State governments do not have the constitutional right to retain and utilise funds allocated to local government councils

LAW DIGEST WITH CLRN &ALP NG

AG FEDERATION v. AG ABIA STATE & 35 ORS

SUPREME COURT OF NIGERIA

(GARBA; AGIM; NWOSU-IHEME; TSAMMANI; ADUMEIN; ABIRU; TUKUR, JJ.SC)

BACKGROUND FACT

The Federal Government of Nigeria, through the Office of the Attorney General of the Federation (the Plaintiff), initiated an action by way of an originating motion before the Supreme Court, challenging the manner in which State Governments (the Defendants) handle funds allocated to Local Governments from the Federation Account. The Plaintiff contended that although allocations meant for Local Governments are disbursed to the States for onward transmission, the Defendants have retained and mismanaged these funds, thereby depriving Local Governments of their constitutional entitlements. At the heart of the Plaintiff’s case was the assertion that funds allocated to Local Governments are deposited into a joint account held by the respective State and Local Governments for collective administration. The Constitution mandates State Governments to release the exact amounts allocated to the Local Governments without interference. However, the Plaintiff alleged that, over the years, the Defendants had engaged in the systematic diversion of these funds, in contravention of constitutional provisions, thereby undermining the financial autonomy of Local Governments and impairing their ability to discharge their statutory functions effectively.

Furthermore, the Plaintiff highlighted the practice of the Defendants appointing caretaker committees to administer Local Government affairs in place of duly elected officials. This, according to the Plaintiff, amounted to an unconstitutional usurpation of power, allowing State Governments to exert undue control over Local Governments and their finances. The Plaintiff argued that these actions effectively rendered Local Governments financially dependent on State Governments and unable to function independently as envisaged by the Constitution.

One of the fundamental issues raised for determination was: Whether State Governments have the legal authority to retain and use funds allocated to Local Governments.

ARGUMENTS

Learned Counsel for the Plaintiff argued that for over two decades, the Defendants have persistently failed to remit to the Local Governments the full amounts of funds standing to their credit in the Federation Account, in clear violation of constitutional provisions. Counsel contended that this consistent disregard for the constitutional mandate necessitates the intervention of the Supreme Court to safeguard the financial autonomy of Local Governments. Furthermore, Counsel submitted that the governance and control of Local Governments by the Defendants, through mechanisms such as caretaker committees, interim councils, and administrators, constitute an unconstitutional usurpation of power. He argued that such actions effectively strip Local Governments of their independence and violate the Constitution’s express recognition of Local Governments as a distinct and functional tier of government. By imposing these unelected bodies, the Defendants have not only undermined the democratic governance structure but have also eroded the institutional framework of Local Governments, leaving many of them in a state of near extinction. He therefore urged the Court to intervene by affirming the constitutional rights of Local Governments to financial autonomy and self-governance, thereby restoring their ability to discharge their statutory responsibilities effectively.

In response to the Plaintiff’s arguments, Learned Counsel for the Defendants contended that the Federal Government lacks the constitutional authority to directly remit funds from the Federation Account to Local Governments. He argued that such a move would contravene the express provisions of the Constitution, which mandate that all funds standing to the credit of Local Governments be paid into a joint account managed by the respective State Governments. According to Counsel, the State Governments are constitutionally empowered to administer these funds on behalf of the Local Governments and utilize them for their benefit, as stipulated by law. Furthermore, Learned Counsel asserted that the alleged failure of some State Governments to conduct democratic elections for Local Government Councils is neither a deliberate nor a universal practice. He noted that in certain cases, court orders have restrained some State Governments from holding Local Government elections, thereby necessitating the appointment of caretaker committees to oversee the administration of Local Government affairs. Counsel maintained that such appointments, though temporary, are a lawful response to judicial directives and do not constitute an unconstitutional usurpation of Local Government powers.

He argued again that the existing legal structure ensures that Local Government administration remains within the jurisdiction of the States and that any attempt to bypass this framework by directing payments from the Federation Account to Local Governments would amount to an unconstitutional interference with State autonomy. The Court was urged to uphold the constitutional framework governing the financial and administrative relationship between State Governments and Local Governments.

DECISION OF THE COURT

In resolving this issue, the Supreme Court held that:

The Constitution does not envisage joint ownership of funds in the Federation Account by the three tiers of government. It emphasized that the constitutional provision directing that funds “shall be allocated directly to the States for the benefit of their Local Government Councils” does not grant State Governments the authority to retain, manage, spend, or otherwise control these funds on behalf of the Local Governments. Instead, the Local Government Councils are the rightful beneficiaries of the allocations, and any retention or diversion of these funds by the State Governments is inconsistent with the constitutional framework.

The Court further held that the retention and use of Local Government funds by the States contradict the intended purpose and structure of fiscal federalism as outlined in the Constitution. It reaffirmed that all funds meant for Local Government Councils—whether derived from the Federation Account or from internally generated revenue by the States—must be deposited into the State Joint Local Government Account. The Court clarified that while these funds pass through this account, their distribution must strictly follow the manner prescribed by the National Assembly, ensuring that Local Governments receive their full entitlements without undue interference from the States.

Issue resolved in favour of the Plaintiff

This summary is fully reported at (2025) 1 CLRN in association with ALP NG & Co.
See www.clrndirect.com ; www.alp.company.