“It Will Be A Disaster”: Puerto Rico To Run Out Of Cash On October 31
While Puerto Rico is way beyond a simple solvency crisis, having already filed for bankruptcy earlier this summer – and courtesy of Donald Trump there is now debate whether or not the island’s $74 billion in debt will be forgiven outright – it is now also on the verge of a full-blown liquidity collapse. According to Treasury Secretary Raul Maldonado, Puerto Rico faces a government shutdown on Oct. 31, at which point it will run out of cash, resulting in a halt to its hurricane recovery, unless of course the US doesn’t provide billions in emergency funds.
Indeed, while the muni bond market freaked out today after Trump said on Tuesday night that Puerto Rico’s debt may need to be “wiped out”, focusing attention on the commonwealth’s staggering $74 billion debt, Puerto Rico faces a more immediate crisis in the wake of the storm: it is about to run short of money for fuel, salaries of recovery workers and food aid.
Meanwhile, only 8.6% of customers have electricity, mobile-phone service is sharply curtailed and many mountainous rural areas remain inaccessible.
According to Bloomberg, the U.S. commonwealth’s bankrupt government is burning through the $1.6 billion it had on hand before Hurricane Maria devastated the island. Furthermore, with widespread damage to telecommunications systems and the electricity grid, the Treasurer said he be unable to begin collecting sales tax for at least another month.
“I don’t have any collections, and we are spending a lot of money providing direct assistance for the emergency,” he said in an interview in San Juan. “Without the assistance from Congress, Puerto Rico’s government will not be able to operate next month.”
“You have conservatively over 100,000 homes that are destroyed here,” Governor Ricardo Rossello said an interview Wednesday.
“Essentially you’re looking at zero revenue for the next couple of months,” he said. “While you have zero revenue, you still have expenditures, plus emergency expenditures. That means the money is going to run out very quickly.”
Hence the need for Uncle Sam to step in: Maldonado said he has requested between $6 billion and $8 billion in aid from Congress to keep the government running for “a few months.”
And unless Congress does step in, Puerto Rico will go dark in just under a month. Literally.
The treasurer said he has set aside funds to make payroll and pension payments in October. But if Congress fails to act, he said the island is facing a “total shutdown” on Nov. 1 that would curtail essential services and the distribution of aid.
The good news for Puerto Rico is that, at least at first glance, Congress is willing to cooperate:
Senate Majority Leader Mitch McConnell said in a press statement that the Senate stands ready to help. House Speaker Paul Ryan’s office didn’t respond to a request to discuss the Oct. 31 run-dry date. Nancy Pelosi, the Democratic House minority leader, said earlier Wednesday that the Treasury Department should extend a loan to help Puerto Rico in the short term.
That said, Congressional enthusiasm may be dampened once the broke island comes asking for tens of billions more for its long-term recovery efforts.
Destroyed PR homes sit surrounded by debris from Hurricane Maria
Also on Wednesday, the Trump administration was finalizing a $29 billion disaster-aid request covering a series of major storms in the U.S. But Puerto Rico’s control board, created by the law that allowed the commonwealth to enter bankruptcy, has said Maria may have caused as much as $95 billion in damages, more than the island’s annual gross domestic product.
Meanwhile, perhaps sensing that Congressional, and Trumpian generosity, may soon reach its limits, Puerto Rico control board, which has broad oversight over the island’s finances, requested for immediate aid Tuesday. “In a letter the panel sent congressional leaders, the officials asked the federal government to make low-interest loans available to ease the impending liquidity crisis.”
And, in a deja vu moments from Hank Paulson’s request for a blank check from Congress ahead of the TARP bailout of US banks, Puerto Rico did its best imitation of requesting the “greatest amount of federal aid”, or else:
“Failure to provide the greatest amount of federal aid and the emergency liquidity program will be potentially ruinous,” chairman Jose Carrion wrote. “We must do all that we can to help Puerto Rico avert a tragedy of historic proportions.”
The panel also asked that the federal government waive cost-sharing limits, disaster spending caps and grants for long-term relief. Then, for his final Hank Paulson rendition, Maldonado said that If Congress doesn’t act, “it will be a disaster.”