U.S. Treasury Disinclined to Yield on CDL Issue

SAN JUAN – Gov. Ricardo Rosselló’s denouncement of the U.S. Treasury (UST) for stalling on its disbursement of a Community Disaster Loan (CDL) of $2.065 billion, down from an original appropriation of $4.7 billion by U.S. Congress, has failed to produce political pressure on Capitol Hill among members of Congress on both sides of the aisle.

No sooner had the UST made public that it would be disbursing less than half the original $4.7 billion CDL, Gov. Rosselló fired off a missive to congressional leadership denouncing “that Congress acted swiftly in late October to grant the Commonwealth of Puerto Rico [the Government or Commonwealth] immediate access to federal loans through the CDL program to compensate for losses in tax or other revenues, whether temporary or permanent, which imperils the Government’s ability to maintain public services. Despite Congress’ swift actions, the UST has failed to timely advance the loans and has imposed conditions inconsistent with the CDL program’s very purpose.”

Two sources on Capitol Hill told Caribbean Business that Gov. Rosselló is incorrect in his assertions that the Additional Supplemental Appropriations for Disaster Relief Requirements Act (Appropriations Act) enacted Oct. 26, 2017, is a mechanism to provide immediate access to those funds. “The governor is confusing the appropriations with an obligation; the appropriations bill does not guarantee access to the funds,” said one source with ties to the GOP, who chose to remain nameless. “And as to the triggers tying the disbursement of funds to Commonwealth liquidity—that is a mere function of financial assumptions that are difficult to verify, and run contrary to projections and assertions made by Puerto Rico’s government. When you say you are going to have to close the government if you don’t get money, and then you don’t close—people start to question your accounting.”

The GOP source pointed to several items in the governor’s letter that raised concern among Republican leadership on the Hill. They point to Gov. Rosselló’s assertion that [the UST proposal] focuses almost exclusively on repayment and risk reduction, rather than relief for residents of the island.

By providing that “loans to a territory or possession, and instrumentalities and local governments thereof, may be canceled in whole or in part…at the discretion of the secretary of Homeland Security, in consultation with the secretary of the Treasury,” Congress contemplated that loans issued under the Appropriations Act may not ultimately be repaid. To be faithful to this provision, the likelihood that Puerto Rico will repay any loan should be secondary to the relief such loans will provide to Puerto Rico and its residents.”

According to the governor’s letter, the UST has told the P.R. Fiscal Agency & Financial Advisory Authority (Fafaa) that the UST will lend pursuant to terms consistent with five “principles”: Any loan terms must provide maximum protection for U.S. taxpayers; any loan terms must account for Prepa’s “indefinite and unknown” future; any loan terms must include detailed reporting and protective covenants; the UST believes the Commonwealth has sufficient liquidity to repay and the U.S. taxpayers should not accrue risk of a loan; and any loan terms must be consistent with customary terms provided to debtor-in-possession lenders in cases filed under Chapter 11 of the Bankruptcy Code.”

The GOP source said Puerto Rico should not expect more than the $2.065 billion to be allotted in the CDL; that the program was never intended to grant huge loans to states.

Gov. Rosselló has taken a combative stance on both the reduction in the original assignment and the conditions tied to the disbursement while denouncing Puerto Rico is not being treated equally.

“He is right in his assertion that Puerto Rico is being treated differently because the island is not a state, it is a territory,” the GOP source said. “It is not Texas and it is not Florida. Gov. Rosselló is a Title IV governor because Puerto Rico is under the territorial clause of the U.S. Constitution; he is not a Title X governor as other governors of the United States.”

Rosselló, who supports statehood for Puerto Rico, has taken exception to that argument pointing to the fact that all Puerto Ricans are U.S. citizens and should have equal rights.

When it was approved Oct. 26, 2017, the Appropriations Act authorized $36.5 billion in disaster-relief funds to support recovery efforts in the aftermath of hurricanes Harvey, Irma and Maria. The disaster-relief package included about $4.7 billion in loans under the CDL program for which Puerto Rico, the U.S. Virgin Islands and local governments of Florida and Texas are eligible, according to the text.

Editor’s Note: At this writing, there were reports circulating in the financial press that U.S. Treasury Secretary Steven Mnuchin had plans to visit Puerto Rico over the coming weeks. 

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