The Puerto Rico Oversight Board plans to cut the duration of its fiscal plan to five years from 10 to account for uncertainty over the impact of hurricane devastation on the island government and economy.
The board’s unanimous vote to create a schedule for revising the plans was one of several actions they took at a public meeting Tuesday morning in San Juan.
Board members said the new plans are likely to require greater austerity measures by the local government than the plan it approved in March.
The earlier plan envisioned payment of about 24% of the amounts due on bonds during the next nine years, as part of the restructuring of more than $50 billion of public bond debt.
“Hurricanes Maria and Irma have fundamentally changed Puerto Rico’s reality and the revised fiscal plan must take that new reality into account,” said Oversight Board executive director Natalie Jaresko.
"The damage was so extensive that the fiscal plan may need to be shorter to account for the rebuilding efforts before a longer term economic planning document can be analyzed and approved," said Howard Cure, director of municipal research at Evercore. “I am not sure how effective this planning document will be, even over a shorter horizon, without a clearer sense of the federal government involvement in financial and personnel aid.”
Jaresko told the board the hurricane left several variables that will affect the amount of revenues available and spending that will be necessary in the next few years. It therefor made sense to do the plan on a shorter-term basis. The first year of the five years would be the current fiscal year, four months of which has already elapsed.
The fiscal plans could be adjusted as the government moves forward, Jaresko said.
Board member Ana Matosantos said the principles of the pre-Maria fiscal plans should also guide the post-Maria plans. Board member José Ramón Gonzalez emphasized that the new commonwealth government plan would have to cut even more from government spending and focus spending on things that would help the economy. Spending must be based on “recurring” revenues.
Jaresko said that the plan should show that structural balance should be achieved by fiscal year 2022.
According to the schedule discussed by Jaresko Tuesday and later posted to the board’s web site, the board would seek draft fiscal plans from the commonwealth government, Puerto Rico Electric Power Authority, and Puerto Rico Aqueduct and Sewer Authority by Dec. 22. The board would seek to have approved plans for these entities by Feb. 2.
Additionally, the board directed the University of Puerto Rico, Highways and Transportation Authority, Government Development Bank for Puerto Rico, and Public Corporation for the Supervision and Insurance of Cooperatives (COSSEC) to submit drafts by Feb. 9. The board plans to adopt certified plans by March 16.
The board will hold two public meetings in Puerto Rico and one in New York City to receive public comment on the revision to the fiscal plans. These are tentatively scheduled for Nov. 16, 28 and Dec. 4. The board also plans two meetings to seek creditor input.
In another development at the board meeting, the Puerto Rico governor’s non-voting representative to the board, Christian Sobrino, complained about the board’s decision last week to seek the replacement of the Puerto Rico’s executive director with Noel Zamot, who would have the title chief transformation officer. Zamot would be PREPA’s chief officer.
Before Hurricane Maria Gov. Ricardo Rosselló and the board were talking about adding a chief transformation officer to PREPA, Sobrino said. However, in that case the CTO would work under PREPA executive director Ricardo Ramos.
Using the board’s logic in its petition with the Title III bankruptcy judge, the board would have the right to replace the commonwealth’s governor, judges, legislators, or other officials, Sobrino said. The Puerto Rico Oversight, Management, and Economic Stability Act doesn’t allow this, he said.
The board’s effort to replace Ramos with Zamot has “severely affected work at PREPA,” by affecting morale, Sobrino said.
Sobrino asked for the board to collaborate with the Rosselló government and to “exercise caution” in its actions.
Board member Arthur Gonzalez responded that the board disagreed with Sobrino on several matters and said he trusted that all parties would follow the court’s order. Sobrino responded that Puerto Rico is a place where the rule of law continues.
Sobrino also told the board that PREPA has requested repair assistance from American Public Power Association.
In yet another matter handled on Tuesday, Gerardo Portela Franco, Puerto Rico Fiscal Agency and Financial Advisory Authority executive director, told the board that the central government, PREPA and PRASA together faced a $3.6 billion shortfall by the end of the year.
This shortfall includes what Portelo Franco described as important cash reserves of $1.9 billion. Assuming that the cash reserves are not necessary, the three entities would need cash infusions of $1.7 billion.
Earlier this month the federal government allocated $4.9 billion for lines of credit to Puerto Rico’s governments and the U.S. Virgin Islands. However, the U.S.V.I. government has said that it expects $800 million of this will be allotted to it, leaving $4.1 billion for Puerto Rico.
Portelo Franco didn’t talk about what the government plans to do if shortfalls continue in 2018.