After weeks of speculation, Governor of Puerto Rico Ricardo Rosselló finally presented the island’s budget for fiscal year 2018. This will be the first year that a governor of Puerto Rico has to first send his or her budget for approval to a Fiscal Oversight Board, created by the enactment of PROMESA, before being able to sign it and have it enter into effect.
On June 2, 2017, the board sent a letter to Governor Rosselló and the presidents of both legislative chambers, giving their approval, but at the same time, voicing some concerns. The FOB expects that the approved budget will be modified to include reduction or elimination of earmarks on discretionary spending. This cut could affect non-profits and other entities that are dependent on the funds that are distributed by the government. The FOB has authorized the Executive Director of the board to provide guidance to the government for necessary adjustments.
What follows are some of the highlights of this first budget presented under the Oversight Board and PROMESA guidelines:
The 2018 proposed consolidated budget is approximately $25 billion. This includes federal funds (25% of the budget) and funds from public corporations and other sources. The 2018 consolidated budget is $109 million less than 2017’s consolidated budget total. Most cuts have been made to the areas of operating costs and subsidies to public corporations.
Additionally, the FY18 budget for the government’s general fund is $9.5 billion. This is an increase of more than $575 million from last year. The majority of this increase is due to the sale of liquid assets from the retirement system that will be used to finance the new pay-as-you-go system.
The FY 18 budget proposes a reduction of $178 million for the University of Puerto Rico, along with a $43 million decrease for the Department of Education.
The Department of Health will see an increase in funds of more than $70 million.
There has been an ongoing debate about legislative spending. The new budget proposes a reduction of $27 million . However, it is interesting to note that the contribution to political parties remained unchanged, with over $15 million going to the major parties, while the State Election Commission got a cut of more than $42 million.
The municipalities will be strongly affected by this budget, which cuts $175 million of the contributions that the state government gives to municipalities. This is a reduction of 44.33% from the previous year.
There is no contribution earmarked for to the payment of the debt. As part of FY17’s budget, more than $112 million was assigned for the payment of debt.
Another thing to highlight from the presented budget is that it takes into consideration a reduction in numbers of public employees. For FY17 there were 154,389 government employees. For FY18, the proposed budget accounts for 146,158—a reduction of 8,231 people from the public employee workforce. This could be either due to an estimate of employees that will retire or temporary employees that will not be rehired, or both.
While this year’s government general fund budget is higher than last year’s, it is important to remember that this is due to an increase in the government’s contribution to the public employment (government workers, teachers and judicial staff) retirement system. That accounts for more than $2 billion—a very large chunk of the general fund’s $9.5 billion budget. It is also important to note that all of these changes were approved by the fiscal plan established by the oversight board.
Stay tuned for further analysis of this matter.