G.R. No. 95237-38 - Davao City Water District vs. Civil Service Commission

The water districts at issue were established under Presidential Decree No. 198, as amended by Presidential Decrees Nos. 768 and 1479, otherwise known as the “Provincial Water Utilities Act of 1973.”
PD 198 was issued by President Ferdinand E. Marcos under his legislative power and empowered local legislative bodies (Sanggunians) to form water districts by passing a resolution subject to prescribed guidelines, rules, and regulations.
The decree also created the Local Water Utilities Administration (LWUA), a national agency attached to the National Economic and Development Authority (NEDA), to regulate and optimize water utility operations.

Petitioners: Numerous water districts from various cities and provinces (e.g., DAVAO CITY WATER DISTRICT, CAGAYAN DE ORO CITY WATER DISTRICT, METRO CEBU WATER DISTRICT, etc.).
Respondents: The Civil Service Commission (CSC) and the Commission on Audit (COA), both represented by the Solicitor General.

Tanjay Water District v. Gabaton (G.R. No. 63742), where the Supreme Court ruled that water districts created under PD 198 are within the scope of the Civil Service Law due to their nature as government-owned or controlled corporations with original charters.
Metro Iloilo Water District v. National Labor Relations Commission (G.R. No. 85760), wherein the Third Division of the Court held that the operative act creating a water district was the local sanggunian’s resolution and not the decree itself, thus suggesting that employees were not covered by the Civil Service Law.
Subsequent actions by the CSC:

Resolution No. 90-575 was issued to mandate that personnel appointments be governed by the Civil Service Law.
The implementation of Resolution No. 90-575 was later suspended by Resolution No. 90-770 pending clarification from the Supreme Court.

COA maintained that its audit jurisdiction over water districts stems from its visitorial power under the Constitution, covering all government-owned or controlled corporations with original charters.
The LWUA argued that only those districts receiving government subsidies fall under COA’s jurisdiction and only up to the amount of such subsidies.
The conflict was compounded by the controversy over whether PD 198 itself constitutes the original charter of these water districts or if the resolutions of local sanggunians are the effective acts of creation.

Petitioners contended that the water districts are private corporations or quasi-public/semi-public entities because they are created by local resolutions rather than by PD 198 as an original charter.
They argued that, being private corporations without an original charter, they should not be subject to the Civil Service Law nor the visitorial authority of COA.

PD 198, as amended, contains detailed provisions on the formation, organization, and operation of water districts, including:

Section 6: Providing the source of authorization for the formation of a water district and its subsequent subjection to its provisions.
Sections detailing the number, qualifications, appointment, term of office, methods for filling vacancies, and compensation of the Board of Directors.

These provisions collectively reveal that PD 198 is not merely a general enabling statute but functions effectively as a charter that confers juridical personality on the water districts.

After a thorough review of the arguments and applicable law, the Supreme Court ruled against the petitioners, thereby reaffirming its earlier decision in the Tanjay case.
The Court declared that water districts are indeed government-owned or controlled corporations with original charters, making them subject to the Civil Service Law and COA’s audit jurisdiction.
The ruling also acknowledged potential repercussions on the thousands of water district employees but safeguarded permanently employed personnel from arbitrary dismissal due to the lack of civil service eligibilities.
A dissenting opinion by Justice Bidin, J. argued that water districts are quasi-public entities without original charters, contending that their creation is solely by local resolutions under a general act, not by a charter-like decree.

Whether the Local Water Districts, formed pursuant to PD 198 as amended, are government-owned or controlled corporations with an original charter subject to the Civil Service Law and the visitorial power of the COA, or whether they are private, quasi-public corporations created merely by local resolutions.

Is PD 198, as amended, effectively the charter that creates the water districts, thereby conferring upon them a juridical personality as government-owned or controlled corporations?
Does the local sanggunian’s resolution merely serve to implement the provisions of PD 198, or does it independently amount to a charter of creation?
Should the employees of these water districts be covered by the Civil Service Law, given the nature of their formation and statutory basis?
What is the proper scope of the COA’s audit jurisdiction over these water districts—does it extend to all operational aspects or only to those entities receiving government subsidies?

Petitioners argue that their districts are private corporations created by local legislative resolutions and are not endowed with an original charter, hence placing their employees outside the Civil Service Law.
Respondents maintain that pursuant to PD 198 (as amended), the water districts are government-owned or controlled corporations and accordingly, their personnel and operations fall under the prescribed civil service and audit regulations.