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Puerto Rico fiscal board calls for changes to municipal emergency funding bill

By on January 12, 2018

SAN JUAN — The control board in charge of overseeing Puerto Rico’s finances warned the commonwealth government about a recently approved bill that seeks to create a $100 million fund to assist cash-strapped municipalities following hurricanes Irma and Maria.

“While the Oversight Board recognizes that many municipalities are in dire financial straits, the Act [Senate Bill 774] as it now stands is not financially prudent,” reads a letter sent to Gov. Ricardo Rosselló. The entity established by the federal Promesa law can invalidate local laws that fail to comply with the island’s certified fiscal plans and budget.

In its letter, the board lays out certain changes that would make SB 774 compliant. According to a statement released Thursday by the Fiscal Agency and Financial Advisory Authority (Fafaa), Gov. Rosselló tasked his fiscal team with revising the bill in line with these recommendations.

Puerto Rico fiscal board postpones fiscal plans’ delivery deadline to Jan. 24

The proposed changes include that the central government advances any remaining budgeted allocations to municipalities that prove a liquidity need driven by the effect of the hurricanes on their revenues. Also, the commonwealth government must identify which budgetary allocations will fund the bill, as well as certify each town’s liquidity need.

The board, moreover, urges first using federal Community Disaster Loans (CDLs) to tackle the municipalities’ operational cash needs. The program, which is controlled by the Federal Emergency Management Agency (FEMA), provides loans to U.S. jurisdictions that endure a significant drop in revenues as a result of a natural disaster, hindering operations. The Rosselló administration recently announced that towns already can request access to CDLs, although subject to a $5 million cap and compliance with eligibility requirements.

“We urge the proposed Act to require that any disbursements from the Commonwealth to municipalities be made only if a documented liquidity need and revenue loss exceeds the statutory limit for CDLs or is otherwise unmet by the CDL program,” reads the board’s letter.

Finally, the board recommends that, in any case, the proposed Emergency Municipalities Assistance Act operates akin to the CDL program. “Disbursements should be structured as loans, not grants, that can be forgiven only if the municipality has a documented inability to repay the loan in subsequent fiscal years based on criteria that align to the CDL statute,” the board notes.

On Dec. 8, the Rosselló administration filed SB 774, pointing to the precarious situation towns’ coffers have faced following the passage of the two devastating hurricanes.

Although it originally called for Fafaa to oversee the program and any fund allocations made to municipalities, the bill was amended to eliminate provisions that would have imposed evaluation criteria on Fafaa’s allocation process, according to the Rosselló administration. The final bill provided that the $100 million municipal emergency support fund would be allocated by the Legislative Assembly through a joint resolution, Fafaa’s statement adds.

Drug-free school bill noncompliant

On Thursday, the board also wrote to the commonwealth government and the Legislature to notify them that Act 119 of 2017 is noncompliant with the certified fiscal plan and budget. The legislation seeks to create a program within the local Education Department to establish drug- and weapon-free schools.

According to the noncompliance certification, funds needed to implement the program aren’t included in the commonwealth’s fiscal plan and budget, while also risking eligibility for federal funding.

The board called on the commonwealth government to “eliminate the inconsistency” with the fiscal plan or “provide an explanation for the inconsistency” that is “reasonable and appropriate” for the Promesa-established panel. Failure to do so will prompt the board to take any action it deems appropriate, including preventing Act 119’s enforcement.

On Nov. 15, the governor’s office vetoed SB 43 after it had been approved by the Legislative Assembly. The government said that although Gov. Rosselló agreed with the bill’s purpose and end goals, the way it was drafted would have had a negative fiscal impact.

On Nov. 27, the Legislature passed SB 43 once again, leaving the governor’s veto without effect, and turning it into Act 119. 

Gerardo Portela, Fafaa’s executive director, stated Thursday that the governor’s intention is to work with the legislative leadership to maximize federal funds under current Education Department programs.

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