JUDGMENT NO. 39
YEAR 2024
Commentary on the decision by
Angelo Maria Quaglini
Note on Constitutional Court Nos. 39 and 58/2024
for g.c. of the Journal of the Court of Auditors
ITALIAN REPUBLIC
IN THE NAME OF THE ITALIAN PEOPLE
THE CONSTITUTIONAL COURT
composed of:
President: Augusto Antonio BARBERA
Judges: Franco MODUGNO, Giulio PROSPERETTI, Giovanni AMOROSO, Francesco VIGANÒ, Luca ANTONINI, Stefano PETITTI, Angelo BUSCEMA, Emanuela NAVARRETTA, Maria Rosaria SAN GIORGIO, Filippo PATRONI GRIFFI, Marco D’ALBERTI, Giovanni PITRUZZELLA, Antonella SCIARRONE ALIBRANDI,
has pronounced the following
JUDGMENT
in the proceedings concerning the constitutional legitimacy of Articles 4, 6, 9 and 12 of the Law of the Molise Region of 29 December 2021, No. 6 (General Financial Statement of the Molise Region for the 2020 Financial Year), and of Articles 1, 3, 4 and 5 (the latter amended by Article 5, paragraphs 2 and 3, of the Law of the Molise Region of 24 May 2022, No. 8, containing "Regional Stability Law for the Year 2022") of the Law of the Molise Region of 29 December 2021, No. 7 (Adjustment of the Budget Forecast 2021-2023 and Amendments to Regional Laws), initiated by the Court of Auditors, Regional Control Section for Molise, in the proceedings for the validation of the General Financial Statement of the Molise Region, for the 2021 Financial Year, by order of 14 March 2023, registered under No. 52 of the 2023 order register and published in the Official Gazette of the Republic No. 18, first special series, of the year 2023.
Seen the act of constitution of the Molise Region, as well as the intervention of the Attorney General of the Court of Auditors;
heard at the public hearing of 24 January 2024, the Reporting Judge Angelo Buscema;
heard the Deputy Attorney General of the Court of Auditors Andrea Lupi for the Attorney General's Office at the Court of Auditors and the lawyers Matteo Carmine Iacovelli and Claudia Angiolini for the Molise Region;
Deliberated in the Council Chamber of 24 January 2024.
Facts of the Case
1.– By order of 14 March 2023, registered under No. 52 of the 2023 order register, the Court of Auditors, Regional Control Section for Molise, in the course of the proceedings for the validation of the general financial statement for the 2021 financial year, raises questions of constitutional legitimacy concerning Articles 4, 6, 9 and 12 of the Law of the Molise Region of 29 December 2021, No. 6 (General Financial Statement of the Molise Region for the 2020 Financial Year) and Articles 1, 3, 4 and 5 of the Law of the Molise Region of 29 December 2021, No. 7 (Adjustment of the Budget Forecast 2021-2023 and Amendments to Regional Laws).
These provisions, in the evaluation of the referring party, would conflict with Articles 81, paragraphs one and three, 97, paragraph one, and 119, paragraph one, also in combination with Articles 117, paragraph two, letter e), 100, paragraph two, and 103, paragraph two, of the Constitution.
1.1.– The referring judge prefaces that during the validation proceedings of the general financial statement of the Molise Region for the 2021 financial year (adopted by the Regional Council by resolution No. 213 of 30 June 2022, subsequently rectified, by resolution of the Regional Council No. 240 of 18 July 2022), he had to register the untruthfulness of the initial negative balance reported in the proposed financial statement (result of administration as of 1 January 2021, as per the 2020 budget account, approved by Molise Regional Law No. 6 of 2021), on which the 2021 accrual entries (assessments and commitments) were developed, compared to the value as of 31 December 2020; the latter should have been determined in compliance with the definitive assessments referred to in the decision of the same Regional Control Section, No. 80/2021/PARI, which would have highlighted the actual financial situation of the entity at that date, indicating the serious accounting errors contained in the proposed financial statement, subject to partial validation.
