Republic of the Philippines

SUPREME COURT
Manila

EN BANC

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,
[1]
attaching thereto his Petition in Intervention[2] joining petitioner in the
reliefs sought. At the time, intervenor was the provincial governor of Bulacan,
national president of the League of Provinces of the Philippines and chairman
of the League of Leagues of Local Governments. In a Resolution dated
December 15, 1998, the Court noted said Motion and Petition.

The Facts and the Arguments

On December 27, 1997, the President of the Philippines issued AO 372. Its full
text, with emphasis on the assailed provisions, is as follows:

"ADMINISTRATIVE ORDER NO. 372

ADOPTION OF ECONOMY MEASURES

IN GOVERNMENT FOR FY 1998

WHEREAS, the current economic difficulties brought about by the peso

depreciation requires continued prudence in government fiscal management
to maintain economic stability and sustain the country's growth momentum;

WHEREAS, it is imperative that all government agencies adopt cash

management measures to match expenditures with available resources;

NOW, THEREFORE, I, FIDEL V. RAMOS, President of the Republic of the

Philippines, by virtue of the powers vested in me by the Constitution, do
hereby order and direct:

SECTION 1. All government departments and agencies, including state

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

1. Continued implementation of the streamlining policy on organization and

staffing by deferring action on the following:

a. Operationalization of new agencies;

b. Expansion of organizational units and/or creation of positions;

c. Filling of positions; and

d. Hiring of additional/new consultants, contractual and casual personnel,

regardless of funding source.
2. Suspension of the following activities:

a. Implementation of new capital/infrastructure projects, except those

which have already been contracted out;
 b. Acquisition of new equipment and motor vehicles;

c. All foreign travels of government personnel, except those associated

with scholarships and trainings funded by grants;

d. Attendance in conferences abroad where the cost is charged to the

government except those clearly essential to Philippine commitments
in the international field as may be determined by the Cabinet;

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

government training institutions and agencies in the performance of
their regular functions and those that are funded by grants;

f. Conduct of cultural and social celebrations and sports activities,

except those associated with the Philippine Centennial celebration and
those involving regular competitions/events;

g. Grant of honoraria, except in cases where it constitutes the only source

of compensation from government received by the person concerned;

h. Publications, media advertisements and related items, except those

required by law or those already being undertaken on a regular basis;

i. Grant of new/additional benefits to employees, except those expressly

and specifically authorized by law; and

j. Donations, contributions, grants and gifts, except those given by

institutions to victims of calamities.
3. Suspension of all tax expenditure subsidies to all GOCCs and LGUs

4. Reduction in the volume of consumption of fuel, water, office supplies,

electricity and other utilities
5. Deferment of projects that are encountering significant implementation
problems

6. Suspension of all realignment of funds and the use of savings and reserves

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

SECTION 3. A report on the estimated savings generated from these

measures shall be submitted to the Office of the President, through the
Department of Budget and Management, on a quarterly basis using the
attached format.

SECTION 4. Pending the assessment and evaluation by the Development

Budget Coordinating Committee of the emerging fiscal situation, the amount
equivalent to 10% of the internal revenue allotment to local government units
shall be withheld.

SECTION 5. The Development Budget Coordination Committee shall conduct

a monthly review of the fiscal position of the National Government and if
necessary, shall recommend to the President the imposition of additional
reserves or the lifting of previously imposed reserves.

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

DONE in the City of Manila, this 27th day of December, in the year of our Lord,
nineteen hundred and ninety-seven."
Subsequently, on December 10, 1998, President Joseph E. Estrada issued AO
43, amending Section 4 of AO 372, by reducing to five percent (5%) the
amount of internal revenue allotment (IRA) to be withheld from the LGUs.

Petitioner contends that the President, in issuing AO 372, was in effect

exercising the power of control over LGUs. The Constitution vests in the
President, however, only the power of general supervision over LGUs,
consistent with the principle of local autonomy. Petitioner further argues that
the directive to withhold ten percent (10%) of their IRA is in contravention of
Section 286 of the Local Government Code and of Section 6, Article X of the
Constitution, providing for the automatic release to each of these units its
share in the national internal revenue.

