House Republicans Put Forth PROMESA to Tackle Puerto Rico’s Fiscal Woes
SAN JUAN — Strong, independent fiscal oversight and no immediate debt-restructuring tools highlight draft legislation that will be shared among Republicans in the House when they return from Easter break.
The House Natural Resources Committee has released a discussion draft of the Puerto Rico Oversight, Management & Economic Stability Act, or PROMESA, several weeks after committee Chairman Rob Bishop (R-Utah) vowed to be creative when coming up with a solution to the island’s fiscal mess and “hopelessly inefficient” economy.
The Alejandro García Padilla administration continues to bank on favorable federal legislation to tackle the island’s crisis before the cash-strapped commonwealth reaches a $2.5 billion-plus debt cliff this summer.
While acknowledging that the House Republican leadership has recognized the need for an orderly debt-restructuring mechanism, the governor noted how the island would have to wait for the proposed board’s determination to make use of it. “As proposed, it is dishonorable and degrading. At the expense of more and greater sacrifices of Puerto Ricans — to the benefit of our creditors — access to the necessary restructuring mechanism would be achieved. That condition is not acceptable,” García Padilla stressed late Saturday.
Furthermore, the governor will be meeting with gubernatorial candidates of all the political parties as well as with representatives from both public and private sectors in an effort to establish a united front against any oversight initiative that deprives Puerto Rico of its self-governance.
For his part, Resident Commissioner Pedro Pierluisi stressed the legislation is still a work in progress, with a final draft in place by mid-April. Yet, he noted changes are needed if it is to become law. For instance, he is calling for a reasonable process to help the government reach agreements with its creditors and to respect the island’s self-governance.
“Let me be clear. This bill can and will evolve. It contains great, good, mediocre and bad provisions,” Pierluisi stated on Saturday, while adding he intends to work with members of Congress to improve the bill’s prospects to secure bipartisan support.
“If a bill doesn’t become law, Puerto Rico and its creditors, together, would most certainly fall off the cliff this summer,” he warned.
The governor echoed Pierluisi’s comments, by saying that the draft “should only be seen as the initial approach of Congress to fulfill its commitment to provide a comprehensive solution to Puerto Rico’s fiscal situation.”
PROMESA would first establish a five-member control board — the Puerto Rico Financial Oversight & Management Board — that would not be subject to the control of the governor nor the Legislature. All members would be appointed by the U.S. president, and at least two of them must reside or do business on the island.
García Padilla said that the Puerto Rico Constitution doesn’t allow to concentrate government power in an entity not elected by Puerto Ricans. What’s more, if such legislation is approved, the commonwealth would challenge it in federal courts and in front of the international community, he further stated.
“If in order to get the legal power to orderly restructure our debt, an oversight board is needed in return, its starting point nor its conclusion can be killing Puerto Rico’s democracy,” García Padilla stressed.
The governor said he remains confident that any fiscal oversight board approved would significantly differ from the one being discussed, while pledging to continue to work on achieving a bipartisan solution that “respects the inalienable right of Puerto Ricans to govern themselves.”
Pierluisi acknowledged that some of the proposed faculties of the board could be excessive, unnecessary and even antidemocratic, although he believes the board, in general, would assist rather than displace public officials.
As for debt restructuring, while García Padilla continues to push for immediate, broad debt-restructuring tools, the committee believes a voluntary restructuring between the commonwealth and its creditors can still be reached. Any agreement would have to be reviewed by the board before it could be enforced.
But if a consensual solution can’t be reached, the board would have the power to file for restructuring in federal court on behalf of the commonwealth, through a territorial bankruptcy proceeding to be established pursuant to PROMESA. In any such case, there must be audited financial statements in place, as well as a balanced budget and long-term fiscal plans.
Moreover, a short-term stay on creditor litigation against Puerto Rico would be granted, one of the key demands by the García Padilla administration. However, the committee is warning that the idea still needs to be fine-tuned, as it remains a highly complex and sensitive component with constitutional implications.
So far, talks between Puerto Rico and its creditors have been ongoing for months, but have yet to pick up steam amid the administration’s nonstop efforts at securing favorable federal legislation. In the meantime, a revised debt-exchange offer to creditors is about to be made public by the government, Caribbean Business sources have said.
In addition to approving the commonwealth’s budget and fiscal plans, the board could force expense reductions, hold hearings, obtain any official data and issue subpoenas if necessary. It would also help oversee tax management and legislation enacted locally, with the power to void any law that runs counter to its approved fiscal and budget plans.
The board could also provide recommendations in a broad range of areas, and if the commonwealth fails to adopt any of these, the oversight entity could force its implementation — after consulting with Congress.
The local government would not be able to issue new debt without consent of the board, which could also issue and manage new debt on behalf of the commonwealth. What’s more, the entity could require the commonwealth government to direct a revenue stream, such as taxes, to pay for the new debt.
A report on all existing tax waiver agreements the commonwealth has granted must be submitted to the board for its revision, while no new tax waivers could be executed without the board’s approval.
As for the island’s severely underfunded pension systems, the measure seeks greater transparency and calls for an independent study on their sustainability.
A “revitalization coordinator” under the board’s purview would be tasked with passing judgment over infrastructure plans and “nominate” to the board projects that meet certain criteria. The board would then decide whether to provide each project with expedited permitting and regulatory processes under Puerto Rico law, as well as federal reviews to the extent applicable.
Board activities would only end after Puerto Rico achieves fiscal stability for at least five consecutive years, and any debt issued by the board is fully paid. Nevertheless, it could be reactivated if the commonwealth falls again into fiscal mismanagement.