Puerto Rico gov't files $9.8B budget with $674M in spending cuts

During a roundtable with the press Thursday, Chief of Staff Víctor Suárez and Office of Management & Budget (OMB) Director Luis Cruz explained that the submitted bill contemplates a consolidated budget of $28.8 billion, $9.8 billion of which would correspond to the commonwealth's General Fund. It is about $235 million higher than the current fiscal year's budget.

The bill, which proposes $674 million in government spending cuts, also allocates about $1.54 billion toward servicing the commonwealth's debt, an increase of $400 million over the previous year's budget. The operational spending will be $6.3 billion.

The budget proposal also includes clauses that tie it to the tax bill being considered in the House, which calls for increasing the 7% sales & use tax (IVU by its Spanish acronym) to 11.5%. Government officials have estimated the new tax plan would pump about $1.2 billion in extra revenue for the commonwealth, pushing recurring revenue from $8.6 billion to $9.8 billion.

"In virtue of this law, the [IVU] will be increased until March 31, 2015 as a transitional measure toward the new Subtitle DD about the value-added tax [VAT, or IVA by its Spanish acronym], which will come into effect April 1, 2016," the bill reads.

Suárez said Puerto Rico will seek to access the markets for tax-revenue anticipation notes (TRANs) at the beginning of fiscal 2016, or July 1, to provide the commonwealth with much-needed liquidity to address cash flow issues during the first few months of the fiscal year. He also warned about the need to approve both the new tax bill and the budget plan “to provide certainty to financial markets.”

Absent TRANs funds, the chief of staff said other measures, such as furloughing public employees, would be discussed; “the budget and the cash flow are two different things,” he said.

“Once the budget gets approved, we will go to the markets to try to obtain TRANs, which would provide the government with the cash flow to operate in July and the first few months of the year,” he said.

The government officials also said General Fund contributions to the Government Development Bank and retirement systems will be less than originally projected. The bill states that the government has refinanced debts it holds with the bank that would allow to reduce estimated payments during the next fiscal year by $327 million. As for retirement systems, contributions will decrease by $58 million, according to the budget bill. Operational spending and payroll would be reduced by $131 million, and other budgetary cuts would account for $100 million.

The proposed budget eliminated cutbacks that were previously considered for the Puerto Rico Police Department, the Department of Agriculture and the University of Puerto Rico (UPR). Agriculture would receive the $77.7 million it received under the current budget, while the UPR would get $834 million.

Suárez said all government agencies stand to face cuts in their operational budgets for the next fiscal year, with about 20 of them to be consolidated. The consolidation of agencies would account for about $8.2 million, according to government officials.

The plan also calls for closing 95 public schools under the Education Department, which would be one of the most affected agencies by the budget reductions, which include cuts in professional and purchased services, as well as about $22 million in special assignments. Political parties will lose the $600,000 each receives every electoral year, while legislative donations, mostly to nonprofit organizations, will be reduced by $55 million, according to the bill.

The legislative branch will receive about $16 million less in special assignments from the general fund, while the judicial branch stands to lose $7 million.

The Integrated Transportation Authority (ATI by its Spanish acronym) budget would be reduced by $40 million. Suárez said the Metropolitan Bus Authority (AMA by its Spanish acronym) will be overhauled to reduce spending, which calls for a revision of the routes it services.

Both chambers are expected to hold public hearings before voting on the budget bill, which has to be approved by the end of the current fiscal year, June 30.

The Puerto Rico government submitted to the Legislature a $9.8 billion budget proposal Wednesday that calls for $674 million in spending cuts amid the island's fiscal crisis.

Puerto Rico gov't files $9.8B budget with $674M in spending cuts