More precisely, the Molise control section of the Court of Auditors, with the aforementioned resolution No. 80/2021/PARI, had reported serious accounting errors contained in the proposed financial statement, never challenged by the administration. These errors concerned, among other things, the unjustified presence of large, long-standing outstanding balances, the failure to record mandatory expenses, the underestimation of the allowance for doubtful accounts (FCDE) and the litigation fund, and the insufficiency of the expired outstanding balances fund and the earmarked quotas, elements from which the control body deduced a significant unrecorded deficit. The Regional Council, in order to comply with the observations of the accounting magistrates, adopted resolution No. 404 of 30 November 2021, proposing to the Regional Council some "corrective measures" that flowed into Molise Regional Law No. 6 of 2021. However, these measures were considered inadequate by the same Control Section with respect to the definitive assessments referred to in decision No. 80/2021/PARI, resulting in a change in the deficit, which went from EUR 492,939,940.12 to EUR 494,258,381.92, with an increase of only EUR 1,318,441.80, instead of the increase estimated by the Regional Section, even with the most favorable criteria for the entity, of at least EUR 94,861,449.11. The 2021 accrual entries (commitments and assessments) were, therefore, developed on the basis of the seriously underestimated administration deficit, crystallized in the regional legislation approving the financial statement for the financial year itself.
During the validation proceedings of the aforementioned financial statement for the 2021 financial year, the referring judge, after censuring the lack of regularity of certain budget items and considering the further effects on the budget balances of the erroneous quantification of the deficit as of 31 December 2020, due to its impact on the determination of the administration result for 2021, suspended the final decision, raising, with separate order No. 10/2023/PARI, the questions of constitutional legitimacy of the aforementioned provisions.
The referring party acknowledges that, pending the filing of the order, this Court, with judgment of 23 December 2022, No. 268 (published in the Official Gazette on 28 December 2022), defined the constitutional legitimacy proceedings previously proposed on a principal basis by the President of the Council of Ministers against the Law of the Molise Region of 30 December 2020, No. 17 (General Financial Statement of the Molise Region for the 2019 Financial Year) and the Law of the Molise Region of 4 May 2021, No. 3, (Multi-year Budget Forecast for the three-year period 2021-2023), declaring the unconstitutionality of the latter.
1.2.– Regarding the standing of the regional control sections of the Court of Auditors to raise questions of constitutional legitimacy during the validation proceedings of the financial statement, the referring party invokes the constant jurisprudence of this Court, which has long recognized the standing of the Court of Auditors, regional control section, to raise, with reference to Article 81 of the Constitution, questions of constitutional legitimacy against all those legal provisions that determine modifying effects on the articulation of the budget, due to the very fact that they affect, in a global sense, the budget items, with repercussions on the management balances. The validation proceeding, in fact, for the limited purposes of Article 1 of Constitutional Law of 9 February 1948, No. 1 (Rules on constitutional legitimacy proceedings and on the guarantees of independence of the Constitutional Court) and Article 23 of Law No. 87 of 11 March 1953 (Rules on the constitution and functioning of the Constitutional Court), is analogous to the jurisdictional function, resolving itself in assessing the conformity of the acts that form its object with the rules of objective law, excluding any assessment that is not of a strictly legal nature. The control carried out by the Court of Auditors, in this area, is therefore defined as external, rigorously neutral and disinterested, aimed solely at guaranteeing the legality of the acts submitted to it, and that is, pre-ordered to protect objective law (the judgments of this Court No. 18 of 2019, No. 89 of 2017, No. 181 of 2015 and No. 213 of 2008 are cited).
1.3.– With regard to the relevance of the questions, the referring Section observes that, within the scope of the validation proceeding, the Court of Auditors must carry out a compliance examination, articulated in two phases: the first concerns the verification of the correct reconstruction of the fact and satisfies the need to ascertain the regular and truthful representation, in the financial statement, of the actual accounting situation, both from a financial and economic/asset point of view; the second activity coincides with a "verification", consisting of the ascertainment of the conformity to "law" of the representation and calculation as carried out and verified above (Article 39, first paragraph, of Royal Decree No. 1214 of 12 July 1934, containing "Approval of the Consolidated Law on the Court of Auditors").
