Monday, September 23, 2019

[Editorial] Happy Birthday Promesa

By on April 26, 2019

(Visual hunt)

Puerto Rico’s much-needed critical projects lie dormant while debt takes center stage

Editor’s note: The following was first published in the April 25 – May 1, 2019, issue of Caribbean Business.

In little over eight weeks, the Puerto Rico Oversight, Management & Economic Stability Act (Promesa) turns three years old, and the law seems to be stuck in the terrible twos. The law intended to provide Puerto Rico an orderly mechanism for debt restructuring along with provisions that would bind holdouts in prearranged complex deals such as the Restructuring Support Agreement (RSA) struck among the many creditor constituencies holding more than $9 billion in Puerto Rico Electric Power Authority (Prepa) debt.

Instead, the deal was blown up because the Financial Oversight & Management Board (FOMB) tasked to lead Puerto Rico to fiscal discipline and structurally balanced budgets believed the Prepa deal to be flawed. The OBoard’s seven wise men and women believed the RSA was unsustainable because it would eventually lead to untenable electricity rates that would be the death knell for Puerto Rico’s economy not too far afield.

Much as happened with the failed closing of that first Prepa RSA, the OBoard and Rosselló administration have behaved more like first timers in tag teams on the World Wrestling Federation circuit—gouging eyes and throwing in the occasional body slam for the crowd’s enjoyment.

In one fracas in 2017, la Junta reduced a mandate for Puerto Rico’s government to implement a two-day monthly furlough of government employees, which was finally reduced to one day after Rosselló’s restructuring brigades filed a motion for injunctive relief. They engaged in a similar routine in the harangue over the Christmas bonus for public employees; the OBoard wanted it eliminated altogether—Gov. Rosselló’s financial advisers at the P.R. Financial Advisory & Fiscal Agency Authority (Aafaf by its Spanish acronym).

Although some financial bigwigs advising the governor seemingly believe these maneuvers play well in the populist realm—“we’re not gonna take it” and all that—the optics of running up costly billable hours for upwards of $300 million with little to show for it are not good.

Add insult to injury, there is conventional wisdom among Junta members being promulgated by Judge Arthur González, who has convinced his brethren that it is a good idea to allow the Rosselló administration to manage billions in disaster-relief funds coming down the pike through the Central Office for Recovery, Reconstruction & Resiliency (COR3) rather than using Title V in Promesa. That section of the law provides for a process of expedited permits, both local and federal, for infrastructure projects certified as critical by the OBoard. The law enables the revitalization coordinator to “assess critical projects to improve the performance of energy infrastructure; expedite the diversification and conversion of fuel sources for electric generation from oil to natural gas and renewables; promote the development and utilization of energy sources found in Puerto Rico; contribute to transitioning to privatized generation capacities on the island and support the Puerto Rico Energy Bureau (PREB) in achieving its goal of reducing energy costs and ensuring affordable rates.”

With the shunning of Title V as a throwaway provision to appease the Rosselló administration’s insistence on using COR3 came the resignation of Revitalization Coordinator Noel Zamot, who was pilloried in the press for failure to move critical projects forward. So, we have some $8 billion in works that had already been certified as critical projects in a glacial slumber and unlikely to thaw anytime soon.

Instead, the OBoard seems to be following juntaeconomics that puts debt restructuring above all else. They have their sights on a decision handed down in the U.S. Circuit Court of Appeals that declared the board members’ naming violated the Appointments Clause of the U.S. Constitution.

As this newspaper was going to press, the OBoard filed a petition in the U.S. Supreme Court for a writ of certiorari to overturn that ruling.

The petition argues, “In the nearly three years since its inception, the board has prosecuted debt-restructuring proceedings representing over $100 billion…in claims and instituted significant fiscal and governance reforms designed to restore Puerto Rico to financial stability…. Now, however, the First Circuit has invalidated the appointments of the board members as inconsistent with the Appointments Clause, thus throwing into doubt the legality of the board’s past and present actions and threatening the considerable progress that Puerto Rico has made to this point.

“In enacting Promesa, Congress left no doubt that the board is a territorial entity and the board members are territorial officers, not ‘officer[s] of the United States’ who must be appointed in conformity with the Appointments Clause. Congress expressly invoked its Article IV authority to structure the territorial government; the board is located in, and funded entirely by, the Puerto Rican government; and the board exercises delegated local authority that is strictly territorial in scope. In view of the critical importance of the board’s responsibilities, certainty concerning the legality of the board members’ appointments is a matter of pressing necessity. The decision’s reasoning threatens the constitutionality of Puerto Rico’s long-established system of self-government, as well as that of other territories and the District of Columbia. This court’s review is warranted.”

Whether the Supremes will take on the petition for a writ is yet to be seen. What is certain—Puerto Rico’s much-needed critical projects lie dormant while debt takes center stage.

Feliz cumpleaños Promesa.

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