A Comparative Analysis of Financial Assistance to States by the Central Government in Nigeria and America

 

By Olufemi Abifarin (PhD, College of Law), Joseph Ayo Babalola (University Ikeji- Arakeji), J.O. Olatoke (PhD SAN Faculty of Law University of Ilorin) and E.A. Adesina (Dept of General studies Lagos State Polytechnic Ikorodu Lagos).

 

Abstract

 

This paper discusses the constitutionality of the bailout granted to the states by the Federal government of Nigeria. We define and distinguish bailout from Grant-in-aid and pointed out that the federal government did not follow the constitutional procedure of granting aid to states. The Constitution did not use the word bail out but rather mentions grants to states and bailout now the terminology used by every Nigerian today. It is the thrust of this paper that the federal government should have used the appropriate terminology used in the Constitution to describe the assistance of the federal government to the states. The piece is concluded by reiterating that the bailout or grant is not contemplated by the Constitution as loans but financial assistance to states to carry out specific projects or to pay salaries, and the release of the bailout to states without approval of the National Assembly is a fundamental error that should be corrected in future grants while extra-budgetary grants to states is a flagrant violation of the constitution.

 

Introduction

 

At the inception of Buhari administration on May 29, 2015 the states of the Federation of Nigeria were in serious financial crisis to the extent that it became difficult for them to pay salaries and allowances to their workers for upwards of eight months.[1] The Governors of the affected states dropped their political differences and came together to approach the president for financial assistance to bail them out of the problem.[2] This request is in addition to their monthly statutory allocation from the federation account as stipulated in Section 162(4) of the 1999 Constitution as amended. Their internally generated revenue is marginal because no serious effort has been made by the States to improve, even in the face of dwindling oil resources occasioned by fall in price of crude oil in the international market.[3]

 

The President relying on Section 164(1) of the Constitution granted the request of the Governors for financial assistance and released the sum of 700 billion naira with certain conditionalities attached to the release of the money from the Central Bank of Nigeria. It was later discovered that the money released was not a grant or financial assistance but a loan to be repaid within 20 years.[4] The states requested 18 months’ moratorium on the repayment while the federal government granted only one month moratorium.[5] The one month moratorium is in adequate given the indebtedness of these States to their workers and the various labour crises taking place.

 

Meaning of Grants and Bailout

 

Before we go further in this discourse, we shall define the terms bailout and grants. Grant-in-aid is defined as a sum of money given by a governmental agency to a person or institution for a specific purpose particularly federal funding for a state public program.[6] The Constitution provides grants for state by specifically stating that the federation may make grants to supplement the revenue of that state and subject to such terms and conditions as may be prescribed by the National Assembly.[7] The Constitution in the marginal note mentioned grant-in-aid[8]. Therefore, it is logical to conclude that grants to state and grant-in-aid to States are synonymous.[9] The American Constitution specifically mentioned grant-in-aid to states.[10]

 

In other words, for the state to qualify for the grant, the state need not be in debt. The grant can be made to state to carry out some specific infrastructural projects,[11] while a bailout is defined as a rescue of an entity usually a corporation or an industry from financial trouble.[12] A bailout is normally to help an entity from financial trouble, rather than for any specific project like grant-in-aid. It can be granted to states to assist in financial crisis. The term ‘bailout’ suited the situation of States in Nigeria before the grant but since Nigerian government is based on the Constitution,[13] it is better to use the Constitutional term in describing actions of government. It is better to locate any action of government within the Constitution and other organic laws, rather than using terminology that is not contemplated by the Constitution.

 

Nigeria government has made this error before. For instance, while the Constitution made use of the word ‘removal’ of President or Governor[14] from office, the courts and the general populace prefer to use the term impeachment[15]. Also, the Constitution made use of ‘pardon’ and ‘respite’ for convicted criminals, while the government preferred the use of the word ‘amnesty’ to describe the type of pardon granted to repentant militants of the Niger Delta of Nigeria.[16] Nigeria as a Constitutional democracy- should therefore rethink its use of appropriate phrases in accordance with the provisions of the Constitution instead of using words or terms that are outside the Constitution. Grants and bailout are not synonymous. Therefore, although our states needed bailout but our Constitution did not make provision for bailout but rather, only grants to states. According to Justice Niki Tobi:

