Last Friday, August 14, the legal firm Adsuar, Muñiz, Goyco, Seda & Pérez-Ochoa PSC (“AMG”) filed a class-action lawsuit against the unconstitutional Article 89(D) of Law 40-2020. Coalición De Residentes Por Un Gobierno Integro, LLC crowdfunded the legal fees.
Puerto Rico is at a crossroads. Its population, and therefore its tax base, had declined by about 25 percent over the years. Projections are that the island will lose another half million to a million people over the next decade or two.
Continued depopulation of the island will lead to a cycle that can only end in disaster. Rapid depopulation can lead to an eroding infrastructure, falling real estate prices, bank collapses, bankruptcies and decreased public benefits.
Quite simply, we cannot and will not let this happen to Puerto Rico. The people of Puerto Rico deserve better.
Puerto Rico cannot survive and prosper if it cannot manage to retain its people. It cannot survive and prosper if it can’t attract people that want to live and invest in the island and call it home. It will never be able to do that so long as its government cannot be trusted to keep its contractual commitments to its residents. For too long, governments have broken their promises. Until now, the public hasn’t had a legal way to stop them. Now we do. This time is different!
In order to induce talented people from across the world, many of them of Puerto Rican ancestry, to uproot their lives and their families and move to the island, or back to the island, and as an incentive for the risk of doing so, Puerto Rico promised these people certain tax benefits. Benefits that would be contractually guaranteed for a certain number of years. These benefits are not just a political promise. They are in tax grants, a written contract. Since they are a contract, the Puerto Rico government has no right to subvert them. This is a constitutional guarantee!
Nonetheless, in contravention of these contracts, the Puerto Rico government recently increased the annual “filing fee“ on holders of these tax grant contracts from $300 per year to $5,000 per year. Since multiple members of a given family may hold such tax grants, this amounts to an illegal tax increase of $10,000, $15,000 or even $20,000 per year for some families who moved to the island in good faith reliance that the contracts would be honored.
To be clear, this “fee” is assessed only to holders of these contractual tax grants. And the explicit and admitted purpose this “fee increase” is to raise revenue. The entirety of the increase is allocated by statute to Hacienda for the Government’s general fund.
Many who were in the process of moving to the island under the inducement of these contractual grants have now decided to change their plans. Why incur the risk and expense of moving your life and your family to the island if the promised tax benefits, intended to compensate you for taking that risk, can be completely undermined at will by the legislature/government through an arbitrary “fee increase.” If they can raise the filing fee to $5,000, then what keeps them from raising it to $50,000? What keeps them from doing this to other types of tax grant holders, or even small businesses on the island?
Even more troublingly, many who have already moved to Puerto Rico under the terms of those grants have now decided to leave. Contrary to popular belief, not all those who move to Puerto Rico and receive grants are millionaires, and many of them can simply no longer afford a $5,000 yearly tax increase.
This egregious and shameless breach of contract by Puerto Rico’s government has done major harm to Puerto Rico already, and it will continue to do so until a court makes it clear to Puerto Rico’s government that it must abide by the express terms of these tax grant contracts. Puerto Rico will not be able to stop the exodus of talent and capital from the island until the government understands that a contract is a contract and that nobody is above the law, much less the Constitution.
Winning this lawsuit will set an incredibly important precedent. It will reassure those who are considering coming to, or back to, Puerto Rico that the government will be held accountable for its contractual promises and that Puerto Rico’s courts can be counted upon to enforce them vigorously. And as a result it will give those already here the confidence they need to stay.
Our victory will be just the beginning in helping Puerto Rico, an island we call home. But it will be an important and essential first step in bringing the rule of law back to “la Isla del Encanto.”
– The Board of Coalición De Residentes Por Un Gobierno Integro