The Secretary of the Treasury, Raúl Maldonado, left the Capitol. (horizontal-x3)
The Secretary of the Treasury, Raúl Maldonado, left the Capitol. (Ramón “Tonito” Zayas)

Although it will be published three years late, the audited financial statement for fiscal year 2015 will confirm an insolvency situation in practically all government branches; for the first time, Puerto Rico and the investment market will know the real impact of pension payments on the budget of dozens of agencies, public corporations and municipalities.

The Secretary of the Treasury Raúl Maldonado revealed to El Nuevo Día that in numbers, after adopting a new methodology required to all US local and state governments, the government's obligation to active and future pensioners who are part of the Retirement System Administration ARS (Spanish acronym) increased by about $16 billion during the fiscal year 2015, raising that single obligation to over $30 billion.

The rise in costs that the payment of pensions implies for the government is so significant, admitted Maldonado, that the adjustment will seriously affect good part of the agencies, will aggravate the already battered public corporations and will lead to a deficit in municipalities that can barely deal with the ravages of the worst hurricane in a century.

Based on what was revealed by the Department of the Treasury, the payment of pensions, the financial insolvency scenario, so far focused on the government and public corporations, seems to be extending to municipalities, leaving them, red or blue, negative territory from coast to coast.

"It is a substantial and material item for our financial statements," admitted Maldonado, describing the document as "an autopsy of a dead man buried two years ago."

Just before leaving for Washington with the expectation of achieving some legislative change that would allow the island to offset the impact of the federal tax reform, Maldonado spoke with El Nuevo Día about the Comprehensive Annual Financial Report (CAFR) for fiscal year 2015.

Just a month ago, El Nuevo Día reported that the government had failed to comply for three consecutive years with the Federal Securities Law that obliges public debt issuers in the United States to disclose finance information on a regular basis.

Right then, the Oversight Board asked the Fiscal Agency and Financial Advisory Authority (FAFAA) to inform when it would publish the CAFR 2015. The FAFAA then assured that the document would be published on June 8, but it did not happen.

FAFAA also assured that the Treasury is already working in the CAFR 2016 and that it should be published by the end of this year. The CAFR 2017 would be disclosed in 2019.

Waiting for KPMG

With the document in hand, but without letting El Nuevo Día see its contents claiming "legal" restrictions, Maldonado assured that KPMG, from its headquarters, is finishing the details of the audit opinion on the island´s public finances. 

"It will be a complex opinion," said the official without revealing information of the document to be issued by the firm, which for the year 2014 made a qualified opinion of the government regarding its ability to continue operating, described as "going concern".

Maldonado and Omar Rodríguez Pérez - Deputy Assistant Secretary of Central Accounting – partly attributed the delay in the publication of the CAFR 2015 to the challenges that the Treasury had regarding the Retirement System of the Electric Power Authority (PREPA), whose trustees might have delayed the approval of the actuarial status of that pension plan, which was key to completing financial statements, the official said.

In addition, Maldonado said that given that Puerto Rico is going through a process of debt renegotiation in court, "each line of this financial statement will be used by attorneys on Title III cases."

Apart from the impact of pensions, Maldonado refused to say how much the budget deficit rose, if there was a decline in the value of public assets, which is interpreted as a decrease in the capacity to provide services to the population. In fiscal year 2014, the government's obligations were estimated at $ 65.5 billion and assets were around $ 15.4 billion, which pointed to a deficit of about $ 49.7 million accumulated four years ago.

Pensions and GASB-68

Maldonado and Rodríguez Pérez said that the major setback to completing the CAFR-2015 was the application of the GASB-68 Governmental Accounting standards. This guide establishes that every government entity must include, as a starting point, how much money it will dedicate to the payment of pensions.

"Many agencies and public corporations had not adopted it (the GASB-68)," Maldonado said, in admitting that, in the future, establishing the pension obligation will affect the budget of different government entities.

In October 2016, El Nuevo Día anticipated that applying GASB-68 would end up collapsing the Treasury.

Although CAFR-2015 is a past state of public finances, its disclosure allows a better understanding of how government obligations and assets have evolved, which, in turn, will have some tangency in the process of Title III debt restructuring.

GDB deposits

According to Rodriguez Perez, the second drastic change in the CAFR-2015 will be the impact of the collapse Government Development Bank (GDB) in agencies, corporations and municipalities that entrusted their money.

In 2014, when it was stated that the GDB did not have a reserve to compensate for the losses that resulted from the loans that different government agencies did not pay, the GDB had to use practically all his capital to create such reserve.

The event forced the decapitalization of the GDB, which, according to Rodríguez Pérez, was necessary to be reflected in the CAFR-2015.

However, once the bank was left without capital, the probability for agencies, corporations and municipalities to recover their deposits also dissapeared.

According to Rodríguez Pérez, although it was known that the GDB had no money to honor deposits, agencies and municipalities did not make adjustments in their respective finances.

Somehow, the position of different agencies and municipalities in the case of the GDB would be that of an individual who spends monthly a certain amount of money expecting for an increase he has not received in five years.

"This is the first time that a financial deficiency has to be registered in a government financial statement," Maldonado said, noting that the deficit will also be reflected in Puerto Rico's financial picture.

Maldonado said the CAFR-2015 meant accepting the reality of the treasury, but assured that facing the debt renegotiation, the fiscal plan points to a change in the island´s  public finances, partly due to post –Maria recovery funds.


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