The new, and apparently final, impasse between the Board and Governor Ricardo Rossello Nevares regarding the labor reform and pension cuts threatens to further delay the renegotiation of the public debt. It also undermines efforts to raise federal funds for recovery after Hurricane Maria and to channel the necessary adjustments for the budget and economic reactivation.
However, such obstacle is not related to the core issues that seek to be resolved with the PROMESA law.
In fact, an analysis made by El Nuevo Día of the revised fiscal plans and recent letters between the Board and Rossello Nevares, as well as of interviews with economists and public policy experts, show that the federal agency and the Puerto Rican governor have more common points than it would appear, and that the dispute between both parties could lead to litigation in Court.
In essence, the Board and Rossello Nevares do not disagree in reforming the public structure, in seeking a substantial cut in the public debt nor in repealing laws under the premise that the private sector will create jobs or that there will be investment. The parties do differ in how to reach those objectives, when they should be implemented and whether it is up to the federal entity or to the elected governor of Puerto Rico to define those issues.
“This has been a process in which the governor and the Board have agreed on fundamental elements such as resizing the government, cuts to municipalities, to the university. They disagree, not in the essence, but in the way in which those cuts will be made,” said political sociologist Emilio Pantojas Garcia, professor at the University of Puerto Rico (UPR).
As an example, the revised Fiscal Plan that Rossello Nevares submitted last February and the letter of notice of violations that the President of the Board, Jose B. Carrion, sent on March 28, show that the Board and the Governor concur that reorganizing government agencies is key to cutting operational expenses, but they disagree in about $ 130 million regarding the size of the cut.
“The recommendations for additional cost savings are unnecessary, since the plan proposed by the government would reach some $ 5.6 billion in surpluses after six years,” Rossello Nevares told the Board in a letter sent last Sunday.
On the labour reform issue, the discrepancy focuses especially on the validity of the proposed changes and on approving a rise in the minimum wage as a counterweight to the elimination of marginal benefits and Law 80.
Collapse in four days
On March 24, the President of the Board and its Executive Director, Natalie Jaresko, assured this newspaper that the differences with Rossello Nevares “were few” and anticipated that the fiscal plans would be approved.
Four days later, the Board and Rossello Nevares seemed to be in a ship that has lost its course. After canceling the hearing to certify the fiscal plans, the Board issued five letters of notice of violation in the revised fiscal plans of the government, PREPA, PRASA, PRHTA and the UPR.
In the case of the fiscal plan of the central government, the Board requested 11 changes in the macroeconomic and financial assumptions and projections, as well as to modify or provide additional information on 19 structural reforms or savings initiatives. Rossello Nevares, in his letter of April 1, committed only to review the macroeconomic assumptions.
For PREPA and the UPR, the Board asked to correct, offer more information or modify 15 issues contained in each of those plans, ranging from modifying their income and expenses structures to applying the cuts required to the government pension plan in those retirement systems. PRHTA would have to almost redo its whole plan with about twenty adjustments. In the case of PRASA, the Board asked for three changes, including modifying pensions and using the macroeconomic variables considered by the central government in its projections.
Rossello Nevares has until tomorrow at 5 PM to submit the changes requested by the Board. The Governor has already announced that he will review the projections of the central government fiscal plan, but will not give way to the labor reform and pension adjustments, and will ignore the instruction to ensure that the Puerto Rico Statistics Institute and the Puerto Rico Energy Commission prevail as independent entities.
“We must wait for the government to send us the revised plan in order to know what is going to be specifically reviewed and what is not,” answered the Board when El Nuevo Dia asked what actions it would take before Rossello Nevares’ refusal.
“I think the problem is that the governor does not want to accept the political cost of adopting these reforms,” said Pantojas.
Public and fiscal policy
According to the professor at the Faculty of Social Sciences of the UPR in Rio PIedras, although now the governor opposes the Board, a year ago, Rossello Nevares accepted the entity to formulate public policy.
“The governor did not express himself towards a municipal reform, but endorsed a cut to municipalities, which started a kind of Darwinist struggle where only the fittest would survive, and the same happens in the university,” Pantojas said.
The problem, in the opinion of public policy expert Jose Efrain Hernandez, is that the exercise of drawing government priorities is not divorced from the task of identifying resources to pay for them.
“That is like planning a great vacation, but not taking into consideration that the credit card is at the end or that you do not have a credit card at all,” explained the professor at the Metropolitan Campus of the Inter-American University of Puerto Rico.
As an example, said Hernández, Puerto Rico may want to offer total access to health care, but that will depend on whether the fiscal policy makes it feasible, that is, that the Treasury has enough resources to pay for it and for the other obligations.
“At the moment of truth, the Board is authorized to propose whatever it considers because a federal law granted it that power,” said Hernández.
The controversy may even derail the federal funds that interest Puerto Rico after Hurricane Maria. In his most recent letter to the Board, the chairman of the House Committee on Natural Resources and key figure in the approval of PROMESA Law, Rob Bishop, stated that “federal funding has and will continue to help in the recovery process, but structural reforms and the elimination of redundancy must also occur.”
A constitutional crisis
“We have not seen the Board in action yet, using the coercive power it has by law,” added the lawyer.
He recalled that PROMESA allows the Board to adopt its own fiscal plan, its budget and, even, request the incarceration of officials that obstruct its functions.
“The time to oppose all this was when PROMESA was being legislated, but politicians at the time did not do so, including (former Resident Commissioner Pedro) Pierluisi,” recalled Hernández.
If the impasse between the Board and Rossello Nevares becomes more serious, Pantojas and Hernandez believe that Puerto Rico is heading to another stage of greater difficulty and an institutional crisis, which would come up added to the hardships that both people and companies have been suffering for a decade, and the loss of productivity and material left by Hurricane Maria.
They said that, without reaching an agreement, the Board and Rossello Nevares might dispute for weeks or months until they defined their respective faculties in Court.
“Those who still have no power since the hurricane, that are desperate, that do not understand this or do not care,” said Hernandez, noting that the conflict will have to be resolved before Judge Laura Taylor Swain, in charge of Title III cases.
For Pantojas, when everyday life becomes “intolerable”, people choose to demonstrate and, in the wake of Hurricane Maria and the crooked route of austerity and reforms that is approaching, Puerto Rico could go into a stage of social unrest.
“All good restructuring must start from a strategic plan. The governor did not articulate that plan. The action started with the numbers and it was cut with scissors, when the appropriate course of action was a surgery with a laser scalpel”, said Pantojas.
According to Pantojas, given the deficiencies of the team that advises Rossello Nevares and a dismantling of all sectors of society to draw up a concerted plan, the Board has started to “fill gaps” without having a clear idea of the path that must be followed.