Catastrophe Reserve Fund Money Frozen in the GDB
The $12.7 million from the State Catastrophe Insurance Fund’s (CFSE by its Spanish acronym) Reserve Fund, used by the government for emergencies such as the Caribbean Petroleum (Capeco) tank explosion, are frozen in the Government Development Bank (GDB).
Such was confirmed Friday by CFSE Executive Director Liza Estrada, during an eleventh day of transition hearings, when she also affirmed that for the first time the public entity possesses a $15 million budget gap.
Despite the account being frozen, Estrada indicated that the CFSE could access other budget items in case of an emergency —such as reserve accounts and investments—, but “it isn’t the best practice.”
This isn’t the only account they have frozen due to the GDB’s lack of liquidity. The current account, the account used for the injured, the time deposit and the Medical Malpractice Trust are also in the GDB, entity that has only allowed them to retrieve the amounts corresponding to payrolls and compensations to the injured.
When questioned by Alfonso Orona, member of governor-elect’s Incoming Transition Committee, Estrada acknowledged that the CFSE’s situation is worse than it was four years ago, partially because of the approved legislation during these four years to retrieve funds from the public corporation to transfer them to the general fund, which barely has liquidity.
Orona estimated the CFSE “has been de-capitalized of $600 million on this four-year term” through legislations such as the Fiscal Sustainability Act (66-2014) or Act No. 80-2015 (to allow a loan or contribution to the general fund, among others.
Governor-elect Ricardo Rosselló’s designated chief legal adviser rebuked the CFSE official regarding the corporation’s financial sustainability practices by having nearly 42% of the investment portfolio tied to the government’s obligations, which seeks to renegotiate its debt of nearly $70 billion.
By late 2013, the CFSE invested $110 million in the government of Puerto Rico’s general obligations (GOs), whose value has been reduced to $67 million. That was the only occasion during the four-year term when the CFSE invested on the government without a mandate of law.
“I had knowledge [of the island’s financial situation], but on December 2013 it was good business [to invest $110 million in government bonds],” claimed Estrada.
The CFSE’s situation worsened with federal Government Accounting Standards Board 68th pronunciation (GASB 68), which requires public pension systems in U.S. local and state governments to acknowledge in their financial statement the financing deficiencies that belong to them by concept of their own employees.
“In the last financial statement that was published, which was 2014-15, the GASB informed that that there had been $1.4 billion withdrawn from the fund… The impact was very big because it places financial statements in the negative for the first time. In net assets the financial statement, it was reported there was a loss of $930.4 million… Without GASB 68 we would be in $420.5 million on the positive side… We aren’t the wealthy agency in the government anymore,” detailed Estrada.