Pierluisi calls for more ‘communicative’ relations with oversight board

By The Star Staff

Calling for a more communicative relationship between the federal Financial Oversight and Management Board and his government, Gov. Pedro Pierluisi Urrutia announced Sunday that he is slated to submit by Tuesday a draft of the Fiscal Year 2022 budget that the governor said is inconsistent with the current fiscal plan because the latter does not reflect Puerto Rico’s true economic outlook because it has not been updated yet.

Pierluisi, who was serving as island resident commissioner in Washington, D.C. at the time the Puerto Rico Oversight, Management and Economic Stability Act (PROMESA) was enacted by Congress in 2016, said the commonwealth fiscal plan, a multi-year plan on the use of public monies ordered by PROMESA, was always intended to be a “living document” that would be revised periodically depending on multiple factors, including economic factors. The oversight board has not revised the fiscal plan since May of last year although two different economic forecasts from the Congressional Budget Office (CBO), which are used as a baseline for the fiscal plan, have been issued and the U.S. territory has received a substantial amount of federal funds not envisioned in the current fiscal plan, he said.

“I know that in the past the board revised the plan in mid-year as needed, but what I notice now is that the board has not revised the fiscal plan since May of last year and since then there have been two different CBO forecasts, or updates by CBO, which have not resulted in any revisions of the fiscal plan,” the governor said. “We are in the middle of the [coronavirus] pandemic and Puerto Rico has been receiving a substantial amount of federal funds that also were not envisioned when the current version of the fiscal plan was designed and approved.”

“I am just alerting the board that because we don’t have a revised fiscal plan and we have to live with the current baseline, it limits the government’s flexibility to put forth a proposed budget that is real and that ensures that we have a working government,” Pierluisi said. “Next Tuesday, you’ll see I may have put out a budget that may not be totally consistent with the fiscal plan, but it is for obvious reasons. Because as I see it, the government needs a bit more flexibility and could have had it if the fiscal plan had been revised.”

Pierluisi’s remarks on the budget for the next fiscal year came about after he, oversight board member Justin Peterson and Executive Director Natalie Jaresko had an exchange related to the board’s economic projections following an overview given by Jaresko of the process of updating the certified fiscal plan with current data and new developments. The new fiscal plan is slated to be certified by April 23.

Peterson questioned his peers as to why the economic and fiscal projections from McKinsey & Co., an adviser to the oversight board, were different from current government collections, in one case by a billion dollars. Jaresko made it clear that McKinsey & Co. is not responsible for the board’s economic projections. She stressed that the methodology and approach to designing the fiscal plan is careful and fiscally conservative, the mandate being to establish fiscal accountability. The numbers used in the fiscal plan use a wide variety of sources such as the numbers from the Puerto Rico Planning Board, the Puerto Rico Statistics Institute, local economists, the local business community, and the board’s business survey, as well as U.S. mainland forecasts produced by the CBO, which are then adjusted for Puerto Rico, she said.

The task relies on the expertise of Ernst & Young, economist Andrew Wolf, who previously worked for the International Monetary Fund, and oversight board economist Ricardo Fuentes, and is carried out in conjunction with the island Treasury Department.

Jaresko said McKinsey, which has been paid a total of $130 million in fees, provides advice and benchmarking.

“They are one of a team of advisers that works together under the staff’s direction to bring the board a fiscal plan, propose assumptions, things for you to determine what you want to include or exclude at any given time,” Jaresko said.

Oversight board member John Nixon, an expert in budget matters, argued that the exercise of economic and fiscal projections is more “an art than a science,” especially in uncertain times such as those experienced by Puerto Rico. However, he said the 1% to 2% difference between the board’s projections and the real revenues was remarkable. Nixon said it was not up to McKinsey but rather to the oversight board to decide how conservative or aggressive it will be with the numbers.

The oversight board also approved a total of about $69 million in reapportionment requests by the Puerto Rico government, including for the Department of Education to fund therapies and related services to special education students, for the Department of Health for the construction of a hybrid cardiovascular operating room, and for the Medical Services Administration to fund the construction and operation of a new rehabilitation center within the Trauma Hospital.

However, it denied funding requested by the Ports Authority for a runway strip at the Aguadilla Airport, one of three airports that currently receive passengers and cargo, and that is essential to the economic development of the western part of the island, and for the dredging of San Juan Bay, which is essential in facilitating the maneuvering of incoming ships.

During the public meeting, Pierluisi expressed frustration that the Ports Authority request was made to the oversight board about five weeks ago and it was not until the day of the meeting that the board expressed itself on the matter.

“Those are very strategic projects,” the governor said. “You are talking about a $135 million investment, to have an air strip in Aguadilla that has multiplying effects for the purposes of tourism.”

The Federal Aviation Administration is insisting that the island government must provide matching funds and cannot wait until the budget for the next fiscal year, which starts in July, to do so.

“When we are talking about big ticket items, we need to act with a sense of urgency,” Pierluisi said.

The governor advocated for a new working relationship between the oversight board and his administration in which the board can provide solutions that enable the government to hasten budget reallocations on important matters.

Pierluisi, who despite not having a vote in the oversight board has determined that he would participate directly in board meetings, indicated to the directors of the federal entity that ensuring the functioning of the island government is not feasible if the government is obliged to enter into a process of documentation and objections each time it requests the rescheduling of existing funds for purposes other than those budgeted. He said the best thing would be for the board’s technical staff to indicate how or what they would need to get the petitions approved.

“This should not be a clash,” the governor said. “It should be a conversation, a collaboration when we are talking about important matters. All I am asking for is a change of course. I don’t want this to be a confrontation.”

Jaresko said the oversight board rejected the Ports request because the agency was seeking to get the funding from a reserve that was separated to allow the government to have matching funds for projects paid for by federal funds from the Federal Emergency Management Agency. She said the projects must be covered by other sources of funds and not those suggested by the government.

In the midst of the discussion, Jaresko assured the governor that the board was not interested in rejecting requests from the government, and that in the case of the Ports Authority, the board had been requesting information for the reprogramming of funds for weeks.

Peterson intervened for Pierluisi by asking the oversight board to reconsider the decision, but his motion was not seconded. He said rejecting the Ports request when the government has the money to cover the expense is inappropriate and denotes the board’s disinterest in promoting economic activity on the island.

Board member Andrew Biggs said the board was not opposed to making investments in the Aguadilla airport. He added that the board’s role is to ensure that the government has the money to cover its expenses.

The oversight board said that as soon as the government identifies a source of funding for the projects, the entity will allow the reapportionments.

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