Cuts loom as gov’t confirms $441M deficit for Fiscal ’16

Written by  //  May 5, 2015  //  Government  //  No comments

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Puerto Rico Chief of Staff Víctor Suárez.

Puerto Rico Chief of Staff Víctor Suárez.

Members of Gov. Alejandro García-Padilla’s fiscal team confirmed Monday the government will likely have to implement cutbacks across the board to address the $441 million deficit it is facing for the start of Fiscal 2016.

To tackle the situation, the government is already contemplating cuts across the board that include the possibility of a reduced work week for public employees, cutbacks throughout all government branches, lower contributions to nonprofits and municipalities, as well as a modification in the funding formula for the University of Puerto Rico, said Chief of Staff Víctor Suárez.

During a press conference at La Fortaleza, he further said the administration is working on a budget based on this year’s recurring income of $8.6 billion, which is $1.5 billion less than what it expected to generate from the proposed tax reform that failed to pass in the Legislature last week.

The administration official said the government is now facing a cash flow shortage due to its inability to access tax revenue anticipation notes, known as TRANS, a problem that is worsened by the Government Development Bank’s declining liquidity.

“Differently from what happened last year when the GDB loaned money to the central government bank to operate during the first three months, this coming fiscal year, the GDB will not be able to do it,” Suárez said following one of several meetings held at La Fortaleza between Gov. García-Padilla’s fiscal team and members of the House and Senate.

“We also discussed the fact that given its delicate liquidity, the GDB will not be able to disburse loans to municipalities that had been designated for infrastructure development and other projects, which will definitely have an impact on economic development,” he said.

While he said the García-Padilla administration will not “reject any scenario” to address the fiscal problem, Súarez added “any proposal presented must be accepted by all parties, the Legislature and the administration.”

Among those possible scenarios is increasing the sales and use tax rate from the current 7 percent, as well as revisiting the value-added tax proposition. However, Suárez refrained from confirming if either option is formally being considered.

Descentralizing services
Administration officials also confirmed Monday that the strategy to navigate the fiscal crisis also includes the possibility of shifting citizen services from the central government to municipalities and non-government agencies.

So far, some 19 areas have been identified as transferrable, including providing security and maintenance services to public schools, as well as student transportation, said Carlos Santini, executive director of the Office of the Commissioner of Municipal Affairs.

On the issue of transportation, the government launched a pilot program in 16 municipalities that resulted in a 21 percent savings in costs, Santini said.

The government was spending $9.1 million in transportation services that were reduced by about $1.9 million during the six-month pilot program, he added.

He, along with Secretary of State David Bernier and Office of Management and Budget Executive Director are in charge of the committee established to reorganize the government. They will tap the private and academic sectors to contribute proposals that already exist.

“One important element about what we’ll be doing is that we’re going to gather studies and proposals that have been generated by the private sector, academia, and the legislature during this administration and previous ones to begin coordinating efforts immediately,” Bernier said.

The first meeting to define the strategy to be implemented is planned for Friday, with the goal of having a package of measures ready in two weeks, Suárez said.

Regarding the possibility of consolidating government agencies, Suárez said no information will be offered yet.

“More than consolidating agencies, this is about consolidating programs and eliminating doubling and overlapping,” he said.

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