PO Box 192018 San Juan, PR 00919‐2018; www.oversightboard.pr.gov; [email protected]FINANCIAL OVERSIGHT AND MANAGEMENT BOARD FOR PUERTO RICO Members Andrew G. Biggs Carlos M. García Arthur J. González José R. González Ana J. Matosantos David A. Skeel, Jr. José B. Carrión III Chair Natalie A. Jaresko Executive Director BY ELECTRONIC MAIL February 21, 2020 Mr. Omar Marrero Díaz Chief Financial Officer Government of Puerto Rico Mr. Luis Collazo Rodríguez Administrator & Executive Director Retirement Board & Employees Retirement System Government of Puerto Rico Dear Mr. Marrero Díaz and Mr. Collazo Rodríguez, I write to you in reference to the monthly “PayGo and Individual Contribution Debt by Entity” report received on February 18, 2020 and prepared by AAFAF (“PayGo Report”). The PayGo Report presents, among other things, employees’s payroll contributions toward their retirement accounts withheld by public corporations and municipalities. 1 These amounts have not been remitted by the public corporations and municipalities to the appropriate retirement accounts, potentially in violation of the law. We first wrote to your offices on April 30, 2019 to raise this matter with you and subsequently made referrals to the Puerto Rico Department of Justice and the United States Attorney for those offices to investigate this serious matter. 2 The Oversight Board is deeply concerned about the $21.1 million in employee payroll contributions currently being withheld by various public corporations and municipalities. Some of these amounts pre-date the enactment of Act 106-2017 and date back as far as 2017. 3 By 1 See Attachment A for a copy of the full PayGo Report. 2 See Attachment B for the communication to the Government of Puerto Rico on April 30, 2019. On May 31, 2019, at the request of the Oversight Board, an attorney from Proskauer Rose contacted by phone and followed up by letter to Ms. Rosa E. Rodríguez-Velez, United States Attorney. 3 The 2017 values were identified in separate reporting data made available from ERS to the Oversight Board. The 2017 values represent employee contributions to legacy defined benefit plans currently being withheld by certain public corporations and municipalities.
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PO Box 192018 San Juan, PR 00919‐2018; www.oversightboard.pr.gov; [email protected]
FINANCIAL OVERSIGHT AND MANAGEMENT BOARD FOR PUERTO RICO
Members Andrew G. Biggs
Carlos M. García Arthur J. González
José R. González Ana J. Matosantos David A. Skeel, Jr.
José B. Carrión III Chair Natalie A. Jaresko
Executive Director BY ELECTRONIC MAIL February 21, 2020 Mr. Omar Marrero Díaz Chief Financial Officer Government of Puerto Rico Mr. Luis Collazo Rodríguez Administrator & Executive Director Retirement Board & Employees Retirement System Government of Puerto Rico Dear Mr. Marrero Díaz and Mr. Collazo Rodríguez, I write to you in reference to the monthly “PayGo and Individual Contribution Debt by Entity” report received on February 18, 2020 and prepared by AAFAF (“PayGo Report”). The PayGo Report presents, among other things, employees’s payroll contributions toward their retirement accounts withheld by public corporations and municipalities.1 These amounts have not been remitted by the public corporations and municipalities to the appropriate retirement accounts, potentially in violation of the law. We first wrote to your offices on April 30, 2019 to raise this matter with you and subsequently made referrals to the Puerto Rico Department of Justice and the United States Attorney for those offices to investigate this serious matter.2 The Oversight Board is deeply concerned about the $21.1 million in employee payroll contributions currently being withheld by various public corporations and municipalities. Some of these amounts pre-date the enactment of Act 106-2017 and date back as far as 2017.3 By
1 See Attachment A for a copy of the full PayGo Report. 2 See Attachment B for the communication to the Government of Puerto Rico on April 30, 2019. On May 31, 2019, at the request of the Oversight Board, an attorney from Proskauer Rose contacted by phone and followed up by letter to Ms. Rosa E. Rodríguez-Velez, United States Attorney. 3 The 2017 values were identified in separate reporting data made available from ERS to the Oversight Board. The 2017 values represent employee contributions to legacy defined benefit plans currently being withheld by certain public corporations and municipalities.
