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 Rico and its economy forward.
That period is ending. Now, Puerto Rico is transitioning into a new phase: strategic and institutional budgeting. This shift focuses on planning for the future while maintaining fiscal stability.
The Financial Oversight and Management Board for Puerto Rico (Oversight Board) certified the fiscal year 2027 consolidated budget for the Commonwealth of Puerto Rico. It is the second consecutive budget developed jointly by the current administration, the Legislative Assembly, and the Oversight Board.
Embedded in this fiscal year 2027 budget are also several key elements of unlocking reforms that support the transformation of the budget process that the Oversight Board has made one of its strategic priorities, including the implementation of the strict accounting standards PROMESA mandates, the creation of a capital fund (with a centralized capital budget to follow), enacting reserves to protect Puerto Rico from fiscal stress, and budgets that look beyond annual spending and aligns public resources with long-term priorities. Puerto Rico’s transition to strategic, more transparent, and more resilient budgets represents real progress. These reforms are critical to meet PROMESA’s mandate and its requirements for the Oversight Board to complete its work.
As one important step, Governor Jenniffer Aydin González Colón introduced legislation establishing three budgeting changes set to begin during current fiscal year 2027. Approved by the Legislature, the bills are awaiting the Governor’s signature to become law.
Several steps – including the implementation and enforcement of these measures – need to follow this milestone, to continue advancing the transformation of Puerto Rico’s budget process.
The legislation includes the following budget practices:
- A budget stabilization fund (in some states called “rainy day fund”): Puerto Rico is establishing the statutory framework to create a new savings fund to help the Government remain stable during future emergencies or economic downturns. This fund would replace the prior budget stabilization fund that had not been funded since 2008. The goal is to save an amount equal to 13.5% of the Government’s yearly General Fund spending, which is consistent with the National Association of State Budget Officer’s cited national average of what many U.S. states do. Savings would start right away, with $729 million set aside in fiscal year 2026. After that, the Government is required under the new law to add an amount equal to 1.4% of General Fund spending each year until the fund reaches its full target of 13.5% by June 30, 2032.
- A capital fund: These funds would be dedicated to finance infrastructure and other capital projects. For the first time, Puerto Rico will have a dedicated capital investment fund separate from General Fund operation spending funds. While it is the first time that Puerto Rico will do this, the practice is standard in U.S. states. The capital fund would receive 50% of the Puerto Rico Trust Fund’s income every year, giving the Island a steady, reliable source of funding for projects that require local (non‑federal) dollars.
The creation of these specific funds will help Puerto Rico institutionalize responsible fiscal management for today and the future. With the stabilization fund, Puerto Rico will now have a comprehensive reserve policy framework that incorporates risk-based targets and rules-based governance. And with the capital fund, Puerto Rico will have the tools to plan and manage capital needs through a disciplined funding mechanisms to ensure long-term fiscal resilience.
- Multi‑year financial planning: The legislation also created a transparent five‑year financial plan, which is set to start in fiscal year 2027. According to the legislation, it must be updated every year to ensure that the Government’s ongoing income matches its ongoing spending.
The plan must be publicly released, including the methods and assumptions behind it, so that the public can compare results year after year and hold different government administrations accountable. The assumptions must include two scenarios:
- a base case that reflects the most likely outcome, and
- a stress case that shows what could happen if economic conditions worsen.
The five‑year plan must also be certified as compliant with the Fiscal Plan for Puerto Rico, as required under PROMESA.
While these measures mark important progress, Puerto Rico will need to build on them during the next budget cycles to fully achieve sustainable, long‑term budgeting.
Other reforms that Advance Sustainable Government Budget Practices
- The Government has made progress towards adopting modified accrual accounting standards as required under PROMESA. The Oversight Board and the Government have aligned on the applicable guidelines regarding the development of budgets in accordance with those standards and the Oversight Board will continue to evaluate the Commonwealth’s implementation of those guidelines for the fiscal year 2027 and fiscal year 2026 budgets, as well as the supporting documentation, methodologies, and reporting necessary to assess compliance with applicable requirements under PROMESA.
- The Government launched a single platform to replace its patchwork of separate, aging financial information systems as part of the broader financial management modernization that the Government and the Oversight Board have pursued together.
This enterprise resource planning (ERP) system is not just a major technology upgrade but centralizes the Government’s financial and operational processes in one place. Reaching this point took far longer and proved far harder than the technology alone would suggest.
The benefits of a unified financial system, stronger controls, clearer reporting, and greater transparency in how public funds are managed, are realized not on a single day, but over the years in which the system is used, maintained, and improved. That is the work now underway.
More reforms will follow this fiscal year, for example, to develop all funds budget so that all appropriations, including federal funds and special revenue funds, must be approved by the Legislature, not just the General Fund.
And Government agencies must become more fiscally accountable and efficient. Budget management in Puerto Rico is spread across several agencies (OMB, Hacienda, Puerto Rico Fiscal Agency and Financial Authority) with limited cooperation. The Oversight Board’s goal is to establish a centralized, transparent, and flexible budget system that supports accurate risk assessment.
Moving Toward a Prosperous Puerto Rico
By establishing statutory reserves, creating a capital framework, and grounding a credible five‑year plan, fiscal year 2027 positions Puerto Rico for sustainability, confidence, and continued fiscal stability. Once implemented, these reforms will demonstrate to investors and rating agencies that Puerto Rico has genuinely changed its budgeting behavior and is building the institutional architecture required to regain market access and complete the journey from crisis to recovery.
