Tuesday, November 12, 2019

Oversight board certifies Puerto Rico fiscal plan

By on May 9, 2019

(CB/Jaime Rivera)

Considers raises for teachers, police and firefighters; sees $13.7 billion surplus by 2024

SAN JUAN – The Financial Oversight and Management Board for Puerto Rico approved Thursday a new fiscal plan for the commonwealth at its 16th public meeting, held at the Puerto Rico Convention Center. The plan allocates funding for education, healthcare and public safety while making an incremental 10 percent cut to the government’s professional services spending.

The 2019 fiscal plan, the third approved in two years, reflects more conservative economic projections than in its previous versions, and retains the elimination of the statutory Christmas bonus, which the government said it will pay nonetheless; sets employers’ contribution to health insurance at $125; and requires the government to document and include in its budget how much the credits and preferential agreements it grants to companies and individuals cost the Treasury.

On right, Chairman José Carrión (CB/Jaime Rivera)

“If it is paid [the Christmas bonus check], we will start the process established in Promesa [Puerto Rico Oversight, Management, and Economic Stability Act] and we begin conversations with the government, and we say, ‘Look, too much was spent here; how are you going to replace that money?’ and they will look for the funds, and if they don’t, at the end of the day, the law will allow for us to take that item out from somewhere else,” Chairman José Carrión said.

The plan cuts public workers’ pensions by 10 percent, except for those under the federal poverty threshold, which, “if I recall, [is] $1,000,” Jaresko said. “But that changes each year depending on when the pension policy is implemented through the plan of adjustment. That would be updated based on the federal poverty level.”

Gov. Ricardo Rosselló later tweeted that the government will fight for workers’ pensions and made a “commitment” to retirees that they will not receive “an additional blow” after the past administration implemented Act 3, known as the Retirement Reform.

The plan, however, includes salary raises for the police, teachers and firefighters; and more central government funding for hospitals as well as the public health plan, Vital; further funding for the Forensic Sciences Bureau and for University of Puerto Rico scholarships.

In education funding, the plan includes a $14 million increase for public school teachers and directors as part of efforts “to improve educational outcomes for Puerto Rico’s children,” while “equipping them with key skills and improving academic proficiency across the board, resulting in annual 12 percent reduction of the achievement gap on standardized exams,” the board’s executive director, Natalie Jaresko, said.

Fiscal board Executive Director Natalie Jaresko (CB/Jaime Rivera)

She said the plan tackles public safety by making
“a significant investment to ensure” salaries and mandatory benefits for police officers are increased 30 percent, or by roughly $11,500, over two years; by providing “a $250 investment per officer per year in life and disability insurance”; and by enacting Social Security for the force starting in July.

Some $42 million was also approved by the board for the purchase of bulletproof vests, police radios and vehicles.

“These investments are meant to ensure that more sworn officers are able to remain on the island and serve in the field,” Jaresko said while highlighting key points in her presentation, which acan be seen here.

To address healthcare, more than $15 million was budgeted to help maintain “current nurse staffing levels across the island.” Funding is also being awarded to the Puerto Rico Cancer Center “to enable it to become fully operational,” as well as to the Cardiovascular Center of Puerto Rico and the Caribbean “for medical products and materials,” the board’s director said.

The plan also “provides for a $500 increase for all firefighters as well as $2 million for enhanced equipment and materials and $14 million in capital expenditures to cover trucks, vans and fire pumps.”

Rosselló said he was pleased the board addressed the requests the police, firefighters and other public workers have been making since August.

As for the Forensics Sciences Bureau, whose dire state of operations was brought to light following the amassing of corpses after Hurricane Maria struck in 2017, it will receive about $4.5 million to enable the hiring of forensic scientists, pathologists, examiners and DNA specialists, as well as $750,000 for laboratory equipment and chemicals.

The fiscal plan foresees the commonwealth government reaching a $13.7 billion surplus by 2024, economic growth of 4 percent for fiscal year 2019 and of 1.5 percent the following fiscal year, the board said.

