Honoring the Office

Editor’s note: The following was first published in the July 18-24, 2019, issue of Caribbean Business.

Let’s put this in perspective. There was a time, it seems now to have been long ago, when a Puerto Rican Governor was given the Presidential Medal of Freedom, recognizing him, in the words of President Lyndon B. Johnson, as a “poet, politician, public servant, patriot, he has led his people on to new heights of dignity and purpose and, transformed a stricken land into a vital society.” Those are heavy words, and Luis Muñoz Marín deserved every single one of them. Whether you supported him or not, Muñoz made all of us proud, made all of us better. But that was then.

After these past three weeks, there will be no similar accolades for Gov. Ricardo Rosselló Nevares. In the most critical moment in our modern history, when Puerto Rico needs to restore its credibility, when it must begin a long climb back to respectability, the person who represents all of us has taken his office to new lows of dishonor. In one scandal after another, the picture that emerges so far is that our country is being run by an inept and immature man.

What then is to be done? Re-electing him seems like a foregone conclusion. Ricardo Rosselló could have—and I believe quite effectively—finished out his short political career. His own party has turned against him; it appears he will not even be able to obtain the nomination. But he still has 17 months left in his term and all signs are that it will only get worse for him. (Note that in last week’s indictments neither Julia Keleher, nor Angie Ávila were charged with profiting from giving out the illegal contracts; that means someone ordered them to do so, and big questions remain unanswered.)

All things considered, it is best for Puerto Rico if the Governor is removed from office. That can only occur through resignation or impeachment. The impeachment route is protracted and will require a careful articulation of violations of law to be justified. The Puerto Rico House of Representatives would need two-thirds of its members to bring an indictment. In the current climate, that is achievable. But removing him from office as a result of the indictment would require three-fourths of the senators to find that his conduct in the chats constitutes a felony or a misdemeanor involving moral turpitude. He has insulted women, denigrated homosexuals and, so, on in the most undignified manner, but whether he did so in violation of any law will be highly debatable.

In the end, the only option might be his resignation.

Undoubtedly, the Puerto Rico Constitution is on “High Alert.” We have never seen a Governor resign during his tenure nor have we ever impeached one. We have a Constitution for a reason, and we must let the Constitution lead the way. Moving beyond the outrage and disdain, our institution of government must be preserved. Governors come and go, but the institution remains. That is our obligation now—to protect and preserve the Rule of Law.

—Roberto L. Prats Palerm is an attorney with RPP LAW PSC and a 2020 gubernatorial candidate for the primaries of the Popular Democratic Party.

—The views expressed in the Opinion section are the writers’ own and do not necessarily reflect those of Caribbean Business.

Puerto Rico’s Governance Crisis

Editor’s note: The following was first published in the July 18-24, 2019, issue of Caribbean Business.

Puerto Rico is on high alert. With the FBI’s recent arrests of government cabinet members and disclosure of their private “chats,” the past 10 days have evidenced the highest levels of corruption and theft, and the lowest levels of morals, decency and ethics by a governor in the island’s history. There is a growing call for Gov. Ricardo Rosselló to immediately resign his office. And he should.

The ingredients of this corruption scandal are troubling:

First, on June 25, Gov. Rosselló’s then-Chief of Staff, Treasury Secretary & CFO Raúl Maldonado publicly stated in a radio interview that the government of Puerto Rico “acts like the mob” (“mafia institucional”). Maldonado also stated that corruption, fraud, bribery, extortion and influence-peddling abound at the highest levels in the government of Puerto Rico. Within hours, Rosselló fired Maldonado. A couple of days later, Maldonado’s son, Raúl Jr., stated that the governor is part of this orchestrated corruption. In response, the Puerto Rico Police Department, violating all protocols and civil rights, disclosed that they would start an investigation of Maldonado Jr., who had a gun owner’s license and multiple registered firearms in his home. His home address was also published by the police. The American Civil Liberties Union (ACLU) and private attorneys jumped to Maldonado’s defense and the “investigation” was dropped.

Second, on July 10, the FBI issued warrants for the arrest of six people, including Gov. Rosselló’s former Education secretary and the former director of Puerto Rico’s Medicaid program. The charges stem from an inappropriate relationship to obtain contracts with the accounting and consulting firm BDO Puerto Rico, a member of BDO Global. It became clear that private lobbyists were placed inside government agencies to direct contracts their way. Trials have been scheduled for the summer of 2020.