Mr. Omar Marrero Díaz Mr. Luis Collazo Rodríguez February 21, 2020 Page 2 of 4
PO Box 192018 San Juan, PR 00919‐2018; www.oversightboard.pr.gov; [email protected]
withholding the transfer of these amounts, the employers identified in the table below could be in violation of law, specifically Article 3.6(a)(1) of Act 106-2017, which states “The individual contributions made by a Participant of the New Defined Contribution Plan, as required in this Act, shall be credited once they are remitted by the employer.” A list of the public corporations and municipalities that have accumulated overdue balances as of December 31, 2019, the latest reporting data provided by AAFAF, is shown below: Public corporations and municipalities that have unremitted employee withholdings
Fiscal responsibility goes hand-in-hand with trust in government. Mishandling the hard-earned employee contributions from the paychecks of government workers is unethical, immoral, and potentially illegal. Failure to remedy this grievous treatment of its public sector workers impairs government credibility with employees and the restoration of fiscal stability. Accordingly, the Oversight Board requires the government to swiftly take the following actions:
1. No later than February 28, 2020, confirm that the balances in the table above, as reported by AAFAF and ERS to the Oversight Board, are employee retirement funds that have been withheld by the respective public corporation and municipality above. If there was an error in the data provided by the government to the Oversight Board, and the balance listed above is incorrect, a clear explanation of the reason for the error must be provided.
2. Confirm that all overdue balances will be collected, in full, and credited to an account in the respective employees’ name no later than March 6, 2020. Daily updates on the progress of payments between the date of this letter and March 6 must be provided from the Retirement Board to the Oversight Board.
3. No later than March 6, 2020, an explanation from the Retirement Board of steps being taken to prevent the continued non-payment of withheld employee contributions going forward.
* Fiscal year 2017 balance relate to employee withholdings to fund contributions to defined Arroyo 19 19 benefit plans (as of November 2019) Sabana Grande - - 16 16 ** AAFAF reported no no unremitted municipal withheld contributions from fiscal year 2019 Maricao - - 16 16
San Lorenzo - - 15 15 Maunabo - - 14 14 Guanica 11 11 Total $123 $0 $761 $884
Public Corporations Municipalities**
Mr. Omar Marrero Díaz Mr. Luis Collazo Rodríguez February 21, 2020 Page 3 of 4
PO Box 192018 San Juan, PR 00919‐2018; www.oversightboard.pr.gov; [email protected]
I trust this matter will receive, and be resolved with, the urgent attention it deserves. If these overdue balances are not remitted by the respective employers, in full, to the Employee Retirement System by March 6, 2020, the Oversight Board will refer this matter to both the U.S. and Puerto Rico Department of Justice for the fullest prosecution permitted under the law. Sincerely, Natalie A. Jaresko CC: The Honorable Wanda Vázquez Garced The Honorable Thomas Rivera Schatz The Honorable Carlos Méndez Núñez
Mr. Omar Marrero Díaz Mr. Luis Collazo Rodríguez February 21, 2020 Page 4 of 4
PO Box 192018 San Juan, PR 00919‐2018; www.oversightboard.pr.gov; [email protected]
Attachment A
PayGo and Individual Contribution Debt by Entity Report As of December 31, 2019 (Submitted February 18, 2020)
Requirement 6
PayGo
PayGo and Individual Contribution Debt by Entity
For the month of December FY20
Confidential
Attachment A
Disclaimer
-
The Puerto Rico Fiscal Agency and Financial Advisory Authority (“AAFAF”), the Government of Puerto Rico (the “Government”), and each of their respective officers, directors,
employees, agents, attorneys, advisors, members, partners or affiliates (collectively, with AAFAF and the Government the “Parties”) make no representation or warranty,
express or implied, to any third party with respect to the information contained herein and all Parties expressly disclaim any such representations or warranties.
- The Parties do not owe or accept any duty or responsibility to any reader or recipient of this presentation, whether in contract or tort, and shall not be liable for or in respect of
any loss, damage (including without limitation consequential damages or lost profits) or expense of whatsoever nature of such third party that may be caused by, or alleged to
be caused by, the use of this presentation or that is otherwise consequent upon the gaining of access to this document by such third party.
- This document does not constitute an audit conducted in accordance with generally accepted auditing standards, an examination of internal controls or other attestation or
review services in accordance with standards established by the American Institute of Certified Public Accountants or any other organization. Accordingly, the Parties do not
express an opinion or any other form of assurance on the financial statements or any financial or other information or the internal controls of the Government and the
information contained herein.