The judge a quo represents that, according to the constant jurisprudence of this Court, the financial statement is one of the main instruments for evaluating compliance with the budget balance: it must, in fact, provide a "transparent, correct, unambiguous, concise and unequivocal indication of the result of administration and the related legal components" (judgment No. 274 of 2017 is cited), which also serve as a parameter for subsequent financial years. It follows that the financial statement and the related validation proceeding constitute the main instrument for guaranteeing financial legality in the context of the continuity of financial years.
In the present case, the law approving the financial statement of the previous year (Molise Regional Law No. 6 of 2021, relating to the 2020 financial year) would fall within the parameters that the judge a quo must apply in the validation proceeding of the financial statement for the following year, i.e. 2021; in fact, the law approving the financial statement is the source of the obligation to proceed with budget changes, as expressly indicated, among other things, by Articles 50 and (for cases of emergence of the deficit) 42, paragraph 12, of Legislative Decree No. 118 of 23 June 2011 (Provisions on the harmonization of the accounting systems and budget schemes of the Regions, local authorities and their bodies, in accordance with Articles 1 and 2 of Law No. 42 of 5 May 2009). In other words, the "results" of the 2021 financial statement are constructed on the basis of the logical and accounting premise of the result of the administration of the 2020 financial year.
The questions of constitutional legitimacy raised would therefore be prejudicial to the validation decision, given that, if the Regional Control Section were to proceed by applying the rules arising from the current legal framework, and in particular Molise Regional Law No. 6 of 2021 (containing the approval of the general financial statement of the Molise Region for the 2020 financial year) which erroneously quantified the administration deficit as of 31 December 2020, and Molise Regional Law No. 7 of 2021, which definitively settled the regional revenue and expenditure appropriations relating to the 2021 financial year, it would end up validating erroneous accounting results (in primis, the result of administration), which have produced the expansion of expenditure, outside the budget constraints resulting from the constitutional and legislative provisions in force in financial matters.
The referring judge argues that, if the provisions suspected of constitutional illegitimacy were to be removed from the legal system, the deficit item registered as expenditure in the law adjusting the budget forecast 2021-2023, 2021 financial year, would be illegitimate because it is seriously underestimated.
The continued validity of the contested provisions, pending the outcome of the raised questions of constitutional legitimacy, would require the Control Section to base its decision on the validation of the management as of 31 December 2021 on a non-truthful result of administration for the 2020 financial year and destined to jeopardize the economic-financial balances of the Region.
The relevance of the questions relating to Molise Regional Law No. 6 of 2021 would continue to persist even in the face of the removal from the legal system of Molise Regional Law No. 3 of 2021, as a result of the aforementioned judgment of this Court No. 268 of 2022. The censured law adjusting the budget forecast, in fact, would still represent the suitable regulatory site for making the appropriate changes to the budget documents, in order to ensure their compliance with the law.
1.4.– With regard to the non-manifest unfoundedness of the questions, the referring panel affirms that the Region would not have intervened on the 2020 financial statement according to the indications of the same Control Section during the 2020 validation, and that it would have approved Molise Regional Law No. 6 of 2021, containing "corrective measures" that were not sufficient to restore the legitimacy of said financial statement.
1.4.1.– More specifically, with reference to the censures on Molise Regional Law No. 6 of 2021, the following critical issues would persist.
The Court of Auditors, first of all, complains that Articles 4 and 6 would retain outstanding balances of over ten years, in the absence of demonstrative elements of the existence of the reasons for their retention. The serious uncertainties regarding their collectability had led the Region, in the 2020 financial statement proposal, submitted to the validation of the same Court, to provide for an allocation "for outstanding balances with an age of more than ten years" of EUR 7,605,010.48 (equal to 45 percent of their total). However, the Control Section pointed out the need, as an alternative to cancellation, to include them among the items to be subjected to the allocation in the FCDE. Furthermore, only two balances of ascertained non-existence would have been fully neutralized, while other balances would have been kept in significant measure even in the absence of attestation of their persistent collectability and of neutralization in the FCDE.
The profiles of constitutional illegitimacy that affect Articles 4 and 6 of the regional law approving the financial statement are complementary to those relating to the subsequent Articles 9 and 12, as the aforementioned provisions, as a whole, concur in representing the budget balance, in a non-truthful manner, both formally and substantially, represented in the regional law of approval.
