financial operations of the entire government during one fiscal period, whereas a special appropriation is designed for a specific purpose, such as the creation of a fund for the relief of typhoon victims.^[2]

While the Constitution clearly gives the legislature the mandate to enact the General Appropriations Act, Section 25 of Article VI of the Constitution provides that the form, content, and manner of preparation of the budget shall be prescribed by law. The specifics of how the government budget shall be prepared, enacted, and executed are contained in Executive Order No. 292, otherwise known as the Administrative Code of 1987, signed into law by then President Corazon C. Aquino. The provisions on National Government Budgeting are contained in Book VI of the Administrative Code and most of which are taken from PD 1177.

Considering that the Cory administration wanted to get rid of, if not all, the remnants of the one-man rule of the last regime, it was a wonder why PD 1177 was left untouched and even republished in the 1987 Administrative Code.  PD 1177 was enacted on July 30, 1977 at the time when the entire country was under martial law. By virtue of Proclamation No. 1081, President Marcos declared martial law and arrogated upon himself law-making powers which became his authority in issuing presidential decrees which had the force of law, including PD 1177, otherwise known as the Budget Reform Decree of 1977.

A reading of PD 1177 would readily show that it is a scholarly piece of legal work as it described in detail the mechanics and technicalities of the national government budget. Except for its few provisions, the rest were republished in EO 292 under President Cory Aquino. The law was divided into four major parts -- the budget preparation, budget authorization, budget execution, and budget accountability.

Budget preparation mainly refers to the President’s submission to Congress as basis for the latter’s enactment of the General Appropriations Act (GAA) for the year the national government budget of estimated receipts based on existing and proposed revenue measures, and of estimated expenditures.

Budget authorization refers to the limitations imposed on Congress such as the prohibition against increasing appropriations submitted by the President or the prohibition against enactment of additional special provisions in the budget earmarking the use of appropriations for specific programs. It also contains provisions on automatic appropriations and supplemental appropriations. This part also contains the fairly well-known principle that unused appropriations in the GAA shall revert to the unappropriated surplus of the General Fund at the end of the fiscal year and shall not be available for expenditure except by subsequent legislative enactment.

The section on budget execution deals with the use of appropriated funds and the procedure on how appropriations shall be allotted by a department or agency of government, as well as the conditions that have to be met before funds can be disbursed. It also covers special budgets for lump-sum appropriations and cash budgets. It likewise contains the authority of the President to suspend expenditure of funds and to use savings in appropriations to cover deficits in any other item of the regular appropriations, as well as the use of savings, upon the approval of the Secretary of the Department of Budget and Management (DBM), for certain purposes as provided under PD 1177, and republished in EO 292.

Again, while most of the provisions on budget execution in PD 1177 were carried over to EO 292, Section 44 of PD 1177 (on the authority of the President to augment any appropriation in the Executive Department from savings or transfer funds appropriated for the different departments, agencies, bureaus, and offices of the Executive Department to any program, project, or activity of any department, bureau, or office included in the GAA, or approved after its enactment) was not since it was declared by the Supreme Court in the case of Demetria vs. Alba^[3] null and void as it amounted to an undue delegation of legislative power to the President.

Impoundment

Budget accountability, as the last phase in the government budget, primarily touches on how government, through the DBM, monitors government spending by developing standard costs for duly approved units or work measurement, requiring government agencies, offices, and departments to submit reports such as, among others, trial balances, work and financial plans, and reports of operation and income, and the continuing review of the budgetary program by the Secretary of the DBM.

While it can be said that PD 1177 has been superseded by EO 292, the spirit and substance of the said decree remains present in EO 292, the law which presently governs the national government budget. Advocates have challenged the validity of the present budget law as it gives the President power over the budget beyond what the Constitution allows.

