• The Star Staff

Fiscal board’s changes to draft commonwealth fiscal plan stress austere measures, cuts


By The Star Staff


The federal Financial Oversight and Management Board for Puerto Rico requested by March 26 the submission of a revised version of the commonwealth’s proposed fiscal plan submitted earlier this month in a letter detailing numerous changes that, among other things, would result in austerity measures for island agencies and municipalities.


“It is in that spirit that after careful review of the updates made to baseline economic and fiscal assumptions, as well as to structural reforms and fiscal measures, the Oversight Board has determined that the proposed plan requires certain significant revisions and additional supporting information before the oversight board can certify it as compliant with the requirements of PROMESA [the Puerto Rico Oversight, Management and Economic Stability Act],” Natalie Jaresko, the oversight board’s executive director, wrote to Gov. Pedro Pierluisi Urrutia.


Among the 12 pages of proposed changes, the oversight board noted the need for a baseline macroeconomic trajectory and population projection, including projections for the U.S. economy, commodity prices, federal transfers to Puerto Rico, gross fixed capital formation, Puerto Rico’s output gap projection, and population projection methodology.


The letter insists on the use of public-private partnerships (P3s) across government and on budget cuts to municipalities, the University of Puerto Rico (UPR) and pensions of government workers. It also seeks information on proposed tax cuts to individuals and corporations slated for 2022.


It notes that the disaster relief funding roll-out under the proposed plan shows $26.5 billion of Federal Emergency Management Agency (FEMA) public assistance entering the economy between fiscal year (FY) 2021 and FY 2025, with the remaining funds disbursed by FY 2030.


“This assumes a significant ramp-up in the pace of disbursements (e.g., assuming FY21 disbursements will increase 3-fold over FY2020 levels reported by COR3 [the commonwealth’s Central Office for Recovery, Reconstruction and Resiliency]),” Jaresko wrote. “Similarly, the proposed plan shows $3.1 billion in spending of CDBG-DR [Community Development Block Grant-Disaster Recovery] funding entering the economy by FY2021, despite actual disbursements reported by PRDOH [the island Housing Department] reaching only $170 million as of January 2021.”


The plan does not include enough information on the assumptions behind the net effect of the COVID-19 pandemic lockdown and the offsetting impact of the local and federal stimulus packages, Jaresko said. She also asked for the inclusion of information on the impact of the American Rescue Plan Act (ARPA) enacted on March 11 by President Joe Biden.


The oversight board asked the commonwealth government to restore in the fiscal plan a recommendation made on Jan. 29 that the government should enhance its discussion of the benefits and opportunities of P3s to improve the island’s infrastructure with a list of priority projects.


It criticized that the fiscal plan proposes to maintain a four-year implementation of the Nutritional Assistance Program work requirement, asking it to shorten it to two years because of the importance of higher labor participation.


The oversight board also asked for the cost estimate of a proposed Puerto Rico Child Tax Credit under evaluation in the House of Representatives that matches the program on the U.S. mainland. The recent ARPA enacted by Biden included a Child Tax Credit program that will be available to Puerto Rican families.


The draft plan proposes a 20% cut to corporate and personal income taxes from FY 2022 to FY 2046, described as a movement toward statehood parity. The oversight board sought more information to determine among other things how the change to the tax law would interact with the island government’s efforts to address risks to the Act 154 revenue base. Act 154 is an excise tax paid by certain manufacturing firms that constitutes 20% of budget revenues.


The oversight board asked the government to restore in the plan all contributions from municipalities to the health care plan and also the proposed cuts to pensions.


“The proposed plan does not include any of the pension reforms included in the Plan of Adjustment filed on March 8, 2021, including the reduction in monthly pension benefits and the freeze on benefit accruals for Teachers Retirement System and Judiciary Retirement System plan participants,” the letter says. “Further, it notes that the government will provide pension benefits of at least 50% of the retired public employee’s salary.”


The board also asked the island government to reinstate reductions to UPR’s operating subsidy from the commonwealth.


“The Government fixes $560 million as UPR’s annual appropriation, when the total appropriation in the Certified Fiscal Plan for FY22 is $466 million,” the letter says.


The proposed fiscal plan does not include a section that explains cross-cutting personnel expenditure reductions. The oversight board asked the government to maintain a payroll freeze, standardize healthcare provided to government employees, and reduce additional outsized non-salary compensation paid to employees.


The board also complained that the plan removes any further agency consolidations, which are an important driver of streamlining.


The proposed plan includes almost $4 billion in additional investments across agencies to cover a range of priorities (e.g., special funds to address the gender violence emergency, recent graduate opportunities, etc.).


“Please schedule a working session with the Oversight Board to explain assumptions and rationale behind each proposed investment,” Jaresko wrote.

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