EXHIBIT 3

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May 6, 2018

The	President

The	White	House

1600	Pennsylvania	Avenue,	N.W.

Washington, DC	20500

The	Honorable	Paul	Ryan,	Jr.

Speaker	

United	States House	of	Representatives

Washington,	DC 20515

The	Honorable	Nancy	Pelosi

Democratic	Leader

United	States	House	of	Representatives

Washington,	DC	20515

The	Honorable	Mitch	McConnell

Majority	Leader	

United	States	Senate

Washington,	DC	20510

The	Honorable	Charles	E.	Schumer

Democratic	Leader

United	States	Senate

Washington,	DC	20510

Re: Explanation for Government of Puerto Rico’s Rejection of Fiscal Plan

Recommendations

Dear President Trump, Speaker Ryan, Senator McConnell, Senator Schumer, and Representative 

Pelosi:

The Financial Oversight and Management Board for Puerto Rico (the “Oversight Board” or 

“Board”) has submitted to the elected Government of Puerto Rico (the “Government”) 

recommendations in connection with the New Fiscal Plan for Puerto Rico (the “Board Fiscal 

Plan”) as certified on April 19, 2018. We have informed the Board pursuant to section 205(b)(1) 

of the Puerto Rico Oversight, Management, and Economic Stability Act (“PROMESA”), 48 

U.S.C. §§ 2101‒2241, that the Government, in the exercise of its policy making powers, believes 

the Board’s recommendations are inappropriate and has declined to adopt them.1 As required by

 1 Section 205(b)(1) provides that “[i]n the case of any recommendations submitted under subsection (a) that are 

within the authority of the territorial government to adopt, not later than 90 days after receiving the 

recommendations, the Governor or the Legislature (whichever has the authority to adopt the recommendation) shall 

submit a statement to the Oversight Board that provides notice as to whether the territorial government will adopt 

the recommendations.”

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PROMESA section 205(b)(3), I am submitting the Government’s explanation as to why the 

Board’s recommendations made in connection with the Board Fiscal Plan have been rejected.2

BACKGROUND

On April 5, 2018, we submitted to the Board our own fiscal plan that proposed Puerto Rico’s 

most significant set of reforms in 50 years and one of the most aggressive fiscal agendas in the 

modern history of the United States, which would yield $3.1 billion of savings and revenue 

improvements by fiscal year 2023. Our fiscal plan demonstrated my Administration’s 

willingness to make the difficult decisions required to put Puerto Rico on a path to fiscal 

responsibility and economic recovery. That plan was the culmination of extensive negotiation 

and collaboration with the Board, yielding agreement on the vast majority of the Government’s 

assumptions and proposed structural and fiscal reforms. The Board nevertheless rejected our 

plan and in its place certified the Board’s own plan on a divided vote. The Board Fiscal Plan 

seeks to impose on the Government an ancillary set of recommendations that include unsound 

and inappropriate measures that would potentially cause Puerto Rico’s fiscal and humanitarian 

crises to spiral out of control and into chaos.

The Board’s recommendations are based on conjectural and speculative forecasts that go well 

beyond the mandated six-year fiscal plan that we submitted to the Board. The Board is 

essentially gambling that additional austerity measures imposed on Puerto Rico would create 

economic benefits, which are purely aspirational in nature, many years into the future. As 

explained below, these recommendations are built on a faulty set of assumptions and, if 

implemented, would only harm the people of Puerto Rico and risk additional outmigration from 

the Island. Indeed, one member of the Oversight Board voted against certifying the Board’s 

fiscal plan for the very same reasons the Government cannot and will not adopt the Board’s 

recommendations.3

Purpose of Fiscal Plan and Broad Guidelines Under PROMESA

 2 Section 205(b)(3) provides that “[i]f the Governor or the Legislature (whichever is applicable) notifies the 

Oversight Board under paragraph (1) that the territorial government will not adopt any recommendation submitted 

under subsection (a) that the territorial government has authority to adopt, the Governor or the Legislature shall 

include in the statement explanations for the rejection of the recommendations, and the Governor or the Legislature 

shall submit such statement of explanations to the President and Congress.”

3 See Ana J. Matosantos, Remarks at 12th Public Meeting of the Financial Oversight and Management Board for 

Puerto Rico at 40:13 (Apr. 19, 2018) (“I am simply not willing to support massive cuts to the safety net of low 

income seniors, children, and people with disabilities. Slashing funding to the Universidad de Puerto Rico, making 

the largest cutbacks to public pensions in the United States, and imposing innumerable additional austerity measures 

only is a beginning of more pain to come. I understand deep cuts are necessary, and have been and will continue to 

support what is needed to right the fiscal ship. But I cannot do that when that is all there is. I cannot support too 

much pain with too little promise. Austerity measures that generate near term surpluses but may very well lead to 

another fiscal cliff are not in the best interest of Puerto Rico, its retirees, creditors, or its future. I also heed the 

caution of experts who believe that growth assumptions under both plans are overly optimistic. In my view, there is 

simply too much risk, too much downside for the people of Puerto Rico and its future under these plans.”).

