SAN JUAN: Puerto Rico legislators rushed to try to approve a budget amid debate on how best to revive the US territory’s economy, which the New York Federal Reserve president warns has not yet bottomed out.
The proposed $9.8bn operating budget proposes a flurry of new taxes while seeking to boost the island’s education system and rescue a crumbling public pension system. The local House of Representatives recently approved the budget, but is meeting again to evaluate several amendments that the Senate sought to add.
“We are facing a gradual fiscal deterioration that is affecting the capacity to generate needed revenue,” reads a measure that legislators are reviewing. “The magnitude of the reality we’re facing cannot be avoided.”
Puerto Rico is struggling to emerge from a seven-year recession while trying to reduce a $1.2bn deficit and $69bn in public debt. The island of 3.7 million people also has a nearly 14 percent unemployment rate, higher than any US state.
William Dudley, New York Federal Reserve president, said on Thursday that the island’s job situation has weakened.
“Puerto Rico’s economy is not faring well at all,” he said.
A further threat to the island’s economy are thousands of government workers angered over the public pension reform who have said they plan to retire before it’s approved. They recently filed a lawsuit claiming the reform was unconstitutional, but Puerto Rico’s Supreme Court dismissed the case on Wednesday. Moody’s ratings agency praised the ruling, which workers said they would challenge.
On Friday, the president of the Police Union claimed that hundreds of officers already have quit and that more will follow.
“This country will face a deep social crisis,” Jose Marin said.
Governor Alejandro Garcia Padilla has said there’s an urgent need for the reform, which calls for increased employee contributions, a higher retirement age and reduced benefits and monthly pensions for certain workers.
Garcia has said he will seek upgrades from Moody’s and other ratings agencies after the budget is approved. That could lower borrowing costs. The US territory’s general obligation bond debt is currently hovering above junk status.
Legislators say the proposed new taxes would generate nearly $1.4bn in revenue. One tax alone is forecast to bring in $439m as it targets companies making more than $1m in sales.
Lawmakers also plan to increase corporate tax rates to 39 percent to help generate some $270m.
AP
