PR Governor Says PROMESA is on the Right Path

SAN JUAN—The congressional bill that would establish a fiscal control board over Puerto Rico is “headed in the right direction,” said Puerto Rico Governor Alejandro García Padilla late Tuesday.

AGPThe governor, who is in Washington, DC, lobbying for adjustments to H.R. 4900, also known as the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA), said that although the bill still needs some work, “it now includes a fairer approach regarding the board’s powers and that is a step in the right direction.”

García Padilla said that he will continue lobbying for the creation of a board that would be “consonant with the country’s democratic institutions, provide an effective restructuring process to stabilize public finances and spur Puerto Rico’s economic development.”

“I want to thank Congressman Bishop, House Speaker Ryan, Minority Leader Pelosi, Reps. Nydia Velázquez, José Serrano and Luis Gutierrez and Resident Commissioner Pedro Pierluisi for the bipartisan effort in creating a restructuring process that addresses the Puerto Rico crisis,” García Padilla added.

House Committee to Hold Hearing on PROMESA Next Wednesday

The U.S. House Committee on Natural Resources will hold on Wednesday, April 13 its latest legislative hearing on a discussion draft of the “Puerto Rico Oversight, Management, and Economic Stability Act,” also known as PROMESA.

house committee natural resources logoThe hearing, to take place at 10 a.m. in the Longworth House Office Building, will be open to the public and broadcast through live video stream.

PROMESA would seek to 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. The U.S. president would appoint all members, and at least two of them must reside or do business on the island.

The legislation also hinders the Puerto Rico judicial branch of its independence, as it will not be able to tackle issues dealing with board.

The five-member board will be in charge of ensuring Puerto Rico enacts balanced budgets, with the wherewithal to lay off people and levy additional taxes if necessary to achieve such a goal.

Labor Leaders Refuse to Join Governor in Plea to Washington

SAN JUAN—Although various local labor leaders do not endorse the fiscal control board proposed by the U.S. Congress, they have also rejected Puerto Rico Governor Alejandro García Padilla’s call for different sectors to go to Washington, D.C. in an united front to ask for fiscal and economic help.

Washington DC, United States landmark. National Capitol building with US flag.

For Iram Ramírez, representative of the International Union of Office and Professional Employees (OPEIU by its Spanish acronym) the governor’s proposal is simply a case of “too little too late.”

In recent weeks, the governor met with 18 labor leaders and asked for their help in lobbying Congress concerning four specific points: support for debt restructuring through Chapter 9 of the bankruptcy law; a moratorium on litigation; opposition to the fiscal board to be imposed by Congress; and the creation of economic development tools for the island.

“One of our concerns is that there is not any guarantee for unions and workers,” said Ramírez “It could happen that, afterwards, a labor reform bill could appear and threaten workers.”

José “Lole” Rodríguez, from the Puerto Rico Federation of Workers, acknowledged there is no disagreement with the four points discussed at the meeting, but noted that an extension to Puerto Rico of Chapter 9 benefits is very unlikely. He added that he sees a lack of specificity in the governor’s petition that prevents workers from establishing a common front before Congress.

Moreover, the unions that attended the meeting with the governor have their own lobbyists in Washington to stop the approval of the fiscal control board, both union leaders said.

Legal Challenges to Fiscal Oversight Board Pose an Uphill Battle

It will be an uphill battle for Puerto Rico to challenge the constitutionality of the proposed law that would impose a fiscal oversight board to run the island’s government operations, legal experts say.

FILE - In this Nov. 22, 2015 file photo, The Capitol dome is seen on Capitol Hill. It’s been like a long-delayed New Year’s resolution for the GOP. But 2016 will finally be the year congressional Republicans put legislation on President Barack Obama’s desk repealing “Obamacare.” (AP Photo/Alex Brandon, File)

FILE – In this Nov. 22, 2015 file photo, The Capitol dome is seen on Capitol Hill. ” (AP Photo/Alex Brandon, File)

Walter O. Alomar Jiménez, a constitutional law professor at the University of Puerto Rico Law School, said it will be hard to prove the law is unconstitutional, because the U.S. Supreme Court says Puerto Rico is a territory and the U.S. Constitution grants Congress full powers over all U.S. territories.

