Wednesday, November 30, 2022

House Passes $8.5 Billion Budget for Next Fiscal Year

By on June 21, 2016

The Puerto Rico Capitol building (CB photo/Eduardo San Miguel Tió)

The Puerto Rico Capitol building

SAN JUAN – The House passed Tuesday night an $8.507 billion budget for fiscal year 2017, which is $600 million less than originally proposed by Gov. Alejandro García Padilla.

The budget is around $764 million less than the current adjusted budget of $9.27 billion. La Fortaleza had proposed a $9.1 billion budget for the next fiscal year barely a month ago.

House Treasury Committee Chairman Rafael “Tatito” Hernández said the government is being authorized to spend $8.507 billion through item to item reductions in most entities except for essential services.

The $764 million in adjustments, when compared with the current budget, was made to non-essential services, the renegotiation of the debt with the Government Development Bank and the central government, and with a cut in the payment of general obligations’ principal because that debt is tied to House Bill 2994, which calls for a bond exchange and the non-payment of principal for five years, Hernández said.

H.B. 2994 includes language stipulating that if a creditor reaches an agreement with a government agency to restructure debt, that agreement will be excluded from the debt moratorium law. “We are giving the state and bondholders tools, but at the same time preventing a default,” he told reporters before the vote.

According to documents, the proposed budget earmarks $370 million for the payment of general obligations, $89 million for the payment of interests to the Public Buildings Authority, $10 million for the payment of interests in GDB notes backed by the commonwealth and $1 million to pay for Police Department helicopters that were financed by the General Services Administration.

Regarding the renegotiation of the debt between the GDB and the central government, Hernández explained that he is cutting the debt payment by 40% and financing 60% of that debt for a long-term period. Through H.B. 2962, the GDB’s $4.3 billion debt with the central government is being restructured. Around $2.6 billion will be financed for a period of 35 years, while $1.7 billion was cut. The first payment of the debt, which will be financed at a 5% interest rate, will be for $375 million.

Hernández said $375 million will be provided as credit to the GDB in money to be paid to the Puerto Rico Agricultural Development Administration (ADEA by its Spanish acronym), $25 million; Special Additional Tax (CAE by its Spanish initials) funds given to cities, $115 million; federal funds, $100 million; $35 million for payroll; and $100 million for the debt payment.  

Hernández noted that next fiscal year’s budget earmarks money to pay interest on debt but not principal, “and calls for the creation of a ‘Special Fund for the Payment of Essential Services’ not covered by the shortage in liquidity of $512.4 million, which will be distributed as follows: $396.8 million for healthcare services, safety, education and social welfare; $113.8 million to match federal funds; and $1.8 million for nonprofit groups.” He said money from the fund will go to pay government suppliers.

“If we don’t pay…we would further collapse the economy. Puerto Rico Inc. has to pay its creditors,” he said.

Initially, it was not known whether the budget package, which consists of 11 measures had the votes for approval because three lawmakers were absent.

House Minority Leader Jenniffer González said earlier Tuesday that her New Progressive Party (NPP) delegation was going to support some of the measures but not others.

During her House floor speech, she insisted the budget for next fiscal year was for $9.4 billion, not $8.5 billion, because the majority had not included debt payments and did not make cuts.

She noted that after the elections, the new administration would be stuck with having to make the debt payments for general obligations, especially if a court of law requires it, “and we would lose any legal claims because the truth is the Constitution says general obligations have to be paid. That means the incoming government will be left without money.”

The budget package includes H.B. 2997, which would allow cities to keep certain funds they ordinarily send to the General Fund. These include $86 million in property taxes, $28 million from the Additional Exempt Property Tax; $167 million sent to the Health Insurance Administration and $27 million sent to the Retirement System Administration. The funds will now go directly from the Municipal Revenue Collections Center (CRIM by its Spanish acronym) to cities, which will make payments directly to the entities.

González had said the delegation was going to vote in favor of H.B. 2994 because it was a bipartisan bill, but had reservations about  H.B. 2958, which would take over $25 million from certain agencies for the elections. The delegation voted against the bill that allows the GDB to restructure its debt with the central government because money for the payments was also coming from the rum tax, the room tax and the tax on crude oil.

The NPP delegation also objected to H.B. 2961, which provides for certain allocations to be made according to available resources and not as established by law because the bill goes against agreed upon contracts.  

The budget package includes a bill that would earmark $20 million to the Emergency Fund. Another bill, H.B. 2964, would allow the State Insurance Fund, the Automobile Accident Compensation Fund, and the Temporary Non-Occupational Disability Insurance to buy $400 million as temporary promissory notes or TRANs from the government so agencies can operate.

The distribution of the budget includes $1.6 billion to the Education Department, $709 million to the Police Department, $350 million to the Corrections Department, $317 million to the Family Department, $375 million to the Health Department, $110 million to the Treasury Department, $102 million to the Justice Department, $834 million to the University of Puerto Rico, $360 million to cities, $315 million to the courts, $887 million to the Health Insurance Administration and $1 billion to the Retirement System Administration, among others.

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