Elements | Classifications | Public Corporations | LAW ON LOCAL GOVERNMENTS

POLITICAL LAW AND PUBLIC INTERNATIONAL LAW

XV. LAW ON LOCAL GOVERNMENTS

A. Public Corporations

3. Classifications

i. Elements

I. Introduction to Public Corporations

Public corporations are government entities created by law, primarily for the purpose of carrying out public services and exercising government functions in a specific territory. In the context of the Philippines, public corporations refer to local government units (LGUs), which are subdivisions of the state tasked with exercising political and administrative powers in their respective areas.

The legal framework governing public corporations in the Philippines is found primarily in the 1987 Philippine Constitution, Republic Act No. 7160 (the Local Government Code of 1991), and relevant jurisprudence.

II. Classifications of Public Corporations

Public corporations, especially local government units (LGUs), are classified based on various elements. These elements determine their creation, legal personality, powers, and responsibilities. The elements include:

1. Legal Personality

Local government units (LGUs) are created by law and possess a separate legal personality from the state. This legal personality grants them the authority to:

• Enter into contracts
• Sue and be sued
• Acquire and own property
• Govern local affairs within the scope of their delegated powers

This legal personality is essential in distinguishing LGUs from private entities, and it enables them to perform functions delegated by the national government.

Jurisprudence: The Supreme Court has consistently upheld that LGUs are "corporations" in the sense that they are public entities with distinct personalities, as exemplified in Pimentel Jr. v. Aguirre (G.R. No. 132988, July 19, 2000), where the Court emphasized the autonomy of LGUs in managing local affairs within the bounds of the law.

2. Creation

Public corporations in the Philippines are created by law or by the Constitution. The creation of LGUs is a legislative function. Under the 1987 Philippine Constitution, Congress has the power to create, divide, merge, abolish, or substantially alter LGUs, subject to certain conditions such as the approval of the affected constituents in a plebiscite.

The creation of an LGU must meet the criteria specified in the Local Government Code:

• Income requirement
• Population requirement
• Land area requirement

Failure to meet these statutory requirements invalidates the creation or alteration of an LGU.

Example: The creation of the city of Navotas through Republic Act No. 9387 was upheld after a plebiscite ratified its cityhood. This follows the constitutional principle that any creation of an LGU must be affirmed by the people it will govern.

3. Territorial Jurisdiction

The territory of an LGU refers to the geographic area over which it exercises its governmental powers and authority. This includes land, water, and, to some extent, the airspace above the area.

Territorial jurisdiction is essential because it defines the scope of the public corporation's governmental functions, including the ability to:

• Levy and collect taxes
• Enforce local ordinances and laws
• Provide public services such as education, health, and safety

Disputes over territorial boundaries between LGUs are resolved by the courts or appropriate administrative agencies, following provisions in the Local Government Code.

Jurisprudence: In Province of North Cotabato v. Government of the Republic of the Philippines Peace Panel on Ancestral Domain (G.R. No. 183591, October 14, 2008), the Supreme Court ruled that territorial jurisdiction and integrity must be preserved, reaffirming that LGUs cannot unilaterally alter their borders without going through legal processes.

4. Governmental Powers

LGUs, as public corporations, are vested with a set of governmental powers that they exercise over their respective jurisdictions. These powers are classified into:

• Police Power: The power to enact ordinances to protect the health, safety, and welfare of the local inhabitants. This is the most essential local government power, enabling LGUs to regulate behavior within their territorial jurisdiction.

  Example: Ordinances on curfews, sanitation standards, and anti-littering measures are expressions of the police power of LGUs.

• Power of Eminent Domain: The authority to acquire private property for public use upon payment of just compensation. LGUs can exercise this power when necessary for public projects such as roads, schools, and public markets.

  Jurisprudence: In Manapat v. Court of Appeals (G.R. No. 110478, May 23, 1995), the Supreme Court held that the power of eminent domain is not absolute and must comply with the requirements of due process and compensation.

• Taxing Power: The ability to impose taxes, fees, and charges to raise revenue for public services and infrastructure. This power is subject to limitations set by the Constitution and the Local Government Code.