“There is a faculty already granted by the constitution that allows Congress to modify the relationships with all territories. This board was born under the guise of the territorial clause. It would be a law authorized by Congress and the constitution; I can not see what the argument will be to challenge this law because the Constitution gives Congress the faculty to regulate all territories and the United States has already said we are a territory,” he said.

There will also be some strategic problems in challenging the law because the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA for short), states that legal actions against the Oversight Board will have to be brought in the U.S. District Court for the District of Columbia and appealed to the U.S. Circuit Court of Appeals of Columbia, except for actions related to enforcing subpoenas or making adjustments of debts.

The legislation will create a five-member board appointed by the President to have the final say on budgets and day-to-day government operations. Any government official who refuses to follow the orders of the board will be subject to criminal sanctions. It would also create a mechanism for debt restructuring that would require a budget plan and credible financial data before bankruptcy can begin under the guise of the board.

Carlos Ramos, a constitutional law professor at Interamerican University Law School, noted that the bottom-line problem with the proposed board is that just like the Military Law of 1900, the Foraker Act and the Jones Act, it is a unilateral imposition over Puerto Rico.

“Bottom line is that they say this is a conversation but it is not. It is an imposition,” he said, noting the broad powers that the board would exercise over the three branches of government. “You have to put in a historical context. This is a repetition of what we have been trying to fight for decades.”

While fiscal boards have been imposed on more than 100 jurisdictions, it will be the first time, with the exception of Washington D.C., that such a board is imposed by Congress over a U.S. territory.  “In other jurisdictions, we have seen states impose boards over their cities as it happened in New York and Detroit, and they accepted it. Congress has never imposed a board over a state; the closest thing to this is Washington D.C., but Congress is already there so there is a difference with Puerto Rico,” he said.

Puerto Rico Bar Association President Mark Anthony Bimbela said the group’s constitutional committee is evaluating the law and is slated to present a report next month.  However, he warned that the proposed law “may be a violation of international law.”

Daniel Hanson, an investment adviser, said he sees several constitutional challenges involving the board’s authority to create a bankruptcy plan to impair suppliers, pensioners, or others.  “Second, the legislation probably muddles the debate over so-called Article III judges and the role of bankruptcy courts in the federal judiciary.  

“Since district court judges and bankruptcy judges operate under separate authority, as derived from the U.S. Constitution, the authority of bankruptcy plans to be adjudicated and enforced in district courts has long been in dispute, with a compendium of nuanced and important case law to support the notion that no one really knows exactly how the Article III/non-Article III distinction around judges applies to bankruptcy.”

“We are concerned that Congress further complicates this debate with the weird cross- application of territorial law, federal law, and bankruptcy law that exists in this bill, leading to vulnerabilities in the legislation itself and broader questions of precedent for the legal system,” he stated in a commentary on the law.  

Federal Fiscal Oversight Board Would Do Away with Island’s Judicial Independence

The proposed fiscal oversight board for Puerto Rico that is slated to be introduced April 11 will not only hinder the powers of the political branches of the local government but will also do away with the judicial branch’s independence.

The Supreme Court building in Washington. (AP Photo/Jon Elswick, File)

The Supreme Court building in Washington. (AP Photo/Jon Elswick, File)

The legislation imposes a so-called Mandatory Abstention to the commonwealth Supreme Court on issues pertaining to “interests in property under the laws of the territory; or interpretation of the constitution of the territory,” unless the high court has already rendered a controlling decision on the issue.

