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U.S. Senate Drops Federal Insular Budget Report Requirement; Governor Objected

The U.S. Senate committee with general responsibility for the U.S.’ territories has excluded Puerto Rico from legislation  that would require a Federal evaluation of the Government of Puerto Rico’s annual income and spending estimates.

The requirement was opposed by Governor Alejandro Garcia Padilla (“Commonwealth“) but supported by the territory’s representative to the Federal government, Pedro Pierluisi, a Democrat who has a seat in the U.S. House of Representatives and heads the statehood party.  

The U.S. Government Accountability Office (GAO), a non-partisan investigative arm of Congress, would have reported on the reasonableness of the estimates and made recommendations for improving insular budget forecasts.

Garcia’s Administration strongly rejected the idea that the territorial government would benefit from the GAO report.

Estimating more revenue than will actually be collected and spending more than planned has been a problem in Puerto Rico.  It has resulted in larger budget deficits than expected.  The gap has to be made up by costly borrowing, mostly through government bonds to be paid off with interest over many years.

The Government of Puerto Rico has almost exhausted its ability to issue these bonds to pay annual expenses — a bad practice that increases annual operating costs.  Puerto Rico’s bonds have been downgraded to one step above ‘junk’ levels, and are trading as if they were non-investment grade.

The territorial government has recently taken tough measures to enable the issuance of more bonds and is considering taking more painful and controversial action for this purpose in the next few weeks.

Bond rating agencies are waiting to see whether its revenue and expenditure estimates for the fiscal year that began last July 1st are accurate. Overall, so far, the revenue projections have averaged about what was expected — but revenues in November were nine percent below.

From Fiscal Years 2009 through 2012, the previous statehood party administration was  conservative in its revenue projections, reducing Puerto Rico’s deficits further than planned.  But between Fiscal Year 2006 and 2008, the Government of Puerto Rico  overestimated revenue by $1.13 billion, $822 million, and $718 million dollars, respectively.

A “Commonwealth” party administration was in office during those years.

The requirement was part of an “Omnibus Territories” bill, which includes a number of other provisions. Energy and Natural Resources Committee Chairman Ron Wyden (D-Oregon) and Ranking Minority Member Lisa Murkowski (R-Alaska) sponsored it.

Another section important to Puerto Rico would require the President’s Office of National Drug Control Policy to develop a strategy to combat illegal narcotics trafficking through the U.S.’ Caribbean border.  Puerto Rico is a key part of the border.

The territory is used to smuggle foreign, illicit drugs to the States.  Some of the narcotics stay in the islands and are a cause of the Commonwealth’s extremely high rates of some types of crimes, including murder.

An additional section of the bill that would benefit Puerto Rico would require the U.S. Interior Department to develop and help implement plans for territories and nations in free association with the U.S. to reduce dependence upon imported oil, gas, and coal for electric power generation and transition to local energy sources, such as the sun and wind.

The Interior Department has special assistance responsibilities for the other insular areas.

The Government of Puerto Rico uses oil that must be shipped into the territory for more than two-thirds of its energy production. It also uses coal that must be shipped.  It is planning to transition electric plants from oil to less-costly gas but has made little progress.  It has also not done much to tap its sun, wind, and other local energy resources.

The plans that would be required would involve infrastructure and specific projects.  These would hopefully lower electricity costs, which are extremely high in Puerto Rico and other territories, as well as benefit the environment. Timetables and progress reports would be required.

The Interior Department has opposed the provision.

Interior has also objected to a final provision of the bill that would affect Puerto Rico.  It is based on legislation originally sponsored by Pierluisi that would authorize the department to provide the support in territories that it can now provide in foreign countries for protecting endangered marine turtles.

Interior has not wanted the authority because it has said it did not have the money to provide the assistance in U.S. territories that it provides in foreign countries.



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