Board reveals austerity measures in Puerto Rico fiscal plans

SAN JUAN, Puerto Rico (AP) — New austerity measures are looming for Puerto Rico as a federal control board overseeing the U.S. territory’s finances prepares to approve several fiscal plans this week that will serve as the island’s economic blueprint for the next five years.

The plans released Wednesday call for a 10 percent average cut to a pension system facing nearly $50 billion in liabilities. They also seek the closure of prisons, consolidation of dozens of state agencies and significant reductions in government subsidies to the island’s 78 municipalities and Puerto Rico’s largest public university. The board also said Puerto Rico’s government should cut sick leave and vacation pay by half.

“These plans offer a once-in-a-generation opportunity to do things right and turn these trends around,” board chairman Jose Carrion said, alluding to years of economic decline, excessive borrowing and fiscal mismanagement followed by the devastation caused by hurricanes Irma and Maria last year.

The fiscal plan for the island’s central government estimates Puerto Rico will receive more than $50 billion in federal funds to help rebuild from Hurricane Maria, which killed dozens of people and caused an estimated $100 billion in damage when it hit Sept. 20. The plan also anticipates a more than $6 billion surplus over five years as the island struggles to restructure a portion of its more than $70 billion public debt load amid an 11-year recession. Puerto Rico’s financial debt coupled with the pension liabilities are nearly twice the size of its economy.

The board said the government needs to consolidate its 114 agencies into 22 groups as well as consolidate police stations and replace officers performing civilian duties with “less expensive” civilian personnel.

The board is scheduled to meet Thursday and Friday to approve all seven fiscal plans, including those for Puerto Rico’s power and water and sewer companies. Gov. Ricardo Rossello has said his administration will not approve pension cuts or implement layoffs.

Some worry the board’s financial estimates are too optimistic.

Economist Jose Caraballo told The Associated Press that help pledged by federal officials might not materialize, leaving the U.S. territory with less money than anticipated.

“We know about President Trump’s emotional swings,” he said. “And he might say no next time.”

Caraballo also said layoffs are inevitable even though none of the fiscal plans released Wednesday specifically mention them. “To eventually reach those numbers in that plan, I believe dismissals are implicit,” he said.

On broader economic matters, the board said Puerto Rico’s government should make a Christmas bonus voluntary for employers and allow employers to dismiss workers without first having to prove just cause. It called for the minimum wage for workers 25 and older to increase by 25 cents an hour and said the government should immediately impose a work requirement for a nutritional assistance program and increase a labor force participation rate that stands at 42 percent, the seventh lowest in the world.

These and other labor reform measures are expected to generate some $460 million in savings over the next five years, the board said.

It also said the government should improve construction permitting and make it easier to register property and pay taxes. It noted that it takes 191 days to register property in Puerto Rico, compared with 12 days on the U.S. mainland. Meanwhile, it takes 22 procedures and 165 days to get a construction permit in Puerto Rico, compared with five procedures and 89 days in the U.S.