  Jurisprudence: In City of Manila v. Coca-Cola Bottlers Philippines, Inc. (G.R. No. 181845, August 4, 2009), the Supreme Court clarified the limitations of LGUs in imposing taxes, emphasizing that they must adhere to the tax rates and bases set by law.

• Corporate Powers: LGUs, as public corporations, also have corporate powers such as owning property, entering into contracts, and managing their own local economic enterprises. These corporate powers are exercised in a proprietary capacity, distinct from their governmental functions.

  Example: An LGU may own and manage a public market or a public utility, such as a water system, to generate income.

5. Autonomy

Local autonomy refers to the ability of LGUs to govern themselves with minimal interference from the national government. This principle is enshrined in the 1987 Constitution, which provides for decentralization and the devolution of powers to LGUs.

The extent of local autonomy includes:

• Administrative autonomy: LGUs have the authority to create their own policies, pass local ordinances, and implement local development programs.
• Fiscal autonomy: LGUs can generate their own income through taxation, share in the national government’s revenues (Internal Revenue Allotment or IRA), and manage their finances independently.

Jurisprudence: The case of Pimentel Jr. v. Aguirre (supra) is seminal in explaining the balance between local autonomy and the supervisory powers of the President. The Supreme Court ruled that while the President can exercise general supervision over LGUs, this does not equate to control.

6. Relationship to the National Government

The relationship between public corporations (LGUs) and the national government is governed by the principle of decentralization. Decentralization takes two forms:

• Devolution: The transfer of powers and responsibilities from the national government to LGUs. The Local Government Code formalizes devolution by specifying which functions should be undertaken by local authorities, such as health services, agriculture, and infrastructure.

• Delegation: In some cases, the national government delegates certain functions to LGUs temporarily or under specific conditions. Unlike devolution, delegation does not imply the permanent transfer of powers.

Despite their autonomy, LGUs remain subject to the general supervision of the national government. The President can intervene in local affairs only to ensure that laws are faithfully executed and that local officials perform their duties according to the law.

III. Conclusion

Public corporations, particularly local government units, are essential components of the Philippine government structure. They are classified according to elements such as legal personality, creation, territorial jurisdiction, governmental powers, autonomy, and their relationship to the national government. These elements ensure that LGUs can effectively serve their constituents while maintaining a harmonious relationship with the national government. Understanding these classifications is crucial in grasping the role of LGUs in governance, development, and public administration in the Philippines.

Municipal Corporations | Classifications | Public Corporations | LAW ON LOCAL GOVERNMENTS

Political Law and Public International Law

XV. Law on Local Governments

A. Public Corporations

3. Classifications

b. Municipal Corporations

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Municipal corporations are an essential part of the Philippine legal and administrative framework under the Law on Local Governments. They are a type of public corporation created by the State to assist in the decentralization of government functions and provide local governance. Their establishment, powers, and functions are mainly governed by Republic Act No. 7160, otherwise known as the Local Government Code of 1991, as well as relevant jurisprudence and principles of political law.

Municipal corporations are often referred to in local parlance as cities, municipalities, barangays, and similar political subdivisions. These entities are considered “municipal corporations” because they have a dual character: governmental and corporate. They exercise both sovereign functions (those involving governance) and proprietary functions (those involving commercial and business activities).

1. Nature of Municipal Corporations

Municipal corporations are organized by the State as agencies to assist in the local administration of governmental powers. They possess a legal personality separate from the individuals who compose them. Their creation, powers, and dissolution depend on statutes, particularly the Local Government Code.

Juridical Personality
As juridical entities, municipal corporations can sue and be sued, enter into contracts, own property, and perform other legal acts necessary to achieve their purposes.

Dual Functions

• Governmental or Public Functions: These are duties performed in the exercise of the State’s sovereignty, such as maintaining peace and order, providing public health services, enacting ordinances, and regulating businesses within the locality.
• Proprietary or Corporate Functions: These involve commercial or business-like activities for profit, such as owning and operating public markets, providing utilities like water and electricity, and managing other revenue-generating ventures.

