Gov’t restructures $131M in CRIM obligations to municipalities
The Municipal Revenues Collection Center (CRIM, in Spanish) and the Government Development Bank (GDB) Debt Recovery Authority (DRA) entered into a settlement agreement that allows them to restructure approximately $131 million in obligations owed by the CRIM, on behalf of the municipalities, to the DRA (as successor entity to the GDB), officials announced.
The primary source of repayment of this debt, prior to the agreement, was the contribution from the central government to the Equalization Fund. As a result of the gradual elimination of this contribution — pursuant to the Fiscal Plan Certified by the Fiscal Oversight Board — had the CRIM and the municipalities not resolved or restructured this debt, the CRIM’s and the municipalities’ finances could have been severely affected, to the point of impacting their ability to meet their obligations and endangering the rendering of services to the people.
The agreement helps reduce the CRIM’s and the municipalities’ total debt burden, since it reduces the debt service and pays off a large part of the outstanding principal, government officials said.
The agreement consists of a lump-sum payment of $62.5 million, which comes from collections under the CRIM Tax Amnesty Program, the issuance of two notes in the aggregate amounts of $5.2 million and $26.3 million, payable by the municipalities that did not receive sufficient collections under the Tax Amnesty Program, and forgiving $36.8 million from the total amount owed, equivalent to a 28 percent reduction.
The two notes that were issued in the amount of the remaining balance will be payable in three and five years, respectively, at a variable interest capped at 6.25%.
Prior to the settlement, amounts owed by CRIM, and municipalities totaled approximately $105 million in principal and $25.6 million in interest. These obligations were created according to Act 42 of 2000, which allowed the CRIM to get a loan to cover the deficit that resulted from the payment of excess remittances to municipalities, and to Act 146 of 2001, which allowed the CRIM to obtain another loan to repurchase certain municipal property tax liens that had been sold to the Puerto Rico Public Finance Corporation in 1998.
“The settlement of these obligations represents yet another example that, whenever legally and financially possible, we will always strive to use the mechanisms available under PROMESA to reach consensual agreements with our creditors and avoid costly and lengthy litigations, all for the benefit of our municipalities and the constituents they serve,” said Omar J. Marrero, executive director of the Fiscal Agency and Financial Advisory Authority (AAFAF, in Spanish), which advised the CRIM since the beginning of the negotiations in 2021.
As a result of the settlement, the municipalities received partial debt forgiveness, which allowed 64 of them to fully repay all their obligations under these loans. In addition, as a result of the CRIM Tax Amnesty Program, the municipalities will receive a total of $124.4 million that will be distributed between the Basic Tax and Additional CAE Funds items.
“The relief obtained as result of the successful implementation of the CRIM Tax Amnesty Program cannot be overstated,” said CRIM Executive Director Reinaldo Paniagua.
“Through the collective efforts of many, and the support of our Governing Board, we have not only resolved a substantial amount of debt through this settlement, but we have also been able to realize substantial incremental funding for all municipalities, which will allow them to continue providing essential services to all residents of Puerto Rico,” he said.