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MUNICIPAL REVENUE

COLLECTION CENTER
New Fiscal Plan 2021-2025

0 New Fiscal Plan


Disclaimer
The Municipal Revenue Collection Center (“CRIM”, as it is known for its Spanish acronym) and the Puerto
Rico Fiscal Agency and Financial Advisory Authority (“AAFAF”), and each of their respective officers,
directors, employees, agents, attorneys, advisors, members, partners or affiliates (collectively, with CRIM and
AAFAF, 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 Fiscal Plan for the period covering FY2021 to FY2025 (the “New Fiscal Plan”) has been formulated on,
among other things, information obtained from AAFAF and CRIM’s own internal information during the
Emergency Period caused by the COVID-19 Pandemic. CRIM believes this New Fiscal Plan contains the best
information currently available to it. To the extent the CRIM becomes aware of additional information after it
submits this New Fiscal Plan that CRIM determines warrants a revision of this New Fiscal Plan, CRIM will so
revise it.

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.

This New Fiscal Plan is not a Title III plan of adjustment, nor any other financial indebtedness restructuring
plan. It does not specify classes of claims and treatments. It neither discharges debts nor extinguishes liens.

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 legal, financial, social, economic, environmental, governmental 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, but also by Financial Oversight Board and other third-party 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 results may differ materially from any estimates, projections, or statements contained
herein.

Nothing in this document should be considered as an express or implied commitment to do or take, or to refrain
from taking, any action by the Parties or an admission of any fact or future event.

Nothing in this document shall be considered a solicitation, recommendation or advice to any person to
participate, pursue or support a particular course of action or transaction, to purchase or sell any security, or to
make any investment decision.

By receiving this document, the recipient is deemed to have acknowledged 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.
1
New Fiscal Plan
Table of Contents

2 New Fiscal Plan


List of Figures

3 New Fiscal Plan


Executive Summary
The Municipal Revenues Collection Center plays an essential role in
supporting the municipalities in their economic and social development by
ensuring an efficient process to collect and distribute municipal tax revenues.
The decline in Commonwealth appropriations and other revenues to the
municipalities, coupled with the economic reality of Puerto Rico, poses a
threat to the municipalities' financial stability. CRIM realizes that it has an
essential role in this crucial moment for municipalities. CRIM has seized this
opportunity to take the necessary steps to become more efficient and apply
innovative measures to lead this process of municipal transformation.

The measures outlined in this New Fiscal Plan focus around improving
operations and enhancing tax revenue collections in order to support
municipalities navigate the new financial realities:

• Operational efficiencies: CRIM is undergoing a major operational


transformation centered around substitution of outdated applications and
hardware; implementation of best practices for Business Continuity;
decentralization and reengineering of processes to improve service to
municipalities and taxpayers, along with the establishment of a data-
driven culture aligned with the new strategies. These initiatives will
serve as the foundation that will enable CRIM to successfully implement
strategies around enhancing tax revenue collections.

• Tax revenue collections enhancements: This Fiscal Plan outlines


measures that CRIM will undertake to capture unrealized tax revenues
by identifying properties missing from its Tax Roll; appraising non-
appraised existing properties; improving receivables collections and
utilizing technology to properly identify taxable assets currently
unidentified.

We firmly believe that success will come from the ability of municipalities
and other government agencies to effectively collaborate with CRIM, ad vice-
versa, in the implementation of the initiatives outlined in this New Fiscal Plan

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View
5 of Bayamón Sports Complex New Fiscal Plan
Establishment of CRIM

Municipal Revenues Collection Center Act


Act 80 of August 30, 1991

• Act 80-1991 (the “CRIM Act”), established CRIM as a municipal entity,


independent and separate from any other agency or instrumentality of the
Commonwealth of Puerto Rico.

• The CRIM Act’s Statement of Motives stated that the very intention of the
CRIM Act was to amplify municipal autonomy. In elaborating this point, the
Legislative Assembly explained that even though the municipal finances were
largely funded by property taxes and state subsidies, control over these funds
was retained by the Puerto Rico Treasury Department, leaving municipal
governments aloof from the management of these revenue streams which were
vital to the funding of operations and services provided. The Legislative
Assembly also stated that the existing system did not provide for collection
efforts by municipal governments, creating inefficiencies in the collection of
property taxes.

