The Budget Showdown

by John Marino

June 17, 2005
Copyright © 2005 THE PUERTO RICO HERALD. All Rights Reserved.

. As the summer heat bears down on San Juan, and relations between the Popular Democratic Party-controlled administration and the New Progressive Party-controlled Legislature hit an all-time low, the showdown over the government budget is finally on the horizon.

NPP legislative leaders, who have been tight-lipped over their budget plans, say they will pass a budget next week. That will put the ball firmly back in Gov. Acevedo Vilá’s court, who will either agree to its provisions, signing it into law, or veto the document, which would mean the government would be forced to live within the confines of the current budget.

The commonwealth’s fiscal year ends on June 30, meaning on July 1, a new budget should be in place. If one is not passed, the Constitution specifies that the current budget will be used until a new spending plan is approved by the Legislature and enacted into law by the governor.

There has been much politicking over the issue in recent weeks.

NPP lawmakers have talked about "fat" in Acevedo Vilá’s budget proposal, saying they will target advertising and promotional expenditures, professional service contracts and millions in unspecified expenses in several agencies as they aim to shave $1.3 billion from Acevedo Vilá’s $23.65 billion budget proposal. That’s the amount the administration is proposing to hike the current budget by, plus about $700 million in budgetary items for which recurring funds have yet to be identified – the so-called "structural deficit."

NPP lawmakers have also criticized the Acevedo Vilá proposal for eliminating exemptions to the general excise tax on imported and manufactured goods and imposing new taxes on financial institutions and in other areas.

Acevedo Vilá officials, meanwhile, have been on a daily basis for most of this month pounding out the administration message that cutting the budget by that much would be a catastrophe, forcing the layoff of 14,000 government workers and a pruning of government services.

They have also been banging the drumbeat that NPP lawmakers have been "obstructionist" in the budget process, creating an uncertainty that is causing economic harm.

The truth is, there are reasonable arguments on both sides, and the attention on the budget would be good news if it were not poisoned by partisan politicking that threatens to trivialize the budget debate –- undoubtedly the most important public policy question in Puerto Rico today.

The governor’s proposal could probably be cut, the question is by how much. He predicts drastic consequences if it is cut by $1.3 billion, but has said in recent days he is willing to negotiate cutbacks.

NPP lawmakers have only spoken in general terms of cuts, and the real impact of their plan won’t be known until they put a proposal on the table. That’s one reason why its passage of a budget will be such a welcome development in the debate.

That’s especially so since the NPP lawmakers have criticized both the administration’s proposal for tax hikes and increases in the cost of basic services. The NPP has also criticized modest administration plans for reducing government employment -- the elimination of contract workers and voluntary early retirement and reduced workweek programs.

How will the NPP pay for its plan, and where will the cuts hit? Hopefully, Puerto Rico finds out next week.

A new budget will be the most significant accomplishment in this era of divided government, and it will do much to eliminate uncertainty over basic government programs as well as the larger island economy.

Much else about the budget debate has become clear in the weeks leading up to the current showdown.

Taxpayers will definitely take a major hit to try to bring sobriety to the spending of the sprawling commonwealth government.

Water, electric and bus rate hikes will see to that. Most feel any other hike right now is just government greed. That’s especially with the current heat wave, which is taxing electric and water service, and evidence of government sloth at the Capitol and in administration plans to hold a meaningless $4 million referendum.

Most taxpayers probably won’t mind paying more if they believe the government won’t blow it in overspending. There’s a present danger of that as the Acevedo Vilá budget now stands.

Perhaps government officials should cut a deal with the tax-paying public – pledge for every new dollar raised it dollars, it will pledge to cut spending by a buck.

Also clear is the big problem that the government retirement fund now represents, with an actuarial deficit of nearly $11 billion. Plans to sell the government’s remaining stake in the local telephone utility, which could raise some $500 million to help shore up the fund, are sound. But the administration is also proposing to take on $2 billion in additional long-term debt to also help bail out the fund.

Both sides in the budget debate know that the government’s large debt load, and large bureaucracy, is the real problem.

Puerto Rico’s per capita debt is $6,812, nearly double the size of the highest debtor state, Connecticut, which has per capita debt of $3,614, according to Moody’s Investors Service.

The new budget needs to show the government is serious about controlling the spending that has created such a large public debt.

John Marino, Managing Editor of The San Juan Star, writes the weekly Puerto Rico Report column for the Puerto Rico Herald. He can be reached directly at: Marino@coqui.net

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