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PROMESA created the Oversight Board “to provide a method for [Puerto Rico] to achieve fiscal 

responsibility and access to the capital markets.”4 The Board’s core function is to approve fiscal 

plans and budgets that serve as blueprints for Puerto Rico’s restructuring efforts and reforms.5 

The Board must ensure that the fiscal plan satisfies 14 specific, but wide ranging, guidelines.6 In 

particular, fiscal plans must cover at least a five-year period and include (i) projections of 

anticipated future government revenues and (ii) a broad plan for future government 

expenditures.

7 In addition to setting broad spending parameters, these guidelines require 

financial metrics to monitor the Government’s progress toward its fiscal targets, including 

responsible accounting standards, timely financial reporting, and improved internal controls.8 

With PROMESA’s enactment, Congress sought to strike a careful balance between preserving 

the representative Government’s flexibility to make policy decisions to achieve fiscal 

responsibility and entrusting the Board with a meaningful oversight role.9 Congress granted the 

Board oversight authority to prevent past abuses, such as funding deficits through borrowing. In 

that regard, ensuring financial transparency and accountability to the Government’s stakeholders 

is an essential element of the fiscal plan process.10

Under PROMESA’s framework, the Board can make recommendations to the Government as to 

the policy choices needed to meet fiscal targets established in the certified fiscal plan.11 But the 

Board cannot, through a series of anti-democratic measures12, control or usurp the elected 

 4 PROMESA § 101(a), (b)(1).

5 PROMESA § 101(d)(1), 201(c)(3), 201(e), 202(c)‒(f). PROMESA looks in the first instance to the Government, 

not the Board, to develop and refine the fiscal plans and budgets. Opinion and Order Denying Urgent Motion of 

FOMB to Confirm Appointment of a Chief Transformation Officer, In re The Fin. Oversight and Mgmt. Bd. for 

Puerto Rico, Case No. 17 BK 3283-LTS (D. P.R. Nov. 16, 2017) [ECF No. 1820] at 10 (the “CTO Order”). While 

the Board can “certify its own fiscal plan and budget under certain circumstances,” it may only do so when an 

“interactive process” with the Government does not yield a certifiable plan or budget. Id. (citing PROMESA § 

201(d)(2)).

6 PROMESA § 201(b)(1).

7 Id. § 201(b)(1).

8 Id. § 201(b)(1)(F).

9 While the Board’s fiscal planning powers “give it a strong and substantially determinative voice in overall strategy 

regarding the Commonwealth’s revenues, expenses, and general direction for responsible financial management,” 

the Board does not have the power to impose specific policies on the Government.” CTO Order at 12. Rather, 

“Congress did not grant the [Board] the power to supplant, bypass, or replace the Commonwealth’s elected leaders 

and their appointees in the exercise of their managerial duties whenever the Oversight Board might deem such a 

change expedient.” Id.

10 PROMESA § 201(b)(1)(F) (fiscal plan must “improve fiscal governance, accountability, and internal controls”).

11 CTO Order at 12.

12 H.R. REP. 114-602(I) (2016) (“Under H.R. 5287, the anti-democratic provisions empowering the oversight board 

to impose its recommendations over the objection of the Puerto Rico government has been removed. The board is 

still authorized to make policy recommendations and to obtain a written response from the Puerto Rico government 

regarding whether it will, or will not, implement those recommendations. Section 201 does require the fiscal plan 

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Government’s exclusive authority to determine the policies within the fiscal plan’s parameters 

that are appropriate to protect the interests of the electorate to whom the Government is 

accountable.13 Congress intended for the “governor and the board to work together for the 

benefit of the people of Puerto Rico, not to have parallel governing structures.”14

Fiscal Plan Certification Process

On March 13, 2017, the Board certified the Commonwealth’s fiscal plan for fiscal year 2018 (the 

“Original Fiscal Plan”), which provided for sustainable economic growth and long-term solvency 

while ensuring the well-being of the people of Puerto Rico. Under the Original Fiscal Plan, the 

Government included measures to address the Commonwealth’s $52 billion in debt15, in part, by 

making difficult decisions to implement structural and fiscal reforms that called for cuts to 

important government services. 

On September 6, 2017, Hurricane Irma, a Category 5 storm, crossed a portion of the Island 

causing major disruption of power and damage. On September 20, Hurricane Maria, another 

Category 5 storm, made a direct landfall on Puerto Rico, crossing through the center of the 

Island. In its wake, Maria left the people of Puerto Rico reeling—physically and 

psychologically—especially considering that more than 45 percent of the Island lives near or 

below the poverty line. The aftermath of these storms left no corner of Puerto Rico untouched—

Maria significantly damaged many homes; completely destroyed the power grid, leaving a vast 

portion of the Island in the dark for months; damaged the water system; rendered ports and 

airports unusable; washed away roads and bridges; and knocked out virtually all 

communications. In the hurricanes’ aftermath there was no doubt that the Original Fiscal Plan 

would need to be reassessed to reflect Puerto Rico’s new reality. 

