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Puerto Rico could establish a “Municipal Development Bank” to assist municipalities in financing projects, if legislation introduced by Puerto Rican Independence Party Sen. Adrián González Costa becomes law.
The proposed measure, filed Wednesday in the upper chamber, mandates the Municipal Affairs Committee and the Government Committee of the Puerto Rico Senate to investigate the feasibility of creating such a bank, which would aim to finance investment projects, capital improvements, and various programs that promote the economic development of island municipalities.
Many towns may become insolvent with the new fiscal year in June.
The financial situation of many municipalities in Puerto Rico has been severely impacted by factors outside the control of their administrations. The Financial Oversight and Management Board has imposed significant pressure on the budgets of both the central government and municipalities. The closure of the Government Development Bank (GDB) and the cancellation of central government allocations to municipalities have further reduced financial resources for cities and towns. Additionally, the Economic Development Bank for Puerto Rico (BDE) has never included municipalities in its ministerial functions, making it an ineffective alternative for towns seeking financial resources.
Many municipalities in Puerto Rico are experiencing financial instability. As a result, their mayors are compelled to seek alternative sources of income with the goal of achieving self-sufficiency and avoiding excessive debt. Private banking poses challenges due to recent instability and volatility in the U.S. financial system, which affects Puerto Rico’s financial landscape.
In Latin America, municipal and regional banking institutions effectively channel financial resources to municipalities and groups of towns and cities. For example, Mexico and Argentina have institutions known as “subnational development banks.” The primary function of these institutions is to provide funding to municipalities, which are the basic public administrative units in each country.
In Puerto Rico, existing municipal banks in Caguas and Ponce serve as examples that such institutions can operate successfully. However, those banks have primarily focused on offering loans to the private sector, typically in amounts of a few hundred thousand dollars per project.
González Costa proposes to gather capital for the new bank from various sources, including revenue from a proposed sales and use tax.
The Municipal Development Bank may:
* Receive contributions from both the government and private sector
* Generate interest from deposits of accumulated funds
* Finance private projects to encourage self-management and the establishment of small and medium-sized enterprises, companies, and cooperative enterprises, among others.
