Puerto Rico Governor Ricardo Rossello (New Progressive Party) submitted a 10-year fiscal adjustment plan to Puerto Rico’s federally-imposed Financial Oversight and Management Board just before the midnight deadline last night.
It begins by calculating the budget gap over the decade at $55.2 billion versus the $67.5 billion earlier cited by the Board, relying on numbers submitted by the administration of Rossello’s predecessor, Alejandro Garcia Padilla (Popular Democratic Party). The difference comes from much less pessimistic economic projections in the near-term.
Additionally, it would close $33.7 billion of the revised gap. Of this, $19.8 billion would be made up through changes in spending and $12.9 billion through revenue increases.
The spending would be $10.5 billion less than proposed by Garcia Padilla in the plan that he submitted to the Board — which it rejected. Revenue increases proposed by Rossello were $3.4 billion greater.
In Puerto Rico Fiscal Year 2019, which begins July 1, 2018, Rossello proposed $1.1 billion more revenue than present law would project, increasing the take from $15.4 billion to $16.5 billion. Spending other than for debt service would decrease from $19.1 billion to $18.8 billion.
A major difference from the fiscal plan that the Board suggested to Rossello in January is that the Governor estimates a replacement of Federal contributions to the territory’s Medicaid healthcare program for low-income individuals that will run out by the end of this year under current law, decreasing Federal funding by $1.32 billion. This is the 80% of the funding that has been provided through the 2010 Federal healthcare legislation known as “Obamacare.” This dramatic discontinuation of funding – known as the territories’ Medicaid “cliff” — will not occur in the States.
Rossello estimated an additional $834 million in Federal funding in Puerto Rico fiscal year 2018 and $1.468 billion in fiscal year 2019 through replaced Federal funding. He would reduce Puerto Rico healthcare spending by $300 million instead of the $1 billion suggested by the Board.
The Governor would meet the Board’s target of an additional $1.5 billion in revenue through an already enacted 10-year extension of the ‘Act 154’ excise tax on purchases by companies in the States of products made by their subsidiaries in Puerto Rico organized as foreign corporations — accounting for $1 billion of the total, a tax on Internet purchases, increased Sales and Use Tax and other tax compliance, and an increase in fees.
Rossello’s plan calls for $100 million more in spending savings than the $1.5 billion suggested by the Board. Measures include ending the subsidies to municipalities of $350 million a year by reforming the property tax system that currently relies upon 1954 assessments.
Over the 10 years, Rossello’s plan puts cash available for debt service at $27.755 billion ($11.643 billion if additional Federal Medicaid funding is not provided). Cash available this fiscal year, 2017, was put at $1.148 billion. Of $2.292 billion due for debt service in FY18, the plan includes $1.441 billion. With $2.245 billion due in FY 19, cash available was estimated at $2.673 billion.
The plan restates Rossello’s view that agreements with bondholders should be reached out of court through PROMESA’s Title VI instead of forced by the Board through the Federal District Court under PROMESA’s Title III, as advocated by Garcia Padilla and favored by the Obama Administration.
The Financial Board has set a goal of March 15th for adoption of a final fiscal plan. Under PROMESA, it will make the ultimate decision on the plan.