[LocGov] | [General Principle > Local Autonomy] 1

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Pimentel vs. Aguirre

(Aquilino) Pimentel Jr. vs. Hon. (Alexander) Aguirre (as Executive Secretary), Hon. (Emilia) Boncodin (Sec.
of Dept. of Budget and Management
[GR NO.132988] | [July 19, 2000] | [J. Panganiban]

DOCTRINE

The Constitution vests the President with the power of supervision, not control, over local
government units (LGUs). Such power enables him to see to it that LGUs and their officials execute
their tasks in accordance with law. While he may issue advisories and seek their cooperation in
solving economic difficulties, he cannot prevent them from performing their tasks and using available
resources to achieve their goals. He may not withhold or alter any authority or power given them by
the law. Thus, the withholding of a portion of internal revenue allotments legally due them cannot be
directed by administrative fiat.

FACTS
 This is a petition for certiorari and prohibition seeking:
o To annul Sec. 1 of the Admin. Order 372 – which requires LGUs to reduce their
expenditures by 25% of their authorized regular appropriations for non-personal services
o To enjoin respondents from implementing Sec. 4 of AO 372 – which withholds a portion of
their internal revenue allotments
 Nov. 17, 1998  Roberto Pagdanganan (through Counsel Alberto Agra) filed a Motion for
Intervention/Motion to Admit Petition for Intervention (attaching Petition in Intervention).
o Pagdanganan was then Bulacan provincial governor, League of Provinces of the
Philippines national president, and League of Local Governments chairman.
o The Motion-Petition was noted by the SC.

 Dec. 27, 1997  President Ramos issued AO 372*

 Dec. 10, 1998  President Estrada issued AO 43 (amending Sec. 4 of AO 372) – by reducing to 5%
the amount of internal revenue allotment (IRA) to be withheld from the LGUs.
 Petitioner’s Argument  the President, in issuing AO 372, was in effect exercising the
power of “control” over the LGUs.
o The Constitution vests in the President, however, only the power of general supervision
over LGUs, consistent with the principle of local autonomy.
 Petitioner’s 2nd Argument  the directive to withhold ten percent (10%) of their IRA is in
contravention of:
o Section 286 of the Local Government Code*; AND
o Section 6, Article X of the Constitution*
providing for the automatic release to each of these units its share in the national
internal revenue.
 Solicitor General’s (Counter) Argument 
o AO 372 was issued to alleviate the "economic difficulties brought about by the peso
devaluation" and constituted merely an exercise of the President's power of supervision
over LGUs.
o It allegedly does not violate local fiscal autonomy, because it merely directs local
governments to identify measures that will reduce their total expenditures for non-
personal services by at least 25 percent.
 o Likewise, the withholding of 10 percent of the LGUs’ IRA does not violate the statutory
prohibition on the imposition of any lien or holdback on their revenue shares, because such
withholding is "temporary in nature pending the assessment and evaluation by the
Development Coordination Committee of the emerging fiscal situation."
 Submitted issues:
o WON the President committed grave abuse of discretion:
 in ordering all LGUs to adopt a 25% cost-reduction program – violating the LGUs’
fiscal autonomy
 in ordering the withholding of 10% of the LGUs’ internal revenue allotment (IRA)

ISSUE
1. WON the President validly exercised its power of general supervision over local
governments in the following:
a. Section 1 of AO 372, insofar as it "directs" LGUs to reduce their expenditures by 25
percent  YES
b. Section 4 of the same issuance, which withholds 10 percent of their internal revenue
allotments  NO

2. WON petitioner had the locus standi to bring this suit, despite respondents' failure to raise the
issue  MOOT by intervention of Pagdanganan

RATIO
1. SC’s Discussion of Concepts:

Scope of President’s Power of Supervision over LGUs

- Art. X, Sec. 4* of the Constitution has been interpreted to exclude the power of control.
- Mondano vs. Silva  the two terms -- supervision and control -- differed in meaning and
extent.
o In administrative law, supervision means overseeing or the power or authority of
an officer to see that subordinate officers perform their duties. If the latter fail or
neglect to fulfill them, the former may take such action or step as prescribed by
law to make them perform their duties.
o Control, on the other hand, means the power of an officer to alter or modify or
nullify or set aside what a subordinate officer has done in the performance of his
duties and to substitute the judgment of the former for that of the latter.
- Taule vs. Santos  Supervisory power, when contrasted with control, is the power of mere
oversight over an inferior body; it does not include any restraining authority over such body
o The Chief Executive wielded no more authority than that of checking whether local
governments or their officials were performing their duties as provided by the
fundamental law and by statutes.
o He cannot interfere with local governments, so long as they act within the scope of their
authority.
- Drilon vs. Lim  the difference between control and supervision was further delineated
o Officers in control lay down the rules in the performance or accomplishment of an act.
 If these rules are not followed, they may, in their discretion, order the act undone
or redone by their subordinates or even decide to do it themselves.
o On the other hand, supervision does not cover such authority. Supervising officials
merely see to it that the rules are followed, but they themselves do not lay down such
rules, nor do they have the discretion to modify or replace them.
 If the rules are not observed, they may order the work done or redone, but only
to conform to such rules. They may not prescribe their own manner of execution
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of the act. They have no discretion on this matter except to see to it that the rules
are followed.
- Under our present system of government, executive power is vested in the President. The
members of the Cabinet and other executive officials are merely alter egos. As such, they are
subject to the power of control of the President, at whose will and behest they can be removed
from office; or their actions and decisions changed, suspended or reversed
- In contrast, the heads of political subdivisions are elected by the people. Their sovereign
powers emanate from the electorate, to whom they are directly accountable.
o By constitutional fiat, they are subject to the President’s supervision only, not
control, so long as their acts are exercised within the sphere of their legitimate
powers.
o By the same token, the President may not withhold or alter any authority or power
given them by the Constitution and the law.

Extent of Local Governments’ Autonomy

- Hand in hand with the constitutional restraint on the President's power over local
governments is the state policy of ensuring local autonomy
o Ganzon vs. CA  local autonomy signified "a more responsive and accountable local
government structure instituted through a system of decentralization."
o The grant of autonomy is intended to "break up the monopoly of the national
government over the affairs of local governments, not to end the relation of partnership
and interdependence between the central administration and local government units
o Paradoxically, local governments are still subject to regulation, however limited,
for the purpose of enhancing self-government.
- Decentralization simply means the devolution of national administration, not power, to
local governments.
o Local officials remain accountable to the central government as the law may provide.
- Limbona vs. Mangelin – explains the difference between decentralization of administration
and of power.
o There is decentralization of administration when the central government delegates
administrative powers to political subdivisions in order to broaden the base of
government power and in the process to make local governments 'more responsive and
accountable,' and 'ensure their fullest development as self-reliant communities and
make them more effective partners in the pursuit of national development and social
progress.'
 At the same time, it relieves the central government of the burden of managing
local affairs and enables it to concentrate on national concerns.
 The President exercises 'general supervision' over them, but only to 'ensure that
local affairs are administered according to law.’ He has no control over their acts
in the sense that he can substitute their judgments with his own.
o Decentralization of power, on the other hand, involves an abdication of political
power in the favor of local government units declared to be autonomous.
 In that case, the autonomous government is free to chart its own destiny and
shape its future with minimum intervention from central authorities.
 According to a constitutional author, decentralization of power amounts to 'self-
immolation,' since in that event, the autonomous government becomes
accountable not to the central authorities but to its constituency.
 Footnote: Citing Bernas, "Brewing storm over autonomy," The Manila Chronicle, pp. 4-5
- Under the Philippine concept of local autonomy, the national government has not completely
relinquished all its powers over local governments, including autonomous regions. Only
administrative powers over local affairs are delegated to political subdivisions.
o The purpose of the delegation is to make governance more directly responsive and
effective at the local levels.
o But to enable the country to develop as a whole, the programs and policies effected
locally must be integrated and coordinated towards a common national goal. Thus,
policy-setting for the entire country still lies in the President and Congress
o Magtajas vs. Pryce  municipal governments are still agents of the national government

