Alvarez vs. Guingona because in their computation, the IRAs were not excluded.
(Note: The income must be duly certified by the DOF)
31 JANUARY 1996 | PONENTE: HERMOSISIMA, JR | EN BANC - Petitioners insist that IRAs are not income but are transfers and/or budgetary aid from the national government and that STATEMENT OF FACTS they fluctuate, increase or decrease, depending on factors The petitioners, led by Sen. Heherson Alvarez, seek to question such as population, land and equal sharing. the constitutionality of R.A. 7720, which was an act converting the municipality of Santiago to an Independent Component City, SC: The petitioners are wrong. IRAs are part of an LGU’s income. because: - To resolve this, the SC defined IRAs vis-à-vis the notion of 1. The Act allegedly did not originate exclusively in the House income of an LGU and the principles of autonomy and of Representatives, as mandated by Article 6, Sec. 24 of the decentralization underlying the institutionalization and Constitution; intensified empowerment of the local government system. 2. The Municipality of Santiago has not met the minimum - An LGU is a political subdivision of the State. It is constituted average income required under Sec. 450 of the LGC to be by law, and possessed of substantial control over its own converted into a component city. affairs. It remains to be an intra-sovereign subdivision of one R.A. 7720 became such after the following processes: sovereign nation, but it is not intended to be an imperium in 1. On 18 April 1993, House Bill 8817, principally authored by imperio. Cong. Abaya, was filed in the HRep. - An LGU is autonomous in the sense that it is given more 2. On 5 May, 1993, the bill was referred to the House powers, authority, responsibilities and resources. Power is Committee on Local Governments and House Committee on deconcentrated, enabling peripheral LGUs to develop not Appropriations. only at their own pace and discretion, but also with their own 3. Three public hearings were subsequently held by the resources and assets. committee and by 9 December 1993, the committee - At the practical side of a decentralized local government submitted a favourable report. system is matters of financial resources. With more power 4. On 13 December, the bill was passed on second reading, and responsibility, an LGU operates on a wider scale, and and on 17 December, was approved on third reading. thus, more expenses are entailed. Thus, more resources are 5. On 28 January 1994, the bill was transmitted to the Senate. needed for it to discharge its function. To avail such 6. Concurrently with the HRep, a Senate Bill was also filed in resources, an LGU is vested with: the Senate on 19 May 1993, by Sen. Vicente Sotto III. This 1. The right to create and broaden its own source of was introduced shortly after the first reading of the House revenue bill. 2. The right to be allocated with a just share in national 7. On 23 February 1994, the Senate conducted public hearings taxes (the share being the IRA) on the Senate Bill. On March 1, the committee submitted a 3. The right to be given its equitable share in the proceeds favourable report saying that House Bill 8817 was the same of the utilization and development of national wealth, if with the Senate bill anyway. Sen. Alvarez was one of those any, within its territorial boundaries. who approved the report as member of the Committee of - Funds from local taxes, IRAs and national wealth proceeds Local Governments. accrue to the general fund of the local government and are 8. On 3 March 1994, the senate bill was passed on second used to finance its operations subject to specified modes of reading, and on 14 March, was approved on third reading. spending as specified in the LGC and its IRR. For example, After this, the HRep approved the amendments made by the not less than 20% of the IRA must be set aside for local Senate. development projects. 9. On 12 April 1994, the enrolled bill was submitted to the - With all these in mind, for purposes of budget preparation, President, and was signed by the Chief Executive on 5 May IRAs and the share in national wealth proceeds are 1994 as R.A. 7720. considered items of income. Besides, income is defined in 10. On 13 July 1994, a plebiscite was held and a great majority the LGC as “all revenues and receipts collected or received of the registered voters of Santiago voted in favour of the forming the gross accretions of funds of the LGU.” conversion of Santiago into a city. - IRAs are items of income because they form part of the gross accretion of funds of the LGU. IRAs regularly and ISSUES: automatically accrue to the local treasury without need of The issues as to the validity of R.A. 7720 are: any further action on the part of the LGU. They thus 1. Are the Internal Revenue Allotments (IRA) to be included in constitute income with the LGU can rely upon for funds. The the computation of the average annual income of a DOF included the IRA in their computation of the LGU’s municipality for purposes of converting it into an independent average annual income and it was right. component city? - Futhermore, Sec. 450(c) of the LGC provides that the 2. Considering that the Senate passed its own version of the average annual income shall include the income accruing to House Bill, can RA 7720 be considered to have originated the general fund, exclusive of special funds, transfers and from the House? non-recurring income. IRAs are regular and recurring. It is not a special fund. It has its own meaning in the LGC HELD: (“funding support from the national government, its 1. The annual income of an LGU includes the IRA. instrumentalities and GOCCs”) making it distinct from special 2. RA 7720 was compliant with Art. 6, Sec. 24 of the funds or transfers. Constitution. - Therefore, the DOF Order certifying the income of Santiago by including the IRAs, and excluding non-recurring receipts RATIONALE: such as national aids, grants, financial assistance, loan proceeds, sale of fixed assets, etc is correct. The order must Petitioners contend that Santiago could not qualify as a be accorded with great weight. component city because its average annual income for the last 2 consecutive years based on the 1991 constant prices, fall below As to how RA 7220 was passed, it was compliant with the the required annual income of P20M to be converted into a city. Constitution - They computed Santiago’s average annual income by - The House bill was filed first than the Senate Bill. The House adding the total income of Santiago for 1991 and 1992, Bill initiated the legislative process, so there was violation of deducting the IRA for both years, and then dividing the result Sec. 24, Article 6. Besides, when the Senate Bill was by two to get the average of the two years. The computation dependent on the House Bill. The Senate held in abeyance resulted with P13M. This is below the requirement for any action on the Senate Bill until it received the House Bill. component cities. - Filing a substitute bill in the Senate in anticipation of the - Petitioners contend that the DOF’s certification saying that receipt of the bill from the house does not contravene the Santiago’s income is P21M is allegedly not accurate constitutional requirement that a bill of local application should originate from the House, for as long as the Senate does not act upon it until it receives a House bill. - This issue was already addressed in Tolentino vs Secretary of Finance, which involved the E-VAT Law which originated as a revenue bill which must come from the House. In the case, the court emphasized that the bill from the House may undergo extensive changes in the Senate such that an entirely new bill may be produced. To insist that the statute should be substantially the same as the House bill is to deny the Senate's power not only to concur with amendments but to propose amendments. - What the Constitution simply means is that the initiative for filing bills of local application must come from the House on the theory that members of the House can be expected to be more sensitive to local needs and problems, since they are elected from districts. Senators, on the other hand, are expected to approach the problem from a national perspective.
Besides, every law has in its favour the presumption of
constitutionality. For RA 7220 to be nullified, there must be an unequivocal breach of the Constitution. Its unconstitutionality must be clearly established. In this case, petitioners failed to overcome the presumption.