The solicitor general, on behalf of the respondents, claims on the other hand
that AO 372 was issued to alleviate the "economic difficulties brought about
by the peso devaluation" and constituted merely an exercise of the
President's power of supervision over LGUs. It allegedly does not violate
local fiscal autonomy, because it merely directs local governments to identify
measures that will reduce their total expenditures for non-personal services
by at least 25 percent. Likewise, the withholding of 10 percent of the LGUs'
IRA does not violate the statutory prohibition on the imposition of any lien or
holdback on their revenue shares, because such withholding is "temporary in
nature pending the assessment and evaluation by the Development
Coordination Committee of the emerging fiscal situation."

The Issues

The Petition[3] submits the following issues for the Court's resolution:

"A. Whether or not the president committed grave abuse of discretion [in]
ordering all LGUS to adopt a 25% cost reduction program in violation of the
LGU[']S fiscal autonomy

"B. Whether or not the president committed grave abuse of discretion

in ordering the withholding of 10% of the LGU[']S IRA"

In sum, the main issue is whether (a) Section 1 of AO 372, insofar as it

"directs" LGUs to reduce their expenditures by 25 percent; and (b) Section 4
of the same issuance, which withholds 10 percent of their internal revenue
allotments, are valid exercises of the President's power of general
supervision over local governments.

Additionally, the Court deliberated on the question whether petitioner had the
locus standi to bring this suit, despite respondents' failure to raise the issue. [4]
However, the intervention of Roberto Pagdanganan has rendered academic
any further discussion on this matter.

The Court's Ruling

The Petition is partly meritorious.

Main Issue:
 Validity of AO 372
Insofar as LGUs Are Concerned

Before resolving the main issue, we deem it important and appropriate to

define certain crucial concepts: (1) the scope of the President's power of
general supervision over local governments and (2) the extent of the local
governments' autonomy.

Scope of President's Power of

Supervision Over LGUs

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

local governments to one of general supervision. It reads as follows:

"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, [5]
the Court contrasted the President's power of
supervision over local government officials with that of his power of control
over executive officials of the national government. It was emphasized that
the two terms -- supervision and control -- differed in meaning and extent. The
Court distinguished them as follows:

"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,[7] we further stated that the Chief Executive wielded no
more authority than that of checking whether local governments or their
officials were performing their duties as provided by the fundamental law and
by statutes. He cannot interfere with local governments, so long as they act
within the scope of their authority. "Supervisory power, when contrasted with
control, is the power of mere oversight over an inferior body; it does not
include any restraining authority over such body," [8] we said.

In a more recent case, Drilon v. Lim,[9] the difference between control and
supervision was further delineated. Officers in control lay down the rules in
the performance or accomplishment of an act. If these rules are not followed,
they may, in their discretion, order the act undone or redone by their
subordinates or even decide to do it themselves. On the other hand,
supervision does not cover such authority. Supervising officials merely see to
it that the rules are followed, but they themselves do not lay down such rules,
nor do they have the discretion to modify or replace them. If the rules are not
observed, they may order the work done or redone, but only to conform to
such rules. They may not prescribe their own manner of execution of the act.
They have no discretion on this matter except to see to it that the rules are
followed.

Under our present system of government, executive power is vested in the

President.[10] The members of the Cabinet and other executive officials are
merely alter egos. As such, they are subject to the power of control of the
President, at whose will and behest they can be removed from office; or their
actions and decisions changed, suspended or reversed. [11] In contrast, the
heads of political subdivisions are elected by the people. Their sovereign
powers emanate from the electorate, to whom they are directly accountable.
By constitutional fiat, they are subject to the President's supervision only, not
control, so long as their acts are exercised within the sphere of their
legitimate powers. By the same token, the President may not withhold or
alter any authority or power given them by the Constitution and the law.

Extent of Local Autonomy

Hand in hand with the constitutional restraint on the President's power over
local governments is the state policy of ensuring local autonomy. [12]

In Ganzon v. Court of Appeals,[13] we said that local autonomy signified "a

more responsive and accountable local government structure instituted
through a system of decentralization." The grant of autonomy is intended to
"break up the monopoly of the national government over the affairs of local
governments, 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. [15] The difference between
decentralization of administration and that of power was explained in detail in
Limbona v. Mangelin[16] as follows:

