After his first public meeting as executive director of the Fiscal Oversight Board, Robert Mujica warned that the Pedro Pierluisi administration’s intentions to end certain austerity measures included in the fiscal plan, based in part on federal funding over the next five years, must be framed within available resources projections in the long term.
“Right now we have a 30-year outlook in the financial plan and that is what we are looking at, the Medicaid funding ends after five years, Congress did not provide a permanent fix there, it would have been more helpful, something that we could plan on, but that’s what we have. We have to look at what the impact of that is in the post five-year period. I think it took the island a lot longer to plan to get out so I think the horizon has to be longer, longer than five years to get to the position where they were going into bankruptcy so it’s going to take a lot longer,” said Mujica at the press conference held at the end of the Board’s first public meeting in 2023.
Last Tuesday, the government submitted to the Board the draft of the five-year fiscal plan that the entity must certify during the first half of 2023. In an interview Thursday with El Nuevo Día, Omar Marrero, Executive director of the Fiscal Agency & Financial Advisory Authority (FAFAA) said that in the draft there is “no incremental reduction in government spending,” contrary to what has happened since 2017, when the Board began with its cuts policy that had dramatic effects on the budgets of agencies, public utilities and municipalities.
Marrero also explained that the proposed spending in the fiscal plan is based, to a large extent, on the $19.42 billion in Medicaid funding over the next five years, which leaves state funds for other purposes, as well as on what, in his opinion, would be the different vision that Mujica, former New York State Budget Director, would bring.
At the press conference held after the Board public meeting, Mujica did not advance whether the Board would agree to change austerity policies for municipalities - which by 2024 would not receive a single cent from the so-called Equalization Fund - or for the University of Puerto Rico (UPR), which, under the current fiscal plan, would receive about $460 million annually from the central government, about half of what the UPR was allocated until 2017.
The new Board’s Executive Director pointed out that, regardless of the fiscal resources eventually allocated, public entities will not be able to sustain themselves in the long term without the “structural reforms” that the fiscal entity has been requiring since they arrived on the island.
“I’m going to relook at all those things. Like I said, now that we are turning the corner of bankruptcy we can reprioritize some things. I can’t say today, on day 20 (as the Executive Director), that I have plans, I have to consult with the Board and go back and look at those things. But as we come out of bankruptcy, there may be opportunities both to make reinvestments in some of those areas, but it’s not just turning the corner and they saying “we are going to take these surpluses and make the investment” you have to do the reforms or you are just going to go right back, because we are resolving the bankruptcy, we can take all the surpluses and reinvest them. We have to execute the reforms or we will go back to where we were,” said Mujica, who described as “critical” the role of the UPR and primary education in the island’s economic development. When asked if he would bring a new vision regarding municipal financing, Mujica replied that his answer would be similar.
“Not everything can be a priority (...) We will look at what the real priorities are, where reforms are needed. My focus will not be on temporary reforms or writing plans on paper. The focus should be on executing the plans, implement them and make them permanent, knowing that you have the resources and a different outcome than the one you had before,” said Mujica, of Puerto Rican origin.
In his interview with this newspaper, Marrero highlighted, precisely, an initiative that would create the Municipal Fund for Essential Services, to which the government would inject $150 million annually. Until six years ago, the Municipal Equalization Fund had allocations of over $350 million annually, which have been gradually eliminated according to the fiscal plans.
Silence about generation contract
The Board did not address the issue of the contract for the operation of the generating units, which has already been approved by the boards of directors of the Public-Private Partnerships Authority (P3A) and the Puerto Rico Electric Power Authority (PREPA). Marrero, in a separate interview with the press, said that the Board had already notified its approval of the 10-year contract, which, according to sources, would have been awarded to the Genera PR consortium, composed of New Fortress Energy, Peak Energy and Black & Veatch.
When asked by El Nuevo Día if, in fact, the Board had approved the contract, the entity’s press officer said that official expressions would be issued soon.
The Board’s chair David Skeel said the process is well underway and added that they are very “optimistic” and that he hoped the contract would be signed soon. Skeel explained they are looking at whether the provider can efficiently operate PREPA’s assets to provide reliable energy at reasonable prices.