Hatch Sets End of March Deadline for Puerto Rico Plan, Demands Audited Financials

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WASHINGTON – Senate Finance Committee chair Orrin Hatch on Wednesday demanded Puerto Rico Gov. Alejandro Garcia Padilla provide detailed financial information by March 1 and said he wants to come up with a plan to help the commonwealth by the end of that month.

The Republican from Utah made the request for detailed information in a letter sent to the governor. He explained his goals for a solution to Puerto Rico's fiscal and debt crisis during a Finance Committee hearing on President Obama's budget for fiscal year 2017 where Treasury Secretary Jack Lew testified.

The budget includes a previously released Treasury proposal that urges Congress to pass federal legislation allowing for commonwealth-wide restructuring and an oversight authority to address Puerto Rico's troubled finances and $70 million debt load, as well as the extension of healthcare and tax benefits.

Lew said any restructuring solution has to pass before Puerto Rico faces major bond payments in May and June and Sen. Bob Menendez, D-N.J., criticized his Republican colleagues for not pursuing solutions as expediently as possible. In response, Hatch said he is not trying to make the situation political and that he is going to see what he can do by the end of March. Hatch's deadline lines up with the one imposed by House Speaker Paul Ryan, R-Wis. on committees in that chamber with jurisdiction over Puerto Rico.

Despite his support for some type of solution, Hatch used his opening statement at the hearing to argue that the administration is pushing for an "unprecedented debt-restructuring authority" for Puerto Rico that would give "an explicit preference for public pension liabilities over debt issued by the Puerto Rican government, even though the territory's constitution gives preference to some of [the] debt."

Treasury has said the restructuring could take the form of Chapter 9 bankruptcy protections, currently reserved for a state's public authorities, that are extended to the entire commonwealth or some other territory-specific legislation allowed under the U.S. Constitution's Territorial Clause.

Hatch's letter to the governor follows up on his and other Republican concerns that action should not be taken until Puerto Rico has audited financial statements and other key information for recent fiscal years.

Barbara Morgan, a spokesperson for the commonwealth, said Puerto Rico officials have received Hatch's letter and will reply in a timely manner.

"Unfortunately, it has been challenging to acquire recent verifiable financial information about Puerto Rico's financial condition," Hatch said in his letter. "I am writing to obtain information that will prove useful to Congress and other stakeholders as we continue to work to find measures to assist the people of Puerto Rico as the government of Puerto Rico continues to face financial and transparency challenges."

Melba Acosta Febo, the president of Puerto Rico's Government Development Bank, explained the delay in releasing the audited statements during a briefing with legislative staff and press at the Capitol on Feb. 5. She said that the financial statements for 2014 and 2015 are still undergoing frequent auditor revisions but that legislators can be confident that the numbers will show "the situation is as bad as ever."

Hatch focused on requesting up-to-date details about the island's three largest pension systems, the Puerto Rico Government Employees Retirement System (ERS), the Puerto Rico Teachers Retirement System (TRS), and the Puerto Rico Judiciary Retirement System (JRS). He said his understanding is that the systems are only 4% funded and that the commonwealth-wide bankruptcy regime Treasury has floated would give preference to those unfunded liabilities.

The Finance Committee chair asked the governor to answer a long list of pension-related questions, including: whether such a restructuring would be constitutional what current assets and contribution systems the pension plans have; and whether any of the pension systems are operating on a pay-as-you-go basis.

Hatch also asked Garcia Padilla for information on Puerto Rico's outstanding debt such as which authorities have issued debt and the amount of annual debt service they each have to pay, as well as the territory's expenditures on health, public housing and welfare, and education. An unaudited 2013 financial report for Puerto Rico said that expenditures on the commonwealth's Department of Education amounted to 25% of the general fund budget. Hatch said he wants to know what progress has been made to impose cost and expenditure controls for education and other departments.

The U.S. Treasury Department has extended technical assistance to Puerto Rico and Hatch asked for the specifics of what form that assistance has taken.

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