Puerto Rico Public Safety Dept., oversight board spar over fiscal plan, budget

The governor’s representative to the fiscal board, Christian Sobrino, and Public Safety Director Héctor Pesquera (CyberNews photo)

Reporting, savings and Christmas bonus remain a matter of contention

SAN JUAN – The significant philosophical differences between Puerto Rico’s Financial Oversight and Management Board and the island’s government agencies were overtly displayed Thursday as officials from public safety agencies insisted on the need for higher operating budgets, while the congressionally established panel chided them for failing to submit reports and delaying required consolidations.

At a press conference following the fiscal oversight board’s public hearing to evaluate the status of fiscal plans and structural reforms for the Public Safety Department, which is led by Héctor Pesquera, the governor’s representative on the fiscal board, Christian Sobrino, who is also directs the island’s Fiscal Agency and Financial Advisory Authority (Aafaf by its Spanish acronym), reiterated that the board-certified fiscal plan does not support requirements for police reform that are under evaluation by U.S. District Court Chief Judge Gustavo Gelpí.

Sobrino said a study by Vision to Action (V2A) found that the fiscal plan, which would cut funding by about $500 million to the seven public safety agencies, undermines staffing requirements that the Police Bureau must meet. The study, which was shared with the board in October at a meeting attended by its adviser, McKinsey & Co., finds that the fiscal plan will lead to a “deterioration” in public safety, Sobrino said.

The need for higher funding made by the Fire Department, the Institute of Forensic Sciences and the Police Bureau was overshadowed by criticisms from the fiscal board over the so-called Christmas bonus, which employers are legally required to pay; the lack of implementation plans; and the lack of agencies’ awareness about the degree of job absenteeism.

Pesquera said that while the Office of Management and Budget approved a restructuring of the seven entities in February, the consolidations will take time to be implemented and yield savings. Chief Financial Officer Raúl Maldonado said that when the transfer of the Human Resources Administration to his office is completed, the ability to transfer public workers among agencies will become easier, and employees of his office would be transferred to the Public Safety Department (PSD) to assist it in the process.

In response to questions from board member David Skeel, Pesquera said his department will have a timeline to complete the process but that it does not have enough time for the work involved, stressing, “It is not easy to absorb seven different bureaus.”

Maldonado, however, said the implementation plan for the PSD should be ready by April 30.

Tit for tat

The board’s executive director, Natalie Jaresko, noted several times during the hearing that her panel was in the dark as to the finances of PSD components. She insisted on receiving progress reports and information on its seven bureaus, while Pesquera said it was his understanding that she was focusing on the Police Bureau.

“It is for all bureaus. We need progress reports against that plan for each bureau. We have been in various meetings. We have written letters explaining this,” Jaresko said.

Sobrino defended Pesquera, noting that the Puerto Rico Oversight, Management and Economic Stability Act (Promesa) only requires implementation plans when the governor accepts board recommendations for implementation.

In response to a question, Pesquera said the person in charge of the restructuring was Marla Canino.

Skeel also asked Pesquera about requirements to report employee attendance, questioning “how well you can manage without knowing who shows up.”

Puerto Rico fiscal board member David Skeel (CB file)

In turn, Pesquera asked Skeel where he got the idea for discussing absenteeism at the police force, to which chairman José Carrión said he was referring to the so-called blue flu. Pesquera said he did not know how many police officers had not shown up for work because each of the bureaus is tasked with logging that.

Jaresko added that Aafaf publishes monthly reporting on attendance but that “it does not come on a regular basis from all the bureaus.”

Regarding the lack of implementation plans, she said that based on her experience, “you need implementation plans, not for the board, but for yourself…. It is a tool for yourself.”

Sobrino then replied that his mother taught him about implementation plans by giving him a to-do list. “But to imply by this hearing or through the publication of letters that somehow Mr. Pesquera and the rest are not complying with the law or duties before the board, would be legally incorrect…. It is a tool, not something to hit them over the head with,” he said, adding that he does not keep track of the number of absent workers at his agency either.

CFO Maldonado then noted that the government was working on a new attendance model to keep track of absenteeism.

The payment of the Christmas bonus at a time when agencies lack resources came to the fore. Fire Chief Alberto Cruz Albarrán told the board that the agency is expected to end the year with a deficit, which the board members chided for having paid the Christmas bonus without sufficient funds.

