The PROMESA Financial Oversight and Management Board (FOMB) has released its required fiscal year report. This is the third annual report from the Board, which was established in 2016 as part of the Puerto Rico Oversight, Management, and Economic Stability Act.
The 81-page report was delivered with a letter from Chairman José Carrión, in which he says that the Board “made substantial progress on the path to undoing the damage of Puerto Rico’s fiscal and economic crisis. We advanced in renegotiating Puerto Rico’s debt, establishing budgetary discipline and fiscal transparency, and raising the importance of critical structural reforms required to make the economy competitive again.”
Carrion also wrote, “Recent political events have left all of us in Puerto Rico shaken. Although FOMB’s role is not political, we will work with the elected leaders of Puerto Rico to provide its people with the stability needed by all stakeholders. We will continue our work, so this critical period does not also shake Puerto Rico’s recovery from the fiscal crisis and from the devastation of Hurricane María… We seek to complete our work as quickly as possible because our dedication is to the people of Puerto Rico who deserve a better future.”
While there have been multiple calls on the Board to avoid further austerity measures, Carrion says that “right sizing” will continue. The Board was singled out in Puerto Rico’s protests, along with Governor Rossello. Carrion may have been acknowledging this when he said, “Doing what is necessary is often painful, unpopular, and easy criticized. However, we need to press on and rebuild and restore our economy.”
The report identified as important accomplishments the reduction by $22 billion of debt and “preliminary agreements” for cutting an additional $45 billion. It also claims that Puerto Rico will not, assuming the government implements the Board-approved Fiscal Plan, see annual deficits between now and 2038.
“These fiscal plans are meant to chart a course for the Island towards fiscal sustainability and a return to capital markets,” the report stipulates. However, the plans and the reality do not always match.
Lack of follow-through
The report explains that a lack of information and failure to implement plans is affecting the results of the Board’s efforts. 35 of 128 territorial agencies have not submitted blueprints for implementing the approved fiscal plan. 98 agencies are not submitting Board-mandated monthly reports.
What’s more, the information being provided varies in quality. “Often key metrics (i.e. savings targets or KPIs) are missing and reports do not provide enough detail,” the FOMB complains. “The quality of information makes it difficult to properly assess progress of key measures and more importantly, to provide government agencies the support needed in implementation.”
The report also expresses frustration with the progress being made on structural reforms. The report claims that “FOMB has worked diligently to drive more successful implementation.”
On the other hand, the report does state that progress has been made in improving tax collection and budgeting plans.
The report includes a long list of recommendations for the Federal government.
Heading the list is increased funding for Medicaid in the territory on a long-term basis. A substantial increase would significantly improve the territorial government’s financial position from that counted on in the Board’s Fiscal Plan for the government.
The U.S. House of Representatives committee that handles Medicaid legislation has approved on a bipartisan basis increasing the territory’s Medicaid grants over the next four years from $1.6 billion to $12 billion.
The report also asks for “fair and equitable treatment” for Puerto Rico in Medicare, pointing out that Puerto Ricans pay the same Medicare tax that residents of the States do.
Federal funding for an Earned Income Tax Credit is recommended. This program has been shown in the States to lift families out of poverty,and is available to middle-income families living in States.
The report also recommends coverage of Puerto Rican workers with one child or two in the portion of the Federal Child Tax Credit program that makes payments to workers in the islands with three or more children and low-income employees in the States with any number of children.
Among a number of other recommendations are the following:
- Exempting Puerto Rico from the law requiring that air cargo between U.S. airports be carried on American planes, an exemption that exists for Alaskan air cargo;
- Elimination of the requirement that shipments from Puerto Rico be accompanied by information required for “exports” to the U.S. — although Puerto Rico is part of the U.S. for customs purposes;
- Allowing Federal disaster assistance for individuals to be used for land surveys and titles and to pay taxes and fees on property ownership transfers;
- Lowering the investment requirement for EB-5 visas (investor visas) for Puerto Rico vs. the States, currently $500,000 but scheduled to rise to $900,000 in November;
- Liberalizing Small Business Administration assistance requirements in the territory only.
The Board also endorsed 14 bills that have been introduced in the U.S. House. One of the bills would extend the Supplemental Security Income (SSI) program for impoverished elderly and disabled individuals to the territory. The U.S. Government Accountability Office estimated that, in Federal Fiscal Year 2011, extension of the program would have meant as much as $1.8 billion a year for 354,000 Puerto Ricans. The program that currently applies in the territory provided $24 million in 2011 and assisted 34,401 Puerto Ricans.
Another of the endorsed bills would apply disclosure requirements to PROMESA contractors.
The report projects $1.5 billion in PROMESA expenses from FY18 to FY24, $352 million of which is for the Board’s spending on its operations. It spent $64.75 million during FY19, $53.346 million on external professional services.
“Today,” the report points out, “FOMB is responsible for administering the largest public entity restructuring in U.S. history and is party to hundreds of lawsuits, many in opposition to FOMB-formulated debt restructuring, others by parties opposed to PROMESA, and inevitably actions by FOMB implementing PROMESA.”
The report also includes an independent ethics report.