2. Classifications of Municipal Corporations

Municipal corporations are classified under Philippine law based on their political and economic structure:

• Barangays: The smallest political unit in the Philippines, considered a municipal corporation with limited powers. Barangays serve as the basic political unit for planning and implementing government policies, programs, and projects.
• Municipalities: Municipalities are local government units (LGUs) that are distinct from barangays and cities. They provide governmental services to rural and less populated areas and have less autonomy and revenue than cities.
• Cities: Cities are municipal corporations that have a higher degree of autonomy, income, and governmental responsibilities than municipalities. They may be classified as component cities or highly urbanized cities, with the latter being more independent from provincial governments.
• Provinces: Provinces are administrative divisions consisting of municipalities and component cities. They function as regional entities responsible for governance at a broader level than cities or municipalities.

The Local Government Code specifies the requirements for the creation, conversion, and reclassification of municipal corporations based on population, land area, and revenue, among others.

3. Powers and Functions of Municipal Corporations

Under the Local Government Code of 1991, municipal corporations are vested with the following powers:

• Corporate Powers:

  • The power to acquire and own properties for public or private use, contract obligations, enter into joint ventures, and engage in other lawful business transactions.
  • The power to sue and be sued in their corporate name.

• Legislative Powers:

  • Through their Sangguniang Bayan (municipal council) or Sangguniang Panlungsod (city council), they can enact ordinances, pass resolutions, and create local policies, provided these are consistent with national laws.

• Police Powers:

  • The authority to enact ordinances to ensure peace and order, protect public health and safety, regulate the establishment and operation of businesses, and address issues like pollution and zoning.

• Taxing Powers:

  • The power to impose local taxes, fees, and charges to generate revenue. This includes imposing real property taxes, business taxes, and other taxes authorized under the Local Government Code.

• Eminent Domain:

  • The power to expropriate private property for public use, with just compensation. This is subject to the limitations set forth by law and the requirement of public necessity.

• Local Initiative and Referendum:

  • Municipal corporations may provide mechanisms for the people to propose, adopt, or reject local policies through initiatives and referenda.

4. Autonomy of Municipal Corporations

The 1987 Philippine Constitution guarantees local autonomy to LGUs. This autonomy, however, is not absolute; it is still subject to national supervision, particularly by the Department of the Interior and Local Government (DILG), and control by Congress. LGUs are given sufficient leeway to manage their own affairs but must adhere to national policies, laws, and standards.

• Fiscal Autonomy:

  • LGUs, including municipal corporations, are entitled to a share in national taxes, commonly referred to as the Internal Revenue Allotment (IRA) or National Tax Allotment (NTA). This allocation is based on their population, land area, and revenue generation capacity.

• Supervision vs. Control:

  • The relationship between the national government and municipal corporations is one of supervision, not control. Supervision means that the national government, through agencies like the DILG, may oversee local governments to ensure that they comply with laws. However, it cannot interfere with local policy decisions unless these contravene national laws.

5. Limitations on the Powers of Municipal Corporations

Despite their autonomy and broad powers, municipal corporations are subject to certain limitations under the Constitution, the Local Government Code, and other applicable laws:

• Legal Limitations:

  • They cannot pass ordinances or exercise powers that are contrary to the Constitution, statutes, or judicial decisions.
  • Their taxing powers are restricted to those specifically delegated by law. For instance, they cannot impose customs duties or income taxes, which are reserved to the national government.

• Territorial Jurisdiction:

  • Municipal corporations only have jurisdiction over persons, properties, and activities within their territorial boundaries.

• Judicial Review:

  • Acts of municipal corporations, especially local ordinances, may be reviewed by the courts, and may be declared void if they are found to be unconstitutional, arbitrary, or made in bad faith.

6. Dissolution and Reclassification of Municipal Corporations

Municipal corporations may be dissolved by law, typically through the process of municipal reorganization or amalgamation with other local government units. This is often done for efficiency in governance, addressing financial difficulties, or upon the initiative of the constituents via plebiscite.

Reclassification:

• Municipalities can be converted into cities, or a barangay may be absorbed into a municipality or another barangay, based on criteria set by law, including population, land area, and income.

