Sunday, July 21, 2019

U.S. Government Accountability Office: 2017 hurricanes put additional pressure on Puerto Rico economy

By on June 28, 2019

GAO headquarters in Washington, DC. (Screen capture of www.gao.go)

Recommends OMB ensures ‘sufficient and timely’ plans for disaster aid oversight

SAN JUAN — Following the U.S. Government Accountability Office’s (GAO) publishing Friday of its report on the 2017 disaster relief oversight and update on its “Public Debt Outlook” for the territories, Puerto Rico’s resident commissioner, Jenniffer González Colón, said the latter serves to demonstrate how unequal federal funding for the island has influenced its insolvency.

The GAO, which provides auditing, evaluation and investigative services for Congress, found that the impact of hurricanes Irma and Maria placed “additional financial pressures on the economies of Puerto Rico and the U.S. Virgin Islands,” whose debt was already 93% of the gross national product (GNP) and 68% of the gross domestic product (GDP), respectively, in fiscal year 2016.

Puerto Rico, the GAO said, was particularly affected due to its large debt. Since the Puerto Rico Oversight, Management and Economic Stability Act (Promesa) of 2016 contains a provision for GAO to review the public debt of each territory every two years, this is its second.

In this report for the U.S. territories, GAO updated their trends regarding public debt, revenue and financial conditions; and “what is known about the ability to repay public debt.”

The GAO said the governments of Puerto Rico and Guam raised concerns during commenting on a draft of the report about “some aspects of the analysis of their debt”; however, “GAO maintains its analysis is correct,” it said.

GAO analyzed the territories’ single audit reports for fiscal years 2016 and 2017, as available; reviewed documentation and analyses; and interviewed officials from the territories’ governments and federal agencies, as well as credit rating agencies and experts.

“Puerto Rico has finalized two out of six total debt restructuring agreements to date. Through this restructuring process, Puerto Rico’s bonds are replaced by bonds with new repayment terms. Public debt was 93 percent of Gross National Product in fiscal year 2016, the most recent fiscal year for which audited financial statements were available. Puerto Rico’s general revenue decreased by 11 percent and longstanding deficits persisted during this period. Puerto Rico’s capacity for debt repayment depends primarily on the outcomes of the ongoing debt restructuring process and its ability to generate sustained economic growth. While federal hurricane recovery grants are likely to stimulate the economy in the short term, it is unclear whether the resulting economic benefits will be sustainable,” the GAO summarized about its conclusions for the island.

“This report once again highlights the failed colonial status in which we live and does not provide opportunities for growth. The report shows that the commonwealth [status] is an anchor for progress and opportunities. As long as we do not resolve our status and we have equality in federal treatment, these statistics will not change,” the resident commissioner said.

Read the GAO’s Public Debt Outlook – 2019 Update here.

Disaster aid

Congress passed three supplemental appropriations totaling more than $120 billion in additional funding in response to the 2017’s hurricanes Harvey, Irma and Maria and wildfires in California. As part of the appropriations, Congress included an oversight framework that required federal agencies to submit internal control plans for spending these funds by March 31, 2018, in accordance with criteria to be established by OMB.

In its disaster aid report, the GAO, addresses the extent to which six federal agencies’ internal control plans provided “sufficient and timely external communication to Congress and others.”

Only the Department of Education submitted its internal control plan for disaster relief funds by the deadline. The Department of Defense did not submit an internal control plan. The departments of Agriculture, Homeland Security, and Housing and Urban Development and the Small Business Administration submitted the required plans months after the March 31, 2018, statutory deadline.

The agencies together received $115 billion of the approximately $120 billion in supplemental appropriations for the 2017 disasters.

In its recommendation for executive action, the GAO recommends that the “Executive Office of the President: Office of Management and Budget,” specifically its director, “after consulting with key stakeholders (e.g., the Chief Financial Officers Council), should develop a strategy for ensuring that agencies communicate sufficient and timely internal control plans for effective oversight of disaster relief funds.

The GAO said the Office of Management and Budget did not agree the recommendation was needed, which the GAO argued it “continues to believe the recommendation is appropriate and needed.”

The OMB, the audit found, did not have an “effective outreach strategy to help ensure that agencies had proper guidance in developing and reporting their plans. OMB did not establish an external communication mechanism to ensure that internal control plans addressed key payment-integrity risks for disaster relief funds,” according to the GAO.

The legislative branch’s investigative agency said: “Congress required agencies to communicate internal control plans associated with the supplemental funding provided. Federal internal control standards state that management should externally communicate necessary quality information to achieve the entity’s objectives. Without a clear OMB strategy for preparing for oversight of future disaster relief funding, there is an increased risk that agencies will not appropriately assess risks associated with disaster relief funding. As a result, Congress and others may not receive the necessary information about internal controls, which will affect Congress’s and others’ ability to provide effective oversight.”

Read the 2017 DISASTER RELIEF OVERSIGHT here.