Gov’t to hike property taxes to ease elimination of $350M in municipal subsidies

SAN JUAN – The fiscal plan submitted by the government to the fiscal oversight board confirmed a Caribbean Business report that the current administration will not only be eliminating $350 million in subsidies to the 78 municipalities, but also increasing property taxes.

“Property taxes will be assessed based on market values that will be updated regularly and with every sale,” reads the government’s fiscal plan, which was made public Wednesday.

That, along with a $300 million cut to the University of Puerto Rico’s general fund and $100 million in cuts to other subsidy programs, is slated to yield $6.5 billion in savings in 10 years.

Puerto Rico’s municipalities receive $350 million a year from the island’s general fund, with the top eight municipalities receiving 50% of the allocation. According to the plan, in order to overcome the budget gap the property tax system must be brought up-to-date to raise revenue from updated home values.

A screenshot of www.avp.pr.gov showing a Public Housing Administration map of Puerto Rico’s municipalities.

“The initiative will gradually eliminate the $350 million subsidy and provide municipalities with a modernized property tax regime in order to fill the gap. Assuming the same 78% average collection rates and the same exemptions and exonerations, modernizing the property tax regime would require raising the effective tax rate to 0.65% and the nominal rate to 2%,” the plan reads.

The plan calls the island’s property tax system antiquated and inefficient, collecting an effective rate of 0.38% of total gross taxable base of real-estate compared with a 1% U.S. median rate.

During a recent interview with Caribbean Business, Mayors Association President Rolando Ortiz opposed raising the property tax. He said there are properties in municipal urban centers that aren’t used because owners have left, have inheritance problems or have been abandoned.

“We don’t agree with an increase to property tax rates, but we believe the capture rate can be more efficient because if everyone pays, there [would be] enough money. There are many unused properties that aren’t contributing or that won’t be able to contribute. We believe that if the owner doesn’t show up or doesn’t pay, municipalities should have the power to obtain that property and auction it,” he said.

The new property tax system is expected to produce a total of $426 million in revenue, of which at least $350 million will go to the towns and about $76 million to the government. The plan also says that streamlining the Municipal Revenue Collection Center (CRIM by its Spanish acronym) will produce incremental savings and will increase collection rates.

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