Saturday, December 16, 2017

Fiscal board wants more control over Puerto Rico’s budget

By on December 5, 2017

SAN JUAN – The fiscal control board said Tuesday that it intends to approve the entire consolidated budget of the Government of Puerto Rico and its instrumentalities this coming fiscal year.

This differs from what the panel did last summer with the current spending plan, when it only certified the general fund portion, or about $9.562 billion. The consolidated budget, which currently totals $25.678 billion, includes local and federal funds and other appropriations for the government and some 125 public agencies.

“[The board] is also aware that there may be certain legal, political and technological obstacles the Government will need to address to impact the feasibility of approving the entire Consolidated Budget and all instrumentality budgets in FY19 [fiscal year 2019],” reads the presentation given by Fiscal and Implementation Director Miguel Tulla during the panel’s 11th public meeting, which it held in New York.

The board official explained that the general fund excludes agencies with their own checkbooks as well as entities that historically run cash deficits and depend on contributions or money from the central government. In summary, the board seeks to expand the scope of control over the budget to include the funds and spending of the entire government in its oversight.

Natalie Jaresko, executive director of the fiscal board (Juan J. Rodríguez / CB)

The government’s representative to the board, Christian Sobrino, asked the panel to incorporate Section 204(d) of the Promesa law to the new budget-revision protocol. The section establishes that the board cannot take actions that affect government compliance with certain processes under federal programs. Chairman José Carrión said the board’s counsel will review Sobrino’s recommendation.

Aware of the matter’s complexity, Tulla said the preparation of the next budget began on time, detailing an action plan that starts as early as this month. The practice in recent years by administrations of the main political parties has been to present the budget before the Legislature between March and April, and to approve it on or before the start of the fiscal year every July 1.

This time, along with a draft of the new fiscal plan, the government will submit an inventory of all government agencies, corporations and funds by Dec. 22.

On Jan. 15, the administration must submit the estimated revenue from each public entity. A month later, the board will send to La Fortaleza and the Legislature the official revenue projections for the preparation of the spending plans, for which the government must deliver drafts by March 1.

After reviewing the proposed budgets, the board will deliver its version to lawmakers by April 30 for due legislative process. The board will then receive the approved bill, re-evaluate it and finally approve a spending plan for the government and its instrumentalities by June 30. The budgets must comply with the applicable fiscal plans and all expenses must be duly justified.

This process likewise applies to Puerto Rico’s Electric Power (Prepa) and Aqueduct & Sewer (Prasa) authorities. Other covered entities, and with their own fiscal plans, such as the Highways & Transportation Authority, the Government Development Bank and the Cooperatives Supervision & Insurance Corp. (Cossec by its Spanish acronym), have different delivery dates.

Fiscal plan revisions ‘on track’

Although the board and the government acknowledge there is much uncertainty regarding important components, both reiterated Tuesday that they hope to have drafts of the new fiscal plans for the central government, Prepa and Prasa ready by Dec. 22

Board Executive Director Natalie Jaresko presented some of the new parameters for the government’s fiscal plan, such as covering five fiscal years and tempering it to the island’s “new reality” after hurricanes Irma and María.

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Likewise, given the uncertainty about the final amount of funds Congress would allocate to the island for recovery efforts as well as the effects of the federal tax reform on the economy of Puerto Rico, the fiscal plan must establish different scenarios with regard federal recovery funding, including one assuming no additional support beyond what is established by law. It should also include post-María metrics and information on recovery and reconstruction efforts.

When asked by a journalist, the chairman admitted that until there is clarity about the recovery funding for the island and the final projections under the new fiscal plan, the board has yet to determine how it will act with respect to the debt’s restructuring.

However, both Jaresko and Aafaf’s Portela were confident a draft fiscal plan could be presented by Dec. 22. Sobrino added that the government and the board already agree on most of the macroeconomic projections. So far, there has been talk of an up to 10% population loss in the short-term and a revenue drop that could exceed 25% at the end of the fiscal year.

The government’s new fiscal plan should achieve a structural balance between its revenues and expenditure by fiscal year 2022, as well as include an analysis of Puerto Rico’s long-term ability to pay debt-related obligations.

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As for structural reforms, which Jaresko said “play a critical role,” the same used for the previous fiscal plan should thread the new one: reforms in favor of the private sector, including reducing employment costs; changes in social welfare programs; attracting foreign investment; more flexible permitting; reducing the cost of energy; tax reform at the corporate level; greater competition in the market; among others.

“These six pillars, when combined, can drive change for the Puerto Rico economy,” said Jaresko, who compared similar reforms in countries such as the Dominican Republic, Mexico, Italy, the United States, Mauritius and Ukraine, where she served as finance minister.

Members Andrew Biggs, Carlos García, Arthur González, Ana Matosantos and David Skeel attended the board meeting, along with Carrión, Sobrino and Jaresko. Member José R. González was absent.

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