The Puerto Rico Oversight Board presented its first take on what needs to be done to bring the commonwealth out of its fiscal crisis.
In the
The board said Puerto Rico needs to restore economic growth through structural reforms, achieve government fiscal balance through spending and revenue measures, and restructure long-term liabilities.
For economic growth, the board urged review of labor regulations to make it easier for businesses to operate in Puerto Rico. There must be comprehensive reform of welfare benefits and the Earned Income Tax should be introduced, both to increase the incentives for Puerto Ricans to work.
Puerto Rico's tax system must be fairer to all classes of employers rather than benefitting only certain groups of them, the board stated. An alternative must be developed to replace the Act 154 excise tax on foreign corporation revenues that is scheduled to phase out starting in 2017.
The government needs to make property tax changes, including a revaluation, to increase tax receipts and enable the central government to decrease subsidies to the municipal governments.
The board estimated overall tax compliance in Puerto Rico at 65%. The commonwealth should enhance compliance through increased audit effectiveness, the use of technology, and other steps.
Puerto Rico needs to improve its economic competitiveness partly through the government overhaul of its business regulations. The process of getting a business permit needs to be made easier and quicker.
The board said Puerto Rico's infrastructure lags that found in the 50 states and claimed the solution is largely through privatization.
Regarding measures to bring fiscal balance, the board calls for a "comprehensive restructuring of the way the government delivers services." It stated the government can "no longer" afford "non-essential services" but doesn't provide any example of these. The board says the government will have to make "substantial" cuts.
The board called for the consolidation of many government agencies.
In its letter, the board members wrote that "out-of-the-box thinking and comprehensive reforms" could lead to savings of $1 billion over 10 years in the K-12 education sector. The board called for a means-tested tuition policy at its higher education institutions.
Certain government assets like real estate and ports should be sold and the funds should be used for upgrades to the island's infrastructure.
The board said that Puerto Rico's debt will have to be "restructured" and simplified. "Change is also needed to ensure the pension costs are sustainable," the board stated.
The board also called for Governor-Elect Ricardo Rossell- to create a "high-level task force" in the first week of his term to work on the fiscal plan. Rossell- is to be sworn into office on Jan. 2.
According to the Puerto Rico Oversight, Management, and Economic Stability Act, the board is to create a five year fiscal plan that should, among other things, provide a balanced budget to the commonwealth, regain access to the capital markets, fund essential public services, fund pensions, and achieve a sustainable debt burden.
The board urged the governor-elect to submit a package of legislation and administrative reforms to the Puerto Rico legislature by Feb. 15, 2017.
The board repeated that it intends to submit a "certifiable fiscal plan" by Jan. 31.
