Thursday, July 19, 2018

[Column] Brewster’s Billions: A Hollywood Comedy gets Underway in Puerto Rico

By on April 12, 2018

Do you remember Brewster’s Millions? The 1985 comedy starring Richard Pryor, an iconic comedian, as minor league baseball pitcher, Montgomery Brewster, who unexpectedly inherits $300 million; but to get it, he must spend $30 million in 30 days to get the full $300 million.

Let’s repeat that again: Spend $30 million in 30 days and you get $300 million.

Sound familiar? 

Attorney John Mudd

If this sounds like something only Hollywood could dream up, think again. It’s happening right here in Puerto Rico.

Here’s how it works in Puerto Rico’s case: Governor Rosselló can have up to $4.9 billion from Uncle Sam – in the form of the Community Disaster Loan (CDL) – but first he must spend hundreds of millions to empty the Commonwealth’s Treasury Single Account and meet the minimum threshold set of $1.1 billion.  

Unlike for Brewster, who couldn’t buy property or destroy anything valuable at the end of 30 days, there are no such controls that would stop the Governor from spending hundreds of millions without regard; certainly the Oversight Board won’t stop him.

So how will Governor Rosselló spend it? 

It could go to PREPA. Secretary of the Puerto Rican Treasury Raul Maldonado admitted as much recently when he said PREPA might need “another $200 million.” It could also go to PRASA, according to the Secretary. Maldonado also claims because of the hurricanes, “a lot of people were unemployed for three months, so I would expect to be collecting less on April 15, 2018 and paying out more in reimbursements.”

Other options for spending down include $327 million from the General Fund for the new road improvement program, more money for pensions or a bailout for the credit unions, which are bankrupt because of the default on Puerto Rico’s bond obligations and regrettable lending to the public corporations.

Alternatively, they could be quietly siphoned out to hundreds of other bank accounts as the Commonwealth has done in the past. Just remember the “discovery” of $6.875 billion in 800 secret different bank accounts back in December, which the Board claimed to know nothing about.

Of course, the Board is ostensibly in place to monitor the Commonwealth’s finances and prevent the misuse of taxpayer money, but to date, it has been very weak on using its powers to enforce fiscal responsibility and governmental reforms. 

The best example is the Board’s failure to force the Rosselló administration to define essential services. Seemingly, the whole Puerto Rican Government is essential according to the Board. 

As this San Juan “comedy” unfolds, Caribbean Business reported some of the details of the unreleased CDL term sheet and it may not be what Governor Rosselló would like to admit. According to this newspaper’s sources, the Trump administration is only making this loan available until October and can only be used to “fund essential services,” and not for “debt service […]  lobbying or […] any Title III costs.”

U.S. Treasury drafts conditions tied to Puerto Rico’s CDL funds

This in spite of their doubt, however, that Puerto Rico’s central government needs the money. Trump administration sources indicated to Caribbean Business that Puerto Rico “does not need the money” after having“twice declared it would run out of money without federal funds.”

Still, Governor Rosselló is determined to spend down the General Fund to reach the $1.1 billion and secure the big Brewster’s Billions payday of $4.9 billion. This week, he made that clear when he stated, “if one follows the money, it keeps bringing us closer to the threshold where we could qualify to access those funds.”

Transparency here will be paramount. Spending money in the hopes of that you will get the $4.9 billion is no way to govern. So while we patiently wait to see the details of the term sheet between the U.S. Treasury and the Puerto Rican Government, we are reminded that watching Brewster’s Millions was, after all, a comedy. However, what is taking place in Puerto Rico is no comedy. Let’s see what happens.

— John Mudd is an attorney and legal analyst in Puerto Rico with over 30 years of experience. He is admitted in Puerto Rico, the U.S. District Court for Puerto Rico and the First and Fourth Circuit Courts of Appeals. For more than three years, he has been analyzing the possibility of a control board for Puerto Rico. You can follow him on Twitter @muddlaw and on his blog www.johnmuddlaw.com.

–The views expressed in the Opinion section are the columnists’ own and not necessarily the view of Caribbean Business.

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