Puerto Rico fiscal plan predicts surplus if reforms are carried out
SAN JUAN – Only if Puerto Rico implements certain structural reforms and fiscal measures can it expect to have a cumulative surplus of about $30 billion through 2033, but then it will have yearly deficits onward because of the loss of federal funds, the executive editor of the island’s Financial Oversight and Management Board Natalie Jaresko, said Monday, ahead of the panel’s public meeting Tuesday morning.
The needed fiscal measures include pension reform, agency right-sizing, reduction of subsidies, healthcare reform, and measures related to utilities, as well as procurement reform. Structural reforms that could help jumpstart the economy for the long-term involve energy, human capital, welfare and improving the ease of doing business.
The fiscal plan projects “a primary surplus through 2033 that is dependent on the timely, successful and full implementation of the fiscal measures and structural reforms that I described to you. It is reliant on that fiscal stimulus as well as the short-term federal Medicaid funding. But as you can see, implementation of the certified fiscal plan, still after 2033, projects a primary deficit that is based on the unwinding of federal money and fiscal stimulus of federal money,” she said.
As a result, the government will have to engage in broader reforms to help jumpstart the economy, she said.
Jaresko spoke to reporters during a roundtable about the commonwealth and the University of Puerto Rico’s (UPR) fiscal plans, both of which will be certified Tuesday.
The commonwealth’s plan calls for a $17 billion surplus over the next five years if the debt adjustment plan of the Puerto Rico Sales Tax Financing Corp. (Cofina by its Spanish acronym), which was submitted last week, moves forward.
Jaresko said the proposed new fiscal plan contains updated information and is more realistic than the plan certified in June. It takes into account a population reduction, the Cofina debt adjustment plan and a combined $82 billion in federal disaster and private insurance funds.
Since the certification of the previous fiscal plan in June these have been updated to ensure it more accurately reflects realistic information, including additional federal disaster funding than was expected. On the negative side, she said it also reflects a lack of a political will to make certain structural reforms that will stop economic decline once the federal funds are over, including labor reform.
The fiscal measures, if implemented, are expected in the plan to drive a 6 percent increase in revenue and result in a 17 percent decrease in expenditures over the next five years. The expenditures are expected to increase between fiscal year 2020 and fiscal 2021 to about $2.3 billion due to Medicaid’s supplemental funding phaseout but then would drop.
The fiscal plan projects that “for fiscal year 2019, $865 million in measures need to be taken. We are currently monitoring the implementation of 128 reform initiatives and structural reforms within 30 agency groupings. That is where the success of this plan will be measured,” she said. By 2023, the government must have implemented about $3.4 billion in fiscal measures.
However, she said the fiscal reforms will not be enough to grow the economy, thus structural reforms are also needed. If implemented, these would have an $85 billion impact over a 40-year period.
The plan takes into account the island population’s decline, which is estimated to be close to the number of residents as before hurricanes Irma and Maria struck the island in September 2017.
Regarding the debt restructuring of the commonwealth’s agencies, Jaresko said the fiscal board is taking the “once and done” approach to debt restructuring to eliminate uncertainty and focus on additional reforms for long-term growth.
The government has already reached agreements to restructure the debt of the Government Development Bank and Cofina, the latter of which is 25 percent of the public debt. The restructuring of the Electric Power Authority is still underway.
Regarding the UPR’s fiscal plan, Jaresko stressed the need for the academic institution to implement the changes needed to face a government-subsidy reduction of about 17 percent, or down to $441 million by 2023, according to the fiscal plan.
“It cannot continue to maintain the status quo,” she said.
The plan calls for the creation of three university hubs. One of the conglomerates would be headed by the Río Piedras campus and would comprise the Bayamón and Carolina campuses. The second hub would be headed by the Mayagüez campus and include the Aguadilla, Arecibo and Utuado campuses. The Southeast Region Conglomerate would be made up of the Ponce, Cayey and Humacao campuses.
The Medical Sciences Campus would remain separate and autonomous. Jaresko said university President Jorge Haddock, who reportedly said Friday he was designing his own campus conglomerates, had yet to present his plan.
Jaresko said that for UPR’s fiscal plan everything possible was done to minimize tuition hikes that could threaten affordability and the quality of education. The plan emphasizes a needs-based tuition.
According to the fiscal plan, the cost of undergraduate tuition would rise from about $57 a credit currently to $157 per credit in 2023. Annual tuition for graduate students would go increase from about $3,000 in fiscal 2019 to $7,000 in fiscal 2023.