Oversight board certifies fiscal plans for Puerto Rico Industrial Development Co., co-op regulator Cossec
SAN JUAN – The Financial Oversight and Management Board for Puerto Rico announced Tuesday that it certified the fiscal plans for the Puerto Rico Industrial Development Co. (Pridco) and the Public Corporation for Supervision & Insurance of Cooperatives (Cossec by its Spanish acronym).
Pridco and Cossec “are important contributors to Puerto Rico’s recovery and economic development,” the board’s executive director, Natalie Jaresko, said in the panel’s announcing statement. “The Fiscal Plans outline specific improvements to strengthen the two institution’s financial strength and operations to better serve their respective mandates of managing government properties and regulating a sizable share of Puerto Rico’s financial market.”
The board gave the following brief descriptions and comments of the entities.
PRIDCO owns and manages a large number of industrial properties, with 1,513 units and 648 undeveloped lots located throughout Puerto Rico which are key component of the economic development policy of the Island. The Government utilizes these properties to attract investors and ease their entry into the marketplace.
Unfortunately, PRIDCO has a history of underinvesting in the properties it manages. Deferred capital expenditures and the deterioration of its facilities resulted in falling revenue. Vacant properties are not adequately marketed to spur Puerto Rico’s economic development. This is critically important now as the opportunity arises to attract pharmaceutical and medical device manufacturers seeking to secure their supply chain manufacturing in the United States.
To remedy this underinvestment with adequate funding amounts, facilitate the well-being of PRIDCO’s tenants, and stabilize revenue and occupancy, the Fiscal Plan requires PRIDCO to establish a capital reserve fund (Capex Reserve Fund) to invest in currently occupied or temporarily vacant buildings, and invest to redevelop or sell select properties. The Capex Reserve Fund will also be funded with a one-time contribution of $8.4 million to address urgent demolition needs that may raise safety issues.
In addition, the PRIDCO Fiscal Plan requires PRIDCO to produce:
• A feasibility study to determine whether outsourcing PRIDCO’s real estate portfolio to a third-party asset manager is worthwhile, profitable, and economically reasonable
• A feasibility study to determine if PRIDCO should be privatized
• A plan to sell about 1.4 million square feet of real estate in various states of disrepair and require significant investment to be rentable
COSSEC is the regulator for Puerto Rico’s credit and savings cooperatives, and non-financial cooperatives. COSSEC also protects cooperative members from losses caused by a failing cooperative. The Fiscal Plan requires reforms to protect the approximately 1 million residents of Puerto Rico who depend on cooperatives for access to financial services.
The COSSEC Fiscal Plan requires COSSEC:
• To improve its governance by establishing an independent board of directors comprised of five members not affiliated to a cooperative and with appropriate academic and experience credentials.
• To improve its accounting practices, and the way it supervises financial cooperatives, including assessing their risk and stability, and how to resolve failing cooperatives.
• To pursue legislative changes that would transfer the regulatory power over non- financial cooperatives to Comisión de Desarrollo Cooperativo (CDC). Resources within COSSEC would be better employed, and only cooperatives that contribute to the insurance fund would be regulated by it. Under the current structure, COSSEC regulates 113 financial and about 50 certain non-financial cooperatives.
The COSSEC Fiscal Plan also includes about $400,000 in funds for hiring additional examiners that will be released subject to the completion of these required milestones.
Established by the Puerto Rico Oversight, Management and Economic Stability Act (Promesa) of 2016, the board’s stated mission is “to provide a method for Puerto Rico to achieve fiscal responsibility and access to the capital markets.”
The board will be holding its 19th public meeting Wednesday on on Fiscal Year 2021 Budgets and a Public Hearing on the status of the Commonwealth Financial Audits. It will take place via videoconferencing, beginning at 10 a.m. The meeting will be open to the public and live streamed via the board’s website.