Mayors criticize tax exemptions provided by DDEC

Guayama Mayor O’Brain Vázquez Molina and Salinas Mayor Karilyn Bonilla Colón

By The Star Staff

The mayors of Salinas and Guayama, Karilyn Bonilla Colón and O’Brain Vázquez Molina, respectively, expressed concerns regarding the serious impact that the massive municipal tax exemptions granted to new businesses by the Department of Economic Development and Commerce (DDEC by its acronym in Spanish) are having on municipalities.

The exemptions, they said, have been approved by the Financial Oversight and Management Board without considering the needs of mayors who are already struggling due to budget cuts and the elimination of the Equalization Fund, which at one point had over $350 million in funds for the towns.

In a letter addressed to Robert Mujica, the executive director of the oversight board, the mayors emphasized that the federally created entity is responsible for overseeing debt restructuring and promoting fiscal responsibility in accordance with the Puerto Rico Economic Stability, Oversight, and Management Act, commonly known as PROMESA.

“From a public administration perspective, we recognize the complexity of the economic challenges Puerto Rico has faced and the various decisions that have impacted its fiscal health. However, there is a fundamental difference in the vision for the country’s future development,” Bonilla Colón stated. “While some sectors focus on austerity measures as the primary means to achieve fiscal stability, we believe it is essential to prioritize our municipalities and implement strategies that foster sustainable economic growth for the well-being of Puerto Rico.”

Vázquez Molina noted that “we have witnessed the implementation of severe economic measures that have directly affected municipalities.”

“The approved Fiscal Plan eliminated the Equalization Fund, which puts almost half of Puerto Rico’s municipalities, especially the small and medium-sized ones, at risk of closing operations, reducing services, and laying off employees -- measures that will ultimately affect the services we provide to our communities,” he said.

Both mayors pointed out that the elimination of the Equalization Fund restricts municipal budgets to their own funds, which primarily come from CRIM (property tax), IVU (sales tax), municipal licenses, and construction taxes based on economic activities within their jurisdictions.

“For this reason, we wish to express our strongest rejection of the tax exemptions that the Board supports along with the Central Government through the DDEC, particularly the exemptions granted on municipal taxes,” Bonilla Colón stated.

The mayor of Guayama added: “While it is true that incentivizing new industries and companies to invest in Puerto Rico is necessary, the decrees being issued limit our opportunities to raise municipal funds and are approved for extended durations, putting municipalities at a disadvantage. It is unacceptable that the incentive program is implemented at the cost of further compromising the fiscal stability of municipalities. This practice has, in part, contributed to the stagnation of Puerto Rico’s economic development.”

“Similarly, there are hundreds of decrees approved, representing millions of dollars that municipalities are losing out on, and we do not know if the beneficiaries are complying with the conditions of their approval,” the Salinas mayor noted. “For instance, we highlight the most recent notification we received regarding a decree granted to Clean Flexible Energy, which exempts them from paying 100% of construction taxes, extends this to contractors and subcontractors, grants 100% exemption from construction licenses, 100% exemption from municipal licenses for the first two semesters, 60% exemption from municipal licenses and other municipal taxes in subsequent years, and 90% exemption from taxes on personal and real property.”

“We, the mayors, observe that while the Board demands we be self-sufficient in terms of revenue and promote the economic development of our towns, these types of decrees continue to be approved to the detriment of the constituents we are meant to serve,” Vázquez Molina said. “We believe that such decrees should be consulted with and agreed upon by the municipalities, and that more equitable parameters should be established for the exemptions considered for municipal taxes.”

The DDEC’s press office declined to answer a STAR request for comment.