COFINA Deal Certified by Federal Judge

Judge Laura Taylor Swain ruled to certify a Title III restructuring agreement for Sales Tax Financing Corporation (COFINA in Spanish) bondholders involving more than $17 billion of Puerto Rico’s public debt. The 40-year agreement allows COFINA senior bondholders to receive 93 cents on the dollar of the original price, while juniors will receive 54 cents on the dollar.

Economist José Alameda presented a study showing that Puerto Rico could default on the newly restructured bonds, critiquing the agreement as too generous for bondholders and likely to deprive the Commonwealth of much needed revenue. The accord splits Sales and Use Tax (SUT) revenues between COFINA, which will keep 53% of SUT revenues, and the Commonwealth general fund, which will receive the remainder. At the end of the 40-year agreement, COFINA creditors will have received approximately $32 billion in principal and interest.

Swain’s decision resolves 6 lawsuits related to COFINA, though parties may still appeal the ruling to the First Circuit Court of Appeals. Governor Ricardo Rosselló’s administration supports the agreement, while the minority Popular Democratic Party (PDP), labor unions, diaspora groups, and others have rejected the plan as overly generous to bondholders.

Court Case Highlights Disparate Application of Federal Programs on the Island

A U.S. District Court Judge in Puerto Rico, Gustavo Gelpí, ruled that José Luis Vaello Madero did not have to repay the federal government close to $28,000 that he received in Supplemental Security Income (SSI) while living in Puerto Rico. The federal government alleged that Vaello Madero, who moved from New York to Puerto Rico, needs to repay the amount he received after the move, since SSI benefits do not apply in the Commonwealth.

In his ruling, Gelpí said that the territorial clause of the U.S. Constitution was vast but not unlimited, and that citizens could not be stripped of their rights by moving to a territory.

The case is likely to be heard by the U.S. Circuit Court of Appeals in Boston. Prior cases, including Harris vs. Rosario and other Supreme Court precedents, have ruled that Congress can discriminate against Puerto Rico for certain federal programs, given that Island residents do not pay federal income tax. SSI is funded by the federal general fund. It remains to be seen how this new case might alter existing jurisprudence.

$600m in Additional NAP Funds Part of Government Funding Deal

The Congressional conference committee is currently debating border security and other federal government funding that could include a measure to provide $600 million for the Nutritional Assistance Program (NAP or PAN in Spanish). After Hurricane Maria, Congress allocated $1.4 billion in disaster-related NAP benefits for residents of Puerto Rico, and those funds will run out in March unless Congress provides additional funding.

Earlier this month, the U.S. Office of Management and Budget (OMB) issued a Statement of Administration Policy (SAP) opposing the $600 million in NAP funding, as well as other Puerto Rico-related disaster funding. Democrats have vowed to insist on the inclusion of the funding as part of negotiations to keep the government open beyond the current February 15th deadline.