The Puerto Rico Senate killed a deal between Puerto Rico Gov. Ricardo Rosselló and the Oversight Board, potentially escalating conflict over budgetary policy and the restructuring of the central government's $51 billion of debt.

Senate President Thomas Rivera Schatz on Friday threatened a lawsuit against the board if it continues to try to gets its way on budget cuts or the repeal of worker protection measures.

In the compromise deal with the governor, the board had agreed to maintain the island’s mandatory Christmas bonus, vacation and sick day policies in exchange for Rosselló's agreement to introduce at-will employment for all employers by repealing a 1976 law, Law 80.

Puerto Rico Gov. Ricardo Rosselló, left, and Senate Pres. Thomas Rivera Schatz on Wednesday after Rivera Schatz successfully led the end of the debt audit commission.
While Puerto Rico Gov. Ricardo Rosselló and Sen. President Thomas Rivera Schatz got along in this April 2017 photo, their relations soured Thursday when Rivera Schatz rejected a deal the governor struck with the Oversight Board.

On May 30 the Senate had voted for a measure that would have introduced at-will employment only for employees entering the workforce. The board rejected this approach. On June 14 the House voted for an employment law measure that was substantially closer to what the board was seeking.

On Thursday Rivera Schatz, however, declared the Law 80 repeal to be dead, after speaking with other members of the majority New Progressive Party caucus in the Senate. Rosselló also is a member of the New Progressive Party, which supports statehood for Puerto Rico.

According to a video posted on the El Nuevo Día website, Rivera Schatz said he had consulted lawyers and was ready to fight in court, if the board seeks to carry out a repeal of Law 80 on its own.

The Puerto Rico House has added spending to a budget bill in recent days and the El Vocero news web site quoted House President Carlos Méndez and Treasury Committee Pres. Antonio Soto saying they expected that the board would reject the House version of the budget.

Under the Puerto Rico Oversight, Management, and Economic Stability Act, the board has the right to create and approve its own version of the budget for the island’s government. The island is currently operating under just such a budget.

The island’s fiscal year 2019 starts on July 1 and a new fiscal year 2019 budget would ordinarily be approved before this date.

On Thursday in Washington, Board Chairman José Carrión said that if the local government chose not to repeal Law 80, the currently certified fiscal plan would operate.

According to the plan, studies have shown job protections like those found in Law 80 to lower employment opportunities. The plan called for at-will employment to be introduced by Jan. 1, 2019.

Rivera Schatz said that he had consulted with lawyers and was ready to challenge any board-approved budget that deviates from the one approved by the legislature.

On May 9 Center for a New Economy Policy Director Sergio Marxuach told the Puerto Rico Senate Committee on Federal, Political, and Economic Relations that repealing Law 80 would be a bad idea.

According to him a 2016 International Monetary Fund study showed that in times of economic weakness eliminating job protections have had a negative economic impact in the short and medium term.

“By triggering a wave of layoffs, reforming employment protections further weakens aggregate demand and delays economic recovery,” the IMF report said.

A 2017 report from the Organization for Economic Cooperation and Development said that in Portugal from 2006 to 2014 “reforms increasing the flexibility of the labor market negatively affect firms’ productivity both in the short- and long-run. A possible explanation is that higher job turnover reduces firms’ incentives to invest in job-specific training and reduce the scope for workers’ specialization.”

Responding to Rivera Schatz’s actions, Rosselló released a statement that said, “Puerto Rico has just seen how politics is done and not how a future government should be made in challenging and difficult times, with this regrettable decision by the president of the Senate, Thomas Rivera Schatz.”

Rosselló added, “As governor, I will continue battling the old styles of immobility and making the greatest effort to achieve the understanding that will enable Puerto Rico to move forward.”

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