Rossello Pledges “Good Faith” Debt Talks

 

Governor-Elect Ricardo Rossello (New Progressive Party/PNP) signaled changes in the Government of Puerto Rico’s fiscal course in naming two members of his top fiscal team yesterday.

Raul Maldonado Gautier will be Secretary of the Treasury and Gerardo Jose Portela Franco will be Director of the Fiscal Agency and Financial Advisory Authority that the territorial government recently created out of the Government Development Bank (GDB).

Maldonado headed the Treasury’s Internal Revenue Bureau during the administration of Rossello’s father, Governor Pedro Rossello (1993-2001). Portela Franco has worked for Santander Securities in the areas of municipal securities, public-private partnerships, and renewable energy resource projects as well as corporate transactions.

When Portela was asked after the news conference announcement if he would seek to have debt elimination forced on creditors through Title III of the Federal PROMESA law — as advocated by Governor Alejandro Garcia Padilla (Popular Democratic Party/PPD) and U.S. Treasury Secretary Jacob Lew — or seek consensual negotiations with bondholders under PROMESA Title VI, Rossello interjected, “We have established that we want to carry out renegotiations in good faith. Although time is definitely a limiting factor, our efforts since Day One have been to talk with creditor groups to search for solutions. To go into the details of it would go into strategic matters, but I can guarantee that both the Director-Designate and yours truly will work to find the best solution for Puerto Rico.”

Portela reiterated that, “we want to do things differently and with transparency. We want to act in good faith, first negotiating with the different creditors, which are many. Right now, I can’t tell you how we’re going to address it but I can say that we will act and negotiate in good faith with transparency.”

This morning, Maldonado was quoted as saying that his agenda for the first six months is to develop a tax reform plan. It would gradually lower the 11.5% Sales and Use Tax sharply increased at Garcia Padilla’s insistence and eliminate the incumbent governor’s extension of the levy to business-to-business transactions and it would not include a Value Added Tax as sought by Garcia. He explained that, “to have a healthy economy, we need to take the risk of lower taxes, but . . . it has been proven that, when there is more money available to them, entrepreneurs – locals – feel more comfortable in investing it and the community feels more comfortable that it can buy this house, pay their loans.”

The reform would also revise the insular government’s tax incentives, relating tax cuts to job-creation and other economic benefits to the islands. This will including reassessing ‘Acts 20 and 22,’ which virtually eliminate taxation on capital gains and income from financial transactions and work in the States for individuals who move to Puerto Rico. “Act 22,” which provides personal tax exemptions for individuals vs. Act 20’s tax cuts for business services, “ has been effective in some areas” but “in other areas should be amended and improved . . . Right now we have everything on the table to evaluate, but . . .  [a]n exemption that takes away measures that we need for essential services we have to rethink,” he expanded.

Maldonado also reiterated Rossello’s pledge to cut government spending 10 percent.”

Incumbent Secretary Juan Zaragoza, who had offered to stay on under Rossello, today characterized Maldonado as “a good appointment,” a rare compliment of a PNP action by the PPD administration.

Rossello’s Counsel Challenges Clawbacks 

Alfonso Orono, who will be Counsel to the Governor under Rossello, yesterday disputed Governor Garcia Padilla’s use of revenue ‘clawed back’ from the Highways and Transportation Authority (HTA).

In a Transition hearing, Orona insisted that HTA revenue taken from the agency by Garcia Padilla should have been used to make payments on bonds issued or guaranteed by the Government of Puerto Rico itself (General Obligations/GOs).

$47.6 million was taken from HTA by the Government last year and $262 million has been removed so far this year, HTA Executive Director Carmen Villar testified. She said that she did not know what had been done with the revenue of a Government of Puerto Rico agency that she characterized as having been in a constant danger of collapse.

Secretary of the Governorship Grace Santana, however, then said that some of the HTA revenue had been used to make GO payments last January.

Treasury Secretary Zaragoza was quoted as adding that $220 million in clawed back revenue is deposited in Banco Popular and $200 million is frozen in the GDB.

Gov.-Elect Wants End to PREPA Contractor

Gov. Elect Rossello also restated yesterday his campaign pledge to end the contract of Lisa Donahue and Alix Partners as the restructuring authority of the Electric Power Authority (PREPA).

He made the statement after the PREPA Board continued the contract until March for $3 million. The firm has been paid a controversial $43.7 million over the past two and a quarter years and stands to be paid a substantial success fee if PREPA financial restructuring is completed.

The contract action was taken as PREPA and the 70% of its creditors that have agreed on a debt restructuring agreement extended the accord until January 31st.

The date is the date by which the Financial Oversight and Management Board established by PROMESA to control Puerto Rico government finances has said that it wants to have a final financial adjustment plan for the territorial government. Rossello’s designee to sit on the Board as an ex-officio member and top advisor, Elias Sanchez-Sifonte, however, has termed the deadline “unrealistic.”

Rossello Also Wants PRASA Head Out 

In another personnel-related dispute between the outgoing and incoming administrations, Aqueduct and Sewer Authority (PRASA) President Alberto Lazaro yesterday said that he plans to remain in office until 2019 citing his six-year term.

Rossello responded by publicly calling upon him to resign. The Governor-Elect’s Secretary of Public Affairs and Policy-Designate, Ramon Rosario, added that the new administration would go to court if necessary to remove Lazaro. Rosario recognized Lazaro’s term of appointment but asserted that “the people spoke at the polls” about it.

The dispute broke out when Lazaro disclosed his intent to remain at the head of PRASA during a Transition hearing.

Lazaro also raised eyebrows at the session by acknowledging that he spend $8 million for cloud seeing to stimulate rain with a success that he estimated at “10-15%.” He contended that the result was “better than zero.”

A Transition hearing Wednesday also revealed that 16% of space in public buildings is unoccupied.

In many cases, it was reported, agencies prefer to rent privately-owned space for offices.

In some cases, agencies maintain contracts with the Government for space that they move out of while renting privately-owned space. In these cases, the agencies generally do not pay the rent due the Public Buildings Authority.

Garcia to Call Another Legislative Session

Gov. Garcia Padilla revealed late yesterday that he plans to call a second post-election special session of the Legislative Assembly. He said that the purpose would be to consider both appointments and legislation.

Gov.-Elect Rossello criticized Garcia for “trying to do in his last 30 days what he has not been able to do in four years.”

PPD legislative leaders also made their displeasure clear. Senate Majority Leader Anibal Jose Torres opposed changing Government policy after an election before a new administration takes office and warned that there would not be enough votes for controversial measures. House of Representatives Speaker Roberto Rivera Ruiz de Porras said that Garcia had not consulted with him on the ‘lame-duck’ session.

“Once we get an official communication, we will make the effort to examine the availability of legislators,” he went on.  The first lame-duck session did not consider all of the measures that the very unpopular Garcia wanted because of absences on the part of PPD legislators.

1,800 Puerto Rican FINRA Complaints

According to the Financial Industry Regulatory Authority (FINRA), it has 1,800 claims from Puerto Ricans against financial institutions in the territory related to insular securities. Most are concern UBS Financial Services. Some, however, relate to Santander Securities, Popular Securities, and Merrill Lynch.

Meanwhile, the group Hedge Clippers has focused on the presence of Carlos Garcia and Jose Ramon Gonzalez on the Financial Oversight and Management Board. It pointed out that both have worked for Santander Securities as well as were presidents of the GDB in the issuance of territorial government debt.

 

 

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