“We paid it because our workers deserve the payment during the holidays,” Cruz Albarrán said. The Fire Department requested a $103 million budget for its operations.

Carrión mentioned that the board had proposed to the government making the Christmas bonus part of the employees’ salaries, to which Sobrino responded saying he had never heard about such a proposal.

In a press conference after the hearing, Sobrino said the board’s issue with the Christmas bonus has to do with what the payment is called. “If it were called the end-of-year bonus, they would not have complaints,” he said.

During the hearing, it came to light that the early retirement programs approved by the government have caused a shortage of staff. Pesquera said that from July 2018 to January 2019, his department, which has 16,153 employees, lost 733. About 400 workers have taken advantage of early retirement. While the DPS has tried to consolidate entities, it has not been able to achieve some $30 million in savings.

Skeel wondered that if the department needed additional staff but was promoting early retirement, which 400 workers took, “What are you going to do?”

Pesquera said that while the first phase of the early retirement program was implemented, it was decided the following ones would not be. However, he said that if an officer wanted to retire or quit, the department could do nothing about it. Sobrino said the first phase of the early retirement program did not allow the agency head to deny such requests.

Pesquera was asked about police officers joining Social Security instead of receiving a government pension. He said the initiative has been delayed because the department asked for a legal opinion to be able to justify excluding officers older than 40 years old from a referendum on joining Social Security.

The DPS expects to recruit 500 cadets, 125 this year and 375 next year.

At the hearing as well, Forensic Sciences Commissioner Beatriz Zayas informed that she had some 50 candidates awaiting jobs but did not specifically mention the known autopsy backlog issue.

Puerto Rico fiscal board to hold hearing Thursday on Public Safety Dept.’s fiscal plan

(CB file)

To ‘ensure that priorities to deliver more effective public services are implemented,’ panel says

SAN JUAN – The Financial Oversight and Management Board for Puerto Rico will hold a public hearing with the Puerto Rico Department of Public Safety (DPS) on the implementation of the certified fiscal plan for Puerto Rico.

The hearing Thursday, March 28, at the Puerto Rico Convention Center in San Juan will be the first over the implementation of the fiscal plan, with others on “public education, economic development and other matters” to follow, the board said Monday.

In its release, the board said the fiscal plan “right-sizes government to account for the population decline in Puerto Rico and establishes the fiscal responsibility required for a stable and prosperous Commonwealth,” explaining that the steps it outlines “include the consolidation of government administration as well as procurement savings, so the government can deliver more effective public services.”

The board also pointed out that although the department is required to provide an annual implementation plan for each of its seven bureaus, it has only submitted the Police Bureau’s plan.

Officials from the Police, Firefighters and Forensics Sciences bureaus will be presenting at the hearing on the Public Safety Department, which also comprises Special Investigations, the Medical Emergency Corps, the State Agency for Emergency and Disaster Management, and the 911 emergency system.

“Public safety matters tremendously to the quality of life of the people of Puerto Rico, their families and children,” said Natalie Jaresko, the board’s executive director. “The implementation plans are an important tool to ensure transparency about the progress made towards delivering those changes.”

The hearing requires pre-registration by Wednesday, March 27, at 5 p.m. The form is available here.

Puerto Rico oversight board rejects government’s proposed fiscal plan

The Puerto Rico fiscal oversight board’s executive director, Natalie Jaresko; member Ana Matosantos; and chairman, José Carrión (CB file)

Requests more than 40 revisions by March 22

SAN JUAN – Puerto Rico’s Financial Oversight and Management Board on Monday rejected the latest version of the central government’s fiscal plan and requested more than 40 revisions, arguing that the document, submitted March 10, did not include certain requested structural reforms.

The letter to Gov. Ricardo Rosselló, signed by board Executive Director Natalie Jaresko, said October’s certified fiscal plan identified the structural reforms and fiscal measures the panel determined were necessary to comply with Promesa.

“Accordingly, the Oversight Board intended for this revision to the Certified Fiscal Plan to be focused on incorporating the latest material information and certain technical adjustments, not for renegotiating policy initiatives. Unfortunately, not only does the Proposed Plan not include detailed critical structural reform initiatives or the latest information for baseline projections, but it includes several new policies that are inconsistent with Promesa’s mandate,” Jaresko said.