 

“Before I proceed to analyse this section: I should take a matter by the way at large. It is the use if the word “impeachment”. The word is used freely and indiscriminately by the parties. The two courts below also used the expression freely, though not indiscriminately. Where do they get the word in section 188 of the Constitution, I ask? It is clear from the section I have stated above that there is no such word in the section, and there is no such word in the section. And so I ask once again, where do all counsel and the court get the word? Because I did not want to hide my ignorance (if he is an ignorance at all on the issue), I raised it during the hearing of the appeal. Mr. Ayanlaja graciously called my attention to section 191 of the Constitution where the word is used. That did not satisfy my query. The action was filed on the basis of section 188 and not on the basis of section 19(1) Section 191 (1) merely provides that the Deputy Governor of a State “shall hold the office of the Governor of the State if the office of Governor becomes vacant by reason of death, resignation impeachment, permanent incapacity or removal of the Governor from office…[17]

 

In view of the fact that the action was brought under the section 188, it is my view that the originating summons and all that follow by way of other court processes and proceedings should honestly and loyally follow the wording of section 188. This was not the position in the first relief and a number of other court processes. In the first relief, the plaintiffs/respondents claimed:

 

“A declaration that the purported Notice of Allegation of Misconduct made against His Excellency, Senator Rasheed Adewolu Ladoja, the Governor of Oyo State, as a preparatory step to his impeachment by the Defendants is unconstitutional, null and void, and of no effect whatsoever, having regard to the provisions of section 188(1) and (2) of the 1999 Constitution of the Federal Republic of Nigeria.”[18]

Section 188(1) and (2) does not provide for the word “impeachment”. The appropriate word is removal, although section 188(1) contains the verb “removal” in the circumstances, the first relief should have used the word “removal” in the place of “impeachment”. What is the meaning of impeachment? Black’s Law Dictionary defines the word as follows:

 

“A criminal proceeding against a public officer, before a quasi-political court, instituted by a written accusation called articles of impeachment; for example a written accusation of the House of Representatives of the United State to the Senate of the United State against the President, Vice President, or an officer of the United State, including Federal Judges.”[19]

 

This definition with a slant for the United States Constitution does not totally reflect the consent of section 188 of the Constitution, as it conveys an element of criminality. Section 188 is not so worded. The section covers both civil and criminal conduct. I am not saying that the definition vindicates the totality of the impeachment provisions of the United State Constitution but it is my view that the word should not be used as a substitute for the removal of provisions of the section 188 procedure one for the removal of Governor or Deputy Governor, not of impeachment.[20] Nigeria as a sovereign State should obey the law as it is and not resort to twisting the law as it ought to be.

 

Bailout or Grant from which Account?

 

A pertinent question to ask is: From what account should the Federal Government bring the grants to states? The answer to this question can be found in the Constitution. It is clear from the provisions of the Constitution that the federal government can only make grants to the states from its own account. This means the federal government from its own account after the federation account had been shared in accordance with the provisions of the Constitution.[21]

 

The federal government cannot make grant to any state from the federation account because the federation account belongs to the three tiers of government[22]. But when any money in that account has been shared, then the federal government can make a grant to any state from its own share of the federation account[23]. The federation account is the distributable pull account according to S162 of the Constitution. All tiers of government can also decide to create a reserve fund from which grants can be made to the States on demand, such as the excess crude oil account, which is separated before the rest is shared.

 

The National Assembly has a duty to pass the Appropriation Bill into law. The Appropriation Bill is the national budget which consists of income and expenditure of the federation and provision is made for the share of each state and local government in the budget. This share of the budget that belongs to the states and local governments is referred to as ‘monthly statutory allocation’ which states and local government rely heavily upon to the neglect of their internally generated revenue. The Constitution provides for this allocation in Section 162 (4).

 

Purpose of the Grant

 

Each state applying for federal grant must state the purpose for which the money will be applied. The state must apply the money for the purpose of the grant. If the grant was approved by the National Assembly, it sets the criteria for the use and conditions and terms which the state must comply with.[24] But since the executive have refused to take it to the National Assembly to approve, the NASS[25] is unable to effectively monitor the application of the grant to the states. This was why so many states are accusing their governors of misuse of the funds.

