By Nick Brown
(Reuters) - Puerto Rico Governor Ricardo Rossello on Friday criticized a set of recommendations by the federal board in charge of managing the U.S. territory's finances, signaling a potential power struggle between the government and the board on how to pull the island out of economic crisis.
In a letter to the board on Friday, Rossello said that while he supports reducing government spending, he would not focus on layoffs as a primary means of saving money.
He also took a more moderate stance on reducing repayments to holders of the island's $70 billion in debt, saying his administration had a "fundamental willingness to pay based upon available resources."
The board, in a letter to the governor on Wednesday, said the island may have only $800 million available annually for debt service, just 21 percent of what it owes.
The board's letter had called for Puerto Rico to save more than $4.5 billion a year through a mix of savings and new revenues, including by "right-sizing government" through a 30 percent reduction in payroll and other means.
The board also said it favored extending some key deadlines that could give Rossello's administration more time to negotiate consensual restructuring deals with creditors. [L1N1F82HL]
In addition to its debt from a myriad of public issuers, Puerto Rico is struggling with a 45 percent poverty rate and unemployment that is more than twice the mainland U.S. average.
The bipartisan, seven-member oversight board was created under the federal Puerto Rico rescue law known as PROMESA, passed by the U.S. Congress last year. It is charged with helping the island manage its finances and negotiate restructuring deals with creditors.
Rossello's adversarial tone could score him political points on an island where many locals view the oversight board as an extension of U.S. imperialism.
However, his policies and the board's vision may be more aligned than not. For instance, both stress the need for the island to reduce spending and create new revenue sources.
That is a departure from Rossello's predecessor, former Governor Alejandro Garcia Padilla, who called for dramatic repayment cuts in favor of maintaining government services.
Rossello and the board may clash on healthcare spending, with the board calling for $1 billion a year in savings.
Puerto Rico's Medicare and Medicaid insurance programs are in financial trouble, due in part to federal government reimbursement levels that are disproportionately smaller than what is given to U.S. states.
Rossello said he felt "highly confident" his administration would convince Congress to increase that funding.
"There is no single political leader in the world that would want to be responsible for ... endangering the health and wellbeing of 3.5 million of its citizens," the governor said.
The board also called on Puerto Rico to annually save $300 million in higher education spending and $200 million in pension costs.
Rossello said he would implement means-testing for tuition rates at the University of Puerto Rico, move pension benefits into private accounts, and implement rules to treat some pension benefits as taxable ordinary income.
(Reporting by Nick Brown; Editing by Daniel Bases and Andrew Hay)