At its tenth public meeting held in San Juan on October 31, 2017, the Board passed a resolution 

recognizing the need for a revised fiscal plan and establishing a schedule for developing and 

certifying that plan. We were required to submit revisions to the Original Fiscal Plan by January 

24, 2018. At the same time, the Board passed a resolution establishing nine guiding principles it 

would use to evaluate the fiscal plan revisions in addition to the 14 guidelines under PROMESA 

section 201(b)(1). 

 

put forward by the Puerto Rico governor to ‘adopt appropriate recommendations’ submitted by the oversight board 

under Section 205, but the term ‘appropriate’ provides the governor with significant flexibility to adopt sound 

recommendations and to decline to adopt unsound recommendations.”).

13 CTO Order at 12.

14 Id.

15 The Original Fiscal Plan covered debt issued by the following government entities: (i) Public Buildings Authority, 

(ii) Puerto Rico Sales Tax Financing Corporation, (iii) Puerto Rico Highways and Transportation Authority, 

(iv) Puerto Rico Convention Center District Authority, (v) Puerto Rico Infrastructure Financing Authority, 

(vi) Employees’ Retirement System, (vii) University of Puerto Rico, (viii) Puerto Rico Industrial Development 

Company, and (ix) Government Development Bank.

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On January 24, 2018, as the Board directed, we submitted an updated fiscal plan that addressed 

the new economic realities Puerto Rico faced in the wake of the devastating September 

hurricanes. On February 5, 2018, the Board issued a notice of violation with respect to the 

Government’s new fiscal plan and extended the Government’s deadline to submit a revised fiscal 

plan to February 12, 2018, which we subsequently met. On March 23, 2018, the Board 

announced it was postponing the certification of the fiscal plan scheduled for March 26, 2018. 

On March 28, 2018, the Board issued a letter identifying areas where it believed our fiscal plan

should be further revised. 

On April 5, 2018, we submitted to the Oversight Board a six-year fiscal plan that embodied our 

transformative vision to establish economic stability and prosperity for Puerto Rico. Our fiscal 

plan featured sweeping fiscal and structural reforms, including (among others) right-sizing 

measures and procurement reforms to increase operational efficiencies and structural initiatives 

such as tax reforms, ease-of-doing-business regulatory measures, power sector transformation, 

and welfare reforms (the “Government Fiscal Plan”). 

The measures in the Government Fiscal Plan generate significant savings by the end of the sixyear period (2023), including a deep $2.5 billion annual reduction in Government expenditures, 

which reflects a 21.1 percent cut to controllable expenditures. More than half of these savings 

stem from right-sizing efforts, with the remainder coming from healthcare reform and subsidy 

reductions. The Government Fiscal Plan also includes a remarkable $522 million per year in 

incremental revenue enhancements primarily derived from rationalizing the tax code and 

improving tax compliance. These fiscal and structural measures, combined with forecasted longterm economic growth, result in an estimated annual surplus of approximately $1.4 billion by 

2023.

Notwithstanding the strength of our plan, on April 18, 2018, the Board released its own fiscal 

plan and suggested further policy initiatives in the form of recommendations. These include 

(i) public employee pension cuts at the expense of some of Puerto Rico’s most vulnerable 

citizens, (ii) additional public-employee benefit roll-backs,

16 (iii) potential layoffs affecting a 

wide swath of teachers, police, healthcare workers, and other public employees, and (iv) privatelabor-market reforms. The following day, at the Board’s twelfth public meeting, we appeared 

before the Board to present the Government Fiscal Plan and explain why the Board’s 

 16 Act No. 26 of April 29, 2017 (“Act 26”), introduced a series of changes and freezes to existing public employees’ 

labor bargaining agreements, reductions and eliminations to previously granted public employee benefits and other 

fiscal control measures, including (i) freezing all public employee bargaining agreements and classification plans; 

(ii) implementing a maximum 15 holidays each year for Government agencies and public corporations; 

(iii) eliminating the annual liquidation for excess vacation and sick leave; (iv) limiting vacation benefits to 15 days 

per year while limiting sick leave to 18 days per year (12 days per year for new employees); (v) limiting overtime 

compensation; and (vi) limiting Christmas Bonuses to a maximum of $600. Although these reforms were 

implemented just over a year ago, the Board now asks public employees for further sacrifice while the Island is still 

recovering from two Category 5 storms.

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recommendations were unsound and inappropriate. At the conclusion of the meeting, the Board 

approved and certified the Board Fiscal Plan and proposed recommendations in a divided vote. 

