Worst Budget Deficit in the Country Cut by 81 percent in Just Over Two Years, Puerto Rico Continues Progress Toward Balancing its Budget
SAN JUAN, Puerto Rico, July 1, 2011 /PRNewswire-USNewswire/ -- Puerto Rico Governor Luis Fortuno today signed into law a fiscal year 2012 budget that will result in an 81 percent reduction in the budget deficit he inherited – the worst in the country when he entered office in 2009 – putting the U.S. territory on course to achieve a balanced budget in his first term.
With enactment of the 2012 budget, Gov. Fortuno said, Puerto Rico's budget deficit will be reduced from 44 percent of revenues at its peak in 2009 to 7 percent of revenues this year.
When Gov. Fortuno took office in January 2009, the $3.3 billion budget deficit he inherited was the worst, proportionally, among the 50 states and Puerto Rico. Due to measures that included cutting government expenses by almost 20 percent, Puerto Rico's deficit ranking improved from last to 20th among the states in 2011, and will climb to 15th this year due to continued deficit reductions in the 2012 budget.
"In Puerto Rico, we are working to turnaround a broken fiscal situation we inherited and transform Puerto Rico's economy into a pro-growth magnet for new jobs and new investment. We cut government spending to right the fiscal ship and reduced taxes across the board to spur growth, and the principal credit rating agencies have taken positive action on Puerto Rico's credit," Gov. Fortuno said.
"We started two years ago taking tough but necessary steps to address our deficit and now we are seeing results. As is true with other governors around the country who are leading the way on these issues, I think what we are doing at the state level is a model for the federal government grappling with tough choices to address the major fiscal challenges we face," the Governor said.
Fortuno noted that all Puerto Rico's economic indicators, including retail, auto, housing and cement sales, point to an improving economy, and that thousands of new jobs are being created in the private sector. Treasury revenue projections have gone up due to the progress of the Island's economic recovery, improved fiscalization measures and comprehensive pro-growth tax reform, he said, and FY 2012 General Fund collections are projected to increase 6.4 percent over the revenues for fiscal year 2011.
In addition to addressing the structural budget deficit, the Fortuno Administration has worked to implement pro-growth reforms to spur the economy and is now taking initial steps toward addressing its Employee Retirement System unfunded pension liability. Puerto Rico is among the few jurisdictions that eliminated defined benefit plans, moving all future employees to a performance-based defined contribution plan.
Among the reforms implemented since 2009, Gov. Fortuno enacted the largest tax cut package in Puerto Rico's history, which will lower taxes an average 30 percent for businesses and 50 percent for individuals. And after launching one of the most advanced Public-Private-Partnership programs in the country, the Governor announced in June that Puerto Rico will receive $1.436 billion in private infrastructure investment—the largest such investment in any U.S. jurisdiction this year and the first infrastructure P3 in the country since 2006 - to upgrade and manage two of the Island's major toll roads.
When Fortuno took office in January 2009, Puerto Rico's $3.3 billion deficit represented 44 percent of revenues, and the government didn't have money to meet the next payroll. With the support of the Legislature, the Governor enacted fiscal emergency legislation requiring spending cuts.
Fortuno took a 10 percent pay cut, required agency heads to take a 5 percent cut, froze all salaries for two fiscal years, reduced political appointments by 30 percent, and got rid of government cell phones and credit cards. Because payroll expenses dominated 70 percent of the budget, government employee ranks were reduced by 23,000 through voluntary and mandatory measures, achieving a $935 million or 17 percent reduction in total payroll.
SOURCE Puerto Rico Federal Affairs Administration