Municipal Secondary Market Disclosure Information Cover Sheet Municipal Securities Rulemaking Board (MSRB) Electronic Municipal Market Access System (EMMA) Additional / Voluntary Event-Based Disclosure THIS FILING RELATES TO ALL OR SEVERAL SECURITIES ISSUED BY THE ISSUER, OR ALL OR SEVERAL SECURITIES OF A SPECIFIC CREDITOR: Issuer’s Name: Commonwealth of Puerto Rico Other Obligated Person’s Name (if any): Six-digit CUSIP* number(s): Refer to Annex A
TYPE OF INFORMATION PROVIDED: A. Amendment to Continuing Disclosure Undertaking
B. Change in Obligated Person
C. Notice to Investor Pursuant to Bond Documents
D. Communication from eth I nternal Revenue Service
E. Bid for Auction Rate and Other Securities
F. Capital or Other Financing Plan
G. Litigation / Enforcement Action
H. Change of Tender Agent. Remarketing Agent or Other On-going Party
I. Derivative or Other Similar Transaction
J. Other Event-Based Disclosures: Disclosure of Material Non-Public Information Pursuant to Mediation Process
I represent that I am authorized by the issuer, obligor or its agent to distribute this information publicly.
/s/ Iván Garau González Iván Garau González Puerto Rico Fiscal Agency and Financial Advisory Authority, as Fiscal Agent for the Commonwealth
Dated: October 17, 2019
PO Box 42001 • San Juan, PR 00940-2001 • Telephone (787) 722-2525 Annex A
745145AU6, 745145AV4, 745145AW2, 745145AX0, 745145EK4, 745145HN5, 745145HP0, 745145HQ8, 74514LQK6, 745145QE5, 745145UZ3, 745145VB5, 745145VD1, 745145VF6, 745145VH2, 74514LBJ5, 745145YN6, 745145YP1, 745145YQ9, 745145YR7, 745145YS5, 745145YT3, 745145YU0, 745145YV8, 745145YW6, 745145YX4, 745145YY2, 745145YZ9, 745145ZA3, 745145ZB1, 745145ZC9, 745145XZ0, 74514LBM8, 745145Q70, 745145Q88, 745145Q96, 745145R20, 745145R38, 745145R46, 745145R53, 745145T77, 745145T85, 74514LUR6, 74514LUS4, 7451455A6, 7451455B4, 74514LPT8, 74514LCU9, 74514LCX3, 74514LCY1, 74514LCZ8, 74514LDA2, 74514LDB0, 74514LDC8, 74514LDD6, 74514LDE4, 74514LPX9, 74514LHB6, 74514LHC4, 74514LHD2, 74514LHE0, 74514LHF7, 74514LHG5, 74514LHH3, 74514LHJ9, 74514LHK6, 74514LHL4, 74514LHM2, 74514LHN0, 74514LHP5, 74514LJQ1, 74514LJR9, 74514LJS7, 74514LJT5, 74514LJU2, 74514LJV0, 74514LJW8, 74514LJX6, 74514LJY4, 74514LJZ1, 74514LKA4, 74514LQA8, 74514LQB6, 74514LQE0, 74514LQF7, 74514LKH9, 74514LKJ5, 74514LLV7, 74514LLW5, 74514LLX3, 74514LLY1, 74514LLZ8, 74514LMA2, 74514LMB0, 74514LMC8, 74514LMD6, 74514LME4, 74514LMF1, 74514LMG9, 74514LMH7, 74514LMJ3, 74514LMK0, 74514LML8, 74514LMM6, 74514LMN4, 74514LMZ7, 74514LNA1, 74514LNB9, 74514LNC7, 74514LND5, 74514LNE3, 74514LNF0, 74514LNG8, 74514LVT1, 74514LVU8, 74514LSQ1, 74514LSR9, 74514LSS7, 74514LSV0, 74514LST5, 74514LSU2, 74514LTJ6, 74514LTK3, 74514LTL1, 74514LTM9, 74514LTN7, 74514LTP2, 74514LTQ0, 74514LTR8, 74514LTS6, 74514LTT4, 74514LTU1, 74514LTV9, 74514LTW7, 74514LVG9, 74514LVH7, 74514LVJ3, 74514LVK0, 74514LVL8, 74514LVM6, 74514LVN4, 74514LVV6, 74514LVX2, 74514LVY0, 74514LVZ7, 74514LVW4, 74514LWA1, 74514LWN3, 74514LWJ2, 74514LWP8, 74514LWK9, 74514LWL7, 74514LWM5, 74514LWT0, 74514LWQ6, 74514LWR4, 74514LWS2, 74514LWY9, 74514LXD4, 74514LXE2, 74514LXA0, 74514LXB8, 74514LXF9, 74514LWZ6, 74514LXC6, 74514LXH5, 74514LXG7, 74514LWX1, 74514LYW1, 74514LZA8, 74514LZB6, 74514LZC4, 74514LZD2, 74514LZF7, 74514LZH3, 74514LZE0, 74514LZG5, 74514LZJ9, 74514LZK6, 74514LZL4, 74514LZM2, 74514LZN0, 74514LZP5, 74514LZQ3, 74514LZV2, 74514LZW0, 74514LZX8, 74514LZY6, 74514LZZ3, 74514LA23, 74514LA31, 74514LC47, 74514LA49, 74514LC54, 74514LA56, 74514LC62, 74514LD46, 74514LA64, 74514LC70, 74514LD53, 74514LA72, 74514LC88, 74514LD61, 74514LA80, 74514LD79, 74514LA98, 74514LC96, 74514LD38, 74514LB22, 74514LD87, 74514LB30, 74514LB48, 74514LB97, 74514LB55, 74514LC21, 74514LC39, 74514LD20, 74514LB63, 74514LB71, 74514LB89, 74514LE86. Commonwealth Fiscal Plan Risks September 17, 2019
Pre-Decisional | Privileged & Confidential Draft | Analysis Subject to Material Change Objectives for the session Details in following pages
The objectives of today’s discussion are to:
1▪ Discuss the Fiscal Plan, its importance, and frequently asked questions
2▪ Review main uncertainties related to Fiscal Plan projections
▪ Macroeconomic and revenue projections
▪ Implementation of structural reforms
▪ Implementation of fiscal measures
Pre-Decisional | Privileged & Confidential Draft | Analysis Subject to Material Change 2 The Fiscal Plan was designed to promote economic growth through collaboration
Gap/surplus before and after measures and structural reforms, $M USD 2019 fiscal plan gap/surplus pre-measures/structural reforms1 The Fiscal Plan has three main 2019 fiscal plan gap/surplus post-measures/structural reforms1 components: Contractual debt service 2
Cumulative surplus Cumulative surplus 1 Projections of FY19-24 FY19-49 Commonwealth revenues and expenses, considering 13,693 19,677 4,000 macroeconomic drivers
2,000 2 A series of Fiscal Measures 0 that seek to streamline the Government to size appropriate for its population -2,000
-4,000 3 Specific Structural Reforms that would have a positive -6,000 impact on the long-term economic growth trajectory of -8,000 the island
-10,000 FY18 FY19 FY20 FY21 FY22 FY23 FY24 FY29 FY39 FY49 The Fiscal Plan has not been implemented. Its implementation 5 years 10 years 10 years has faced several challenges, as discussed in this document. 1 Includes payments under COFINA settlement 2 Excludes COFINA; includes bonds with CW guarantee: GO, PBA, PRCCDA, PRIFA, PFC, ERS, and PRIDCO
Pre-Decisional | Privileged & Confidential Draft | Analysis Subject to Material Change 3 The Board also considered how to address a number of challenging questions in creating the Fiscal Plan
Transparency in Economic growth forecasts Revenue forecasts methodology
► Fiscal Plan includes forecasts and ► Fiscal Plan incorporated any latest details of all revenue and expense ► Growth rates are based on extensive information available at the time of figures; footnotes and supporting literature review and went through a certification, including understanding calculations are displayed in the rigorous review process of policy impacts from different model stakeholders
Level of taxation Services to be provided Level of spending
► Fiscal Plan requires more than $25b in ► Expenses at lowest level in a decade ► If taxes are increased too high, it may cumulative expense reductions in the and Fiscal Plan embeds more than impact migration, further challenging next 10 years; further cuts would $25b in cumulative expense long-term recovery1 depress economic growth below a reductions in the next 10 years sustainable level
Pace of measure Medicaid assumptions Pace of DRF spend implementation
► Fiscal Plan considers the most realistic ► Fiscal Plan sets aspirational goals that ► Current projections of Medicaid funds projection based on international are required to bring Puerto Rico back are based on current legislation examples and conversations with on a path of sustainable economic stakeholders in the island growth
1 Puerto Rico is akin to a regional, rather than a sovereign economy