7. Municipal Corporations in Jurisprudence

Philippine jurisprudence has clarified several important principles regarding municipal corporations:

• General Welfare Clause: Municipal corporations have broad authority to enact measures that promote the general welfare of their inhabitants. This is a plenary power subject to the limitations imposed by law.

• Ultra Vires Acts: Any act of a municipal corporation that exceeds the powers granted by law (i.e., ultra vires) is void. This includes actions outside of its jurisdiction or beyond the scope of its delegated authority.

• Delegation of Powers: Municipal corporations may not delegate their legislative powers to private entities or officials, except in cases authorized by law. However, they can enter into agreements with other LGUs or private organizations for the delivery of services.

Conclusion

Municipal corporations are vital agents of local governance in the Philippines. While enjoying significant autonomy, their powers and functions remain subject to constitutional and statutory limits. Their role in decentralization allows for localized policy-making and efficient administration, but they are also bound by the principles of national sovereignty, ensuring that local laws and actions conform to broader national objectives.

Quasi-Corporations | Classifications | Public Corporations | LAW ON LOCAL GOVERNMENTS

Political Law and Public International Law: Local Government Law – Quasi-Corporations

I. Introduction to Public Corporations

Public corporations are entities created by law to govern and manage local affairs, vested with corporate powers necessary to carry out their functions. These corporations may exercise powers either through their corporate character (proprietary functions) or by virtue of their governmental character (governmental functions).

Under the law, public corporations are typically divided into two classifications: municipal corporations and quasi-corporations. This outline will focus specifically on quasi-corporations, their characteristics, and their role within the local government framework.

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II. Quasi-Corporations: Definition and Legal Basis

Quasi-corporations are legal entities created by statute for a limited and special public purpose. Unlike regular municipal corporations, which have broad powers and duties over a defined territory, quasi-corporations possess more specialized functions and exist primarily to achieve specific governmental objectives.

Quasi-corporations do not enjoy the full corporate personality that municipalities or other local government units (LGUs) possess. They are considered "quasi" because, while they have certain legal powers similar to corporations (such as the ability to sue and be sued), their primary function is governmental, and their powers are limited and specialized.

These entities are created either by special legislative acts or general laws and are typically charged with the administration of special tasks that benefit a larger area or perform functions that would be inefficient for municipalities or provinces to carry out individually.

Examples of Quasi-Corporations in Philippine Law:

1. Barangay Waterworks Associations (BWAs) - Created for the administration and maintenance of local water systems in rural areas.
2. Special Economic Zones – These may be formed with special powers to promote economic development in specific geographic areas, often involving tax incentives and regulatory autonomy.
3. Barangay Councils of Local Government Units – While a barangay is a municipal corporation, certain specific functions (such as water supply or electricity distribution) may be delegated to quasi-corporate entities within barangays.
4. School Boards or Special Districts – Sometimes quasi-corporations are tasked with administering local education or health care services, typically in coordination with the national government but with operational independence in certain areas.

Legal Basis in the Philippine Constitution and Laws:

• 1987 Constitution: While the Constitution provides for the creation and governance of local governments (Art. X), quasi-corporations are typically governed by specific statutes or laws that grant them the limited legal capacity to perform specific roles.
• Local Government Code of 1991 (RA 7160): This comprehensive code covers municipal corporations but also contemplates the creation of special purpose entities which can have a quasi-corporate character.

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III. Characteristics of Quasi-Corporations

Quasi-corporations in the Philippines are characterized by the following features:

1. Limited Powers:

   • Quasi-corporations are granted limited powers that are strictly defined by their enabling law. These powers generally pertain to a specific function or objective (e.g., managing a water district or a local economic zone).
   • Unlike fully-fledged LGUs, they do not have police powers, taxing powers (except when explicitly granted by law), or broad legislative powers.

2. Special Purpose Entities:

   • Their purpose is often tied to providing a specific public service, such as water distribution, health care, education, or regional economic development.
   • They are created when it is more efficient to delegate a specific governmental task to a specialized entity rather than a regular LGU.

