Mismanagement of government funds in Puerto Rico’s recent past is one of the main reasons why the Oversight Board was put in place. Previous administrations spent money Puerto Rico did not have. It ended in the bankruptcy of the government – and of the pension system. One of the Oversight Board’s mandates under law is to ensure fiscal responsibility, and one of its core missions is to avoid the mistakes of the past.
When the government enacted Act 80 in August 2020, it once again had not done sufficient analysis of how much the new retirement benefits would cost and how to pay for the additional expenses. For over a year, the Oversight Board engaged with the government to explore ways to make the laws affordable. So far, the Government has not provided the Oversight Board with a complete analysis of how to make Act 80 affordable.
The U.S. District Court for the District of Puerto Rico invalidated Act 80 unless the government and the Oversight Board could reach an agreement to implement the incentivized early retirement provisions set forth in Act 80 that would, as the court ordered in December 2021, “create savings above and beyond the level of savings required in the currently certified fiscal plan or otherwise satisfy some other metric the parties agree on.” The Oversight Board intends to comply with the judge’s order.
The first step to reach a potential agreement is for the Government to comply with the path the court order outlines. The Government must provide descriptions of the positions proposed to be eliminated on a per agency level and the projected net savings that will result from the elimination of those positions while taking into consideration the incremental cost of providing the incentivized early retirement benefit. Following such an analysis, the Oversight Board and the Government must agree on an implementation plan.
The Government has not provided the complete information required. Even though the Government disclosed that almost 11,000 employees across approximately 150 agencies and municipalities had elected as of April 2021 to participate in the early retirement program contemplated in Act 80, the Government’s analysis only considers approximately 1,100 employees from seven agencies. Even for the seven agencies, the analysis was incomplete especially with respect to implementation.
While the Government acknowledges it intends to transfer employees from other agencies to fill the positions designated “essential,” the Government has not identified who these transferring employees will be. Moreover, the Government’s approach considers “essential employees” as fungible, who can simply be replaced by someone from another agency, without regard to knowledge base or skill set. The Government has also never agreed to a limited implementation of Act 80.
Clearly, the analysis to identify savings to cover the potential costs requires more work.
The Oversight Board remains open to finding a solution, but time is running out. The Governor and his administration must provide the data necessary to comply with the court order. The Oversight Board looks forward to continuing to work with the Governor to help Puerto Rico create an economy for all Puerto Ricans to thrive.
