Leonardo Alfradique Martins and André Araújo de Andrade

Budget funds are a classic way to individualize and link revenues for a given purpose. Its use dates back to the time of colonial Brazil and gained more traction with the increasing decentralization of public policies among national political actors (Union, states and municipalities).

These funds were designed to streamline management and secure public resources for purposes of national strategic interest, as Camillo de Moraes Bassi teaches in his study Special funds and public policies: a discussion on the weakening of the financing mechanism:

"Is of course, the funds were created to make the public machine more flexible by decentralising resources for pre-established purposes. In tow, the linked revenues emerged, understood as an 'antidote' to financial uncertainty, a guarantee of resources."

The funds became part of the Constitution of 1934, when the Education Fund was created, mandatory for states, municipalities and the Federal District and formed, according to the constitutional text, by the "leftover budget appropriations plus donations, percentages on the proceeds of public land sales, special fees and other financial resources".

In the period between 1934 and 1988, several funds were created for various purposes, such as the National Development Fund (1986), the School of Business Administration Fund (1971), the Central Medicines Fund (1973) and the Space Activities Fund (1985), among many others at the state and municipal levels.

The Federal Constitution of 1988 deals timidly with the theme, mentioning only the mandatory that the funds are included in the Annual Budget Law (LOA) and the impossibility of binding to tax revenues, as provided for in Articles 165, §4, and 167, IV, respectively.

In addition to these provisions, Article 36 of the current Federal Constitution imposed that all funds in force on the date of its promulgation should be ratified by the National Congress within two years, except those that held revenue stemming from tax exemptions that are part of private property and those of interest to national defense.

However, even with the express constitutional determination, the funds were maintained on the basis of Law No. 4,320/64, received as a complementary law, which regulates the financial and budgetary norms of the Union and other federal entities.

If well managed, with the effective application of the funds raised in their specific purposes, the funds bring encouraging results.

In a study conducted on the Poverty Eradication and Combat Fund in the state of Mato Grosso, the researchers found that "the results of previous research suggest that there is a relationship between the establishment of the Fund for Combating and Eradicating Poverty and the decrease in poverty indicators in the State."[1]

According to empirical data, however, budget funds no longer have the relevance of the old one.

Decree No. 93,872/86 modernized and streamlined the Brazilian financial system. The creation of the Single National Treasury Account, among other measures, also promoted a direct alignment between the origin and final destination of resources, drastically reducing the delay and bureaucracy for their arrival to their effective destinations.

Actually, the funds are no longer attractive for the management of public resources. As well presented by Camillo de Moraes Bassi, "innovations in public resource management" eventually "making funds expendable both to link revenues and to the accumulation of balances (financial surplus)".

In the study, Camillo de Moraes Bassi comments that "the dependence of the funds for a rapid management of direct administration (financial autonomy of the managing body), another motivation rooted in its use, has completely lost its meaning. In fact, it has become obsolete in the face of advances already commented on in financial management."

Moreover, the lack of transparency in management, the fragile control mechanisms, the little information available about the process of election of expenses to be incurred and the dubious application of resources in the purposes for which the funds were instituted (deviation of purpose), eventually made them outdated.

Added to this is the fact that there is no legal obligation on the need to spend all the resources accumulated in the same financial year of the collection, which causes a large part of the funds to accumulate considerable amounts that end up being passed on for other purposes.

There is also express authorization in the Fiscal Responsibility Law for the accumulation of balances in these budget funds and the use of such amounts in various years:

"Art. 8or Up to thirty days after the publication of the budgets, in accordance with the provisions of the budget guidelines and of art. 4 item Ior, the Executive Branch shall establish the financial programming and the schedule for the monthly implementation of disbursement.

Single paragraph. The resources legally linked to the specific purpose will be used exclusively to meet the object of their binding, even if in exercise different from the one in which the entry occurs."

Based on this legal tolerance, a practice that had already been taking place in the management of these funds was legitimized: not necessarily applying the funds raised in the purposes of strategic public interest for which they were instituted.

Or what has been seen is the frequent flexibilization of the laws of creation of funds to allow the accumulated amount to be allocated to the cost of other purposes, including the public machine, as Camillo de Moraes Bassi points out:

"(...) special funds are designed to streamline management and ensure public resources for specific areas/sectors, on the grounds that they are strategic to national interests. In this condition, it makes little (or no) sense for a special titled fund to perform personnel expenditure or compulsory expenditure unrelated to personnel, since these are associated with the cost of the 'public machine'."

The data collected by the researchers Sílvio da Costa Magalhães Filho, Luzinete da Silva Magalhães and Fernanda da Silva Rodrigues are included with this important note, which, although they were examining the FECP/MT, demonstrate that the use of funds for state costing ends up negatively interfering in the promotion of the purposes for which they were instituted:

"However, it is observed that from 2015 onto other links to the cost of the public machine and payment of debt becomes commonplace and the resources to be allocated to the Fund presents (sic) a significant reduction. Thus, in 2015, 25.68% of the total amount collected was allocated to cover the deficit of irradiated effects related to the untying of up to 30% of the funds collected for the payment of the State Public Debt (...).

In 2016, in addition to the links already mentioned, a portion was linked to the collection to be allocated to the payment of expenses with personnel of the Secretary of State for Labor and Social Assistance - ARROWS (...)."

