Governor unveils $9.83B budget; will cut IVU, raise pay
The proposed spending package is $783 million more than the current budget, which will be covered by new revenue and $200 million in deficit financing, he said.
García Padilla said that beginning in December, the sales & use tax (IVU by its Spanish initials) will be lowered to 6.5 percent from the current 7 percent level, without impacting billions of dollars in outstanding bonds backed by the tax.
The proposal was being undertaken in tandem with measures to widen the base of the IVU, eliminating some exemptions, which would end up raising additional revenue. The plan would continue to exempt items including prescription medicine, books and non-processed foods.
The governor said he plans to reduce the island government’s $2.2 billion deficit to $775 million in one year, in part by taxing those who earn $200,000 or more a year or who buy homes valued at $1 million or more. He did not provide details about those taxes.
“Under my administration, those who have less, contribute less, and those who have more should contribute more,” he said to boisterous applause of members of his Popular Democratic Party in the seaside Capitol in San Juan.
His announcement comes as the U.S. territory struggles to improve its financial situation, seeking improved scores from Wall Street ratings agencies that have downgraded its general obligation bonds to near-junk status.
The governor plans to double the equipment budget for the islandwide police force to more than $150 million to help fight crime. Padilla said the government will buy three helicopters worth $38 million and unveil a new rapid-response system that will help police identify where shots have been fired. The department’s 17,000 offices make it the second largest in U.S. jurisdiction.
“Criminals will not be better equipped than our police officers,” García Padilla said.
The governor also said every police officer, regardless of their rank, will receive an additional $100 a month. It’s a measure meant to appease police, who recently staged a sickout to demand better wages and protest proposed cuts in retirement benefits.
García Padilla promised that overall, more than 40,000 public employees in 28 agencies will see pay increases by next February.
Jenniffer Gonzalez, a former president of the territory’s House and a member of the opposition New Progressive Party, questioned the pledge for pay raises.
“It’s an example of how he plays with people’s expectations,” she said, adding that citizens will pay for those wage increases in other ways.
García Padilla said the tourism sector will get a boost from a $9.5 million investment to improve cruise ship ports, and a plan to create a walking path from historic Old San Juan to the popular upscale neighborhood of Condado.
He promised to reduce the island’s dropout rate, which is one of the highest compared with any U.S. state. Padilla noted that 25 percent of students who enter middle school do not graduate. He said he will revamp the public school curriculum, add more art and physical education classes and create a support system for at-risk students.
Roughly 40 percent of adults over the age of 24 in Puerto Rico do not have a high school degree, according to a government study.
Eva Ayala, spokeswoman for one of the island’s main education unions, said she wasn’t sure if García Padilla’s plan would work. She said teachers need financial backing by the government.
“Teachers have to pay for the majority of materials and school repairs out of their own pocket,” she said.
García Padilla said the proposed budget includes $110 million to cover a range of deficiencies within the Department of Education, and $75 million for the University of Puerto Rico, the island’s largest public university, to eliminate an $800 fee that led to violent protests in recent years.
The budget calls for a $1.9 billion in public works and a 20 percent cut in electricity bills, which are on average twice that of those in the U.S. mainland.
García Padilla’s proposal is $750 million higher than the current budget, which legislators of the opposition party questioned.
“This budget should focus on addressing the fiscal crisis from a standpoint of reducing expenditures, and adjust it to the reality of our revenues,” said NP Sen. Carmelo Rios.
García Padilla said the budget will close gaps in corporate taxes.
“This budget doesn’t have a single thing that will hurt the upper middle class, the middle class, the working class or the poor,” he said.
Analysts said the budget is the largest in at least a decade and perhaps in island history and it was being presented as the Planning Board revised economic growth projections downward, saying that during the current fiscal year the economy is slated to decline by 0.4 percent, instead of the 1.1 percent growth originally planned, and that in FY 2014 scant growth of just 0.2 percent is now predicted.
In a briefing with reporters before the speech, top administration officials defended the proposal as “responsible,” saying that while the budget figure is significantly higher than the current budget, it realistically includes all of the government’s responsibilities and costs, which they say the current year budget failed to do.
The consolidated budget, which includes federal funds, expanded to $29 billion, from $28.57 billion last year, officials said.
While García Padilla was slated to begin his joint budget and State of the Commonwealth speech at 5 p.m., it was nearly 6 p.m. before he began talking.
“You gave me the mission of rescuing Puerto Rico,” García Padilla said at the onset of his speech. “Today I say with pride and satisfaction that the rescue is in the works and the island is on the path to a full recovery.”
After acknowledging lawmakers, mayors and the press, the governor launched into an attack on the previous administration of Gov. Luis Fortuño.
“Things were left a lot worse than we were told,” García Padilla said, adding that it was time to move to an “era of optimism.”
He ran through a list of what he called “abuses” by his predecessor including austerity measures, a University of Puerto Rico tuition hike and shirking increases in utility rates.
“Puerto Rico is a winning country. When we confront problems with confidence and will, we will win. The problems were bigger than they told us, but the will of this country is bigger than any problem,” the governor said.
“We will pay the loans, and we will lower the price of electricity and water this term,” he said.
The governor then touted gains of his first four months in office, focusing on employment and his Jobs Now Act that provides tax breaks and hiring incentives to private employers. He has pledged to create 50,000 jobs during his first 18 months in office.
“The island has changed course in 100 days,” he said. “The new path is one of optimism, jobs, education, health and security.”
CARIBBEAN BUSINESS reporter John Marino and The Associated Press contributed to this report.