* Cuts in housing, education, other areas may total $125
million this year
* Auditor cautions Government Development Bank on island's
Feb 25 The $85 billion in across-the-board U.S.
government spending cuts that could become reality on March 1
will add to financial pressure on Puerto Rico, which depends on
Washington for $1 of every $5 it spends while battling its own
operating budget deficits, high government debt and severe
Puerto Rico, a major borrower in the $3.7 trillion municipal
bond market, faces education, housing-aid and other cuts of
about $125 million this year under the automatic reductions in
U.S. federal spending, officials in San Juan said on Monday.
They expect cuts of as much as 5 percent in many spending
programs, but hope the reductions may be eased as U.S. officials
make specific decisions.
The White House has tried to convince Americans of dire
consequences if the spending cuts go ahead, but Republicans
contend President Barack Obama has overstated the potential
The largest targets for the cuts in Puerto Rico are
education, public housing, Head Start and childcare programs, as
well as community development block grants, worker training
programs and HIV/AIDS programs.
Under a worst-case scenario, the education department would
lose $26 million in federal funding, according to officials.
While it is not clear how many of the cuts in the larger
programs will work out, the Obama administration released a
number of specific program cuts on Monday.
They include a loss of $4.9 million that would put at risk
70 teacher and aide jobs at public schools. The White House also
said that Head Start and Early Head Start services would be cut
for 2,400 island school children, and that about 2,500 college
students would lose work-study and other help.
"There are no jobs in danger," Governor Alejandro Garcia
Padilla told reporters.
Resident Commissioner Pedro Pierluisi, Puerto Rico's sole
congressional representative, labeled as "speculative" a study
by George Mason University in Virginia that found 5,237 jobs
could be lost on the island as a result of the spending cuts.
Officials in Puerto Rico have expressed relief that Social
Security, Medicaid, Pell Grants and other spending programs that
are especially important to the island are exempt.
BUILD AMERICA BONDS
Puerto Rico may also feel the sting of spending reductions
tied to its outstanding Build America Bonds, taxable securities
that come with the promise of a 35 percent interest-rate subsidy
to issuers from the U.S. government.
"It's not going to break them, but it's not going to help
them either," Richard Larkin, senior vice at Herbert J. Sims,
said at a conference in Fort Lauderdale. "I'm not worried that
Puerto Rico is not going to be able to make its payments."
Puerto Rico pays the highest rates of any big issuer, partly
because of its weak economy and unfunded pension liabilities of
About $5.7 billion of Puerto Rico's muni debt is held by the
Government Development Bank, according to independent auditor
Deloitte & Touche in a report dated Feb. 11.
That equals 36 percent of the bank's assets as of June 30,
2012, and leaves it vulnerable to problems in collecting
revenues, credit-rating downgrades and budget difficulties,
"Continuance of and/or significant negative changes in these
factors may affect the ability of the commonwealth and its
agencies and instrumentalities to repay their outstanding loan
balances with the bank and, accordingly, may have an adverse
impact on the bank's financial condition, liquidity, funding
sources, and results of operations," Deloitte said in its