High Noon on Wall Street
Is Rosselló Dueling With the Board?
Despite the seemingly at odds written and verbal exchanges between Gov. Ricardo Rosselló and the members of the Financial Oversight & Management Board (FOMB) on what steps should be taken to deal with Puerto Rico’s economic and fiscal crisis, the differences between the two might not be as different and/or conflictive as each side is trying to prove, according to a minority lawmaker.
For Puerto Rican Independence Party (PIP) Rep. Denis Márquez, it is clear there is no conflict between the Rosselló administration and the FOMB but quite the contrary, there is an agreement of sorts to put into effect most, if not all, of the recommendations presented by the board to attend to the island’s fiscal dilemmas.
“There is a conflict, but only in appearance. The public statements made by the fiscal control board in its Dec. 20, 2016 and Jan. 18, 2017 letters reflect—for lack of a better word—some mandates and the roadmap the board wants to be followed,” Márquez said.
However, this in itself only constitutes a mere suggestion to the administration that is far from being “an agreement of sorts” by the two parties. “When you analyze the legislation passed and compare it with the content of the FOMB letters, there is no such thing as a confrontation between the government and the board. It is but a matter of compliance with the FOMB, so to speak,” argues the pro-independence legislator.
Reading directly from “Section 1. Restoring economic growth through structural reforms,” in the subsection “Comprehensive Labor & Welfare Reform,” of the earlier letter sent by the board to former Gov. Alejandro García Padilla and now-Gov. Rosselló, it is stated that “to encourage businesses to create job opportunities, a comprehensive review of labor regulations, including Act 80 and pension benefits, should be completed.”
According to Márquez, the recently passed Law 4 for Labor Transformation & Flexibility follows the FOMB’s recommendation almost to the letter.
The new law allows for an extended probation period of nine months for all employees hired after the enactment of the law, establishes new rates for the accumulation of sick and vacation leave, and establishes a new lower cap for compensation in cases of an employee’s unjustified dismissal, among other dispositions, arguing such measures would promote the creation of new jobs.
“They [the administration] did transform all labor laws, and particularly Law 80, which sanctions unjustified dismissals in Puerto Rico. That was a transformation that I’m convinced will not promote any new jobs,” Márquez said.
Taking into consideration the scope of the Labor Transformation & Flexibilization Law, and the FOMB’s vision of the changes needed “to restore economic growth” to the island, it seems the Rosselló administration indeed followed the board’s recommendations without question. The material effect of the new labor regulations would be the “liberalization of the labor market,” as recommended by the FOMB.
Privatization, P3s and the single employer
The Dec. 20 letter emphasizes the need for an energy reform, but falls short of suggesting the privatization of energy generation. Instead, the board stressed the need to transform the Puerto Rico Electric Power Authority (Prepa).
“We believe that a process should be established for interested stakeholders to weigh in on the pros and cons of the current proposed Prepa restructuring and more generally on the options for energy reform. The Board will work with the government and with Prepa on an expedited basis to assess the Prepa restructuring in light of the goals of delivering lower cost, reliable power to Puerto Rico as soon as possible,” reads the board’s Dec. 20 letter.
For Márquez, the key element of the board’s communication with regard to Prepa is its “assessment of the Prepa restructuring” and the cheaper cost and reliability of energy goals.
“They [the FOMB] say Prepa needs to be transformed. And what have they [the Rosselló administration] done? They passed the amendments to the P3 [public-private partnership] law to allow the governor to dish out whatever government services to private entities that express an interest and have a proposal to assume a specific service,” said the lawmaker, while highlighting the fact there seems to be a lack of planning and public policy in the promotion of such enterprises.
The possibility of privatizing Prepa is further developed in the recently presented government’s Fiscal Plan, where the concepts of externalization and integration are introduced to “catalyze private third-party capital” to “develop public-private partnerships for new generation facilities to enable Prepa to diversify its generation…achieve significant improvement in energy generation efficiency…[and] achieve the lowest possible price structure…,” among other reforms.
