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Puerto Rico in violation of fiscal plan, board says

Puerto Rico Gov. Ricardo Rossello
Puerto Rico Gov. Ricardo Rossello

The government of Puerto Rico's fiscal year 2019 budget does not comply with the new fiscal plan certified by the Financial Oversight and Management Board, according to a notice of violation sent Thursday to Gov. Ricardo Rossello.

In the notice, oversight board Executive Director Natalie Jaresko said that the government only provided a general fund budget instead of a complete budget. "The board requires substantial revisions and additional information" before it can approve a fiscal-year budget, she wrote. "The government's proposed budget needs to go farther in providing transparency, fiscal management and enforcement tools," she added.

The oversight board has the authority to enforce a fiscal plan if the government refuses to cooperate, under 2016's Puerto Rico Oversight, Management and Economic Stability Act.

On April 18, the board certified a six-year fiscal plan that includes comprehensive pension reform and fiscal sustainability measures. Covering the commonwealth, the Puerto Rico Electric Power Authority and the Puerto Rico Aqueduct and Sewer Authority, the plan offers the "transformative change agenda Puerto Rico needs" after years of economic decline, excessive borrowing and fiscal mismanagement, board Chairman Jose B. Carrion III said at the time.

Covering six fiscal years from 2018 to 2023, the plan provides a framework for economic growth that would allow the government to fund pension payments and restructure Puerto Rico's debt.

On pension reform, the plan calls for freezing pension benefit accruals by July 1, 2019, and enrolling all employees in defined contribution plans, as well as Social Security. Benefits would be reduced progressively to an average cut of 10%, with no cuts for participants whose combined pension and Social Security benefits are below the poverty level of $1,000 per month.

If all the structural reforms are implemented, the board projects sustained 1.8% real annual GNP growth by 2023 and $80 billion or more in revenues for the commonwealth over 30 years, allowing for elimination of structural deficits.

Mr. Rossello has so far refused to accept pension and other labor reforms.