• By virtue of the CRIM Act, the Legislative Assembly transferred to the


Municipalities all real and personal property taxes, except for the portion of
funds which are to be allocated in the State Debt Redemption Fund.

• CRIM is an entity established for providing fiscal services to the


municipalities, and whose primary responsibility is to appraise, assess, notify,
collect, receive and allocate the public funds arising from the property tax, the
state subsidy, funds from the State Lottery and other funds that are determined
by law for the benefit of the municipalities. It is also responsible for the
Registry of Real Property existing in each Municipality of Puerto Rico and
maintaining it updated.

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Governance
• CRIM has a Governing Board composed of nine Mayors, representative of the
78 Municipalities of Puerto Rico, and two members of the Central Government:
the CEO of AAFAF and the Governor’s Municipal Affairs Advisor.

• It is headed by an Executive Director, who is appointed by the Governing Board.


The Executive Director of CRIM exercises the functions and faculties set forth in
the CRIM Act, as well as those delegated by the Board.

CRIM Organizational Chart

Area
Office/Department

Figure 1.1

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Regional Offices
• The Center has one (1) Central Office and nine (9) Regional Offices located
throughout the Island. The offices are located in Aguada, Arecibo, Bayamón,
Caguas, Carolina, Humacao, Mayagüez, Ponce, and San Juan. These offices
serve taxpayers, in addition to carrying out technical functions, such as real
estate appraisals, machinery and property valuation, among others.

• CRIM also delegates services to Municipalities via collaborative agreements.


Delegated services include appraisals, collections, home improvements
verifications, personal property verification, investigation and personal property
tax returns, investigations on expired exemptions and inappropriate exonerations,
and collection and payment for current contributions to 73 Municipalities, the
issuing of certifications to 55 Municipalities, and foreclosure processes to 18
Municipalities.

CRIM Regional Offices


SAN JUAN

AGUADA ARECIBO
BAYAMÓN CAROLINA

HUMACAO

CAGUAS
MAYAGÜEZ PONCE

Figure 1.2

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Current Situation
CRIM and the Fiscal Oversight and Management Board
• At its September 30th, 2016 meeting, the Fiscal Oversight and Management Board
(“FOMB”) designated CRIM as one of the initial covered entities subject to
oversight under the Puerto Rico Oversight, Management and Economic Stability
Act (“PROMESA”).

• In its May 9th, 2019 Presentation to CRIM and Municipalities, the FOMB stated
that it will require CRIM to submit a fiscal plan and budget. Among the strategic
objectives for including the municipalities and CRIM under the provisions of
PROMESA were to increase property tax revenues to support municipal functions
and to adopt improved financial and budgetary practices.

• CRIM’s fiscal plan guiding principles, as required by FOMB ,were:


• Increase number of registered properties.
• Correct property classifications
• Increase the collections rate
• Reduce the number of property exemptions/exclusions
• Increase the number of hired appraisers

• CRIM submitted an initial Fiscal Plan on June 14, 2019. However, on June 23,
2019, FOMB issued a notice of violation listing primary points of noncompliance.
On July 16, 2019, CRIM submitted a revised Fiscal Plan addressing many of the
points of noncompliance. The FOMB once again indicated that it was in
noncompliance, as it still incorporated the impact of Act 29-2019.

• This New Fiscal Plan addresses the many points that are relevant to CRIM’s
duties, as the municipalities fiscal services provider, and its operations. However,
CRIM cannot account for municipal expenses (i.e. Act 29 expenses and other
statutory debt) in its New Fiscal Plan. CRIM can only attest to estimated
distributions to the municipalities. CRIM’s role as a paying agent is not taken into
account in the New Fiscal Plan.

• CRIM is the entity best suited to efficiently collect property taxes and to maintain
the digital cadastre, as it has taken important steps towards restructuring its
operations and innovating its ongoing processes.
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New Fiscal Plan
10 Central Offices –
CRIM New Fiscal Plan
San Juan
CRIM’s Operation
CRIM is a Fiscal Services Provider
• As previously described, CRIM was established as a municipal entity to provide
fiscal services to the municipalities. In order to cover its operating expenses,
CRIM relies on the following revenue streams:
• Property taxes administrative fee – pursuant to the CRIM Act, CRIM is to
separate an amount to cover its operating expenses, up to a maximum of
five percent (5%) from the total annual collections obtained from
municipal property taxes in the fiscal year immediately preceding. CRIM
currently charges the 5% administrative fee over all Basic Property Tax
collected.
• Service charge to banks – fees that are charged to banks that access the
CRIM portal to verify debt certificates and other real and personal
property information.
• Sale of certifications and maps – fees that are charged to the general
public when certifications and/or other documentation is requested.
• Interest and miscellaneous income – other income generated by CRIM.
• Federal grants – federal revenues earmarked for specific uses.

