Can There Be Too Many Local Governments?

August 8, 2018

Good Morning! In this morning’s eBlog, we consider the fiscal and governing challenges confronting Puerto Rico’s municipalities or municipios—and a federal court’s dismissal of Puerto Rico’s suit challenging the preemption of its governing authority.

Can there be Too Many Local Governments? Puerto Rico Governor Ricardo Rosselló Nevares has stressed that the model of autonomous municipios has failed, because too many lack the fiscal capacity to implement their basic functions without the territory’s help. Instead, he believes that the municipal model must be changed to one where the equivalent of counties are in charge of providing services which are now provided by the territory and municipios, noting in a recent interview: “I know it’s a difficult initiative, but there has to be a conversation about what the future of local government is going to be. We had talked about establishing a counties system in Puerto Rico, and I think we need to have this conversation…The model of autonomous municipalities was a very nice one, but by not having total independence, it never truly showed as it should be.” Indeed, the debate is not new—either on the mainland, where, nearly a century ago, Farrington Carpenter, Colorado’s first Director of the Interior Department’s Grazing Service noted, at a time when there were 20 Colorado counties with populations under 5,000 and three with only 1,000: “How can such small counties afford the cost of a complete county government? So, the Governor noted: “I think there is an opportunity for the counties model…I have my ideas, but I think we depend a lot on local leadership, so that this can be achieved. I think our society understands that they can work under this model.”

Puerto Rico has 78 incorporated cities and towns—each municipio is governed under the Autonomous Municipalities Act of 1991, which establishes that each jurisdiction must have a strong mayor and municipal council or legislature—and each Council must be unicameral with its size determined by the population. Municipios with populations in excess of 50,000 are defined as incorporated cities; those with fewer are defined as towns—which rely on adjacent or nearby municipios to provide certain public services. San Juan, the capital, is home to about 400,000, while Culebra is the smallest municipio, with around 1,800.

The concept of governance change is not new: the Governor had already proposed it to the PROMESA Oversight Board. Likewise, it was a topic of debate under the administration of his predecessor, former Governor Alejandro García Padilla, albeit his administration only published a report which suggested options, such as: the consolidation of municipalities, the creation of counties, or groups of municipalities which could create consortiums made up of mergers with departments of nearby municipios—or, as the Governor put it: “I think there is an opportunity for the counties model…I have my ideas, but I think we depend a lot on local leadership so that this can be achieved. I think our society understands that they can work under this model.”

Unsurprisingly, however, the very idea of altering municipal authority has stirred up a veritable hornets’ nest. Just mentioning the idea of altering municipalities’ authority provokes a negative reaction from the mayors. Both the president of the Mayors Federation, Carlos Molina Rodriguez of Arecibo, and that of the Mayors Association, Rolando Ortiz, the Mayor of Cayey, have expressed their opposition to any consolidation: Mayor Ortiz argues that counties would bring additional expenses and an unnecessary layer of government bureaucracy, insisting that Mayors are the elected officials closest to the people, so their functions should not be limited. In contrast, Mayor Molina, from the New Progressive Party (NPP), while also opposed to the elimination or consolidation of municipalities, indicates that the Mayors Federation has created a committee to evaluate options to reform municipal structures, stressing that the intent is to make recommendations. He notes that he personally prefers that each municipio reach agreement to merge specific departments so that savings can be generated—in effect creating a consortium—a legal option available to municipios in Puerto Rico which has been available for decades, but which have been rarely used. Very few were created to merge tasks of departments of two different municipalities: since such consortia were authorized in 2012, when the Autonomous Municipalities Act was amended to facilitate the creation of these inter-municipal structures, such consortiums were established to manage the permit systems of Comerío, Barranquitas, and Aibonito; another was established for public roads maintenance in Villalba, Juana Díaz, Comerío, and Barranquitas.

Mayor Molina noted: “It would be necessary to analyze what is the best thing for Puerto Rico. I’m not in favor of letting municipal employees go. If you ask the mayors, nobody is in favor of that…I do not agree with the elimination of municipalities or mayoralties.” Similarly, Mayor Ortiz added: “I believe it’s a wrong vision. The municipal governments are the closest to needs and the people’s pain.”

Nevertheless, Gov. Rosselló emphasized that municipalities are in a precarious financial situation, so the local governance model must be revised to improve the government’s fiscal health and the quality of services received to the people, stressing that the model of autonomous municipalities in Puerto Rico has failed, because many municipalities lack the requisite fiscal capacity to implement their basic functions without the quasi-state government’s assistance. Nevertheless, he reaffirmed his view that the municipal model must be changed to one where counties are in charge of providing services which are now in the hands of municipalities and the Commonwealth, noting: “I know it’s a difficult initiative, but there has to be a conversation about what the future of local government is going to be. We had talked about establishing a counties system in Puerto Rico, and I think we need to have this conversation…The model of autonomous municipalities was a very nice one, but by not having total independence, it never truly showed as it should be.”

The Governor’s proposal is not new—it is one he included in his proposed fiscal plan, which was finally certified by the PROMESA Oversight Board last April. Nor is the issue new: the concept of changing municipal structures also was debated during the previous administration of Gov. Alejandro García Padilla; however, the concept never went beyond the publication of a report which suggested options, such as: the consolidation of municipalities, the creation of counties, or the option for groups of municipalities to create consortiums between different municipios’ departments—or, as the Governor put it: “I think there is an opportunity for the counties model…I have my ideas, but I think we depend a lot on local leadership so that this can be achieved. I think our society understands that they can work under this model.”

