Puerto Rico Governor to Paul Ryan: Debt Crisis Affecting Audit on Island's Financial Crisis

By Michael Oleaga First Posted: Feb 22, 2016 04:56 PM EST

Puerto Rico Gov. Alejandro Garcia Padilla wrote a letter to House of Representatives Speaker Paul Ryan, R-Wisc., announcing financial statements from 2014 will be released soon and dismissed rumors of lack of reliable financial information from the island.

An Audit Two Years in the Making?

According to Garcia Padilla, a Working Draft of the commonwealth's Basic Financial Statements and Required Supplementary Information for the fiscal year ending on June 30, 2014 will be completed this April. But the April timetable might not be final. The Puerto Rico governor wrote that additional issues may risk the audit's completion, specifically citing "the complexities posed by our current fiscal crisis." But he reassured that they are working "diligently" to complete the financial statements as soon as possible.

Garcia Padilla highlighted the island's fiscal and liquidity crises to the many years of significant government deficits an economic recession that dates back to 2006, an unemployment rate that surpasses that mainland U.S. average, high levels of debt and pension obligations and high record outmigration.

The governor addressed misconceptions about the lack of reliable and up-to-date financial details about Puerto Rico's debt crisis. Garcia Padilla acknowledged his administration released a comprehensive debt sustainability analysis -- referred to as the Krueger Report -- prepared by experts including International Monetary Fund economists, liquidity analysis by Conway MacKenzie in August 2015, the Puerto Rico Fiscal and Economic Growth Plan from September 2005 -- although an update was provided last month with a decade's worth of revenue and expenditure estimations and plan to stabilize the island's finances.

"Our debt is unsustainable and a broad restructuring of our debt is inevitable," wrote Garcia Padilla. "The issue is whether the restructuring will occur under a broad legal framework and in an orderly manner or without any legal guardrails and chaotic. Failure to enact a broad restructuring framework will cause years of legal challenges -- against the Commonwealth and among creditors -- that will harm the government's ability to provide essential services, accelerate out migration to the U.S. mainland, further contract the Puerto Rican economy and severely impair creditors' ability to recover on their claims."

"Without the rule of law, 3.5 million American citizens in Puerto Rico face an ever more uncertain future," added the governor.

Garcia Padilla said he will continue to update Ryan on the completion of the commonwealth's financial statements.

What Puerto Rico Is Calling For

Puerto Rico' has been calling for the "tools" to help restructure its liabilities; these "tools" include the same Chapter 9 bankruptcy rights as the 50 U.S. states. Garcia Padilla has said on numerous occasions that the island is not requesting a bailout to solve its more than $70 billion debt.

In December during a visit to Washington, D.C., Garcia Padilla bluntly said, "The fiscal crisis in Puerto Rico is real," Garcia Padilla said. "No one can argue seriously that there's anyone exaggerating on what we are facing, that Puerto Rico is facing the biggest fiscal crisis in its history. Puerto Rico is out of cash."

He did criticize the U.S. Congress for having a role in the crisis, acknowledging the legislative body's move to eliminate the competitive advantages for American enterprises in Puerto Rico in 1996, which led to hundreds of thousands of jobs, not just leaving the commonwealth, but going to other countries such as Ireland and Singapore.

In addition to the debt crisis, Puerto Rico has a health care problem. Garcia Padilla said the island's residents, who are also U.S. citizens, pay the same Medicaid and Medicare payments, yet receive less in return.

"We pay the same and we receive less. Puerto Rico healthcare system is also in distress," the governor said, adding the island has lacked more than a $1 billion in Affordable Care Act funding. "The disparity has forced thousands of healthcare professionals and patients to move stateside."

Puerto Rico was addressed in President Barack Obama's 2017 fiscal year plan, which proposes new benefits in both healthcare and financial assistance.