Fiscal board certifies first gov’t-submitted budget in 5 years

By The Star Staff

The Financial Oversight and Management Board for Puerto Rico on Thursday announced the certification of the $10.1 billion budget for fiscal year (FY) 2022, the first general fund budget submitted by the government and not imposed by the board in five years.

The new budget, however, will not yet count as one of four consecutive balanced budgets needed for the oversight board to leave Puerto Rico because it does not have debt service payments due to the fact that the central government remains in bankruptcy.

Oversight board member Arthur González said that according to the Puerto Rico Oversight, Management and Economic Stability Act, generally known by its acronym, PROMESA, the board will leave after Puerto Rico can access the credit markets at reasonable rates of interest and has balanced budgets for four consecutive fiscal years.

He said the FY 2022 budget, which went into effect today, is not truly balanced because it does not contain debt service payments.

“So, we need to get through that confirmation process, establish the debt service that we are going to pay and start to pay that within the budget to trigger the beginning of the four consecutive years,” González said.

The oversight board recently submitted a debt adjustment plan to restructure $35 billion in government debt in hopes of ending bankruptcy this year, but the island government opposes the debt adjustment plan because it calls for cuts to pensions as part of the restructuring.

The oversight board intends to go to court to compel the government to pass needed measures to enable the debt restructuring.

The board has also called for the repeal of the Dignified Retirement Act, which prevents cuts to pensions, or it will go to court. Gov. Pedro Pierluisi Urrutia said he intends to file bills that will resolve the pension dispute, but David Skeel, the oversight board chairman, said the law needs to be repealed.

On Wednesday, Pierluisi signed the $10.1 billion general fund commonwealth budget adopted and submitted by the Puerto Rico Legislature. The oversight board certified that budget, along with a $3.5 billion special revenue fund budget and $7.8 billion federal fund budget, bringing the consolidated budget for the Puerto Rico government to $21.4 billion. The most significant spending in the consolidated budget continues to be health care, with $4 billion, and education, with $3.9 billion. Each comprises almost 20% of the total consolidated budget.

“The budget developed jointly by the Governor, the Legislature, and the Oversight Board is a significant achievement and an important step toward achieving fiscal responsibility and economic stability,” Skeel said. “The Oversight Board, the Governor, and the Legislative leadership cooperated more closely than in any previous year to ensure the budget prioritizes critical services that are so important for the lives of all residents of Puerto Rico.”

In addition to the traditionally budgeted federal funds, the economy of Puerto Rico as a whole will benefit from an incremental $20 billion in federal stimulus funds related to the COVID-19 pandemic, including $1.9 billion in unemployment, an incremental $1.7 billion for food stamps, $476 million in small business support, and $2.5 billion in tax incentives. The Certified Fiscal Plan also estimates that over $3 billion in federal disaster recovery funds will be disbursed and invested in rebuilding in FY 22, primarily from the Federal Emergency Management Agency and Community Development Block Grant-Disaster Recovery programs in response to the disastrous effects of Hurricane Maria and the earthquakes.

For example, the island Department of Education will have access to $6.9 billion in federal funding from disaster recovery and COVID-19-related programs. Taken together with the regular annual budget, some $9 billion will be available for K-12 education in Puerto Rico after several very difficult years for students, teachers and administrators. The available funds create a unique opportunity to rebuild, recover and improve education for the more than 250,000 students in the school system, but requires strategic planning to effectively utilize the funds.

“The budget for the new fiscal year reflects Puerto Rico’s reality and Puerto Rico’s opportunity,” said the oversight board’s executive director, Natalie Jaresko. “Taken together with the significant federal funds available as a result of the pandemic and disaster recovery, this budget offers historic levels of resources to invest in Puerto Rico’s recovery, stability, and economic growth.”

The oversight board also certified the FY 2022 budgets for: the Puerto Rico Electric Power Authority, the Puerto Rico Aqueduct and Sewer Authority, the Puerto Rico Highways and Transportation Authority, the University of Puerto Rico, the Puerto Rico Sales Tax Financing Corp., the Puerto Rico Industrial Development Co., the Public Corporation for Supervision and Insurance of Cooperatives, and the Municipal Revenue Collections Center.

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