[ G.R. No.

227926, March 10, 2020 ]

PROVINCE OF CAMARINES SUR, REPRESENTED BY GOVERNOR MIGUEL LUIS R.

VILLAFUERTE, PETITIONER, VS. THE COMMISSION ON AUDIT, RESPONDENT.

SEPARATE CONCURRING OPINION

LEONEN, J.:

I concur in the result. While the ponente eruditely discussed the ultimate issue of liability for
refunding the disallowed disbursements, this Court should take this opportunity to clarify the nature
of local autonomy and the allowable scope of Executive supervision over local government units.

The grant of local autonomy is Constitutionally mandated and allows local government units to make
independent administrative determinations subject only to the Executive branch's general
supervision. Thus, any regulations imposed on the exercise of local autonomy should not, in any
way, amount to control.

Here, petitioner province of Camarines Sur questioned the Commission on Audit's disallowance of
the honoraria and allowances paid by the provincial government to teaching and non-teaching
personnel assigned to extension classes from July 2008 to October 2008. As basis for the
disallowance, the Commission on Audit cited petitioner's failure to comply with the joint circulars
issued by the Department of Education, Culture and Sports (now the "Department of Education"),
the Department of Budget and Management, and the Department of the Interior and Local
Government pursuant to their administrative rule-making powers.1 These joint circulars imposed
several prerequisites for the establishment of extension classes, particularly: (1) the prior
recommendation of the Department of Education; Culture and Sports Regional Director; (2) the
approval of the proposed extension classes issued by the Department of Education, Culture and
Sports Secretary; and (3) the certification by the Division Superintendent that extension classes
were necessary and urgent.2

The joint circulars cited by the Commission on Audit impose conditions that contradict the concept of
local autonomy, amounting to an exercise of control by the issuing agencies.

Article X, Section 2 of the 1987 Constitution specifically provides for the grant of local autonomy to
"territorial and political subdivisions." Mandanas v. Ochoa, Jr.3 discussed the scope of this local
autonomy.

The constitutional mandate to ensure local autonomy refers to decentralization. In its broad or

general sense, decentralization has two forms in the Philippine setting, namely: the decentralization
of power and the decentralization of administration. The decentralization of power involves the
abdication of political power in favor of the autonomous LGUs as to grant them the freedom to chart
their own destinies and to shape their futures with minimum intervention from the central
government. This amounts to self-immolation because the autonomous LGUs thereby become
accountable not to the central authorities but to their constituencies. On the other hand, the
decentralization of administration occurs when the central government delegates administrative
powers to the LGUs as the means of broadening the base of governmental powers and of making
the LGUs more responsive and accountable in the process, and thereby ensure their fullest
development as self-reliant communities and more effective partners in the pursuit of the goals of
national development and social progress. This form of decentralization further relieves the central
government of the burden of managing local affairs so that it can concentrate on national
concerns.4 (Citations omitted, emphasis supplied)

Likewise, Pimentel, Jr. v. Aguirre5 clarified the reason for granting local autonomy, and qualified that
this grant should remain bounded by national policy objectives.

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.6 (Citations omitted; Emphasis supplied)

Thus, the Constitutional grant of local autonomy "does not make local governments sovereign within
the state[,]"7 but reiterates the interdependence between central and local government
agencies.8 But while regulations may validly be imposed on the exercise of local autonomy, such
regulations are ultimately geared toward enhancing self-governance.9 Consequently, the devolution
of administrative powers and functions inherent in local autonomy should not be rendered inutile by
the need to seek prior approval from central government agencies. Rather, an autonomous local
government should be able to promptly address matters in the exigencies of public service without
undue restriction.

Article X, Section 4 of the Constitution clarifies the scope of restrictions imposable by the Executive
branch upon a local government unit.

SECTION 4. The President of the Philippines shall exercise general supervision over local
governments. Provinces with respect to component cities and municipalities, and cities and
municipalities with respect to component barangays shall ensure that the acts of their component
units are within the scope of their prescribed powers and functions. (Emphasis supplied)

Pimentel v. Aguirre10 further delineated the scope of Executive Supervision over local government
units as exclusive of control or the power to restrain local government action.

This provision has been interpreted to exclude the power of control. In Mondano v. Silvosa, 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—control and supervision—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 Taule v. Santos, 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,"
we said.11 (Citations omitted; Emphasis supplied)

Hence, executive supervision over local government units should not result in central agencies
substituting the findings of a local government unit with their own. The same case
of Pimentel provides that "[t]he purpose of the delegation [of administrative powers to local
government units] is to make governance more directly responsive and effective at local levels."12

Limbona v. Mangelin13 also discussed that the grant of local autonomy "relieves the central
government of the burden of managing local affairs and enables it to concentrate on national
concerns."14 Thus, if the Constitutional guarantee of local autonomy is to be given effect, it should
amount to effective authority for local government units to decide matters concerning local affairs.
While this autonomy is not absolute, the criteria limiting its exercise must be reasonable and should
not give central government agencies the power to restrict the actions of a local government unit, or
to substitute it with their own.

II

Local autonomy should give local government units sufficient discretion to act on matters of local
importance, without undue interference from central government agencies. This is intrinsic in the
Constitution's qualification that executive interference is limited to general supervision, as opposed
to control, over local government units.

Villafuerte v. Robredo,15 which concerns the legality of the issuances promulgated by the

Department of the Interior and Local Government, provides useful guidance on where to draw the
line between an administrative issuance which is supervisory in nature, and one which amounts to
an exercise of control by executive fiat. There, the questioned issuances required local government
units to publicly disclose budget, finance, and contract information for projects awarded through
public bidding. These requirements were imposed because the Commission on Audit found that a
substantial portion of local development funds were not actually being used for development
projects.

A reading of MC No. 2010-138 shows that it is a mere reiteration of an existing provision in the LGC.
It was plainly intended to remind LGUs to faithfully observe the directive stated in Section 287 of the
LGC to utilize the 20% portion of the IRA for development projects. It was, at best, an advisory to
LGUs to examine themselves if they have been complying with the law. It must be recalled that the
assailed circular was issued in response to the report of the COA that a substantial portion of the
20% development fund of some LGUs was not actually utilized for development projects but was
diverted to expenses more properly categorized as MOOE, in violation of Section 287 of the LGC.
This intention was highlighted in the very first paragraph of MC No. 2010-138, which reads:

Section 287 of the Local Government Code mandates every local government to appropriate in its
annual budget no less than 20% of its annual revenue allotment for development projects. In
common understanding, development means the realization of desirable social, economic and
environmental outcomes essential in the attainment of the constitutional objective of a desired
quality of life for all. (Underscoring in the original)
That the term development was characterized as the "realization of desirable social, economic and
environmental outcome" does not operate as a restriction of the term so as to exclude some other
activities that may bring about the same result. The definition was a plain characterization of the
concept of development as it is commonly understood. The statement of a general definition was
only necessary to illustrate among LGUs the nature of expenses that are properly chargeable
against the development fund component of the IRA. It is expected to guide them and aid them in
rethinking their ways so that they may be able to rectify lapses in judgment, should there be any, or it
may simply stand as a reaffirmation of an already proper administration of expenses.

The same clarification may be said of the enumeration of expenses in MC No. 2010-138.  To begin
1âшphi1

with, it is erroneous to call them exclusions because such a term signifies compulsory

disallowance of a particular item or activity[.]16 (Citations omitted; Emphasis and underscoring
supplied)

In Villafuerte, the assailed circulars were not deemed violations of local autonomy because they
operated as mere guidelines for local government action. The requirements did not restrict or
"compulsorily disallow" local government action.

This Court further discussed that despite executive supervision being seemingly paradoxical to the
guarantee of local autonomy,17 valid supervision should still allow local governments the "liberty to
map out their respective development plans solely on the basis of their own judgment[.]"18

Contrary to the petitioners' posturing, however, the enumeration was not meant to restrict the
discretion of the LGUs in the utilization of their funds. It was meant to enlighten LGUs as to the
nature of the development fund by delineating it from other types of expenses. It was incorporated in
the assailed circular in order to guide them in the proper disposition of the IRA and avert further
misuse of the fund by citing current practices which seemed to be incompatible with the purpose of
the fund. Even then, LGUs remain at liberty to map out their respective development plans solely on
the basis of their own judgment and utilize their IRAs accordingly, with the only restriction that 20%
thereof be expended for development projects. They may even spend their IRAs for some of the
enumerated items should they partake of indirect costs of undertaking development projects. In such
case, however, the concerned LGU must ascertain that applicable rules and regulations on
budgetary allocation have been observed lest it be inviting an administrative probe.19 (Citations
omitted; Emphasis and underscoring supplied)

While the requirements imposed by administrative issuances may not have been intended to
supplant local government judgment, the issue of whether supervision has lapsed into control should
not be a question of intent but of effect. The ponencia recognized a valid issue regarding the validity
of Joint Circular No. 01-A, but opted to forego a ruling thereon based on procedural
grounds.20 However, a perusal of the questioned circular reveals that it effectively prohibits the
provincial government from holding or creating extension classes without prior approval and
recommendation by the concerned central government agencies. In fact, the Commission on Audit
disallowed the disbursements precisely because certain approvals from central government
agencies were not procured.21

Thus, these requirements are more than mere guidelines. They effectively control local government
action because they allow central government agencies to override the findings made by local
government units as to the urgency, need, and propriety of holding extension classes. Being in the
best position to determine these matters, the local government units should have been left with this
decision.
While both the Local Government Code and Republic Act No. 5447 provide that the Local School
Boards' discretion in using the Special Education Fund is not absolute,22 the criteria to be imposed
upon Local School Boards should still be consistent with the greater purpose of administrative
decentralization. The approval requirements in Joint Circular No. 01-A should not be allowed to
effectively hamstring local government operations. Joint Circular No. 01-A imposes undue
restrictions on a local government unit's ability to act on its own findings. This takes the initiative
away from local government units and negates the alacrity and responsiveness which it would have
had under a more permissive view of local autonomy.

