Puerto Rico Gov. Ricardo Rosselló said he was rejecting the Oversight Board’s “illegal” demands for labor law reforms and a 10% cut in pension outlays.
“The board pretends to dictate the public policy of the government, and that, aside from being illegal, is unacceptable,” Rosselló said in a speech Wednesday evening following his receipt of demand letters from the board earlier in the day.
The letters were the board’s rejections and demands for changes to fiscal plans submitted by the governor and two public authorities. The governor, the Puerto Rico Electric Power Authority, and the Puerto Rico Aqueduct and Sewer Authority had submitted the proposed fiscal plans earlier in March.
Rosselló said that section 205 of the Puerto Rico Oversight, Management, and Economic Stability Act allows the board to make public policy recommendations, but not establish this policy.
Other PROMESA sections appear to give the board more authority over fiscal plans, which are meant to guide Puerto Rico government revenue and spending policies and policies to promote economic growth.
Rosselló said the board’s requirements would make it “practically impossible” to increase the island’s minimum wage. He complained that the board was demanding a $1.58 billion cut in government expenditures, up from his proposed $1.45 billion cut.
He said he would show “tenacious opposition” to the 10% cut in pension outlays demanded by the board.
Howard Cure, director of municipal bond research at Evercore, said the governor is concerned about making cuts in government salaries and benefits and forcing layoffs because a large proportion of the population is employed by the government. Also, part of “the resistance stems from a fundamental disagreement between the elected officials and the oversight board about the actual authority concerning balancing the budget.”
Cure said that the Detroit Emergency Manager Kevin Orr, with the support of Michigan’s governor, had much more authority in budget negotiations and bankruptcy.
The struggle between Puerto Rico’s governor and the board has been off-and-on since the U.S. government appointed the board in mid-2016.
For example, at a meeting in early August 2017, the board voted to impose furloughs on the government. After it had become apparent that the board would vote in favor of the furloughs but a few minutes before the actual vote, the governor’s non-voting member of the board, Christian Sobrino Vega, who was sitting next to board members, told them, “There will be no furloughs. You can take that to the bank.”
Sobrino Vega went on to say, “The public and the people of Puerto Rico must be assured that there is only one government in the island and that government is led by Ricardo Rosselló. That fact is recognized and enshrined in PROMESA.”
In late August the board filed an adversary complaint against the governor and his government for failure to introduce a furlough program. The board also sought a court order to force the government to follow its planned government pension cuts. The board withdrew its actions after Hurricane Maria.
“People have been suffering through the economic depression since 2006," University of Puerto Rico Sociology Prof. Emilio Pantojas García said. "Now hurricane Maria has made everyday life unbearable for the poor, the working poor, the middle classes and the elderly who barely survive on their pensions.”
“If the Junta [also known as Oversight Board] continues its austerity policies, social unrest will erupt,” Pantojas García continued. “Especially since the counterpart of austerity has been high spending by the board, high salaries for American administrators such as Natalie Jaresko ($625,000), executive director of the board,” and for other board professionals and Puerto Rico government leaders. People are also disgruntled over the board’s budget rising to $80 million from $60 million.
“The first wave of protests throughout the economic depression has been mass migration,” Pantojas García said. “A second wave – violent protests – may be on its way as the confrontation between the Junta, the government and the workers and pensioners heats up.”