Fiscal board yields, will accept risks in HB 1003 to move debt deal forward
By The Star Staff
The Financial Oversight and Management Board has given in to the terms established in the island Senate’s version of House Bill 1003, which would enable the debt adjustment plan that would restructure some $35 billion in debt, but warned that the legislation may make the restructuring unaffordable.
“While the Oversight Board continues to have reservations about the impact on the plan, it is prepared to accept the wishes of the elected representatives of the residents of Puerto Rico to the extent it can do so prudently and without failing to carry out its duties under PROMESA [the Puerto Rico Oversight, Management and Economic Stability Act],” wrote David Skeel, the chairman of the oversight board, in a letter to legislative leaders and Gov. Pedro Pierluisi Urrutia made public Thursday.
Skeel said in the letter that the debt adjustment plan is a historic opportunity for Puerto Rico to adjust its debts and position the commonwealth to flourish in the years ahead.
The plan cuts the commonwealth’s outstanding debt by 80%, eliminating more than $25 billion in debt. It also advances the accomplishment of the oversight board’s statutory mission by enabling the commonwealth to achieve fiscal responsibility and access to the capital markets, creating a path for the board’s termination after confirmation, and realizing balanced budgets as required by PROMESA, Skeel said.
“The Oversight Board has no philosophical disagreement with the bill’s [HB 1003] laudable policy aspirations,” Skeel said. “The bill, however, would make the plan unaffordable for Puerto Rico by conditioning the government’s approval of the issuance of the new general obligation bonds required by the Plan on provisions costing tens of billions of dollars.”
“For every dollar the plan saves in reduced debt, the bill could spend the savings on new obligations over the next 30 years — leaving the commonwealth in the same predicament that led to the enactment of PROMESA and the creation of the Oversight Board in the first place,” he said. “The bill must be revised significantly because it puts the Commonwealth back under an unsustainable financial burden and thereby renders the Plan not feasible and not confirmable.”
The oversight board, Skeel said, has a deep-rooted interest in the well being of retirees, has no desire to cut pensions, and has in fact already agreed to revisions to the plan that would eliminate any pension cuts to over 85% of retirees.
“But, the bill’s language on pensions goes much further than simply eliminating the remaining modest pension cuts and in so doing increases the risk the Plan is neither confirmable nor ultimately affordable,” he said.
Nonetheless, he said the Legislature and the governor have made clear they want to take that risk on behalf of the residents of Puerto Rico.
“Given the importance of the Plan, and the singular opportunity that it represents for the Commonwealth, the Oversight Board understands that the economic benefits resulting from confirmation of the Plan would allow for certain additional spending,” Skeel said. “But, time is running out.”
With that context, and consistent with the oversight board’s statutory mission, the board said it would not oppose legislation that:
1. Requires that the Plan submitted for confirmation be amended to provide for no cuts to the accrued pensions of retired public employees and current employees of the commonwealth unless otherwise required by the U.S. District Court for the District of Puerto Rico. “But to be clear, this requirement does not extend to the Plan’s freeze of the TRS and JRS pensions or the elimination of any remaining cost of living adjustments,” the letter said.
2. Provides additional funding, within limits, to the municipalities for providing necessary government services;
3. Provides additional funding for the University of Puerto Rico (UPR) to be utilized to improve the student experience and environment, such that appropriations total $500 million per year, for five years from fiscal year (FY) 2023 through FY 2027, while UPR also implements structural and operational efficiencies;
4. Provides funding of $1 million to conduct a study of the feasibility of extending medical coverage to currently uninsured residents;
5. Creates a mechanism to advance the terms of payment and debt cancellation following the termination of the oversight board; and
6. Establishes a joint working group with the oversight board, Legislature, and executive branch.
Pierluisi, in reaction to the oversight board’s letter stating that it will not make the 8.5% cut to pensions, said it was about time.
“I am glad that he [Skeel] finally gave in on the issue of pensions because I have been saying since 2019 that these pension cuts are unnecessary,” the governor said at a press conference. “And it was time for me to take that position, and this has not ended yet.”