Pre-Decisional | Privileged & Confidential Draft | Analysis Subject to Material Change 4 Nonetheless, several uncertainties and instabilities put the Fiscal Plan projections at risk
Puerto Rico is facing several challenges… …which create areas of uncertainty in the Fiscal Plan projections
▪ Recent turnover in senior Population decline could occur at a faster rate as a leadership, most notably with the reaction to economic or political uncertainty Governorship over the past month Revenue uptick might be shorter than expected ▪ Ongoing Federal scrutiny particularly given the looming loss of creditability in highly concentrated Act 154 tax revenue Macro- ▪ Lingering storm aftermath (e.g., economic physician and nurse shortages, and revenue Federal funds, including disaster relief funds, might lack of adequate infrastructure) projections be withheld or delayed
▪ Past poor capacity to manage Temporary “boom” due to inflow of relief funds may federal funds (e.g., potential be shorter than expected as political uncertainty slows expiration of education RESTART momentum from cash infusions and amplifies negative funding due to delayed effects from fiscal contraction procurement)
▪ Ongoing legal uncertainties (e.g., litigation with municipalities Structural reforms are behind schedule and might be over CRIM revenues and further delayed, which will stunt projected upticks in Implemen- subsidies) economic growth tation of measures Capabilities to implement fiscal measures are suboptimal due in part to many position vacancies
Pre-Decisional | Privileged & Confidential Draft | Analysis Subject to Material Change 5 Objectives for the session
The objectives of today’s discussion are to:
1▪ Discuss the Fiscal Plan, its importance, and frequently asked questions
2▪ Review main uncertainties related to Fiscal Plan projections
▪ Macroeconomic and revenue projections
▪ Implementation of structural reforms
▪ Implementation of fiscal measures
Pre-Decisional | Privileged & Confidential Draft | Analysis Subject to Material Change 6 Economic uncertainty could drive down population and revenue resurgence much faster than expected
Impact on surplus, $B Area of uncertainty Description Sensitivities FY 19-37 FY 19-49 ▪ Population declined at a rate of 1-2% ▪ Rather than dropping by 1-1.5% per year since 2010, which was decline from FY19-24, Population followed by a 5% drop in 2018 after – Population decline accelerates (0.7) (1.3) could Hurricane Maria over the next 5 years due to 1 decline economic uncertainty, resulting in at a faster ▪ The Fiscal Plan estimates the prior 2-2.5% annual decline until FY24, rate trend to continue at just over 1% per and 33% total decline by FY49 year, resulting in 30% fewer residents in FY49 when compared to FY19
▪ Fiscal Plan estimates above trend ▪ Above trend collections are temporal, collections of CIT revenues (23% in going back to historical trends, FY19 vs FY18), which is expected to – CIT revenues go back to historical (3.0) (3.0) continue for the next couple of years trend in FY20 and there is zero Revenue before reverting to historical level impact from recovery-related uptick might revenues 2 be shorter – Act 154 declines twice as fast as than (2.1) (2.1) expected the original rate. It reaches a long term trend of ~850m per year in FY25, instead of FY31; it reaches a long-term trend in 6 instead of 12 years
Pre-Decisional | Privileged & Confidential Draft | Analysis Subject to Material Change 7 We are already seeing delays in disaster relief funding and have reason to question the duration of the “boost” these funds are bringing to the economy
Impact on surplus, $B Area of uncertainty Description Sensitivities FY 19-37 FY 19-49 ▪ The Fiscal Plan assumes a total of $83 ▪ Rather than $69 Bn in FEMA and Bn in disaster relief funding, CDBG-DR funding currently projected, including $69 Bn from FEMA and – FEMA and CDBG-DR total only (5.4) (6.3) Disaster CDBG-DR $39 Bn (50% assumed cut of relief project-based categories) 3 funding ▪ It also applies a pass-through rate for – Assumes 20% lower capture rate might be all disaster funds, with construction- for disaster funds going towards (1.9) (2.7) lower related funding items going towards productive capital stock building the productive capital stock on the island
▪ The Fiscal Plan assumes relief funding ▪ Political changes slow momentum from has an effect for over 5 years positive fiscal developments in relief (unwinding) before economy goes funding and amplifies negative effects The back to long-term trend from contractionary fiscal measures, economic – Unwinding changes from 5 to 3 boost due to ▪ It also assumes that the negative 4 years for relief funding, and from 5 inflow of shock of fiscal measures (budget (6.0) (6.4) to 20 years for fiscal measures relief funds reduction) will be offset within 5 years; might be economic studies finds that the effect shorter of a fiscal shock typically disappears within 5 years even if fiscal measures are permanent
Pre-Decisional | Privileged & Confidential Draft | Analysis Subject to Material Change 8 POPULATION CAN DECLINE AT A FASTER RATE 1 The Fiscal Plan follows the pre-hurricane trend of population decline
Puerto Rico population, 2010-2049 Context Millions of people
▪ From 2010 to 2017 Puerto Pre-hurricane trend Rico’s population was declining at a rate of 1-2% per year May 2019 FP 1-2% 3.8 Scenario: FY19-23 ▪ Population decline in 2018 annual pre- 50% acceleration storm after the storm was ~5%, 3.6 followed by ~2% in 2019 decline 3.4 ▪ The May 2019 Fiscal Plan assumes the continuation of the 3.2 pre-hurricane trend of decline, but there are additional risks 3.0 that could lead to further 5% post- 2.8 decline over the 30 year period storm drop 2.6 – Uncertainty in the near- (2018) term (FY19-23 50% 2.4 acceleration scenario) 2.2 – Another storm, financial crisis, or health epidemic 0 with longer term effects 2011 20 30 40 2049
The scenario with accelerated short-term decline based on uncertainty could be driven even lower with another storm or crisis
Pre-Decisional | Privileged & Confidential Draft | Analysis Subject to Material Change 9 POPULATION CAN DECLINE AT A FASTER RATE 1 However, trends in outmigration and lower fertility rates could result in even more pessimistic downside scenarios
Puerto Rico historical demographics PR planning board demographic forecast possibilities Births minus deaths, 1950 - 2018 Population forecast estimate
90,000
70,000
50,000
30,000
10,000
(10,000) 1950 1956 1962 1968 1974 1980 1986 1992 1998 2004 2010 2016
Births Deaths Births minus deaths
Source: CIGI Papers No. 146 — September 2017 Source: Puerto Rico Planning Board Demographic Report, published June 2018. Available at: http://jp.gobierno.pr/Portals/0/Reto%20Demogr%C3%A1fico/Documentos/Reto%20DEMOG%20resumen%20informe%20jun2018.pdf?ver=2018-08-07-165521-463
Population Under Age 5 Percent Population Over 65 In Thousands In Percent 300 295 91% increase 21% 57% decline 20% 16% 250 15% 225 15% 11% 200 175 10%
150 128 5%
100 0% 2000 2010 2015 2018 2000 2010 2015 2018 Source: U.S. Census Bureau. Source: U.S. Census Bureau.