3. Public Character:

   • While they have some elements of corporate personality, quasi-corporations are fundamentally public entities that serve governmental functions rather than proprietary interests.
   • The primary goal of a quasi-corporation is to fulfill a public need, making them governmental rather than purely corporate in character.

4. Creation by Statute:

   • Quasi-corporations are not organic entities but are created by legislative acts or executive orders. They are not created by local initiative but through national-level action that determines their scope and powers.

5. Limited Jurisdiction:

   • These entities often have jurisdiction over a particular area or class of individuals or properties and do not exercise broad territorial jurisdiction like a city or municipality. Their jurisdiction is tied to their specific function.

6. Funding:

   • Funding for quasi-corporations often comes from national government appropriations, grants, or specific fees collected for services rendered. They generally lack independent taxing power unless specifically conferred by law.

7. Limited Autonomy:

   • Quasi-corporations may exercise a degree of operational independence but are often subject to oversight by national government agencies or departments, such as the Department of the Interior and Local Government (DILG) or specialized national agencies related to their specific function (e.g., water districts under the Local Water Utilities Administration).

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IV. Differences Between Municipal Corporations and Quasi-Corporations

Aspect	Municipal Corporations	Quasi-Corporations
Powers	Broad powers, including police power and taxation	Limited powers, tied to specific statutory objectives
Scope	Governs an entire city, municipality, or province	Often limited to a special function or purpose in a specific area
Creation	Created by the Local Government Code or special law	Created by specific legislative acts or executive orders
Funding	Can generate revenue through taxation and fees	Limited revenue-raising powers; often reliant on government funding
Autonomy	High degree of autonomy from the national government	Limited autonomy, often subject to supervision or control by national agencies
Primary Purpose	Governing the general welfare of the local constituency	Fulfilling a special or technical governmental function

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V. Functions and Powers of Quasi-Corporations

Quasi-corporations typically carry out specialized governmental functions such as:

1. Infrastructure Development:

   • Some quasi-corporations are tasked with managing and maintaining infrastructure, such as water districts or local electric cooperatives, where direct municipal administration might not be feasible.

2. Service Provision:

   • Entities like barangay water districts or health boards provide essential services to areas where local governments may lack the technical expertise or resources.

3. Regulation and Administration:

   • In cases where specialized regulation or administration is required (e.g., in Special Economic Zones), quasi-corporations are empowered to act with limited authority, sometimes with delegated regulatory powers.

4. Collaboration with National Agencies:

   • Quasi-corporations often collaborate with national agencies to implement specific policies or programs, such as environmental management, public health campaigns, or regional economic development initiatives.

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VI. Conclusion

Quasi-corporations play a vital role in the decentralized structure of the Philippines by carrying out specialized functions that complement the broader mandates of local government units. Their creation reflects the need for targeted, efficient governance solutions in areas where full municipal or provincial oversight may be either inefficient or impractical. These entities, while limited in scope and powers, fulfill critical public functions and are essential components of the Philippine local government framework.

Their special-purpose nature distinguishes them from fully-fledged LGUs, highlighting their role in addressing specific public needs through a flexible, albeit controlled, corporate structure.

Corporate Powers of LGUs | Public Corporations | LAW ON LOCAL GOVERNMENTS

Corporate Powers of Local Government Units (LGUs)

The Local Government Code of 1991 (Republic Act No. 7160) governs the corporate powers of Local Government Units (LGUs) in the Philippines. These powers enable LGUs to act as legal entities, manage local affairs, and enter into legal contracts. The purpose of conferring corporate powers is to ensure that LGUs, as public corporations, can act autonomously to perform their local functions effectively and efficiently. Below is a detailed discussion on the corporate powers of LGUs under the Local Government Code:

1. Nature of LGUs as Public Corporations

LGUs are considered public corporations, which are legal entities created by law to perform governmental and proprietary functions. As such, they possess a dual character:

• Governmental Functions: These pertain to the exercise of the State's sovereign powers delegated to the LGUs, such as police power, eminent domain, and taxation.
• Proprietary Functions: These refer to functions that relate to activities traditionally considered commercial, similar to those performed by private corporations.

