Economist Predicts Gov’t to Run Out of Cash by March, Congress to Impose Control Board in Response
SAN JUAN – The Puerto Rico government would run out of money by March, essential services to citizens would be severely affected and the U.S. Congress would impose a fiscal control board to remedy the situation, Puerto Rican economist Gustavo Vélez says.
The most recent cash-flow projections by the government show it will be running dangerously low on cash throughout much of the remainder of fiscal 2016, which ends June 30. However, officials have said that, come June, the commonwealth could indeed run out of cash if it continues to pay its guaranteed debt obligations while keeping operations and services afloat.
“This won’t make it to summertime. Unfortunately, the economic contraction’s downward spiral is having a dramatic effect on government revenue,” the economist said Wednesday on a local radio show. The Puerto Rico government recently revised its revenue estimates for the current fiscal year, $500 million less than originally projected.
Vélez believes that given the actual money entering government coffers, along with the effects of the economic contraction, the Alejandro García Padilla administration will run out of money by March and won’t be able to continue providing services to its citizens. This scenario would prompt the establishment of a fiscal control board on the island by the U.S. Congress.
As for the recent visit to the island by U.S. Treasury Secretary Jacob Lew, the economist said the trip seems to be related to the latest congressional hearing on the Puerto Rico issue, to be held next week. The U.S. House Indian, Insular & Alaska Native Affairs Subcommittee will be discussing Jan. 26 the potential establishment of a federal fiscal control board on Puerto Rico.
“More than anything, it was was a public relations trip. What the Treasury, Secretary Lew and Congress need to know has already been said,” Vélez noted. “The only information here that is not clear are the [audited] financial statements, which is not yet known when they will be released.”
Government officials have said independent auditors KPMG have yet to finish their auditing process given the island’s ongoing crisis, thus delaying its final delivery. The fiscal 2014 audited financial statements, which were due last May, will be released within the next weeks, officials have added.
Meanwhile, the economist also questioned the use of about $25 billion received by the commonwealth government from 2008 to 2015, including $7 billion in American Recovery & Reinvestment Act funds, $4 billion under the Affordable Care Act or Obamacare, and the more than $1 billion in Troubled Asset Relief Program to assist two local banks. The $30 billion in new debt issued during this period only made the situation worse, Vélez added.