NEW YORK (Reuters) - Puerto Rico’s federal oversight board on Thursday approved a fiscal turnaround plan that includes pension cuts and labor reforms that Governor Ricardo Rossello has vowed to defy, portending the latest potential court battle over the bankrupt U.S. territory’s future.
At a hearing in San Juan, broadcast via the internet, the seven-member board voted 6-1 to certify a plan that forecasts $6.7 billion in debt payment ability for Puerto Rico through 2023. Board member Ana Matosantos was the lone dissenter.
Tasked with helping Puerto Rico recover from the dual scourges of fiscal insolvency and natural disaster, the board green-lighted its plan after unsuccessful negotiations with Rossello on a consensual framework.
The governor has opposed labor and pension reforms, insisting the board lacks the authority to impose steps that would require legislation.
If Puerto Rican leaders refuse to implement such measures, the board could sue to enforce them, sparking more litigation over the details of Puerto Rico’s path to solvency.
The island’s bankruptcy has already seen months of costly litigation among stakeholders competing for the island’s limited resources.
Puerto Rico filed the biggest government bankruptcy in U.S. history last year, owing $71.5 billion of bonds and $50 billion in pension obligations. It then suffered catastrophic damage from September’s Hurricane Maria.
“We will not propose any bill that reduces vacation and/or sick leave,” Rossello said in a written statement on Thursday, adding that it was “wrong and immoral to reduce the benefits” of public worker pensions.
The board’s plan would slash pensions 10 percent on average, though specific cuts would vary according to income.
With pensions virtually insolvent, current benefits could cost more than $1 billion a year from the island’s general fund.
“The reality is that the employment retirement system is less than 1 percent funded, which means the pensions that people expect ... could not be paid without these reforms,” Natalie Jaresko, the board’s executive director, said at the hearing.
The board’s plan would loosen private-sector job security that is stronger than almost any U.S. state’s, eliminate mandatory Christmas bonuses, and halve paid leave.
It also calls for headcount reductions, putting layoffs on the table if targets cannot be achieved through attrition.
Puerto Rico’s benchmark general obligation bond traded at 42.6 cents on the dollar on Thursday, while senior sales tax-backed debt traded at about 60 cents, according to Thomson Reuters data.
The board also approved turnaround plans on Thursday for Puerto Rico’s beleaguered power authority, PREPA, and water authority PRASA.
Reporting by Nick Brown, Editing by Rosalba O'Brien and James Dalgleish