Restoring Growth and Prosperity
The Certified Fiscal Plan aims to ensure financial sustainability, efficient and affordable government services for the people and businesses of Puerto Rico, and a more competitive economy.
The 2020 Fiscal Plan is the road map for Puerto Rico’s recovery and transformation.
PROMESA mandates a Fiscal Plan that provides a method to achieve fiscal responsibility and access to the capital markets, and realistic revenue and expenditure estimates for a period of at least five years.
4 pillars of the Certified Fiscal Plan
Focus on implementation and government efficiency
Making investments to revitalize Puerto Rico
Implementing structural reforms to promote economic growth
Maximizing efficient investment of federal funds
Economic
Outlook
The Certified Fiscal Plan’s economic outlook following COVID-19 projects an economic decline and recovery similar to that experienced after Hurricane Maria.
The Certified Fiscal Plan projected that Puerto Rico’s economy would contract by 4% in fiscal year 2020 and projected a very mild 0.5% recovery in the current fiscal year of 2021 driven by federal aid programs.
The Certified Fiscal Plan projects that the economy would further decline in the fiscal year 2022 and 2023, followed by close to zero growth in 2024 and 2025. Simply put, the economy of Puerto Rico would contract over the five-year period.
Fully implementing the structural reforms and fiscal measures included in the Certified Fiscal Plan on a timely basis would enable Puerto Rico to move closer to a reality with lower-cost and reliable energy, a robust infrastructure, more incentives for people to enter the formal labor market, an improved regulatory and permitting system, and a more effective and efficient public sector.
However, implementing only these reforms would be insufficient to put Puerto Rico on a path to sustainable economic growth or allow Puerto Rico to avoid future government budget deficits.
Notwithstanding the full and timely implementation of the reforms, the Certified Fiscal Plan projects a central government budget deficit from the fiscal year 2032 onward – six years sooner than previously projected. The Certified Fiscal Plan projects a total budget surplus of about $8 billion between fiscal years 2020 and 2032 – a 65% decline compared to the about $23 billion surpluses previously projected.
Pillars of the
Certified Fiscal Plan
Puerto Rico is in crisis.
Puerto Rico is in crisis, and this crisis is an opportunity to accelerate change, to improve, to reengineer, and to rebuild. This crisis is a call to action for the Government to change the way it conducts business.
Focus on Implementation and Government Efficiency
One-year delay in most categories of government rightsizing to allow the Government to focus on the implementation of reforms, and on efficiencies.
- The pause in rightsizing includes maintaining the subsidies to the University of Puerto Rico and to the municipalities at the fiscal year 2020 levels
The Certified Fiscal Plan establishes priorities to ensure better delivery of essential services:
- Department of Education: Implement a back to school plan, a time and attendance reporting policy for all employees, record daily student attendance, efficiently manage its student-teacher ratio by observing its own staffing policies
- Department of Health: Focus on core health care services, develop an action plan for Telehealth, improve hospital management, merge ASES into the Department
- Department of Public Safety: Move officers from administrative positions to the field, consolidate back-office
- Department of Corrections and Rehabilitation: Generate savings through improved procurement, analyze utilization of facilities given the decline in prison population
- Department of Economic Development and Commerce: Finalize the consolidation of the PR Tourism Company and ascribe the Planning Board into the department, renegotiate procurement contracts, and publish quarterly reports of economic incentives
The Certified Fiscal Plan introduces milestone budgeting, which will allow for investments in certain areas once key milestones are met.
- Offering bonuses for select Hacienda employees to complete the issuance of the 2017 and 2018 audited financial reports for the Commonwealth of Puerto Rico
- Offering bonuses to Department of Education staff to implement proper time and attendance reporting for teachers and students
- Agency efficiencies: Consolidating agencies, centralizing procurement, deploying new management tools to deliver better government services.
- Creation of an independent Office of the CFO: Implementing fiscal controls and accountability, centralizing fiscal authority, improving transparency.
