Federal disaster aid for Puerto Rico that cleared Congress Monday won't move the needle for bondholders hoping to recover their investments, and should provide only a small incremental boost to the commonwealth’s financial restructuring by helping its long-term economic recovery effort.
Rosanna Torres, director of the Washington office of the Center for a New Economy, said the latest round of federal aid will have “little effect if any” on the commonwealth’s economy, noting that the final amount is “not as large as was anticipated or the public conversation has made it look like.”
Gov. Ricardo Rossello said in a statement that the bill “instructs the administration to release over $8 billion” in previously approved Community Development Block Grant-Disaster Relief funding that is currently being withheld by the Trump administration.
As for new funding, the bill contains $331 million in new CDBG-DR funding for the commonwealth and $600 million for the commonwealth’s Nutritional Assistance program which serves over one million residents.
The funding is part of a larger $19.1 billion emergency spending bill which passed the House 354-58 on Monday and the Senate 84-9 on May 23 by veto-proof majorities.
President Trump, who dropped earlier objections to any new funding for Puerto Rico and a separate request for emergency funds for the southern border, has agreed to sign the bill.
A spokesman for the Puerto Rico Financial Oversight and Management Board said it welcomed the additional federal aid.
Puerto Rico “has suffered unimaginable pain from two hurricanes,” the spokesman said.
The commonwealth overall has been allocated $42.3 billion in disaster aid since Hurricanes Maria and Irma struck the island, not counting the new funding approved by Congress.
The Federal Emergency Management Agency estimated that, as of March 31, $42.3 billion had been distributed to 17 different federal agencies. Only $20.37 billion had been committed to Puerto Rico and only $12.62 billion had been disbursed there.
Torres at the Center for a New Economy said the legislation has language putting new restrictions on how CDBG disaster relief funds are to be spent by requiring grant recipients to agree to all fixed costs before the money is received.
“Essentially it may impede Puerto Rico from receiving the funds as expediently as the law is supposed to be doing,” Torres said. “This wouldn’t have a direct impact on the restructuring because it’s a minimal amount of funding that will go to infrastructure projects. Even then, those projects won’t come until there’s a final agreement on the fixed cost estimates.
”The disaster relief money can’t legally be used to pay debt holders but it will produce greater economic activity and additional tax revenues," said Alex J. Pollock, distinguished senior fellow in finance, insurance and trade at the R Street Institute in Washington and a former president of the Federal Home Loan Bank of Chicago.
“What does that say about how much debt service you can pay?” Pollock asked. “All those questions are not really worked out but you can see that they’re there.”
Pollock testified at House Natural Resources Committee hearing in May on the PROMESA law that created the Puerto Rico Oversight Board three years ago.
In his congressional testimony, Pollock said the New York City control board functioned for 11 years from 1975 to 1986. It took the city seven years before banks resumed purchases of its municipal bonds.
The District of Columbia control board operated for six years from 1995 to 2001.
Pollock testified that both those control boards -- which had greater authority that the Puerto Rico Oversight Board has -- remain in the wings capable of resuming activity if those respective cities backslide in their financial disciplines.
“The disaster relief to Puerto Rico will, as discussed in my testimony, create a transitory improvement in economic activity and government deficits,” Pollock said in an interview Tuesday. “The Oversight Board and the government of Puerto Rico must distinguish between the transitory effects and the long-term issues which remain to be addressed.”
