The Puerto Rico Oversight Board approved a 10-year fiscal plan that will allow the payment of 23.7% of debt due.

The board's action in New York on Monday offers less for debt payment than Gov. Ricardo Rosselló's first proposed fiscal plan, which allocated money sufficient to pay as much as 35% of debt service.

Puerto Rico Oversight Board members (l to r) Carlos García, Arthur González, and José González at Monday’s meeting.

The board is allotting $7.87 billion from the present through the end of fiscal year 2026, according to the plan. This would be 26.2% of the debt due from Puerto Rico and its public corporations and authorities covered by the plan.

Rosselló's plan, submitted on Feb. 28, had projected the payment of $10.5 billion for debt service and possibly past due bills in the next nine years.

According to the board's approved fiscal plan, the government has $1.3 billion in past due bills, quite apart from its defaulted-on debt. The board's plan sets aside money for the repayment of these bills from a different pool of money to be used for debt payments.

The approval of a fiscal plan "is certainly not the end of this process," said board member José González. "It is not, to paraphrase a famous phrase from a statesman in the 1940s, even the beginning of the end of the process. It is barely the end of the beginning of a long process to get Puerto Rico on the road to economic growth again."

After approving the measure unanimously, the board directed Gov. Ricardo Rosselló to submit by April 30 a detailed implementation plan, a proposed fiscal 2018 budget, and a revised Puerto Rico liquidity plan, including measures to generate a $200 million reserve by June 30 above the balance found in the certified fiscal plan.

Board Chairman José Carrión III said the board had received proposed fiscal plans from the Puerto Rico Electric Power Authority, Puerto Rico Aqueduct and Sewer Authority, Highways and Transportation Authority, the Government Development Bank for Puerto Rico, and the Public Corporation for Supervision and Insurance of Cooperatives (COSSEC).

Rosselló submitted a proposed version of a fiscal plan on Feb. 28. On March 9 the board told the governor that it was rejecting the governor's plan. The board and the governor then engaged in extensive negotiations in the days leading up to Monday's meeting, Carrión said.

The new version would introduce partial government employee furloughs and would eliminate the Christmas Bonus unless the government meets certain targets for levels of liquidity, budgeting, and implementation measured successively from April 30 to Sept. 30.

The approved plan increased the cuts to pension spending to 10% while it is expected to be structured not to push people below the poverty line.

The board's plan includes additional cuts to health care spending and the University of Puerto Rico, compared with the governor's Feb. 28 proposal, Board member Ana Matosantos said after the meeting. The board's plan also assumes higher levels of expenditures in the current fiscal year than the governor did.

The board made changes in revenue expectations in its plan, Matosantos said.

The board plan has added an excise tax on tobacco, expected to bring in $160 million a year, said Rosselló's non-voting member of the board, Elías Sánchez.

In a public comment to the board, Backyard Bondholders executive director Jorge Irizarry said many Puerto Rican residents put all their money into Puerto Rico bonds. He said the big cut in Puerto Rico bond values that the board was about to make would have a dire impact on Puerto Rico's economy.

"We must realize – truly understand in our hearts – that the problems facing Puerto Rico are massive," Carrión said after the meeting. "Over time, the government has made commitments to everyone, bondholders and others – that cannot be met based on a realistic measure of the tax revenues that the economy can currently support.

"We cannot expend resources today in the hopes that tomorrow's economy will pay for them," Carrión said. "Rather, we must build tomorrow's economy by making now the difficult choices we have long known are necessary and start building a better Puerto Rico for this and future generations."

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.