THE GOVERNMENT REFORMS BEING INSTITUTED

Much of the Board Fiscal Plan consists of policy measures that the elected Government itself 

originated in the Government Fiscal Plan as a means to promote greater labor-force participation, 

foster on-Island investment, and generate sustainable economic growth. Because the 

Government has concluded that these policies are sound and in the best interest of Puerto Rico 

and its people, the Government is instituting the following measures:

• EITC: The Government will adopt an Earned Income Tax Credit (“EITC”) to 

incentivize work and increase labor force participation among families with low to 

moderate incomes.

• Work Requirement for NAP: The Government will impose work requirements for 

able-bodied persons aged 18-59 to participate in the Nutritional Assistance Program 

(“NAP”) to incentivize work and increase labor force participation. 

• WIOA and Youth Development: The Government will update Puerto Rico’s 

Workforce Innovation and Opportunity Act (“WIOA”) plan to focus its programs and 

incentives on high-priority sectors and capabilities to invest more efficiently in adult 

education and workforce development. In addition, the Government will improve 

critical workplace skills through investment in youth development, higher education, 

and apprenticeship and training programs that target in-demand skills.

• Ease of Doing Business: The Government will take several targeted steps to 

improve Puerto Rico’s rankings across a number of ease of doing business metrics, 

including digitizing government services and pushing a variety of permitting and 

regulatory changes that will decrease the time and energy required to register, run, or 

expand a business.

• Infrastructure Reforms: The Government will implement infrastructure reforms,

including creating a recovery office for administering federal disaster relief17, setting 

clear priorities that will guide investment, accelerating the reconstruction process, 

building sustainable funding models and financing strategies, and promoting

procurement and delivery best practices. These reforms are necessary to efficiently 

manage and capitalize on federal disaster relief funding to build a more effective and 

resilient infrastructure.

• Office of the CFO: The Government will create an Office of the Chief Financial 

Officer (“CFO”) pursuant to the public policy determination of the elected 

 17 On December 6, 2017, the Public Private Partnership Authority Board formalized the creation of the CRRO as a 

division within the Public Private Partnership Authority. 

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Government, with responsibility to act as the central authority over finance, budget, 

human resources, audit, procurement, and cash management for all entities that 

receive appropriations from the general fund. These reforms are necessary to 

improve financial management through centralized controls, reporting, and 

transparency.

• Healthcare Reform: The Government will pursue value based reforms to improve 

quality relative to cost of care, reducing pharmacy spending by targeting high cost 

specialty drugs, reducing waste and abuse, implementing a uniform fee schedule for 

providers, and reducing administrative costs by converting the Island’s managed care 

organizations to a single region model. The Government agrees that these reforms 

are necessary to control high costs and improve access and delivery of healthcare.

• Tax Initiatives: The Government will rationalize the tax code to reduce income tax 

rates while broadening the Island’s tax base. These reforms will lower the tax 

burdens of individuals and businesses in a revenue neutral manner, creating a more 

competitive and fair tax scheme.

• Tax Compliance: The Government will continue to implement tax compliance 

reforms to reduce the complexity of the tax system and the process of filing taxes. In 

addition, the Government will use new technologies and systems to more effectively 

identify noncompliance, audit, and collect. These reforms are designed to increase 

revenue without increasing tax burdens, thereby increasing the overall fairness and 

efficiency of Puerto Rico’s tax scheme.

We appreciate that the Board has recognized the value of these Government-proposed measures 

by including them in the Board Fiscal Plan. They are indeed the foundation for building a new, 

more prosperous Puerto Rico.

BOARD RECOMMENDATIONS THE GOVERNMENT DECLINES TO ADOPT

The difference between the Board’s and the Government’s projected savings18 in their respective 

fiscal plans is largely driven by assumptions about separate and discrete policy measures the 

Board has recommended, but which the Government has determined to be unsound and 

inappropriate. Accordingly, the Government rejects all recommendations (both specific and 

general) contained in the Board Fiscal Plan where, in control board like fashion19, the Board 

 18 There exists a difference of only approximately $152 million annually out of a total of $25 billion between our 

respective projections of anticipated savings, which represents a mere difference of 1.7 percent of savings relative to 

addressable spending. 

19 Under the District of Columbia Financial Responsibility and Management Assistance Act of 1995 (the “D.C.

Act”) Congress gave the District of Columbia Financial Responsibility and Management Assistance Authority a 

mechanism to compel the District to implement recommendations even if the District objected. D.C. Act § 

207(c)(1). While PROMESA has recommendation provisions that mirror the D.C. Act, PROMESA varies from that 

Act in one critical way—it does not provide a mechanism for the Board to compel the elected Government to 

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infringes in any manner with the Government’s ability to determine how to organize its political 

affairs including specific assignments and decisions concerning different departments and units 

of the Government.

Private-Sector Human-Capital and Labor Reforms

The Board has recommended several private-sector human-capital and labor reforms that 

supposedly seek to drive economic growth by increasing Puerto Rico’s competitiveness and 

labor force participation. While the Government agrees with these laudable goals, the proposed 

reforms are unnecessary and could be counterproductive. As stated above, the Government is 

instituting the EITC initiative and the work requirement for NAP as further enhancements to its 

already instituted comprehensive private-sector labor-reform package of 2017, the effects of 

which should be assessed fully before determining whether additional reforms are advisable. 

