[Many thanks to David Lewis for bringing this item to our attention.] Jim Wyss (Bloomberg) reports on the ongoing issues resulting from pressures Puerto Rico is suffering under massive debt.
The Financial Oversight and Management Board for Puerto Rico said it filed a lawsuit to stop the local government from offering public workers billions in new retirement benefits that it says will undermine the island’s long-sought plan to restructure its debt.
In a statement issued late Monday, the board said it had filed the suit in Puerto Rico District Court to stop the pension measures — known as Act 80, Act 81, and Act 82 — because they are being pushed forward without sufficient analysis about how to pay for their costs.
The board estimates the three laws could increase government expenses by as much as $8.3 billion over the next 30 years. Even partially implementing Act 80, which promotes early retirement, could cost the government an additional $61 million in the first year alone, the board said.
The lawsuit comes as Puerto Rico nears the end of a four-year bankruptcy process. The island, along with the oversight board and other interested parties, have negotiated a plan that would reduce public debt by $33 billion.
While public workers would not see their benefits cut, the board is seeking to eliminate cost-of-living increases and freeze the pensions of teachers and judges to switch them to a defined-contribution plan, similar to a 401(k). The new laws would freight the island’s pension system with new expenses.
On Tuesday, Puerto Rico general obligation bonds with a 5% coupon and maturing in 2035 traded at an average of 100.87 cents on the dollar, a 3.3% yield on a yield-to-worst basis, according to data compiled by Bloomberg. That compares with an average price of 100.581 cents on the dollar last week with a 3.7% yield on a similar basis. The securities can next be called at par in July 2022.
[The Capitol Building is seen past walls in the Old City of San Juan, Puerto Rico. Photographer: Christopher Gregory/Bloomberg.]