Fiscal board director talks Puerto Rico debt with Associated General Contractors

Natalie Jaresko speaks to the Puerto Rico chapter of the Associated General Contractors (CB)

Stresses consensual restructuring needed to regain access to markets

RÍO GRANDE, Puerto Rico — The executive director of Puerto Rico’s Financial Oversight and Management Board, Natalie Jaresko, insisted on the importance of reaching agreements with bondholders outside the courts so the island can regain access to capital markets, economic development can resume and her panel’s presence is no longer needed.

Jaresko made her remarks Friday afternoon as part of a discussion the board director held with members of the Associated General Contractors of America, Puerto Rico Chapter, at the Wyndham Grand Rio Mar resort in this northern coastal town.

“We have to overcome the bankruptcy as soon as possible. We have been working hard to solve this challenge and I can literally tell you that we are weeks away from reaching it,” Jaresko predicted.

The fiscal oversight board is preparing to present a $35 billion debt-adjustment plan and a plan to restructure some $50 billion in unfunded pension liabilities

“This is a milestone, a plan that achieves an agreement beyond what we have today, which once approved by the federal court, will pull Puerto Rico out from bankruptcy. We signed agreements with retirees, with active civil citizens and with a key group of bondholders who are willing to do what is necessary to close this chapter in the history of Puerto Rico,”Jaresko said.

“The retirees have been mistreated for decades since the retirement fund needed to finance their benefits was underfunded and eventually went bankrupt. Our agreement ensures that this does not happen again because it establishes an independent pension reserve trust to ensure that PayGo benefits can be paid regardless of the future economic or political situation,” she added.

Jaresko specified that the Official Committee of Retirees in Puerto Rico’s bankruptcy-like process agreed to a moderate cut that will apply only to those with a pension of more than $1,200 a month, representing 40% of the pensioners.

Meanwhile, a group of bondholders accepted a combined haircut that represents more than 60% of the government’s liabilities, which will result in a reduction of the $35 billion in outstanding commonwealth-related bonds to $12 billion. Debt service, including principal and interest, over the next 30 years would be cut by about half, to $21 billion from $43 billion.

“The agreement guarantees that Puerto Rico’s debt will be sustainable in the future and that payments, including Cofina [Spanish acronym for Sales Tax Financing Corp.] never exceeds $15 billion per year, or 9% of the state’s income.

“These agreements are the result of years of tough negotiations, litigation, an audit of the debt that seeks to invalidate part of the GO [general obligation] debt and great consideration to what is best for the people of Puerto Rico. I firmly believe it is a good plan, the best plan given the difficult situation in Puerto Rico,” she said.

Labor an issue

During her presentation, which lasted a little more than half an hour, Jaresko touched on the issue of the labor reform promoted by former Gov. Ricardo Rosselló and said that although changes were achieved, “the private labor market continues to be over-regulated, confusing and expensive.” 

“The legislature has not agreed to apply the same employment rules that exist in 49 of the 50 states, and it is a shame since the best time to implement this type of labor reform is when employment opportunities grow, rather than later when the economy slows down after the stimulus from federal disaster funds [for recovery from Hurricane Maria in 2017],” she said.

Utilities, infrastructure are critical

Jaresko also spoke of the importance of a restructuring agreement reached for the Puerto Rico Electric Power Authority (Prepa), which cut the debt by 30%.

However, for Jaresko, the federal funds to rebuild Prepa’s transmission and distribution system remain a challenge. Regarding critical projects, Jaresko suggested that contractors submit proposals to the board for the repair of roads, aqueducts, low-cost housing and other infrastructure.

The director announced she was also attending Friday the inauguration of a board-approved $5.3 million project to expand the Fajardo landfill, which serves the northeastern part of the island. The expansion will allow the generation of 4 megawatts by converting gas to energy.

“The engineers estimated that the window to dispose of the garbage was only available for three more years and this expansion represents an additional 20 years of operational capacity for this critical infrastructure,” she said while suggesting that the generation of energy must be diversified to be able to the solid-waste management crisis on the island.

