Mayors Seek to Save Funding
Meet with FOMB to Iron Out Deal to Avoid Budget Cuts of 70%
Puerto Rico’s mayors are in negotiations this week with the island’s Financial Oversight and Management Board (FOMB) to save the Municipal Revenue Collection Center’s Equalization Fund, which the fiscal panel has targeted for elimination in 2024.
The fund, which buoys the coffers of smaller, rural towns with a limited property tax base, has been reduced from more than $350 million in fiscal year 2017 to $88 million in current fiscal 2022.
Proposed further cuts to the fund scheduled for the start of fiscal year 2023 on July 1 will lead to 29 municipalities losing 50 percent to 70 percent of their revenues, according to the mayors organized in the New Progressive Party-backed Mayors Federation and Popular Democratic Party-backed Mayors Association.
The Mayors Federation president, Camuy’s Gabriel Hernández, and his counterpart in the Mayors Association, Villalba Mayor Luis Javier Hernández, and officials from the Municipal Revenue Collection Center (CRIM by its Spanish acronym) met with Germán Ojeda, the fiscal oversight board’s municipal affairs director, to request a delay in the elimination of the Equalization Fund—one of the fiscal panel’s measures to wean towns off from dependence on the commonwealth’s central government so they rely more on property taxes.
The mayors’ groups were scheduled to hand in on Wednesday a proposal to be considered by the board this week.
Bayamón Mayor Ramón Luis Rivera told reporters after coming out of a meeting with members of the board on Monday that the elimination of the Equalization Fund could affect the town’s ability to continue running federal programs such as Head Start as well as hurricane reconstruction projects, which rely on reimbursements from the Federal Emergency Management Agency.
In a statement Monday, the board said that “financially stable and sustainable municipalities are crucial for providing the services residents need and deserve.”
“The Oversight Board has been supporting Puerto Rico’s municipalities in helping to improve fiscal responsibility through more efficient spending, economic development, and maximization of federal funds,” said the statement, which mentioned the mayors’ meeting with Ojeda. “The Oversight Board will continue its dialogue with the municipalities on key challenges they face and work to fulfill its mandate under PROMESA [Puerto Rico Oversight, Management and Economic
Stability Act] to help Puerto Rico achieve fiscal responsibility.”
During a conference on tourism that was held Tuesday, Gov. Pedro Pierluisi endorsed increasing the current 7 percent on short-term rentals by 1 percent to 8 percent to shore up municipalities’ finances. The mayors, however, are requesting the tax be increased by 3 percent.
Bill Signing ‘Barred’
Pierluisi also called on the board to further explain its rejection of amendments by the Legislative Assembly to House Bill 1244 to repeal certain portions of Act 4 of 2017, the Labor Transformation and Flexibility Act (LTFA), to reestablish what the board called “many of the burdensome labor restrictions that existed prior to LTFA’s passage, and to create new labor restrictions.”
The governor did not say whether he would sign the measure passed by the Popular Democratic Partycontrolled House and Senate, but said the board did not give a sufficient foundation for him to veto it. LTFA was passed in 2017 by a New Progressive Party-controlled legislature and enacted by then-Gov. Ricardo Rosselló, who resigned from office in 2019.
In a letter to Pierluisi on Monday, the board’s general counsel, Jaime El Koury, who is serving as acting executive director of the fiscal panel, said that House Bill 1244 “impairs and defeats” Promesa’s goals because it is “significantly inconsistent” with the board-certified fiscal plan for the commonwealth.
“You are barred from signing the Bill into law by [Promesa] Section 108(a)(2). Further, [Promesa] Section 108(a)(2) bars the Bill’s implementation and enforcement,” El Koury notified the governor. The letter states that language in the fiscal plan specifically instructs the commonwealth government to “refrain” from repealing the LTFA or “enacting new legislation that negatively impacts labor market flexibility.”
“HB 1244 would render Puerto Rico less attractive to investors wanting to create new businesses and more jobs, and hinder and diminishes the economic growth the Government should want to encourage,” the board said in a statement issued Monday.
The missive states that if Pierluisi signs the measure into law, he would be required to submit “a formal estimate and certification” pursuant to Promesa Section 204(a) within seven business days of enacting the law. The estimate must include the “full economic impact of the issues raised in this letter,” including how the bill’s impact on labor-force participation will affect revenue, El Koury said in the June 13 missive.
“Regardless of the substance of your certification, enactment, implementation, and enforcement of HB 1244 will remain barred by [Promesa] Section 108(a)(2),” the letter states. “The Oversight Board reserves all its rights, including those under [Promesa] Sections 104(k), 108(a) (2), and 204, to take such actions it deems necessary, including seeking remedies to prevent enactment, implementation, and enforcement of HB 1244 and to nullify HB 1244.”
According to the letter, House Bill 1244 “would: (1) deter new investments in Puerto Rico and the jobs the new investments would create; (2) negatively impact Puerto Rico’s dismal labor force participation rate; (3) reduce economic growth and market competition; (4) deprive the Commonwealth of the revenues associated with such revenue growth (including by reducing the effectiveness of the Earned Income Tax Credit); and (5) increase the Commonwealth’s public assistance burden.”
The bill would revert the probationary period during which employers may terminate employees at ill from nine months (12 months for exempt employees) back to three months. It would revert the statutory Christmas bonus “hours worked” threshold from 1,350 hours to 700 hours within the 12-month period between Oct. 1 and Sept. 30 of any year.
Moreover, the legislation would increase the vacation accrual rate; revert to a presumption that an employee dismissal is unjustified, placing the burden on the employer to prove otherwise; and provide for a wrongful termination indemnity formula even more generous than the pre-2017 formula.