Property taxes collected are not CRIM revenues


• All property taxes collected by CRIM and municipalities are deposited in the
CRIM General Trust, created pursuant Deed of Trust #4 of November 2, 2015,
later amended and restated pursuant Deed of Trust #58 of November 29, 2018.
• CRIM is the settlor of the Trust and AAFAF is the trustee.
• Funds deposited in the General Trust are not assets of CRIM.
• The General Trust is a separate legal entity.
• CRIM reports resources held in the General Trust in a purely custodial
capacity.

• Deposited funds are later distributed to the municipalities, as the beneficiaries of


the General Trust, or to the corresponding party on behalf of the municipalities
(i.e. creditors, the Commonwealth, or agencies/public corporations for statutory
debt payments) through CRIM.

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CRIM and the CRIM General Trust
Flow of Funds
FUNDS RECEIVED:

FUNDS DISBURSED:

(Excess CAE Funds)

Figure 2.1

CRIM functions as a conduit in the flow of municipal funds

However, a direct relationship


exists between CRIM Revenues
and Collection Rates. As CRIM
implements its initiatives, which
will result in higher collection
rates for municipalities, CRIM
will see an increase in Fee
Revenues.
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Caguas
13 - City Center New Fiscal Plan
Current Financial Situation
CRIM Snapshot1,4

1- CRIM Audited Basic Financial Statements 06/30/2019


2- Net of accumulated depreciation
3- Net of current portion
4- Net Position reported in Governmental Activities is $29,395,148, resulting in Total Liabilities and net position of $40,033,640

Property taxes
administrative fee
has constantly
been CRIM’s
primary source of
revenue,
accounting for
93.7%, 93.4% and
93.3% of total
revenues for
FY19, FY18 and
FY17,
respectively.

Figure 3.1

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Ponce
15 – Parque de Bombas New Fiscal Plan
CRIM Collections - Snapshot
Sources

Uses

Figure 4.1

Real and Personal Property Taxes collected each year include current year and
delinquent tax debt, resulting in annual collection rates in the range of 85% - 88% of
current year tax liability. However, current year collections vs. current year tax
liability is an area of opportunity that, with the measures included herein, should
result in higher collection rates.

Figure 4.2

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CRIM Collections
CRIM Collections, as Fiscal Service Providers to Municipalities
• Tax Revenue Collections: Tax revenue collections are composed of real
property and personal property. The proportion between real property and
personal property tax collections have remained steady over the last three fiscal
years, maintaining a 60/40 proportion.

Collections by Tax Concept - Breakdown

39% 37.9% 37.9%

61% 62.1% 62.1%

Figure 4.3

• Real Property Tax is defined as fixed property, principally land, buildings and
fixed machinery & equipment. These are assessed on January 1 are due on July
1 and January 1, with a 90-day grace period for each payment due. There’s a
discount matrix for Real property tax payment inside the 90-day grace period,
taking in account the day term of the payment inside the 90 days span. The net
taxable value of a property is determined after subtracting exemptions (partial or
total), and exonerations from the initial taxable valuation.

• Personal property is defined as the tangible and intangible property utilized in


industry or business that can be easily moved from one place to another. Taxes
for such personal property are determined according to taxpayers’ self-reporting
return as of January 1 of each previous year and notified on the Personal
Property tax return on May 15.

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CRIM Collections
CRIM Collections – Summary Cont’d.
• One of the main challenges CRIM and the municipalities face is the large
amount of exemptions and exonerations placed on real and personal property.
• Exemption – one that is placed by state law or municipal ordinance. The
taxpayer must request, it is not automatic.
• Exoneration – one that is applied for and may be granted, subject to
certain criteria established in Act 83-1991.

