Assured blasts Puerto Rico fiscal board for annual report

SAN JUAN – Assured Guaranty, a bond insurer with $5.27 billion worth of exposure to Puerto Rico issuers covered by the federal Promesa law, critcized the first annual report of the Financial Oversight & Management Board, accusing board members of hiding financial data from creditors and approving faulty fiscal plans.

In a letter to the fiscal board sent Monday, Dominic Frederico, president & chief executive officer for Assured, said the company has participated in Puerto Rico’s capital markets for decades by providing insurance policies on bonds, as well as in other issuances and transactions around the world.

Assured Files Motion to Lift Stay, Challenges Executive Orders Diverting PRHTA Toll Revenues

“Based on this experience, it is Assured’s view that a number of the Oversight Board’s actions have resulted in setbacks rather than progress towards achieving the Oversight Board’s mandates,” he said, adding that Promesa specifically orders the board to achieve fiscal responsibility and access to the markets for Puerto Rico.

The fiscal board’s annual report cites the certification of a 10-year fiscal plan and the fiscal year 2018 budget for the commonwealth and its instrumentalities, including component units Puerto Rico Electric Power Authority, the Aqueduct and Sewer Authority and the Highways and Transportation Authority as evidence of substantial progress. Assured, however, says the board has not ensured that such plans are “accurate, sound, reasonable, or even lawful.” Once they are certified, the plans are immune from third-party challenges, the board has assured, citing Promesa.

Financial Oversight & Management Board Chairman José Carrión III and board member Ana Matosantos. (File Photo)

“With respect to the information pertinent to the development of certified fiscal plans and other matters that are of great importance to creditors, the Oversight Board has refused multiple creditor requests,” Frederico said. “We find sorely lacking the detailed financial and operating information, as well as access to government officials and their advisors that a reasonable investor would expect to receive before agreeing to any restructuring.”

He noted that the fiscal plans certified by the board collectively “fail to differentiate between essential and non-essential services; incorporate unrealistic assumptions on economic growth, in order to manufacture dire financial projections that reinforce a crisis-narrative; and grossly underestimate the federal government’s commitment to the welfare of Puerto Rico.”

Moody’s Affirms Assured Guaranty Ratings Despite Puerto Rico Exposure

The company president further said the board “pad[s] the fiscal plan expenses with an unexplained ‘expense reconciliation adjustment,’ or, in plain-speak, a $600 million per year unallocated cost overrun fund that defeats the purpose of budgetary restraint and government accountability; fail[s] to update budgets and fiscal plans to account for recent revenue outperformance; fail[s] to provide adequate transparency; and ignore[s] the relative rights, priorities, liens and pledges securing bonded debt issued by issuers.”

With respect to 1,700 files the report claims have been uploaded to various data rooms, Assured said a great number of the files either relate to Prepa’s operations, rather than the broader commonwealth’s financial position, and were provided to Prepa creditors by that entity’s advisers before the appointment of the board and the development of any fiscal plans.

Assured Guaranty Pays Insured Bondholders Following Puerto Rico Default

He said many files are already public or relate to information “that is largely immaterial, rather than directly respond to creditor requests.”

“In light of this flawed dynamic, certification of deficient fiscal plans seems intended to pressure creditors to make concessions against their interests, but instead has led to a barrage of litigation and a breakdown in discussions, all counterproductive to achieving the goals of PROMESA, or any consensual resolution of disputes,” the letter reads.

The report states that “the Oversight Board and its advisors have held numerous constructive meetings, mediation sessions and presentations with creditors to restructure the debt of the Commonwealth and its various covered entities….”

However, Assured says it has not found any meetings to date on debt restructuring to be constructive and has instead “witnessed the Oversight Board’s refusal to proceed with Prepa’s restructuring support agreement,” referring to the board’s decision to reject the electric utility’s restructuring support agreement.

The report does highlight the importance for the island of regaining access to capital markets, but Assured says the board’s current course will not restore market access.

