Restoring Growth and Prosperity
The Fiscal Plan aims to ensure financial sustainability, efficient 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.
The Fiscal Plan enables efficient and affordable government services for the people and businesses of Puerto Rico, and a more competitive economy, which taken together result in fiscal sustainability. PROMESA mandates a Fiscal Plan that provides a method to achieve fiscal responsibility and access to the capital markets, and government estimates of revenues for a period of at least five years.
4 pillars of the Fiscal Plan
Focus on implementation and government efficiency.
Investments to revitalize Puerto Rico.
Maximizing efficiency investment
of federal funds.
- The Oversight Board’s economic projection following COVID-19 forecasts an economic decline and recovery similar to that experienced after Hurricane Maria.
- The PR economy is projected to contract by 4% in this current fiscal year of 2020, with and a very mild 0.05% recovery in the coming fiscal year of 2021, driven by federal aid programs.
- Implementing the structural reforms and fiscal measures included in the 2020 Fiscal Plan fully and on a timely basis will enable the Island to move closer to a reality in which it has low-cost and reliable energy, robust infrastructure, more incentives to enter the formal labor market, an improved regulatory and permitting environment, and a more effective and efficient public sector. That said, these reforms are insufficient to put the Island on a path to growth, nor do they allow Puerto Rico to avoid future deficits, which begin in FY2032.
- Notwithstanding full and timely implementation of the reforms, the 2020 Fiscal Plan projects a central government deficit from fiscal year 2032 onward – six years sooner than the previous certified Fiscal Plan projected.
- The 2020 Fiscal Plan projects a total budget surplus of about $8 billion between fiscal years 2020 and 2032 – compared to an about $23 billion surplus in the previous certified Fiscal Plan, a 65% decline.
Pillars of the
Puerto Rico is in crisis.
This crisis is an opportunity to accelerate change, to redefine, to improve, to reengineer, and to rebuild better. This crisis is a call to action for the Government, to change the way it does business.
Focus on Implementation and Government Efficiency
One-year delay in most categories of government rightsizing to allow the Government to focus its efforts in Fiscal Year 2021 on the implementation of reforms and efficiencies.
- This pause in rightsizing includes maintaining the subsidies to the University of Puerto Rico and to the municipalities at current Fiscal Year 2020 levels
For the upcoming fiscal year 2021, the Fiscal Plan establishes priorities to assure 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 Fiscal Plan introduces milestone budgeting, which will allow for investments in certain areas once key milestones are met.
- Providing bonuses for select Hacienda employees to complete the issuance of the 2017 and 2018 audited financial reports for the Commonwealth of Puerto Rico
- Bonus for PRDE 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 governmental services
- Creation of an independent Office of the CFO: Fiscal controls and accountability, centralizing fiscal authority, improving transparency
- Medicaid reform:Reduce fraud, waste, and abuse in the healthcare system, ensure that resources are directed to those in need of health services
- Enhanced tax compliance and optimized taxes and fees: Broaden tax base, reduce fraud, improve fairness to boost overall tax revenues
- Reduction of appropriations: Encouraging sound fiscal management and revenue generation among municipalities and the University of Puerto Rico
- Comprehensive pension reform: Improving PayGo and framework for Social Security and Defined Contribution Plan implementation
Investments to Strengthen Puerto Rico
The 2020 Fiscal Plan provides investments totaling around $6 billion in fiscal years 2020 through 2025.
Investments in health care, including public hospitals; hiring public school nurses and establishing a scholarship fund to encourage graduating medical students to serve in the rural areas; opioid treatment; increased 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, to pay outstanding amounts of previous salary increases to transitory teachers.
Investments in technology to improve access to broadband in rural areas, and business and technology training to provide 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 remaining in the 2020 Fiscal Plan are those where there has been alignment with the Government on the need to pursue change. That being said, as a result of natural disasters and poor implementation, meaningful progress on most reforms has been delayed.
- 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 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, improve ease of paying taxes
- Power sector reform: Providing lower cost and more reliable energy through the transformation of PREPA
- Infrastructure reform: Prioritizing transformative capital investments with federal funds, for example from the Federal Highway Administration
2020 Fiscal Plan provides an updated forecast reflecting such delays but also outlining the potential positive impact looking forward.
Disaster Relief Funds
The 2020 Fiscal Plan includes the following funding estimates:
- Hurricane-related: About $83 billion of disaster relief funding in total (unchanged from the 2019 Fiscal Plan), from federal and private sources over a period of 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, even with aggressive implementation of the included reforms and measures.
- Cumulative effect of multiple unprecedented natural disasters and a pandemic, on top of a decade-long secular recession, have left Puerto Rico with substantially diminished resources and capacity.
- In March, the Oversight Board asked the U.S. District Court to pause the process of the restructuring of Puerto Rico’s debt until further notice. The Plan of Adjustment for the Commonwealth and the Restructuring Support Agreement for PREPA remain on hold.