Oversight board flags 2027 fiscal year budget compliance issues.

Robert F. Mujica Jr., executive director of the Financial Oversight and Management Board for Puerto Rico

Urges gov’t to cover agency risks

By THE STAR STAFF

The Financial Oversight and Management Board for Puerto Rico is warning that the government’s proposed fiscal year (FY) 2027 budget, while aligned with the certified fiscal plan in total dollars, is still noncompliant because it was prepared using accounting standards that differ from the modified accrual basis that the board says was agreed upon for the General Fund.

The modified accrual basis is a method that generally recognizes revenue when it is expected to be received and bills when they come due.

In a letter dated April 24 to Gov. Jenniffer González Colón, the board’s executive director, Robert F. Mujica Jr., described weeks of back-and-forth with the administration over funding priorities, agency operating risks and the budget’s supporting documentation.

The Puerto Rico Oversight, Management and Economic Stability Act (PROMESA) requires the island government to submit a proposed commonwealth budget to the oversight board for review and certification.

According to the letter, the government first submitted its FY 2027 proposal on March 6 under PROMESA’s budget process and later provided revisions, including an updated submission on April 21.

The oversight board said it focused its review on changes from the FY2027 budget targets it shared with the government on Feb. 13, as well as on risks facing individual agencies. While the proposal met overall General Fund targets, the board said the government did not set aside enough resources to cover certain operating risks and that some proposed reductions could threaten the continuity of essential services.

The board said it pressed to ensure funding for statutory benefits tied to civil service reforms and recruitment plans, critical information technology contracts, training and academies for public safety agencies, operating expenditures aimed at educational stability, and the continuation of essential social and health programs.

The government proposed reductions in part to help fund a stabilization reserve and a risks-and-initiatives fund, the letter said. After further discussions, the board said it accepted several reductions despite warning that agencies could face shortfalls if costs come in higher than projected -- underscoring, it said, the need to maintain a dedicated “risk reserve” during the fiscal year.

The board said it initially deemed the March submission noncompliant with the certified revised 2024 commonwealth fiscal plan and PROMESA requirements, and it raised concerns with the government in mid-March. The administration agreed to submit an updated proposal, which the board said incorporates revisions discussed by both sides.

Even with the updated budget meeting the fiscal plan in aggregate, the board said it remains noncompliant because it was not developed using the agreed-upon modified accrual accounting standards for the General Fund.

The board said the government must submit General Fund and Special Revenue Fund resolutions, including appropriation-level spending details and specified control language, by May 1. The board and the government are expected to continue discussions on unallocated capital expenditures through that date, the letter said, and any changes after April 24 would require updated budget schedules across all funds.

Among the risks cited were potential additional costs for federal disaster-recovery matching requirements, payroll pressures at the Institute of Forensic Sciences, staffing and service impacts in correctional health care, recruitment costs for paramedics, uncertainty over the extension of a code enforcement grant beyond October 2026, and questions about whether funding is sufficient if additional prosecutor positions are required under Act 101-2024.

The board said it will continue working with the administration on recurring funding decisions and reforms aimed at fiscal discipline, and it set June 30 as the target date to certify the FY 2027 commonwealth budget.

Office of Management and Budget (OMB) Director Orlando Rivera Berríos on Sunday rejected the oversight board’s assertions regarding the budget.

“The budget proposal presented by the OMB is grounded in a historical analysis of spending, which allowed for the validation of significant adjustments, including reductions in budgetary allocations,” Rivera Berríos said in a written statement. “This process represents a significant departure from previous exercises, demonstrating a more rigorous and structured approach. …”

“Although it is noted that it does not fully adhere to the Modified Accrual technical framework pursuant to PROMESA, this observation reflects a consistent practice over the last decade, wherein such aspects are subsequently addressed in the audited financial statements,” he added.