- Any statements and assumptions contained in this document, whether forward-looking or historical, are not guarantees of future performance and involve certain risks,
uncertainties, estimates and other assumptions made in this document. The economic and financial condition of the Government and its instrumentalities is affected by
various financial, social, economic, environmental and political factors. These factors can be very complex, may vary from one fiscal year to the next and are frequently the
result of actions taken or not taken, not only by the Government and its agencies and instrumentalities, but also by entities such as the government of the United States.
Because of the uncertainty and unpredictability of these factors, their impact cannot be included in the assumptions contained in this document. Future events and actual
- This document does not constitute an audit of compliance with any federal law, rule or regulation.
- By receiving this document, the recipient shall be deemed to have acknowledged and agreed to the terms of these limitations.
-This document may contain capitalized terms that are not defined herein, or may contain terms that are discussed in other documents or that are commonly understood. You
should make no assumptions about the meaning of capitalized terms that are not defined, and you should consult with advisors of AAFAF should clarification be required.
-Post Hurricane Maria has affected systems, communications or management availability due to prioritization of recovery and reconstruction activities in some component
units.
- This is affecting timing, reliability and, therefore, integrity of information and data.
- Continuous efforts are being made to enhance data integrity progressively.
Confidential
July August September October November December TotalPayGo Invoices
Central Government (b) 108,861,493$ 100,521,733$ 100,137,167$ 100,276,971$ 100,210,300$ 118,773,710$ 628,781,375$
Government Entities (c) 30,120,244 28,774,525 28,870,556 28,784,770 28,856,194 30,597,245 176,003,535
(a) Invoices of previous months may fluctuate because of credits issued due to Employers claims.
Summary of Individual Contribution Collections and Debt Balances (a)FY2020
Confidential 4
Municipalities and Corporations Payment PlansAs of January FY2020
Code EntityPayment Plan
ExecutedNegotiations Terms (Month) Concept Status Amount
378 MUNICIPIO CANÓVANAS Yes 24 Pay-Go 2017-2018 and June 2017 debts Signed 456,736
360 MUNICIPIO SABANA GRANDE Yes 60 Pay-Go 2017-2018 Signed 267,941
312 MUNICIPIO CABO ROJO Yes 72 Pay-Go 2017 & 2019 Signed 1,355,393
206 AUT. PUERTOS Yes Pay-Go 2017 & 2019 Waiting for Legal Department to be drafted as final -
355 MUNICIPIO PEÑUELAS Yes 60 Pay-Go 2017-2018 Signed 624,104
317 MUNICIPIO CAYEY Yes 19 Pay-Go 2017 & 2019 Signed 2,564,605
329 MUNICIPIO GUAYANILLA Yes 60 Pay-Go 2017 & 2019 Signed 498,642
356 MUNICIPIO PONCE Yes 72 Pay-Go 2017 & 2019 Signed 9,664,130
375 MUNICIPIO YABUCOA Yes 20 AUC 2016-2017 Signed 938,345
308 MUNICIPIO ARROYO Yes 72 AUC 2016-2017 Signed 508,411
354 MUNICIPIO PATILLAS Yes 48 Pay-Go 2018 & 2019 Signed 642,572