Article 9 certifies a result of administration equal to -494,258,381.92 (Annex 2 – Demonstrative statement of the result of administration – letter E), while the Region should have considered that the deficit that emerged in the 2020 financial year was even greater than the previous year (which amounted to EUR 533,485,728.21) and was equal, according to the calculations of the Regional Section, to EUR 589,119,831.03 (i.e. the sum of EUR 494,258,381.92 and EUR 94,861,449.11).
The referring party deduces that the underestimation of the result of administration would lead to the violation of the evoked constitutional parameters referred to in Articles 97, paragraph one, 119, paragraph one, and 81, paragraph one, as well as of the accounting rules issued in the exercise of the exclusive state legislative competence in the field of "harmonization of public budgets" safeguarded by Article 117, paragraph two, letter e), of the Constitution.
The erroneous determination of the negative administration balance as of 31 December 2020, from the point of view of the correct coverage of the expenditures allocated in subsequent financial years, would also be detrimental to the financial parameter referred to in Article 81, third paragraph, of the Constitution.
Article 12, which provides for the approval of a series of Annexes to the budget, is, finally, censured in that the documents attached to the budget, pursuant to Articles 10 and 11 of Legislative Decree No. 118 of 2011, helping to illustrate the accounting conditions of the Region as of 31 December 2020, would form an inseparable complex. In fact, the findings set out in Annex 2 (demonstrative statement of the result of administration) constituted, at the same time, the outcome and the basis of the elaborations contained in the other Annexes. Consequently, the cancellation of the demonstrative statement – which reports an administration balance that is not truthful because it is significantly lower than the real one – would affect all other documents.
Ultimately, the erroneous application of accounting principles and the consequent prejudice caused to the correctness and reliability of the values taken as a reference for the construction of the various partitions of the 2020 financial statement, due to the principle of continuity between financial years, would entail the constitutional illegitimacy of the entire Article 12 of Molise Regional Law No. 6 of 2021.
1.4.2.– As regards Molise Regional Law No. 7 of 2021, relating to the adjustment to the multi-year budget forecast for the 2021-2023 financial year, the referring party observes that the approval of the 2020 financial statement in contrast with what was ascertained in the validation proceeding relating to the same financial year would not have allowed for correct planning activity in the subsequent 2021 financial year; it therefore deduces the need to raise a question of constitutional legitimacy of the aforementioned Molise Regional Law No. 7 of 2021.
In this regard, the referring Section observes that the Regional Council could well have approved the law adjusting the budget on the basis of the findings of the financial statement approved by the Council, without prejudice to the obligation to make any budget changes following the final approval of the financial statement after the validation proceeding (pursuant to Article 50, paragraph 3-bis, of Legislative Decree No. 118 of 2011).
However, despite the validation decision (decision No. 80/2021/PARI) having been issued on 12 November 2021, the Region approved the law adjusting the budget on 29 December, without making the appropriate budget changes.
The financial situation of the Region as of 31 December 2020 was characterized by the emergence of a deficit of EUR 589,119,831.03, which was greater overall than that resulting from the 2019 financial statement (equal to EUR 533,485,728.21) and not adequately considered in Molise Regional Law No. 6 of 2021 approving the 2020 financial statement.
In particular, the differential amount of the greater deficit resulting from the 2020 management compared to 2019 would be equal to EUR 55,634,102.82 (i.e. the difference between EUR 589,119,831.03 and EUR 533,485,728.21). Serious deviations would therefore have been determined with respect to the correct repayment quotas to be applied to the various financial years involved. The total amount of the deficit quota to be applied to the 2021 financial year would amount, according to the referring judge, to EUR 116,844,742.18, compared to what was declared by the Region in the censured regional law of adjustment (i.e. EUR 41,717,458.35).
Consequently, the erroneous representation of the regional financial situation as of 31 December 2020, summarized by the serious underestimation of the deficit, would determine the constitutional illegitimacy of Molise Regional Law No. 7 of 2021, due to the underestimation of the deficit quotas to be applied in 2021 and the consequent undue expansion of expenditure spaces.
