Pimentel v. Aguirre

EN BANC
[G.R. No. 132988. July 19, 2000.]
AQUILINO Q. PIMENTEL, JR., petitioner, vs. Hon. ALEXANDER

AGUIRRE in his capacity as Executive Secretary, Hon.
EMILIA BONCODIN in her capacity as Secretary of the
Department of Budget and Management, respondents.
ROBERTO PAGDANGANAN, intervenor.
Pimentel Yusingco Pimentel & Garcia Law Offices for petitioner.

The Solicitor General for respondents.
Alberto C. Agra for intervenor.
SYNOPSIS
On December 27, 1997, the then President of the Philippines, Fidel V.

Ramos, issued Administrative Order (AO) 372. Subsequently, on December
10, 1998, President Joseph E. Estrada issued AO 43, amending Section 4 of
AO 372, by reducing to five percent (5%) the amount of internal revenue
allotment (IRA) to be withheld from local government units (LGUs.) In this
original petition for certiorari and prohibition before the Supreme Court,
petitioner seeks to annul Section 1 of AO 372, insofar as it requires LGUs to
reduce their expenditures by 25% of their authorized regular appropriations
for non-personal services; and to enjoin respondents from implementing
Section 4 of the Order, which withholds a portion of their internal revenue
allotments. In sum, the main issue involved here is whether Section 1 of EO
372 and Section 4 of the same issuance are valid exercises of the President's
power of general supervision over local governments.
The Supreme Court granted the petition. Respondents and their
successors were permanently prohibited from implementing AO 372 and AO
43 insofar as local government units were concerned. According to the Court,
Section 1 of AO 372, being merely an advisory, 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. Section 4 of AO 372,
however, ordered the withholding of 10% of the LGUs IRA "pending the
assessment and evaluation by the Development Budget Coordinating
Committee of the emerging fiscal situation" in the country. Such withholding
clearly contravened the Constitution and the law. The temporary nature of
the retention by the national government did not matter. Any retention is by
itself prohibited. In sum, the Court ruled that while Section 1 of AO 372 may
be upheld as an advisory, effected in times of national crisis, Section 4
thereof has no color of validity at all. The latter provision effectively
encroaches on the fiscal autonomy of local governments.
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SYLLABUS
1. POLITICAL LAW; EXECUTIVE DEPARTMENT; POWERS OF THE

PRESIDENT; EXERCISE OF GENERAL SUPERVISION OVER LOCAL
GOVERNMENTS; CONSTRUED. — Section 4 of Article X of the Constitution
confines the President's power over local governments to one of general
supervision. It reads as follows: "Sec. 4. The President of the Philippines shall
exercise general supervision over local governments. . . ." This provision has
been interpreted to exclude the power of control. In Taule v. Santos, (200
SCRA 512, August 12, 1991) the Court further stated that 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. He cannot interfere with local
governments, so long as they act within the scope of their authority.
"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," the Court said.
2. ID.; ID.; ID.; SUPERVISION AND CONTROL; DISTINGUISHED. — In
Mondano v. Silvosa, (97 Phil. 143, May 30, 1955; per Padilla, J.) the Court
contrasted the President's power of supervision over local government
officials with that of his power of control over executive officials of the
national government. It was emphasized that the two terms — supervision
and control — differed in meaning and extent. The Court distinguished them
as follows: ". . . 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.
Control, on the other hand, means the power of an officer to alter or modify
or nullify or set aside what a subordinate officer ha[s] done in the
performance of his duties and to substitute the judgment of the former for
that of the latter." In a more recent case, Drilon v. Lim , (235 SCRA 135, 142,
August 4, 1994) the difference between control and supervision was further
delineated. 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. 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 of the act. They have no
discretion on this matter except to see to it that the rules are followed.ETDHaC
3. ID.; ID.; ID.; POWER OF HEADS OF POLITICAL SUBDIVISIONS,

WHEN PROVIDED FOR BY CONSTITUTION AND LAW, MAY NOT BE WITHHELD
NOR ALTERED. — 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. 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. By the same token, the President may not
withhold or alter any authority or power given them by the Constitution and
the law.
4. ID.; LOCAL GOVERNMENTS; LOCAL AUTONOMY; CONSTRUED. —
Hand in hand with the constitutional restraint on the President's power over
local governments is the state policy of ensuring local autonomy. In Ganzon
v. Court of Appeals , (200 SCRA 271, 286, August 5, 1991, per Sarmiento, J.)
the Court said that local autonomy signified "a more responsive and
accountable local government structure instituted through a system of
decentralization." 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 . . . ." Paradoxically,
local governments are still subject to regulation, however limited, for the
purpose of enhancing self-government. 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. The purpose of the delegation is to make governance more
directly responsive and effective at the local levels. In turn, economic,
political and social development at the smaller political units are expected to
propel social and economic growth and development. 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.
As the Court stated in Magtajas v. Pryce Properties Corp., Inc., (234 SCRA
255, 272, July 20, 1994) municipal governments are still agents of the
national government.
5. ID.; ID.; ID.; DECENTRALIZATION OF ADMINISTRATION AND THAT
OF POWER; DISTINGUISHED. — Decentralization simply means the devolution
of national administration, not power, to local governments. Local officials
remain accountable to the central government as the law may provide. The
difference between decentralization of administration and that of power was
explained in detail in Limbona v. Mangelin (170 SCRA 786, 794–795,
February 28, 1989, per Sarmiento, J.) as follows: "Now, autonomy is either
decentralization of administration or decentralization of power. 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. 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."
6. ID.; ID.; FISCAL AUTONOMY; DEFINED AND CONSTRUED. — 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. 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. 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. 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. 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.
7. ID.; ID.; ID.; AUTOMATIC RELEASE OF LGUs IRA. — Section 4 of
AO 372 cannot, however, be upheld. 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. The Local
Government Code specifies further that 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." As a rule, the term "shall" is a
word of command that must be given a compulsory meaning. The provision
is, therefore, imperative. Section 4 of AO 372, 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.
Such withholding clearly contravenes the Constitution and the law. Although
temporary, it is equivalent to a holdbacks 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.
8. ID.; ID.; WHEN THE PRESIDENT MAY INTERFERE IN LOCAL FISCAL
MATTERS; REQUISITES. — Consequently, Section 284 of the Local
Government Code provides: ". . . [I]n 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 . . . ." 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 (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. EDATSI
KAPUNAN, J., dissenting opinion:

1. POLITICAL LAW; JUDICIARY; JUDICIAL INQUIRY; WHEN
DETERMINATION OF THE SCOPE AND CONSTITUTIONALITY OF AN EXECUTIVE
ACTION PREMATURE; CASE AT BAR. — Section 4 of AO No. 372 does not
present a case ripe for adjudication. The language of Section 4 does not
conclusively show that, on its face, the constitutional provision on the
automatic release of the IRA shares of the LGUs has been violated. Section
4, as worded, expresses the idea that the withholding is merely temporary
which fact alone would not merit an outright conclusion of its
unconstitutionality, especially in light of the reasonable presumption that
administrative agencies act in conformity with the law and the Constitution.
Where 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.
Petitioners have not shown that the alleged 5% IRA share of LGUs that was
temporarily withheld has not yet been released, or that the Department of
Budget and Management (DBM) has refused and continues to refuse its
release. In view thereof, the Court should not decide as this case suggests
an abstract proposition on constitutional issues.
2. ID., EXECUTIVE DEPARTMENT; PRESIDENT; AS CHIEF FISCAL
OFFICER; POWERS AND FUNCTIONS CONSTRUED. — The President is the
chief fiscal officer of the country. He is ultimately responsible for the
collection and distribution of public money: SECTION 3. Power and Functions.
— The Department of Budget and Management shall assist the President in
the preparation of a national resources and expenditures budget,
preparation, execution and control of the National Budget, preparation and
maintenance of accounting systems essential to the budgetary process,
achievement of more economy and efficiency in the management of
government operations, administration of compensation and position
classification systems, assessment of organizational effectiveness and
review and evaluation of legislative proposals having budgetary or
organizational implications. In a larger context, his role as chief fiscal officer
is directed towards "the nation's efforts at economic and social upliftment for
which more specific economic powers are delegated. Within statutory limits
the President can, thus, fix "tariff rates, import and export quotas, tonnage
and wharfage dues, and other duties or imposts within the framework of the
national development program of the government," as he is also responsible
for enlisting the country in international economic agreements. More than
this, to achieve "economy and efficiency in the management of government
operations," the President is empowered to create appropriation reserves,
suspend expenditure appropriations, and institute cost reduction schemes.
As chief fiscal officer of the country, the President supervises fiscal
development in the local government units and ensures that laws are
faithfully executed. For this reason, he can set aside tax ordinances if he
finds them contrary to the Local Government Code. Ordinances cannot
contravene statutes and public policy as declared by the national
government. The goal of local economy is not to "end the relation of
partnership and interdependence between the central administration and
local government units," but to make local governments "more responsive
and accountable" [to] "ensure their fullest development as self-reliant
communities and make them more effective partners in the pursuit of
national development and social progress." The interaction between the
national government and the local government units is mandatory at the
planning level. Local development plans must thus hew to "national policies
and standards" as these are integrated into the regional development plans
for submission to the National Economic and Development Authority." Local
budget plans and goals must also be harmonized, as far as practicable, with
"national development goals and strategies in order to optimize the
utilization of resources and to avoid duplication in the use of fiscal and
physical resources." AHDTIE
3. ID.; ID.; ID.; ID.; ISSUANCE OF SECTION 4, ADMINISTRATIVE

