PEC dos Precatório benefits defaulting states and municipalities in R$ 143.5 billion

At the end of 2020, Brazilian states and municipalities had accumulated judicial debts related to court-ordered debts of R$ 143.5 billion, according to data from the CNJ (National Council of Justice). Some of them have been in default for over a decade.

The amount owed and not paid may multiply in the next few years if Congress approves the default provided for in the PEC on Precatório, which allows the Union and other governments currently in compliance to postpone these payments.

The numbers from the Annual Map of the CNJ Precatório show a balance of R$ 194.7 billion pending payment in all spheres of government, including amounts that should have been paid up to that year and those sent to be paid after 2021.

The map also shows the value of R$ 16.7 billion for the Labor Court and R$ 12 billion for the INSS.

There are now two payment schemes. The Federal Government and other non-defaulting entities are in the general regime, which provides that court orders issued by the presidents of courts by July 1st of one year must be paid in the following year.

The Federal District, 24 states and 1,626 municipalities have been under a special regime since 2009, which has been extended and currently allows for payment of overdue debts until 2029. Only Espírito Santo and Alagoas were not on the list of debtor states.

According to the CNJ, the debt of the special regime amounted to R$91 billion in the states and R$52.5 billion in the municipalities, a total default of R$143.5 billion.

The PEC will add at least R$ 45 billion to this balance in 2022, which are federal court orders that will not be paid next year, due to the ceiling that will be created to pay off these debts.

Of the total amount at the end of 2020, considering overdue debts and those within the payment schedule, BRL 91.3 billion are at the state level, with BRL 29.2 billion in São Paulo and BRL 15.6 billion in Rio Grande southern.

There are also BRL 60.2 billion at the municipal level (BRL 19.5 billion in the capital of São Paulo alone) and BRL 43.2 billion at the federal level.

Precatório are payment requests issued by the Judiciary to collect from municipalities, states or the Union, as well as from autarchies and foundations, amounts due after final court conviction.

Payment is provided for in the Constitution, but the National Congress has already made several changes to the text to postpone the receipt of these debts. The Federal Council of the OAB (Ordem dos Advogados do Brasil) lists at least five moratoria since 1988, including the special regime. The last of them hitched a ride on the PEC Emergencial, enacted in March of this year.

Eduardo Gouvêa, president of the National OAB’s Precatory Commission, says that many government officials worked systematically so that these debts were not paid. He predicts the increase in defaults with the PEC.

“The proof that precatório is not a money problem is that the state and municipality of São Paulo are the two richest entities in the nation and the biggest debtors of precatório, because they worked their entire lives not to pay. Many small municipalities pay absolutely. up to date. The capital of Rio de Janeiro has also been up to date for decades,” says Gouvêa.

“The PEC will indiscriminately affect the Union, states and municipalities”, says also lawyer José Luis Wagner, who works in the area and foresees an increase in defaults among all entities.

Data from the state of São Paulo, the country’s largest debtor of court orders, show an accumulated outstanding amount of R$ 26.6 billion up to August 2021. Of this total, 77% refer to food court orders, related to salaries and social security benefits, by example. In total, there are 84,300 court orders, with almost 60,000 issued from 2020 (98% of them food). There are debts prior to 2008.

In São Paulo, according to the Attorney General’s Office, the stock is at R$ 22 billion. Since 2017, more than R$9.7 billion have been paid. All people over 60 years old or who have disabilities or serious illnesses with court orders issued by the 2021 budget received all or part of the amounts. This year’s program for cash payments, with a discount of 25% to 40%, to settle debts since 2003, received 2,403 proposals, of which nearly R$ 800 million have already been paid by the Court of Justice.

Rio Grande do Sul, the third largest debtor, estimates an inventory of BRL 16.5 billion at the end of this year, with payment forecast at BRL 2.1 billion in 2022, more than half via offsetting or discount agreement. According to the plan presented this year by the government of Rio Grande do Sul to try to reduce this queue, in the last two years, the amount paid out exceeded new enrollments.