New Progressive and Popular (parties) mayors warned that making additional changes to the Contribution in Lieu of Taxes (CELI, by its Spanish acronym) of the Puerto Rico Electric Power Authority (PREPA) will cause a disruption in municipal finances, which have already been affected by the elimination of state subsidies and the fiscal collapse of the Government Development Bank (BGF, by its Spanish acronym).
The warning by mayors comes after the PREPA outlined a reform to the CELI in its plan to the Oversight Board (OB). This contribution works as a sort of a swap the public corporation maintains with municipalities, who don’t collect taxes from the PREPA in exchange for free electricity.
“The PREPA must recall that, without the CELI, they would have to outlay $300 million more than what the subsidy is worth,” said the New Progressive mayor of San Sebastián, Javier Jiménez.
“The PREPA is a company that uses municipal land to sell electricity. Without the municipal easements, it would be unable to sell electricity. They better be careful lest we start collecting the taxes that we are entitled to,” said, for his part, the Popular mayor of Cayey and president of the Mayors Association, Rolando Ortiz.
For the time being, the PREPA’s fiscal plan proposes or continues a series of reforms to the CELI which intention is to reduce the economic burden of that contribution on the public debt. The measures include, among other, excluding the revenue-generating municipalities from CELI. Also, the intention is to transfer the cost of the power for street lighting to the area of subsidies on the bill.
These measures, for the most part, were already enacted in the 2016 Law to Revitalize PREPA. However, not all the provisions have come into effect because of the processes requiring the endorsement by the Puerto Rico Energy Commission. This law establishes some caps on electricity consumption by municipalities. Any city council exceeding it, would have to pay the difference. According to that established by the law, these initial caps would have to be reduced by 15% during the first three years after implementation.
“The PREPA in the new rate structure will recover the cost of the CELI through the bill. (Any) additional changes, would require legislation,” reads the PREPA’s fiscal plan. That burden on the bill will start to be felt on July 1, 2017, it was noted.
However, the recommendation by the OB is to eliminate that contribution which, on occasion, has been interpreted as a subsidy to municipalities.
Governor Ricardo Rosselló Nevares recently said in press conference that, even though the OB may recommend eliminating the CELI, the decision rests with his administration as it is a matter of public policy.
“When you take away the CELI, the municipality may stop the contribution it makes. It’s a swap, and my petition to them is conduct a proper evaluation on whatthe municipality is contributing, what it contributes to the other side, and then see if, in fact, it could translate into a benefit. We understand that it is a public policy decision that is not right, and that is what I have established,” Rosselló Nevares said.
“We need to recall that CELI is not a subsidy to municipalities, but rather a contribution. Municipalities collect on operating licenses and do not collect from the PREPA because they swap it through the consumption of electricity. It is a service for contributions. If there is no CELI and the plan is for municipalities to pay for electricity, then operating licenses and property taxes must be paid by the PREPA,” Jiménez pointed out.
The mayor of Isabela, Carlos Delgado Altieri, who also acts as secretary general of opposition Democratic Popular Party (PPD, by its Spanish acronym), highlighted that the changes proposed in the fiscal plans submitted to the OB add economic stressors for municipalities, many of which are at the brink of insolvency.
He mentioned, for example, the bankruptcy and liquidation of the BGF, which has the potential to obliterate hundreds of millions of dollars that municipalities had in deposit. Similarly, he highlighted that the BGF agreed to a series of loans for some municipalities, and while it never disbursed the money as agreed, it is collecting on the monthly installments to repay the loans.
“Smaller municipalities that rely more heavily on the State are going to suffer a lot. There is no way that it can cover for them. It’ll be hard for them to survive. Measures are going to have to be drastic and will affect workers.”
In fact, the mayor of Isabela predicted that about 40 city councils could loose their financial viability with the coming changes.
The former director of the Energy Affairs Administration, Jose Maeso, explained that the problem with the CELI, from its inception 12 years ago, was that it led to a 30% increase in electricity consumption by municipalities, without the PREPA receiving any compensation whatsoever resulting from the additional generation.
Although the matter to curb power consumption by municipalities was regulated on during the last administration, a discussion ensued over which municipal buildings would pay for consumption.
“Now, the PREPA will recover the CELI via the bill to its customers. From the standpoint of the PREPA that has been solved,” said Maeso, who is currently serving as academic director of the Puerto Rico Energy Center at Universidad del Turabo.
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