Not only does Joint Circular No. 01-A run contrary to the purpose for which the Special Education
Fund was created, it also contradicts the very purpose of local autonomy. It essentially denies local
authorities the capacity to promptly and effectively address the exigencies of service.

III

Notwithstanding my concurrence with absolving the provincial government from refunding the
disallowed disbursements, I must point out this Court's pronouncement in Rotoras v. Commission on
Audit.23

The defense of good faith is, therefore, no longer available to members of governing boards and
officials who have approved the disallowed allowance or benefit. Neither would the defense be
available to the rank and file should the allowance or benefit be the subject of collective negotiation
agreement negotiations. Furthermore, the rank and file's obligation to return shall be limited only to
what they have actually received. They may, subject to Commission on Audit approval, agree to the
terms of payment for the return of the disallowed funds. For the approving board members or
officers, however, the nature of the obligation to return—whether it be solidary or not—depends on
the circumstances.24 (Citations omitted, emphasis supplied)

Rotoras discussed the liability of members of the approving board to reimburse the amounts they
disbursed, and subsequently received, after such disbursements were disallowed by the
Commission on Audit. There, this Court did away with the defense of good faith and ordered the
approving authorities to reimburse the amounts they received pursuant to the State's policy against
unjust enrichment.

Nonetheless, there have been instances when, regardless of the alleged good or bad faith of the
responsible officers and recipients, this Court ordered the refund of the amounts received. Applying
the rule against unjust enrichment, it required public officers to return the disallowed benefits,
considering them as trustees of funds which they should return to the government....

....

The rule against unjust enrichment, along with the treatment of recipients of disallowed benefits as
trustees in favor of government, was applied in the recent case of Dubongco v. Commission on
Audit. There, this Court declined to ascribe good or bad faith to the recipients of the disallowed
collective negotiation agreement incentive. It found that since they had no valid claim to the benefits,
they cannot be allowed to retain them, notwithstanding the absence of fraud in their receipt:

Every person who, through an act of performance by another, or any other means, acquires or
comes into possession of something at the expense of the latter without just or legal ground, shall
return the same to him. Unjust enrichment refers to the result or effect of failure to make
remuneration of, or for property or benefits received under circumstances that give rise to legal or
equitable obligation to account for them. To be entitled to remuneration, one must confer benefit by
mistake, fraud, coercion, or request. Unjust enrichment is not itself a theory of reconveyance.
Rather, it is a prerequisite for the enforcement of the doctrine of restitution. Thus, there is unjust
enrichment when a person unjustly retains a benefit to the loss of another, or when a person retains
money or property of another against the fundamental principles of justice, equity and good
conscience. The principle of unjust enrichment requires two conditions: (1) that a person is benefited
without a valid basis or justification; and (2) that such benefit is derived at the expense of another.
Conversely, there is no unjust enrichment when the person who will benefit has a valid claim to such
benefit.25 (Citations omitted, emphasis supplied)

Thus, the issue of good faith in the release of disallowed disbursements is no longer relevant to the
liability for reimbursement.

ACCORDINGLY, I vote to grant the petition.

Footnotes

1 Ponencia, p. 2.

2 Id. at 4.

3 Mandanas v. Ochoa, Jr., G.R. No. 199802 & 208488 (Decision), July 3, 2018, 869 SCRA
440 [Per J. Bersamin, En Banc].

4 Id. at 485.

5 Pimentel v. Aguirre, 391 Phil. 84 (2000) [Per J. Panganiban, En Banc].

6 Id. at 102.

7 Villafuerte v. Robredo, 749 Phil. 841, 865 (2014) [Per J. Reyes, En Banc].

8 Id. citing Ganzon v. Court of Appeals, 277 Phil. 311 (1991) [Per J. Sarmiento, En Banc].

9 Id.

10 391 Phil. 84 (2000) [Per J. Panganiban, En Banc].

11 Id. at 98-99.

12 Id. at 102.

13 252 Phil. 813 (1989) [Per J. Sarmiento, En Banc].

14 Id. at 825.

15 749 Phil. 841 (2014) [Per J. Reyes, En Banc].

16 Id., at 862-863.

17 Ganzon v. Court of Appeals, 277 Phil. 311, 329 (1991) [Per J. Sarmiento, En Banc].

18 Villafuerte v. Robredo, 749 Phil. 841, 864 (2014) [Per J. Reyes, En Banc].

19 Id. at 863-864.

20 Ponencia, pp. 9-11.

21 Id. at 4.

22 LOCAL GOVT. CODE, Sec. 99(a); Republic Act No. 5447, sec. 6(a).

23 G.R. No. 211999, October 21, 2019 [Per J. Leonen, En Banc].

24 Id. at 23-24.

25 Id. at 19-22.
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.

DECISION

PANGANIBAN, J.:

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.

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, attaching thereto his Petition in
1 

Intervention joining petitioner in the reliefs sought. At the time, intervenor was the provincial
2 

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 submits the following issues for the Court's resolution:
3 

"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. However, the intervention of Roberto
4 

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:

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

This provision has been interpreted to exclude the power of control. In Mondano v. Silvosa, the
5 

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:

"x x x 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, we further stated that the Chief Executive wielded no more authority than that of
7 

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," we said.
8 

In a more recent case, Drilon v. Lim, the difference between control and supervision was further
9 

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. The members
10 

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
11 

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, we said that local autonomy signified "a more responsive and
13 

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, x x x not x x x to end the relation of partnership and interdependence between the
central administration and local government units x x x." 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. The difference between decentralization of administration and that of power was explained
15 

in detail in Limbona v. Mangelin as follows:

16 

"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-
17 

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
18 

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
19  20 

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, who in any case are partners in the attainment of
24 

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
25 

continuing, coordinated and integrated social and economic policies, plans and programs for the
26 

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 

"x x x [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 x x x."

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 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. 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 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.

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. The Local Government Code specifies further that the release shall be
28  29 

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
30 

meaning. The provision is, therefore, imperative.

31 

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 holdback, which means
"something held back or withheld, often temporarily." Hence, the "temporary" nature of the retention
32 

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, this Court held that when an act of the legislative department is seriously alleged to have
33 

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.' Once a34 

'controversy as to the application or interpretation of a constitutional provision is raised before this

Court x x x , it becomes a legal issue which the Court is bound by constitutional mandate to decide.' 35 

x x x           x x x          x x x

"As this Court has repeatedly and firmly emphasized in many cases, it will not shirk, digress from or
36 

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 

"x x x 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
requirements, as well as the legal prerequisites in the release and use of IRAs, taking into account
the constitutional and statutory mandates." He cites instances when the President may lawfully
39 

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 x x x 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 of the LGC as impliedly authorizing the President to
40 

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 PROHIBITEDfrom 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.

Footnotes

Rollo, pp. 48-55.

1 

Ibid., pp. 56-75.

2 

This case was deemed submitted for decision on September 27, 1999, upon receipt by this
3 

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 alloted time; thus, he is deemed to have waived the filing of one.

Issues of mootness and locus standi were not raised by the respondents. However, the
4 

intervention of Roberto Pagdanganan, as explained in the main text, has stopped any 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.

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

5 

Ibid., pp. 147-148. Reiterated in Ganzon v. Kayanan, 104 Phil. 484 (1985); Ganzon v. Court
6 

of Appeals, 200 SCRA 271, August 5, 1991; Taule v. Santos, 200 SCRA 512, August 12,
1991.

Ibid.; citing Pelaez v. Auditor General, 15 SCRA 569, December 24, 1965; Hebron v. Reyes,
7 

104 Phil. 175 (1958); and Mondano v. Silvosa, supra.

Ibid., p. 522; citing Hebron v. Reyes, ibid., per Concepcion, J.

8 

235 SCRA 135, 142, August 4, 1994.

9 

10 
§1, Art. VII of the Constitution.

Joaquin G. Bernas, SJ, The 1987 Constitution of the Republic of the Philippines: A
11 

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).

§284. See also Art. 379 of the Rules and Regulations Implementing the Local Government
27 

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.

See Philippine National Bank v. Sayo, Jr., 292 SCRA 202, July 9, 1998; Vinta Maritime Co.,
38 

Inc. v. NLRC, 284 SCRA 656, January 23, 1998.

39 
Footnotes omitted.

"Sec. 287. Local Development Projects. -- Each local government unit shall appropriate in
40 

its annual budget no less than twenty percent (20%) of its annual internal revenue allotment
for development projects. Copies of the development plans of local government units shall
be furnished the Department of Interior and Local Government."

The Lawphil Project - Arellano Law Foundation

 DISSENTING OPINION

KAPUNAN, J.:

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 ("LGU"), which he does not have, and violated the provisions of Section 6, Article
X of the Constitution, which states:

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

and Section 286(a) of the Local Government Code, which provides:

SEC. 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:

SEC. 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
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 x x x 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

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

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 govemment. 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
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 requirements, as well as the legal prerequisites in the release and use of IRAs, taking into
account the constitutional16 and statutory17 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:

x x x (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. x x x.

