Published: 20170313 1558
Updated: 20170313 165732
In its fifth meeting, held today in New York, the board created by Congress to supervise Puerto Rico’s finances voted unanimously to adopt a long-term fiscal plan.
The “Fiscal Plan for Puerto Rico” released late today is a version of the plan plan publicly proposed by Governor Roselló in February that was modified to address concerns the Board raised in its response last week.
In a press conference following the meeting, Board Member Ana Matosantos discussed agreed-upon revisions, which she said included:
- Updated economic forecasts;
- Updated expense trends;
- Additional healthcare savings identified;
- UPR funding alterations;
- Revenue modifications; and
- Issues addressing right-sizing of the government.
In addition to the negotiated changes there were two amendments to the plan required by the Board during today’s meeting as conditions for approval:
- To meet liquidity requirements, government workers will in all likelihood be furloughed and Christmas bonuses will be eliminated.
- A pension reform plan to be completed by June 30th will include:
- Approximate 10% cut to existing pensions (with special provisions to prevent recipients from going below the poverty line).
- Existing pension plans will convert into “pay-go”, wherein the government will no longer fund them in advance. Instead it will segregate current assets and pay the remaining liabilities as they come due.
- A low-fee, defined-benefit retirement plan resembling corporate 401(k)s will be created to replace the existing pension system.
- Teachers and public safety employees will be enrolled in social security starting in 2020.
Governor Roselló had argued stridently for months to exclude the changes to employees’ work schedules and to avoid cuts to pensions.
Despite the Board’s statement in writing that the plan MUST include a furlough program, Roselló’s administration continued Monday afternoon to insist it would not happen.
Even if it is not yet available in a single document, and even if there isn’t complete agreement as to its contents, both the Government and the Board are acutely aware of the need for action.
An approved fiscal plan is a key component of the PROMESA legislation, which was created by Congress in June 2016 to address the island’s financial woes, which include $70 billion in outstanding debt obligations and an additional $40 billion in unfunded pension liabilities.
Control Board member Arthur Gonzalez—a former federal bankruptcy judge—said that the without the plan “… discussions [with creditors] could not really focus on what’s available for debt service until the fiscal plan was approved”. Following today’s meeting he said he thought there could be “tremendous progress” in consensual negotiations before the legal stay barring nearly all creditor actions expires on May 1st.
How much progress can be made in those meetings is an open question. If funds available for debt payment outlined in the draft documents already released are any indication, the island will be seeking debt principal reductions approaching 70%. Such a large “haircut” is unlikely to be appealing to many bondholders, especially those holding “strong” debt.
The Roselló administration has argued that the Board should ask Congress to extend the May 1st stay on litigation to provide the island more time to negotiate voluntarily. Even if the Board were to do so, however, there is nothing to suggest Congress would take up the issue in time.
The Board is composed of seven members appointed by President Obama on the recommendation of Congress. Four members were selected from a list drawn up by the Republicans, and three members were selected from a list by Democrats. Board members receive no compensation for their service.
20170313 164408 : Story updated to reflect that the Plan was publicly released, and to insert Rosello’s assertion that furloughs would not happen .