- Medicaid reform: Reducing fraud, waste, and abuse in the healthcare system; ensuring that resources are directed to those in need of health services.
- Enhancing tax compliance and optimizing taxes and fees: Broadening tax base, reducing fraud, improving fairness.
- Reduction of appropriations: Encouraging sound fiscal management and revenue generation among municipalities and the University of Puerto Rico.
- Comprehensive pension reform: Improving PayGo and Social Security framework and Defined Contribution Plan implementation.
Investments to Strengthen Puerto Rico
The Certified Fiscal Plan provides around $6 billion in total investments in fiscal years 2020 through 2025.
- Investments in healthcare, including public hospitals to hire public school nurses, establish a scholarship fund to encourage medical students to serve in rural areas after graduation, combating the harmful effects of the opioid epidemic, increase reimbursement rates for primary care and outpatient specialty providers.
- Investments in public education, including to improve English language teaching, incentivize schools to achieve better educational outcomes by publishing school-specific performance scorecards for student and teacher attendance and graduation rates, pay outstanding amounts of previous salary increases to transitory teachers.
- Investments in public safety to pay the third year of back pay for police and the second half of their 30% salary increase, fund recruitment and training of cadets, Emergency Management Service and forensics staff hiring, fund equipment for firefighters.
- Investments in technology to improve access to broadband in rural areas, fund business, and technology training to provide a greater opportunity to the people already in the workforce.
- Investment to conduct a study for the private sector and the Government to define a plan to reactivate the manufacturing sector in Puerto Rico.
- Investment to expedite hurricane reconstruction efforts by providing $750 million in working capital to facilitate FEMA-approved reconstruction efforts.
Structural Reforms for Growth
The structural reforms in the Certified Fiscal Plan are in alignment with the Government. Meaningful progress on most reforms, however, has been delayed because of natural disasters and poor implementation.
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- Human capital and welfare reform: Promoting participation in the formal labor force by creating incentives to work through Earned Income Tax Credit (EITC) and providing comprehensive workforce development opportunities.
- Education reform: Transforming the K-12 education system to improve Spanish, Math, and English proficiency, and to improve graduation rates.
- Ease of doing business reform: Reducing the obstacles to starting and sustaining a business by making it easier to obtain permits, register property, and pay taxes.
- Power sector reform: Providing lower cost, more reliable, and cleaner energy through the transformation of PREPA.
- Infrastructure reform: Prioritizing transformative capital investments with federal funds, for example from the Federal Highway Administration.
The Certified Fiscal Plan provides an updated forecast reflecting delays in structural reform implementation and outlining their positive effects going forward.
Disaster Relief Funds
The Certified Fiscal Plan includes the following funding estimates:
- Hurricane-related: About $83 billion of disaster relief funding from federal and private sources over 15 years
- About $48 billion from FEMA’s Disaster Relief Fund (DRF) for Public Assistance, Hazard Mitigation, Mission Assignments, and Individual Assistance
- About $8 billion from private and business insurance pay outs
- About $7 billion from other sources of federal funding
- About $20 billion from the federal Housing and Urban Development (HUD) Community Development Block Grant – Disaster Recovery (CDBG-DR) program
- Earthquake-related: $595 million from FEMA
- COVID-19-related: About $14 billion from various federal programs, including CARES Act
Update on Debt Restructuring
- Puerto Rico cannot afford to meet its current contractual debt obligations. Natural disasters and the pandemic, on top of a decade-long recession left Puerto Rico with substantially diminished resources and capacity.
- In March 2020, the Oversight Board asked the U.S. District Court to pause the process of the restructuring of Puerto Rico’s debt. The Oversight Board has analyzed the effect of COVID-19 on the economy, and in November 2020 authorized the commencement of negotiations with creditors and other parties for an amended Plan of Adjustment for the Commonwealth.
