Navigating Government Fund Realignment in the Philippines Constitutional and Statutory Framework, Administrative Guidelines, and Jurisprudential Boundaries
Abstract
Fund realignment—the authority to redirect appropriated money from one purpose to another—sits at the fault-line between fiscal flexibility and the constitutional command that “no money shall be paid out of the Treasury except in pursuance of an appropriation made by law.”1 This article distills the entire body of Philippine law on realignment across the national government, local government units (LGUs), and special-purpose funds, integrating constitutional text, the annual General Appropriations Acts (GAAs), Department of Budget and Management (DBM) issuances, Commission on Audit (COA) regulations, and landmark Supreme Court decisions from Demetria v. Alba (1985) to Araullo v. Aquino (2014) and subsequent cases through 2024.
1 Conceptual Map of the Budget Cycle
| Stage | Instrument | Realignment Entry-Point |
|---|---|---|
| Preparation | National Expenditure Program (NEP) / Budget of Expenditures and Sources of Financing (BESF) | None—still executive proposal |
| Legislation | GAA & special provisions | Congress may realign items while the bill is pending; post-enactment realignment by legislators is prohibited |
| Allotment & Obligation | DBM Allotment Release Program (specially: Agency Specific Budgets & Special Purpose Funds) | Within agency realignment via Modification Advice-Allotment (MAA) or Advice of Sub-Allotment (ASA) |
| Disbursement | Notice of Cash Allocation (NCA) or Cash Disbursement Ceiling (CDC) | No realignment—only cash-flow stage |
| Accountability | COA audit | Post-facto disallowance of illegal transfers |
2 Constitutional Foundations
| Provision | Key Rule |
|---|---|
| Art. VI, §25(1) | Appropriations must be by law. |
| Art. VI, §25(2) | Congress may not increase the President’s proposed budget aggregates. |
| Art. VI, §25(4) | If Congress fails to pass the GAA, the preceding year’s budget is deemed reenacted. |
| Art. VI, §25(5) | The President, Senate President, Speaker, Chief Justice, and heads of constitutional commissions may augment any item in their respective appropriations from savings in other items. |
| Art. VI, §29(1) | No money shall be paid out except pursuant to an appropriation. |
Crucially, §25(5) embodies the “savings-augmentation” mechanism—the only constitutionally recognized avenue for inter-item transfers after the GAA is signed. Any realignment that does not fit this clause must rely on explicit congressional authorization in the GAA or a special law, or it is ultra vires.
3 Statutory and Administrative Sources
Annual GAAs
- Every GAA since FY 1987 contains a “General Provisions” chapter. Sections entitled “Realignment of Funds,” “Meaning of Savings,” “Use of Savings,” and “Release of Appropriations” spell out what an agency may do internally and what requires DBM approval.
- The Meaning of Savings was rewritten in the FY 2017 GAA to track Araullo: savings arise only at year-end or after final discontinuance of a program or project.
DBM National Budget Circulars (NBC)
- NBC No. 567 (2016) – Rules on Modification in the Allotment Classification and Object of Expenditures.
- NBC No. 578 (2019) – Implemented the Green, Grey, and Red flagging of unobligated allotments; prohibited cross-program modifications without DBM concurrence.
- NBC No. 590 (2020) – Allowed expedited realignment of “savings” to the COVID-19 response pursuant to Republic Act 11469 (Bayanihan I).
- Local Budget Circular (LBC) 124-A (2023) – Updated LGU realignment rules after Mandanas-Garcia fiscal decentralization.
COA Circulars and Memoranda
- COA Cir. 2012-001 – Prescribes Report on Fund Utilization and Status of Programs/Projects/Activities (RFP); realignment must be footnoted.
- COA Cir. 2020-009 – Temporary flexibilities for pandemic funds but retained post-audit requirements.
Special Laws
- Republic Act 10121 (Disaster Risk Reduction and Management Act) §21–22 – defines the LGU Disaster Risk Reduction and Management Fund (LDRRMF) and the conditions for realignment of its Quick Response Fund (QRF).
- RA 11494 (Bayanihan II, 2020) – Broad realignment authority tied to COVID-19 but time-bound.
