[Editorial] A Way Out of the Maze?
Editor’s note: This editorial was originally published in the July 5 – 11 issue of Caribbean Business.
History was made in Puerto Rico at the stroke of midnight on June 30, 2018, when the Financial Oversight & Management Board (FOMB) submitted its own version of a budget for Puerto Rico’s government, thus marking the clear suspension of the island’s legislative and executive branches under the Puerto Rico Oversight, Management & Economic Stability Act (Promesa). After all the grandstanding, the different lines drawn in the sand by Senate President Thomas Rivera Schatz and Gov. Ricardo Rosselló were essentially kicked clean by a control board acting on behalf of congressional leadership insisting on structural balance.
Sticking to his populist playbook, Rivera Schatz refused to repeal Law 80, bringing the measure out for a vote during which it was defeated against the wishes of the board—and now Gov. Rosselló—who see its protections as onerous bennies that stifle job creation in Puerto Rico.
So, the Board came down with a budget “outlining expenditures of $8.7 billion for FY 2019” that yanked Christmas bonuses from public employees—there are no gifts under this budget tree. Instead, the budget is intended to be a painful first step on Puerto Rico’s road to economic recovery. Soon after certifying “the budget,” the board issued a press release in which FOMB Chairman José Carrión states: “The course has been set, and although it will be challenging, we cannot afford to veer off. We must work together to stay the course toward building a stronger Puerto Rico and provide better opportunities for its people as soon as possible.”
There is no delicate way to put this: Promesa is a tool for debt restructuring. Anyone who has any doubts, need only read the Amicus brief filed by U.S. House Natural Resources Committee Chairman Rob Bishop (R-Utah). He sides with Ambac Assurance Corp. in its appeal over a decision by federal Judge Laura Taylor Swain to deny payment of Highways & Transportation Authority revenue streams. The document clearly outlines the chairman’s disapproval over the control board’s misuse of the tools in Promesa—says he: that the board rushed to Title III bankruptcy proceedings when that was a mechanism of last resort that should have only been used if negotiations under Title VI for consensual action proved unsuccessful. (See related story in Swain’s World, p. 6). The chairman is concerned ill-advised action that disrespects creditors will push market access further away from Puerto Rico.
Meanwhile, inside the old colony—no offense intended toward the soft drink—conditions continue to deteriorate. The devastating effect of two disasters—one a manmade economic depression and the other a Category-5 Hurricane spun by nature—forced massive outmigration of our people. CityLab, a think tank calculates that some 407,465 people left Puerto Rico during the period extending from September 2017 to February 2018 while some 359,813 people returned to the island, for a net outmigration of 47,652. CityLab based estimates on data obtained by Teralytics, a company with offices in New York, Germany and Singapore, that tracked cellphone locations to forecast movement to and fro.
Many of those who returned are now facing severely damaged properties and blown deadlines on mortgage moratoriums that could lead them to join the bloated rolls of foreclosures reported in this week’s Cover Story. Suffice it to say that more than 20,000 mortgage holders face foreclosure. The numbers are not pretty.
Bleak as those numbers may be, there is a huge opportunity to turn a seemingly apocalyptic housing scenario into a platform for moderate growth. One proposal being touted by the Associated General Contractors Puerto Rico Chapter and the Puerto Rico Builders Association would use a small portion of the nearly $20 billion in total Community Development Block Grant (CDBG) funds to create a voucher program to help potential homeowners who are not in the formal housing market purchase some of those many vacant homes.
In a nutshell, the idea first explained in this newspaper in April by Rafael Rojo, who is the co-chair of the Builders’ Housing Council, would “allow people to use vouchers to purchase a home, with the only requisite being that the home is up to code; it can be a used home, a new home or a home that is being built.”
At this writing, the government has yet to receive the U.S. Department of Housing & Urban Development’s good housekeeping seal of approval on its plan to use some of the CDBG-Disaster Recovery Funds first scheduled to arrive in October 2018. This newspaper believes the voucher program is the sort of innovative thinking it will take to get this economy moving again, while the politicians put their populist spin on the virtues, or lack thereof, inside the colonial straitjacket called Promesa.