368 MUNICIPIO TOA BAJA Yes 72 Pay-Go and June 2017 debts Waiting for Legal Department to be drafted as final 9,747,348
377 MUNICIPIO FLORIDA Yes Pay-Go 2018 & 2019 y AUC 2015-2017 y LE Signed 626,831
321 MUNICIPIO COAMO Yes AUC 2016-2017 Signed 453,703
369 MUNICIPIO TRUJILLO ALTO Yes 60 AUC 2016-2017 Documents Pending from the Municipality -
352 MUNICIPIO NARANJITO Yes 37 AUC 2016-2017 Signed 316,930
376 MUNICIPIO YAUCO Yes 21 June 2017 Debts Documents Pending from the Municipality -
222 CIA. DE FOMENTO INDUSTRIAL Yes 72 Pay-Go 2017 & 2019 Signed 11,584,132
359 MUNICIPIO RÍO GRANDE Yes 72 Pay-Go 2017 & 2019 y Patronal y AAU 2016-2017 Signed 1,842,288
374 MUNICIPIO VILLALBA Yes 36 AAU 2015-2017 Y Aportacuion Patronal Signed 695,757
334 MUNICIPIO HUMACAO Yes 72 AUC 2016-2017 Signed 1,351,816
249 CORPORACIÓN DIFUSIÓN PÚBLICA Yes 12 Pay-Go 2017-2018 Waiting for Legal Department to be drafted as final 149,224
366 MUNICIPIO SANTA ISABEL Yes 60 Pay-Go 2017-2018 y 2018-2019 Waiting for Legal Department to be drafted as final 1,538,736
318 MUNICIPIO CEIBA Yes 72 Pay-Go 2017-2018 Signed 787,691
372 MUNICIPIO VEGA BAJA Yes 5 Pay-Go 2018-2019 Signed 263,929
343 MUNICIPIO LOIZA Yes 60 AUC 2016-2017 Signed 422,883
341 MUNICIPIO LAS MARIAS Yes 72 AUC 2016-2017 Signed 292,390
341 MUNICIPIO LAS MARIAS Yes 72 Pay-Go 2017-2018 Signed 502,807
362 MUNICIPIO SAN GERMAN Yes 72 AUC 2016-2017 Signed 472,825
207 AUT. DE TIERRAS Yes Pay Go 2017 & 2019 Documents Pending from the Corporation -
313 MUNICIPIO CAGUAS Yes 18 Pay Go 2017 & 2019 Signed 2,371,691
221 CIA. COMERCIO Y EXPORTACIÓN Yes 60 Pay-Go 2017-2018 Signed 2,475,996
347 MUNICIPIO MAUNABO Yes 48 Pay Go 2017 & 2019 Signed 657,799
348 MUNICIPIO MAYAGUEZ Yes 72 Paygo 2017 & 2019 Signed 5,699,799
Confidential 5
Government Entities & Municipalities
PayGo Invoices
Confidential 6
Government Entities & Municipalities PayGo Invoices SummaryDecember FY2020
Category FY2018 FY2019 July August September October November December FY2020 TotalGovernment Entities 363,890,808$ 355,391,451$ 30,120,244$ 28,774,525$ 28,870,556$ 28,784,770$ 28,856,194$ 30,597,245$ 176,003,535$ 895,285,794$
Government Entities & Municipalities PayGo Invoices SummaryDecember FY2020
Category FY2018 FY2019 July August September October November December FY2020 TotalGovernment Entities 363,890,808$ 355,391,451$ 30,120,244$ 28,774,525$ 28,870,556$ 28,784,770$ 28,856,194$ 30,597,245$ 176,003,535$ 895,285,794$
Government Entities & Municipalities PayGo Invoices SummaryDecember FY2020
Category FY2018 FY2019 July August September October November December FY2020 TotalGovernment Entities 363,890,808$ 355,391,451$ 30,120,244$ 28,774,525$ 28,870,556$ 28,784,770$ 28,856,194$ 30,597,245$ 176,003,535$ 895,285,794$
Government Entities & Municipalities PayGo Invoices SummaryDecember FY2020
Category FY2018 FY2019 July August September October November December FY2020 TotalGovernment Entities 363,890,808$ 355,391,451$ 30,120,244$ 28,774,525$ 28,870,556$ 28,784,770$ 28,856,194$ 30,597,245$ 176,003,535$ 895,285,794$
(a) Due to enacted Law 29 , there have been no PayGo invoices or collections from the Municipalities in FY2020.
