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Oversight Board unveils plan to help municipalities pay retirement benefits

The Financial Oversight and Management Board for Puerto Rico today presented the Municipal Revenues Collection Center (CRIM, in Spanish), Puerto Rico’s municipalities, and the government of Puerto Rico a repayment plan for towns to reimburse the Commonwealth for the retirement benefits paid to municipal retirees.

The repeal of Puerto Rico Law 29-2019 by the U.S. District Court for the District of Puerto Rico on April 15 reinstates the municipalities obligation to cover the Pay-as-you-go (Paygo) pensions and health care payments for their former employees.

The 78 municipalities owe the central government a combined $198 million for the current fiscal year 2020 — the sum of $166 million in PayGo and $32 million health care costs of the Health Insurance Services Administration.

However, the Certified Fiscal Plan and Certified Budget for fiscal year 2020 already included a payment of $132 million to CRIM’s equalization fund for distribution to municipalities. That money was not paid out to municipalities because of Law 29 and can now offset part of what municipalities owe the government.

The net amount municipalities owe is therefore $66 million, or about 3% of the about $1.97 billion total municipal budgets, although the impact varies on a municipality by municipality basis.

“We understand that this is a difficult time due to the pandemic, due to COVID-19 and we know municipalities can’t send a check to the government and be done with it,” said Oversight Board’s Executive Director Jaresko. “That’s why we came up with a manageable, responsible repayment plan.”

“The Oversight Board will work with the municipalities and CRIM to make sure the outstanding balance to the central government is repaid in a responsible way,” Jaresko said. “The revenues the Oversight Board identified should more than cover the municipalities’ $66 million obligation to the Government.”

Municipalities need to face fiscal realities, she said.

“While population has been declining for at least a decade the municipal budgets have not. Spending per capita has grown. There has been little effort in most municipalities to reduce costs. And now these realities are exposed to a larger degree by the repeal of Law 29,” she said.

“We also understand very well the importance of municipalities to the people in Puerto Rico and to all of our lives here and the goal of the Oversight Board has always been to support sustainable municipalities that provide services to their residents, not just today, but can do so for years to come,” said Jaresko.

The Oversight Board identified one-time or incremental non-budgeted revenues municipalities will use to repay the outstanding $66 million balance, including:

  • Outstanding electronic lottery proceeds from fiscal year 2016 and fiscal year 2017;
  • Excess funds from CAE — the Special Additional Contribution, or the portion of property taxes collected to cover municipal debt obligations;
  • Higher tax collection than budgeted because CRIM may receive tax revenue not previously budgeted for, such as new properties taxed and collection of outstanding tax receivables; and,
  • The proceeds from the sale of uncollected property taxes receivables, a measure that will feature prominently in the CRIM fiscal plan to be certified before fiscal year-end.

The Oversight Board reviewed the proposals shared by CRIM and the Government. However, the Oversight Board is presenting what it believes to be the most fiscally responsible approach to resolving the unfortunate situation created by the adoption of Law 29, she said.

“The Oversight Board is committed to help finding fiscally responsible ways to overcome challenges municipalities are facing today,” said Jaresko.

“Municipalities have to pay what they owe, and the Oversight Board’s analysis shows that repaying the Government is manageable for municipalities. Repayment will cause no municipal crises, and the repayment plan does not affect operating budgets,” she said.

Oversight Board proposes liquidity option for CRIM
Separately, the Oversight Board proposed the creation of a $148 million short-term liquidity facility to CRIM ($110 million in fiscal year 2020 and $38 million in fiscal year 2021), funded by the Government to offset cashflow shortfalls from deferred property tax collections due to the COVID-19 crisis.

The advance would be available through July 31, 2020, and in no month can total draws exceed $38 million.

The advance would be repaid with tax collections in July, August, and September 2020.

To ensure successful repayment, the liquidity facility will require property tax payments to be applied to the loan balance before becoming available to CRIM, she said.

Author Details
Business reporter with 25 years of experience writing for weekly and daily newspapers, as well as trade publications in Puerto Rico. My list of former employers includes Caribbean Business, The San Juan Star, and the Puerto Rico Daily Sun, among others. My areas of expertise include telecommunications, technology, retail, agriculture, tourism, banking and most other areas of the economy.

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