According to the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA for short), any action against the Oversight Board will have to be brought in the United States District Court for the District of Columbia and appealed to the U.S. Circuit Court of Appeals of Columbia, except for actions related to enforcing subpoenas or making adjustments of debts,. Both courts as well as the U.S. Supreme Court, will have to expedite matters raised to them under the Act.

For the rest of the matters, the jurisdiction shall be exclusive to the local U.S. District Court of Puerto Rico.

Meanwhile, if Puerto Rico’s federal court or the federal court for the District of Columbia ask the commonwealth Supreme Court to provide an opinion on a matter before them, the local territorial court will have to certify it no later than 10 days after the request is made and will not be able to decline providing the opinion.

“The Supreme Court will not be able to deny the certification,” noted Carlos Ramos, a constitutional law professor.

The federal legislation states that an issue that is certified shall be binding in court, other than the Supreme Court of the United States, in a proceeding arising under this title or arising in or relating to a case under this title.

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.

pierluisi CofC

“Let me be clear. This bill can and will evolve. It contains great, good, mediocre and bad provisions,” Resident Commissioner Pedro Pierluisi stated.

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.”


“A board not elected by the people, with the ability, for example, to impose taxes or lay off employees, is not acceptable to me and couldn’t be for any Puerto Rican,” stated Gov. Alejandro García Padilla.

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.

Board powers

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.

Sovereign Union Movement Protests Against Fiscal Control Board

SAN JUAN – Sovereign Union Movement (MUS by its Spanish acronym) President María de Lourdes Guzmán urged Puerto Rico’s political sectors to unite to “defend our dignity as a people” and adamantly reject the imposition of a fiscal control board by the U.S. Congress.

The politician stressed in published remarks “the need for the people to demonstrate against the imposition of the board,” and called for people to join in a protest Tuesday in front of the Federal District Court in San Juan.

She also asked the island’s political leadership to carry out concerted actions to request that the U.S. government “put forth a serious process of decolonization, to seek a solution to the centenarian issue that is Puerto Rico’s status, which keeps our people divided and hinders the design of a national plan that would lead to social justice, to our economic development and the well-being of all Puerto Ricans.

“With the imposition of a fiscal control board arising from the financial debacle in our country, Puerto Rico would be governed by people who have not been elected, who have no link with our reality as a people and who are unaware of the suffering caused and being caused by this crisis,” the party president stated.

In her view, a federally appointed control board would have “the task to manage and administer our finances to ensure the debt with bondholders will be paid.”

Guzmán believes “this would entail the usurping of political government branches, [lead to an] unprecedented social crisis, the further impoverishment of our people and an increase of the exodus we have been experiencing in the past decade.”

Therefore, in her view, “the imposition of the Fiscal Control Board should be rejected by all sectors, regardless of political ideology…because it hurts everyone. In addition, the increasingly real possibility that the board is established reveals that people are subordinate to the will of the federal government.

“No one can be satisfied with this. The imposition of the board represents a serious threat to social peace in the country, so this historical moment requires the unification of the political leadership to prevent this from happening,” she argued.

Movimiento Unión Soberanista poster

She added that opposition to the implementation of the board “is not enough if we do not address the underlying problem: the subordinate status our country experiences that positions us defenseless against the possibility of the board’s imposition, which impedes us from developing our own economy that would allow Puerto Rico to become a sustainable country that could the meet economic and social needs of our people.”

Inter News Service

Senate President Expects Tough Debate if Fiscal Control Board Imposed

SAN JUAN – Senate President Eduardo A. Bhatia insisted Monday on his rejection of a fiscal control board with powers that “the people of Puerto Rico delegated to democratically elected officials.”
Saying he believes the U.S. Supreme Court will decide within the next 60 days on Puerto Rico’s status and the ability of the island’s Legislature to regulate its “bankruptcy,” the Senate leader added that he anticipates the U.S. Congress “will try to impose a strong fiscal control board that takes over the legislative function to create a budget.”