ORDER (AO) No. 372 PROPER IN CONFORMITY THEREOF; JUSTIFICATION. —
Section 4 of AO No. 372 was issued in the exercise by the President not only
of his power of general supervision, but also in conformity with his role as
chief fiscal officer of the country in the discharge of which he 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.
However, the phrase "automatic release" of the LGUs' shares does not mean
that the release of the funds is mechanical, spontaneous, self-operating or
reflex. IRAs must first be determined, and the money for their payment
collected. In this regards, administrative documentations are also
undertaken to ascertain their availability, limits and extent. The phrase,
thus, should be used in the context of the whole budgetary process and in
relation to pertinent laws relating to audit and accounting requirements. In
the workings of the budget for the fiscal year, appropriations for
expenditures are supported by existing funds in the national coffers and by
proposals for revenue raising. The money, therefore, available for IRA
release may not be existing but merely inchoate, or a mere expectation. It is
not infrequent that the Executive Department's proposal for raising revenue
in the form of proposed legislation may not be passed by the legislature. As
such, the release of IRA should not mean release of absolute amounts based
merely on mathematical computations. There must be a prior determination
of what exact amount the local government units are actually entitled in light
of the economic factors which affect the fiscal situation in the country.
Foremost of these is where, due to an unmanageable public sector deficit,
the President may make the necessary adjustments in the IRA of LGUs.
Thus, as expressly provided in Article 284 of the Local Government Code: . .
. (I)n the event that the national government incurs an unmanageable public
sector deficit, the President of the Philippines is hereby authorized, upon the
recommendation of Secretary of Finance, Secretary of 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 . . . . Under the aforecited provision, if facts reveal that the economy
has sustained or will likely sustain such "unmanageable public sector
deficit." Then the LGUs cannot assert absolute right of entitlement to the full
amount of forty percent (40%) share in the IRA, because the President is
authorized to make an adjustment and to reduce the amount to not less than
thirty percent (30%). It is, therefore, impractical to immediately release the
full amount of the IRAs and subsequently require the local government units
to return at most ten percent (10%) once the President has ascertained that
there exists an unmanageable public sector deficit.
4. ID.; ID.; ID.; ID.; POWER TO MAKE NECESSARY ADJUSTMENTS IN
THE INTERNAL REVENUE ALLOTMENT (IRA) IN CASE OF AN UNMANAGEABLE
PUBLIC SECTOR DEFICIT IMPLIEDLY INCLUDES DISCRETION FOR
TEMPORARILY WITHHOLDING SUCH IRA; RATIONALE. — By necessary
implication, the power to make necessary adjustments (including reduction)
in the IRA in case of an unmanageable public sector deficit, includes the
discretion to withhold the IRAs temporarily until such time that the
determination of the actual fiscal situation is made. The test in determining
whether one power is necessarily included in a stated authority is: "The
exercise of a more absolute power necessarily includes the lesser power
especially where it is needed to make the first power effective." If the
discretion to suspend temporarily the release of the IRA pending such
examination is withheld from the President, his authority to make the
necessary IRA adjustments brought about by the unmanageable public
sector deficit would be emasculated in the midst of serious economic crisis.
In the situation conjured by the majority opinion, the money would already
have been gone even before it is determined that fiscal crisis is indeed
happening. The majority opinion overstates the requirement in Section 286
of the Local Government Code that the IRAs "shall not be subject to any lien
or holdback that may be imposed by the national government for whatever
purpose" as proof that no withholding of the release of the IRAs is allowed
albeit temporary in nature.
DECISION
PANGANIBAN, J : p
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. cdtai
The Case
Before us is an original Petition for Certiorari and Prohibition seeking
(1) to annul Section 1 of Administrative Order (AO) No. 372, insofar as it
requires local government units to reduce their expenditures by 25 percent
of their authorized regular appropriations for non-personal services; and (2)
to enjoin respondents from implementing Section 4 of the Order, which
withholds a portion of their internal revenue allotments.
On November 17, 1998, Roberto Pagdanganan, through Counsel
Alberto C. Agra, filed a Motion for Intervention/Motion to Admit Petition for
Intervention, 1 attaching thereto his Petition in Intervention 2 joining
petitioner in the reliefs sought. At the time, intervenor was the provincial
governor of Bulacan, national president of the League of Provinces of the
Philippines and chairman of the League of Leagues of Local Governments. In
a Resolution dated December 15, 1998, the Court noted said Motion and
Petition.
The Facts and the Arguments
On December 27, 1997, the President of the Philippines issued AO 372.
Its full text, with emphasis on the assailed provisions, is as follows:
"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."
Subsequently, on December 10, 1998, President Joseph E. Estrada
issued AO 43, amending Section 4 of AO 372, by reducing to five percent
(5%) the amount of internal revenue allotment (IRA) to be withheld from the
LGUs.
Petitioner contends that the President, in issuing AO 372, was in effect
exercising the power of control over LGUs. The Constitution vests in the
President, however, only the power of general supervision over LGUs,
consistent with the principle of local autonomy. Petitioner further argues that
the directive to withhold ten percent (10%) of their IRA is in contravention of
Section 286 of the Local Government Code and of Section 6, Article X of the
Constitution, providing for the automatic release to each of these units its
share in the national internal revenue.
The solicitor general, on behalf of the respondents, claims on the other
hand that 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. 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. 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."
The Issues
The Petition 3 submits the following issues for the Court's resolution:
"A. Whether or not the president committed grave abuse of
discretion [in] ordering all LGUS to adopt a 25% cost reduction
program in violation of the LGU[']S fiscal autonomy
B. Whether or not the president committed grave abuse of
discretion in ordering the withholding of 10% of the LGU[']S IRA"
In sum, the main issue is whether (a) Section 1 of AO 372, insofar as it
"directs" LGUs to reduce their expenditures by 25 percent; and (b) Section 4
of the same issuance, which withholds 10 percent of their internal revenue
allotments, are valid exercises of the President's power of general
supervision over local governments.
Additionally, the Court deliberated on the question whether petitioner
had the locus standi to bring this suit, despite respondents' failure to raise
the issue. 4 However, the intervention of Roberto Pagdanganan has rendered
academic any further discussion on this matter.
The Court's Ruling
The Petition is partly meritorious.
Main Issue:
Validity of AO 372
Insofar as LGUs Are Concerned
Before resolving the main issue, we deem it important and appropriate
to define certain crucial concepts: (1) the scope of the President's power of
general supervision over local governments and (2) the extent of the local
governments' autonomy.
Scope of President's Power of

Supervision Over LGUs
Section 4 of Article X of the Constitution confines the President's power