2. Corporate Powers of LGUs

Under Section 22 of the Local Government Code, LGUs have three specific corporate powers:

A. To Have Continuous Succession in Its Corporate Name

An LGU, as a public corporation, exists perpetually in law and continues to operate in its corporate name regardless of changes in leadership. This continuity is necessary to ensure that the LGU can perform its duties and obligations uninterrupted, including entering into contracts and acquiring assets.

B. To Sue and Be Sued

This corporate power allows LGUs to initiate legal actions and defend themselves in court. LGUs can sue any party in their corporate capacity, and they can be sued for obligations they incur. This ensures accountability and the legal capacity to enforce rights and obligations.

• Scope of Liability: LGUs may be held liable for damages arising from their proprietary functions, but they generally enjoy immunity from suit concerning their governmental functions unless there is a waiver or legislative approval.
• Restrictions: The power to sue and be sued is limited by statutory provisions, including compliance with procedural requirements such as obtaining prior approval from the Sangguniang Bayan, Panlungsod, or Panlalawigan before entering into or settling disputes.

C. To Enter into Contracts

LGUs, through their executive officials (i.e., mayor or governor), may enter into contracts necessary for the proper exercise of their functions. This includes contracts for the provision of services, acquisition of property, or establishment of partnerships.

• Limitations: Contracts must be in line with the LGU’s powers and functions under the law, and they must comply with procedural requirements such as:

  • Authorization by the Sangguniang (council) concerned;
  • Compliance with public bidding requirements for procurement and disposal of property, as provided under Republic Act No. 9184 (Government Procurement Reform Act);
  • Adherence to budgetary limits and funding availability.

• Ultra Vires Acts: Any contract entered into by an LGU that is outside its lawful powers or without the requisite authorization is considered ultra vires and unenforceable.

3. Exercise of Corporate Powers by the Local Chief Executive

The local chief executive, such as the governor, city mayor, or municipal mayor, represents the LGU in its corporate dealings. However, the Local Government Code provides that certain acts by the local chief executive require prior authorization from the Sangguniang or legislative council, such as:

• Entering into long-term contracts;
• Loan agreements;
• Sale or lease of LGU properties.

The local chief executive is also responsible for the proper execution of contracts and ensuring that obligations are fulfilled.

4. Limitations on the Exercise of Corporate Powers

The exercise of corporate powers by LGUs is not absolute and is subject to several limitations and controls, including:

• Fiscal Autonomy: While LGUs enjoy a degree of fiscal autonomy, they must ensure that expenditures do not exceed available resources. Contractual obligations must comply with the approved local budget.
• Public Accountability: As public entities, LGUs are subject to laws on transparency, accountability, and good governance. This includes the prohibition on contracts manifesting conflict of interest, such as those involving relatives of public officials.
• Compliance with National Laws: LGUs must operate within the bounds of national laws and policies. For example, their taxing and regulatory powers cannot contravene national statutes or infringe upon the powers of national agencies.

5. LGUs as Proprietary Entities

In their capacity as public corporations, LGUs may engage in proprietary activities. These activities are undertaken primarily for profit and do not directly relate to the exercise of governmental functions. For example:

• Establishment of Economic Enterprises: LGUs can establish local economic enterprises (e.g., public markets, slaughterhouses, and transportation systems) to generate revenue for the local government.
• Public-Private Partnerships (PPPs): LGUs are allowed to enter into joint ventures or partnerships with private entities for the development of public infrastructure projects or other economic endeavors. These partnerships are governed by Republic Act No. 6957 (as amended by Republic Act No. 7718), also known as the Build-Operate-Transfer (BOT) Law.

6. Corporate Powers of Barangays

Even the smallest political subdivisions, such as barangays, have corporate powers. However, due to their size and limited resources, barangays have more restricted powers compared to cities, municipalities, and provinces. Their corporate powers are usually limited to:

• Providing basic services and facilities;
• Constructing and maintaining barangay infrastructure projects;
• Collecting minimal fees for certain services.

Barangays also have the power to enter into contracts and sue and be sued, though these contracts are typically limited in scope and value due to budgetary constraints.