This flexibility has also been carried out by the jurisprudence of the courts. There are decisions, for example, that exempt the constitutional imposition of a prior state supplementary law establishing the conditions for the institution and operation of the fund:

DIRECT ACTION OF UNCONSTITUTIONALITY - STATE LAW 2,826/03 - TAX AND EXTRA TAX INCENTIVES LAW - FINANCIAL CONTRIBUTION TO THE FTI - FORMAL UNCONSTITUTIONALITY - IMPROCEDENCE - MATERIAL UNCONSTITUTIONALITY - IMPROCEDÊNCIA - CONSTITUTIONALITY OF THE CONTESTED PROVISIONS. 1. Preliminary loss of the object received, to deem prejudiced the present direct action of unconstitutionality, in connection with Article 43, § 1, item III, Article 47, § 2, Article 45, Article 25, § 27, and Article 47, all of Law 2.826/03. 2. Regarding the claim of formal unconstitutionality, it is verified that the requirement of complementary law is met with the edition of the law 4.320/64, which provides for general rules on Financial Law, dealing generically with the institution of funds, and the specific law is responsible for establishing the rules on the institution of a given fund, having law 2.826/03, compatibility with the Brazilian legal system. 3. With regard to material unconstitutionality, the submission of the allegations is unproven, because the financial contribution questioned here does not fit the definition of tax, which is made by Article 3 of the National Tax Code and Article 9 of Law 4.320/1964. 4. Compulsoriety is essential to characterize the tax obligation, since the practice of fact provided for in a tax legal rule automatically and independently of the taxpayer's will, the duty of a cash benefit. 5. The financial contribution provided for in Article 19(XIII) (c) of the contested law is only a condition for a given company to benefit from the policy of tax incentives of the State of Amazonas. 6. Direct action of unconstitutionality partially extinguished, without resolution of merit and, at the other point, dismissed. (TJ-AM 00015708720108040000 AM 0001570-87.2010.8.04.0000, Rapporteur: Jorge Manoel Lopes Lins, Trial Date: 22/09/14, Full Court)[2]

However, even with the great problematization about the use of funds, what is currently seen is that "The Brazilian States have increasingly instituted funds aimed at their maintenance, costing and investment", as it comments Igor Bastos de Almeida Dias in your article The establishment of "state funds" as an alternative to collect revenue for public safety.


As an example, one can cite the recent debate in the Legislative Assembly of the State of Rio de Janeiro (Alerj) for the untying of revenues from state funds and alteration of the mandatory application of its resources, so that, if not applied to the end of the exercise of its collection, its destination is at the discretion of the governor of the state. This allows the funds raised to be applied to the salary payment of the servers.

There is light at the end of the tunnel when one sees in the Rio de Janeiro parliament itself initiatives to extinguish budget funds, precisely because of their obsolescence, as well placed in the explanaming of the Complementary Bill No. 18/20 for the extinction of one of the State funds:

"What many forget is that by ending revenue linkage does not mean that a particular body will no longer receive the funds, but that it should demonstrate that its expenses are more priority than others. Thus, the good practice recognized internationally through the budgetary principle of non-allocation of revenues (non-linking of resources), is that priorities should be discussed each year when drafting and discussing the budget law.

The most intriguing is to observe parliamentarians in favor of funds when the final word on any allocation of resources should be from the legislator of the present (not from the past). In this way, one of the practical consequences of the extinction of the funds is the strengthening of the role of the current parliament.

In addition, the existence of a fund is in advance allocating resources, in a fixed and continuous way, without knowing what future priorities will be.

In general, the legislation of the funds prevents the resources from being used for other purposes that are not related to the activities of the bodies that administer them. The Special Funds of the Powers (Assemblies and Chambers, Courts of Accounts, Public Prosecutor's Office) and others linked to organs (Attorney, Ombudsman,for example), that is, without ties to priority social areas such as safety, health, education and social assistance should be the first to be extinguished. This is an aberration under the moral context as well as contrary to good budgetary practices.

The extinction of these funds will allow the transfer of resources to the State Treasury considering the free cash balances at the end of 2019 of r$ 1.5 billion already deducted from existing financial obligations."

It is, therefore, more than the time to prevent the funds raised from being used deliberately for the general cost of the public machine to the detriment of the relevant social purposes for which they were instituted.

If there is repeated jurisprudence of the Supreme Court so that the service fees are to be paid to the state activity for which they were created, in the same way the commoner redirect of the collection of funds for the general cost of the public administration can be legitimized, under penalty of transforming the funds into a new source of funding for the fundry – a function that is typical of taxes.

A different scenario would be to allow the allocation of leftovers (surplus) of the collection of funds for the general cost of the fund, when it is proven that the specific purpose connected to this fund was fully met.


[1] FILHO, Sílvio da C.M., MAGALHÃES, Luzinete da S. and RODRIGUES, Fernanda da S. "Collection and Investments of the State Fund for Combating and Eradicating Poverty in the State of Mato Grosso: An investigation of the period 2013-2016". Anais of the 16th National Meeting of Researchers in Social Work, see 16 n. 1 (2018), ABEPSS.

[2] Quoted by Igor Bastos de Almeida Dias in his article The establishment of "state funds" as an alternative to collect revenue for public safety