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.

FACTS

On December 27, 1997, President Fidel V. Ramos issued Administrative Order (AO) No. 372, prescribing economy measures for the government in light of fiscal difficulties. Section 1 of the Order directed all government agencies, including local government units (LGUs), to reduce expenditures by at least 25% of appropriations for non-personal services. More critically, Section 4 ordered the withholding of 10% of the internal revenue allotment (IRA) due to LGUs, pending assessment of the national fiscal situation. This withholding rate was later reduced to 5% by President Joseph Estrada through AO No. 43. Petitioner Aquilino Pimentel Jr., joined by intervenor Governor Roberto Pagdanganan, challenged these provisions.
Petitioner argued that the President, by issuing AO 372, exercised control over LGUs, which violates the constitutional principle of local autonomy and the President’s constitutionally limited power of mere supervision over LGUs. He specifically contended that the directive to withhold a portion of the IRA contravened the mandatory and automatic release of the LGU share as prescribed by Section 286 of the Local Government Code.

ISSUE

Whether Administrative Order No. 372, specifically Sections 1 and 4, is unconstitutional for violating the fiscal autonomy of local government units and for constituting an exercise of control, rather than supervision, by the President over LGUs.

RULING

The Supreme Court partially granted the petition. It upheld Section 1 of AO 372 but declared Section 4 unconstitutional. The Court distinguished between the two provisions based on the nature of the President’s power over LGUs. Section 1, which advises a 25% reduction in non-personal service expenditures, was sustained as a mere advisory consistent with the President’s power of supervision. This power allows the President to ensure that LGUs act within the law, and the advisory did not compel compliance but merely encouraged prudent fiscal management.
In contrast, Section 4, which directed the withholding of 10% (later 5%) of the IRA, was struck down as an act of control. The legal logic is grounded on the mandatory nature of the LGU share in national taxes under the Local Government Code. The Code provides for an automatic release of the IRA, which is a matter of statutory entitlement, not a discretionary grant. By unilaterally withholding a portion of this allotment via an administrative order, the President effectively altered or suspended the operation of the law. This transcends supervision and constitutes control, which is not permitted. The power of supervision is limited to ensuring that LGUs perform their duties by law; it does not include the authority to restrain them from performing functions or using resources where the law has granted them autonomy. Therefore, the withholding of the IRA by presidential fiat, absent a specific statutory grant of such power, is unconstitutional.