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Puerto Rico fiscal board says only it can propose ‘what recovery pensioners will receive’

By on May 17, 2019

(Screen capture of WIPR)

‘Hitting pensioners is, in addition to unfair, a bad fiscal policy,’ Rosselló says while staunchly defending his administration’s actions

SAN JUAN – Puerto Rico Gov. Ricardo Rosselló Nevares broadcast a live TV message to the island Thursday in which he criticized the island’s Financial Oversight and Management Board.

The 2019 fiscal plan, the third certified by the board in two years, reflects more conservative projections; retains the requirement to eliminate the statutory Christmas bonus, which the government said it will pay nonetheless; sets employers’ contribution to health insurance at $125; and requires the government to document and include in its budget how much the tax credits and preferential agreements it grants to companies and individuals cost the Treasury.

The plan also cuts public workers’ pensions by 10 percent, except for those under the federal poverty threshold.

“People are facing an unfair and unnecessary threat from the Puerto Rico Financial Oversight and Management Board,” the governor said in his speech, while stressing that the cuts to public worker pensions proposed by the island’s fiscal oversight board was a “blow” that would cause a “social crisis with serious repercussions” on trade and the economy.

“Attacking the most vulnerable while the cost of living increases would have the effect of the Government having to assist that population. The cuts proposed by the Board do not make sense. It constitutes an attack on everyone in Puerto Rico,” the governor said.

The board’s actions, such as changing and rejecting fiscal plans, related to measures he said were lifting Puerto Rico up, would result in a “paralyzed government.”

“The Oversight Board does not want to cut pensions,” it said in a statement Friday. “Fiscal and legal constraints on Puerto Rico force the Oversight Board to reform pensions, not ideology.”

The board said that “Decades of financial mismanagement, underfunding, and borrowing from people’s pensions have left the retirement systems for the central government, teachers, and judges with virtually no money. Had the Commonwealth not started paying for pensions out of the general operating budget, pensioners would have stopped receiving pension checks by now. But that means the Commonwealth general operating budget has to find the money to pay pensions, which cost roughly $2.5 billion a year.”

Saying that in “the past, governments simply raided the retirement systems and borrowed from creditors to find the money to pay pensions,” the board stressed that the “retirement systems are effectively broke and the Government cannot borrow money.”

The board does not doubt “the Governor’s sincere desire to pay pensions in full, now and forever,” the panel said, “but the unfortunate reality is that the Commonwealth does not have the money to do so.”

The “pension reform policy,” the panel said it is forced to implement, “reduces the cost of pensions by over $10 billion over the next 30 years to make pensions affordable and sustainable for the Commonwealth,” and that with the other reforms in the fiscal plan, “ensures that future governments will always have the resources to be able to pay pensions” and that”never again will pensioners be put in the position of doubting whether they will receive their hard-earned pension.”

The board also noted that under the Puerto Rico Oversight, Management, and Economic Stability Act’s (Promesa) Title III process, “only the Oversight Board can propose what recovery pensioners will receive, not the Governor, but anything the Oversight Board proposes has to be approved by a court.”

The board further said “it cannot expect the court to allow pensions to be paid in full when the bondholders receive much less than what they are owed,” and for that reason it has “developed a pension reform policy that has been part of every Fiscal Plan since 2017 that produces an overall recovery of more than 90% to pensioners and tries to limit the cuts to those who are better able to afford it.”

However, the governor argued in his speech Thursday that just when “the signs of economic recovery are visible, that we have begun to receive important investments from the private sector in our island and the unemployment rate in Puerto Rico decreases, the board presents itself as an obstacle in the path of our people,” he said.

In his message, which lasted about 8 minutes, the governor called on “all sectors of society” to back the government’s actions against the cuts to pensioners, which he called “a totally unnecessary ideological obsession.”

He charged that his administration will take the matter to “all forums necessary” to argue board actions he called unjustifiable, and that he was not discarding legal action in defense of the pensioners.

The governor said the government has achieved some $1.4 billion in savings to pay pensions, making way to be able to allocate about $2.5 billion in all budgets to fully pay each public retiree and added that his administration’s has carried out “the largest cut that has been made to an operational budget in the modern history of the United States.”

“We have taken dramatic and unprecedented measures to stabilize the catastrophic state in which we found the public finances, preventing the total collapse of the economy in Puerto Rico,” Rosselló said. “On the contrary, from this critical situation, today we are in clear recovery, as evidenced by the main economic parameters.”

More than 70,000 retirees receive $1,000 or less a month in pension payments; more than 120,000 receive $2,000 a month or less, the governor noted.

“We can work with board toward a common objective: Rehabilitate the government’s finances and achieve stimulating Puerto Rico’s economy,” he added. “That is possible without having to impose on the people abusive measures that affect essential services and the quality of life of the people.”

The governor said the retired workers already “sacrificed enough” during the past administration.

“By 2017, the retirement systems had no funds to pay pensioners who, for decades, gave their body and soul to the public sector… That is why we adopted Act 106, so that the general fund would take care of complying with those who complied for Puerto Rico.”

