Puerto Rico's House of Representatives passed a balanced budget that may necessitate a restructuring of Government Development Bank debt.
The House-approved fiscal 2016 $9.8 billion budget includes $674 million in savings from spending cuts, mostly to allow for increased commonwealth debt service and pension payments. The plan compares with the approved $9.56 billion budget for the current fiscal year.
The GDB requested $700 million for the coming fiscal year, an amount that was reduced to $358 million in Gov. Alejandro García Padilla's proposed budget, according to GDB President Melba Acosta Febo. The House plan then cut the figure to $301 million.
The GDB has hundreds of millions of dollars of payments coming due this summer, payments that the commonwealth said earlier this year it might not have the resources to make.
GDB has $4 billion of notes starting to come due that were sold in 2014 under previous governor Luis Fortuño, Puerto Rico Representative Rafael Hernández Montañez said. Hernández Montañez is chairman of the Puerto Rico House of Representatives Committee on the Treasury and the Budget.
The GDB will be challenged in finding the money to pay back all this money, and may have to restructure the debt, Hernández Montañez said. He said voluntary exchanges of notes might be part of this restructuring.
Hernández Montañez said that the commonwealth would definitely repay its general obligation debt. However, if it cannot sell a $1.2 billion tax and revenue anticipation note or a possible $2.9 billion Puerto Rico Infrastructure and Finance Authority bond, it may have to delay the set-asides for payment of the GO debt. The alternative, he said, would be a government shutdown, which would be devastating to the Puerto Rico economy.
The House budget specifies that Puerto Rico's Office of Management and Budget will make a $250 million cut in the fiscal year's spending starting July 1, Hernández Montañez told the Bond Buyer. While the budget estimates $9.8 billion in revenues, it plans $9.55 billion in spending. The difference is a buffer that reflects the history of the government overestimating revenues, he said.
"It is the GDB which must prioritize the repayment of its own debt," a spokesperson for a member of the Puerto Rico House said. The House has allocated enough money in the budget for the commonwealth to repay its own general obligation debt, she said.
The Puerto Rico Senate was debating amendments to the Puerto Rico House budget Wednesday afternoon. A Senate staff person said the Senate would probably vote on the budget Wednesday night. A conference would follow to reconcile the two chamber's budgets.
The GDB still has some options to handle its debt. It is planning to offer a voluntary change of terms on $4 billion in notes, according to Hernández Montañez and chief of staff Victor Suarez Melendez.
In the winter the bank was hoping the Puerto Rico Infrastructure Finance Authority would sell a $2.9 billion bond, of which $2.2 billion would be used by the Puerto Rico Highways and Transportation Authority to pay off its debt to the GDB. While the legislature rolled out the increases in gasoline taxes to support this bond, as recently as June 15 Suarez Melendez said there wasn't enough investor interest to sell the bond.
The Caribbean Business web site has reported that Puerto Rico has sought possible loans from the United States Treasury for the GDB. According to their story, the Treasury might consider this if Puerto Rico were to adopt tough measures expected to be recommended in a report from a consultant, Anne Krueger. Krueger, who used to work for the International Monetary Fund, is expected to present a 10 year plan for Puerto Rico in the next few weeks, Hernández Montañez said.
