Pimentel v Aguirre
G.R. No. 132988 | July 19, 2000 | Panganiban, J.
Facts
December 27, 1997: President Ramos issued AO 372: “Adoption of Economy
Measures in Government for FY 1998”
The pertinent sections:
- 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: […]
- 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.
December 10, 1998: President Estrada issued AO 43, amending Section 4 of AO 372
- Reduced to 5% the amount of ITA to be withheld from the LGUs
Petitioner Aquilino Pimentel, Jr. 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
- The directive to withhold 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.
Solicitor General, for the respondents, argues that AO 372 was issued to alleviate the
"economic difficulties brought about by the peso devaluation"
- Constituted merely an exercise of the President's power of supervision over
LGUs.
- Doesn’t 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.
- 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."
[Motion for Intervention by Roberto Pagdanganan, provincial governor of Bulacan
and president of the League of Provinces of the Philippines and chairman of the
League of Leagues of Local Governments. Noted by the Court]
Issue: WN the assailed provisions of AO 372 are valid exercises of the President’s power of
general supervision over local governments → YES for Section 1 and NO for Section 4
Scope of President’s Power of Supervision Over LGUs
Section 4, Article X, 1987 Constitution confines the President’s power over local
governments to one of general supervision
- Has been interpreted to exclude the power of control
Jurisprudence:
Mondano v Silvosa: 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. Supervision and control differed in meaning and in extent:
- 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
Taule v Santos: 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
Drilon v Lim: 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.
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 Presidents supervision only, not control, so long as their
acts are exercised within the sphere of their legitimate powers
Extent of Local Autonomy
Ganzon v CA: 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.
- 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
Decentralization of administration v Decentralization of power (Limbona v Mangelin):
- Decentralization of administration - when the central government delegates
administrative powers to political subdivisions in order to broaden the base
of government power
o 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.'
o 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 - abdication of political power in the favor of local
government units declared to be autonomous.
o The autonomous government is free to chart its own destiny and
shape its future with minimum intervention from central authorities.
o Amounts to 'self-immolation,' since in that event, the autonomous
government becomes accountable not to the central authorities but
to its constituency.
Under the Philippine 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.
- Purpose of delegation: make governance more directly and responsive and
effective at the local levels; economic, political and social development at the
smaller political units are expected to propel social and economic growth and
development.
- Municipal governments are still agents of the national government (Magtajas
v Pryce Properties)
The Nature of AO 372
- 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."
LGUs enjoy fiscal autonomy under existing law
Fiscal autonomy: 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.
- Extends to the preparation of their budgets, and local officials in turn have to
work within the constraints thereof
However, local fiscal autonomy doesn’t 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.
- The President 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.
- The formulation and 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.
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.
4. 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 ARGUES: Respondents failed to comply with these requisites before the
issuance and the implementation of AO 372.
- 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.
RESPONDENTS ARGUE: AO 372 is merely directory and has been issued by the
President consistent with his power of supervision over local governments. Since it is
not a mandatory imposition, the directive cannot be characterized as an exercise of
the power of control.
- 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.
- Does not even 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.
Section 1 of the AO is merely advisory in character
The directive to "identify and implement measures x x x that will reduce total
expenditures x x x 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.
 - Merely an advisory to prevail upon local executives to recognize the need for
fiscal restraint in a period of economic difficulty.
- It is understood that no legal sanction may be imposed upon LGUs and their
officials who do not follow such advice.
Section 4 of the AO is UNCONSTITUTIONAL
Basic feature of local fiscal autonomy: Automatic release of the shares of the LGUs in
the national internal revenue.
- Mandated by the Constitution
- LGC: 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."
o Shall = word of command that must be given a compulsory meaning
Section 4 of AO 372 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 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.
Refutation of Justice Kapunan’s Dissent
J. Kapunan dissent:
1. Petition is premature
2. AO 372 falls within powers of the President as chief fiscal officer
3. Withholding of the LGUs IRA is implied in the President’s authority to adjust
it in case of unmanageable public sector deficit
J. Panganiban’s refutation:
1. 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. Justice Kapunan posits that Section 4 of AO 372 conforms with the
President's role as chief fiscal officer, citing 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.
3. 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, 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.
Dissent
Kapunan, J.
1. 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. 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. The President is the chief fiscal officer of the country. He is ultimately responsible
for the collection and distribution of public money. 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. 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.
- 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.
- 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.
- 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.
 - 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.

3. 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.
- 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
- 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