 

Is the Grant/Bailout a Loan, Assistance or Gift?

 

The grant or bailout is supposed to provide financial assistance to the state concerned, and not a loan.[26] A state has the right to apply for a loan from the Federal Government, and the Federal Government has the right to grant the loan or refuse to grant the loan. But the grant or bailout envisaged by Section 164(1) of the 1999 Constitution cannot be a loan but financial assistance to a state concerned. Therefore, the conversion of the grant to loan for states has not only compounded the problems of the state, but is also illegal. The bailout is now a burden instead of being a relief to the states.  This paper has argued that the grant envisaged by Section164 (1) of the Constitution is supposed to be a gift to the states, to help the states out of their financial crises.

 

Procedure for making Grants to States

 

The procedure for making federal grants to states in Nigeria is stated clearly in the Constitution. The Constitution states clearly that the NASS must approve any grant before it can be effective.[27] But in Nigeria, this procedure was breached because some argued that since the money has been appropriated in the budget as grant to state, it need not pass through the National Assembly again. Even newspaper reports show that the so-called bailout in Nigeria is extra budgetary,[28] which gives more reason as to why the National Assembly should be relevant in the exercise. An extra-ordinary expenditure is an expenditure that is outside the national budget as approved by the NASS. The Nigerian Constitution does not give room for extra-budgetary spending. This must either be a budget or supplementary budget.

While we are unable to support this argument because a sum may truly be set aside in the National budget as grants to states, it is speculative in the sense that no state can be pinned down for such a grant at the stage of budget approval. But within the year, when states begin to make requests to the Federal Government for financial assistance, the proposed grants by the executive should be presented to the National assembly for approval. These proposed grants will not only name the states concerned, but also name the amount granted and the purpose for which it is granted.[29] This will also enable the National Assembly to set up a Monitoring Committee to superintend over the prudent management of the grant. This is referred to as oversight function of the National Assembly over the fund, and due to the fund belonging to the Federal Government. This leads us to the next question:

 

Can the National Assembly Monitor the Grant?

 

This question is also important in view of the provisions of the Constitutions that stated the legislative jurisdiction of the National Assembly and States House of Assembly[30]. This question is also important because APC[31] Ekiti State alleged that the State Governor had misappropriated its bailout fund instead of using it for payment of salaries and allowances of workers[32]. Other States also alleged misappropriation of the fund and Citizens of the states called on the National Assembly instead of the States Houses of Assembly to probe the use of the money by the State Government[33].

To have a clear picture of the legislative limits of both the National Assembly and State Houses of Assembly, it is apt to relay the entire provisions of the constitutions on legislative powers of the Federation and the States in Nigeria.

 

 

 

 

 

 

Legislative Power of the Federal Republic of Nigeria

 

The Constitution provides that:

 

1)        The legislative powers of the Federal Republic of Nigeria shall be vested for the National Assembly for the Federation which shall consist of a Senate and a House of Representatives.[34]

2)        The National Assembly shall have powers to make laws for peace, order and good government of the Federation or any parts thereof with respect to any matter included in the Exclusive Legislative list set out in Part 1of the Second Schedule to this Constitution[35].

3)       The power of the National Assembly to make laws for the peace, order and good government of the Federation with respect to any matter included in the Exclusive Legislative List shall, save as otherwise provided in the Constitution, to be the conclusion to the Houses of Assembly[36].

4)       In addition and without prejudice to the powers conferred by subsection (2) of this section, the National Assembly shall have power to make laws with respect to the following matters, that is to say-[37]

a.       Any matter in the Concurrent Legislative List set out in the first column of Part II of the Second Schedule to this Constitution to the extent prescribed in the school column opposite thereto; and[38]

b.       Any other matter with respect to which it is empowered to make laws in accordance with the provisions of this Constitution.[39]

5)       If any law enacted by the House of Assembly of a State is inconsistent with any law validity made by the National Assembly, the law made by the National Assembly shall prevail, and that other law shall to the extent of the inconsistency be void.[40]

6)       The legislative powers of a State of the Federation shall be vested in the House of Assembly of the State.

