Pimentel vs. Aguirre, G.R. No.
132988, July 19, 2000
Facts:
In 1997, President Ramos issued AO 372 (Adoption of economy measures in Government for
FY 1998) which: (1) required all government departments and agencies, including State
Universities and Colleges, GOCCs and LGUs to 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 (Section 1) and (2) ordered the withholding of
10% of the IRA to LGUs (Section 4).
Issues:
1. 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
2. Whether 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
RULING:
1. Section 1 of AO 372 does not violate local fiscal autonomy. Local fiscal autonomy does not
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 continuing, coordinated
and integrated social and economic policies, plans and programs 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:
"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.
AO 372, however, 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.
2. Section 4 of AO 372 cannot 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
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 meaning. The provision is, therefore, imperative.
