Through the Budget: A new governance model for Puerto Rico

By Arnaldo Cruz Co-Founder of ABREPR

For many years, both the public sector and the private sector have been talking about reforming the government and new models of public administration. From the operations of the CESCO (“DMVs”) to the potholes in the streets, criticizing the government is part of the daily bread of every Puerto Rican. However, even with this apparent consensus, there seems to be little progress in the way the public structures are administered on the island.

With the arrival of PROMESA and the Fiscal Oversight Board, it was thought, for a moment, that there would be progress on the topic of public administration. However, until now, the role of the Board has been, primarily, financial and very limited in areas of governance.

Complaining that the Puerto Rico government is too large seems to resonate around the island, especially since the bankruptcy started. That is why the attempts to reform government have been limited to reducing the payroll and eliminating agencies. Even those who advocate for a small government also demand that public services are provided with effectiveness and agility. The reality is that the number of employees is less relevant than the type of work they are doing at the agency. Reducing payrolls, without knowing what each employee does in an agency can create scenarios where services are affected, for example, eliminating technical personnel in critical areas of an agency. This is what happens with the Forensic Sciences Institute and the shortage of technicians. By the same token, if we increase the number of employees to the levels before 2009, we'd still be having the same problems of poor service and inefficiency in the agencies. Thus, the management and administration of the government cannot be just viewed through a financial lens, it must also be viewed through a lens of functions, objectives, and metrics.

The most agile way to lead a government to perform well is through the budgeting process. The budget rations the resources within agencies and thus becomes a powerful tool for compliance. Now, a mistake that may governments make is assuming that they can achieve reform in an agency by simply cutting their budget. Unfortunately to this day, even with the arrival of PROMESA, the budget process in Puerto Rico remains an accounting exercise, to say, how much money comes in and how much money goes out, and little focus on the programs and outcomes.

The evidence in the US and other countries is that across the board cuts are not effective to improve the efficiency in government. By not understanding and distinguishing between the essential and redundant in an agency, many times the former is what is affected. This is what happened recently at the Department of Education with the lack of funding for the special education program and at the Department of Corrections with lack of health services for inmates. At the same time, you may declare Health an essential service and assume, incorrectly, that everything that the Department of Health does is essential. Thus, it is indispensable to distinguish between outcomes and expenses. The government (and the Board) have preferred a strategy of attrition through general budget cuts, expecting that agencies will reform themselves. However, this creates chaos, both within the agency and within the rest of the government, as it makes every agency head determine what is essential according to their own personal understanding. The problem with this strategy is that it assumes that the agencies have the capacity, processes, and data to make good decisions in the best interest of the citizen or taxpayer. Sadly, for most agencies, this is not the case.

Part of the solution is to reform the budget process of the governmental so that it is based on a strategic plan with specific goals that are measurable and quantifiable. This process would then guide the agencies in the preparation of their budgets. During this governmental term, the ex-governor Ricardo Rosello announced with great enthusiasm the use of zero-based budgeting and then indicated that he would use performance base budgeting. Contrary to what many think in Puerto Rico, the zero-based budget is not a simple exercise where each agency justifies each line item in its budget. Not only is this unrealistic (the line item budget for the government of Puerto Rico has more than 12,000 lines), but this is also inconsequential.

This merits some additional explanation. The line-item budget for the government of Puerto Rico (and the majority of governments around the world) is based upon a copy of a copy of a copy of the budgets of previous years. In some instances, the majority of these lines in the budget were created 30 years ago. An evaluation made by ABREPR of the government's line-item budget found dozens of line items related to programs that do not exist anymore. Many times, this is because the programs change, but the budget nomenclature remains. Moreover, many line items are aggregated, and correspond to many programs or projects. In summary, the zero-based budget is much more complex than an exercise to justify budgetary lines, since it requires identification, description, analysis, and prioritization of the activities of the agencies according to the objectives established by the government.

The office of Budget and Management under Rosello developed and implemented a budget, that according to them was zero-based. After analyzing the user manuals from OMB, however, the zero-based budget from Rosello was quite far from what the model establishes. The OMB simply created a new online portal, where along with having the budgeted amounts for the previous year, had some guiding questions to the agencies. These questions were general in scope and provided much leeway to the agencies on how to answer them. Thus, the new budgetary process from Rosselló had little, if any effect, in the operation of the government agencies. Likewise, much later in his administration, ex-governor Rosselló announced the implementation of the performance-based budgeting framework. This model, similar to the zero-based budget in many ways, has as its primary feature adding performance as a criterion in the government's budgetary decision-making. Thus, the government can decide to increase or reduce the budget of an agency according to compliance with its performance goals. For example, if the Department of Education shows improvement in standardized tests, then it would receive an increase in its budget. This type of budget has been effective in jurisdictions where it has been implemented correctly, as it provides strong incentives to the agencies for good performance.

