Puerto Rico gov backs fiscal board debt adjustment plan
Plan of adjustment proposes 8.5% pension cut for 40% of retirees
—María Miranda contributed to this report.
SAN JUAN — Despite reiterating that the government of Puerto Rico is opposed to cutting its retirees’ pensions, Gov. Wanda Vázquez and her chief financial adviser, Omar Marrero, endorsed Friday the plan to adjust central government debt proposed by the island’s Financial Management and Oversight Board.
It includes an 8.5% pension cut for retirees earning more than $1,200 a month, or 40% of retirees.
In a televised message broadcast on WIPR Channel 6, Vázquez said that the decision came down to the following: “We respect the agreement reached by the Retiree Committee with the Financial Oversight and Management Board,” otherwise, “we risk facing greater cuts of up to 25% in pensions,” Vázquez said.
“Likewise, we would risk losing the opportunity to restructure more than $35 billion in government debt and get out of bankruptcy. I am convinced that the best alternative at this crossroads is to consider the approval of the fiscal adjustment plan that has been presented today by the Financial Oversight and Management Board,” she added.
The governor assured that her evaluation of the situation was not based on polls or calculations to gain popularity or obtain votes.
“The only interest on my part has been to make an objective and careful analysis of what are really the best interests of pensioners in Puerto Rico,” she said. “We cannot remain stuck in bankruptcy for many more years and like you, I want the Financial Oversight and Management Board to finish its work as soon as possible. I am confident that at the end of this process, Puerto Rico will once again obtain its fiscal autonomy and will be on the road to economic recovery.”
Vázquez said backing the proposed plan was not easy, noting that she, too, is a public worker who will receive a pension once retired.
“Certainly, it is not an easy decision, we are officials who have dedicated our lives to public service and depend on our pension to live. But I couldn’t risk a greater reduction,” Vázquez said.
Marrero, who is also the executive director of the Fiscal Agency and Financial Advisory Authority, said: “We have always opposed pension cuts because retirees did not consent to their money being used and, more importantly, they have suffered different cuts over the years. As a matter of sensitivity, we have always opposed cutting their pensions. Now, given that this was an agreement reached with a retiree committee that represents the retirees, insisting” on no cuts “would be to oppose” the agreement.
“If the cut is not accepted, the reduction that all pensioners would suffer would be 10%. During summer, this group that officially represents the retirees understood that this agreement is the most beneficial one. Therefore recognizing the agreement that group voluntarily reached; therefore, insisting on no cuts would basically be going against that agreement and could mean an automatic 10% cut, which was what the fiscal plan established. Insisting on zero pension cuts could open the door for other creditors, who are receiving a 60% cut, to tell you, ‘We are going to request an additional cut’; because according to the Constitution of Puerto Rico, the debt goes first,” added the fiscal agency director.
For his part, Elí Díaz Atienza, Vázquez’s non-voting representative to the board, echoed the governor earlier, pointing out that, “in principle,” they are against any pension cut.
“We know that this plan is an important step to come out of the bankruptcy process. In principle, we are against any pension cuts but we understand the risks in this process and we understand the agreement that the board made with the Retirees Committee. In the plan, there are great benefits in the cut to the debt. The intention of the government is to try to mitigate any cuts to pensioners, and the governor has been very clear about that,” Díaz said.
According to the plan of adjustment filed Friday by the board, $35 billion in general obligation and Public Buildings Authority bond debt, would be reduced by more than 60%, to $11.7 billion.
“This represents 65% of the total cut to the debt, debt service is reduced by 60% and a sustainable payment of $1.5 billion is achieved for 30 years. This is important because that payment is below 10% of the debt and the Constitution puts a cap of 15% of debt. With the Plan the payment of pensions is prioritized. If we get out of bankruptcy, we can begin to finance the permanent work for the economic development of Puerto Rico. Today is a historic moment for Puerto Rico, and it is important to understand that beyond the largest bankruptcy in the jurisdiction of the United States, it is the first time that such a large jurisdiction goes through a debt restructuring,” Marrero added.