During a Senate session, he forewarned of a strong reaction from the Legislature, especially the Senate, if a fiscal control board is imposed. “One thing is a fiscal oversight board and another thing is a fiscal control board that takes over decision-making about what is done with Puerto Rico’s money. I do not embrace a fiscal control board because democracy cannot be ceded, democracy cannot be handed over that way. The decision on how we will work with these funds has to come from the people of Puerto Rico, made by the leaders elected by the people of Puerto Rico,” he said.

He also predicted intense days of debate that, given the extent of the government’s obligations to its creditors, “We’ll have to make a number of additional decisions to condition and put the country in the right situation to face what is coming, which is a large payment in May and a huge payment of general obligations on the first day of July.

“Unless Congress makes the determinations it has to make, the determination must be…that the government of Puerto Rico not pay that, and at some point we will have to talk about that issue and at some point we will have to discuss, analyze and decide it as a country,” Bhatia concluded.

Study: Fiscal Control Boards Are More Effective with Local Input

SAN JUAN – The operational powers of control boards should be limited to providing technical assistance to governments and approving budgets instead of making economic development policies, said an urban economist who completed her doctoral dissertation at the Massachusetts Institute of Technology on how fiscal control boards address the causes of fiscal crises in different jurisdictions.

“That is not the expertise of control boards. They have lawyers, bankers and some business people who often do not know about local intricacies…. That is the kind of area that stirs controversy,” said Deborah Kobes, who earned a Ph.D. in urban political economy and governance from MIT and a bachelor’s degree in civil engineering with architecture from Princeton University.

Kobes said that since New York City’s highly publicized board in 1975, more than 119 municipalities of all sizes have been assigned control boards, in which a state-appointed team oversees the budgetary decisions of a municipality in fiscal emergency.

Congress is working on legislation to fix Puerto Rico’s financial woes as the island battles a $70 billion debt and edges close to insolvency. The commonwealth wants access to a bankruptcy-like mechanism to restructure its debt, but the Republican-dominated Congress wants to place Puerto Rico under strict fiscal oversight and has rejected bankruptcy.

While the shape and form of the proposed federal fiscal control board is still in the works, after a recent visit to Congress the Puerto Rico Private Sector Coalition said the control board would also have the power to impose economic policies in addition to budgetary decisions.

Kobes became interested in evaluating how control boards impact local sovereignty. Her dissertation on control boards in the United States, “Out of Control? Local Democracy Failure and Fiscal Control Boards,” was completed in 2009.

If the experience in other jurisdictions is repeated on the island, Puerto Ricans, she warned, should be ready to give up some control over their local affairs to obtain financial stability. The board that were successful were the ones that had local members from the jurisdiction and who did not meddle in political or local affairs, she found.

While her research did not include jurisdictions with large debts, such as Puerto Rico, (for instance, Detroit’s $20 billion debt was ruled on by an emergency manager not a board), Kobes said a fiscal control board would help fix Puerto Rico’s fiscal problems as long as “it is part of a broader set of solutions” that may include Chapter 9 bankruptcy protection, technical expertise to go into the numbers and help improve tax collection or some form of financial help.

Her study showed that control boards tend to be established in communities with low median household incomes; low rates of employment, homeownership and high school graduation; and high rates of poverty, minority population and female-headed households.

Kobes says there are three causes of fiscal crisis, all of which have affected Puerto Rico. The first is a local government’s dependence on the market. The second is what she calls a “majoritarian tyranny within federalism,” which consists of the external factors or constraints that affect a jurisdiction, such as when a city has limitations on the amount of taxes it can impose or when it loses federal funds. Puerto Rico’s finances have been hurt by the loss of Section 936 tax credits to U.S. subsidiaries operating on the island and the caps imposed on federal Medicaid funds.

