Approved fiscal plan says PR won’t face budget deficits until 2048
By The Star Staff
The Financial Oversight and Management Board on Thursday approved a revised fiscal plan that states Puerto Rico won’t face budget deficits until 2048 because of the incorporation of federal funds allocated by the U.S. Congress.
The previous fiscal plan estimated that Puerto Rico could face budget deficits by 2036. The information was provided by the oversight board’s executive director, Natalie Jaresko. According to board estimates, Puerto Rico’s incremental net surpluses from healthcare funding and the improved economic environment will be $2 billion in fiscal year (FY) 2023, $1.96 billion in FY24, $1.78 billion in FY25, $1.71 billion in FY26 and $1.71 billion in FY27.
“Program costs that were previously forecast to be funded by commonwealth resources are now being paid by the federal government instead,” Jaresko said.
The board has previously said the government must also start reducing government agencies.
Jaresko also said she expects the debt restructurings of the Puerto Rico Electric Power Authority (PREPA) and Highways and Transportation Authority (HTA) to happen this year. PREPA’s debt adjustment plan is expected to be submitted in March. Jaresko said local legislation to enable the debt deal was needed for PREPA but was not needed for the restructuring of the HTA. Oversight board member Justin Peterson intervened to say PREPA’s restructuring could also be done without the need for commonwealth legislation, including the bond exchange and the imposition of a transition charge.
“If the Legislature does not act on PREPA, we will do it. We will get that done this year,” Peterson said. “PROMESA [the Puerto Rico Oversight, Management and Economic Stability Act] was not designed to have a board in perpetuity.”
The updated Fiscal Plan reflects predictable and affordable debt service provided by the confirmation of the Plan of Adjustment. Building on those benefits, the updated Fiscal Plan invests in Puerto Rico’s fiscal stability by committing $10.3 billion over the next 10 years to a newly established Pension Reserve Trust, ensuring pensions promised in the past can be paid in the future. In addition, the updated Fiscal Plan commits $1.6 billion in enhanced retirement benefits and medical insurance for police officers over 30 years, the oversight board said.
The document includes a new Financial Management Agenda for Puerto Rico. The stability brought by the end of the debt crisis requires consistent excellence in financial management, the board said. Implementation of the Financial Management Agenda will ensure the commonwealth avoids the practices of the past that caused the crisis, and it will pave the way to the termination of the oversight board in accordance with PROMESA, the board said.
Civil Service Reform is complemented by salary increases via the Uniform Remuneration Plan (URP) and salary increases for key employee groups outside the URP, including teachers, correctional officers and firefighters, totaling an additional $1.8 billion over five years.
The Fiscal Plan also includes the key structural reforms needed for economic growth. It promotes participation in the formal labor force and outlines comprehensive workforce development opportunities; it promotes education reform that focuses on dramatically improving student graduation rates and test scores; ease of doing business reform that aims to reduce obstacles to starting and sustaining a business through improvements to the processes to obtain permits, register property, and pay taxes; and power sector reform that will provide more reliable, more affordable, and cleaner electricity, Jaresko said.
It also provides for infrastructure reform that will reform the public transportation sector, the oversight board said.
The document includes investments in Puerto Rico’s civil service, education, health care, and infrastructure, including $10.3 billion for the Pension Reserve Trust over the next 10 years; $3.8 billion for civil service reform and salary increases of Education Department employees, firefighters and correctional officers; and $1 billion in enhanced retirement benefits for police officers, including medical insurance from retirement to Medicare qualification.
The new document, which is consistent with the commonwealth plan of adjustment recently confirmed by the U.S. District Court for the District of Puerto Rico, establishes that the commonwealth will make annual debt service payments of less than $1.5 billion through FY51.
“The plan of adjustment is structured so the government makes debt service payments that are not only affordable, but also remain unchanged and predictable,” Jaresko said.
The fiscal plan calls for the creation of a pension trust fund, which will be funded by annual contributions totaling more than $10 billion over the next decade. It will help guarantee pension payments to government retirees. There are no cuts to accrued benefits, and teachers and judges will have access to Social Security.
The fiscal plan also sets aside more than $850 million in enhanced retirement benefits for police officers for the next 15 years and $700 million for retiree medical services for the next 30 years.
The plan was supported by Gov. Pedro Pierluisi Urrutia, who said it was not everything he wanted but was fairly close.
In a separate news conference, Pierluisi said that after PREPA completes its restructuring, he could be calling on Congress to repeal the oversight board.
At a press conference in La Fortaleza, the governor said he considers that it is Congress that will decide on the departure of the fiscal board. In fact, he emphasized a proposal by U.S. Rep. Ritchie Torres (D-N.Y.) that seeks that as soon as PREPA’s restructuring occurs, the government “replaces the board for everything related to PROMESA.”