Spotlight on Puerto Rico: Fiscal Board update

El Título II de PROMESA (2a parte): Cumplimiento con los planes fiscales y presupuestos

By Jennice Fuentes / Fuentes Strategies

Members of the Financial Oversight Board (the “Board”) created under the Puerto Rico Oversight, Management and Economic Stability Act (“PROMESA” or the “Act”) plan to hold their first meeting in New York City on Friday, September 30, 2016 from 8:30 am to 10:00 am. The meeting will be held in the auditorium of Alexander Hamilton US Custom House, 1 Bowling Green, New York.

The members of the Board expect to elect a chairperson at the meeting, request from the Governor of Puerto Rico a fiscal plan as required by the Act, and address other organizational matters.

PREPA Power Outage Far from Over

Last Wednesday afternoon, more than 1.2 million Electric Power Authority (PREPA) customers were left without electricity when a major power outage caused a widespread blackout across most of the island. An electric malfunction caused a fire at the Aguirre Central power plant, which in turn caused the system to shut down.

By Friday, the government had been able to re-establish electricity for more than 1 million of the customers that were left without power. However, late that afternoon, power outages continued. In an interesting twist, one of the two units originally damaged was located in the privately operated EcoEléctica co-generation plant in Peñuelas. After complaints by citizens and experts that the utility relied on too much debt and did not invest enough resources in maintenance, some have called for more private involvement in PREPA.

The massive power outage also affected hundreds of thousands of Sewage and Aqueduct Authority (PRASA) clients that were left without running water during the electricity blackout. By Saturday, the government insisted that most PREPA customers had power reestablished. The government now says that there are only 4,637 clients without service. The PREPA union, UTIER, disputes the claim and says there are only 500 to 1,000 clients currently without power.

The situation has led to recrimination among politicians, unions, the utility bureaucracy, and contractors who spent the last year attempting to restructure the agency’s $9 billion debt.

PREPA’s New Twist

On Friday, the Energy Commission rejected PREPA’s 20-year Comprehensive Resources Plan (CRP), saying that it did not meet the Commission’s “rigorous standards,” and decided to approve its own approach. The Commission’s plan includes: replacing the old power generation units in San Juan and Palo Seco while modernizing the rest, establishing a combined cycle unit, refurbishing Units 1 & 2 in Aguirre (which were among the damaged units that caused the recent power outages), and modernizing the electric grid and other PREPA infrastructure to meet the EPA’s Mercury Air Toxic Standards (MATS), among other items.

Battle for federal tax incentive continues

As the Congressional Task Force for Puerto Rico’s Economic Development continues to receive a myriad of requests and meetings, one issue stands out as controversial: amending U.S. tax law to ensure a lower repatriation rate for U.S. manufacturing businesses in Puerto Rico (Section 245a). While the Private Sector Coalition—a group of the island’s businesses— is strongly in favor of amending the tax code, some are skeptical. The proposal is strongly supported by Popular Democratic Party (PDP) candidate for Governor David Bernier and his running mate for Resident Commissioner Héctor Ferrer. However, New Progressive Party (NPP) candidate for the Washington slot, and former Puerto Rico House Speaker, Jenniffer González, says the proposal “won’t fly” in the U.S. Congress. González is instead proposing a continuation of section 199 so that U.S. manufacturing companies can be treated as domestic for a reduced tax rate, something that all parties support and is routinely included in Congress’s tax extenders package. She also favors pursuing “empowerment zones” to create jobs in disadvantaged communities on the island.

New poll shows tight race for Governor

A new poll released today shows the governor’s race tightening. The survey indicates that a meager margin of two percent separates New Progressive Party (NPP) candidate Ricky Rosselló (40.5%) and Popular Democratic Party (PDP) candidate and former Secretary of State David Bernier (38.5%). The same poll, conducted by Mi Opinión LLC and reported in El Vocero newspaper, had Bernier losing 37.5% to 41% in July.

Congress readies Zika funding for Puerto Rico, stopgap measure stalled

Members of Congress were finally able to reach an agreement over the inclusion of $1.1 billion to combat the Zika virus in a stopgap spending bill, but other disagreements continued to stall the approval of the must-pass spending measure. Observers agree that a deal is likely to emerge before the FY 2016 Fiscal Year ends on Friday, September 30, heading off a potential government shutdown. Congress is scheduled to recess on Friday until after the November elections.

Party leaders from both sides of the aisle have agreed to include more than $135 million for Puerto Rico to address a disease that has already infected close to 20,000 island residents.

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