Puerto Rico financial board creating grounds for own removal

Scanning recent tax revenues, one would think that all is well in Puerto Rico. On Aug. 2, the Puerto Rican Treasury Department announced that tax collection for the first month of fiscal year 2018 was ahead of its forecast. In addition, there was the publication of data showing the government collected more than $150 million above the forecasted revenue figures in fiscal year 2017.

Yet, on Friday, the federally-appointed financial oversight board announced the implementation of a two-day government furlough program beginning this September, along with a 10-percent cut to public pension benefits beginning in fiscal year 2020.

{mosads}This proposed program came in response to the liquidity problems facing the government, but Puerto Rico Governor Ricky Rossello disputes the board assertion noting that, “There is about $1.4 billion to $1.7 billion. Cash flow is there and is a result of the measures we have taken so far.”

This issue is very worrying because the Puerto Rican government informed Judge Laura Taylor Swain, who is overseeing the island’s bankruptcy proceedings, that by the end of June, cash flow would be $290 million. Now, Rossello’s administration said the government ended with almost $1.8 billion in cash on June 30.

According to new information arising from the ninth meeting of the fiscal board last Friday, oversight of the finances of the commonwealth are clearly lacking. The budget was certified weeks ago, and the government did not meet the plan. Furthermore, in March, the liquidity report concluded cash flow was at $230 million.

All of this news comes on top of the lack of financial transparency that has governed the actions of the Puerto Rican government and the financial oversight board. One thing is clear: The actions taken by the board and Gov. Rossello’s administration are ripping off bondholders.

For the last few months, the unelected seven-member fiscal board set up under the Puerto Rico Oversight, Management and Economic Stability Act (PROMESA) has been pursuing a policy to lead Puerto Rico back to the markets. However, this policy is being pursued in the belief that the island can quickly regain access via fiscal consolidation, and given the lack of definition of what is an essential service, this consolidation is amounting to basically reducing debt service payments.

The current situation has seen the board and government follow the policy of taking almost every government entity through Title III bankruptcy instead of following the route of fair, transparent and open negotiations with creditors, many of whom are Puerto Ricans. Consequently, this path results in a cut to bondholder payments totaling almost 80 percent of the expected payments for the next 10 fiscal years.

Instead of following a strong fiscal policy that includes a real fiscal consolidation and the subsequent return to sound finances, Puerto Rico has chosen to violate creditors’ rights and fail to pay the money creditors are owed.

The fiscal board established by Congress has chosen to disregard the words and intent of the PROMESA legislation, refusing to amend the fiscal plan for more debt service payments in spite of the better-than-expected revenue figures. It has misrepresented the liquidity figures in court by arguing that the government will be out of cash by Nov. 1.

Now, it turns out, given the refusal to pay bondholders, the government is sitting with millions in cash, which wasn’t accounted for in the evidence presented to Judge Swain.

After all of the time the fiscal board has spent litigating against creditors, the most recent meeting of the board reveals its failure to establish the real fiscal condition of the commonwealth. The decisions and disregard of the fiscal board are laying the groundwork for a clear vote of no confidence.

Ojel L. Rodriguez is a research analyst for the Puerto Rican public policy think tank Fundación Libertad, which promotes libertarian principles of individual freedom, limited government and free markets. 

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