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Oversight board warns Puerto Rican bondholder reparations bill doesn’t comply with fiscal plan

By on October 2, 2018

The fiscal board’s executive director, Natalie Jaresko (CB file photo)

SAN JUAN – In a letter published Tuesday, the executive director of Puerto Rico’s fiscal oversight board, Natalie Jaresko, let Sen.  José Nadal Power know that a bill he authored to compensate Puerto Rican bondholders does not comply with the panel’s mandate.

Jaresko said that Senate Bill 1089, which proposes to grant tax credits for losses incurred by holders of Puerto Rico bonds, is not compliant with the government’s fiscal plan, “based on our analysis” of the proposed legislation.

“As you know,” she wrote, “Section 14.3.2 (Principle of Revenue Neutrality) in the Certified Fiscal Plan states: ‘Puerto Rico needs to drive toward more formality and increased compliance within the tax base, but it cannot lose revenues in the process. Therefore, any tax reform or tax law initiatives that the Government undertakes or pursues during the fiscal plan year must be revenue neutral. To ensure revenue neutrality, the implementation of any tax law initiatives must occur sequentially, with the Government ensuring that initiatives are paid for before rates are reduced,'” she wrote.

She said the aforementioned requirement is a “core component of how the Oversight Board will review any tax proposal’s compliance with the Certified Fiscal Plan.”

Senate Bill 1089 proposes the creation of a new set of tax credits that Jaresko said “will reduce future government’s collections, and as such is inconsistent with the Certified Fiscal Plan” if enacted as proposed.

“We would be pleased to discuss this matter in more detail you and your staff, and are available to meet with the appropriate members of the Legislature to discuss the considerations above,” Jaresko wrote.

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