CPI: officials wash their hands of GO debt that may be illegal

On June 14, 2016, Joel Cintrón Arbasetti reported for CPI that officials who celebrated the 2014 $3.5 billion general-obligation (GO) bond issuance — then the largest municipal “junk bond” deal — are washing their hands of a preliminary report by the Commission for the Comprehensive Audit of Public Credit that anticipates possible violations of the Constitution and SEC laws.

Melba Acosta Febo (then Treasury, later GDB president), José Pagán Beauchamp, David Chafey, and José Coleman Tió celebrated the placement at Morgan Stanley (New York). Pagán claims to have “successfully placed” the issue; GDB refers questions to Acosta, who points to Justice Secretary César Miranda. Miranda gave no interview: he said the Commission’s process had not concluded.

According to the preliminary report, the March 2014 issuance was used to cover deficits and pay debts older than 30 years — practices the Commission flags as prohibited. In total roughly $30 billion of financing would have been used to balance budgets. García Padilla’s fiscal team would have directed more than 35% of the budget to debt service, against the constitutional 15% cap. Constitutional scholar Carlos E. Ramos said the pre-audit “borders on the scandalous” and should force a “cease-fire” until clarified.

Act 34 of 2014 (Perelló/Bhatia) authorized the issuance; its representatives on the Commission abstained from endorsing the preliminary report. A preliminary report ≠ a judgment. An allegation of unconstitutionality ≠ a conviction or adjudicated theft.