by Eva Llorens Velez | llorenseva4@gmail.com
The San Juan Star (December 14, 2015)
Financial analyst Daniel Hanson said he believes that bills filed by Sen. Orrin Hatch and an alternative bill filed by Republican Rep. Sean Duff y, both of which create a financial control board for Puerto Rico, have a 50 percent chance of being approved in 2016.Of the two, Hanson says the Hatch bill appears to be the most likely to be used as a basis for a discussion on the crisis as it appears to be pushing the island to make its Jan. 1 bond payment.
“In our estimation, this legislation both compels Puerto Rico to make its January 1 bond payments (as liquidity allows) — by dangling the ideas of both relief and loss of control in front of leadership — and it fills a leadership vacuum for Republicans on the issue of Puerto Rico,” Hanson, an analyst with Washington, D.C-based Height Securities, said in his newsletter. “As such, it strikes us as the starting point for a conversation, not a bill that is set in stone as written. We would expect changes and amendments to the legislation when Congress returns following their Christmas recess. In 2016, we believe there is a 50 percent chance such legislation could pass before the end of the second quarter of 2016.”
Hanson, on the other hand, said there is a 100 percent chance Congress will pass another source of revenue for Puerto Rico: the rum cover over and the Section 199 credit.
On Wednesday, following a motion to proceed on Sen. Charles Schumer’s (D-N.Y.) Chapter 9 bill with Unanimous Consent (UC), Hatch (R-Utah), along with Sens. Murkowski (R-Alaska) and Grassley (R-Iowa), introduced S. 2381, the Puerto Rico Assistance Act of 2015.
The bill’s summary fact sheet provides for a 50 percent cut in the employee side of payroll taxes for five years; a variety of studies related to Puerto Rico’s pension woes and inability to produce timely, reliable financial data; technical assistance in reporting data for all the territories; up to $3 billion in liquidity relief; and a so-called “Assistance Authority” that will provide Puerto Rico with borrowing authority, without a U.S. backstop. It also proposes the creation of a Chief Financial Officer that would take over financial decisions, and the ability to both produce data and veto unsustainable budget plans.
“The legislation’s most salient parts are, of course, the oversight board, the ability to issue debt, and the $3 billion bridge financing,” Hanson wrote. “The money for the bridge is expected to come from reprogramming funds in the Prevention and Public Health Fund, a government account created by the Affordable Care Act that has come under fi re from conservative members of Congress in recent years. While the fund is deeply unpopular with the GOP, it remains popular with Democrats, and the prospect of ‘bailing out’ Puerto Rico with federal cash — which members of the GOP already have their eyes set on for other purposes — is not likely to be met with enthusiasm from the Right. As such, we expect the bill will face opposition from Democrats, who dislike the loss of healthcare funds, as well as Republicans, who dislike the idea of bailing out the Commonwealth.”
Hanson also said he does not believe an incentive exists for Republicans to include the Puerto Rico legislation in an omnibus spending package or continuing resolution.
“Importantly, the legislation seems to demonstrate two points. First, it indicates the complete lack of trust the senators have for the Gov. Alejandro García Padilla administration. Not only does the bill create a board that will stand strong over Puerto Rico’s government, it essentially pushes the issue of restructuring into the next administration, perhaps implying that this administration is not capable of restructuring successfully,” the analyst wrote. “Second, it implies that the claims of bondholders — hedge funds, muni funds, and others — have not fallen on deaf ears; the legislation provides for low-cost bridge financing, the ability to issue a type of super bond from the board, and a credible external actor who can force Puerto Rico to make real budgetary changes. All of these are likely to be met with enthusiasm from the investor community. Finally, we note that Republicans are busy trying to piece together a variety of year-end bills, and their calendars are overfull already.”
“The bill’s passage as a standalone is not consistent with the calendar, so we place the odds of any action on this legislation below 20 percent this calendar year,” he added.
H.R. 4199, the Puerto Rico Financial Stability and Debt Restructuring Choice Act introduced by Duff y (R-Wisc.), last week, provides for Chapter 9 access if Puerto Rico agrees to give up budget control to a strong federal oversight board.
Rep. Duff y is both a member of the House Natural Resources Committee, which has oversight of territorial affairs, and chair of the Oversight Committee of the Financial Services Committee.
“For the last several months, the congressman has been concerned about PR’s threat to financial stability in the US, primarily from the perspective of the local PR banking system. Duff y’s bill is a clever political tactic, as it allows Puerto Rico to make a choice for itself as to whether it wants bankruptcy access, and the legislation is unlikely to anger many Republicans,” Hanson said. “The legislation could serve as a starting point for discussion in 2016 in the House, but in a fashion similar to the Senate bill, we find it unlikely that Republicans sneak the bill into some other legislation before year end, especially because Puerto Rico may raise the ire of House Democrats.”
Resident Commissioner Pedro Pierluisi has expressed concern about the oversight portion of the bill, saying he would like to work to “re-calibrate” the “problematic aspects” of the legislation.
“In our estimation, there are a multitude of scenarios for must-pass legislation over the next week, but in any of them, Duff y’s bill is likely to face opposition from either Republicans, who will demand more debate on the bankruptcy portion, or Democrats, who will take issue with the control board language. As such, we put the odds of passage in 2015 at or below 30 percent. Similar to Hatch’s legislation, we believe in 2016, the odds of passage could be as high as 50 percent before end of second quarter,” Hanson wrote. “We note in passing that, if we had to guess, the Hatch legislation is more likely to serve as the framework for a final deal in Congress.”