“The fiscal oversight board is not the economic development board of Puerto Rico, but I, like the board members, are deeply committed to helping find the right path in favor of Puerto Rico. We cannot be effective without your help. I want that dialogue and it seems to me that Puerto Rico needs that dialogue because we need to work to achieve economic development,” Jaresko concluded.

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Associated General Contractors request hurricane recovery work payment

SAN JUAN – The Puerto Rico Chapter of the Associated General Contractors of America (AGC-PR) said Thursday that the government is delaying paying local contractors who performed emergency work after Hurricane Maria and warned that the issue is already affecting the health of those companies, their capacity to create jobs and the continuity of work on infrastructure reconstruction.

“What company can be more than six months without charging a cent?” Stephen Spears, president of AGC-PR, questioned as he stressed that the local construction industry has been making its human and financial resources available to the local and federal governments toward Puerto Rico’s recovery. However, he said, the delay hinders companies’ ability to participate in the effort, which is the most needed in the island’s history.

AGC-Puerto Rico Sets Eyes on Infrastructure

In a statement, the AGC-PR called on agency heads to identify and implement measures that lead contractors getting paid. “The cash flow obtained from timely payments will increase our ability to continue creating jobs and economic activity in the effort to build a new and better Puerto Rico,” Spears wrote.

Local contractors, the AGC explained, are crucial for the island’s recovery, as they were the first to respond to the emergency after Hurricane Maria more than seven months ago. The association said that the work local contractors carried out includes debris cleanup and mitigation efforts for damage to bridges and roads, protecting the water and sewage system and providing the initial response to deal with the collapsed electrical and telecommunications infrastructure. They also worked at the shipping ports and airports to reestablish transportation.

AGC-P.R. President Stephen Spears (Screen capture of

“After the storm passed, the local construction industry demonstrated its capacity and availability to assume a leading role in the construction of a new and better Puerto Rico. We cannot allow, now that we have jobs to create jobs and the ability to attract workers who had been forced to emigrate, that the government repeat past behavior and strangle us with the lack of payment,” Spears said, pointing out that off-island companies that have been contracted by the federal and local governments are being paid on time.

Puerto Rico is expected to receive $60 billion to $90 billion in federal funds and insurance claim payments as a result of Maria’s impact on the island, the association said. “In order to maximize the impact of this capital injection, the participation of local companies and labor is essential,” it further assured.

A request for comment on the matter was sent to the governor’s office.

[Editorial] ‘Túmbame La Pajita’ Economics

Editor’s note: The following editorial originally appeared in the April 12-18 issue of Caribbean Business.

The most recent round of the rumble in the congressional jungle between Gov. Ricardo Rosselló and the Financial Oversight & Management Board (FOMB) is more akin to wrestling where the arm-twisting is for show. In essence, Puerto Rico’s government launched one more prefight publicity salvo in refusing to follow 35 of the 48 measures the board wanted included in revisions to draft fiscal plans delivered on April 5.

Gov. Rosselló’s refusal to include measures he views are beyond the FOMB’s purview—dictums in the realm of public policy such as the elimination of the Christmas bonus and minimum wage—are painful austerity policies that come with a political cost. The question that observers on the Hill are asking is whether this is mere finger-wagging prior to succumbing to fiscal plans that the board is submitting or whether Rosselló is in this for the full 15 rounds.

A drag-out tussle could be very costly. The Rosselló administration asserts that the estimated cost in legal and professional fees could reach $1.4 billion over the next decade as the various creditor constituencies sue over grievances in the restructuring of their debt under Title III bankruptcy proceedings contained in the Puerto Rico Oversight Management & Economic Stability Act (Promesa).

Given the recent shenanigans between the governor and the board, there are some creditors who fear the Rosselló administration’s estimates are conservative. The túmbame la pajita accounting underpinning Junateconomics could drive legal costs into the stratosphere. Even before the WWE caged match in the U.S. District Court for the District of Puerto Rico, Caribbean Business was told by one influential creditor from the monoline bond insurance realm that the legal costs could reach 5 percent of Puerto Rico’s total debtload—somewhere in the vicinity of $3 billion. At the time we thought it an exaggeration—now, not so much, given the added layer of hyper-mitosis between Rosselló and the FOMB.