Specifically, more than a year ago, the Government enacted Act No. 4 of January 26, 2017 (“Act 

4”) to improve Puerto Rico’s competitiveness and foster economic development, while relaxing 

certain legal requirements for hiring and retention of employees. Specifically, Act 4 

(i) established lower accrual rates for both vacation days and sick leave, (ii) approximately 

doubled the work hours required for accrual of Christmas Bonuses, (iii) placed a $600 cap on 

such bonuses, and (iv) reduced severance pay for unjust termination, among other reforms. 

These reforms are sufficient now to increase labor market efficiency and revive economic 

growth, but their effects were forestalled as a result of the hurricanes. Allowing the Act 4 

reforms to take hold will afford the Commonwealth and its people more time to recover from the 

hurricanes before introducing dramatic, and potentially disruptive, changes to Puerto Rico’s 

labor market.

The Board has nevertheless recommended additional human-capital and labor reforms to address 

the exact same issues as Act No. 4, just in a more draconian way. The Board’s proposals 

include:

• Converting private-sector employees to “at-will” employment beginning January 1, 

2019.

• Reducing mandated paid leave, including a 50 percent reduction in sick leave and 

vacation pay effective immediately.

• Eliminating mandatory Christmas Bonuses by January 1, 2019. 

 implement recommendations over the Government’s objection. H.R. REP. 114-602(I), 2016 WL 3124840, at *114 

(“Under [PROMESA], the anti-democratic provision empowering the oversight board to impose its 

recommendations over the objection of the Puerto Rico government has been removed.”).

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• Increasing minimum wage for workers 25 years old and older by $0.25 per hour,

effective contemporaneously with elimination of Christmas Bonuses, and tying future 

minimum wage increases to unattainable labor-force participation targets.

All of the Board’s recommended human-capital and labor reforms will require legislation to 

implement—as the Board has acknowledged.

20 Such specific policy measures are 

recommendations under PROMESA section 205. The Board may not require the Government to 

pass legislation to adopt such recommendations. That power remains the Legislature’s and 

Executive’s sole province in areas such as pensions and labor reform and regulatory measures.

The Government declines to adopt these measures because they would effectively reduce 

compensation for all employees when Puerto Rico’s residents are still suffering the dramatic 

economic effects of Hurricanes Irma and Maria. The Government projects that these measures 

would amount to an immediate five-to-ten percent reduction in the average worker’s 

compensation, while the cumulative effects of labor reforms would not materialize until fiscal 

year 2021 and would not take hold in earnest until fiscal year 2022. 

Considering the unpredictable circumstances during and following Puerto Rico’s disaster 

recovery efforts, it is a challenge to project even six years out with certain confidence, let alone 

30 years. Therefore, it is crucial that the Government retain “significant flexibility” to address 

the ever-changing perilous and uncertain circumstances now confronting Puerto Rico.21 

Undeterred by the limits and unpredictability of financial modelling, the Board’s 

recommendations do precisely what the Government Fiscal Plan sought to avoid: they propose 

that working families and retirees accept further cuts to wages, benefits, and government services 

today to solve for a remote potential problem based on speculative 30-year projections. 

If the Board’s recommended labor-market reforms were to be implemented, they would create

temporary unemployment and further encourage increased population outmigration to the U.S. 

mainland to find new jobs. Irrespective of disaster relief funds, to be competitive with the 

mainland, continuation of employment protection and benefits is necessary because Puerto Rico 

cannot compete in terms of wages.

Pension Reforms

The Board has recommended an average 10 percent cut in pension benefits across the 

Government’s three retirement systems—the Employees Retirement System (“ERS”), Teachers 

Retirement System (“TRS”), and Judicial Retirement System (“JRS”). The Board also 

recommends an immediate freeze of defined benefit plan obligations for JRS and TRS and 

conversion of those participants into a defined contribution plan with segregated retirement 

accounts. 

 20 Board Fiscal Plan at 42. The Board Fiscal Plan attempts to mandate the Government to adopt private-sector 

human-capital and labor reform legislation, including its proposals, by May 31, 2018.

