Puerto Rico faces austerity measures amid budget wrangling

SAN JUAN, Puerto Rico — New austerity measures are looming for storm-battered Puerto Rico after local legislators refused to alter labor laws as demanded by a federal control board that said changes would stimulate the U.S. territory's economy amid an 11-year recession.

The board that is overseeing the island's finances said Friday it will eliminate a $25 million scholarship fund for Puerto Rico's largest public university, as well as a $50 million annual fund for cities and towns struggling in the aftermath of Hurricane Maria. The board said it also will scrap an annual Christmas bonus for all government employees starting next fiscal year.

The measures were a blow to Gov. Ricardo Rossello, who had originally promised that Puerto Rico legislators would agree to at-will employment, which means private employers would be able to dismiss workers at any time without having to prove just cause.

Rossello urged the board and legislators to reach an agreement and take what he called "prudent" steps.

"Let's take actions that...will benefit the people of Puerto Rico," he told reporters.

Board members have said that changing labor laws would attract sorely needed investors to a U.S. territory trying to restructure a portion of its $70 billion public debt load as it faces nearly $50 billion in pension obligations.

"Decisions made over decades have led us to this point," board member Ana Matosantos told reporters on Friday. "Now, deep cuts to programs, services and debt, revenue increases, reforms to critical infrastructure, revamping outdated government structures and eliminating barriers to job creation are all necessary... These difficult choices are not the fault of the board, or of the current government in power. Rather, they are the result of decades of financial mismanagement and neglect."

Puerto Rico Senate President Thomas Rivera Schatz, who campaigned against changing labor laws, issued a strongly worded statement defending his position as he criticizing the board.

"They threaten without any justification or economic foundation with eliminating the Christmas bonus, vacations, employment security of the private sector worker, scholarships for students, funds for infrastructure projects and economic development, among other important items," he said. "They threaten to be worse than Hurricane Maria!"

The Category 4 storm caused more than an estimated $100 billion in damage when it hit Puerto Rico on Sept. 20, and the island is still struggling to recover. More than 2,300 customers remain without power, and tens of thousands of businesses closed after people fled to the U.S. mainland.

While Puerto Rico is expected to see brief economic growth as a result of federal reconstruction dollars allocated in the storm's aftermath, economist Jose Caraballo told The Associated Press that the island would again face an economic depression if no economic development measures are implemented.

He warned that Puerto Rico would feel the effects of the board's cuts immediately, adding that they would further depress the island's fragile economy.

"The contraction and social impact will be much greater than before," he said. "It's not equitable. It's basically directed at the middle class and the lower class."

The disagreement between the board and certain legislators over changing labor laws comes as Puerto Rico's government is expected to approve an $8.7 billion proposed budget on Friday, which contains $69 million for the Christmas bonus.

The board said it would implement its own budget for Puerto Rico if legislators do not submit a proposal by Saturday that is consistent with a recently approved fiscal plan.