How high these legal and professional costs climb will depend largely on how far the Rosselló administration is willing to go beyond these first stages of saber rattling. If, as expected, the Rosselló administration relents and merely blames the board—call it condemning the condemner—for all the pain Puerto Rico’s people will suffer in this rationed new world, perhaps the legal jamboree can be kept in check. It is certain, however, that there is pain coming down the pike for everyone except the lawyers and financial advisers who will make out like bandits.

In short, the opening shots—a scathing letter to U.S. House Natural Resources Committee Chairman Rob Bishop and the most recent missives to the FOMB—have already cost Puerto Rico immediate access to Community Disaster Loan (CDL) funds appropriated by the U.S. Congress.

Standing between Puerto Rico and as much as $2.03 billion in relief funds are an additional set of conditions drafted by the U.S. Treasury that address encumbrances tied to the reality that Puerto Rico’s debt is being worked out under Title III of Promesa. The U.S. Treasury will not allow the Puerto Rico government to use the money unencumbered—it is not to pay debt service, nor to pay for lobbying, nor to pay to restore damaged facilities. That reconstruction money will come from a different bucket and there will be no “double-dipping” here.

Put succinctly, a source on the Hill with ties to the Trump administration told Caribbean Business that Puerto Rico could have been receiving that money since the measure was first passed by U.S. Congress because all the objections to the conditions tied to the CDL funding and because “to the best of everyone’s knowledge, the government’s financial forecasting—that it would run out of money—has been wrong every step of the way.” Oh, by the way—Rosselló has until Oct. 31, 2018, to draw down from that account.

Thankfully, there is hope on the horizon in the form of some $18.4 billion for the reconstruction of infrastructure and housing destroyed by Hurricane Maria, and “mitigation activities.” Some $1.5 billion has already been earmarked for release by the Department of Housing & Urban Development (HUD) but is pending a concerted plan by the Rosselló administration. Important meetings between HUD, Puerto Rico’s government officials and leaders of the private sector have already occurred, and plans are in place to receive that money for works that include everything from providing housing to those who are living in subcode homes to building community centers and rebuilding damaged roads and bridges.

Many creative ideas have been thrown about by the Puerto Rico Builders Association and the Associated General Contractors of America on the housing front. For instance, there is a voucher program being discussed that would provide access for those who are living in gutted hovels to purchase or have new homes built—to code. With the construction will come jobs. Best to focus on meeting the milestones to secure HUD funds than to continue to add legal costs in the “snit for show” between the administration and board.

New Round of Lobbying Efforts in D.C. Begin

SAN JUAN – Along with a delegation comprising both public and private sectors, Gov. Alejandro García Padilla initiated Monday a new round of lobbying Congress members in a bid to achieve favorable legislation to tackle the Puerto Rico’s fiscal crisis.

The governor is pushing to achieve four main goals: that Congress approve a broad debt-restructuring mechanism, a stay on creditor litigation against the commonwealth, provide economic development tools, and that any claims to the people of Puerto Rico should come from locally elected officials, thus respecting the island’s self-governance.

The U.S. House Committee on Natural Resources recently released a discussion draft of the Puerto Rico Oversight, Management & Economic Stability Act, or PROMESA, which would establish strong, independent fiscal oversight through a five-member board, with debt-restructuring tools that although not immediately available, would give the commonwealth access to a federal court process if it fails to reach a deal with its creditors. Moreover, it would also establish a temporary stay on creditor lawsuits against the island.

The committee will hold a hearing Wednesday, April 13, on the discussion draft of PROMESA. Initial plans called for the bill to be filed April 11, followed quickly by two hearings, including markup, through which the House could further amend the bill. A final vote in the lower chamber is expected to take place before the end of the month.

When asked Monday by Caribbean Business, La Fortaleza said it remains uncertain whether García Padilla would testify at the hearing, as they have yet to receive a formal invitation to this effect from the committee.

The administration has said it would accept a federal oversight entity that respects the island’s democracy, although conditioned to having access to broad debt-restructuring tools. An impasse over how to deal with the island’s fiscal woes could result in no legislation being passed by the summer, when the island is due to pay roughly $1.5 billion.