7. Key Jurisprudence on LGU Corporate Powers

Several landmark Supreme Court rulings have shaped the understanding and application of LGU corporate powers:

• Pimentel v. Aguirre (2000): The Court ruled that LGUs enjoy a measure of fiscal autonomy and that any executive act that unduly interferes with such autonomy, such as the imposition of restrictions on their corporate powers without legal basis, is unconstitutional.
• Municipality of San Narciso v. Mendez (1995): The Supreme Court held that an LGU cannot disavow its contracts or obligations by simply claiming it was acting in its governmental capacity. LGUs are liable for obligations that arise from proprietary functions.
• Municipality of Bacoor v. IAC (1985): This case highlights the distinction between governmental and proprietary functions, holding that LGUs may be held liable for damages arising from their proprietary acts but may enjoy immunity for governmental acts, unless waived by law.

8. Conclusion

The corporate powers of LGUs are essential in enabling them to function autonomously in managing local affairs. These powers are exercised within the framework of the Local Government Code and are subject to certain limitations, such as fiscal responsibility, transparency, and accountability. LGUs must balance their dual roles as public corporations performing governmental functions and as entities engaging in proprietary activities to promote the welfare and development of their local communities.

Concept; Distinguished from Government-Owned or Controlled Corporations | Public Corporations | LAW ON LOCAL GOVERNMENTS

Political Law and Public International Law > XV. Law on Local Governments > A. Public Corporations > 1. Concept; Distinguished from Government-Owned or Controlled Corporations

I. Concept of Public Corporations

A public corporation refers to an entity created by law to perform a governmental function, typically within a specific local jurisdiction. The primary purpose of public corporations is to administer local affairs in a specific territory. They are vested with a measure of self-government, allowing them to handle local matters more efficiently than the national government.

In the Philippine setting, public corporations include local government units (LGUs) such as provinces, cities, municipalities, and barangays. These entities are established under the 1987 Constitution and the Local Government Code of 1991 (Republic Act No. 7160). They are considered public corporate bodies or municipal corporations as they carry out public functions, exercising delegated governmental powers.

Key characteristics of public corporations include:

1. Creation by Statute: Public corporations, especially LGUs, are created by legislative enactments, such as national laws or ordinances issued by competent legislative bodies (e.g., Congress or Sanggunians). Their existence depends on law, and their powers are clearly defined by law.

2. Territoriality: Public corporations have a clearly defined geographical territory where they exercise jurisdiction. LGUs, for example, have the authority to regulate, manage, and administer services within their respective territorial limits.

3. Autonomy: While still subject to national oversight, public corporations are granted local autonomy under Article X of the 1987 Constitution. They enjoy legislative, executive, and fiscal powers over their local affairs.

4. Public Service Orientation: Public corporations exist to serve public interests, particularly in the delivery of basic services such as education, health, infrastructure, and public safety. Unlike private corporations, their purpose is not profit generation.

II. Distinction from Government-Owned or Controlled Corporations (GOCCs)

A Government-Owned or Controlled Corporation (GOCC) refers to a corporation created by special law or organized under the general corporation law in which the government has either full or partial ownership. The primary purpose of GOCCs is typically commercial or business-oriented, although some may also perform public service functions.

While both public corporations and GOCCs are governmental entities, there are significant differences between the two:

1. Creation and Basis of Existence

• Public Corporations (LGUs) are created directly by law (Constitution, Local Government Code, or special legislation). They are created as territorial subdivisions of the State to provide localized governmental services.
• GOCCs may be created by a special charter (e.g., Philippine Amusement and Gaming Corporation [PAGCOR] or the Government Service Insurance System [GSIS]) or incorporated under general corporate law (e.g., Philippine National Oil Company [PNOC]). Their establishment is primarily driven by economic or business needs.

2. Nature of Functions

• Public Corporations primarily perform governmental or public functions, such as the regulation of land use, provision of local services, and enforcement of local laws. Their focus is the public welfare within their territorial jurisdiction.
• GOCCs, on the other hand, are often created to engage in commercial or business activities, such as providing utilities (e.g., National Power Corporation [NPC]), conducting insurance services (e.g., GSIS), or engaging in strategic industries (e.g., PNOC). Some GOCCs also perform proprietary functions, where profit-making is a primary goal, although they may be subject to certain public service mandates.

