Puerto Rico Board's latest surplus forecast may determine debt payments

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The Puerto Rico Oversight Board is poised to approve a new version of the fiscal plan for the commonwealth government that would determine the amount available for debt payments through fiscal year 2023.

The board plans to hold its 16th public meeting on Thursday to “certify” (approve) a new version of the commonwealth’s fiscal plan.

Since the board released its first version of a fiscal plan in March 2017, the bondholder community has focused on the amount of money the plans project will be available after fiscal measures and structural reforms are implemented in the following five or 10 fiscal years.

The board's October 2018-approved fiscal plan projected there would be a $15.1 billion surplus available from fiscal 2019 to 2023. On March 27 Gov. Ricardo Rosselló presented a proposed fiscal plan that forecast $9.06 billion available in the same period.

Both the board and the governor have said that the amount available would not be key to determining how much money to approve for the payment of restructured debts. Instead they have said 50 state debt metrics should be used as a guide. Further, they have said that some of the surplus should be used for capital spending.

On March 15 the board sent a letter to the governor telling him his fiscal plan needed to include new figures for disaster funding, funding pass-throughs, gross national product growth rates, population, and damage assessments. Additionally, the board said the fiscal plan should revise his proposed fiscal plan’s treatment of Medicaid, structural reforms, and fiscal measures.

It remains to be seen how the board treats these topics in its fiscal plan.

Thursday’s meeting will be the first public board meeting since Oct. 23, when it approved the currently effective fiscal plan. Since then the board has launched legal challenges to over $9 billion in general obligation and Public Building Authority bonds as it looks to reduce the territory's debt burden as well as instill fiscal discipline.

On March 23 board Executive Director Natalie Jaresko sent a letter to the governor setting out a timeline for actions on the fiscal plan and fiscal year 2020 budget. It said that it planned to approve a new fiscal plan by April 25.

The board has said it plans to approve cuts to Puerto Rico’s primary pension system in the fiscal plan. Christian Sobrino Vega in March reiterated the local government's opposition to this in a letter to board.

In Sobrino Vega’s March 27 letter to Jaresko, he objected to the board’s requiring spending levels to be set for each agency. This level of detail leads to divergences between planned budget and the fiscal plans, requiring frequent revisions to the latter. And the revision process has repeatedly diverted his staff from working on restructuring Puerto Rico’s debt, he said.

The struggle between the board and the governor over the fiscal plan comes in the midst of struggles over a wider array of fiscal issues.

The governor and legislature has approved $30 million in spending for 24 programs, based on claims that the government had approved the spending in past years but not disbursed the monet. On Sunday the board said that was contrary to the Puerto Rico Oversight, Management, and Economic Stability Act.

The board may order the governor to deduct the money from planned spending in the current fiscal year. The board threatened Sunday to take action under PROMESA on May 15.

Another contentious issue for the board is that it only has until June 30 to approve a fiscal year 2020 budget.

A final and significant cloud over the board is a court deadline for the U.S. government to go through the appointment process for appointing its members. In mid-February a federal appeals court said that the current board members were named in an unconstitutional process. It said it would allow the board to continue to operate until May 16.

The White House said President Donald Trump would re-nominate the current board for Senate approval.

At the board’s request, on Monday the court extended the deadline to July 15.

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PROMESA Commonwealth of Puerto Rico Puerto Rico Infrastructure Financial Authority Puerto Rico Industrial Development Co Puerto Rico Public Buildings Authority Puerto Rico Employees Retirement System Puerto Rico