Board to Adopt Plan as Governor Insists on His Policies

The Puerto Rico Financial Oversight and Management Board (FOMB) reportedly plans to adopt its own final revised, multi-year fiscal adjustment plan for the territorial government by the end of the month after receiving Governor Ricardo Rossello Nevares’ plan late last week. The FOMB had planned to adopt a final plan by April 20^th.

The revised Rossello plan for the Government as a whole was submitted along with revised Rossello Administration plans for the Government Development Bank, the University of Puerto Rico, the Electric Power Authority (PREPA), the Aqueduct and Sewer Authority (PRASA), and the Highways and Transportation Authority.

The Governor told a news reporter that he had accepted 13 of the Board’s 48 demands for changes to the Government plan that he submitted March 23^rd. He characterized the 13 as numerical assumptions and the dictates that were not incorporated as policy measures that were beyond the jurisdiction of the PROMESA Financial Board.

“There is now little difference as to the baseline savings,” he argued in a letter to the Board covering the proposed plan for the Government, a “[d]ifference of only $100 million annually between our respective projections of anticipated savings.”

The latest Government plan anticipates a positive cash flow of $6.333 billion through June 30^th, 2023 instead of the $6.048 billion in the plan 13 days ago but the cash flow adjusted for non-recurring items grew from $5.942 billion to $7.364 billion.

These amounts are after inclusion of a $130 million a year reserve fund.

The document states that debt unpaid over the period would total $9.374 billion – presuming that the positive cash flow is used to make payments on bonds.

The 35 rejected changes were “recommendations made by the Board which impermissibly interfere with the Government’s exercise of its political, governmental, and operational powers and responsibilities,” Rossello wrote. The recommendations, he continued, “cannot be achieved without legislative action or action that is inconsistent with Puerto Rico law,” as if changes in territorial law were beyond the Board’s discretion.

“There are two separate paths the Board may take,” Rossello cautioned, “(i) certify a fiscal plan that is fundamentally at odds with PROMESA’s acknowledgment that the Government retains the right to exercise its political and governmental powers without interference or (ii) conclude the process with a fiscal plan that is executable and consistent with the spirit and intent of PROMESA,” making clear that the Government would not implement the changes with which it disagreed.

Among the excluded policy measures were pension cuts, greater taxation of petroleum products, and channeling all revenue into the Government’s General Fund instead of special funds.

Changes in numbers include a real GNP drop of 12% during the year ending June 30^th vs. 10.6%, an expansion of 6.7% instead of 7.3% in Fiscal Year 2019, 3% growth rather than 2.9% in FY 2020, 2% vs. 2.3% in FY21, 1.2% instead of 1.9% in FY22, and .6% rather than 1.1% in FY23.

Real GNP from FY24-28 is projected to fall .5%, with no change in FY29-38, and growth of .4% during FYs 39-48 – suggesting an assumption for a 30-year debt payout.

The population is now projected to decline 6.4% during the year ending June 30^th, 1.1% in FY19, .5% in FY20, 1.2% in FY21, 1.1% in FY22, and 1% in FY23. A decline of 1.1% is estimated for FYs 24-28, .6% during FYs 29-38, and .7% in the FYs 39-48 period.

Less spending for recovery from Hurricanes Maria and Irma is now assumed. The new estimate is $9.5 billion during the year ending June 30^th vs. $12.3 billion, $11.7 billion in FY19 instead of $13.5 billion, another $11.7 billion in FY20 rather than $12.3 billion, $9.8 billion in FY 21 vs. $10 billion, $8 billion in FY22 instead of $8.2 billion, and $5.5 billion in FY23 rather than $5.1 billion.

Insurance is now expected to only provide $15.8 billion in contrast to the $21 billion estimated March 23^rd.

Dramatic costs for restructuring territorial government debt are estimated. The Government plan includes $1.032 billion not including costs regarding the debts of PREPA and PRASA.

The Rossello Administration’s proposed tax reform is calculated to raise $522.4 million a year by FY23.