over local governments to one of general supervision. It reads as follows:
"SECTION 4. The President of the Philippines shall exercise
general supervision over local governments. . . ."
This provision has been interpreted to exclude the power of control. In
Mondano v. Silvosa, 5 the Court contrasted the President's power of
supervision over local government officials with that of his power of control
over executive officials of the national government. It was emphasized that
the two terms — supervision and control — differed in meaning and extent.
The Court distinguished them as follows:
". . . 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. Control, on the other hand, means the
power of an officer to alter or modify or nullify or set aside what a
subordinate officer ha[s] done in the performance of his duties and to
substitute the judgment of the former for that of the latter." 6
In Taule v. Santos , 7 we further stated that 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. He cannot interfere with local governments, so long as they
act within the scope of their authority. "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," 8 we said.
In a more recent case, Drilon v. Lim , 9 the difference between control
and supervision was further delineated. 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. 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 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. 10 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. 11 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.
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. 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 Autonomy
Hand in hand with the constitutional restraint on the President's power
over local governments is the state policy of ensuring local autonomy. 12 In
Ganzon v. Court of Appeals, 13 we said that local autonomy signified "a more
responsive and accountable local government structure instituted through a
system of decentralization." 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 . . ." Paradoxically, local governments are still subject to regulation,
however limited, for the purpose of enhancing self-government. 14
Decentralization simply means the devolution of national
administration, not power, to local governments. Local officials remain
accountable to the central government as the law may provide. 15 The
difference between decentralization of administration and that of power was
explained in detail in Limbona v. Mangelin 16 as follows:
"Now, autonomy is either decentralization of administration or
decentralization of power. 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,' 17 and 'ensure their fullest development
as self-reliant communities and make them more effective partners in
the pursuit of national development and social progress.' 18 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' 19 over them,
but only to 'ensure that local affairs are administered according to
law.' 20 He has no control over their acts in the sense that he can
substitute their judgments with his own. 21
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." 22
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. The purpose of the
delegation is to make governance more directly responsive and effective at
the local levels. In turn, economic, political and social development at the
smaller political units are expected to propel social and economic growth
and development. 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. As we stated in Magtajas v. Pryce
Properties Corp., Inc., municipal governments are still agents of the national
government. 23
The Nature of AO 372
Consistent with the foregoing jurisprudential precepts, let us now look
into the nature of AO 372. 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." 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.
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. Hence, the necessity of a balancing of
viewpoints and the harmonization of proposals from both local and national
officials, 24 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.
Significantly, the President, by constitutional fiat, is the head of the
economic and planning agency of the government, 25 primarily responsible
for formulating and implementing continuing, coordinated and integrated
social and economic policies, plans and programs 26 for the entire country.
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.
Consequently, the Local Government Code provides: 27
". . . [I]n 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 . . ."
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 (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.
Petitioner points out that respondents failed to comply with these
requisites before the issuance and the implementation of AO 372. At the
very least, they did not even try to show that the national government was
suffering from an unmanageable public sector deficit. Neither did they claim
having conducted consultations with the different leagues of local
governments. Without these requisites, the President has no authority to
adjust, much less to reduce, unilaterally the LGU's internal revenue
allotment.
The solicitor general insists, however, that AO 372 is merely directory
and has been issued by the President consistent with his power of
supervision over local governments. It is intended only to a d v i s e all
government agencies and instrumentalities to undertake cost-reduction
measures that will help maintain economic stability in the country, which is
facing economic difficulties. Besides, it does not contain any sanction in case
of noncompliance. 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.
While the wordings of Section 1 of AO 372 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. The language used, while authoritative, does
not amount to a command that emanates from a boss to a subaltern.
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. Indeed, all concerned would do well to heed the President's call to
unity, solidarity and teamwork to help alleviate the crisis. 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.
Withholding a Part
of LGUs' IRA
Section 4 of AO 372 cannot, however, be upheld. 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.
28 The Local Government Code 29 specifies further that 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." 30 As a rule, the
term "shall" is a word of command that must be given a compulsory
meaning. 31 The provision is, therefore, imperative. LLphil
Section 4 of AO 372, 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. Such withholding clearly
contravenes the Constitution and the law. Although temporary, it is
equivalent to a holdbacks which means "something held back or withheld,
often temporarily." 32 Hence, the "temporary" nature of the retention by the
national government does not matter. Any retention is prohibited.
In sum, while Section 1 of AO 372 may be upheld as an advisory
effected in times of national crisis, Section 4 thereof has no color of validity
at all. The latter provision effectively encroaches on the fiscal autonomy of
local governments. Concededly, the President was well-intentioned in issuing
his Order to withhold the LGUs' IRA, but the rule of law requires that even the
best intentions must be carried out within the parameters of the Constitution
and the law. Verily, laudable purposes must be carried out by legal methods.
Refutation of Justice Kapunan's Dissent
Mr. Justice Santiago M. Kapunan dissents from our Decision on the
grounds that, allegedly, (1) the Petition is premature; (2) AO 372 falls within
the powers of the President as chief fiscal officer; and (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.
First, on prematurity. According to the Dissent, 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."
This is a rather novel theory — that people should await the
implementing evil to befall on them before they can question acts that are
illegal or unconstitutional. 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. In the
unanimous en banc case Tañada v. Angara , 33 this Court held that 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. Indeed, even a singular violation of the
Constitution and/or the law is enough to awaken judicial duty. Said the Court:
"In seeking to nullify an act of the Philippine Senate on the
ground that it contravenes the Constitution, the petition no doubt
raises a justiciable controversy. Where an action of the legislative
branch is seriously alleged to have infringed the Constitution, it
becomes not only the right but in fact the duty of the judiciary to
settle the dispute. 'The question thus posed is judicial rather than
political. The duty (to adjudicate) remains to assure that the
supremacy of the Constitution is upheld.' 34 Once a 'controversy as to
the application or interpretation of a constitutional provision is raised
before this Court . . ., it becomes a legal issue which the Court is
bound by constitutional mandate to decide.' 35
xxx xxx xxx
"As this Court has repeatedly and firmly emphasized in many
cases, 36 it will not shirk, digress from or abandon its sacred duty and
authority to uphold the Constitution in matters that involve grave
abuse of discretion brought before it in appropriate cases, committed
by any officer, agency, instrumentality or department of the
government."
In the same vein, the Court also held in Tatad v. Secretary of the
Department of Energy: 37
". . . Judicial power includes not only the duty of the courts to
settle actual controversies involving rights which are legally
demandable and enforceable, but also the duty to determine whether
or not there has been grave abuse of discretion amounting to lack or
excess of jurisdiction on the part of any branch or instrumentality of
government. The courts, as guardians of the Constitution, have the
inherent authority to determine whether a statute enacted by the
legislature transcends the limit imposed by the fundamental law.
Where the statute violates the Constitution, it is not only the right but
the duty of the judiciary to declare such act unconstitutional and
void."
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.
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. 38
Second , on the President's power as chief fiscal officer of the country.
Justice Kapunan posits that 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
IRAs, taking into account the constitutional and statutory mandates." 39 He
cites instances when the President may lawfully intervene in the fiscal affairs
of LGUs.
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. 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.
Third, on the President's authority to adjust the IRA of LGUs in case of
an unmanageable public sector deficit. 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, as the President may make necessary
adjustments in case of an unmanageable public sector deficit, as stated in
the main part of this Decision, and in line with Section 284 of the LGC which
Justice Kapunan cites. He, however, merely glances over a specific
requirement in the same provision — that such reduction is subject to
consultation with the presiding officers of both Houses of Congress and,
more importantly, with the presidents of the leagues of local governments.
Notably, Justice Kapunan recognizes the need for "interaction between
the national government and the LGUs at the planning level," in order to
ensure that "local development plans . . . hew to national policies and
standards." The problem is that no such interaction or consultation was ever
held prior to the issuance of AO 372. This is why the petitioner and the
intervenor (who was a provincial governor and at the same time president of
the League of Provinces of the Philippines and chairman of the League of
Leagues of Local Governments) have protested and instituted this action.
Significantly, respondents do not deny the lack of consultation.
In addition, Justice Kapunan cites Section 287 40 of the LGC as
impliedly authorizing the President to withhold the IRA of an LGU, pending its
compliance with certain requirements. Even a cursory reading of the
provision 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. Not at all.
WHEREFORE, the Petition is GRANTED. Respondents and their
successors are hereby permanently PROHIBITED from implementing
Administrative Order Nos. 372 and 43, respectively dated December 27,
1997 and December 10, 1998, insofar as local government units are
concerned.
SO ORDERED.
Davide, Jr., C.J., Bellosillo, Melo, Puno, Vitug, Mendoza, Quisumbing,
Pardo, Buena, Gonzaga-Reyes and De Leon, Jr., JJ., concur.
Kapunan, J., see dissenting opinion.
Purisima and Ynares-Santiago, JJ., join J. Kapunan in his dissenting
opinion.
Separate Opinions
KAPUNAN, J ., dissenting:
In striking down as unconstitutional and illegal Section 4 of

