Two years after the Luis Fortuño administration declared the island in a state of fiscal emergency, and put into motion a series of cost-cutting and revenue-generating measures, the government has managed to control expenditures and reduce the structural deficit — and has piled on debt — an analysis by the Center for the New Economy showed Friday.
In it, Sergio Marxuach, the CNE’s public policy director, also concluded that despite its reduction, the structural debt will likely to be a problem for the government, at least for the mid-term.
Pulling from the “Official Statement” that the Fortuño administration presented during the most recent bond emission, Marxuach pointed out the objective set forth in January 2009, which was to reduce government spending by $2 billion through a series of cost-cutting measures
Most notably, the fiscal emergency spurred the approval of Law 7 in March 2009, which affected 17,147 public workers who either “voluntarily” resigned, were temporary or transitory, and did not have their contracts renewed, or were laid off.
During the presentation, the government told bondholders that as of February 2011 it had achieved savings of some $839.9 million, broken down into $647.9 million through Law 7, $150 million in the reduction of expenses related to professional services contracts and $42 million from the reduction of leasing contracts.
“Hence, the government has managed to meet 42 percent of its original goal of reducing spending,” said Marxuach, of the CNE, a nonprofit think-tank based in Puerto Rico.
On the collections side, the Treasury Department also implemented a series of temporary and permanent measures, with the goal of shoring up $1 billion in new revenue. During fiscal ’10 and ’11 the measures generated $848 million, or 85 percent of the original goal.
“Ironically, it seems that the administration has been more successful in accomplishing its goal of reducing revenue than expenses,” said Marxuach.
With regards to public debt, the CNE found that it had increased by nearly 20 percent surging to $63.3 billion in February 2011 from $52.9 billion in June 2008. He attributed the increase to the Puerto Rico Sales Tax Financing Corporation’s mounting debt.
The agency, known as COFINA for its initials in Spanish, issued $9.2 billion in new debt during fiscal ’09 and ’10, to be used as follows:
$4.8 billion to finance the government’s operational costs
$1.9 billion to pay off debts carried over from previous administrations
$1 billion for the Fiscal Stabilization Fund for fiscal ’11
Some $500 million for the local stimulus program
Another $1 billion was assigned for “other purposes,” which were not detailed.
The government has also relied heavily on American Recovery and Reinvestment Act money, through which the Obama administration assigned Puerto Rico some $6.8 billion. As of Dec. 15, 2010, the Fortuño administration had spent about 63 percent of the total assigned.
“After two years in office, the administration claims to have reduced the Commonwealth’s structural deficit from about $3.3 billion in 2009, to approximately $2.1 billion in 2010, and to approximately $1 billion in 2011,” Marxuach noted. “At first, this reduction is impressive, but if we consider that the government has used a significant amount of nonrecurring funds, both ARRA and COFINA funds, to finance operating expenses, the achievement loses some of its luster.”