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 LGU’s
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

(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
contributions21 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.

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.2 4

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 resume, 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.

Footnotes

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.

 Rules and Regulations Implementing the Local Government code of 1991, Rule XXIII,
13

Article 182 (1) (3).

 Rules and Regulations Implementing the Local Government Code of 1991, Rule XXIII,
14

Article 182 (j) (1) (2).

 Rules and Regulations Implementing the Local Government Code of 1991, Rule XXXIV,
15

Article 405 (b).

16
 1987 CONSTITUTION, Art. X, Section 6.

17
 Republic Act No. 7160, Title III, Section 286.

 Hector De Leon, PHILIPPINE CONSTITUTIONAL LAW: PRINCIPLES AND CASES, p.

18

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).

 See Eexecutive Order No. 190 (1999), Directing The Department of Budget And
21

Management To Remit directly The Contributions And Other Remittances Of Local

Government Units To the Concerned National Government Agencies (NGA), Government
Financial Institutions (GFI), And Government Owned And/Or Controlled Corporations
(GOCC).

 Republic Act No. 8760 (General Appropriations Act for FY 2000). Includes debt write-offs
22

under Sec. 531 of the Local Government Code: Debt Relief for Local Government Units.--
xxx

(e) Recovery schemes for the national government.---xxx

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.

 WHEREAS, the current economic difficulties brought about by the peso depreciation
23

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 presumptions are satisfactory if

uncontradicted, but may be contradicted and overcome by other evidence:

xxx

(m) That official duty has been regularly performed;

xxx.
 JULY 3, 2018

G.R. No. 199802

CONGRESSMAN HERMILANDO I. MANDANAS; MAYOR EFREN B. DIONA; MAYOR

ANTONINO A. AURELIO; KAGA WAD MARIOILAGAN;BARANGAY CHAIR PERLITO MANALO;
BARANGA Y CHAIR MEDEL MEDRANO;BARANGAY KAGA WAD CRIS RAMOS; BARANGA Y
KAGA WAD ELISA D. BALBAGO, and ATTY. JOSE MALVAR VILLEGAS, Petitioners 
vs.
EXECUTIVE SECRETARY PAQUITO N. OCHOA, JR.; SECRETARY CESAR PURISIMA,
Department of Finance; SECRETARY FLORENCIO H. ABAD, Department of Budget and
Management; COMMISSIONER KIM JACINTO-HENARES, Bureau of Internal Revenue; and
NATIONAL TREASURER ROBERTO TAN, Bureau of the Treasury, Respondents

G.R. No. 208488

HONORABLE ENRIQUE T. GARCIA, JR., in his personal and official capacity as

Representative of the 2ndDistrict of the Province of Bataan, Petitioner 
vs.
HONORABLE [PAQUITO) N. OCHOA, JR., Executive Secretary; HONORABLE CESAR V.
PURISIMA, Secretary, Department of Finance; HONORABLE FLORENCIO H. ABAD, Secretary,
Department of Budget and Management; HONORABLE KIM S. JACINTO-HENARES,
Commissioner, Bureau of Internal Revenue; and HONORABLE ROZZANO RUFINO B.
BIAZON, Commissioner, Bureau of Customs, Respondents

DECISION

BERSAMIN, J.:

The petitioners hereby challenge the manner in which the just share in the national taxes of the local
government units (LGUs) has been computed.

Antecedents

One of the key features of the 1987 Constitution is its push towards decentralization of government
and local autonomy. Local autonomy has two facets, the administrative and the fiscal. 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.  Such autonomy is as
1

indispensable to the viability of the policy of decentralization as the other.

Implementing the constitutional mandate for decentralization and local autonomy, Congress enacted
Republic Act No. 7160, otherwise known as the Local Government Code (LGC), in order to
guarantee the fiscal autonomy of the LGUs by specifically providing that:

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 percent (35%); 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.

The share of the LGUs, heretofore known as the Internal Revenue Allotment (IRA), has been
regularly released to the LGUs. According to the implementing rules and regulations of the LGC, the
IRA is determined on the basis of the actual collections of the National Internal Revenue Taxes
(NIRTs) as certified by the Bureau of Internal Revenue (BIR). 2

G.R. No. 199802 (Mandanas, et al.) is a special civil action for certiorari, prohibition

and mandamus assailing the manner the General Appropriations Act (GAA) for FY 2012 computed
the IRA for the LGUs.

Mandanas, et al. allege herein that certain collections of NIR Ts by the Bureau of Customs (BOC) -
specifically: excise taxes, value added taxes (VATs) and documentary stamp taxes (DSTs) - have
not been included in the base amounts for the computation of the IRA; that such taxes, albeit
collected by the BOC, should form part of the base from which the IRA should be computed because
they constituted NIRTs; that, consequently, the release of the additional amount of
₱60,750,000,000.00 to the LGUs as their IRA for FY 2012 should be ordered; and that for the same
reason the LGUs should also be released their unpaid IRA for FY 1992 to FY 2011, inclusive,
totaling ₱438,103,906,675.73.

In G.R. No. 208488, Congressman Enrique Garcia, Jr., the lone petitioner, seeks the writ
of mandamus to compel the respondents thereat to compute the just share of the LGUs on the basis
of all national taxes. His petition insists on a literal reading of Section 6, Article X of the 1987
Constitution. He avers that the insertion by Congress of the words internal revenue in the
phrase national taxes found in Section 284 of the LGC caused the diminution of the base for
determining the just share of the LGUs, and should be declared unconstitutional; that, moreover, the
exclusion of certain taxes and accounts pursuant to or in accordance with special laws was similarly
constitutionally untenable; that the VA Ts and excise taxes collected by the BOC should be included
in the computation of the IRA; and that the respondents should compute the IRA on the basis of all
national tax collections, and thereafter distribute any shortfall to the LGUs.

It is noted that named as common respondents were the then incumbent Executive Secretary,
Secretary of Finance, the Secretary of the Department of Budget and Management (DBM), and the
Commissioner of Internal Revenue. In addition, Mandanas, et al. impleaded the National Treasurer,
while Garcia added the Commissioner of Customs.
The cases were consolidated on October 22, 2013.   In the meanwhile, Congressman Garcia, Jr.
3

passed away. Jose Enrique Garcia III, who was subsequently elected to the same congressional
post, was substituted for Congressman Garcia, Jr. as the petitioner in G.R. No. 208488 under the
resolution promulgated on August 23, 2016. 4

In response to the petitions, the several respondents, represented by the Office of the Solicitor
General (OSG), urged the dismissal of the petitions upon procedural and substantive considerations.

Anent the procedural considerations, the OSG argues that the petitions are procedurally defective
because, firstly, mandamus does not lie in order to achieve the reliefs sought because Congress
may not be compelled to appropriate the sums allegedly illegally withheld for to do so will violate the
doctrine of separation of powers; and, secondly, mandamus does not also lie to compel the DBM to
release the amounts to the LGUs because such disbursements will be contrary to the purposes
specified in the GAA; that Garcia has no clear legal right to sustain his suit for mandamus; that the
filing of Garcia's suit violates the doctrine of hierarchy of courts; and that Garcia's petition seeks
declaratory relief but the Court cannot grant such relief in the exercise of its original jurisdiction.

On the substantive considerations, the OSG avers that Article 284 of the LGC is consistent with the
mandate of Section 6, Article X of the 1987 Constitution to the effect that the LGUs shall have a just
share in the national taxes; that the determination of the just share is within the discretion of
Congress; that the limitation under the LGC of the basis for the just share in the NIRTs was within
the powers granted to Congress by the 1987 Constitution; that the LGUs have been receiving
their just share in the national taxes based on the correct base amount; that Congress has the
authority to exclude certain taxes from the base amount in computing the IRA; that there is a
distinction between the VA Ts, excise taxes and DSTs collected by the BIR, on one hand, and the
VA Ts, excise taxes and DSTs collected by the BOC, on the other, thereby warranting their different
treatment; and that Development Budget Coordination Committee (DBCC) Resolution No. 2003-02
dated September 4, 2003 has limited the base amount for the computation of the IRA to the "cash
collections based on the BIR data as reconciled with the Bureau of Treasury;" and that the collection
of such national taxes by the BOC should be excluded.

Issues

The issues for resolution are limited to the following, namely:

I.

Whether or not Mandamus is the proper vehicle to assail the constitutionality of the relevant
provisions of the GAA and the LGC;

II.

Whether or not Section 284 of the LGC is unconstitutional for being repugnant to Section 6, Article X
of the 1987 Constitution;

III.

Whether or not the existing shares given to the LGUs by virtue of the GAA is consistent with the
constitutional mandate to give LGUs a 'just share" to national taxes following Article X, Section 6 of
the 1987 Constitution;
 IV.

Whether or not the petitioners are entitled to the reliefs prayed for.

Simply stated, the petitioners raise the novel question of whether or not the exclusion of certain
national taxes from the base amount for the computation of the just share of the LGUs in the national
taxes is constitutional.

Ruling of the Court

The petitions are partly meritorious.

I
Mandamus is an improper remedy

Mandanas, et al. seek the writs of certiorari, prohibition and mandamus, while Garcia prays for the
writ of mandamus. Both groups of petitioners impugn the validity of Section 284 of the LGC.