Third, on July 13, more than 880 pages of a private chat among the governor and his closest advisers were published. The chat shows private conversations full of insults against many public officials, acts of corruption, misogyny, strategies to destroy reputations, homophobia, orders by the governor to manipulate public opinion and bribe journalists and, the worst, making fun of the those who died after Hurricane Maria, whose bodies were lying on the floor in the state morgue.

After reading the 889 pages of the “chat,” the statements from Raúl Maldonado and the federal indictments, it is evident the current administration of the government of Puerto Rico is acting like a bunch of thugs. Ricardo Rosselló and his cronies are unfit to govern. There are no adults in La Fortaleza. There is no honor. There is no integrity. It could not have come at a worse time, as Puerto Rico is in financial bankruptcy and recovering from the horrible effects of Hurricane Maria.

The governor must resign.

We must restore honor and credibility in Puerto Rico. During a 2018 commencement speech at my alma mater, Princeton University, I stated that the lesson is loud and clear: Lack of integrity always has dire consequences. Silence is not an option. We must all learn to denounce what needs to be denounced; fix what is broken; right what is wrong and not allow anyone, regardless of their agenda, to weaken democracy. We must all become vital voices to restore our democratic principles and institutions. I am ready to lead.

—Eduardo Bhatia is an attorney-at-law, former 15th president of the P.R. Senate and a former executive director of the Puerto Rico Federal Affairs Administration. He is the Senate’s minority leader and is running for governor in the 2020 primaries under the Popular Democratic Party.

—The views expressed in the Opinion section are the writers’ own and do not necessarily reflect those of Caribbean Business.

Diaspora & P.R.’s Business Sector: A Necessary Partnership

Editor’s note: The following was first published in the July 11-17, 2019, issue of Caribbean Business.

Puerto Rico business leaders have stepped up to the plate in recent years with their advocacy efforts on Capitol Hill. Groups such as the Private Sector Coalition, the P.R. Chamber of Commerce, P.R. Manufacturers Association and others have made stops in Washington, D.C. a regular staple. Their stated objectives are often related to saving the island from one of its multiple “cliffs,” such as the impending Medicaid cliff, disaster relief and other immediate concerns.

Grassroots organizations and nonprofits, such as the P.R. Community Foundation, Taller Salud, Youth Development Institute of P.R., Asociación Puertorriqueña de Profesores Universitarios, Espacios Abiertos and several others, have also realized that urgent matters, including fighting the draconian cuts to University of Puerto Rico’s (UPR) budget, for example, will not be accomplished without consistent presence in D.C.

These efforts, while necessary and well-meaning, are often undertaken in an ad hoc fashion intended to only put out the immediate fire but not necessarily address the underlying concerns. Business groups in Puerto Rico, therefore, need to focus on the long game and forge the most natural of strategic alliances to advance their aims: a partnership with the 5.2 million-strong Puerto Rican diaspora in the continental United States.

The patria extendida is not only a ripe market for exports and investment opportunities—though this much-talked-about concept has also been underexploited—it also should be the lynchpin for the island’s lobbying efforts in Congress. With 1.2 million Puerto Ricans living in the swing state of Florida, and hundreds of thousands more residing in Ohio, Texas, Pennsylvania, North Carolina and other battleground states, our community is in the best position to demand action from the next President of the United States.

Hurricane Maria, and the tragedy that followed the botched federal response, awakened a sense of indignation among Puerto Ricans in the States not seen since the movement to kick the U.S. Navy out of Vieques. That is the type of herculean mobilization needed to help get Puerto Rico out of its decades-long recession and rebuild. The diaspora’s potential ability to sustain a constant drumbeat of advocacy before their members of Congress, and the opportunities presented by the upcoming presidential election, should provoke a much-needed conversation between the Puerto Rico business community and boricua advocacy groups in the United States.

In fact, the diaspora and its allies are already moving in that direction. Recently, 55 national and local organizations sent a letter, www.power4puertorico.com/lettertocandidates, to presidential candidates of all parties demanding they release a comprehensive platform containing their policy commitments toward Puerto Rico and displaced families stateside.* Among their numerous demands, at least three key items are consistent with the business sector’s priorities:

•Enacting federal tax incentives for job creation;

•Exempting Puerto Rico from the Jones Act and air cabotage laws; and

•Providing Puerto Rico’s full participation in key federal programs, such as Medicaid, the Earned Income Tax Credit, Child Tax Credit and the Supplemental Nutrition Assistance Program (PAN by its Spanish acronym).

