279 Batangas v.

Romulo
G.R. No. 152744 (2004)
J. Callejo Sr. / Tita K
Subject Matter: Local Taxation; specific provisions
Summary:
Pres. Estrada issued EO No. 48 establishing the “Program for Devolution Adjustment and Equalization” to enhance the capabilities of
LGUs in the discharge of the functions devolved to them. The Oversight Committee passed 3 Resolutions, with guidelines requiring
LGUs to identify projects eligible for funding under the portion of LGSEF and submit project proposals and other requirements to the
DILG for appraisal before the Committee serves notice to the DBM for release of the corresponding funds. Gov. Mandanas of
Batangas petitioned to declare the resolutions and certain provisos in the General Appropriations Acts (GAAs) of 1999, 2000, and
2001 as unconstitutional for uniformly earmarking for each corresponding year P5 billion for the IRA for the LGSEF and imposing
conditions for the funds’ release. SC: provisos and resolutions are a “withholding” of a portion of the IRA—they encroach on fiscal
autonomy of LGUs and are UNCONSTITUTIONAL.

Doctrines:
Sec 6, Art. X of the 1987 Consti mandates that (1) the LGUs shall have a just share in the national taxes; (2) the just share shall be
determined by law; and (3) the just share shall be automatically released to the LGUs.

The LGUs are not required to perform any act to receive just share accruing to them from the national coffers. The just share shall be
released to them without the need of further action.
Parties:
Petitioner THE PROVINCE OF BATANGAS, represented by its Governor, HERMILANDO I. MANDANAS
HON. ALBERTO G. ROMULO, Executive Secretary and Chairman of the Oversight Committee
Respondent on Devolution; HON. EMILIA BONCODIN, Secretary, Department of Budget and Management;
HON. JOSE D. LINA, JR., Secretary, Department of Interior and Local Government
Facts:
Dec. 7, 1998: President Estrada issued E.O. No. 48 (ESTABLISHING A PROGRAM FOR DEVOLUTION ADJUSTMENT AND
EQUALIZATION), to help LGUs in the discharge of functions devolved to them by National Government Agencies concerned
pursuant to the LGC. The Oversight Committee (the Devolution Committee in E.O. No. 48) constituted under Sec. 533(b) of the
1991 LGC was tasked to formulate and issue appropriate regulations for implementation. For funding, the Devolution
Adjustment and Equalization Fund was created. The Department of Budget and Management (DBM) was directed to set aside
an amount to be determined by the Committee based on devolution status appraisal surveys by the DILG. The initial fund was to
be sourced from available savings of the national government for CY 1998. For 1999 and the succeeding years, the
corresponding amount required to sustain the program was to be incorporated in the annual GAA. The Oversight Committee
was authorized to issue the implementing rules governing the allocation and distribution of the fund to the LGUs.
The GAA of 1999 (R.A. 8745) renamed the program as the LGSEF (Local Government Service Equalization Fund), and under this,
P96,780,000,000 was allotted as the share of the LGUs in the internal revenue taxes. Item No. 1, Special Provisions, Title XXXVI
A. Internal Revenue Allotment of this GAA contained a proviso earmarking P5B for the LGSEF, to be released subject to the
Oversight Committee’s implementing regulations. The IRA was to be released directly by the DBM to the LGUs concerned.
Jul. 28, 1999: the Oversight Committee (with then Exec. Sec. Ronaldo Zamora as Chairman) passed 3 Resolutions requesting
Pres. Estrada to 1.) approve an allocation scheme for the 5 billion; 2. adopt an allocation scheme for 4 billion out of that
amount, with its release to LGUS subject to implementing guidelines; and 3. approve the Committee’s request to set aside 20%
of the fund for local affirmative action projects, with numerous guidelines:
1. The PhP4 Billion of the LGSEF shall be allocated as follows:
a. The 1st PhP2 Billion of the LGSEF shall be allocated in accordance with the codal formula sharing scheme prescribed under the 1991
LGC;
b. The 2nd PhP2 Billion of the LGSEF shall be allocated in accordance with a modified 1992 cost of devolution fund (CODEF) sharing
scheme, as recommended by the respective leagues of provinces, cities and municipalities to the OCD. The sharing formula is as follows:
Province : 40%; Cities : 20%; Municipalities : 40%
This is applied to the P2 Billion after the approved amounts granted to individual provinces, cities and municipalities as assistance to cover
decrease in 1999 IRA share due to reduction in land area have been taken out.
2. The remaining PhP1 Billion of the LGSEF shall be earmarked to support local affirmative action projects and other priority initiatives
submitted by LGUs to the Oversight Committee on Devolution for approval in accordance with its prescribed guidelines as promulgated and
adopted by the OCD. For LGUs to be eligible for funding under the one-billion-peso portion, the OCD promulgated the following criteria:
a. LGUs individually or by group or multi-LGUs or leagues of LGUs, especially those belonging to the 5th and 6th class, may access the
fund to support any projects that satisfy any of the cited purposes below. A barangay may also access this fund directly or through their
respective municipality or city.
b. The proposed project should be need-based, a local priority, with high development impact and are congruent with the socio- cultural,
economic and development agenda of the Administration(food security, poverty alleviation, etc.)
c. Eligible for funding under this fund are projects arising from, but not limited to, the following areas of concern (long list, but items
include delivery of social welfare services, local health and sanitation services, socio-cultural services and facilities for youth and
community development, peace and order and public safety, promotion of tourism and other projects that may be authorized by the
OCD consistent with aforementioned objectives and guidelines)
A restriction in the resolution stated that except in extremely meritorious cases, as may be determined by the Oversight Committee, that
portion of the LGSEF shall not be used for personal costs or benefits under existing laws applicable to governments, and that the fund
shall cover the following expenditures for programs, projects and activities arising from the implementation of devolved and regular
functions and services: (again, list—examples here in case asked) repair/improvement of facilities and equipment, acquiring basic
equipment, construction of new/additional facilities.

