With the power to hike rates (horizontal-x3)
Before this article, the law’s text empowers the committee to order the transfer to the General Fund of any surpluses arising from items in the budgets of public corporations. (Thinkstock)

Right in the middle of the 88 pages that make up Law 26 on the Compliance with the fiscal Plan, there is a series of provisions that bestow on the central government the capacity to increase rates, such as those for drinking water and electricity, and confer the authority to transfer any moneys generated by these hikes to the General Fund.

Similar increases could also happen with taxes financing the operations of public corporations, as is the case with the Highways and Transportation Authority, and the tax on petroleum by-products, popularly known as “crudita.”

These adjustments and subsequent money transfers to the central government seek to improve the balances of the General Fund in such a way as to enable it to comply with the revenue estimated in the Fiscal Plan of about $9.3 billion for fiscal 2018.

Said differently: Law 26 granted the administration of Ricardo Rosselló Nevares the capability to decree tax increases or hikes in values, such as that collected on road tolls controlled by the State, not to resolve the fiscal problems of public corporations, but rather to balance the central government’s checkbook.

The power to increase taxes and rates in public corporations is concentrated in a committee made up of the secretary of the Treasury, Raúl Maldonado Gautier, the executive director of the Office of Management and Budget (OGP, by its Spanish acronym), José Iván Marrero, and the executive director of the Fiscal Agency and Financial Advisory Authority (FAFAA), Gerardo Portela.  

“The Committee is empowered to review the revenue sources of public corporations, agencies and instrumentalities, and to adjust, increase or reduce, any charge, duty, rate, tariff, fee, premium or any revenue of a similar nature, in order to comply with the metrics established in the Fiscal Plan of the Government of Puerto Rico,” so reads the statute in article 4.02.

Before this article, the law’s text empowers the committee to order the transfer to the General Fund of any surpluses arising from items in the budgets of public corporations.

Elías Sánchez Sifonte, representative of the governor before the OB, said the intention of the measure is to expedite the process to meet the metrics established in the Fiscal Plan. He said any actions taken by the Committee cannot go against this fiscal document, or against any specifically prepared for any of the public corporations such as the Aqueduct and Sewage Authority (AAA, by its Spanish acronym) and the Puerto Rico Electric Power Authority (PREPA). 

“In the case of PREPA, their Fiscal Plan states that, in a few years, the rate should drop to 21 cents (per kilowatt hour). That can’t be achieved if the rate goes up,” Sánchez Sifonte said when ruling out increases in the main utilities. 

However, the law itself establishes that some entities, such as the University of Puerto Rico, fall outside the scope of the statute. That distinction does not apply to the AAA or PREPA.

The governor, by enacting Law 26, issued a “explanatory declaration” in which he mentions that the transfer “is limited to surpluses from some agencies and corporations, as determined by the Fiscal Plan, to add additional resources to the General Fund arising from rate adjustments in certain services.”

Legislative concern

According to sources inside the governing New Progressive Party (PNP, by its Spanish acronym), this portion of the law was subject to intense debates during its approval process, because it granted the Executive powers that would ordinarily rest with the governing boards of public corporations and the Legislature.

In the end, the new progressive majority in the Senate and the House yielded to the pressure from the Executive under the argument that, if the statute was not passed, the government could be left with revenues below estimates, which would give way to the intervention by the Oversight Board (OB) with its proposal to eliminate the Christmas bonus for the central government and the reduction of the work day for public servants by 20%. 

This happens in the context of failures in the Fiscal Plan as certified by the OB in March. Specifically, in the area of revenues, the document sets forth cigarette excise tax revenues that are above the Treasury’s forecast. Likewise, one the biggest criticisms to the Fiscal Plan has been that its calculations take as premise an annual drop in the population of 0.02%, when, in reality, the percentage exceeds 1% a year. In fact, according to estimates from economist José Alameda, between 2010 and 2015 the government lost, as a result of emigration, revenues for $67 million annually. According to Sánchez, this has been mitigated by legislating an increase in transit fines higher than what the Fiscal Plan stipulates.

The Energy Commission powerless

One of the main critics of the measure was the spokesperson for the popular minority in the Senate, Eduardo Bhatia. According to the legislator, Law 26 allows the government, in its attempt to balance its coffer, to impose taxes or increase the cost for services such as water and electricity, without regard for the damage this may bring to the economy and the welfare of citizens.

“This is a tax in disguise, and they are passing it through the part of the government (the public corporations) that has the most effect on the country’s economy,” Bhatia said.

The popular legislator emphasized the effect the legislation has on the Energy Commission, the sole independent entity that establishes rates, in this case, the Puerto Rico Electric Power Authority (PREPA). In essence, the legislation establishes its supremacy over any other statute tending to the subject of rates.

“They stripped the Commission of its main power to force the PREPA to adjust its operations and be more efficient,” Bhatia said.

The members of the energy Commission issued a joint statement in which they only went as far as highlighting that “the PREPA has an independent regulator, specialized in energy matters, that is capable of procuring fiscal responsibility and reasonable prices. The Commission is committed to working with any entity, whether government or private, to transform the PREPA.”

Measures to address the crisis

According to the former president of the AAA’s Governing Board, Kenneth Rivera, this type of measure has been contemplated in the past with the idea of curing the fiscal deficiencies in public corporations, but it has never taken off.  

“The problem that I see is that technical knowledge on rates lies not in the committee, but rather in the corporations, which is why the corporations must participate in the decision-making process to increase a rate,” Rivera said.

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