“The Oversight Board has advocated that all Puerto Rico entities are subordinated to the social needs and entitlement programs of the Commonwealth, notwithstanding the Constitutional, contractual and other legal protections specifically established that prevent that outcome so that marginal credits, like the Commonwealth and its public corporations, can access capital markets at reasonable interest rates,” Frederico said.




Puerto Rico legislative leaders mum after meeting with governor

SAN JUAN – As thousands of Puerto Ricans began to watch the solar eclipse at about 2:20 p.m., legislative presidents rushed out of the governor’s office, La Fortaleza, without issuing statements about what they discussed with Gov. Ricardo Rosselló during Monday’s legislative conference, which coincides with the beginning of the Legislature’s second regular session.

Neither did the secretary of Public Affairs and Public Policy, Ramón Rosario, who told Caribbean Business he would not comment and stepped into his office.

Who would a Puerto Rico government furlough affect?

Although the press spokespeople for the legislative leaders and their respective chambers were in La Fortaleza’s press room, the discussion was probably in the meeting was intense, because it is the first time the current government leaves without speaking to journalists.

The meeting comes at a time when the government is clashing with the fiscal control board since it request cutting two working days a month for executive branch employees, except the police. While the board is willing to seek a legal recourse to enforce the furlough program because it says it is part of the fiscal plan, the government says it is only a “recommendation” it will not implement and will defend in court.

The governor arrived Monday from a trip to Dallas, where, according to La Fortaleza, he met with members of the fiscal board to discuss how the mediation process with creditors is going. What transpired during the meeting will not be disclosed due to the “confidentiality” of the bankruptcy proceedings under Title III of Promesa in federal court, La Fortaleza Press Secretary Yennifer Álvarez said.

“I presume we are going to discuss issues of the regular session,” Senate President Thomas Rivera Schatz told reporters upon arriving in the executive mansion, adding there were no concerns regarding any of the bills to be presented by the governor, including tax reform.

“The bills will all be addressed,” the Senate leader said.

Puerto Rico gov’t discusses furlough alternatives with fiscal board

Given that the governor arrived from Texas on Monday morning, Rivera Schatz was asked if during the legislative conference they would discuss the fiscal board, to which he replied, “I imagine.”

Priority will be given to municipalities

Before the legislative conference, the president of the Senate also indicated that his priority in this new legislative session will be to provide municipalities with the tools they need to take care of their economic problems, since the central government has cut some of their funding and the Government Development Bank (GDB) has their accounts frozen.

He assured the bills that could be passed in the session will be discussed during the Aug. 29 Municipal Summit, which will be hosted by the Senate, and anticipated that they will be evaluating Municipal Revenue Collections Center (CRIM by its Spanish acronym) issues such as if towns will carry out property appraisals and garbage collection.




Bond insurer warns Puerto Rico electricity subsidies will lead to ‘isolation’

SAN JUAN — Assured Guaranty is urging the commonwealth and the Financial Oversight & Management Board to stop ignoring Puerto Rico Electric Power Authority’s (Prepa) financial obligations and warned that providing below-cost energy to subsidize special interests is “misguided” and would lead to “financial isolation.”

The Bermuda-based bond insurer is one of several creditors that has sought to put Prepa in receivership to pave the way for a rate increase that can pay for the utility’s debt obligations after the collapse of a restructuring support agreement (RSA) four years in the works. Assured also insures general obligation bonds and those of other instrumentalities such as the Highways & Transportation Authority.

Electricity consumption decreases in Puerto Rico

Assured’s president and chief executive officer, Dominic J. Frederico, called upon the Fiscal Agency & Financial Advisory Authority (Fafaa), Prepa and Gov. Ricardo Rosselló to “heed the situation in Venezuela today,” reminding them that the federal Promesa law calls for Puerto Rico to achieve fiscal responsibility to be able to regain access to capital markets.

“Unfortunately, the Commonwealth’s and Oversight Board’s attempt to ignore Prepa’s standing as a public corporation with explicit legal obligations, and instead use it as a tool to provide below cost electricity to subsidize the general welfare and prosperity of island special interests is misguided and a direct precursor to further financial isolation.

