Memorandum

TO: Atty. Jill Marie Lopez

FROM: Alysa Gieter Q. Punsalan
RE: Disbursement Acceleration Fund (DAP)
DATE: 01 August 2014

Statement of the Case

Petitioners are assailing the constitutionality of the Disbursement Acceleration Program (DAP), National
Budget Circular (NBC) No. 541, and related issuances of the Department of Budget and Management
(DBM) implementing the DAP. The challenges posed by the petitioners against the DAP indicate that the
DAP contravened the 1987 Constitution by allowing the Executive to allocate public money pooled from
programmed and unprogrammed funds of its various agencies in the guise of the President exercising
his constitutional authority. But the challenges are further complicated by the interjection of allegations
of transfer of funds to agencies or offices outside of the Executive.

The delivered privilege speech of Sen. Jinggoy Estrada in the Philippine Senate on September 25, 2013
revealed that some Senators, including himself, had been allotted an additional P50 Million each as
incentive for voting in favor of the impeachment of Chief Justice Renato C. Corona.

Secretary Florencio Abad of the DBM issued a public statement entitled Abad: Releases to Senators Part
of Spending Acceleration Program1, explaining that the funds released to the Senators had been part of
the DAP based on their letters of request for funding; and the DAP had already been instituted in 2011
to ramp up spending after sluggish disbursements had caused the growth of the gross domestic product
(GDP) to slow down. The DBM soon came out to claim in its website2 that the DAP releases had been
sourced from savings generated by the Government, and from unprogrammed funds.

Statement of Facts

In the middle of 2010, when President Aquino assumed office, the fiscal deficit of Philippines improved
but decelerated government project implementation and payment schedules. This economic situation
resulted in the development and implementation of DAP to stimulate the economy by way of
accelerated spending.

The NBC No. 541 was issued by Secretary Abad specified that the unobligated allotments of all agencies
and departments as of June 30, 2012 that were charged against the continuing appropriations for fiscal
year 2011 and the 2012 GAA (R.A. No. 10155) were subject to withdrawal through the issuance of
negative SAROs.

Issues

A. Whether or not the DAP violates Sec. 29, Art. VI of the 1987 Constitution.

B. Whether or not the DAP, NBC No. 541, and all other executive issuances allegedly implementing the
DAP violate Sec. 25(5), Art. VI of the 1987.

Discussion
A.
The development and implementation of DAP did not violate the mandate of Section 29(1), Article VI of
the 1987 Constitution that no money shall be paid out of the Treasury except in pursuance of an
appropriation made by law.

DAP is neither a fund nor an appropriation, but a program or an administrative system of prioritizing
spending. As pointed out in Gonzales v. Raquiza3: In a strict sense, appropriation has been defined as
nothing more than the legislative authorization prescribed by the Constitution that money may be paid
out of the Treasury, while appropriation made by law refers to the act of the legislature setting apart or
assigning to a particular use a certain sum to be used in the payment of debt or dues from the State to
its creditors. No law was necessary because the adoption of DAP was by virtue of the authority of the
President as the Chief Executive to ensure that laws were faithfully executed.

B.

a.
In Demetria v. Alba4, however, the Court struck down the first paragraph of
Section 44 of PD 1177 which authorizes the President to transfer any appropriated funds of the GAA
approved after its enactment to different agencies of the Executive Department because it contravenes
Section 16(5) of the 1973 Constitution, now Section 25(5) of the 1987 Constitution, which provides that
the President, 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. The PD
disregarded whether or not the funds to be transferred are actually savings in the item from which the
same are to be taken, or whether or not the transfer is for the purpose of augmenting the item to which
said transfer is to be made.

Section 25(5), not being a self-executing provision of the Constitution, must have an implementing law
for it to be operative. That law, generally, is the GAA of a given fiscal year. To comply with the first
requisite, the GAAs should expressly authorize the transfer of funds. The GAAs of 20115 and
20126 lacked valid provisions to authorize transfers of funds under DAP. Hence, fund transfers under
DAP are unconstitutional.

The definition of savings in the GAAs, particularly for 2011, 2012 and 20137, reflected this
interpretation and made it operational, viz: 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.

Unreleased appropriations refer to appropriations with allotments but without disbursement authority.
They have not yet ripened into categories of items from which savings can be generated. Unobligated
allotments, on the other hand, are free from any obligations and encumbrances but could not be
indiscriminately declared as savings without first determining whether any of the three instances
existed. The DBMs withdrawal of unobligated allotments had disregarded the definition of savings
under the GAAs.
Moreover, according to Section 28, Chapter IV, Book VI of the Administrative Code8, the balances of
appropriations that remained unexpended at the end of the fiscal year were to be reverted to the
General Fund. The Executive could not circumvent this provision by declaring unreleased appropriations
and unobligated allotments as savings prior to the end of the fiscal year.

b.
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. An appropriation for any PAP must first be determined to
be deficient before it could be augmented from savings. Therefore, 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 the GAAs. The PAPs covered under the DAP, being non-existent in the GAAs,
violated the provision of the GAAs regarding the use of savings.

C.
In accordance of Section 25(5), 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. These cross-border
transfers or cross-border augmentations have been implemented under DAP in certain instances.

d.
The 2011 and 2012 GAAs has given two instances when the unprogrammed funds could be released: (i)
revenue collections exceed the original revenue targets, and (ii) collections arising from sources not
considered in the aforesaid original revenue targets may be used to cover releases from appropriations.

Certifications from the Bureau of Treasury and Department of Finance have been obtained stating that
the dividends from the shares of stock held by the Government in government-owned and controlled
corporations has exceeded the target revenue for the said revenue source.

However, the conditions laid by the GAAs that revenue collections exceed the original revenue target
pertains to the totality of the surplus and not only to a single item of revenue. Thus, sourcing the DAP
from unprogrammed funds despite the original revenue targets not having been exceeded was invalid.

Conclusion

The implementation of DAP does not require an appropriation law for it is neither a fund nor an
appropriation. Thus, no violation of Section 29 Article VI of the 1987 Constitution. However, DAP is in
violation of Section 25(5). The unreleased appropriation and withdrawn unobligated allotments are not
considered savings as defined above. There were no savings from which funds could be sourced for the
DAP. Unexpended balances cannot be reverted prior to the end of the fiscal year. Cross-border
augmentation from savings were prohibited. Sourcing the DAP from unprogrammed funds despite the
original revenue targets not having been exceeded was invalid. Therefore, DAP is unconstitutional.

Legal Sources

1General Appropriation Act FY 2011 R.A. 10147

2General Appropriation Act FY 2012 R.A. 10155
3General Appropriation Act FY 2012 R.A. 10352
4Executive Order 292, s. 1987: The Administrative Code
51987 Constitution
6 Abad: Releases to Senators Part of Spending Acceleration Program
<http://www.dbm.gov.ph/?p=7302>
7 Gonzales vs. Raquiza G.R. No. 29627, December 19, 1989, 180 SCRA 254.
8 Demetria vs. Alba G.R. No. L-71977, February 27, 1987, 148 SCRA 208