Law 29 exempts municipalities from making a contribution to the government's health plan (Vital) and from paying pensions through the retirement system known as "PayGo”. (GFR Media)

In response to questions from the Oversight Board about the impact of the new law that exempts municipalities from paying pensions and contributing to the government's health plan, the administration of Ricardo Rosselló Nevares affirmed that the statute "is not significantly inconsistent" with the certified fiscal plan.

In a document submitted to the Board, the government minimized the fiscal impact of the "Administrative Burden Reduction for Municipalities Act (Law 29-2019).

While acknowledging that the law would have an impact of $285.7 million on next fiscal year's spending, the compliance certification - presented by the Office of Management and Budget, the Treasury Department, and the Fiscal Agency and Financial Advisory Authority (FAFAA)- stresses that its provisions have no "progressive impact" either on the budget or on the new Fiscal Plan for Puerto Rico.

The Board immediately reiterated that it does not endorse Law 29 on the grounds that it does not comply with the fiscal plan.

In addition, the entity that overseeing the island´s  finances indicated that it is evaluating the "next steps" in line with the powers granted by PROMESA, which include going to court or repealing a recently approved law if it is not consistent with the fiscal plan.

"We insist on what we have always said, that the payment of 'PayGo' and PRHIA (Health Insurance Administration) through the General Fund is inconsistent with the fiscal plan. We are evaluating our next steps according to what PROMESA provides," Board spokesman Edward Zayas told El Nuevo Día.

Zayas confirmed that they received the certification on the approval of Law 29 –that El Nuevo Día could access- on Monday evening. The delivery of the document responds to the regular process that the government must follow after passing a law that has a fiscal impact.

He recalled that these certifications must be issued seven days after the approval of a law, as provided in PROMESA Section 203. Law 29 was signed on May 17.

The impact of the law

Law 29 exempts municipalities from making a contribution to the government's health plan (Vital) and from paying pensions through the retirement system known as "PayGo”. That money would be redirected to the municipal equalization fund, which allocates resources to municipalities so they can match their incomes with those of the previous year if they have fewer revenues.

In the certification, the government stated that to implement the new statute, they will need $119.7 million from the General Fund for next fiscal year's PRHIA budget to cover exempting municipalities from contributing to the government's health plan and $166 million to cover the "PayGo.

As for the"PayGo," the government indicated that they requested an actuarial study to determine the impact on spending in subsequent fiscal years.

Even with that budget analysis, in the line that specifies whether the new law complies with the certified fiscal plan, the government states: "Law 29 is not significantly inconsistent with Puerto Rico's new fiscal plan.”

The certification concludes that it complies with the fiscal plan, which goal for 2020 is a $9.1 billion budget, clashing with the $9.6 billion proposed by Rosselló Nevares.

Chief of Staff Ricardo Llerandi rejected yesterday that the certification implies accepting that Law 29 is inconsistent with the fiscal plan.

"It is consistent with the fiscal plan based on the future financing of the Health Reform. The fiscal plan contains the future funding of the Health Reform and, in that context, it is consistent," the official explained.

"As for "PayGo," Law 106 (“Act to Guarantee the Payment of Pension Benefits to our

Retirees and to Establish a New Defined Contribution Plan for Public

Employees,”) establishes that payments must be made through the General Fund," Llerandi insisted.

He said they have explained this to the Board. "They insist on making public policy instead of establishing fiscal parameters," he argued.

The Board Director Natalie Jaresko has argued that the government submitted a recommended budget for fiscal year that is incomplete.

Meanwhile, the Rosselló Nevares' administration advocates for a budget larger than that of the Board. This Sunday, the governor will offer his budget message in Ponce and he insists that he will submit to the Legislative Assembly the one that he originally recommended and that the fiscal entity rejected.

Llerandi –as Rossello Nevares has already said- stressed that they are willing to fight the Board, even in court.

The Legislative Assembly majority, led by Carlos "Johnny" Mendez and Thomas Rivera Schatz, aligned with the governor, and said they will not present budget resolutions with the items recommended by the Board.

The Board's budget, among other cuts, does not include contributions to municipalities.

A complicated scenario

The scenario seems complicated for the 78 municipalities that rely on Law 29 to prepare and balance their respective budgets for the next fiscal year.

Last week, the Municipal Revenue Collection Center (CRIM, Spanish acronym) issued the estimates municipalities would receive next fiscal year considering that they would not pay PRHIA or the "PayGo.

"That is the rule of law in Puerto Rico," said the president of CRIM Governing Board and mayor of Cidra, Javier Carrasquillo.

However, he acknowledged that mayors are in a kind of "limbo" due to the controversy between the government and the Board”.  He added that the situation is more complicated for the 10 municipalities that are part of a pilot project - under PROMESA - and must submit a fiscal plan and five-year projections to the Board based on their budgets.

Carrasquillo estimated that there are three possible scenarios and that mayors keep on calling him asking what will happen. He said that the budget recommended by Rosselló Nevares could be approved, which would not change CRIM's estimates.

The other scenario considers that there would not be an agreement and the current budget would prevail or that the JSF would impose its own budget, which would represent to an additional cut of $44 million to the municipal equalization fund.

He acknowledged that under any of these two scenarios,  estimates would have to be adjusted.

"The probability is that it (the controversy) will reach the court and the court will define that," Carrasquillo said.

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