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FOMB proposes keeping central gov’t funding of towns next fiscal year

By on May 23, 2020

FOMB Chairman José Carrión (Juan J. Rodríguez/CB)

Nixes proposed 33 percent cut amid Covid-19 crisis

SAN JUAN – Citing the need to help municipalities battered by the Covid-19 crisis, Puerto Rico’s Financial Oversight & Management Board (FOMB) announced Friday that it is proposing to scrap a planned 33 percent cut in annual central government funding of municipalities for upcoming fiscal year 2021.

FOMB Chairman José Carrión said in a statement that after meeting Friday with “a group of mayors” he did not name, the oversight board decided to propose leaving current fiscal year 2020 commonwealth funding deposited into the Municipal Revenue Collection Center (CRIM by its Spanish acronym) Equalization Fund at $132 million for fiscal year 2021, beginning July 1.

The 2019 commonwealth fiscal plan certified by the oversight board had originally called for such funding to be cut by $44 million, or 33 percent, to $88 million next fiscal year, Carrión said. FOMB plans called for the central government funding of island municipalities, which originally were as high as $350 million, to be phased out by 2024.

“The board knows perfectly well the effects that the recent earthquakes and COVID-19 have had on municipalities,” the FOMB chairman said. “We are also aware of the very important services that municipalities offer all of us who live in Puerto Rico. Delaying the reductions in the subsidies will guarantee that municipalities will be able to serve their constituents despite the heavy burden of this pandemic.”

Carrión said the “additional economic aid” should be used “efficiently” to implement “strategies that allow a more transparent and equitable distribution of work between the Government and municipalities.” He urged towns to “decentralize services and earnings” while “consolidating the delivery of services in municipalities.” He also called for municipalities to improve their finances and reduce dependence on central government financing by increasing tax collections and having “more sustainable budgets and operations.”

Mayors have argued that commonwealth subsidies are needed to compensate for repair and maintenance services involving schools, roads and other infrastructure that the central government has been shifting to municipalities. They also say the Equalization Fund is needed to cover spending in smaller towns that do not have a large enough tax base.

Moreover, earlier this month, FOMB issued a directive to municipalities to return 3 percent of their funds to the central government to comply with the federal court ruling annulling Act 29. On April 15, Judge Laura Taylor Swain, who oversees Puerto Rico’s bankruptcy-like court proceedings to restructure the island’s debt, annulled the Law to Reduce the Administrative Burdens of Municipalities (Act 29 of 2019), which exempted towns from paying Health Insurance Administration (ASES by its Spanish acronym) and monthly public pensions under PayGo. The law allowed the commonwealth government to allocate funding to make up for the lost contributions.

The fiscal board determined that the island’s 78 municipalities owe the government $198 million for retirement benefits paid and ASES’s program for the medically indigent, and that CRIM can allocate the $132 million Equalization Fund from the certified fiscal plan to that balance. That leaves $66 million to be repaid to the government—the equivalent of about 3 percent of the combined municipal budgets, totaling about $2 billion.

A request for comment was left with CRIM’s chairman, Cidra Mayor Javier Carrasquillo.

FOMB Executive Director Natalie Jaresko said Friday that municipalities and CRIM must still discuss how to achieve fiscal sustainability of towns while “continuing with the very important delivery of services to the people of Puerto Rico.”

“This should include policies that strike a balance between their responsibilities to retirees, better property tax collections, enough savings from shared revenue, and other efficient measures that will ensure municipalities continue to provide services to their residents in a sustainable and fiscally responsible manner,” she said in a statement.

Jaresko said the oversight board “is committed to helping find fiscally responsible ways to overcome the challenges municipalities face in light of the COVID-19 pandemic crisis.” She said that on March 23 the oversight board authorized the Puerto Rico government to disburse $100 million to towns contained in a $787 million Covid-19 emergency aid package. FOMB also authorized on May 13 some $185 million in short-term liquidity financing for municipalities to compensate for delays in property tax collections due to the pandemic, the FOMB executive director said.

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