In a first, PR Oversight Board agrees with local government on budget

The Puerto Rico Oversight Board on Wednesday approved a $10.1 billion budget crafted by the Puerto Rico local government for the first time in the board’s history.

“The budget developed jointly by the governor, the legislature, and the Oversight Board is a significant achievement and an important step toward achieving fiscal responsibility and economic stability,” said the Oversight Board Chairman David Skeel. “The Oversight Board, the governor, and the legislative leadership cooperated more closely than in any previous year to ensure the budget prioritizes critical services that are so important for the lives of all residents of Puerto Rico.”

The government expects $26.9 billion of public spending this year. Of this, $10.1 billion is for the General Fund, $3.5 billion is in the Special Revenue Fund, $7.8 billion is composed of federal funds, and $5.4 billion is for Puerto Rico’s instrumentalities.

At the end of June in 2017, 2018, 2019, and 2020 the board approved its own version of the central government budget, which diverged significantly from the locally approved versions. Under the Puerto Rico Oversight, Management and Economic Stability Act, the board-approved budget is the legally binding budget for the island. Puerto Rico’s fiscal year starts on July 1.

The board said in addition to traditionally budgeted federal funds, Puerto Rico’s economy will benefit from an additional $20 billion of federal stimulus funds related to the COVID-19 pandemic, including $1.9 billion of unemployment, an additional $1.7 billion for food stamps, $476 million of small business support, and $2.5 billion of tax incentives. The board also estimates over $3 billion of federal disaster recovery funds will be disbursed and invested in rebuilding in fiscal 2022, primarily from Federal Emergency Management Act and Community Development Block Grant-Disaster Recovery programs responding to effects of Hurricane Maria and earthquakes.

Gov. Pedro Pierluisi, who was present at a Thursday meeting where the board explained the budget, said his original proposed central government General Fund budget had included more spending. However, out of the spirit of compromise he chose to work with the board to create a mutually agreed upon budget.

The fiscal 2021-2022 General Fund budget is for $10.112 billion and of this the biggest expenses are $2.12 billion for health, $2.06 billion for pensions, $1.88 billion for education, $1.28 billion for the Department of Public Safety and Corrections, $416 million for economic development, and $371 million for the courts and the legislature.

The budget focuses on operational improvements through agency consolidations, the creation of the Office of the Chief Financial Officer, Medicaid reform, enhancing tax compliance, optimizing taxes and fees, and reforming the island’s pension system, said Ginorly Maldonado, commonwealth and fiscal plan budget director for the board.

The General Fund has $312 million allocated to capital expenditures, of which $53 million is being transferred to the Highways and Transportation Authority. Additionally, there is $611 million of prior year unspent capital expenditures rolling over into the current fiscal year. Across all central government funds and including expected federal funds there is $1.078 billion available for capital expenditures in the fiscal year.

On Thursday the board also explained other budgets it approved Wednesday. The board approved an operating and maintenance budget for the Puerto Rico Electric Power Authority of $3.13 billion, up from $3.06 billion in the previous fiscal year. The authority’s revenue is expected to be $3.1 billion, up from $2.9 billion. The authority’s fuel costs are expected to go up as fuel prices rise worldwide. These are offset by labor savings due to the transformation of the transmission and distribution system.

Alejandro Figueroa, board infrastructure director, said the PREPA budget has a pre-debt surplus “while also ensuring key priority areas such as vegetation management, workplace safety, and system maintenance and improvement are adequately funded.”

Figueroa said the Puerto Rico Aqueduct and Sewer Authority budget showed a “slight surplus,” mainly due to debt transactions completed in calendar years 2019 and 2020, the implementation of gradual and modest rate increases, and the influx of federal funding from FEMA and the State Revolving Funds. The improved financial situation has allowed the authority to shift focus on investing in its water system and improving operational performance.

The budget anticipates $1.03 billion of revenue in fiscal 2022, $43 million less than the previous fiscal year due to lower population and lower demand.

The approved budget for the HTA is for $681 million in operating and capital expenses in fiscal 2022, down from $862 million in fiscal 2021. Operating and capital revenues are projected to decline to $710 million from $862 million. The central government contributed $206 million in operating revenue in the last fiscal year and is expected to contribute none in the present fiscal year.

In addition to these budgets, the board approved budgets for the University of Puerto Rico, Puerto Rico Industrial Development Company, Public Corporation for Supervision and Insurance of Cooperatives (COSSEC), Puerto Rico Sales Tax Finances Corporation (COFINA), and Municipal Revenues Collection Centers (CRIM).