7)       The House of Assembly of a State shall have power to make law for the peace, order and good government of the State or any part thereof with respect to the following matters, that is to say-[41]

a.       Any matter not inclined in the Exclusive Legislature List set out in Part I of the Second Schedule to this Constitution.[42]

b.       Any matter included in the Concurrent Legislative List set out in the first column of Part II of the Second Schedule to this Constitution to the extent prescribed in the second column opposite thereto; and[43]

c.        Any other matter with respect to which it is empowered to make laws in accordance with the provisions of this Constitution.[44]

8)       Save as otherwise provided by this Constitution, the exercise of legislative powers by the National Assembly or by a House of Assembly shall be subject to the jurisdiction of courts of law and of judicial tribunals established by law, and accordingly, the National Assembly or a House of Assembly should not enact any law, that ousts or purports to oust the jurisdiction of a court of law or of a judicial tribunal established by law.[45]

9)       Notwithstanding the foregoing provisions of this section, the National Assembly or a House of Assembly shall not, in relation to any criminal offence whatsoever, have power to make any law which shall have retrospective effect.[46]

 

 

How the Legislative Power is Exercised in Practice

 

In a federation, the national government is a government exercising limited or enumerated powers. Almost all the powers exercisable by the national and state governments are listed in the Constitution. The federal government has no power other than what is granted to it in the Constitution or that could be reasonably implied from the Constitution.[47] It is the state government that have the residue of power (residual power).[48] In theory, states are nearly as restricted in powers as is the national since the Constitution defines these powers. As could be gleaned from Section 4 of the Constitution, the National Assembly has its legislative powers spelled out clearly in Section 4(1), (2), (3) and (4) of the Constitution, while Section 4(5) asserts the supremacy of any law made by the National Assembly when there is any conflict between it and any law made by the House of Assembly of State.[49] This Section also resolved the issues of the doctrine of covering the field in legislation.

 

The legislative power of the State House of Assembly is defined by Section 4(6) and (7) while Section 4(8) subjects the laws made by either the National Assembly or State House of Assembly to judicial review by the courts, and Section 4(9) preclude the legislature from making retrospective criminal law. This has been extended to retrospective civil law by the Courts.25a On the general intendment of Section 4, the Supreme Court had ruled on the Superiority of the Federal government that:

 

“…a situation where the Chief Executive of the country or a federal functionary could be Subject to Sanction by a State House of Assembly or State Chief Executive or functionary could be subject to authority of National Assembly would offend not only against the spirit but the letters of the Constitution. Each of the States’ legislative Assemblies and the National Assembly is Sovereign in its own house neither interferes with the government of the others. This is the true basis of federalism; to be otherwise would lead to anarchy…”[50]

 

Looking closely at this Statement of the Supreme Court, it is the State House of Assembly that has power of oversight over the activities of the state government but where federal special grant is involved, it is logical for the National Assembly to be vested with power to oversee the prudent management of the grant especially if the grant was approved by National Assembly under Section 164(1). Yet, where the President by-passed the National Assembly in making the grant, the National Assembly has no business in overseeing the prudent management of the grant. The National Assembly has the power to query the action of the President however, as a violation of the Constitution. As such, we will now examine how American government handles a similar provision in its Constitution.

 

Grant In-Aid in America

 

In a paper of this nature, it is not out of place to compare the Nigerian Constitution with that of United States of America U.S. because both are operating federalism and presidential system of government. In the U.S., the federal government can and does make grants-in-aid to state governments whereby federal monies are spent under state supervision.[51] A modern development of federalism has been the emergence of grant-in-aid. A grant-in-aid is assistance, usually financial given to one political jurisdiction by another to be augmented and spent for a specified purpose.[52] Grants made by the federal government to states usually carry five conditions in America. These are (1) that the granted funds be used only for the stipulated activities (2) that the funds be supplemented by state funds as a marching basis (3) that the federal government maybe set standards and inspect results (4) that a separate administrative agency may set up to perform the activities and (5) that merit rather than politics, control the selection and management of the personnel to administer the grant.[53]

 

In America, the spending power of the National government is derived from section 8 of Article 1 of the constitution. The government may spend money on paying its debt, providing for the defence of the country and providing for the general welfare of the citizens and there are three constitutional restrictions on the spending power of the federal government, namely; (1) no money may be spent except on appropriation by the congress (2) a statement of receipts and expenditure must be published from time to time and (3) appropriation or the money may not extend for a longer period of two years.[54]

What is important about American grant-in-aid is that no money can be granted to any state by way of assistance without appropriation by the Congress.