Administrative Order No. 372 ("AO No. 372"), the majority opinion posits that
the President exercised power of control over the Local Government Units
("LGUs"), which he does not have, and violated the provisions of Section 6,
Article X of the Constitution, which states:
SECTION 6. Local government units shall have a just share,
as determined by law, in the national taxes which shall be
automatically released to them.
and Section 286(a) of the Local Government Code, which provides:
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.
The share of the LGUs in the national internal revenue taxes is defined
in Section 284 of the same Local Government Code, to wit:
SECTION 284. Allotment of Internal Revenue Taxes. — Local
government units shall have a share in the national internal revenue
taxes based on the collection of the third fiscal year preceding the
current fiscal year as follows:
(a) On the first year of the effectivity of this Code, thirty
percent (30%);
(b) On the second year, thirty-five (35%) percent; and
(c) On the third year and thereafter, forty percent (40%).
Provided, That in the event that the national government incurs
an unmanageable public sector deficit, the President of the
Philippines is hereby authorized, upon the recommendation of
Secretary of Finance, Secretary of 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: Provided, further, That in the first year of the
effectivity of this Code, the local government units shall, in addition to
the thirty percent (30%) internal revenue allotment which shall
include the cost of devolved functions for essential public services, be
entitled to receive the amount equivalent to the cost of devolved
personal services.
xxx xxx xxx
The majority opinion takes the view that the withholding of ten percent
(10%) of the internal revenue allotment ("IRA") to the LGUs pending the
assessment and evaluation by the Development Budget Coordinating
Committee of the emerging fiscal situation as called for in Section 4 of AO
No. 372 transgresses against the above-quoted provisions which mandate
the "automatic" release of the shares of the LGUs in the national internal
revenue in consonance with local fiscal autonomy. The pertinent portions of
AO No. 372 are reproduced hereunder:
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 . . . local government units will identify and implement
measures in FY 1998 that will reduce total appropriations for non-
personal services items, along the following suggested areas:
xxx xxx xxx
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.
xxx xxx xxx
Subsequently, on December 10, 1998, President Joseph E. Estrada
issued Administrative Order No. 43 ("AO No. 43"), amending Section 4 of AO
No. 372, by reducing to five percent (5%) the IRA to be withheld from the
LGUs, thus:
ADMINISTRATIVE ORDER NO. 43
AMENDING ADMINISTRATIVE ORDER NO. 372 DATED 27
DECEMBER 1997 ENTITLED "ADOPTION OF ECONOMY MEASURES
IN GOVERNMENT FOR FY 1998"
WHEREAS, Administrative Order No. 372 dated 27 December
1997 entitled "Adoption of Economy Measures in Government for
FY 1998" was issued to address the economic difficulties brought
about by the peso devaluation in 1997;
WHEREAS, Section 4 of Administrative Order No. 372 provided
that the amount equivalent to 10% of the internal revenue allotment
to local government units shall be withheld; and,
WHEREAS, there is a need to release additional funds to local
government units for vital projects and expenditures.
NOW, THEREFORE, I, JOSEPH EJERCITO ESTRADA, President of
the Republic of the Philippines, by virtue of the powers vested in me
by law, do hereby order the reduction of the withheld Internal
Revenue Allotment (IRA) of local government units from ten percent
to five percent.
The five percent reduction in the IRA withheld for 1998 shall be
released before 25 December 1998.
DONE in the City of Manila, this 10th day of December, in the
year of our Lord, nineteen hundred and ninety eight.
With all due respect, I beg to disagree with the majority opinion.
Section 4 of AO No. 372 does not present a case ripe for adjudication.
The language of Section 4 does not conclusively show that, on its face, the
constitutional provision on the automatic release of the IRA shares of the
LGUs has been violated. Section 4, as worded, expresses the idea that the
withholding is merely temporary which fact alone would not merit an
outright conclusion of its unconstitutionality, especially in light of the
reasonable presumption that administrative agencies act in conformity with
the law and the Constitution. Where 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. Petitioners have not shown that the
alleged 5% IRA share of LGUs that was temporarily withheld has not yet
been released, or that the Department of Budget and Management (DBM)
has refused and continues to refuse its release. In view thereof, the Court
should not decide as this case suggests an abstract proposition on
constitutional issues.
The President is the chief fiscal officer of the country. He is ultimately
responsible for the collection and distribution of public money:
SECTION 3. Powers and Functions . — The Department of
Budget and Management shall assist the President in the preparation
of a national resources and expenditures budget, preparation,
execution and control of the National Budget, preparation and
maintenance of accounting systems essential to the budgetary
process, achievement of more economy and efficiency in the
management of government operations, administration of
compensation and position classification systems, assessment of
organizational effectiveness and review and evaluation of legislative
proposals having budgetary or organizational implications. 1
In a larger context, his role as chief fiscal officer is directed towards "the
nation's efforts at economic and social upliftment 2 for which more specific
economic powers are delegated. Within statutory limits, the President can,
thus, fix "tariff rates, import and export quotas, tonnage and wharfage dues,
and other duties or imposts within the framework of the national
development program of the government," 3 as he is also responsible for
enlisting the country in international economic agreements. 4 More than this,
to achieve "economy and efficiency in the management of government
operations," the President is empowered to create appropriation reserves, 5
suspend expenditure appropriations, 6 and institute cost reduction schemes.
7
As chief fiscal officer of the country, the President supervises fiscal

