Public trust

What is a public trust?

The public trust in Mexico it encompasses contracts in which the Mexican State transmits a good or a public right to another party for a specific purpose. Public property passes from the federal government or municipalities to other subjects who have the obligation to give it a specific use..

This objective of the public trust must be lawful and, above all, in the public interest. It is intended to improve economic and social development through the management of public resources by third parties. For years only the Ministry of Finance and Public Credit (SHCP) had the power to carry out public trusts.

This changed when the Federal Budget and Fiscal Responsibility Law was drafted. In this legislation it was established that the SHCP would act as sole settlor of the Centralized Public Administration.

In this way, the Judiciary, the autonomous constitutional bodies and the chambers of senators and deputies can establish themselves as trustees and carry out public trusts with assets that come from authorized budgets..

What is the public trust for?

It is a public tool that serves to carry out key projects of great importance for development areas considered priority, granting resources to entities that have the technology and infrastructure necessary to carry them out successfully..

Public trusts can be used to:

• Allocate certain resources and public goods for specific purposes.
• Form a different organization with an assigned patrimony that functions independently of the public entity.
• Provide legal support to the objects of the trust so that they are managed independently and oriented to fulfill their purpose.

Despite its obvious benefits, the public trust cannot be seen as the panacea that solves all the deficiencies of the public entity..

It should be understood as one more instrument when it is verified that it is the best alternative to achieve the objective of social benefit.

Non-parastatal public trusts

They are different from other public trusts, since they do not have a clear structure or an internal organization to manage them.

That is why these trusts must be controlled, due to the risk they pose due to their lack of transparency. Their management and regulations depend on their constitution as an entity, which makes them vulnerable to fraud or misuse..

Elements of the public trust

There are several elements that make up the public trust and it is essential to understand what the performance of each of these is:

Contract

Like any official document, trusts are made through a public deed in which the particularities of the same and the regulations that will govern it are reflected..

Personal items

Refers to the parts of the trust; that is, individual or legal persons involved in the public deed of the trust:

Settlor

It refers to the body or public entity that grants the goods to another subject, by transmission, for a specific purpose.

Trust

It refers to the subject determined by the settlor to manage the property that is the subject of the same in a defined way. Usually a credit institution.

Trustee

It refers to the subject who is benefited by the trust. Generally it is a social benefit, not to a particular person.

Aims or objectives

It refers to the objective of the transfer of assets through the public trust. Normally, it is about promoting economic and social development through the management of public funds administered by the trustee..

What is sought is to give continuity to public projects that are oriented to social benefit.

Trust equity

It refers to the assets and rights that pass from the settlor to the trustee and that are oriented to a certain objective.

How does the public trust work?

For its correct operation, the formation of a technical committee is essential, which was already determined by the Mexican trust regulations since 1941 and which is maintained today. In terms of its infrastructure and functions, the technical committee is similar to the supervisory and public administration councils..

The trustee can be directly in charge of carrying out the object of the public trust; however, you often have other specialists to do it. In this way, efficiency and performance is increased by state supervision..

As a guarantee of correctness in public trusts, the hiring of external audits is mandatory. In addition, the settlor has the option of controlling the trusts himself through an internal audit..

This is advantageous because it allows you to make a comparison and quantify results. The corresponding public body can compare between the results of the public trust and those of the state entities, thus checking where the points to optimize are to ensure better efficiency and performance..

The Ministry of Public Finance also has different obligations in relation to public trusts:

• Take charge of its creation in one of the credit institutions.
• Establish the regulations and the necessary resources for its operation, as well as the control mechanisms.
• Inform when required about the trusts according to their knowledge.

What types of public trusts exist?

There are two initial characteristics, by which they can be grouped into:

• The purpose for which they were created (public administration trust, public investment trust, public guarantee trust).
• The mode of financing (refundable, non-refundable or mixed).

Examples of public trusts

These are some examples of public trusts in different areas:

• Public trust destined to finance public works for housing, educational centers, hospitals.
• Public trust destined to finance agricultural development through the purchase of machinery and tools.
• Public trust destined to finance a scholarship program for higher studies in state universities.
• Public trust for the recovery of infrastructure in areas affected by natural disasters (floods, earthquakes, hurricanes, among others).
• Public trust to finance programs against organized crime through the purchase of equipment and weapons resources for law enforcement agencies.
• Public trust destined to finance social benefit programs, such as medical expenses, retirement payments, pension payments, etc..
• Public trust destined to finance programs to promote investment in depressed areas of the country.

References

1. Management report. Public trusts. Haciendachiapasgob.mex
2. José Luis Flores Hernandez. (2005) Public trusts. Center for studies of public finance.
3. Juan José Martínez Ortiz. (2014) The trust in the public sector: mechanism to improve management.
4. Olivier Moreateau (2011) Public trust.
5. The ABCs of Public Trusts. Public trust.