Puerto Rico board approves transportation sector changes

The Puerto Rico Oversight Board approved changes to the island’s transportation sector Friday, with possible impacts on both the central government’s and Highways and Transportation Authority’s debts.

The board approved measures to reorganize the governance of the transportation sector, improve the management of the sector, and increase its funding.

Justin Peterson

Puerto Rio’s roads are in poor condition, said Board Director for Infrastructure Alejandro Figueroa, addressing Friday’s Oversight Board meeting. He said there are 140 more fatalities per year above the expected number if Puerto Rico matched the U.S average performance in fatalities per vehicle mile traveled. While the median U.S. state has 2% of its interstate roads in poor condition, Puerto Rico has 35% of them in that condition.

Figueroa said San Juan’s subways system, Tren Urbano, has 1/8th the ridership of what had been projected for 2020. He said that shortfall in ridership was a hindrance to the economy.

Board staff proposed the different Puerto Rico government transportation entities be reorganized so they only oversee one class of transportation. The HTA would just cover toll transportation. The Integrated Transportation Authority would solely focus on public transit. And the Department of Transportation would only handle non-toll roads.

The staff recommended creating an overarching transportation policy board to better guide system-wide transportation planning.

Staff recommended the use of outcome-focused scoring systems to improve selection and delivery to improve management of the sector. Staff also called for greater use of private sector partners, use of performance-based contracts, and better supervision to support system goals. Finally on management, staff called for steps to improve the entities’ boards so that they have more subject-matter experts and staggered terms to reduce electoral influence.

Staff also called for a consistent approach to gaining federal and private funding to maximize transportation funding.

The board voted 6 to 0 in favor of the reforms, with new member Antonio Medina abstaining because he said he is still learning about the board’s activities.

Changes to the transportation sector would directly affect the transportation bonds because the changes to the HTA would affect its revenues and expenses and thus its ability to pay its bonds. Central government bonds would be affected indirectly because if the transportation sector is reorganized this would affect transportation services and infrasture. These, in turn, affect the future Puerto Rican economy and that would would affect the central government's ability to pay bonds.

As of February 2017, Puerto Rico Highways and Transportation Authority had $4.1 billion outstanding and other central government entities outside the Government Development Bank had about $43.2 billion outstanding. Neither Figueroa nor the board members talked about how the sector changes could affect the payouts to bondholders.

In another meeting development, Board member Justin Peterson said the board had a history of inaccurate revenue forecasts in its board-certified fiscal plans. This history of mainly underestimating General Fund revenue has repercussions for the Title III bankruptcy process and for Puerto Rico as a whole, he said.

Board Executive Director Natalie Jaresko said the board’s fiscal plan projections were on average off by 1.2%, by generally projecting less revenue than was the case. She said this level was typical of state forecasts.

The slide shows there were 15 fiscal plan projections for four fiscal years. The presenters said the 1.2% figure was an average of the “most relevant fiscal plan for each year.”

When the board was asked how the most “relevant” fiscal plan was chosen, it was said only fiscal years 2018 to 2020 were examined, as the fiscal 2017 projection was never used to certify a budget. The general principal was to look at the most recent fiscal plan prior to the start of the fiscal year. An exception was made for the projection for fiscal 2018, for which the staff chose a plan approved in October 2018 (after the fiscal year had started).

The board knew when it created the prior June 2018 fiscal plan it was not accurate because staff knew the island would get federal hurricane aid but didn’t know how much this would be, a spokesman said.

Averaging the divergence of the three staff-selected fiscal plan projections one finds a 1.2% divergence. If one averages the absolute values of the percentages one finds a 4.9% divergence.

If one chose the June 2018 fiscal plan projection, the average divergence would have been 6.8%. If one averaged the absolute values of the divergence percentages one would get a 10.6% divergence.

Peterson indicated he wanted further discussions of this topic and the consulting firm McKinsey's role for the board in future public board meetings.

In another development, the board directed staff to take steps to crack down on payroll fraud in the Education Department. Gov. Pedro Pierluisi, who attended the meeting as a non-voting member, promised the board to aggressively crack down on the problem.

Oversight Board staff said that the fraud had cost the Education Department over $80 million over the course of more than the last 10 years.

Pierluisi also asked the board to meet with him and top officials in his administration to improve communication on reapportionment of funds. He said that failure to reapportion funds was threatening key projects and sometimes it was taking too long to approve the reapportionments.

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