Puerto Rico Oversight Board Executive Director Natalie Jaresko said the board’s financial plans include executing the central government plan of adjustment in fiscal 2022, including debt service payments.
The board’s proposed General Fund budget, submitted to the Puerto Rico legislature on May 10, has no money allocated for debt service. However, Jaresko said Thursday that after the plan is approved the board plans to amend the budget in the coming fiscal year to cover debt service.
“We have ensured that the level of revenues that is being spent is only a portion of the [actual anticipated] revenues such that those payments and all the payments that are going to be required under the plan of adjustment terms are affordable,” Jaresko said on a press conference call.
The board is proposing a $10.112 billion General Fund budget. Gov. Pedro Pierluisi this week submitted a $10.345 billion GF budget to the legislature.
Jaresko said the current proposed central government plan of adjustment’s early years assumes the GF would spend $600 million to $700 million per year on debt service. Additionally, at the start there would be some payments made from the government’s bank accounts.
As of May 7, the Puerto Rico Treasury had $10.56 billion in its account.
Jaresko said the plan of adjustment calls for a roughly $7 billion upfront payment to holders of the island’s general obligation and Public Building Authority bonds. It anticipates that $1.3 billion to $1.5 billion will be paid to participants in the Sistema 2000 pension system, which past governments did not adequately fund. The central government will use its bank account to make both payments.
The board’s budget anticipates spending about $1.5 billion on the island’s version of Medicaid. The board hopes that the federal government in the coming budget, which will go into effect on Oct. 1, will allocate special appropriations for Puerto Rico Medicaid. The federal government has done this in recent years. If it does this again, the board will amend the budget to use the Medicaid allocated money for other purposes.
In past years it has shifted money budgeted for Medicaid so that it could be used for public hospital capital expenditures and other public healthcare, Jaresko said.
According to the Puerto Rico Oversight, Management, and Economic Stability Act, the board has ultimate authority over the central government’s spending. If the legislature sends the board a budget the board does not support, the board can approve a budget of its choosing.
Jaresko pointed out that the legislature and the governor have authority over revenue measures. Puerto Rico allows $25 billion in tax expenditures (tax-exemptions) each year, she said.
“If there are critical services … that need to be funded that aren’t funded by this budget because we have no incremental resources at this time, the question should be, ‘how do we ensure greater resources for funding those going forward,’” Jaresko said. “Do we reduce tax expenditures by $500 million or raise incremental revenues by $500 million. That remains a question that is in the hands of the legislature on the revenue side.
“Until the revenues allow more spending, we have to avoid the practices of the past — spending more than we earn, overestimating revenues and spending beyond our means,” Jaresko said. “That’s what put Puerto Rico into this difficult financial situation. … Putting fiscally responsible budgets in place is the only thing that will enable the junta [board] to go away once and for all.”