The remedy of mandamus is defined in Section 3, Rule 65 of the Rules of Court, which provides:

Section 3. Petition for mandamus. - When any tribunal, corporation, board, officer or person
unlawfully neglects the performance of an act which the law specifically enjoins as a duty resulting
from an office, trust, or station, or unlawfully excludes another from the use and enjoyment of a right
or office to which such other is entitled, and there is no other plain, speedy and adequate remedy in
the ordinary course of law, the person aggrieved thereby may file a verified petition in the proper
court, alleging the facts with certainty and praying that judgment be rendered commanding the
respondent, immediately or at some other time to be specified by the court, to do the act required to
be done to protect the rights of the petitioner, and to pay the damages sustained by the petitioner by
reason of the wrongful acts of the respondent.

The petition shall also contain a sworn certification of non-forum shopping as provided in the third
paragraph of section 3, Rule 46.

For the writ of mandamus to issue, the petitioner must show that the act sought to be performed or
compelled is ministerial on the part of the respondent. An act is ministerial when it does not require
the exercise of judgment and the act is performed pursuant to a legal mandate. The burden of proof
is on the mandamus petitioner to show that he is entitled to the performance of a legal right, and that
the respondent has a corresponding duty to perform the act. The writ of mandamus may not issue to
compel an official to do anything that is not his duty to do, or that is his duty not to do, or to obtain for
the petitioner anything to which he is not entitled by law.  5

Considering that its determination of what constitutes the just share of the LGUs in the national taxes
under the 1987 Constitution is an entirely discretionary power, Congress cannot be compelled by
writ of mandamus to act either way. The discretion of Congress thereon, being exclusive, is not
subject to external direction; otherwise, the delicate balance underlying our system of government
may be unduly disturbed. This conclusion should at once then demand the dismissal of the Garcia
petition in G.R. No. 208488, but we do not dismiss it. Garcia has attributed the non-release of some
portions of their IRA balances to an alleged congressional indiscretion - the diminution of the base
amount for computing the LGU's just share. He has asserted that Congress altered the constitutional
base not only by limiting the base to the NIRTs instead of including therein all national taxes, but
also by excluding some national taxes and revenues that only benefitted a few LGUs to the
detriment of the rest of the LGUs.

Garcia's petition, while dubbed as a petition for mandamus, is also a petition for certiorari because it

alleges that Congress thereby committed grave abuse of discretion amounting to lack or excess of
jurisdiction. It is worth reminding that the actual nature of every action is determined by the
allegations in the body of the pleading or the complaint itself, not by the nomenclature used to
designate the same.   Moreover, neither should the prayer for relief be controlling; hence, the courts
6

may still grant the proper relief as the facts alleged in the pleadings and the evidence introduced
may warrant even without a prayer for specific remedy. 7

In this regard, Garcia's allegation of the unconstitutionality of the insertion by Congress of the
words internal revenue in the phrase national taxes justifies treating his petition as one
for certiorari. It becomes our duty, then, to assume jurisdiction over his petition. In Araullo v. Aquino
III,  the Court has emphatically opined that the Court's certiorari jurisdiction under the expanded
8

judicial power as stated in the second paragraph of Section 1, Article VIII of the Constitution can be
asserted:

xxxx to set right and undo any act of grave abuse of discretion amounting to lack or excess of
jurisdiction by any branch or instrumentality of the Government, the Court is not at all precluded from
making the inquiry provided the challenge was properly brought by interested or affected parties.
The Court has been thereby entrusted expressly or by necessary implication with both the duty and
the obligation of determining, in appropriate cases, the validity of any assailed legislative or
executive action. This entrustment is consistent with the republican system of checks and balances.  9

Further, observing that one of the reliefs being sought by Garcia is identical to the main relief sought
by Mandanas, et al., the Court should rightly dwell on the substantive arguments posited by Garcia
to the extent that they are relevant to the ultimate resolution of these consolidated suits.

II.
Municipal corporations and their relationship with Congress

The correct resolution and fair disposition of the issues interposed for our consideration require a
review of the basic principles underlying our system of local governments, and of the extent of the
autonomy granted to the LGUs by the 1987 Constitution.

Municipal corporations are now commonly known as local governments. They are the bodies politic
established by law partly as agencies of the State to assist in the civil governance of the country.
Their chief purpose has been to regulate and administer the local and internal affairs of the cities,
municipalities or districts. They are legal institutions formed by charters from the sovereign power,
whereby the populations within communities living within prescribed areas have formed themselves
into bodies politic and corporate, and assumed their corporate names with the right of continuous
succession and for the purposes and with the authority of subordinate self-government and
improvement and the local administration of the affairs of the State.  10

Municipal corporations, being the mere creatures of the State, are subject to the will of Congress,
their creator. Their continued existence and the grant of their powers are dependent on the
discretion of Congress. On this matter, Judge John F. Dillon of the State of Iowa in the United States
of America enunciated in Merriam v. Moody's Executors  the rule of statutory construction that came
11

to be oft-mentioned as Dillon's Rule, to wit:

[A] municipal corporation possesses and can exercise the following powers and no others: First,
those granted in express words; second, those necessarily implied or necessarily incident to the
powers expressly granted; third, those absolutely essential to the declared objects and purposes of
the corporation-not simply convenient but indispensible; fourth, any fair doubt as to the existence of
a power is resolved by the courts against the corporation-against the existence of the powers.  12

The formulation of Dillon's Rule has since undergone slight modifications. Judge Dillon himself
introduced some of the modifications through his post-Merriam writings with the objective of
alleviating the original formulation's harshness. The word fairly was added to the second proviso; the
word absolutely was deleted from the third proviso; and the words reasonable and substantial were
added to the fourth proviso, thusly:

x x x second, those necessarily or fairly implied in or incident to the powers expressly granted; third,
those essential to x x x. Any fair, reasonable, doubt. 
13

The modified Dillon's Rule has been followed in this jurisdiction, and has remained despite both the
1973 Constitution and the 1987 Constitution mandating autonomy for local governments. This has
been made evident in several rulings of the Court, one of which was that handed down in Magtajas
v. Pryce Properties Corporation, lnc.: 14

In light of all the above considerations, we see no way of arriving at the conclusion urged on us by
the petitioners that the ordinances in question are valid. On the contrary, we find that the ordinances
violate P.D. 1869, which has the character and force of a statute, as well as the public policy
expressed in the decree allowing the playing of certain games of chance despite the prohibition of
gambling in general.

The rationale of the requirement that the ordinances should not contravene a statute is
obvious. Municipal governments are only agents of the national government. Local councils
exercise only delegated legislative powers conferred on them by Congress as the national
lawmaking body. The delegate cannot be superior to the principal or exercise powers higher
than those of the latter. It is a heresy to suggest that the local government units can undo the
acts of Congress, from which they have derived their power in the first place, and negate by
mere ordinance the mandate of the statute.

Municipal corporations owe their origin to, and derive their powers and rights wholly from the
legislature. It breathes into them the breath of life, without which they cannot exist. As it
creates, so it may destroy. As it may destroy, it may abridge and control. Unless there is
some constitutional limitation on the right, the legislature might, by a single act, and if we
can suppose it capable of so great a folly and so great a wrong, sweep from existence all of
the municipal corporations in the State, and the corporation could not prevent it. We know of
no limitation on the right so far as to the corporation themselves are concerned. They are, so
to phrase it, the mere tenants at will of the legislature.

This basic relationship between the national legislature and the local government units has
not been enfeebled by the new provisions in the Constitution strengthening the policy of
local autonomy. Without meaning to detract from that policy, we here confirm that Congress
retains control of the local government units although in significantly reduced degree now
than under our previous Constitutions. The power to create still includes the power to
destroy. The power to grant still includes the power to withhold or recall.

True, there are certain notable innovations in the Constitution, like the direct conferment on
the local government units of the power to tax, which cannot now be withdrawn by mere
statute. By and large, however, the national legislature is still the principal of the local
government units, which cannot defy its will or modify or violate it. [Bold underscoring supplied
for emphasis]

Also, in the earlier ruling in Ganzon v. Court of Appeals,   the Court has pointed out that the 1987
15

Constitution, in mandating autonomy for the LGUs, did not intend to deprive Congress of its authority
and prerogatives over the LGUs.

Nonetheless, the LGC has tempered the application of Dillon's Rule in the Philippines by providing a
norm of interpretation in favor of the LGUs in its Section 5(a), to wit:

xxxx

(a) Any provision on a power of a local government unit shall be liberally interpreted in its favor, and
in case of doubt, any question thereon shall be resolved in favor of devolution of powers and of the
local government unit. Any fair and reasonable doubt as to the existence of the power shall be
interpreted in favor of the local government unit concerned; [Bold underscoring supplied for
emphasis]

xxxx

III.
The extent of local autonomy in the Philippines

Regardless, there remains no question that Congress possesses and wields plenary power to
control and direct the destiny of the LGUs, subject only to the Constitution itself, for Congress, just
like any branch of the Government, should bow down to the majesty of the Constitution, which is
always supreme.

The 1987 Constitution limits Congress' control over the LGUs by ordaining in Section 25 of its Article
II that: "The State shall ensure the autonomy of local governments." The autonomy of the LGUs as
thereby ensured does not contemplate the fragmentation of the Philippines into a collection of mini-
states,   or the creation of imperium in imperio.   The grant of autonomy simply means that
16 17

Congress will allow the LGUs to perform certain functions and exercise certain powers in order not
for them to be overly dependent on the National Government subject to the limitations that the 1987
Constitution or Congress may impose.   Local autonomy recognizes the wholeness of the Philippine
18

society in its ethnolinguistic, cultural, and even religious diversities.

