In recent years, Puerto Rico’s economy has been shorn up by U.S. funds, often allocated in response to a natural disaster or as a one-time addition based on changes in U.S. policy. As the Trump administration wraps up its first 100 days, the Financial Oversight and Management Board (FOMB) is encouraging the territorial government to expect and plan ahead for the end of these non-recurring funds.
Non-recurring funds
Puerto Rico still has not spent some funding allocated by the U.S. Congress over the past few years, but the end of such resources may be drawing near. For example, unless federal law is changed, Puerto Rico will lose significant amounts of Medicaid funding in just two years, when the Federal Medical Assistance Percentage (FMAP) matching rate will revert from 76% back to 55% on September 30, 2027. With nearly half the residents of the Island reliant on Medicaid for their healthcare, if this Medicaid “cliff” occurs, Puerto Rico will be in a difficult position financially as the U.S. government would cover roughly half of Medicaid expenses up to a cap rather than the current level of 76%. In fact, the San Juan Daily Star estimates that this single change will lead to a deficit of $1.1 billion for Puerto Rico.
Non-recurring funds have paid for construction, disaster recovery, infrastructure improvements, and energy initiatives, providing jobs in Puerto Rico and stimulating local economies across the territory. If these funds will not continue to be allocated to Puerto Rico, the territory will need to replace them or adjust spending in order to absorb the additional costs which will fall to the territory.
Reliance on non-recurring funds makes it difficult to plan for budgets in the future, as well. The Daily Star quotes the FOMB as saying, “Puerto Rico does not have a centralized financial management framework in place for reporting federal funds. This has led to various accounting, budgeting, and compliance challenges.” They call for the establishment of a dedicated office to keep track of federal funding.
Future cuts
There may also be nationwide cuts in funding in the future. The reorganization in Washington is expected to lead to cuts in Medicaid and nutrition assistance for all Americans, and there is no reason to suppose that Puerto Rico will not be affected. Cuts in funding for the Department of Education are likely to affect Puerto Rico disproportionately. Many more programs, including some supporting manufacturing, climate management, Americorps, and many more initiatives are on the chopping block.
Congress is allowed by law to treat territories differently from states, and can give less to Puerto Rico when it is called upon to make deep cuts. Since Puerto Rico has no voting representation in Congress, the U.S. territory lacks the power to influence Congress in their favor as states can.
The combination of current and likely federal funding cuts together with the end of non-recurring funding will prove challenging for Puerto Rico’s ability to continue its economic recovery.