21 H.R. REP. 114-602(I) (2016).

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The Government rejects these recommendations as unsound because the proposed pension cuts 

impose a disproportionate burden on Puerto Rico’s workers and retirees. These workers and 

retirees have already seen their benefits substantially reduced in the preceding years. In 

particular, three laws enacted in 2013 (Act No. 3-2013, Act 160-2013, and Act 162-2013) 

implemented comprehensive reforms to the three principal retirement systems. These reforms 

included freezing retirement benefits at ERS (largest retirement system) and thereafter accruing 

benefits under a defined contribution formula, increasing employee contributions, raising the 

retirement age, and reducing or eliminating various retirement benefits.22

Moreover, the Board’s proposed cuts place a disproportionate burden on families. The Board’s 

formula makes no distinction between retirees who rely on their pension benefits to support 

dependents and those who reside in a single-person household.23 Under the Board’s proposal, 

the average retiree subsisting on $15,000 per year, who relies on her pension benefit to support 

herself and a family of four, is subject to the same cut as a retiree whose benefit is used solely for 

her own support. As a result, the Board’s proposed cuts would arbitrarily place the greatest 

burden on those retirees least able to absorb it. Further, any impairment of this group of 

beneficiaries over the six-year term of the Board Fiscal Plan would be inconsequential to the 

Government’s fiscal position, but would have a devastating effect on retirees who rely on their 

pensions for basic necessities. Yet the Board’s analysis does not consider that the proposed 

pension cuts could drive many pensioners to request welfare benefits, which could offset the 

projected savings.

Considering that 96 percent of pension payments remain on-Island, any cut to pension benefits 

could lead to a dramatic reduction in economic activity in Puerto Rico. By contrast, the vast 

majority of the Commonwealth’s creditors reside on the mainland. Thus, using savings from 

proposed pension cuts to fund increased debt service will do little to generate economic growth 

in Puerto Rico.

While the Board has attempted to justify these reductions as salvaging the retirees’ benefits over 

the long-term for their benefit, this is not the case. On August 23, 2017, the Government, 

through Act 106-2017, moved its three principal pension systems to a single “pay-as-you-go” 

system (“Pay-Go”), as the Original Fiscal Plan contemplated. The legislation implementing the 

Pay-Go system recognizes that the retirement systems have few remaining assets and that 

pensions will have to be paid mainly from current employer (i.e., Government) contributions 

through a Pay-Go charge. Because the Government has converted the pension system to PayGo, reducing benefits to retirees today will not preserve any corpus designed to finance benefits 

 22 As modified by two Puerto Rico Supreme Court decisions, one in February 2014 with respect to the JRS reform 

and one in April 2014 with respect to the TRS reform. 

23 Board Fiscal Plan at 112. Under the Board Fiscal Plan, although the average benefit reduction will be 10 percent

there will be no reduction for those with combined retirement plan and Social Security benefits below the poverty 

level of $1,000 per month. Id. This formula is equivalent to giving each beneficiary a reduction of 25 percent in the 

monthly benefits they receive in excess of $600 (for retirees who also receive Social Security), and $1,000 for those 

without Social Security. Id.

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in the future. Rather, every dollar not paid to retirees as part of their pensions will go to debt 

service to pay Puerto Rico’s creditors. 

In addition, there are significant legal impediments to impairing pension claims through a Title 

III plan of adjustment, as the Board intends to do, that must be considered in assessing whether 

the cuts are feasible.

Energy and Power Regulatory Reform

The Board recommends a plan to transform Puerto Rico’s power sector to support the delivery of 

reliable and affordable power. While the Government and the Board agree on this goal, the 

Board Fiscal Plan seeks to dictate precisely how the Government will transform the power 

sector, including reforms affecting power generation mix, power grid construction, operations, 

capital investments, privatization, rate structures, and regulatory framework. 

For the reasons discussed in my letter regarding recommendations in the New Fiscal Plan for 

PREPA, submitted contemporaneously herewith, many of the specific measures proposed are 

non-binding recommendations that the Government declines to adopt.

Reinvestment in Puerto Rico’s Growth and Prosperity

The Government agrees with the goal of investing in critical areas such as healthcare, workforce 

readiness and skill development, and a University of Puerto Rico (“UPR”) need-based scholarship 

fund. The Board, however, proposes to pay for these initiatives with savings generated by its 

human-capital and labor reforms and cuts to the Legislature and courts. In essence, the Board’s 

proposal seeks to hold Puerto Rico’s future hostage in an effort to compel the Government to adopt 

ill-considered policies now. Because the Government cannot support those measures, the 

projected savings that would fund the reinvestment will not be realized. My Administration is 

committed to reinvesting in Puerto Rico’s future, but we will not make such investments 

contingent on adopting unwise and counterproductive measures mandated by the Board. 

Agency Efficiencies

The Board recommends establishing targets for right-sizing government operations and 

recommends that the Government achieve such savings through agency consolidation, the 

elimination of government services, and reducing government personnel. 

Agency Consolidation

The Government agrees that consolidating certain agencies will improve efficient delivery of 

government services and reduce administrative costs. The Government Fiscal Plan proposes 

right-sizing government operations through agency consolidation and reduction and elimination 

of certain services. The Government’s efforts will include right-sizing initiatives at the 

Department of Education, the Department of Health, the Department of Public Safety, the 

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Department of Corrections and Rehabilitation, and the Department of Economic Development 

and Commerce, as well as consolidations and reductions in many other agencies.

The Board has no authority, however, to dictate to the Government how it will organize itself or 

conduct day-to-day operations. The Board also acknowledges that consolidations will require 

legislation to implement (which the Board cannot compel).24 Indeed, consolidating agencies and 

reorganizing the elected Government is something Congress determined is appropriate only for 

recommendations deemed sound by the Government.

