Financial Oversight Board Approves Puerto Rico Fiscal Plan
NEW YORK — Promesa’s fiscal control board approved Monday its plan for Puerto Rico: a “progressive” 10% cut to pensions, a $450 million reduction to the University of Puerto Rico (UPR) budget and the approval of revenue measures and spending cuts presented by Gov. Ricardo Rosselló in his revised fiscal plan, which was delivered Saturday.
The board also approved a partial reduction to the workweek of public employees and teachers— not including public safety personnel—along with the elimination of the Christmas bonus for these, arguing that without this measure, it could not be possible to guarantee the government would have enough money for the provision of essential services.
To avoid the furlough, the government will have to identify on its next budget—which was required to be delivered April 30 along with a liquidity plan—about $200 million in contingency funds. Moreover, the board will reevaluate the situation in September, when it could modify or eliminate, at the board’s sole discretion, the workweek reduction and the Christmas bonus elimination.
For his part, the governor’s representative to the board, Elías Sánchez, said he is “confident” this will not happen and that it represents a “precautionary measure” in case the government does not achieve the necessary cash flow to ensure essential services.
During its fifth public meeting, which was held in New York City, the financial entity announced what it called amendments to the latest version of the fiscal plan presented by the governor. The board said it reached agreements with the Rosselló administration regarding economic projections and in identifying greater government resources, mainly through an increase to the tax on tobacco products.
The cuts to pensions and the UPR must be carried out on or before fiscal year 2020. In the case of pensions, the board said it still has differences with the government and will therefore work during the next 30 days on a plan.
Pension reform will include moving to a pay-as-you-go system, liquidate assets to finance the benefits due under the previous model; and place all pensioners and public employees in defined-contribution plans, segregating their contributions in individual accounts that would ensure the payment of their future benefits. Moreover, new teachers and police officers would be placed under the Social Security program.
Now that a fiscal plan has been certified, the government will need to deliver a budget on or before April 30 for the board’s approval. Also, negotiations with creditors are set to resume, in a bid to reach consensual deals before the expiration of Promesa’s stay on May 1. What’s more, any future legislation approved by the Puerto Rico government will have to be consistent with the approved fiscal plan. Failure to do so would allow the board to void the measure.
The four-hour meeting was held in the Alexander Hamilton U.S. Custom House, just a few steps from the iconic bull on Wall Street and the same place where the board held its first public meeting Last September.