Puerto Rico will not be able to recover from devastating financial and economic crises, on top of the worst natural disaster in modern U.S. history, without meaningful collaboration among our leaders on both sides of the pond. The first place to start should be to build a robust partnership between the island’s business leaders and the best lobbyists we could ask for—Our brethren in the United States—who, if properly engaged and mobilized, will not rest until the federal government responds to Puerto Rico’s demands for the economic tools and the dignity it deserves.

*Full disclosure: The author serves as senior adviser to one of the groups behind the letter campaign.

The author is a principal of the D.C.-based consulting firm FDJ Solutions, and was the communications director for Hispanic media for Nancy Pelosi, Harry Reid and Barack Obama.

Today’s Caribbean Business with all you need to know about current state of affairs

[Annotation] The Stolen Homeland

When I think of my home country Germany, it makes me feel really good. Even or maybe because I have left it almost 14 years ago when I chose Puerto Rico as my homeland of choice. The “fatherland” is much more than a geographic location to me. It is the views of lakes, forests and mountains of my youth, the sausages and beers that have no equal anywhere in the world, the smells of Sauerkraut or fresh bread just around the corner or sitting in a Beer Garden under majestic trees; “patria” is memories, songs and friends, the attitude of helping each other and always being willing to work and produce the best result; but also graves of grandfathers who had both been Prisoners of War and grandmothers, who raised children on their own under extremely difficult circumstances after the second world war that left the country in ruins. It is the history of a country that has overcome total destruction in a war and risen to the top of the world’s economies, a country and persons that I owe an education, attitudes and growing up safely to achieve personal success beyond belief. But most importantly, my native country became only then so important to me, once I had moved away and been living in Puerto Rico already for many years. It became only so important, once it was gone.

I wonder what will be the memories of my kids, both “BoricuAlemans,” when they look back on Puerto Rico’s history two decades from now?

And I wonder if the island’s residents feel deep inside that this last straw broke the camel’s neck and has forever taken their native Puerto Rico from them. Something that not even the decades old complaints about the disadvantages of the (basically) two party system, billions and billions of dollars in debt or a fiscal control board have managed. The recent high profile alleged corruption case with the Telegram-Gate have struck the accord of great loss in many a Puerto Rican soul. So much so that it lit an emotional firework that is far from over. 

In 2017, President Barack Obama participated in an event in Brazil and was asked, which advice he would give a country immersed in an unprecedented political and economic crisis and he responded:  “In many countries, people say they hate politicians and government, but the politicians and government are reflections of ourselves. If a society is healthy, politics will also be. If a society is sick, politics will be.”

I still have trouble to believe the disgusting tone in and conclusions I am forced to draw from the Telegram Chat. It troubles me even more because through my work I have gotten to know some of the participants and simply cannot believe that those persons, professionals, could have been involved in the kind of bullying on display or any corrupt dealings. No matter whom I talk to, that sentiment is similar. And maybe exactly that is why we can all together regain and heal this place: because we all agree that those old ways of backroom dealings, bullying by perceived elites and more, for which the chat is just but a symbol, are the root of all evil!

We are experiencing an extraordinary moment of Puerto Rico’s history. One of those make it or break it moments, where the real question is above all where do we go from here!?

Albert Einstein defined insanity once as continuing to do the same things and expecting different results. To have different results, we need to do things in different ways. Those old ways need to stop and we all need to start doing things differently; do the right things and do them right. Not tomorrow, not by announcing them, but simply by doing them, NOW. It starts with the Governor taking the only reasonable consequence and resign as painful as it may be. It continues with his colleagues on both sides of the aisle to start cooperating beyond party lines or personal interests. And then it must not stop: we must come together as one people, work hand in hand, think outside of all boxes, in order to rise from these ashes and build the future we want for Puerto Rico. 

IEEFA Puerto Rico: Despite the scandal, FOMB is still rushing through an unaffordable debt deal

The fiscal board could approve a fiscal plan for Cossec during its ninth public meeting in Fajardo. (CB file)

Oversight Board admits scandal is a problem, but then ignores it

By Cathy Kunkel and Tom Sanzillo

On Friday, July 12, José Carrión, chairman of the Financial Oversight and Management Board (FOMB) for Puerto Rico, noted that the recent corruption and other scandals over the past couple of weeks would negatively impact the island’s economic recovery and has tarnished the image of Puerto Rico’s government. But despite recognizing the seriousness of the situation, the Oversight Board has made no indication that it will adjust its actions accordingly.

