One of the toughest tasks that awaits the federal control board charged with overseeing Puerto Rico’s finances may be how to strengthen the island’s retirement system, the worst-funded pension program among U.S. states and territories, Bloomberg News reported yesterday. That’s because whatever is done will likely pit bondholders against public employees since the legislation authorizing the restructuring of the commonwealth’s obligations didn’t provide any fresh cash. The commonwealth is increasing its contribution to the system in the current fiscal year that began last month to $747.3 million, while at the same time declining to allocate money to pay interest on its bonds. That prompted hedge funds holding Puerto Rico’s general-obligation debt to file suit against Governor Alejandro García Padilla, claiming that the administration is diverting cash in violation of its constitution and citing the additional funds going into the pension system this year. Read more.
In related news, a collection of advocacy and business groups brought a legal challenge to a debt restructuring deal for Puerto Rico’s power utility that they claim will unfairly and excessively raise electricity rates for the utility’s customers, MorningConsult.com reported yesterday. The Puerto Rico Electric Power Authority (PREPA) is asking for approval for a new surcharge and a rate hike it from 16.5 cents per kilowatt-hour to 20.1 cents/kWh by next year, as part of a $9 billion restructuring deal struck earlier this year, the groups said. The Institute for Competitiveness and Sustainable Economy of Puerto Rico and eight other industry groups representing retailers, hospitals, hospitality firms and other consumers of electricity filed their separate challenges to this action in a Puerto Rican commonwealth court. The rate increase is “one of the largest in recent U.S. history to be imposed on a state-wide or territory-wide basis,” according to a statement from the plaintiff groups. Read more.
For more news and analysis of Puerto Rico's debt crisis, be sure to visit ABI's "Puerto Rico in Distress" webpage.
