A series of articles about the Financial Oversight and Management Board for Puerto Rico, its mandate under the Puerto Rico Oversight, Management, and Economic Stability Act of 2016 (PROMESA) and its work to help Puerto Rico recover included several misconceptions that need to be addressed to set the record straight.
PROMESA gives the Oversight Board two mandates: To help Puerto Rico achieve fiscal responsibility with pro-growth fiscal reforms and renew access to capital markets. Fiscal responsibility is achieved through a balanced budget and through the Fiscal Plan. Access to capital markets requires a debt restructuring. In the three years of the Oversight Board’s existence, it has made progress in both of its mandates.
Fiscal responsibility is not the same as austerity. Fiscal responsibility is about prioritizing investment of taxpayer money. The Fiscal Plan for Puerto Rico that the Government and the Oversight Board created lays out the steps necessary for public spending to be prioritized and sustainable.
Decades of spending have not given Puerto Rico a reliable infrastructure and superior education. It has left Puerto Rico bankrupt.
Puerto Rico is now unable to afford its sizable government structure servicing a shrinking population. The Fiscal Plan, however, ensures adequate funding for the public services the people of Puerto Rico need and deserve while maintaining fiscal balance.
For example, the Fiscal Plan ensures that government expenditures per capita for social purposes and education will, in fact, increase, not decrease. Social assistance spending per capita is projected to rise more than 15% between the first budget certified by the Oversight Board for the fiscal year 2018 and the end of the projected period in 2024. Education spending per student increases by about 9% over the same period, with a large investment in the current fiscal year to enable reforms. In the current fiscal year, we also raised salaries for police officers, firefighters and teachers, focusing resources on the most important public needs.
The Fiscal Plan does not include tax increases. It calls for measures to reduce fraud and increase fair compliance with existing taxes. (The Government of Puerto Rico previously increased taxes on tobacco and applied the hotel room tax to Airbnb, among other tax measures, adding less than 1% to Puerto Rico’s revenues.)
The Fiscal Plan also includes the consolidation of no fewer than 114 government agencies to 42, to eliminate competing efforts of multiple agencies and adjusts for a declining population. At full implementation in fiscal 2024, only 13% of all right-sizing measures in the Fiscal Plan would affect front office staff — the majority are aimed at back office, procurement and other administrative staff.
It is true: Government right-sizing alone will not lead Puerto Rico to prosperity. Significant structural reforms are necessary to attract investments and create jobs. The Fiscal Plan includes structural reforms that would make it easier to invest, and incentives to lift Puerto Rico’s underground economy above ground.
However, PROMESA has not given the Oversight Board the tools to implement an economic development plan. The law intended the Oversight Board to have one main tool to accomplish its mandates: the budget. Most of the Oversight Board’s other powers enable it to stop governmental actions that frustrate the purposes of PROMESA, but not always to implement new initiatives. The elected government can and should champion and implement reforms necessary to develop true competitive advantages and create Puerto Rico’s path to economic growth. The Oversight Board ensures fiscal discipline and monitors implementation of structural reforms — energy transformation, labor policy, ease of doing business — so we all know where we stand, what reforms the government is and is not implementing, and where we are going.
The Oversight Board is deeply committed to help Puerto Rico recover and to fulfil PROMESA’s mandates of fiscal responsibility with pro-growth fiscal reforms and market access that can create the foundation for future prosperity.
