Puerto Rico's Senate, in the midst of a credit crisis, passed a balanced budget that covers general obligation debt and increases the appropriation to the Government Development Bank for its liabilities.
The $9.8 billion budget, which passed by an 18-9 vote late Wednesday, allots $5.163 billion for social development and education, $1.507 billion for debt service, $1.402 billion for security and protection, $787 million for government management, $371 million for technical assistance to the municipalities, $322 million to the general court, $224 million for economic development, according to the Senate information office. It includes $642 million for the government's pension system.
"Certainly this is a historic budget, which for the first time does not use private funding to be balanced and allows continued government operations in Puerto Rico," said José Nadal Power, chairman of the Senate Treasury and Budget Committee.
The Senate version of the proposal, which now must be reconciled with a House version passed Monday, would increase the government's transfer to the GDB to $355 million from the $301 million in the earlier plan.
GDB President Melba Acosta Febo said the GDB had made a "wishful" request of $700 million for fiscal year 2016 budget. Gov. Alejandro García Padilla and his Office of Management and Budget had cut this figure to $358 million in his proposed budget. Even the $301 million figure would be an increase from the $246 million found in the fiscal year 2015 budget, Acosta Febo said in an email.
All 18 votes in favor of the budget came from members of the governor's Popular Democratic Party. All members of the opposition Popular National Party and Puerto Rican Independence Party voted against.
"How odd that those who now oppose paying the debts are precisely those who most indebted the country," said Senate President and PDP member Eduardo Bhatia.
The debt service consists of $1.011 billion for general obligation debt, $122 million for Administration for Infrastructure Financing and other debt, $355 million for the GDB, $3 million for other debt service, $46 million for the last payment for the fiscal 2015 tax and revenue anticipation note.
Earlier this month, Center for a New Economy Policy Director Sergio Marxuach released a report praising the governor's proposed budget for ending a reliance on non-recurring revenue.
He noted that tax revenues in Puerto Rico remain low relative to GNP. "This is due to (1) a plethora of tax loopholes that have been legislated through the years; (2) lackadaisical tax enforcement; and (3) several consecutive years of anemic economic growth."
He said that the size of the structural deficit has generally been decreasing in recent years and would continue to decrease in the governor's budget.
However, Marxuach said that though the governor's budget was apparently balanced, it still had a structural deficit up to $674 million. Marxuach said this might be a pessimistic assessment of deferred expenditures, as some of these expenditures will never be made. However, he said $394 million of the expenditures are very likely going to have to be paid.
By this measure the budget still has a 3.8% structural deficit.
The Puerto Rico Treasury did not immediately return a call about Marxuach's conclusions.
The amount of money the commonwealth government allocates to the GDB for debt service is significant because the GDB has indicated it may have trouble paying its obligations as soon as this summer. It has several hundred million dollars of debt maturing before the third quarter ends.
A balanced budget has been among the demands of the ratings' agencies and other municipal analysts as Puerto Rico attempts to restore its credit to investment grade. Acosta Febo has said the commonwealth needed a balanced budget to be able to borrow significant amounts of money.
The government hopes to borrow at least $800 million from banks in fiscal 2016 tax and revenue anticipation notes, Puerto Rico Representative Rafael Hernandez Montañez said Wednesday. This borrowing would normally come in the early months of the coming fiscal year, which starts July 1.
