House Passes Debt Moratorium Legislation Amid Concerns
SAN JUAN -On noon Wednesday, Puerto Rico Governor Alejandro García Padilla signed into law a measure that would enable him to declare a moratorium on the commonwealth’s debt payments, mere hours after the House of Representatives passed the legislation in a divided vote.
The newly signed Puerto Rico Emergency Moratorium & Financial Rehabilitation Act also seeks to provide a new receivership process to deal with the financially battered Government Development Bank (GDB), which, according to the bill, only had around $560 million in liquidity as of April 1.
Early on Wednesday, the legislation was approved in a 26-21 vote without amendments after House Treasury Committee Chairman Rafael “Tatito” Hernández Montañez gave up on attempts to take out the general obligations (GOs) from the proposed debt moratorium.
The New Progressive Party delegation presented amendments that would have prevented the GOs and the debt of the Puerto Rico Electric Power Authority and the Aqueduct and Sewer Authority from being included in the debt moratorium as well as require the Legislature to approve all contracts over $1 million, but they were also rejected.
Acting under the Puerto Rico Constitution’s police powers, the legislation seeks to empower the governor to declare a moratorium on all of the commonwealth’s debt, as well as a stay against litigation that may result from triggering the mechanism. The measure would amend, or “modernize,” the receivership process not only of the GDB, but also that of the Economic Development Bank. If the GDB is placed under the new receivership process, a temporary “bridge” bank could be created to carry out some of the GDB’s functions and honor deposits, the bill reads.
The measure would create a new entity called the Puerto Rico Fiscal Agency & Financial Authority to essentially take over the GDB’s roles as the island’s fiscal agent and financial adviser. The entity’s board would comprise only one member, and in addition to its fiscal agent duties would “take charge of the commonwealth’s [debt-] restructuring efforts,” the bill further states.
The legislation was approved after a long debate Tuesday that was punctuated by a long recess in which lawmakers discussed the failed amendments. When lawmakers resumed work after midnight, House Speaker Jaime Perelló jokingly said the reason for the long recess was to celebrate New Progressive Party Rep. Antonio Soto’s birthday. Soto replied that if that were the case, he would rather have had preferred a text message congratulating him.
During the debate, Hernández Montañez harshly criticized his delegation as he insisted GOs, which are backed with the commonwealth’s full faith and credit, should not be lumped with the rest of the debt in the proposed moratorium.
The commonwealth’s constitution states that when government revenue is not enough to government operations, debt and interest must be paid first. “We continue making the same mistakes…. With one solution, we want to solve all the problems of the country, that is the problem. We must be responsible for bringing viable solutions that pass constitutional muster. If we put all the proposals in one measure and it is declared unconstitutional, what have we accomplished?” he asked.
Hernández Montañez blamed GDB President Melba Acosta Febo for the bank’s problems. Acosta Febo is the chief financial officer of the government. The GDB head earlier in the day opposed taking out GOs from the debt moratorium, contending that the bill would not work without its inclusion.
“The problem is not the vehicle. For me, the problem is the driver, I want to be clear on this. I think the problem here is the driver of this institution has no credibility, and if one looks at the history of men and women who have led this institution, there have been people of stature, who opened doors instead of closing them,” he said.
He insisted the bill does not contain the appropriate language needed to tackle the GDB’s fiscal woes and was too late in the process. The government, he said, was trying to make “last-minute decisions for things that should have been done from day one.”
“You have to adjust spending to the reality of what is collected. We have to rethink our tax model. We have to find a plan on which we all agree on, but to find a path we must recognize the problem,” he said, adding, the current administration is partly to blame for the fiscal crisis. “It’s very easy to talk about the past administration, but these $700 million is ours, and that money has not allowed us to balance the budget,” he said.
However, it was clear the bill was not getting the green light without Hernández Montañez’s amendments. Popular Democratic Party Rep. Luis Raúl Torres warned that he, Rep. Luis Vega Torres and Rep. Manuel Natal were going to vote against the bill if Hernández Montanez’s amendments were incorporated to the bill.
He recalled that the three lost their legislative committees and were disciplined by the caucus when they voted against tax reform. For that reason, he said anyone who decides to break agreements reached during the Legislative Conference also deserved to be punished.
Vega Ramos said the bill seeks to give the governor the tools to continue providing essential services in the event of an insolvency.
House Minority Leader Jenniffer González called the bill a mess. She noted that the proposed authority created by the bill will be headed by a board comprised by only one member.
“This bill would virtually implement a bankruptcy process…. Full faith and credit states we must respect the debt and contracts. This measure will take the money from the bank and put it in another institution,” she said.
Luis J. Valentín contributed to this report.