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Bishop steadfast in quest for greater oversight of funds in Puerto Rico recovery

By on November 14, 2017

SAN JUAN – The hearing in the House Natural Resources Committee titled “The Need for Transparent Financial Accountability in Territories’ Disaster Recovery Efforts,” scheduled to take place at 2 p.m. Eastern Time on Tuesday remains an initiative to assert greater oversight over relief funds earmarked for the territories.

The scrutiny of the Financial Oversight and Management Board’s (FOMB) role in the face of irregularities surrounding the Ricardo Rosselló administration’s handling of recovery efforts will likely be stepped up. The high heat will come despite a ruling by federal Judge Laura Taylor Swain that the board acted beyond its purview in naming a chief transformation officer (CTO) to repair the wreckage at the Puerto Rico Electric Power Authority (Prepa).

The testimonies Tuesday are one more episode in a power struggle pitting the democratically elected governor of Puerto Rico, Ricardo Rosselló, against an oversight board that seeks greater control perhaps not provided when Rep. Rob Bishop’s (R-Utah) committee spearheaded the original drafting of the Puerto Rico Oversight, Management and Economic Stability Act (Promesa) back in 2016.

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The oversight teeth lacking in the law—Justice Swain ruled the board did not have the power to take control of instrumentalities—makes more dire the testimony of Rosselló, who is bound to maintain control of what could be as much as $94 billion in relief funds he requested Monday in a missive to President Donald J. Trump. Bishop is concerned that those funds are on a scale too massive to handle given the Rosselló administration’s mishandling of the crippled power grid’s mending during the first six weeks of recovery.

“A legacy of dysfunction (at Prepa) has created a competence deficit that threatens the Island’s ability to improve conditions for its citizens. Confidence in the utility’s ability to manage contracts and time-sensitive disaster related infrastructure work is long gone,” Bishop said in a written statement sent late Tuesday.

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He bases his statement on the suspicious conditions in the signing of the Whitefish Energy Holdings deal—amendments made to the contract alleging Federal Emergency Management Agency (FEMA) certification, which has since been denied by the agency, coupled with the glacial pace of Prepa recovery efforts, prompted the oversight board to appoint Promesa Revitalization Coordinator Noel Zamot as CTO to oversee the ailing utility.

In a second memo, dated Nov. 13, and obtained by Caribbean Business, the majority staff of the House Subcommittee on Oversight and Investigations provides a roadmap of irregularities characterized as an “unusual process by which Prepa negotiated, signed, and administered the September 26th and October 17th contracts raises serious concerns about its ability to effectively enter into and manage large contracts. The Committee has received two document productions containing over 2,000 pages from Prepa’s law firm, Greenberg Traurig, and it expects to receive additional document productions.”

The committee claims that the irregularities underpinning the hire is present in those documents “produced to date [and] demonstrate that dysfunction at Prepa created vulnerabilities resulting in Prepa approving higher rates of pay and Prepa’s incompetency, as evidenced by its discussions with Whitefish, results in Prepa declining offers through the APPA’s [American Public Power Association] mutual assistance program.”

“Prepa’s judgment is further called into question as…the standard hourly labor rates in both contracts were exorbitant. Moreover, the October 17th contract’s labor rates were approximately 50 percent higher than the hourly labor rates in the September 26th contract.

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“Just two days before PREPA signed the first contract, Whitefish’s CEO asked Prepa’s Chief of Supply Chain Division & CPO if, ‘you or your families need anything (generators, water, food, etc) for us to bring to help them?’ (See Exhibit 2).”

The committee memo also claims that utility officials “sent the Prepa Board a misleading PowerPoint presentation at 1:04 a.m. on the day PREPA signed the $300,000,000 contract with Whitefish. The degree to which the board was involved in the contracting process is unknown, pending additional document production. (See Exhibit 4).”

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The document concludes that “given the substantial amounts of taxpayer dollars that will be invested in Puerto Rico for rebuilding after Hurricane Maria, these findings raise grave concerns about Prepa’s ability to competently negotiate, manage, and implement critical infrastructure projects without significant independent oversight.”