Nature of AO 237

- As its preambular clauses declare, the Order was a "cash management measure" adopted by
the government "to match expenditures with available resources," which were presumably
depleted at the time due to "economic difficulties brought about by the peso depreciation."
o Because of a looming financial crisis, the President deemed it necessary to "direct all
government agencies, state universities and colleges, government-owned and
controlled corporations as well as local governments to reduce their total expenditures
by at least 25 percent along suggested areas mentioned in AO 372.
- Under existing law, local government units, in addition to having administrative
autonomy in the exercise of their functions, enjoy fiscal autonomy as well.
- Fiscal autonomy means that local governments have the power to create their own sources of
revenue in addition to their equitable share in the national taxes released by the national
government, as well as the power to allocate their resources in accordance with their own
priorities.
o It extends to the preparation of their budgets, and local officials in turn have to work
within the constraints thereof. They are not formulated at the national level and
imposed on local governments, whether they are relevant to local needs and resources
or not.
o Hence, the necessity of a balancing of viewpoints and the harmonization of proposals
from both local and national officials, who in any case are partners in the attainment of
national goals.
- Local fiscal autonomy does not however rule out any manner of national government
intervention by way of supervision, in order to ensure that local programs, fiscal and
otherwise, are consistent with national goals.
o Significantly, the President, by constitutional fiat, is the head of the economic and
planning agency of the government, primarily responsible for formulating and
implementing continuing, coordinated and integrated social and economic policies,
plans and programs for the entire country.
o However, under the Constitution, the formulation and the implementation of such
policies and programs are subject to "consultations with the appropriate public
agencies, various private sectors, and local government units." The President cannot do
so unilaterally.

2. WON (a)  YES, because Sec. 1 is NOT mandatory but merely advisory – especially
because no legal sanction is imposed on LGUs who do NOT follow it.
a. Local Government Code, Sec. 284*
i. There are therefore several requisites before the President may interfere in
local fiscal matters:
(1) an unmanaged public sector deficit of the national government;
(2) consultations with the presiding officers of the Senate and the House of
Representatives and the presidents of the various local leagues; and
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(3) the corresponding recommendation of the secretaries of the Department of

Finance, Interior and Local Government, and Budget and Management.

Furthermore, any adjustment in the allotment shall in no case be less than thirty
percent (30%) of the collection of national internal revenue taxes of the third
fiscal year preceding the current one.
b. Petitioner’s Argument  respondents failed to comply with these requisites before
the issuance and the implementation of AO 372.
i. At the very least, they did NOT even try to show that the national government
was suffering from an unmanageable public sector deficit.
ii. Neither did they claim having conducted consultations with the different leagues
of local governments.
iii. Without these requisites, the President has no authority to adjust, much less to
reduce, unilaterally the LGU's internal revenue allotment.
c. Solicitor General  that AO 372 is merely directory and has been issued by the
President consistent with his power of supervision over local governments.
i. It is intended only to advise all government agencies and instrumentalities to
undertake cost-reduction measures that will help maintain economic stability in
the country, which is facing economic difficulties
ii. Besides, it does not contain any sanction in case of noncompliance.
iii. Being merely an advisory, therefore, Section 1 of AO 372 is well within the
powers of the President. Since it is not a mandatory imposition, the directive
cannot be characterized as an exercise of the power of control.
d. SC  While the wordings of Sec. 1 have a rather commanding tone, and while we agree
with petitioner that the requirements of Section 284 of the Local Government Code
have not been satisfied, we are prepared to accept the solicitor general's assurance
that the directive to "identify and implement measures that will reduce total
expenditures by at least 25% of authorized regular appropriation" is merely advisory
in character, and does not constitute a mandatory or binding order that interferes
with local autonomy.
i. The language used, while authoritative, does NOT amount to a command that
emanates from a boss to a subaltern.
ii. Rather, the provision is merely an advisory to prevail upon local executives to
recognize the need for fiscal restraint in a period of economic difficulty.
iii. It is understood, however, that no legal sanction may be imposed upon
LGUs and their officials who do not follow such advice. It is in this light that
we sustain the solicitor general's contention in regard to Section 1.

3. WON (b)  NO, because it violates the Constitution and the Local Government Code on
the release of internal revenue allotment.
a. A basic feature of local fiscal autonomy is the automatic release of the shares of LGUs
in the national internal revenue. This is mandated by no less than the Constitution.
i. LGC  the release shall be made directly to the LGU concerned within five (5)
days after every quarter of the year and "shall NOT be subject to any lien or
holdback that may be imposed by the national government for whatever
purpose."
b. Sec. 4, however, orders the withholding, effective January 1, 1998, of 10 percent of the
LGUs' IRA "pending the assessment and evaluation by the Development Budget
Coordinating Committee of the emerging fiscal situation" in the country.
 i. Such withholding clearly contravenes the Constitution and the law.
ii. Although temporary, it is equivalent to a holdback, which means "something
held back or withheld, often temporarily." Hence, the "temporary" nature of the
retention by the national government does not matter. Any retention is
prohibited.
c. Sec. 4 encroaches on the fiscal autonomy of local governments.