25 

The creation of the Office of the CFO will be established and structured in accordance with the 

public policy of the elected Government. While the Government generally agrees with the Board 

that creating a strong, centralized Office of the CFO will benefit the Commonwealth in many 

ways, the Government will not include the Puerto Rico Fiscal Agency and Financial Advisory 

Authority (“AAFAF”)—the Government’s fiscal authority and agent for purposes of its Title III 

and Title VI restructurings—in that consolidation. For AAFAF to perform its designated 

functions effectively, it needs to be independent from the CFO, at least until Puerto Rico’s 

restructuring is complete. Moreover, for the CFO to perform the functions required to manage 

effectively the Government’s day-to-day fiscal operations, it should remain free from the burden 

of managing Puerto Rico’s debt restructuring efforts. The Government also declines to 

incorporate certain Treasury functions under the office of the CFO. In particular, the 

Government will transfer Treasury’s financial planning and monitoring functions to the office of 

the CFO, while the tax collection operation remains at Treasury. 

We also take issue with the Board’s proposed process for ensuring that the consolidation of 

Government agencies yields the expected cost savings.26 The Board Fiscal Plan attempts to give 

the Board the power to impose mandatory personnel cuts if the elected Government fails to meet 

efficiency targets. PROMESA does not grant the Board the power to force the Government to 

impose layoffs on public sector employees, either through the fiscal plan or budget.27 

Puerto Rico’s unemployment rate currently is significantly higher than the unemployment rate 

experienced by the U.S. mainland after the 2008 recession. Under these conditions, terminated 

Government employees will have difficulty finding new jobs in Puerto Rico. The Government’s 

voluntary transition program will enable the Government to synchronize public employees’ 

transition to the private sector with increased demand in that sector as Puerto Rico returns to 

economic growth. If, instead, as the Board recommends, public employees are simply subject to 

mass layoffs in the near term, the private sector will not be able to reabsorb them. Increasing the 

 24 Board Fiscal Plan at 89.

25 See PROMESA § 205(a)(2) (authorizing recommendations concerning “the structural relationship of departments, 

agencies, and independent agencies within the territorial government”).

26 Board Fiscal Plan at 68‒69.

27 See PROMESA § 203(d)(2)(B)(i) (authorizing automatic hiring freezes—not layoffs—solely at territorial 

instrumentalities, as opposed to the Commonwealth government, to remedy budgetary noncompliance). 

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already-high unemployment rate through government terminations would result in increased 

burden on social programs across the Island, and could drive further outmigration. The elected 

Government’s voluntary transition program will minimize the downside risks discussed above.

The Government is committed to right-sizing Government agencies, including through reducing 

Government personnel. But the Government believes that it can achieve its right-sizing targets 

through a voluntary transition program and natural attrition without resorting to unsound mass

layoffs.

Cuts to Legislature and Courts

The Board also recommends cutting the Legislature’s and court system’s budgets by $23.6 

million and $31.9 million, respectively. An efficient, well-functioning court system is critical to 

economic growth. As various studies have shown, reductions in court budgets lead to delay and 

uncertainty, resulting in dramatic decreases in economic activity.28 Specifically, a survey of 42 

states concluded that reductions in judiciary budgets “produced a decline in judicial access and 

significantly limited the ability of state courts to function efficiently and effectively.”29 In turn, 

these inefficiencies led to “delays in dispute resolution result[ing] in lost investment income of 

approximately $52.2 billion” over a four-year period.30 More troubling, the negative effects of 

decreased access to justice are felt most acutely by low-income residents.31

The Board’s proposed budget cuts will increase delay and uncertainty for litigants, preventing 

individuals and businesses from making important investment decisions that will drive Puerto 

Rico’s recovery.32 Thus, the savings realized by the cuts will be greatly outweighed by costs in 

terms of impaired access to justice and decreased economic activity.

 28 See, e.g., The Washington Economics Group, Inc., Economic Impact on the Georgia Economy of Delays in 

Georgia’s State Courts Due to Recent Reductions in Funding for the Courts (2011); The Washington Economics 

Group, Inc., The Economic Impacts of Delays in Civil Trials in Florida’s State Courts Due to Under-Funding, 

Prepared for The Florida Bar (2009); Pearsall, Shippen & Weinstein, Economic Impact of Reduced Judiciary 

Funding and Resulting Delays in State Civil Litigation, Micronomics, Inc. (2012); Porter, Stevan and Weinstein, 

Economic Impact on the County of Los Angeles and the State of California of Funding Cutbacks Affecting the Los 

Angeles Superior Court, Micronomics, Inc. (2009).

