The fiscal plan that Puerto Rico’s Financial Oversight and Management Board is expected to certify for the commonwealth Thursday would consolidate its agencies from 114 into 22 groupings, impose a five-year payroll freeze in the public sector, repeal labor protection laws, cut pensions, and reduce municipal and University of Puerto Rico subsidies.
The “proposed” plan was one of several unveiled by the fiscal oversight board Wednesday, which contain numerous changes to the versions submitted by Gov. Ricardo Rosselló on April 5, and atypically revealed a day ahead of the public meeting for their certification, which could result in heated reaction by the government.
“The Government of Puerto Rico has been straightforward in outlining its public policy for the Fiscal Plan after the devastation of a catastrophic hurricane like María. Our position is firm regarding pension cuts and other measures that we consider unnecessary and would hamper economic development,” Christian Sobrino, the governor’s representative to the fiscal board, said in a statement issued Wednesday evening.
The board-drafted fiscal plan projects that $62 billion in hurricane disaster relief funding will enter the island economy from federal and private sources. Of that, some $35 billion is expected to be used for public assistance such as major infrastructure projects and road and school improvements by the Federal Emergency Management Agency (FEMA); the U.S. Housing Department, via its Community Development Block Grant (CDBG) program; other federal agencies; and “commonwealth match-spend.
The board also called for “improvements to the financial stability” of public employees’ retirement funds, which must result in $185 million in run-rate savings by fiscal 2023.
“To avoid creating future pension liabilities and to stabilize the system for the benefit of both taxpayers and future retirees, the Judicial Retirement System and Teachers Retirement System plans must be frozen as quickly as possible. Members will retain the benefits they have accrued to date, subject to the benefit reduction formula,” the plan reads. “Future benefits must be based on contributions and earnings in new defined contribution retirement accounts.”
Although the average benefit reduction will be 10%, there will be no reduction for those with combined retirement plan and Social Security benefits below the poverty level of $1,000 per month. This formula is equivalent to giving each beneficiary a reduction of 25% in the monthly benefits they receive over $600, and $1,000 for those without Social Security.
“Under this approach, about 25% would receive no reduction in their benefits while and an additional 18% of retirees will experience a benefit reduction of 5% or less. About 60% of retirees will experience a benefit reduction of 10% or less, and over 80% of retirees will experience a benefit reduction of 15% or less. Very few retirees will have more than a 20% reduction, and none will have a reduction of 25% or more,” the fiscal board’s draft plan reads.
Any pension changes would need to be passed by the island’s legislature.