Pre-Decisional | Privileged & Confidential Draft | Analysis Subject to Material Change 10 POPULATION CAN DECLINE AT A FASTER RATE 1 There are also several other additional risks that could make demographic prospects even worse
There are many additional short-term risks State Population Declines Lasting Multiple Years In Percent . Additional hurricanes may hit the Island Puerto Rico (2010-18) -14.3 . In August, NOAA increased probability for Wyoming (1983-90) -11.1 above-normal hurricane season this year Arkansas (1950-56) -10.7 Washington, DC (1980-2000) -10.4 . Calling for 10–17 named systems, 5–9 West Virginia (1950-57) -8.1 hurricanes, and 2–4 major hurricanes South Dakota (1963-70) -5.8 Mississippi (1950-55) . Significant change in government -5.3 Iowa (1978-87) -5.2 . Dozens of cabinet officials & other political New York (1971-80) -4.3 officials resigned since 2017 -20 -15 -10 -5 0
Source: U.S. Census Bureau, Moody’s Analytics, NY Federal Reserve
Residents fled Puerto Rico after the hurricanes Puerto Rico’s population reached a new low in 2018 Net domestic air passenger arrivals, thousands, 12-mo moving sum Population change (%) over previous year 0 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 0% -50 -1% -0.5% -0.5% -100 -1.1% -1.2% -1.1% -2% -1.6% -150 -1.7% -1.9% -2.4% -200 -3% Hurricanes Irma -250 -4% and Maria struck -3.9% -300 -5% 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 Source: Bureau of Transportation Statistics, Moody’s Analytics Source: Pew Research, U.S. Census Bureau intercensal population estimates
Pre-Decisional | Privileged & Confidential Draft | Analysis Subject to Material Change 11 REVENUE UPTAKE MIGHT BE SHORTER THAN EXPECTED 2 FY 2019 revenues exceeded May Fiscal Plan projections, but ~85% of the results were concentrated in four revenue lines
General Fund Revenues Actuals vs. Estimates, USD Million; % FY19 May FP Actuals Estimate Dif. ($) Dif. (%)
General Fund Revenues ▪ SUT Collections (excl. 53.65% PSTBA, FAM & $ 2,299 $ 2,204 95 4.3% CINE) ▪ Individual Income Taxes $ 2,224 $ 2,145 79 3.7% ▪ Non-Resident Withholdings $ 630 $ 653 (23) -3.6% ▪ Alcoholic Beverages $ 275 $ 263 12 4.4% ▪ Excises on Off-Shore Shipment Rum $ 230 $ 212 18 8.4% ▪ Cigarettes $ 101 $ 172 (71) -41.4% Subtotal $ 5,759 $ 5,650 108 1.9% ▪ Corporate Income Taxes $ 2,492 $ 2,192 300 13.7% ▪ Act 154 Collections $ 2,083 $ 1,915 168 8.8% ▪ Motor Vehicles $ 519 $ 477 42 8.8% ▪ Other General Fund Revenue $ 523 $ 354 169 47.8% Subtotal $ 5,617 $ 4,938 680 13.8% Total $ 11,376 $ 10,588 788 7.4%
SOURCE: Puerto Rico Treasury Department
Pre-Decisional | Privileged & Confidential Draft | Analysis Subject to Material Change 12 REVENUE UPTAKE MIGHT BE SHORTER THAN EXPECTED 2 Corporate Income Tax (CIT) revenue uptick is likely temporary and may not last as long as fiscal plan projects
Factors supporting non-permanent CIT revenue uptick
▪ Corporate income tax revenues are up +40% over last year
▪ The May fiscal plan already anticipated such a surge - although smaller at 23% - and also anticipates that above trend collections will continue for the next couple of years before reverting to historical levels
▪ Over the long-term, the mainland US and OECD economies on average don’t sustain these types of cyclical “booms” as inevitably there is a “bust” and the level of corporate tax receipts reverts to historical levels
▪ Puerto Rico is potentially at greater risk than most jurisdictions because of the concentration effect - a few large corporate entities that either leave PR, or become less profitable can have a large impact on tax collections
Pre-Decisional | Privileged & Confidential Draft | Analysis Subject to Material Change 13 REVENUE UPTAKE MIGHT BE SHORTER THAN EXPECTED 2 Act 154 unstable amid looming loss of its creditability
Act 154 actuals FY17-19, USD Million; % Implications
Rest Top 10 ▪ Full year results suggest that FY 2018 reduction in Act 154 receipts was temporary, as both large and small taxpayers have recovered to almost exactly the same level as 2,083 2,078 FY 2017 ▪ Still, Act 154 remains a highly 201 202 concentrated revenue source with 1,915 -21% 10 firms comprising nearly 90% of 28% inflows 158 ▪ These revenues could quickly evaporate with the looming loss of federal creditability and/or firm investment priorities (e.g., if Pharma closes production lines -7% 1,878 7% 1,881 with a product’s patent expiration)
1,757
FY17 FY18 FY19
SOURCE: Puerto Rico´s Treasury Department
Pre-Decisional | Privileged & Confidential Draft | Analysis Subject to Material Change 14 REVENUE UPTAKE MIGHT BE SHORTER THAN EXPECTED 2 Surge in motor vehicle tax revenues appears to be subsiding
Motor Vehicle Tax year over year growth by quarter, Percent Implications 80 ▪ After four quarters of YoY growth substantial YoY 60 Slowdown growth, the trend Hurricane 40 broke in Q4 2019 Maria which is down over 20 Q4 2018 0 -20 ▪ Fiscal plan projects that demand was -40 pulled forward into 1 FY17 FY18 FY19 FY20e 2018-2019, leading to below trend Motor Vehicle Tax actuals by quarter FY17-19 and estimate for FY20e collections in USD Million Tax revenue FY2020 200 153 141 150 126 131 112 110 117 100 99 99 98 100 91 87 79 73 79 50
0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 FY17 FY18 FY191 FY20e2
1 FY19 actuals differ by $8M to the quarterly breakdown provided by Hacienda | 2 FY20e assumes that 1/6 of the $150M “pull-forward” demand in FY19 is reflected in the last half of the FY
SOURCE: Puerto Rico´s Treasury Department
Pre-Decisional | Privileged & Confidential Draft | Analysis Subject to Material Change 15 DISASTER RELIEF FUND MIGHT BE LOWER Private and public disaster relief funding represent a major source of 3 revenues for the Commonwealth in the upcoming years
FY18, FY19, FY20, FY21, FY22, FY23, FY24, FY25-FY32 $M, % $M, % $M, % $M, % $M, % $M, % $M, % $M, % Total, $M Total, % FEMA Public Assistance, 6,400 5,112 3,439 3,197 3,489 3,489 3,489 17,228 Hazard Mitigation, 45,843 55.2% Mission Assignments 14.0% 11.2% 7.5% 7.0% 7.6% 7.6% 7.6% 37.6%
1,996 604 604 0 0 0 0 0 FEMA Individual 3,204 3.9% Assistance 18.9% 18.9% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
0 170 2,059 3,446 4,999 4,870 3,096 1,305 CDBG 19,946 24.0% 0.3% 4.9% 21.0% 23.5% 23.0% 16.6% 9.1% 0.0%
4,299 1,851 1,851 0 0 0 0 0 Private insurance 8,000 9.6% 53.7% 23.1% 23.1% 0.0% 0.0% 0.0% 0.0% 0.0%
1,924 1,373 617 489 341 204 189 915 Other federal 6,051 7.3% funding 31.8% 22.7% 10.2% 8.1% 5.6% 3.4% 3.1% 15.1%
Total 14,619 9,109 8,570 7,133 8,829 8,563 6,774 19,447 83,044 100%
Spending as a % of GNP 21.4% 12.7% 11.7% 9.7% 11.8% 11.2% 8.7% 3.0%
CDBG cost share 0 100 333 357 390 390 390 390
Disaster aid by source of funding, $M
15,000 FEMA PA Private Insurance FEMA IA CDBG Other Fed funding 12,000 9,000 6,000 3,000 0 FY18 FY19 FY20 FY21 FY22 FY23 FY24 FY25 FY26 FY27 FY28 FY29 FY30 FY31 FY32 SOURCE: May Certified Fiscal Plan
Pre-Decisional | Privileged & Confidential Draft | Analysis Subject to Material Change 16 DISASTER RELIEF FUND MIGHT BE LOWER We are already seeing disaster aid roll out slower than anticipated in the 3 fiscal plan
FEMA’s full-year FY19 obligation projections $ billions, excludes administrative funding and USVI
FY19 obligations estimate 7.9 7.5 used for May 2019 FP Actual FY19 7.2 7.0 6.9 6.5 obligations 5.5 4.0 4.1
Nov ’18 Dec ’18 Jan ’19 Feb ’19 Mar ’19 Apr ’19 May ’19 Jun ’19 Jul ’19
The disaster funds rollout expectations includes several additional downside risks
. NY in Hurricane Sandy and LA in Hurricane Katrina eventually had a substantial amount of its FEMA funding deobligated
. Congresswoman González-Colón advocated for a Federal reconstruction coordinator2
. HUD installing a Federal Monitor to oversee $20.2 bn in CDBG-DR funding3
. FEMA 428 alternative procedures funding availability expires in October but no fixed cost estimates have been confirmed4
. HUD has not yet issued federal registrar guidance for all of PR’s FY17 & FY18 CDBG-DR funding need5
. PR gov’t failed to use $26 million in federal disaster preparation funding for this hurricane season