4 Mechanics of Realignment in the Executive Branch
4.1 Within-Agency Adjustments
| Scenario | Tool | Approving Authority |
|---|---|---|
| Shift between allotment classes (e.g., MOOE → Capital Outlay) but same program | Modification Advice-Allotment (MAA) | Agency Head, recorded in Registry of Allotments and Obligations (RAO) |
| Shift between different programs within the same operating unit | MAA + DBM clearance (NBC 578) | DBM Undersecretary for Budget Preparation & Execution |
| Augmentation of an item from savings | SARO indicating source item declared as savings | President (for exec agencies) or agency head within delegated cap |
| Use of Special Purpose Funds (e.g., Contingent Fund) | SARO issued by DBM upon Office of the President approval | President |
Savings may be declared only when: (a) project completed with lower cost, (b) project discontinued by law or by President due to force majeure, or (c) final unfilled vacancies (for PS savings).
4.2 Cross-Agency and Cross-Department Transfers
Outside calamity or pandemic special laws, cross-agency realignment is generally barred. Historically, the President used the Unprogrammed Appropriations and savings from slow-moving agencies to create the Disbursement Acceleration Program (DAP); the Supreme Court in Araullo struck this down for violating the item-specific nature of appropriations and the constitutional time when savings may arise.
4.3 Calamity, Quick Response, and Contingent Funds
| Fund | Enabling Law | Realignment Rule |
|---|---|---|
| National Disaster Risk Reduction and Management Fund (NDRRMF) | Annual GAAs; RA 10121 | DBM may realign only to disaster-related items endorsed by NDRRMC. |
| Agency Quick Response Funds (QRF) | Earmarked in each agency’s budget | Agency may realign internally but must notify DBM and COA within 5 days. |
| LGU LDRRMF | RA 10121; DBM-DILG-NDRRMC JMC No. 2013-1, 2022-1 | Sanggunian may realign after 5-day posting; cap: 30% for QRF, remainder for investment fund. |
5 Legislative Department: Power and Limits
- During budget deliberations, the House and Senate may realign between and within agency items so long as they stay within the aggregate expense ceiling set by the Constitution.
- Post-enactment realignments—historically embodied in the Priority Development Assistance Fund (PDAF)—were invalidated in Belgica v. Ochoa (2013). Congress cannot direct DBM or any agency to release funds to a legislator-identified beneficiary after the GAA becomes law.
- Legislative savings (e.g., from the Senate’s own operational budget) may be augmented only within Congress—e.g., additional MOOE for committee hearings.
6 Local Government Units
6.1 Legal Basis
RA 7160 (Local Government Code)
- §336 – Transfers from one item to another in the approved annual budget shall be prohibited unless by ordinance of the Sanggunian.
- §321–324 – Supplemental budgets and re-alignments must be accompanied by certification of excess collections or savings by the Local Budget Officer and Local Treasurer.
6.2 Common LGU Realignment Scenarios
- Salary Standardization retroactive pay → Re-align unobligated MOOE to Personal Services (PS).
- Calamity → Use LDRRMF or declare savings under §321 and pass a supplemental budget.
- Mandanas Ruling expansion (FY 2022 on-wards) → LGUs received larger National Tax Allotment (NTA); DBM LBC 124-A requires that realignment of unused “growth-equity” funds be for priority devolved services.
7 Special Purpose and Off-Budget Funds
| Fund Type | Source | Realignment Peculiarities |
|---|---|---|
| Unprogrammed Appropriations | GAA Chapter XI | Release contingent on revenue targets; technically not a realignment but fresh allotment when conditions met. |
| Special Accounts in the General Fund (SAGF) | Special Laws (e.g., Malampaya) | May be realigned only for statutorily defined uses (e.g., energy exploration, then disaster relief per PD 910 as amended)—but Araullo required statutory specificity. |
| Internally Generated Income (Retained Earnings) | Agency-specific charters (e.g., UP, GOCCs) | Realignment governed by agency board + DBM Circular Letter; still subject to COA. |
8 Audit, Transparency, and Accountability
- COA Post-Audit – Disallowances may issue if an augmentation lacks a genuine source of savings, or if the receiving item is not an existing line in the GAA.
- Budget and Treasury Management System (BTMS) – From FY 2021, allotment modifications are logged digitally, allowing real-time traceability.
- Open Budget Portal – DBM publishes the Budget Execution Documents (BEDs), including the BED 3 (Monthly Disbursement Program) where agency realignments ripple through cash planning.
- Citizen Participatory Audit – A pilot since 2014 integrates NGOs in auditing large realigned projects such as farm-to-market roads.