development in the local government units and ensures that laws are
faithfully executed. 8 For this reason, he can set aside tax ordinances if he
finds them contrary to the Local Government Code. 9 Ordinances cannot
contravene statutes and public policy as declared by the national
government. 10 The goal of local economy is not to "end the relation of
partnership and inter-dependence between the central administration and
local government units," 11 but to make local governments "more responsive
and accountable" [to] "ensure their fullest development as self-reliant
communities and make them more effective partners in the pursuit of
national development and social progress." 12
The interaction between the national government and the local
government units is mandatory at the planning level. Local development
plans must thus hew to "national policies and standards" 13 as these are
integrated into the regional development plans for submission to the
National Economic and Development Authority." 14 Local budget plans and
goals must also be harmonized, as far as practicable, with "national
development goals and strategies in order to optimize the utilization of
resources and to avoid duplication in the use of fiscal and physical
resources." 15
Section 4 of AO No. 372 was issued in the exercise by the President not
only of his power of general supervision, but also in conformity with his role
as chief fiscal officer of the country in the discharge of which he is clothed by
law with certain powers to ensure the observance of safeguards and auditing
IRAs, taking into account the constitutional 16 and statutory 17 mandates.
However, the phrase "automatic release" of the LGUs' shares does not
mean that the release of the funds is mechanical, spontaneous, self-
operating or reflex. IRAs must first be determined, and the money for their
payment collected. 18 In this regard, administrative documentations are also
undertaken to ascertain their availability, limits and extent. The phrase,
thus, should be used in the context of the whole budgetary process and in
relation to pertinent laws relating to audit and accounting requirements. In
the workings of the budget for the fiscal year, appropriations for
expenditures are supported by existing funds in the national coffers and by
proposals for revenue raising. The money, therefore, available for IRA
release may not be existing but merely inchoate, or a mere expectation. It is
not infrequent that the Executive Department's proposals for raising
revenue in the form of proposed legislation may not be passed by the
legislature. As such, the release of IRA should not mean release of absolute
amounts based merely on mathematical computations. There must be a
prior determination of what exact amount the local government units are
actually entitled in light of the economic factors which affect the fiscal
situation in the country. Foremost of these is where, due to an
unmanageable public sector deficit, the President may make the necessary
adjustments in the IRA of LGUs. Thus, as expressly provided in Article 284 of
the Local Government Code:
. . . (I)n the event that the national government incurs an
unmanageable public sector deficit, the President of the Philippines is
hereby authorized, upon the recommendation of Secretary of
Finance, Secretary of 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
....
Under the aforecited provision, if facts reveal that the economy has
sustained or will likely sustain such "unmanageable public sector deficit,"
then the LGUs cannot assert absolute right of entitlement to the full amount
of forty percent (40%) share in the IRA, because the President is authorized
to make an adjustment and to reduce the amount to not less than thirty
percent (30%). It is, therefore, impractical to immediately release the full
amount of the IRAs and subsequently require the local government units to
return at most ten percent (10%) once the President has ascertained that
there exists an unmanageable public sector deficit.
By necessary implication, the power to make necessary adjustments
(including reduction) in the IRA in case of an unmanageable public sector
deficit, includes the discretion to withhold the IRAs temporarily until such
time that the determination of the actual fiscal situation is made. The test in
determining whether one power is necessarily included in a stated authority
is: "The exercise of a more absolute power necessarily includes the lesser
power especially where it is needed to make the first power effective." 19 If
the discretion to suspend temporarily the release of the IRA pending such
examination is withheld from the President, his authority to make the
necessary IRA adjustments brought about by the unmanageable public
sector deficit would be emasculated in the midst of serious economic crisis.
In the situation conjured by the majority opinion, the money would already
have been gone even before it is determined that fiscal crisis is indeed
happening.
The majority opinion overstates the requirement in Section 286 of the
Local Government Code that the IRAs "shall not be subject to any lien or
holdback that may be imposed by the national government for whatever
purpose" as proof that no withholding of the release of the IRAs is allowed
albeit temporary in nature.
It is worthy to note that this provision does not appear in the
Constitution. Section 6, Art X of the Constitution merely directs that LGUs
"shall have a just share" in the national taxes "as determined by law" and
which share "shall be automatically released to them." This means that
before the LGUs' share is released, there should be first a determination,
which requires a process, of what is the correct amount as dictated by
existing laws. For one, the Implementing Rules of the
Local Government Code allows deductions from the IRAs, to wit:
Article 384. Automatic Release of IRA Shares of LGUs:
xxx xxx xxx
(c) The IRA share of LGUs shall not be subject to any lien or
hold back that may be imposed by the National Government for
whatever purpose unless otherwise provided in the Code or other
applicable laws and loan contract on project agreements arising from
foreign loans and international commitments, such as premium
contributions of LGUs to the Government Service Insurance System
and loans contracted by LGUs under foreign-assisted projects.
Apart from the above, other mandatory deductions are made from the
IRAs prior to their release, such as: (1) total actual cost of devolution and the
cost of city-funded hospitals; 20 and (2) compulsory contributions 21 and
other remittances. 22 It follows, therefore, that the President can withhold
portions of IRAs in order to set-off or compensate legitimately incurred
obligations and remittances of LGUs.
Significantly, Section 286 of the Local Government Code does not
make mention of the exact amount that should be automatically released to
the LGUs. The provision does not mandate that the entire 40% share
mentioned in Section 284 shall be released. It merely provides that the
"share" of each LGU shall be released and which "shall not be subject to any
lien or holdback that may be imposed by the national government for
whatever purpose." The provision on automatic release of IRA share should,
thus, be read together with Section 284, including the proviso on adjustment
or reduction of IRAs, as well as other relevant laws. It may happen that the
share of the LGUs may amount to the full forty percent (40%) or the reduced
amount of thirty percent (30%) as adjusted without any law being violated.
In other words, all that Section 286 requires is the automatic release of the
amount that the LGUs are rightfully and legally entitled to, which, as the
same section provides, should not be less than thirty percent (30%) of the
collection of the national revenue taxes. So that even if five percent (5%) or
ten percent (10%) is either temporarily or permanently withheld, but the
minimum of thirty percent (30%) allotment for the LGUs is released pursuant
to the President's authority to make the necessary adjustment in the LGUs'
share, there is still full compliance with the requirements of the automatic
release of the LGUs' share.
Finally, the majority insists that the withholding of ten percent (10%) or
five percent (5%) of the IRAs could not have been done pursuant to the
power of the President to adjust or reduce such shares under Section 284 of
the Local Government Code because there was no showing of an
unmanageable public sector deficit by the national government, nor was
there evidence that consultations with the presiding officers of both Houses
of Congress and the presidents of the various leagues had taken place and
the corresponding recommendations of the Secretary of Finance, Secretary
of Interior and Local Government and the Budget Secretary were made. llcd
I beg to differ. The power to determine whether there is an

