The Financial Oversight and Management Board for Puerto Rico on Wednesday outlined the goals, objectives and parameters that must be included in the new administration’s fiscal plan, as well as its willingness to extend the deadline to submit the document and effect a moratorium on creditor lawsuits, subject to specific conditions.
In a letter to the Gov. Ricardo Rosselló, the Oversight Board outlined five areas that the administration must include in its fiscal plan for the government to generate, between now and fiscal year 2019, additional revenue and/or savings totaling $4.5 billion a year.
The five areas include (1) revenue enhancements through adjustments to the tax system and improvements in tax administration; (2) government right-sizing, efficiency and reduction; 3) reducing health care spending; 4) reducing higher education spending; and 5) pension reform, among others.
“The measures listed above make up one ambitious but viable proposal. We…also welcome the opportunity to work with your administration to develop and implement the necessary reforms and the terms of the debt restructuring that will allow Puerto Rico to achieve fiscal balance and regain access to credit markets at reasonable interest rates,” said the Oversight Board’s letter signed by its Chairman, José Carrión.
“The Board is providing you with the fiscal framework, and within such framework we expect that you and your administration will make the public policy determinations consistent with the Puerto Rico Oversight, Management and Economic Stability Act (PROMESA),” the letter stated.
In the letter, Carrión acknowledged that several of the measures implemented by the new administration since its inauguration in early January are steps in the right direction, but much more is required.
“From your executive orders declaring a fiscal emergency, imposing salary freezes, limiting the number of non-career personnel and other labor cost reductions and requiring agencies to build zero-based budgets, it appears that your administration shares this priority [of achieving savings through government right-sizing and efficiency improvements.] …Yet, we must be candid and stress that, to get closer to fiscal balance [required under PROMESA], a lot more will need to be done beyond the measures already adopted by your Administration,” the federally appointed body said in the letter.
The Oversight Board told Rosselló that it is favorably inclined to extend the deadline for submitting its fiscal plan to the Board until Feb. 28, 2017 so it may certify it by no later than Mar. 15, 2017.
This extension will be formally considered at the Board’s next public meeting later this month and would be contingent upon the government meeting and adhering to a set of conditions and timelines, including a commitment not to take more loans to provide short-term liquidity, develop a liquidity plan and provide further financial information, among others, the agency said.
The Oversight Board also told Rosselló it is favorably inclined to extend the PROMESA automatic stay on litigation until May 1, 2017, subject to the same conditions.
The Oversight Board had established Jan. 15 as the deadline for the new administration to submit its fiscal plan, as the one submitted by the previous administration did not meet the requirements outlined in PROMESA and as such could not be certified.
Also, said federal legislation sets forth a stay, among other things, on any lawsuit against the government of Puerto Rico for failing to meet its obligations with creditors through Feb. 15, 2017.
In a letter dated Dec. 20, 2016 addressed to then Gov. Alejandro García-Padilla and then Gov.-Elect Rosselló, the Oversight Board had reiterated its willingness to collaborate with the new administration to meet the outlined agenda leading to the certification of a fiscal plan on or before Jan. 31, 2017.
As per PROMESA, the certification of the fiscal plan is a priority to move forward Puerto Rico’s fiscal agenda.
In response to the Oversight Board’s letter, on Jan. 4, 2017, Rosselló’s representative before the Board, Elías Sánchez requested a 45-day extension to submit this administration’s fiscal plan, as well as a 75-day extension, through May 1, 2017, to the legal stay against the government of Puerto Rico outlined in PROMESA.
“We understand that the new administration shares the Board’s sense of urgency to collaborate promptly and decidedly in an effort to implement the needed structural reforms and reestablish economic growth and opportunities for the people of Puerto Rico,” said Carrión.
On Wednesday, García-Padilla reacted to the Board’s recommendations, saying he was “appalled” with the proposed austerity measures.
“Although the letter again validates the fiscal numbers reported by my administration and the magnitude of the economic challenges we face, the guidelines established to recover from the crisis are unwarranted,” he said.
“It is unacceptable to condition a stay on litigation in exchange for more sacrifices,” he said. “PROMESA offers us the tools to deal with the fiscal crisis, but those tools can not be used to sink to Puerto Rico in the path of austerity and suffering, particularly when the Board itself admits that its plan is to divert resources for essential services to pay the bondholders. Puerto Ricans have already put a lot on the table.”