James Matthew Miraflor, a researcher for the Freedom and Debt Coalition (FDC), in his paper, The Scarcity of Financial Democracy in Post-EDSA Philippines^[4], pointed to Sections 38 and 39 of EO 292, as to the President‘s authority to suspend expenditure of appropriations and the President’s power to use savings in the regular appropriations to cover a deficit in any other item, respectively, as the legal basis for the President’s usurpation of the legislative power of appropriation. He remarked that Section 38, otherwise known as the President’s power of impoundment, ensures that the President can refuse to allocate the money that had been appropriated by Congress and that Section 39, also known as the President’s power to reallocate “savings“, empowers the President to channel savings to cover deficits of other items in the budget.

The power to impound under Section 38 of EO 292 was widely used by former President Gloria Macapagal Arroyo during her term of office. Senator Teofisto “TG” Guingona, an advocate of budget reform, explained that there are many reasons why appropriated funds are not released.^[5] One is an agency’s non-compliance with the documentary requirements of the DBM. Politics is another, reminiscent of when President Arroyo deliberately withheld the Priority Development Assistance Fund (PDAF) of several legislators who are known to belong to the opposition, such as Senators Antonio Trillanes IV and Pia Cayetano^[6] and Congressman Neri Colmenares of the party-list group Bayan Muna.^[7]

These withheld appropriations revert to the general fund as “savings” and these so-called “savings” can be used under the President’s discretion^[8] pursuant to Section 39 of EO 292. Senator Guingona also pointed out that these “savings” can be transferred to favored offices and it is in this process where abuse of “savings” comes in.^[9] Miraflor precisely observed that when the powers to impound and to reallocate savings are combined, the same is tantamount to a power to realign appropriations itself.^[10]

A paper financed by the United States Agency for International Development (USAID)^[11] disclosed that in the 2009 National Expenditure Program (NEP) of the government, a total of PhP 106 billion (USD 2.52 billion) savings from the 2007 budget which should have been reverted to the General Funds were realigned to augment other items in the general appropriations laws for President Arroyo‘s office. It further noted that it is unclear whether these are savings or unauthorized releases and this clearly show that the Congress has lost its power over the purse.

Senator Guingona in his analysis of the annual budget programs^[12], pointed out that savings in 2005 soared to 17.36 percent, from 0.94 percent in the previous year. The government operated in 2004 on a re-enacted budget of 2003. The situation was almost the same in 2007 when savings reached 16.71 percent, from 0.20 percent in 2006 when the 2005 budget was re-enacted. In 2009, Guingona noted a disturbing PhP 106.11-billion (USD 2.5 billion) “overall savings” in the 2009 budget. The amount, he says, can find its way into the administration’s “war chest” for the 2010 elections  

Benjamin Diokno, a professor of economics at the University of the Philippines who served as budget secretary to former Presidents Cory Aquino and Joseph Estrada, said that the practice of overstating revenues also gives the president the excuse to generate savings from certain agencies while augmenting the budget of other departments.^[13] He said this effectively weakens the power of Congress over the purse because the president can choose which projects to fund and which not to fund, oftentimes setting aside the priorities of legislators.

The use of such “savings” has likewise been unearthed in the Armed Forces of the Philippines (AFP) after retired Lt. Col. George Rabusa exposed corruption within. Rabusa alleged that former Chief of Staff General Angelo Reyes once authorized the purchase of PhP 200 million (USD 4.76 million) worth of Howitzer ammunition from Thailand without the benefit of a public bidding. Rabusa said the purchase was financed by savings from the salary of military personnel. But he admitted that the purchase did not necessarily mean that the soldiers did not get their salary. Instead, the money used represented the savings from the salary budget released by the DBM. Savings are made if the DBM allocated for, say, 115,000 troops, but the AFP actually had only 100,000.^[14]

Views from the judiciary

Some members of the judiciary also share the opinion that the executive wields so much power over government “savings”. Three former Justices of the Supreme Court, specifically, Isagani Cruz, Teodoro Padilla, and Hugo Gutierrez, Jr. have registered strong dissents to the majority opinion of the Court vis-à-vis the authority of the President to augment savings in the case of Gonzales, et al vs. Macaraig, et al. In the said case^[15], the Supreme Court upheld the validity of the presidential veto made by then President Cory Aquino on Sections 55 and 16 of the GAA for 1989 and 1990, respectively. Both provisions provided that no item of appropriation recommended by the President in the Budget submitted to Congress which has been disapproved or reduced in this Act shall be restored or increased by the use of appropriations authorized for other purposes by augmentation.

