Fiscal board nixes Treasury’s proposed EITC inflation adjustment over budget concerns

By THE STAR STAFF

The Financial Oversight and Management Board has formally rejected a proposed regulation from the island Treasury Department that sought to adjust the Earned Income Tax Credit (EITC) for inflation in taxable year 2025.

The decision, issued under the oversight board’s Rules, Regulations and Orders Review Policy pursuant to the Puerto Rico Oversight, Management and Economic Stability Act, commonly known as PROMESA, cites significant fiscal inconsistencies with the commonwealth’s certified budget and fiscal plan.

According to the oversight board in a letter dated Oct. 29 to Treasury Secretary Ángel Pantoja Rodríguez, the proposed adjustment would increase the total cost of the EITC program to $783 million -- representing a 52% cost share for the commonwealth, far exceeding the intended 25%/75% split between local and federal contributions. The board estimates the measure would result in an overspend of some $72 million, conflicting with both the Revised Certified 2024 Fiscal Plan and the Certified Fiscal Year 2026 Commonwealth Budget.

While acknowledging the EITC’s effectiveness in promoting formal labor participation and reducing poverty, the oversight board emphasized that the program’s cost has historically outpaced expectations. The proposed regulation, it noted, fails to address the disproportionate financial burden on the commonwealth.

The oversight board held meetings with executive and legislative leaders in June to explore solutions for controlling the EITC’s rising costs. It now recommends that any future adjustments to the credit be considered within the broader framework of comprehensive tax reform.

The board clarified that its review was limited strictly to fiscal compliance and did not constitute a legal assessment under federal or local laws. It also noted that its evaluation was based solely on information submitted by the Treasury and may be subject to revision if inaccuracies are discovered.