19

The constitutional mandate to ensure local autonomy refers to decentralization.  In its broad or
20

general sense, decentralization has two forms in the Philippine setting, namely: the decentralization
of power and the decentralization of administration. The decentralization of power involves the
abdication of political power in favor of the autonomous LGUs as to grant them the freedom to chart
their own destinies and to shape their futures with minimum intervention from the central
government. This amounts to self-immolation because the autonomous LGUs thereby become
accountable not to the central authorities but to their constituencies. On the other hand, the
decentralization of administration occurs when the central government delegates administrative
powers to the LGUs as the means of broadening the base of governmental powers and of making
the LGUs more responsive and accountable in the process, and thereby ensure their fullest
development as self-reliant communities and more effective partners in the pursuit of the goals of
national development and social progress. This form of decentralization further relieves the central
government of the burden of managing local affairs so that it can concentrate on national concerns. 21
Two groups of LGUs enjoy decentralization in distinct ways. The decentralization of power has been
given to the regional units (namely, the Autonomous Region for Muslim Mindanao [ARMM] and the
constitutionally-mandated Cordillera Autonomous Region [CAR]). The other group of
LGUs (i.e., provinces, cities, municipalities and barangays) enjoy the decentralization of
administration.  The distinction can be reasonably understood. The provinces, cities, municipalities
22

and barangays are given decentralized administration to make governance at the local levels more
directly responsive and effective. In turn, the economic, political and social developments of the
smaller political units are expected to propel social and economic growth and development.   In23

contrast, the regional autonomy of the ARMM and the CAR aims to permit determinate groups with
common traditions and shared social-cultural characteristics to freely develop their ways of life and
heritage, to exercise their rights, and to be in charge of their own affairs through the establishment of
a special governance regime for certain member communities who choose their own authorities from
within themselves, and exercise the jurisdictional authority legally accorded to them to decide their
internal community affairs. 24

It is to be underscored, however, that the decentralization of power in favor of the regional units is
not unlimited but involves only the powers enumerated by Section 20, Article X of the 1987
Constitution and by the acts of Congress. For, with various powers being devolved to the regional
units, the grant and exercise of such powers should always be consistent with and limited by the
1987 Constitution and the national laws.   In other words, the powers are guardedly, not absolutely,
25

abdicated by the National Government.

Illustrative of the limitation is what transpired in Serna v. Commission on Elections,  where the Court
26

struck down Section 19, Article VI of Republic Act No. 9054 (An Act to Strengthen and Expand the
Organic Act for the Autonomous Region in Muslim Mindanao, Amending for the Purpose Republic
Act No. 6734, entitled "An Act Providing for the Autonomous Region in Muslim Mindanao," as
Amended) insofar as the provision granted to the ARMM the power to create provinces and cities,
and consequently declared as void Muslim Mindanao Autonomy Act No. 201 creating the Province
of Shariff Kabunsuan for being contrary to Section 5, Article VI and Section 20, Article X of the 1987
Constitution, as well as Section 3 of the Ordinance appended to the 1987 Constitution. The Court
clarified therein that only Congress could create provinces and cities. This was because the creation
of provinces and cities necessarily entailed the creation of legislative districts, a power that only
Congress could exercise pursuant to Section 5, Article VI of the 1987 Constitution and Section 3 of
the Ordinance appended to the Constitution; as such, the ARMM would be thereby usurping the
power of Congress to create legislative districts and national offices.27

The 1987 Constitution has surely encouraged decentralization by mandating that a system of
decentralization be instituted through the LGC in order to enable a more responsive and accountable
local government structure.  It has also delegated the power to tax to the LGUs by authorizing them
28

to create their own sources of income that would make them self-reliant.  It further ensures that each
29

and every LGU will have a just share in national taxes as well in the development of the national
wealth.30

The LGC has further delineated in its Section 3 the different operative principles of decentralization
to be adhered to consistently with the constitutional policy on local autonomy, viz.:

Sec. 3. Operative Principles of Decentralization-

The formulation and implementation of policies and measures on local autonomy shall be guided by
the following operative principles:
(a) There shall be an effective allocation among the different local government units of their
respective powers, functions, responsibilities, and resources;

(b) There shall be established in every local government unit an accountable, efficient, and
dynamic organizational structure and operating mechanism that will meet the priority needs
and service requirements of its communities;

(c) Subject to civil service law, rules and regulations, local officials and employees paid
wholly or mainly from local funds shall be appointed or removed, according to merit and
fitness, by the appropriate appointing authority;

(d) The vesting of duty, responsibility, and accountability in local government units shall be
accompanied with provision for reasonably adequate resources to discharge their powers
and effectively carry out their functions: hence, they shall have the power to create and
broaden their own sources of revenue and the right to a just share in national taxes and an
equitable share in the proceeds of the utilization and development of the national wealth
within their respective areas;

(e) Provinces with respect to component cities and municipalities, and cities and
municipalities with respect to component barangays, shall ensure that the acts of their
component units are within the scope of their prescribed powers and functions;

(f) Local government units may group themselves, consolidate or coordinate their efforts,
services, and resources commonly beneficial to them;

(g) The capabilities of local government units, especially the municipalities and barangays,
shall be enhanced by providing them with opportunities to participate actively in the
implementation of national programs and projects;

(h) There shall be a continuing mechanism to enhance local autonomy not only by legislative
enabling acts but also by administrative and organizational reforms;

(i) Local government units shall share with the national government the responsibility in the
management and maintenance of ecological balance within their territorial jurisdiction,
subject to the provisions of this Code and national policies;

(j) Effective mechanisms for ensuring the accountability of local government units to their
respective constituents shall be strengthened in order to upgrade continually the quality of
local leadership;

(k) The realization of local autonomy shall be facilitated through improved coordination of
national government policies and programs an extension of adequate technical and material
assistance to less developed and deserving local government units;

(l) The participation of the private sector in local governance, particularly in the delivery of
basic services, shall be encouraged to ensure the viability of local autonomy as an
alternative strategy for sustainable development; and

(m) The national government shall ensure that decentralization contributes to the continuing
improvement of the performance of local government units and the quality of community life.
Based on the foregoing delineation, decentralization can be considered as the decision by the
central government to empower its subordinates, whether geographically or functionally constituted,
to exercise authority in certain areas. It involves decision-making by subnational units, and is
typically a delegated power, whereby a larger government chooses to delegate authority to more
local governments.  It is also a process, being the set of policies, electoral or constitutional reforms
31

that transfer responsibilities, resources or authority from the higher to the lower levels of
government.  It is often viewed as a shift of authority towards local governments and away from the
32

central government, with total government authority over society and economy imagined as fixed. 33

As a system of transferring authority and power from the National Government to the LGUs,
decentralization in the Philippines may be categorized into four, namely: (1) political decentralization
or devolution; (2) administrative decentralization or deconcentration; (3) fiscal decentralization; and
(4) policy or decision-making decentralization.

Political decentralization or devolution occurs when there is a transfer of powers, responsibilities,

and resources from the central government to the LOU s for the performance of certain functions. It
is a more liberal form of decentralization because there is an actual transfer of powers and
responsibilities. It aims to grant greater autonomy to the LGUs in cognizance of their right to self-
government, to make them self-reliant, and to improve their administrative and technical
capabilities.  It is an act by which the National Government confers power and authority upon the
34

various LGUs to perform specific functions and responsibilities.  It encompasses reforms to open
35

sub-national representation and policies to "devolve political authority or electoral capacities to sub-
national actors. "  Section 16 to Section 19 of the LGC characterize political decentralization in the
36

LGC as different LGUs empowered to address the different needs of their constituents. In contrast,
devolution in favor of the regional units is more expansive because they are given the authority to
regulate a wider array of subjects, including personal, family and property relations.

Administrative decentralization or deconcentration involves the transfer of functions or the delegation

of authority and responsibility from the national office to the regional and local offices.   Consistent
37

with this concept, the LGC has created the Local School Boards,  the Local Health Boards  and the
38 39

Local Development Councils,  and has transferred some of the authority from the agencies of the
40

National Government, like the Department of Education and the Department of Health, to such
bodies to better cope up with the needs of particular localities.