Confidential 10
Government Entities & Municipalities
PayGo Collections
Confidential 11
Government Entities & Municipalities PayGo Collections SummaryDecember FY2020
Category FY2018 FY2019 July August September October November December FY2020 TotalGovernment Entities 314,755,180$ 325,384,561$ 28,904,289$ 27,674,396$ 27,751,859$ 26,073,336$ 22,504,808$ 21,177,336$ 154,086,025$ 794,225,766$
Government Entities & Municipalities PayGo Collections SummaryDecember FY2020
Category FY2018 FY2019 July August September October November December FY2020 TotalGovernment Entities 314,755,180$ 325,384,561$ 28,904,289$ 27,674,396$ 27,751,859$ 26,073,336$ 22,504,808$ 21,177,336$ 154,086,025$ 794,225,766$
Government Entities & Municipalities PayGo Collections SummaryDecember FY2020
Category FY2018 FY2019 July August September October November December FY2020 TotalGovernment Entities 314,755,180$ 325,384,561$ 28,904,289$ 27,674,396$ 27,751,859$ 26,073,336$ 22,504,808$ 21,177,336$ 154,086,025$ 794,225,766$
Government Entities & Municipalities PayGo Collections SummaryDecember FY2020
Category FY2018 FY2019 July August September October November December FY2020 TotalGovernment Entities 314,755,180$ 325,384,561$ 28,904,289$ 27,674,396$ 27,751,859$ 26,073,336$ 22,504,808$ 21,177,336$ 154,086,025$ 794,225,766$
(a) Due to enacted Law 29 , there have been no PayGo invoices or collections from the Municipalities in FY2020.
Confidential 15
Government Entities & Municipalities
PayGo Debt
Confidential 16
Government Entities & Municipalities PayGo Debt SummaryDecember FY2020
Category FY2018 FY2019 July August September October November December FY2020 TotalGovernment Entities 49,135,628$ 30,006,890$ 1,215,956$ 1,100,130$ 1,118,697$ 2,711,433$ 6,351,386$ 9,419,908$ 21,917,510$ 101,060,028$
Government Entities & Municipalities PayGo Debt SummaryDecember FY2020
Category FY2018 FY2019 July August September October November December FY2020 TotalGovernment Entities 49,135,628$ 30,006,890$ 1,215,956$ 1,100,130$ 1,118,697$ 2,711,433$ 6,351,386$ 9,419,908$ 21,917,510$ 101,060,028$
Government Entities & Municipalities PayGo Debt SummaryDecember FY2020
Category FY2018 FY2019 July August September October November December FY2020 TotalGovernment Entities 49,135,628$ 30,006,890$ 1,215,956$ 1,100,130$ 1,118,697$ 2,711,433$ 6,351,386$ 9,419,908$ 21,917,510$ 101,060,028$
Government Entities & Municipalities PayGo Debt SummaryDecember FY2020
Category FY2018 FY2019 July August September October November December FY2020 TotalGovernment Entities 49,135,628$ 30,006,890$ 1,215,956$ 1,100,130$ 1,118,697$ 2,711,433$ 6,351,386$ 9,419,908$ 21,917,510$ 101,060,028$
Government Entities & Municipalities Individual Contribution Collections SummaryDecember FY2020
2018 2019 7/31/2019 8/31/2019
Category FY2018 FY2019 July August September October November December FY2020 TotalGovernment Entities 105,710,919$ 103,031,976$ 8,076,508$ 10,364,952$ 10,424,685$ 4,309,219$ 4,227,308$ 3,944,583$ 41,347,255$ 250,090,150$
Code Entity FY2018 FY2019 July August September October November December FY2020 Total101 SENADO DE PR 106,916$ 30,634 1,843 1,843 1,843$ 1,843$ 1,843$ 1,843$ 11,055$ 148,605$
Government Entities & Municipalities Individual Contribution Collections SummaryDecember FY2020
2018 2019 7/31/2019 8/31/2019
Category FY2018 FY2019 July August September October November December FY2020 TotalGovernment Entities 105,710,919$ 103,031,976$ 8,076,508$ 10,364,952$ 10,424,685$ 4,309,219$ 4,227,308$ 3,944,583$ 41,347,255$ 250,090,150$
Government Entities & Municipalities Individual Contribution Collections SummaryDecember FY2020
2018 2019 7/31/2019 8/31/2019
Category FY2018 FY2019 July August September October November December FY2020 TotalGovernment Entities 105,710,919$ 103,031,976$ 8,076,508$ 10,364,952$ 10,424,685$ 4,309,219$ 4,227,308$ 3,944,583$ 41,347,255$ 250,090,150$
