The municipal pilot program is on hold due to the uncertainty caused by the Oversight Board's challenge to Law 29 - which would reduce municipal pension and health insurance costs- and due to the "rebellion" of some mayors who fear that the document will finally result in the elimination of municipalities.
The Board´s goal was to approve these fiscal documents by June 28, but technical limitations, political dynamics, and confrontations between the fiscal entity and the Puerto Rican government delayed the process, which currently includes only 10 of the 78 municipalities.
According to some mayors, the Board stopped setting new dates to submit fiscal plans and simply keeps visiting municipalities in the pilot program while discussing proposals and gathering information to resume the project once the cities´ fiscal scenario is clear.
"It is impossible to prepare a fiscal plan. More than 50 percent of the revenue comes from CRIM (Municipal Revenues Collection Center) and the future of CRIM is still uncertain. We have sent the financial information they have asked for," said tSan Sebastián mayor Javier Jiménez.
"I'm not going to file a plan until we know what happens with CRIM. We have decided so because we cannot make real adjustments in this situation. We also understand that the numbers would be fatal without Law 29,” said Isabela mayor, Carlos Delgado Altieri.
However, Board spokesman Edward Zayas, indicated that all the municipalities delivered the fiscal documents they requested and that they are reviewing those plans and they are in conversations with the towns to learn about their specific situation while reaching a solution for those controversies that have delayed the pilot program.
"The idea, right now, is to meet with the mayors to understand the strengths, and see if we can give them a hand," Zayas said. Meetings, he added, allow them to have a close look at how municipalities manage their finances and discuss possible strategies to boost the economy and improve revenues.
Municipalities have been suffering fiscal deficiencies for more than a decade. The situation, however, got even worse when they lost their deposits in the bankrupt Government Development Bank; they had no more transfers of state funds and were forced to pay part of the Government Health Plan - known as Vital - and the "Pay as you Go" system, which covers public retirees pensions.
Law 29 -2019, challenged by the Board, reversed new municipal obligations with the Vital program and the new retirement model. However, for the Board, however the measure is not consistent with the current fiscal plan and, therefore the entity challenged the law before federal judge Laura Taylor Swain, who presides over the Bankruptcy Court under PROMESA. The case is still in litigation even though Governor Wanda Vázquez Garced said it is a lost cause for the central government.
As long as the case remains unresolved, CRIM will not be able to have a basic income estimate, and while that happens, this agency will not be able to complete the fiscal plan the Board also requested. That document would be the basis for all municipal fiscal plans.
The Board resolved the delay by requesting two fiscal plans: one considering Law 29 one without considering that measure. And that is where some cities had difficulties. The scenario without Law 29 implied the immediate collapse of municipal finances.
"I'm not going to file such a plan ... that would be a death sentence for my municipality. I am not going to go down in history as the one who closed the municipality. They will have to force me," stressed the mayor of Comerío, José A. Santiago
"It would be dramatic without Law 29. We would lose about $4 million annually. That's a lot for a municipal budget. That would affect the services we provide because we would have to reduce employees and stop providing some (services). That's why we need that law," said Orocovis Mayor Jesús Colón Berlingeri.
The problem is that most municipalities depend on transfers from the central government to operate. In Orocovis, 67 percent of the budget comes from the central government. Meanwhile, Comerío receives 66 percent and Barranquitas 59 percent. Of the group of municipalities in the pilot project, Cidra is the only one that operates with just a 13 percent central government contribution.
Six of the ten municipalities in the pilot project are more than 40 percent dependent on central government transfers. "Without Law 29 it would be possible to operate, but services would be very limited. We would just collect garbage and clean up the streets. There would be nothing else. We wouldn´t be able to repair streets, or schools, or sports, there would be nothing," said the mayor of Quebradillas, Heriberto Vélez.
"They wanted income projections without Law 29. Without that, 40 municipalities are not going to be able to operate because they have already experienced big losses with the GDB and with the equalization funds (transfers). And they don't have the capacity to produce new income in a short period of time because they don't have an economy to support them," said Delgado Altieri. "They (the members of the Board) have to understand that the plan that they are trying to impose is not working."
The mayor of San Sebastián argued that the other reason many municipalities still stay afloat is that they are covering their operational expenses with Community Disaster Loans (CDL) provided by the Federal Emergency Management Agency, which is capped at $5 million.
"Municipalities have not collapsed because they have used FEMA loans for daily operations in the hope that FEMA will forgive the loan and that they won´t have to pay it back," Jiménez said.