"Now, autonomy is either decentralization of administration or

decentralization of power. There is decentralization of administration when
the central government delegates administrative powers to political
subdivisions in order to broaden the base of government power and in the
process to make local governments 'more responsive and accountable,' [17] and
'ensure their fullest development as self-reliant communities and make them
more effective partners in the pursuit of national development and social
progress.'[18] At the same time, it relieves the central government of the
burden of managing local affairs and enables it to concentrate on national
concerns. The President exercises 'general supervision' [19] over them, but
only to 'ensure that local affairs are administered according to law.' [20] He has
no control over their acts in the sense that he can substitute their judgments
with his own.[21]

Decentralization of power, on the other hand, involves an abdication of

political power in the favor of local government units declared to be
autonomous. In that case, the autonomous government is free to chart its
own destiny and shape its future with minimum intervention from central
authorities. According to a constitutional author, decentralization of power
amounts to 'self-immolation,' since in that event, the autonomous government
becomes accountable not to the central authorities but to its
[22]
constituency."
Under the Philippine concept of local autonomy, the national government has
not completely relinquished all its powers over local governments, including
autonomous regions. Only administrative powers over local affairs are
delegated to political subdivisions. The purpose of the delegation is to make
governance more directly responsive and effective at the local levels. In turn,
economic, political and social development at the smaller political units are
expected to propel social and economic growth and development. But to
enable the country to develop as a whole, the programs and policies effected
locally must be integrated and coordinated towards a common national goal.
Thus, policy-setting for the entire country still lies in the President and
Congress. As we stated in Magtajas v. Pryce Properties Corp., Inc., municipal
governments are still agents of the national government. [23]

The Nature of AO 372

Consistent with the foregoing jurisprudential precepts, let us now look into
the nature of AO 372. As its preambular clauses declare, the Order was a
"cash management measure" adopted by the government "to match
expenditures with available resources," which were presumably depleted at
the time due to "economic difficulties brought about by the peso
depreciation." Because of a looming financial crisis, the President deemed it
necessary to "direct all government agencies, state universities and colleges,
government-owned and controlled corporations as well as local governments
to reduce their total expenditures by at least 25 percent along suggested
areas mentioned in AO 372.

Under existing law, local government units, in addition to having

administrative autonomy in the exercise of their functions, enjoy fiscal
autonomy as well. Fiscal autonomy means that local governments have the
power to create their own sources of revenue in addition to their equitable
share in the national taxes released by the national government, as well as
the power to allocate their resources in accordance with their own priorities.
It extends to the preparation of their budgets, and local officials in turn have
to work within the constraints thereof. They are not formulated at the
national level and imposed on local governments, whether they are relevant
to local needs and resources or not. Hence, the necessity of a balancing of
viewpoints and the harmonization of proposals from both local and national
officials,[24] who in any case are partners in the attainment of national goals.

Local fiscal autonomy does not however rule out any manner of national
government intervention by way of supervision, in order to ensure that local
programs, fiscal and otherwise, are consistent with national goals.
Significantly, the President, by constitutional fiat, is the head of the economic
and planning agency of the government, [25] primarily responsible for
formulating and implementing continuing, coordinated and integrated social
and economic policies, plans and programs [26] for the entire country.
However, under the Constitution, the formulation and the implementation of
such policies and programs are subject to "consultations with the appropriate
public agencies, various private sectors, and local government units." The
President cannot do so unilaterally.

Consequently, the Local Government Code provides: [27]

"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. [28] The
Local Government Code[29] specifies further that the release shall be made
directly to the LGU concerned within five (5) days after every quarter of the
year and "shall not be subject to any lien or holdback that may be imposed by
the national government for whatever purpose."[30] As a rule, the term "shall"
is a word of command that must be given a compulsory meaning. [31] The
provision is, therefore, imperative.

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." [32] Hence,
the "temporary" nature of the retention by the national government does not
matter. Any retention is prohibited.

In sum, while Section 1 of AO 372 may be upheld as an advisory effected in

times of national crisis, Section 4 thereof has no color of validity at all. The
latter provision effectively encroaches on the fiscal autonomy of local
governments. Concededly, the President was well-intentioned in issuing his
Order to withhold the LGUs' IRA, but the rule of law requires that even the
best intentions must be carried out within the parameters of the Constitution
and the law. Verily, laudable purposes must be carried out by legal methods.

Refutation of Justice Kapunan's Dissent

Mr. Justice Santiago M. Kapunan dissents from our Decision on the grounds
that, allegedly, (1) the Petition is premature; (2) AO 372 falls within the
powers of the President as chief fiscal officer; and (3) the withholding of the
LGUs' IRA is implied in the President's authority to adjust it in case of an
unmanageable public sector deficit.