In a statement late Monday, Christian Sobrino Vega, the governor’s representative to the board and executive director of the Puerto Rico Fiscal Agency and Financial Advisory Authority, wrote that the government rejects “that our proposal does not comply with the law. Quite the opposite. Our Fiscal Plan proposal reflects the most accurate and recent figures of the fiscal behavior of the Island.

He questioned “the accuracy with which our proposal was evaluated” and urged the board “to exercise greater diligence in evaluating the next proposed Fiscal Plan that the Government will submit this week, as required.

See the full text of the board’s letter to Gov. Ricardo Rosselló here.

The following are some of the “changes to and/or explanations” the board listed as required by noon March 22:

–Disaster funding totals: The Proposed Plan references that the Federal Emergency Management Agency (FEMA) now estimates $60 billion in total public assistance funding and discounts that funding by a factor of 23%. Meanwhile, FEMA’s 12-month Report issued October 2018 indicates that funding (excluding Individual Assistance and Administrative categories) will amount to $65 billion over the life of the storm.

“Please revise the Proposed Plan to reflect the full amount of fund that FEMA reports,” the board requested.

–Disaster funding roll-out: The Proposed Plan shows $3.7 billion in FEMA funding (excluding Individual Assistance and Administrative categories) across FY18 and FY19. Published data from the government’s COR3 office shows that $6.2 billion has already been disbursed, with several months remaining in FY19.

“The Government must update the values for FY18 and FY19 to reflect documented obligations and disbursements to date. Further, from FY19 to FY49, the Government has not adjusted roll out for new information regarding the pace of spend,” the letter says.

–Disaster funding pass-through: The Proposed Plan includes a pass-through rate of 18% across FEMA Public Assistance, HUD [U.S. Department of Housing and Urban Development] CDBG [Community Development Block Grant] funding, FEMA Individual Assistance, Other Federal Funding, and Private Insurance. Please justify this one-size-fits-all approach across programs.

“The Oversight Board’s position is that pass-through rates for disaster funding vary between those which are directed just toward consumption (where a 100% pass-through rate applies), those just toward capital investment (where an 18% or 23.5% pass-through rate applies based on whether investment is in utilities or standard structures), and those that will be directed toward programs, in which funds will be spent both on and off Island (in which a 23.5% pass-through rate applies),” the board wrote.

–The Board asked for FY18 & FY19 GNP estimates used in the Proposed Plan, including sources of assumptions and modeling methodology for growth estimates. It also said the plan must use U.S. mainland GDP growth rate and inflation rate estimates from Congressional Budget Office (CBO) projections.

“The Proposed Plan should use CBO fiscal year projections (which are closer to Puerto Rico’s fiscal year) instead of calendar year projections,” the letter says.

–Population figures do not appear to have been updated in line with the macroeconomic projections contained in the model.

–Damage assessment: The Proposed Plan still uses the original damage assessment from the Planning Board (based on data from October 2017), the board said.

–Power & water rates: The Board asked for additional information and an explanation for the power and water rates used in the Proposed Plan, including sources of assumption.

Regarding baseline revenue projections, the board requested the following:

–Recovery revenue methodology: The Proposed Plan forecasts above-trend revenue collections attributable to disaster-related spending by tying such funds to the rate of roll out of funding directed towards capital.

“Please align these funds to the rate of roll out to all disaster funding given their potential impact on revenues,” the board asked.

–Impact of changes to the tax law of Puerto Rico. The Proposed Plan must incorporate the effects of the recent changes in tax law.

–Medicaid: The Proposed Plan contains substantive updates to Medicaid expenditures which require further information.

–Federal funding: The Government assumes that it will receive unlegislated sources of federal funds in the amount of $1B annually starting in FY21, in addition to the $400 million federal matching funds (allotted under Social Security Act Section 1108 and federal CHIP program).

The board asked that the funding assumption be excluded.

–Medicaid enrollment: The board asked why the proposed plan projects significant drops in Medicaid and Platino enrollment numbers starting in Fiscal 2020.

–Medicaid long-term projections: The Proposed Plan contains a long-term healthcare inflation rate that is higher than the Certified Fiscal Plan. Part of this difference relates to the Proposed Plan’s population assumptions for the Island as a whole; however, there are also updates to the per capita healthcare inflation rate.

