La Fortaleza Vetoes Key Fiscal Bill
SAN JUAN — On Monday, Gov. Alejandro García Padilla vetoed a legislative bill that seeks to fund partial payments of Puerto Rico’s general obligation (GO) debt due this fiscal year.
La Fortaleza stated that the legislation was vetoed because it “earmarks for future debt payments monies that are necessary to ensure the operation of government,” including the main funding source for the troubled Highways & Transportation Authority. It adds that the measure promotes fiscal practices that are inconsistent with the administration’s public policy.
What’s more, García Padilla believes it would be “premature” to allocate “a significant amount of resources” to debt repayment, when Promesa’s fiscal oversight board has yet to determine what the Puerto Rico government should keep paying its creditors while undertaking debt-restructuring efforts.
The governor had until Monday, Aug. 1, to sign or veto the measure, which was approved by the island’s legislature during the end of the last legislative session.
House Bill 2959 also included language that incorporated Popular Democratic Party (PDP) gubernatorial candidate David Bernier’s plan to improve the Puerto Rico government’s severely underfunded retirement systems.
To that end, the governor left the door open for a special legislative session, during which new legislation can be presented to address the island’s public retirement systems. La Fortaleza stated that it is important to ensure adequate funding for these, as required by Promesa.
HB 2959 sought to take over certain “clawed back” revenue—funds taken from certain public entities that had been earmarked to repay their debts—or some $450 million, to try to at least cover interest payments due on constitutionally protected debt during fiscal 2017, which began July 1. About $370 million would go to cover GO bonds and $80 million for Public Building Authority debt that is guaranteed by Puerto Rico’s full faith and credit.
PDP Rep. Rafael Hernández, who authored language related to the use of clawbacks to service GO debt, forewarned last week to Caribbean Business that if the bill failed to be signed by the governor, it could bring about problems to the Puerto Rico government, both legally and politically.
From a legal standpoint, Hernández argues that the island’s government must allocate funds to service GO debt, even if only to cover interest, as not doing so could further impair contractual obligations between the Puerto Rico government and its creditors, as well as the island’s ability to regain access to capital markets.
Politically, the governor’s decision could spark yet another battle within the PDP, with only a few months before the island’s general election, as the bill includes compromises among the House, Senate and the party’s gubernatorial candidate.
As previously reported by this newspaper, La Fortaleza has had concerns with HB 2959 since it was approved a month ago, particularly over the use of clawed-back funds.
“At this moment, we are in no position to specify the particular use that would be given to these funds,” Santana said two weeks ago in response to Caribbean Business’ inquiries over the use of the $269 million clawed back to date. The García Padilla administration says that money has yet to be used.
Under its Constitution, Puerto Rico could take control of these previously pledged revenue streams, but only to pay its GOs if no other resources are available.
“Due to the passage of Promesa [Puerto Rico Oversight, Management & Economic Stability Act] on June 30, we are currently evaluating the new juridical framework upon which the commonwealth should address its obligations with creditors,” Santana added at the time, while acknowledging that the administration has discussed whether to use these funds to cover GO debt payments.
Under Section 405, Promesa states that the federal fiscal-control board, in its sole discretion, would determine if Puerto Rico is able to make interest payments during the federal law’s moratorium period. However, it is unclear who would make that call in the time before the board is constituted.
Of the $269 million collected since January, $143 million remains corralled at the troubled Government Development Bank, which continues to operate under cash outflow restrictions. The remaining $146 million sits in a “clawback account” held in a private bank.
HB 2959 would have taken over some of the clawed-back revenue streams—only those that were pledged to service debt—and “redirect” them to a special fund that would service Puerto Rico’s constitutionally protected GO debt.