 

This same principle should hold for Nigeria as section 164 (1) is not ambiguous but clear and simple[55].

Another important aspect of American federalism is that states are expected to grant aid to local government, just as the Constitution of Nigeria makes provision for states to give to local government parts of its internally generated revenue. But instead of this, states are grabbing and diverting local government revenue to their use in Nigeria thereby impoverishing the local governments whereas in America the federal government grants not less than $10 billion to states, while states grant not less than $30 billion to local government annually.[56]

 

Concluding Remarks

 

We have examined critically the grant or bailout to states by the federal government and observed that the financial assistance to states by the federal government was referred to as grants by the constitution therefore the use of the word bailout is abnormal. We also observed that the president who is the chief executive of the federation unilaterally disbursed the funds to the states without recourse to the National Assembly which amounted to violation of the Constitution[57]. We noted that the National Assembly that is supposed to protest the bypassing of the institution by the President made a faint protest, and this has caused the Executive to progress in its errors and the bypassing of the National Assembly in making the grant that has robbed the National Assembly of its power of oversight on the prudent management of the fund.

 

We equally observed that the grant that is supposed to be a gift or financial assistance to the states as contemplated by section 164 (1) is now turned to loans, thereby compounding the financial crises of the states instead of it serving as a relief to the states. We also contrasted the Nigerian situation with America and concluded that such grants in America normally pass through the Congress, and then Congress set conditions of grants and monitor the execution of any project that the grant is to be used to execute.

We also observed that ours is extra-budgetary grant or bailout in Nigeria.[58] The constitution does not contemplate extra-budgetary spending, which is why there exists provisions for supplementary budget in section 164 (1).

 

Recommendations

 

The Executive should always obey the Constitution by securing legislative approval for future grants to states. The intended grants to states within a year should be captured in the budget of that year, and even if the specific states and the amount granted is not stated in the budget, the subsequent approval by the National Assembly will contain the name of the states and the amount approved for those States. The National Assembly should also set the terms and conditions of the grant, and monitor the spending of the grant by ensuring that it is spent on the subject matter of the grant.

 

The National Assembly should ensure that there is no extra budgetary grant to states- any grant should either be captured by the annual budget or supplementary budget. The government should also ensure it uses the correct grant used by the Constitution, instead of bailout that is not used by the Constitution. The grant is not designated to be a loan but a gift for financial assistance to states.

 

 

 

 

 

References

 

Local cases

Alhaji Abdulkadir Balarabe Musa V Speaker, Kaduna House of Assembly 1982 (3) NCLR 450 Abaribe v Speaker Abia, House of Assembly 2003 1 CHR 225. See Complaint of Justice

Attorney General of Federation V Attorney General of Ogun State 1982 1-2 SC 13 at 115

INEC V Musa 2003 3 NWLR (part 806) 72

Niki Tobi in Adeleke v Inakoju 2000 (pt 353) p 1 at 80.

 

Nigerian Domestic Laws

1999 Constitution of FRN as amended.

 

Books

Black’s Law Dictionary 8th Edition Thompson West Publication USA 2008 P 720.

 

Journal Articles

Najeem A. O. Ijaiya, Olufemi Abifarin and Oladoyin Awoyale Granting of Bailout Funds to State by the president of Nigeria: A Relief or a Burden Joseph Ayo Babalola University Law Journal vol3 No1 (2016) P90

O. Akaaka, Natural Gas Development in Nigeria: The Legal Perspectives Rivers State University of Science and Technology Law Journal vol 1 2003 p 198

Olufemi Abifarin, DavidF. Atidoga A Critical Analysis of the Scope and limit of legislative power of National Assembly and States Houses of Assembly in Nigeria Confluence Law Journal Vol 1 No 1(2006)

 

Internet and News Sources

Bailout funds: EFCC probes Fayose’s government over alleged diversion the nation onlineng.net>bailout-funds-EFCC accessed on 24-3-18

Bashir.A. Ramoni Constitutionality of Bailout funds for States and Alternative Remedy, The Guardian 26 January 2016 P47.

