New Year, Same Gridlock – Day 12 of the Shutdown

New Year, Same Gridlock – Day 12 of the Shutdown

Published on January 2, 2019

Rosanna close-up
Director, Washington D.C. Office

One day before the 116th Congress convenes for the first time, President Trump invited congressional leaders to the White House today at 3:00pm for a briefing on border security.  This will be the first time they meet since the shutdown began (Dec. 22).  If a deal is not reached today, it is expected the new incoming house democratic leadership will pass two separate spending bills: a short-term CR for Homeland Security through Feb. 8, and another minibus for the rest of government operations.  McConnell has tactically stepped aside from negotiations. The senate majority leader has publicly stated he will not entertain any legislation that will end up in a presidential veto, meaning that if Trump, Schumer and Pelosi can’t come to an agreement today, it is unclear how long the shutdown will last.  

Agreeing on the appropriate amount of government funding is never easy, even under single-party leadership. Last year lawmakers in a republican-controlled house, senate and executive were only able to partially fund the government. They agreed on spending for defense ($606B); military construction and VA ($97B); labor, health, and education programs ($178B); energy and water ($44B); and the legislative branch ($5B). The dollar amount set aside for the remaining 25 percent of discretionary government spending, particularly the amount of dollars allotted in the Homeland Security bill for border security funding, is the new weapon of choice in this adversarial shutdown battle.

Those political dynamics are not new.  The federal government has already faced three spending gaps in 2018 alone (Jan. 20 thru Jan.23, Feb. 9 thru Feb. 10, and Dec.22 thru ??).  While most shutdowns usually only last a couple of days, with one notable exception of the 21-day shutdown under then President Bill Clinton and Republican House leader Newt Gingrich, all shutdowns create a lot of confusion and inconvenience. And usually at an increased rate for the government.  That is because despite a halt on government operations, Congress usually passes retroactive pay for federal employees affected by the shutdown – ultimately paying for services not rendered.  This latest shutdown is affecting dozens of agencies and the hundreds of thousands of federal employees.  Among the departments without funding are: State, Justice, Interior, Housing, Commerce, Agriculture, Transportation and Treasury.

Meanwhile in Puerto Rico

The COFINA-Commonwealth Dispute

In the summer of 2018, agents for the Commonwealth of Puerto Rico and the Puerto Rico Sales Tax Financing Corporation (COFINA) agreed to a 54 – 46 percent ownership split of sales tax, which is included in the amended COFINA plan of adjustment.  Respected economists, and even supporters of the PROMESA law have opposed this deal both denoting unrealistic economic assumptions.  After hearing arguments in mid-December, a confirmation hearing before the U.S. District Court is scheduled for January 16.

Assuming there is no material adverse change (defined as either a material reduction of cash flow projections from the October Fiscal Plan or a modification to the agreement that causes a material negative economic impact), and Judge Swain approves the stipulation, the Oversight Board and the Commonwealth will likely claim a resolution on the complicated dispute and celebrate the largest debt settlement to date in the ongoing bankruptcy process. When the negative consequences of this deal arise, the agents and players involved in this transaction will be long gone.  

2019 Priorities

In a televised interview, Governor Rosselló publicly pledged to prioritize the following issues in the new year:

  1. Education Reform – implement new charter school model and distribute school choice vouchers
  2. Reconstruction Efforts – ensure the most “transparent and effective” reconstruction process
  3. Energy 2.0 – redesign the energy model for the island
  4. Other – Address security issues, implement new Vital health care model, advance road repairs and assure investors that PR is “open for business”.

Here’s to 2019.