Without alternatives to Act 29, the days of many municipalities in Puerto Rico will be numbered, financially speaking, while multiple direct services to citizens will be seriously affected immediately, anticipated several mayors in interviews with El Nuevo Día.
Act 29 exempted municipalities from two responsibilities: contributing to the health reform and pensions under the "PayGo" system, created by Act 106, 2017.
Yesterday, the mayors of Las Marías, Maunabo, Ciales, and Comerío thundered against the Oversight Board for seeking to nullify Law 29 and demanded that Governor Wanda Vázquez Garced and the legislative leadership find a concrete solution in the face of the possibility that the statute were invalidated.
"With this, what they want is to close municipalities. We cannot cover the sky with our hands," said Maunabo Mayor Jorge Luis Marquez Perez.
"If Law 29 is eliminated and there are no alternatives, well most small municipalities will have to close within a year or two," said Luis "Rolan" Maldonado, Ciales mayor.
"The irony is that the municipality has been operating for 20 years with no deficit, that it does not owe money to any agency, that it does not fire employees and that it addresses several state tasks and, now, there is a report by the Comptroller without even an administrative failure, I think we are the first municipality to achieve this so that we pay the consequences of something the government broke is incredible," said Comerío mayor, José A. "Josean" Santiago.
Maunabo, Ciales, and Comerío are among the 10 municipalities that would be most affected if next Wednesday, Judge Laura Taylor Swain accepts the Board´s arguments and decides to nullify Law 29 during the March general hearing on Title III cases.
And this, according to arguments filed Thursday by the Center for Municipal Revenue Collection (CRIM) as "friends of the court", seeking to provide data that will help to settle the controversy between the Board and the government over Law 29.
The statute was former Governor Ricardo Rosselló Nevares' response to the impact of Hurricanes Irma and Maria and the $360 million cut in General Fund allocations to municipalities imposed by the Board.
According toCRIM, if Law 29 is nullified, 35 municipalities - many of them affected by the 2017 hurricanes or by last January's earthquakes - will go bankrupt.
Based on the brief filed by CRIM, Law 29 exempted municipalities from contributing -all together- some $204 million to the Health InsuranceAdministration (ASES, Spanish acronym) and the Government Employees Retirement System (ERS).
In its brief, CRIM further argues that eliminating Law 29 would leave municipalities in a non-payment situation and would throw away the Government Development Bank (GDB) restructuring.
That agreement, supported by dozens of credit unions in Puerto Rico, provided that municipalities would continue to repay their loans with the GDB, to pay bondholders.
"Law 29 prevented many small municipalities from collapsing, while for large municipalities it would have meant a dramatic reduction in essential services in key areas such as health, safety, education, and garbage collection, among others," said Javier Carrasquillo, president of the CRIM governing board and mayor of Cidra.
The Board´s position
On the other hand, the Board argues that “Law 29 will undermine the government’s ability to pay pensions to all retirees whenever Puerto Rico’s government faces fiscal distress,” and says it violates PROMESA.
According to the argument the Board filed before Judge Laura Taylor Swain this week, the defendants (the government) have shown that they only comply with PROMESA when “their feet are on the fire."
The fiscal entity seeks to invalidate Law 29 and also some 23 joint resolutions that reallocated funds remaining from previous years to municipalities without the Board's approval.
Yesterday, Vázquez Garced reiterated that she is looking for "alternatives" to mitigate an adverse decision, but did not offer details.
During a press conference at an agricultural market in Bayamón, Vázquez Garced said yesterday that without a doubt, an adverse decision over Law 29 would have a devastating impact on many municipalities and that the reason why in coordination with the municipalities, the government has been looking for alternate routes in case that happens. She added they are waiting for the judge's decision and that expectations that Law 29 will not be nullified are low but they have alternatives in case of an adverse decision.
Services at risk
In addition to Ciales, Comerío and Las Marías, and not considering their revenues,the municipalities of Maricao, Florida, Maunabo, Villalba, Orocovis, Adjuntas, Jayuya, Guayanilla, and Barranquitas depend on 80 percent or more on the funds exempted by Law 29 to continue operating.
According to Edwin Soto Santiago, mayor of Las Marías, in small municipalities like his, with small revenues income on municipal patents or similar and different from wealthier municipalities, eliminating Law 29 represents limiting the operations of the Diagnostic and Treatment Centers (CDT, Spanish acronym) - the only place offering health services in that town - or suspending youth sports programs.
While in municipalities like Las Marías, far from the metropolitan area or large municipalities, the mayor's office is the only reference people have of the government.
"We've already had a $1.9 million cut in state funds and half a million in operating expenses. Then, after María, we accessed some federal funds, but I still have 220 reconstruction projects that have not yet started, I still have roads closed," Soto Santiago said.
"I don't want to get ahead of the decisions we would have to make, but it would be fatal for us," he added.
According to Márquez Pérez, in Maunabo, eliminating Law 29 would further affect the situation. It would mean collecting garbage once a month, instead of every week, or pruning on roads a few times a year, if possible.
"In Maunabo, municipality employees work four, five or six hours because we already implemented furloughs where else am I going to cut from," said Márquez Pérez, pointing out that the Board "does not know" how municipalities operate.
He also recalled that municipalities were left behind, once the Board insisted on cutting General Fund grants.
According to the mayor, when the municipal financing model was conceived decades ago, the decision was that municipalities with more resources could contribute to those municipalities that, due to their location or demographic or economic profile, could not generate sufficient income. In short, he explained that this model is a "wealth distribution" mechanism implemented in all countries.
"The effect is detrimental because we offer services that the state government does not provide," he added.
According to the mayor of Comerío, what should be a topic of concern when the central government and the Board make decisions that affect municipalities is that they act from a position of poor planning and ignorance.
According to Santiago, when analyzing the functions of municipalities, the vast majority provide multiple services - including which the central government responsibility- with fewer resources.
For this mayor, the central government operates with a budget of approximately $9 billion, retains about $500 million in revenue from municipalities, and services are poor in case they provide them.
"I dare say that the flaws that may exist in municipalities are very small compared to the waste of funds in the central government," Santiago said. He also added that while in Puerto Rico they insist on centralizing services, in the most successful countries, municipalities are the ones that provide services to the people.