Puerto Rico board says budget prepares government for debt payments

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The Puerto Rico Oversight Board said Tuesday that its fiscal year 2020 budget is aimed at preparing the island government to resume debt payments.

In a press conference Executive Director Natalie Jaresko said that the board’s $9.1 billion budget would contain spending enough to produce a surplus in the coming fiscal year. Similar spending levels in fiscal year 2021 would allow the government to resume paying the central government’s bonds, albeit at restructured levels, she said.

According to the Puerto Rico October 2016 government-proposed fiscal plan, the central government owed about $2 billion in debt service in fiscal year 2020, including general obligation, Public Building Authority, Employees Retirement System, Infrastructure Finance Authority, Public Finance Corp.and excluding Puerto Rico Sales Tax Financing Corp. (COFINA) debt. The fiscal plan projects a General Fund surplus of around $1.5 billion for fiscal 2020, a board spokesman said.

Jaresko also noted that the board is projecting deficits starting sometime from fiscal year 2031 to 2037. Surplus money generated in the fiscal year can be stored away to pay some of the debt in the out years, she said.

The surplus can also be used to make sure the government has enough money to pay retiree pensions at the reduced levels the board is planning, Jaresko said.

Cumberland Portfolio Manager Shaun Burgess saw things differently. The board’s statement that current and near-year surpluses will be used to pay bond debt in further out years is a good excuse to not pay the bond debt near term, he said.

The board is downplaying the surpluses because it is in negotiations with bondholders on the central government’s debt, Burgess said. Cumberland owns insured Puerto Rico debt.

Puerto Rico’s revenues have been coming in ahead of projections for about a year. The April 2019 revenues were 24% better than what the Puerto Rico Treasury had projected in October 2018. April is the government’s strongest month for revenues and April 2019 was Puerto Rico’s best month for revenue ever, according to Gov. Ricardo Rosselló.

It’s possible that Puerto Rico’s revenues will continue to come in better than projections, Burgess said.

Jaresko said the board’s fiscal 2020 General Fund budget is for $9.1 billion of spending, up from the current fiscal year’s $8.7 billion of spending. In addition the board has a $3.5 billion special revenue budget and more than $6 billion in federal government-supported spending.

The board anticipated transferring its budget to the legislature on Tuesday evening. Jaresko said the board was open to working with the legislature to make some changes, but that the budget must be consistent with the board-approved fiscal plan.

One journalist asked about Rosselló’s recent promises to fight the board’s budget and, in particular, the budget’s elimination of the Christmas bonus. Jaresko said the board will operate with its powers in the Puerto Rico Oversight, Management, and Economic Stability Act to ensure that its budget is followed.

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