Fiscal board: Forensic audit is key to Puerto Rico disaster loan disbursements
SAN JUAN – Despite the Puerto Rico government’s urgent need for cash, the Financial Oversight & Management Board ruled Friday that until the forensic analysis of government bank accounts is completed, convincing the U.S. Treasury to give the green light to a $4.9 billion disaster loan for the island, will be put on the back-burner.
The U.S. Department of the Treasury and the Federal Management Disaster Agency recently said Puerto Rico’s $4.9 billion loan will not be granted because the local government has $1.7 billion in available funds. The island’s government has insisted it has a liquidity problem but has been unable to convince Treasury that a large portion of the $1.7 billion is restricted funds. During the hearing, the fiscal board admitted it is likely Judge Laura Taylor Swain will have to give final approval of the loan as part of the bankruptcy-like process in U.S. District Court.
“At the end of the day, it is irrelevant because we have to convince Treasury, and the key answer is that we have to be as diligent, as detailed, as rigorous and as quick as possible in providing that information if we want to move Treasury forward,” said board member José González.
The government insisted again Friday on the need for the loan because of its urgency to avoid total insolvency of the Puerto Rico Electric Power Authority (Prepa), whose accounts show it has $245 million to operate, and the Aqueduct & Sewer Authority (Prasa), which has $343 million in its bank account.
If the loan is not released, the government has said it will pass legislation to inject money drawn from the commonwealth’s general fund into both public corporations. Another board member, Ana Matosantos, said the panel will work hand in hand with the government to help resolve the liquidity problems that must be addressed. “We are focused on transparency, analysis…and being aware about what is happening,” she said.
Although the government has about $1.7 billion in the Treasury Single Account (TSA), much of that money is restricted, so assertions by the U.S. Treasury that the government has cash are not correct. As an example, $230 million of that money is employees’ tax withholdings, and other accounts are monies that need to be used for essential services.
Gerardo Portela, the executive director of the Puerto Rico Fiscal Agency & Financial Advisory Authority (Fafaa), said there is $6.8 billion distributed in some 800 banks, but a large number of those accounts are restricted. For example, $1 billion belongs to the Sales Tax Financing Corp., known as Cofina by its Spanish acronym; $374 million is pension money; $806 million is restricted by Title III bankruptcy funds; and $439 million is federal housing funds.
On the other hand, officials from the past Popular Democratic Party administration, including former Government Development Bank Director Melba Acosta and former Treasury Secretary Juan Zaragoza, reiterated that the money was counted by the government but a large part of the accounts are restricted.
The fiscal board’s executive director, Natalie Jaresko, said the hearing raised questions about government practices and announced that a forensic analysis of the accounts and investments will be conducted.
Although the government has said it will conduct its own analysis, board Chairman José Carrión insisted there will be no duplication of efforts or resources.
On the question of whether completing a forensic analysis would delay the design for fiscal plans, board member Matosantos said it is important and a step forward because the information will be available as soon as possible to complete the budget process and restructure the debt. “We must work with the available information, although the plan is not written in stone and can be amended,” Carrión said.
Jaresko, on the other hand, said talks with U.S. Treasury officials about the government’s finances are ongoing.
Christian Sobrino, the government’s representative on the board, insisted that the more than 30 requests for information from Treasury officials have been answered. “Because the loan is not available, the central government will have to allocate that money…. Imagine the costs to replace…what Prepa spends in the coming months,” he said, noting that the money will be allocated as soon as the bill is passed.
Sobrino did not respond directly when asked why Prepa and Prasa have not applied directly for disaster loans instead of going through the local government. On the other hand, he assured Prepa will not accept an offer from its bondholders because the electric utility has yet to receive a good proposal and will not increase utility rates to help finance the two public corporations.