Caryl B.

Estrera IV-JD Elective IV

The Province of Batangas, represented by its Governor, Hermilando Mandanas,

petitioner vs Hon. Alberto G. Romulo, Executive Secretary and Chairman of
Oversight Committee of Devolution et.al., respondents
May 27, 2004, G.R. No. 152774

FACTS OF THE CASE:

o On December 7, 1998, then Pres. Joseph Estrada issued Executive Order No. 48
entitled “Establishing a Program for Devolution Adjustment and Equalization.”
The program was established to “facilitate the process of enhancing the capacities
of local government units (LGUs) in the discharge of the functions and services
devolved to them by the National Government Code;

o The Oversight Committee was tasked to formulate and issue the appropriate rules
and regulations necessary for its effective implementation. In 1998, the DBM was
directed to set aside an amount to be determined by the said committee based on
the devolution status appraisal surveys taken by the DILG. Initial fund was from
the savings of the national government from 1998;

o For 1999 and the succeeding years, the corresponding amount for the program
was to be incorporated in the annual GAA. The committee was authorized to
issue the implementing rules and regulations governing the equitable allocation
and distribution of the said funds;

o In 1999, Republic Act No. 8745 or the GAA of 1999 was renamed as the Local
Government Service Equalization Fund (LGSEF). Under the said appropriations
law, the amount of Php 96,780,000,000.00 was allotted as share of the LGUs in
the internal revenue;

o On July 28, 1999, the Oversight Committee, together with Executive Secretary
Ronaldo Zamora as Chairman, passed Resolution Nos. OCD-99-003, OCD-99-
005, and OCD-99-006. The said resolutions were approved by then President
Estrada on October 6, 1999.

 OCD-99-005: the five billion pesos was to be allocated as follows: Php 4

billion pesos shall be allocated to wit: First Php 2 billion pesos shall be
allocated in accordance with codal sharing scheme, 2nd Php 2 billion pesos
shall be allocated in accordance with the modified 19992 cost of
devolution fund with following percentage: province- 40%, cities- 20%,
and the municipalities- 40%; the Php 1 billion shall be in support of local
 affirmative action projects and other priority initiatives submitted by the
LGUs.

 OCD-99-003: The Oversight Committee set aside the one billion pesos
or 20% of the LGSEF to support the Local Affirmative Action Projects of
the LGUs. Further, the LGUs were required to identify the projects
eligible for funding under the one-billion-peso portion of the LGSEF and
submit the proposal for the projects to the DILG.

o In 2000, Republic Act No. 8760 also known as GAA of 2000, the amount of Php
111,778,000,000.00 was allotted as the share of the LGUs in the internal revenue
taxes. In line with this, the Oversight Committee adopted resolution No. OCD-
2000-023 dated June 23, 2000 with the following allocations: Provinces- 26% or
Php 910,000.00; Cities- 23% or Php 805,000,000.00; Municipalities- 35% or
Php 1, 225,000,000.00; and Barangays- 16% or Php 560,000,000.00

o In view of the failure of the Congress to enact the general appropriations law for
2001, the GAA 2000 was deemed re-enacted together with the IRA of the LGUs
therein.

o On January 9, 2002, the Oversight Committee adopted Resolution No. OCD-

2002-001 which allocated the Php 5 billion pesos as follows: Modified Codal
Formula- Php 3 billion pesos, Priority Projects- Php 1.9 billion pesos, and
Capability Bldg- Php 1 billion pesos;

o Upon receipt of the copy of the above resolution, Gov. Mandanas wrote to the
individual members of the Oversight Committee seeking the reconsideration of
Resolution No. OCD-2002-001. He also wrote to then Pres. Gloria Macapagal
Arroyo for her to disapprove said resolution as it violates the Constitution and the
Local Government Code.

o On January 25, 2002, Pres. Gloria Macapagal Arroyo approved Resolution No.
OCD-2002-001.

o Petitioner’s Case:

 Petitioner assails the unconstitutionality and void the provisions in the

GAAs of 1999, 2000, and 2001 relating to the LGSEF. Similarly, assailed
are the Oversight Committee’s Resolution Nos. OCD 99-003, OCD-99-
005, OCD- 99-005, OCD-99-006, OCD-2000-003, OCD-2001-029, and
OCD-2002-001 issued pursuant thereto;

