November 27, 2014 / 1:01 AM / 3 years ago

Puerto Rico threatened with transit shutdown in political spat

(Reuters) -

Puerto Rico's public transit system will shut down on Monday if lawmakers do not increase a tax on oil, the U.S. commonwealth's Government Development Bank said, accusing politicians of taking an "irresponsible" gamble on the island's economy.

The possible shutdown of Puerto Rico's buses and commuter train services, affecting 75,000 commuters, would be a major escalation of the island's debt crisis and would threaten its fragile economy.

It would come as a further blow to residents already facing budget cuts and paying among the highest electricity costs in the United States.

The move is scheduled to come when citizens return from their Thanksgiving break and ramps up the pressure on politicians to resolve their wrangling over the tax hike, which was to back a loan for its highways authority.

"It is irresponsible to continue playing with (Puerto Rico's) economic and fiscal stability," the GDB said in a statement. "The immediate consequences of these actions are already evident: public employees out of work and citizens on foot in the height of the holiday season."

Puerto Rico is struggling with a debt load of more than $70 billion and an economy that has been in or near recession for eight years. The latest data showed economic activity continued to slide last month and is the lowest in 20 years.

Governor Alejandro Garcia Padilla has been unable to convince enough members of his party to back a 68 percent increase to a tax on crude oil, which was expected to be passed last week. He convened a special session of the legislature on Monday, but lawmakers called a recess until Dec. 1.

The governor, whose popularity is sinking in the polls ahead of elections in 2016, appears to be just one vote short despite attempts this week to rally lawmakers. Some of them want to wait to pass the measure with a package of tax reforms expected in early 2015 to lessen the political hit from unpopular tax measures.

Padilla has been losing support after delivering an austerity budget that cut spending by $1.4 billion.

With opposition lawmakers voting against the unpopular tax measure, the bill needs support from 26 of the 28 members of the Popular Democratic Party members in the House. At least three members remain opposed, with a fourth vowing to abstain, according to local news reports.

TRANSIT THREATENED

While the transit links only serve a small proportion of Puerto Rico's 3.6 million population, the closure would be a indictment of the government's ability to run basic services.

The shutdown would immediately affect rail and bus services, but boats could be threatened in the future.

"The Metropolitan Bus Authority will stop Dec. 1 because there is no money to pay salaries on Dec. 15. That's the same situation with the Tren Urbano. The Maritime Transportation Authority has a few more months. We don't have money for payroll," Padilla said at a press conference on Monday. Tren Urbano is a commuter train service.

The island's Highways and Transportation Authority does not have sufficient income or liquidity to meet its payroll obligations for December, the bank said in a statement, adding that meant public transport services will close on Monday.

Puerto Rico has delayed a bond sale of up to $2.9 billion until early 2015 which it had been aiming to complete this year using the proceeds of the oil tax increase. The government planned to increase its tax on crude oil by $6.25 per barrel, to $15.50, to raise $178 million a year to back the bonds.

Without proceeds from the bond sale, the island could also lack the liquidity to meet government emergencies in 2015, the GDB said. It has contingency plans to postpone loans for public works and stop disbursement of municipal and government loans, it said.

Ratings agency Moody's Investors Service said the island faces financial trouble next year if it is unable to complete the transaction.

(The story corrects third paragraph from bottom to state that planned oil tax increase was by $6.25, not from $6.25)

Reporting by Edward Krudy in New York; Editing by Megan Davies, Chris Reese and Lisa Shumaker

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