By Nick Brown
NEW YORK (Reuters) – Puerto Rico’s federally-appointed oversight board on Wednesday unveiled a framework for the bankrupt island’s fiscal turnaround that breaks with Governor Ricardo Rossello’s vision, pushing pension cuts and labor reforms while hinting at layoffs.
The plan, expected to be approved by the board at a public hearing beginning Thursday in San Juan, forecasts $6.7 billion in debt payment ability through 2023.
Tasked with helping the U.S. territory regain access to debt markets, the board has been negotiating with Rossello for months on a fiscal blueprint for Puerto Rico’s recovery from the dual scourges of fiscal insolvency and natural disaster.
But the board can impose a plan unilaterally if it cannot reach terms with the governor, and was expected to do so after Rossello earlier this month opposed the board’s calls for labor and pension reforms.
The island filed the biggest government bankruptcy in U.S. history last year, with $71.5 billion of bond debt and $50 billion in pension obligations. It then suffered catastrophic damage from September’s Hurricane Maria.
The board’s $6.7 billion projected surplus is slightly higher than an earlier forecast by Rossello, though still about $8.8 billion short of what Puerto Rico owes in that period, according to the board’s projections.
Puerto Rico’s benchmark general obligation bond has long traded below par in expectation of repayment cuts in bankruptcy. It traded around 42.25 cents on the dollar on Wednesday, while senior sales tax-backed debt traded at 60.75 cents, according to Thomson Reuters data.
With pensions virtually insolvent, current benefits could cost more than $1 billion a year from the island’s general fund.
The board is proposing slashing those benefits by 10 percent on average, though individual cuts would vary based on income.
The board’s plan would loosen private-sector job security that is stronger than in almost any U.S. state, eliminate mandatory Christmas bonuses, halve paid leave, and condition minimum wage hikes on benchmarks like boosting dismal labor force participation.
While stopping short of demanding layoffs, the board calls for cuts to government spending and suggests that “attrition and headcount reductions” at the island’s Department of Public Safety could help boost savings. It also notes its proposed public education model would “decrease headcount requirements.”
Rossello has vociferously opposed layoffs and pension cuts, while insisting the board lacks the authority to impose them without legislation.
If Puerto Rican leaders refused to implement such measures, the board could sue to enforce them, setting up a potential court battle over the details of Puerto Rico’s path out of bankruptcy.
(Reporting by Nick Brown; Editing by Tom Brown)