Puerto Rico Presents $10.7 Billion Budget Proposal for 2022

Puerto Rico on Wednesday presented a budget proposal of $10.7 billion for fiscal year 2022 -- about $700 million more than the federally-appointed oversight board is recommending.

Governor Pedro Pierluisi called his spending plan “realistic” and necessary to jump-start the economy of the bankrupt U.S. territory. He said the additional costs will be more than covered by surplus tax revenue and additional federal aid that the board had not built into its projections.

The Fiscal Oversight and Management Board, or FOMB, has the final say in Puerto Rico’s budget. For fiscal 2021, the panel approved a $10.05 billion spending plan versus the $10.2 billion proposal presented by then-Governor Wanda Vazquez.

Pension Woes

Retirement costs will continue to take up a large portion of the island’s resources, as its pension system is broke and all payments to retirees must come from the general fund. Pierluisi’s budget allocates $2.1 billion to cover pension payments in fiscal 2022, similar to what the commonwealth paid this fiscal year.

In addition, the budget allocates $2.8 billion for payroll, $5.2 billion for operational expenses and $535 million for capital expenses.

Puerto Rico Governor Says His Budget May Not Align With Board

Wednesday’s presentation kicks off a series of negotiations that will culminate in May when the island’s legislature and the oversight board approve the budget that takes effect July 1.

Pierluisi unveiled his first budget proposal as the FOMB, which also manages the island’s record bankruptcy, is negotiating with bondholders on how to reduce about $18 billion of debt.

The board has a Feb. 10 deadline to file a term sheet or a debt plan with the court. It’s possible the parties may strike a debt-restructuring deal this year, enabling Puerto Rico to exit bankruptcy.

That would mean the commonwealth would begin repaying bondholders, which it stopped doing in 2015. Still, Pierluisi’s budget plan doesn’t include a specific allocation to cover principal and interest payments.

The governor aims to spend $1 million to audit Puerto Rico’s debt to determine how much is “legitimate.” The board already did such an analysis in 2018, with Kobre & Kim LLP investigating how the bonds were first sold.

The board has said that more than $6 billion of debt should be deemed null and void because their issuance surpassed the island’s constitutional debt limits. The panel has since suspended pursuing that issue in court as it negotiates with bondholders.

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