Excerpt below from “Puerto Rico Oversight Board, Rosselló tussle over Christmas bonus”
By Robert Slavin, November 15 2018, 3:27pm EST
Puerto Rico’s Christmas bonus is again under the spotlight as the Oversight Board pressures Gov. Ricardo Rosselló to identify spending reductions to offset the cost of his plan to pay the annual benefit.
The clash between the board and Rosselló comes more than two years after Puerto Rico stopped paying its general obligation debt. Since July 2016 Puerto Rico has defaulted on most of its other bonds. The continuation of the Christmas bonus has been a sore point for some bondholders.
Puerto Rico’s government must live within its budget regardless of its cash balances, Oversight Board Executive Director Natalie Jaresko said in her letter. A failure to cut the bonus, other payroll, or other operating spending sufficiently before the end of the current fiscal year may “imperil… the commonwealth’s ability to make payroll for its employees.”
Cumberland Advisors Portfolio Manager Shaun Burgess said, “It doesn’t surprise me that the commonwealth is moving ahead with paying the bonuses. I suspect the commonwealth’s elected officials would have done whatever is necessary to pay them since not doing so would have been a deeply unpopular move.” Cumberland owns insured Puerto Rico bonds.
The Puerto Rico Oversight, Management, and Economic Stability Act, which governs the board’s capabilities, says that the board is to review the compliance of the local government’s actual spending with the board’s approved budget. If the board finds that it is inconsistent, the act says the board is to inquire with the government for more information about the spending and future spending.
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