Given the evidence piling up on Bishop’s desk, the appointment of Zamot was reportedly well received in separate briefings by members of the fiscal board and the Senate on both sides of the aisle, but the Rosselló administration filed a motion in federal court claiming the move was beyond the board’s purview.

Judge Swain’s decision Monday denying the board’s power “to appoint a CEO at Prepa, nor the authority to create positions within entities,” now raises the possibility that Congress will amend Promesa to provide greater clarity as to the stipulations in Promesa, which had been watered down in the runup to passing because of concerns that more stringent controls reeked of colonial rule.

Before the Natural Resources Committee’s first oversight hearings last week, two sources with knowledge of the maneuvers being contemplated on the Hill told Caribbean Business that Promesa would be amended to explicitly grant greater oversight powers to the board if Judge Swain decided it overstepped its bounds.

“Regardless of the Swain decision the perspective on the Hill is that there is a void at Prepa as pertains to the governor’s power to make change,” one source with ties to the GOP said. “The governor has tried to stress more accountability in contracting and accountability in federal assistance, but it may not add up. Just to use the example of Whitefish and how the administration did not know how that came to fruition.”

Bishop is holding this second round of hearings to provide greater clarity as to the purview of the board in disaster recovery efforts as pertains to Puerto Rico as well as the use of funds destined to help in the recovery of the U.S. Virgin Islands.

“Puerto Rico continues to face both humanitarian and financial challenges due to the devastation of Hurricane Maria. However, a few of Puerto Rico’s responses to these challenges have been controversial and often without the consultation of the Oversight Board,” the memo reads in its preamble in reference to Prepa’s contract with Montana-based Whitefish, which only had two employees when contracted and a meager track record.

“The Oversight Board provides a potential oversight structure to ensure proper expenditure of Federal funds, but for Federal funding to achieve recovery success, collaboration between the Government of Puerto Rico and the Oversight Board must occur,” the memo adds.

Two sources with knowledge of the conventional wisdom driving this latest round of hearings on Capitol Hill—the Natural Resources Committee in the U.S. Senate is also holding a two-panel hearing Tuesday looking at the recovery efforts at power companies in both the USVI and Puerto Rico—let on that deep concern permeates Congress in the appropriate use of funds coming down the pike.

The Senate hearing’s witness panels include USVI Gov. Kenneth Mapp, Rosselló, Prepa Executive Director Ricardo Ramos and Puerto Rico fiscal board Executive Director Natalie Jaresko.

In a separate document sent to Trump, titled “Build Back Better Puerto Rico,” Rosselló calls upon the president to request an emergency supplemental bill that addresses the island’s unique, unmet needs with strength and expediency. “Specifically the people of Puerto Rico respectfully request that Congress provide $30 billion within the FEMA Disaster Relief Fund (DRF) to recover critical infrastructure; $46 billion to restore housing and economic viability through the Community Development Block Grant—Disaster Recovery (CDBG-DR) program; and $17.9 billion in other Federal grant programs).

The document’s section titled “Ensuring Transparency and Strong Financial Controls” recognizes that “the commitment of funding from Congress necessitates an equal commitment from Puerto Rico to manage those funds with greater efficiency, transparency and accountability.” Rosselló explains that his recent creation of the Central Recovery and Reconstruction Office of Puerto Rico through an executive order “will provide the centralized oversight and financial controls expected” in the handling of the $95 billion in relief funds he is requesting.

Members of Congress, who have serious reservations with “the lack of centralized control on the island, and, in the terms of electric restoration, questionable managerial decisions that have potentially prolonged the island’s recovery,” are likely to continue to push for greater oversight by the board.

Whether that necessarily happens through amendments to Promesa, whether the law under all of its control provisions is re-inserted, is still under evaluation. “I think to be fair to the judge and the governor and the board…and Congress; these are Constitutionally uncharted waters—for everyone,” a second source on the Hill with ties to the GOP told Caribbean Business. “What Promesa does is constitutionally untested. And by definition it has to be tested. And this is the first test.”

Key Takeaways From PREPA Document Productions (Text)

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