“Such approach will undermine the prospects for any privatization partnerships Prepa may seek in the future. Rather than present a path to Statehood, prosperity, or achieving Promesa’s goal of fiscal responsibility and access to capital markets, we see a path of increasing isolation, crisis and instability if more prudent and responsible measures are not promptly taken,” Frederico said in a letter addressed to Fafaa Executive Director Gerardo Portela, dated Aug. 16.

Frederico’s letter was in response to an Aug. 4 letter from Portela, rejecting Assured’s request for an increase to energy rates paid by customers so the utility can pay its creditors.

Judge reserves ruling on receiver for Puerto Rico electric utility

The monoline executive rejected Portela’s claims that Prepa does not set its own rates. While under current law the Puerto Rico Energy Commission (PREC) has the final say on electricity rates, he noted that under applicable law, the public utility must request establishing rates that are sufficient to pay its debt service and other costs.

Frederico also reminded Portela that the PREC previously approved a 3-cent transition charge that would have provided sufficient funds to pay restructured debt service. A rate hike that was slated to go in effect in July was postponed until October, a decision that Frederico said was promoted by the administration of Gov. Rosselló.

With respect to remarks Portela made that the rate hike was inconsistent with Prepa’s fiscal plan, Frederico said the utility’s plan uses the projections and capital structure of the now-defunct RSA as a foundation for its financial forecasts. While the fiscal board rejected the agreement that would have restructured Prepa’s roughly $9 billion in debt, he said it did not reject the transition charge approved by the PREC to be used to pay for the debt restructuring.

In that regard, Frederico urged the Rosselló administration to urge the board to overturn its decision to reject the RSA.

Puerto Rico’s power utility creditors ask court to appoint receiver

The insurance executive also called as misleading Portela’s contention that Prepa was not created as an independent corporation to justify not raising rates.

“Prepa’s enabling act specifically creates Prepa as a body corporate and politic consulting corporation,” Frederico said. “The purpose of a public corporation is to be independent in credit and corporation from the related host government that established the public corporation,” he added.

The Ad Hoc Group of Prepa Bondholders, National Public Finance, Assured Guaranty Corp., Assured Guaranty Municipal Corp. and Syncora Guarantee Inc., which hold about 65 percent of the public utility’s debt, recently asked Judge Laura Taylor Swain last month to lift Promesa’s stay on litigation so they could sue in court to have Prepa put into receivership.

During the omnibus hearing held Aug. 9, Judge Swain reserved her decision on whether the stay should be lifted so that Prepa could be placed under receivership and increase rates to cover all of its obligations.

 




Bond insurer urges Gov. Rosselló to increase electricity rates

SAN JUAN — Assured Guaranty, a bond insurer that recently filed action to place the Puerto Rico Electric Power Authority (Prepa) in receivership, urged Gov. Ricardo Rosselló and the commonwealth’s financial oversight board to immediately green light an increase to electricity rates on the island.

“Prepa rate increase is long overdue. The longer a rate increase is delayed, the greater the funding shortfall faced by Prepa. Given the decline in oil costs and the low rates currently charged, we urge that Prepa, the commonwealth, and the oversight board act in a fiscally responsible manner and raise rates immediately,” stated Dominic Frederico, president & CEO of Assured, in a letter sent Friday to the governor and the board’s chairman, José Carrión.

Puerto Rico Gov. Ricardo Rosselló (CB Photo)

Earlier this week, Assured and other Prepa creditors holding a majority of the utility’s roughly $9 billion in debt filed a motion in federal court seeking the appointment of an independent receiver at  Prepa. The monoline and another bond insurer, National, also seek to have the court declare as valid a restructuring support agreement (RSA) struck two years ago by the government and Prepa creditors, but which the board failed to approve. The latter led to Prepa’s bankruptcy filing under Title III of the federal Promesa law.

Puerto Rico’s power utility creditors ask court to appoint receiver

In his letter, Frederico mentions that the cost of electricity in Puerto Rico has been a focal point of recent discussions concerning Prepa’s fiscal plan, as well as the most recent negotiations over the now-terminated RSA.

