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  • Writer's pictureThe San Juan Daily Star

Oversight board to gov’t: Proposed fiscal plan needs further revision

Financial Oversight and Management Board Executive Director Natalie Jaresko

By The Star Staff

The Financial Oversight and Management Board for Puerto Rico informed the island government recently of violations contained in its proposed version of a fiscal plan, which is the blueprint for Puerto Rico’s economic path.

The oversight board asked the government recently for updates to the fiscal plan as it awaits the confirmation of the debt adjustment plan.

The board said the importance of the fiscal plan that it intends to certify in the coming weeks cannot be overstated.

“Pending [federal] Judge [Laura Taylor] Swain’s ruling on the confirmation plan for the central government debt restructuring, it appears likely that the end of the Commonwealth’s bankruptcy is on the horizon,” wrote Natalie Jaresko, the executive director of the oversight board. “The Board has worked with the Government and numerous stakeholders for over five years to bring about this moment. The Plan of Adjustment, if confirmed, will substantially reduce the cost of the Commonwealth’s debt service and provide the opportunity for a fresh start.”

To take advantage of the moment, she said, the government will need to redouble its efforts to ensure fiscal responsibility and manage its resources carefully for the benefit of the people of Puerto Rico. This includes making prudent spending and investment decisions to meet current needs and reach future goals, while also prioritizing resources needed to fulfill commitments made to provide retirement benefits to public sector workers.

She noted that the proposed plan forecasts significantly increased federal funds as a result of recent guidance from the Centers for Medicare and Medicaid Services making incremental general funds available, along with incremental local resources due to an improved national and global economic outlook since the last fiscal plan was certified. The proposed plan then outlines a number of new spending priorities, some of which are one-time while others are recurring in nature.

“While some of the new spending priorities have merit, taken as a whole the Proposed Plan does not adequately consider whether those expenditures are affordable, and fails to set aside, on a priority basis, sufficient resources to meet the Commonwealth’s obligation to current and future retirees,” Jaresko said.

In order for the oversight board to fully consider the government’s requests, the board required revisions that follow several critical themes:

The first is that the government must prioritize obligations to current and future retirees: the Plan of Adjustment provides a mechanism to set aside resources to fund the commonwealth’s pension obligations. While most states have set aside resources equivalent to 70+% of pension

liabilities, the government of Puerto Rico has nothing set aside at this time. “In order to bring the commonwealth in line only with the bottom decile of states,” Jaresko said, “please revise the Proposed Plan so that the pension trust targets a 50% funding ratio by 2031.”

Second, she said the government must create a fiscally responsible post-bankruptcy roadmap: the government must establish fiscal responsibility by implementing a properly structured and empowered office that pursues financial reporting, resource management, and planning objectives.

She also said the government must invest in operational capacity to improve government service delivery.

“We recognize the need to adjust compensation structures to ensure the Commonwealth has competitive, fair and justified salaries. Although a Uniform Classification and Compensation Plan (URP) establishes a uniform role and pay structure for its employees, a URP alone will not lead to a long-overdue transformation of the civil service in Puerto Rico,” Jaresko said. “The proposed Fiscal Plan should include a comprehensive plan based on the implemented pilot project that will improve the civil service including evaluations, recruitment, and organizational restructuring. To address the urgency with compensation structures we agree with the Government on implementation of the URP for included employees in FY 2023.”

However, the effective date of the URP implementation should be January 2023, pending compliance with civil service reform milestones, she added.

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