Treasury Secretary Juan Zaragoza will ask the Financial Oversight and Management Board for Puerto Rico to place the agency he heads under receivership, to prevent anyone — including himself — from signing off on significant material transactions that could affect the government’s coffers.
The no-holds-barred government official said Wednesday that, as it stands, it is “too easy for millions to be given away to special interests through negotiations or by signing papers.”
“I’m convinced that the Board will be good for Treasury. We believe the Board should place Treasury under receivership because, we may be able to do a lot to improve our condition, but Treasury is the weakest link,” he said.
He said without the Board’s tight supervision, Treasury officials — both present and future — could negotiate so-called “closing agreements” with parties to wipe away millions in owed taxes.
One of the most notorious closing agreements was reached in 2012, under which the government was called to refund the now defunct Doral Bank for tax over-payments estimated at about $230 million. Under the current administration, the credit was invalidated and the case went to court, where the bank eventually lost its bid to uphold that benefit.
“That would have cost the same as the rebate we gave our elderly taxpayers a few years back. You leave people unsupervised and they can erase as much as $1 billion from the books,” he said, adding, “the Board has to have the malice to see that in the wrong hands, Treasury could bring the island down.”
If the Board goes along with the request, Treasury would join a list of six other agencies placed “under watch” last week, namely the Government Development Bank, the Highways and Transportation Authority, the Puerto Rico Electric Power Authority, the Puerto Rico Aqueduct and Sewer Authority, the University of Puerto Rico, and the Public Corporation for the Supervision of Puerto Rico Cooperatives (COSSEC as the entity is known in Spanish.)
All of those agencies are required to submit individual fiscal plans and refrain from making “material decisions” — including issuing new debt — without prior authorization from the federally appointed body.
“What I’m going to ask the Board is to disallow any transactions that carry a cost to be done without its approval,” Zaragoza said, adding the petition has already been drafted, but he’s waiting for the right time to submit it for consideration.
He compared that petition to a move he made some 18 months ago asking the Puerto Rico Legislature to amend the closing agreements law to establish that such deals must strictly abide by that statute.
Now Treasury can skip the Legislature and go directly to the seven-member fiscal oversight body to request receivership status.
“It makes my hair stand on end to think about what could happen here without that. If someone comes in after me who cares more about the clients they had or will have in the future, they can give away the house,” he said.
UPDATE: Late Wednesday, Gov. Alejandro García-Padilla called Zaragoza’s statements misguided, saying making Treasury and the services it provides efficient has been the priority.
“We still have work to do. Precisely in recognition of this fact, coupled with the inclusion of measures in the fiscal plan presented last Friday, putting the island on the right track through concrete actions is the way to go,” García-Padilla said in a statement.
“As for Treasury, the fiscal plan includes measures to generate efficiencies and increase revenues through appropriate monitoring and oversight. These measures, along with many others, will make it possible to protect the money of pensioners and draw investment to generate economic development,” the governor said, adding the Board does not have the authority to put Treasury, or any other government agency, under receivership.
Editor’s Note: This interview was done jointly with our colleagues at Sin Comillas.