362 MUNICIPIO SAN GERMAN 387,960 343,797 27,401 28,828 27,869 28,211 28,315 28,840 169,464 901,220
363 MUNICIPIO SAN JUAN 10,923,981 9,748,371 781,225 784,545 783,941 784,561 787,325 781,481 4,703,079 25,375,431
364 MUNICIPIO SAN LORENZO 205,262 181,179 14,291 14,373 14,501 14,343 15,538 - 73,046 459,487
365 MUNICIPIO SAN SEBASTIAN 221,511 192,312 15,708 15,753 15,568 15,512 15,395 15,447 93,382 507,205
366 MUNICIPIO SANTA ISABEL 143,494 131,797 11,056 10,774 10,671 10,607 10,649 10,649 64,407 339,698
Confidential 24
Government Entities & Municipalities Individual Contribution Collections SummaryDecember FY2020
2018 2019 7/31/2019 8/31/2019
Category FY2018 FY2019 July August September October November December FY2020 TotalGovernment Entities 105,710,919$ 103,031,976$ 8,076,508$ 10,364,952$ 10,424,685$ 4,309,219$ 4,227,308$ 3,944,583$ 41,347,255$ 250,090,150$
Code Entity FY2018 FY2019 July August September October November December FY2020 Total367 MUNICIPIO TOA ALTA 299,280 278,003 23,798 25,188 24,059 24,373 24,113 24,476 146,006 723,289
368 MUNICIPIO TOA BAJA 662,555 691,901 58,298 58,428 58,783 60,498 60,860 60,757 357,624 1,712,080
Government Entities & Municipalities Individual Contribution Debt SummaryDecember FY2020
7/31/2019 8/31/2019
Category FY2018 FY2019 July August September October November December FY2020 TotalGovernment Entities -$ 134,341$ 128,187$ 168,169$ 127,167$ 124,932$ 125,424$ 392,324$ 1,066,202$ 1,200,543$
Government Entities & Municipalities Individual Contribution Debt SummaryDecember FY2020
7/31/2019 8/31/2019
Category FY2018 FY2019 July August September October November December FY2020 TotalGovernment Entities -$ 134,341$ 128,187$ 168,169$ 127,167$ 124,932$ 125,424$ 392,324$ 1,066,202$ 1,200,543$
Government Entities & Municipalities Individual Contribution Debt SummaryDecember FY2020
7/31/2019 8/31/2019
Category FY2018 FY2019 July August September October November December FY2020 TotalGovernment Entities -$ 134,341$ 128,187$ 168,169$ 127,167$ 124,932$ 125,424$ 392,324$ 1,066,202$ 1,200,543$
359 MUNICIPIO RÍO GRANDE - - - - - - 30,837 31,049 61,885 61,885
360 MUNICIPIO SABANA GRANDE - - - - - - - 15,904 15,904 15,904
361 MUNICIPIO SALINAS - - - - - - - - - -
362 MUNICIPIO SAN GERMAN - - - - - - - - - -
363 MUNICIPIO SAN JUAN - - - - - - - - - -
364 MUNICIPIO SAN LORENZO - - - - - - - 15,129 15,129 15,129
365 MUNICIPIO SAN SEBASTIAN - - - - - - - - - -
366 MUNICIPIO SANTA ISABEL - - - - - - - - - -
367 MUNICIPIO TOA ALTA - - - - - - - - - -
Confidential 28
Government Entities & Municipalities Individual Contribution Debt SummaryDecember FY2020
7/31/2019 8/31/2019
Category FY2018 FY2019 July August September October November December FY2020 TotalGovernment Entities -$ 134,341$ 128,187$ 168,169$ 127,167$ 124,932$ 125,424$ 392,324$ 1,066,202$ 1,200,543$
PO Box 192018 San Juan, PR 00919‐2018; www.oversightboard.pr.gov; [email protected]
FINANCIAL OVERSIGHT AND MANAGEMENT BOARD FOR PUERTO RICO
Members Andrew G. Biggs
Carlos M. García Arthur J. González
José R. González Ana J. Matosantos David A. Skeel, Jr.
José B. Carrión III Chair Natalie A. Jaresko
Executive Director
BY ELECTRONIC MAIL
April 30, 2019
The Honorable Raúl Maldonado Gautier, Esq., CPA Chief Financial Officer Government of Puerto Rico
Mr. Luis Collazo Rodríguez Administrator & Executive Director Retirement Board & Employees Retirement System Government of Puerto Rico
Dear Secretary Maldonado Gautier and Executive Director Collazo Rodríguez,
I write to you regarding the latest “PayGo and Individual Contribution Debt by Entity” report (the “Report”) submitted monthly by AAFAF to the Oversight Board. The Report lists all pension PayGo fees owed by municipalities and public corporations to the central government for the payment of retiree pension benefits.
