Wednesday, November 13, 2019

Puerto Rico gov requests fiscal board be removed as representative in restructurings

By on May 2, 2019

Calls on Congress to fix inequities in recovery funding, resolve island’s ‘undemocratic and unequal territorial status’ 

SAN JUAN – While Gov. Ricardo Rosselló praised the Puerto Rico Oversight, Management and Economic Stability Act (Promesa) for providing tools to facilitate the island’s debt restructuring, he said the panel should not meddle in the government’s affairs and should be removed as representative of the debtors in the commonwealth’s bankruptcy process.

Rosselló was testifying at a U.S. House Natural Resources Committee hearing Thursday that was analyzing Promesa and the operations of the oversight board it established.

He said a “naïve and problematic” narrative exists that the island’s government is not doing its job, that the government refuses to carry out structural reforms, and that the oversight board is the solution to address said mismanagement.

He listed structural reforms the government has implemented such as in education, energy, and an earned income tax credit.

“The oversight board has gone out of its way to create uncertainty in Puerto Rico. It takes actions and makes public pronouncements that are not supported by Promesa and then refuse to recognize their mistakes,” he said.

“Two days ago, the Oversight Board sued hundreds of local Puerto Rican suppliers…. How is the Puerto Rican government supposed to receive goods and services if everyone must fear litigious harassment?” he asked.

He said the tools provided in Promesa have been helpful in facilitating debt restructurings as evidenced by the Sales Tax Financing Corp. (Cofina) and Government Development Bank agreements. A restructuring support agreement with the Puerto Rico Electric Power Authority is being fine tuned.

Regarding what he believes is not working about Promesa, he said: “The Oversight Board has tried to use its powers to control the decisions of the duly elected government of Puerto Rico and to implement its own view of public policy. These attempts by the Oversight Board to usurp governmental powers have delayed the restructuring process, created an environment of distrust and resulted in unnecessary litigation.”

The governor stressed that the fiscal plan and budgeting processes have been inefficient and have eroded confidence and credibility in the planning tool. He said it takes the board three months or more to approve budget reallocations, and that fiscal plans are changed every six months. which delays the execution of measures.

“The oversight board and government worked closely together on much of the fiscal planning process, but the process is burdensome. Moreover, the oversight board has attempted to use the fiscal plan to impose detailed policy recommendations and even legislation on Puerto Rico rather than recognizing it as a financial planning tool,” he said.

The board, he further said, has failed to identify economic development projects for the island.

“While the elected government must face scrutiny and is accountable to the public, the oversight board conducts its business in secret,” Rosselló denounced.

Through the fiscal plan process, the governor said the board has also attempted to “impose” its view on labor reform that results in “projected, speculative 30-year surpluses that create unrealistic expectations” for creditors. He was referring to attempts to repeal Act 80, the Unjust Dismissal Act, and repeal the statutory year-end pay, known as the Christmas bonus, among other worker benefits.

So far, he said, the board has also failed to deliver “any meaningful progress” in terms of infrastructure revitalization under Title V of Promesa.

He stressed that the board should not infringe on the day to day operations of government because Puerto Rico has its democratically derived powers for setting public policy.

The governor reiterated his request that the role of the board as representative of Title III of Promesa, which covers court-supervised restructurings.

“The insertion of the oversight board as the Title III representative creates confusion and results in litigation within the Title III process,” Rosselló said. “The Title III debtor is already subject to the scrutiny of the court process. While the oversight board has a critical role to play, it is not necessary to create conflicting roles by giving the board both the debtor role and the oversight function in the Title III process.”

The fiscal plan and budgeting process should be changed, Rosselló said, to focus on one-year budgets so Puerto Rico does not spend more than it takes in, and that an “objective and reliable assessment” is made each year to determine how much the government needs to pay for essential services.

“The fiscal plan and budgeting process should not be used as a public policy tool or turned into an endless modeling exercise,” he added.

The governor asked the committee to address the costs and expenses of the board and its staff to ensure that money is being spent “in the best interests of Puerto Rico.” While the board has an examiner’s fee, it has spent millions of dollars in advisers.

“The oversight board must be held accountable for its use of public funds. Reports of a lack of transparency and potential conflicts of interests of the oversight board’s consultants are deeply concerning and not surprising given the way the oversight board has conducted itself throughout the process. Our government also supports efforts to apply basic transparency principles to the oversight board through federal legislation,” Rosselló said.

A lawmaker asked about delays in providing audited financial statements for 2016 and on. The move has been criticized by creditors. Rosselló said these would be submitted within the next few weeks.

“We are working hard to present them,” he added.

While former the board’s revitalization coordinator, Noel Zamot, blamed the government for the lack of success of Promesa’s Title V to facilitate critical infrastructure projects, Rosselló said Title V is “disconnected” from Promesa.

“Title V should be restructured not to create a parallel path but rather to be a tool that can be used effectively by the Government of Puerto Rico and the oversight board to implement the determined fiscal reforms and public policies,” he said.

The governor took the opportunity to call upon Congress and the federal government to address what he called “inequity” in disaster recovery funding.

“The discrimination against Puerto Rico is evident in the approach FEMA [Federal Emergency Management Agency] has taken to Puerto Rico and in the [President Trump] Administration’s application of the existing statutes. The discrepancy in the way Puerto Rico is treated is startling and represents discrimination by parts of the federal government against the three million Americans living in Puerto Rico,” he said.

Congress should also ensure the island obtains funding for the Nutritional Assistance Program (NAP), and that it receives equal, proportional funding as other U.S. jurisdictions in other federal programs, Rosselló stressed.

“Congress must end the unequal treatment of Puerto Rico under multiple federal laws, programs (such as Federal Highways, Child Tax Credit, Earned Income Tax Credit), and many other policies,” the governor said.

“The federal government’s inconsistent and incoherent healthcare funding and policy decisions toward Puerto Rico has put the stability of the island’s entire healthcare system at risk and has contributed to a mass exodus of medical and health professionals which cannot be easily replaced. Urgent action is needed. Congress must provide funding stability to our Medicaid system for at least five years as it works on a longer-term solution and should also work to address our inequality in Medicare,” he added.

A lawmaker said Promesa has “shattered the trust” of investors on Puerto Rico. Underwriters and investors now have to recognize that when a territory guarantees with full faith and credit, it is not correct, the lawmaker said, while criticizing the government for refusing to carry out some of the board’s recommendations such as labor reform and the elimination of the Christmas bonus.

“We actually did a labor reform. Welfare reform, we agree. It is a matter of how we implement it,” Rosselló remarked.

You must be logged in to post a comment Login