Puerto Rico
The commonwealth government released the report Tuesday night in response to repeated calls by Republicans in the U.S. Congress and others to release an audited CAFR for fiscal 2014. Congress is considering measures including bankruptcy authority for Puerto Rico and creation of a federal fiscal control board to help handle the island's financial crisis.
Gov. Alejandro García Padilla said the Congress has enough data to justify a response, even though audited numbers aren't yet available.
"Denying any congressional assistance to Puerto Rico on the basis that the commonwealth has not issued audited financial statement is simply an excuse for inaction," he said. "The commonwealth has provided an unprecedented amount of reliable and up-to-date financial information regarding the depth and imminent nature of Puerto Rico's debt crisis."
After a hearing Tuesday on reasons for the delay, the Puerto Rico Senate press office sent out a release quoting a representative of auditing firm KPMG saying the audited CAFR was still six to seven weeks away. Fiscal Year 2014 ended at the end of June 30, 2014. Most states get their CAFR's in within five to 12 months after the end of the fiscal year.
"It's been a real challenge to obtain verifiable financial information from Puerto Rico," U.S. Sen. Orrin Hatch, R-Utah, chair of the Senate Finance Committee and a member of the Judiciary Committee, said in an email to The Bond Buyer.
"The territory has taken positive steps forward," he said. "I plan to review the unaudited statements in their entirety, but I also hope the government of Puerto Rico fulfills my request for detailed audited financial statements as well as information regarding the territory's public pension plans and other budgeting issues.
"As any entity that borrows with federal tax preference understands, unaudited statements or reports from groups hired by the government, complete with disclaimers against assured accuracy, are no substitute for audited, verifiable information," Hatch said.
In presenting the draft CAFR, García Padilla said, "the commonwealth has reiterated the critical need for Congress to provide Puerto Rico with a broad restructuring framework to address its unsustainable debt burden. The risk of Congress not providing such framework - which costs nothing to U.S. taxpayers - is condemning Puerto Rico to a legal morass that will jeopardize essential services for U.S. citizens living in Puerto Rico, further accelerate out-migration to the U.S. mainland and severely impair creditors' ability to recover on their claims."
The draft CAFR focuses on fiscal year 2014, though it includes information on what has happened since and the commonwealth's current situation.
The draft shows a widening in the net deficit position of the commonwealth's "primary government" to $49.2 billion as of June 30, 2014 from $46.7 billion a year earlier. Its "governmental activities" net deficit position widened to $50 billion from $47.5 billion in the same period.
"The commonwealth currently faces a severe fiscal and liquidity crisis, the culmination of many years of significant governmental deficits, a prolonged economic recession (which commenced in 2006), high unemployment, population decline, and high levels of debt and pension obligations," said Treasury Secretary Juan Zaragoza in a statement that accompanied the draft CAFR.
"If management is unable to complete [a debt] restructuring by the end of fiscal year 2016, or to otherwise obtain additional funding or other arrangements with its creditors, the commonwealth's management expects that the commonwealth and various instrumentalities will be unable to comply with their scheduled debt obligations," according to the draft CAFR.
Ryan McDonald, an analyst at BlackRock, said the unaudited report confirmed much that was already known regarding the Commonwealth's challenged financial position.
"As expected, the General Fund deficit was $1.2 billion as the Commonwealth had previously disclosed," he wrote in an email. The report may help investors determine the size of the consolidated commonwealth deficit as of FY2014, he said.
"However, as the information is nearly two years old at this point and the commonwealth's fiscal picture continues to evolve, the report's value is somewhat limited," McDonald said. "The focus of the crisis has shifted to Washington where the size and scope of possible federal government intervention will define the next phase for Puerto Rico."
Arturo Porzecanski, distinguished economist in residence at American University, noted the draft CAFR maps out Puerto Rico's government.
"You just look at [the CAFR] and one wants to shoot oneself," he said in a phone interview. "One could not create a more complex [government] structure if one tried."
If the release of the draft CAFR doesn't lead to a federal financial control board for Puerto Rico to simplify and reform the government, "than I don't know what it will take," Porzecanski said.
Also on Tuesday, Gov. García Padilla signed a bill reforming the Puerto Rico Electric Power Authority. This was another step forward in a negotiated deal that would restructure roughly $8.4 billion of PREPA debt.
Jack Casey contributed to this story.
