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Continuing Controversy on pension Cuts
Gov. Pedro Pierluisi, far right, participates in the FOMB’s most recent public meeting in San Juan. >Carlos Rivera Giusti
FOMB: Pension Cuts in Plan of Adjustment Will Stay in Place
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Pierluisi vows to continue fighting against it
THE WEEKLY JOURNAL Staff
The proposed Plan of Adjustment (POA), which includes the annual payment obligations that the government of Puerto Rico must make to creditors, and includes cuts in public pensions, could be approved in early October, according to the optimistic expectations of the Financial Oversight and Management Board (FOMB), as the entity continues to negotiate with Gov. Pedro Pierluisi and the Legislature.
Overall, the plan seeks to restructure the $35 billion of the government’s debt, as well as other claims against it, including the Public Employees Retirement System and the Public Buildings Authority.
David Skeel, chairman of the FOMB, explained to EL VOCERO, the sister publication of THE WEEKLY JOURNAL, that the document under discussion contemplates reducing that debt to $7.4 billion, with the government issuing annual debt payments of $1.5 billion. “It is a dramatic restructuring looking forward and it is sustainable for Puerto Rico,” he said.
However, the POA must be approved by Chief U.S. District Court Judge Laura Taylor Swain, who is overseeing the Puerto Rico government’s bankruptcy procedures. At the same time, the Legislature must pass a measure authorizing the “new” debt of $7.4 billion, since creditors and public retirees must vote on or before October 4 on whether they support the POA.
According to Skeel, there are already agreements with a large part of those involved, while those in the government “everyone understands that now is the time to come out of bankruptcy.”
The Plan of Adjustment for the central government is the largest part of Puerto Rico’s debt restructuring, with about $35 billion in claims by bondholders and creditors, and more than $55 billion in pension liabilities. The POA includes an 8.5 percent cut to public pensions of $1,500 or more each month.
Meanwhile, during a recent public meeting, the FOMB presented its Plan of Adjustment and touted its benefits for Puerto Rico. The FOMB unanimously approved the POA during the meeting held at the Convention Center, as they assured that their main goal is for Puerto Rico to get out of bankruptcy and return to economic growth, at which time the departure of the federal entity would occur. The governor reaffirmed he is against the pension cuts and accused the board of having an “ideological cause” against pensions which, he said, would not represent a significant portion of the government’s budget.
Pierluisi assured that he favors the POA, but not the pension cuts, as he anticipated that he would fight this issue in Federal Court, where the POA must be validated and approved.
“For me, it is as if it were an ideological cause that does not make sense to include in the adjustment plan,” Pierluisi said during the meeting. “I reiterate that my administration is clear that this adjustment plan is excellent for Puerto Rico. I will be exhorting the Legislative Assembly to approve legislation so that the broadcast that needs to be broadcast can be issued.” He added that he will go to court to oppose the pension cuts. “I am going to oppose any project that wants to cut pensions and the government is going to maintain its objection to that part of the plan before Judge Swain because I hope that the judge, in her sense of justice and sensitivity to this vulnerable population of the people of Puerto Rico, does not give way to those unnecessary pension cuts.” Skeel said the cuts are necessary and blamed it on decisions by past administrations that did not inject the needed funds to pay pensions. “The plan protects pensions. Before Promesa, there was a risk that retirees would lose their pensions. [With the POA], 72 percent of retirees will not have any cuts to their pensions,” Skeel noted.
