In October, the National Treasury paid R$955.68 million in late state debts. Of this total, the majority, R$473.39 million, is related to late payments by the government of the state of Rio de Janeiro. Next came the payment of debts of R$334.58 million from Minas Gerais and R$74.03 million from Rio Grande do Sul.
Last month, the Union also covered R$73.82 million in debts from Goiás and R$100,000 from Acre. In October, the federal government honored R$70,000 in late debts from the municipality of Santanópolis (BA).
The data is in the Report on Guarantees Honored by the Union in Credit Operations, released this Thursday (28) by the National Treasury Secretariat. Guarantees are executed by the federal government when a state or municipality defaults on a credit operation. In this case, the Treasury covers the default, but withholds transfers from the Union to the debtor entity until the difference is paid, charging a fine and interest.
In the year to date, the Union paid off R$8.421 billion in outstanding debts from subnational entities. Of this total, R$3.548 billion went to the state of Rio de Janeiro, R$2.939 billion to Minas Gerais, R$1.182 billion to Rio Grande do Sul, R$753.22 million to Goiás and R$100 thousand to Acre. In 2024, the National Treasury honored R$59.85 million from three municipalities: Taubaté (SP), with R$35.17 million; São José dos Campos (SP), with R$24.41 million; and Santanópolis (BA), with R$270 thousand.
Decrease
The number of states with outstanding debts covered by the Treasury fell in 2024. In 2023, in addition to the states above, the Union honored guarantees from Maranhão, Pernambuco, Piauí and Espírito Santo.
The guarantees honored by the Treasury are deducted from the Union’s transfers to federated entities – such as revenues from participation funds and Tax on Circulation of Goods and Services (ICMS), among others. Overdue obligations are subject to interest, late payments and other operational costs relating to the period between the due date of the debt and the effective honoring of the amounts by the Union.
Tax Recovery Regime
In recent years, decisions by the Federal Supreme Court (STF) prevented the execution of counter-guarantees from several states in financial difficulty. Subsequently, the Court mediated negotiations for the inclusion or continuity of state governments in the fiscal recovery regime (RRF), which provides for the installments and staggering of debts with the Union in exchange for a spending adjustment plan. In recent years, Goiás, Rio de Janeiro and Rio Grande do Sul have signed agreements with the federal government.
At the beginning of the covid-19 pandemic, the Court granted an injunction to suspend the execution of guarantees in several states. Some counter-guarantees in Minas Gerais were also not executed due to injunctions granted by the Supreme Court.
With the adhesion of the state of Rio de Janeiro to the RRF, at the end of 2017, the state was able to contract new credit operations with a guarantee from the Union, even though it was in default. At the end of 2020, minister Luiz Fux, from the STF granted an injunction keeping Rio de Janeiro in the tax recovery regime. In June last year, the state, in an agreement mediated by the STF, concluded negotiations with the Union to continue in the RRF.
Also in June 2022, Rio Grande do Sul reached an agreement with the Union and had the tax recovery plan approved. The plan allows the state to repay, in a phased manner, the debt owed to the Union, the payment of which had been suspended by an injunction from the Federal Supreme Court since July 2017. In exchange, the government of Rio Grande do Sul must execute a fiscal adjustment program that provides privatizations and reforms to reduce local spending.
Because of the floods in the state, in May, the Union suspended debt payment for 36 months. In addition, the interest that corrects the debt annually, around 4% per year plus inflation, will be forgiven for the same period. The state’s debt with the Union is currently around R$100 billion and, with the suspension of installments, the state will have R$11 billion to be used in reconstruction actions.
In May 2020, the STF authorized the government of Goiás to adhere to the fiscal recovery package in exchange for the adoption of a state spending cap. In December 2021, Goiás signed adhesion to the RRF, which allows the suspension of debt payments with the Union in exchange for a spending adjustment plan.
Minas Gerais
The last state to join the RRF was Minas Gerais, after an agreement with the Union approved at the end of August by Minister Nunes Marques, of the STF. The agreement established the resumption of payments of tax debt installments from October 1st.
The state has a period of six months, from the publication of the decision, to adopt structural measures to cut costs, in accordance with the requirements set out in the complementary law that created the RRF, and must present a schedule.
The Union is authorized to issue the contract with the sending of the consolidated value of the portion of the mining debt and the commitment signed by the state to comply with all obligations and inspections arising from the RRF.
In April this year, Nunes Marques extended the deadline by 90 days for the state to pay its debts with the Union. In July, the Supreme summoned governor Romeu Zema and the president of the Senate, Rodrigo Pacheco (PSD-MG), explaining the fiscal situation of the state, whose debt is around R$165 billion.
The Legislative Assembly of Minas approved, in July, a state RRF bill in the first round. Even without voting in the second round, the state joined the regime after the approval of the agreement with the Union in the STF, issuing a decree that froze the salaries and careers of public servants and suspended the holding of competitions.
