Puerto Rico’s governor plans to cut spending, raise revenues and, for the first time in 15 years, balance the budget.
The proposal, unveiled recently by Gov. Alejandro García Padilla in his State of the Commonwealth speech, will be debated by legislators in advance of Puerto Rico’s new fiscal year, which starts July 1.
García Padilla’s plan calls for a $9.64 billion general budget for FY 2015, a drop of 1 percent over FY 2014, and about $1.5 billion in spending cuts. The government also expects to raise $570 million in new revenues and spend $775 million to pay off debt, up from $525 million last year.
‘We are responsible for debt’
“We have been given the responsibility to do something about the debt from the past,” García Padilla said in his televised speech to legislators. “We are going to assume that responsibility, and to make it clear to the world that this island pays its bills. That is a patriotic responsibility that we owe the past and that we are not going to pass on to the future.”
Puerto Rico faces $70 billion in debt and an economy stuck in a protracted recession. Since taking office in January 2013, García Padilla has instituted a series of measures that have significantly decreased Puerto Rico’s budget deficit, increased tax revenues and strengthened its tax-collection processes.
In March, its planned offering of $3 billion in general obligation bonds, designed to strengthen its financial position, was oversubscribed and increased to $3.5 billion. Proceeds were used to refinance short-term obligations and swap termination payments.
Many analysts reacted favorably to the governor’s speech, while also noting that significant challenges remain.
“The 2015 budget proposal appears to be a positive development for the commonwealth, based on its effort to move toward structural balance, its call for spending restraint and the avoidance of new deficit financings,” Moody’s said in a statement.
Cost-saving measures in the governor’s proposal include consolidating 25 government agencies and cutting agency budgets an average of 8%. Payrolls would remain frozen, though no layoffs were planned. Additionally, the government said it is beefing up its economic development efforts in an effort to attract additional jobs.
If the governor’s plan is successful, this may provide a ray of hope for Puerto Rico bondholders, who have been inundated with reports of doom and gloom for more than a year.