Economic cabinet backs enabling legislation for debt deal, with technical tweaks
By The Star Staff
The island government’s economic cabinet officials on Wednesday backed legislation to enable the plan support agreement that would restructure some $35 billion in central government debt, but continued to oppose cuts to pensions.
The information was provided at a hearing of the House Treasury and Budget Committee, chaired by Popular Democratic Party (PDP) Rep. Jesús Santa Rodríguez, to discuss House Bill 1003, which seeks to end the bankruptcy of Puerto Rico’s central government as debt deal confirmation hearings are slated for November. While the seventh debt adjustment plan covers about 90% of Puerto Rico’s total debt and pension liability, the Financial Oversight and Management Board still must restructure the $9 billion debt of the Puerto Rico Electric Power Authority and, separately, the Highway and Transportation Authority.
The legislation, filed by House Speaker Rafael Hernández Montañez and multiple PDP legislators this week, would restructure the government’s debt under Title III of the Puerto Rico Oversight, Management and Economic Stability Act, commonly known as PROMESA, and restore 100 percent of pension cuts for government retirees.
Fiscal Agency and Financial Advisory Authority Executive Director Omar J. Marrero Díaz said the House bill is an indispensable step toward achieving the confirmation of the debt deal by the Title III Court.
However, in a written statement, the economic component made up of Marrero Díaz, Treasury Secretary Francisco Parés Alicea and Office of Management and Budget Executive Director Juan C. Blanco Urrutia, proposed technical amendments to reflect the best way the agreements can be implemented.
“If the current debt deal is approved, it will reduce the central government’s public debt from $33 billion to approximately $7.4 billion,” Marrero Díaz said. “In addition, the annual payment of the central government debt will be reduced from up to $4.2 billion a year to $1.15 billion a year, including COFINA [Puerto Rico Sales Tax Financing Corp. debt].”
The implementation of the plan support agreement calls for the issuance of around $7.4 billion in new general obligation (GO) bonds and the creation of a contingent value instrument (CVI) in exchange for existing bonds.
Marrero Díaz said the new debt issuance by the central government must be authorized by law to comply with the provisions of the Puerto Rico Constitution.
“Section 314 of PROMESA establishes that one of the conditions for the Title III Court to approve the debt deal is that the necessary legislative approval has to be obtained under the laws of Puerto Rico to implement any agreement established in the Plan,” he said.
Hernández Montañez, meanwhile, said the legislation he presented takes the affirmative steps necessary to direct Puerto Rico’s exit from the bankruptcy procedure created under Title III of PROMESA.
House Bill 1003 authorizes the issuance of the new GO bonds and CVI to implement the debt deal agreed with the creditors.
“The approval of this bill with the incorporation of the technical amendments described is an essential step so that we can exit the restructuring process,” Marrero Díaz said.
The technical amendments proposed by the executive fiscal entity result in minor changes to the definition of Rum Tax Income of the Commonwealth. The bill also clarifies that the amount of $7.4 billion in bonds to be issued under the Plan will refer to the initial principal amount, since the total principal may vary throughout the term of the bonds.
Also recommended in the economic cabinet members’ presentation were changes in the terminology of the bill in order to make the language the same as the wording in the Puerto Rico Constitution.
Marrero Díaz requested clarification of some aspects related to the income allocated to the Extraordinary Fund to Address the Collection and Disposal of Waste and to implement recycling programs in the municipalities. The legislation aims to ensure that island towns have sufficient income.
“We are aware of the needs of the municipalities and we support the creation of the Municipal Fund or the use of the Equalization Fund for such purposes,” Marrero Díaz said. “In the event that a portion of the 1.03 percent special tax on real and personal property in Puerto Rico is allocated to the Municipal Fund, it must be clearly established what portion will be allocated to said fund.”
The debt support agreement is supported by more than 80% of the aggregate claims of GO bondholders and Public Buildings Authority (AEP by its Spanish initials) bondholders.
The over 200-page plan includes three supporting agreements: the agreement with the GO and AEP bondholders, the agreement with the Official Committee of Retirees and an agreement reached with Servidores Públicos Unidos, among others.