Every week, the Puerto Rico Treasury Department reports to the people of Puerto Rico how much money the government collected in taxes and fees, and how much it spent to provide government services, to pay pensions and help those in need of financial support, to pay government employees and vendors, and for other expenses. It also reports how much cash is left in the Treasury Single Account, known as TSA.
The TSA is the central government’s main bank account. It is like our checking account, and, just like everybody’s bank account, sometimes it looks like there is more money in the account than we actually have available to spend. That is because some of the money in our checking account is already allocated to payments we haven’t made yet but we know are coming, or payments that we made but that aren’t yet reflected as having come out of the account.
When we receive a paycheck on the first of the month, our checking accounts look fabulous. But just a few days later, the mortgage gets paid. And we know the car may need an oil change next week, and the credit card bill comes due on, say, the 20th of the month. It’s the same for the government: most of the money in the TSA is, in a sense, already spent, appropriated, or obligated for specific things.
For example, as of December, the end of the second quarter of the current fiscal year 2024, the TSA’s total balance was $8.9 billion. Sounds like a lot. But if we peel off all the money that is already allocated to specific government payment obligations, we end up with less than $2.4 billion, and that includes the Government’s $1 billion minimum operating balance.
Here is why.
Of the total TSA in December, the government already committed $1.6 billion as payments for expenses from prior fiscal years. That money has not been spent just yet but will in the future. Those are called “committed” funds. For example, $328 million was set aside for equipment and construction and infrastructure projects, and $388 million was set aside to build a strong broadband network so particularly rural areas are connected to the internet. This would be like when you know you need to fix the garage door and that your child needs a new computer when school starts. You know those expenses are coming and you put the money aside. You can’t spend the money for those expenses on something else you might need, but it makes your bank account look much bigger today.
“You can’t spend the money twice,” is how Robert F. Mujica Jr., the Executive Director of the Oversight Board, put it.
The TSA also includes money that is categorized as “restricted”. That means it can only be used for a very specific purpose. One of the biggest portions of these restricted funds, $1.3 billion, is for the Emergency Reserve Fund. These are savings to ensure that the Government has money to help the people of Puerto Rico, fast and effectively, in case of natural disasters and other emergencies. This is an important element of good and responsible housekeeping. When Hurricane Maria hit, Puerto Rico did not have such savings to help residents quickly. The Emergency Reserve has been used several times already, including during the COVID-19 pandemic and for recovery after Hurricane Fiona, so that Puerto Rico is always prepared for an emergency.
Restricted funds also include $185 million remaining from the original $300 million the Government set aside to pay the pensions of PREPA’s retirees. PREPA’s retirement system is out of money, and the Government approved a loan to ensure PREPA can pay its pensions until the PREPA Plan of Adjustment is approved, which would allow PREPA to end its bankruptcy.
In total, $3.5 billion of the TSA money is already allocated based on such specifically intended purposes. Another $1.5 billion is restricted for cash payments related to the central government debt restructuring the court confirmed in 2022. Those are payments mainly to Puerto Rican’s the Government owed money to when it filed for the bankruptcy-like process under PROMESA. For example, employees who made an administrative claim for backpay, or property owners who had claimed that they didn’t get properly reimbursed by the government under eminent domain get paid from this money set aside. The court ordered that money to be paid, and the Government will pay it out.
If those $6.6 billion in committed or restricted funds are not spent as previously allocated, the Government would get into financial and legal trouble.
The $1 billion minimum operating cash, meanwhile, is like the minimum balance left in a family’s bank account after mortgage, car payments, school supplies, groceries and other living expenses have been paid for. This balance is necessary so the government can continue to pay employees and pensions if it doesn’t get all its income in time, for example when tax payments are late due to a technical glitch or a natural disaster.
Being fiscally responsible involves careful planning, budgeting, and spending. This is the way to secure long-term financial stability. The TSA is an important tool for governments to ensure revenues are collected and expenses are properly paid. According to financial experts, a true TSA as a centralized cash management system is the correct way to manage the Government’s financial resources. This is how governments around the world operate. Also, it is just as important to understand what the TSA is and what it is not, and what cash is available and what is already committed.
