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Puerto Rico board to recertify fiscal plan with fewer labor reforms

By on May 21, 2018

Puerto Rico Gov. Ricardo Rosselló and fiscal board Chairman José Carrión (Courtesy)

SAN JUAN – The Financial Oversight and Management Board for Puerto Rico
announced Monday that it will amend the government’s fiscal plan “to ensure timely implementation of critical structural reforms and to comply with the short and long term goals of the New Fiscal Plan.”

The board accepted proposals from the Puerto Rico government that will be incorporated in the “amended New Fiscal Plan to ensure those structural reforms, which are the backbone of returning growth to the economy of Puerto Rico, are implemented.”

The revisions, the board said, are a result of the “commitment by the Governor and Legislature to approve labor reform before the end of this fiscal year [, thus considerably reducing implementation risks of the Fiscal Plan and avoiding costly litigation.”

“The Oversight Board reiterates its commitment to achieve the mandates of PROMESA [Puerto Rico Oversight, Management and Economic Stability Act] of helping Puerto Rico attain fiscal balance and return to capital markets in a sustainable way, and to further those goals we have reached an understanding with the Government on a series of reinvestments in line with necessary economic development goals, that will ensure, among other initiatives, the implementation of Labor Reform efforts and Ease of Doing Business reforms that are critical to Puerto Rico’s future and that will further improve the competitiveness of the economy,” the board’s chairman, José Carrión, said in a release early Monday.

In its own announcement Sunday, the governor’s office, La Fortaleza, said Gov. Ricardo Rosselló was able to negotiate with the board that it “desist” from its requests that the statutory Christmas Bonus for public and private sector workers be eliminated, and vacation and sick leave days for employees in the private sector be reduced in half.

This was achieved in exchange for the legislature and the governor committing to repeal Act 80–known as the unjustified dismissals law, which provides that, after completion of the probationary work period, an employee who has been dismissed without just cause be entitled to severance pay equal to two weeks’ salary for each year worked.

The discussions also resulted in a model in which tax rates for workers are reduced, an earned-income tax credit is established, the sales and use tax (IVU by its Spanish acronym) on prepared foods is reduced, and the business-to-business tax is eventually eliminated.

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It was established that, to “incentivize the increase” of the labor force, participants of the Nutritional Assistance Program (PAN by its Spanish acronym) who are 18 to 59 years old will be required to work or volunteer for 80 hours a month or receive certified educational training after receiving the benefit for more than three months.

The budget cuts of the Office of Federal Affairs, the Office of the Resident Commissioner and the legislature will not be implemented due to the “importance these entities have amid the historical moment Puerto Rico is living. Meanwhile, cuts to the Judiciary will be cut in half,” reads the release issued by La Fortaleza.

“These reforms, including Puerto Rico becoming an ‘employment-at-will’ jurisdiction, will help the Island to grow and become more competitive, to reverse the negative trend of the economy, and allow us to put together a credible and viable long-term vision for Puerto Rico with a Plan of Adjustment that can help the Commonwealth restructure its debt and come out of Title III,” Carrión said in the board’s release, referring to the in-court, bankruptcy-like provision of Promesa.

The release adds that the changes reduce the projected annual surplus for fiscal 2019 by “only $101 million and estimates the 6-year surplus” at $6.05 billion. The plan will be recertified to reflect the revisions, the budget “process will continue to ensure compliance with the New Fiscal Plan as recertified, and increased monitoring will ensure timely implementation of the Plan,” it reads.

The modified fiscal plan, La Fortaleza said, ensures that no other law or regulation that protects workers is affected.

Regarding pensions, “The agreement allows us to allocate 100% of the pensions in our next budget, and ensuring their full payment will continue to be our public policy. In little more than a year, we have reduced close to 22 percent of the government’s operational expenses to be able to assume this and other responsibilities,” the governor said.

“Not stopping these proposals would have eliminated the Christmas bonus for public employees and put economic development funds, as well as the budgets of the municipalities, the judicial branch, and the Legislative Assembly, among others, in jeopardy,” Rosselló added.

A $345 million is established for economic development projects such as the digitization of the government, procurement reform, mechanisms to facilitate doing business in Puerto Rico and the funds needed to establish the Central Recovery and Reconstruction Office and run the Public-Private Partnerships Authority.

In addition, a scholarship fund of $25 million a year was created for the University of Puerto Rico and the possibility of another $40 million to be appropriated for the school.

The additional funds allocated to the UPR reduce what the government spends on implementing economic development reforms and initiatives, “which currently total $345 million,” or “may arise” from the “rightsizing” of the judicial branch, that currently totals $80 million, according to the government.

“The achievement, as explained by the governor himself, greatly helps municipalities that are in a difficult situation, at a fiscal level, that was aggravated by the passage of the hurricanes last year. Securing the approved $78 million fund is vital to our municipalities and the new $50 million a year fund obtained by the governor will be of great help for recovery work,” said Carlos Molina, who chairs the Mayors Federation, which groups New Progressive Party majority mayors.

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