A group of Puerto Rico bondholders accused the Oversight Board and governor of minimizing the commonwealth's health in a proposed budget that is too generous to non-debt holders.

The Ad Hoc Group of Puerto Rico General Obligation Bondholders hired former New York Gov. George Pataki to make the case. Pataki and the group released a memorandum and slide show making the group’s argument Tuesday night.

Former New York Gov. George Pataki is arguing that Puerto Rico is in a better position to pay its debt than it claims.
Former New York Gov. George Pataki is arguing that Puerto Rico is in a better position to pay its debt than it claims. Bloomberg News

The group said that the commonwealth’s proposed fiscal 2018 budget includes $575 million more in expenditures than did the current year’s budget.

“Puerto Rico’s revenues are up, powered by robust consumer consumption,” the group said. “Both tax collections and nominal GNP are at all-time highs.”

The government has a “primary surplus” of $3 billion before it makes pension payments, the group said. Compared with the board’s fiscal plan it has $1 billion less in accounts payable in the coming years.

In addition to indicating Puerto Rico has more money to pay debt than it says, the group said, “It is clear that neither the federal Oversight Board established by [the Puerto Rico Oversight, Management, and Economic Stability Act] nor Gov. [Ricardo] Rosselló is committed to acting in good faith with respect to either the commonwealth’s legal obligations to bondholders, or transparency about the commonwealth’s financials.”

The board has “refus[ed] to engage with creditors in any meaningful way,” the group said. The board has refused to consider creditor input about fiscal plan inaccuracies. By approving a fiscal plan that elevates all government expenses over debt service, the board is “openly violat[ing]” PROMESA, the group said.

Neither the governor nor the board responded to the group’s claims. A member of the government said the Puerto Rico Fiscal Agency and Financial Advisory Authority was preparing a response.

“Having been bought and paid for by hedge funds, this memo has zero credibility," U.S. Rep. Nydia Valázquez, D-N.Y., said in an email. "Rather than serious analysis, this is simply industry funded propaganda and should be viewed as such.

“I will continue urging the board to do the right thing by putting the interests of Puerto Rico before vulture funds that bought debt on the cheap, hoping to profit off Puerto Rico’s crisis,” Valázquez said.

Tuesday’s memo and slide show are part of a growing tension among bondholders, board, and Rosselló government. On Friday the board sent a letter to the governor and heads of the Puerto Rico legislature saying the board was concerned that the government wasn’t showing the “resolve” necessary to avoid running out of money and to develop a structurally balanced budget.

“Some of the narrative taking hold in the public discourse fails to characterize adequately the truly dire fiscal situation the commonwealth is facing,” board chairman José Carrión III wrote on behalf of the board.

On Tuesday the governor and the legislative heads wrote back saying, “We find the letter to be confusing and in many respects troubling. The allegation that the government has not been publicly forthright with respect ignores the government’s good-faith efforts and accomplishments in meeting the short deadlines for submissions to the board of the fiscal plan and budget.”

“The government is fully committed to taking all necessary measures in order to achieve the certification of the budget in time for the start of the 2017-2018 fiscal year pursuant to PROMESA,” the Puerto Rican leaders wrote.

On Sunday Puerto Rico House of Representatives Minority Leader Rafael Hernández Montañez complained about the board’s and the Rosselló administration’s release of information. In a letter to Paul Ryan, speaker of the U.S. House of Representatives, Rob Bishop, chairman of the U.S. House Natural Resources Committee, and U.S. Sen. Orrin Hatch, Hernández Montañez complained that the board and Rosselló’s failed to provide adequate information about the proposed FY2018 budget to the Puerto Rico legislature.

With the lack of information about the budget, “local businesses cannot plan ahead,” Hernández Montañez wrote. They don't know whether to "contract, expand, or simply shut down because they have no idea if new taxes will be levied upon them or if they will continue to enjoy exemptions granted to them initially by the government.”

“By all these actions, the board is losing credibility fast among the people of Puerto Rico and confidence on the board is quickly eroding,” he wrote. The Puerto Rico legislator called for a congressional hearing on whether the board and government are being properly transparent.

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