Fiscal decentralization means that the LGUs have the power to create their own sources of revenue
in addition to their just share in the national taxes released by the National Government. It includes
the power to allocate their resources in accordance with their own priorities. It thus extends to the
preparation of their budgets, so that the local officials have to work within the constraints of their
budgets. The budgets are not formulated at the national level and imposed on local governments,
without regard as to whether or not they are relevant to local needs and resources. 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, is recognized and
addressed. 41

Fiscal decentralization emanates from a specific constitutional mandate that is expressed in several
provisions of Article X (Local Government) of the 1987 Constitution, specifically: Section 5;  Section
42

6;  and Section 7.
43 44

The constitutional authority extended to each and every LGU to create its own sources of income
and revenue has been formalized from Section 128 to Section 133 of the LGC. To implement the
LGUs' entitlement to the just share in the national taxes, Congress has enacted Section 284 to
Section 288 of the LGC. Congress has further enacted Section 289 to Section 294 of the LGC to
define the share of the LGUs in the national wealth. Indeed, the requirement for the automatic
release to the LGUs of their just share in the national taxes is but the consequence of the
constitutional mandate for fiscal decentralization. 45

For sure, fiscal decentralization does not signify the absolute freedom of the LGUs to create their
own sources of revenue and to spend their revenues unrestrictedly or upon their individual whims
and caprices. Congress has subjected the LGUs' power to tax to the guidelines set in Section 130 of
the LGC and to the limitations stated in Section 133 of the LGC. The concept of local fiscal
autonomy does not exclude any manner of intervention by the National Government in the form of
supervision if only to ensure that the local programs, fiscal and otherwise, are consistent with the
national goals.46

Lastly, policy- or decision-making decentralization exists if at least one sub-national tier of

government has exclusive authority to make decisions on at least one policy issue. 47

In fine, certain limitations are and can be imposed by Congress in all the forms of decentralization,
for local autonomy, whether as to power or as to administration, is not absolute. The LGUs remain to
be the tenants of the will of Congress subject to the guarantees that the Constitution itself imposes.
G.R. No. 199802

CONGRESSMAN HERMILANDO I. MANDANAS; MAYOR EFREN B. DIONA; MAYOR

ANTONINO A. AURELIO; KAGA WAD MARIOILAGAN;BARANGAY CHAIR PERLITO MANALO;
BARANGA Y CHAIR MEDEL MEDRANO;BARANGAY KAGA WAD CRIS RAMOS; BARANGA Y
KAGA WAD ELISA D. BALBAGO, and ATTY. JOSE MALVAR VILLEGAS, Petitioners 
vs.
EXECUTIVE SECRETARY PAQUITO N. OCHOA, JR.; SECRETARY CESAR PURISIMA,
Department of Finance; SECRETARY FLORENCIO H. ABAD, Department of Budget and
Management; COMMISSIONER KIM JACINTO-HENARES, Bureau of Internal Revenue; and
NATIONAL TREASURER ROBERTO TAN, Bureau of the Treasury, Respondents

G.R. No. 208488

HONORABLE ENRIQUE T. GARCIA, JR., in his personal and official capacity as

Representative of the 2ndDistrict of the Province of Bataan, Petitioner 
vs.
HONORABLE [PAQUITO) N. OCHOA, JR., Executive Secretary; HONORABLE CESAR V.
PURISIMA, Secretary, Department of Finance; HONORABLE FLORENCIO H. ABAD, Secretary,
Department of Budget and Management; HONORABLE KIM S. JACINTO-HENARES,
Commissioner, Bureau of Internal Revenue; and HONORABLE ROZZANO RUFINO B.
BIAZON, Commissioner, Bureau of Customs, Respondents

DECISION

BERSAMIN, J.:

The petitioners hereby challenge the manner in which the just share in the national taxes of the local
government units (LGUs) has been computed.

Antecedents

One of the key features of the 1987 Constitution is its push towards decentralization of government
and local autonomy. Local autonomy has two facets, the administrative and the fiscal. 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.  Such autonomy is as
1

indispensable to the viability of the policy of decentralization as the other.

Implementing the constitutional mandate for decentralization and local autonomy, Congress enacted
Republic Act No. 7160, otherwise known as the Local Government Code (LGC), in order to
guarantee the fiscal autonomy of the LGUs by specifically providing that:

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 percent (35%); 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.

The share of the LGUs, heretofore known as the Internal Revenue Allotment (IRA), has been
regularly released to the LGUs. According to the implementing rules and regulations of the LGC, the
IRA is determined on the basis of the actual collections of the National Internal Revenue Taxes
(NIRTs) as certified by the Bureau of Internal Revenue (BIR). 2

G.R. No. 199802 (Mandanas, et al.) is a special civil action for certiorari, prohibition

and mandamus assailing the manner the General Appropriations Act (GAA) for FY 2012 computed
the IRA for the LGUs.

Mandanas, et al. allege herein that certain collections of NIR Ts by the Bureau of Customs (BOC) -
specifically: excise taxes, value added taxes (VATs) and documentary stamp taxes (DSTs) - have
not been included in the base amounts for the computation of the IRA; that such taxes, albeit
collected by the BOC, should form part of the base from which the IRA should be computed because
they constituted NIRTs; that, consequently, the release of the additional amount of
₱60,750,000,000.00 to the LGUs as their IRA for FY 2012 should be ordered; and that for the same
reason the LGUs should also be released their unpaid IRA for FY 1992 to FY 2011, inclusive,
totaling ₱438,103,906,675.73.

In G.R. No. 208488, Congressman Enrique Garcia, Jr., the lone petitioner, seeks the writ
of mandamus to compel the respondents thereat to compute the just share of the LGUs on the basis
of all national taxes. His petition insists on a literal reading of Section 6, Article X of the 1987
Constitution. He avers that the insertion by Congress of the words internal revenue in the
phrase national taxes found in Section 284 of the LGC caused the diminution of the base for
determining the just share of the LGUs, and should be declared unconstitutional; that, moreover, the
exclusion of certain taxes and accounts pursuant to or in accordance with special laws was similarly
constitutionally untenable; that the VA Ts and excise taxes collected by the BOC should be included
in the computation of the IRA; and that the respondents should compute the IRA on the basis of all
national tax collections, and thereafter distribute any shortfall to the LGUs.

It is noted that named as common respondents were the then incumbent Executive Secretary,
Secretary of Finance, the Secretary of the Department of Budget and Management (DBM), and the
Commissioner of Internal Revenue. In addition, Mandanas, et al. impleaded the National Treasurer,
while Garcia added the Commissioner of Customs.

The cases were consolidated on October 22, 2013.   In the meanwhile, Congressman Garcia, Jr.
3

passed away. Jose Enrique Garcia III, who was subsequently elected to the same congressional
post, was substituted for Congressman Garcia, Jr. as the petitioner in G.R. No. 208488 under the
resolution promulgated on August 23, 2016. 4
In response to the petitions, the several respondents, represented by the Office of the Solicitor
General (OSG), urged the dismissal of the petitions upon procedural and substantive considerations.

Anent the procedural considerations, the OSG argues that the petitions are procedurally defective
because, firstly, mandamus does not lie in order to achieve the reliefs sought because Congress
may not be compelled to appropriate the sums allegedly illegally withheld for to do so will violate the
doctrine of separation of powers; and, secondly, mandamus does not also lie to compel the DBM to
release the amounts to the LGUs because such disbursements will be contrary to the purposes
specified in the GAA; that Garcia has no clear legal right to sustain his suit for mandamus; that the
filing of Garcia's suit violates the doctrine of hierarchy of courts; and that Garcia's petition seeks
declaratory relief but the Court cannot grant such relief in the exercise of its original jurisdiction.

On the substantive considerations, the OSG avers that Article 284 of the LGC is consistent with the
mandate of Section 6, Article X of the 1987 Constitution to the effect that the LGUs shall have a just
share in the national taxes; that the determination of the just share is within the discretion of
Congress; that the limitation under the LGC of the basis for the just share in the NIRTs was within
the powers granted to Congress by the 1987 Constitution; that the LGUs have been receiving
their just share in the national taxes based on the correct base amount; that Congress has the
authority to exclude certain taxes from the base amount in computing the IRA; that there is a
distinction between the VA Ts, excise taxes and DSTs collected by the BIR, on one hand, and the
VA Ts, excise taxes and DSTs collected by the BOC, on the other, thereby warranting their different
treatment; and that Development Budget Coordination Committee (DBCC) Resolution No. 2003-02
dated September 4, 2003 has limited the base amount for the computation of the IRA to the "cash
collections based on the BIR data as reconciled with the Bureau of Treasury;" and that the collection
of such national taxes by the BOC should be excluded.

Issues

The issues for resolution are limited to the following, namely:

I.

Whether or not Mandamus is the proper vehicle to assail the constitutionality of the relevant
provisions of the GAA and the LGC;

II.

Whether or not Section 284 of the LGC is unconstitutional for being repugnant to Section 6, Article X
of the 1987 Constitution;

III.

Whether or not the existing shares given to the LGUs by virtue of the GAA is consistent with the
constitutional mandate to give LGUs a 'just share" to national taxes following Article X, Section 6 of
the 1987 Constitution;

IV.

Whether or not the petitioners are entitled to the reliefs prayed for.
Simply stated, the petitioners raise the novel question of whether or not the exclusion of certain
national taxes from the base amount for the computation of the just share of the LGUs in the national
taxes is constitutional.

Ruling of the Court

The petitions are partly meritorious.

I
Mandamus is an improper remedy

Mandanas, et al. seek the writs of certiorari, prohibition and mandamus, while Garcia prays for the
writ of mandamus. Both groups of petitioners impugn the validity of Section 284 of the LGC.

The remedy of mandamus is defined in Section 3, Rule 65 of the Rules of Court, which provides:

Section 3. Petition for mandamus. - When any tribunal, corporation, board, officer or person
unlawfully neglects the performance of an act which the law specifically enjoins as a duty resulting
from an office, trust, or station, or unlawfully excludes another from the use and enjoyment of a right
or office to which such other is entitled, and there is no other plain, speedy and adequate remedy in
the ordinary course of law, the person aggrieved thereby may file a verified petition in the proper
court, alleging the facts with certainty and praying that judgment be rendered commanding the
respondent, immediately or at some other time to be specified by the court, to do the act required to
be done to protect the rights of the petitioner, and to pay the damages sustained by the petitioner by
reason of the wrongful acts of the respondent.

The petition shall also contain a sworn certification of non-forum shopping as provided in the third
paragraph of section 3, Rule 46.