9 Jurisprudential Milestones
| Case | G.R. No. | Holding on Realignment |
|---|---|---|
| Demetria v. Alba (1985) | L-71977 | Constitution allows limited transfer only within savings-augmentation rubric; abolished broad law authorizing President to transfer ANY funds. |
| Philconsa v. Enriquez (1994) | 113105 | Legislator-identified projects may remain if listed in GAA; off-budget pork (post-enactment) is void. |
| Belgica v. Ochoa (2013) | 208566 | PDAF post-enactment realignment by individual legislators violates separation of powers and Art. VI §29(1). |
| Araullo v. Aquino (Disbursement Acceleration Program) (2014) | 209287 | Presidential cross-border transfers and premature creation of savings are unconstitutional; clarified when savings exist. |
| Fariñas v. Executive Sec. (2015) | 223415 | Gave prospective application to Araullo; good-faith recipients excused from return. |
| Serrano v. Pangilinan (2016) | 219935 | Invalidated unilateral Senate realignment of Sandiganbayan’s budget post-bicameral approval. |
| Pimentel v. DBM (2021) | 254171 | Upheld the constitutional validity of “for later release” (FLR) items within the executive; but their release or realignment remains subject to §25 rules. |
10 Recent Developments (2020 – 2024)
- COVID-19 Pandemic – RA 11469 (Bayanihan I) and RA 11494 (Bayanihan II) temporarily expanded realignment powers but were sunsetted on 30 June 2021. Despite this, NBC 590’s documentation requirements (separate COVID-19 registry) remained in force.
- Mandanas-Garcia Ruling Implementation (FY 2022) – LGU share of national taxes increased from 40 % to 50 % of all national taxes. Because LGUs were still building absorptive capacity, DBM allowed intra-fund realignments to capital outlay subject to Sanggunian ordinance.
- Cash Budgeting Act (enacted 2022) – GAA validity now strictly one year for new appropriations and two years for MOOE/CO; savings may be declared only after validity lapses, tightening realignment windows.
- Public Procurement Service (PS-DBM) Reform Bills (pending 19th Congress) – Would require that funds realigned to cover procurement of common-use supplies be reverted to Treasury if procurement is non-competitive, discouraging year-end “park-and-purchase” maneuvers.
11 Comparative Perspective & Reform Proposals
| Proposal | Rationale | Status |
|---|---|---|
| Automatic real-time “Turn Back” Rule: unobligated balances return to Treasury quarterly | Prevents artificial “savings” at year-end | In DBM draft PFM Roadmap 2026 |
| Congressional Budget Office (CBO-PH) | Provide non-partisan scoring of agency realignment requests | House Bill 6557 pending |
| Single Treasury Account | Reduce fund pockets enabling undisclosed realignments | In pilot with six agencies since 2023 |
12 Conclusion
The legal architecture of fund realignment in the Philippines is a layered regime: a constitutional ceiling (Art. VI §§25 and 29), statutory scaffolding in the GAA and special disaster or pandemic laws, administrative plumbing in DBM and COA circulars, and jurisprudential guardrails erected by the Supreme Court. A common thread emerges from Demetria to Araullo: realignment is permissible only when it (1) draws from bona fide savings, (2) augments an existing item, and (3) observes the separation of powers. Any deviation—no matter how compelling the policy urgency—invites judicial reversal or COA disallowance. The post-pandemic reforms toward cash budgeting and digital allotment tracking narrow the discretion further, signaling that future flexibility will depend less on ad hoc realignments and more on designing appropriations that are intrinsically adaptive yet still faithful to Congress’s power of the purse.
Annex A. Selected DBM and COA Issuances on Realignment
| Circular | Title (abridged) | Key Points |
|---|---|---|
| NBC 567 (2016) | Rules on Modification of Allotments & Object Classification | Agency head may approve within-program shifts; DBM approval if cross-program. |
| NBC 578 (2019) | Modified Obligation Targets & Flexibilities | Introduced color-coded flagging; set ceilings on MOOE→CO transfers. |
| NBC 590 (2020) | COVID-19 Realignment Guidelines | Declared pandemic “savings” and separate registries. |
| COA Cir. 2012-001 | Reporting of Fund Utilization | Form templates RFU & RSPO; disclosure of realignments. |
| COA Cir. 2020-009 | Audit Guidelines for Bayanihan Funds | Fast-track post-audit but retain full liability for illegal transfers. |
1 Const., Art. VI, §29(1).