With fiscal year 2017 nearing an end in Puerto Rico, the Oversight Board was threatening to approve a budget Friday morning without local government agreement and the electric power authority was on the verge of default on a $423 million bond payment due Monday.
As of Thursday afternoon Puerto Rico’s legislature and governor hadn’t yet approved a budget that the board had deemed acceptable. On Tuesday the board issued a “notice of violation” concerning the legislature-approved budget. It said that the local government had until 5 p.m. on Thursday to make $119 million in cuts and clarify $200 million in other savings.
“Failure to comply will result in the board certifying its own budget that will be deemed compliant with the fiscal plan,” the board stated Tuesday. Under the Puerto Rico Oversight, Management, and Economic Stability Act, the board has the right to approve budgets on its own.
On Thursday afternoon Puerto Rico’s Senate planned to meet informally about the budget, according to a spokeswoman for Sen. José Nadal Power. However, the Senate wouldn’t formally be in session today and couldn’t take any action even if it wanted to do so. She was unsure what the Senate would do on Friday.
The board is scheduled to meet at 8:30 a.m. Friday in San Juan, Puerto Rico’s capital city. It intends to address Puerto Rico’s budget, according to a story in the El Vocero news web site.
On Tuesday, the board acknowledged that the legislature-approved budget was a “great advancement towards achieving fiscal responsibility” from past budgets. It noted that it included cuts of $804 million or 9% compared to the prior year fiscal budgets.
However, the board said that if what its members see as the budget shortfall was not "addressed appropriately, additional measures, such as furloughs and the reduction or elimination of the Christmas bonus, as well as commensurate savings from the legislature’s appropriations, will need to be considered prior to the board’s certification of the proposed budget.”
Gov. Ricardo Rosselló responded in a written statement that, “I reiterate that under section 205 of federal law PROMESA – not only what is in the federal statute but in the congressional record – the [board] cannot unilaterally impose a reduction in working hours, the elimination of the Christmas bonus, and the reduction of pensions by 10.6%.” The board, through its fiscal plan, didn’t have any plans to cut pensions in the coming fiscal year but instead planned to do that in future fiscal years.
The governor continued, “In addition to the 150,000 Puerto Rican families that would be affected by these board proposals, the 20% reduction of the salaries of public servants implies a potential reduction of $600 million to $700 million dollars in the economy of Puerto Rico, which would also have a devastating effect.”
While the Oversight Board and the locally-elected government on the path towards confrontation, the Puerto RIco Electric Power Authority may be on the road to default.
On Thursday both the PREPA Bondholder Group and bond-insurer National Public Finance Guarantee released statements saying that the authority had declined to accept cash infusions to help make Monday’s bond payment.
The group had offered to provide $170 million of “additional liquidity” on top of $280 million already promised to be lent as part of the negotiated Restructuring Support Agreement. However, the board announced its rejection of the RSA Tuesday evening.
Following PREPA’s dismissal of the cash offers, the bondholder group “recognizes that PREPA is likely to file for Title III relief,” the bondholders group said. “While we expect negotiations with the Oversight Board and Puerto Rico to continue, the group stands ready to defend and enforce its rights as necessary.”