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  • Writer's pictureThe San Juan Daily Star

Fiscal board explains some of the ‘gaps’ in fiscal plan noted by think tank

Economist Martín Guzmán

By The Star Staff

The Financial Oversight and Management Board has provided some explanations for the “gaps” in the 2023 fiscal plan that were found in a recent analysis by Open Spaces (Espacios Abiertos).

When compared to the previous eight fiscal plans, analysts noted contradictions in the 2023 fiscal plan, including a projected deficit in 2027 following the confirmation of a debt adjustment plan. In the past, the oversight board has said the deficit will be seen in 2044. Analysts at Espacios Abiertos also said the board failed to mention potential savings from fiscal measures. The STAR sent written questions to the oversight board seeking comment.

Asked about the data to support the deficit now being projected for 2027, the oversight board said the fiscal plan reflects current law.

“Therefore, the 2023 Fiscal Plan projections show a potential deficit starting in FY2028 driven by the projected decrease in federal Medicaid funding given changes to the law since the certification of the 2022 Fiscal Plan,” the board said.

In quoting the fiscal plan, the board said that “Beginning in FY2028, the Commonwealth could face a ‘Medicaid fiscal cliff,’ where it becomes responsible for a significantly higher share of Medicaid expenses – expenditures that have been covered by federal funding since 2011.”

“The Congressional Budget Office’s cost estimates of the 2023 Consolidated Appropriations Act suggest that in October 2027 the federal Medicaid funding cap for Puerto Rico will fall to about $500 million annually,” the oversight board said. “The cap will grow each year from FFY [federal fiscal year] 2028 according to the medical care services component of the Consumer Price Index for All Urban Consumers (CPI-U), but this growth rate does not keep pace with the island’s projected healthcare expenditure growth.”

At a recent press conference last week, Espacios Abiertos said the austerity economy that the oversight board has imposed on Puerto Rico is not yielding the promised results.

Martín Guzmán, an economist who has analyzed Puerto Rico’s debt, said the ninth certified fiscal plan, published on April 3, shows that government payroll spending has decreased by more than 50%, while spending on outside consultants over the past 15 years has increased by more than 125%.

For the first time, the oversight board in the current fiscal plan does not explicitly mention in its projections the potential savings that the fiscal measures would achieve in the next 30 years, something that it had disclosed in the eight previous fiscal plans.

Espacios Abiertos said it could not find a trace of data on which implemented measures are yielding, and what effects the variations and structural reforms are having on future government surpluses/deficits.

The STAR asked the oversight board for the reasons it did not include data on savings following the adoption of a new debt adjustment plan, and data consisting of savings due to structural reforms and downsizing.

The board said the 2023 Fiscal Plan highlights the savings achieved through the plan of adjustment. The document notes that prior to the enactment of the Puerto Rico Oversight, Management and Economic Stability Act, commonly known as PROMESA, the government had accumulated a debt burden of $71 billion, roughly $24,000 per resident of Puerto Rico.

“Through the concerted efforts of the Oversight Board and the Government described below, the debt is on course to be reduced to $34 billion,” the document notes.

The oversight board acknowledged that references to fiscal measures were not included as most of them were finalized in FY22. The board said estimates on the impact of past fiscal measures could be found in previous fiscal plans.

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