Puerto Rico fiscal board’s executive director says end to bankruptcy process could be delayed
SAN JUAN – While the executive director of the Financial Oversight and Management Board for Puerto Rico insisted the commonwealth’s fiscal year 2019 budget is not aligned with the certified fiscal plan, Natalie Jaresko declined to say whether the board would put off preparing a debt adjustment plan if the government were not to comply.
“Right now, I’m looking for the ability to convince everyone around the table that it is in our best interest for Puerto Rico, not just for creditors, to restructure this economy, to balance it fiscally in the medium term not just in the short term and to get the Title III process behind us,” Jaresko said. A debt adjustment plan is the final stage in the bankuptcy process.
Jaresko spoke at a press conference to discuss why her panel understands that the government’s budget is in violation of the fiscal plan after Gov. Ricardo Rosselló did not appear to be willing to modify a draft of the fiscal 2019 budget.
An end to the bankruptcy process as soon as possible would benefit Puerto Ricans for several reasons, she said, including the legal costs for the government, which is fighting 75 lawsuits. It also has costs for the private sector as it hinders its ability to get credit. “Uncertainty affects people’s confidence,” she added about the bankruptcy’s effect on the economy.
The government-submitted budget was not compliant with the certified fiscal plan because only the general fund budget was provided. It is only 40% of the government’s consolidated budget, or more than $8 billion that go to agencies. The consolidated budget, meanwhile, is of about $21 billion.
For the sake of transparency and completeness, she said the government needs to take a consolidated approach to the budget because the fiscal plan takes on a consolidated approach.
“It’s clear that the Puerto Rico Legislature only reviews and adopts a general fund budget, but again 60% of the operations of the consolidated commonwealth are in the other funds. So we’re looking at the whole picture and those were not submitted,” she said.
In explaining the deficiencies of the government’s draft budget, she said revenue and spending do not align with the fiscal plan the board certified, and is unbalanced because there are $200 million more in expenses versus revenue. The budget did not contain special revenues, or allocations assigned to different programs. The measures in the fiscal plan are not identified in the budget for everyone to see whether the fiscal plan’s reforms are delivering the needed financial outcome, she noted.
While the board will be certifying a full consolidated budget, the Legislature, as it does every year, will only be voting on the general fund budget. What would happen if the governor does not comply?
While Jaresko said she hopes the governor will submit the rest of the documents required by the board by Tuesday, she said if that were not the case, Promesa, the federal law that created the board, allows it to fill in the gaps or make the needed changes.
While the Puerto Rico Constitution provides that if a budget is not approved by the end of the fiscal year, the government continues to opérate with the current budget, that changes under Promesa. The statute established that if the government and the Legislature fail to approve a budget by the end of the fiscal year, the fiscal oversight board must submit its own budget, which “shall be deemed to be approved by the governor and the Legislature…. There’s nothing more,” she said. That is because while Promesa does not preempt local law, it does when local law is in conflict with the federal law.
Jaresko, however, said last year that the government operated with the fiscal board’s version of the budget and that the panel had not required of it a consolidated budget because the government was new.
In response to a question, Jaresko said she believes the government has the capability of delivering the entire consolidated budget on time. She denied government assertions that the board’s timeframe for delivering it was rushed because both sides have been communicating and meeting since December.
“The finalization of revenue numbers occurred on the certification but the bulk of the work was ongoing before that,” Jaresko said.
In its letter Thursday, the board said the government failed to submit in the general fund University of Puerto Rico and Workforce Development reinvestments generated from labor reform; commonwealth appropriation for the Health Insurance Administration (ASES by its Spanish acronym); additional reserves beyond the $130 million emergency reserve in the fiscal plan and the $100 million to municipalities for the regionalization of services, which is separate from $176 million in fiscal plan appropriations.
It also failed to repeal the mandatory Christmas Bonus part of employees’ salaries and to establish $3.5 million for revolving state funds instead of the $114 million enumerated in the fiscal plan. Furthermore, it did not include $33 million for Police employees inclusion of Social Security payments, $132 million in capital expenditures, “utility payments that are inconsistent with projections,” “no agency holdbacks of 5% as its own concept of spend” and “incorrect appropriations.”
Asked what the board would of faced with government inaction, especially with its refusal to implement labor reform, Jaresko said no one is asking Congress to intervene. However, she added, it was important to do changes now when federal funds are coming in to push the economy. She said, for instance, that labor reform is expected to yield $214 million that can be reinvested in other areas such as education.
Promesa’s Title III bankruptcy process requires a feasible debt-adjustment plan based on the fiscal plan. The importance of labor reform is not in this year’s budget, except for reinvestment, but it is in the adjustment plan and to reach a consensual agreement on Title III, she said.
Jaresko also disputed assertions by government officials that the board does not understand budgeting in Puerto Rico. She noted that board member Ana Matosantos was experienced in doing budgets in California and that she worked on Ukraine’s budget herself. Regarding criticism of the board’s own operating budget, she said the board cut its $70 million budget by 7% and that it is dealing with the same problems as the government in determining where to make cuts.