 It was assailed that the earmarked amount of five billion pesos of the IRA
of the LGUs for 1999, 2000, and 2001 for the LGSEF and imposed
conditions for the release thereof violate the Constitution and the Local
 Government Code. As per Section 6, Article X of the Constitution, that the
“just share” of the LGUs shall be automatically released to them, Further,
Sections 18 and 286 of the Local Government Code of 1991, which enjoin
that the “just share” of the LGUSs shall be “automatically and directly”
released to them “without need of further action” are likewise cited;

 The petitioner prays that the Court declares as unconstitutional and void
the assailed provisions relating to the LGSEF in the GAAs of 1999, 2000,
and 2001 and the assailed OCD resolutions. Further, that the Court direct
the respondents to rectify the unlawful and illegal; distribution and the
release of the LGSEF for the aforementioned years and release the same
in accordance with the sharing formula of Section 285 of the Local Gov’t
Code.

 Finally, that the IRA should be automatically released without further

action from the LGUs.

o Respondent’s Arguments:

 Respondents, through the Office of the Solicitor General, urge the Court
to dismiss the petition on procedural and substantive grounds. Further,
they assail that the provisions of GAAs 1999, 2000, and 2001 and the
resolutions are not constitutionally infirm;

 Further, they theorize that Section 285 of the Local Government Code of
1991, provides that the percentage sharing of the IRA among the LGUs
was not intended to be fixed determination of their “just share” in the
national taxes;

 On procedural grounds, the respondents urge the Court to dismiss the

petition as outright as is defective. Further, the petition has already been
deemed as moot and academic as it no longer presents a justiciable
controversy. Lastly, the petitioner has no legal standing to bring the suit
since he has not suffered an injury.

ISSUES OF THE CASE:

 Whether the assailed provisions contained in the GAAs 1999, 2000, and 2001,
and the OCD Resolutions infringe the Constitution and the Local Government
Code of 1991

SUPREME COURT RULING:

o The petitioner has locus standi to maintain the present suit. The Court holds that
the petitioner, a local government unit, seeks to relief in order to protect or
 vindicate an interest of its own, and the other LGUs. This interest pertains to the
LGU’s share in the national taxes on the IRA;

o Further, the injury that the petitioner claims to suffer is the diminution of its
share in the IRA, as provided in Section 285 of the Local Government Code of
1991, occasioned by the implementation of assailed measures.

o The petition involves a significant legal issue which is whether the assailed
provision contained in GAAs 1999, 2000, and 2001 and the OCD Resolutions
infringe the Constitution and the Local Government Code of 1991. The crucial
legal issue submitted for resolution entails the proper legal interpretation of
constitutional and statutory provisions;

o Guided by Article 2, Section 25, Article 10, Section 2 of the Constitution, and
Section 2 of the Local Government Code of 1991, the Court determined that the
assailed provisions in GAAs 1999, 2000, and 2001 and the OCD resolutions
violate the constitutional precept of local autonomy;

o A basic feature of local fiscal autonomy is the automatic release of the shares of
the LGUs in the National Internal Revenue. This is no less mandated by the
Constitution. The Local Government Code specifies further that the release shall
be made directly to the LGUs concerned within five (5) days after every quarter of
the year and “shall not be subject to any lien of holdback that may be imposed by
the national government for whatever purpose. “

o The guidelines required a.) the LGUs to identify the projects eligible for funding
based on the criteria laid down by the Oversight Committee for review, b.) the
LGUs to submit their proposals that passed the appraisal, and c.) the project
proposals that passed the appraisal of the DILG to be submitted to the Oversight
Committee for review, evaluation, and approval. It was only upon the approval
thereof that the Oversight Committee would direct the DBM to release the funds
for the project.
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o The LGSEF is part of the IRA or the “just share” of the LGUs in the national
taxes. To subject its distribution and release to the vagaries of the implementing
rules and regulations, including the guidelines and mechanisms unilaterally
prescribed by the Oversight Committee from time to time as sanctioned by the
assailed GAAs and the OCD resolutions, makes the release not automatic;

o The Oversight Committee’s authority is undoubtedly just limited to the

implementation of the Local Government Code.

o Local autonomy includes both administrative and fiscal autonomy. The Court
declared therein that local fiscal autonomy includes the power of the LGUs to,
inter alia, allocate their resources in accordance with their own priorities.
 Further, a basic feature of local fiscal autonomy is the constitutionally mandated
automatic release of the LGUs shares in the national internal revenue.

o Wherefore, the petition is GRANTED. The assailed provisions in the General

Appropriations Acts of 1999, 2000, 2001, and the OCD Resolutions are declared
UNCONSTITUIONAL.