G.R. No. 230818 - Separate Concurring Opinion

G.R. No. 230818, February 14, 2023,
♦ Decision, Hernando, [J]
♦ Separate Concurring Opinion, Leonen, [J]
♦ Concurring and Dissenting Opinion, Lazaro-Javier, [J]
♦ Concurring and Dissenting Opinion, Kho, [J]

I concur with the ponencia’s ruling that all funds of the Philippine Amusement and Gaming Corporation (PAGCOR), regardless of source, are subject to the audit jurisdiction of the Commission on Audit.

Section 15 of Presidential Decree No 1869, which expressly limits the audit of PAGCOR funds to the 5% franchise tax and 50% government's share of gross earnings, is no longer operative with the subsequent adoption of the 1987 Constitution. Article IX-D, Sections 2 and 3 of the Constitution provides for an extensive scope of audit by the Commission on Audit, covering all funds of the government and its agencies or instrumentalities.

I further concur with the ponencia’s affirmance of the disallowance by the Commission on Audit of the PHP 2,000,000.00 financial assistance granted by PAGCOR for Pleasant Village Homeowners Association's flood control and drainage system project. Petitioners PAGCOR officers failed to discharge the burden of proof to show that the flood control project had beneficial effect to the public.

PAGCOR was created and organized in 1977 under Presidential Decree No. 1067-A1 to centralize and integrate all games of chance.2 It was authorized to establish and operate gambling casinos to generate additional revenues for the government;3 and was conferred corporate powers.4

PAGCOR was 60% owned by the government and 40% by entities acceptable to its Board of Directors.5 The Board of Directors was composed of five ex officio members,6 two of whom were to be appointed by the president.

In line with State policy, PAGCOR was granted a franchise to operate and maintain gambling casinos and other recreation or amusement places, through Presidential Decree No. 1067-8.7 The franchise was for a period of 25 years, renewable for another 25 years.8 PAGCOR was also authorized to enter into operator and/or management contracts9 and to do other acts related to the operation of gambling casinos.10

The franchise was subject to a special condition pertaining to the allocation of 60% of PAGCOR's revenues to fund priority infrastructure and socio-civic projects within Metropolitan Manila.11 PAGCOR was also granted tax exemptions in lieu of a franchise tax of 5% of the gross revenue or earnings derived by PAGCOR from its casino operation.12 However, all of PAGCOR's income was subject to audit by the Commission on Audit.13

Presidential Decree Nos. 1067-C,14 1399,15 and 1632,16 further amended PAGCOR's charter and franchise. Then in 1983, Presidential Decree No. 186917 was enacted to consolidate all the foregoing Presidential Decrees; increase the private sector's ownership in PAGCOR from 40% to 45%,18 and lower the government's share in gross earnings to 50%.19

To purportedly provide PAGCOR with "greater flexibility in [its] operation[,]"20 governmental audit was expressly limited to the determination of the 50% government share and the 5% franchise tax. Section 15 of Presidential Decree No. 1869 states:

SECTION 15. Auditor. — The Commission on Audit or any government agency that the Office of the President may designate shall appoint a representative who shall be the Auditor of the Corporation and such personnel as may be necessary to assist said representative in the performance of his duties. The salaries of the Auditor or representative and his staff shall be fixed by the Chairman of the Commission on Audit or designated government agency, with the advice of the Board, and said salaries and other expenses shall be paid by the Corporation. The funds of the Corporation to be covered by the audit shall be limited to the 5% franchise tax and the 50% of the gross earnings pertaining to the Government as its share. (Emphasis supplied)

This limitation on audit under Section 15 of Presidential Decree No. 1869 is repugnant to, hence, impliedly repealed by the Constitution.21

The Commission on Audit's power under the Constitution is broader and more extensive.22 It covers all revenue and receipts of, and expenditures or uses of funds and property, owned, or held in trust by the government, including government-owned or controlled corporations with original charters.

A government-owned or controlled corporation is defined under the Administrative Code as:

. . . any agency organized as a stock or non-stock corporation, vested with functions relating to public needs whether governmental or proprietary in nature, and owned by the Government directly or through its instrumentalities either wholly, or, where applicable as in the case of stock corporations, to the extent of at least fifty-one (51) per cent of its capital stock: Provided, That government-owned or controlled corporations may be further categorized by the Department of the Budget, the Civil Service Commission, and the Commission on Audit for purposes of the exercise and discharge of their respective powers, functions and responsibilities with respect to such corporations.23

In Oriondo v. Commission on Audit,24 "an entity is considered a government-owned or controlled corporation if all three (3) attributes are present: (1) the entity is organized as a stock or non-stock corporation; (2) its functions are public in character; and (3) it is owned or, at the very least, controlled by the government."25

PAGCOR is a government-owned or controlled corporation. Hence, all its funds must be subject to the jurisdiction of the Commission on Audit without limitation.

