Puerto Rico approves a consensus budget

The Puerto Rico Oversight Board approved a budget the governor and legislative assembly previously endorsed, which analysts said was a positive development.

The approval of balanced budgets and the territorial government’s involvement in their creation is notable because the Puerto Rico Oversight, Management, and Economic Stability Act says one of the conditions for the board’s dissolution is the passage of four consecutive budgets balanced on modified accrual accounting standards.

“This is the most in lockstep that the government of Puerto Rico and the [Oversight Board] have been,” said Vicente Feliciano, president of Advantage Business Consulting, a Puerto Rico business and economic consulting firm.

“It’s a good omen for future implementation of necessary economic reforms so that the present advancements in budget matters become more entrenched and sustainable,” Feliciano said.

“It is a good development that the incompetent politicians in the legislature begin to understand that the board has the power to impose their budget but if they cooperate, it could count for the four consecutive budgets needed for the entity’s exit,” said John Mudd, a Puerto Rico attorney and commentator.

The approved consolidated budget for fiscal 2026, which starts on July 1, is a 1.8% decrease from the fiscal 2025 budget. The fiscal 2026 general fund budget increases spending by 1.5% from fiscal 2025, if reclassifications of categories from general fund to special revenue fund are excluded.

The approved fiscal 2026 budgets are: general fund $13.1 billion, special revenue fund $5.4 billion and $14.2 billion federal fund, for a $32.7 billion consolidated budget.

“Together, we developed a responsible budget that reflects the unprecedented uncertainty around federal funding, economic growth, and Medicaid costs in the coming fiscal year,” said board Executive Director Robert Mujica, Jr.

“The governor and the legislative leadership worked with the Oversight Board to protect essential government services and shield government priorities from the uncertainty that we face right now,” he said.

“We made history with the first balanced budget, certified by the fiscal control board itself,” said Gov. Jenniffer González Colón in a post on the X social media site. “This is the first step toward leaving the board and finally regaining control of our finances.”

The board approved a balanced territorial government budget for fiscal 2024 that had already been approved by the legislature and governor. However, that was followed by the board approving a fiscal 2025 budget that didn’t have the support of both government branches. All other budgets since the board approved its first one for fiscal 2018, have overruled budgets approved by the commonwealth’s government.

The approved consolidated budget holds back 5% of most agency spending for eight months to prevent deficits should General Fund revenue decline, federal funding decrease or Medicaid costs increase. Pensions, public safety, certain transportation costs and sales tax distributions to municipalities are exempt from the hold back.

“It is clear from the experience of the past eight years [in attempting to negotiate Puerto Rico budgets] that it has been grossly inefficient in attaining PROMESA’s stated goals and trying on the involved parties,” said José Garriga Picó, political science professor at University of Puerto Rico, “This year’s success in approving the first balanced budget under PROMESA should not obfuscate the reality of PROMESA’s inadequacy.” Both the board and the local government should learn the lessons from this year’s success, he said.