To be eligible for funding, an LGU or group of LGUs had to submit a letter request to the Oversight Committee on Devolution
through the DILG, within the prescribed schedule and timeframe, duly signed by the concerned LGU(s) and endorsed by
cooperators and/or beneficiaries, plus the duly signed Resolution of Endorsement by the respective Sanggunian(s) of the LGUs
concerned. The LGU-proponent was also required to submit a Project Request using a prescribed Request Form with details like
a brief of the project, its objectives, schedule, total cost and requested amount to be covered by the fund.
The project proposals that passed DILG appraisal would be submitted to the Oversight Committee for approval. Upon approval,
the Committee would serve notice to the DBM for the preparation of the Special Allotment Release Order (SARO) and Notice of
Cash Allocation (NCA) to effect the release of funds to the said LGUs.
The LGSEF in the GAA of 2000 (R.A. 8760): P111,778,000,000 was allotted as the share of the LGUs in the internal revenue taxes.
This also contained a proviso earmarking five billion from the IRA for the LGSEF, similarly worded to the GAA of 1999. The
Oversight Committee, in Resolution No. OCD-2000- 023 adopted the following allocation scheme for this:
PhP3.5 Billion of the CY 2000 LGSEF shall be allocated to and shared by the 4levels of LGUs, i.e., using the following percentage- sharing
formula agreed upon and jointly endorsed by the various Leagues of LGUs: Provinces 26% or P 910,000,000; Cities 23% or 805,000,000;
Municipalities 35% or 1,225,000,000; Barangays 16% or 560,000,000.

Leagues representing LGUs were to adopt the horizontal distribution schemes among members where they may opt to adopt
direct financial assistance or project-based arrangement, such that the LGSEF allocation for individual LGU shall be released
directly to the LGU concerned, and the individual shares were to be used according to guidelines by the Committee in its earlier
resolutions, subject to its approval and endorsement to the DBM. The remaining P1.5B was earmarked to support local
affirmative action projects (LAAP), to be endorsed to and approved by the Committee on Devolution.
Jul. 5, 2000: President Estrada issued a Memorandum authorizing Exec. Sec. Zamora and the DBM to implement and release the
2.5 billion pesos LGSEF for 2000 in accordance with Res No. OCD-2000-023. Later, the Oversight Committee, now under Pres.
Macapagal-Arroyo, promulgated Resolution No. OCD-2001-29 (ADOPTING RES NO. OCD-2000-023 IN THE ALLOCATION,
IMPLEMENTATION AND RELEASE OF THE REMAINING P2.5 BILLION LGSEF FOR CY 2000). Under this, P1B of the LGSEF was to be
released in accordance with par. 1 of Res. No. OCD-2000-23, to complete the P3.5B allocated to LGUs, while P1.5B was allocated
for the LAAP. However, out of the latter amount, P400,000,000 was to be allocated and released as follows:
P50,000,000 as financial assistance to the LAAPs of LGUs; P275,360,227 as financial assistance to cover the decrease in the IRA of LGU
concerned due to reduction in land area; and P74,639,773 for the LGSEF Capability-Building Fund.

