On 27 May 2003 the Lagos State House of Assembly enacted laws creating 37 new Local Council Development Areas (LCDAs) on top of the 20 LGAs constitutionally recognised under the First Schedule, Part I of the 1999 Constitution. Governor Bola Ahmed Tinubu (AD) argued, with reference to Section 7 and Section 8(3), that the State Assembly had the power to create and run sub-LGA units; the federal government argued the constitutional schedule of 774 LGAs was closed and that any additional council could be funded only after a constitutional amendment recognised it. The Tinubu administration held LCDA elections on 27 March 2004.
Within weeks the Federation Account Allocation Committee (FAAC) — chaired by the Minister of Finance, Ngozi Okonjo-Iweala, on the directive of President Obasanjo — stopped paying the constitutional monthly allocation due to the 20 *recognised* Lagos LGAs, on the grounds that the funds were being commingled and disbursed to the 57 councils. The seized inflows ran at ₦600m–₦800m per LGA per month, aggregating to over ₦10b monthly and an estimated ₦60–₦80b for the 41 months between October 2003 and May 2007.
Lagos sued at the Supreme Court. In *Attorney-General of Lagos State v Attorney-General of the Federation* (SC 70/2004), delivered 10 December 2004, a seven-justice panel led by Chief Justice Muhammadu Lawal Uwais held unanimously that: (i) the LCDAs were not yet operative LGAs under the Constitution and were therefore not entitled to direct FAAC allocations until ratified by the National Assembly under Section 8(5)–(6); but (ii) the federal government had no constitutional power to withhold the statutory allocation of the 20 *recognised* LGAs. The court ordered the immediate release of the withheld funds.
Obasanjo publicly rejected the judgment as a 'misinterpretation of the Constitution' and continued the freeze. The withheld funds were not paid until after his term ended on 29 May 2007. President Umaru Musa Yar'Adua, in his inaugural address pledge to 'restore the rule of law', authorised the release of the accumulated arrears to Lagos State within the first three months of his administration; the final balance was reconciled in late 2007 under Governor Babatunde Fashola (Tinubu's successor).
The episode is the most prolonged and best-documented unconstitutional executive seizure of federal allocation in Fourth-Republic Nigeria. It is recorded in Hansard, in the Supreme Court Law Report (2004) 18 NWLR 1, and in the proceedings of the 2006 House of Representatives Public Hearing on Federal–State Relations. It also generated the godfather-state vocabulary later used to describe Lagos politics — see the *Disputed cascades* note below.