Puerto Rico governor to announce billion-dollar budget cut

SAN JUAN, April 29 Tue Apr 29, 2014 11:49am EDT

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SAN JUAN, April 29 (Reuters) - Puerto Rico's governor is expected to announce a billion-dollar cut in public spending on Tuesday night as commonwealth government agencies brace for measures that will be taken to produce the first balanced budget in years.

Governor Alejandro Garcia Padilla, who will reveal his plan in an address the legislature, has said everything is on the table except firing public employees. Officials have said a 10 percent across-the-board cut in government agencies is coming.

But with payroll accounting for $6.7 billion of Puerto Rico's current $9.8 billion general fund budget, options for cuts without layoffs are limited. The commonwealth's current consolidated budget, which includes federal funding, surpasses $29 billion.

"With his pledge not to lay off more people, he is navigating between a rock and a hard place," said Robert Donahue, managing director at Municipal Markets Advisors. "I think there will be a little bit of everything."

Officials have denied speculation that the government will try to restructure its debt. Treasury Secretary Melba Acosta and Chief of Staff Ingrid Vila have said the budget will stay current on its $73 billion debt load.

The proposal is expected to include eliminating and fusing about 20 government agencies to save money, according to media reports published Tuesday.

House Treasury Committee Chairman Rafael Hernández Montañez said the commonwealth government would no longer provide subsidies to public corporations, and that new legislation would order their directors to become financially self-sufficient, including renegotiating with contracted suppliers and employees.

"There will be across-the-board adjustments that will be fair to all, but there are a lot of adjustments that need to be made within each agency or public corporation," Hernández said.

In February, when Garcia Padilla pledged to investors to deliver a balanced budget, he said making the government's public corporations self-sufficient is "one of the most significant, greatest challenges" facing Puerto Rico.

"We have to adjust to the reality of a smaller economy with less resources and we can't maintain a government structure as if this was an economy with much greater productive capacity," said economist Jose Joaquin Villamil, of Estudios Tecnicos.

The governor is also expected to announce new economic initiatives, including a capital works program.

While no new taxes are expected following a year in which the administration levied $1.5 billion in new taxes, the government could see added revenue because some new taxes are still being implemented, including a levy on Internet purchases and a plan to charge the sales and use tax on goods imported into the island.

Public corporations may also decide to raise fees in their quest for self-sufficiency, according to officials.

Earlier this year, concerns over the Puerto Rico government's ability to deal with its debt, with an economy and population in decline since 2006, prompted all three credit ratings agencies to cut Puerto Rico's credit to non-investment grade, or a junk bond rating.

Last month's $3.5 billion bond deal gave the Puerto Rico government "breathing room" and analysts have awaited the budget to see how the administration will address fiscal challenges.

The governor is expected to seize on recent positive news in making the case that the economy is turning the corner.

In March, the island economy fell for its 16th straight month, but the 0.8 percent year-over-year decline was the smallest drop in more than a year, according to the Government Development Bank Economic Activity Index.

While the EAI is down 3.4 percent overall through the first three quarters of the current fiscal year, it has been on the rise for three straight months. (By Reuters in San Juan.; Editing by David Adams and David Gregorio)

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Comments (2)
PRexpat wrote:
“Everything is on the table except firing public employees… The proposal is expected to include eliminating and fusing about 20 government agencies.”

So the same number of employees will “work” for fewer agencies? Get ready for even more unnecessary hurdles to jump through to get a permit, renew a license, etc.

Apr 29, 2014 3:36pm EDT  --  Report as abuse
Gilberto11 wrote:
He might not fire any public employees, for political reasons, but the payroll cost can be reduced by eliminating benefits. Xmas bonus can be eliminated or reduced to a minimum, summer bonuses where given can be outlawed. In P.R. public employees get paid in cash for vacation and sick days not used. Switching to a use it or loose it policy as in the private sector will reduce that cost. Also, a hiring freeze is an option to lower expenses.

Apr 29, 2014 4:27pm EDT  --  Report as abuse
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