Control board: Puerto Rico needs to take emergency action

SAN JUAN, Puerto Rico — A federal control board warned Wednesday that Puerto Rico's government needs to take "major emergency actions" to avoid shutting down because its cash flow is critically low.

The comments published in a letter to Gov. Ricardo Rossello are the sharpest yet made by a board that recently began overseeing the U.S. territory's finances.

The board released an audited financial statement that found this year's government expenses could be understated by $360 million to $810 million. It warned that Puerto Rico could face a $190 million cash deficit by July.

"Without major emergency actions, the Commonwealth soon will be unable to pay essential services, including pensions, education, health care and public safety in a matter of months," wrote board chairman Jose Carrion.

The warning comes ahead of a meeting on Monday where the board is expected to approve a fiscal plan that many believe will be amended to include austerity measures.

The board recommended in its letter that Puerto Rico's government take four key steps immediately. Among those is a furlough for government workers, teachers and other public employees to save as much as $40 million. The furlough for government workers would be four days a month while those for teachers would be two days a month. The board also advised the government to slash professional services contracts by 50 percent and cut health care costs by negotiating drug prices and reducing the rates of health plans and providers.

The board also urged Puerto Rico's Fiscal Agency and Financial Advisory Administration to take immediate control of all the government's accounts, revenues and expenses. The public corporation was created last year and has fiscal and administrative autonomy.

The letter sparked concern among Puerto Ricans and riled government officials, including Public Affairs Secretary Ramon Rosario.

"This administration is not considering furloughs for its public employees in the fiscal plan," he told reporters. "To the board: Do not shoot from the hip."

Elias Sanchez, the governor's representative to the board, called the audited financial statement flawed and questioned the numbers provided. He said the government will create a group to meet with the board and review the analysis and resolve discrepancies.

The board's letter was released on the same day that the Spanish-language daily El Nuevo Dia published a column by Carrion warning that medium- and long-term measures will not be sufficient.

"Puerto Rico has run out of money and time," he wrote. "This is only going to get worse as the clock keeps ticking."

Gov. Ricardo Rossello submitted a revised fiscal plan last week that contains several medium- and long-term measures to cut costs and generate revenue. The plan lacks austerity measures the board is seeking, such as cutting government payroll by 30 percent and slashing the public pension system by 10 percent.

Rossello said in a statement that the government already has taken several steps to balance the budget "without the need to reduce the workweek and take more drastic measures."

"I trust the board will give itself time ... and analyze the measures and data that it has been provided," he said.