29 See Pearsall, Shippen & Weinstein at 1. 

30 Id. at 2. See also Porter, Stevan and Weinstein (finding that reductions in funding for the County of Los Angeles 

Superior Court were expected to produce $15 billion in economic losses associated with increased uncertainty 

among litigants, damage to the Los Angeles and California economies amounting to 150,000 lost jobs, and lost local 

and state tax revenue of $1.6 billion).

31 See Pearsall, Shippen & Weinstein at 2 (the “costs from state court budget cuts are passed on to poor and middleclass Americans who can least afford them, often resulting from delays which tend[] to increase the cost for 

clients”).

32 Delay extends and increases uncertainty for litigants. Id. at 19‒20. Until the dispute is resolved, “they must 

operate in the presence of uncertainty.” Id. at 19. “Uncertainty makes businesses less prone to invest and expand 

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Similarly, the Legislature must be able to function, especially when the Board is recommending

sweeping legislative reforms to effectuate the Board Fiscal Plan. Were the Government to adopt 

the recommended cuts, it could not provide essential services. The Government therefore 

declines to adopt the proposed cuts.

Compensation Related Initiatives

The Board also recommends additional measures affecting government-employee compensation,

including (i) instituting a hiring freeze, (ii) limiting paid holidays to 15 days annually across all 

public employees, (iii) prohibiting carryover of sick and vacation days between fiscal years, 

(iv) prohibiting any future liquidation of sick and vacation days, (v) eliminating the Christmas 

Bonuses for all public employees, and (vi) standardizing employee healthcare benefits so that all 

employees receive $100 worth of benefits per month.33 Nowhere does PROMESA authorize the 

Board to impose these measures—including hiring freezes—on the Commonwealth.34

But more fundamentally, the Government declines to adopt these inappropriate 

recommendations for the same reasons discussed above regarding the private-sector humancapital and labor reforms. These measures will effectively reduce government employee 

compensation and increase outmigration when Puerto Rico can least afford it by stripping away 

important protections for working families still recovering from the hurricanes. 

Reduction in Appropriations to UPR

The Board recommends targets for reducing Commonwealth appropriations to UPR by $275 

million by fiscal year 2023. The Board proposes to achieve the targeted savings by increasing 

revenue and decreasing expenses at UPR, thereby reducing UPR’s need for Commonwealth 

appropriations. The Board seeks to dictate precisely how UPR must endeavor to achieve those 

savings, overstepping the Board’s fiscal powers under PROMESA. For the reasons discussed in 

a forthcoming letter regarding the recommendations in the New Fiscal Plan for University of 

Puerto Rico, the specific measures proposed are non-binding recommendations that the 

Government declines to adopt. 

Because UPR will not be implementing the recommendations submitted by the Board, the 

Government believes it would be unwise to deprive UPR of much needed resources by insisting 

that the Commonwealth reduce appropriations to UPR beyond levels provided in the 

Government Fiscal Plan. The Government does not believe that the additional severe cuts 

recommended by the Board are necessary. Further, the Board Fiscal Plan lacks clarity as to how 

 

operations.” Id. at 19‒20. In this way, “judiciary funding cutbacks limit firms’ economic growth and leads to an 

inefficient allocation of resources.” Id. at 3.

33 Board Fiscal Plan at 87‒88.

34 The Board’s proposal to institute a hiring freeze exceeds its powers under PROMESA. PROMESA section 

203(d)(2)(B)(i) authorizes the Board to “institute automatic hiring freezes” only at “covered instrumental[ities]” (not 

at the Commonwealth level) and only after the Government has failed to correct a budgetary inconsistency.

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UPR can implement the additional cuts and continue operating effectively. 

* * *

My Administration has made hard choices in asking Puerto Rico’s 3.4 million U.S. citizens to 

bear their fair share of sacrifice to achieve fiscal balance and economic prosperity for Puerto 

Rico in the aftermath of two devastating hurricanes. I remain hopeful that both the Government 

and the Board will continue to work in the same spirit of cooperation that resulted in significant 

agreement on the content and contours of the Government Fiscal Plan. Our reasoned 

determination to not accept the Board’s recommendations rests on the sincere and good-faith 

belief that the Government must maintain significant flexibility within the domain of its 

exclusive policy-making powers necessary to deal with the aftershocks of last September’s tragic 

events.

Going forward, our solemn and common endeavor with the Board must and should be to avoid 

intramural confrontations and instead focus on restructuring Puerto Rico’s outstanding debt 

without further distraction or delay. Using the tools provided by Congress under Title III of 

PROMESA, we should jointly forge ahead to achieve an equitable and balanced restructuring of 

that debt, one in which all of Puerto Rico’s stakeholders share in the sacrifice. We steadfastly 

stand ready to partner closely with the Board and all of Puerto Rico’s stakeholders to proceed 

with this task. The fruits of our success meeting this important challenge will advance and 

ensure the dawn of Puerto Rico’s long awaited dream of lasting economic growth and prosperity 

for its people.

Most respectfully,

Ricardo Rosselló Nevares

Governor of Puerto Rico

cc: Members of the Financial Oversight

and Management Board of Puerto Rico

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