For the writ of mandamus to issue, the petitioner must show that the act sought to be performed or
compelled is ministerial on the part of the respondent. An act is ministerial when it does not require
the exercise of judgment and the act is performed pursuant to a legal mandate. The burden of proof
is on the mandamus petitioner to show that he is entitled to the performance of a legal right, and that
the respondent has a corresponding duty to perform the act. The writ of mandamus may not issue to
compel an official to do anything that is not his duty to do, or that is his duty not to do, or to obtain for
the petitioner anything to which he is not entitled by law.  5

Considering that its determination of what constitutes the just share of the LGUs in the national taxes
under the 1987 Constitution is an entirely discretionary power, Congress cannot be compelled by
writ of mandamus to act either way. The discretion of Congress thereon, being exclusive, is not
subject to external direction; otherwise, the delicate balance underlying our system of government
may be unduly disturbed. This conclusion should at once then demand the dismissal of the Garcia
petition in G.R. No. 208488, but we do not dismiss it. Garcia has attributed the non-release of some
portions of their IRA balances to an alleged congressional indiscretion - the diminution of the base
amount for computing the LGU's just share. He has asserted that Congress altered the constitutional
base not only by limiting the base to the NIRTs instead of including therein all national taxes, but
also by excluding some national taxes and revenues that only benefitted a few LGUs to the
detriment of the rest of the LGUs.

Garcia's petition, while dubbed as a petition for mandamus, is also a petition for certiorari because it

alleges that Congress thereby committed grave abuse of discretion amounting to lack or excess of
jurisdiction. It is worth reminding that the actual nature of every action is determined by the
allegations in the body of the pleading or the complaint itself, not by the nomenclature used to
designate the same.   Moreover, neither should the prayer for relief be controlling; hence, the courts
6

may still grant the proper relief as the facts alleged in the pleadings and the evidence introduced
may warrant even without a prayer for specific remedy. 7

In this regard, Garcia's allegation of the unconstitutionality of the insertion by Congress of the
words internal revenue in the phrase national taxes justifies treating his petition as one
for certiorari. It becomes our duty, then, to assume jurisdiction over his petition. In Araullo v. Aquino
III,  the Court has emphatically opined that the Court's certiorari jurisdiction under the expanded
8

judicial power as stated in the second paragraph of Section 1, Article VIII of the Constitution can be
asserted:

xxxx to set right and undo any act of grave abuse of discretion amounting to lack or excess of
jurisdiction by any branch or instrumentality of the Government, the Court is not at all precluded from
making the inquiry provided the challenge was properly brought by interested or affected parties.
The Court has been thereby entrusted expressly or by necessary implication with both the duty and
the obligation of determining, in appropriate cases, the validity of any assailed legislative or
executive action. This entrustment is consistent with the republican system of checks and balances.  9

Further, observing that one of the reliefs being sought by Garcia is identical to the main relief sought
by Mandanas, et al., the Court should rightly dwell on the substantive arguments posited by Garcia
to the extent that they are relevant to the ultimate resolution of these consolidated suits.

II.
Municipal corporations and their relationship with Congress

The correct resolution and fair disposition of the issues interposed for our consideration require a
review of the basic principles underlying our system of local governments, and of the extent of the
autonomy granted to the LGUs by the 1987 Constitution.

Municipal corporations are now commonly known as local governments. They are the bodies politic
established by law partly as agencies of the State to assist in the civil governance of the country.
Their chief purpose has been to regulate and administer the local and internal affairs of the cities,
municipalities or districts. They are legal institutions formed by charters from the sovereign power,
whereby the populations within communities living within prescribed areas have formed themselves
into bodies politic and corporate, and assumed their corporate names with the right of continuous
succession and for the purposes and with the authority of subordinate self-government and
improvement and the local administration of the affairs of the State.  10

Municipal corporations, being the mere creatures of the State, are subject to the will of Congress,
their creator. Their continued existence and the grant of their powers are dependent on the
discretion of Congress. On this matter, Judge John F. Dillon of the State of Iowa in the United States
of America enunciated in Merriam v. Moody's Executors  the rule of statutory construction that came
11

to be oft-mentioned as Dillon's Rule, to wit:

[A] municipal corporation possesses and can exercise the following powers and no others: First,
those granted in express words; second, those necessarily implied or necessarily incident to the
powers expressly granted; third, those absolutely essential to the declared objects and purposes of
the corporation-not simply convenient but indispensible; fourth, any fair doubt as to the existence of
a power is resolved by the courts against the corporation-against the existence of the powers.  12
The formulation of Dillon's Rule has since undergone slight modifications. Judge Dillon himself
introduced some of the modifications through his post-Merriam writings with the objective of
alleviating the original formulation's harshness. The word fairly was added to the second proviso; the
word absolutely was deleted from the third proviso; and the words reasonable and substantial were
added to the fourth proviso, thusly:

x x x second, those necessarily or fairly implied in or incident to the powers expressly granted; third,
those essential to x x x. Any fair, reasonable, doubt. 
13

The modified Dillon's Rule has been followed in this jurisdiction, and has remained despite both the
1973 Constitution and the 1987 Constitution mandating autonomy for local governments. This has
been made evident in several rulings of the Court, one of which was that handed down in Magtajas
v. Pryce Properties Corporation, lnc.: 14

In light of all the above considerations, we see no way of arriving at the conclusion urged on us by
the petitioners that the ordinances in question are valid. On the contrary, we find that the ordinances
violate P.D. 1869, which has the character and force of a statute, as well as the public policy
expressed in the decree allowing the playing of certain games of chance despite the prohibition of
gambling in general.

The rationale of the requirement that the ordinances should not contravene a statute is
obvious. Municipal governments are only agents of the national government. Local councils
exercise only delegated legislative powers conferred on them by Congress as the national
lawmaking body. The delegate cannot be superior to the principal or exercise powers higher
than those of the latter. It is a heresy to suggest that the local government units can undo the
acts of Congress, from which they have derived their power in the first place, and negate by
mere ordinance the mandate of the statute.

Municipal corporations owe their origin to, and derive their powers and rights wholly from the
legislature. It breathes into them the breath of life, without which they cannot exist. As it
creates, so it may destroy. As it may destroy, it may abridge and control. Unless there is
some constitutional limitation on the right, the legislature might, by a single act, and if we
can suppose it capable of so great a folly and so great a wrong, sweep from existence all of
the municipal corporations in the State, and the corporation could not prevent it. We know of
no limitation on the right so far as to the corporation themselves are concerned. They are, so
to phrase it, the mere tenants at will of the legislature.

This basic relationship between the national legislature and the local government units has
not been enfeebled by the new provisions in the Constitution strengthening the policy of
local autonomy. Without meaning to detract from that policy, we here confirm that Congress
retains control of the local government units although in significantly reduced degree now
than under our previous Constitutions. The power to create still includes the power to
destroy. The power to grant still includes the power to withhold or recall.

True, there are certain notable innovations in the Constitution, like the direct conferment on
the local government units of the power to tax, which cannot now be withdrawn by mere
statute. By and large, however, the national legislature is still the principal of the local
government units, which cannot defy its will or modify or violate it. [Bold underscoring supplied
for emphasis]
Also, in the earlier ruling in Ganzon v. Court of Appeals,   the Court has pointed out that the 1987
15

Constitution, in mandating autonomy for the LGUs, did not intend to deprive Congress of its authority
and prerogatives over the LGUs.

Nonetheless, the LGC has tempered the application of Dillon's Rule in the Philippines by providing a
norm of interpretation in favor of the LGUs in its Section 5(a), to wit:

xxxx

(a) Any provision on a power of a local government unit shall be liberally interpreted in its favor, and
in case of doubt, any question thereon shall be resolved in favor of devolution of powers and of the
local government unit. Any fair and reasonable doubt as to the existence of the power shall be
interpreted in favor of the local government unit concerned; [Bold underscoring supplied for
emphasis]

xxxx

III.
The extent of local autonomy in the Philippines

Regardless, there remains no question that Congress possesses and wields plenary power to
control and direct the destiny of the LGUs, subject only to the Constitution itself, for Congress, just
like any branch of the Government, should bow down to the majesty of the Constitution, which is
always supreme.

The 1987 Constitution limits Congress' control over the LGUs by ordaining in Section 25 of its Article
II that: "The State shall ensure the autonomy of local governments." The autonomy of the LGUs as
thereby ensured does not contemplate the fragmentation of the Philippines into a collection of mini-
states,   or the creation of imperium in imperio.   The grant of autonomy simply means that
16 17

Congress will allow the LGUs to perform certain functions and exercise certain powers in order not
for them to be overly dependent on the National Government subject to the limitations that the 1987
Constitution or Congress may impose.   Local autonomy recognizes the wholeness of the Philippine
18

society in its ethnolinguistic, cultural, and even religious diversities.