The petitioners, all former Senators, argued that the power of augmentation in Article VI, Section 25 [5] of the 1987 Constitution, has to be provided for by law and, therefore, Congress is also vested with the prerogative to impose restrictions on the exercise of that power. Respondents, on one hand, posited that President Cory Aquino’s veto of the said provisions is valid because they nullify the authority of the Chief Executive and heads of different branches of government to augment any item in the GAA for their respective offices from savings in other items of their respective appropriations. They further explained that the exercise of such authority in respect of disapproved or reduced items by no means vests in the Executive the power to rewrite the entire budget, as petitioners contend, the leeway granted being delimited to transfers within the department or branch concerned, the sourcing to come only from savings.

Justice Gutierrez, in his dissent, disclosed that he was disturbed by the decision in the said case, and pointed out that the traditional power of Congress over the public purse is negated if functions or offices it has abolished or reduced are restored through the grant of carte blanche authority to shift savings from one department or agency to another which already amounts to fund juggling against the express command of the body in whom fiscal power is vested.

Justice Cruz made clear the parameters of this power as he explained that when exercising the authority to augment, the President and other officials specifically enumerated in the Constitution, act not by virtue of their own competence but only as agents of Congress and that there should be no question that the agency conferred on these officials can be revoked by Congress at any time and for any reason it sees fit. He further pointed out that the authority to augment involves the element of confidence that should Congress choose to withdraw it, a respect for the doctrine of separation of powers should persuade the delegates to yield to the wish of the principal.

Justice Padilla meanwhile remarked that the fundamental policy of the Constitution is against transfer of appropriations even by law, since this "juggling' of funds is often a rich source of unbridled patronage and abuse. He stressed that the condition, restriction or qualification embodied in Sections 55 and 16 was enacted by Congress in the exercise of its legislative power to appropriate funds for government operations. He opined that the majority appear to have overlooked that the power to appropriate and set reasonable conditions incidental thereto is a function entrusted by the Constitution in the legislature and only in the legislature.

Lump sum scams

The provision on Special Budgets for Lump Sum Appropriations in PD 1177, and carried over to EO 292, has likewise been a source of budget manipulations by the executive which has been said to have facilitated the Fertilizer Fund Scam during the heat of the presidential election campaign in 2004. Section 35 of EO 292 provides that expenditures from lump sum appropriations authorized for any purpose or for any department, office or agency in any annual GAA or other Act and from any fund of the national government, shall be made in accordance with a special budget to be approved by the President.

Former Congressman Ruffy Biazon explained that lump sum items in the budget represent programs or projects in general terms, instead of being listed down specifically.^[16] He gave as an example the lump sum item in the budget of the Department of Public Works and Highways which simply says “Others” with an appropriation of PhP 100 million (USD 2.3 million, in the 2008 General Appropriations Act-Department of Public Works and Highways, under their Locally Funded Projects). He said that while other items in the budget specify the name and location of the road, this lump sum item will be spent purely at the discretion of the executive department.