In Feliciano v. Commission on Audit,26 it was held that "[t]he determining factor of COA's audit jurisdiction is government ownership or control of the corporation":27

[T]he constitutional criterion on the exercise of COA's audit jurisdiction depends on the government's ownership or control of a corporation. The nature of the corporation, whether it is private, quasi-public, or public is immaterial.

The Constitution vests in the COA audit jurisdiction over ''government-owned and controlled corporations with original charters," as well as "government-owned or controlled corporations" without original charters. GOCCs with original charters are subject to COA pre-audit, while GOCCs without original charters are subject to COA post-audit. GOCCs without original charters refer to corporations created under the Corporation Code but are owned or controlled by the government. The nature or purpose of the corporation is not material in determining COA's audit jurisdiction. Neither is the manner of creation of a corporation, whether under a general or special law.28

Further, the revenues derived by PAGCOR from its operations of gambling casinos are public in nature or at the very least affected with public interest. PAGCOR was granted a franchise to operate casinos principally to raise funds to finance the government's infrastructure and socio-civic projects. Moreover, its operations involve gambling activity, which is so affected with public interest as to be within the police power of the State.29

In Republic v. COCOFED,30 this Court held that the coconut levy funds are not only affected with public interest; they are, in fact, prima facie public funds. They are exacted pursuant to law not only to raise revenues for the support of the government, but also to advance the State policy of protecting the coconut industry and its farmers. This Court has also previously held special funds like the sugar levy fund and the oil price stabilization fund31 to be public in character and subject to audit by the Commission on Audit.

In his Concurring Opinion in Kilosbayan, Inc. v. Guingona, Jr.,32 Justice Florentino P. Feliciano explained that the funds raised by the On-line Lottery System were also public in nature. In his words:

In the case presently before the Court, the funds involved are clearly public in nature. The funds to be generated by the proposed lottery are to be raised from the population at large. Should the proposed operation be as successful as its proponents project, those funds will come from well-nigh every town and barrio of Luzon. The funds here involved are public in another very real sense: they will belong to the PCSO, a government owned or controlled corporation and an instrumentality of the government and are destined for utilization in social development projects which, at least in principle, are designed to benefit the general public…. The interest of a private citizen in seeing to it that public funds, from whatever source they may have been derived, go only to the uses directed and permitted by law is as real and personal and substantial as the interest of a private taxpayer in seeing to it that tax monies are not intercepted on their way to the public treasury or otherwise diverted from uses prescribed or allowed by law. It is also pertinent to note that the more successful the government is in raising revenues by non-traditional methods such as PAGCOR operations and privatization measures, the lesser will be the pressure upon the traditional sources or public revenues, i.e., the pocket books of individual taxpayers and importers.33

In Fernando v. Commission on Audit,34 this Court held that the funds of the Executive Committee of the Metro Manila Film Festival that were sourced from non-tax revenues are considered public funds, and are subject to the Commission on Audit's jurisdiction. Thus:

Being public funds, PAGCOR's revenues are subject to audit by the Commission on Audit.

Notably PAGCOR's books of accounts and all financial records and supporting documents were initially subject to the Commission on Audit's jurisdiction.36 It was only under Section 15 of Presidential Decree No. 1869 that a limitation on audit was introduced. However, with the effectivity of the 1987 Constitution, this limiting clause is clearly no longer operative.

Sec. 3. All existing laws, decrees, executive orders, proclamations, letters of instructions, and other executive issuances not inconsistent with this Constitution shall remain operative until amended, repealed, or revoked. (Emphasis supplied)

To bolster the Commission on Audit's extensive jurisdiction, Section 3 of Article IX-D of the Constitution categorically proscribes any law exempting any governmental entity or any investment of public funds from audit.

In Feliciano, the second sentence of Section 20 of Presidential Decree No. 198, which stated: "Auditing shall be performed by a certified public accountant not in the government service[,]"37 was nullified for being violative of Section 3, Article IX-D of the Constitution. This Court explained:

The limitation on audit in Section 15 of Presidential Decree No. 1869 is a curtailment of the Commission on Audit's power, which is inconsistent with Article IX-D, Sections 2(1) and 3, of the Constitution. Said "limitation on audit" in Section 15 of Presidential Decree No. 1869 has been abrogated by the 1987 Constitution.

In addition, heightened audit should be done on PAGCOR because of the constitutionally irregular provisions in its Charter that amounts to regulatory capture.

Other than its corporate powers,39 PAGCOR was also given regulatory powers under Sections 8 and 9 of Presidential Decree No. 1869, thus:

In 2007, PAGCOR's regulatory powers were expanded by granting it the authority to license gambling casinos.40

I reiterate my view that PAGCOR's dual roles of a gambling regulator and operator is unconstitutional. It presents a direct conflict of interest and ultimately results in PAGCOR being considerably influenced by the interests it regulates and not by the public interest.

