The Puerto Rico Oversight Board is demanding the local government allocate an extra 5% to 6% of its budget — more than $7 billion than proposed — to the island's empty pension reserves.
The board made this and additional employment and pension-related demands in a letter to Gov. Pedro Pierluisi on Thursday. In the board’s letter to the governor, the board told him his plan does not adequately fund the island’s Pension Reserve Trust, which currently has no money.
The board noted the governor's proposed plan allocates additional funding "in a number of other areas, but funding of the Pension Trust should take priority over all other spending."
According to the governor’s plan, which he submitted on Dec. 22, the government would contribute $2.4 billion in the next 9.5 fiscal years, leaving it at a 12.4% funded ratio at the end of fiscal 2031. The board said the trust should be funded at a 50% level by then, which implies the local government needs to contribute roughly an additional $7.3 billion in this period.
The government is paying pensions on a pay-as-you go basis, with the government expected to pay $2.3 billion in the current fiscal year.
The additional amount would be equal to somewhere around 5% to 6% of the government’s General Fund spending during the period.
In addition to requesting more money for pensions, the board asked that the fiscal plan “include a comprehensive plan to improve the civil service, including evaluations, recruitment, and organizational restructuring, while providing for improved salaries for government employees.”
The board says it is open to the local government’s request to increase certain government employee pay rates but only on the condition that it simultaneously institute certain civil service reforms.
The board said it was OK “in principle” with the local government’s request to provide healthcare coverage for retired police until they qualify for Medicare but requested additional data to understand the proposal’s costs.
The local government has until the end of Friday to respond to the board’s requests. The board plans to certify the fiscal plan on Jan. 21.
In past years, the board has approved annually revised fiscal plans in April. The earlier date partly stems from the proposed Plan of Adjustment timeline.
If the U.S. Congress passes the Build Back Better acts in some form in the coming months, it may lead the board to approve a new fiscal plan version in April, a board spokesman said. The
“Although we haven't seen the proposed revenue projections embodied in the Puerto Rico government's ... proposed fiscal plan, the Plan of Adjustment submitted to the court requires substantial cash payments to retirees, AFSCME union members and current government employees … ," Puerto Rico Clearinghouse Principal Cate Long said in an email. "These upside cash ‘bonuses’ are computed as a percentage of surpluses and are enormous."
It's not clear that restructured payments to bondholders plus all the cash upside payments and the $2.4 billion currently required to be transferred to the pension reserve trust will leave sufficient funds to meet the board's new target of 50% pension trust funding level by 2031, she said.
"Like the entire course of the bankruptcy the [board] and government have hidden the necessary information to evaluate what they are doing,” Long said.
