Puerto Rico Gov. Pedro Pierluisi wants the Oversight Board for allow the diversion of up to $314 million a year from the central government’s general fund to municipal governments.
A statement from his press office may also have hinted at restructuring roughly $242 million in outstanding Municipal Finance Authority bonds to help local governments.
“Municipalities provide direct services to citizens and face fiscal challenges,” the governor said, noting their funding has been cut up to 73%since 2017.
With this in mind, he said, “I have requested the central government be allowed, through the Fiscal Agency and Financial Advisory Authority, to provide technical assistance to the municipalities, so the government entity help achieve administrative efficiencies.”
Such assistance is needed, Pierluisi said, to allow municipalities to “continue assisting citizens through the services they offer.”
The governor also wants the board to create a municipal fund for essential services, financed from 25% of the annual surplus of Puerto Rico’s central government, with a limit of $150 million.
Another request was that the Oversight Board allow his government rather than the municipalities to make payments to the Puerto Rico Health Insurance Administration. Currently, the Municipal Tax Collection Center — which collects real estate and personal property taxes and distributes it to the municipal governments — sends about $164 million per year to this administration.
The just completed debt restructuring changed the central government’s fiscal status, the governor’s press release quoted FAFAA Executive Director Omar Marrero Díaz as saying. “The experience that FAFAA has acquired leading past restructurings enables it to assist the municipalities, together with the Puerto Rico Office of Budget and Management and the Treasury, to help them achieve their fiscal goals.”
Neither the FAFAA nor a spokeswoman for the governor would say if this meant FAFAA would seek to restructure municipalities’ bond debt, as it did with the central government’s bond debt.
The municipalities have about $242 million in Municipal Finance Authority bond debt outstanding. The MFA debt has been paid in full since the passage of the Puerto Rico Oversight, Management, and Economic Stability Act in summer of 2016. As of fall 2016, 91% of the MFA debt was insured.
The MFA bonds are general obligations of the individual municipal issuers, secured by ad valorem taxation on all taxable property within the municipality. The municipal issuers pledge their full faith, credit, and unlimited taxing power to the payment of the bonds.
Pierluisi is also asking the board to grant $66 million currently in a municipal services consolidation fund to the central government’s Municipal Management Office in the Office of Budget and Management, to help create municipal collectives for services.
Marrero Díaz is working with mayors and leaders in Puerto Rico to come up with the ideas to improve the commonwealth’s finances.
The Oversight Board has fiscal plans for the Municipal Tax Collection Center (CRIM).
While the board has declared the municipalities to be covered entities under its potential oversight, it does not currently have fiscal plans for them. Between May 2019 and June 2021, it had a pilot program where it created fiscal plans for 10 municipalities.
Any possible haircut to the MFA bonds would come as the bankruptcy court is nearing approval of a Highways and Transportation Authority restructuring and as negotiations continue on a Puerto Rico Electric Power Authority deal.