“This has been the case despite the fact that electricity rates have long been undercharged by Prepa, and have in fact declined precipitously over the past five years for the benefit of consumers and commercial users. Notwithstanding the foregoing, additional rate savings were agreed to by Prepa’s creditors through several recent rounds of RSA renegotiations,” the letter added.

Assured’s Frederico went on to say that the island’s fiscal board “inexplicably and unlawfully” failed to approve the RSA, which would have allowed Prepa to keep currently subsidized electricity rates for some time “before allowing for a gradual return to normalized levels that reflect the actual costs of running an island,” according to the insurer.

Assured further argues that debt service represents less than 20% of the overall rate structure of Prepa, so the utility must focus on improving operations and reliability rather than “extract yet more concessions from current capital providers.”

Prepa rates have decreased and are, currently, 19 cents per kilowatt hour, mostly due to lower fuel prices. Prepa creditors also say that relending arrangements reached during the past few years have also allowed the utility to charge lower rates to clients.

“From 2008 to 2014, the average electricity rates charged by various other electric utilities on other U.S. and Caribbean islands was approximately 33 cents per kWh. Over the same period, the rate charged by Prepa was approximately 24.7 cents per kWh, or 25% less than the comp set average,” Frederico stressed in his letter, which adds that recent reports show that oil prices will continue to fall in the near future.

The communication to the governor and the board chairman also mentions that Prepa is legally required to have rates that cover both current expenses and debt service requirements. The latter would have been covered by a three cent transition charge negotiated as part of the restructuring deal that the oversight board rejected.

A Chronicle of Prepa’s RSA Saga

“Thus, rates are artificially depressed and are not compliant with applicable law or the Trust Agreement. Failure to immediately increase rates to reflect the actual cost of providing electricity will perpetuate Prepa’s past failures—i.e., the failure to collect sufficient funds to responsibly manage and invest in the utility for the ultimate benefit of the ratepayers,” Frederico said.

Earlier this month, the fiscal board commenced a Title III bankruptcy proceeding on behalf Prepa, after a majority of board members failed to approve the RSA.




Court green lights deal between Puerto Rico gov’t, Retirement System bondholders

SAN JUAN — Federal Judge Laura Taylor Swain approved Monday an agreement struck late last week by the Puerto Rico government and a group of bondholders of the island’s Employees Retirement System (ERS).

As proposed in the stipulation filed last Friday, she also scheduled a hearing for Oct. 31, during which the court expects to address a key dispute between the commonwealth and ERS bondholders over rights and remedies related to bonds secured by the government’s employer contributions to the retirement system.

According to the deal, the commonwealth will set aside more than $90 million through the next three months and a half, as well as pay roughly $14 million monthly in interest payments due through October—including a missed payment on July 1.

These actions will put on hold the ERS bondholder group’s petition for immediate relief and “adequate protection” as part of the ERS’s bankruptcy case under Title III of the federal Promesa law.

On or before July 21, moreover, the government will commence an adversary action to have the court decide over the “validity, priority, extent and enforceability” of the liens and security interests asserted by the ERS bondholders, as well as the commonwealth’s rights over employer contributions received by ERS in May. During the Oct. 31 hearing, Judge Swain will address each side’s final arguments on these matters.

 

(Luis J. Valentín/CB)

The ERS bondholder group argues it has a lien over employer contributions that were pledged to bonds issued by the island’s government employees retirement system. The commonwealth government ceased to transfer employer contributions to the ERS, as it switches to a pay-as-you-go system to cover payment of retiree benefits. The government also seeks to sell available ERS assets to pump additional money into the general fund that would help it cover the roughly $2 billion in pension costs this fiscal year.

According to the agreement filed late Friday, the commonwealth will set aside $18.5 million in a segregated account on July 31, Aug. 31, Sept. 31, Oct. 31 and two days after Judge Swain’s approval of the stipulation, or July 19, in addition to any money related to employer contributions made by the commonwealth to the ERS in late May.

