Municipal governments display financial instability

City Hall (Casa Alcaldia) in Patillas. The southeastern coastal town showed one of the most notable rebounds in the most recent Municipal Fiscal Health Index issued by ABRE Puerto Rico, climbing from Unsustainable to Average. (Wikimedia Commons/The Eloquent Peasant)

By THE STAR STAFF

Puerto Rico’s municipal governments are showing uneven progress in their financial stability, according to new data released Monday by ABRE Puerto Rico in the 12th edition of its Municipal Fiscal Health Index.

The annual report, designed to evaluate the fiscal condition of the island’s municipalities and promote more transparent and sustainable public management, highlights improvements in debt handling and reduced reliance on central government funds, even as several warning signs persist.

The 2024 results present a mixed panorama. While municipalities continue to strengthen their debt management and reduce dependence on intergovernmental transfers, other indicators — including fund balances, operational results and net assets — point to vulnerabilities that could undermine long‑term fiscal stability.

“We see municipalities that over time have strengthened their fiscal health, reduced the weight of their debt, and become less dependent on central government funds,” said Ángel Sierra, executive director of ABRE Puerto Rico. “At the same time, the data alerts us to areas that require attention to ensure those improvements can be sustained long term.”

Only 4% of municipalities allocated more than 15% of their general fund revenues to debt service, down from 6% the previous year. The share of municipalities receiving more than 40% of their general fund revenues from the central government also fell from 7% in 2023 to 4% in 2024.

Eleven municipalities improved their fiscal classifications compared with the previous year, including Cayey, Barranquitas, Patillas, Fajardo, Vieques, Luquillo, Manatí, Hatillo, Ponce, Juana Díaz and Gurabo. Barranquitas and Vieques moved from Average to Exceptional, while Cayey, Fajardo and Hatillo advanced from Healthy to Exceptional. Patillas showed one of the most notable rebounds, climbing from Unsustainable to Average.

Aibonito once again ranked first overall, repeating its top performance from 2023. It was followed by Utuado, Culebra, Barranquitas, Vieques, Fajardo, Cayey and Hatillo — all classified as Exceptional. Cataño and Lares rounded out the top 10 with Healthy ratings.

Of the 74 municipalities with available financial information, eight achieved Exceptional fiscal performance, 13 were rated Healthy, 21 Average, 22 Deficient and 10 Unsustainable. In total, 42 municipalities — about 57% — fell within the Average, Healthy or Exceptional categories.

This year’s edition continues ABRE Puerto Rico’s newer classification system, introduced in 2023, which replaced traditional letter grades with the aforementioned descriptive categories: Exceptional, Healthy, Average, Deficient and Unsustainable. The organization says the change helps the public better understand each municipality’s fiscal condition and the opportunities for improvement.

Despite the progress, several indicators point to growing pressures. Forty‑three percent of municipalities reported spending more than they earned in their general funds, up from 39% in 2023. Nearly a quarter saw their general fund balances decline — more than double the previous year’s figure. Eighteen percent ended 2024 with negative general fund balances, continuing a gradual upward trend. Seven percent of municipalities saw decreases in net assets, compared with just 1% in 2023.

At the bottom of the Index, 10 municipalities were classified as Unsustainable: Caguas, Juncos, Toa Baja, Santa Isabel, Río Grande, Loíza, Florida, Lajas, Maricao and Maunabo. Municipalities in this category typically show multiple red flags across the Index’s 13 indicators, including persistent deficits, shrinking fund balances, negative year‑end balances and deterioration in net assets. ABRE Puerto Rico notes that these trends signal structural challenges that could affect essential services, limit investment capacity and increase vulnerability to economic shocks.

Eleven municipalities saw their ratings fall compared with last year, including Río Grande, Cidra, Bayamón, Carolina, Isabela, Comerío, Barceloneta, Lajas, Las Marías, Aguada and Salinas.

Four municipalities — Camuy, Guánica, Morovis and Villalba — could not be evaluated because they had not published their 2023 financial statements at the time the data was collected.

Sierra emphasized that the Index is not meant to simply rank municipalities but also to serve as a tool for better governance.

“Its true value lies in identifying where we stand, recognizing what is working, and making visible the areas that need attention each year,” he said. “Fiscal transparency gives citizens and governments better tools to propose, design and execute solutions.”

The Municipal Fiscal Health Index is part of ABRE Tu Municipio, a project launched in 2015 to provide accessible financial information to Puerto Rico residents. The evaluation uses 13 indicators covering fund balances, revenues and expenditures, assets and liabilities, long‑term debt, debt service, changes in net assets and reliance on intergovernmental funds.