SAN JUAN, April 29 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
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
"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