Driven by a drop in payroll and the implementation of a fiscal improvement program at the Education Department, the Office of Management and Budget said Wednesday that Puerto Rico’s expenses so far this fiscal year are under budget and reflect a 6 percent year-over-year decline.
“The favorable expenditure results for the first five months of the fiscal year are a testament to this administration’s commitment to fiscal responsibility and discipline,” said OMB Executive Director Carlos Rivas.
“Together with the Puerto Rico Treasury’s on-target revenue results, the Commonwealth’s Fiscal Year 2014 budget has performed as expected on both sides of the ledger,” he said of the results for the July-November 2013 period.
Payroll expenses attributed to the General Fund for period totaled $962 million, which is $65 million (or 6 percent) below the same period for the prior fiscal year.
The prior year expense was adjusted downward by $72 million for this comparison, given that the employee Christmas bonuses were paid in November last fiscal year and were paid in December in the current year, OMB said.
The agency estimates there were 8,300 net fewer public agency employees in November 2013 vs. the same year-ago month, which directly affects the General Fund’s coffers. OMB reported that 94 percent of the attrition took place after the current administration took office in January 2013.
“The substantial decline in year-over-year General Fund headcount has been achieved without resorting to layoffs or reducing essential services to the population,” said Rivas. “The central agencies of the Commonwealth have demonstrated remarkable fiscal discipline to date in recruiting replacement employees.”
Public sector jobs attrition continues
With respect to the approved fiscal year 2014 budget, payroll for the first five months was $19 million (or 2 percent) under budget. The total year-over-year payroll decline does not flow down to a payroll surplus for the period because the current budget had already built in some of the projected attrition, the government official said.
“The majority of the increase in the approved General Fund budget corresponds to financial obligations that we already had, such as incremental debt service and retirement contributions, which could not be further postponed,” Rivas said. “The General Fund budget increase did not imply a higher net operating cost for the Commonwealth agencies; quite the contrary, it was built upon and required the discipline that we have been exercising over the past year.”
Driven by payroll figures, OMB estimates that from July to November, overall General Fund expenses against Fiscal Year 2014 budget assignments were lower than the approved balances in the Fiscal Year 2014 budget by about $135 million.
“We expect this surplus to narrow very substantially as we continue to issue liquidation payments for retired employees, and register further back-loaded expenses,” said Rivas. “However, we do not presently expect the surplus to fully disappear.”
The expectation, he said, considers a successful implementation of the fiscal management program at Education; the availability of carry-over and non-General Fund appropriation balances, particularly at said agency; using contingency accounts in the General Fund budget, including all or part of the $130 million set-aside for sick and vacation leave liquidation; and continued strict hiring oversight by OMB.
Rivas also highlighted two strategic initiatives on the expense side that are yielding results, including the initiative at Education that calls for running a fiscal management program that includes adjustments in security, non-essential services and contracting rates, which OMB expects to significantly cut-off any expected overdraft at the agency. Education officials continue to develop other fiscal opportunities in the federal funds utilization, transportation, and real estate areas, he said.
In addition, the administration has undertaken steps to balance the finances of subsidized public corporations, such as merging the Maritime Transit Authority, the Metropolitan Bus Authority and the Integrated Transit Authority (Urban Train) into a single entity with improved cost efficiencies, better governance, and dedicated transitional and recurring funding. Gov. Alejandro García-Padilla introduced the measure proposing that union in December.
In July 2013, the administration implemented a new islandwide third-party management model whose cost efficiencies, combined with other cost-cutting and revenue measures, have lowered the forecasted deficit of the Public Health Insurance Administration to less than 2.5 percent of revenues, he said.
García-Padilla also signed an executive order to re-engineer the Medical Services Administration, which provides direct support and shared services to certain public health institutions.
While these public corporations have the option to fund their expenses with substantial fee income or with their own balance sheet, continued success of these initiatives reduces the need for potential large-scale deficit financings, which have been covered in the past with long term General Fund appropriation debt, Rivas said.
“Puerto Rico continues to pursue, in a determined fashion, our goal to move all our public entities, whether General Fund agencies or public corporations, away from deficits and toward fiscal sustainability,” said Rivas.