1 https://www.fema.gov/news-release/2019/07/25/fema-reinstate-manual-drawdown-process-commonwealth-puerto-rico 4 https://www.gao.gov/assets/700/697528.pdf 2 https://mailchi.mp/9a111b3ce42e/congresswoman-gonzlez-coln-advocates-to-designate-a-federal-coordinator?e=61fe27b264 5 https://www.hudexchange.info/onecpd/assets/File/FR-6109-N-01-CDBG-DR-Allocations.pdf 3 https://www.hud.gov/press/press_releases_media_advisories/HUD_No_19_115
Pre-Decisional | Privileged & Confidential Draft | Analysis Subject to Material Change 17 DISASTER RELIEF FUND MIGHT BE LOWER 3 Other non-recurring federal funds, which the fiscal plan relies upon, could be put in jeopardy as well
General Federal funding also presents risks Historical Federal funding 1 $ in millions Medicaid Funding is particularly vulnerable 7,959 $ 8,000 7,595 . Senator Grassley issued a letter in July 6,897 questioning PR’s Medicaid funding1 Nutrition Nutrition Assistance Assistance Program . Additional funding may come with 6,086 Program 2,452 1,924 additional coverage requirements, such 6,000 Nutrition Assistance as the provision of long-term care, which Nutrition Program Assistance PR’s Medicaid program does not provide 2,661 Medicaid Program Title XIX 1,949 Federal Agencies are tightening control over the Medicaid 1,661 Title XIX monitoring and disbursement of Federal Funds 4,000 2,638 Medicaid . Medicaid In June, U.S. Dept of Education ordered Title XIX Title XIX PRDE to hire a fiduciary agent to oversee 1,623 1,959 the distribution of its federal funds Other Federal 2,000 . FHWA entered into an MOU controlling Other Funds Other disbursement of highway funding Other Federal 4,011 Federal Federal Funds Funds Funds 2,869 Sources of appropriated federal funding are not 2,514 2,277 being spent before they expire 0 . Example: PR DoEd Restart funding FY17 FY18 FY19 FY20 Note: Due to rounding, numbers presented may not add up precisely to the totals provided. 1. Excludes federal funds to instrumentalities Source: Data provided by Office of Management and Budget (incudes additional disaster aid funding); FY19 1 https://www.grassley.senate.gov/news/news-releases/after-puerto-rico-arrests-allegations-fraud-grassley- presses-hhs-transparency and FY20 are estimates of the full year of funding where FY17 and FY18 are actuals
Pre-Decisional | Privileged & Confidential Draft | Analysis Subject to Material Change 18 ECONOMIC BOOST CAN BE SHORTER A dampening of the economic boost from federal capital infusions 4 (‘unwinding assumption’) could reduce revenues Long-term GNP trend Real GNP
Temporary GNP boost due to relief funding Temporary negative effect on GNP due to austerity
Fiscal Plan assumes that relief funding will create a short- Fiscal Plan also assumes that fiscal measures have a term boost in the economy due to construction-related contractionary effect in the economy that would phase out funding creating jobs and building productive capital in 5 years
FP assumes relief funds would increase GNP, but the effect would phase out after 5 years
FP assumes austerity measures would have a negative effect on GNP, but it will be only temporary
2014 16 18 20 22 24 26 28 2030 2014 16 18 20 22 24 26 28 2030 The effect of economic boost could be shorter Negative effects of austerity could last longer • Uncertainty could slow down momentum from positive • The economy could take longer to go back to the long-term fiscal development GNP trend if economic uncertainty slow down investments, or if labor market is not flexible enough to allow workers be hired when needed
If unwinding changes from 5 to 3 years for relief funding and from 5 to 20 years for fiscal measures, Fiscal Plan surplus would decrease by $6.4 Bn in Fy19-49
Pre-Decisional | Privileged & Confidential Draft | Analysis Subject to Material Change 19 Objectives for the session
The objectives of today’s discussion are to:
1▪ Discuss the Fiscal Plan, its importance, and frequently asked questions
2▪ Review main uncertainties related to Fiscal Plan projections
▪ Macroeconomic and revenue projections
▪ Implementation of structural reforms
▪ Implementation of fiscal measures
Pre-Decisional | Privileged & Confidential Draft | Analysis Subject to Material Change 20 The Government is behind on implementing all of the major structural reforms required to drive economic growth on the Island
Structural measure Growth drivers Impact
. Provide PR residents with affordable, reliable, resilient . Improve availability, reliability and and environmentally compliant power delivered by an affordability of energy for families and Energy efficient and financially sustainable utility businesses 1 reform . Achieve 0.30% cumulative and . Challenge: Reform faces the challenge of legacy costs permanent GNP impact by FY2023 and difficulty to change generation mix
. Encourage new businesses to hire employees by . IPR: Create 54K jobs and lead 750 capital simplifying navigation of regulations, reducing complexity investments and speeding up investment and permitting mechanisms, . DPR: Reach the highest ranked Latin- Doing and streamlining tax administration systems 2 business American country position . reform Achieve a cumulative and permanent . Challenge: Still far on many metrics; for example, Puerto GNP impact of 0.40% by FY2023 Rico ranks position #153 (vs #27 for mainland US) in registering property . Increase PR’s formal labor force participation rate to . Reduce demand and improve self- match that of the lowest U.S. state, which would result in sufficiency of welfare recipients Private sector a rise in income, a decline in poverty, and an . Achieve a cumulative and permanent 3 welfare improvement of the budgetary deficit GNP impact of 0.15% by FY2025 reform . Challenge: Only 41% of population works in the formal sector (vs 62% in mainland US) . Increase education quality and attainment in order to . Achieve an additional cumulative and prepare PR’s workforce to fill jobs currently needed by the permanent GNP impact of 0.17% by economy and decline the rate of youth unemployment FY2049 4 Education reform . Challenge: 20% of Puerto Rico working age population has less than a high school diploma (vs 12% in mainland US)
Pre-Decisional | Privileged & Confidential Draft | Analysis Subject to Material Change 21 Fiscal Plan surplus is very sensitive to structural reform implementation due to impact on GNP – putting billions in revenues at risk
Impact on surplus, $B
Structural measure Summary Sensitivities FY 19-37 FY 19-49 ▪ Finalize transaction to allow private ▪ Transaction is not completed (as it is operation in the generation of energy dependent on certainty around federal (through privatization) and funds) (4.1) (12.9) Energy 1 transmission and distribution of energy reform (through a concession)
▪ Promote economic activity and reduce ▪ Due to new legislation required and (5.1) (16.6) the obstacles to starting and sustaining extensive coordination needed across Doing a business in Puerto Rico through agencies, implementation of this reform 2 business comprehensive reform to improve ease is not achieved reform of paying taxes, registering property, and obtaining permits
▪ Increase participation in the formal ▪ Government fails to implement NAP section through different policies, work requirement on time, Private sector including the implementation of labor – Implementation is delayed by 2 3 (0.4) (0.8) welfare requirement for beneficiaries of the years (impact starts in FY27) reform Nutrition Assistance Program (NAP) – Reform is not implemented (1.4) (5.3)
▪ Implement reforms to improve learning ▪ Lack of coordination and poor redesign (0.0) (1.1) outcomes in K-12 education, of learning programs does not 4 Education increasing performance in basic improve learning outcomes in K-12 reform proficiency skills students
Pre-Decisional | Privileged & Confidential Draft | Analysis Subject to Material Change 22 ENERGY REFORM 1 Without urgent implementation of energy reform, Puerto Rico’s economy cannot develop
