Companies evaluating where to locate an operation in Puerto Rico tend to ask about the municipal license tax rate (patente as it’s known in Spanish), confirm it, and move on. A new fiscal ranking released this week suggests that is the wrong depth of inquiry, and that the municipality’s own financial condition belongs in the due diligence file alongside the patente.
ABRE Puerto Rico’s twelfth Municipal Fiscal Health Index found that 43% of municipalities spent more than they earned in 2024, up sharply from 39% the previous year. Ten municipalities landed in the lowest classification, “Unsustainable”: Caguas, Juncos, Toa Baja, Santa Isabel, Río Grande, Loíza, Florida, Lajas, Maricao and Maunabo.
That list is the part worth a second look. This is not a roster of small interior towns with thin tax bases. Caguas is the island’s principal commercial center outside metro San Juan. Juncos hosts Amgen Manufacturing Limited, the largest site in Amgen’s global network, a roughly 3,000-employee campus that has drawn close to $5 billion in investment over three decades and that the company committed another $950 million to over the past year. Río Grande and Toa Baja anchor significant tourism and industrial activity respectively.
Nothing in the Index suggests those operations are at risk, and municipal fiscal stress does not translate into immediate disruption for an established employer. But it does shape the operating environment in ways that rarely appear in a site-selection spreadsheet.
The Index is part of ABRE Tu Municipio, a transparency initiative launched in 2015, and it evaluates 13 indicators covering fund balances, revenues and expenditures, assets and liabilities, long-term debt, debt service, changes in net assets and reliance on intergovernmental funds.
It was built for residents. But the same 13 indicators describe the financial counterparty a company deals with every year it files a volume of business declaration, every time it applies for a permit, and every time it negotiates an incentive package. Read that way, the Index is less a civic scorecard than a municipal credit report and one of the few public tools available for comparing 78 potential locations for a business on something other than the patente rate.
Where a municipality’s finances touch a company’s costs
The most direct channel is the patente, a gross receipts tax rather than a tax on profit, which means a company pays it whether or not it had a good year. Rates are set by municipal ordinance within statutory ceilings, generally up to 0.5% of gross receipts for non-financial businesses and up to 1.5% for financial ones. A municipality running persistent deficits has every incentive to sit at the top of its permitted range and to pursue collections and audits more aggressively than a municipality with a cushion.
The second channel is incentives. Act 60 decrees carry a 50% patente exemption for qualifying export services and manufacturing operations, and municipalities have discretion to go further. That discretion costs money a strained municipality does not have.
For a company negotiating a package, the counterparty’s fund balance is a reasonable predictor of how much flexibility it can offer.
Third is permitting and services. Municipalities with approved territorial ordinance plans exercise their own permitting authority, making the municipality, not just the central government’s permitting office, a determinant of how quickly a project moves.
Road maintenance, drainage, garbage collection and municipal police all come out of the same general fund the Index measures. When that fund is depleted, service levels are usually where the adjustment shows up first.
Fourth is resilience. ABRE’s own description of the Unsustainable category is that these municipalities face persistent deficits, declining fund balances, negative year-end balances and deteriorating net assets, conditions that limit their ability to maintain services, invest in infrastructure or respond to economic shocks.
On an island where hurricane recovery is a recurring operational reality, a municipality’s capacity to respond is a business continuity variable.
The broader deterioration
Beyond the 43% operating-deficit figure, the Index documents several trends worth tracking. Nearly one in four municipalities, 23%, saw general fund balances decline, more than double the 11% recorded in 2023. Eighteen percent ended the year with negative general fund balances, continuing a three-year trend. And 7% saw decreases in net assets, compared with just 1% the year before.
Four municipalities, Camuy, Guánica, Ciales and Villalba, could not be evaluated at all because they had not published their 2023 audited financial statements. For a company conducting due diligence, an entity that cannot produce audited financials is its own kind of finding.
ABRE Puerto Rico executive director Ángel Sierra framed the results as a call for discipline rather than alarm. “The results alert us to areas that require attention to ensure that improvements can be sustained,” Sierra said. “Fiscal transparency gives citizens and governments better tools to propose, design, and execute solutions.”
Where the picture improved
The Index is not uniformly negative, and the improvements matter to businesses for the same reasons the deterioration does. Municipalities continued reducing their dependence on central government transfers: only 4% received more than 40% of general fund revenues from the central government, down from 7% in 2023. Debt management also improved, with just 4% allocating more than 15% of general fund revenues to debt service, down from 6%.
Eleven municipalities improved their classifications: Cayey, Barranquitas, Patillas, Fajardo, Vieques, Luquillo, Manatí, Hatillo, Ponce, Juana Díaz and Gurabo. Barranquitas and Vieques advanced from Average to Exceptional, while Cayey, Fajardo and Hatillo moved from Healthy to Exceptional. Patillas posted the sharpest turnaround, rising from Unsustainable to Average.
For the second consecutive year, Aibonito ranked first overall, followed by Utuado, Culebra, Barranquitas, Vieques, Fajardo, Cayey and Hatillo, all rated Exceptional. Cataño and Lares completed the top ten with Healthy ratings.
Of the 74 municipalities with available financial statements, eight achieved Exceptional performance, 13 were rated Healthy, 21 Average, 22 Deficient and 10 Unsustainable. In total, 57% fell within the Average, Healthy or Exceptional categories.