Nevertheless, any suggestion to curtail or limit the authority of municipios has drawn, as we noted above, a strong, adverse reaction from Mayors, with Mayor Molina emphasizing that mayors are the elected officials closest to the people, so their functions should not be limited; nevertheless, ha has indicated that, currently, the Mayors Federation has created a committee to evaluate options to reform municipal structures, stressing that the idea is to make recommendations—noting that, personally, he would opt for a consortium model, under which each municipality reaches agreements to merge specific departments so that savings could be generated. This is not a new model, but one which, despite being available, has seen few takers: since 2012, when the Autonomous Municipalities Act was amended to facilitate the creation of these kinds of inter-municipal structures, such consortia have been established to manage the permit systems of Comerío, Barranquitas, and Aibonito—and similar structures have been agreed to for public roads maintenance in Villalba, Juana Díaz, Comerío, and Barranquitas.

Nevertheless, as Mayors’ Federation President Molina noted: “It would be necessary to analyze what is the best thing for Puerto Rico. I’m not in favor of letting municipal employees go. If you ask the mayors, nobody is in favor of that…I do not agree with the elimination of municipalities or mayoralties.” His counterpart, Mayor Ortiz, echoed the apprehension: “I believe it’s a wrong vision. The municipal governments are the closest to needs and people’s pain.”

Governor Rosselló, however, emphasizes that the island’s municipios are in a precarious fiscal situation; ergo, he believes the governance must be revised to address not only Puerto Rico’s fiscal health, but also quality of public services received by the people.

Quien Es Encargado? U.S. Title III Judge Laura Taylor Swain yesterday dismissed a suit by Governor Ricardo Rosselló Nevares and Puerto Rico legislators challenging the authority of the PROMESA Oversight Board to impose to impose a fiscal plan and related budget, granting the Board’s motion to dismiss the U.S. territory’s claim that the Board had encroached on the Legislature’s authority by refusing to certify its budget, instead certifying a new fiscal plan with reduced appropriations. The legislators had sought to have the Judge rule the Board’s actions as “non-compelling recommendations.” PROMESA Board Chair Jose Carrion welcomed the decision in a statement: “There can be no doubt that the fiscal year 2019 budget certified by the Oversight Board is the only one and must be enforced,” adding that now the Board needs to focus on “implementing critical reforms, resolving the crushing debt crisis, and transforming the island’s economy.” He promised to announce steps in the coming weeks to increase public-sector efficiency and economic improvements, while working with creditors on debt restructuring.

After the court released its decision, Governor Rosselló released a statement vowing to disobey Judge Swain’s order, stating that: “The federal court ruling states that our public employees won’t receive their deserved Christmas bonus unless the government takes unjustified, draconian measures against our very own employees, which include massive layoffs. We are adamantly opposed and will not comply with the decision.”

Judge Swain wrote: “PROMESA is an awkward power-sharing arrangement…The power bestowed on the Oversight Board by section 205(b)(1)(K) of PROMESA allows the Oversight Board to make binding policy choices for the Commonwealth.” Nevertheless, she noted, this does not “render the elected Governor irrelevant or toothless.” She wrote that the Governor is required to start the process of putting together a budget—and that he has the right to publicly object to fiscal plan provisions, defining that to grant the Commonwealth some ability to obstruct the implementation of PROMESA Board-ordered policy, holding that the Board had power over the “reprogramming” or control of Puerto Rico departmental unspent funds, and writing that the PROMESA Board could include mandatory “policy” statutes in its fiscal plans even if the Governor deemed them unacceptable; however, Judge Swain said she would not rule against the PROMESA Board’s efforts to consolidate government agencies, eliminate the Christmas bonus, impose a hiring freeze, standardize healthcare provided to government employees, nor prohibit future liquidation of sick and vacation days. In an intriguing part of her decision, Judge Swain wrote that the Oversight Board had asserted it was not mandating the Governor to take these actions; rather the Board was cutting the budget with the assumption that these matters would be addressed, and noting that under PROMESA, the Board has the right to impose a budget on the government of Puerto Rica—comparable in many senses to the preemptive governing and budget authority granted to emergency managers in chapter 9 municipal bankruptcies in a number of states. At the same time, Judge Swain concurred with Gov. Rosselló on his claim that the Board was using planks of its approved budget to write Puerto Rico law concerning budgetary matters—steps which Judge Swain wrote appeared to go beyond the authority Congress granted to the Oversight Board.

Under the current PROMESA fiscal plan, one provision provides that, “If, after the third fiscal quarter of any fiscal year, there remains unrealized agency efficiency savings for any grouping relative to the projected agency efficiency savings in the new fiscal plan for the applicable fiscal year, the Oversight Board will automatically reduce the budget for the corresponding grouping for the following fiscal year in the amount equal to the unrealized agency efficiency savings.” However, Judge Swain determined this interpretation contravened the intent of the PROMESA statute to make any final fiscal decisions as interactive, rather than preemptive, albeit, under her ruling, her grant of final fiscal authority to the Board would appear to render any such guidance largely an empty governing promise.

Unsurprisingly, Governor Rosselló responded to her decision by stating: “This ruling is further proof of Puerto Rico’s colonial status and our lack of self-government. We must put an end to this undignified relationship that allows Congress to discriminate against us and take actions without our consent which are detrimental to our island.” He added that while his government would consider options to appeal Judge Swain’s decision, his government would “keep looking for ways to work with the Oversight Board, so that we avoid harsh, draconian measures that would be detrimental to our people.” In his own statement, PROMESA Chair José Carríon stated: “In the coming days and weeks, the Board expects the government to deliver material progress on reforms to increase public sector efficiency and transparency, and make Puerto Rico’s economy more competitive and attractive for businesses and investors…At the same time, we will continue to pursue plans of adjustment with creditors to achieve debt restructurings and a return to the capital markets.”