Board rejects Puerto Rico fiscal plan as unrealistic

SAN JUAN, Puerto Rico — Puerto Rico's governor clashed on Thursday with a federal control board overseeing the island's finances after it rejected his fiscal plan for the U.S. territory's economic future as being unrealistic and too optimistic.

Gov. Ricardo Rossello said his administration is willing to meet with board members to talk about disagreements over financial data but warned he would not support a plan that contains erroneous information.

"Every decision we take based on faulty data that affects the people of Puerto Rico is just unacceptable," he said. "We need to have a level head. We need to think about what the implications are."

Rossello spoke with reporters just hours after the board issued a letter rejecting his plan and demanded that he submit a revised one by Saturday morning. The board said the plan does not ensure funding for essential public service nor does it provide a path to restructuring debt and pension obligations to reach a sustainable level.

"Specifically, the proposed plan is based on unrealistic projections of economic growth, substantially underestimates spending, and reflects overly optimistic revenue projections," the board said.

It also said that based on an analysis, it found the government's expenditures could be understated by $60 million to $510 million and the liquidity projection by $300 million. It said general fund expenses should be increased by $585 million and that the government should reduce expenditures in legislative and executive branches and consolidate schools to reflect a drop in students as an exodus to the U.S. mainland continues.

The letter, which was first reported by El Nuevo Dia newspaper, comes less than 24 hours after the board urged Rossello's administration to take emergency actions to offset a critically low cash flow. It recommended the government impose a furlough for certain government workers, slash professional services contracts by 50 percent and cut health care costs.

The board is expected to approve a 10-year fiscal plan on Monday that many believe will be amended to include additional austerity measures.

Rossello did not say specifically whether he would submit a revised plan by Saturday, stressing that he preferred to first meet with board members to talk about whether there's a need for amendments.

"This doesn't need to be a battle," he said. "We need to remember who gets to pay the price if this gets done in an incorrect manner. And it's the people of Puerto Rico."

The letter was issued on the same day that Rossello and other government officials spoke before hundreds of Puerto Ricans at a conference organized by an advocacy group representing some of the estimated 60,000 individual bondholders — many of them locals. They hold roughly $15 billion of the nearly $70 billion public debt that Puerto Rico is seeking to restructure as the government runs out of money. Hedge funds hold about a third, and officials say it's not clear who holds the rest.

Top Puerto Rico legislators pledged to help local investors in government bonds who face deep losses as the U.S. territory defaults on a series of debts due to an economic crisis.

Carlos Mendez, the president of Puerto Rico's House of Representatives, promised to seek tax credits for local bondholders who suffer losses. And Senate President Thomas Rivera Schatz said he would push for legislation that would give them priority in buying public property or getting government loans to open a business.

Many of the bondholders have filed lawsuits that have been temporarily blocked by congressional action that also created the federal control board with power to impose austerity measures. The deadline on the stay on lawsuits expires in May, but the government has asked the control board overseeing the island's finances to extend it until December.

Members of the crowd pelted officials with questions about when they might be paid, what kind of losses they might face and why the debt has not been audited. One asked whether the government can guarantee that at least interest will be paid.

"The government aims to meet those obligations," Schatz said. "But it wouldn't be honest of us to say it's guaranteed."

Among the bondholders at the event was retiree Mercedes Pont, who worked in publicity until she got laid off in 2011. She had invested in Puerto Rico bonds because they were triple-tax exempt and she believed they were low risk. She said she always followed her mother's advice to never depend financially on any man, but she now depends on others to help pay her bills.

"It's been humiliating to have to change my life around from being a completely independent woman," she said. "It's a situation of frustration, anger, desperation and complete abandon. ... I invested in Puerto Rico and they owe me."