19

The constitutional mandate to ensure local autonomy refers to decentralization.  In its broad or
20

general sense, decentralization has two forms in the Philippine setting, namely: the decentralization
of power and the decentralization of administration. The decentralization of power involves the
abdication of political power in favor of the autonomous LGUs as to grant them the freedom to chart
their own destinies and to shape their futures with minimum intervention from the central
government. This amounts to self-immolation because the autonomous LGUs thereby become
accountable not to the central authorities but to their constituencies. On the other hand, the
decentralization of administration occurs when the central government delegates administrative
powers to the LGUs as the means of broadening the base of governmental powers and of making
the LGUs more responsive and accountable in the process, and thereby ensure their fullest
development as self-reliant communities and more effective partners in the pursuit of the goals of
national development and social progress. This form of decentralization further relieves the central
government of the burden of managing local affairs so that it can concentrate on national concerns. 21

Two groups of LGUs enjoy decentralization in distinct ways. The decentralization of power has been
given to the regional units (namely, the Autonomous Region for Muslim Mindanao [ARMM] and the
constitutionally-mandated Cordillera Autonomous Region [CAR]). The other group of
LGUs (i.e., provinces, cities, municipalities and barangays) enjoy the decentralization of
administration.  The distinction can be reasonably understood. The provinces, cities, municipalities
22

and barangays are given decentralized administration to make governance at the local levels more
directly responsive and effective. In turn, the economic, political and social developments of the
smaller political units are expected to propel social and economic growth and development.   In23

contrast, the regional autonomy of the ARMM and the CAR aims to permit determinate groups with
common traditions and shared social-cultural characteristics to freely develop their ways of life and
heritage, to exercise their rights, and to be in charge of their own affairs through the establishment of
a special governance regime for certain member communities who choose their own authorities from
within themselves, and exercise the jurisdictional authority legally accorded to them to decide their
internal community affairs. 24

It is to be underscored, however, that the decentralization of power in favor of the regional units is
not unlimited but involves only the powers enumerated by Section 20, Article X of the 1987
Constitution and by the acts of Congress. For, with various powers being devolved to the regional
units, the grant and exercise of such powers should always be consistent with and limited by the
1987 Constitution and the national laws.   In other words, the powers are guardedly, not absolutely,
25

abdicated by the National Government.

Illustrative of the limitation is what transpired in Serna v. Commission on Elections,  where the Court
26

struck down Section 19, Article VI of Republic Act No. 9054 (An Act to Strengthen and Expand the
Organic Act for the Autonomous Region in Muslim Mindanao, Amending for the Purpose Republic
Act No. 6734, entitled "An Act Providing for the Autonomous Region in Muslim Mindanao," as
Amended) insofar as the provision granted to the ARMM the power to create provinces and cities,
and consequently declared as void Muslim Mindanao Autonomy Act No. 201 creating the Province
of Shariff Kabunsuan for being contrary to Section 5, Article VI and Section 20, Article X of the 1987
Constitution, as well as Section 3 of the Ordinance appended to the 1987 Constitution. The Court
clarified therein that only Congress could create provinces and cities. This was because the creation
of provinces and cities necessarily entailed the creation of legislative districts, a power that only
Congress could exercise pursuant to Section 5, Article VI of the 1987 Constitution and Section 3 of
the Ordinance appended to the Constitution; as such, the ARMM would be thereby usurping the
power of Congress to create legislative districts and national offices.27

The 1987 Constitution has surely encouraged decentralization by mandating that a system of
decentralization be instituted through the LGC in order to enable a more responsive and accountable
local government structure.  It has also delegated the power to tax to the LGUs by authorizing them
28

to create their own sources of income that would make them self-reliant.  It further ensures that each
29

and every LGU will have a just share in national taxes as well in the development of the national
wealth.30

The LGC has further delineated in its Section 3 the different operative principles of decentralization
to be adhered to consistently with the constitutional policy on local autonomy, viz.:

Sec. 3. Operative Principles of Decentralization-

The formulation and implementation of policies and measures on local autonomy shall be guided by
the following operative principles:

(a) There shall be an effective allocation among the different local government units of their
respective powers, functions, responsibilities, and resources;
 (b) There shall be established in every local government unit an accountable, efficient, and
dynamic organizational structure and operating mechanism that will meet the priority needs
and service requirements of its communities;

(c) Subject to civil service law, rules and regulations, local officials and employees paid
wholly or mainly from local funds shall be appointed or removed, according to merit and
fitness, by the appropriate appointing authority;

(d) The vesting of duty, responsibility, and accountability in local government units shall be
accompanied with provision for reasonably adequate resources to discharge their powers
and effectively carry out their functions: hence, they shall have the power to create and
broaden their own sources of revenue and the right to a just share in national taxes and an
equitable share in the proceeds of the utilization and development of the national wealth
within their respective areas;

(e) Provinces with respect to component cities and municipalities, and cities and
municipalities with respect to component barangays, shall ensure that the acts of their
component units are within the scope of their prescribed powers and functions;

(f) Local government units may group themselves, consolidate or coordinate their efforts,
services, and resources commonly beneficial to them;

(g) The capabilities of local government units, especially the municipalities and barangays,
shall be enhanced by providing them with opportunities to participate actively in the
implementation of national programs and projects;

(h) There shall be a continuing mechanism to enhance local autonomy not only by legislative
enabling acts but also by administrative and organizational reforms;

(i) Local government units shall share with the national government the responsibility in the
management and maintenance of ecological balance within their territorial jurisdiction,
subject to the provisions of this Code and national policies;

(j) Effective mechanisms for ensuring the accountability of local government units to their
respective constituents shall be strengthened in order to upgrade continually the quality of
local leadership;

(k) The realization of local autonomy shall be facilitated through improved coordination of
national government policies and programs an extension of adequate technical and material
assistance to less developed and deserving local government units;

(l) The participation of the private sector in local governance, particularly in the delivery of
basic services, shall be encouraged to ensure the viability of local autonomy as an
alternative strategy for sustainable development; and

(m) The national government shall ensure that decentralization contributes to the continuing
improvement of the performance of local government units and the quality of community life.

Based on the foregoing delineation, decentralization can be considered as the decision by the
central government to empower its subordinates, whether geographically or functionally constituted,
to exercise authority in certain areas. It involves decision-making by subnational units, and is
typically a delegated power, whereby a larger government chooses to delegate authority to more
local governments.  It is also a process, being the set of policies, electoral or constitutional reforms
31

that transfer responsibilities, resources or authority from the higher to the lower levels of
government.  It is often viewed as a shift of authority towards local governments and away from the
32

central government, with total government authority over society and economy imagined as fixed. 33

As a system of transferring authority and power from the National Government to the LGUs,
decentralization in the Philippines may be categorized into four, namely: (1) political decentralization
or devolution; (2) administrative decentralization or deconcentration; (3) fiscal decentralization; and
(4) policy or decision-making decentralization.

Political decentralization or devolution occurs when there is a transfer of powers, responsibilities,

and resources from the central government to the LOU s for the performance of certain functions. It
is a more liberal form of decentralization because there is an actual transfer of powers and
responsibilities. It aims to grant greater autonomy to the LGUs in cognizance of their right to self-
government, to make them self-reliant, and to improve their administrative and technical
capabilities.  It is an act by which the National Government confers power and authority upon the
34

various LGUs to perform specific functions and responsibilities.  It encompasses reforms to open
35

sub-national representation and policies to "devolve political authority or electoral capacities to sub-
national actors. "  Section 16 to Section 19 of the LGC characterize political decentralization in the
36

LGC as different LGUs empowered to address the different needs of their constituents. In contrast,
devolution in favor of the regional units is more expansive because they are given the authority to
regulate a wider array of subjects, including personal, family and property relations.

Administrative decentralization or deconcentration involves the transfer of functions or the delegation

of authority and responsibility from the national office to the regional and local offices.   Consistent
37

with this concept, the LGC has created the Local School Boards,  the Local Health Boards  and the
38 39

Local Development Councils,  and has transferred some of the authority from the agencies of the
40

National Government, like the Department of Education and the Department of Health, to such
bodies to better cope up with the needs of particular localities.

Fiscal decentralization means that the LGUs have the power to create their own sources of revenue
in addition to their just share in the national taxes released by the National Government. It includes
the power to allocate their resources in accordance with their own priorities. It thus extends to the
preparation of their budgets, so that the local officials have to work within the constraints of their
budgets. The budgets are not formulated at the national level and imposed on local governments,
without regard as to whether or not they are relevant to local needs and resources. 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, is recognized and
addressed. 41

Fiscal decentralization emanates from a specific constitutional mandate that is expressed in several
provisions of Article X (Local Government) of the 1987 Constitution, specifically: Section 5;  Section
42

6;  and Section 7.
43 44

The constitutional authority extended to each and every LGU to create its own sources of income
and revenue has been formalized from Section 128 to Section 133 of the LGC. To implement the
LGUs' entitlement to the just share in the national taxes, Congress has enacted Section 284 to
Section 288 of the LGC. Congress has further enacted Section 289 to Section 294 of the LGC to
define the share of the LGUs in the national wealth. Indeed, the requirement for the automatic
release to the LGUs of their just share in the national taxes is but the consequence of the
constitutional mandate for fiscal decentralization. 
45
For sure, fiscal decentralization does not signify the absolute freedom of the LGUs to create their
own sources of revenue and to spend their revenues unrestrictedly or upon their individual whims
and caprices. Congress has subjected the LGUs' power to tax to the guidelines set in Section 130 of
the LGC and to the limitations stated in Section 133 of the LGC. The concept of local fiscal
autonomy does not exclude any manner of intervention by the National Government in the form of
supervision if only to ensure that the local programs, fiscal and otherwise, are consistent with the
national goals.46

Lastly, policy- or decision-making decentralization exists if at least one sub-national tier of

government has exclusive authority to make decisions on at least one policy issue. 47

In fine, certain limitations are and can be imposed by Congress in all the forms of decentralization,
for local autonomy, whether as to power or as to administration, is not absolute. The LGUs remain to
be the tenants of the will of Congress subject to the guarantees that the Constitution itself imposes.