Puerto Rico unveils harsh reform plan to tackle crisis

Debt-stricken Puerto Rico releases long-awaited fiscal reform plan, aiming to reduce island’s $72 billion public debt

Photo by: AP
Photo by: AP

Puerto Rico Governor Alejandro Garcia Padilla, delivers a speech during a rally in San Juan, Puerto Rico, November 4, 2012

Puerto Rico officials are proposing the island cut teacher pensions, impose a financial control board and restructure $18 billion of its debt due in the coming five years, as part of a long-anticipated plan unveiled on Wednesday to pull the island out of a wrenching fiscal crisis.

The financial overhaul plan, the product of a task force created in June by Gov. Alejandro Garcia Padilla, anticipates the island running out of money by next May or June, and says even with sweeping spending cuts Puerto Rico needs concessions from bondholders who include mom-and-pop investors and big Wall Street hedge funds.

Padilla's administration will now prepare for the test of trying to implement the plan in the face of potential legislative gridlock and possible resistance from teachers' unions.

Puerto Rico has endured nearly a decade of recession despite its pristine beaches and year-round sun, slowing growth in its tourism industry, to the benefit of other Caribbean islands. Its $72 billion debt load has accumulated while the number of taxpayers shouldering the burden has dwindled, with thousands moving to the US mainland each year.

Only 40 percent of the working population is in the workforce and island pensions face combined unfunded liabilities that topped $37 billion in fiscal year 2013.

A bailout from Washington is not expected, and while some on Capitol Hill are pushing laws or reforms that could help Puerto Rico, their prospects are uncertain.

Planned reforms include imposing a control board on the island's finances, according to working group officials. This could be made up of members suggested by creditors as well as the Federal government.

The group also recommended cutting the size of the department of education through school closures, attrition and changes to teachers' pensions, and cutting subsidies to the University of Puerto Rico and to some cities and towns, according to background materials provided.

The group suggested Puerto Rico explore public-private partnerships at certain hospitals, as well as at the island's highway, transit, port and building authorities, the materials showed.

The group tackled Puerto Rico's inefficient tax collection, suggesting overhauling collection methods and changing tax laws to promote growth.

It advised continuing to invest in infrastructure, diversify its energy sources, and reduce central government spending through attrition and potentially by changing pensions.

The group said Peurto Rico must control healthcare costs by standardizing health protocols, and install new accounting systems.

It said Puerto Rico should push the US government for help, notably to provide access to court-sanctioned restructuring laws, exempt the island from the Jones Act, offer equitable treatment under Medicaid and Medicare funding schemes, and pass tax legislation that would promote corporate growth.

But questions remain over the plan's political chances. Passing legislation could be an uphill climb, especially 14 months ahead of a gubernatorial election in which the opposition party, which may not be inclined to continue the reforms, is expected to make a strong push for power.