Puerto Rico Gov’t Warns About February Fiscal Cliff
SAN JUAN — According to the most recent cash flow projections of the Alejandro García Padilla administration, the Puerto Rico government could find itself without enough cash to operate and fulfill its obligations as soon as February.
The new fiscal figures, which were revealed publicly Wednesday, were discussed with both Promesa’s fiscal control board during a private meeting in Boston in late October as well as with Gov.-elect Ricardo Rosselló’s transition committee this week.
Once again, the outgoing administration seeks to demonstrate the extent and urgency of the commonwealth’s liquidity woes.
The situation could worsen come the phaseout of the Puerto Rico Emergency Moratorium and Rehabilitation Act (Act 21 of 2016), set to expire Jan. 31. The government could then face the obligation to meet more than $1.3 billion in pending debt payments, for which it would only have roughly $100 million in cash available, according to projections prepared by Conway Mackenzie.
Along with the end of the moratorium law comes the end of the executive orders issued by Gov. García Padilla that redirect several revenue streams previously pledged to cover debt service. The outgoing administration anticipates this would lead to a financing gap of more than $2.2 by the end of fiscal 2017, if the government meets its debt obligations in full.
If the moratorium legislation is extended until at least June 30, the government’s checkbook could remain in the black, according to the outgoing administration. This would entail the continuity of such cash-management measures as stretching payments to suppliers and disbursements to public entities.
Meanwhile, the recently convened special legislative session, which begins Thursday, doesn’t include the extension of Act 21. “The moratorium law runs until Jan. 31, and its term could be extended by 60 days. But the moratorium bill was conceived as a transitional law, it was not permanent,” La Fortaleza Chief of Staff Grace Santana told Caribbean Business earlier this week.
When asked whether the incoming administration would extend the law, William Villafañe, who is Rosselló’s transition committee director, said Wednesday the call has yet to be made, adding that the transition process must run its course first.
“As the public hearings are underway and each issue is addressed, the governor-elect and this transition committee will then be in a position to make statements about [the moratorium matter],” Villafañe said. “Nothing has been decided yet,” he added.
Also in February, the commonwealth could see the lifting of Promesa’s stay against creditor lawsuits, as the federal law calls for its expiration on Feb. 15. While the legal protection could be extended for 60 or 75 days, the government must be closing on out-of-court voluntary agreements with its creditors under Title VI, and the decision rests with the fiscal board and the federal court.
The outgoing administration is warning about quickly depleting federal healthcare funds and the potential loss of revenue from the 4% excise tax on foreign corporations—a combined hit projected to top more than $1.2 billion during fiscal 2018, which begins July 1. Moreover, the island’s main retirement systems could deplete their liquid assets as early as June, which would leave the government footing the bill for current benefits paid to Puerto Rico’s pensioners
Double-down on Title III
The García Padilla administration seeks to convince both Rosselló and the fiscal board about the need to access Promesa’s debt-restructuring framework under Title III as quickly as possible.
“If we follow Title III of the law, there is no additional austerity or taxes,” the outgoing governor recently told the press. “Those who do not want [Title III] propose more austerity and taxes.”
For her part, Santana told Caribbean Business that “the government’s bid is for the fiscal oversight board to be convinced of the need to start the restructuring process under Promesa’s Title III.”
The García Padilla administration is urging the board to green-light the long-term fiscal plan delivered last month as a first step so the board can file a Title III restructuring action on behalf of the commonwealth in federal court, as established by Promesa.
“That is yet to be defined [whether to seek Title III]. We have a fiscal committee that is working hand in hand with the governor and will eventually reveal what the next steps are,” Villafañe told Caribbean Business when asked about the matter. He added that Rosselló “has made it clear that this will be based in a good-faith [debt] renegotiation” with Puerto Rico’s creditors.
While the fiscal board prepares to hold its third official meeting Friday in Fajardo, the governor-elect has been holding meetings in New York with representatives of creditor groups and credit-rating agencies, as he seeks to regain “the market’s credibility in Puerto Rico.”