“This plan is very important because it guarantees that the government will continue financing all essential services and will be in a position that will allow for the government to protect health wellbeing and public security,” Vázquez said in her message.
The full text of the governor’s message follows:
Message regarding the Adjustment Plan
Honorable Wanda Vázquez
Governor of Puerto Rico
September 27, 2019
To all Puerto Ricans,
Today I address you not only as Governor of Puerto Rico but as a lifelong public servant, to talk about the current state of our efforts to put our Island in order and the important decision we as citizens of Puerto Rico, have before us. I address you with the same transparency and honesty with which I have always spoken to you. Today, the Financial Oversight and Management Board presented a plan that seeks to restructure the debt of millions of dollars that Puerto Rico has with its creditors. Certainly, the way we react and respond to that plan constitutes a defining moment in our history. However, to reach this goal, important, responsible, but at the same time very difficult decisions must be made.
To understand the magnitude of these decisions, we must understand how Puerto Rico reached this point and recognize how far we have come in the path of fiscal and economic recovery. After decades of mismanagement, administrative inefficiencies, an economic recession since 2016, and the default of our debt in June 2016, the United States Congress passed the PROMESA Law that, among other things, created the Financial Oversight and Management Board. Through the PROMESA Law, Congress granted the Board the power and tools for Puerto Rico to achieve fiscal responsibility, as well as to impose debt reductions when necessary. One of those tools was the right to begin bankruptcy proceedings on behalf of the Government of Puerto Rico, which the Oversight Board did on May 3, 2017.
For the past two and a half years, the Government has been actively participating in bankruptcy and restructuring proceedings thus protecting the rights and interests of the people of Puerto Rico. This process has resulted in successes, challenges and, occasionally, frustrations and disagreements with the Financial Oversight and Management Board. Unfortunately, sometimes the Board has tried to usurp the powers of elected officials and has violated the political powers of the Government of Puerto Rico. In the event of any attempt to usurp its political powers, the Government has always and will always go face to face with the Board to defend and protect the people of Puerto Rico. However, sometimes the Government and the Oversight Board have reached consensus to take necessary and unprecedented measures to create a more reliable government. These measures include: eliminating inefficiencies, improving tax collections and implementing structural reforms, all necessary to comply with you. As the Secretary of Justice and Prosecutor I once was, with more than 20 years of experience, I have always been committed to continuing advocating for these reforms and advancing healthy government practices that include eradicating corruption and respecting the estate of law. Because like you, I am a person of law and order.
In the midst of this situation, in September 2017 Hurricanes Irma and María severely impacted our Island, the latter being the strongest hurricane that has passed through the Island in decades, creating one of its worst humanitarian crises in the modern history of the Island. The devastation that arose from this hurricane united our people in an indescribable way and although we still have a long way to go, we are already seeing the fruit of recovery. This recovery process will accelerate as long as the federal funds finally reach the Island. Same way in July thousands of people took to the streets to demand an honest, reliable and transparent government. You demanded a government that is an example of fiscal responsibility, honesty, and respect, in a genuine exercise of democracy in action.
During these two events, the people of Puerto Rico demonstrated that they are able to recover and move on. Despite this turbulence, the government has continued working to achieve essential goals in its efforts to restore the economy and restructure the debt that has paralyzed the Island for more than a decade. Debt that costs the Government $ 2.5 billion annually in interest payments alone. In other words, our Island was drowning in unsustainable debt.
Using the tools provided by PROMESA, the government has taken significant steps to adjust its debts to more sustainable levels and implement structural reforms. To date, more than $ 23 billion in debt has been successfully restructured through various transactions, including the restructuring of COFINA, the Government Development Bank and the Aqueduct and Sewer Authority. These transactions were made possible by the successful collaboration between the government, the Financial Oversight and Management Board, the House of Representatives and groups of creditors. The government has also done its part, taking measures such as reforms and cost reduction, among others.
