Sun | Jan 21, 2018

Puerto Rico governor protects pensions, promises tax breaks

Published:Friday | June 2, 2017 | 12:00 AM

Puerto Rico's governor unveiled a budget Wednesday that prioritises pension payments for tens of thousands of retired government workers who depend on a public pension system that is crumbling amid a deep economic crisis.

The proposed US$9.56-billion budget is more than a half-million dollars larger than last year's, and Governor Ricardo Rossello said that for the first time in recent history the budget would be truly balanced.

"In the past, money was taken from areas, increasing budgeted spending and hiding debt," he said. "That's over."

The United States territory is struggling to emerge from a 10-year recession that has prompted more than a half-million Puerto Ricans to flee to the US mainland. Rossello's administration is in the midst of restructuring a portion of a US$73-billion public debt load through a bankruptcy-like process in federal court, after previous administrations borrowed millions of dollars to cover the island's debt for decades. The budget calls for US$400 million in debt service payments.

Despite the economic woes, Rossello said he set aside US$2 billion in the government's general fund to ensure that retired government workers receive their monthly pensions as the island's public retirement system is underfunded by nearly US$50 billion collapses. To offset that pension payment, Rossello proposes cuts such as eliminating millions of dollars in annual subsidies to Puerto Rico's 78 municipalities, prompting some mayors to start charging for garbage collection and possibly other services.

Rossello also said he has budgeted for a US$200-million reserve demanded by a federal control board overseeing the island's finances that threatened to furlough tens of thousands of government workers if the reserve didn't materialise.

In addition, the governor said he will soon submit a tax-reform bill that will include more than US$200 million in tax breaks and will exempt everyone from paying taxes on the first US$12,500 earned. He also said retirees would not pay taxes on the first US$25,000 earned instead of the current US$15,000 if the bill is approved.

Lack of transparency

Opposition legislators criticised Rossello for not releasing a copy of the full budget. It was briefly available online hours after Rossello spoke, but then access to it was blocked. Officials didn't explain why.

"The lack of transparency has not allowed the people to understand how the budget is being increased to US$9.5 billion in an economy that is shrinking," said Representative Rafael Hernandez of the island's main opposition party.

Hernandez said also he was concerned about deep cuts to what appeared to be non-profit organisations.

"The weight and sacrifice that the people of Puerto Rico will have to bear in upcoming years will be placed squarely on the backs of workers and those who are most in need," he said.

The budget calls for increases to the island's health, public safety and transportation agencies, among others. Meanwhile, it would cut the budgets of departments, including education, natural resources, housing, agriculture, corrections and justice. It also includes more than US$200 million in cuts for the island's largest public university, which has been shuttered for more than two months amid a strike organised by students protesting the cuts.

Puerto Rico legislators expect to hold public hearings, starting Monday through to June 25. The governor's party controls both the House of Representatives and the Senate.