Elías Sánchez, representative of Puerto Rico before the Oversight Board (OB). (horizontal-x3)
Elías Sánchez, representative of Puerto Rico before the Oversight Board (OB). (Archive/GFR)

Although the US Congress authorized $295.9 million in Medicaid funds to the Island and the Government created the Law on Fiscal Compliance (Law 26) to transfer control over 242 government agencies’ accounts to the Department of the Treasury, these measures will not provide any recurring funds to the Treasury and therefore, will not have an impact on the budget for next fiscal year or will they avoid the cutbacks program that is to start implementation next July.

According to the representative of Puerto Rico before the Oversight Board (OB), Elías Sánchez Sifonte, even though the allocation included in the so-called omnibus spending bill, “is better than nothing,” it cannot be applied prospectively to the estimates in the Fiscal Plan for (PFPR, by its Spanish acronym) and will not eliminate the two large gaps the Island faces, particularly that regarding health services.

Meanwhile, the executive director of the Office of Management and Budget (OGP, by its Spanish acronym) Juan Iván Marrero, assured that Law 26, will finally allow the government to transfer special funds to the Treasury that for years remained in separate accounts outside the control of the Island’s Treasury. But as of today, there is no certainty as to how much cash should be in them. Sánchez Sifonte and Marrero delivered their remarks during a government accounting forum coordinated by the School of Certified Public Accountants held yesterday at the Condado Plaza Hilton hotel in the capital city.

“The fiscal plan contemplates no additional money,” Sánchez Sifonte said when asked about the benefit the temporary federal allocation under Medicaid would entail.

He said that while the allocation approved in the federal spending bill will be posted in the current budget, that does not eliminate the drop that the Treasury will experience following the end of the block allocation Puerto Rico received through Obamacare.

“There are two dramatic peaks that are of much concern in the liquidity forecasts,” Sánchez Sifonte said without offering specific figures.

Currently, Mi Salud exists thanks to an annual federal funding of $1.2 billion that ends this year. The second event that will drastically disrupt the State’s liquidity will be the payment of pensions from the General Fund, which should begin starting July, said the attorney.

“Municipalities have to carry out the same exercise as the central government,” Sánchez Sifonte said when admitting that one of the items to be cut in the next budget is the so-called subsidy to municipalities. The next budget, which contents will become public only when the Oversight Board (OB) issues its opinion by the end of this month, contemplates $850 million in cutbacks in their operation.  Added to that figure, are a preliminary $100 million in the MiSalud program. To enhance revenues, the government is betting on $924 million in taxes, of which $519 million come from the extension of the excise tax on foreign corporations.

Special funds and the TRAns. This source of income, now a certainty with the extension of the statute, would breathe some air into the government’s liquidity, which would be added to the transfer of some 242 accounts over to the control of the Treasury, said, for his part, Marrero.

According to Marrero, given that the Government will no longer be able to seek short-term loans, known in technical jargon as the “TRANs”, the Treasury will have to do some “self-financing” by drawing from special federal funds that have not been used to date.

“That is where the Treasury’s cash stability is guaranteed,” Marrero said. The latter’s predecessor, Luis Cruz Batista warned of the interest by the OGP of taking control over the special state funds, which have been estimated at $2,590 million.

Until last February, according to Marrero, the understanding was that there were $433 million. However, to questions from El Nuevo Día, Sánchez Sifonte said that once Law 26 comes into effect, the Government will have an idea of much cash there is, if any, in those accounts.

The government must submit to the OB by next June 30 a cash reserve of $200 million and a liquid reserve of 1% of expenditures. Specially, the reserve of additional cash is critical to avoid the activation of the (reduction) of the work day.

Among other things, Law 26 authorizes the government to transfer any surpluses from public corporations to the General Fund, a special dividend from the Joint Subscription Association (ASC, by its Spanish acronym) and the possibility of extracting funds from the Puerto Rico Sales Tax Financing Corporation (Cofina, by its Spanish acronym), if necessary.

Accounts in order. According to Marrero, the real benefit of Law 26 –which was extensively discussed under Bill 938 because it eliminated fringe benefits for public employees - is the chance to control these funds and accounts that have so far been invisible to the Treasury and the OGP.

Marrero explained that by controlling special accounts or funds, the Government will prevent planned expenditures from being posted to previous years. On the other hand, he explained that if an agency posts more income as a result of special initiatives, that cash will go to the Treasury.

“The operational task is monumental,” Marrero said, noting that in order to implement the control over accounts in special funds the accounting systems will undergo an upgrade process, which, in turn, will make it possible to expedite the task of disclosing the government’s financial information.


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