By Greg Clark – Many observers thought that when the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA) was passed last year that one of its favorable outcomes would be more accurate commonwealth budgeting.
PROMESA gives the Financial and Oversight Management Board (FOMB), whose members took office two months after the law was passed, the right to approve Puerto Rico’s budgets.
The commonwealth’s inability to balance its budget was a problem for Puerto Rico long before its financial crisis became widely known. Government officials did not accurately forecast revenues and expenditures, a situation that resulted in ongoing budget deficits. Gaps were then financed with proceeds of long-term bond issues, a primary reason Puerto Rico’s debt grew to unsustainable levels.
Most states have balanced-budget requirements, but there are two ways to produce a balanced budget: realistically and unrealistically. If estimated revenues are based on overly optimistic budget assumptions, you won’t collect the funds you need to pay your bills. The problem is compounded if expenses are underestimated. There’s no state or local government that ever hits its budget numbers exactly, but reasonable assumptions can get you pretty close to what was estimated.
The FOMB has authority to approve Puerto Rico’s budgets but its actions during June raise some questions about how seriously they take this responsibility or how much they understand budgeting games.
On June 27, the FOMB informed commonwealth officials that overspending in the budget for fiscal year 2018 violated terms of PROMESA. The FOMB suggested that employee furloughs and other steps might be necessary if the pending budget gap was not addressed.
The same day, Governor Ricardo Rossello informed the FOMB that he and legislative leaders were willing to submit a balanced budget, but that his interpretation of PROMESA prohibited the board from imposing some of the proposed actions.
On June 30, the FOMB approved Puerto Rico’s budget after adopting revisions suggested by Elias Sanchez, the governor’s representative on the board. The revisions were required after the legislature failed to act on suggestions in the board’s June 27 notice. The compressed timeframe in which these communications occurred and important decisions were made gives the appearance that the final steps in the budget process were less than deliberative.
In any event, the budget’s not transparent. In the board’s June 30 approval letter, it stated that four exhibits on its website collectively represent the fiscal year (FY) 2018 budget. Unfortunately, the exhibits are entirely in Spanish despite Puerto Rico’s past representations to investors that its official languages are both Spanish and English.
The revenue portion of the changes totals $924 million. More than half of that amount, $519 million, is assumed to be derived from continued receipt of Act 154 revenues. Unfortunately for the commonwealth, collecting revenues from this source depends on continued favorable decisions of the US Treasury Department. The other revenue changes, which include additional “revenue enhancements” of $199 million and improved tax compliance of $150 million, lack supporting detail about how these numbers will be achieved.
The problems with spending cuts of $951 million are similar. There’s a cut of $201 million in the subsidy to the University of Puerto Rico, but that’s the only such item that can be quantified. Fiscal managers can’t be questioned during or after the fiscal year about items such as “additional expense measures,” listed as saving $45 million, because that category is so vague.
Transparent, understandable and realistic budget documents are essential to every sub-sovereign government in the US. This is especially the case with Puerto Rico, which not only is trying to regain access to credit markets but is attempting to satisfy a diverse group of stakeholders, including creditors and its own citizens. The collective actions of Puerto Rico’s leaders and the FOMB fail to indicate that they understand this fact.
Greg Clark is Debtwire’s Head of Municipal Research. Greg’s career has included positions at a rating agency, broker-dealer, and hedge fund as well as bond insurers and commercial banks. Greg is also a past chair of the National Federation of Municipal Analysts and of the Municipal Analysts Group of New York. He can be reached at email@example.com.
This article was originally published here and reposted with the author’s permission.
Puerto Rico is Open for Tourists
(SAN JUAN, Puerto Rico Buzz) – Travelocity® and Expedia Media Solutions®, in collaboration with the Puerto Rico Tourism Company, are ramping up efforts to help shift public perception of the situation in Puerto Rico, this week.
“Puerto Rico has always been a popular destination for travelers, as well as a fantastic, long-term partner, and we jumped at the chance to work with Travelocity to support the Puerto Rico Tourism Company,” said Wendy Olson Killion, global senior director for Expedia Media Solutions. “The collaborative campaign will ensure new and repeat visitors know Puerto Rico is again open for tourism, and that tourism will positively impact the island’s economy and contribute to recovery efforts.”
Approximately 68,000 locals are employed in the tourism sector, according to the World Travel and Tourism Council. With this importance to the economy, the simple and enjoyable act of visiting Puerto Rico can make a huge difference. For more information on the Island, travelers can also visit SeePuertoRico.com.
“We are thrilled to have our Travelocity and Expedia partners join in spreading the word that the Island is, in fact, open for tourism,” said Carla Campos, acting executive director of the Puerto Rico Tourism Company. “It is with pride and hospitality, traits that characterize our people, that we welcome visitors with open arms, because coming to visit us is the best way to support us right now.”
The campaign, which was donated on behalf of Travelocity and Expedia Media Solutions, includes on site advertising placements, a dedicated page highlighting the hotels and resorts that are open for business in Puerto Rico, and useful content about the country on the Travelocity “Inspire” blog.
Travelocity is offering $150 off a $1500 package booking with code CARIBNOW from now until February 6th, 2018 for travel between now and September 16th, 2018. For full terms and conditions visit http://travelocity.us/PuertoRico.
Rosselló Asks Police Officers to Return to Work
(SAN JUAN, Puerto Rico Buzz) – Gov. Ricardo Rosselló asked members of the Puerto Rico Police Department to return to work, Jan. 8.
The massive absenteeism of police officers has been largely attributed to the lack of overtime pay in the aftermath of Hurricane Maria, but some say it goes back even further.
“I ask of any partner of the uniformed force that is not attending [work]at this moment – I ask of them to return,” said Rosselló. It’s not just about giving a message about a series of initiatives, but it’s a matter of safety for our people.
Rosselló is currently evaluating how police officers that missed work, will be reprimanded.
“We’re establishing which administrative measures will take place,” said Rosselló. There’s a lot of information that needs to be gathered.
At times, approximately 8,000 police officers have missed worked, out of about 14,000 islandwide.
Police union representatives have said that police officers are using their sick and holiday time available.
Watch Carmen Yulín Suck Up a Load of Bribe Cash
(SAN JUAN, Puerto Rico Buzz) – Here we go again. Another Carmen Yulín appearance on The Simpsons.
Spoiler alert: Donald Trump tries to bribe Robert Mueller with a room full of cash. Mueller leaves.
Then Carmen Yulín walks into the room dressed as a housemaid before revealing her usual “comandante de la revolución” outfit.
Yulín then pulls out a vacuum cleaner to suck up the loads of American cold-hard-cash bribe money.
Mueller Meets Trump, Season 29
— Carmen Yulín Cruz (@CarmenYulinCruz) December 14, 2017
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