The stipulation, moreover, calls for payment of some $14 million in interest due July 1 and missed by the ERS, after commencement of its Title III bankruptcy case. The ERS will also pay subsequent monthly interest payments until Oct. 1, or about $42 million in total. These payments will be covered by funds set aside by the commonwealth since January, pursuant to a previous stipulation struck between ERS and its creditors early this year.

The use of the $18.5 million monthly set asides will depend on Judge Swain’s final decision over the respective rights and remedies asserted by the commonwealth and its creditors.

Other commonwealth creditors, particularly of the Highways & Transportation Authority (HTA), also seek a similar relief to that initially petitioned by the ERS bondholder group.

The island’s financial control board —as representative of the commonwealth and its entities— filed on May 21 a Title III bankruptcy case on behalf ERS, joining the central government, Sales Tax Financing Corp. (Cofina) and HTA. Most recently, the island’s Electric Power Authority also filed for Title III bankruptcy protection.

Read the fiscal board’s filing notice.




Puerto Rico gov’t, Retirement System creditors strike key stipulation

SAN JUAN — The Puerto Rico government would set aside more than $90 million through the next three months and a half, as well as pay roughly $14 million monthly in interest payments due through October—including a missed payment on July 1—according to a stipulation that seeks to “adequately protect” certain bondholders of the island’s Employees Retirement System (ERS).

The document filed late Friday by the island’s financial control board and a group of ERS bondholders is now pending federal Judge Laura Taylor Swain’s approval, which would put on hold until Oct. 31 the creditor group’s legal action against the commonwealth as part of the ERS’s bankruptcy case under Title III of Promesa.

(Luis J. Valentín/CB)

It is the first Title III creditor group that successfully strikes a deal following legal action seeking relief from the bankruptcy stay and adequate protection over the loss of collateral that secures payment of commonwealth bonds.

The ERS bondholder group argues it has a lien over employer contributions that were pledged to bonds issued by the island’s government employees retirement system. The commonwealth government ceased to transfer employer contributions to the ERS, as it switches to a pay-as-you-go system to cover payment of retiree benefits. The government also seeks to sell available ERS assets to pump additional money into the general fund that would help it cover the roughly $2 billion in pension costs this fiscal year.

In a June 28 hearing, Judge Swain ordered the parties to negotiate a stipulation by this week that could avoid a quick judgment by her over the matter. After two extensions to this week’s deadline, the government and the ERS bondholder group struck yet anther stipulation, the third one since the first creditor action against ERS was filed last year.

According to the agreement filed Friday, the commonwealth would set aside $18.5 million in a segregated account on July 31, Aug. 31, Sept. 31, Oct. 31 and two days after Judge Swain’s approval of the stipulation, in addition to any money related to employer contributions made by the commonwealth to the ERS.

The stipulation, moreover, calls for payment of some $14 million in interest due July 1 and missed by the ERS, after commencement of its Title III bankruptcy case. The ERS would also have to pay subsequent monthly interest payments until Oct. 1, or about $42 million in total. These payments would be covered by funds set aside by the commonwealth since January, pursuant to a previous stipulation struck between ERS and its creditors early this year.

Furthermore, on or before July 21, the Puerto Rico government will commence an adversary action to have the court decide over the “validity, priority, extent and enforceability” of the liens and security interests asserted by the ERS bondholders, as well as the commonwealth’s rights over employer contributions received by ERS in May.

According to a proposed schedule for this action—which includes discovery by each party through the next three months—Judge Swain would hold a key hearing on the dispute by Oct. 31, by which time parties expect to solve the commonwealth’s declaratory relief action.

The use of the $18.5 million monthly set asides would depend on Judge Swain’s final decision over the respective rights and remedies asserted by the commonwealth and its creditors.

Other commonwealth creditors, particularly of the Highways & Transportation Authority (HTA), also seek a similar relief to that initially petitioned by the ERS bondholder group.

The island’s financial control board —as representative of the commonwealth and its entities— filed on May 21 a Title III bankruptcy case on behalf ERS, joining the central government, Sales Tax Financing Corp. (Cofina) and HTA. Most recently, the island’s Electric Power Authority also filed for Title III bankruptcy protection.

