Board orders pension cuts, studies Puerto Rico wage increase

SAN JUAN, Puerto Rico — A federal control board overseeing the finances of Puerto Rico's government demanded cuts to the island's shaky public pension system Wednesday and said it will consider raising the minimum wage only if certain conditions are met.

The demands were outlined in various letters to Gov. Ricardo Rossello, who has repeatedly rejected imposing a 10 percent cut to pensions of more than $1,000 a month and is seeking to increase the minimum wage from $7.25 an hour to $8.25 by 2021.

The board also stated that mandatory vacation and sick leave should be immediately reduced to 14 days a year as opposed to Rossello's proposed seven days a year. It said a Christmas bonus should be made voluntary by 2019 as part of a proposed labor reform that Puerto Ricans have widely rejected.

"Broad and deep reforms are vital to Puerto Rico's future," Jose Carrion, the board's chairman, said in a statement. "We will continue to work collaboratively with the government to get this right, and will only stop once we have created a roadmap that is transformative for the island's economy."

Hours later, Rossello announced during a televised address that he was withdrawing the labor reform measure he had recently submitted to legislators. He also said the board's proposal would increase poverty across Puerto Rico, an island of 3.3 million people with a nearly 45 percent poverty rate prior to Hurricane Maria.

Rossello also rejected calls to implement pension cuts to a system facing nearly $50 billion in liabilities.

"That unfair and abusive measure will have my tenacious opposition," he said, adding that the board is giving itself powers it doesn't have.

In addition, Rossello said the conditions the board is imposing will make it nearly impossible to raise the minimum wage by 25 cents. These conditions include raising Puerto Rico's labor participation rate from roughly 40 percent to anywhere between 45 percent and 55 percent.

Rossello said his administration will formally respond to the board soon. The board had been scheduled to approve the fiscal plans Monday but abruptly cancelled the meeting.

Board spokesman Jose Luis Cedeno said the board would not comment for now on Rossello's announcement.

The board is seeking other changes, including reducing the amount of money available to Puerto Rico's 78 municipalities as they struggle to recover from Hurricane Maria, which hit six months ago and caused an estimated more than $100 billion in damage. A municipal recovery fund was supposed to receive $100 million a year, but the board stated it should receive a one-time infusion of $78 million for this year only.

The board also said that a $300 million loan awarded to Puerto Rico's Electric Power Authority should be repaid within two years.

Without the changes, the board said Puerto Rico faces more poverty and loss of population. Nearly half a million people have fled for the U.S. mainland in the past decade as the island remains mired in an 11-year recession and struggles to restructure more than $70 billion in public debt. In addition, another estimated more than 130,000 people left after the Category 4 storm struck on Sept. 20.

"We have the chance now, with the support of the federal government and the stimulus effect of federal funding, to launch a truly sustainable recovery, correct the terrible fiscal mistakes of the past, and benefit the lives of everyone living on the island," the board said in one of its letters.