Implementation risks ▪ Availability of Federal Funds is a critical piece of PREPA’s ability to Availability of modernize the grid system while keeping rates at an affordable level Federal Funds
▪ The Restructuring Support Agreement is conditioned on the legislature approving legislation that enables the imposition and collection mechanics of the transition charge, which is the source of repayment of the Transaction debt uncertainty ▪ Clarity on federal funding clarity is essential for the transaction
▪ A private operator will look to negotiate labor arrangements with the existing unions, so any final transaction will require some labor support Labor support
Pre-Decisional | Privileged & Confidential Draft | Analysis Subject to Material Change 23 DOING BUSINESS REFORM 2 Little progress in advancing reforms to promote economic activity and reduce obstacles to starting a business in Puerto Rico
Components Status on progress
Government has launched a ‘Single Business Portal’ ▪ Portal is not linked to other digital platforms, like property registry Ease of doing reforms ▪ Portal has not yet created streamlined process times or improved reliability ▪ Significant backlog of permit and property registration applications remains
Invest Puerto Almost no information provided on strategy for Invest PR Rico ▪ Nov ’18 reporting demonstrated limited progress towards sector and enabler identification ▪ Government remains dependent on preferential tax treatment to drive investment
DPR has launched new campaigns, but faces uphill battle on stakeholder alignment Destination ▪ Coordination with key stakeholders already proving difficult Puerto Rico ▪ Board has not received implementation plan for addressing these gaps
Agencies minimal progress on certain other Fiscal Plan requirements Others ▪ Limited reported outcomes from former Governor’s signature initiative to lower regulations ▪ No progress on occupational licensing reforms or on-island freights reform
Pre-Decisional | Privileged & Confidential Draft | Analysis Subject to Material Change 24 PRIVATE SECTOR WELFARE REFORM There has been limited political will to make radical improvements in 3 private sector labor environment
Components Status on progress
Earned Income Tax Credit (EITC) was approved, but requires key actions to go live ▪ New EITC was approved by Tax Law in December 2018 and was planned to take effect in January 2019 EITC ▪ Law regulations haven’t been established yet, which are needed to determine submission/claim process for beneficiaries ▪ Hacienda has not reported progress on the completion of tax filings forms modifications
NAP work requirement was approved through a phased approach, implementation deadline is due in 2 months and DoF requires tools and capabilities installed to be ready ▪ FNS approved work requirement in Feb 2019 and will be effective from October 2019 through a phased NAP work approach ($400M revenue loss over 40 years) requirement ▪ Readiness assessment has been done with DoF addressing four actions to accelerate implementation: (1) communication and customer service, (2) hiring and training, (3) IT systems, and (4) employment verification and audit
Workforce development has a roadmap, however few MOUs with training partners were signed ▪ DDEC has updated its strategic plan and conducted events with employers to identify workforce trainings needs Workforce MOUs for apprenticeship programs were to be signed in June 2019 with Dept. of Labor and Core3 development ▪ ▪ DDEC has not reported MOUs for training/certification programs for adults or youth development programs
Pre-Decisional | Privileged & Confidential Draft | Analysis Subject to Material Change 25 Objectives for the session
The objectives of today’s discussion are to:
1▪ Discuss the Fiscal Plan, its importance, and frequently asked questions
2▪ Review main uncertainties related to Fiscal Plan projections
▪ Macroeconomic and revenue projections
▪ Implementation of structural reforms
▪ Implementation of fiscal measures
Pre-Decisional | Privileged & Confidential Draft | Analysis Subject to Material Change 26 All fiscal measures are at risk
Impact on surplus, $B
Fiscal measure Description Sensitivities FY 19-37 FY 19-49 ▪ Reduce agencies to a size appropriate ▪ Due to government inaction to Puerto Rico (e.g., FTEs, opex, – Reduction in FTEs achieves 50% Agency utilities) of target (10.8) (20.3) efficiencies ▪ Reduce or eliminate some benefits – Reduction in compensation (and (i.e., Christmas bonus, payroll freeze) others) achieves 50% of target (2.3) (4.4)
▪ Slow per capita health care inflation by ▪ Poor implementation and new federal (12.6) (27.8) Healthcare curbing fraud, waste and abuse; driving benefit requirements bring PMPM measures value-based payment reforms; growth rate closer to projected increasing MCO competition healthcare inflation
Reduce costsReduce ▪ Reduce subsidies to UPR and ▪ Lack of progress among munis and (9.0) (16.3) UPR/muni municipalities UPR to reduce costs force CW to subsidies rollback subsidy reductions in face of critical service cuts ▪ Reduce annual pension expenses, ▪ Government does not reduce (3.8) (7.3) Pension freeze accrual of benefits in JRS/TRS, pension or freeze JRS/TRS benefits measures and start social security contributions ▪ Implement processes (e.g., data ▪ Poor implementation and uncertainty in (2.9) (5.3) Tax analytics) to improve tax collection investments brings impact to 50% of compliance projection
▪ Change tax rate of some services to ▪ Uncertainty in investments and poor (1.9) (3.3) increase collection (e.g., implement economic outlook brings impact to 50% Right-rating taxes on Airbnb stays, gaming, and of projection
Increase revenues tobacco products) 1 ) It does not include reduction in Universal Healthcare Measure, whose impact in surplus is $1.1 Bn in FY19-37 and 2.0 Bn in FY19-49
Pre-Decisional | Privileged & Confidential Draft | Analysis Subject to Material Change 27 SUBSIDIES Puerto Rico’s municipalities are confronting enormous fiscal stress
Total General Fund Subsidies to Municipalities Post Measures $ In mm The 78 municipalities face financial pressure from: 500 • Elimination of all direct subsidies and the 407 396 400 Property Tax Exoneration fund 46 35 361 298 • CRIM governance controlled by mayors 300 133 133 133 78 • Erosion of self-generated income from shrinking population base across nearly all municipalities 200 176 132 • High fixed costs, including ~52,000 employees, 228 228 228 220 88 100 176 and an annual deficit estimated at ~$260m 132 44 44 88 44 44 0 • Higher retiree PayGo pension obligations 0 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23 FY24 • >$2.0b in deposits stuck at GDB ($80m net of 1 Municipal Equalization Fund Property Tax Fund Direct Subsidies GDB RSA loan setoffs) ; no access to new GDB or capital market funding for Capex & Opex needs The Municipal Subsidy Was Historically Comprised of Several Sources: • Reductions in PREPA CILT allowance and energy • Municipal Equalization Fund (Law 80-1991) reduced significantly and consumption limits from Act 57-2014 ultimately eliminated; allocation based on population distribution • Growing disaster aid recovery costs, including • Property Tax Exoneration Fund (Law 83-1991) eliminated in FY18; ~$300m in CDLs to 76 municipalities2 allocation based on number of residences • Fiscal stress only temporarily offset by $78m in • Direct Subsidies to ~20 municipalities also eliminated in FY17 addl. muni funds authorized by FOMB in FY18
1 Subject to further due diligence. Municipalities can offset loan repayments with deposits; Loans categories include operating loans, cash flow loans, CAE loans (property tax secured) and Muni IVU loans (municipal sales tax secured). Note: given the final Amended GDB RSA’s new broader offset right benefits for municipalities, the total municipal deposit figure is down sharply from nearly $400 million of municipal deposit net balances in the original GDB RSA. 2 https://www.fema.gov/news-release/2019/04/24/fema-approves-nearly-300-million-loans-76-municipalities.