This kind of unbridled discretion was what paved the way for what is now known as the “Fertilizer Fund Scam.” The source of the PhP 728 million (USD 17.33 million) allegedly used to finance the campaign of President Arroyo in the 2004 presidential elections was from the Ginintuang Masaganang Ani or GMA program of the Department of Agriculture (DA), a lump sum item in the national budget under the Agriculture and Fisheries Modernization Act (AFMA)^[17]. The Commission on Audit (COA) reported anomalies on the use of the funds, among them was that the beneficiaries who actually received the money or fertilizers were different from the annex attached to the DBM’s Special Allotment Release Order and that the non-governmental organizations who received the funds did not have legitimate offices.^[18]

Former DA undersecretary Jocelyn “Joc-Joc” Bolante, the alleged mastermind of the multi-million fertilizer fund release, testified before the Senate that he merely used the continuing authority^[19] under the re-enacted budget^[20] of 2003 — the funds that became “savings” under the AFMA allocated with the DA as implementing agency.^[21] On this point, Senator Guingona admitted that Bolante did nothing illegal but he went one step further when he asked if it is moral or ethical that PhP 1.83 billion (USD 43.5 million) was released in just one week during an election period.^[22]

Advocates of budget reform are one in saying that presidential discretion over the national budget should be restricted, qualified, and even curtailed since it not only undermines Congress’ power of appropriation as mandated by the Constitution, but enables the manipulation of government funds to benefit a few select group whose aspirations are utterly against good governance. However, a DBM official who requested anonymity said that presidential discretion granted under EO 292 as to the budget has its advantages, especially during emergency situations like calamities.^[23] He disclosed that this discretion was severely abused during Arroyo’s time as seen in the different scams uncovered and still being uncovered. He acknowledged that there are loopholes in the budget law that need to be addressed to improve transparency in the budget process and one of these is to come up with rules that strictly define what savings is and identify the order of savings. He illustrated how “savings” have been interpreted differently. An agency which has finished the first phase of the renovation of its building claims that whatever funds remain are its “savings” and thus, may use the said funds to acquire vehicles for official use. However, the DBM does not consider said funds as “savings” available for reallocation since there is still a second phase to the renovation.

As it is being gradually revealed that illegal diversion of funds perpetrated during the last administration has been traced to an abuse in discretion and manipulation on the part of the executive in the budget process, the government of President Benigno Aquino III should start heeding the call to institute genuine budget reforms, where transparency and accountability in the budget are the foremost aspirations.

While the 2011 budget under President Aquino has been criticized by Leonor Magtolis-Briones, convener of Social Watch Philippines, to be not transparent because the government failed to explain the billions in pesos in lump sum appropriations^[24], the DBM, in an attempt to promote transparency as to said appropriations, has recently launched its e-Tails project, short for electronic Transparency and Accountability Initiative for Lump Sum Funds, a management information system that digitizes the processing of lump sum funds and supports the timely disclosure of lump sum fund release information on the DBM website. DBM Secretary Florencio B. Abad said that this will help government not only to accurately keep track of information on such releases but also to allow the people to scrutinize how their money is allocated by their elected officials.^[25]

Bills on budget reform

Similarly, there are bills pending before both House of Congress which seek to institute changes in the budget process such as Senator Guingona’s Senate Bill No. 2181 and Senate Bill No. 2182, which seeks to define savings as used in the national budget and provide guidelines for its use and expenditure, and which seeks to provide for specific budgeting guidelines in cases of re-enacted budget, respectively. Former Akbayan Rep. Risa Hontiveros-Baraquel has filed similar bills before the lower house such as House Bill 6026 or the Impoundment Control and Regulation Act of 2009 and House Bill 6027 or the Savings and Augmentation Act of 2009.

If all these proposed reforms in the budget are implemented or enacted into law and if President Aquino makes good his promise to “flesh-out oft-abused lump-sum funds” and “direct the release of budgetary allocations to the smallest implementing units of departments and agencies“, as well as, “to tighten the gravely abused generation and use of savings“^[26], then, hopefully, the Philippine national budget can move forward and leave behind the legacy of PD 1177 that was borne out of one man’s desire to control the nation’s coffers. Philippine Public Transparency Reporting Project

(The author is a University Legal Counsel at the University of the Philippines.)