Tuesday, July 27, 2021

Oversight Board Certifies 2020 Fiscal Plan

By on May 27, 2020

Editor’s note: The 2020 Fiscal Plan is available below. See the panel’s 18th public meeting here: https://oversightboard.pr.gov/live-oversight-board/.

SAN JUAN – During its 18th public meeting, the Financial Oversight and Management Board for Puerto Rico certified the 2020 Fiscal Plan for the Commonwealth of Puerto Rico. The panel issued a related statement, the text of which follows.

The 2020 Fiscal Plan is the road map for Puerto Rico’s recovery and prosperity. It outlines necessary government action to improve fiscal responsibility and foster economic growth. 

The effect of the destructive hurricanes, earthquakes and COVID-19 on the economy is severe and exacerbated the lack of implementation of structural reforms to improve economic growth in Puerto Rico. The 2020 Fiscal Plan sets immediate priorities for the Government of Puerto Rico for the upcoming fiscal year 2021, stresses the importance of ongoing structural reforms, and provides significant investments to improve government, the economy, and the quality of life in Puerto Rico.

The 2020 Fiscal Plan
Given the need to focus on recovery and in light of the lack of progress in transforming Puerto Rico, the 2020 Fiscal Plan provides a one-year delay in most categories of government rightsizing to allow the Government to redouble its efforts on implementation of structural reforms and efficiency measures. This pause in rightsizing includes maintaining the subsidies to the University of Puerto Rico and to the municipalities at current fiscal year levels.

Further, the 2020 Fiscal Plan sets immediate priorities for the Government of Puerto Rico for the upcoming fiscal year 2021, stresses the importance of ongoing structural reforms, and provides significant investments to improve government, the economy, and the quality of life in Puerto Rico.

“The one-year delay in new right-sizing measures is not an invitation to inaction,” said the Oversight Board’s Executive Director Natalie Jaresko. “We cannot stand still and allow this crisis to define us.  The 2020 Fiscal Plan is a plan for change. Spending money without a vision means that money is too often wasted; a vision without a plan is too often merely a mirage.”

Economic Analysis
The Oversight Board projects that the Puerto Rico economy will contract by 4.0% in this current fiscal year of 2020, with a mild 0.5% recovery in the coming fiscal year of 2021, supported by federal funds related to COVID-19, and the hurricanes and earthquakes. However, even with the full and timely implementation of all structural reforms outlined in the 2020 Fiscal Plan, the forecast projects that the economy of Puerto Rico will contract during the next five-years period despite benign economic growth in some years. This is yet another reason to act with urgency to implement the structural reforms outlined in the 2020 Fiscal Plan.

The 2020 Fiscal Plan projects a central government deficit from fiscal year 2032 onward, six years sooner than the previous certified Fiscal Plan projected, and a total primary surplus of about $8 billion between fiscal years 2020 and 2032, compared to an about $23 billion surplus in the previous certified Fiscal Plan, a 65% decline for the same period.

2020 Fiscal Plan Priorities
Without the need to achieve incremental budget savings, the Government should focus all its efforts in fiscal year 2021 on real changes across Government that assure better delivery of essential services:

  • For the Department of Education to implement a back to school plan, a time and attendance reporting policy for all employees, record daily student attendance, efficiently manage its student-teacher ratio by observing its own staffing policies, and generate savings through improved procurement and more transparent accounting.
  • For the Department of Health to focus on core health care services by saving money through centralized procurement of supplies across agencies and public hospitals, develop an action plan for telehealth, consolidate regional Medicaid offices, improve hospital management, and merge the Administración de Seguros de Salud (ASES) into the department.
  • For the Department of Public Safety to move more officers from administrative positions to the field so they can better serve residents, and reduce overtime with better time management, fully consolidate the back office.
  • For the Department of Corrections and Rehabilitation to, generate savings through improved procurement, analyze the utilization of facilities given the decline in the prison population, and generate savings through improved procurement.
  • For the Department of Economic Development to finalize the consolidation of the Puerto Rico Tourism Company and ascribe the Planning Board into the department, renegotiate procurement contracts, and publish quarterly reports of economic incentives.

2020 Fiscal Plan Investments

To further these immediate priorities, the 2020 Fiscal Plan provides substantial investments totaling around $6 billion in fiscal years 2020 through 2025 for the people of Puerto Rico:

  • Investments in health care, including capital expenditures for public hospitals; towards hiring public school nurses and establishing a scholarship fund to encourage graduating doctors to serve in the rural areas; towards opioid treatment and Hepatitis; and towards increased reimbursement rates for services provided by primary care and outpatient specialty providers as well as hospitals.
  • Investments in public education, including investments to improve English language teaching, to incentivize schools to achieve better educational outcomes by publishing school-specific performance scorecards for student and teacher attendance and graduation rates, and to pay outstanding amounts of previous salary increases to transitory teachers.
  • Investments in public safety, including the third year of back pay for police, the second half of their 30% salary increase, funding for recruitment and training of cadets, EMS and Forensics staff hiring, and equipment for firefighters.
  • Investments in technology to improve access to broadband in rural areas, and business and technology training to provide greater opportunity to the workforce.
  • Investment to conduct an Oversight Board-commissioned study for the private sector and the Government to define a comprehensive and actionable plan to reactivate the manufacturing sector in Puerto Rico.
  • Investment to expedite hurricane reconstruction efforts by providing $750 million in working capital to facilitate FEMA-approved reconstruction efforts.

Structural Reforms

The 2020 Fiscal Plans structural reforms remain an essential element of Puerto Rico’s long-term recovery. Such reforms include providing access to reliable broadband across Puerto Rico; providing comprehensive development opportunities for adults in the workforce; dramatically improving K-12 education; improving the competitiveness and attractiveness of Puerto Rico’s economy by reducing the obstacles to starting and sustaining a business through improvements to the processes to obtain permits, register property, and pay taxes; and providing lower cost and more reliable energy through the transformation of PREPA. 

Nevertheless, even if all the reforms outlined in the Fiscal Plan are implemented, Puerto Rico will not be done. The Fiscal Plan lays out the minimum required reforms. Soon, the Government will have to take additional measures beyond the five-year framework of this 2020 Fiscal Plan to balance budgets. Many of these reforms would increase revenues and therefore make funds available for a variety of potential uses, most importantly to invest in the people of Puerto Rico.

Puerto Rico can overcome this current public health and economic crisis. It will be a difficult road ahead over the coming months and years, but the people of Puerto Rico have proven their resiliency.  It is with that in mind that the 2020 Fiscal Plan lays out a blueprint for actions that the Government must take to responsibly prepare for the future, notwithstanding uncertainties and difficulties.

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