Pre-Decisional | Privileged & Confidential Draft | Analysis Subject to Material Change 28 SUBSIDIES Some municipalities are heavily dependent on municipal transfers and few have executed the reforms needed to sustain subsidy removal
FY19 Municipal Budgets Totaled Approx. $2.0B Municipalities With Budgets More than 40 Percent Count Reliant on Central Gov’t. General Fund Subsidies 40 58 municipalities have General In Millions $ Fund budgets smaller than $20m FY18 GF In FY19 GF In 30 27 27 FY18 GF Muni Percent FY19 GF Muni Percent Municipality Budget Subsidy Terms Budget Subsidy Terms 20 San Juan ($436m) 1 Las Marias $6.6 $4.2 64% $6.0 $3.5 58% Guaynabo ($128m) 2 Maricao 5.2 3.3 63% 4.9 2.8 56% 10 Bayamon ($117m) 10 7 3 Orocovis 8.7 5.8 67% 8.7 4.8 55% 4 3 4 Florida 6.9 4.4 63% 6.7 3.6 54% 0 5 Barranquitas 9.4 5.5 59% 8.8 4.5 52% Less than $10m to $15m to $20m to $50m to More than 6 Comerio 9.0 5.9 65% 9.7 4.9 50% $10m $15m $20m $50m $100m $100m 7 Maunabo 7.9 4.5 57% 7.3 3.6 50% 8 Adjuntas 7.6 4.6 60% 7.8 3.7 47% Ttl Budget $217m $334m $127m $287m $306m $681m 9 Aguas Buenas 8.6 4.6 54% 8.3 3.7 45% 10 Naranjito 10.4 5.5 52% 10.1 4.5 44% 11 Loiza 8.8 5.3 60% 9.6 4.2 44% 12 Utuado 10.3 5.1 50% 9.6 4.1 43% Municipalities Reliance on FY19 General Fund Subsidies 13 Patillas 8.2 4.2 51% 8.0 3.3 42% Count 14 Quebradillas 9.0 4.0 44% 7.7 3.2 41% Morovis 40 17 municipalities rely on General Fund 15 9.8 5.3 55% 10.5 4.3 41% 16 Corozal 11.5 5.2 46% 10.4 4.3 41% subsidies for more than 40% of their GF budget 30 17 Ciales 8.8 4.0 45% 7.8 3.2 41% 26 20 20 15 11 10 6
0 The equalization fund reliance increases substantially for More Than 50% to 40% 40% to 30% 30% to 10% Less than 10% some municipalities when factoring in proceeds from the 50% 35% contribution of the electronic lottery fund as well Ttl budget $45m $97m $137m $244m $1,428m
Pre-Decisional | Privileged & Confidential Draft | Analysis Subject to Material Change 29 PENSION MEASURES The pension pay-as-you-go forecast is based on several key assumptions that could lead to higher actual PayGo costs
The pension assumptions contain several Cumulative Nominal Effect of Total Proposed Cuts downside risks 2.5b
. Analysis based on data as of July 1, 2.0b Cut $3.3b
2016 received from the pension systems 1.5b . Actuarial standards of practice allow for 1.0b TRS/JRS rolling forward of data based on standard Proposed Pension Freeze - $9.2b Effective Cut 0.5b $51.9b 19.3% actuarial practices and rules of thumb but a ($12.5b) fair amount of time has elapsed 0.0b . Data limitations can cause significant fluctuations in the census data, including: FOMB's Proposed Pension Cut Value Freeze Value Cumulative Nominal Effect of Total Proposed Cuts . Estimated load for obligations for people terminated but vested in a 25% benefit payable in the future 19.35% 20% . Voluntary termination program data 16.38% not available as of calc date so these 15% addl. costs not in the PayGo costs 11.75% 73.7% of 14.3% Effective Cut . Gaps and missing info. in records 10% 11.2% 7.00% 6.5% . Cash flows scaled to baseline PayGo 5% 1.9% costs. Applied to all benefits so may 26.3% of 5.0% 5.3% 5.2% 5.1% Effective produce difference when cash flows Cut 0% are broken into component parts (e.g. System 2000 vs. Act 1/447). Cumulative Pension Cut Cumulative Freeze Total
Pre-Decisional | Privileged & Confidential Draft | Analysis Subject to Material Change 30 Provided Pursuant to Court-Ordered Mediation / Subject to FRE 408 Prepared with Advice of and at the Request of Counsel / Preliminary and Subject to Material Revision
DRA
Mediation: Summary of Cash Restriction Analysis
October 2, 2019 Executive Summary
. The FOMB and its advisors have conducted an extensive analysis of cash at the Commonwealth and its related entities to determine relevant restrictions
– AAFAF involvement and support has facilitated greater cooperation and information flow
– Analysis included both public corporations and the Commonwealth and its agencies, the latter on a granular account-level basis
– All accounts at the Commonwealth and its agencies that held over $6.9 million in cash or securities were reviewed, or approximately 98% of the total balance
– Unlike AAFAF reporting, the FOMB and EY included both cash and securities accounts in the review
– Analysis based on figures and account balances available as of fiscal year-end 2019 (June 30, 2019)
. Analysis currently estimates $6.9 billion of unrestricted cash
– Given cash requirements under the current draft of the Plan, unrestricted cash for creditors beyond the requirements of the Excess Cash definition is limited at this point
. Though the analysis is substantially final, FOMB and AAFAF teams are continuing to diligence other key items, including commitments under federal consent decrees and specific restricted amounts within certain accounts
. Goal is to provide creditor advisors access to documentary back-up for restricted accounts after the October 2nd presentation
– Objective to provide maximum transparency to the creditor community without compromising certain confidential and/or sensitive account-level information
Provided Pursuant to Court-Ordered Mediation / Subject to FRE 408 1 Prepared with Advice of and at the Request of Counsel / Preliminary and Subject to Material Revision Temporary Benefits to Commonwealth Cash
A large portion of the Commonwealth’s fiscal outperformance has been the result of temporary and one-time items, several of which are discussed below.
Description
. The Corporate Income Tax (“CIT”) revenue uptick is likely to be temporary . While CIT increased 40% year-over-year, the May Fiscal Plan forecasted 23% growth and several Corporate more years of above-trend collections before reverting to historical levels Income Tax . Mainland US and OECD economies on average do not sustain these types of booms . Risk due to the concentration of a few large corporate entities that could leave Puerto Rico or become less profitable
. Act 154 excise tax revenues are vulnerable with the loss of federal tax creditability or firm Act 154 investment priorities, federal tax reform, and supply chain diversification
. After four quarters of year-over-year growth in motor vehicle tax revenues, the trend has Motor subsided and growth appears to be slowing Vehicle Tax . The surge in FY18-FY19 was likely a pull forward of demand
Provided Pursuant to Court-Ordered Mediation / Subject to FRE 408 2 Prepared with Advice of and at the Request of Counsel / Preliminary and Subject to Material Revision Methodology and Approach for Assessing Restrictions
The total cash balance can be broken down into several component categories to facilitate analysis. Unrestricted cash represents potential value available to Commonwealth Title III creditors.
Amount Description
Separate . ERS, COFINA, COSSEC, CRIM, GDB, HTA, PBA, PRASA, PREPA, and UPR Fiscal Plan / Title $5,111 III Filing . Cash presumed to be addressed through individual fiscal plans
. Public corporation unrestricted cash based on (i) working capital requirement Public Receiving 991 (2 months of Special Revenue Fund and Federal Fund FY2020 budget) and (ii) Corporations General Funds FY2020 appropriations
Not Receiving . Treated as restricted as the FOMB lacks recourse to access cash by reducing 1,381 General Funds FY2020 appropriations
. TSA assumed to be unrestricted other than emergency funds and estimated Commonwealth 8,410 federal funds surplus Treasury . Hacienda classifications based upon individual account review
. Conducted individual account review to classify into the following categories: Plan of ‒ Restricted categories include emergency, federal funds, court order, Adjustment Agencies 1,975 federal law, third parties, third party contract, and bond funds Entities ‒ Budget appropriations and cash earmarked (but not pledged) for creditors treated as unrestricted
. Plan of Adjustment entities not yet reviewed Not Reviewed 190 . Remaining $190 million held in 349 accounts . Accounts will be reviewed on rolling basis to finalize restriction analysis
Provided Pursuant to Court-Ordered Mediation / Subject to FRE 408 3 Prepared with Advice of and at the Request of Counsel / Preliminary and Subject to Material Revision Summary of Definitions for Account Analysis
Restricted Accounts
Court Order Federal court order restricting use of funds.