The FOMB is still rushing through the bankruptcy court system to get the Puerto Rico Electric Power Authority’s (PREPA) debt restructuring agreement approved. Earlier in July, the FOMB filed a motion and supporting testimony with the bankruptcy court requesting that the judge grant a narrow approval of the debt restructuring agreement on procedural grounds and leave it to the Puerto Rican legislature and Energy Bureau to approve the associated (and substantial) increase in electricity rates.

FOR ALL OF THE FOMB’S STATED CONCERN FOR RESTORING PUERTO RICO TO FISCAL HEALTH, THIS MOTION MOVES EXACTLY IN THE WRONG DIRECTION. The FOMB is trying to limit the scope of the judge’s authority to exclude economic issues, such as the impact of higher electricity rates on the Island’s economy, whether the people of Puerto Rico can actually afford to pay back the mountain of debt and what will happen to the electrical system if they cannot. At the end of the day, pushing a bond deal that drives the electrical system back into financial ruin serves no one, except the bankruptcy lawyers and consultants involved.

The only official of the Puerto Rican government who testified in support of the FOMB’s motion, Christian Sobrino, was fired on July 13. In his testimony, Sobrino claimed that PREPA’s management reforms are working and that its contracting process has sufficient oversight. These statements are called into serious question by recent events, including the release of the governor’s scandalous chat messages, which indicate possible corrupt activity in the handling of the PREPA transmission and distribution contract, and the arrest of the managing partner of BDO Puerto Rico for wire fraud and corruption.

In the last 2 years, BDO has landed $2.6 million in contracts with PREPA to provide financial consulting and auditing services. For FY 2019, PREPA contracted BDO to prepare monthly financial reports, analyze PREPA’s budgeting and accounts system, draft budget and accounting reports, and perform other tasks critical to the accurate presentation of PREPA’s financial position. These tasks provided the basis for the representations made to the FOMB and to the bankruptcy court regarding PREPA’s debt restructuring.

In other words, the debt deal is supported by underlying financial statements and representations to the court that could be impaired by fraudulent activity.

There is also the question, raised by the FOMB itself in a different venue, of how much of the debt that is covered by the restructuring agreement was legally issued. In a lawsuit against some of PREPA’s oil suppliers and fuel testing laboratories, the FOMB alleges that PREPA was insolvent in 2011. Yet the FOMB has made no move to argue that the $1.3 billion in debt incurred by PREPA after 2011 was issued fraudulently. Instead, it is rushing to close a debt deal that will lock Puerto Ricans into paying off that debt for the next 47 years.

THE FOMB AND THE BANKRUPTCY COURT SHOULD BRING TO A HALT PREPA’S DEBT RESTRUCTURING PROCESS until there are investigations into both (a) how much debt PREPA actually owes; and (b) whether and to what extent PREPA’s financial statements have been impaired by fraudulent activity.

It is hard to understand how the Board would acknowledge the scandal and then ignore its clear implications for the debt deal, which will have a major impact on the economic recovery over which the Board has expressed so much concern.

Cathy Kunkel (ckunkel@ieefa.org) is an IEEFA energy analyst. Tom Sanzillo (tsanzillo@ieefa.org) is IEEFA’s Director of Finance.

Puerto Rico: Radical Transparency for Economic Recovery

Editor’s note: The following was first published in the July 11-17, 2019, issue of Caribbean Business.

The past few weeks have been very difficult for Puerto Rico. Widespread allegations of corruption have been levied at the island’s Government. The allegations—under investigation by the FBI and other Federal and U.S. State agencies—come at a terrible time. They reinforce an unfortunate bipartisan perception in Washington that the island government has been unable to root out a corruption problem decades in the making.

The island is still reeling from the impact of Hurricane Maria almost two years past. Billions in federal recovery funding, crucial for meeting economic recovery goals, have yet to be released, in part because of concerns on how the funding will eventually be used. Puerto Rico still desperately needs funding for widespread repair of critical infrastructure affected by years of neglect and hurricane damage. But the federal government is unable to bear the full cost, and thus expects private capital to have a substantial role. These private investors are understandably reluctant to invest in an island mired in federal investigations without the backstop of the federal government. Puerto Rico is in an endless hold, where federal lack of trust in the local government prevents the disbursement of recovery resources that will unlock the private investment that the U.S. citizens in Puerto Rico desperately need.

