Posts Tagged ‘Slush Fund’
June 3rd, 2016 at 12:45 pm
The Puerto Rico Governor’s New Slush Fund
Posted by Print

While Congress debates a bailout for Puerto Rico, a different – but related – debate rages among legislators in the Commonwealth over Governor Garcia Padilla’s final budget proposal for the Puerto Rican Government.

The proposal has been met with justified criticism, as noted in part by Puerto Rican publication El Vocero, that should come as no surprise. The Governor’s proposal, which includes nearly $1 billion in increased expenditures for a Commonwealth that otherwise claims it “cannot pay” its debts, is a veritable goodie basket for Garcia Padilla allies.

Of the $973 million in increased expenditures, some $522 million would be diverted into the Garcia Padilla Administration’s new slush fund, something called the Financial Advisory Authority and Fiscal Agent of Puerto Rico (FAAFA). FAAFA will assume the role of the Governor’s old slush fund, the long-unregulated and now insolvent Government Development Bank.

Also included in the budget is $91 million for an unprecedented discretionary fund, an extra $215 million to bail out bankrupt municipalities, and an increase of $69 million for the “professional services” of the very expensive consultants and lobbyists.

All of this spending comes despite the fact that, for the first time, the budget makes no appropriation for the payment of principal and interest on payments to general obligation debt.  That’s a clear violation of Puerto Rico’s Constitution, which affords explicit priority over all other government expenses to the savers who invested in those bonds.

We’ve long warned that, given the cover of the legal stay and cramdown mechanisms included in the Congressional PROMESA legislation, it’s inevitable that Puerto Rico would default on the money it owes to bondholders, walk away from negotiations, and begin to frantically divert its resources to friends and allies on the island.

Now, in plain terms, the Governor has promised to do precisely that.  While the Governor fills the coffers of his new slush fund and lines the pockets of his army of consultants and Big Labor cronies, the Puerto Rican people, the municipal lending market and America’s seniors and savers will pay the price.

The question is whether Congressional conservatives are watching and ready to act accordingly.