Puerto Rico Updated Fiscal Plan Pushes Out Deficits to 2048

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Puerto Rico can avoid budget deficits for the next quarter century because federal funds will help drive economic growth on the island as it exits bankruptcy, the commonwealth’s congressionally appointed financial oversight board said.

The board Thursday unanimously approved a revised multi-year fiscal plan that incorporates federal funds that Congress authorized in the last year, an increase in federal Medicaid funding that’s expected to save Puerto Rico $6 billion through fiscal 2026, and a new pension reserve trust that will help ease stress on the island’s budget. 

Those changes mean the commonwealth won’t face potential budget deficits until fiscal 2048, according to Natalie Jaresko, the board’s executive director. Earlier estimates pegged deficits to begin in fiscal 2036.

The updated fiscal plan follows U.S. District Court Judge Laura Taylor Swain’s approval on Jan. 18 of Puerto Rico’s debt-restructuring plan. That decision allows the island to begin exiting its more than four-year bankruptcy process just as it’s set to receive more than $40 billion in federal funds in the coming years. 

“The government has a unique opportunity to seize the current moment and implement this fiscal plan to set the framework for Puerto Rico’s bright future,” Jaresko said during Thursday’s meeting. “The end of bankruptcy is at hand and the cloud of uncertainty has been lifted. Puerto Rico has unprecedented support from the federal government to invest in its infrastructure and its people.”

Bond Payments

The board is updating the fiscal plan to reflect the court-approved debt-restructuring agreement. The revised fiscal plan includes payments to bondholders starting in the current fiscal year. That’ll be a first for Puerto Rico since defaulting on its general obligation debt in 2016. 

“This is certainly a new day for Puerto Rico and I know it’ll serve as a platform for our renewed growth and prosperity,” Governor Pedro Pierluisi, a non-voting member of the board, said during the meeting.

It also incorporates Puerto Rico directing $10.3 billion during the next 10 years to a new pension reserve trust. That new fund will ease future commonwealth budgets as the island spends about $2.3 billion annually to cover benefits to public workers because the retirement fund is depleted.

“That pension trust provides predictability to the budget long-term and without it the government would fall into deficits,” Jaresko told reporters on Wednesday. “With it, the government does not until 2048.”

An increase in federal Medicaid funding will also help the commonwealth, cutting the island’s projected Medicaid cost by more than half in the next few years, according to a draft of the updated fiscal plan posted on the board’s website late Wednesday. Puerto Rico is projected to pay a total of $5 billion in Medicaid costs from this year through fiscal 2026, down from an estimated $11 billion in the prior plan.

Puerto Rico’s economy is projected to grow 2.6% this fiscal year, which ends June 30, and 0.9% in fiscal 2023, according to the fiscal plan. The forecast then calls for a 0.7% contraction in fiscal 2024 and a combined 1.8% expansion through fiscal 2028. 

The board anticipates a negative economic trend again starting in fiscal 2029 as federal disaster relief money and pandemic aid will wane. The island’s population is estimated to decline an average 0.9% annually.

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