The only solution is Radical Transparency for Puerto Rico. During recent congressional testimony, I addressed one transparency initiative in particular: the creation of an Office of a Federal Coordinator for Recovery for Puerto Rico to speed up disbursement of recovery funds. A growing bipartisan group of us—public officials, investors, developers, federal executives, lawmakers—have brought this option to the U.S. Congress, the U.S. Senate, HUD (the U.S. Department of Housing & Urban Development) and other federal agencies. The concept is simple: Anytime the government of Puerto Rico considers projects funded with federal recovery funds, the federal government has a senior representative at the table to fully understand how these funds are awarded. Nothing more, and nothing less.

The Federal Coordinator is not another bureaucratic step—it is a catalyst, with visibility deep into P.R.’s procurement process, determining whether federal funds are allocated appropriately and transparently to deserving stakeholders. If the government of Puerto Rico takes active steps to find and expose corruption, the federal coordinator would act as an advocate, reporting that information to the federal government, external stakeholders, business leaders, media and capital providers. Likewise, if the federal coordinator discovers that contract awards are less than fully transparent, the office would again report such activity to federal agencies, the Senate, Congress, the media and capital providers. It would be up to those stakeholders to apply corrective action. This federal coordinator would work closely with the Financial Oversight & Management Board (FOMB) and the federal agencies providing recovery funds for Puerto Rico. Implementing this “sunlight pressure”—a concept welcomed by private citizens and the vast majority of P.R. government employees—is a necessary solution for the island’s problems.

As Machiavelli and Churchill correctly said: “Never waste the opportunity afforded by a good crisis.” History has provided Gov. Rosselló the perfect opportunity to regain the trust of the federal government by unconditionally “opening the books” of the government’s procurement processes, applying sunlight pressure to historically opaque, shadow processes that have existed for decades. The governor can welcome, with open arms, full federal overwatch of all recovery funds for the island. Everyone knows this will not be easy, but it will be the right thing to do. In doing so, we can still create the bright economic future that all of Puerto Rico deserves.

—Noel Zamot is the president of Atabey Group, an advisory firm focused on ethical investment in emerging markets. He is a son of Puerto Rico, a former business executive, retired Air Force colonel and combat veteran. He previously served as the Revitalization Coordinator for the Financial Oversight & Management Board for Puerto Rico. He has twice testified before Congress on rebuilding the island’s power grid, and the need for widespread structural reform of the Government of Puerto Rico.

A Call to Revisit the Prepa RSA

Editor’s note: The following was first published in the July 11-17, 2019, issue of Caribbean Business.

We traveled to Puerto Rico in March with several of our congressional colleagues to hear from the public on how best to rebuild civil society and a functioning economy. The same theme came up again and again: As much as anything, Puerto Rico needs relief from its crushing debt burden.

For a hurricane-ravaged community whose needs the Trump administration has neglected, the bloodless term “debt relief” might not sound to outside observers like a top priority. In fact, it is key to any hope for Puerto Rico’s future, and the people there know it.

Under previous Puerto Rican governments, the Puerto Rico Electric Power Authority (Prepa) and other agencies on the island issued billions of dollars in bonds that they cannot now repay. Any hope for Puerto Rico’s recovery lies in reducing that debt burden in a way that does not cause more people to permanently leave the island for lack of essential services or an excessive cost of living.

The public rightly demands a debt solution that does not put all the burden on working people. For that reason, we strongly oppose the recently announced agreement to restructure Prepa’s debts, and we urge the parties involved to go back to the negotiating table.

As Democrats on the U.S. House Natural Resources Committee documented in a 2015 report (naturalresources.house.gov/download/profit-at-any-cost) called “Profit at Any Cost,” much of Puerto Rico’s debt is owed not to disinterested lenders who just want their money back but to investment firms that spent millions of dollars on risky, high-yield bonds with a well-advertised risk of default. Those firms, which claim to want no more than justice, are hoping politics or the courts will bail them out on a bad bet. The May 3 Prepa deal represents exactly this kind of bad politics, and if it goes into effect, the result will be disastrous.