“Please provide any new documentation to support this assumption,” the board wrote.

–Pensions: Baseline pension expenses in the Proposed Plan are $1.4 billion lower than in the Current Fiscal Plan, “without sufficient explanation.” The board asked for census data evidence.

–Restoration of federal funds held at Government Development Bank: The Proposed Plan assumes the Commonwealth will have to pay to the federal government $105 million to restore federal funds that were held at GDB to avoid the risk of offsets under the US Treasury Offset Program.

“Please provide detailed support and documentation for this amount, especially as it relates to amounts outside of the Commonwealth Fiscal Plan,” the panel requested.

–Payroll & non-payroll expenditures: The Proposed plan uses Fiscal year 2019 as the baseline year and includes some FY19 measures in this baseline, reducing transparency in government reform needed, implementation progress, and results in the macroeconomic model inadequately representing fiscal reform. The Government should adjust the Proposed Plan to show the baseline separate from the measures.

–Utilities: The Proposed Plan includes the outstanding historical Commonwealth utility payments to the Puerto Rico Electric Power Authority and to the Aqueduct and Sewer Authority. However, it assumes the Commonwealth will have to pay $0.1 billion less in utilities between FY19 and FY23 than in the Current Fiscal Plan.

“Please provide an explanation for why there is a discrepancy in this amount,” the board said.

The panel also required changes and explanations in the scoring of structural reforms in the proposed plan including labor reform, energy reform and ease of doing business. It also required explanations as to changes in fiscal measures. For instance, the proposed plan reduces total savings through agency efficiencies by $1.1 billion through additional spending in Fiscal 2023.

The proposed plan also puts forward a different set of agency groupings than was included in the certified plan last year.

“While the Government may make changes to the groupings in the Certified Fiscal Plan, all agencies must still achieve the savings specified in the Certified Fiscal Plan and the total amount of savings that must be achieved has not changed.

“Please provide detail on how savings will be achieved given the change in groupings and future reorganization plans proposed,” the board said.

Oversight board discussess fiscal plan, accreditation with University of Puerto Rico 

(Screen capture of http://www.uprrp.edu)

Faces deadlines to submit proposed plan, order to show cause for academic accreditation

SAN JUAN – With a deadline of only a little more than two weeks for the University of Puerto Rico (UPR) to submit a proposed new fiscal plan, Natalie Jaresko, the executive director of the island’s Financial Oversight and Management Board, met Friday with the academic institution’s president, Jorge Haddock.

The meeting took place as the UPR’s internal committees hold working sessions to produce the fiscal plan, and touched upon its implementation, as well as financial reporting, utilization of scholarship funds and concerns over the UPR’s non-compliance status with the Middle States Commission on Higher Education (MSCHE), for which Jaresko said her panel was committed to helping the UPR maintain its accreditation.

They also discussed the UPR’s financial and academic competitiveness compared with local, stateside and international institutions, according to the release.

“As Puerto Rico’s main academic institution, UPR plays an essential role for Puerto Rico’s society and economy,” Jaresko said. “It is crucial for this accomplished university and its students that it maintains its accreditation and continues to offer the same quality education it always has,” she said, adding that “Higher education is a key to Puerto Rico’s stability and prosperity.”

The UPR’s 11 campuses are on show cause for lack of compliance with the Requirements of Affiliation 11 and 14, which address financial planning and documentation, and access to information, respectively. The UPR is also in non-compliance with the Standard of Accreditation VI, which pertains to financial resources.

While the requirements refer to apparent internal issues regarding long-term financial planning, as well as not submitting financial statements on time, for the Standard of Accreditation VI the Middle States is questioning the ability of the UPR to have enough resources to fulfill its mission, given the budget cuts it has experienced and the ones expected in the fiscal plan approved Oct. 23, which drops its central government allocation from about $650 million for fiscal year 2019 to $441 million for fiscal 2023.

In the Jan. 10 letters in which the accreditation agency notified the 11 campuses they were being placed on show cause, the Middle States requested, among other documents, for “updated information on the impact of the Fiscal Oversight Management Board’s plan and proposed restructuring on the institution’s status and finances.”

