FOMB certifies revised fiscal plan, warns government that discipline and reform are still needed for oversight to end

Gov. Jenniffer González Colón

By THE STAR STAFF

The Financial Oversight and Management Board (FOMB) has certified a revised 2024 Fiscal Plan for the Commonwealth, cautioning that fiscal stability remains vulnerable without stronger implementation of structural reforms. 

In a recent letter to Governor Jenniffer González Colón and the Legislature, the FOMB said the revised plan reflects updated economic data, new federal funding assumptions, and adjustments to long‑term spending projections. While the FOMB accepted the changes, it noted that Puerto Rico’s progress toward financial sustainability—and the eventual dissolution of the Board—depends on consistent adherence to the plan’s mandates.

The revised fiscal plan replaces the version certified earlier this year and incorporates a more cautious revenue outlook. The FOMB noted that the government’s initial projections were overly optimistic, given slowing economic indicators and the gradual decline in federal disaster and pandemic-related funds. Although the island continues to show resilience in manufacturing and employment, the Board expects growth to moderate over the next several years. As a result, the fiscal plan now reflects slower growth in income and sales tax collections, as well as the fiscal impact of recently enacted tax relief measures. The Board warned that any additional tax cuts not offset by spending reductions or new revenue sources would threaten long-term balance.

On the expenditure side, the FOMB expressed concern about rising costs across major government functions, including payroll, healthcare, and operations. The revised plan incorporates updated estimates for Medicaid, public safety, and teacher salary adjustments, as well as new capital investment initiatives. While the Board acknowledged the administration’s efforts to modernize government systems, it stressed that spending growth must remain aligned with certified projections to avoid future deficits. The letter highlighted persistent structural risks, including uncertainty about Medicaid funding after 2027, escalating pension obligations, and delays in implementing digital transformation projects, such as the Enterprise Resource Planning (ERP) system.

The Board also raised alarms about the slow pace of reform implementation. The fiscal plan includes updated timelines for education, energy, permitting, and tax administration reform, areas where the FOMB reports progress has lagged. The Board cited delays in permitting reform, incomplete implementation of tax administration measures, and limited progress in agency right-sizing. The Board emphasized that these reforms are not optional; they are essential to achieving the sustained fiscal balance required under PROMESA.

Energy remains one of the most significant vulnerabilities. The revised plan incorporates updated assumptions for the Puerto Rico Electric Power Authority’s restructuring, renewable energy integration, and the transition to private operators. The FOMB warned that instability in the energy sector continues to threaten economic growth and government revenues. Ongoing litigation, delays in the procurement of generation, and uncertainty surrounding LUMA Energy’s long‑term contract all pose risks that could undermine the fiscal plan’s projections.

Although the FOMB certified the revised plan, it acknowledged areas of disagreement with the administration. The government argued that certain expenditure projections—particularly in education and public safety—were too restrictive and that its revenue estimates were achievable. The Board, however, insisted on more conservative assumptions to safeguard Puerto Rico’s fragile recovery.

Certification came with clear expectations. The government must submit updated reform implementation reports, demonstrate progress on the ERP rollout, provide updated Medicaid contingency planning, and ensure that any new legislation complies with the fiscal plan’s cost parameters. The Board also reminded the Legislature that all bills with fiscal impact must be submitted for review before enactment, a requirement that has not always been followed.

The FOMB’s letter also addressed a question that looms over every fiscal plan cycle: what Puerto Rico must do for the Board to dissolve. Under PROMESA, the Board can terminate only after the Commonwealth achieves four consecutive years of balanced budgets, regains access to capital markets at reasonable interest rates, and demonstrates it can maintain fiscal responsibility without external oversight. The FOMB noted that Puerto Rico has made significant progress—balanced budgets, improved financial reporting, and the restructuring of more than $70 billion in debt—but warned that the island has not yet met the statutory benchmarks. Sustained discipline, full implementation of reforms, and strict adherence to the fiscal plan are essential for the government to demonstrate that it can maintain long‑term stability on its own.

The FOMB instructed the government to prepare the FY2027 budget in full alignment with the newly certified plan. The FOMB is expected to review the Legislature’s amendments in the coming weeks and issue a final certification before the fiscal year begins on July 1. The next major update to the fiscal plan is expected in early 2027, unless economic conditions require an earlier revision.