3. Autonomy and Supervision

• Public Corporations are granted local autonomy under the Constitution and the Local Government Code. This means they have the power to legislate local laws (ordinances), levy taxes, and control their local affairs with minimal interference from the national government, subject to general supervision. For instance, the Department of the Interior and Local Government (DILG) exercises general oversight but cannot intervene in purely local matters unless there is a violation of law.

• GOCCs are subject to the direct control or supervision of the national government. Many GOCCs report to a line department (e.g., National Electrification Administration [NEA] under the Department of Energy) or to a regulatory body (e.g., Governance Commission for GOCCs or GCG). The national government exerts greater control over the operations of GOCCs than it does over LGUs.

4. Revenue and Funding

• Public Corporations generally derive their revenues from local taxes, fees, and charges (e.g., real property taxes, business taxes), as well as their share of the Internal Revenue Allotment (IRA) from the national government. Public corporations do not operate to generate profit but to provide essential public services.

• GOCCs generate revenue through the sale of goods and services or by engaging in business activities. GOCCs are expected to be self-sustaining or profit-oriented, and many of them remit a portion of their earnings to the national treasury, depending on their profitability.

5. Legal Personality

• Public Corporations (LGUs) possess a dual character as governmental and corporate entities. In their governmental capacity, they enact ordinances, impose taxes, and maintain public order. In their corporate capacity, they may engage in proprietary functions, such as operating markets or water utilities, but these are incidental to their primary role as local governments.

• GOCCs have a purely corporate identity, even though they may serve public interests. They are governed by corporate laws (e.g., Corporation Code or their own charters) and can enter into contracts, acquire properties, sue, and be sued, much like private corporations.

6. Examples of Public Corporations vs. GOCCs

• Public Corporations: Province of Cebu, City of Manila, Municipality of Kalibo, Barangay Ayala Alabang.
• GOCCs: Philippine National Railways (PNR), Social Security System (SSS), Land Bank of the Philippines, Philippine Postal Corporation (PHLPost).

III. Summary of Key Differences

Aspect	Public Corporations (LGUs)	GOCCs
Creation	Created by law (Constitution, Local Government Code)	Created by special law or under general corporate law
Purpose	Perform governmental functions in a defined territory	Engage in business activities for profit or public service
Function	Primarily public service-oriented (local governance)	Primarily proprietary or commercial functions
Autonomy	Granted local autonomy, subject to general supervision	Under direct control or supervision of the national government
Revenue Source	Local taxes, fees, Internal Revenue Allotment (IRA)	Income from commercial activities
Examples	Provinces, Cities, Municipalities, Barangays	PAGCOR, GSIS, NPC, Landbank, SSS

IV. Constitutional and Legal Framework

1. Constitutional Provisions: The 1987 Philippine Constitution provides the basis for the existence and governance of both public corporations and GOCCs. Notably, Article X of the Constitution grants local autonomy to public corporations, emphasizing the decentralization of governance. Article XII discusses the regulation of GOCCs, particularly in areas of economic activity and public service.

2. Local Government Code of 1991 (Republic Act No. 7160): This law is the primary legal framework governing public corporations (LGUs). It outlines the powers, functions, and responsibilities of LGUs, including their ability to legislate ordinances, levy taxes, and manage local resources.

3. Governing Laws for GOCCs: GOCCs are regulated by various statutes, including their individual charters and Republic Act No. 10149, the GOCC Governance Act of 2011, which establishes the Governance Commission for GOCCs (GCG) as the central oversight body for all GOCCs. This ensures that GOCCs adhere to good governance practices, are efficient in delivering services, and contribute to national development goals.

V. Conclusion

The distinction between public corporations and GOCCs is rooted in their creation, function, and the degree of autonomy they enjoy. Public corporations are primarily tasked with providing public services within a defined territory, while GOCCs operate under a business model, often serving proprietary functions. Understanding these differences is crucial for navigating the complexities of public administration and governance in the Philippines.