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Puerto Rico gov’t: Cash need of $3.6B before year’s end

By on November 6, 2017

SAN JUAN — The government of Puerto Rico needs roughly $3.6 billion before year’s end, according to its most recent projections. Absent an immediate injection of money, it would run out of cash by Dec. 15, says Gov. Ricardo Rosselló Nevares administration.

It is still unknown how much money would be needed to make it to the end of the fiscal year (June 30).

“The post Maria forecast of the impact of receipts, the increase in disaster-related spending and the expected timing of reimbursements will result in a deteriorating cash position and the need for additional emergency funding before year end,” said last week Gerardo Portela, the director of the commonwealth’s fiscal agent, the Financial Advisory & Fiscal Agency Authority (Fafaa).

During his presentation at the tenth public meeting of Puerto Rico’s financial control board, Portela further warned the commonwealth predicts a 53% drop in revenues for this fiscal year, following Hurricane Maria. It translates to more than $6 billion, according to projected revenues for fiscal 2018 under the once-set-in-stone fiscal plan. The Rosselló Nevares administration must revise the latter by Dec. 22.

Loss of jobs, outmigration, lack of information systems and business shutdowns and interruptions are some of the causes that prompt the projected fall in revenue collections. Most of the damage will begin to reflect in the coming weeks, commonwealth officials say.

On Capitol Hill, there seems to be willingness to assist Puerto Rico with financial resources, but the commonwealth will have to accept greater oversight by the federal government in the use of recovery funds. On Tuesday, the House Natural Resources Committee—which oversees legislation related to U.S. territories like Puerto Rico—will hold a hearing over the future role the fiscal board needs to have following Maria.

Congressional hearings seek to define fiscal board’s role in Puerto Rico recovery

“The President [Donald Trump] has authorized assistance conditioned upon having extra controls on project cost estimation and project management in place to facilitate the expeditious rebuilding of Puerto Rico’s infrastructure,” stated last week the White House Press Office in announcing it had increased the federal government’s cost share to 90% for public assistance work on the island.

It added that it also seeks “to ensure sound stewardship of federal tax dollars.”

In the recently signed disaster relief package, Puerto Rico was allocated up to $150 million to help it meet its matching requirements under federal programs. The bill also increased by $4.9 billion funding for the Community Disaster Loans (CDLs) Program, with the intent to provide the commonwealth access to short-term liquidity.

However, the Rosselló Nevares administration assures it will require yet another cash boost before the second half of the fiscal year to guarantee essential services. It doubles down on Congress approving additional allocations though a supplemental spending bill by December.

In the short term, the commonwealth government believes its cash need until Dec. 31 amounts to $3.578 billion. The latter is about $1.5 billion less than what was initially projected, just after Hurricane Maria. Of this amount, the central government would need $1.656 billion, while the Electric Power Authority (Prepa) and the Aqueduct & Sewer Authority (Prasa) account for $1.022 billion and $194 million, respectively.

Projections don’t contemplate the impact of CDLs, of which Puerto Rico could tap as much as $4 billion.

Sources said work is still being done on how these loans would be awarded and administered, while the U.S. Treasury —which advises on the loans’ terms to Homeland Security— is still requesting information. It is also unknown whether the funds will flow through separate loans or as a single, “omnibus” type loan, with the central government distributing among the various entities, which would include municipalities and public corporations.

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Concerns with municipalities

Although Fafaa has certain oversight roles under various laws, Portela acknowledged during the most recent board’s hearing that the fiscal agent can’t interfere in the day-to-day fiscal management of municipalities in Puerto Rico.

One commonwealth adviser, moreover, explained that the decision to increase the operational reserve from $300 million to $900 million responded to concerns over certain government units and their eventual need for assistance from the central government.

As an example, he pointed to the municipalities. “We are just putting an estimated buffer of cash to step in bridge working capital needs on recovery and expenses,” the consultant added.

In the case of the University of Puerto Rico (UPR) and the Highways & Transportation Authority (HTA), the commonwealth understands both can handle their short-term liquidity needs. HTA has access to funds from the Federal Highway Administration while the UPR has enough money to cover its operational needs through the end of the fiscal year.

As for the Integrated Transportation Authority, the Ports Authority and the Medical Services Administration, it is estimated that the central government’s main account will have to provide about $40 million during this fiscal year to help them cover their cash needs.

$1.9 billion in liquidity

The Treasury Single Account (TSA), the commonwealth’s main account, stood at $1.905 billion as of Oct. 20, according to the government.

Portela was quick to emphasize that the fact there is money available at the TSA—Gov. Rosselló had said liquidity would run out by the beginning of November—it doesn’t mean there will be no cash crunch in the immediate future.

Beginning now in November and through December, Puerto Rico’s coffers will begin to reflect the damage left by Hurricane Maria in public finances, he said.

By the end of this month, the government expects the TSA would hit a $1.3 billion operational reserve set by the commonwealth and its advisers. It explained it divides between an “operational reserve” of $900 million and a $400 million set-aside for expenses related to Puerto Rico’s bankruptcy cases under Title III of Promesa.

Absent external funding, the TSA account would go negative by mid-December, according to the government projections. In the case of Prepa and Prasa, both are already operating below their reserves, or $537 million and $120 million, respectively.

Portela warned that there are “timing” issues that must not be ignored and that affect the commonwealth’s cash flow. For instance, he noted delays in accounting entries through government agencies after Maria, as well as the time it could take to receive reimbursements by the Federal Emergency Management Agency (FEMA).

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