Effective budgeting is more than an accounting exercise; it’s how the government and its agencies plan the spending and the revenue needed to maintain essential public services running smoothly. For example, budgeting allows school systems to plan for yearly expenses such as teacher salaries, textbooks, and building maintenance.
When governments estimate their revenues accurately and plan their expenses responsibly around realistic projections, they can fund not only their day-to-day operations without disruptions but also ensure they are prepared for emergencies and prioritize investments in people and infrastructure. This careful planning ensures that government operations remain reliable, allowing taxpayers to experience dependable public services every day. On April 15, 2026, the Financial Oversight and Management Board for Puerto Rico (Oversight Board) will bring together six budget directors from U.S. states to discuss at a public symposium best budget practices and how they succeed in managing their state budgets well.
When governments don’t manage their budgets in a fiscally responsible way, reforming the processes and practices of managing budgets and money becomes necessary to prevent consistently unbalanced budgets.
In Puerto Rico, such a comprehensive transformation of budget management is now underway. In 2016, Puerto Rico had accumulated $73 billion in debt it could not pay. A major cause of Puerto Rico’s massive debt was the government spending more than it collected in revenues every year for at least 16 consecutive years. In 2009, for example, government spending exceeded revenue by 30%. PROMESA, the Puerto Rico Oversight, Management, and Economic Stability Act of 2016, opened a way for Puerto Rico to reduce the debt but also mandates that the Oversight Board work with the government to create a method for achieving a responsible budget.
Budgeting: A Roadmap to Fiscal Sustainability
A government’s budget is not only a financial document; it’s the blueprint towards fiscal responsibility over a given period – usually a fiscal year, though some governments have multi-year (or biennial) budgets. It is a plan for managing spending and an accountability tool that, if followed, reflects the priorities established by Government.
Most U.S. states are required by law to adopt a balanced budget – that means, spending must not exceed revenues. That doesn’t mean governments aren’t taking on debt. Every solvent government borrows money to finance big infrastructure projects. But governments must not borrow more than they can afford, because payment of principal and interest are one element of a balanced budget.
Inadequate financial management, lack of oversight, and other practices led to recurring structural deficits and by 2015, Governor Alejandro Javier García Padilla declared Puerto Rico would not be able to repay its debt in full. However, Puerto Rico is not the only government that struggles with balancing its books. Countries like Greece and Argentina had to implement reforms to recover from its debt crisis. New York City faced a fiscal crisis in the 1970s that required the city to reform its budget processes, including putting some of the same guardrails in place the Oversight Board is working on implementing now with the Puerto Rico Government. The New York State Financial Control Board overseeing New York City’s finances during the fiscal crisis was created in 1975 and is still in place today, mainly to review the four-year financial plan and to ensure compliance with the New York State Financial Emergency Act of The City of New York.
Charting the Path for Permanent Fiscal Stability for Puerto Rico
The Oversight Board was created by PROMESA to help Puerto Rico achieve fiscal responsibility and regain reasonable access to capital markets, stabilize the budget and restructure the debt. Since the Oversight Board certifies Puerto Rico’s budgets, the expenses have not exceeded revenue. Debt payments dropped significantly.
But to keep Puerto Rico’s finances in balance, permanent budget reforms are required to help ensure sound financial management over the long term. The Government must lead its own financial planning and budgeting, transitioning away from reliance on the Oversight Board.
Enactment of budget reform legislation is required to embed this higher level of detail in a post-PROMESA environment, which is why the Oversight Board and the Government are working together to implement budget reforms that adopt modern best practices, as seen in other U.S. states.
Transforming Puerto Rico’s budget process means:
- Improved economic and revenue forecasting – Sound, transparent revenue and economic forecasting is essential for stability and credibility
- Budget best practices – The Government must establish a comprehensive framework budget that includes procurement, performance management, a well-defined reserves policy, and a comprehensive debt management policy
- Comprehensive capital delivery program – The Government must develop and adopt a multi-year capital plan to ensure investments are aligned with strategic objectives
- Improved, transparent financial reporting – The Government must address the fiscal management deficiencies and implement procedures and practices that will continue to exist post-PROMESA.
- Transition from Fiscal Plans to Post-PROMESA Multi-Year Financial Plan – The Government should develop a financial plan that incorporates multi-year estimates of all revenues and expenditures, near-term risks or gaps, and a plan to address them.
A Decade of Advancements
Puerto Rico continues to advance toward a more transparent, and best-practice aligned budget process as part of its long-term fiscal transformation. Ongoing initiatives across government agencies and the Oversight Board reflect a shared commitment to strengthening fiscal governance, improving forecasting capabilities, and ensuring that future budgets are sustainable and credible.
One of the key elements of budget transformation is a switch to new accounting standards. The Government and the Oversight Board are working on the implementation of modified accrual accounting principles as mandated by PROMESA. The Government’s historical approach—cash accounting—helped enable Puerto Rico to overspend and accumulate unsustainable levels of debt which led to the crisis.
Another element of this budget reform process is to introduce a capital budget. Capital expenditures should be clearly separated from the day-to-day operating budget, known as the general fund budget, so the Government can plan for long-term investments and better determine what resources are needed and when to fund long-term infrastructure investments separately from what is available for the operating budget.
Revenue and economic forecasting is another important step to improve the budget process. The Oversight Board introduced Puerto Rico’s annual Economic Forecast Symposium that will eventually evolve into a symposium to establish a consensus on projecting government revenue and economic growth to create a more solid foundation for budgeting and determining how much money the government can spend. The symposium was organized by the Oversight Board for the last two years but will become a permanent fixture in the government’s budget process even when the Oversight Board is gone.
To implement this transformation and the new practices, the Office of Management and Budget (OMB) needs to be properly resourced. OMB and the Oversight Board mapped out new positions that would strengthen this crucial government agency and ensure future budgets are developed and implemented on solid principles and with solid practices.
In April, the Oversight Board will hold a budget transformation symposium during which experts will discuss how U.S. states approach budgeting, how they have handled some of the same challenges Puerto Rico faces, big changes to improve budget processes, what they consider best practices, and what this means for Puerto Rico and its budget transformation.
The Road Ahead
To fulfill the mandate of PROMESA and for the Oversight Board to complete its work, the Government of Puerto Rico must reform its budget processes and implement sound fiscal management practices that will continue long after the Oversight Board has left the Island.
The Government must complete these reforms and be able to pass and maintain balanced budgets and multi-year financial plans to achieve fiscal responsibility over the long term, as required under PROMESA.
Until those reforms are made, only the Oversight Board’s presence prevents Puerto Rico from falling back into budget deficits.
Budget reform should not be a temporary solution. It must become the permanent standard by which the Government operates and endure well into the future to ensure a transparent, sustainable, and fiscally responsible budgeting process.
