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Puerto Rico Board Writes Territory’s Budget & OK’s Bankruptcy for PREPA

Puerto Rico’s federally-imposed fiscal control board today determined the territory’s final central government budget for the fiscal year that begins tomorrow over objections of insular elected officials. Under PROMESA, the Financial Oversight and Management Board’s budget for Fiscal Year 2018 is now deemed to be Puerto Rican law instead of the legislation enacted locally.

The main issue of dispute in the $9.562 billion budget was $13 million that the Board wound up cutting from the funding for the Legislative Assembly. Board Chairman Jose Carrion said, that “$130 million should be enough.”

Senate President Thomas Rivera Schatz said that the cut will not affect Office of Legislative Donations spending of $18.6 million, a point of contention.

Another change involved the subsidy for the dairy industry, reportedly reducing it about $15 million. There were also changes within the budget for the Institute of Culture.

The Board released a presentation on its budget for the central government and the government as a whole.

The Board also approved FY 2018 budgets for the Aqueduct and Sewer Authority (PRASA), the Highways and Transportation Administration, the Electric Power Authority (PREPA), and the Government Development Bank with some changes.  It noted, however, that the budgets would probably have to be revised because of changes it has required to the fiscal plans for these government instrumentalities.

In another action, the Board approved a request made by Governor Ricardo Rossello Nevares to approve a PROMESA Title III bankruptcy filing for PREPA. The agency is unable to make bond payments due tomorrow.

Chairman Carrion explained, however, that the Board wants to continue consensual negotiations it has begin with creditors and is not beginning a Title III process immediately. He noted that some creditors are willing to engage in the talks.

Title III would stay legal actions to force debt payments for 120 days and adds to the Board’s leverage in negotiations.

The Title III actions came after the Governor declined to extend the debt agreement that his administration had worked out with creditors representing 70% of PREPA’s $9 billion plus debt, recognizing the Board’s rejection of the ‘Restructuring Support Agreement’ (‘RSA’).

Creditors had wanted another extension and offered to finance the bond payment due tomorrow. They also want to challenge the Board’s rejection of the RSA in court on the grounds that the accord was grandfathered in PROMESA, as insisted by U.S. House of Representatives Committee on Natural Resources Chairman Rob Bishop (R-UT), a PROMESA author.

The Board claimed that the budget reduces central government spending nine percent and represents $1.875 billion in fiscal reforms. It projects $3.393 billion in reforms next fiscal year and $4.2 billion in FY20.

Its presentation also charts reductions in debt payments from $5.69 billion in FY16, including $1.207 billion from the territory’s general fund; to $1.54 billion during the year ending today, including $31 million from the general fund; to $913 million in FY18, with none of this from the general fund.

It projected Federal funds to decrease to $6.372 billion in FY18 from $6.643 billion this year, and $6.744 billion in FY16.

The budget presumes no additional federal funding for Medicaid beyond that already provided for by law, and territorial spending for Medicaid to increase from $1.2 billion this year to $1.521 billion during the year beginning tomorrow and $2.442 billion in FY19.

PREPA’s budget would decrease from $4.885 billion this year to $3.8 billion in FY18.

Links to the budget presentations to the Board of PREPA, PRASA, the HTA, and the GDB follow.

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