G.R. No. 209287, July 1, 2014
Maria Carolina P. Araullo, et al. v. Benigno Simeon C. Aquino III, et al. (Consolidated with G.R. Nos. 209135, 209136, 209155, 209164, 209260, 209442, 209517, 209569)

FACTS

The consolidated petitions assailed the constitutionality of the Disbursement Acceleration Program (DAP), National Budget Circular (NBC) No. 541, and related Department of Budget and Management (DBM) issuances. The controversy arose after Senator Jinggoy Estrada revealed in a privilege speech that some Senators received an additional ₱50 Million each as an “incentive” for voting to impeach Chief Justice Renato Corona. DBM Secretary Florencio Abad explained the funds were part of the DAP, a program designed to accelerate economic expansion by ramping up government spending. The DBM stated DAP funds were sourced from savings (generated from pooling unreleased appropriations and withdrawing unobligated allotments from slow-moving projects) and unprogrammed funds. The DBM cited as legal bases Section 25(5), Article VI of the 1987 Constitution (President’s power to transfer savings for augmentation), relevant provisions of the Administrative Code, and the General Appropriations Acts (GAAs) of 2011, 2012, and 2013. Petitioners argued the DAP violated constitutional provisions on appropriation.

ISSUE

The substantive issues for resolution were:
1. Whether the DAP violates Section 29(1), Article VI of the 1987 Constitution, which states, “No money shall be paid out of the Treasury except in pursuance of an appropriation made by law.”
2. Whether the DAP, NBC No. 541, and related issuances violate Section 25(5), Article VI of the 1987 Constitution insofar as:
(a) They treat unreleased appropriations and unobligated allotments withdrawn from agencies as “savings”;
(b) They authorize the disbursement of funds for projects or programs not provided in the GAAs for the Executive Department; and
(c) They “augment” discretionary lump sum appropriations in the GAAs.

RULING

The Supreme Court declared certain acts and practices under the DAP unconstitutional.
1. On the Constitutional Provision on Appropriation: The Court emphasized that Section 29(1), Article VI is a fundamental principle of the public fiscal administration that all money drawn from the Treasury must be pursuant to an appropriation made by law. The DAP, as implemented, violated this principle when it involved the withdrawal of unobligated allotments and their use for projects not covered by existing appropriations in the GAA.
2. On the Definition of “Savings” and Augmentation under Section 25(5), Article VI:
(a) The Court ruled that the DBM’s interpretation of “savings” was unconstitutional. “Savings,” as contemplated under the Constitution and relevant GAAs, refer to portions or balances of released appropriations that are free from any obligation or encumbrance and are realized from (i) completed or finally discontinued projects, or (ii) efficiency measures implemented after the GAA’s passage. The pooling of “unreleased appropriations” (funds not yet issued to agencies) and “unobligated allotments” (funds issued but not yet committed) as “savings” prior to the end of the fiscal year and without the projects being completed or discontinued does not constitute valid “savings.” Therefore, NBC No. 541, which ordered the withdrawal of unobligated allotments as of June 30, 2012, treated funds as “savings” contrary to law.
(b) The Court held that the use of DAP funds to finance projects, activities, and programs not covered by any appropriation in the GAA was unconstitutional. The President’s power of augmentation is limited to items already existing in the GAA. Transferring savings to new or different projects without a corresponding appropriation item in the GAA violates Section 25(5), Article VI.
(c) The Court further ruled that the use of DAP funds to augment discretionary lump-sum appropriations (like the Contingent Fund and the Miscellaneous Personnel Benefits Fund) was unconstitutional. Augmentation presupposes the existence of an item already provided in the GAA. A “lump-sum appropriation” is not an “item” but a fund category; thus, it cannot be validly augmented under the President’s power. Cross-border transfers (i.e., transfers of savings from the Executive to agencies outside the Executive, such as the Judiciary, Legislature, and Constitutional Commissions) were also declared unconstitutional, as the President’s augmentation power is confined to items within the Executive Department.
Operative Fact Doctrine: The Court applied the doctrine of operative fact to the implementation of the DAP. While the acts were declared unconstitutional, the doctrine recognizes the legal effects of an unconstitutional act prior to its judicial declaration. Thus, transactions and projects undertaken in good faith under the DAP before this ruling are not invalidated, and the government is not required to recover funds used for completed projects, provided they were genuinely for public purpose. The doctrine does not apply to authors, implementors, and proponents who acted in bad faith.