Puerto Rico Capitol Building

Puerto Rico Capitol Building in San Juan, the island's capital

This is an update on the voting on the Plan of Adjustment in the Puerto Rico Senate and House

Although the Puerto Rico House of Representatives approved Tuesday night the measure that creates the enabling law for the Plan of Adjustment (POA), there was not enough votes for passage in the Senate. As a result, the voting in the upper chamber was tabled for another day. The Senate will begin its session today at 1 p.m.

Senate Presdient José Luis Dalmau Santiago acknowledged the tough road ahead, as there are several undecided legislators, even within the delegation of the Popular Democratic Party (PPD).

According to Dalmau, the latest version of the measure is trying to introduce language on other issues, beyond zero cuts to pensions. He affirmed that there are even senators who have said that they were waiting for the legislative piece to come down in order vote against it, without even having read it. The Senate president did not reveal how many votes there are for or against the bill.

The House passed the bill by a vote of 30 to 15. The Senate needs 14 votes for approval.

Original story as follows:

Passage of the Plan of Adjustment  in Legislature Up in the Air

Despite the agreement reached over the weekend among the Financial Oversight and Management Board (FOMB), the two main parties in the Legislature and Gov. Pedro Pierluisi, the approval of the measure that creates the enabling law for the Plan of Adjustment (POA) remained uncertain as of press time Tuesday.

As reported, there was no assurance that House Bill 1003, known as the Law to End the Bankruptcy of Puerto Rico, would have the necessary votes for approval in both legislative bodies, since both majority and minority lawmakers publicly stated that they had objections with the new provisions included in the bill.

While both chambers were in session, another day of demonstrations had been called in front of the Capitol in repudiation of the POA and the measure that authorizes a new bond issue of $7.4 billion.

Recognizing the situation in the Legislature, Pierluisi said that he would ensure that the bill is approved. “I have been in communication with the legislative leadership to ensure that the legislation that makes the restructuring of the public debt feasible is approved, without affecting pensioners and protecting the University of Puerto Rico (UPR) and municipalities,” the governor said.

Pierluisi added that “it is crucial that this be achieved, since there is no doubt that the people would be seriously affected if the Plan of Adjustment submitted by the Board before the Federal Court falls and puts in danger for us (Puerto Rico) to get out of the bankruptcy.”

For his part, House Speaker Rafael “Tatito” Hernández presented the “substantive” changes that were made to the measure. Regarding pensions, he mentioned that a “super important” amendment was made, which “literally allows us to guarantee that the agreements are honored” and public pensions will not be cut.

Similarly, the measure includes language on UPR which states that the university’s budgets, which are submitted to the FOMB, include an allocation of $500 million for each of the five fiscal years from 2023 to 2027, providing that “additional allocations above the amounts allocated in the certified Fiscal Plan in April 2021 will be used to improve student experiences and the environment.”

Likewise, $1 million would be assigned to the Department of Health for “a study on the feasibility of providing or facilitating access to health insurance coverage to approximately 225,000 citizens who today lack coverage” and an extraordinary fund would be created based on a formula that, according to Hernández, would collect over $60 million annually to help municipalities with garbage collection and disposal, as well as recycling programs.

Red Flag Warnings

Regardless of the outcome of the voting on Tuesday, “red flag” warnings have been issued on the long-term success of Puerto Rico’s economic recovery and the island’s ability to pay its debt in the long run. “The Fiscal Plan certified by the FOMB for the central government sets in motion policies that have inconsistent effects on the real economy. First, the FOMB continues with the implementation of fiscal austerity measures, which it estimates will reduce GNP by 0.9 percent, 1.2 percent, and 0.7 percent during fiscal years 2022 (ongoing), 2023, and 2024, respectively. In their view, this fiscal consolidation is necessary to balance the budget in the short term. Note that the fiscal consolidation scheduled for FY2023 is particularly deep,” wrote Sergio Marxuach of the Center for a New Economy (CNE).

“On the other side of the equation, the FOMB is promoting the implementation of “structural reforms” in the areas of social welfare, energy, and ease of doing business, which it estimates will have a cumulative positive impact equal to 0.75 percent of GNP by fiscal year 2026. It is unclear, though, whether the government of Puerto Rico has the capability to implement these policies and, if implemented, whether they will have the economic impact forecasted by the FOMB,” he added.

As reported by THE WEEKLY JOURNAL, the FOMB has been touting the positive benefits of the POA. “The proposed Plan of Adjustment is a milestone on this path towards reducing Puerto Rico’s debt to sustainable levels and enabling economic growth,” said FOMB Executive Director Natalie Jaresko, adding that the plan comprises a series of agreements with a very diverse group of stakeholders, such as bondholders, unsecured creditors, retirees and unions.

Puerto Rico’s bankruptcy is not only the largest public debt restructuring in the history of the United States, but also extraordinarily complex, Jaresko noted. Puerto Rico’s $72 billion in debt was spread over more than a dozen public entities. The average debt service the government alone had to pay each year was $2.7 billion, and without PROMESA would have reached as much as $4.2 billion.

The Plan of Adjustment for the central government is the largest part of Puerto Rico’s debt restructuring, with about $35 billion in claims by bondholders and creditors, and more than $55 billion in pension liabilities.

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