Archive for the ‘general’ Category

DAP and The Power of the Purse

In the rather recent case of Araullo v. Benigno Simeon Aquino III[1], involving the chronically divisive Disbursement Acceleration Program  (or the DAP), the Supreme Court adopted a strict review of the “savings” definition to determine the President’s power to transfer amounts between programs under the General 2011, 2012 and 2013 Appropriations Act. On the flip side, the Supreme Court refused to consider the DAP as an impoundment measure based on the narrow definition of Impoundment under the same years GAAs:

 “The petitioners assert that no law had authorized the withdrawal and transfer of unobligated allotments and the pooling of unreleased appropriations; and that the unbridled withdrawal of unobligated allotments and the retention of appropriated funds were akin to the impoundment of appropriations that could be allowed only in case of “unmanageable national government budget deficit” under the GAAs, thus violating the provisions of the GAAs of 2011, 2012 and 2013 prohibiting the retention or deduction of allotments.

In contrast, the respondents emphasize that NBC No. 541 adopted a spending, not saving, policy as a last-ditch effort of the Executive to push agencies into actually spending their appropriations; that such policy did not amount to an impoundment scheme, because impoundment referred to the decision of the Executive to refuse to spend funds for political or ideological reasons; and that the withdrawal of allotments under NBC No. 541 was made pursuant to Section 38, Chapter 5, Book VI of the Administrative Code, by which the President was granted the authority to suspend or otherwise stop further expenditure of funds allotted to any agency whenever in his judgment the public interest so required.
The assertions of the petitioners are upheld. The withdrawal and transfer of unobligated allotments and the pooling of unreleased appropriations were invalid for being bereft of legal support. Nonetheless, such withdrawal of unobligated allotments and the retention of appropriated funds cannot be considered as impoundment. According to Philippine Constitution Association v. Enriquez (citation omitted): “Impoundment refers to a refusal by the President, for whatever reason, to spend funds made available by Congress. It is the failure to spend or obligate budget authority of any type.” Impoundment under the GAA is understood to mean the retention or deduction of appropriations. The 2011 GAA authorized impoundment only in case of unmanageable National Government budget deficit, to wit:

Section 66. Prohibition Against Impoundment of Appropriations. No appropriations authorized under this Act shall be impounded through retention or deduction, unless in accordance with the rules and regulations to be issued by the DBM: PROVIDED, That all the funds appropriated for the purposes, programs, projects and activities authorized under this Act, except those covered under the Unprogrammed Fund, shall be released pursuant to Section 33 (3),Chapter 5, Book VI of E.O. No. 292.

Section 67. Unmanageable National Government Budget Deficit. Retention or deduction of appropriations authorized in this Act shall be effected only in cases where there is an unmanageable national government budget deficit. Unmanageable national government budget deficit as used in this section shall be construed to mean that (i) the actual national government budget deficit has exceeded the quarterly budget deficit targets consistent with the full-year target deficit as indicated in the FY 2011 Budget of Expenditures and Sources of Financing submitted by the President and approved by Congress pursuant to Section 22, Article VII of the Constitution, or (ii) there are clear economic indications of an impending occurrence of such condition, as determined by the Development Budget Coordinating Committee and approved by the President.

The 2012 and 2013 GAAs contained similar provisions.

The withdrawal of unobligated allotments under the DAP should not be regarded as impoundment because it entailed only the transfer of funds, not the retention or deduction of appropriations.”

This means that while the Court recognized that the power to define savings is primordially legislative, it also allowed wide leeway for the Executive to play around with appropriations in order to create savings. In other words, although the President, if allowed by law (remember that it is not an inherent power), can realign only those funds which are defined as “savings” by Congress, it seems that he can also create a new category of savings altogether by simply “withdrawing unobligated allotments”  and the act of withdrawing itself is not considered an impoundment within the statutory definition.