With regard to the fiscal plan, which the UPR must submit by April 5, with the expectation of having it certified by May 1, the board and the school discussed the scholarships that are part of the current plan, under which undergraduate tuition was raised in June to $115 per credit, from $57, but the scholarships, which were supposed to be awarded at the same time, have yet to be issued.

The fiscal board stated Friday that the “Certified Fiscal Plan requires UPR to create a needs-based scholarship program this year with $9 million, growing to $16 million by fiscal year 2023. An additional $35 million for independently managed need-based scholarships has been budgeted in the Commonwealth’s Certified Fiscal Plan for the current fiscal year, aiming to ensure that no student is left behind.”

Puerto Rico’s new draft fiscal plan banks on reforms, federal recovery funding

Debt service postponed; includes measures to attract business, stem outmigration

SAN JUAN – The Puerto Rico government submitted yet another revised fiscal for the bankrupt island. It does not include debt service payments over the next five years, despite a surplus of $12 billion, bolstered by stimulus from federal disaster recovery funds and the implementation of fiscal measures and structural reforms.

The document, which was submitted to the island’s Financial Oversight and Management Board for certification, is dated March 10 and is the sixth version of draft and final versions produced since January 2018. It is also the first revision to the fiscal plan since the government restructured the debt of the now-shuttered Government Development Bank and the Puerto Rico Sales Tax Financing Corp.’s (Cofina by its Spanish acronym) $17 billion debt.

The debt adjustment plan for Cofina went into effect Feb. 12. It granted Cofina ownership of 53.6% of the island’s sales tax and the commonwealth 46.3%. Cofina’s portion will be used to fund debt-service payments on new Cofina bonds distributed under the plan.

Before the measures and structural reforms, the government projects a surplus through fiscal year 2024, in part from revenue stemming from the massive disaster relief funding, totaling $77.6 billion, from diverse sources slated to be received between fiscal years 2018 and 2032.

These sources include $45.8 billion in federal public assistance, about $15 billion in Community Development Block Grant (CDBG) program funds between fiscal years 2020 and 2025; $2.5 billion in Federal Emergency Management Agency (FEMA) individual assistance that ends next year; $8 billion from private insurance claim payments; and $5 billion in other federal funding.

The stimulus brought about by the injection of federal funds will come about in multiple forms such as construction companies hiring unemployed local workers and from an influx of stateside workers spending money for food and lodging on the island. The revised fiscal plan projects $81 billion in disaster relief funding will be disbursed for reconstruction efforts.

Federal funding drop

Over the long term, however, the baseline forecast is not sustainable as federal disaster relief slows down, supplemental Medicaid funding phases out, Act 154 companies and non-resident withholding revenue declines, and pension and healthcare expenditures rise. Fiscal measures and structural reforms help produce a cumulative surplus through 2024. Structural reforms will drive a 1.21% growth and fiscal measures are expected to result in $7.5 billion in savings.

As in previous fiscal plans, the revised plan expects the island’s population to drop from the current 3.1 million to about 2.9 million in fiscal 2024.

Among the structural reforms the plan says can drive growth into the economy are the Earned Income Tax Credit; work requirements established for the nutritional assistance program; education initiatives established by the Workforce Innovation and Opportunity Act; improving of “the ease of Doing Business”; and fewer occupational licensing requirements to foster a more open market.

In addition, the government will move its processes online through its Unified Information System, as well as improve the ease of registering property and paying taxes. It also will deregulate the so-called Condominium Law to attract investment by rental residents and increase the population.

In addition to the structural reforms, the government says it is implementing fiscal measures to reduce costs and improve the quality of services. These include the creation of the chief financial officer position to oversee island resources; consolidating agencies; healthcare reform; and tax reform that includes compliance and fee enhancement initiatives to generate $574 million in revenue.

An addition to the revised fiscal plan is an expense for proceedings under Title III of the Puerto Rico Oversight, Management and Economic Stability Act (Promesa), the bankruptcy-like process that a federal judge is overseeing for Puerto Rico’s $70 billion debt. To date, related expenses have surpassed $300 million.

See the fiscal plan here.

