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  • Writer's pictureThe San Juan Daily Star

AAFAF given 2 weeks to furnish list of towns’ unresolved bankruptcy claims against central gov’t

Natalie Jaresko, former executive director of the Financial Oversight and Management Board

By The Star Staff

The Financial Oversight and Management Board gave the Fiscal Agency and Financial Advisory Authority (AAFAF by its Spanish initials) until April 15 to provide the list of unresolved bankruptcy claims that island municipalities have against the government.

The oversight board also rejected a Senate bill that would amend Act 60 of 2019, or the Puerto Rico Incentive Code, by providing additional incentives to promote the film industry.

The federally appointed body also increased the budget for Health Insurance Services Administration (ASES) to $597 million after President Joe Biden in March signed the Appropriations Act into law, thereby extending the Federal Medical Assistance Percentage (FMAP) for Puerto Rico’s Medicaid program from 55% to 76% for the period of Jan. 1 through Dec. 13 of this year.

The information is contained in letters written on April 1 by former oversight board executive director Natalie Jaresko, who resigned effective that day.

In a letter to AAFAF Deputy Executive Director Julian Bayne Hernández, Jaresko said the agency must provide a status report on all of the unresolved claims along with supporting details. Puerto Rico restructured its central government debt, as well as Employees Retirement System and Public Buildings Authority debt, through a plan that went into effect March 15, cutting some $33 billion in debt to about $7 billion.

In one of her last letters as executive director, Jaresko also rejected a Senate bill that would amend the incentive code by providing additional incentives to promote the film industry.

She said Senate Bill (SB) 552 was significantly inconsistent with the fiscal plan.

Act 60 already contains significant tax incentives for film production on the island, amounting to $23.3 million in lost revenue annually, Jaresko pointed out. The bill, she said, would increase the current cap on this tax incentive from $38 million to $100 million.

“The expansion of the film tax credit would result in a revenue shortfall of $40.4 million every year, which in turn reflects a fiscal loss to the Commonwealth of $63.7 million, even after accounting for the tax increases in the Bill,” Jaresko said in a letter to Senate Treasury Committee Chairman Juan Zaragoza Gómez. “Putting aside the merits of the Bill’s purposes, any bill that proposes to reduce the Commonwealth’s revenues without offsetting savings or new revenues is, by definition, inconsistent with the Fiscal Plan and in violation of PROMESA [the Puerto Rico Oversight, Management and Economic Stability Act].”

The current Commonwealth Fiscal Plan is focused on reforming the structure of the tax incentives code. The reforms include establishing a new standard “so that incentives are concentrated on those projects most likely to provide net economic benefits to the commonwealth.” Further, regulations implementing tax incentives must be based on a published methodology demonstrating “at minimum they are revenue neutral,” Jaresko said.

The existing tax incentive program for film production costs the commonwealth $23.3 million each year. By raising the cap on film tax incentives by $62 million, SB 552 necessitates significant revenue offsets for the measure to be revenue neutral as mandated by the fiscal plan, she said.

The credit limit proposed in the legislation is $100 million, more than 2.5 times the limit that is currently established by Act 60, Jaresko noted.

“While SB 552 contemplates some tax increases to offset the $62 million increase in authorized credits, it is our understanding that these would be insufficient to make the Bill consistent with the Fiscal Plan,” she said. “In total, the Bill reflects a fiscal loss to the Commonwealth of $63.7 million. Existing policy results in a $23.3 million loss, such that SB 552 produces an additional incremental loss of $40.4 million above this amount.”

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