The Puerto Rico Oversight Board rejected Gov. Ricardo Rossell-'s 10-year fiscal plan and gave him until 9 a.m. Saturday to present a revision.
On Friday, the day after the Oversight Board's rejection, the head of the opposition Popular Democratic Party said his party was willing to join with Rossell-'s ruling New Progressive Party to sue the oversight board over the plan.
The El Vocero news web site quoted Rossell- as saying such a suit was a possibility.
Adding to the pressure, the board has scheduled a vote on a finalized ("certified") fiscal plan for a 9 a.m. Monday meeting. The board and the government will almost certainly take additional actions this weekend, which may or may not become immediately public.
The latest round of communications between the board and the government started Thursday with the board sending a letter to the governor. The board said that the governor's plan, presented at the end of February, doesn't comply with the Puerto Rico Oversight, Management and Economic Stability Act.
Specifically, the board said the governor's plan was overly optimistic about economic growth, "substantially" underestimates government spending, and has overly optimistic revenue projections.
The board also said the governor's plan "fails to provide for the scale and timing of expenditure reduction required to achieve medium-term structural balance and near-term liquidity." The board also said Rossell-'s plan didn't give enough detail to fully evaluate some measures.
Whereas Rossell- is projecting an average 0.78% per year increase in nominal gross national product in the next 10 years, the board is projecting an average 0.07% decline for the same measure in the same period. The board projects that the economy will contract for the next five years on a nominal basis and for the next seven years on an inflation-adjusted basis. At the end of 2026 the board expects Puerto Rico's GNP to be 9.14% smaller than present, after adjusting for inflation.
The board believes that the current fiscal year's expenses will run $585 million more than projected, which would mean expenditures would be 6.6% higher than budgeted. It expects that expenditures accordant with the measures found in the Rossell- proposed plan would exceed the plan's forecasts by similar amounts in the following nine years.
Whereas Rossell- had anticipated picking up $288 million in fiscal year 2018 and $374 million in fiscal 2019 through improved tax compliance, the board says $150 million and $300 million are more realistic figures for these years. The board says that that the governor is probably at least $250 million overly optimistic about a new corporate tax's revenues in fiscal 2019.
Though Rossell- has agreed to cut $300 million in annual subsidies to the University of Puerto Rico, as the board had suggested in mid-January, in its letter Thursday the board states these cuts should be increased to at least $450 million per year.
On pensions the board insisted that the government cut more than twice as much annual spending as Rossell- proposed Feb. 28.
On healthcare the board said the government should cut $100 million in fiscal year 2018, $300 million in fiscal 2019, and $750 million in fiscal 2021. While these cuts are not as big as the board's original suggestion in mid-January of cuts of $1 billion by fiscal year 2019, they go beyond the governor's proposal. In late February he had proposed cuts of $25 million in fiscal 2018, $299 million in fiscal 2019, and $305 million in fiscal 2021.
The board insisted there must be personnel-related cuts expanding to $1.3 billion in fiscal year 2021.
The board eased its goal of achieving a structurally balanced budget (not counting currently scheduled debt payments) in fiscal 2019 by shifting it to fiscal 2020.
Finally, the board said the government needs to do more structural reforms and specified "reforming welfare and other public assistance programs to encourage work, removing anti-competitive regulations," and reducing the costs of registering property.
On Friday Rossell- sent a letter to Board Chairman José Carri-n III saying that his financial advisors were ready to immediately talk with Carri-n about his concerns. The governor has said he believes the board's projections of government expenditures are wrong.
In his letter the governor noted that according to PROMESA, while the fiscal plan is supposed to eliminate structural deficits, "it also must ensure adequate funding for essential public services and pension systems."
On Thursday the president of the opposition PDP, Hector Ferrer, met with Rossell- and offered for his party to join with the governor in challenging the board's actions in court. The PDP announced its willingness to join in a legal action in a posting it its web site.
According to a story posted Friday morning on El Vocero, the governor said he was reserving the right to take legal action concerning the fiscal plan. On Twitter the governor said that he reserves the right to do what needs to be done to protect the rights of all Puerto Ricans.
