Puerto Rico’s  Austerity Road…?

* “Board Orders Furloughs, Pension Cuts, More for Puerto Rico” By The Associated Press, NBC News (March 13, 2017)

* “Puerto Rico oversight board approves revised government turnaround plan”

By Nick Brown,

Metro (March 13, 2017)

Board Orders Furloughs,

Pension Cuts, More for Puerto Rico

by The Associated Press

NBC News (March 13, 2017)

SAN JUAN, Puerto Rico — A federal control board on Monday ordered economically-ailing Puerto Rico to cut its public pension system by 10 percent, furlough tens of thousands of government workers and eliminate Christmas bonuses.

The seven-member board created by Congress to oversee the U.S. territory’s finances voted unanimously to add those measures to a 10-year fiscal plan presented by the island’s governor. The measures will be implemented if the government cannot find other ways to cut spending and generate revenue.

Board members said the spending cuts are necessary so that the government will have enough money to pay for essential services such as education, health and public safety.

“Puerto Rico is about to capsize,” said board member David Skeel. “The island is overwhelmed by debt. Puerto Rico is in real danger of running out of money for even the most basic essential services.”

Skeel and other board members who met in New York said the plan calls for everyone on the U.S. territory of 3.4 million people to make sacrifices.

Gov. Ricardo Rossello had resisted some of the board’s cuts, arguing they would fall too heavily on many living in Puerto Rico, which faces nearly $70 billion in public debt that it is seeking to restructure. He told The Associated Press that he was pleased with the plan and is confident his administration will find ways to head off the furloughs and the elimination of Christmas bonuses.

“That’s my goal,” he said by phone. “We’re taking bold steps to making sure the economy gets jumpstarted. We’re very much well on our way.”

Elias Sanchez, the governor’s representative to the board, told the AP that the territory’s government hopes to avoid at least the first round of furloughs by proving it will have $200 million in cash reserves by June 30.

The board and Puerto Rico’s government still disagree about cuts to the island’s public pension system that would hit hundreds of thousands of government workers. The system faces $50 billion in liabilities and is expected to run out of money by year’s end. Board members said they will protect the most vulnerable retirees and ensure no one is pushed below the federal poverty line.

The board will make recommendations by next month on what kind of pension changes will be implemented, but it said the system will switch to a pay-as-you-go method and that teachers and public safety workers will be enrolled in Social Security by 2020. Currently, teachers and police officers in Puerto Rico do not receive Social Security.

Meanwhile, the board demanded furloughs of four days a month for government workers and two days a month for teachers, saying the step would save up to $40 million in savings a month. The furloughs will take effect on July 1 unless the government proposes other cost-saving measures. In addition, all Christmas bonuses could be eliminated by fiscal year 2018.

“This is barely the end of the beginning of a long process to get Puerto Rico on the road to economic growth again,” said board member Jose Ramon Gonzalez. “There are no simple, no easy, no painless solutions to the problems that have built up over 20 years.”

Puerto Rico racked up debt in recent decades by borrowing to balance its budget even as its economy was sputtering. In June 2015, the island’s former governor announced that public debt totaling more than $70 billion was unpayable, and the island has defaulted on millions of dollars owed since then, forcing U.S. Congress to step in and sparking a barrage of lawsuits filed by angry creditors.

Many believe the measures within the fiscal plan will worsen an exodus of Puerto Ricans to the U.S. mainland, with half a million people having left the island since 2005.

The plan drafted by the government and approved by the board also will cap some Medicaid benefits, effectively raise property taxes and scrap some infrastructure projects while possibly turning ferries, ports and parking lots over to private companies. It will freeze salaries until 2020, seeks to privatize the generation of power and increase traffic and motor vehicle license fees by 10 percent.

 

Puerto Rico oversight board approves revised government turnaround plan

by Nick Brown

Metro (March 13, 2017)

NEW YORK (Reuters) – Puerto Rico’s federal oversight board voted unanimously on Monday to certify the government’s fiscal turnaround plan, on the condition it be amended to eliminate Christmas bonuses, impose employee furloughs, and further reduce pension spending.

The plan, a cornerstone of the federal Puerto Rico rescue law known as PROMESA, will serve as the baseline for looming restructuring talks with holders of some $70 billion in debt that has pushed the U.S. territory to the brink of economic collapse.

The government can avoid some of the austerity measures, which have sparked protest among Puerto Ricans, if it presents alternative cost-saving measures by April 30, the board said.

PROMESA required Governor Ricardo Rossello to present a turnaround blueprint that would require sign-off by the board. The board rejected an initial draft last week, saying it relied on “overly optimistic” economic projections.

The latest version rolled back those numbers. Board member Ana Matosantos said the new version foresees the island having roughly $800 million a year to service debt, down from the $1.2 billion in Rossello’s draft, suggesting even steeper haircuts for creditors than previously contemplated.

“The governor incorporated an updated economic forecast and an updated spending forecast and made a series of adjustments to other elements of this fiscal plan to ensure that it achieved balance,” Matosantos told reporters after the meeting.

Approval by the board came with conditions: the government must reduce pension spending by 10 percent beginning in 2020, cut Christmas bonuses and implement employee furloughs as soon as July 1 to stave off a short-term cash crunch.

The austerity push drew protests outside the meeting in lower Manhattan on Monday, including from teachers who claimed the furloughs would shorten the public school year by the equivalent of two months a year.

The government can avoid the furloughs and bonus cuts if it presents the board with a plan by April 30 to shore up liquidity by $200 million. Elias Sanchez, Rossello’s liaison to the board, said the government is “very confident” the cuts won’t be necessary.

“The board believes we’ve dramatically understated our expenses,” Sanchez told Reuters after the meeting. “We’re very confident we’ll be able to show we haven’t.”

The board said it will negotiate over the next 30 days with the government on how to cut pensions, a contentious issue on an island where retirement systems are already borderline insolvent thanks to decades of mismanagement by governments that routinely made overly generous promises to workers.

“All stakeholders have been forced to sacrifice, and no one is exempt from that,” board member Andrew Biggs, a pension expert, told reporters after the meeting. He added the cuts will be orchestrated “in a way that would spare the lowest-income people from any reductions.”

In another controversial move, the board said it supported government efforts to seek additional concessions from bondholders of Puerto Rico’s power utility, PREPA, which is more than $8 billion in debt.

The utility and its creditors have had a tentative restructuring in place for more than a year, but Rossello’s administration has hinted it would seek new terms, sparking concern and frustration among PREPA’s creditors.

A subcommittee of the U.S. House Committee on Natural Resources announced it will hold a hearing on March 22 on the status of the PREPA deal, the current version of which sees creditors taking 15-percent haircuts.

The board also said it has not taken a position on whether to ask U.S. Congress to extend a freeze on litigation over Puerto Rican debt defaults, set to run out on May 1. Puerto Rico’s government, and some creditors, want the freeze stretched to Dec. 31, to give sides more time to reach a restructuring without worrying about lawsuits.

“I believe … significant progress can be made to a consensual resolution by May 1,” board member and former bankruptcy Judge Arthur Gonzalez told reporters after the meeting. “The people involved in this are used to hard work.”