Read the fiscal board’s filing notice.




Puerto Rico GOs denied intervention in Cofina dispute

SAN JUAN — Federal Judge Laura Taylor Swain denied Thursday intervention to a group of Puerto Rico’s general obligation (GO) creditors in the interpleader action filed by Bank of New York Mellon (BNYM)—trustee of the Sales Tax Financing Corp. (Cofina)—with respect to pledged sales tax funds that guarantee payment of Cofina bonds.

On May 16, BNYM filed action that seeks to have the court determine how the trustee should proceed with sales tax funds under its possession amid conflicting instructions over said monies.

Meanwhile, a group of GO bondholders sought to intervene in the action, arguing that pledged sales tax funds belong to the commonwealth and thus should be used to cover GO debt obligations pursuant to the island’s Constitution.

“The members of the GO group are not Cofina creditors, and have no direct claim to the Interpleaded Funds,” the court order reads, as Judge Swain found that the GO group lacked standing to assert its claims under BNYM’s action.

The court had already ordered BNYM to hold the funds in escrow until the interpleader was resolved.

“This is a setback not only for GOs, but also for the commonwealth and its legal strategy,” one source said, in reference to the government’s plan to tap into Cofina funds and redirect them to the island’s coffers.

The court recognizes that the intent of both the government and the board is to pool Cofina funds into available resources for an eventual debt-restructuring plan, and that the board seeks to solve the dispute with respect to Cofina.

“The claim that the commonwealth is entitled or required to apply the Cofina trust funds to payment of the commonwealth’s obligations to GO bondholders is one of which the commonwealth, as a debtor in a related Promesa Title III proceeding, has control. The commonwealth is not a party to the instant adversary proceeding,” the order adds.

The document also establishes that “the GO group’s asserted interest in the interpleaded funds would exist only if the commonwealth’s yet-unasserted claim on those funds were successful.”

In March, the Ricardo Rosselló administration and the GO bondholder group issued a joint statement in which they announced that the government—even if it was not taking a “definitive position” on the matter—would seek “prompt and expeditious resolution of the claims asserted by the GO bondholders regarding the constitutionality of Cofina,” under the Lex Claims case filed by GO creditors. In a nutshell, Lex Claims intends to have a court declare Cofina funds belong to the commonwealth.

On May 5, Puerto Rico’s financial control board filed for bankruptcy protection under Title III of Promesa on behalf of Cofina, as it did with the commonwealth. A mediation process has been set to address, among other issues, the commonwealth’s dispute with Cofina bondholders.

Discovery rules set

After holding a hearing in Boston on July 5, U.S. Magistrate Judge Judith Dein—who was appointed to assist Judge Swain with Puerto Rico’s Title III cases—set the rules for discovery on the commonwealth government over the Cofina dispute.

The commonwealth had opposed the Cofina creditors’ discovery petition, as it believed it was too broad and would not help solve the merits of the controversy.

By July 7, government officials and Cofina senior creditors will have to agree on search terms “aimed at identifying documents in the possession of [the government] that concern proposed changes to the use of the dedicated sales tax revenues,” Judge Dein’s order reads.

If disputes over the discovery process remain by July 12, parties will notify the court so it can promptly solve these issues.

As for the discovery time period, it will span from Feb. 15 to present. Documents to be produced include “public statements to third parties,” as well as electronically stored information in computers and cellphones.

If the commonwealth government refuses to produce documents citing such privileges as deliberative process and attorney-client, it must explain the court why it is withholding them.




Fiscal Board certifies Puerto Rico budget with changes

SAN JUAN – The fiscal control board put an end to the uncertainty surrounding the next government budget when on Friday it certified, with some last-minute changes, the spending plan during its eighth public meeting, the fourth held on the island. This is the first budget certified under the board’s reins, and now includes $13 million in additional cuts to the Legislature.

It also certified—on the condition that their updated fiscal plans be submitted within 45 days—the budgets for the Government Development Bank (GDB), the Highways & Transportation Authority (HTA), the Electric Power Authority (Prepa), and the Aqueduct & Sewer Authority (Prasa). The board warned these could be changed according to the final fiscal plans of these entities.

