Monday, September 25, 2017

Puerto Rico’s fiscal board approves implementation of furlough program



By on August 4, 2017

FAJARDO, Puerto Rico – Puerto Rico’s financial control board required during its ninth public meeting Friday that the government implements, beginning Sept. 1, a furlough program for government employees that contemplates the reduction of two workdays monthly, as first reported by Caribbean Business.

The measure—first announced in early March as part of the certification of the island’s fiscal plan—was pared down by the board from the original plan of four days, to only two days a month. It would run through fiscal year 2018 or until the commonwealth demonstrates it achieved $218 million in savings related to right-sizing the government.

Sources: Puerto Rico’s fiscal board to announce furlough program

The furlough program will apply to all government employees, except front-line public safety employees.

“We will not implement the furlough program,” stressed Gov. Ricardo Rosselló’s representative to the board, Christian Sobrino.

Amid the administration’s fierce opposition to the measure, Chairman José Carrión said the fiscal board will consult with its legal advisers on which steps will be necessary to ensure the government implements the furlough. He also warned about further delaying the measure because of a legal battle with the government, as it would only result in a more prolonged, significant workday reduction program.

A Chronicle of a Furlough Foretold

Board Executive Director Natalie Jaresko said the administration’s failure to come up with $218 million in savings required by the fiscal plan triggered the board’s decision. She added that a decision on either the elimination or reduction of the Christmas bonus that is part of public employees’ salaries will be made by Sept. 30.

For his part, Gov. Ricardo Rosselló had urged once again, hours before the board meeting, against the implementation of the measure, assuring that the federal Promesa law empowers him to reject a request of the board to this end. He added that the government has better liquidity numbers than expected and that the economy could suffer a significant blow were the furlough program to be implemented, all of which makes the measure “unnecessary.”

  • (Juan J. Rodríguez/CB)

Rosselló argues the measure constitutes a “recommendation” under section 205 of Promesa, so the government is not required to accept it. The furlough program would affect some 138,415 public employees and have a $340 million impact on the economy during this fiscal year, according to government data.

The governor is expected to address the public in a Friday afternoon broadcast.

The fiscal board repeatedly stated that the furlough is part of the fiscal plan certified March 13 and, thus, is not a “recommendation” to the government, as argued by the Rosselló administration.

The meeting also included discussion on pension reform, with the board saying benefits need to be cut by 10 percent, as established by the fiscal plan. The government says it intends to cover 100 percent of benefits, but the board stressed the 10 percent cut must be made by 2020.

Board member Andrew Biggs further explained that pension reform must include enrolling active and new employees in the Social Security program, as well as segregating employee contributions in a bid to transition to a full, defined-contribution system.

As part of the discussion over pension reform, Biggs recognized payment of these benefits already began via a pay-go system, whereby the government will fund these payments on a current basis, out of its General Fund.

As for the Cooperatives Supervision & Insurance Corp.’s (Cossec by its Spanish acronym) fiscal plan, the board certified the document with several amendments.

The board also announced during the meeting the creation of a committee —comprising members Carrión, Arthur González, Ana Matosantos and David Skeel—that will be in charge of drawing up the scope of the entity’s investigation into Puerto Rico’s debt. The process, which will include examining the causes of the island’s financial crisis, as well as selling and disclosure practices of Puerto Rico bonds, will be conducted by an independent investigator to be selected by the committee.

Moreover, Jaresko would have to deliver recommendations within 15 days as to whether a central Treasury manager should be appointed for the commonwealth. The board also urged the government to improve the reporting of its liquidity, for it fails to include data for all public entities. The board argues that the administration currently reports on the liquidity focusing solely on Treasury’s single account, or TSA.

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