I for one am still on the fence regarding the DAP issue per se but I think this distinction made by the Supreme Court on the impoundment aspect is too sophisticated for its own good. DAP would allow the executive to  declare an allotment “unobligated” merely by cherry picking which PAPs to obligate. And that precisely is the essence of impoundment — the refusal of the executive to carry out an instruction by Congress.

The items in the appropriations act are permissions for the Executive to incur obligations for the corresponding items. At the same time, the  GAA also theoretically contains a corresponding negative instruction for the President NOT to incur obligations for programs where no appropriations were made by Congress. Thus, to the extent that President acts contrary to these instructions, can it not be said that he also violates his duty to “faithfully execute” the laws of the land?

Finally, I think that obligating items PRIOR to or independent of the GAA amounts to a kind of “executive appropriation” as it would have the unusual effect of forcing the legislature to enact an appropriation to cover the expenditure,  thus:

“While section 8 of article I enumerates the powers of the legislative branch, the appropriations clause in section 9 is not a grant of power.

Rather, the appropriations clause affirmatively obligates Congress to exercise a power already in its possession.

Congress’ power to appropriate originates in article I, section 8. The concept of “necessary and proper” legislation to carry out “all . . . Powers vested by this Constitution in the Government of the United States” includes the power to spend public funds on authorized federal activities

Article I, section 8 also grants Congress the obverse power: the power to prevent the spending of any public funds except as authorized by Congress.

That is, even if there were no appropriations clause in the Constitution, Congress would have the power to enact a statutory “appropriations clause,” worded exactly the same as the clause in article I, section 9, making Congress’ appropriations power exclusive. If Congress could not prohibit the Executive from withdrawing funds from the Treasury, then the constitutional grants of power to the legislature to raise taxes and to borrow money” would be for naught because the Executive could effectively compel such legislation by spending at will.

The `legislative Powers’ referred to in section 8 of article I would then be shared by the President in his executive as well as in his legislative capacity.

Since legislative appropriations power is rooted in article I, section 8, we may infer that a primary significance of the appropriations clause in section 9 lies in what it takes away from Congress: the option not to require legislative appropriations prior to expenditure. If the Constitution thus strictly forbids `executive appropriation’ of public funds, the exercise by Congress of its power of the purse is a structural imperative[2]. “



[1] GR No. 289207

[2] Stith, Kate, “Congress’ Power of the Purse” (1988). Faculty Scholarship Series. Paper 1267.





Towards the end of 2013, the local utility MERALCO announced that their customers will be getting higher power bills because of higher generation charges during a temporary shutdown of the Malampaya natural gas facility which (unfortunately) coincided with problems with two (2) other plants and forcing the utility to get part of its electricity from the Spot Market[1]. Eager to pounce on negative sentiment that followed the announcement, groups led by certain legislators filed a Petition before the Supreme Court to stop the hike, claiming that MERALCO “colluded” with the generators to fatten corporate profits.  Even the Energy Secretary is talking about capping the amounts that generators can sell their power via the WESM.

If disallowed, MERALCO will be forced to bear the entire amount which represents the increased generation charges. What most people don’t realize is that MERALCO is a wires business[2] and is not allowed to make profit from the sale and purchase of electricity. Generation charges are being collected by MERALCO only as the agent of the generation companies and are considered “pass-through” charges under the scheme of Electric Power Industry Reform Act (EPIRA)[3].  Compelling MERALCO to pay for the higher generation charge is illegal and confiscatory as it will in effect obligate MERALCO to subsidize the power being distributed to its customers and will eat into the only revenue source that it is allowed by law to collect (the wheeling charge)[4].

What about the GenCos? Aren’t these fellows charging too much for the power that they are generating?

The sad truth is that generation companies are not public utilities and are driven entirely by a profit motivation. Government can attempt to curb the IPPs’ appetite but at the end of the day, it cannot force private business to get a haircut or to run plants for less than what they are content with.  While we can all cry “market abuse” to the Energy Regulatory Commission, the fact is that there are simply not enough power plants to effect the downward adjustment of prices.

