San Juan, PR – December 9, 2023 – The Financial Oversight and Management Board for Puerto Rico today issued the following statement:
The Oversight Board determined that House Bill 1839, one of the largest tax cuts in Puerto Rico’s recent history coming only a year after emerging from bankruptcy, impairs and defeats the purposes of PROMESA. Accordingly, the Government is barred from enacting, implementing, or enforcing the measure.
The tax bill would reduce Government revenues by about $750 million this fiscal year and by almost $3 billion over five years. The substantial losses in revenue in the middle of the fiscal year and outside the budget process would add fiscal pressure, particularly after the Government already increased spending, including the expansion on the Earned Income Tax Credit, and proposed additional spending, including salary increases. During the final months of the legislative session, the Legislative Assembly passed additional unbudgeted spending bills.
No government can increase spending and reduce income haphazardly over an extended period without threatening its fiscal stability. The proposed tax cut would push the Government’s budget back into deficit.
Puerto Rico’s economy is recovering, but the current recovery is largely driven by an unprecedented inflow of Federal Government stimulus and has not yet translated into long-term economic growth. Nevertheless, the Oversight Board informed Governor Pedro R. Pierluisi today that it is willing to meet with the Governor and the Legislative Assembly to work together to identify the resources to provide for a potential one-time tax relief to benefit personal income tax filers this fiscal year within the frame of the Government’s already established spending priorities.
While the Government and the Oversight Board will have disagreements over provisions in the Fiscal Plan, we should engage and explore whether changes desired by the Government are economically feasible – and to do it as part of the process of developing the fiscal plan and budget in accordance with PROMESA. The process for developing the 2024 updates to the Fiscal Plan and the budget for the next fiscal year 2025 is scheduled to commence in just a couple of months. The Oversight Board urges the Governor not to sign HB 1839, and to engage with the Oversight Board and the Legislature on a measure that provides immediate tax relief in a fiscally responsible manner, as well as comprehensive tax reform that is consistent with the Fiscal Plan and budget process.
Any tax reform must be fiscally responsible. HB 1839, however, is inconsistent with the Fiscal Plan for Puerto Rico and with the budget for the current fiscal year 2024, which the Legislative Assembly passed, the Governor signed, and the Oversight Board certified. The Bill also violates the Commonwealth Plan of Adjustment and jeopardizes the Commonwealth’s ability to fulfill its obligations under the Plan of Adjustment.
The Oversight Board reserves all its rights, including to take action to nullify HB 1839 should it be enacted in violation of PROMESA. We hope such actions will be unnecessary.