Puerto Rico has a $3.2 billion deficit in its $9.48 billion fiscal 2009 budget, which began July 1, and could face annual shortfalls of more than $3 billion over the next four years unless the government curbs spending or implements other financial initiatives, according to a fiscal advisory committee set up by Governor-elect Luis Fortuño.
The 14-member panel released its initial findings last week, with Fortuño pledging to end Puerto Rico's structural imbalance within four years through government downsizing and promoting business growth on the island. In November, the current administration announced a $2 billion budget deficit.
"The issue is that the government is spending even more than what's budgeted and collecting less than it thought it would, and that is why the gap is so wide," Fortuño said in a phone interview.
The incoming governor said he plans to cut agency budgets by 5% once he takes office on Jan. 2 and will reduce the island's payroll even further. Current Gov. Anibal Acevedo Vila has decreased the size of Puerto Rico's government by reducing employee head counts by 17,000 through attrition and early-retirement incentives.
"It will carry on for the duration if we do nothing about it, which will imply that we will close the government and lose our credit in the process," Fortuño said.
Moody's Investors Service and Standard & Poor's rate the commonwealth Baa3 and BBB-minus, respectively. Fitch Ratings does not rate the island.
Fortuño will announce more detailed plans of how his administration will address the budget gap in January as the fiscal reform committee, headed by Banco Popular chief executive officer Richard Carrion, will now meet with labor unions, nonprofits, and business leaders to gain their insight regarding Puerto Rico's fiscal challenges.
Along with immediate budget adjustments, Fortuño said he will file public-private partnership legislation in January to set the framework for more private investment in infrastructure projects. In addition, the governor-elect and Pedro Pierluisi, Puerto Rico's incoming congressional representative, are pushing for assistance from the federal government.
"Pierluisi and I have been working very hard to include Puerto Rico in the federal economic stimulus package and hopefully we'll have something to say about that soon in February," Fortuño said. "And finally, I will be announcing a local economic stimulus package in January. And that will allow us to pay our suppliers, pay our not-for profits, and so on and so forth."
In response to the $3.2 billion deficit announcement, Moody's analyst Emily Raimes declined to say whether the news could prompt a change to the credit rating, but said that the new administration has a lot of work ahead.
"One thing to keep in mind is the relative nature of the ratings and [Puerto Rico's] looking at a very large gap, but a lot of states are looking at very large gaps as well," Raimes said. "They're looking at a recessionary environment, but basically the whole country is looking at a recessionary environment. But still in that context, the numbers are very large and are going to present a real challenge."
Standard & Poor's analyst Horacio Aldrete said that the rating agency does not plan to alter the commonwealth's credit rating at this time.