The agreement, which must be confirmed by a federal judge before taking effect, has many parties, none of whom are giving the public’s needs enough consideration. The deal, formally known as the Restructuring Support Agreement (RSA), includes Prepa; the Puerto Rico Fiscal Agency & Financial Advisory Authority; the Financial Oversight & Management Board for Puerto Rico; the Ad Hoc Group of Prepa Bondholders; and Assured Guaranty Corp., one of the bond-insurance companies that enabled Puerto Rico’s former leaders to issue excessive debt in the first place.

One way or another, these actors have to find a way to restructure $8 billion of Prepa’s legacy debt. This RSA is not the way to do this, and we recently wrote (twitter.com/NRDems/status/1140654859248656384) to the leaders of the Puerto Rican House and Senate urging them to oppose the deal.

The problems with the RSA are almost too numerous to lay out here. The agreement makes it impossible to meet the affordable energy goals laid out in the Puerto Rico Energy Public Policy Act of 2019, which recently became law. By all accounts, it will result in higher electricity rates for average Puerto Ricans, which will make businesses less able to expand or hire new employees, among other problems.

Despite an analysis by a Nobel Prize-winning economist for the National Bureau of Economic Research suggesting Puerto Rican debt needs to be reduced by about 80 percent, the RSA reduces the Prepa debt principle by only 22.5 percent—a drop in the bucket if the goal is to make Puerto Rican society able to flourish rather than to maximize third-party returns on bad investments.

Treating Puerto Rico as no more than a source of investor revenue will lead to a downward spiral and destroy what is left of Puerto Rico’s economic foundation. Unfortunately, that is what the RSA does. It ensures the first-priority use of every dollar that comes into Prepa from ratepayers goes toward paying off debt, not in building a more sustainable energy system or repairing the severe hurricane damage to the island’s infrastructure.

Like any other community, Puerto Rico cannot rebuild a modern power grid, provide good schools or offer attractive terms for potential investors without enough money to operate. Unfortunately, much of the money that should be spent on those programs is now earmarked for debt repayment. If that dynamic does not change, it is not too strong to say that Puerto Rico as a functional society will cease to exist.

People are already leaving Puerto Rico in record numbers. If we allow the island to become nothing more than a shell from which wealthy investors can squeeze money, it ceases to be an attractive business destination or a livable community.

The judge overseeing the case is expected to rule in July. Anyone who cares about avoiding an economic collapse for millions of American citizens should very carefully watch the next few weeks—and make their voices heard on the need to prevent the Prepa RSA from going into effect.

—Rep. Raúl M. Grijalva (D-Ariz.) chairs the House Committee on Natural Resources. Rep. Nydia Velázquez (D-N.Y.) chairs the House Committee on Small Business.

IEEFA Puerto Rico: 43 Members of Congress declare the PREPA deal fatally flawed – they are right

Senate President Thomas Rivera Schatz and Gov. Ricardo Rosselló is (CB file)

Puerto Rico utility needs to reduce legacy debt and introduce independent monitor

Last month, 43 members of Congress sent a letter to the Puerto Rico legislature urging it to reject a debt restructuring agreement reached between the Puerto Rico Electric Power Authority (PREPA) and its creditors because of the proposed deal’s unsustainable impact on the island’s economy.

Puerto Rico Senate President Thomas Rivera Schatz responded to the open letter with an op-ed in El Vocero stating, among other things, that the Puerto Rico legislature will rigorously evaluate the deal and that any deal must conform to the goals of Puerto Rico’s new energy policy (Law 17-2019).

If that is the basis for the judgment, it is hard to see how the legislature will arrive at any conclusion other than rejection of the debt deal.

One of the goals of the new energy policy is to achieve affordable electrical rates, at or below 20 cents/kWh. But in the near-term, the debt deal will drive up rates to about 24 cents/kWh, or 20% higher than the target rate. The deal imposes a charge on all ratepayers starting at 2.7 cents/kWh in 2020, increasing to 4.6 cents/kWh by 2042. Over the 47-year life of the deal, Puerto Ricans will likely pay more than $23 billion in principle and interest on the original $8.26 billion of restructured debt.

The debt deal also threatens the aggressive renewable energy standard established by the new energy policy. Given the priority to use PREPA’s rate dollars to pay off legacy debt, and the pressure to reduce rates to affordable levels, there will be little left to invest in renewables, even though renewables would actually lower electric rates.

Mr. Rivera Schatz also stated that a deal with PREPA’s creditors is needed for the Puerto Rican government to move forward with its plans to privatize PREPA. But here again, the current deal falls far short. The deal effectively establishes legacy debt repayment as the top priority for PREPA’s rates. Any private investors should question the security of their investment under a deal that does not even require the electrical system to be in sound operating condition for legacy bondholders to be repaid. Given the risks that failure creates, private investors will be scarce or will demand a high return, putting more pressure on rates.

