Puerto Rico Gov. Ricardo Rosselló proposed an austere fiscal year 2018 General Fund budget that he said cut operating expenses by 9.1%.
While the governor didn’t immediately release a breakdown of the budget’s spending and revenues, he said, “The measures implemented in this budget are those that we had established in the fiscal plan.”
The fiscal plan was certified by the Oversight Board created in last year's Puerto Rico Oversight, Management and Economic Stability Act. It anticipates that the central government would have enough available money to pay $404 million of $3,283 million of scheduled debt service, or 12.3%, in fiscal year 2018. The governor didn’t confirm this amount in his speech on Wednesday. These numbers don’t include the debt from semi-autonomous and autonomous public sector entities.
The approved fiscal year 2017 General Fund budget had $9.1 billion in revenue and $8.987 billion in spending, according to the Puerto Rico Office of Management and Budget. Rosselló’s General Fund budget proposal has $9.56 billion in spending, a 6.3% increase.
The governor may see “operating expenses” as declining because this budget, unlike previous ones, has a $2 billion payment for the government’s three pension systems. This is much larger than previous budgets.
“One of the most important differences in this budget is that, contrary to the previous ones, it really is balanced,” the governor said. He said that the government has already achieved a $200 million reserve, which the Puerto Rico Oversight Board required.
Puerto Rico’s fiscal year 2018 starts on July 1.
Rosselló said he would soon submit measures to simplify Puerto Rico’s tax system.
The approved fiscal plan calls for $924 million in revenue increases and $851 million expense cuts in fiscal year 2018, with some of these measures affecting parts of the government’s budget outside of the General Fund.
Among the key fiscal plan measures to increase fiscal 2018 revenues is $519 million by extending the Act 154 foreign corporation tax and $150 million through improving tax compliance.
The fiscal plan’s biggest steps to cut spending in fiscal 2018 are to pare $411 million by cutting subsidies to the University of Puerto Rico and municipalities and cut $250 million by freezing payroll increases and eliminating vacation and sick day liquidations.
The governor presented his budget in response to demands from the Puerto Rico Oversight Board for him to submit a structurally balanced budget. The board has called for a “once and done” approach to the Puerto Rico government’s fiscal crisis. For the board members, this has meant advocating immediate large spending cuts and revenue increases in the budget.
The board certified a 10 year fiscal plan in the middle of March that aimed to put the government on a structurally balanced budget path. It included a plan to cut the commonwealth’s debt service by 76% through fiscal year 2026.
At this point the board has put $40.75 billion of Puerto Rico’s $74.3 billion of public sector debt into the Title III bankruptcy process, making Puerto Rico by far the largest municipal bankruptcy in United States history. As of July 30, 2014 the government also had a $43.6 billion in net pension liability that will be addressed by the Title III process.
Title III is part of the PROMESA law. Section 202 of this act governs the budget making process. It says that if Puerto Rico’s government doesn’t approve a budget that the board approves, the board can approve a budget and it would be deemed the government’s budget.
On Tuesday Puerto Rico Senate Popular Democratic Party leader Eduardo Bhatia complained that the governor had submitted a proposed budget to the Oversight Board on April 30 but had kept it secret. Bhatia said he anticipated the budget will have “severe and draconian cuts.” The PDP is Puerto Rico’s primary opposition party to the governor’s New Progressive Party.
San Juan mayor Carmen Yulín Cruz said, “The governor’s public policy has been to act as the messenger of the junta [i.e. the Oversight Board] and, in this way, has hidden behind it to become the executioner of Puerto Rico,” according to the El Vocero news web site. “The budget message will be another sign that the governor turns his back on the people.”