Puerto Rico state budget

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In fiscal year 2009, Puerto Rico faced a budget deficit of $3.2 billion that was expected to reach $4 billion by the end of fiscal year. Governor Louis Fortuño said in March 2009 that he planned to cut spending by $2 billion and that layoffs would start in July. "The government is too big and spends too much. Simply, the government has to be minimized."[1] The governor noted that he planned to "jump-start" the economy by increasing infrastructure investment, providing guarantees for loans to small and medium-sized businesses and incentives to home buyers.[2]

Impact of budget woes

See also: State budget crisis, 2009-2010
  • Proposed job cuts (14 percent of the public workforce) would not include police officers and teachers.[1]
  • Wages and benefits were expected to be frozen for two years in order to minimize the deficit.[1]
  • A two-year, five percent tax on banks, corporations, insurance companies and co-operatives, as well as on individuals earning $100,000 annually, was also been recommended.[1]
  • Taxes on cigarettes and alcohol were expected to be increased and the revenue would be used to pay for a health care program for the poor, according to state officials.[1]
  • In February 2009, Standard and Poor’s Credit Rating Agency lowered Puerto Rico’s Port’s Authority credit rating to just one notch above non-investment status, also known as junk status. Losing the investment grade rating would limit Puerto Rico’s access to the market, as many investors would not be able to place "junk status" bonds in their municipal portfolios.[3][4]
  • Unemployment in Puerto Rico reached 13.1 percent in December 2008, compared to the U.S. unemployment rate of 7.6 percent.[5]
  • The United Nations forecasted that the Caribbean economy was set to see a rise in unemployment rates in 2009 to between 7.8 and 8.1 percent as a result of the international economic crisis.[6]

Budget background

As of 2009, Puerto Rico had been in recession for three years. Furtuno took office in January 2009 and said he aimed to cut government spending by $2 billion annually.[2] In 2008 it was estimated that Puerto Rico had a Gross Domestic Product of $74.15 billion.[7] In fiscal year 200, revenues were estimated at $6.7 billion and expenditures at $9.6 billion.[7]

In 2006 Puerto Rico experienced a severe budget crisis that led to much of Puerto Rico shutting down after it ran out of funds near the end of the fiscal year 2006. The government was shut down for two weeks.[8] Some said that one of the causes was the political struggle between the Popular Democratic Party and the New Progressive Party. After much dispute between the house and the senate, the state legislature approved an emergency loan to finance Puerto Rico's $740 million shortfall. Then-Governor Acevedo Vilá signed the balanced budget on May 13, 2006.[9]

Ideas about why the crisis occurred

  • About 218,000 people, 21 percent of Puerto Rico's work force, worked for the government, making it the main employer. According to published reports, economists urged that Puerto Rico cut its payroll.[1]
  • The public payroll jumped to $5.53 billion in 2009 from $3.748 billion in 2001, a six percent annual growth rate.[2]
  • Standard and Poor’s Credit Rating Agency downgraded several Puerto Rico Highways and Transportation Authority bonds in March 2009. Highways Revenue bonds dropped from "A-" to "BBB+," Senior Transportation Revenue bonds dropped from "BBB+" to "BBB" and Subordinate Transportation Revenue bonds dropped from "BBB" to "BBB-." According to Standard and Poor, the credit rating was downgraded because of the increase in operational costs versus the slow growth in revenues. "BBB-" is the minimum investment grade rating.[3]
  • The Puerto Rico Planning Board’s revision for fiscal year 2008 showed the growth of the economy slowing down by 2.5 percent. For fiscal year 2009 projections pointed toward an economy that would have slowed by 3.4 percent and that would suffer an estimated reduction of two percent during fiscal year 2010. Planning Board president Héctor Morales Vargas said that the slowdown in the economy could be clearly seen in such indicators as employment, construction permits, sale of cement and Treasury Department revenues, which contrasted projections in 2008.[5]
  • Treasury revenues saw a 5.2 percent fall during the first half of fiscal year 2009.[5]

Proposed actions

New Progressive Party/Partido Nuevo Progresista

In light of Puerto Rico's budget crisis, Fortuño announced that the elimination of 30,000 government jobs was to be carried out gradually, with workers’ being offered early retirement and other incentives to leave voluntarily before administrators resorted to layoffs. According to officials, the cuts would result in $2 billion worth of savings. Fortuño said that he planned to cut his own pay by 10 percent. Recommendations also included raising taxes.[10] New Progressive Party officials said reducing the government's size and raising revenue were necessary to increase the government's bond ratings and Puerto Rico's economy.[11]

Popular Democratic Party/Partido Popular Democrático

Shortly after the governor's announcement that several thousand employees would be laid off because of the state's dire economic status, the president of the Popular Democratic Party, Héctor Ferrer, announced that he would be releasing an alternative solution to the crisis. The solution, Ferrer said, would not include layoffs. Ferrer said that he believed the crisis was in part due to the fact that the previous legislature approved funds when there was already a deficit of $1,500 million for fiscal year 2009.[12][13] Ferrer said that the party's solution did not include layoffs and did not have suggestions for increased taxes on the working class.[12]

Economic stimulus package

Puerto Rico was expected to receive $5 billion of the $787 billion dollar economic stimulus package[1]

According to preliminary reports, Puerto Rico was expected to receive:[14][15][16]

  • $155 million for 126 new health centers
  • $263 million are for public housing needs development
  • $40 million in Medicaid funds
  • $763 million for education
  • $105 million for the Highway Program
  • $657 million in “state fiscal stabilization funding”[17]

External links

Additional reading


  1. 1.0 1.1 1.2 1.3 1.4 1.5 1.6 BBC News, "Puerto Rico unveils job cuts plan," March 4, 2009
  2. 2.0 2.1 2.2 Reuters, "Puerto Rico plans to slash 30,000 government jobs," March 3, 2009
  3. 3.0 3.1 Caribbean Net News, "Decision to downgrade Puerto Rico highways bonds worries GDB," March 4, 2009
  4. Caribbean Net News, "GDB President says Puerto Rico faces immediate economic challenges," February 24, 2009
  5. 5.0 5.1 5.2 Caribbean Net News, "Planning board says Puerto Rico's recession will last through 2011," February 12, 2009
  6. Caribbean World News, "Puerto Rico Job Loss Could Expand Overall Caribbean Total," March 4, 2009
  7. 7.0 7.1 Central Intelligence Agency World Factbook, "Puerto Rico economy," accessed March 4, 2009
  8. BBC News," Puerto Rico government shuts down," May 1, 2006
  9. BBC News, "Loan deal for Puerto Rico crisis," May 11, 2006
  10. Latin American Herald Tribune, "Opposition, Unions Blast Puerto Rico Austerity Plan," March 4, 2009
  11. The Bond Buyer, "Fortuño looks to layoffs, tax hikes," March 5, 2009
  12. 12.0 12.1 El Reportero, "PPD presentará contrapropuesta económica," March 3, 2009
  13. Partido Popular Democrático, "Advierte sobre impacto negativo del plan de despidos propuesto por Luis Fortuño," February 25, 2009
  14. Caribbean Net News, "Two Puerto Rico healthcare centres to receive stimulus funds," March 4, 2009
  15. New America Foundation, "Final Education Stimulus Distributions to the States," February 17, 2009
  16. Recovery.gov, "Rebuilding America's Infrastructure," accessed March 4, 2009
  17. Caribbean Business, "The $5 billion question: How good is the Obama plan?," February 26, 2009