Puerto Rico's government made Aug. 1 debt payments only when the money had already been placed in escrow accounts.
A Government Development Bank for Puerto Rico source outlined the policy to The Bond Buyer on Wednesday. Gov. Alejandro García Padilla earlier this week vetoed a House bill to allot $450 million for debt payments due in this fiscal year, according to his office. The approved budget has no money approved for paying the government's debt.
The GDB source said debt service or debt service reserve accounts were used to pay the Puerto Rico Sales Tax Financing Corp. (COFINA), Employees Retirement System, Puerto Rico Highways and Transportation Authority, and Puerto Rico Industrial Development Company debt. According to Moody's Investors Service, COFINA owed $256 million, ERS $14 million, and PRHTA $600,000 on Aug. 1. Moody's didn't specify that PRIDCO had any debt due.
The GDB source said $278 million was paid for COFINA bonds, $14 million for ERS bonds, $1 million was paid for PRIDCO bonds, and $100,000 was paid for PRHTA bonds.
In addition, the Puerto Rico Aqueduct and Sewer Authority had $2.5 million due. PRASA said it made this payment.
The GDB source indicated that the GDB, Puerto Rico Infrastructure Finance Authority, Public Finance Corp., and Puerto Rico (general obligation), didn't make their payments. According to Moody's the GDB owed $28.5 million, Puerto Rico owed $1.3 million for the GO, and PRIFA owed $700,000. Moody's didn't indicate that the PFC had any debt due Monday.
On Monday the governor's office announced his veto of House Bill 2959 for the commonwealth government's payment of debt. The funds for the payments were to come primarily from money normally allocated to the PRHTA. The governor said this diversion was inconsistent with his policy of ensuring essential services for the Puerto Rican public.
García Padilla said it would be premature to allocate particular resources to paying debts before the control board set up under the Puerto Rico Oversight, Management, and Economic Stability Act is in place.
According to Reorg Research, House Bill 2959 would have diverted $308 million from the PRHTA, $113 million in rum taxes from the PRIFA, and $30 million from the Convention Center District Authority.
In the budget García Padilla submitted in May, he had proposed using $209 million for paying debt service.
Puerto Rico sources have given conflicting indications as to whether its sales taxes will continue to flow into COFINA to pay off those bonds.
The Puerto Rico House bill also had money for the island's pension system and for the payment of Social Security to the island's police force. García Padilla noted these allocations and said that he might call a special legislation to let the legislature pass a bill addressing only these areas.
As of right now the legislature is in recess until a new legislature sits in early January.
AllianceBernstein director of municipal credit research Joseph Rosenblum said the governor's rejection of debt service in the fiscal year, "seems to have only short term significance in my opinion. The key is what the control board determines is the priority of payments."
In other Puerto Rico debt news, García Padilla said he was recommending Alberto Bac- Bagué as an interim president at the GDB. Then-GDB president Melba Acosta Febo gave notice of her departure on July 7 and stopped work there at the end of July.
Bac- Bagué has been on the GDB board of directors. He has been serving as Secretary of the Economic Development Department and will continue in that role, according to a source in the governor's office.