Emergency Funds restricted for emergency use by the FOMB.
Federal Funds Funds received from the Federal Government for specific uses.
Federal Law Funds restricted by federal laws or regulations.
Funds belonging to third parties and held by a government entity in custodial or other segregated Third Party accounts.
Bond Funds Tax-exempt bond proceeds with restricted use under the IRC.
Funds restricted for use due to contracts with third parties (e.g. debt service reserve funds held by Third Party Contract Trustee).
Unrestricted Accounts Funds that do not have legal restrictions regardless of whether such funds were generated by a Unrestricted government entity or appropriated to such entity by the Commonwealth under Puerto Rico law.
Provided Pursuant to Court-Ordered Mediation / Subject to FRE 408 4 Prepared with Advice of and at the Request of Counsel / Preliminary and Subject to Material Revision Sources of Cash: 6/30/19 Measurement Date
($ in millions)
Unrestricted Restricted Total Note Public Corporations: Separate Fiscal Plan / Title III Entity⁽¹⁾ $27 $5,084 $5,111 A Receiving General Funds 119 871 991 B Not Receiving General Funds – 1,381 1,381 C Subtotal $146 $7,336 $7,482
Plan of Adjustment Entities: Commonwealth Treasury (TSA + Hacienda) $6,523 $1,887 $8,410 D Agencies⁽²⁾ 235 1,739 1,975 D Not Reviewed – – 190 E Subtotal $6,759 $3,626 $10,575 C Total $6,905 $10,962 $18,057 C
(1) Includes ERS, COFINA, COSSEC, CRIM, GDB, HTA, PBA, PRASA, PREPA, and UPR. (2) Includes $10mm of “inconclusive” accounts treated as unrestricted for the purposes of this table and which are subject to ongoing review. Provided Pursuant to Court-Ordered Mediation / Subject to FRE 408 5 Prepared with Advice of and at the Request of Counsel / Preliminary and Subject to Material Revision Uses of Cash: 6/30/2019 Measurement Date
($ in millions) As of May 31, 2019 As of June 30, 2019 As of PSA Signing Revised Analysis (AAFAF Data) (EY Data) Total Cash $14,010 $14,730 Total Investments – 3,327 (-) Non-Commonwealth Restricted / Non-Title III Entities (2,904) (7,336) (-) Commonwealth and its Agencies Restricted (4,157) (3,626) (-) Not Reviewed – (190) (-) Timing Adjustments (882) – Potential Eligible PSA Cash 6,067 6,905
PSA Requirements (Excess Cash Definition) (-) Working Capital Requirement (2,000) (2,000) (-) Base Cash Consideration to GO / PBA Creditors (2,000) (2,000) (-) Union and Retiree Settlements (1,600) (1,600) (-) Cash / Bond Consideration Toggle (400) (400) (-) Maximum Excess Cash (900) (900) Potential PSA Unrestricted Cash (833) 5
(-) Federal Consent Decrees – TBD (-) Convenience Class – (200) (-) Cash Required to Purchase ERS Assets⁽¹⁾ (632) (632) Potential Remaining Cash / (Deficit) ($1,465) ($827)
Memo: Bridge to June 30, 2019 Additional TSA Cash Through June 28, 2019 $339 Convenience Class (200) Additional Cash Determined to be Unrestricted 499 Adjusted Remaining Cash ($827)
(1) Calculated as 95% of $479mm of Employee Loans, 50% of $75mm of private equity investments, and $139mm of COFINA holdings.
Provided Pursuant to Court-Ordered Mediation / Subject to FRE 408 6 Prepared with Advice of and at the Request of Counsel / Preliminary and Subject to Material Revision Appendix
7 A Public Corporations with Own Fiscal Plan / Title III Filing
($ in millions)
FY2020 Commonwealth Budget Special Potential Implied General Revenue Federal Non-CW Unrestricted Restricted Entity Fund Fund Funds Total Budget Total Cash Cash Cash Employee Retirement System $9 $38 – $47 – $705 ⁽³⁾ $9 $696 COSSEC – – – – – 313 – 313 CRIM (Fiscal Plan and Budget certification in process) – – – – – 55 – 55 Government Development Bank (Winding Down) – – – – 159 46 – 46 Public Building Authority (PBA) – 127 – 127 – 100 – 100 Puerto Rico Aqueducts and Sewers Authority (PRASA) – – – – 1,351 851 – 851 Puerto Rico Electric Power Authority (PREPA) – – – – 2,998 1,332 – 1,332 Puerto Rico Highways and Transportation Authority (HTA)⁽¹⁾ – 67 – 67 797 413 – 413 Puerto Rico Sales Tax Financing Corporation (COFINA) – – – – 438 676 – 676 University of Puerto Rico (UPR)⁽²⁾ 560 – – 560 837 618 18 600 Total $569 $232 – $801 $6,580 $5,111 $27 $5,084
Note: FY20 Budget represents appropriations from the Commonwealth. Does not include direct federal funding. (1) HTA to receive a SRF appropriation from the Commonwealth of $67mm in FY20. Amount is held in a treasury custody account. (2) UPR receives ~$304mm in federal receipts per year (June 3, 2019 fiscal plan). UPR balance includes both segregated retirement accounts, bond funds held with trustees, and funds for operations. As of 6/30/19, UPR had 67 days of FY19 budget expenditures in unrestricted cash balances, in line with comparably rated universities. (3) Includes $214mm in Hacienda account restricted for ERS creditors. Provided Pursuant to Court-Ordered Mediation / Subject to FRE 408 8 Prepared with Advice of and at the Request of Counsel / Preliminary and Subject to Material Revision B Public Corporations Receiving General Funds
($ in millions)
FY2020 Commonwealth Budget Special Working Potential Implied General Revenue Federal Capital Unrestricted Restricted Entity Fund Fund Funds Total Total Cash Estimate Cash Cash Agricultural Enterprises Development Administration (ADEA)⁽¹⁾ $65 $60 – $126 $79 ($10) $43 $36 Center for Research, Education and Services Medical Care and Diabetes 0 0 – 1 1 (0) 0 0 Company for the Integral Development of the “Península de Cantera" 0 1 1 2 1 (0) 0 1 Corporation for the "Caño Martin Peña" Enlace Project 10 4 0 15 13 (1) 10 2 Fine Arts Center Corporation 3 3 – 6 4 (0) 3 1 Fiscal Agency & Financial Advisory Authority⁽²⁾ 104 – – 104 58 – – 58 Institute of Puerto Rican Culture 15 0 1 16 6 (0) 5 0 Local Redevelopment Authority of the Lands 1 1 1 3 2 (0) 1 1 Medical Services Administration of Puerto Rico⁽³⁾ 72 113 – 184 49 (19) 4 45 Musical Arts Corporation 5 2 – 8 6 (0) 5 0 Puerto Rico Conservatory of Music Corporation 5 4 – 9 2 (1) 1 1 Puerto Rico Health Insurance Administration 917 364 1,661 2,942 284 (337) – 284 Puerto Rico Housing Finance Corporation 8 30 159 197 79 (31) 8 70 Puerto Rico Infrastructure Financing Authority 2 6 – 8 300 (1) 2 298 Puerto Rico Integrated Transit Authority 54 38 15 107 15 (9) 7 9 Puerto Rico Public Private Partnership Authority 13 – 155 169 31 (26) 5 26 Puerto Rico Public Broadcasting Corporation 7 2 2 11 3 (1) 2 1 Puerto Rico School of Plastic Arts 2 2 – 5 4 (0) 2 1 Solid Waste Authority 3 1 – 4 12 (0) 3 9 Trade & Export Company 1 13 0 14 15 (2) 1 14 University of Puerto Rico Comprehensive Cancer Center 15 27 4 46 29 (5) 15 14 Total $1,305 $670 $2,001 $3,975 $991 ($445) $119 $871
(1) Includes $26.1mm of restricted cash. (2) Elimination of excess cash due to likely use for professional fees and other budgeted uses. (3) Includes $26.2mm of restricted cash.
