(Repeats story first published on March 7 for wider distribution)
By Nick Brown
NEW YORK, March 7 (Reuters) - Puerto Rico’s oversight board is racing to review Governor Ricardo Rossello’s blueprint for steering the island’s economy out of fiscal crisis, but has key concerns over whether it can be implemented as planned, a source familiar with the process told Reuters on Tuesday.
Rossello last week unveiled a draft turnaround plan - a requirement of the federal Puerto Rico rescue law known as PROMESA - for the U.S. territory struggling with $70 billion in debt.
It outlines plans for $33.8 billion in fiscal reforms, including $12.9 billion in new revenues, and forecasts the Puerto Rican government to have $1.2 billion a year available to service debt - just 30 percent of what comes due next fiscal year.
A turnaround plan must be approved by the oversight board, which is in charge of managing the island’s finances. But the plan likely will not be approved as is, according to the source, who is familiar with ongoing talks between the board and government officials.
Rossello’s plan departs from some of the board’s key financial projections. Board members are not convinced the figures are based on sound data, said the source, who declined to be named because the talks are not public.
“The board just doesn’t see a degree of specificity in the document that can give basis or justification for these numbers,” the person said.
Specifically, the board is concerned about the basis for the island’s claim that it can generate $3.6 billion over ten years from improvements in tax collection. It also is skeptical as to whether Rossello can successfully implement key cost-saving measures like turning the island’s government into a single-employer structure, the person said.
The board wants to approve a turnaround plan for the island by next Wednesday. It met with government officials in Puerto Rico last week and convened a private board meeting on Monday in New York.
It also plans to hold a public meeting in New York on Monday.
The island needs to do more to shore up short-term liquidity, the source added, especially in light of the government’s announcement on Tuesday that its funding gap this fiscal year is $500 million above projections.
Elias Sanchez, Rossello’s liaison to the board, defended the plan in an interview with Reuters on Tuesday.
The tax reform measures “are not simply based on improvements in collection, but on use of new technology and on reforms that will broaden the collection base,” Sanchez said.
He added Puerto Rico’s dire straits will ensure the political will to make the single-employer plan a reality.
“We either make these structural changes or we collapse,” Sanchez said. “It’s not a matter of political will.”
The island’s creditors, meanwhile, say the current version of the plan does not do enough to ensure debt payments will be made.
One creditor said the governor “changed his tune” from campaign promises last year to minimize cuts to debt repayments. “He campaigned on paying debt, and this plan shows there’s going to be severe impairment,” the creditor said in an interview on Monday, requesting anonymity because of the sensitive nature of the talks.
Rossello’s $1.2 billion figure is below debt service projections proposed last year by ex-Governor Alejandro Garcia Padilla - a populist and Wall Street critic, whose policies Rossello railed against during last year’s election.
To be sure, government officials have said they believe it likely the U.S. Congress will increase the island’s federal healthcare reimbursements, which could boost its debt service capacity as high as $2.7 billion.
The plan calls for a $64 million annual cut in pension benefits. That’s a lot less than the $200 million the board recommended, but still does not sit well with pension advocates.
“These retirement benefits were promised in exchange for labor and services rendered and constitute deferred compensation owed to these citizens,” said Robert Gordon, a lawyer for a committee of local pensioners.
While creditors are quick to protest, some believe Rossello’s plan has more to like than dislike from a bondholder’s perspective. As Height Securities analyst Ed Groshans said in a note on Tuesday, the oversight board’s own projections had forecast Puerto Rico to have only $800 million a year to pay debt. (Reporting by Nick Brown; editing by Daniel Bases, G Crosse)