First, on prematurity. According to the Dissent, when "the conduct has not
yet occurred and the challenged construction has not yet been adopted by the
agency charged with administering the administrative order, the
determination of the scope and constitutionality of the executive action in
advance of its immediate adverse effect involves too remote and abstract an
inquiry for the proper exercise of judicial function."

This is a rather novel theory -- that people should await the implementing evil
to befall on them before they can question acts that are illegal or
unconstitutional. Be it remembered that the real issue here is whether the
Constitution and the law are contravened by Section 4 of AO 372, not whether
they are violated by the acts implementing it. In the unanimous en banc case
Tañada v. Angara,[33] this Court held that when an act of the legislative
department is seriously alleged to have infringed the Constitution, settling the
controversy becomes the duty of this Court. By the mere enactment of the
questioned law or the approval of the challenged action, the dispute is said to
have ripened into a judicial controversy even without any other overt act.
Indeed, even a singular violation of the Constitution and/or the law is enough
to awaken judicial duty. Said the Court:

"In seeking to nullify an act of the Philippine Senate on the ground that it
contravenes the Constitution, the petition no doubt raises a justiciable
controversy. Where an action of the legislative branch is seriously alleged to
have infringed the Constitution, it becomes not only the right but in fact the
duty of the judiciary to settle the dispute. 'The question thus posed is judicial
rather than political. The duty (to adjudicate) remains to assure that the
supremacy of the Constitution is upheld.'[34] Once a 'controversy as to the
application or interpretation of a constitutional provision is raised before this
Court x x x , it becomes a legal issue which the Court is bound by
constitutional mandate to decide.'[35]

xxx xxx xxx

"As this Court has repeatedly and firmly emphasized in many cases, [36] it will
not shirk, digress from or abandon its sacred duty and authority to uphold the
Constitution in matters that involve grave abuse of discretion brought before
it in appropriate cases, committed by any officer, agency, instrumentality or
department of the government."
In the same vein, the Court also held in Tatad v. Secretary of the Department
of Energy:[37]

"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." [39] He
cites instances when the President may lawfully intervene in the fiscal affairs
of LGUs.

Precisely, such powers referred to in the Dissent have specifically been

authorized by law and have not been challenged as violative of the
Constitution. On the other hand, Section 4 of AO 372, as explained earlier,
contravenes explicit provisions of the Local Government Code (LGC) and the
Constitution. In other words, the acts alluded to in the Dissent are indeed
authorized by law; but, quite the opposite, Section 4 of AO 372 is bereft of any
legal or constitutional basis.

Third, on the President's authority to adjust the IRA of LGUs in case of an

unmanageable public sector deficit. It must be emphasized that in striking
down Section 4 of AO 372, this Court is not ruling out any form of reduction in
the IRAs of LGUs. Indeed, as the President may make necessary adjustments
in case of an unmanageable public sector deficit, as stated in the main part of
this Decision, and in line with Section 284 of the LGC, which Justice Kapunan
cites. He, however, merely glances over a specific requirement in the same
provision -- that such reduction is subject to consultation with the presiding
officers of both Houses of Congress and, more importantly, with the
presidents of the leagues of local governments.
Notably, Justice Kapunan recognizes the need for "interaction between the
national government and the LGUs at the planning level," in order to ensure
that "local development plans 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 [40] of the LGC as impliedly
authorizing the President to withhold the IRA of an LGU, pending its
compliance with certain requirements. Even a cursory reading of the
provision reveals that it is totally inapplicable to the issue at bar. It directs
LGUs to appropriate in their annual budgets 20 percent of their respective
IRAs for development projects. It speaks of no positive power granted the
President to priorly withhold any amount. Not at all.

WHEREFORE, the Petition is GRANTED. Respondents and their successors

are hereby permanently PROHIBITED from implementing Administrative Order
Nos. 372 and 43, respectively dated December 27, 1997 and December 10,
1998, insofar as local government units are concerned.

SO ORDERED.

Davide, Jr., C.J., Bellosillo, Melo, Puno, Vitug, Mendoza, Quisumbing, Pardo,
Buena, Gonzaga-Reyes, and De Leon, Jr., JJ., concur.
Kapunan, J., see dissenting opinion.
Purisima, and Ynares-Santiago, JJ., join J. Kapunan in his dissenting opinion.