G.R. No. 152774. May 27, 2004.
THE PROVINCE OF BATANGAS, represented by its Governor, HERMILANDO I. MANDANAS, petitioner, vs. HON. ALBERTO G. ROMULO, Executive Secretary and Chairman of the Oversight Committee on Devolution; HON. EMILIA BONCODIN, Secretary, Department of Budget and Management; HON. JOSE D. LINA, JR., Secretary, Department of Interior and Local Government, respondents.

FACTS

The Province of Batangas, through Governor Mandanas, filed a petition challenging the constitutionality of specific provisos in the General Appropriations Acts (GAAs) of 1999, 2000, and 2001. These provisos uniformly earmarked Five Billion Pesos (P5,000,000,000.00) from the total Internal Revenue Allotment (IRA) for a Local Government Service Equalization Fund (LGSEF). The fund was established to support the devolution of functions from national agencies to local government units (LGUs). The law conditioned the release of this earmarked portion on implementing rules and guidelines prescribed by the Oversight Committee on Devolution.
The petitioner argued that this earmarking and conditioning violated the constitutional and statutory mandate for the automatic release of the LGUs’ “just share” in national taxes, as provided in Section 6, Article X of the Constitution and detailed in the Local Government Code (LGC). The national government respondents, represented by the Executive Secretary and department heads, defended the LGSEF as a valid exercise of the power of the purse and a necessary mechanism to ensure the efficient implementation of devolved services.

ISSUE

Whether or not the provisos in the GAAs earmarking a portion of the IRA for the LGSEF and subjecting its release to conditions imposed by the Oversight Committee are unconstitutional for violating the mandate on the automatic release of the LGUs’ just share in national taxes.

RULING

The Supreme Court declared the assailed provisos UNCONSTITUTIONAL and NULL and VOID. The Court held that the “just share” of LGUs, determined by law as a percentage of national internal revenue taxes, is automatically released. This automatic release is a constitutional imperative designed to foster local autonomy and ensure fiscal independence. The earmarking of a specific amount (P5 billion) from the total IRA for the LGSEF effectively reduced the distributable share of LGUs below the statutory percentage mandated by the LGC.
Furthermore, subjecting the release of this earmarked fund to further guidelines and conditions set by an executive body (the Oversight Committee) constituted an impermissible control over local funds. It violated the principle of automatic release, which requires that the share be directly released to the LGUs without need for any further action or clearance from any national official or agency. The LGSEF mechanism allowed the national government to retain control and discretion over a portion of the IRA, which is legally owned by the LGUs upon accrual. The Court ruled that while Congress has the power of appropriation, it cannot, through the GAA, diminish the “just share” which is a mandatory allocation under the LGC, a substantive law. The constitutional and statutory policy of local fiscal autonomy demands that the entire IRA, as calculated, be released automatically and in full to the local governments.