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Jaresko denies spending cuts in proposed general fund budget for fiscal 2021

By on June 16, 2020

Natalie Jaresko, executive director of the Puerto Rico Financial Oversight & Management Board

Says funding shifted according to program needs; acknowledges differences with gov’s budget, which is $169 million greater

SAN JUAN – Puerto Rico Financial Oversight & Management Board (FOMB) Executive Director Natalie Jaresko denied Tuesday that the oversight board’s certified general fund budget for upcoming fiscal year 2021 included any spending cuts, stressing that proposed funding was shifted between departments and programs according to their use and need.

The oversight board’s certified general fund budget of $10.05 billion for fiscal year 2021, beginning July 1, is actually 11 percent greater than the current general fund budget of $9.05 billion for current fiscal year 2020, ending June 30. FOMB’s certified proposed consolidated budget, which includes special revenues and federal funding, is $23 billion for fiscal 2021, an increase of 15 percent over the $20 billion during the current fiscal year.

During a teleconference with reporters, Jaresko acknowledged that the proposed greater budget spending, which she said was made possible by FOMB’s implemented fiscal plan measures, is partly a response “to the need for fiscal stimulus and economic growth drivers during this economic crisis.”

However, she said that the oversight board’s proposed general fund budget is $169 million less than Gov. Wanda Vázquez Garced’s general fund budget proposal of $10.21 billion. The governor will present her budget proposal to the Puerto Rico Legislative Assembly during her State of Puerto Rico Address on Thursday at the Luis A. Ferré Performing Arts Center.

“We put a hold on all rightsizing measures to enable a full year of focus and real change rather than focusing on budgetary adjustments,” Jaresko told reporters. “Some of the news media have reported that the oversight board did make cuts to some departments. Let me be clear, there is no rightsizing in the budget. There are reasons for some of the budgets that were decreased. They are actually based, to a large extent, on either other spending in previous years or consolidation [of agencies].”

The FOMB executive director attributed the $2.9 million proposed budget cut for the Forensics Sciences Institute (FSI) to the entity’s administrative consolidation into the Department of Public Safety and unused payroll funding shifted to another program. She explained that $1.3 million of this amount was shifted to “back office” consolidation at the department, while another $1.6 million was reassigned to emergency medical services. Even with these changes, she noted that $1.3 million was budgeted for hiring to cover 44 positions FSI is expected to fill in the upcoming fiscal year, she said.

Jaresko attributed the $34 million reduction in the Office of Management & Budget to the agency’s shifting of information technology responsibilities to the Puerto Rico Innovation & Technology Service (PRITS), which was created last year.  

The proposed reduction in funding to the Puerto Rico Health Insurance Services Administration (ASES by its Spanish acronym), which runs the program covering the island’s medically indigent population, is due to a $579 million increase in federal Medicaid funding approved in December, she said, noting that the saved money is being “reinvested” in other healthcare programs.

All in all, the oversight board is proposing $266 million in incremental agency spending Jaresko said, noting that $306 million was allotted to capital expenditures for different agencies, including $76 million for the Transportation & Public Works Department, $27 million for the Police Department, and $30 million for innovation and technology.

A combined 60 percent of the $10.05 billion general fund budget was allocated to education, health care and pensions, while another 11 percent was assigned to economic development, she said.

“There are no incremental budget savings to be achieved [in fiscal year 2021],” she said. “The government needs to focus all of its efforts in fiscal 2021 on real change so we can get the government to provide better and more efficient services to the people of Puerto Rico.”

Moreover, Jaresko explained some of the main budget items in which the oversight board’s and the governor’s budget proposals differ. As with past budget proposals, the oversight board left out incremental funding for payment of the Christmas bonus to public employees, she said, stressing that if the government wishes to pay the bonus it must take it out of the payroll allotment.

The oversight board excluded the governor’s proposed $83 million in spending for insurance to cover central government and public corporation property, Jaresko said, noting that FOMB is concerned about duplication of coverage.

Another budget item involves the governor’s proposal to increase pay for certain government job classifications under the Single Employer Act of 2017. The oversight board maintains that any salary increases must be accompanied by reforms in public administration and human resource, which have yet to occur, Jaresko said.

Funding for the state-owned broadcaster, WIPR, has not been set aside in the oversight board’s budget plan, the FOMB chief said, adding, nonetheless, that there was “an agreement” to assign $7.5 million if lawmakers approve legislation to turn the station over to a “nonprofit or private-sector status before the budget is adopted.”

The governor also requested a $15 million increase for the State Elections Commission, but the oversight board maintains that the agency’s current budget is sufficient to hold this year’s primaries and general election, Jaresko said.

The FOMB chief was asked about the six lawsuits the Vázquez administration filed in U.S District Court against the oversight board on Friday regarding the board’s challenge to recently enacted laws covering medication practices, vacation and sick leave, a salary increase for employees of the Firefighter’s Bureau, and tax incentives for health professionals.

In his testimony before a congressional panel last week, Omar J. Marrero, executive director of the Fiscal Agency and Financial Advisory Authority (Aafaf by its Spanish acronym) and the governor’s non-voting representative on the oversight board, called on Congress to amend the Puerto Rico Oversight, Management and Economic Stability Act (Promesa), which created FOMB, to limit the board’s authority to determine commonwealth public policy priorities.

“Our lawyers are reviewing the complaint,” Jaresko said. “The only thing I could say at this point is that the government has repeatedly tried to redefine and limit the oversight board’s authority and narrow its mandate under Promesa. We have litigated this issue four times already, and in all four of those cases since 2018, the court agreed on the clarity and the authority Promesa has provided to the board. We are hopeful that we will get through this and put the issue to rest once and for all.”

Nonetheless, Jaresko seemed to play down the apparent increasing friction between the government and the board since Gov. Vázquez was sworn into office in August after former Gov. Ricardo Rosselló’s resignation nearly a year ago. Many of the laws being challenged by the oversight board were signed by Rosselló.

“The board is working to be very collaborative with the governor. I meet with the governor every two weeks. I meet with the governor’s representative and have conversations with him much more often than that,” she said, stressing that the neither the litigation nor the board’s public notices should be interpreted as “anything other than a sign of everyone doing their job.”

She added: “The fact that we have differences of opinion is natural when an oversight entity is doing oversight over a government.”

In fact, Jaresko defended the oversight board’s work, crediting its fiscal policies for creating a budget surplus that could be used this year to face the earthquakes and Covid-19 epidemic emergencies – which she contrasted to the lack of local funds to provide quick relief to victims of hurricanes Irma and Maria in 2017.

 “Unlike other governments, Puerto Rico was not forced to respond to lost revenues due to the pandemic with urgent and drastic cuts to its expenditures for essential services. In fact, next year’s budget will be higher than the current budget, unlike the other states,” she said. “The oversight board’s fiscal plan and budgeting discipline, in cooperation with the government, helped the island be more resilient and responsive to crises. We were not stuck, like after Hurricane Maria, with waiting for federal support or federal disaster declaration. We were able to dip into our $160 million emergency reserve during the earthquakes, during the Covid-19 pandemic. We were actually able to invest in fiscal stimulus with the $787 million package during the crisis.”

However, Jaresko said that debt restructuring and balanced budgets alone “are, unfortunately, not enough to return to prosperity,” saying that the government of Puerto Rico needs to implement structural reforms, many of which the government has avoided, she noted.

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