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Fiscal board to send lawmakers its own version of Puerto Rico’s budget

By on May 28, 2019

Fiscal board Executive Director Natalie Jaresko (Screen capture)

Makes cuts to education, municipal funds and State Elections Commission

SAN JUAN — Puerto Rico’s Financial Oversight and Management Board said Tuesday it would submit its own version of the island’s fiscal year 2020 budget to the island’s legislature after it was unable to reach an agreement with the government on its contents. It totals $9.1 billion.

The board’s move comes after it rejected a government request for an extension until May 31 to present a detailed and compliant budget. Last year, the board also submitted its own budget to the legislature. The current budget, which ends June 30, is of $8.7 billion.

“We conducted a comprehensive and in-depth review…. That budget that the government delivered to the board was incomplete and not compliant with the specified targets of the fiscal plan,” board Executive Director Natalie Jaresko said.

The government’s budget, for instance, was $571 million higher than the board’s. The $571 million cut made by the fiscal panel was slated to fund municipalities ($286 million), the State Elections Commission ($25 million) and the Education Department ($262 million). The rest of the budget, she said, is the same as the governor’s.

The federally established entity was submitting to lawmakers a general fund budget Tuesday evening that does not include special revenues, or $3.5 billion the government makes through fees, traffic fines and services. The combined general fund and special revenue funds total $12.6 billion.

Many entities receive money from both funds, such as the Comprehensive Cancer Research Center, which receives $8 million from the general fund and $27 million in special revenues. A third element in the overall budget is about $6 billion in federal funds that are not disaster-related relief.

The new budget cuts funding to the State Elections Commission, which will be running primaries next year. The new spending plan also does not allocate funding for the payment of the statutory year-end pay for public workers, known as Christmas bonuses. The Puerto Rico Oversight, Management and Economic Stability Act (Promesa) “preempts local law,” Jaresko said about the matter.

Jaresko stressed that a majority of the funds will go to pay pensions and the priority or essential areas of healthcare, education and public safety.

About 22.1% of the $9.1 billion budget, or almost $2 billion, will go to the PayGo program to pay pensions. About $1.9 billion, or 21.6%, will to education, including $560 million to the University of Puerto Rico and $14 million for teacher salary increases.

About $1 billion, or 11.4%, will go to public safety, and 14.3%, or $1.2 billion, to healthcare, including $917 million to the Health Insurance Administration (ASES by its Spanish acronym).

The legislature has until June 10 to send its approved budget to the board, which in turn has until June 14 to certify it or notify if deemed noncompliant with the fiscal plan.

The goal of the budget is not only to comply with Promesa’s goal of fiscal responsibility but also to reflect the “very high possibility” the government will start servicing the public debt next year, Jaresko said.

The spending plan also took into account changes in demographics and the need to consolidate, eliminate redundancy as well as increase efficiency at agencies.

“The government does indeed generate a surplus. We are not spending everything…. As soon as next year, some of that restructured debt will have to be serviced,” she said.

Jaresko also said the surplus expected needs to be used in upcoming years to fund future deficits. Even if the government does everything contained in the fiscal plan, Jaresko said there is a projected deficit by 2037. If the government does not carry out any of the structural reforms in the plan, the deficit is expected to be reflected by 2031.

Although the legislature has sided with the governor’s budget, Jaresko said she expects lawmakers’ collaboration in making its own changes but approving the board’s overall budget. She noted that contrary to the previous fiscal year, the board’s budget will have a higher level of “granularity,” or detail.

“It is a collaborative process,” she said, while noting, however, that she believes the board has the authority to go into the details or line items of the budget.

Regarding the $25 million cut to the State Elections Commission—despite the 2020 primaries—Jaresko said that while voting is important, it needs to be done with more technology and efficiency. The $286 million for municipalities was aimed at paying for their PayGo pension and ASES portions, but Jaresko said the amount is closer to $330 million. Although the board cuts the governor’s budget for education, $14 million is kept for teacher salaries, she stressed.

The budget also contains $340 million in cash subsidies, or funding for agriculture and the rum tax cover-over. The legislature will get $112 million while the island’s courts about $330 million.

The document includes $176 million for fees in the island’s bankruptcy-like proceedings under Title III of Promesa, $163 million in fiscal plan capital expenditures and $130 million to be set aside as an emergency reserve.

Were the government not to comply with the budget, Jaresko said the board will use all of its available authority to ensure compliance.

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