Backyard Bondholders, a nonprofit group representing more than 60,000 individual Puerto Rican creditors holding about $15 billion in public debt, warned Monday that the government’s proposed 10-year fiscal plan would jeopardize future economic growth recovery.
In a press release, the group said the fiscal roadmap Gov. Alejandro Garcia-Padilla submitted to the Financial Oversight and Management Board last week is questionable in principle due to its approach of increasing the level of expenditures over time, while proposing to withhold all payment of debt service. The plan is based on increasing spending by 18 percent and what they said were corrective “measures” of only 5 percent for 2017.
“Garcia-Padilla told Board members he does not want to impose austerity on the people, but the fact is that his government has already imposed an unprecedented austerity plan on more than 60,000 local bondholders that are not being paid,” said Jorge Irizarry, executive director of the Backyard Bondholders.
“That is the pension money of many retirees living on their savings but who are now desperate because the government has stopped paying their bonds,” he said. On Friday, Puerto Rico government officials confirmed missed payments of some $2 billion on debt service since the start of the fiscal year on July 1.
In all, Puerto Rico bondholders allegedly receive more than $1.2 billion in debt service payments a year. Missing those payments would represent a reduction of 1.8 percent to the island’s GNP, Irizarry said.
“The vast majority of the 60,000 local bondholders are people who depend on the interest payments from their bonds to cover basic living expenses and are just as “vulnerable” as any other segment of the population,” he added.
The group also rejected the government’s assumption that it would have to fund its healthcare expenses entirely, without recovery of Affordable Care Act funding which is set to expire in 2019. The plan assumes the loss of such funding will total $16.1 billion over the 10-year period.
The plan projects a total financing gap over the next 10 years of $58.7 billion, of which debt service represents $35 billion and excess of expenditures over revenues represents $23.7 billion.
“This is hardly a viable starting point for a responsible fiscal plan,” Irizarry said on behalf of the group.
Backyard Bondholders also pointed out that the proposed plan assigns $11 billion to fund the retirement systems over the next 10 years, while offering no payment of debt service.
In addition, there are “Special Appropriations” to Commonwealth retirement systems totaling $5.2 billion during the same period, and another $1.2 billion to reform pension systems, thus assigning a total of $17.4 billion to that item, “again while proposing to pay no debt service. Actual pay-go coverage of pension benefits can be covered with slightly over one-half the proposed amount,” Irizarry said.
“All this demonstrates that the plan is flawed in its approach and that responsible handling of debt payments is possible,” Irizarry said.