Ten municipalities in Puerto Rico will have to submit to the Oversight Board a report of their operations in about a month.
The municipalities that must submit their recipes to the Board are Aibonito, Barranquitas, Orocovis, Cidra, Comerío, Isabela, San Sebastián and Villalba, and, according to Board Executive Director, Natalie Jaresko, these municipalities are part of a pilot plan that seeks to identify alternatives and the best practices to ensure the viability of this branch of Puerto Rico's public governance.
Fiscal plans must be submitted on or before June 7 and, according to a letter from Board President Jose B. Carrión to Governor Ricardo Rosselló Nevares, the municipalities must present their vision of the future, an explanation of their demographic reality and the resources they have, an economic perspective and the impact of Hurricane María, as well as their revenues and the saving measures they have implemented.
Carrión said that the Board is “committed to ensuring adequate funding of services for the people of Puerto Rico. Many of these services, as made evident in the aftermath of Hurricanes Irma and María, are provided at the municipal level.”
Carrión added that “the fiscal situation of the Commonwealth, however, has led the Government and the Oversight Board to agree to phase out the municipal subsidy as a measure to prioritize much-needed General Fund funding. In the past two years, the Oversight Board has been working to better understand the fiscal situation at the municipal level by holding meetings with mayors, members of the Board of the “Centro de Recaudacio´n de Ingresos Municipales” (CRIM), business associations, and members of your fiscal team. It is clear that a combination of property tax revenue and fiscal responsibility measures for the municipalities are needed.”
Thus, yesterday, almost three years after taking financial control of more than a hundred public agencies and corporations, the Legislature and the Judiciary branch, the Board extended its powers to the only structure it had not touched: municipalities.
In a public meeting of less than two hours and after certifying its own fiscal plan for the central government, six of the seven members of the Board welcomed Jaresko's recommendation that it is time to look at the municipalities.
At the meeting, just after declaring Puerto Rico's 78 municipalities as covered under PROMESA, Carrión revealed that the Board has been meeting for months with mayors, private organizations and staff of the Municipal Revenue Collection Center (CRIM, Spanish acronym) with the aim of improving the collections that reach municipalities through property taxes. These collections would be the only source of income, once the General Fund ceased to provide them with funds.
The second objective of the Board is for municipalities to identify mechanisms that will allow them to incur more aggressively in consortia of services, or consolidation of procedures and operations, one of the many provisions already in force in the Autonomous Municipalities Act and which, it seems, is still the exception instead of the rule.
“This is absolutely not a takeover of anything,” Carrión told reporters.
Jaresko said this will not affect municipal autonomy and assured that the municipalities selected at this stage do not face immediate challenges of insolvency. Rather, she added, the municipalities were selected because they have demonstrated that they can work together.
However, the objective of the Board is that eventually, the 78 municipalities draft fiscal plans for the consideration of the fiscal entity and that they adapt to develop budgets, considering risk factors and identifying more efficient ways of public administration.
“The Board still doesn't get the central government to comply with implementation plans and now you are looking to deal with municipalities. Isn't that very ambitious?” El Nuevo Día asked.
“Yes, it is ambitious to try to address issues that have not been addressed for many years, but we are not afraid of the challenge,” Carrión told this newspaper.
The president of the Federal Home Loan Bank of New York and Board director, José Ramón González, agreed.
“Sure, this is ambitious, all this is ambitious, but it is necessary. What has happened at the central government level, demographic trends, a prolonged negative economic cycle in Puerto Rico have put extraordinary pressures on municipalities,” González said, noting that municipalities “have had difficulty adapting to those pressures.
Although Board members stressed that the decision to bet on the supervision of municipalities responds to a possible cycle of bankruptcy filings under PROMESA Title III, González acknowledged that, for some, the issue of municipal finances could be ignored because “it is not a mature issue.”
“But I'm sure that within a year, they will be asking why we didn't address the crisis in the municipalities earlier, and what we were doing while all this was happening,” González said.
Jaresko, Carrión, and González stressed that the decision is not about fiscal control, but about collaboration.
The Government seems skeptical
After learning of the Board's decision, Governor Ricardo Rosselló Nevares, who a few weeks ago said that some 64 municipalities could become inoperative due to budget problems, said it is time to seek permanent solutions for the entire government structure, including government management at the state, regional, and municipal levels.
The governor, who has suggested the creation of counties to address the municipal crisis, acknowledged that the Board's move could have an impact on his plans to transform governance in the municipalities.
Meanwhile, the government representative before the Board Christian Sobrino Vega was skeptical of the federal entity's move.
Sobrino Vega pointed out that, to date, municipalities have fully paid their public debt and that last year, the government reduced that obligation by 30 percent through the agreement that restructured the debt of the Government Development Bank (GDB).
But, above all, Sobrino Vega fears that the Board will replicate in the municipalities the mistakes seen with the approval and certification of fiscal plans at the central government level.
Sobrino Vega said that the Board does not have the resources or personnel to serve 78 municipalities, adding that it has taken the Board two and a half years to “learn” how the central government operates, which is very different from the municipal government.
Yesterday, Jaresko indicated that the technical assistance services that the Board will provide to municipalities will be paid from the same budget of the entity.
However, as soon as the letter to La Fortaleza was sent, the Board called for a request-for-proposals process to recruit a consultant in municipal affairs to assist in the management of those plans and to support the Center for Municipal Revenue Collection (CRIM), an agency whose main task is to increase collections through property taxes.
“The concern is obviously the same: how far they (Board members) are going to go with control and who establishes the public policy of the municipalities from now on once PROMESA is in the municipalities,” said Barranquitas Mayor Francisco “Paco” López.
Yesterday, the mayors interviewed by El Nuevo Día were confident that the selection made by the Board is determined by the performance of these 10 municipalities since only two of these (Villalba and Cidra) operate with budget deficits.
“I do not see this as a matter of controlling our finances, but as an opportunity for them to have an x-ray of what we suffer on a daily basis and a possibility to see our future projects and help us develop them,” said the mayor of Villalba, Luis Javier Hernández Ortiz, who along with his counterparts in Orocovis and Barranquitas promote the Municipal Energy Consortium of the Mountain Region, the first municipal initiative to build the first microgrid for electricity generation from renewable sources.
Hernández Ortiz, also vice-president of the Association of Mayors, said that more than three weeks ago they met with Jaresko and explained the problems in the municipalities and how some had devised mechanisms to overcome the crisis. He believes that the meeting could have contributed to the Board's determination. The mayor of Isabela Carlos Delgado Altieri agrees with him.
“If this entails having to lay off employees or eliminate essential services for our people, I will not accept it, let alone when we are a very prudent municipality with our finances. I have a budget with an accumulated surplus of $7.8 million,” said San Sebastián Mayor Javier Jimenéz.
“If my people are going to be mistreated - in a municipality that has been well administered - I won't allow it. Let them go to court, anywhere, but I'm not going to allow it,” he added.