CRIM says it will not impose new taxes
By The Star Staff
Jesús Colón Berlingeri, chairman of the Municipal Revenue Collections Center (CRIM by its Spanish acronym) governing board, has rejected some of the federal Financial Oversight and Management Board’s suggestions for reforming Puerto Rico’s property tax system, arguing they would result in new taxes for the population of the island.
The oversight board in prior fiscal plans and in a new fiscal plan certified last Friday has suggested that the CRIM needs to update its property tax system, broaden the tax base and eliminate more than 26 property tax exemptions and exonerations. It has also recommended that the CRIM sell its property tax portfolio, for which it should get $400 million.
“A lot of these suggestions are logical but unrealistic,” Colón Berlingeri, who is also the mayor of Orocovis, said in a recent interview.
The CRIM provides fiscal services to the island’s municipalities and is responsible for appraising, assessing, issuing notifications on, collecting, and distributing real and personal property taxes.
The CRIM also collects and allocates central government transfers and any other funds determined by law for the benefit of the municipalities. In addition, the CRIM is responsible for maintaining and updating the registry of real property in each municipality, which is known as the Digital Cadastre of Puerto Rico.
Property taxes are one leading source of revenues for Puerto Rico’s 78 towns. Property tax collections were $1.08 billion in fiscal year (FY) 2020, some 3.3% lower than in FY 2019. The decrease was primarily driven by the negative impact that COVID-19 had on property tax collections from March 2020 to June 2020. During the eight months before the government-mandated shutdown that began March 2020, property tax collections were higher by $12.8 million compared to the same period in FY 2019, according to the CRIM fiscal plan.
Real estate is appraised based on 1957-58 values through the mass valuation methodology using a cost approach and then converting numbers into current values using a factor of 10. The appraisals are used to figure out property taxes. The homestead exoneration granted under Act 83-1991, or the Autonomous Municipalities Act, exonerates the first $15,000 of the 1957 assessed value on primary residences. The CRIM’s new fiscal plan calls for the use of a market value methodology for property valuation.
“The logical thing is for us to use market value for property valuation, but that would result in an extraordinary hike to the taxpayer,” Colón Berlingeri said. “The CRIM board is not even going to consider that.”
The CRIM’s fiscal plan also calls for the repeal of property tax exemptions and exonerations. In Puerto Rico, real (immovable) property consists of land, buildings, and any property adhered to the ground that cannot be moved. CRIM maintains the Digital Cadastre that, as of FY 2020, had some 1.3 million real properties with a total value of approximately $19.4 billion and a net taxable value of $8.1 billion. Some 58% of the total real property value, or $11.3 billion, is either exonerated or exempted from paying property taxes, the fiscal plan says.
Total tax exonerations and exemptions equated to $7.2 billion and $4.1 billion, respectively, of real property value in FY 2020, which is primarily the result of exonerations on residential properties. Similarly, economic incentive laws accounted for an approximately $298 million reduction of real property taxes in FY 2020, primarily driven by industrial companies and pharmaceutical companies.
On Friday, Gov. Pedro Pierlusi Urrutia came out against the repeal of the exonerations because, he said, such a move would hurt poor people. He supported the sale of the CRIM’s portfolio.
Colón Berlingeri said it would be up to the island Legislature to decide whether to repeal exemptions from property taxes because the CRIM did not approve those.
The oversight board has said the homestead exoneration is not targeted to the lowest income homeowners but to all homeowners. In a reformed tax system, the most vulnerable homeowners could still be exempted from paying residential property taxes through the proper implementation of a more limited homestead exemption and targeted relief mechanisms, such as circuit breakers and/or deferral.
Colón Berlingeri said the only recommendation that the CRIM will accept at this time is to expand the property tax base. The CRIM is undertaking an initiative to capture unrealized tax revenues by identifying properties missing from its tax rolls, appraising new properties and appraising current properties that have undergone renovations using new technology.
He also said the CRIM has hired a company to evaluate the value of its portfolio, which the oversight board says is $400 million, to determine if it should be sold.