[Editorial] Ricky Don’t Lose That Number

Editor’s note: This editorial first appeared in the July 26 – Aug. 1 print issue of Caribbean Business

hen U.S. Treasury Secretary Steve Mnuchin descended upon Puerto Rico for a lightning meeting with Gov. Ricardo Rosselló, he made certain to coat it with the veneer of goodwill that he was keeping a promise to visit the island on a quarterly basis while the governor claimed deference by the Trump administration. In the realm of public relations, it amounted to what they call a “win-win”; in the real world, not much had substantively changed in the Community Disaster Loan (CDL) appropriations bill that sets the groundwork for Puerto Rico to access funds in an agreement Mnuchin symbolically signed.

The amount available for Puerto Rico remains at $2.2 billion and the threshold under which Puerto Rico’s Treasury Single Account (TSA) must fall remains at $1.1 billion for the Rosselló administration to access those CDL funds. In other words, “when you cannot rub two nickels together I will lend you a dime”—but not a moment sooner. At this writing, Puerto Rico’s TSA stood at $2.7 billion, which hovers above the threshold, thus putting the onus on the island’s government to go on a spending spree to access the CDL funds.

Significantly, the deadline for availability of CDL funds shifted from October 2018 to March 2020, thereby granting Rosselló more time to run through the TSA to access those funds. One source on the Hill with ties to the Trump administration put the deadline shift into perspective with this: “There is nothing significant there except for moving the date into the future and, to be fair, that is a win. What I can assess is that the government is going to make a big push to use the cash they have and tap into the CDL.”

Puerto Rico’s government did not waste any time in putting money in the TSA to good use when the Fiscal Agency & Financial Advisory Authority (Fafaa) went out and hired Subject Matter, a lobbying firm, to represent Fafaa on the Hill. The hire is expected to be one of many more coming down the pike as the Rosselló administration puts “the pedal to the metal” as another Capitol source put it.

More pricey contracts with firms operating outside of Puerto Rico is hardly what the island needs right now. We already have too many firms making a king’s ransom drawing from our pauper’s pot. A look at the legal fees authorized by Judge Laura Taylor Swain, totaling $19 million, is just the tip of the iceberg. Filsinger Energy Partners, the firm headed by Puerto Rico Electric Power Authority (Prepa) CFO Todd Filsinger, is seeking $5 million in expenses and $333,000 in fees for work performed between February and May 2018. Adding insult to injury, “some $1,641,360.20 is for fees incurred for work performed outside of Puerto Rico,” according to a report obtained by Caribbean Business (see Swain’s World, p. 6).

Throw in Greenberg Traurig LLP, counsel for Prepa and Fafaa—yes, Fafaa—“billing $4,536,263.70; Proskauer Rose LLP billing $3.2 million in work done for Prepa and a summary bill totaling $5 million for work done in the Title III case.” We should not lose sight of the fact that the fee examiner’s report expressed “concern over Proskauer’s billing because of the potential overlap of the work of counsel for the Financial Oversight & Management Board (FOMB) and work of counsel for Fafaa—yes, Fafaa.

Mckinsey & Co. is seeking about $7,237,000.00 for counsel to the FOMB and O’Melveny & Myers, which also provides services to—you guessed it—Fafaa, is seeking the Good Housekeeping seal of approval on $6 million in work done for the FOMB. Yes, former Emergency Manager for the city of Detroit, Kevyn Orr, was right to call Promesa the Lawyer Relief Act during a conference hosted by the Associated General Contractors Puerto Rico Chapter in Washington, D.C. in 2017.

Much as Orr predicted, the feeding frenzy on Puerto Rico’s carcass has become a reality. Sadly, the vultures are not native—few pitirres or golondrinas in sight. Saddest of all is that Judge Swain has waited this long to put her foot down on rampant legal and advisory fees, when it is within the judge’s purview to set a ceiling for fees under Title III bankruptcy proceedings.

With all the disaster relief funds coming down the pike—some $20 billion in Community Development Block Grant funds commence to arrive in October 2018—the Rosselló administration ought to focus on putting the money to good use, creating jobs as it rebuilds, not blowing through it with more layers of pricey lobbyists, who are unacquainted with the tenets of economic development that Puerto Rico so desperately needs.

Swain’s World: Legal Workers Rolling in Bankruptcy Dough