Fiscal board requests corrective actions to Puerto Rico budget

The new budgets will take effect Saturday, July 1, when the new fiscal year begins. The government representative to the board, Elías Sánchez, said Gov. Ricardo Rosselló will not sign the budget’s four legislative measures, as required by the Constitution of Puerto Rico because the federal Promesa law stipulates that certification of the document puts it in force.

“In a colony, yes [it is possible that a budget comes into force without the governor’s signature]. The Promesa law states that if the board fully accepts the budget, it then proceeds. If not, the board amends and certifies and is as if approved,” Sánchez said at the conclusion of the meeting, which, as is customary, was held amid strict security measures.

The meeting, which began shortly after 8:30 a.m. in a Convention Center District hotel, included all board members. Four of them were present in San Juan but Carlos García, Arthur González and José Ramón González participated via teleconference.

$13 million less for the Legislature

To certify the budget, the fiscal board had requested $319 million in corrective actions Tuesday, of which $119 million were additional reductions in government spending. The board also asked for more evidence on how the government would achieve $200 million in estimated savings for the next fiscal year.

Of the $119 million, the agreement between the board and the government was to return $50 million in reserves under the control of the board and to leave $24 million in hands of various agencies—such as the Government Ethics Office, the Comptroller’s Office, and the Justice Department—whose allocations had been underestimated “by mistake,” Sánchez explained.

An additional $24.1 million in special appropriations were cut. The board had initially requested $25 million. It was agreed that Puerto Rican Culture Institute programs would each be reduced by 13 percent.

Despite government disagreement, the board imposed an additional $13 million cut for the Legislature, which initially was $16 million, leaving the Legislative Assembly $24 million less for next fiscal year.

“We wanted the reduction to be similar to the other branches [of government],” board Chairman José Carrión said about the cuts in the legislative branch. He added that the cut was based on the Legislature’s spending during the past five years, not just taking the last fiscal year as the benchmark, as legislative leaders intended, he added.

Sánchez confirmed that the cut to the Legislature was the “only” difference with the board, so “we are very pleased that the governor’s budget has been accepted.”

“This year’s budget is a great achievement. We must congratulate the government on what has been achieved. That does not mean that we are happy about everything,” Carrión said at a press conference, in which he was emphatic that more than 90 percent of the budget, with $800 million in spending reductions, complies with the certified fiscal plan.

The amended budget will be posted on the Office of Management and Budget’s (OGP) website, Sánchez said.

—Reporter Cindy Burgos contributed to this article.

Puerto Rico fiscal board willing to go to court over furlough

 




Hearing set for Puerto Rico’s Employees Retirement System case

SAN JUAN— U.S. bankruptcy Judge Laura Taylor Swain scheduled a June 28 hearing in the action filed by a group of creditors that hold Puerto Rico’s Employees Retirement System (ERS) bonds and are requesting “adequate protection” and a lift of Promesa’s stay under its Title III bankruptcy proceeding.

Judge Swain also ordered that motions opposing the request for stay relief and adequate protection should be filed seven days prior to the hearing. The group of ERS bondholders —which own roughly $2 billion in bonds and include Altair, Oaktree, Nokota, Glendon and funds managed by UBS, among others—own bonds backed by the government’s employer contributions.

Also, on Friday, the U.S. Trustee will hold the formation hearing for the Promesa Official Committee of Retired Employees, which will represent retirees in the Title III bankruptcy process filed for the  ERS. The hearing will be held in the U.S. Bankruptcy District Courtroom in Old San Juan.

As for the Altair case, movants are asking Judge Swain to lift the stay and grant adequate protection because of the commonwealth’s latest actions over its employer contributions to the retirement systems and that secure their ERS bonds. They allege that the government ceased to transfer money pay interest and will continue to do so as it would withhold its contributions for its public employees’ retirement, thus wiping out its collateral.

The group of creditors had presented an urgent motion for a hearing on June 1, which Judge Swain granted this week.