PREPA does need to resolve its debt problem – as well as its management and corruption problems – in order to attract private capital into Puerto Rico’s electrical system, whether this is done under a public or private ownership model. This can best be done by eliminating the debt burden borne by PREPA ratepayers and by implementing an independent monitor (an Independent Private Sector Inspector General) in PREPA to correct problems of waste, fraud and abuse.

This PREPA bond deal has already been tainted by Governor Rosselló’s decision to hold a campaign fundraiser on Wall Street shortly after the deal was announced. There is a history of legal and financial consultants giving money to political campaigns and receiving government contracts, raising questions about whether the advice they provide to the Puerto Rico government is really in the best interests of Puerto Rico. We hope that as he evaluates the PREPA debt deal, Senator Rivera Schatz leads an initiative to prohibit Puerto Rico legislators from accepting campaign contributions from bond attorneys, financial advisors and others who benefit from the deal. This would avoid the perception of further conflicts of interest.

The Senate should send a message now that the debt deal is dead and that the summer should be used to find a solution for PREPA, and not be a time to discuss whether or not to support more unsound financial policies.

Cathy Kunkel is an IEEFA energy analyst.

Tom Sanzillo is IEEFA’s director of finance.

Commentary originally appeared in El Vocera: Acuerdo de la deuda de la AEE: Fatalmente defectuoso

–IEEFA’s stated mission is to “accelerate the transition to a diverse, sustainable and profitable energy economy.” It receives funding from such organizations as the Rockefeller Family FundEnergy FoundationMertz-Gilmore FoundationMoxie FoundationWilliam and Flora Hewlett FoundationRockefeller Brothers FundGrowald Family FundFlora Family FundWallace Global Fund, and V. Kann Rasmussen Foundation.

–The views expressed in the Opinion section do not necessarily reflect those of Caribbean Business.

[Editorial] Pension Reform Comes Home to Roost

Editor’s note: The following was first published in the June 27 to July 3, 2019, issue of Caribbean Business.

When it comes to the myth of abundance, few are the areas where it is most painfully exposed than in the realm of pensions that are too good to be true. In Puerto Rico, sadly, the rude awakening commenced with some bitter medicine prescribed by the Financial Oversight & Management Board in its fiscal plans for pensions to be cut up to 25 percent. An agreement on the about $50 billion in unfunded pension liabilities that affects more than 300,000 beneficiaries could not come a moment too soon.

For decades, this newspaper has been warning about the need for defined contributions to backstop the Puerto Rico government’s severely unfunded Employees Retirement System (ERS). In one story after another, Caribbean Business sounded an alarm that not a single person heeded.

In 2003, we reported that the unfunded obligation of the ERS represented $4,038 per capita while the average stateside was $1,458 per capita. A 2003 actuarial report prepared by Mellon Human Resources & Investors Solutions, former actuaries of the ERS warned: “At present levels, the contribution deficit will continue to deteriorate the financial status of the ERS. The strained actuarial condition is not expected to correct itself anytime soon without significant additional contributions from the government.”

And, thus, the massive deficit continued its unrelenting growth as confirmed in a 2008 actuarial valuation report prepared by Milliman, the ERS actuaries at the time. Such was the catastrophic magnitude of the pension black hole that unfunded liabilities skyrocketed 500 percent from 1989 to 2009. Yet, not one administration had the political resolve to defuse the ticking pension time bomb.

In 2010, then-Gov. Luis Fortuño announced the creation of a special commission to reform the public pension system. At the time, most observers calculated the unfunded pension obligations at $14 billion. This newspaper reported that they actually reached $18.9 billion. Caribbean Business explained at the time that “this means that while the ERS obligations were $18.9 billion, net assets to pay those benefits were only $1.85 billion”—less than $1 for every $10, the lowest funding ratio anywhere in the United States and its territories at the time.

Alarming as those numbers were, little concrete action came from the Fortuño administration. The same held true for Fortuño’s successor, Gov. Alejandro García Padilla, whose pension reform may have just as well been written on toilet paper. What we got instead was the Puerto Rico Oversight, Management & Economic Stability Act (Promesa), which brought the chickens to roost in the form of an Oboard tasked with reining in benefits.

