Puerto Rico will move forward with nearly 17,000 layoffs in the coming months, a key element of the commonwealth's fiscal stabilization plan that lawmakers passed in early March.
Reducing the central government's payroll will help rein in spending.
The administration on Friday announced a second and final round of 16,970 layoffs. Those reductions, along with 7,816 employment cuts that were implemented in late May, will decrease its payroll by a total of 24,789, less than the 30,000 of total layoffs that Gov. Luis Fortuño proposed in the spring.
The administration's goal is to cut spending by $2 billion. Friday's announcement, along with salary cuts, operating reductions, slashing professional service contracts by 15%, and other belt-tightening measures, will bring the government's estimated savings to approximately $1.2 billion. That leaves another $800 million that the commonwealth will need to generate to help close the budget.
"They estimate that with this latest action they're going to be at $1.2 billion in total expenditure savings," said Horacio Aldrete, an analyst at Standard & Poor's. "Their target is $2 billion, so there's still an $800 million target that they need to achieve. Now, how they achieve that will be up to them, but I think they're probably going to be focusing on trying to enhance their fiscalization efforts, their tax collection efforts. I'm not sure that additional layoffs are part of their mix at this point."
Carlos Garcia, president of Puerto Rico's Fiscal Restructuring and Stabilization Board and the Government Development Bank for Puerto Rico, said the administration will look for additional ways to reach the $2 billion of total savings.
"We still have to cut more in order to achieve the target of $2 billion in expense reductions required under Law 7, which we must do to avoid going bankrupt," Garcia said in a press release. "So the government must still reduce expenses further."
The Fortuño administration aims to strengthen its Treasury Department in order to boost its revenue collections. For example, the collection rate for Puerto Rico's sales tax is roughly 60%. Officials are looking to increase that rate.
To do so, the administration plans to transfer 500 qualified workers who receive layoff notices to the Treasury Department to conduct auditing and collection duties. In addition, the Treasury will implement a bad debt collection project, using debt collection firms that recruit from another 500 laid-off government employees.
Along with the additional Treasury staff, the government will reduce its janitorial staff at public schools. The administration will transfer 2,196 janitorial employees that work only three hours per day into the private sector on a full-time basis.
Shifting employees to other positions means that the nearly 17,000 layoffs will affect 13,774 workers. The island's unemployment rate is already at 16.5%. Critics of Fortuño's deep cuts to the government's workforce say the new round of layoffs will add stress to an already tough employment market and potentially hinder economic recovery.
"You don't legislate new taxes, which they have done, and you don't lay off that amount of workers because what you're going to do is you're going to have an acceleration of the contraction of the economy," said House Minority Leader Hector Ferrer.
In late August, Puerto Rico's Planning Board estimated that the island's economy in fiscal 2009 contracted by 5.5% but is set to show positive growth of 0.7% this year. The Planning Board reviews the commonwealth's fiscal health.
Aldrete said he will be watching to see if the government can reach its $2 billion goal and the outcome of the massive layoffs.
"We'll see what the impact of these layoffs are," Aldrete said. "The economy seems to show some signs of stability in economic activity and revenue collections are on target with their original estimates. Our opinion has always been that closing the budget gap will be a process that will take some time to do."