Treasury Department Secretary Raúl Maldonado, third from left (CB/Jaime Rivera)

Treasury Department Secretary Raúl Maldonado said the government has invested a lot of time and effort on the fiscal plan.

“No more austerity measures can be imposed,” Maldonado added, saying “it affects the most vulnerable sectors.”

The fiscal plan also calls for capital improvement projects.

“The Commonwealth must pursue capital projects to improve the infrastructure on island,” a draft of the fiscal plan approved Thursday reads. “As such, the 2019 Fiscal Plan includes an additional $85 million annually in capital expenditures funded through Special Revenue Funds (in addition to the $400 million in general fund capital expenditures provided for the Commonwealth, UPR, and Highway Transportation Authority).”

The new fiscal plan also includes a cost-share reserve of $100 million a year to support Federal Emergency Management Agency (FEMA)-funded rebuilding efforts, requiring local cost-match beyond the anticipated Community Development Block Grant Recovery Program (CDBG-RP) funds.

“The goal of these investments is to ensure these agencies can continue to provide the services residents depend on while implementing the necessary efficiencies needed to maintain sustainable operations in Puerto Rico,” the board said.

Jaresko explained that there were two major changes in the fiscal plan when compared with the one proposed by the government in October.

“First, there are changes for new data or information,” Jaresko said. “This is reflected through macroeconomic changes due to updated disaster rollouts, faster unwinding associated with the fiscal stimulus and updates from major macroeconomic indicators.”

The board’s director said the fiscal plan continues to project that about $83 billion in disaster relief funding from both federal and private sources will be disbursed for the recovery effort following the 2017 hurricanes. The actual distribution of those funds is extended for 10 to 15 years in the plan and projected in a more level fashion based on current disbursements and “discussions with stakeholders.”

Furthermore, population projections were updated based on fertility and outmigration data as well in relation to new macroeconomic projections.

“Baseline revenues and expenditures including pensions are also updated for new data,” Jaresko noted. “And finally, there are revisions to structural reforms based on implementation progress as well as the perspective on what part of the surplus may not be available to the commonwealth.”

The funding for “fiscal priorities” for first responders and teachers, for instance, “was enabled via reducing spending in areas with low visibility…as well as further reductions as compared to the October fiscal plan,” such as in “professional services, in the State Elections Commission, the Legislature’s budget, State Insurance Corporation, and the Automobile Accident Compensation Administration, and the transfer of the public broadcasting corporation to a non-profit corporation.”

Jaresko stressed that since the 2019 fiscal plan was certified a year into the implementation of fiscal plan reforms, “it includes reference to implementation made to date, while continuing to reflect the overarching requirements of the fiscal plan.”

The government, she said, “must take action to address these missed milestones and to accelerate the pace of change.”

The so-called “ease of doing business” remains an area in which Puerto Rico has room for improvement, Jaresko stressed.

“The 2019 fiscal plan reiterates the need for urgent action, particularly in light of no progress in Puerto Rico’s ranking in the categories of ease of doing business that have proven most important to stimulating growth in other jurisdictions. For example, from 2018 to 2019, Puerto Rico fell three slots in construction permitting, from 138 to 141; in registering property, six slots, from 153 to 159; and in starting a business, six slots, from 47 to 53. The oversight board acknowledges recent initiatives announced by the government to streamline the permitting process and expects committed actions to ensure that this results in meaningful change during the next fiscal year.”

Jaresko concluded by noting that the government incurs millions of dollars in tax credits to corporations and individuals each year. She said the issuance of tax credits tends to be done in an ad hoc manner, with “unclear economic justification” for the costs incurred, leading to “an unpredictable, and potentially costly, foregone revenue stream each year.”

She recommended the government adopt a “transparent limit” to the number of credits granted and claimed to less than $247 million, for example by capping the “notional amount, number of companies and individuals that can claim credits annually, the inclusion of sunset provisions, and time-bound clauses upon which each tax credit will expire.”

View the certified fiscal plan here.

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