As of 12/31/2019

Actual tax billings per year, not tax


collections

Figure 4.4

From an Initial Taxable Value of $31.5 billion, $17.9 billion is either exempted or
exonerated. This yields an actual Final Taxable Value of $13.6 billion, or 43% of the
Initial Taxable Value.

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CRIM Collections
• PR Electronic Lottery Funds (“Lottery Funds”) - Act 80 of 1991, Article 16 (b),
establishes that an allocation of 35% of the net annual income derived from the
operations of the Additional Lottery System (Electronic Lottery) shall be transferred
to the municipalities. In FY18-19, this amount totaled $55.09 million, a 50% increase
over the previous year. CRIM will experience a reduction in this revenue stream for
FY19-20, as the COVID-19 Pandemic caused a cessation of all Electronic Lottery
System plays.
• Commonwealth Appropriations (“CW Appropriations”) - Central Government
transfers are composed of:
• 2.5% of net income from the Central Government.
• Exoneration Fund: Each primary residence is exonerated for the first $15,000
appraisal value as established by Act 83 of 1991. The Central Government
reimbursed the taxable amount corresponding to Basic Tax and CAE from the
tax exoneration.
• Discount (the “0.20%”): A portion of 20 bps is discounted from real and
personal property tax rates. Act 83 of 1991 establish that this discount is
covered by the Central Government.

Pursuant to the FY2018 Commonwealth Fiscal Plan certified by the FOMB, the funds
from the Exoneration Fund (Basic and CAE) and the 0.20% discount were eliminated. In
addition, as per May 2020 Commonwealth Fiscal Plan certified by the FOMB, the totality
of CW Appropriations to the municipalities will be phased out by FY24-25 (delayed for
one year vs. prior Fiscal Plan). It must be noted that with the enactment of Act 66-2014
(the “Commonwealth of Puerto Rico Special Fiscal and Operational Sustainability Act”),
all increases in CW Appropriations were frozen. Notwithstanding, no offsetting measure
has been taken in favor of the Municipalities since. This results in the Municipalities
carrying the financial burden of all exemptions and exonerations determined at the
Executive/Legislative Level, and not being compensated accordingly.

Figure 4.5

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CRIM Distributions
CRIM Distributions
Distributions to Municipalities - Municipalities get funded through the Matching
Fund (“Fondo de Equiparación”). The CRIM Act established the Matching Fund
into which CRIM is required to deposit the total amount collected on account of
Real and Personal Basic Taxes, the Lottery Funds and the Commonwealth
Appropriations (other than the Exonerated Fund and 0.20% discount, which have
been eliminated since FY2018).

• Certain monies in the Matching Fund (the “Equalization Monies”) are available
to CRIM in order to guaranty that each municipality will receive revenues in an
amount at least equivalent to that received from Equalization Monies in the
previous fiscal year.

• The Equalization Monies are made up of the 2.5% of Central Government Net
Income and the Lottery Funds (“CW Contributions”), and a portion of the Basic
Tax equal to 1% of the assessed value of personal property and 3% of the
assessed value of real property collected by each municipality (“Designated
Basic Tax”).

• All Equalization Monies are allocated to the municipalities as follows: first, as


may be required so that each municipality receives at least the same amount of
aggregate revenues received during the previous fiscal year on account of
Equalization Monies, using first the CW Contributions, and then, to the extent
necessary, the Designated Basic Tax; second, Designated Basic Tax revenues
remaining in the Equalization Monies are allocated to the municipalities in
proportion to the amount by which revenues from their Basic Tax in such fiscal
year exceed their Basic Tax revenues in the previous fiscal year; and third, to all
municipalities based on certain economic and demographic criteria specified in
the CRIM Act. The remaining Matching Fund monies are returned to the
municipalities whose Basic Tax levies gave rise to such remaining monies, and
are used, with their other revenues, to meet operating expenses.

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CRIM Distributions
CRIM Distributions
State Debt Redemption Fund – amounts equal to 1.03% of the assessed value of
personal and real property collected by each municipality shall be deposited in the
State Debt Redemption Fund for the payment of Commonwealth debt. These
amounts are transferred to the Commonwealth on a monthly basis.

Municipal Debt Redemption Fund - each municipality is required to levy a Special


Additional Tax (“Contribucion Adicional Especial” or “CAE”) in such amount as
will be required for the payment of its general obligation loans for which such
municipality has pledged its good faith, credit and taxing power (“Municipal
General Obligations”).