Today we have unemployment at its lowest rate in our history and one of the highest labor participation rates in recent years. Also, the measures taken have facilitated the Government’s responsibility to ensure our retirement system, which is undercapitalized and broken to assure the payment of benefits to pensioners in the future through the PayGo system. Therefore, the Government has made the largest cut in operational expenses in the last 40 years and thanks to this, our retirees today continue to receive their pensions. Because our commitment has always been to you.
Since I assumed the Government in a constitutional manner, it has been my commitment to work to restore the credibility of Puerto Rico in Washington D.C. A sample of this was the result of the trip to the federal capital that I made at the beginning of the month, where we got, among other things, for FEMA to agreed to disburse the funds that will give way to the development of more than 1,500 works that are part of the recovery and will eliminate control over the disbursement process. We also emphasized that Puerto Rico has to receive fair and equitable treatment in Medicaid funds, because it is about your health.
As I mentioned, the Financial Oversight and Management Board presented a debt adjustment plan to the Federal District Court. The plan provides an opportunity for Puerto Rico to modify approximately $ 35,000 million of Central Government debt. The plan has many favorable qualities and would reduce the central government debt by about 65%. The plan is complex and we anticipate that it will be amended several times until it is finally approved at some point next year. They have my commitment that my Government will remain vigilant and will protect the interests of the people of Puerto Rico throughout that process.
Very important. This plan also guarantees that the government will continue to finance all essential services and will be in the position that allows it to protect the health, well-being, and safety of our people. It includes certain safeguards to ensure the protection of pensions and prevents future governments from incurring irresponsible loans.
Together with the legislative leadership, I will implement measures to ensure that these practices are not to happen again.
The proposed plan presents negotiated agreements between the Financial Oversight and Management Board, labor unions and the official committee of retirees, who are in charge of representing the interests of retirees in this bankruptcy process.
That structure negotiated and agreed by the Retirees Committee will protect the payment of pensions in the future and only includes an 8.5% reduction in monthly benefits for beneficiaries who receive more than $ 1,200 monthly pension, not including the benefits they receive for Social Security and medical plan.
Which means this reduction will apply to those pensioners who receive more than $ 1,200 per month. 60% of the population that receives a pension today will be protected.
That agreement agreed by the Retirees Committee includes the creation of a multi-million dollar pension reserve fund to ensure the payment of pensions in the future and an express prohibition of future pension cuts.
In principle, I do not support any reduction in benefits to retirees, as this population has already made great sacrifices since before this bankruptcy process began, and they never authorized putting their pensions at risk. I am a public servant and just like many pensioners, I will depend on my pension to live by, once I retire.
The decision we have to take today is reduced to the following: we respect the agreement reached by the Retired Committee with the Financial Oversight and Management Board, which reduces pensions up to 8.5%, or we risk facing greater cuts of up to 25% in pensions, which is what the fiscal plan contemplates, as certified by the Board. Likewise, we would risk losing the opportunity to restructure more than $ 35 billion in government debt and get out of bankruptcy.
From what I have told you, I am convinced that the best alternative at this crossroads is to consider the approval of the fiscal adjustment plan that has been presented today by the Financial Oversight and Management Board. My assessment of this situation is not governed by surveys or calculations to gain popularity or the highest number of votes. The only interest on my part has been to make an objective and careful analysis of what are really the best interests of pensioners in Puerto Rico. We cannot remain stuck in bankruptcy for many more years and like you, I want the Financial Oversight and Management Board to finish its work as soon as possible. I am confident that at the end of this process, Puerto Rico will once again obtain its fiscal autonomy and will be on the road to economic recovery.
Certainly, it is not an easy decision, we are officials who have dedicated our lives to public service and depend on our pension to live. But I couldn’t risk them at a higher discount. I want to express to you that the process of this fiscal adjustment plan will continue in the Federal Court and I will be very vigilant to always seek the greatest benefit for the pensioners and for the people of Puerto Rico.
May God bless our people.
Link to video:https://bit.ly/2ndWbwt
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