A recent study has concluded that the consolidation of municipalities must lead to finding viable restructuring options to overcome their deficits, their dependency on the central Government, service deficiencies, and the high levels of debt.
The entire country is drowning in the reality that is the Government’s fiscal crisis. Hence, the municipalities cannot dodge their responsibility to let go of the governmental layers and expensive structures, overloaded with a heavy sense of partisanship that does not contribute to their sustainability or fiscal independence.
Commissioner of Municipal Affairs Omar Negrón agrees with a study conducted by the Society of Certified Public Accountants, which states that consolidating the municipalities is not a solution to these problems.
This conclusion, however—in addition to the expectation that reducing the amount of municipalities could exacerbate their socioeconomic issues—is the result of a lack of data regarding the services provided by municipal structures. Thus, the debate is far from over. It is, in fact, more active than ever, thanks to the precariousness of the municipal finances.
Currently, 40 out of the 78 total municipalities rely on the central Government to cover 40% of their operational costs. The overall situation is worsened by the measures included in the central Government’s long-term fiscal plan to reduce the public deficit. These measures include eliminating the $350-million municipal subsidy. This would force the municipal governments to seek out other options, such as reappraising real estate properties or increasing property taxes, which would become a burden on taxpayers.
Some of the services currently provided by the central Government—such as school transportation, as it was already announced—will be transferred to the municipalities. The likely impact of this transfer, added to the compulsory search for new sources of income previously mentioned, means that the chance of increasing fiscal precariousness in the municipalities is rather high. And those already in debt will be particularly hurt. During the 2014–2015 fiscal year, 39 municipalities were already in debt, and the Office of Municipal Affairs estimates that it could be 50 in the near future.
The Center for Integrity in Public Policy created the Puerto Rico Municipal Fiscal Scores as a tool to keep citizens informed. These scores suggest that, whereas some municipalities have reported positive changes in their fiscal performance for the past two years, long-term debt indicators for most of them have continued getting worse. Thus it is evident that they have replicated the fiscal conduct that has led the country to the brink of collapse, paving the way for the Oversight Board’s intervention.
In view of this scenario, no option for change should be ruled out. The municipal budget and public services cannot come second to preserving the small pockets of political power in the municipalities. This has been one of the biggest hurdles when considering proposals to make the administration of municipalities more rational and efficient.
The economic poverty of many municipalities demonstrates the need to redefine the way they generate income in order to increase their budgets and cease depending on the central Government, which is no longer in a position to help. They must also rethink how to manage their funds when the general situation calls for a reduction in expenses and to meet their debt payments. Under no circumstance should they continue the practice of using loans to neutralize the debt, when the economic activity is not yielding enough revenues.
Municipalities must adjust their expenses to their financial reality. Therefore, a municipal structure reform cannot be ruled out.
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