The FOMB explicitly states in its Jan. 18 letter to the governor that “the fiscal plan should include a broad-based program to support growth in Puerto Rico by investing in infrastructure and partnering with the private sector.” In response to this, the administration passed Law 1 amending the P3 law, which not only “updates” the process to develop new P3s, but also “liberalizes all permits requirements and criminalizes all the people who might oppose such P3 projects,” according to the minority lawmaker.
For Márquez, the amendments to the P3 law will be paired with the proposed single employer project to comply with the government restructuring that the FOMB has required.
“The government is now talking about mobility, that no public servant is going to be laid off…and, of course, everybody knows the government is not going to approve another Law 7. Nevertheless, mobility is a mechanism to pull government employees from their positions and send them to work at public-private partnerships. In other words, you send them to a privatizing agent, and you just got rid of an employee with a proprietary claim over his/her job position. You got rid of his/her salary and benefits, and you are complying with the Dec. 20 letter and your own fiscal plan,” explained Márquez, who repeatedly questioned if there really is a conflict between the administration and the board.
The University of P.R.
The FOMB restructuring proposals also include, without specifically mentioning it, the University of Puerto Rico (UPR).
In the Dec. 20 letter, the board vaguely states that “for higher education, Puerto Rico should implement a means-tested tuition policy that aims to improve graduation rates and time to degree and supports the elimination of the current funding formula.”
In the following Jan. 18 letter, the board assures “there is an opportunity to increase tuition and reduce costs without compromising UPR’s mission of providing equal access to all students or its quality of education” and mentions, among the measures to “realize about $0.3 billion (300 million) in annual savings from reduced subsidies to the UPR” by implementing a “means-based tuition via higher per class credit prices, complemented by a more extensive use of federal government financial aid.”
But just last week, the FOMB decided and announced the cutbacks to the UPR would be $450 million over two years, instead of the original $300 million.
Márquez points out that, according to the government’s own statistics, about 70% of all UPR students benefit from the federal Pell Grant program for low-income families.
The government owes millions of dollars to the UPR from services rendered by the university that have not been paid, but UPR officials have avoided mentioning exactly how much money the government owes the institution.
The remaining 30% do not fall below the federal poverty line, but they also do not necessarily come from well-to-do families that can pay higher tuition.
In its Fiscal Plan, the government readily assumes the $300 million cutback from the UPR’s General Fund appropriation without question, but “to promote the institution’s longstanding tradition and autonomy, the government is deferring the methods of implementation to [university] management.”
Nevertheless, the Fiscal Plan suggests university management should consider: increasing its tuition income via a “needs-based tuition approach; designing an operational reform that should include administrative consolidation, the specialization of campuses and reducing payroll and benefits; and increasing services to the central government.
For Rep. Márquez, “this is an act of ultimate hypocrisy.”
Gov. Rosselló signed last month an executive order establishing as public policy the promotion of interagency agreements with the UPR under which “the institution would offer different services throughout its campuses, based on its operational capacities, and receive compensation.”
But one of the problems with the governor’s executive order and the “suggestions” in the Fiscal Plan is that the government is already one of the UPR’s biggest debtors, the PIP lawmaker said.
“The government owes millions of dollars to the UPR, and we are not talking about the money from the 9% formula or from the gambling law…. We are talking about services already rendered by the university that have not been paid,” said Márquez, who recalled a recent public hearing whereby UPR officials avoided mentioning exactly how much money the government owes the institution.
Regarding the specialization of UPR’s campuses, the lawmaker said campuses are already specialized. He recalled, for instance, that the Carolina campus specializes in tourism and gastronomy, the Utuado campus in agriculture and the Mayagüez campus in engineering.
“They [the government] are not saying they will eliminate any campuses, but we have to be watchful because you don’t know where this specialization suggestion is headed,” said a suspicious Márquez.
Now that the Rosselló administration has submitted its Fiscal Plan—and recently approved by the board—for Márquez, government officials are now working out the necessary “reasonable accommodation” to do the job despite the difficulties.
“Reasonable accommodation, in labor terms, means to provide assistance in the workplace to allow an employee to comply with the essential responsibilities of the post. In this case, the government received a series of instructions in two communications and now, with the Fiscal Plan and the laws already in effect, it is complying with the fiscal control board,” Márquez said.