To be fair, the runaway gifts paled in comparison to the Christmas tree pensions given to the employees at the Puerto Rico Electric Power Authority (Prepa), where retirees’ entire families were entitled to benefits amounting to nearly $70,000 annually in some cases. Not too shabby for 30 years’ service. Such was the retirement bonanza at Prepa that expenditure amounted to nearly $39 million monthly for the government’s predictably bankrupt energy utility. Time was when people got jobs at Prepa, they were made in the energy shade. Now, Prepa pensions will likely be targeted for fiscal tightening.

Every pensioner will feel the pain. That those cutbacks in benefits in the ERS and Prepa are inevitable, have not sunk in with everyone. Particularly off putting is the insistence of Rep. Lourdes Ramos, who presides over the House Retirement & Veterans Affairs Committee, in benefiting from Act 301 of 2012, which allows former government employees to accumulate benefits despite not having worked at those government agencies in years.

In Ramos’ case, she is suing to have her time working at Prepa despite not having worked at that agency over the past 14 years. Ramos is also demanding to have her highest salary as a representative as the benchmark for her benefits. All told, this allegedly would represent a benefit of some $11,000 annually.

This newspaper condemns Ramos’ move as an affront to good and decent public service. In Puerto Rico, we have a saying—tiene cara’e lata, which literally translates to having the face of a can, but meaning to have no shame. There are hundreds of thousands of dollars being cut from retirees in the Promesa sweepstakes. Ramos deserves to suffer the same consequences, not a higher privilege. Hopefully, the people will make her suffer defeat at the polls in the 2020 election. Bad form.

Senate Democrats Demand Trump Administration Answer for ‘Unconscionable’ Delay of Puerto Rico Food Aid

Presidential hopeful Sen. Bernie Sanders (CB file)

“There are no excuses for this, and the Trump administration must act now to correct this tragic situation that they have caused.”

ByJake Johnson, staff writer,Common Dreams

In a letter to White House budget chief Mick Mulvaney and Agriculture Secretary Sonny Perdue on Thursday, a group of senators demanded to know why Puerto Rico still hasn’t received the $600 million in emergency food stamp aid that Congress approved three weeks ago.

“In the wealthiest country in the history of the world, it is unconscionable that the Trump administration is allowing the most vulnerable Puerto Ricans to struggle to make ends meet and put food on the table,” Sen. Bernie Sanders (I-Vt.), one of the letter’s signatories, said in a statement.

The senators’ letter (pdf) called on the U.S. Department of Agriculture and Office of Management and Budget to answer three questions:

  • Has the USDA submitted a request to OMB to release the emergency funds? If not, why not?
  • Has OMB released the funds to USDA to distribute to Puerto Rico? If not, why not?
  • Does the government in Puerto Rico need to submit to USDA a new disaster plan or an amendment to the existing disaster plan?

In addition to Sanders, the letter was signed Senate Minority Leader Chuck Schumer (D-N.Y.), Sen. Elizabeth Warren (D-Mass.), Sen. Kamala Harris (D-Calif.), Sen. Patty Murray (D-Wash.), Sen. Kirsten Gillibrand (D-N.Y.), and Sen. Chris Murphy (D-Conn.).

“The administration’s delay in delivering this assistance is inexcusable, and we need answers,” Harris said in a statement. “We must take immediate action to help our fellow Americans in Puerto Rico who continue to struggle in their recovery efforts.”

As Common Dreams reported on Tuesday, Sanders accused the Trump administration of deliberately holding the emergency funds “in red tape limbo” as the people of Puerto Rico go hungry.

Sanders’s tweet came hours after the Washington Post reported Monday that “Puerto Rico does not expect to be able to spend the emergency food stamp funding until September” due to the Trump administration’s foot-dragging.

The island slashed food stamp benefits for more than a million people earlier this year in an effort to preserve the program amid a dire funding shortage.

“Emergency food stamp money for Puerto Rico ran out in March,” the Post reported, “and funding renewal was delayed by several months amid an impasse among federal lawmakers and opposition to additional funding for Puerto Rico from the Trump administration.”

In a statement on Thursday, Sen. Gillibrand said the Trump administration’s delay in delivering the $600 million in emergency funding to Puerto Rico is “disgraceful.”

“There are no excuses for this,” Gillibrand said, “and the Trump administration must act now to correct this tragic situation that they have caused.”

–The views expressed in the Opinion section do not necessarily reflect those of Caribbean Business.