Mediation in Puerto Rico’s five Title III cases has been postponed for two months so the Financial Oversight and Management Board (FOMB) can review the island’s fiscal projections, said two creditors and a government source.
“The fiscal economic growth plan (FEGP) no longer applies and the parties were not budging anyway,” said the first creditor.
This is the case because the projections and payouts contained in the commonwealth’s 10-year FEGP no longer apply to Puerto Rico in the wake of Hurricane Maria, and it will be at least six months, at the earliest, before the board will be able to see exactly where Puerto Rico’s economy stands so that it can redo the FEGP, the two creditors and government source said.
It also is unclear how many people will move from the island as a result of the hurricane, they said.
“Up until now, the board has not given us date for us to submit a revised plan,” said Ramon Rosario, public affairs secretary to Governor Ricardo Rossello, during a press briefing yesterday.
FOMB idle, but not shiftless
For all intents and purposes, FOMB members will have nothing to do regarding the implementation of the Puerto Rico Oversight, Management and Economic Stability Act (PROMESA) over the next six months, said the aforementioned two creditors and government source, a sentiment that four other creditor sources echoed.
“The board will take a backseat to the hurricane recovery efforts, including the building of PREPA’s [Puerto Rico Electric Power Authority] grid. They can’t do anything now even if they wanted to,” said the first of the four other creditors.
After the hurricane, FOMB authorized Governor Ricardo Rossello to allocate up to USD 1bn in commonwealth’s FY18 budget towards hurricane relief efforts. The FOMB also dropped its suit against the commonwealth to force Rossello to cut public workers’ hours by 10%.
When it dropped the suit, the FOMB said it would revisit the issue in FY19, which begins 1 July 2018, according to a letter FOMB sent Congress. The board also extended the commonwealth’s deadline to file a series of financial updates required under Section 203 of PROMESA to 17 November from 1 October.
Solidarity, for now
In this important letter FOMB sent Congress on 11 October, the board noted that it was focused on supporting Governor Ricardo Rossello’s lobbying efforts to get federal funding for emergency liquidity and other disaster relief. It also disclosed that it would review the commonwealth’s FEGP as well as that of other covered entities such as PREPA.
The board will review FEGPs in light of the extent and distribution of damage and magnitude of federal support that Puerto Rico will receive, states the letter.
The Federal Emergency Management Agency (FEMA) most likely will foot the entire USD 5bn bill to rebuild PREPA’s grid, while there are various aid packages floating through Congress. These include a USD 4.9bn community disaster loan and a USD 1.2bn in added funds for Nutritional Assistance Program funds for Puerto Rico. The commonwealth will also receive a distribution as part of USD 36.5bn hurricane recovery package for Texas, Florida, Puerto Rico and the US Virgin Islands.
Puerto Rico losses could vary from USD 34bn to USD 72.23bn, according to Air Worldwide.
It will be impossible for the FOMB to review the commonwealth’s FEGP much less that of other covered entities until the dust settles from the storm, which like resuming electrical service, will take six months or more, said the first two creditors and government source.
“The federal board has nothing to advance PROMESA. I think they’re useless right now,” said the second of the five other creditors.
Two schools of thought
Creditors aren’t the only ones with questions about the board’s new role post Hurricane Maria. The House Committee on Natural Resources scheduled a full committee hearing “Examining Challenges in Puerto Rico’s Recovery and the Role of the Financial Oversight and Management Board” on 24 October, but then (19 October) postponed the hearing until further notice.
If the board waits for the dust to settle before reviewing Puerto Rico’s economic projections, this will auger better payouts for creditors because the influx of federal funding will lead to economic growth. But, if the board opts to issue a new FEGP, they would just assume the worst, said the four other creditors, who were equally divided what path the board would take.
The FOMB has declined repeated requests for comment on this matter.