The Puerto Rico Senate approved an automatic spending reduction mechanism to be used when there are revenue shortfalls.
The Senate amendment to Puerto Rico House Bill 2542 on Thursday would create a reserve fund at the Government Development Bank for Puerto Rico, according to a press statement from the Senate. The Office of Management and Budget could use the fund to cover shortfalls in revenues.
The House and Senate versions of the budget have reserves, as have past Puerto Rico spending plans, a Senate source said. This amendment would require that the reserve money be set aside in a separate monitored fund, the Senate source said. The House and Senate budget versions specify a total reserve of $250 million and the amendment says that, of this, $150 million would normally be in the fund for revenue shortfalls.
Separating the reserve would make it easier to monitor and more liquid, the Senate source said.
Puerto Rico Senate President Eduardo Bhatia sponsored the amendment.
The amendment would set up two stabilizing mechanisms for the General Fund. First, if the reserve were drawn on, the Treasury Department and Office of Management and Budget would have to provide a plan to the GDB showing how the government will mitigate the shortfall.
Second, if the reserve were to be completely used up and there was still an additional shortfall, the Treasury would provide a plan that would ensure that the Department of Finance ended the fiscal year with at least a $100 million cash balance.
If a deficit between revenues and spending develops, the amendment indicates that spending cuts would be preferred.
The amendment would be valid for all fiscal years going forward.
As part of the amendment, staff at the GDB would be required to comment on the reasonableness of the approved budget's projected revenues and cash flows.
According to the amendment, the Secretary of the Treasury would certify monthly to the GDB that: one, Puerto Rico is making its required pension payments; two, the Treasury has paid all tax refunds allotted to that month; three, it made all other budgeted disbursements; and, four, that the Treasury has not already used money that has been promised for future use.
Other than this amendment, House Bill 2542 concerned the commonwealth's tax and revenue anticipation notes.
The bill will have to be discussed in conference committee with the House representatives and then voted on before the end of Tuesday if it is to go into effect for the start of the fiscal year.
