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José B. Carrión III, president of the Oversight Board. (Xavier J. Araújo Berríos)

Yesterday, the Oversight Board sent to the Legislature a budget that increases about $ 4.7 million the federal entity’s funds and establishes that the salary increases proposed by Governor Ricardo Rosselló Nevares will not be granted until the government complies with certain saving and investment objectives established in the fiscal plan.

According to the document unanimously endorsed by the members of the Board, the government will be required to submit budget compliance reports each quarter and to review its revenue estimates before the Office of Management and Budget (OMB) can authorize the disbursement of funds to different government agencies allocated to them in the budget.

Likewise, among these conditions, the Board established that the increase of $ 1,500 per year -or $ 125 per month- that was promised to teachers and members of the Police will be subject to the government achieving the savings promised in those agencies or to the reinvestment program in certain initiatives, such as the purchase of school texts.

"The appropriation in the amount of $37,349,000 provided in Subparagraphs 17(i) of Section 1 of this Joint Resolution to fund the salary increase for police officers and ensure that the Department of Public Safety continues to retain police officers (the “Police Salary Reserve”), shall remain unencumbered and under the custody of OMB until the savings measures set forth in Section 12.6.2 of the New Fiscal Plan for Puerto Rico certified by the Oversight Board are satisfied," states the budget document.

In the case of the Board, its budget would increase, although less than the initial request of $80 million made by the federal agency. Starting next year, instead of $ 60 million, the budget of the Board will be $ 64.7 million.

Non-compliance

Last week, after Rosselló Nevares and the Board agreed that the budget of the Legislature would not change and that agencies such as the Governor’s Office and the Resident Commissioner’s Office, through the Federal Affairs Administration of Puerto Rico, would have increases, the Board modified the work schedule to approve next year´s budget.

After indicating that the budget was not in compliance and in the middle of the impasse for the implementation of the fiscal plan, the Board established that the government would submit a revised budget on May 25, but the date was suspended once the parties agreed that the government would receive more budget and that certain marginal benefits would be protected in exchange for repealing Law 80, 1976. As part of that agreement, the Board gave Rosselló Nevares until June 1 to submit his revised budget.

The Fiscal Agency and Financial Advisory Authority (FAFAA) told El Nuevo Día that it submitted the revised budget to the Board on June 1, but did not disclose the document.

However, yesterday, when submitting the budget to the Legislature, the Board established that the revised version sent by Rosselló Nevares did not comply with PROMESA either.

"After substantial deliberations, the Board determined that the Budget Resolutions do not reflect a compliant budget as required by PROMESA 202(c)(2) and has developed a revised compliant budget," reads the unanimous resolution of the Board. 

The Board did not specify the changes made, but in dollars and cents the budget resolutions that the Legislature must now examine hardly show any difference compared to the previous versions submitted by the government.

In his May 22 budget message, Rosselló Nevares mentioned an operational budget of $ 8.730 billion.

The resolutions sent yesterday to the Legislature aim at an operational budget of about $ 8.748 billion, however it is not clear if this figure includes the funds that would be used for the salary increase promised to teachers and the police.

 “Crudita” to pay salary increase

As anticipated by El Nuevo Día, the source to pay this raise is the collections of the tax on petroleum by-products, known as “crudita”, from which about $ 279.8 million would be allocated to this purpose.

This being the case, the increase promised could be the subject of litigation with bondholders, as part of “crudita” collections are committed to the Highways and Transportation Authority (PRHTA).

During the Alejandro García Padilla´s administration, the "clawback" provision was activated in order to retain “crudita” collections and other income in the General Fund. Since then, bondholders and insurers of the island's debt have argued in court that this -which Rosselló Nevares has kept- is against the rule of law. According to bondholders, the General Fund can activate the "claw back" provision, but only to pay the constitutional debt and not to cover operating expenses.

The budget submitted by the Board must be approved by the Legislature this month and then return to the federal agency for certification.

However, the final approval of the budget by the Board depends on the government repealing Law 80, a structural reform that the federal agency has described as fundamental. The Board understands that changing the labor rules on the island, together with other initiatives, will help reverse the economic contraction, which, in turn, would allow more funds into the treasury.


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