Governor Alejandro Garcia Padilla is deciding whether to sign his bill to prevent financial failures of the Puerto Rico’s Highways and Transportation Authority and Government Development Bank as it was passed by the Legislative Assembly controlled by his “commonwealth” party last night.
The bill would transfer the Authority’s $2 billion plus debt to the Government Bank and $275 million debt to the Royal Bank of Canada to the Puerto Rico Infrastructure Finance Authority.
It would also increase the tax on oil and oil products and transfer the increase and some of the existing revenue from the tax from the Highways Authority to the Infrastructure Authority.
The Infrastructure Authority would, additionally, be authorized to borrow $2.95 billion by issuing 30-year bonds to extend the payment period for the debts. Unlike the Highways Authority, the Infrastructure Authority is not subject to the Commonwealth government’s new law purportedly enabling some government corporations to deny their financial obligations.
In the Governor’s original bill, some of the oil tax collections were also to go to a new Integrated Transportation Authority to subsidize its operations but legislators diverted $36 million in cigarette tax revenue from the central government to the new Transportation Authority instead.
The Integrated Transportation Authority is being created out of the San Juan metropolitan area’s passenger train, bus, and ferry systems and the ferry system between the main island of Puerto Rico and the Puerto Rican island municipalities of Culebra and Vieques.
The legislation passed each house of the Legislative Assembly with different amendments by the minimum votes needed last week, although Garcia’s “commonwealth” party has supermajorities in each house. A version that reconciled the different bills passed both houses last night, again without a vote to spare.
The Government Bank was very disappointed with the legislation and is unwilling to accept it. President Melba Acosta-Febo and Board of Directors Chairman David Chafey said today that they would continue to work with the Legislative Assembly on the bill, although legislators brushed aside the amendments that Acosta had tried to have made and the Garcia Administration has been intensely lobbying to have its version of the bill passed for three months.
The hold-up has concerned the bill’s increases in the oil tax. The first would result in a 15 cents per gallon rise in the cost of gasoline. A simple majority of legislators in each party finally agreed to vote for it if the amendments made to the bill were made.
The Garcia Administration had pushed through an equal increase in the oil tax last year, also on the promise that it would resolve the Highways Authority’s annual financial shortfall.
Governor Garcia said today he had not made up his mind on signing the bill. He said that he wanted to see if there were other ways of ensuring the financial viability of the Development Bank.
The Highways Authority is on the brink of drastic cuts in transportation services and not paying employees on one hand or not making debt payments on the other.
The Government Bank’s unencumbered cash has been reduced to the point where a major unexpected expense for the Government could cause it to come up short, according to Acosta.
It has already declined to finance some transactions of the territory’s municipal governments.
The Garcia Administration’s biggest concern with the Legislative Assembly’s amendments is one that dropped a provision for future automatic increases in the oil tax every four years. The levy would rise to cover the cost of inflation plus 1.5%.
Acosta says that dropping the automatic future increases would only enable $1.7 billion in bonds to be sold instead of the $2.95.
Another amendment of concern limits the interest rate on the bonds to 8.5% and provides that the original price for the bonds cannot be less than 93% of their face value.
The bill also links the oil tax increase to enactment of a new Commonwealth government tax system by March 15th and specifies provisions of the tax system change.
It requires the secretary of the Treasury to submit a report describing the proposed new system by January 31st and submit legislation for it by February 15th.
Statehood and Independence minority party legislators are threatening to take legal action against the bill. They say it unconstitutionally binds the Legislative Assembly to future legislation on the territory’s tax system.
Another amendment would establish a joint Executive-legislative committee to report on whether there are alternatives to the oil tax increase by February 2nd.
The committee would also verify the Garcia Administration’s claim that the oil tax increase would only add $1.17 a week to the cost of gas for the average driver.
An additional joint Executive-legislative committee would be established to either reach an agreement on operational efficiencies with the Highways Authority within a 30-day period or name an Emergency Officer for the agency. This official would have authority over the agency.
Another significant amendment would redirect $36 million in cigarette tax revenue away from the central government treasury to the Integrated Transportation Authority. The Governor’s bill would have granted the new agency $1.25 per gallon of the oil tax revenue.
The financial problems of the transportation agencies and the Government Bank are primarily due to Puerto Rico’s failing territorial economy. After growing at a slower rate than the economy of the States for three decades, it began a downward slide almost nine years ago.
The much smaller economy cannot generate the revenue needed to maintain government spending.
It is also suffering from not receiving at least $9 billion a year that the Federal government inject into Puerto Rico if the territory were a State. Statehood would entail some additional Federal taxation but billions of dollars less.