Strained Relations between FOMB and Legislature on Display in Recent Letter

Expressing concern about the fiscal impact of legislation passed during the just-ended session of the Legislative Assembly, Puerto Rico’s Federal Oversight and Management Board reached out to Senate President Thomas Rivera Schatz and House of Representatives Speaker Carlos “Johnny” Mendez last week in a letter —  also sent to the Governor — regarding the legislature’s handling of measures as well as the substance.

The letter signed by Board Executive Director Natalie Jaresko explained that such important legislation “must be adequately researched, debated, and documented, with input from all appropriate stakeholders” and requires “multiple hearings, public forums, and listening sessions.”

The letter objected to legislation in four areas. First and foremost were tax bills.

One, Jaresko wrote, appears “to decrease tax collections without sufficient offsetting adjustments . . . making the legislation inconsistent” with the Board’s latest Fiscal Plan for the territory. The bill would cut individual income taxes, expand exemptions from the four percent business-to-business tax, change taxes for “micro spirits,” increase tax credits, and permit tax credits to be exchanged for refunds in the amount of 90% of the credits. “The pay-fors in the legislation . . . would yield . . . significantly less replacement revenue than cited,” Jaresko wrote.

She also contended that the legislation counted on a “one-time outperformance in revenue collections” to make up for permanent reductions in taxes, although the PROMESA Board has substantially underestimated revenue in every one of its revenue estimates for the territorial government.

The bill is one of three tax measures Jaresko wrote about.

Two other bills concern employee compensation. One would increase salaries for firefighters. The other would restore previously cut sick and vacation days for all government employees. It was classified as “inconsistent with the Fiscal Plan and Certified Budget.” The other appeared to the Board to be inconsistent with the Fiscal Plan.

Other legislation would repurpose unallocated funds appropriated in previous fiscal years, which requires PROMESA Board approval that had not been obtained. The letter warned that “such spending may not be carried out.”

A final bill objected to would continue the Puerto Rico Tourism Company as a separate government entity, although the Board-ordered Fiscal Plan mandates that it be consolidated into the Department of Economic Development and Commerce.

The letter ended with a threat that the Board would “nullify and enjoin” enactment of the legislation.

Another letter that Jaresko sent Gov. Vazquez two weeks ago complained that the territorial government enacted 37 laws during calendar year 2018 and so far during 2019 that the insular administration had not submitted to the Board, although PROMESA requires submission within seven days of enactment, along with cost estimates and certifications regarding compliance or not with Board fiscal plans.

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