FILE - This Jan. 28, 2015 photo shows an aerial view of the south side of the Puerto Rico's Capitol building in San Juan, Puerto Rico. A federal judge ruled late Friday, Feb. 6, 2015 that a Puerto Rico debt-restructuring law that aims to protect the government from bankruptcy and make public corporations self-sufficient is unconstitutional. Gov. Alejandro Garcia Padilla approved the Recovery Act in June of 2014 after submitting a last-minute bill to legislators, urging them to approve it amid concerns that certain public agencies might collapse financially. (AP Photo/Ricardo Arduengo)

Puerto Rico’s Capitol (AP Photo/Ricardo Arduengo)

The third cause is a local democracy’s failure, which entails a lack of oversight on the government and corruption that results in the loss of public funds, she said.

The city of Miami had a federal control board in the 1990s because its elected city leadership was arrested on corruption charges.

Kobes said Miami residents were more welcoming of a federal control board to not only fix the fiscal crisis, but also to eradicate corruption because they had lost faith in their local government. In other places, residents are less accepting of another entity coming in to handle local affairs.

Oversight boards, for that reason, must conduct much work in advance to receive acceptance from the public and must continue to try to raise public support. Miami was more accepting of its control board because there were local residents in its board.

“Having local people who are from the jurisdiction and are respected within the jurisdiction goes a long way to make residents feel that their voices are being represented,” she said.

Kobes also stressed the importance of a good and cordial relationship between elected officials and the oversight board that “makes it seem” that democracy, “at least in symbolic way,” continues.

She also stressed that control boards should not overstep their boundaries. Boards have different scopes of authority, and the farther they are from approving budgets or fixing fiscal issues and get involved in decisions such as closing a hospital for instance, the more resistance from the population these will experience.

Rosselló Replies to Sen. Hatch’s Letter to Governor

SAN JUAN – New Progressive Party gubernatorial hopeful Ricardo Rosselló applauded Sen. Orrin Hatch’s efforts to have Puerto Rico present its financial statements before establishing a policy regarding the island’s fiscal crisis.

Hatch had sent a letter to Gov. Alejandro García Padilla asking for specific information on Puerto Rico’s situation. The governor said in a press conference Wednesday that he doesn’t “accept ultimatums from anyone, including Hatch,” but that La Fortaleza is working on a reply.

In a nine-page letter to the Republican senator, Rosselló said the imposition of a fiscal board would minimize Puerto Rico’s legitimacy in meeting its obligations, as it would “federalize the crisis and rob the People of Puerto Rico of a legitimate opportunity to assume responsibility and resolve the crisis on their own terms.”

He also wrote that the focus on debt restructuring diverts attention from the urgency of reducing public spending and restoring economic growth.

The candidate said the constitutional provision requiring payment to creditors first amid a fiscal crisis should not be amended locally or federally since it would erode the the island’s credibility.

Gubernatorial hopeful Ricardo Rosselló Nevares campaigned in Naguabo, Las Piedras and Humacao during the first weekend of February 2016.

Gubernatorial hopeful Ricardo Rosselló Nevares campaigned in Naguabo, Las Piedras and Humacao during the first weekend of February.

Rosselló Nevares proposed the creation of joint commission by introducing local and federal laws to address the debt and to work in conjunction with the Internal Revenue Service. He also proposed downsizing government by consolidating and restructuring its agencies.

The NPP leader suggested that the U.S. Treasury Department provide direct support and that the Electronic Exchange Information (EEI) requirement for shipments between the mainland United States and Puerto Rico be eliminated because it “perpetuates the mischaracterization of Puerto Rico as a foreign country, imposes an unnecessary cost and administrative burden on interstate commerce, increases the cost of living on the island, and hinders economic development,” the letter reads.

Rosselló believes Puerto Rico should be treated like such corporations as General Motors and Chrysler and be provided “interim financing” to pay its “near-term” obligations to “avoid the expense of complicated litigation.”

“Finally, there is no doubt that achieving parity in Federal programs such as the Earned Income Tax Credit (EITC) and Medicaid funding, among others, would help ease the strain on the Commonwealth government of maintaining certain programs and stimulating the economy,” Rosselló concluded.