Oversight board publishes fiscal plan, budget timeline for utilities, highway authority, University of Puerto Rico

(CB file)

SAN JUAN – The Financial Oversight and Management Board for Puerto Rico announced Monday the timeline for fiscal plan revisions and fiscal year 2020 budgets for the Puerto Rico Electric Power Authority (Prepa), the Puerto Rico Aqueduct and Sewer Authority (Prasa), the Highways and Transportation Authority (HTA), and the University of Puerto Rico (UPR).

The following timeline “includes the process for the development, presentation, approval, and certification of those fiscal plans and budgets,” the board said in its release.

Prepa, HTA, and UPR dates:

  • April 5: Entities submit draft of Fiscal Plan to the Oversight Board.
  • May 1: Oversight Board sends Notice of Violation for draft of Fiscal Plan, if necessary.
  • May 10: Oversight Board sends revenue expectations for fiscal year 2020 budget.
  • May 14: Entities submit revised draft of the Fiscal Plan to the Oversight Board.
  • May 22: Entities submit draft fiscal year 2020 budget.
  • May 28: Oversight Board expects to certify the Fiscal Plan.
  • May 31: Oversight Board sends Notice of Violation for draft of fiscal year 2020 budget, if necessary.
  • June 14: Entities submit revised draft budget for fiscal year 2020.
  • June 28: Oversight Board expects to certify fiscal year 2020 budget.

Prasa dates (“depend on Prepa Fiscal Plan input”):

  • April 5: Entity submits draft of Fiscal Plan to the Oversight Board.
  • May 1: Oversight Board sends Notice of Violation for draft Fiscal Plan, if necessary.
  • May 10: Oversight Board sends revenue expectations for fiscal year 2020 budget.
  • May 22: Entity submits fiscal year 2020 budget draft.
  • June 3: Entity submits revised draft of the Fiscal Plan to the Oversight Board.
  • June 7: Oversight Board expects to certify the Fiscal Plan.
  • June 10: Oversight Board sends Notice of Violation for draft of fiscal year budget 2020, if necessary.
  • June 17: Entity submits revised draft budget for fiscal year 2020.
  • June 28: Oversight Board expects to certify fiscal year budget 2020.

The letters sent by board Executive Directo Natalie Jaresko apprising Gov. Ricardo Rosselló of the requirements follows:

Swain’s World: First Circuit Ruling Delays P.R.’s GO Debt-Adjustment Plan

Editor’s note: The following originally appeared in the Feb. 28 – March 6, 2019, issue of Caribbean Business.

What are the implications of the ruling by the First Circuit Court of Appeals on the Government of Puerto Rico’s Title III case? It will not only delay a debt-adjustment plan for the commonwealth’s $16 billion general-obligation (GO) debt but may also lead to a new and conservative Financial Oversight & Management Board that could even decide to file a dismissal of the island’s bankruptcy petition.

Those were just some of the scenarios presented by lawyers during the Third Promesa Forum that discussed the repercussions of the Boston court ruling that declared the Oversight Board was unconstitutional because its members were not appointed as established by the Appointments Clause of the U.S. Constitution, which empowers the president to nominate officials for appointment with the advice and consent of the Senate. The First Circuit Court of Appeals upheld the federal law Promesa, the Puerto Rico Oversight, Management & Economic Stability Act, and the bankruptcy cases but allowed for a period of 90 days to rectify the problems with the board’s appointments.

Oversight Board members were not appointed by former President Obama but were chosen from various lists produced by the majority and minority parties in Congress.

Zachary H. Smith, a partner & chair of bankruptcy and restructuring at Moore & Van Allen PLLC, said the Appeals Court first looked at the Territorial Clause, which gives Congress plenary powers over incorporated and unincorporated territories, and tried to square that authority with the Appointments Clause to conclude that the appointment of the Oversight Board members still requires the advice and consent of the Senate.

The court also looked at whether board members were federal or territorial officers. Although Promesa says the board is an entity within the territorial government, “the court looked past those labels” to conclude they were federal officers operating under a federal law. It also looked at the relationship between the commonwealth and the Oversight Board. “The commonwealth cannot overrule the board. It has the power to approve budgets…the power to put covered entities under Title III [of bankruptcy]. The court really did not have much difficulty concluding that members of the board were federal officers,” he said.

The court also evaluated who has the power to terminate board members and whether they are inferior or principal officers. “They answer directly to the President,” he said.

