Puerto Rico board proposes fiscal plan, says ‘still work to be done’

By Sarah Lizee

Olympia, Wash., Jan. 28 – The Commonwealth of Puerto Rico’s financial oversight and management board announced its members will consider the certification of an updated fiscal plan for Puerto Rico that reflects the commonwealth’s plan of adjustment recently confirmed by the U.S. District Court for the District of Puerto Rico, recent increases in federal funding, and Puerto Rico’s economic recovery.

“Confirmation of the commonwealth plan of adjustment truly makes it possible to imagine a different, a better future for Puerto Rico,” said the oversight board’s chairman, David Skeel, in a Wednesday press release.

“There is still work to be done. Fiscal responsibility still needs to be maintained and improved, structural reforms still need to be implemented, and Puerto Rico’s recovery needs to turn into long-term economic growth. The fiscal plan defines those goals.”

The board said the updated fiscal plan includes the following key structural reforms:

• The fiscal plan promotes participation in the formal labor force and outlines comprehensive workforce development opportunities;

• Education reform focuses on dramatically improving student graduation rates and test scores;

• Ease of doing business reform aims to reduce obstacles to starting and sustaining a business through improvements to the processes to obtain permits, register property, and pay taxes;

• Power sector reform will provide more reliable, more affordable, and cleaner electricity; and

• Infrastructure reform will reform the public transportation sector.

The updated fiscal plan also includes the following investments into Puerto Rico’s civil service, education, health care and infrastructure:

• $10.3 billion for the pension reserve trust over the next 10 years;

• $3.8 billion for civil service reform and salary increases of education department employees, firefighters and correctional officers; and

• $1 billion in enhanced retirement benefits for police officers, including medical insurance from retirement to Medicare qualification.

“Puerto Rico’s financial crisis has reached a turning point,” said the board’s executive director, Natalie Jaresko.

“This first fiscal plan after the confirmation of the plan of adjustment no longer focuses on rightsizing the commonwealth government. The fiscal predictability provided by the exit from bankruptcy, together with the significant increase in federal funding, allows the government to increase public employee salaries and invest in more effective services for the people and businesses of Puerto Rico.”

The board said the commonwealth has seen a surge in available resources, largely attributable to increased federal funding. Recent guidance issued by the Centers for Medicare and Medicaid Services (CMS) substantially increased federal funding available for Puerto Rico’s Medicaid program. As a result, program costs that were previously forecasted to be funded using commonwealth resources are now paid by the federal government.

Further, improved local revenue collections as a result of Covid-19 related income support programs led to higher-than-expected economic growth.

For this current fiscal year 2022, the fiscal plan projects gross national product (GNP) to expand 2.6%, followed by slower GNP growth of 0.9% in fiscal year 2023. The fiscal plan projects a limited contraction in fiscal year 2024 and real growth again in fiscal years 2025 to 2028.

As disaster relief funding and the spending of Covid-19 federal and local stimulus funds decline considerably and structural reform growth rates are muted, GNP growth returns to its historical negative trend starting in fiscal year 2029.

The fiscal plan projects above-trend Puerto Rico inflation of 3.8% in fiscal year 2022, in line with trends in the broader U.S. economy, before declining to 2.7% in fiscal year 2023 and 1.7% in fiscal year 2024. Inflation is then expected to settle at a long-term rate of 1.5% to 1.9%.

The Commonwealth of Puerto Rico announced its Title III petition filing in the U.S. District Court for the District of Puerto Rico on May 3, 2017. The case number is 17-03283.

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