Puerto Rico board, government head toward budget clash

Bonds

In the waning days of fiscal 2019, Puerto Rico’s Oversight Board and local government appear to be headed toward a confrontation over the next year’s budget.

The plan is supposed to be in place by the end of Sunday, which is the last day of the current fiscal year.

House President Carlos Méndez Núñez, Senate President Thomas Rivera Schatz and Gov. Ricardo Rosselló are on the road to confrontation with the board about the budget.

In late May the board sent a $9.1 billion budget to the legislature for its consideration. Instead, the leaders of the Puerto Rico House and Senate have considered Gov. Ricardo Rosselló’s $9.62 billion budget.

As of Wednesday afternoon both the House and Senate had approved their versions of a budget. The Senate, which acted after the House approved a budget on Tuesday slightly over $9.6 billion, according to a Senate spokesperson. The two chambers are now working on reconciling the two versions so that both chambers can vote on a single version. The vote is expected on Sunday.

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Both houses of the legislature are dominated by the governor’s party, the New Progressive Party. After the bodies approve a reconciled budget, the governor will probably sign it.

However, the Puerto Rico Oversight, Management, and Economic Stability Act gives the ultimate power to approve the budget to the board. A spokesman said the board would certify a budget by Monday, July 1.

On top of apparently diverging desires for fiscal year 2020 spending, the board, on the one hand, and the governor and the legislature, on the other hand, are struggling over a series of legislature resolutions. Since February the board has been sending letters to the local government saying that five adopted resolutions are illegal and inconsistent with the board’s approved budget for fiscal year 2019.

On Tuesday the board sent another letter telling Rosselló, Senate President Thomas Rivera Schatz, and House President Carlos Méndez Núñez that the board continued to object to the $148 million in spending.

“Please note that the Oversight Board will exercise all legal remedies available to address any unlawful appropriations,” board Executive Director Natalie Jaresko said in the letter to the officials.

Separately, the board said Wednesday it had replaced an April 2018 Puerto Rico Aqueduct and Sewer Authority fiscal plan, with a new version.

“The fiscal plan outlines operational efficiencies; the implementation of measures to increase revenue over the plan period; and the maximal use of federal, disaster-relief funds to rebuild and enhance PRASA’s damaged infrastructure,” the board said in a press statement.

PRASA has $4.61 billion in debt outstanding, excluding subordinated loans to the Government Development Bank. Of the $4.61 billion, about $3.45 billion is bond debt due to investors.

The fiscal plan says that from fiscal year 2019 through fiscal year 2024, the authority owes $1.38 billion in debt service under the bonds’ master agreement of trust. The new fiscal plan says in these years the fiscal plan includes initiatives to reduce debt service by $87 million, which would be 6.3% of the $1.38 billion figure.

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