• The proceeds of the Special Additional Tax are required by law to be deposited
in the Municipal Debt Redemption Fund and used for the payment of Municipal
General Obligations.

• To the extent that the funds in a municipality’s GO Redemption Fund exceed the
amount necessary to cover 12 months’ debt service on such municipality’s then
outstanding Municipal General Obligations, as determined by AAFAF, and to
pay such municipality’s statutory debts (certain debts with Commonwealth
government entities and public corporations), it is required to disburse such
excess to the municipality, at its request, once during each fiscal year. Such
excess is generally referred to as “Excess CAE.”

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Carolina
22 – Children’s New Fiscal Plan
Museum
Key Initiatives
CRIM - Process of overhauling its day-to-day operations
As will be further explained in this section, CRIM has already commenced to
implement many key initiatives that will assist CRIM in spearheading these
challenging times for the municipalities. These key initiatives can be divided into
two major areas; Operational Restructuring and Innovation.

• Operational Restructuring
• Decentralization of operational areas
• Decentralization of Digital Cadastre tasks
• Restructuring of processes related to settlements with Taxpayers
• Corporate Services and Banking Department
• “CRIM al Dia”

• Innovation –
• The implementation of technology in CRIM’s operations is an
overarching factor in many of CRIM’s areas of opportunity. Many
of FOMB’s fiscal plan guiding principles are addressed by the Key
Initiatives in the process of being implemented.
• Key Issues to address with measures:
• Identification and Appraisal of New Properties
• Home improvements new to Tax Roll
• Incorrect Mailing Addresses
• Appraisal of Non-appraised properties
• Swimming Pools
• With the custom-made systems of SKALA and SKALA II, which
have already been developed and are in the process of being
validated, CRIM will have completed a process in the near term
which would have otherwise taken years to accomplish.

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Innovation

New Fiscal Plan


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Innovation

New Fiscal Plan


25
Innovation

New Fiscal Plan


26
Innovation

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Innovation

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Culebra
29 – Port to Port New Fiscal Plan
view
CRIM Financial Projections

Figure 6.1

Key Assumptions:
• Property taxes administrative fee is calculated at 5% of Basic Tax (including 1%
and 3%).
• Interest and misc. income includes new revenue source in FY20-21: rental income
generated from the lease of unused office spaces in CRIM Central Offices
• Expenses range in a YoY increase of 0.5%, as is the case with Salaries and
Professional and consulting services, to 3%, as is the case with Repairs and
Maintenance.
• No transfer from other funds is being considered.

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CRIM Collections Projection

Figure 6.2

Key Assumptions:
• The five-year forecast for all 78 Municipalities was calculated based on the
number of payment transactions that were received for Fiscal Years 2016-2017,
2017-2018 and 2018-2019 and the REAL PROPERTY and PERSONAL
PROPERTY distribution for each Municipality.
• These also include projected collection impact from implemented fiscal plan
measures.
• Over 2.5 million transactions and payments registered by CRIM’s tax collection
systems from 2016-2019 were analyzed. As the result of a statistical regression, an
incremental factor of ~$41 million or a 3.4% percentage of growth from one year
to the next can be expected for CRIM over the next five years ceteris paribus
distributed between the 78 Municipalities.

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32 Old San Juan New Fiscal Plan
Challenges
After having implementing the Key Initiatives presented herein, CRIM and the
municipalities will still have several hurdles to overcome in the upcoming
months. CRIM is committed in taking affirmative measures in the near term to
navigate through these hurdles. These include but are not limited to:

• Establishment of a Project Management Office to oversee all aspects


of implementation. This will require the integration of key personnel
who are already being heavily tasked.

• Identifying sources of funding for the Matching Fund to partially


offset elimination of CW Appropriation.
• This would in turn assist municipalities in covering the impact
of the Act 29 annulment.

• Identifying sources of funding to replace Act 42 and Act 146 loan


repayment sources eliminated by the FOMB to partially offset impact
on municipalities and avoid payment default.

• Establishment of strict exemptions and/or exonerations parameters


with the Central Government.

• Establishment of Collection Efforts guidelines for CRIM and


municipalities.

• Design internal reporting mechanisms to closely monitor collections


and outstanding property taxes, among other financial information, to
be used by PMO.

• Assist municipalities in the establishment of consortiums.

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