Though Puerto Rico has uncovered over 800 bank accounts held by its various public sector entities, its government on Friday said it is running out of money.
Gerardo Portela Franco, executive director of the commonwealth’s Fiscal Agency and Financial Advisory Authority, said that at most $2.6 billion of the $6.9 billion in account holdings was available to the commonwealth government proper. He made his presentation to a Puerto Rico Oversight Board meeting on the governments’ bank accounts.
The statements came as Puerto Rico is defaulting on payment of most of its roughly $70 billion of central government and public corporation debt. The board has put a freeze on suits connected to the defaults by putting the bonds into a Title III bankruptcy process, governed by the Puerto Rico Oversight, Management, and Economic Stability Act.
Some creditors responded to FAFAA saying in December that Puerto Rico’s bank accounts had more than $6 billion by saying the commonwealth had adequate liquidity. “This is completely inaccurate,” Portela Franco said.
Many of the funds have legally restricted uses, are tied up in litigation, or belong to entities that are legally separate from the commonwealth. Examples of the latter include accounts belonging to the Puerto Rico Electric Power Authority or the Puerto Rico Aqueduct and Sewer Authority.
The $6.9 billion figure includes $1 billion in Puerto Rico Sales Tax Financing Corp. (COFINA) money being held by the COFINA bond trustee. COFINA holders have said this money doesn’t belong to Puerto Rico.
Portelo Franco said the $6.9 billion figure excluded funds belonging to Puerto Rico’s municipalities, legislative branch, judicial branch, and Government Development Bank. It also excluded funds held in investment accounts like those for the Employees Retirement System, other retirement systems, and the State Insurance Fund Corp.
FAFAA is engaging in a five-step process to evaluate the government’s cash position, Portelo Franco told the board. At this point it has only completed the first step of creating a complete list of bank accounts with their holdings.
The second step is to hire an outside firm to evaluate cash inflows and outflows for accounts outside the Treasury Single Account. The TSA is the government’s primary General Fund account. Portelo Franco called for the Oversight Board to work with FAFAA in hiring an outside firm, since the former also wanted to have this evaluation done.
Next it will do a legal analysis of the nature of any restrictions on the account. Fourth, it will determine if the accounts have any available cash. Finally, it will determine legal paths to access the cash.
The agency plans to “establish better, reliable controls over governmental cash flow and identify any funds outside the central government that could be accessed for central government operational needs,” Portelo Franco said.
Board members Ana Matosantos and José Ramón González told Portelo Franco that the authority needed to provide the board with detailed information about each bank account. Matosantos said the board needed to understand the nature of restrictions on the accounts and whether the commonwealth government could modify them.
Ramón González said that the central government may have to use hotel room taxes, for example, for operating revenues, even though money has been allocated to other things up to now. “There are no sacred cows in this place,” he said.
Later in the meeting members of the financial leadership of former Gov. Alejandro García Padilla offered their thoughts on the causes of Puerto Rico’s government financial crisis.
Former Puerto Rico Treasurer Juan Zaragoza Gómez said Puerto Rico’s problems started in the early 20th century when it started adding agencies. It currently has about 100. In the 1920s Puerto Rico’s government started to carve out revenue streams for agencies.
In the late 1990s departments outside of the Treasury started to develop their own financial divisions, Zaragoza Gómez continued. Each of these departments had different accounting programming, which made central monitoring of finances difficult.
Zaragoza Gómez recalled that at one point in his tenure as Treasury secretary he asked the finance head of the University of Puerto Rico for an explanation of what was being done with the central government’s substantial contribution to the university’s operations. The UPR finance head told Zaragoza Gómez not to worry about it because the finance head couldn’t get the information from UPR’s campuses.
Over the years, the government has added “layers and layers of obscurity,” Zaragoza Gómez said.
Carlos Rivas Quiñones, former Office of Management and Budget executive director, highlighted the government’s fragmentation of origins of funds, of entities, and of the accounting system.
“The real problem that I see is that we’ve been playing games with the revenue estimates for decades,” Zaragoza Gómez said. The island’s constitution requires that the governor submit a balanced budget, not actually end up with a balanced budget. In order to achieve a projected balance, treasury secretaries have increased their estimates for collection rates.
“Politics impacts the continuity of people and the continuity of processes,” Zaragoza Gómez said. Puerto Rico’s Treasury Department has had 20 secretaries in the last 50 years. Every time that a secretary has left many of the assistant secretaries have also left with him or her, he said.
No organization can handle this sort of turnover, he said.