(Updates throughout with details from speech, adds
SAN JUAN, April 29 Puerto Rico's governor
announced a $1.4 billion cut in public spending on Tuesday as
the commonwealth government agencies braced for measures that
will be taken to produce the first balanced budget in years.
Governor Alejandro Garcia Padilla unveiled his $9.64 billion
budget proposal for 2015 in an address to the legislature that
included a $775 million payment for Puerto Rico's long-term
The current general fund budget is $9.835 billion for fiscal
year 2014, which runs through June 30.
"We are beginning to pay for today's expenses with today's
earnings. This balanced budget complies with my commitment to
prepare a budget without deficit financing nor refinancing of
debt," the governor said.
"We have accomplished this without firing anyone, respecting
the daily bread of public workers," the governor said.
The governor said that he would cut government spending by
an average 8 percent and would freeze hiring but added he would
not make cuts to the Police Department or the University of
The governor also announced the fusion of 25 government
entities, which he said would be undertaken without affecting
services or employee rights. He also said he ordered a 10
percent cut in the budget for senior executive staff positions
and for professional service contracts.
The government will also seek savings of $236 million in
government payroll expenses through negotiated cuts in marginal
employee benefits, as well as transferring school transportation
service to island municipalities. Officials also said the least
utilized and most obsolete schools would be shut down to save
There will also be savings through changes to Christmas
bonus and sick leave benefits to public workers.
On a positive note the governor highlighted plans and recent
achievements in the areas of manufacturing, high tech and
financial services, tourism and agriculture.
Hundreds of public workers gathered outside the Capitol
building in the afternoon to pressure the government to respect
their collective bargaining contracts.
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.
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.
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 commonwealth government is seeking to make the case that
the economy is turning the corner.
In March, the island economy fell for a 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, David
Gregorio and Ken Wills)