Saturday, September 22, 2018

The War Against the Fiscal Board

By on July 11, 2018

Charles Krauthammer, who died on June 21, 2018, at 68, was the best American political columnist. He was, I think, the heir to the best ever, Walter Lippmann.

Describing why he left a career as a psychiatrist to become a political columnist, he wrote in his book, Things That Matter: Three Decades of Passions, Pastimes and Politics: “Politics, the crooked timber of our communal lives, dominates everything because, in the end, everything – high and low and, most especially, high — lives or dies by politics. You can have the most advances and efflorescent of cultures. Get your politics wrong, however, and everything stands to be swept away.”

These words describe Puerto Rican history. We had good politics in the past century that gave us a Golden Age of economic, political and cultural development. But now we have bad politics, and as we can see day to day, everything stands to be swept away.

Take the Government of Puerto Rico’s war on the PROMESA Fiscal Board.

Let’s begin at the beginning. Why is there a Fiscal Board?

On June 29, 2015, Governor Alejandro García Padilla announced that the Government of Puerto Rico was bankrupt and would default on its $70 billion debt. García Padilla, president of the Popular Democratic Party, and Resident Commissioner Pedro Pierluisi, president of the New Progressive Party (NPP), went to Congress to rescue the government from economic collapse. On June 30, 2016, Congress created the PROMESA Fiscal Board.

This is important. The leaders of both parties, acknowledging the gravity of the island’s situation, put partisan politics aside.

Gov. Alejandro García Padilla and Resident Commissioner Pedro Pierluisi meet in La Fortaleza in April 2016.

The Board’s fundamental goal is to restore Puerto Rico’s economic growth. This requires getting the government to radically change the way it has governed Puerto Rico. Every year since 2002, the government has operated with a huge budget deficit. As the GAO 2018 report on the debt points out, the government knowingly overestimated expected revenue. Then it incurred in massive borrowing to cover the deficits. The government doubled the per capita public debt from fiscal 2005 to 2016.

By creating a structure to restructure the debt, suspending the debt’s payment, the PROMESA law prevented the collapse of the government.  

It is obvious that Congress could not give the Fiscal Board the overwhelming mandate to radically change how Puerto Rico governed itself — to end over a decade of gross fiscal mismanagement —  without the authority to impose its decisions. And this, of course, is a problem; it is true that it gives the Board the power to effectively overrule Puerto Rico’s constitutional system.

When Governor Ricardo Rosselló was elected in November 2016, he, of course, knew that he was now the captain of the Titanic – a ship that is sinking. And he had to make a fundamental decision: What would be his attitude towards the Fiscal Board? Would he cooperate or will he fight?

First, he and the NPP brought in status politics, insisting that since the root cause of the crisis is that Puerto Rico is a “colony,” there is only one solution: statehood. But in a February 5, 2018 letter to the governor, the Board wrote: “The Board is a non-political entity, and therefore it cannot certify a fiscal plan that includes positions on the political status of Puerto Rico.”

Second, Rosselló declared that he intended to fully cooperate with the Board and probably meant it. But he made clear that while he accepted the fiscal recommendations, he did not accept that Congress gave the Board the power to dictate government policy. The governor and the Legislature sued…

This escalated into war. From the beginning, the NPP legislative leaders had been severely attacking the Board. After the Legislature refused to accept the Board’s fiscal 2019 government budget, declaring that the government would operate under its own budget, the Legislature sued the Board in federal court, alleging it had no power to “micromanage” the island government.

This placed Rosselló and the NPP in a classic Catch-22 paradox.

To win the 2018 elections, they are convinced that they must wage all-out war against a Board that is out to protect American interests, mostly bondholders, at the expense of Puerto Ricans, especially those suffering from the economic crisis. They must vehemently oppose the Board’s insistence on government reform, cutting government spending, and especially its demand that the government cut back mandated, generous labor benefits that exist in no U.S. state.

Rosselló initially accepted the labor reforms, but seeing that the Legislature would not approve them, and was assured by party leaders that it would guarantee defeat in the 2020 elections, he pulled back.  

When the Board also pulled back, and said it would accept only one reform, the innocuous Law 80 regulating the rights of dismissed workers, and the NPP legislature refused to repeal it, it was dramatically evident that Rosselló had lost control of the war against the Board.

But the paradox is that, at the same time, there is political reality. Whatever hope there is of Puerto Rico pulling itself out of the economic and fiscal crisis depends on the success of the Fiscal Board. In the U.S., in most functioning democracies, political parties tend not to get reelected in a declining economy.

Why should Puerto Ricans be any different? If Puerto Ricans, in 2020, have not seen an improvement in their lives, if in fact, it is evident that it is worse, they will remove the NPP from power. If Rosselló decides to run, he will be the fifth one-term governor in a row.

The paradox is obvious. The NPP believes it must fight the Board to win the elections. But winning the war ensures its defeat.  

When Congress and President Obama approved PROMESA, the fundamental assumption was that Puerto Ricans were not suicidal. That they would work with the U.S., cooperate with the Board, to stop Puerto Rico – the Titanic – from sinking.

But the governor and the Legislature made a bad decision: to not cooperate and war against the Fiscal Board. This is bad politics, bad for Puerto Rico. Krauthammer was right: It is happening, everything stands to be swept away.  

–A.W. Maldonado was a reporter and columnist for the San Juan Star, executive editor of El Mundo, and publisher and editor of El Reportero.

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