Washington, DC - When tomorrow the Board releases the fiscal plans it intends to certify this week, it will maintain its requirement to propose to the territorial bankruptcy Court the reduction of the public pensions of Puerto Ricans by an average of 10 percent.
Until the weekend, the Board kept under review the complaints to Governor Ricardo Rosselló about the inclusion in the revised fiscal plan of the central government the base of a labor reform that, among other things, reduces immediately vacation and sick leaves from 15 to 7 days for workers of private companies, according to two sources close to the Board.
"In terms of pension reform, the position of the Board has not changed since last year", said one of the sources, stressing that the intention to bring before Judge Laura Taylor Swain the adjustment plan to reduce public pensions later this year will not change.
Under the fiscal plan proposed by the governor, the cuts would reach $ 1.45 billion in five years. The Board has requested that they total $ 1.58 million by June 2023.
Although the federal PROMESA law authorizes the restructuring of retirement systems, there are doubts as to whether it has the authority to impose on the government of Puerto Rico a reform of the labor statutes, such as the reduction of vacation and sick leaves, the elimination of the Christmas bonus act or protections against unjustified dismissal.
In 2017, Governor Rosselló agreed to a reduction in pensions for government retirees, but then his aim was to propose cuts of 6 percent. At the moment, he is against it.
A few weeks ago, after negotiations with the Board, Governor Rosselló proposed a labor reform similar to the one he negotiated with members of the Board, with differences on how to balance it with an increase in the minimum wage and when to put it in into effect.
Governor Rosselló withdrew the proposal when the Board required that the labor reform be in full force in January 2019, instead of applying it gradually within the next three years, and conditioned the increase from $ 7.25 to $ 8.25 per hour in the minimum wage to the increase in labor participation rates.
However, prior to the governor's decision to withdraw the labor reform, the proposal was bound to fail at least in the House, where the New Progressive Party (PNP, Spanish acronym) legislators rebelled against and former Governor Carlos Romero Barceló had warned Rosselló that this proposal would be his 'law 7', referring to the thousands of dismissals ordered by the then governor Luis Fortuño, who later failed in his bid for re-election.
"The Board continues to believe that the (labor) reform is essential for Puerto Rico’s economic growth once they begin to run out (perhaps within five years) of federal funds (allocated to mitigate the disaster caused by Hurricane Maria). If major structural reforms are not made, the economy might not grow", said one of the sources at the Board.
The theory of the Board is that, along with the tens of billions of dollars in federal aid to mitigate disasters, the labor reform will help the economy grow, and facilitate the hiring of employees and investment.
But the Board believes that, without the labor reform, the economy will fall once the federal emergency allocation runs out, it will be more difficult for the government of Puerto Rico to borrow money at a reasonable rate. Without reasonable access to the finance market, the fiscal authority, which is projected to be in force until at least 2026, would have to prolong its presence.
However, among others, economist José Alameda, professor at the Mayagüez University Campus (RUM, Spanish acronym), has questioned that the labor reform can be seen as a mechanism of economic growth. "That's why", Alameda recently told El Nuevo Día, "no government official can -with reasonable certainty and through a mathematical or econometric exercise- assert how many jobs a strategy like this would create".
Under PROMESA Law, which also created the territorial judicial system to restructure the public debt of Puerto Rico, the Board will have power over the local government until four consecutive balanced budgets and medium and long term access to the financial markets are achieved.
"While the lack of cooperation with the Board may be good in political terms in the short term, it simply delays the return of confidence and extends the time it will take for the Oversight Board to leave the island", said Gregory Makoff, an expert from the Center for International Governance Innovation (CIGI) who worked for a year as an advisor to the Department of Treasury in the Puerto Rican case and had previously served as managing director of the Citi Group.
Makoff has recommended the Board and Rosselló to propose Judge Swain a cut from $ 45 billion, to $ 6 billion of the public debt backed by taxes, with a payment of only 13.6 cents per each dollar owed, with the aim of equating it with the average that the states have.
The idea of balancing the debt of the Island with the reality the states are facing is welcomed within the Board, according to one of the sources.
