During the fiscal year 2015, the municipality of Gurabo was the seventh with better financial health among the municipalities of Puerto Rico. However, it fell to the 66th position in less than a year.
Something similar happened in Guayama, which fell from the 18th place to the 65th, according to the Municipal Financial Health Index handled by the Center for Integrity in Public Policy (CIPP), an organization in charge of the Open Puerto Rico platform.
On the other hand, other municipalities, like Jayuya and Juncos, showed significant improvements, raising 38 and 36 places in the Municipal Financial Health Index rating, which is elaborated using the municipal audited financial statements.
In total there were 14 towns which improved in the administration of funds and public assets and 19 the ones which lower their grade.
The best and the worst
Arnaldo Cruz, spokesman for the CIPP, explained that the municipalities with best financial health index or with “A” grade were: Fajardo, Isabela, Aibonito, Culebra, Quebradillas, Hatillo, Rincón y Cayey.
On the other hand, the ones that got an “F” grade were: Ponce, Ciales, Maunabo, Arecibo, Guayama, Cabo Rojo, Gurabo and Salinas.
In the analysis the finance of Canóvanas, Ceiba, Cidra, Guánica, Lajas, Loíza, Santa Isabel, Toa Baja, Villalba and Yauco were not evaluated because, by June, when the information was computed, those municipalities had not submitted their audited financial statements to the Municipal Affairs Commissioner Office. This document was to be delivered in March.
Except for Cidra, in previous editions those municipalities got “D” and “F” grades or were not evaluated because of the lack of documentation.
Why the changes
There is no specific reason that explains the changes in the municipal financial health for the fiscal year 2016, except, maybe, in Gurabo case, which financial deterioration matches with the first signs of corruption that ended with the arrest of the former mayor Víctor Ortiz Díaz in January this year.
“We had some positive expectations because this is the third year of the index and we thought that, due to the fiscal crisis, the municipalities had tighten their belts. When the models were runned through, we realized that the general behaviour of the municipalities has not changed much. There are still many financial problems”, stated Cruz.
The general analysis of the municipal data is far from being positive, explained Cruz. For instance, for fiscal year 2016, 62% of the municipalities had budget deficiencies. That means, they expended more money than they had available.
In the same way, half of the municipalities saw their net assets (values of what they have over what they owe) fall or experiment downfalls in the general fund balance, the primary bank account ofthe municipalities. Some of them even have a negative balance in that account (44%).
Furthermore, 40% of municipalities had elevated levels of debt by committing more that 15% of their income to the payment of loans. Others maintain unhealthy relationships of dependence with the central government by counting on budgets that have a 40% dependency on the State transfers, explained Cruz. At present, the central government implants a progressive plan of cuts of about $350 million in transfers that they make to the municipalities, consequently they could face severe economic troubles.
“In this we have noticed that the gap between the municipalities that are doing the right things and those which are doing the wrong things is increasing. There is a polarization like the one there is between the rich and the poor”, noted Cruz.
The chairman of the Mayors Association, Rolando Ortiz, claimed that the municipal financial health deterioration is due to a disarticulation of the public policies at a local level. This is due to a lack of leadership from the Executive branch, which fails to to lead the political forces in government.
“Right now, there are municipalities that are charging for garbage and others charging for new patents. There is a complete disarticulation in public policies. This is going to create a greater crisis”, said Ortiz.
The president of the Mayors Federation, Carlos Molina, was not available to comment.
Reason for deterioration
The CIPP spokesman explained that the last years results have been investigated and, at the time being, it has not been found that there is a link between municipal financial health and the amount of time a mayor have been administering it. For instance, Aguadilla and Sabana Grande municipalities got a “D” equivalent grade in the Index, despite that their mayors, Carlos Méndez and José “Papín” Ortiz, have been in office for decades.
On the other side, Aguada municipality grade was “B” despite the fact that this municipality has changed its mayor several times in the last four-year periods.
Cruz pointed out that there does not seem to be a relation between the size of the municipality or its population, with their financial health. On one side, Culebra municipality, one of the smallest and less populated one has an “A” grade, while San Juan, the most highly populated, got a “D”.
“The size of the municipality is neither a factor. Big municipalities are not necessarily better administered. People have a perception that municipalities such as Caguas, Bayamón, Guaynabo, Carolina, San Juan are well administered and it is not necessarily that way. The highest rating amongst them is a “B” and it belonged to Bayamón. The rest are below that”, said Cruz.
What apparently do have an effect is the dependence that they have on the central government.
Cruz explained that, in general, the more dependent municipalities on state transfers have the worst Financial Health Index.
In part, that is due to the fact that they cannot make administrative plans in the medium-to-long term because they are not know the amount of funds they will count on in the future.
"This happens a lot in municipalities that do not have an economic activity that can finance the operation", Cruz said.
It is a situation that gets more complicated with the economic deterioration of Puerto RIco, that since 2006 is contracting and that, in the fiscal years 2018 and 2019, will receive a hard blow with the implementation of the certified Fiscal Plan that imposes a series of austerity measures.
This adds up with the contributory measures that have been approved in different municipalities, which have the capacity of affecting the commercial and industrial development.
For example, recently, Caguas approved the so-called Municipal Business Contribution, which raises the tax for the gross sales of a business.
A similar measure was approved in San Lorenzo. The funds that are collected, according to the ordinance, will be used to pay for the ornamental and recycling tasks in the municipality.
Likewise, the municipalities of Cabo Rojo and Arecibo already have measures to charge for the residential garbage collection, as long as San Juan will do the same with industrial and commercial waste.
“In the long run, I think that the municipalities that cannot self-sustain will end up adjusting their operations or failing to do some things… All this new taxes only bring a disarticulated public policy that also bring trouble for the economic development”, stated Cruz.
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