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(Juan J. Rodríguez/CB)
by Luis J. Valentín
NEW YORK — With its certification during the fifth public meeting of Puerto Rico’s fiscal plan, the island’s direction was decided by Promesa’s financial control board Monday in New York.
The certification of the fiscal plan was an important step for a series of events contemplated by the federal law. Now that it is approved by the board, the government must move toward the preparation and certification of a budget by April 30. Likewise, any law approved by the Legislature must be consistent with the fiscal blueprint. Failure to do so, as the board determines in its sole discretion, would invalidate the legislation.
The plan also lays down the groundwork for negotiations with Puerto Rico’s different creditor groups, as both the government and the board would know how much money is available to pay for debt service each year.
Each member had a turn to comment on their views regarding the island’s fiscal plan, with Chairman José Carrión III thanking board members for their work, for taking criticism and “sometimes abuse”; and David Skeel saying the island is about to run out of money and everyone has to sacrifice, and that the plan has chance to succeed.
José R. González said that with the amendments recommended, the plan will be a “fair approach.” Carlos García said more needs to be done to increase private sector investment. Meanwhile, Andrew Biggs said the board and the government will hash out differences on pension reform measures over the next 30 days. The Puerto Rico government’s representative, Elías Sánchez, had asked for a vote of confidence in approving the most recent plan.
A furlough program representing an about 20% public employee payroll cut for certain government workers will remain in place. In addition, a 10% cut to pensions will be implemented, the board said, along with the elimination of Christmas bonuses. If the retirement system runs out of money at the end of the year, general fund money would have to compensate for the shortfall, which would mean fewer resources available to cover other essential services such as education and the healthcare system.
Going over the plan’s four main pillars: revenue, government right-sizing, reducing healthcare spending and pension reform, the Fiscal Agency and Financial Advisory Authority’s (FAFAA) executive director, Gerardo Portela, said the plan reduces spending by about about $850 million in fiscal year 2018 and that the impact of its revenue measures would total $900 million for fiscal 2018 as well.
“We know there will be multiple opportunities to revise an approved fiscal plan along the way,” he added.
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FAFAA Executive Director Gerardo Portela
Besides approving the fiscal plan, the board also selected Andrea Bonime from GEC Risk Advisory as its ethics adviser at the meeting in the Alexander Hamilton U.S. Custom House building, just a few steps from the iconic Wall Street Charging Bull and at the same place where the board held its first public meeting in September.
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New York City’s Alexander Hamilton U.S. Custom House, where Promesa’s financial control board is expected to certify a fiscal plan for the island during its fifth public meeting on Monday morning. (Juan J. Rodríguez/CB)
The road toward certifying a fiscal plan for the island has been a bumpy ride. The board showed concerns over the government’s economic projections, revenue estimates—which it called very optimistic—and savings expected to be achieved through some of the governor’s measures. It also raised flags over cuts in healthcare spending and pension benefits, which the board believed to be insufficient.
In fact, before Monday’s meeting, both the government and the board sent each other several letters, a process that ended with an ultimatum to Rosselló’s administration to deliver a revised plan consistent with the most recent comments of the governing body. After receiving a report from its consultants, Ernst & Young, the board understands that real public spending had been underestimated and the fiscal gap is even greater than previously identified.
According to the board, the latter would put government operations at risk in the face of dwindling short-term liquidity, so it called for additional fiscal control measures immediately, including a furlough of public employees. Although the board increased the period to have a balanced budget from two to three years, it required more spending cuts such as an additional $150 million to the $300 million already required from the University of Puerto Rico’s budget.
For its part, since the delivery on Feb. 28 of its fiscal plan, the Rosselló administration has defended its measures and projections. It argues that the numbers with which the board works are incorrect and said it would seek to convince it.
However, Rosselló said the government adjusted some of its proposed measures and baseline numbers in the revised document delivered to the board on Saturday morning, in a bid to keep alive its chances to have its plan—and not the board’s—be certified. Although the governor said he had reviewed the economic projections that he initially used, he said that his plan does not contemplate the furlough proposed by the board.
Several groups were protesting outside the building, which is owned by the federal government and houses a Native American museum, New York’s National Archives and even a bankruptcy court.