PAGCOR's mandate of protecting and promoting public interest directly clashes with its revenue objectives as a franchise holder. Due to its conflicting roles, PAGCOR is hampered in its function of regulating gambling activity in a transparent, effective, accountable, and consistent manner. Being a primary regulator and regulated entity at the same time, PAGCOR's regulations and processes are prone to abuses and may come to be directed towards benefiting the regulated industry or activity rather than the public. PAGCOR ends up becoming the agent of the industry it is regulating.

As regards the propriety of the disallowance, I concur with the ponencia in affirming the Commission on Audit's disallowance of the PHP 2,000,000.00 financial assistance granted by PAGCOR to the Pleasant Village Homeowners Association of Los Baños, Laguna for their flood control and drainage system project.

Section 4(2) of Presidential Decree No. 144541 enunciates the basic principle that every disbursement of public funds must be for a public purpose.

The ponencia applies the doctrine in the 1960 case of Pascual v. Sec. of Public Works42 to determine "public purpose." In Pascual, this Court nullified the appropriation of PHP 85,000.00 for a projected feeder road under Republic Act No. 920, which ran through a private subdivision and on land owned by respondent Zulueta. This Court held that "[i]nasmuch as the land on which the projected feeder roads were to be constructed belonged then to respondent Zulueta, the result is that said appropriation sought a private purpose, and, hence, was null and void."43 It cited the ruling case law that:

It is a general rule that the legislature is without power to appropriate public revenue for anything but a public purpose. . . . It is the essential character of the direct object of the expenditure which must determine its validity as justifying a tax, and not the magnitude of the interests to be affected nor the degree to which the general advantage of the community, and thus the public welfare, may be ultimately benefited by their promotion. Incidental advantage to the public or to the state, which results from the promotion of private interests and the prosperity of private enterprises or business, does not justify their aid by the use of public money.44 (Emphasis supplied)

In other words, in Pascual, there is no public purpose without direct benefit to the public.

However, the concept of "public purpose" or "public use" has evolved into a broader notion of indirect public benefit or advantage.

In Sumulong v. Hon. Guerrero,46 low-cost housing is considered a public purpose even if it will benefit certain private individuals, explaining thus:

Housing is a basic human need. Shortage in housing is a matter of state concern since it directly and significantly affects public health, safety, the environment and in sum, the general welfare. The public character of housing measures does not change because units in housing projects cannot be occupied by all but only by those who satisfy prescribed qualifications. A beginning has to be made, for it is not possible to provide housing for all who need it, all at once.47

Also, in Association of Small landowners in the Philippines, Inc. v. Secretary of Agrarian Reform,48 appropriations for the implementation of the agrarian reform program, even if directly they benefit mainly private individuals, is considered to be for a public purpose. As held by this Court:

The expropriation before us affects all private agricultural lands whenever found and of whatever kind as long as they are in excess of the maximum retention limits allowed their owners. This kind of expropriation is intended for the benefit not only of a particular community or of a small segment of the population but of the entire Filipino nation, from all levels of our society, from the impoverished farmer to the land-glutted owner. Its purpose does not cover only the whole territory of this country but goes beyond in time to the foreseeable future, which it hopes to secure and edify with the vision and the sacrifice of the present generation of Filipinos. Generations yet to come are as involved in this program as we are today, although hopefully only as beneficiaries of a richer and more fulfilling life we will guarantee to them tomorrow through our thoughtfulness today. And, finally, let it not be forgotten that it is no less than the Constitution itself that has ordained this revolution in the farms, calling for "a just distribution" among the farmers of lands that have heretofore been the prison of their dreams but can now become the key at least to their deliverance.49 (Emphasis in the original)

In Binay v. Domingo,50 the Commission on Audit disallowed the disbursement of public funds for the implementation of the burial assistance program on the grounds that it benefits only a few individuals, hence, not for a public purpose. This Court, in reversing the Commission on Audit, held that the expenditure "is not unconstitutional merely because it incidentally benefits a limited number of persons . . . 'the drift is towards social welfare legislation geared towards state policies to provide adequate social services . . . , the promotion of the general welfare . . . social justice . . . as well as human dignity and respect for human rights."'51

Thus, Pascual is not controlling. Public expenditures benefitting private persons with beneficial effect to the public, i.e. "which tends to contribute to the general welfare and the prosperity of the whole community,"52 serve a "public purpose."

However, the burden of proof rests on the government agency to prove the legality of its disbursement of public funds. Mere assertion that the expenditure serves a public purpose would be insufficient. Owing to the public purpose requirement, it is imperative for PAGCOR to prove that the flood control project within the private subdivision has beneficial effect to the public.

"Efficiency is achieved when tasks, which necessarily entail costs, are allocated on those who could best bear them."53 The party that has resources—in this case PAGCOR—must carry the burden of proof.

Unfortunately, this burden of proof, petitioners PAGCOR officers failed to discharge.

ACCORDINGLY, I vote to GRANT the Commission on Audit's Motion for Reconsideration in G.R. No. 230818, and to DISMISS the Petition in G.R. No. 244540.