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(Ramón Tonito Zayas)

At the request of several mayors, the House of Representatives will hold public hearings tomorrow to evaluate a bill to increase the municipal operating license and add more funds to the city councils. 

House bill 971 proposes to increase the tax rate on operating licenses for financial businesses from 1.50% to 1.90%. Also, it seeks to increase operating licenses for the rest of businesses from .005% to .009%.   

The measure was submitted by House Speaker, Carlos “Johnny” Méndez, and PNP house member José Luis Rivera Guerra. However, Méndez said the measure promoted by mayors “is not written on stone.”

The chamber leader agrees with the mayors who understand that if the measure is passed the property tax that is today collected by the Municipal Revenue Collection Center (CRIM, by its Spanish acronym) must be eliminated.

Méndez highlighted that the mayors went to the Legislature to ask for the bill “in hopes of providing an alternate offer to municipalities ahead of the loss of subsidies.”

The mayors started looking for options given the loss of $350 million worth of State subsidies they will face starting July 1.  Municipalities will loose $175 million during fiscal 2017-2018 and an additional $175 million during fiscal 2018-2019, according to the fiscal plan approved by the Oversight Board (OB).

Initially, the mayors had entertained the possibility of raising tax rates on property taxes, but that initiative was ruled out after governor Ricardo Rosselló came out against an increase. 

Although it’s State money that municipalities will stop getting, the governor has said that it is up to the mayors to look for options to mitigate the loss of the $350 million that, among other things, is already foreseen will cause a reduction in working hours and/or collection for services, according to statements by the mayors. 

The mayor of San Sebastián, Javier Jiménez, who supports the project with amendments, estimates that the rise in operating licenses could leave about $420 million annually in additional revenues among all the municipalities.

Currently, the 78 municipalities collect $540 million in operating licenses, the mayor said, quoting data from the Office of the Commissioner for Municipal Affairs.

Jiménez noted that the bill should be accompanied by other initiatives to be effective.

“Let’s replace the property tax with an operating license,” he asserted.

Likewise, he stressed that the measure must be clear in that funds must be used to “nourish the Compensation Fund which is the one (about to be) lost” with the cutback of the $350 million provided by the central government.

What he means to say is that by eliminating the $350 million, municipalities loose several items of money they receive from the central government. Come July 1, the start of the next fiscal year, the municipalities will loose the first $175 million from the combined moneys they receive from net revenues ($41.9 million) and as compensation due to exemptions to property ($133 million).

This last item will greatly impact large municipalities with higher numbers of exempted property. In other words, the initial blow will be absorbed mostly by large municipalities.

For next fiscal year (2018-2019), the $175 million that municipalities will loose come from the Compensation Fund, which is a pot that feeds off every municipality and is intended for communities with populations below 50,000 people. 

The Compensation Fund is sustained by the State subsidy arising from 2.5% of net internal revenues, 35% from the net revenues of the On-Line Lottery, and a portion of the basic property tax from each municipality.

“That’s the big blow that’s coming. It completely does away with it (the fund). We have two critical years and there we are, with a two month law,” said the mayor of San Sebastián.

Jiménez proposes that any money collected in excess, when replacing the property tax with an operating license, goes to keeping the Compensation Fund alive. “We generate additional cash there and the Compensation Fund can be kept. The bucket is the same, what changes if the plume of water,” he said.

“That increase would be collected through a separate return that would be taken to the CRIM, who’d be in charge of computing the Compensation Fund because if it stays in the municipality, they will keep the money,” Jiménez added.

“In its present form (the bill as drafted), it wouldn’t have the intended impact sought to cure the deficiency. The only municipalities with a greater impact or who’d benefit the most from the bill as it’s currently drafted would be the larger municipalities,” he asserted. 

So agrees the mayor of Maunabo, Jorge Luis Márquez, who understands that before making any amendments to sustain the Compensation Fund larger municipalities must be consulted on whether they are willing to fill that pot. “That could be an option, talking to municipalities,” he said.

Also, he predicted small business could shut their doors from being unable to absorb the raise in the license.

“What’s needed here are projects that broaden the (tax) base. I don’t believe it right to pay more for an operating license,” said the mayor who’s looking to meet with OB. “Thus my insistence on meeting with the board so they learn about the impact of eliminating those $350 million,” Márquez noted.

  “The net effect of this cutback would be the elimination of any funds coming from the government, including exempted property and the municipal compensation fund. Therefore, 80% of municipalities –just to give you a figure – would be left insolvent. This means that there’s not going to be any money to work with in municipalities, not even for payroll,” he warned.


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