What happens now? John Mudd, a bankruptcy lawyer, said the Oversight Board has 90 days to ask the U.S. Supreme Court to revise the Appeals Court ruling. However, he noted that the Supreme Court only sees 80 out of 10,000 petitions. One of the options is for President Trump to appoint a new board so it can be confirmed by the Republican-dominated Senate. The new board will remain in place until 2022. “The board will probably not be very deferential to the commonwealth. It could be more conservative…. It could even go and say, ‘I don’t think we need Title III,’ and dismiss it for cause…. A new board may also decide to overturn any decision made by the previous board. It can say we should not pay pensions,” he said.

The 90 days given by the Appeals Court to validate the Oversight Board are slated to expire May 16, but in the meantime, it can continue to operate as it has done so far. The current board must approve a new commonwealth fiscal plan in April.

What happens after May 16 when the 90 days are up? “They can continue to act, but since they do not exist, they can’t do anything,” Mudd said.

If the District Court sees no movement in the case after some period, the judge may dismiss it.

How will the decision impact the commonwealth’s restructuring of its debt? Both Mudd and Smith said the ruling delays the debt adjustment plan. Smith noted there cannot be a debt-adjustment plan until there is a decision regarding a request from the board’s Special Claims Committee and the Unsecured Creditors Committee to repeal $6 billion in GO debt because it violates the Constitution’s balanced budget clause and the limitations on the level of the debt. “There is another pleading asking the court to set omnibus procedures to deal with this objection,” he said, noting that the request is slated to cause more delays.

The petition seeking the repeal of $6 billion in debt appears to have also had an impact on the mediation process because some creditors told Judge Laura Taylor Swain that the timing of the objection coincides with negotiations to settle the debt.

What can the board do in the 90 days it has left? Mudd said there may be new filings, including rumored bankruptcy petitions from the Puerto Rico Aqueduct & Sewer Authority and the University of Puerto Rico. UPR President Jorge Haddock said last week that UPR’s budget was balanced.

Where is all the rounding cash?

The settlement rounding cash, which was supposed to be used to iron out these shortfalls, was inexplicably distributed on a pro-rata basis from Depository Trust Co. to each nominee or custodian. “So, if a hedge fund received $1.2 billion in new Cofinas, out of the total settlement distribution of $12 billion, then they also received 10 percent (the same ratio as bonds received) of the rounding cash. This large cash transfer took place although it only requires $999, at most, to round up or down to $1,000. To allocate rounding cash on a pro-rata basis was ridiculous and should be clawed back from large holders, because this cash should have been allocated based on rounding needs, not ownership size,” said Glenn Ryhanych, CFP, CFA & president of BlueList Partners LLC.

“Who is responsible? Shame on all of the large-money funds and their advisers for pushing this scheme through. And, the Puerto Rico control board, commonwealth government and the Title III court are not blameless,” he said.

Puerto Rico gov says he didn’t defy fiscal board by paying the Christmas bonus

NARANJITO, Puerto Rico – Gov. Ricardo Rosselló Nevares said Wednesday that he did not defy the island’s fiscal control board (JCF) for paying the Christmas bonus to public employees.

“It’s not us challenging the Board, it is the Board challenging the government of Puerto Rico. My criterion is I am going to do what, in my opinion, is best for the people of Puerto Rico,” the governor told the press.

“This stems from the Board thinking it’s a gift. It’s not. If you compare the salary of a Puerto Rican teacher, it is two to three times lower. The Christmas bonus is part of that commitment so that this inequality is not so great, and if they could understand that, they would be less resistant,” he added.

The governor said the payment of the year-end statutory bonus will be given despite the fiscal board warning the government on several occasions that it cannot pay it.

The secretary of Public Affairs and Public Policy, Ramón Rosario Cortés, said, “Today, a large part of our public employees saw reflected the direct deposit of their Christmas Bonus in their bank accounts. Others will see it reflected tomorrow (Thursday) as well as what they charge in checks. The governor has instructed public corporations to make adjustments to pay this right that is part of the salary of our workers.”

However, fiscal board Executive Director Natalie Jaresko issued the following statement:

“As referenced in a November 14, 2018 letter to Governor Rosselló, the certified Fiscal Plan for the Commonwealth calls for the elimination of the Christmas bonus as part of cost reductions in Payroll and Related costs as a measure to avoid more drastic measures, and the certified budget reflects that the Commonwealth would not pay a Christmas bonus. The certified budget for the Commonwealth requires that the Commonwealth not exceed the total amount budgeted for Payroll and Related concept of spend.

