Gov. Alejandro García-Padilla filed Wednesday at the Legislature the “Puerto Rico Public Corporations Debt Enforcement and Recovery Act,” to create a clear legislative framework to assist financially stressed public corporations overcome their problems “through an orderly, statutory process” that allows them to handle their debts fairly and equitably, while ensuring the continuity of essential services to citizens and infrastructure upgrades.
In a news conference, the governor — flanked by Government Development Bank Chairman David H. Chafey, and Treasury Secretary Melba Acosta-Febo — insisted the proposed legislation is not a bankruptcy law and will not apply to the majority of public agencies, nor the Commonwealth’s debt.
“United States law provides a framework for the nation’s companies and municipal entities to address their financial challenges while continuing their services. However, Puerto Rico’s public corporations fall through the cracks of these laws,” said Chafey.
“Therefore, the Recovery Act is created to provide a clear legislative framework that allows public corporations to address their financial difficulties without compromising any essential services provided by these corporations. It is worth noting that this law excludes the Commonwealth’s debt and other entities explicitly excluded,” he said.
The bill would apply to a number of agencies, mainly the Puerto Rico Electric Power Authority, the Aqueduct and Sewer Authority and the Highways and Transportation Authority, which have a combined debt of about $20 billion.
Officials explained that the Recovery Act provides a controlled, orderly process through which a public corporation can become financially self-sufficient to ensure its continued ability to provide services in the long-term, while “ensuring fair and equitable treatment for all stakeholders.”
Acosta-Febo said clauses within the Recovery Act specifically urge corporations to negotiate with creditors to reach agreements on dealing with debt. It is designed to get to a negotiated solution “with minimum disruption to the business within a defined period of time.”
If an agreement is not reached, the Recovery Act provides for a process that is overseen by a local court.
“The main purpose of the law is to protect the interests of the people of Puerto Rico and to ensure that the gap in federal law does not jeopardize essential public services. The Recovery Act also protects Puerto Rico’s GO debt by giving public corporations the opportunity to address their financial challenges once and for all and thereby no longer depend on the General Fund,” said García-Padilla.
The proposed law — which was being fast-tracked by lawmakers Wednesday — is not a bankruptcy proceeding, but rather a “last resort,” the governor said.
Among the public agencies excluded from the terms of the proposed law are: the Commonwealth, the 78 municipalities, GDB and its subsidiaries, the Children’s Trust, the Employees Retirement System, the Judiciary Requirement System, the Municipal Finance Agency, the Municipal Finance Corporation, the Puerto Rico Industrial Development Company, the Puerto Rico Industrial, Tourist, Educational, Medical and Environmental Control Facilities Financing Authority, the Puerto Rico Infrastructure Financing Authority, Puerto Rico Sales Tax Financing Corporation, the Puerto Rico System of Annuities and Pensions for Teachers, and the University of Puerto Rico.
“Over the past year, the GDB has reiterated that the Commonwealth’s public debt should not be seen as a sum of debts to a single debtor, but rather as individual loans supported by various sources of revenues and income, with certain priorities established by law or contract,” García-Padilla said.
“Moreover, the GDB’s message to the market has been consistent in the sense that neither the Commonwealth nor the GDB is in the position to subsidize or bail out public corporations and that they need to become self-sufficient,” he said.
However, the GDB’s Chafey said that while the government will continue to support the efforts of public corporations to become financially self-sufficient, if they defaulted on their obligations in a way that would open doors for creditors to claim their rights “piecemeal or in a disorderly fashion, the absence of an orderly process would threaten the Puerto Rico government’s capacity to safeguard the public and promote the general welfare of the people. For these reasons, the Recovery Act is urgently needed.”
If the law we not to be approved, García-Padilla said affected public corporations would likely be forced to reduce services, further cut back their expenses, and turn over control of its rates to stakeholders.
Last-minute move draws criticism
In a statement issued after the bill was introduced, Resident Commissioner Pedro Pierluisi — who represents the government’s opposing party — criticizing the way it was presented during the last day the legislature will consider bills.
“In these times of crisis our people expected the greatest leadership and effectiveness of their rulers. Handling such a sensitive and controversial issue such as the potential failure of our public corporations in dark rooms without notice is disrespectful to the people. This is another improvisation at the failure of this administration,” Pierluisi said.
“For over a year, we have been warning that the direction this administration is headed is wrong and have been presenting solutions to address the fiscal situation of the central government and our public corporations,” Pierluisi added.