Monday, June 26, 2017

Puerto Rico fiscal board urges governor to define ‘essential services’

By on June 16, 2017

SAN JUAN – The chairman of Puerto Rico’s fiscal control board, José Carrión, sent a letter Friday to Gov. Ricardo Rosselló in which he once again urges the administration to “make and communicate as soon as possible the necessary public policy determinations” with respect to what constitutes “essential services” under the federal Promesa law.

In the letter—which reflects a change of tone compared with the others—Carrión further says he is concerned about some recent public statements by the Rosselló administration in relation to the government’s fiscal management. He further adds that “the necessary resolve to attain goals set forth in the certified fiscal plan may be waning.”

“It is equally of concern that some of the narrative taking hold in the public discourse fails to  characterize adequately the truly dire fiscal situation the commonwealth is facing,” reads the document, which adds that people in Puerto Rico may be underestimating the impact of upcoming austerity measures.

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The governor’s representative to the board, Elías Sánchez, said in a statement that the government is aware of the island’s critical fiscal situation, while adding the administration holds meetings “almost daily” with board advisers in which they present them with information related to the budget and the implementation of fiscal measures.

Specifically, Carrión points to recent discussion over the government employees furlough program and the elimination of the Christmas bonus. He warns that in order to avoid these measures, the government must not only have a cash reserve of $200 million by June 30, but also deliver a plan on how the government will achieve the estimated savings and right-sizing measures contemplated in the fiscal plan.

He further emphasizes that the budget that is finally approved by the Legislature and the governor’s office must reflect the necessary changes so the spending plan is fully aligned with the implementation of measures that ensure its compatibility with the commonwealth’s fiscal plan.

On the issue of essential services, the fiscal board chairman warns that the commonwealth’s next budget must ensure payment of essential services and pension benefits, investment to foster economic development and other priorities under federal law.

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If fiscal measures are poorly executed or inadequate, “Puerto Rico is all but certain to run out of money to fund the central government’s payroll come November or December of this year,” Carrión says.

For his part, Sánchez said that the Rosselló administration “feels confident” that it will meet the board’s requirements without the need “of measures that will only serve to affect even more our already battered economy.”

According to the board’s resolution adopted March 13, the plan to implement measures under the fiscal plan should have been submitted by April 30, together with the governor’s first budget version and the updated liquidity plan. However, it is unclear whether the administration has delivered this document.

Likewise, the letter adds that “modest improvements in liquidity don’t change the reality of the island’s fiscal situation,” in reference to recent liquidity estimates that point to more than $1.1 billion in available cash by the end of the current fiscal year, or June 30.

Yet this money would help finance the government’s operations during the first months of the fiscal year, when it experiences a greater need for cash. During the first half of each fiscal year, the commonwealth stops receiving sales tax money pledged to the Sales Tax Financing Corp. (Cofina by its Spanish acronym)—money that usually begins to flow to the general fund halfway through the fiscal year. What’s more, the commonwealth has no access to short-term notes, or TRANs, which in the past have helped alleviate the commonwealth’s cash needs during the first half of the fiscal year.

Called to improve the flow of information

Carrión also asks the government in his letter to improve the delivery of financial reports by establishing more appropriate, consistent and reliable protocols.

“Transparency is a guiding principle specifically mandated by Promesa. It is also, I know, a guiding principle of the governor’s administration. Let’s make sure that, together, we deliver to all interested parties, stakeholders and, most importantly, the people of Puerto Rico the accurate and timely financial information they deserve and have every right to expect,” reads the letter.

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