Puerto Rico's financial crisis could cause the US territory to lose nearly $775 million in government funding meant for water treatment projects and could create "serious threats to public health and the environment," a federal watchdog reported Thursday.The Puerto Rican government is in such perilous financial shape that a bankruptcy is possible, which has forced the territory to cancel infrastructure projectslike wastewater treatment plants, according to the Environmental Protection Agency's Inspector General (IG). Puerto Rico can't repay loans to the EPA and doesn't have the cash to withdraw additional funds for the projects."Without access to the revolving fund balance and a steady stream of loan repayments, Puerto Rico's Clean Water and Drinking Water State Revolving Funds cannot plan for or meet project needs," the IG said.The revolving funds act "like environmental infrastructure banks" that provide low-interest loans for water and wastewater infrastructure projects. Repayments are deposited back into the fund for later use.Puerto Rico has $195 million in revolving funds that can't currently be used because the territory lacks the cash to honor its commitments, according to the report.The biggest chunk of the problem is with the Puerto Rico Aqueduct and Sewer Authority (PRASA), which owes $580 million in outstanding debt to revolving fund loans."Any significant repayment in the near future is also unlikely due to a 6-month forbearance agreement agreed to by the EPA and signed ' by the managing agencies of the revolving funds," the report said. "It is now set to expire June 30, 2017. The EPA is also considering supporting a longer term (two-to-three-year) forbearance agreement."The government of Puerto Rico recognizes its obligations and has included restoration of the revolving funds in its 10-year plan," the IG wrote. "Nonetheless, withdrawals of any significance in the near future are highly unlikely."Revolving funds rely on repayments, meaning any money not repaid won't be available for future water infrastructure projects.It's also "highly unlikely" that PRASA "will be approved for any new loans in the near future," the IG wrote."As a result of the financial crisis, PRASA has been forced to postpone or terminate virtually all of its active construction projects, as well as the start of new projects," the report said. "However, these projects are critical for PRASA to achieve and/or maintain compliance with the requirements of the Clean Water and Safe Drinking Water Acts.""Furthermore, if these projects do not move forward, the potential exists for additional violations and serious threats to public health and the environment," the report continued.The IG found no evidence Puerto Rico "used the revolving funds for purposes other than those intended," and "the EPA could not have predicted or prevented this situation," the IG wrote. "We did not identify any actions that could have been taken to safeguard the balance and/or secure the loan repayments.""Furthermore, as soon as the irregularities were discovered, the EPA provided adequate oversight to address the issues and worked with the managing agencies to safeguard future revolving fund transactions," the IG wrote.SEE ALSO:The board has spoken: Puerto Rico to be hit with painful austerity measuresJoin the conversation about this storyNOW WATCH: The world's rarest and most ancient dog has just been rediscovered in the wild
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