Puerto Rico state budget

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Puerto Rico is currently facing a budget deficit of $3.2 billion that is expected to reach $4 billion by the end of fiscal year 2009. Governor Louis Fortuño said in March 2009 that he plans to slash spending by $2 billion and that layoffs would start in July. "The government is too big and spends too much," Fortuño said on March 3,2009. "Simply, the government has to be minimized." ^[1] The Governor noted that he plans to "jump-start" the economy by increasing infrastructure investment, providing guarantees for loans to small and medium-sized businesses and incentives to home buyers. The citizens of the U.S. Caribbean territory's must confront "the reality of a bankrupt government," he said. ^[2]

[edit] Impact of budget woes

Main article: State budget crisis, 2009-2010

• Proposed job cuts, 14 percent of the public force, will not include police officers and teachers.^[1]
• Wages and benefits are expected to be frozen for the next two years in order to minimize the deficit said the Governor.^[1]
• A two-year 5 percent tax on banks, corporations, insurance companies and co-operatives, as well as on individuals earning $100,000 annually has also been recommended.^[1]
• Taxes on cigarettes and alcohol are expected to be increased and the revenue will be used to pay for a health care program for the poor, according to state officials.^[1]
• In February 2009 Standard and Poor’s Credit Rating Agency lowered Puerto Rico’s Port’s Authority credit rating to just one notch above non-investment status, also known as junk status. Losing the investment grade rating will limit Puerto Rico’s access to the market as many investors will not be able to place "junk status" bonds in their municipal portfolios.^[3][4]
• Unemployment in Puerto Rico reached 13.1 percent in December 2008 compared to the U.S. unemployment rate of 7.6 percent.^[5]
• The UN has forecast that the Caribbean economy is set to see a rise in unemployment rates this year to between 7.8 and 8.1 per cent as a result of the international crisis.^[6]

[edit] Budget background

Puerto Rico has been in recession for three years. Gov. Furtuno took office in January 2009 and said he aims to cut government spending by $2 billion annually.^[2] In 2008 it is estimated that Puerto Rico had a Gross Domestic Product of $74.15 billion.^[7] In FY 2000 revenues were estimated at $6.7 billion and expenditures at $9.6 billion.^[7]

In 2006 Puerto Rico experienced a severe budget crisis which led to much of Puerto Rico shutting down after it ran out of funds near the end of the 2005-2006 fiscal year. The government was shut down for two weeks.^[8] Some say one of the causes was the political struggle between the Popular Democratic Party and the New Progressive Party. After much dispute between the House and the Senate, the legislature approved the emergency loan to finance Puerto Rico's $740 million shortfall. Then Gov. Acevedo Vilá signed the balanced-budget on May 13.^[9]

[edit] Ideas about why the crisis exists

• About 218,000 people, 21 percent of Puerto Rico's work force, work for the government, making it the main employer. According to published reports economists have urged that Puerto Rico cut its payroll.^[1]
• The public payroll jumped to $5.53 billion in 2009 from $3.748 billion in 2001, a 6 percent annual growth rate. ^[2]
• Standard and Poor’s Credit Rating Agency downgraded several Puerto Rico Highways and Transportation Authority bonds in March 2009.Highways Revenue bonds dropped from "A-" to "BBB+," Senior Transportation Revenue bonds dropped from "BBB+" to "BBB" and Subordinate Transportation Revenue bonds dropped from "BBB" to "BBB-." According to Standard and Poor the credit rating was downgraded because of the increase in operational costs versus the slow growth in revenues. "BBB-" is the minimum investment grade rating.^[3]
• The Puerto Rico Planning Board’s revision for fiscal year 2008 shows the growth of the economy slowing down by 2.5 percent. For fiscal year 2009 projections point toward an economy that will have slowed by 3.4 percent and that will suffer an estimated reduction of 2.0 percent during fiscal year 2010. Planning Board president Héctor Morales Vargas said that the slowdown in the economy can be clearly seen in such indicators as employment, construction permits, sale of cement and Treasury Department revenues, which contrasted projections in 2008.^[5]
• Treasury revenues saw a 5.2 percent fall during the first half of fiscal year 2009.^[5]

[edit] Proposed actions

[edit] New Progressive Party/Partido Nuevo Progresista

In light of Puerto Rico's budget crisis Gov. Fortuño announced the elimination of 30,000 government jobs is to be carried out gradually, with workers’ being offered early retirement and other incentives to leave voluntarily before administrators resort to layoffs. According to officials the cuts will result in $2 billion. Fortuño said that he plans to cut his own pay by 10 percent. Recommendations also include raising taxes.^[10] The New Progressive Party officials said reducing the government's size and raising revenue are necessary to increase the government's bond ratings and it's economy. ^[11]

[edit] Popular Democratic Party/Partido Popular Democrático

Shortly after the Governor's announcement that several thousand employees would be laid off because of the state's dire economic status, the president of the Popular Democratic Party, Héctor Ferrer, announced that he would be releasing an alternative solution to the crisis. The solution, Ferrer said, does not include lay offs. Ferrer said that he believes the crisis is in part due to the fact that the previous legislature approved funds when there was already a deficit of $1,500 million for FY 2009.^{[12] [13]}Ferrer said that the party's solution "does not include layoffs and does not have suggestions for taxes on the working class."^[12]

[edit] Economic Stimulus Package

Puerto Rico is expected to receive $5 billion of the $787 billion dollar economic stimulus package^[1]

According to preliminary reports Puerto Rico is expected to receive:^[14][15][16]

• $155 million for 126 new health centers
• $263 million are for public housing needs development
• $40 million in Medicaid funds
• $763 million for education
• $105 million for the Highway Program
• $657 million in “state fiscal stabilization funding” ^[17]

[edit] Budget Transparency

Puerto Rico currently has no statewide, official spending database online.

[edit] Legislation

None.

[edit] Government tools

The following table is helpful in evaluating the level of transparency provided by a state spending and transparency database:

[edit] Limitations and suggestions

[edit] Support for creation of a database

[edit] Independent transparency sites

None.

[edit] Public employee salary information

None.

[edit] External links

• Puerto Rico Government
• Puerto Rico's Department of the Treasury
• Puerto Rico's Department of Labor and Human Services

[edit] Additional reading

• Standard & Poor's Ratings Direct,"Puerto Rico," September 3,2008

[edit] References

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