Bloomberg News

Puerto Rico Faces 2012 ‘Budget Risk’ With Agency Changes

October 19, 2011

(Adds comment from budget director in fourth paragraph.)

Oct. 19 (Bloomberg) -- Puerto Rico’s spending on health care and public safety pose “budget risks” because of operational changes this fiscal year, which had a $610 million deficit, according to a government report.

Because part of the commonwealth’s Medicaid program is being shifted to a contractor, departmentmental costs may rise, the Management and Budget Office said yesterday in the report. It said police agencies on the Caribbean island located east of the Dominican Republic also are evaluating U.S. Justice Department recommendations that may lead to cost overruns.

“Since they are undergoing operational reforms that were not considered during the preparation and formulation of the budget,” both departments pose risks to the plan, according to the report. The commonwealth is a self-governing U.S. territory.

Extra potential police-department costs are less than 0.25 percent of the overall budget and could be made up for with savings in other areas, Juan Carlos Pavia, director of the budget office, said in an interview.

While “it’s too early to tell” what impact changes in the Medicaid system would have, the territory is putting cost- control measures in place to offset or minimize the risk, he said.

“More than a budget risk, it was a new development,” he said by telephone from San Juan, the capital.

Under Budget

Overall, Puerto Rico is under budget for the quarter and payroll costs, which have been the major source of budget problems in the past, are “contained,” he said.

For the fiscal first quarter, the territorial government spent 1 percent less than planned as some bills didn’t arrive when projected, according to the budget office.

Puerto Rico, with lower credit ratings than any U.S. state, is coping with a shrinking economy. In August, the island’s economic activity index fell about 2.1 percent from a year earlier. On a month-to-month basis, the index has sagged since March.

--Editors: Ted Bunker, Pete Young, Jerry Hart

To contact the reporter on this story: Simone Baribeau in Tallahassee at

To contact the editor responsible for this story: Mark Tannenbaum at

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