Friday, November 24, 2017

[Editorial] The Man With a Plan?

By on March 9, 2017

editorial-philipe-schoeneIf Gov. Ricardo Rosselló truly has a plan to put Puerto Rico on a path to growth, this newspaper would like to see it because the Fiscal Plan he presented is really just a nice little booklet of charts and graphs that—simply stated—does not contain the supporting data or exact strategies it seeks. When the board said it would design the room and the governor could arrange the furniture, they were expecting more than a ceiling fan to blow hot air.

In one initiative after another, the plan talks about ballpark figures without true supporting data. For instance, the plan suggests overhauling Puerto Rico’s model of managed care under Mi Salud with enhanced competition among insurers and replacement of the profit-sharing clause in the contract with managed care organizations to implement a medical loss ratio (MLR) of 92%, reducing profit by 2% of premiums that now allows 2.5% profit. Net impact? $ 0.11 billion in fiscal-year 2019. Based on? The Standard Deviation of ITYS—I Told You So. The board will want to see the supporting data on all fronts.

ceiling fanIn the area of tax collection, the plan promises to transform and improve revenue collections by implementing point-of-sales collections of the 11.5% sales & use tax. While this is a technology that is readily available—not pie-in-the-sky revamping of a system—there are no specifics on how the many terminals will be overhauled nor is there mention of the money that would be collected at each one of these. Yet a figure of $37 billion in revenue is listed as the 2019 impact of these measures.

In the discussion of structural reforms to enhance corporate tax revenues, there is mention of a substitute for the excise tax under Act 154 that includes several alternatives, among which are: a modified version of the income source rule, increasing income tax rates on exempted income and withholding income taxes on profit distributions, which would have an impact of $1.04 billion in 2019. There is a caveat in the initiatives that reads: “will include the following or a combination thereof.” 

¿Como?

Sources close to the board say that reactions inside the Trump administration and the Republican-led Congress range from head scratching to outright frustration. It is highly likely that some rather extreme actions will be coming down the pike—such as taking over the negotiations with Prepa, the Puerto Rico Electric Power Authority.

The board wants the raw data and the calculations that led to the financial assumptions. There is a yawning gulf between the projections of economic contraction in 2017 forecast by the board and Puerto Rico’s restructuring brigades—the Rosselló administration put out projections of negative growth of some 1.2% while the junta’s economists calculate 17% contraction. The Rosselló administration and some of the government’s advisers simply do not believe the oversight board’s apocalyptic projections because it simply cannot be true.

This newspaper knows the control board did some number crunching under the watchful eyes of fellow member Ana Matosantos—from what we understand she Matosantos and she Matodiablos también. According to a source with knowledge of the board’s day-to-day operations, Matosantos is a stickler for detail and does not take projections lightly.

If the Rosselló administration is trying to ease austerity to soften economic contraction, it must do so with hard data and credible numbers underpinning their assumptions.

On the job-creation front, there is a very pretty slide that forecasts some 100,443 new jobs, using such projects as the Aguirre Offshore GasPort with a total investment of $796 million (17,901 jobs across 10 years). The trouble is that energy experts see the total investment in that project at somewhere between $200 million and $440 million. It is correct to build infrastructure to create jobs. But you need real net job growth, not Jiffy Pop numbers—por acto de magia.

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