PDP mayors present 5 proposals to mitigate loss of Equalization Fund, Inventory Tax

The Puerto Rico Mayors Association estimates that implementing the five proposals would generate more than $600 million annually to offset the elimination of the Equalization Fund and the freezing (and possible elimination) of the Inventory Tax.

By THE STAR STAFF

The leadership of the Puerto Rico Mayors Association presented five proposals on Sunday that, according to their estimates, would generate more than $600 million annually to offset the elimination of the Equalization Fund and the freezing (and possibly elimination) of the Inventory Tax.

“The proposals we are presenting to the country this morning are not for the municipalities, much less for the mayors,” Guayama Mayor O’brain Vázquez Molina, vice president of the association, said in a written statement. “They are proposals for you, the citizens who read, watch, or listen to us through the press or online.”

The first proposal is to set aside 15% of the auto inspection sticker (“marbete”) collection for the municipalities. Currently, all funds go to the Highways and Transportation Authority. The proposed measure would redirect part of those funds to municipal governments for the maintenance of local roads, services, and community works, projects that are essential in towns. It also recognizes that municipalities undertake the maintenance of many state highways without receiving sufficient resources.

The second proposal would, starting in the 2027-2028 fiscal year, exempt towns from the current obligation of municipalities to pay into the “Pay As You Go” system for government pensions created by Law 106-2017. In short, municipalities currently contribute large sums to the central government’s pension system, limiting their ability to meet their other obligations. The measure seeks to alleviate municipal finances in the face of the elimination of the Equalization Fund and other fiscal burdens imposed by the Financial Oversight and Management Board, and also to ensure that municipal funds can be used for essential services to citizens.

The third proposal would have the 1.03% contribution on real and personal property, which is currently allocated to the central government’s General Fund, be transferred to municipalities through the Municipal Revenue Collections Center. Starting in the 2027-2028 fiscal year, funds would be distributed among municipalities according to the formula established in Act 53-2021 (Law to End Bankruptcy in Puerto Rico). Currently, this contribution is used to pay off the public debt, although it historically came from municipal funds and would represent more than $120 million annually in new revenue for municipalities.

The fourth proposal would exempt municipalities, beginning July 1, 2027, from making contributions to the central government Health Insurance Administration (ASES) under Act 72-1993. Currently, municipalities contribute millions of dollars annually to the state health plan, and the combined impact of ASES and Pay-Go is estimated to amount to $450 million annually. Beginning in 2027, municipalities would be exempt from this obligation, coinciding with the deadline for the elimination of the Inventory Tax.

The fifth proposal involves legislating concrete action to realize the imperative need to decentralize government work to promote effective services to citizens. It requires amending and adding to the Puerto Rico Municipal Code so that under the public policy of decentralization, specific powers of the commonwealth government’s public agencies and instrumentalities are transferred to the municipalities and the corresponding budget is ensured by way of a cooperative decentralization model that functions within regulatory and accountability frameworks.