The challenge with this framework is its difficult implementation, as it requires a lot of program information that sadly many agencies do not have. As part of the budgeting process, however, an agency can be required to collect information so that it may be later used for the next budget. Thus, the performance-based budget could serve as a strategy to improve the data collection of programs, which, as mentioned before is quite poor in Puerto Rico. Many reasons exist for the lack of data compilation, but one of them is surely the lack of budgetary consequences. If the information is not required and is not used, then why should it get recorded, many agencies would argue.

ABREPR recommends to implement a hybrid budgetary model, with components of zero-based and performance-based budgets. The new process should be open and transparent and be accompanied by public hearings where progress on performance metrics of each agency is evaluated. The public hearings would increase trust in the process and would facilitate the cooperation of the agencies as it serves as an incentive to compliance. This new model could become the most effective, concise and consequential tool to improve the public governance in Puerto Rico.

Who should run this model?

While this new process could become a function of the OMB, it should reside in the Legislature, which approves the budget, initiates and approves all legislation. Moreover, it is the branch of government responsible for balancing the power of the executive. As well, it should be desirable to have competition with budgets and analysis between the two branches of government and not depend so much on the governor (as it currently occurs) for the development of the budget. The ability of the legislature to provide neutral and robust analysis should incentivize the executive branch to improve its performance and provide better estimates. Unfortunately, the legislature in Puerto Rico has not had and cannot influence the functioning of government, even when it has the final word on the budget. The governor, with its dozens of agencies, does have the necessary infrastructure to analyze budgets, legislation, and the performance of the agencies. Even then, the executive branch has not been able to develop such capacity, although this is more due to convenience than to lack of resources. The legislature does not have the resources of the executive branch, but, it may develop that capacity if it wants to, and thus improve the quality of both the budget process and of the performance of the agencies.

In Congress, you find the Congressional Budget Office (CBO) and the Government Accountability Office (GAO), two offices that provide support to legislators in matters of budget and agency performance. In the US, the independent analysis of the CBO is far more influential than OMB, both in the legislature and with public opinion. Other states have also created their own independent budget offices, providing neutral analysis and robust discussion of public policy.

In Puerto Rico's legislature, you find the Office of Legislative Services (OSL for the Spanish acronym). This office has had many responsibilities throughout the years, most importantly providing legal and legislative council to the Legislature members, administrating the legislative library service, and providing access to the information about the legislative process through the internet. According to interviews with several current and former officers of the OSL, their duties are not tied to its primary role of consulting to the Legislature. Both presidents of both chambers, as well as the presidents of the permanent commissions, depend upon the consulting of their office personnel or private contractors. This makes the actual model of commissions incapable to responding to the complex needs of the Island. The legislative commissions have limited specialized staff, and are not sufficient to fulfill their primary mandate, which is to evaluate and recommend the legislative measures that are referred for evaluation, as well as evaluate public policy and the structure of the government. Moreover, the legislative commissions do not have operational independence, as they respond directly to the president of the commission. As well, the commission reports depend almost exclusively on the analysis provided by the agencies of the executive branch. As a result, the level of analysis undertaken by the legislative commissions is light, both in terms of analyzing legislation and the budget.

During the past term, legislation was passed to create a Legislative Center for Fiscal Analysis and Innovation (Law 127-2015), that would undertake functions like the federal CBO. Unfortunately, the law was not implemented before the end of the term and was struck down by the current legislature. ABREPR recommends creating this budgetary office again in the legislature. This office would evaluate the budget and would also have the responsibility to evaluate and score every legislation before being approved by both chambers. Due to the partisan reality, ABREPR recommends that the first director of this office is appointed with a 2/3 vote from both legislative chambers, to ensure bipartisan support. The new director would have the ability to structure the new office, hire and fire employees without the intervention of the legislators, including the presidents of the chambers. The best way to achieve good governance in Puerto Rico is to develop strong and independent institutions that may provide permanence, rigor, and stability to public administration.