Puerto Rico’s new fiscal plan, explained

by Mar 22, 2017Headlines, Puerto Rico0 comments

Governor Ricardo Rosselló’s new fiscal plan was approved on Monday March 14 with amendments, by the Fiscal Management & Oversight Board for Puerto Rico. The plan will have numerous impacts on the people of Puerto Rico, and will be in effect for the next ten years. Puerto Rico currently has near $70 billion of debt, and the new plan aims to restructure monetary policy to begin paying it off. The government aims to avoid laying hardships directly on citizens, but all will likely be impacted.

Overall, the plan is expected to cause around two to three percent economic contraction annually. Government revenue and fiscal reform measures are targeted to create around $39.6 billion over the course of the plan.  

Specifically, revenue enhancements are expected to return $13,897 million through tax reforms and increased compliances; government right-sizing $20,329 million through payroll and operational cost freezes and decreased subsidies; healthcare reforms $6,123 million through reducing drug cost and increasing payment integrity; and pension reforms around $541 million.

In the coming 2018 fiscal year, some changes that can be expected are:

in increased revenue in tax reform and adjustments (including taxes on tobacco, new property taxes, and licenses)

in increased revenue in government restructuring and resizing measures (including payroll increase freezes, operational cost freezes, and reduction of subsidies)

in increased revenue in healthcare changes (including reducing drug cost, improving payment integrity, and establishing uniformed fee schedules. Additionally, while it will not have any effect on the 2018 year, the plan calls for a new healthcare model, which is expected to save significant amounts of money once implemented)

Pensions cuts are somewhat uncertain, however. The governor’s original plan called for cuts of three percent, which were expected to create around $89 million, while only impacting those with pensions over $2000 a month. However, the Oversight Board amended the plan, calling for a change in the pension system, with unspecified cuts. The board has said that “no retirees will be pushed below the poverty line.”

Retirement plans will also change systematically, so that employees are no longer paying into a large pool, which then pays off retirees. This change, like pension reform, is somewhat unspecified currently.

Furloughs were suggested by the oversight board, but will not be used until October at least, with hopes that in six months, they will not be necessary as the fiscal plan begins to work.