Provided Pursuant to Court-Ordered Mediation / Subject to FRE 408 9 Prepared with Advice of and at the Request of Counsel / Preliminary and Subject to Material Revision C Public Corporations NOT Receiving General Funds
($ in millions)
FY2020 Commonwealth Budget Special Working Potential Implied General Revenue Federal Capital Unrestricted Restricted Entity Fund Fund Funds Total Total Cash Estimate Cash Cash Agricultural Insurance Corporation – $3 – $3 $7 ($1) – $7 Automobile Accidents Compensation Administration – 87 – 87 140 (14) – 140 Cardiovascular Center Corporation of Puerto Rico and the Caribbean – 72 – 72 14 (12) – 14 Convention Center of District Authority – 28 – 28 14 (5) – 14 Economic Development Bank of PR – 12 – 12 126 (2) – 126 Institutional Trust of the National Guard of Puerto Rico – 7 – 7 42 (1) – 42 Land Authority – 23 – 23 19 (4) – 19 Land Authority of Puerto Rico – 8 – 8 14 (1) – 14 Model Forest Of Puerto Rico (CLOSED) – – – – 0 – – 0 Municipal Finance Corporation (COFIM) – 130 – 130 138 (22) – 138 Puerto Rico Industrial Development Company – 42 0 42 59 (7) – 59 Puerto Rico Municipal Finance Agency – – – – 282 – – 282 Puerto Rico Ports Authority – 136 55 190 37 (32) – 37 Puerto Rico Tourism Company – 105 – 105 135 (17) – 135 Puerto Rico Tourism Development Fund – – – – 11 – – 11 State Insurance Fund Corporation – 453 – 453 180 (76) – 180 Teacher's Retirement System – 16 – 16 150 (3) – 150 The Children's Trust – – – – 12 – – 12 Total – $1,121 $55 $1,176 $1,381 ($196) – $1,381
Provided Pursuant to Court-Ordered Mediation / Subject to FRE 408 10 Prepared with Advice of and at the Request of Counsel / Preliminary and Subject to Material Revision D Commonwealth Agencies
($ in millions) Restricted Court Federal Federal Bond Third Party Order Emergency Funds Law Third Party Funds Contract Inconclusive Unrestricted Total Commonwealth: TSA – $520 $659 – – – – – $6,099 $7,278 Hacienda⁽¹⁾ 22 – 114 – 538 34 – 10 415 1,132 Commonwealth Subtotal $22 $520 $773 – $538 $34 – $10 $6,514 $8,410
Agencies: 911 Emergency System Bureau – – – $23 – – – – – $23 Child Support Administration – – – – 58 – – – – 58 Department of Education – – – – – – – – 23 23 Department of Labor ⁽²⁾ – – – 687 37 – – – 104 828 Electronic Lottery⁽¹⁾ – – – – 72 – – – – 72 Office of Court Administration – – – – 289 – – – 44 334 Office of Legislative Services – – – – – – – – 16 16 Public Housing Administration – – 433 – – – 50 – – 483 Puerto Rico Police Bureau – – – – – – – – 19 19 Telecommunications Regulatory Board – – – 15 – – – – – 15 Traditional Lottery⁽¹⁾ – – – – 75 – – – – 75 Other – – – – – – – – 30 30 Agencies Subtotal – – $433 $725 $531 – $50 – $235 $1,975 Total $22 $520 $1,206 $725 $1,069 $34 $50 $10 $6,749 $10,385
(1) Funds in the Lottery accounts hold both operational funds for the lottery as well as prize money. (2) Includes funds collected from private employers for disabilities benefit fund. FOMB and AAFAF continuing to diligence restriction. Provided Pursuant to Court-Ordered Mediation / Subject to FRE 408 11 Prepared with Advice of and at the Request of Counsel / Preliminary and Subject to Material Revision D Treasury Single Account Federal Funding
. The TSA is a conduit for many reimbursement-based and advance-based federal programs for central government agencies – The working capital reserve accounts for potential timing differences for these programs – The working capital reserve does not account for unspent FEMA, NAP, and Medicaid funds in the TSA . The process to reconcile Federal Fund TSA activity is ongoing and the below represents a preliminary view on the major federally funded programs where the TSA acts as a conduit to distribute Medicaid funding to ASES, Nutritional Assistance funding to the Department of Family, and FEMA funding to various central government agencies – The TSA receives the funding and then distributes, meaning the TSA will be in a net surplus position for these programs – To the extent the TSA is overfunded in any period, future distributions from the Federal Government would be reduced, meaning there are no permanent excess funds in the TSA
($ in millions) Estimated Range FY17 FY18 FY19 Total Low Mid High Inflows: Nutritional Assistance Program (NAP)⁽¹⁾ 2,040 2,344 2,897 7,281 7,281 9,321 13,401 Medicaid (ASES)⁽²⁾ 1,735 1,894 2,924 6,553 6,553 8,288 11,757 Disaster spend⁽³⁾ – 107 1,461 1,568 1,568 1,568 1,568 Outflows: Nutritional Assistance Program (NAP)⁽¹⁾ (2,010) (2,289) (2,810) (7,109) (7,109) (9,119) (13,140) Medicaid (ASES)⁽²⁾ (1,721) (1,712) (2,693) (6,126) (6,126) (7,847) (11,289) Disaster spend⁽³⁾ – (108) (1,353) (1,461) (1,461) (1,461) (1,461) Surplus / (Deficit): Nutritional Assistance Program (NAP)⁽¹⁾ $30 $55 $87 172 $172 $201 $231 Medicaid (ASES)⁽²⁾ 14 182 231 426 276 351 426 Disaster spend⁽³⁾ – (1) 108 106 106 106 106 Total $44 $236 $425 $704 $554 $659 $764 (1) NAP funding is advanced to the TSA and then sent to the Dept of Family. There's typically a week lag in funding. As NAP funding has grown, the surplus in the TSA has as well. Low = cumulative FY17 - FY19; Mid = Low + additional $30M (FY17 amount) for prior year; Higher = Low + additional $60M for prior years (2) The TSA receives Medicaid funding from the Federal Government and then distributes it to ASES as a reimbursement for MCO premiums paid by ASES. The temporary build in Medicaid funds at the TSA is likely due to the Commonwealth's transition to the new health care model in 2019 and delayed reconciliation between CMS and ASES with respect to enrollment. (3) Disaster spend started in FY18 and the TSA currently has received FEMA funding of $106M that has not been disbursed to end recipients. Provided Pursuant to Court-Ordered Mediation / Subject to FRE 408 12 Prepared with Advice of and at the Request of Counsel / Preliminary and Subject to Material Revision E Plan of Adjustment Not Reviewed
($ in millions)
Office of Court Administration $61 Department of Economic Development and Commerce 25 Public Housing Administration 16 Department of Treasury 13 Child Support Administration 12 Department of Labor and Human Resources 12 Department of Housing 12 Puerto Rico Energy Commission 12 Superintendent of the Capitol 6 Senate 5 Government Ethics Office 4 Statistics Institute of PR 4 Socioeconomic Development of the Family Administration 2 Department of Correction and Rehabilitation 1 Department of Sports and Recreation 1 Department of Education 1 Puerto Rico Education Council 1 Office of the Solicitor - Special Independent Prosecutor 1 Family and Children Administration 1 Independent Consumer Protection Office 1 Other 2 Total $190
Provided Pursuant to Court-Ordered Mediation / Subject to FRE 408 13 Prepared with Advice of and at the Request of Counsel / Preliminary and Subject to Material Revision