unmanageable public sector deficit is lodged in the President. The
President's determination, as fiscal manager of the country, of the existence
of economic difficulties which could amount to "unmanageable public sector
deficit" should be accorded respect. In fact, the withholding of the ten
percent (10%) of the LGUs' share was further justified by the current
economic difficulties brought about by the peso depreciation as shown by
one of the "WHEREASES" of AO No. 372. 23 In the absence of any showing to
the contrary, it is presumed that the President had made prior consultations
with the officials thus mentioned and had acted upon the recommendations
of the Secretaries of Finance, Interior and Local Government and Budget. 24
Therefore, even assuming hypothetically that there was effectively a
deduction of five percent (5%) of the LGUs' share, which was in accordance
with the President's prerogative in view of the pronouncement of the
existence of an unmanageable public sector deficit, the deduction would still
be valid in the absence of any proof that the LGUs' allotment was less than
the thirty percent (30%) limit provided for in Section 284 of the
Local Government Code.
In resumé, the withholding of the amount equivalent to five percent
(5%) of the IRA to the LGUs was temporary pending determination by the
Executive of the actual share which the LGUs are rightfully entitled to on the
basis of the applicable laws, particularly Section 284 of the Local
Government Code, authorizing the President to make the necessary
adjustments in the IRA of LGUs in the event of an unmanageable public
sector deficit. And assuming that the said five percent (5%) of the IRA
pertaining to the 1998 Fiscal Year has been permanently withheld, there is
no showing that the amount actually released to the LGUs that same year
was less than thirty percent (30%) of the national internal revenue taxes
collected, without even considering the proper deductions allowed by law.

WHEREFORE, I vote to DISMISS the petition. cdtai
Footnotes
1. Rollo , pp. 48-55.
2. Ibid., pp. 56-75.
3. This case was deemed submitted for decision on September 27, 1999, upon
receipt by this Court of respondents' 10-page Memorandum, which was
signed by Asst. Sol. Gen. Mariano M. Martinez and Sol. Ofelia B. Cajigal.
Petitioner's Memorandum was filed earlier, on September 21, 1999.
Intervenor failed, despite due notice, to submit a memorandum within the
allotted time; thus, he is deemed to have waived the filing of one.
4. Issues of mootness and locus standi were not raised by the respondents.
However, the intervention of Roberto Pagdanganan, as explained in the main
text, has stopped and further discussion of petitioner's standing. On the
other hand, by the failure of respondents to raise mootness as an issue, the
Court thus understands that the main issue is still justiciable. In any case,
respondents are deemed to have waived this defense or, at the very least, to
have submitted the Petition for resolution on the merits, for the future
guidance of the government, the bench and the bar.
5. 97 Phil. 143, May 30, 1955; per Padilla, J.

6. Ibid., pp. 147-148. Reiterated in Ganzon v. Kayanan , 104 Phil. 484 (1985);
Ganzon v. Court of Appeals , 200 SCRA 271, August 5, 1991; Taule v. Santos ,
200 SCRA 512, August 12, 1991.
7. Ibid.; citing Pelaez v. Auditor General , 15 SCRA 569, December 24, 1965;
Hebron v. Reyes, 104 Phil. 175 (1958); and Mondano v. Silvosa, supra.
8. Ibid., p. 522; citing Hebron v. Reyes , ibid., per Concepcion, J.
9. 235 SCRA 135, 142, August 4, 1994.
10. §1, Art. VII of the Constitution.
11. Joaquin G. Bernas, SJ, The 1987 Constitution of the Republic of the
Philippines: A Commentary, 1996 ed., p. 739.
12. The Constitution provides:
"Sec. 25[, Art. II]. The State shall ensure the autonomy of local
governments."
"Sec. 2[, Art. X]. The territorial and political subdivisions shall enjoy local
autonomy."
13. 200 SCRA 271, 286, August 5, 1991, per Sarmiento, J.; citing §3, Art. X of
the Constitution.
14. Ibid.
15. Ibid.
16. 170 SCRA 786, 794-795, February 28, 1989, per Sarmiento, J.
17. Citing §3, Art. X, 1987 Const.
18. Citing §2, BP 337.
19. Citing §4, Art. X, 1987 Const.

