Governor Ricardo Rosselló submitted his long-awaited fiscal plan to the Fiscal Oversight Board (FOB) last week. After initially balking at the FOB’s requirement to balance the budget in two years, Rosselló’s plan does exactly that. However, the FOB had asked the Governor to make $3 billion in cuts and raise $1.5 billion in revenues and Rosselló’s budget falls $700 million short of that goal. Rosselló also omitted the FOB’s suggestion to cut $1 billion from My Health (Mi Salud in Spanish), which is the local Medicaid program. In an interesting turn of events, Rosselló budgeted more for debt payment than the FOB recommended: Rosselló budget assumes payment of 30% of the debt service due in FY 2019, while the FOB projected 21%. All figures are in flux given that voluntary debt negotiations – or eventual court ordered debt restructuring – have barely begun. The PROMESA law requires that a five-year fiscal plan be enacted before formal debt talks can begin. The FOB has until March 15th to approve Rosselló’s fiscal plan. The FOB also announced that their next public meeting will be held Tuesday, March 13th in New York City.
To read the proposed fiscal plan in its entirety, click here.
Government to ask for another extension of stay on litigation
The Governor’s representative on the FOB, Elías Sánchez, said that the Rosselló Administration would request another extension of the stay on judicial lawsuits related to debt collection. Sánchez also said that the audited financial reports for the government of the Commonwealth would not be ready until September, thus making it impossible to negotiate $72 billion across 18 different debt instruments before May 1st. The FOB can extend the stay for 45 days if the voluntary negotiations are all but finished, but a longer extension would have to be approved by the U.S. Congress.
FOB, Government consultants to examine fiscal plan in NYC meetings
Technical advisors to the FOB and officials and contractors for the Financial Advisory and Fiscal Agency Authority (AAFAF in Spanish) will hold a series of meetings in New York City this week to analyze the assumptions contained in Rosselló’s fiscal plan. Executives from Rothchild & Co., Dentons, and Bank of America-Merill Lynch (the government’s advisors) will meet with people from the consulting companies hired by the FOB, McKinsey and economist Andrew Wolfe. Wolfe collaborated on the study undertaken in 2015 by former IMF economist Anne Krueger. Executives from Citi and the law firm Proskauer are also advising the FOB.
The FOB’s main concern with the proposed plan is the baseline used by Rosselló’s fiscal team, as well as the amount of money they intend to set aside to pay down the debt. If the FOB rejects the plan, the government will have to revise it in time for FOB approval before the March 15th deadline. Timely approval of the fiscal plan is of the essence since it is a pre-requisite for formal debt renegotiation talks to begin and the current stay on litigation to collect debt payments expires on May 1st.
GOP Obamacare overhaul does not include Puerto Rico
The bill introduced by House Republican leadership to “repeal and replace” the Affordable Care Act (ACA or Obamacare) does not mention Puerto Rico or the territories. Opinion-makers and politicians on the island went into a frenzied concern that a door had closed on the goal of obtaining federal health care funding parity for the Island. Resident Commissioner Jenniffer González and Governor Rosselló hoped to prevent a loss of $1.3 billion a year in ACA-approved Medicaid funding that the Commonwealth spent before it was supposed to expire in 2019. Observers mentioned that the original ACA bill did not include the territories and it was later amended to increase caps and expand block grants under Medicaid.