Puerto Rico fiscal plan cuts one-third of government to save economy

Last week, the oversight board created to stabilize Puerto Rico’s economy voted on various fiscal plans for the island that has faced years of economic turmoil.

The island faces a public debt exceeding $70 billion, without counting its underfunded pensions plans. The debt has crippled the economy — only made worse by repeated natural disasters. The Financial Oversight and Management Board was created with the legal authority to craft fiscally responsible budgets and set the island on new economic track.

{mosads}The oversight board most notably proposes to cut close to one-third of the government budget in six years. The cut would include a significant reduction in subsidies to the municipal governments, an increase in the cost per credit at the University of Puerto Rico, and a 10 percent reduction across the board in government pensions. The oversight board also approved fiscal plans for the Puerto Rico Energy Power Authority, the Puerto Rico Water Authority and the Highway Authority.

Although the commonwealth of Puerto Rico and the oversight board are in agreement in a substantial number of issues, there are profound differences that threaten to escalate into an outright political battle. In fact, in a theatrical gesture last week the Puerto Rico Senate unanimously passed a bill that would stop payment for any local Treasury disbursements to the oversight board as required by PROMESA. Puerto Rico’s House of Representatives killed the bill.

In Washington, Natural Resources Committee Chairman U.S. Rep. Rob Bishop’s (R-Utah) latest declarations that any resistance by the government of Puerto Rico to the oversights board’s fiscal plan would be illegal, and that PROMESA had vested authority on the board to act in accordance to its mandate.

Some Democrats in the House, such Reps. Raúl Grijalva (D-Ariz.), the top Democrat on the Natural Resources Committee, Nydia Velázquez (D-N.Y.) and José Serrano (D-N.Y.), have raised concerns about the disproportionally impact of the budget cuts on the more vulnerable sectors of Puerto Rican society. The face off between Republicans and Democrats on this matter needs to be understood within the larger context of the November mid-term elections and the high fever affecting the body-politic under the Trump administration.  

Once the fiscal plans were approved, Gov. Ricardo Rosselló declared that the oversight board did not have legal authority under PROMESA to set public policy; adding that any provision that runs contrary to his administration public policy would not be implemented.

Following Bishop’s lead, oversight board Chairman Jose Carrión argues that PROMESA gives them legal authority to draw up the fiscal plan and urged the governor to reconsider position — or other alternatives would need to be explored.

The distinction being made between public policy and fiscal and financial management is not a sharply delineated one, and at this stage it is still not clear which are the essential government services that need to be protected. Fiscal priorities, as any politician quickly learns, are matters of public policy.

As a matter of political and economic reality, the Government of Puerto Rico needs to recognize the necessity of PROMESA, the oversight board and the bankruptcy-like protection of its Title III. Differences of opinion with the oversight board on the fiscal plans cannot be a reason to act contrary to the law or political grandstanding.

It is also important to recognize that PROMESA was legislated without the voting participation of the American citizens in Puerto Rico. Its oversight board is a body of unelected officials who represent Congress, not Puerto Rico, and the imposition of their fiscal plans is – in the end – an exercise of pure political muscle.

Andrés L. Córdova is a law professor at Inter American University of Puerto Rico,. where he teaches contracts and property courses. He is also an occasional columnist on legal and political issues at the Spanish daily El Vocero de Puerto Rico.