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 Petition 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. However, the intervention of Roberto Pagdanganan has rendered academic any further discussion on this matter.
The Court’s Ruling
The Petition is partly meritorious.
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 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.”
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.
In a more recent case, Drilon v. Lim, 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. 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. 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.
In Ganzon v. Court of Appeals, 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.
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 in detail in Limbona v. Mangelin 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,’ and ‘ensure their fullest development as self-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 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 has no control over their acts in the sense that he can substitute their judgments with his own.
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.”
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.
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 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 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.
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 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.
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 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.