In January, U.S. District Court Judge Francisco Besosa held a hearing over a previous lawsuit filed by the investment funds that hold ERS bonds in September 2016, which the judge dismissed following a settlement deal between these creditors and the government in which the latter agreed to set-aside the money that would have gone to cover ERS debt-service.

The hearing in January had been ordered by the U.S. Court of Appeals for the First Circuit, which found that Altair plaintiffs should have been given the opportunity to present evidence that their funds were at risk of being depleted and needed the court’s protection.

In April, another settlement was reached in which the commonwealth agreed that set-aside money be used to cover upcoming interest payments on ERS debt.

But after the filing by the island’s financial control board for Title III bankruptcy protection for the ERS, the Puerto Rico government delivered “a notice (which was later rescinded) to the Fiscal Agent seeking to block the Fiscal Agent’s payment of the June 1 interest payment in contravention of the April stipulation,” reads the creditors’ action.

Under Gov. Ricardo Rosselló’s budget proposal for fiscal 2018, the general fund would completely fund annual pension benefits as the government moves into a “pay-as-you-go” system, as retirement systems are expected to run out of money. According to government estimates, it means a $2.5 billion charge to the general fund budget, which would amount to $9.56 billion.

Public Finance Editor Luis J. Valentín Ortiz contributed to this story. 




Public hearings over Puerto Rico’s budget kick off Wednesday

SAN JUAN — The Puerto Rico Legislature will kick off Wednesday, June 7, public hearings over the commonwealth government’s budget for fiscal year 2018, which begins July 1, the president of the House Treasury Committee, Rep. Antonio Soto, announced Sunday.

The legislative hearings over the proposed $9.562 billion general fund budget—unveiled last week by Gov. Ricardo Rosselló and partially certified on Friday by the island’s financial control board—would run until June 15. With a June 19 initial deadline set by the fiscal board, both chambers would have just over four days to vote and approve the budget bills.

Puerto Rico governor reveals $9.56 billion budget

Rep. Soto said he was confident that the Legislature will comply with the board’s initial delivery deadline, although he warned that if the calendar has to be modified by the seven-member panel created by the federal Promesa law, it must do so.

“The deadlines are not a straitjacket. If [the board] has to change the [calendar], it will change it. But for us, it is not an impediment to the legislative work we are going to carry out,” said the lawmaker, who stressed it is important for the Legislature to approve a spending plan for the government before June 30.

If it fails to do so, the financial control board “has the power under the law to approve its own budget [version],” Rep. Soto later conceded.

The Legislature’s budgetary evaluation process will begin with a meeting Monday, with Rosselló’s fiscal team. On Tuesday, they will hold a meeting with the fiscal board’s technical team, which has been made available to lawmakers, Soto said.

Public hearings—which will be carried out jointly with the Senate—will officially begin Wednesday, when lawmakers will again receive the governor’s fiscal team. By Saturday, the Treasury committees of both chambers expect to have addressed government components related to education, community affairs and public safety, including the University of Puerto Rico (UPR).

On Monday, June 12, public hearings would resume and run through Thursday, June 15, during which time the Legislature expects to hear testimony from the economic development, health, family, labor, transportation, housing, sports, and agriculture departments.

As for the evaluation calendar set forth by Promesa’s financial control board, if the governing body notifies “violations” in the spending plan that the Legislature initially presents by June 19, lawmakers would have until June 26 to correct them and submit a new version of the document. If the discrepancies still exist by the end of Friday, June 30, the financial board would enforce its own budget version.

Rosselló presented Wednesday, May 31, a fiscal 2018 general fund budget that reaches $9.562 billion. Two days later, the document was partially certified by the board, as it only approved the “aggregate spending level.”

The governing body required the Rosselló administration to modify several discretionary spending earmarks for failing to meet the objectives of the commonwealth’s certified fiscal plan. The fiscal panel also requested more evidence on how exactly the government will achieve some of the projected spending cuts.

“Be assured that we are not in a process of confrontation with the board. We are [working] within a framework of collaboration […] There is a completely open channel of communication [with the board],” Rep. Soto said.