Speaking of “market abuse,” the condition of the power market is exactly what it ought to be given government’s attitude towards the power sector. During the time of rotating brown-outs in the 1990s, Congress passed the Electric Power Crisis Act in 1993 [5] and all but laid out a red carpet so that Independent Power Producers would put up plants FAST in order to save a power hungry nation from literal darkness. They did but at some cost. And we’re still paying for those notorious take-or-pay contracts.

In 2001, the government solution to this train wreck (via the EPIRA) was to: (a) sell off ailing assets; (b) Unbundle power charges; (c) separate the: (i) Generation, (ii) Distribution  and (iii) Transmission sectors; (d) Reduce cross subsidies and cross-ownership; (e) mandate Retail Competition and Open Access and (f) establish a Wholesale Electricity Spot Market (WESM).

In short, the wise men of Philippine Legislature agreed that the way to arrest and ultimately reduce the price of power was to allow the law of supply and demand to freely dictate the prices.  Controlling generation charges artificially by imposing caps violates the de-regulation spirit of RA 9136, and again highlights the unstable nature of government policy which may prove counter-productive in the long run.

Admittedly, the EPIRA is not perfect. It has not brought about the reduction in power costs that it was designed for precisely because the imperfect provisions of the law have also been implemented less than perfectly. Nonetheless, government should resist the urge to give in to violent reactions calling for radical legislation in place of the current law unless it wishes to go back to the old Napocor regime. For one thing, it is not entirely clear how prices can be controlled by government in an environment where  the supply comes from a very limited pool. More importantly, increased and open competition is a proven formula for reducing prices and should rightfully remain the overarching strategy of national government going forward.  [7].



[1] Wholesale Electricity Spot Market (or WESM)

[2] See Sections 23 and 24 of RA 9136. The DU is allowed to charge for the use of its wires. Of the components of the electric bill, only the “distribution wheeling charges” pertain to MERALCO.

[3] See Section 25.

 [4] Under Section 43 of RA 9136, a Distribution Utility is allowed to charge a rate that allows “[r]ecovery of just and reasonable costs and a reasonable return on rate base (RORB) to enable the entity to operate viably.” See also Section 24, supra.

 [5] Republic Act 7648

[6] Republic Act 9513

[7] More to be discussed in a later article.

The First Hundred

The overarching strategy appears to hinge on the promotion of Public-Private Partnerships (or PPPs). Other than the fact that this is by no means an innovation, infrastructure development by itself is not a recipe for bringing the country out of its status as the perennial bridesmaid of Southeast Asia into the club of the sought after. There are tough choices to be made regarding population control, balancing the budget, peace and order plus of course, the manner and degree of aggressiveness in fighting corruption. Hard decisions require deft political handling and large political capital. While there is still hope, the President has to make these choices soon before his coin runs out.

PPPs and Risk, Part 1

Finally, opening the floodgates to indiscriminate government guarantees is short-sighted and counter-productive. At the end of the day, the increased cost of a government guaranty against regulatory risk will be borne by the tax payers. Since most PPP contracts will outlive President Aquino’s administration, he should be wary about putting his signature on a piece of paper which will doom his successor (and the one after that) to additional fiscal burdens, especially where the benefit is not clear or the need is not immediate.

What It Will Probably Take Part II: More on Including the Poor in the Equation

Theoretically, higher income per capita should offset the effects of either a lower minimum wage or a moratorium on wage increases. Stated otherwise, a lower legislated minimum wage would cease to be relevant when a larger part of the workforce is doing higher level jobs and are therefore earning way beyond any floor set by government.

What It Will Probably Take Part 1: Inclusion

At the end of the day, people will not sign on to any plan to overhaul the economy if they don’t see more food coming to their table or if the food is not coming soon enough. This is significant because that plan may ultimately involve reforms that are designed to increase country competitiveness by liberalizing trade laws or lowering the cost of Filipino labor.