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Investigation reveals that the intervention of legislators in the disposition of the Municipal Improvements Fund is unconstitutional

The Office of the Comptroller of Puerto Rico publishes the result of an investigation on the use of the Municipal Improvements Fund, administered by the Land Authority. The investigation was conducted after receiving two complaints regarding the constitutionality of an amendment to the Internal Revenue Code of 2011, which granted authority to legislators to dispose of the Municipal Improvements Fund.

The Report reveals that the Municipal Improvements Fund (Fund) was not used in accordance with the law and case law, since senators and representatives, through letters, determine the specific use of the funds. From the evaluation of 12 contracts awarded for $2.1 million in 2021, five letters requesting transfers of funds to six nonprofit entities for specific uses were identified. In addition, senators and representatives selected the beneficiaries of the Fund, referred them to the nonprofit entities to receive the aid, and determined the construction of permanent works and improvements, as well as the purchase of electrical appliances, medical or sports equipment, among others.

This situation violates the separation of powers and affects the oversight of public funds. The Supreme Court of Puerto Rico determined that it is unconstitutional to leave to the judgment of legislators the decision of how to use public funds allocated to an entity of the Executive Branch. The power to enforce the laws is exclusive to the Executive Branch.

The investigation publishes four results that note multiple instances of noncompliance in the contracts between the Land Authority (Authority) and the nonprofit entities. For example, funds were allocated to three entities without the legislator or the Authority specifying the work to be performed, one representative allocated funds to citizens who were not from his district, two entities paid the rent and remodeling of their offices with funds intended for other services, and five entities disbursed $1 million before receiving the funds from the Authority or after the effective date of the contracts.

The auditors detected that a relative of an employee of the Rural Infrastructure and Permanent Improvements Program (PIR) received a check for $5,700 to acquire kitchen cabinets and another for $6,000 to build a wall. The wall was never built and the beneficiary lived in the district of Carolina, contrary to what was established in the contract, which indicated that the funds were for works in the district of Humacao.

In addition, the mother of the aforementioned PIR employee received $3,700 for the purchase of doors and a window for her residence in Cupey, which she never installed despite the fact that the check was cashed with her signature and identification number. The PIR is the office of the Authority responsible for the control and distribution of the Fund to the nonprofit entities. Due to these situations, crimes classified in the Penal Code may have been committed.

The investigation indicates that there is no record of the funds returned by the nonprofit entities. The Authority did not include in the Report of Funds and/or Values the information on 37 returned checks from nine nonprofit entities valued at $223,473. In this way, the auditors could not obtain the date of receipt of the checks or know whether they were deposited.

The Investigation recommends that the Governor approve legislation to amend Section 4050.09 of Act 1-2011, Internal Revenue Code, and eliminate the power that legislators have to determine the use of public funds allocated to an entity of the executive.

The Municipal Improvements Fund is nourished by 20% of the 5% collected by the Sales and Use Tax. This fund is distributed in equal parts among the eight senatorial districts and 40 representative districts and is used to address permanent improvements and essential direct services for the public. From January 1, 2021 to June 30, 2022, the Authority formalized 722 contracts for $23 million to grant funds to municipalities, government entities, and nonprofit entities.

This Investigation Report covers the period from January 1, 2021 to June 30, 2022.

Investigation Report OC-25-46 can be obtained on our website: www.ocpr.gov.pr.