Sunday, January 20, 2019

[Editorial] Wolves of Wall Street Feed on Misery

By on December 21, 2018

Editor’s note: The following originally appeared in the Dec. 20, 2018 – Jan 2, 2019, issue of Caribbean Business.

What a year. Fresh off the onslaught of a natural disaster of epic proportions, the Year In Review 2018 could be described as Wolves of Wall Street feed on the Walking Dead—the Horror. Indeed, the kumbaya spirit that prevailed in the immediate aftermath of the storm seemingly vanished with the ringing in of 2018; no sooner had the lights been turned on in far reaches of Puerto Rico, talk about forgiving debt gave way to more legal harangues and political gamesmanship between members of the Financial Oversight & Management Board (FOMB) and the administration of Gov. Ricardo Rosselló.

Truth be told, the flimsy foundations for Puerto Rico’s crooked recovery were set in motion only days after Hurricane Maria. The first mistake made by the Rosselló administration that could have reduced the thousands of preventable deaths traced to his refusal to accept a National Incident Commander with full command and control over Title 10 military personnel and government officials. It took a National Incident Commander named Russell Honore in New Orleans to help that city get back on its feet. When that option was offered to the governor, he respectfully declined because Rosselló wanted to give the impression that he was in control.

Fresh off his seemingly stellar performance in the aftermath of Hurricane Irma, a category-5 storm that skirted Puerto Rico’s north coast, the governor perhaps underestimated the magnitude of the devastation wrought by Maria. Who could forget Rosselló’s meeting with U.S. President Donald Trump during which Puerto Rico’s governor declared that the island had survived Hurricane Maria with a mere 16 deaths—if only he knew then, what he knows now, that as many as 3,000 preventable deaths occurred in the months after the storm.

Sadly, the governor misspoke. With those remarks, he exposed Puerto Rico to a misguided response by a Bounty-lobbing commander in chief who has said repeatedly that Puerto Rico wasn’t in such bad shape and that its government could not be trusted to handle federal relief funds.

Thus, when Congress enacted the Additional Supplemental Appropriations for Disaster Relief Requirements Act in October 2017, it stipulated “that the Secretary of Homeland Security, in consultation with the Secretary of the [U.S.] Treasury, shall determine the terms, conditions, eligible uses, and timing and amount of Federal disbursements of

loans issued to a territory or possession, and instrumentalities and local governments thereof….”

Initially, Homeland in consultation with the U.S. Treasury determined that Puerto Rico’s liquidity—its Treasury Single Account (TSA)—had to dip below $800 million to disburse Community Disaster Loan (CDL) funds. The Rosselló administration took exception to those liquidity triggers and intended to have all funds channeled through the administration.

After a weeks-long public harangue, U.S. Treasury Secretary Steve Mnuchin announced that UST raised the liquidity threshold to $1.1 billion—Puerto Rico’s TSA moved to $1.45 billion. So, when Puerto Rico’s government officials call U.S. Treasury, there is a message on the answering machine that goes something like “Call us when you need the cash”—not a single penny in CDL funds has been disbursed.

And although Puerto Rico has already received some $4.9 billion in federal relief funding, there is another $1.5 billion in Community Development Block Grant (CDBG) funds scheduled for disbursement in October pending the presentation of a plan for their use. Despite the lack of verification of a clear plan for use—we only know that there is $100 million and $300 million coming down in two separate tranches—departing Deputy Secretary of the Department of Housing & Urban Development, Pamela Hughes Patenaude, announced HUD funds were disbursed.

As soon as the federal funding spigot opens, Puerto Rico’s economy should get a much-needed shot in the arm say some economists interviewed by this newspaper in our annual Year in Review report. Yet, we are still not exactly certain how the money will be used. Trump is none too pleased.

Policy wonks inside the Trump administration have therefore been discussing the possibility of drafting an Executive Order that would create a Coordinator of Federal Support for the Recovery & Rebuilding of Puerto Rico, selected by the President and reporting directly to the Secretary of Homeland Security to oversee the use of funds. This post is in very preliminary discussion stages.

A more likely scenario is that the FOMB, which recently held meetings at the White House, might work in conjunction with the Office of Management & Budget to draft Master Distribution Agreements to be approved by the oversight board. Given the contentious history between the FOMB and the Rosselló administration, this newspaper sees further delays and court dates over much-needed federal aid. One source with knowledge of the initiatives stressed that the word “unencumbered” is not in the vocabulary for the CDBG funds.

Trump would rather distance himself from the federal aid process and let existing authorities handle the oversight of CDBG funds, which would likely lead to higher legal costs down the road and adding to the $300 million in legal and professional fees that have been billed thus far. Hardly the yellow brick road some were selling when federal disaster relief was announced for Puerto Rico. Happy New Year.

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