Among those lobbying with the governor’s camp on the Hill are several mayors, government officials and lawmakers, including House Speaker Jaime Perelló and Senate President Eduardo Bhatia. Representatives from the Puerto Rico Manufacturers, Products, General Contractors and Certified Public Accountants associations are also participating of the efforts. Independent gubernatorial candidate Alexandra Lúgaro is the only gubernatorial hopeful confirmed to date by La Fortaleza as taking part of the multisectoral coalition.

WASHINGTON, DC - MARCH 17: U.S. Sen. Patrick Leahy (D-VT) (R), ranking member of Senate Judiciary Committee, greets Supreme Court nominee Merrick Garland (L) March 17, 2016 on Capitol Hill in Washington, DC. Garland is visiting two Senate Democrats after he’s nominated by President Barack Obama to succeed the late Justice Antonin Scalia. (Photo by Alex Wong/Getty Images)

Capitol Hill in Washington, D.C. (Photo by Alex Wong/Getty Images)

On Monday, five different groups held a series of meetings with members of Congress including Reps. Grace Napolitano (D-Cal.), Tom McClintock (R-Cal.), Paul Cook (R-Cal.), Lacy Clay (D-Missouri), Louie Gohmert (R-Texas), Alan Lowenthal (D-Cal.), Alex Mooney (R-WV), Don Beyer (R-Va.), Jody Hice (R-Ga.), Cresent Hardy (R-Nev.) and Ryan Zinke (R-Montana).

Later Monday, García Padilla is expected to meet with White House Intergovernmental Affairs Director Jerry Abramson, to discuss the island’s fiscal crisis and the latest developments in Congress toward achieving favorable legislation. Lobbying efforts will continue throughout the week, Public Affairs Secretary Jesús Manuel Ortiz said.

He added there has been “good” feedback so far after Monday’s talks, whereby the island coalition explained not only Puerto Rico’s fiscal crisis and its different effects on the local economy, but also the situation with the Zika virus on the island.

As previously reported by Caribbean Business, various GOP members in the lower chamber have been mulling whether to eliminate debt-restructuring provisions from the bill, while keeping the establishment of the federal fiscal oversight entity. Lobbyists for different creditor groups are strongly pushing to introduce these changes to the bill, particularly after the latest developments on the island with respect to the recently enacted moratorium law, one source with knowledge of the situation told this newspaper.

“Any congressional action cannot be imposed unilaterally and must have the support of Puerto Ricans,” García Padilla stated Sunday. “The delegation will make its opposition clear to the fiscal control board as proposed in draft legislation….  A fiscal oversight board can be accepted to the extent it respects the powers of a democratic system.”

Following the government’s latest round of lobbying efforts in Washington, D.C., La Fortaleza stated that Congress members were receptive to work on achieving legislation that better suits the commonwealth’s needs.

Bernier Backs Prasa Revitalization Bill that Seeks to Avoid Rate Hike

SAN JUAN – The gubernatorial candidate for the Popular Democratic Party (PDP), David Bernier, is urging the Legislature to approve House Bill 2786, which seeks to revitalize the Puerto Rico Aqueduct and Sewer Authority Authority (Prasa).

David Bernier, left, meets with heads of organizations representing contractors. (Via Inter News Service)

David Bernier, left, meets with the heads of organizations that represent contractors. (Via Inter News Service)

Bernier held a meeting Monday with the following organizations, which also backed the call: the Mechanical Contractors Association, the Concrete Producers Association, the Associated General Contractors (AGC), the Engineers & Land Surveyors Association (CIAPR by its Spanish initials) and the Puerto Rico Electrical Contractors.

In a statement Monday, Bernier said, “The weight of government’s inefficiencies cannot fall on the back of our citizenry. I will support every initiative that through efficiency and good management avoids an increase to the cost of living of Puerto Ricans.”

The candidate, who is also his party’s president, recently proposed that the value-added tax’s (IVA by its Spanish acronym) increase for services be stopped. He explained that the Prasa revitalization bill is designed to avoid an increase to the “projected water rate”; to settle the more than $150 million in accounts payable the public utility has with its goods and services suppliers; and to reactivate the “construction industry by fulfilling the obligation to those companies’ workers the same way they are met with those of the utility.”

Bernier added that some 7,500 jobs have been lost due to Prasa’s debt with its contractors.