Decades of fiscal mismanagement decimated Puerto Rico’s pension funds. When the Oversight Board and the current Government began their work, a PayGo system was implemented to ensure adequate funding of pensions in accordance with PROMESA. Maintaining funding of pension benefits for all retirees is one of the Oversight Board’s highest priorities and something the Board remains dedicated to preserving. That is why we are very concerned with the repeated practice of non-transfer of employee contributions that are required to be set aside, as well as the failure of many municipalities and public corporations to remit their required monthly PayGo fees. The PayGo system is predicated on the assumption that all entities will cover the cost for their retirees. The Oversight Board will continue to make sure pensions are adequately funded, but the Government must also take immediate action to curtail the current situation and resolve these overdue debts.
Attachment B
Hon. Maldonado Gautier Mr. Collazo Rodríguez April 30, 2019 Page 2 of 4
PO Box 192018 San Juan, PR 00919‐2018; www.oversightboard.pr.gov; [email protected]
Section 1.6(g) of Act 106-2017 mandates that all participating municipalities and public corporations in Puerto Rico’s Employee Retirement System must pay the PayGo fee. Section 2.1(f) also clearly states every government entity shall earmark the funds needed for the payment of the PayGo fee in their annual general fund budgets. Yet the Report indicates that there is approximately $340 million in accrued debt from 28 public corporations and 66 municipalities since implementation of the PayGo system in 2017. This shortfall includes both failures by municipalities and public corporations to make the required PayGo charge as well as failures to remit individual employee payroll withholdings, which are intended to be deposited in individual retirement accounts being established in those employees’ names. Among the entities that have failed to pay the PayGo fee for their retirees and, as a result, accrued the largest debts due to the central government, are the municipalities of San Juan ($72 mm), Ponce ($10 mm), Carolina ($8 mm), and Toa Baja ($6 mm) as well as the public corporations PRASA ($67 mm), the Ports Authority ($31 mm), and the State Insurance Fund ($24 mm). A list of municipalities and public corporations that have accrued at least $1 million in PayGo debt is listed below. Public corporations and municipalities that owe at least $1.0 mm in PayGo Debt
It is also very troubling that 20 municipalities and seven public corporations are also not remitting individual employee payroll withholdings for that employee’s defined contribution retirement account. These are deductions taken from employee paychecks and must be remitted to a segregated defined contribution account on that employee’s behalf. By withholding that transfer, officers of those entities might be in violation of Article 3.5(2)(b) of Act 106-2017. The entities that accumulated the largest individual employee payroll withholding debts are listed below.
Public Corporations MunicipalitiesEntity ($ ths) FY2018 FY2019 Total Entity ($ ths) FY2018 FY2019 TotalPRASA $4,645 $62,771 $67,416 San Juan $34,902 $37,536 $72,438Puerto Rico Ports Authority 22,686 7,829 30,514 Ponce 4,652 5,184 9,837State Insurance Fund 6,649 17,193 23,843 Carolina 2,057 6,252 8,309PR Industrial Development Co. 9,025 6,636 15,661 Toa Baja 3,388 2,535 5,923Metropolitan Bus Authority 13,588 - 13,588 Mayaguez 2,593 3,101 5,693Admin. of Agrigultural Dvlp & Services 902 7,700 8,602 Guaynabo - 5,603 5,603Highway and Transportation Authority 2,488 2,141 4,629 Arecibo 2,947 2,407 5,354Medical Services Adminstration (ASEM 4,614 - 4,614 Bayamón - 4,222 4,222Office of the Controller 3,912 - 3,912 Caguas 3,335 557 3,892Agricultural Extension Service - 3,271 3,271 Cayey 1,304 1,126 2,431Puerto Rico Trade and Export Co. 2,303 781 3,085 Cabo Rojo 730 851 1,581CRIM 1,677 1,278 2,955 Santa Isabel 727 609 1,336Puerto Rico Land Authority 2,021 - 2,021 San Sebastian 35 1,095 1,130Public Building Authority - 1,899 1,899 Total $56,671 $71,079 $127,750Auto Accident Compensation Admin - 1,069 1,069 Other Municipalities $4,659 $10,446 $15,105
Total $74,511 $112,567 $187,078Other Public Corporations $1,296 $696 $1,991
Hon. Maldonado Gautier Mr. Collazo Rodríguez April 30, 2019 Page 3 of 4
PO Box 192018 San Juan, PR 00919‐2018; www.oversightboard.pr.gov; [email protected]
