Elías Sánchez says gov’t to spot and hold funds for debt obligations
SAN JUAN – The Puerto Rico government’s representative in the fiscal control board, Elías Sánchez, said Wednesday that the recently introduced Financial Emergency & Fiscal Responsibility Act will change the commonwealth’s public policy—from default to compliance.
However, he conceded that the new law would keep the moratorium on debt payments, although it would be in effect “as long as Promesa’s [stay] lasts.” If the suspension of lawsuits against the government were lifted, the locally established moratorium would be ended, Sánchez assured.
Meanwhile, the official said the “overturn [of] any existing legal structure” isn’t being considered for the moment, after being asked about the Sales Tax Financing Corp. (Cofina) and whether the administration was considering tapping into its debt-service funds.
Sánchez further said the bill filed Wednesday seeks to establish a “new public policy” that guarantees essential services, while the rest of the government’s available resources, including the savings achieved in spending, “will be directed toward fulfilling its obligations as debtor.”
As for the executive orders signed by former Gov. Alejandro García Padilla —withholding certain revenue streams that are pledged for debt service—the official said that, due to legal considerations, these will remain in force until they are individually assessed.
“Each of them will be evaluated to see how they can be tempered to the government’s new public policy. That language [in the presented bill] exists so as not to have a situation with legal consequences given [the commonwealth’s prior] defaults,” Sánchez answered Caribbean Business, adding that the short-term liquidity plan will have to be completed before taking action on this end.
That document, which the past administration’s advisory firm Conway MacKenzie is working on, will be presented to the oversight board during Saturday’s meeting. Likewise, any decision to that effect should fall within the fiscal plan that is finally presented, as it is the “basis and foundation of everything,” Sánchez said.
“Due to the defaults that are dragging and which could be liquid and subject to repayment now at the end of the month, it would exceed $1.3 billion, which the government has no way to pay. The government would have to shut down in February,” he said while explaining the reasons why the measure is being presented.
Nevertheless, Sánchez emphasized the goal remains to negotiate and strike agreements outside the courts, which will depend on the creditors’ willingness to sit down at the negotiating table with the different groups of creditors.
The government would identify funds and reserve them for honoring debt obligations—be it defaulted payments or any future debt service—but only after earmarking enough resources to cover essential services.
Although the law specifically mentions the idea of having a “lockbox” in which to deposit funds for these services, Sánchez explained that the legislation would also empower the governor to create another dedicated account in which funds may be deposited to pay its creditors when required.
The official noted that funds deposited in such an account would serve to pay what is owed as a result of the various defaults, as well as any future obligation that may arise once a restructuring deal is reached.
Sánchez said the Rosselló administration is still working on estimates of how much money it would be able to reserve, as only the first steps have been taken.
Defining Essential Services
The representative to the board warned that it will not be easy to define the government’s essential services because such priority areas as security, healthcare and wellbeing could include services that are not essential.
Sánchez said that, along with the board, the services provided by government agencies will be assessed with the aim of identifying which ones are essential. Initially, the largest government agencies, comprising nearly 85% of spending, would be subject to evaluation.
“Everything that is not essential…will be directed toward debt service,” Sánchez said.
Additional Powers Would Ensure Compliance
Among the additional powers that would be granted to the governor and the Fiscal Agency & Financial Advisory Authority (FAFAA), Sánchez explained these are tools that allow the governor to ensure compliance with his various executive orders, the fiscal plan and the directives that could be issued by the board.
The official added that currently there are no technological or control systems that allow this to happen, thus the need to provide the governor with such powers.
As for the ability to redirect special funds into the General Fund, or 35% of the government’s revenue, Sánchez said that it seeks to give the local Treasury Department more visibility and control of the commonwealth’s resources. Likewise, he ruled out that this, or any other, provision of the new law is directed at the funds pledged for Cofina.