Puerto Rico fiscal turnaround plan will save $3.8 billion/year: governor

Puerto Rico's new governor Ricardo Rossello (R) addresses the audience during his swear-in ceremony outside the Capitol in San Juan, Puerto Rico January 2, 2017. REUTERS/Alvin Baez (Reuters)

By Nick Brown

(Reuters) - Puerto Rico Governor Ricardo Rossello on Tuesday said his fiscal turnaround plan for the U.S. territory will create $3.8 billion a year in savings, but healthcare spending cuts will fall short of those recommended by the board overseeing the U.S. territory's finances.

The turnaround plan, a requirement of the federal Puerto Rico rescue law known as PROMESA, will serve as a 10-year blueprint for the island's ascent out of fiscal crisis. Rossello is scheduled to present it to the board later on Tuesday, and it will likely be made public on Wednesday.

The plan will serve as a baseline for debt restructuring talks between Puerto Rico and creditors holding nearly $70 billion in bonds. They are expected to be asked to take steep cuts to repayment as Puerto Rico battles a 45 percent poverty rate, near-insolvent public pensions and rampant emigration.

In a speech to Puerto Rico's legislature on Tuesday, Rossello said the plan would save $1.6 billion in government spending - but without laying off public workers - by eliminating some tax incentives and cutting subsidies to municipalities. It would also create $1.5 billion in additional revenues, he said.

"We will have to make big changes," the governor said. "Puerto Rico can’t wait any longer."

Other cuts to pension benefits and University of Puerto Rico funding, as well as a $550 million reduction in healthcare spending, would bring the total estimated savings under the plan to $3.8 billion.

The board, however, had recommended that annual healthcare cuts total $1 billion - a figure the governor has resisted. Such a drastic cut "would destroy our health industry and limit access to services for hundreds of thousands of Puerto Ricans," he said in Tuesday's speech.

The local Medicare system is already on the brink of collapse, due in part to the island's territory status, which entitles it to proportionately less reimbursement of Medicare expenses than U.S. states.

Rossello has promised to lobby Congress to increase that funding, but the board has warned that his fiscal plan should not assume any help from Washington that has yet to be granted.

The $3.8 billion in total savings also falls short of the $4.5 billion figure the board had recommended, which would have balanced the budget and left roughly $800 million available for annual debt-servicing costs.

Rossello did not specify how much money would be available for debt service under his plan. He said he could find another $800 million, but only by lowering the board's 17 percent economic contraction projection.

The federally appointed board is under no obligation to rubber-stamp Rossello's plan. If it does not meet its criteria, the board can construct its own plan.

The board expects to approve a turnaround plan for the island by March 15.

(Reporting by Nick Brown and a contributor in San Juan, writing by Nick Brown; editing by G Crosse)