“As the Commonwealth proceeds to pay a Christmas bonus to its employees this year, each agency will have to achieve an equal amount of savings within the Payroll and Related allocation to offset such an expenditure. Failure to achieve the requisite savings in the Payroll and Related concept of spend may result in Commonwealth agencies exhausting their Payroll and Related allocation in the certified budget before the end of fiscal year 2019, imperiling the Commonwealth’s ability to make payroll for its employees. We will continue to monitor spending and will evaluate whether to take any corrective actions.

“Puerto Rico has accumulated debt beyond the Commonwealth’s ability to repay, and has suffered from decades of financial mismanagement and ineffective delivery of government services. PROMESA [Puerto Rico Oversight, Management, and Economic Stability Act] was adopted specifically to respond to this situation. The Board has been charged with bringing the Island back to fiscal balance and returning market access to the Island. These mandates require many policy changes and implementation of hundreds of measures and structural reforms. Success for Puerto Rico, the end of the Board’s mandate, and a return to economic growth and hope are only possible with the Government’s steadfast cooperation.”

Treasury Department Teresa Fuentes had said that “the disbursement of $85.3 million was due to the effort by government agencies in their fiscal adjustments and the efficiencies that reflect an increase in revenues. This, without affecting the budget and the Fiscal Plan. Also, it is a boost for the economy and society….”

-Caribbean Business contributed to this report.

Puerto Rico fiscal board: Pension forecasts, projected PayGo payments were understated by $3.35 billion

SAN JUAN – The Financial Oversight and Management Board for Puerto Rico said Friday that after its review of the pension forecasts and projected PayGo payments in the new fiscal plan it had certified on Oct. 23, it concluded that the pension forecasts and projected PayGo payments through fiscal year 2058 were understated by $3.35 billion.

The revisions to the existing pension forecasts result in “no net material impact during the first 20 years of the projections (through 2038), and are concentrated in the last 20 years of projections (2039-2058),” the board said in its release.

The board said it will “further refine” the pension forecasts and projected PayGo payments after it “receives and analyzes more accurate information from the actuaries for the Commonwealth’s pension plans in the coming months.”

The revisions to the pension forecasts, projected PayGo payments and the anticipated “further refinements in the coming months, do not imply any change to the Oversight Board’s pension policy or to pension payments that have been budgeted. Rather, they represent changes to the projected cost for the Commonwealth to make its PayGo payments in the out years,” it wrote.

Fiscal board questions amendment to retirement law that would benefit mayors

Fiscal board Executive Director Natalie Jaresko (CB file)

SAN JUAN – The executive director of Puerto Rico’s Financial Oversight and Management Board, Natalie Jaresko, on Monday questioned Senate Bill 1148, which proposes to retroactively change the date that applies to participants that entered the Employees Retirement System (ERS) on or after Jan. 1, 2000, to benefit a few dozen mayors.

The mayors, most of which already get substantial pensions, would instead be covered by the old ERS’s defined-benefits program, she said.”Based on our review of the Bill, we believe it is not consistent with the certified Fiscal Plan for the Commonwealth.”

The commonwealth created System 2000 to close the defined benefit program for all new participants and “try to protect the financial condition of the Commonwealth’s largest retirement system,” she said.

At that time, all ERS participants who entered the system on or after Jan, 1, 2000, would be covered solely under System 2000.

“Amending this date now, 20 years later and when the financial condition of ERS is materially worse, would increase the amount of monthly PayGo payments. Therefore, the Bill is inconsistent with both the certified Fiscal Plan and the certified Budget for the Commonwealth,” she reiterated.

“Moreover, such an arbitrary benefit increase that applies to a select group of ERS participants that have comparatively high pension benefits would create a dangerous precedent, especially at a time when the assets of ERS have been depleted and ERS participants face reductions in their pensions.

“Finally, we request that you provide the fiscal analysis of the Bill. We would be pleased to discuss this matter in more detail with you and your staff at your convenience,” she wrote to Senate President Thomas Rivera Schatz and House Speaker Carlos Méndez Núñez.