Puerto Rico’s Fiscal Future: Transforming how the Government Develops its Budget
The tools, principles, and practices that guide how the Government prepares its budget are critical for any territory, state, municipality, or government agency. How to forecast government revenue, how to build reserves against uncertainty, how to plan capital investments strategically and how to make reforms stick across administrations are foundational priorities for responsible budgeting. Puerto Rico is undergoing a comprehensive transformation of this annual process, based on realistic estimates of revenue and responsible spending priorities.
Many states and cities have gone through similar transformation, including New York City. Others have over many years updated and refined their budget practices, adding new elements, updating accounting standards, and enhancing the legal framework that anchor responsible practices. This page outlines the elements of this transformation in Puerto Rico and how they are adopted in the current and future Government budget process.
In 2022, Puerto Rico emerged from the largest public sector bankruptcy in American history. The restructuring of the Commonwealth’s debt under PROMESA was a historic achievement. Today, the Oversight Board has completed 12 debt restructurings, reducing $63 billion in financial debt by almost 60%, to $27 billion, and eliminating more than $55 billion in payments to creditors over 40 years. This has created the fiscal space for Puerto Rico to begin rebuilding its finances on a sustainable foundation.
But debt restructuring is not fiscal recovery. It is the precondition for fiscal recovery. The Financial Oversight and Management Board for Puerto Rico and the Puerto Rico Government are working together on reforming the budget process and strengthening financial management, so Puerto Rico’s current fiscal stability turns into a full, lasting recovery and Puerto Rico never falls back into insolvency.
Core components of a modern public finance framework
Improved economic and revenue forecasting
Sound, transparent revenue and economic forecasting is essential for stability and credibility. More than half of U.S. states use consensus forecasting jointly adopted by the Executive and Legislature. Puerto Rico should establish a similar structure—publishing its methodologies and assumptions to allow public and rating-agency scrutiny.
The Government must assemble its revenue, economic, and budget functions and create a coordinated process to produce and maintain one integrated set of economic and revenue projections over both the short- and long-term.
Budget best practices
The annual budget operationalizes the first year of the fiscal plan and should clearly express the Government’s priorities. Transitioning from an Oversight Board led process to a Government-led budget process under modified-accrual accounting will demonstrate fiscal autonomy and sustainable balance.
The Government must establish a comprehensive framework budget that includes procurement, budgeting, revenue administration, and performance management, well-defined reserves policy, comprehensive debt management policy and the OMB must ensure that all entities adopt best practices in budget preparation.
Comprehensive capital delivery program
A multi-year capital improvement plan is vital to align infrastructure investment with fiscal sustainability. The plan should prioritize projects by criticality, funding source, and economic impact.
The Government must develop and adopt a multi-year capital plan for all its agencies and instrumentalities. The plan would use standardized project prioritization criteria to ensure all investments are aligned with the Government’s strategic objectives and with the capacity of Puerto Rico’s private sector to absorb investments.
Improved, transparent financial reporting
The Government must address the fiscal management deficiencies and implement procedures and practices that will continue to exist post-PROMESA. It must track and report key information about Puerto Rico’s financial condition, such as the performance of revenues and expenditures.
Blogs:
Puerto Rico’s Budget Transformation Moves Forward
For decades, Puerto Rico’s budget process has been dominated by crisis management: the focus was on reducing the massive debt, bringing government finances in balance, and determining which structural reforms would move Puerto...
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A Single Financial System for the Government of Puerto Rico: Modernizing How Puerto Rico Manages Financial Information
Every organization, from a small business to a national government, needs a dependable way to keep track of its money: what it has, what it owes, what it spends, and whether that spending...
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A Better Plan: Symposium on Puerto Rico’s Fiscal Future
Budget Tools, Principles, and State Practices
Government budgets are built on key fundamentals: strong institutions, reliable data, and sustained collaboration. Establishing a statutory budget framework, forecasting revenues realistically, building reserves against uncertainty, planning capital investments strategically, are critical budgeting elements in every state, territory, municipality, or government agency.
During A Better Plan: Symposium on Puerto Rico’s Fiscal Future – State Budget Tools, Principles and Practices, budget directors from five U.S. states shared their experiences with the building blocks of successful fiscal planning and budgeting that support long‑term recovery and Puerto Rico’s ongoing fiscal transformation. They discussed how they approach budgeting, how they have handled big changes, and what they consider best practices to support fiscal stability. The best practices discussed and the solutions explored are important for advancing more sustainable and effective budgeting practices as part of Puerto Rico’s ongoing fiscal transformation.