Rosselló reiterated that his administration has taken “the measures needed to safeguard the pensions, being fiscally responsible,”  and concluded saying that the board’s actions were unnecessary and the panel “should finally understand that the public policy is the elected government’s responsibility.”

“You have granted me the privilege to serve you as your governor,” Rosselló further said. “Destiny confronts us with difficult and complex situations for Puerto Rico. Today I urge unity of purpose to defend our pensioners and continue the agenda of changes that will transform Puerto Rico. I will not be part of the suffering that thousands of Puerto Rican families would have with the cuts to their pensions.”

Earlier Thursday, Treasury Secretary Raúl Maldonado reportedly said the government would not be implementing 10 percent cuts to public worker pensions and will instead look for ways to cut down on spending, a move he said will bring about significant savings to avoid having to make pension cuts.

“We think that the alternative we are offering, that is to make cuts in professional services, consolidate agencies, is much more tangible, we can measure it more easily,” Maldonado said, adding that the government will continue fighting, and that he already has $2.4 billion budgeted to pay the pensions, “not only of the central government workers, but also municipal, including the Christmas bonus.”

Rossello’s speech was added Thursday morning to the governor’s daily agenda, but his office, La Fortaleza, did not disclose the subject matter until the message began to be broadcast.  

The full text of the governor’s message, as sent by La Fortaleza, follows:

Brothers and sisters of Puerto Rico,

Once again, the Financial Oversight and Management Board unfairly and unnecessarily threatens our people. On this occasion, again, the threat is against the pensioners of our public service, affecting over 170,000 of our retirees.

I want to begin my words by reiterating that I am opposed to this unjustified attack against an important sector of our population.

More than 70,000 retirees receive a pension of a thousand dollars or less a month. More than 120,000 receive two thousand dollars or less a month. Who can expect these pensioners to live with less? Many already have difficulties making arrangements to pay for their medicines, food, home, electricity, and water.

We must not forget that the previous administration already hurt our pensioners by eliminating payments for their medical insurance, by eliminating their Christmas bonus and summer benefits, and drastically reducing future retirees of their right to a fair retirement.

By 2017, the retirement systems did not have enough funds to pay the retirees who, for decades, worked tirelessly as public servants. That is why we approved Act No. 106, so that the general fund would be in charge of complying with those who complied with Puerto Rico.

The cuts to pensions proposed by the Board are unjustified. We have generated savings of $1.4 billion precisely to make pension payments.

These adjustments have allowed us to allocate about $2.5 billion for the total payment of each pension in all our budgets.

The savings that we have achieved in our Government constitute the largest cut that has been made to an operational budget in the modern history of the United States.

We have taken dramatic and unprecedented measures to stabilize the catastrophic state in which we found our public finances, avoiding the total collapse of the Puerto Rican economy. On the contrary, from this critical situation, today we are in clear recovery, as evidenced by the main economic parameters.

Now that our economy is clearly recovering; as we begin to receive important investments from the private sector in our Island; and while the unemployment rate in Puerto Rico decreases, the Board puts obstacles to our progress.

The erratic actions of the Board—changing and objecting to fiscal plans that are helping Puerto Rico recover—would only paralyze our government and harm the people.

We can work with the Board in a common goal: to restore the finances of the Government and to stimulate the Puerto Rican economy. This is possible without having to impose abusive measures that affect the essential services and the quality of life in our Island.

Given the savings and control spending we have implemented in the Government, the pension cuts that the Board intends to impose are an ideological obsession, totally unnecessary.

I repeat: We have already taken the necessary measures to save pensions, acting with fiscal responsibility. It is unnecessary. The Board must understand that public policy is the responsibility of the elected government of the People of Puerto Rico.

The effect of the proposed cut on pensions would cause a social crisis, with serious repercussions on trade and the economy.

Hitting pensioners is, in addition to unfair, bad fiscal policy. Attacking the most vulnerable while the cost of living increases would have the effect of the Government having to assist that population. The cuts proposed by the Board do not make sense. It constitutes an attack on everyone in Puerto Rico.

Facing the abuse of the Board to our people, I summon all sectors of our society, including political parties, to join me in defense of pensioners in Puerto Rico.

I will go to all necessary forums to demonstrate that this blow is unjustified. I do not rule out any action in defense of our pensioners.

In practically all Puerto Rican families there are retirees who gave their best days to Puerto Rico. We must defend them because it is the right thing to do.

You have granted me the privilege of serving as your governor. Fate confronts us with difficult and complex situations for Puerto Rico. Today, I ask unity of purpose from you, so that we defend our pensioners together and continue the agenda of changes that will transform Puerto Rico.

Injustice and abuse cannot be imposed on a noble and brave People, if they exercise their right to fair treatment with determination.

I will not be a participant in the suffering that thousands of Puerto Rican families would have with the pension cuts. Let us go together to give that battle!

May God bless Puerto Rico.

Good afternoon.

Oversight board certifies Puerto Rico fiscal plan

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