The bill would need 26 of the 28 PDP votes in the House, but some members of the majority delegation still oppose the tax hike. García Padilla said Monday he needs just one more vote, but sources said the measure is still several votes short of exiting the lower chamber.
The session was called as administration officials ramp up pressure for passage of the tax increase, saying mass transit services could skid to a halt if the HTA doesn’t get bailed out. The government has resorted to placing advertisements in local Spanish-language media outlets warning of dire consequences of not passing the legislation including broken roads and laid workers.
García Padilla said Monday that HTA and the Integrated Transport Authority would shut down next Monday due a lack of liquidity to cover payrolls.
“The Metropolitan Bus Authority and the Urban Train will shut down December 1 because they don’t have money for payroll,” the governor said in a radio interview.
The Maritime Transit Authority, which operates the ferries to offshore island towns of Vieques and Culebra, has “several more months,” García Padilla said.
The special session comes after the legislation hit a wall when the House of Representatives and the Senate pushed through separate last-minute bills that failed to exit the Capitol before the deadline earlier this month. In light of the impasse over the tax hike in the House, legislation to give the HTA a short-term shot of up to $45 million for payroll and operational costs was filed and approved by the lower chamber on the last day of the regular session. The money would come from cigarette taxes and feed a new fund managed by the Government Development Bank. The measure wasn’t taken up by the Senate before the close of the legislative term and was rejected by La Fortaleza.
La Fortaleza has said the House “didn’t finish the job” of considering a bill to surge the petroleum excise tax from $9.25 to $15.50 per barrel. The levy had been increased from $3 just last year.
García Padilla and other administration officials have said consumers will not feel the tax hike when fueling up their automobiles. Gasoline retailers have said the higher levy could drive up pump prices despite falling oil prices.
La Fortaleza has said the legislation is needed to “move forward on infrastructure projects that are necessary for the island’s economic development.”
Many investors and analysts believe the HTA will follow the Puerto Rico Electric Power Authority in moving to restructure its long-term debt, but government officials insist they are working to resolve the public corporation’s fiscal challenges without resorting to the Recovery Act.
Puerto Rico government officials had detailed plans last month to borrow up to $2.5 billion in a bond deal backed by a proposed new hike in the crude oil and petroleum products tax. The issue is now expected to reach up to $2.9 billion and the target has been pushed up to this month instead of early next year.
As reported previously by CARIBBEAN BUSINESS, the move is being undertaken to erase a $1.9 billion loan from the books of the GDB in light of its dwindling cash reserves.
The $1.9 million loan on the GDB’s books was made to the HTA, mostly for public works, but market conditions and the public corporation’s own fiscal problems have prevented it from returning to the market to undertake a bond issue to pay off the GDB loan.
The bill would transfer the loan to the Infrastructure Financing Authority (PRIFA) along with the means to pay for it via revenue produced by hikes in the crude oil and petroleum products that were undertaken in June 2013. The new bill increases these taxes further to cover operational budget gaps in the HTA, including its mass transit assets that are being spun off into a new public corporation.
The bill adjusts the excise tax on the barrel of crude oil, at a time when oil prices has decreased significantly; the increase will be bring this excise tax to $15.50 per barrel. This tax is expected to generate an additional $178 million per year. The taxes would be distributed as follows: $6.00 per barrel for the PRHTA to cover its operational costs and debt service obligations, $8.25 per barrel for the PRIFA to cover debt service, and $1.25 per barrel to finance the new Integrated Transportation Authority, which comprises the Metropolitan Bus Authority bus services, the ferry services (Maritime Transportation Authority) and the Urban Train system, once their transferred is completed.
GDB officials say the tax hike will provide funding to operate Puerto Rico’s highways network, protect thousands of public and private jobs, and continue to provide maintenance to the road network, the Urban Train operation, and the bus and ferry services
The measure explicitly excludes the taxation of crude oil and its by products used by the Puerto Rico Electric Power Authority to generate electricity, as well as those that are exported from Puerto Rico; those used by local refineries and petrochemical companies in the oil refining process; and those used as lubricants or fuel for aircrafts and shipping vessels traveling by air or sea between Puerto Rico and other places; among other exclusions.
The transfer to PRIFA is needed because, “it is necessary to identify an entity that has better access to the market to assume the HTA’s debt and, in this way, repay the debt to the GDB,” GDB officials said.
The legislation also provides additional guarantees and legal protections to investors to make the bonds offering more appealing.
Puerto Rico bonds have been hit by a series of downgrades since the enactment last June of the Puerto Rico Public Corporations Debt Compliance & Recovery Act (Recovery Act), which outlines a local bankruptcy-like procedure for most public corporations to restructure their debts. When the bill to transfer the debt to PRIFA from HTA was first filed, it caused alarm among some analysts and investors who saw it as clearing the way for the HTA to restructure its nearly $5 billion in outstanding bond debt without harming the GDB. Both GDB and PRIFA are barred from restructuring its debts under the Recovery Act.
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