The LGSEF in the GAA of 2001: As Congress failed to enact the general appropriations law for 2001, the GAA of 2000 was
deemed re-enacted, together with the IRA of the LGUs therein and the proviso earmarking P5B thereof for the LGSEF. Another
resolution was issued allocating the P5B for 2001 as follows:
Priority Projects P1.90B (for projects of 4th, 5th, and 6th class LGUs or consonance with SONA commitments); Capability Building Fund
P0.1B, and the Modified Codal Formula for P3B computed as: Provinces 25% (P 0.75B), Cities 25% (P0.75B), Municipalities 35% (P1.05B),
Barangays 15% (P0.45B.)
 The remaining P100M LGSEF was to be distributed in accordance with the recommendation of the Leagues and approved by the
Committee. Upon receipt of a copy of the resolution, Gov. Mandanas wrote to the Committee seeking its reconsideration. He
also wrote to Pres. Macapagal-Arroyo urging her to disapprove it for being unconstitutional, but she approved it anyway. Hence
this petition.
Issue/s: WON THE GAA PROVISOS AND THE RESOLUTIONS ENCROACH ON LGU FISCAL AUTONOMY. (YES)

Ratio:

YES - GAA PROVISOS AND OCD RESOLUTIONS UNCONSTITUTIONAL.

 Sec 6, Art. X of the 1987 Consti mandates that (1) the LGUs shall have a just share in the national taxes; (2) the just share
shall be determined by law; and (3) the just share shall be automatically released to the LGUs.
 “Automatic” is defined as involuntary either wholly or to a major extent so that any activity of the will is largely negligible;
without thought or conscious intention. It connotes something mechanical, spontaneous, and perfunctory.
o As such, the LGUs are not required to perform any act to receive just share accruing to them from the national
coffers. The just share shall be released to them without the need of further action.
o 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. (Pimentel v. Aguirre)
 The LGSEF is part of the IRA or just share of the LGUs in the national taxes.
o 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 provisos in the GAAs of 1999, 2000 and 2001 and the OCD resolutions, makes the release not
automatic, a flagrant violation of the constitutional and statutory mandate that the just share of the LGUs shall be
automatically released to them.
 The only possible exception to the mandatory automatic release of the LGUs IRA is if the national internal revenue
collections for the current fiscal year is less than 40 percent of the collections of the preceding third fiscal year, in which
case what should be automatically released shall be a proportionate amount of the collections for the current fiscal year.
(Sec 284, LGC)
o In the instant case, however, there is no allegation that the national internal revenue tax collections for the fiscal
years 1999, 2000 and 2001 have fallen compared to the preceding three fiscal years.
 Further, the percentage sharing as mandated by Sec 285, LGC is not followed with respect to the five billion pesos LGSEF as
the assailed OCD resolutions, implementing the assailed provisos in the GAAs of 1999, 2000 and 2001, provided for a
different sharing scheme
o The Local Government Code of 1991 is a substantive law. And while it is conceded that Congress may amend any
of the provisions therein, it may not do so through appropriations laws or GAAs. Any amendment to the Local
Government Code of 1991 should be done in a separate law, not in the appropriations law, because Congress
cannot include in a general appropriation bill matters that should be more properly enacted in a separate
legislation.
 Local autonomy includes both administrative and fiscal autonomy.
o 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.
o
Wherefore, the petition is GRANTED. The assailed provisos in the General Appropriations Acts of 1999, 2000 and 2001, and the
assailed OCD Resolutions, are declared UNCONSTITUTIONAL.