The intention of the Board is to disclose tomorrow - perhaps in the evening - the fiscal proposals that it plans to certify in its meetings on Thursday and Friday, which it convened yesterday at the San Juan Convention Center.
Firstly, on Thursday, the Board wants to certify on the fiscal plans of the central government and the one of the Electric Power Authority (PREPA).
The next day, it would vote on the plans of the other public corporations: the Aqueducts and Sewers Authority (PRASA), the Highways and Transportation Authority (PRHTA), the Government Development Bank, the University of Puerto Rico (UPR) and the Cooperatives Supervision & Insurance Corporation (COSSEC, Spanish acronym).
Unlike other occasions, the Board would disclose the fiscal plans it intends to certify at least 24 hours before the sessions. And the fiscal plan of the central government would be disclosed on Tuesday, according to one of the sources.
Despite the specific differences on the pension reform and labor benefits, government and Board sources say that the dialogue between the parties has been constant, either directly or through the advisers of both parties.
Agreements reach more than the 90 percent of the content of the fiscal plan, they said.
The road to court
Although it requires legislation, the debate on pensions is a controversy that the Board can take to the bankruptcy Court when the debt adjustment plans are considered, perhaps at the end of the year, agreed the two sources close to the board-
"It is clear that the court will eventually resolve that issue" said one of the sources, indicating that the Board has the power to propose a reform in the retirement systems.
The Board does not have administrative or legislative mechanisms to implement a labor reform.
PROMESA law gives the Board the power to impose a fiscal plan and propose to the territorial bankruptcy Court, chaired by Judge Swain, "the fiscal adjustment plan with respect to any Title III debtor", said attorney Richard Cooper, of the law firm Cleary Gottllieb, a company that –on behalf of the government of Alejandro García Padilla- participated in the negotiation on the drafting of the PROMESA sections related to debt restructuring.
Cooper said that "the ability of the Board to promote specific public policies arises essentially" from the powers to impose fiscal plans and to bring before Court a plan to adjust the public debt of the Island.
But, at the same time, he added that "Congress did not grant the Board the power to enact laws or appoint or replace government officials and awarded the government of Puerto Rico the capacity and responsibility to enact the law (provided it is consistent with the fiscal plan and the fiscal adjustment plan once adopted) and run the government, with all that it entails ".
Cooper stressed that "the first drafts of what became PROMESA included a language that would have given the Board broader powers over these issues - following the statute passed by Congress to resolve the fiscal crisis involving Washington DC - but that was rejected by the government of Puerto Rico and Congress".
The same dilemma exists around the demands made by the Board in favor of the independence of the Puerto Rico Energy Commission and the Institute of Statistics.
According to sources, the Board has explored with the government the possibility that the decisions of the Energy Commission, even if it becomes part of a Public Service Regulatory Board, cannot be reversed by the management of the new entity.
Meanwhile, in Congress, there is no favorable environment to amend the PROMESA law, and try to harmonize the power of the Board to approve a budget and fiscal plans, with its possible lack of authority to implement reforms, such as changes to federal regulations it promotes.
Different views between major leaders of the House Committee on Natural Resources Committee are an example of the lack of consensus.
On one hand, the chairman of the committee, Republican Rob Bishop (Utah) - who was in charge of guiding the approval process of the PROMESA law - has recognized the Board powers to order structural reforms of the government.
Meanwhile, the Democratic minority spokesman, Raúl Grijalva, has urged the federal board to desist from "ignoring the suffering of the Puerto Rican people", and put aside the cuts in public pensions and labor benefits.
El Nuevo Día asked one of the Board sources if it is possible for the Board to go to Court and demand the implementation of a labor reform in case the governor does not submit a bill to legislate it. "The probability of that happening is low", the source replied.
An adviser to Bishop said recently that if the Rosselló administration does not implement the labor reform proposed by the Board, the option for the Board would be to further reduce the expenses of the government of Puerto Rico. And, within the Board, according to one of the sources, it is understood that further reducing the government budget would be an alternative.
Carlos Ramos González, professor of Constitutional Law at the Interamerican University of Puerto Rico, thinks that, despite the impasse, "in one way or another the Board will end up imposing its criteria. How it will do it remains to be seen".