1.4.2.1.– As regards the individual censures, Article 1 of Molise Regional Law No. 7 of 2021 provides that "[t]he presumed data of outstanding assets and liabilities reported respectively in the revenue and expenditure forecast statement of the budget for the 2021 financial year are redetermined in accordance with the corresponding definitive data resulting from the general financial statement for the 2020 financial year."
This provision, providing for updating the value of outstanding assets and liabilities, taking into account the data of the 2020 financial statement, would expose itself to the same censure of irregularity already found regarding outstanding assets, in relation to Articles 4 and 6 of Molise Regional Law No. 6 of 2021; in fact, in the total of outstanding assets, some would have been retained without demonstration of the reasons for their retention.
1.4.2.2.– The subsequent Article 3 of the censured regional law provides that "[t]he result of administration as of 31 December 2020 is determined to be EUR 59,825,099.30 in accordance with the provisions of the law approving the general financial statement for the 2020 financial year. The amount allocated in the result of administration amounts to EUR 371,504,074.87, while the earmarked amount is EUR 182,579,406.35. As a result of the allocations and earmarkings ascribed, the deficit ascertained as of 31 December 2020 is quantified at EUR - 494,258,381.92."
The Region would also in this case have reproduced in the adjustment law the value of the accounting data that had been erroneously quantified in the financial statement law, with particular reference to the contents of the demonstrative statement of the result of administration, the subject of the law approving the general financial statement for 2020.
The financial management of the Region for the entire 2021 financial year would therefore have been conditioned by the serious underestimation of the result of administration for the 2020 financial year, the alteration of which would have led to an undue expansion of expenditure spaces.
As a result of the application of annual repayment quotas lower than those due, the appropriations authorized in subsequent financial years – starting from 2021 – would have settled above the limits allowed by the available revenue, leading to a violation of Articles 81, paragraphs one and three, 97, paragraph one, 117, paragraph two, letter e), and 119, paragraph one, of the Constitution, considering that "the economic coverage of expenditures and the budget balance are two sides of the same coin, since the balance presupposes that every planned intervention is supported by the prior identification of the relevant resources" (judgment of this Court No. 274 of 2017 is cited).
1.4.2.3.– Article 4 of Molise Regional Law No. 7 of 2021 provides that "1. In the forecast statement of revenue and in the forecast statement of expenditures for the 2021 financial year, the variations referred to in Annex 1 are introduced for revenue and expenditure. As a result of the variations made, the amount of the revenue and expenditure forecast statement is increased by EUR 25,122,403.55, as regards the accrual forecast, and decreased by EUR 4,478,965.94, as regards the cash forecast for revenue, and increased by EUR 22,086,343.04 as regards the cash forecast for expenditure. 2. In the revenue forecast statement and in the expenditure forecast statement for the 2022 financial year, the variations referred to in Annex 1 are introduced for revenue and expenditure. As a result of the variations made, the amount of the revenue and expenditure forecast statement is decreased by EUR 1,736,050.52, as regards the accrual forecast. 3. In the revenue forecast statement and in the expenditure forecast statement for the 2023 financial year, the variations referred to in Annex 1 are introduced for revenue and expenditure. As a result of the variations made, the amount of the revenue and expenditure forecast statement is decreased by EUR 1,736,050.52, as regards the accrual forecast. 4. As a result of the variations referred to in this article, the expenditure authorizations are renewed in the amounts and for the interventions referred to in the relative regional or state laws".
According to the referring Section, this provision would be constitutionally illegitimate because it would have made a series of variations to the appropriations, both accrual and cash, for the three-year period 2021-2023, while ensuring the merely formal (or numerical) balance between revenue and expenditure variations of each financial year, without taking into account the need to repay greater portions of the deficit that emerged as of 31 December 2020, surreptitiously expanding the spending capacity.
1.4.2.4.– Finally, Article 5, in the current text after the amendment made by Article 5, paragraphs 2 and 3, of the Law of the Molise Region of 24 May 2022, No. 8 (Regional Stability Law for the year 2022), would be constitutionally illegitimate in that each of the appropriations for revenue and expenditure of the budget forecast contributes, with all the others, to the determination of the values of the individual accounting items and, at the same time, to the overall articulation of the same budget.
