Puerto Rico board, government approve consensus FY24 budget

The Puerto Rico Oversight Board Friday approved the commonwealth's fiscal 2024 budget that increases government spending and was already approved by the governor and local legislature.

The budget consensus marks a departure from the long history of disagreements between the territory's elected government and the board created by the federal government to restructure Puerto Rico's debts.

The board voted 6-0 to approve a $12.74 billion general fund, 2.5% more than that of fiscal 2023, and a $31.02 billion total central government spending budget, 10.7% more than that of fiscal 2023. Board member Justin Peterson was absent from the meeting.

Board Member John Nixon said he was happy to be approving a budget Gov. Pedro Pierluisi had signed and that the process of getting local government approval came down to the "last minute."

"Although, as is to be expected, we did not agree on everything, probably more than 95% of the budget that was certified here today reflects agreement on the part of both the government and the board," Pierluisi said at the meeting.

In Spanish, Pierluisi said this was the third balanced budget Puerto Rico had adopted.

In a previous budget, the board bypassed the local government to certify a final budget. At the end of June 2021, the board approved a fiscal 2022 budget that had also been approved by the governor and legislature. However, that budget did not end up being fiscal 2022's true budget. After the U.S. District Court for Puerto Rico approved a plan of adjustment for the central government's debts in early 2023, the board asked the local legislature to approve an amended fiscal 2022 budget to accommodate the spending on debt. The Puerto Rico Senate President José Luis Dalmau Santiago could not find the votes to approve the budget the board was seeking and the board certified its budget without local government support.

The approval of balanced budgets and the local government's involvement in their creation is important because the Puerto Rico Oversight, Management, and Economic Stability Act says one of the conditions for the board's dissolution is the passage of four consecutive budgets balanced on modified accrual accounting standards.

In the total central government spending budget, the five biggest expenditures are for health at $6.4 billion, education at $5.5 billion, families and children at $3.5 billion, pay go for pensions at $2.6 billion and housing with $2.3 billion.

There is $1.1 billion for debt-related spending and of this, $646 million is for current interest general obligation bonds, $345 million for sales and use tax contingent value instruments, $106 million for capital appreciation bonds, and $5 million for rum cover over CVI.

There is also $1 billion allocated for a pension reserve trust.

The board also presented the fiscal 2024 budgets for seven Puerto Rico instrumentalities at Friday's meeting. The board had approved the budgets prior to the meeting.

The board approved a Puerto Rico Electric Power Authority budget with $3.671 billion of spending, a 19.7% decrease from fiscal 2023. Revenues are expected to decline 20.6% from fiscal 2023 to $3.943 billion.

Most of the decreases in revenues and spending are due to lower anticipated fuel costs. However, declining population and economic activity and increased household solar panel adoption are also factors, said board Executive Director Robert Mujica Jr.

He said data showing substantially higher household solar energy use this past year contributed to the board's decision to drastically reduce its offer to bondholders in the forthcoming plan of adjustment. Based on the new projections for electric load, the board has already specified PREPA can pay only $2.4 billion to all bondholders, settling and non-settling.

The system's base revenue, which is used to finance operations and maintenance, is expected to decline $58 million, Mujica said.

This was the first year that the local Puerto Rico Energy Bureau certified PREPA's budget before the board did so, Mujica said. The Federal Emergency Management Agency has provided temporary generation facilities to the island and to take advantage of this, the bureau and board are "aggressively" increasing money for maintaining PREPA's generation facilities.

Mujica said PREPA would save money by reducing the number of personnel involved with the generation facilities.

The board said the Puerto Rico Aqueduct and Sewer Authority revenues and expenditures should separately rise to $1.128 billion from $1.083 billion, a 4.1% increase. Revenues will go up partly due to a 2% rate increase planned to start Saturday.

PRASA is receiving $330 million in FEMA funds to upgrade its meters. It expects this investment will allow it to gain an additional $144 million fiscal 2025 to fiscal 2028.

Much of the increase in PRASA's expenses is due to spending on non-revenue producing water due to aging infrastructure, the board said.