Repealing CILT would be disastrous for Puerto Rico
SAN JUAN — Imagine being the manager of an amateur basketball team or a little league baseball team and you need to use a park for a game, only to learn that you have to pay the city a bundle on electricity for its use, or imagine having to drive at night through pitch dark roads.
That is what is going to happen if the contribution-in-lieu-of-taxes (CILT) agreement that municipalities have had with the Puerto Rico Electric Power Authority (Prepa) since the 1940s, is eliminated. CILT is the mechanism, established by Prepa’s charter act, by which the utility compensates municipalities with power, in exchange for municipal tax exemption.
“We will not have games. It would affect the economy…. Cities already have to provide numerous services and this is going to ruin us,” Mayors Federation President Carlos Molina told Caribbean Business.
“It will be very, very bad. If this happens, we are going to court,” he added.
At a time when some 40 municipalities are operating with deficits or on a shoestring, the central government’s fiscal plan calls for repealing about $350 million from the general fund that goes directly to cities, which already pay back the state about the same amount in retirement and healthcare funds. The cutbacks, which are slated to go into effect in July, have forced more than 20 cities to either pass ordinances charging for trash collection or consider doing so. Others are collecting fees for using public facilities, while many cities are planning to establish consortiums to provide services.
To add insult to injury for mayors, the fiscal oversight board recently ordered Prepa to find ways to reduce CILT to 0% within the next three-to-five years.
The oversight board’s order was part of three amendments included in Prepa’s recently revealed fiscal plan, one of which ordered the utility to submit an implementation plan within 45 days of the plan’s certification to deliver power to ratepayers at a target rate of 21¢ per kilowatt-hour by 2023, through lower costs for generation and other efficiencies. The implementation plan, the board said, should reflect CILT’s repeal.
However, Prepa admits in the fiscal plan that it can only repeal CILT through legislation. In that regard, mayors also said they expect to have a huge battle in the Legislature to convince lawmakers to reject the proposal.
For years, there has been public criticism about CILT because Prepa was passing on the cost to consumers, and municipalities were doing little to save energy or reduce electricity consumption. In 2014 alone, the cost of CILT was about $200 million, of which half was for public lights.
Act 57 of 2014 changed the mechanism used by Prepa to compensate municipalities for not having to pay municipal taxes. In summary, Act 57 states that Prepa will make an annual contribution to the municipalities for CILT, which will be limited to a maximum figure. To calculate the maximum cap, the average electricity consumption of each municipality was going to be determined during the three years of greatest consumption from 2003-2004 to the present. To that base consumption, the utility was slated to subtract 5% annually for a period of three years. A Puerto Rico Energy Commission regulation prevents businesses operating in municipal facilities from obtaining free electricity by requiring them to pay for the service.
Presenting a dire scenario
Molina, the New Progressive Party (NPP) mayor of Arecibo, admits many towns and cities have not saved on energy, but noted municipalities are there to serve the public and have to provide services. “We are the closest link to the people,” he said. “We are not going to be able to operate. We will have to reduce the workweek or lay off employees,” he said.
Molina noted that if Prepa were to pay taxes to cities for its facilities, the utility would end up paying more than what it pays in CILT to municipalities. Bayamón Mayor Ramón Luis Rivera, of the NPP, said CILT costs about $170 million to Prepa, while the taxes will cost $400 million.
Rivera warned that repealing CILT will bankrupt cities because the cost of electricity is not part of a municipality’s budget. “If CILT is repealed and we are not allowed to collect taxes, then 78 cities—and not 40—will have problems because we would have to find money to pay for the electricity by either laying off people or taking other measures,” he said, urging a meeting with the oversight board to clarify CILT’s importance.
For Isabela Mayor Carlos “Charlie” Delgado Altieri, of the Popular Democratic Party, municipalities will start charging taxes to Prepa for the development of projects in cities. He said the Puerto Rico Aqueduct & Sewer Authority, which is also in financial trouble, pays taxes to cities for its infrastructure.