 

 

 



[1] Bashir.A. Ramoni Constitutionality of Bailout funds for States and Alternative Remedy, The Guardian 26 January 2016 P47 Najeem A. O. Ijaiya, Olufemi Abifarin and Oladoyin Awoyale Granting of Bailout Funds to State by the president of Nigeria: A Relief or a Burden Joseph Ayo Babalola University Law Journal vol3 No1 (2016) P90

[2] Ibid                                                                

[3] O. Akaaka, Natural Gas Development in Nigeria: The Legal Perspectives Rivers State University of Science and Technology Law Journal vol 1 2003 p 198

[4] Ibid

[5] Ibid

[6] Black’s Law Dictionary 8th Edition Thompson West Publication USA 2008 P 720

[7] Section 164 (1)

[8] Section 164 (1) Marginal note

[9] See marginal note to Section 164 (1) e.g federal granting in aid to State revenue

[10] Robert B. Possey American Government

[11] Ibid

[12] Black’s Law Dictionary P152

[13] Section 1(2) of the 1999 Constitution of FRN as amended.

[14] Section 143

[15] Section 188 of the Constitution

[16] Alhaji Abdulkadir Balarabe Musa V Speaker, Kaduna House of Assembly 1982 (3) NCLR 450 Abaribe v Speaker Abia, House of Assembly 2003 1 CHR 225. See Complaint of Justice

[17] Per Niki Tobi at 354

[18] Per Niki Tobi at 355

[19] Per Niki Tobi at 355

[20] Niki Tobi in Adeleke v Inakoju 2000 (pt 353) p 1 at 80, Contrary to Section 175 of the Constitution

[21] Section 162 (1)

[22] Section 162 (3)

[23] B.A. Ramoni Op Cit note 1

[24] Section 162 (1)

[25] National Assembly

[26] Najeem A.O. Ijaiya, Olufemi Abifarin and Oladoyin Awoyale Granting of Bailout to States by the president of Nigeria, A relief or burden Joseph Ayo Babalola University law Journal Vol 3 No 1 (2016 P90) see also Bashir A. Ramoni 26 January 2017 P 47.

[27] Section 164 (1)

[28] #1.75 trillion Extra-budgetary bailout for States The Guardian 5 may 2017 p 1

[29] Robert. B Posey op cit #1.75 trillion The Guardian 5 may 2017 p 1

[30] Section 4 (2) and Section 4 (7)

[31] All Progressive Congress

[32] Bailout funds: EFCC probes Fayose’s government over alleged diversion the nation onlineng.net>bailout-funds-EFCC accessed on 24-3-18

[33] You can’t probe how I spent bailout funds Fayose tells Senate http://www.premiumtimesng.com>news accessed on 24-3-18

[34] Section 4(1) of the 1999 Constitution of FRN as amended

[35] Section 4(2)

[36] Section 4(3)

[37] Section 4(4)

[38] Section 4(5)

[39] Section 4 (6)

[40] Section 4(7)

[41] Section 4 (7) (1)

[42] Section 4 (7) (a)

[43] Section 4 (7) (b)

[44] Section 4 (7) (c)

[45] Section 4 (8)

[46] Section 4 (9)

[47] Robert.B. possey op cit

[48] Section 4(7)(a), Olufemi Abifarin, DavidF. Atidoga A Critical Analysis of the Scope and limit of legislative power of National Assembly and States Houses of Assembly in Nigeria Confluence Law Journal Vol 1 No 1(2006) P11, Benjamin Ogwo Conflict in the legislature process in Nigeria: The Relevance of the Doctrine of Pith and Substance and Covering the field Confluence Law Journal vol 1 No 1 (2006)P 112

25a INEC V Musa 2003 3 NWLR (part 806) 72

[49] Sections 1 (1) and 4 (5)

[50] Attorney General of Federation V Attorney General of Ogun State 1982 1-2 SC 13 at 115

[51] R.B. Possey Op Cit

[52] Robert B. Possey op cit

[53] Ibid

[54] Ibid

[55] Sections 59, 80, 81, 82 and 83 on Control of Public funds

[56] R.B. Possey op cit

[57] Section 164 (1)

[58] #1.75 trillion Extra-budgetary bailouts for States The Guardian 5 may 2017 p 1