Public corporations and municipalities with more than $150k in individual employee payroll withholding debt
The responsible payment by all employers of all PayGo fees is essential to ensure that retirees and beneficiaries continue receiving their pension benefits moving forward. Section 16 of the certified Fiscal Plan assumes PayGo costs will be fully covered and paid by each respective entity. Therefore, there are no General Fund or other appropriations in the certified Budget to fund PayGo benefits for non-paying municipalities and public corporations without prompt reimbursement by them. Continued payment of retirement benefits without reimbursement from these employers is an unauthorized expenditure under the certified Budget and every effort must be taken to collect these delinquent debts or offset these incremental unbudgeted expenses within other areas of the budget. As contemplated in Section 3.2 of Act 106-2017, remedial action must be taken immediately to rectify this situation and secure repayment for these overdue amounts. For example, if the Government does not believe efforts to collect the PayGo fee from non-contributing municipalities and public corporations will be successful, central government payments to those entities, or spending elsewhere in the certified Budget, will need to be adjusted such that these costs are properly budgeted and the pension payments can continue to be made. Accordingly, the Retirement Board, its designee, or the Managing Entity shall certify the debt of each delinquent entity and request in writing that:
The Secretary of the Treasury adjust the accounts, obligations, and advances that the Department of the Treasury must otherwise remit to the delinquent employer, and transfer the full amount of the delinquent PayGo fee from the appropriate account;
The Office of Management and Budget start withholding the necessary amounts from
appropriations made to agencies of the Government of Puerto Rico, such as transfers to the Integrated Transit Authority, DDEC and Agriculture, among others;
Public Corporations MunicipalitiesEntity ($ ths) FY 2018 FY 2019 Total Entity ($ ths) FY 2018 FY 2019 Total Metropolitan Bus Authority $852 $1,054 $1,906 Ponce $1,985 $1,468 $3,453 Highway and Transport. Authority - 406 406 Arecibo 929 198 1,127 Correctional Health - 205 205 Villalba 237 128 366 Maritime Transportation Authority - 100 100 Vieques 59 216 275 Integrated Transit Authority - 11 11 Guánica 131 87 218 Agricultural Insurance Company - 7 7 Río Grande - 220 220 Higher Education Council - 7 7 Patillas 43 128 171
Total $3,545 $2,883 $6,428 Other Municipalities $1 $328 $329
Hon. Maldonado Gautier Mr. Collazo Rodríguez April 30, 2019 Page 4 of 4
PO Box 192018 San Juan, PR 00919‐2018; www.oversightboard.pr.gov; [email protected]
Within 7 days, instruct the Municipal Revenue Collection Center (CRIM) to remit the delinquent amounts of the PayGo fees owing by all delinquent municipal employers from the unencumbered balance of the property tax and other revenues that the municipalities are otherwise entitled to receive in accordance with Act No. 80-1991, as amended, known as the “Municipal Revenue Collection Center Act.” Additionally, in accordance with Section 3.5(2)(a)(iii), instruct CRIM to place an automatic and permanent preferred statutory lien over the unencumbered balance in favor of the Retirement Board and/or Managing Entity until the delinquent amount has been repaid.
To ensure sufficient action is taken, the Oversight Board requires the Retirement Board provide the following information:
By May 10, a list of the dollar amount of unrestricted bank account balances at each entity delinquent in paying its PayGo fees;
By May 10, confirmation that all individual employee payroll withholding debts will be settled within 10 business days, consistent with Section 3.5(2)(b) of Act 106-2017;
By May 31, a detailed plan for each delinquent municipality and public corporation on how these overdue payments will be collected. This must include the timeline to enter into payment plans and dates when all of the requirements above will be completed; and
By May 31, an explanation of actions being taken to prevent the continued accrual of PayGo debts for each participating entity going forward.
All government entities must settle their overdue PayGo fees and individual employee payroll withholding with the utmost of urgency and no later than the deadlines set forth above. Sincerely, Natalie A. Jaresko CC: Christian Sobrino Vega