Refuting J. Kapunan’s Dissent

d. Kapunan’s Dissent:
i. (1) the Petition is premature;
1. when "the conduct has not yet occurred and the challenged construction
has not yet been adopted by the agency charged with administering the
administrative order, the determination of the scope and constitutionality
of the executive action in advance of its immediate adverse effect involves
too remote and abstract an inquiry for the proper exercise of judicial
function."
ii. (2) AO 372 falls within the powers of the President as chief fiscal officer; and
1. Section 4 of AO 372 conforms with the President's role as chief fiscal
officer, who allegedly "is clothed by law with certain powers to ensure the
observance of safeguards and auditing requirements, as well as the legal
prerequisites in the release and use of IRAs, taking into account the
constitutional and statutory mandates."
iii. (3) the withholding of the LGUs’ IRA is implied in the President's authority to
adjust it in case of an unmanageable public sector deficit.
1. There is a need for "interaction between the national government and the
LGUs at the planning level," in order to ensure that "local development
plans x x x hew to national policies and standards."
2. Section 287 of the LGC impliedly authorizes the President to withhold the
IRA of an LGU, pending its compliance with certain requirements.
e. SC’s Response:
i. On Prematurity  Be it remembered that the real issue here is whether the
Constitution and the law are contravened by Section 4 of AO 372, not whether
they are violated by the acts implementing it.
1. Tanada vs. Angara  when an act of the legislative department is
seriously alleged to have infringed the Constitution, settling the
controversy becomes the duty of this Court. By the mere enactment of the
questioned law or the approval of the challenged action, the dispute is
said to have ripened into a judicial controversy even without any other
overt act.
2. By the same token, when an act of the President, who in our constitutional
scheme is a coequal of Congress, is seriously alleged to have infringed the
Constitution and the laws, as in the present case, settling the dispute
becomes the duty and the responsibility of the courts.
3. Besides, the issue that the Petition is premature has not been raised by
the parties; hence it is deemed waived. Considerations of due process
really prevents its use against a party that has not been given sufficient
notice of its presentation, and thus has not been given the opportunity to
refute it
ii. Precisely, such powers referred to in the Dissent have specifically been
authorized by law and have not been challenged as violative of the Constitution.
On the other hand, Section 4 of AO 372, as explained earlier, contravenes explicit
provisions of the Local Government Code (LGC) and the Constitution.
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1. In other words, the acts alluded to in the Dissent are indeed authorized by
law; but, quite the opposite, Section 4 of AO 372 is bereft of any legal or
constitutional basis.
iii. The problem is that no such interaction or consultation was ever held prior to
the issuance of AO 372. Respondents do NOT deny lack of consultation.
1. It must be emphasized that in striking down Section 4 of AO 372, this
Court is not ruling out any form of reduction in the IRAs of LGUs. Indeed,
the President may make necessary adjustments in case of an
unmanageable public sector deficit in line with Section 284 of the LGC.
2. A cursory reading of Sec. 287* reveals that it is totally inapplicable to the
issue at bar. It directs LGUs to appropriate in their annual budgets 20
percent of their respective IRAs for development projects. It speaks of no
positive power granted the President to priorly withhold any amount.

DECISION
 Petition GRANTED.
 Respondents are permanently PROHIBITED from implementing AOs 372 and 43 insofar
as local government units are concerned.

SEPARATE OPINION

Dissenting [J. Kapunan]

 SEE Main Opinion’s Refutation of J. Kapunan’s Dissent

APPENDIX
DIGESTER’S NOTES / TABLES/ ILLUSTRATIONS

ADMINISTRATIVE ORDER NO. 372

ADOPTION OF ECONOMY MEASURES IN GOVERNMENT FOR FY 1998
WHEREAS, the current economic difficulties brought about by the peso depreciation requires
continued prudence in government fiscal management to maintain economic stability and sustain the
country's growth momentum;
WHEREAS, it is imperative that all government agencies adopt cash management measures to match
expenditures with available resources;
NOW, THEREFORE, I, FIDEL V. RAMOS, President of the Republic of the Philippines, by virtue of the
powers vested in me by the Constitution, do hereby order and direct:

SECTION 1. All government departments and agencies, including state universities and colleges,
government-owned and controlled corporations and local governments units will identify and
implement measures in FY 1998 that will reduce total expenditures for the year by at least 25% of
authorized regular appropriations for non-personal services items, along the following suggested
areas:

1. Continued implementation of the streamlining policy on organization and staffing by deferring

action on the following:
a. Operationalization of new agencies;
b. Expansion of organizational units and/or creation of positions;
c. Filling of positions; and
 d. Hiring of additional/new consultants, contractual and casual personnel, regardless of
funding source.
2. Suspension of the following activities:
a. Implementation of new capital/infrastructure projects, except those which have already
been contracted out;
b. Acquisition of new equipment and motor vehicles;
c. All foreign travels of government personnel, except those associated with scholarships and
trainings funded by grants;
d. Attendance in conferences abroad where the cost is charged to the government except those
clearly essential to Philippine commitments in the international field as may be determined by
the Cabinet;
e. Conduct of trainings/workshops/seminars, except those conducted by government training
institutions and agencies in the performance of their regular functions and those that are
funded by grants;
f. Conduct of cultural and social celebrations and sports activities, except those associated with
the Philippine Centennial celebration and those involving regular competitions/events;
g. Grant of honoraria, except in cases where it constitutes the only source of compensation
from government received by the person concerned;
h. Publications, media advertisements and related items, except those required by law or those
already being undertaken on a regular basis;
i. Grant of new/additional benefits to employees, except those expressly and specifically
authorized by law; and
j. Donations, contributions, grants and gifts, except those given by institutions to victims of
calamities.
3. Suspension of all tax expenditure subsidies to all GOCCs and LGUs
4. Reduction in the volume of consumption of fuel, water, office supplies, electricity and other utilities
5. Deferment of projects that are encountering significant implementation problems
6. Suspension of all realignment of funds and the use of savings and reserves

SECTION 2. Agencies are given the flexibility to identify the specific sources of cost-savings, provided
the 25% minimum savings under Section 1 is complied with.

SECTION 3. A report on the estimated savings generated from these measures shall be submitted to
the Office of the President, through the Department of Budget and Management, on a quarterly basis
using the attached format.

SECTION 4. Pending the assessment and evaluation by the Development Budget Coordinating Committee
of the emerging fiscal situation, the amount equivalent to 10% of the internal revenue allotment to local
government units shall be withheld.

SECTION 5. The Development Budget Coordination Committee shall conduct a monthly review of the
fiscal position of the National Government and if necessary, shall recommend to the President the
imposition of additional reserves or the lifting of previously imposed reserves.

SECTION 6. This Administrative Order shall take effect January 1, 1998 and shall remain valid for the
entire year unless otherwise lifted.

DONE in the City of Manila, this 27th day of December, in the year of our Lord, nineteen hundred and
ninety-seven."
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Local Government Code

Sec. 284. Allotment of Internal Revenue Taxes

xxx In the event the national government incurs an unmanaged public sector deficit, the President of
the Philippines is hereby authorized, upon the recommendation of the Secretary of Finance, Secretary
of the Interior and Local Government and Secretary of Budget and Management, and subject to
consultation with the presiding officers of both Houses of Congress and the presidents of the “liga”, to
make the necessary adjustments in the internal revenue allotment of local government units but in no
case shall the allotment be less than thirty percent (30%) of the collection of national internal revenue
taxes of the third fiscal year preceding the current fiscal year xxx

Section 286. Automatic Release of Shares. -

(a) The share of each local government unit shall be released, without need of any further action,
directly to the provincial, city, municipal or barangay treasurer, as the case may be, on a quarterly
basis within five (5) days after the end of each quarter, and which shall not be subject to any lien or
holdback that may be imposed by the national government for whatever purpose.

(b) Nothing in this Chapter shall be understood to diminish the share of local government units under
existing laws.

Section 287. Local Development Projects. - Each local government unit shall appropriate in its annual
budget no less than twenty percent (20%) of its annual internal revenue allotment for development
projects. Copies of the development plans of local government units shall be furnished the
Department of Interior and Local Government.

1987 Constitution

Sec. 4. The President of the Philippines shall exercise general supervision over local governments.

Sec. 6. Local government units shall have a just share, as determined by law, in the national taxes
which shall be automatically released to them.