Withholding a Part of LGUs' IRA

On the other hand, Section 4 of Administrative Order No. 372 violates "a basic feature of local fiscal autonomy", which is the automatic release of the shares of local governments in the national internal revenue. The Section, violates the Constitution and the Local Government Code.

According to the Court, the Local Government Code specifies that the release of the IRA shall be made directly to the LGU concerned within five days after every quarter of the year. The Code also provides that the IRA "shall not be subject to any lien or holdback that may be imposed by the national government for whatever purpose." The Court held that the word "shall" is a word of command that must be given a compulsory meaning. "The provision is, therefore, imperative."

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.

...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.

Justice Kapunan's Dissent

The Court's decision was not unanimous. Associate Justice Santiago M. Kapunan, who was joined by Associate Justices Fidel P. Purisima and Consuelo Ynares-Santiago, dissented on the grounds that

The majority of the Court, however, refuted the dissent.

On the premature filing of the case.

The majority said that the issue is whether the Constitution and the law were violated by Section 4 of Administrative Order No. 372. "[W]hen an act of the legislative department is seriously alleged to have infringed the Constitution, settling the controversy becomes the duty of this Court. By the mere enactment of the questioned law or the approval of the challenged action, the dispute is said to have ripened into a judicial controversy even without any other overt act. Indeed, even a singular violation of the Constitution and/or the law is enough to awaken judicial duty.

By the same token, when an act of the President, who in our constitutional scheme is a coequal of Congress, is seriously alleged to have infringed the Constitution and the laws, as in the present case, settling the dispute becomes the duty and the responsibility of the courts.

Besides, the issue that the Petition is premature was not raised by the parties in the case, and it is deemed waived.

On the President's power as chief fiscal officer of the country.

Justice Kapunan also claimed that Section 4 is consistent with the President's role as chief fiscal officer, who "is clothed by law with certain powers to ensure the observance of safeguards and auditing requirements, as well as the legal prerequisites in the release and use of IRAs, taking into account the constitutional and statutory mandates."

The majority responded by saying that such powers have specifically been authorized by law and have not been challenged as violative of the Constitution. On the other hand, Section 4 contravenes provisions of the Local Government Code and the Constitution. Unlike the acts alluded to in the Justice Kapunan's Dissent, which are authorized by law, Section 4 is bereft of any legal or constitutional basis.

On the President's authority to adjust the IRA of LGUs in case of an unmanageable public sector deficit.

This Court explained that in striking down Section 4 as unconstitutional, it did not rule out any form of reduction in the IRAs of LGUs. But this can be done consistently with Section 284 of the Local Government Code. The reduction is subject to consultation with the presiding officers of both Houses of Congress and, more importantly, with the presidents of the leagues of local governments.