20. Citing BP 337; and Hebron v. Reyes, supra .
21. Citing Hebron v. Reyes, supra .
22. Citing Bernas, "Brewing storm over autonomy," The Manila Chronicle, pp. 4-
5.
23. 234 SCRA 255, 272, July 20, 1994.
24. San Juan v. Civil Service Commission , 196 SCRA 69, 79, April 19, 1991.
25. §9, Art. XII of the Constitution.
26. §3, Chapter 1, Subtitle C, Title II, Book V, EO 292 (Administrative Code of
1987).
27. §284. See also Art. 379 of the Rules and Regulations Implementing the
Local Government Code of 1991.
28 §6 of Art. X of the Constitution reads:
"Local government units shall have a just share, as determined by law, in the
national taxes which shall be automatically released to them."
29. §286 (a) provides:

"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 (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."
30. Emphasis supplied.
31. Ruben E. Agpalo, Statutory Construction, 1990 ed., p. 239.
32. Webster's Third New International Dictionary, 1993 ed.

33. 272 SCRA 18, May 2, 1997, per Panganiban, J.
34. Citing Aquino Jr. v. Ponce Enrile , 59 SCRA 183, 196, September 17, 1974.
35. Citing Guingona Jr. v. Gonzales, 219 SCRA 326, 337, March 1, 1993.
36. Cf. Daza v. Singson, 180 SCRA 496, December 21, 1989.
37. 281 SCRA 330, 347-48, November 5, 1997, per Puno, J.
38. See Philippine National Bank v. Sayo, Jr. , 292 SCRA 202, July 9, 1998; Vinta
Maritime Co., Inc v. NLRC , 284 SCRA 656, January 23, 1998.
39. Footnotes omitted.
40. "Sec. 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 the Interior and Local Government."
KAPUNAN, J., dissenting:
1. Executive Order No. 292, Book IV, Title XVII, Chapter 1.

2. Garcia v. Corona, G.R. No. 132451, December 17, 1999.
3. 1987 CONSTITUTION, Article VI, Section 28 (2).
4. Tañada v. Angara , 272 SCRA 18 (1997).

5. Executive Order No. 292, Book VI, Chapter 5, Section 37.
6. Id., at Section 38.
7. Id., at Section 48.
8. San Juan v. CSC, 196 SCRA 69 (1991).
9. Drilon v. Lim, 235 SCRA 135 (1994).
10. Magtajas v. Pryce Properties Corp., Inc. and PAGCOR, 234 SCRA 255 (1994).
11. Ganzon v. CA, 200 SCRA 271, 286 (1991).
12. Id., at 287.
13. Rules and Regulations Implementing the Local Government Code of 1991,
Rule XXIII, Article 182 (1) (3).
Rule XXIII, Article 182 (j) (1) (2).
Rule XXXIV, Article 405 (b).
16. 1987 CONSTITUTION, Art. X, Section 6.
17. Republic Act No. 7160, Title III, Section 286.
18. Hector De Leon, PHILIPPINE CONSTITUTIONAL LAW: PRINCIPLES AND

CASES, p. 505 (1991).
19. Separate Opinion of J. Esguerra in Aquino v. Enrile, 59 SCRA 183 (1974).
20. Republic Act No. 8760 (General Appropriations Act for FY 2000).
21. See Executive Order No. 190 (1999), Directing The Department of Budget
and Management to Remit Directly the Contributions and Other Remittances
of Local Government Units To the Concerned National Government Agencies
(NGAs), Government Financial Institutions (GFI), And Government Owned
And/Or Controlled Corporations (GOCC).
22. Republic Act No. 8760 (General Appropriations Act for FY 2000). Includes
debt write-offs under Sec. 531 of the Local Government Code: Debt Relief for
Local Government Units. — . . .
(e) Recovery schemes for the national government. — . . .
The national government is hereby authorized to deduct from the quarterly

share of each local government unit in the internal revenue collections an
amount to be determined on the basis of the amortization schedule of the
local unit concerned: Provided, That such amount shall not exceed five
percent (5%) of the monthly internal revenue allotment of the local
government unit concerned.
23. 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.
24. Section 3, Rule 131 of the RULES OF COURT provides:
SEC. 3. Disputable presumptions. — The following presumption are
satisfactory if uncontradicted, but may be contradicted and overcome by
other evidence:
xxx xxx xxx
(m) That official duty has been regularly performed;

xxx xxx xxx

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EN BANC

[G.R. No. 132988. July 19, 2000.]

AQUILINO Q. PIMENTEL, JR., petitioner, vs. Hon. ALEXANDER

ROBERTO PAGDANGANAN, intervenor.

Pimentel Yusingco Pimentel & Garcia Law Offices for petitioner.

On December 27, 1997, the then President of the Philippines, Fidel V.

1. POLITICAL LAW; EXECUTIVE DEPARTMENT; POWERS OF THE

3. ID.; ID.; ID.; POWER OF HEADS OF POLITICAL SUBDIVISIONS,

KAPUNAN, J., dissenting opinion:

3. ID.; ID.; ID.; ID.; ISSUANCE OF SECTION 4, ADMINISTRATIVE

c. All foreign travels of government personnel, except those

e. Conduct of trainings/workshops/seminars, except those

f. Conduct of cultural and social celebrations and sports

Scope of President's Power of

Section 4 of Article X of the Constitution conﬁnes the President's power

Under the Philippine concept of local autonomy, the national

Section 4 of AO 372 cannot, however, be upheld. A basic feature of

Section 4 of AO 372, however, orders the withholding, eﬀective January

In striking down as unconstitutional and illegal Section 4 of

As chief fiscal officer of the country, the President supervises fiscal

I beg to diﬀer. The power to determine whether there is an

CD Technologies Asia, Inc. © 2023 cdasiaonline.com

5. 97 Phil. 143, May 30, 1955; per Padilla, J.

19. Citing §4, Art. X, 1987 Const.

29. §286 (a) provides:

32. Webster's Third New International Dictionary, 1993 ed.

1. Executive Order No. 292, Book IV, Title XVII, Chapter 1.

4. Tañada v. Angara , 272 SCRA 18 (1997).

18. Hector De Leon, PHILIPPINE CONSTITUTIONAL LAW: PRINCIPLES AND

The national government is hereby authorized to deduct from the quarterly

(m) That official duty has been regularly performed;

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