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Puerto Rico’s central gov’t seeks to inject emergency liquidity into municipalities

By on December 7, 2017

SAN JUAN – Assuring that Puerto Rico’s 78 municipalities face serious liquidity problems, the central government will create an emergency fund of up to $100 million to inject towns with cash in the short-term, thus ensuring their continued operations and services.

Gov. Ricardo Rosselló Nevares made the announcement Thursday at a press conference from La Fortaleza alongside members of both the Association and Federation of mayors, which group the elected officials of the Popular Democratic and New Progressive parties, respectively.


After Hurricane María, “the municipalities have lost tax revenue, have had imbalances and have had to spend a lot of money to address the critical situation,” the governor said.

The new Municipal Recovery Fund would be created through legislation and be fed directly by the general fund. As said last week at the island fiscal board’s most recent public meeting, the government’s liquidity has ranged between $1.7 billion and $2 billion, although a marked drop is anticipated in the coming months once the effects of María on the island’s economic activity and Treasury revenue are reflected. In addition, the government’s fiscal team already had grave reservations about the possibility of having to pay municipal expenses due to its liquidity problems.

As for the bill, Rosselló Nevares said it is expected to be filed before the end of the legislative session on Dec. 15. He added it will be short and simple and he doesn’t expect major obstacles in getting the support of both chambers and having it passed before year’s end. The governor, Senate President Thomas Rivera Schatz and House Speaker Carlos “Johnny” Méndez will discuss the measure Friday.

The governor added that he has asked the government’s representative to the fiscal board, Christian Sobrino, to inform the panel of the administration’s intent to create the emergency fund.

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“I understand this has to have the backing of the fiscal oversight board,” said Rosselló Nevares, who acknowledged that under section 204 of the Promesa law, the panel has the final say on the bill. According to Promesa, the board must certify any legislation that entails a fiscal impact.

Regarding the disbursement process once the fund is constituted, the governor indicated that the municipal councils should evaluate their revenue to date, the imbalance in their coffers and the expenses associated with the storm damage sustained. The Fiscal Agency and Financial Advisory Authority (Aafaf by its Spanish acronym) will have to certify these figures, and once the information is approved, the Treasury Department can make a disbursement.

Rosselló Nevarés explained that there will be no cap on the amount of money that can be requested by municipalities, while assuring that the $100 million total was the conclusion of a preliminary analysis of the towns’ needs. However, he acknowledged there could be “a variation” between the $100 million and the real need for liquidity at the municipal level.

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Regarding the collection of municipal data to be presented to Aafaf, the governor said much of the process is at an advanced stage, while adding that the disbursements will be in the form of a grant, which means municipalities will not have to repay the funds; however, they can only be used for expenses directly related to the operation of the municipality.

Meanwhile, the government continues discussions with the U.S. Treasury and the Federal Emergency Management Agency (FEMA) to make way for the disbursement of federal Community Disaster Loans (CDLs).

Recently, Congress approved an allocation of up to $4.9 billion from this program, which can be accessed by Puerto Rico and other jurisdictions recently affected by natural disasters. These loans operate through FEMA and serve to meet cash needs to maintain basic government operations, including those of public corporations and municipalities.

Mayoral support

Both the Association and Federation of mayors endorsed the governor’s measure, saying it shows that the central government recognizes the precarious financial situation in which the municipalities, the “first line of defense” to meet the needs of Puerto Rico residents, find themselves.

“We are in favor of this measure,” said San Lorenzo’s Joe Román, who represented the Mayors Association at the conference, “and the mechanisms that will be used so that for each of the municipalities it is equitable and the money reaches where it has to.”

For his part, the mayor of Arecibo and president of the Mayors Federation, Carlos Molina, also thanked the governor for the initiative while warning about the liquidity problems towns face after Hurricane María and the coming months.

“When you visit a city and you see more than 20% to 30% of businesses closed, what does it mean? That there is no IVU [Spanish acronym for sales and use tax], that there will not be that license fee process that’s additionally paid in January, and municipal revenue will practically die down, and we will have a liquidity and operational problem in each one of the municipalities,” the New Progressive Party (NPP) mayor said.

For example, Naranjito Mayor Orlando Ortiz said that in September he received about $80,000 through the municipal IVU for the month of August. “In October, when I received the month of September, I received just $15,000. I had a loss of $65,000 in IVU. If we see this pattern repeated month after month, in three months we are talking about nearly $150,000, minimum,” he said.

When asked by the media about the possibility of discrimination in terms of disbursements by the NPP administration to the municipalities of the opposition Popular Democratic Party, Rosselló Nevares assured that would not be the case and that the decision will focus exclusively on the liquidity needs of each municipality and Aafaf’s certification process.

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