Mujica: PR has a long way to go before fiscal board can make its exit
By The Star Staff
Significant work remains to be done before Puerto Rico will be able to meet the conditions for the Financial Oversight and Management Board to end its tenure on the island, the oversight board’s executive director said in a recent letter to Congress.
The law that created the oversight board, the Puerto Rico Oversight, Management and Economic Stability Act (PROMESA), states that “[t]he purpose of the Oversight Board is to provide a method for a covered territory to achieve fiscal responsibility and access to the capital markets.”
Section 209 of PROMESA states that the oversight board will terminate when the territorial government “has adequate access to short-term and long-term credit markets at reasonable interest rates” and “for at least four consecutive fiscal years … has developed its Budgets in accordance with modified accrual accounting standards” and expenditures “during each fiscal year did not exceed revenues.”
PREPA, which PROMESA defines as part of the legal definition of the territorial government, still needs to complete its debt restructuring. PREPA’s budget must include restructured debt payments for it to qualify as having developed its budget under the required modified accrual accounting standards, Robert Mujica, the executive director of the oversight board, said in a letter to Rep. Raúl M. Grijalva, ranking member of the Committee on Natural Resources in the U.S. House of Representatives.
The government has not yet produced audited financial statements for fiscal years 2021 and 2022, making it difficult to know whether expenditures in those years were less than actual revenues on a modified accrual basis, Mujica noted in the letter.
“The government’s lack of integrated financial systems and inability to close its books on a monthly or quarterly basis also inhibit the Oversight Board’s ability to use alternate verification techniques to evaluate this parameter,” he said. “Full implementation of an integrated enterprise resource planning system and a properly staffed legislatively authorized Office of the CFO would go a long way toward instilling the fiscal discipline and financial controls needed to meet this requirement under PROMESA eventually.”
Fiscal year 2022, which ended on June 30, 2022, was the first fiscal year that included debt payments under the Commonwealth Plan of Adjustment. It was also the first fiscal year for which the government provided the oversight board with a General Fund budget that the board could certify as compliant with the Fiscal Plan.
“The government added incremental expenses throughout the year without proactively identifying resources to fund those costs,” Mujica pointed out in the letter. “During fiscal year 2022, the Oversight Board reviewed at least five laws that would have increased annual costs by more than $312 million outside of the certified budget.”
For the current 2023 fiscal year, the island Legislature did not submit a timely and compliant budget to the oversight board for certification, forcing the board to certify a budget, he said.
Further, the government continued passing laws during the fiscal year that reduced revenues or increased expenditures without identifying ways to pay for that incremental cost.
“Similar to last year, unless action is taken, the government may find itself unable to demonstrate PROMESA’s Section 209 provision that expenditures did not exceed revenues during the fiscal year,” Mujica said.
The government’s reliance on off-budget resources to supplant ongoing operating expenses remains a significant risk to budget balances, the oversight board official said. The government has repeatedly used one-time federal funding for recurring operating payments, including salary enhancements for public sector employees, he noted.
“Given the preceding work which the government and the Oversight Board is undertaking, it is premature to attempt to forecast when the Section 209 statutory conditions will be satisfied,” Mujica said.