The judge a quo represents that the illegitimacies that affect the quantification of an accounting magnitude are reflected in cascade on all the others, determining the need for cancellation of an inseparable regulatory complex. In the case in question, the quantification of the items contained in the Annexes is linked to the contents of the other Annexes; consequently, the violations of the constitutional parameters found in the previous provisions would determine the constitutional illegitimacy of the documents attached to the aforementioned Article 5, the drafting of which would have been carried out by taking as a reference incorrect legal-accounting results.
2.– The Attorney General of the Court of Auditors, on 19 May 2023, filed a statement of intervention in the proceedings, arguing, with regard to his standing, that he has a qualified interest, pursuant to Article 4, paragraph 3, of the Implementing Rules for proceedings before the Constitutional Court, as his participation in the validation proceedings of the regional budget would constitute an expression of his power to guarantee the correct management of public resources, for the protection of the interests of the entire community. The Attorney General also affirms that the order with which the Panel raised the aforementioned questions of constitutional legitimacy would adhere to the request for referral formulated by the Regional Attorney of the Court of Auditors for Molise. The intervening party then developed autonomous arguments ad adiuvandum by re-proposing the same censures elaborated by the Regional Section in the order for referral.
3.– On 22 May 2023, the Molise Region, represented and defended by the Regional Legal Office, was constituted in the proceedings, arguing the inadmissibility and, in any case, the unfoundedness of the questions.
The regional defense preliminarily observes that the Molise executive body would have taken note of the decision of the Court of Auditors in the validation proceeding relating to the proposed regional financial statement law of 2020 (resolution No. 80/2021/PARI), together with the exceptions contained therein, and that consequently, the Council would have adopted adequate initiatives aimed at overcoming them, even in the observation that the complete and possible adjustment of the appropriations of the funds would have had to be the subject of a real budget maneuver, in order to find the necessary resources.
The Region would have sought the solution that is most "coherent with its resources" to the objections formulated, also with reference to the contested inadequacy of the corrective actions adopted by the same following the 2020 validation proceeding, without prejudice to the need to request an extraordinary intervention from the State, such as to ensure in the budget at least the coverage of the presumed deficit to be repaid as of 31 December 2022, set at EUR 117,828,833.70, to which should be added the quota to be repaid for the 2023 financial year equal to EUR 19,709,235.61, thus determining a deficit quota to be recovered, overall, presumptively, in the 2023 financial year, in an amount equal to EUR 137,538,069.31. In this sense, the regional executive body would have assumed, with resolution of 28 March 2023, "the formal commitment to initiate all the necessary procedures aimed at defining a path shared with the Institutional Bodies aimed at obtaining extraordinary intervention also with the possible allocation of a portion of the resources deriving from state or regional funds to cover the deficit quota still to be repaid as of 31.12.2022".
In this regard, with resolution of the Council No. 20 of 30 January 2023, the Molise Region affirms that it has prepared adjustment actions that would constitute "the maximum effort of the Administration" that would be able to "compose the budget balance and overcome the disputes of the Section".
4.– On 29 December 2023, the Molise Region filed a further memorandum in which it acknowledges some supervening regulations (state and regional), suitable to affect, according to the defense, substantially on the relevance of the questions as well as on their current well-foundedness.
The regional defense specifies that Article 12-bis, paragraph 3, of Decree-Law No. 51 of 10 May 2023 (Urgent provisions on the administration of public bodies, legislative deadlines and social solidarity initiatives), converted, with amendments, into Law No. 87 of 3 July 2023, provided that "3. In order to guarantee the continuity in the performance of their functions, by way of derogation from Article 42, paragraph 12, of Legislative Decree No. 118 of 23 June 2011, the ordinary statute regions, which present a per capita deficit as of 31 December 2021, net of the authorized and non-contracted debt, of more than EUR 1,500, may repay the deficit as of 31 December 2021, net of the deficit quotas already subject to extraordinary deficit repayment regimes, in constant installments in the nine subsequent financial years, starting from 2023, at the same time as the adoption of a council resolution concerning the deficit recovery plan, submitted to the opinion of the board of auditors, in which the measures necessary to restore the balance