U.S. Treasury Secretary, Puerto Rico governor reach agreement on disaster loans
By Eva Lloréns Vélez and Philipe Schoene Roura
SAN JUAN – U.S. Treasury Secretary Steven Mnuchin kept the promise he made several weeks ago that he would visit Puerto Rico. After meeting with Gov. Ricardo Rosselló and local administration officials Thursday, the governor announced an agreement had been reached on the terms for the disbursement of the Community Disaster Loans (CDLs).
As previously reported, Mnuchin’s visit comes at a critical juncture, on the heels of contentious public debate between Rosselló and U.S. Treasury over the disbursement of the CDLs, which the governor has criticized for being tied to conditions and triggers—the island’s liquidity, Treasury previously established, had to drop below $800 million. However, while in Puerto Rico on Thursday, Mnuchin announced the threshold was raised to $1.1 billion.
There will be access to all CDL funds, “according to the needs of Puerto Rico, until March 2020,” the governor said alongside Mnuchin during a press conference in La Fortaleza, but did not say how much money the government will immediately need nor when he expects the Treasury Single Account to fall below $1.1 billion.
As of March 9, the account had $1.332 billion. The disbursement needs the approval of U.S. District Court Judge Laura Taylor Swain, who presides over the island’s bankruptcy process.
“There are still clauses we have to work on but the important thing is that an agreement was reached,” the governor said. “Now what remains is that our teams work together on the details, that we go to the Legislature and then go to court under Title III to access the funds,” he later added.
The governor explained that it was agreed the loan would have a super lien over all debt, but not over the money needed for essential services. Regarding questions as to whether the debt would be forgiven, Mnuchin said “there’s no reason to consider that decision today,” but that there will be discussions on the matter “based upon the circumstances.”
It was agreed that the debt-forgiveness “clause would remain and will be discussed if necessary at the right time,” according to a release issued by the governor’s office.
The secretary said he would collaborate on getting Congress to make changes for Puerto Rico in the federal tax reform and push for economic development measures for the island. The recently approved tax reform treats the island as a foreign jurisdiction, forcing subsidiaries of stateside companies to pay taxes they would not pay if based in a state.
“These solutions have to be seen in Congress, but with the support of the secretary, this can move forward,” Rosselló said.
Meanwhile, Mnuchin explained that details of the loan, such as interest, were still being worked out and would be revealed in the future, adding that the funds are only part of the administration’s commitment, which includes about $30 billion for reconstruction.
Mnuchin, who came to Puerto Rico after a G20 meeting in South America, praised the island’s recovery progress and said he would return every quarter to continue monitoring it and continue discussions over the loans.
“Our thanks to Secretary Steven Mnuchin for understanding the reality that Puerto Rico faces after the passage of two catastrophic hurricanes. In an open conversation, we were able to reach agreements to protect the welfare of U.S. taxpayers, while guaranteeing essential services in Puerto Rico,” Rosselló said.
Mnuchin also confirmed Caribbean Business reporting on separate CDLs of up to $5 million were to be disbursed directly to municipalities, without central government intervention.
Parallel initiatives aimed at providing funds for the island’s municipalities had been set in motion before Thursday’s confirmation.
“U.S. Treasury has been quietly working on city CDLs that bypass the central government and are focused on specifics problems in each of P.R.’s municipalities,” a source working closely with congressional leadership recently said. “The governor has asked that all federal funds be channeled through his administration while asking to be treated ‘just like every other state.’”
A New Progressive Party majority mayor, who did not wish to speak on record, told Caribbean Business that several mayors had been “doing their own” lobbying to obtain funding, noting that federal officials have been open to requests but did not know about Treasury’s initiative.
In a missive to congressional leadership at the end of last month, Rosselló insisted: “Congress acted swiftly in late October to grant the Commonwealth of Puerto Rico immediate access to federal loans through the CDL program to compensate for loss 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 [U.S. Treasury] has failed to timely advance the loans and has imposed conditions inconsistent with the CDL program’s very purpose.”
When approved in October, 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 approximately $4.9 billion in loans under the CDL program for Florida, Texas, Puerto Rico, and the U.S. Virgin Islands.
According to the Associated Press, $23 billion in direct aid has been appropriated and the Federal Emergency Management Agency has spent about $6 billion for Puerto Rico since the hurricane, but billions of dollars are pending, including $1.5 billion in congressionally appropriated money that was promised last month in community development block grants for the island’s Housing Department.
The U.S. House of Representatives passed Thursday a $1.3 trillion government spending bill to keep the government running. It includes appropriations that resident commissioner González said add up to more than $2 billion for Puerto Rico.
The omnibus funding bill now goes to the U.S. Senate for consideration, where it is expected to be passed.