Thursday, July 16, 2020

Mayors say they don’t have to repay the government, but will

By on May 7, 2020

Will ask fiscal board about its position on a line of credit

SAN JUAN — The chairman of the Municipal Revenue Collection Center (CRIM) Governing Board, Javier Carrasquillo, said Thursday that the organization agreed on the proportion of the payment they will make in light of the repeal of Act 29.

The decision was made after a meeting with the presidents of the Association of Mayors and the Federation of Mayors.

“If a mandate then comes down that we have to pay and that mandate implies the application of the $132 million that we have from the transfer of the State, we decided that it would be applied in the same proportional percentage to all municipalities as we had already announced in our communication to the board,” Carrasquillo, who is also mayor of Cidra, said at a press conference.

“The other thing we resolved is to send a communication to the Fiscal Control Board requesting their position regarding the line of credit they had offered us. It is evident that if we use the $132 million to pay the debt, it will leave CRIM without liquidity,” he added, assuring that CRIM collections have fallen due to the effects of the COVID-19 pandemic.

On the other hand, the president of the Association of Mayors, José “Joe” Román, together with the mayor of San Juan, Carmen Yulín Cruz Soto, and the mayor of Juncos, Alfredo “Papo” Alejandro, and of Maunabo, Jorge Márquez Pérez, insisted that the central government must pay the money that federal Judge Laura Taylor Swain ordered after annulling Act 29.

“What we have posited is, firstly, we are not part of the lawsuit in which Judge Laura Taylor Swain issues her decision. Who the Fiscal Control Board is suing is the government of Puerto Rico. Therefore, the government of Puerto Rico is who has to answer about Act 29,” Román Abreu, who is also mayor of San Lorenzo, said at a press conference.

“If the government of Puerto Rico wanted to charge the municipal governments, it would have to go to court to request…getting paid that money that corresponds to the municipal governments. Why? Because Retirement from municipal governments was paid by retirees who also made their contributions. And No. 2, that the Health Reform was created by the state and we warned that if they gave us the necessary measures they would run out of money and they put an additional burden on the municipal governments to now try to take away our resources,” he added.

For her part, the mayor of San Juan, Carmen Yulín Cruz Soto, said that Judge Swain’s determination does not order municipal governments to disburse money.

“The only thing the lawsuit does is annul Act 29. It does not ask anyone to pay anything. The Fiscal Control Board, in a capricious, abusive and arrogant act, tells the municipalities and the CRIM they have to pay the money that the government gave them to fulfill their obligations. This is as if you were getting a ride with your neighbor, but the neighbor stopped paying their car. And then the bank, instead of going against the neighbor, tells you to pay the neighbor’s bill because the neighbor stopped paying the car. The people of Puerto Rico have to be clear, the municipalities, our loans are paid up to date and prepared. Here it is the central government that must,” Cruz Soto said.

“The governor has to keep her word. See if she can do something right, keep her word. She said that she was going to solve this problem for the municipalities, perhaps because it was politically convenient for her. Well now she should put her money where she put her word,” she added.

For his part, Maunabo Mayor Jorge Márquez Pérez assured that both the municipalities and CRIM have presented alternatives to remedy the problem.

“Alternatives have been offered. The municipalities and CRIM have provided alternatives. The dictatorial board unilaterally wants to impose on the municipalities that it send $132 million that the state sent to the municipalities and is part of the municipalities to comply with ASES [Spanish acronym for Health Insurance Administration] and PayGo obligations, so the municipalities would become insolvent,” he said.

The mayors requested a meeting with Gov. Wanda Vázquez, to create committees for small, midsize and large population municipalities so that there is a balance in measures taken for the municipalities,” he said. “And collect information so that in case of going to court, state or federal, they are ready.”

Board reminder

The executive director of the Financial Oversight and Management Board (FOMB), Natalie Jaresko, reminded municipal governments that, starting Thursday, they will have to return 3 percent of their funds to the central government after the annulment of Act 29.

“Tomorrow, May 7, 2020, the decision by the U.S. District Court for the District of Puerto Rico to nullify Puerto Rico Law 29 will take effect, reinstating the municipalities’ obligation to reimburse the Government for the retirement benefits provided to retired municipal employees,” Jaresko said in a statement.

The fiscal board determined that the municipalities owe the government $198 million for retirement benefits paid, 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% of the combined municipal budgets totaling about $2 billion.

CRIM “chose to apply that repayment amount on a proportional basis to all 78 municipalities, meaning each municipality owes the Government an amount equal to 3% of their annual budget,” the release4 reads.

The fiscal panel determined that there are “remaining outstanding funds available to extinguish the liability to the Government in a responsible and manageable way. Municipalities will not have to divert any funds from their current fiscal year operating budgets, nor will any municipality have to cut services to make these payments,” it said.

The repayment plan sequence is incremental to municipalities’ operating budgets, according to the board:

  1. Outstanding electronic lottery proceeds that have not been remitted to CRIM.
  2. Excess property tax collections from CAE that were not already budgeted by individual municipalities or are collected in an amount higher than budgeted.
  3. Higher tax collection than budgeted because CRIM may receive tax revenue not previously budgeted, such as new properties taxed and outstanding tax receivables. At no point will one municipality use its excess tax collection to offset the obligation of another municipality.
  4. The proceeds from the sale of uncollected property tax receivables, a measure that will feature prominently in CRIM’s eventually Certified Fiscal Plan.

“Municipalities must repay the Government without unnecessary delay. That is the fiscally responsible way to resolve financial obligations. The sale of uncollected property tax receivables is an important step towards fiscal stability for Puerto Rico’s municipalities, but the process of selling those receivables will take time. That is why the sale of the accounts receivable portfolios will only be considered for repaying the Government after steps 1, 2, and 3 are completed,” the board’s executive director said.

On the other hand, the fiscal board proposed the creation of a short-term liquidity facility to CRIM, funded by the government to offset cash flow shortfalls from deferred property tax collections due to the COVID-19 crisis. The aforementioned loan will be available until July 31, and in no month can the total withdrawals exceed $38 million. The advance would be repaid with tax collections in July, August, and September.

“The Oversight Board has strived to work collaboratively with the Government and CRIM to minimize the burden to the municipalities of repaying the Government and remains committed to help finding the right solutions to overcome challenges municipalities are facing today,” the release concluded.

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