The Puerto Rico Oversight Board has rejected fiscal plans presented by Gov. Ricardo Rosselló and two public authorities and has demanded, among other things, 10% pension cuts and 20 cents per kilowatt-hour electricity.
On Wednesday the board sent out three letters outlining its demands for changes in fiscal plans submitted this month by the central government, Puerto Rico Electric Power Authority, and Puerto Rico Aqueduct and Sewer Authority.
As part of the Puerto Rico Oversight, Management, and Economic Stability Act, the board is required to create fiscal plans governing taxes, revenues, expenditures, and other policies for at least a five-year period. The act says the judge in the Title III bankruptcy case must accept the fiscal plans, including their allotments for debt.
The board demanded revised plans be submitted by 5 p.m. April 5.
The amount of changes the board is seeking from each entity can be seen in the length of each letter: the letter for the central government was seven pages, the letter to PREPA was three pages, and the letter to PRASA was two pages.
All three of the board’s letters demanded that over several years the pension plans’ outlays be cut by 10%. The board directed that there should be no benefit reductions for those making less than $1,000 per month from a combination of their Social Security benefits and retirement plans. The employees should be shifted from a defined-benefit plan to a defined-contribution plan by July 1, 2019.
The board directed that police, teachers and judges under age 40 should be enrolled in Social Security and their pension contributions be lowered by the amount of their Social Security contribution. The board directed this for the PREPA, PRASA, Teachers, Employees, and Judiciary retirement systems.
In its letter concerning the central government the board directed Rosselló to make many changes: some require more information; some are “structural” changes aimed at reforming laws to make the economy more vibrant; at least one adds revenues without requiring a greater burden; and many of them require greater tax burdens, or assume lower tax revenues or higher expenditures.
For example, the board stated that the plan should lower the assumed amount of private insurance funding to 75% of the submitted amount. The plan should aim at achieving a total $5.66 billion in agency efficiency savings through fiscal year 2023. The government’s oil taxes should be kept constant rather than adjusted each year.
The board said that a single Office of the Chief Financial Officer should be created to oversee the Department of the Treasury, Office of Management and Budget, Office of Administration and Transformation of Human Resources, General Services Administration, and Fiscal Agency and Financial Advisory Authority.
For labor reforms, the board ordered that the island convert to legally at-will employment by Jan. 1, 2019, reduce mandatory vacation and sick leave to a total of 14 days immediately, and add a work requirement for the Nutritional Assistance Program by no later than Jan. 1, 2021.
The board says an increase in the minimum wage to $8.25 has to be linked to conditions. The increase for those 25 years old or younger would only take place after eliminating the island’s mandatory Christmas bonus for employers and, even then, the wage increase would not affect small employers.
For those over 25 years in age, the increase would be rolled out in $0.25 increments for each 5 percentage point increase in the Puerto Rico labor participation rate from its current 40% level.
In the PREPA plan the board ordered the governor and authority to develop a plan that would allow electrical rates to go below 20 cents per kilowatt-hour by fiscal year 2023, including all payments for “legacy obligations.”
By comparison, the PREPA plan submitted March 21 said that at the current rates ranging from 18.35 cents per kilowatt-hour for industrial users to 21.41 cents per kilowatt-hour for commercial users, the authority doesn’t have money to pay debt and can’t even cover other necessary costs. The plan stated to cover the costs, the rates should be 24-to-27 cents in the years up to fiscal year 2023. To also cover all outstanding debt, the rates should be 30-to-36 cents during that period, the plan stated.
The board also called for the PREPA plan to commit to specific targets for reliability metrics.
For PRASA, the board asked for its financial projections to be recalculated using the board’s financial projections and for the authority to present plans for increasing its disclosure of information.
Gov. Rosselló was scheduled to give a speech on the board’s letters at 6:05 p.m. E.S.T. on Wednesday.