Governor Ricardo Rosselló Nevares addressed the island last night during a televised message from La Fortaleza. (GFR Media) (semisquare-x3)
Governor Ricardo Rosselló Nevares addressed the island last night during a televised message from La Fortaleza. (GFR Media)

Yesterday, Governor Ricardo Rosselló Nevares expressed his opposition to the cuts that the Oversight Board is proposing for the pensions of government retirees but did not specify how this obligation can be financed once payments to creditors and their instrumentalities are resumed.

While the governor was defending retirees in a televised message, El Nuevo Día learned that the Official Committee of Retirees - created as part of the process of territorial bankruptcy - is in negotiations with the Board trying to reduce the impact on pensioners. 

According to Rosselló Nevares, the government currently allocates about $2.5 billion annually from the General Fund to cover payments to retirees.

The problem is that when Judge Laura Taylor Swain- who presides over the government's bankruptcy cases- lifts the restrictions on lawsuits and debt collections associated with bankruptcy, the funds to pay creditors will have to come from that same source.

Mario Negrón Portillo, a public administration professor, said that money is not enough. “Nobody wants retirees' pensions to be reduced. But then, what are we going to do when we have to pay the debt, the government and the pensions? That is what has to be resolved and answered,” he said.

Recent economic projections anticipate a less beneficial rebound in the economy after Hurricanes Irma and María and suggest budget deficiencies in the government unless all the measures required in the Board-certified fiscal plan are implemented, including pension cuts.

Yesterday, however, the governor indicated that “our economy is clearly recovering” and assured that the pension cuts are not necessary because they have “generated enough savings to cover those payments. 

“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,” the governor said. 

One of the Board's spokesmen, Edward Zayas, indicated that the fiscal entity would not comment on the governor's message.

The cuts promoted by the board could represent up to a 25 percent reduction in pensions. The analysis will depend on each case, according to the person’s total income. The expectation is to generate $180 million in savings each year.

Concrete actions

The scope of the cuts could smaller if negotiations between the Official Committee of Retirees and the Board reach a successful understanding. However, they are not considering leaving pensions as they are today because the government does not have enough resources to honor monthly payments to retirees, pay bondholders and continue providing essential services. 

In addition, sources explained that a debt adjustment plan is unlikely to affect one class of creditors, such as bondholders, and leave intact another part, such as pensioners.

Just like general obligations bondholders, retirees are considered an unsecured class. This implies that there is no specific source of income that has been legally separated to honor their checks.

Puerto Rico’s Constitution establishes that the payment of public debt and essential government services have priority over the payment of retirees’ pensions, which complicates the scenario.

Rosselló Nevares yesterday appealed to the effect this cut would have on the population and the economy. He pointed out that 41 percent of the 170,000 retirees receive monthly checks of $1,000 or less and that a reduction in pensions will significantly diminish their quality of life.

Likewise, he recalled that the pensions of a good part of the public servants were already cut by legislation approved in 2014.

“We must not forget that the previous administration already hurt our pensioners by eliminating their Christmas bonus and summer benefits, and drastically reducing future retirees of their right to a fair retirement,” Rosselló Nevares said, referring to the administration of Alejandro García Padilla of the Popular Democratic Party. 

Yesterday, the current president of that party, Aníbal José Torres, made no reference to pension cuts made during the past four years. Since then, it was clear that the government would not have enough money to cover its operation, pensions and repay the debt.

Instead, Torres stressed that pension cuts were contemplated since the first fiscal plan of March 2017, which the Rosselló Nevares administration precisely presented in a televised message from the Jardines Hundidos of La Fortaleza, along with the main leaders of the New Progressive Party.

Those pension adjustments were contemplated in the 2017 fiscal document as a part added to the document drafted by the Board. After the event at the Jardines Hundidos, Rosselló Nevares did not recognize as legitimate that part added to the fiscal plan, calling it a mere recommendation.

 The Governor’s attack

Yesterday, the governor anticipated that he will go to “all necessary forums to demonstrate that this blow is unjustified.” He also said he did not rule out any action to defend pensioners.

He did not specify which the possible defenses in this scenario are or which forums he was referring to. There is a precedent when the government blocked a structural change that the Board tried to promote: the second labor reform of the term.

That case, however, required legislation to be implemented and that would not necessarily be the case now since the pension cuts will be filed as part of the debt adjustment plan in the bankruptcy process before Judge Swain.

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