Municipalities in Puerto Rico operate under the Municipal Autonomy Law of 1991 that made it possible for the municipalities to assume greater autonomy and subsequently a greater say in Puerto Rico’s political system. At the moment municipalities generate income from various sources: construction taxes, franchise taxes (known in Spanish as “patentes municipales”), property taxes and 1.5% out of the 7.0% sales and use tax. In addition, most municipalities have lost population between 2000 and 2010, creating another negative impact on municipal finances. The following maps illustrate population change in the past two decades.

There are 78 municipalities with a great deal of difference in terms of size, level of development and fiscal condition. In fact 43 municipalities confront serious fiscal problems due to the recession. Since the construction sector has been seriously affected construction taxes, a source of income for municipalities, has also fallen. Likewise, other sources of income mentioned above have also suffered. One major trend that has benefitted bigger municipalities and impacted economic activity in the smaller ones is the increasing importance of “big box” retailers that tend to locate in bigger towns but attract clientele from the smaller ones. This has cut into income from the sales and use tax as well as the franchise tax in smaller municipalities.

Over the last few months a number of initiatives have been put in place to strengthen municipal prospects. One of these is an initiative of the Office of the Commissioner of Municipal Affairs to create a Center of Municipal Excellence. Its objective will be to identify best practices in the management of federal programs and improve efficiency in municipal administration. This initiative goes hand in hand with others related to the implementation of the State Housing Plan: 2011-2015.

Over the years, municipalities have been increasing their role in Island politics and government and tensions with the Central Government agencies has been a continuing problem. One recent example is the new permitting law that has to some extent decreased municipal influence in the process. The Planning Board’s islandwide land use plan – that should have been finished by mid 2012, but is still in process - will have to carefully deal with the fact that most municipalities have already in place their own land use plans.

In general, the tendency towards a more decentralized government structure has become more clearly defined in recent years. In January of 2012, an agreement was reached with the municipality of Ponce making it responsible for operating the Port of the Americas. The two associations that represent municipalities divided by political affiliation, have become much more active in islandwide policy matters. Both belong to the Housing Policy Implementation Committee and have taken an active role in assuring that the State Housing Plan is implemented. Their positions tend to coincide on most issues, with political differences not being a divisive factor. This unity of purpose has made their participation much more effective on tax policy, housing policies and other such matters.

Municipalities have become aware of the need to secure scale economies in a number of processes and have initiated since 2003 a number of regional initiatives to promote development and increase operational efficiency. The most advanced of these initiatives is INTECO that incorporates eight municipalities in the Central and Eastern region, with Caguas as its head. INTECO has secured federal funding in excess of $20 million to institute training programs for the region’s labor force and for providing the region with access to broadband. DISUR, which brings together fourteen municipalities in the South has been aggressively involved in various projects, including an ambitious brownfield recovery effort.

Similar initiatives have been developed in the West, Northeast and North of the Island. These bring together over sixty of the Island’s 78 municipalities. The one major gap is in Metropolitan San Juan with three key municipalities, San Juan, Bayamón and Guaynabo not being part of any regional initiative. In 2008, the Department of Economic Development and Commerce commissioned a study that recommended the creation of a Metropolitan Region, but this has yet to happen.

Looking forward, it is clear that municipalities will continue to exercise greater influence in economic development, housing and other issues. Obviously, their influence is directly related to size and fiscal strength. In some cases, however, such as Vieques, with a population of around 12,000, its problems have had an impact on Islandwide policies and the municipality occupies a high priority in central government concerns.

The most important item in the last quarter of 2012 with respect to municipalities is the fact that in the November elections nineteen previously PNP controlled municipalities returned to the PDP fold. These were mostly smaller municipalities with the major exception of San Juan were the PDP candidate, Carmen Yulín Cruz, surprised all political analysts and pollsters by beating long term mayor Jorge Santini by a substantial margin. Major cities such as Guaynabo, Bayamón and Ponce remained in the NPP. Carolina, Caguas and Mayagüez, three other important cities remained in the PDP.

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