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On the brink of running out of cash, Puerto Rico gets lifeline from Capitol Hill

By on October 24, 2017

SAN JUAN — On Oct. 22, 2015, then Puerto Rico Gov. Alejandro García Padilla told a U.S. Senate committee that the commonwealth government would run out of money by year’s end.

Two years later, the unincorporated U.S. territory—with more than half its 3.4 million population living under the poverty rate—faces a similar scenario, for a fourth time in that time period.

Amid Hurricane María’s mortal blow on commonwealth revenues, government officials warned that absent action from Capitol Hill, coffers would run dry by early November.

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On Tuesday, the U.S. Senate approved a $36.5 billion disaster relief package for Texas, Florida, California, Puerto Rico and the U.S. Virgin Islands. The House had signed off on the measure on Oct. 12.

The bill, which now awaits the signature of President Donald Trump, authorizes a critical $4.9 billion funding to a federal loan program that would provide enough cash to ensure the commonwealth government keeps its doors open for the next few months. It also pumps an additional $1.3 billion for the Nutritional Assistance Program, while another $150 million will help the commonwealth meet matching requirements for federal funding under various programs.

In all, Puerto Rico stands to receive some $6.4 billion from this package.

Yet, as revenue dwindles and keeping “all things equal,” this would only provide enough liquidity until February, according to Raúl Maldonado, the commonwealth’s secretary of Treasury.

The central government’s payroll is roughly $275 million a month; operational costs and utilities add up an extra $90 million. This excludes similar expenses by municipalities and public corporations such as the battered Electric Power, Aqueduct & Sewer, and Highways & Transporation authorities.

“We need to restore [Treasury’s] system. [The $4.9 billion loan program] is a short-term help. It is our responsibility to have a system to collect revenues up and running by January. It’s on us,” Maldonado noted.

In the meantime, the administration of Gov. Ricardo Rosselló Nevares expects that the $4.9 billion made available for Community Disaster Loans (CDLs) would bridge the gap until money begins to flow into Treasury’s coffers.

A community disaster

CDLs are available to “local governments” that have lost revenues because of a major disaster, hindering their ability to provide services. The program falls within the Stafford Act, which governs the Federal Emergency Management Administration (FEMA).

“People quickly think of it as a loan, but the truth is more than 92% of these loans are canceled. It is basically access to liquidity,” Gov. Rosselló said during a recent interview.

Puerto Rico governor, fiscal board anticipate changes to fiscal plans

Although details were still being hammered out, according to sources, in general, the secretary of Homeland Security, with the advise of the U.S. Treasury, will determine the terms, uses and conditions of funds distributed through these loans, as well as loan cancellations.

Some changes to the program were introduced to tailored the funding toward Puerto Rico. A $5 million cap on CDLs was waived for the central government, as well as other conditions under the program. The loans will also be available to cash-strapped municipalities and public corporations, commonwealth officials confirmed.

Locally, Puerto Rico’s government authorized representative—Office of Management & Budget Director José Marrero—is the liaison between the commonwealth entity that request a CDL and FEMA.

The $4.9 billion, moreover, are not exclusive to Puerto Rico. The U.S. Virgin Islands also receives a share, although the bulk is still expected to be granted to the commonwealth government, its municipalities and public corporations.

As of this writing, Caribbean Business still awaits for the Puerto Rico Federal Affairs Administration (PRFAA) to deliver a set of guidelines on the request, approval and disbursement processes of the CDL program.

Dwindling revenue

Like a boxer’s blow to the stomach, Hurricane María pounded on the government’s already fragile ability to collect revenues. The referee’s count still goes on.

“We won’t have any revenues for the foreseeable future,” Gov.  Rosselló said a few days after the storm made landfall in Puerto Rico on Sept. 21. That is as much as $636.6 million only in October, according to estimates by the local Treasury.

What’s more, as agencies and instrumentalities ramp up spending related to recovery efforts, the commonwealth government siphons through most of its available cash. About $1.8 billion was available before the storm, according to a Treasury spokesperson.

Puerto Rico’s Treasury secretary expects some revenue to begin to pour in within the next month. Yet, he is aware it will be substantially less than originally projected.

“How much we will collect will depend on [María’s] short-term effect on the economy. We know there will be a significant drop in these first months because of outmigration and damages. Tough months lie ahead,” Maldonado said.

He explained that the island’s large taxpayers—those making $50 million or more in annual sales—have until mid November to remit any sales tax money collected in September and October. In the case of small and midsize businesses, they have until Dec. 15. Reporting deadlines for other revenue streams such as motor vehicle licenses and taxes on cigarettes and alcoholic beverages, were also extended until year’s end.

The commonwealth will have to wait until then to receive that revenue, said Maldonado, who noted that although most transactions have been in cash and most businesses remain closed, the agency has enough information to validate how much money Treasury should receive—at least from midsize and large companies.

“The small business, that would be a tough one,” he conceded.

 

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