[House Hearing, 116 Congress]
[From the U.S. Government Publishing Office]
DISCUSSION DRAFT OF H.R. ____, ``TO AMEND THE PUERTO RICO OVERSIGHT,
MANAGEMENT, AND ECONOMIC STABILITY ACT OR `PROMESA,' AND FOR OTHER
PURPOSES--PARTS 1 AND 2
=======================================================================
LEGISLATIVE HEARING
BEFORE THE
COMMITTEE ON NATURAL RESOURCES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTEENTH CONGRESS
FIRST SESSION
__________
Tuesday, October 22, 2019 (Part 1)
Wednesday, October 30, 2019 (Part 2)
__________
Serial No. 116-25
__________
Printed for the use of the Committee on Natural Resources
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Available via the World Wide Web: http://www.govinfo.gov
or
Committee address: http://naturalresources.house.gov
__________
U.S. GOVERNMENT PUBLISHING OFFICE
38-348 PDF WASHINGTON : 2020
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COMMITTEE ON NATURAL RESOURCES
RAUL M. GRIJALVA, AZ, Chair
DEBRA A. HAALAND, NM, Vice Chair
GREGORIO KILILI CAMACHO SABLAN, CNMI, Vice Chair, Insular Affairs
ROB BISHOP, UT, Ranking Republican Member
Grace F. Napolitano, CA Don Young, AK
Jim Costa, CA Louie Gohmert, TX
Gregorio Kilili Camacho Sablan, Doug Lamborn, CO
CNMI Robert J. Wittman, VA
Jared Huffman, CA Tom McClintock, CA
Alan S. Lowenthal, CA Paul A. Gosar, AZ
Ruben Gallego, AZ Paul Cook, CA
TJ Cox, CA Bruce Westerman, AR
Joe Neguse, CO Garret Graves, LA
Mike Levin, CA Jody B. Hice, GA
Debra A. Haaland, NM Aumua Amata Coleman Radewagen, AS
Jefferson Van Drew, NJ Daniel Webster, FL
Joe Cunningham, SC Liz Cheney, WY
Nydia M. Velazquez, NY Mike Johnson, LA
Diana DeGette, CO Jenniffer Gonzalez-Colon, PR
Wm. Lacy Clay, MO John R. Curtis, UT
Debbie Dingell, MI Kevin Hern, OK
Anthony G. Brown, MD Russ Fulcher, ID
A. Donald McEachin, VA
Darren Soto, FL
Ed Case, HI
Steven Horsford, NV
Michael F. Q. San Nicolas, GU
Matt Cartwright, PA
Paul Tonko, NY
Vacancy
David Watkins, Chief of Staff
Sarah Lim, Chief Counsel
Parish Braden, Republican Staff Director
http://naturalresources.house.gov
CONTENTS
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Page
Hearing held on Tuesday, October 22, 2019, Part 1................ 1
Statement of Members:
Bishop, Hon. Rob, a Representative in Congress from the State
of Utah, prepared statement of............................. 7
Gonzalez-Colon, Hon. Jenniffer, Resident Commissioner from
the Commonwealth of Puerto Rico............................ 4
Grijalva, Hon. Raul M., a Representative in Congress from the
State of Arizona........................................... 1
Prepared statement of.................................... 3
Statement of Witnesses:
Bhatia Gautier, Hon. Eduardo, Minority Leader, Senate of
Puerto Rico................................................ 55
Prepared statement of.................................... 56
Cruz Soto, Hon. Carmen Yulin, Mayor, City of San Juan, Puerto
Rico....................................................... 83
Prepared statement of.................................... 84
Hernandez Montanez, Hon. Rafael, Minority Leader, Puerto Rico
House of Representatives................................... 71
Prepared statement of.................................... 73
Jaresko, Natalie, Executive Director, Financial Oversight and
Management Board for Puerto Rico........................... 13
Prepared statement of.................................... 15
Marrero, Omar, Executive Director, Puerto Rico Fiscal Agency
and Financial Advisory Authority........................... 8
Prepared statement of.................................... 10
Rios Santiago, Hon. Carmelo, Majority Leader, Senate of
Puerto Rico................................................ 52
Prepared statement of.................................... 53
Soto Torres, Hon. Antonio L., Member, Puerto Rico House of
Representatives............................................ 62
Prepared statement of.................................... 63
Additional Materials Submitted for the Record:
Haddock, Jorge, President, University of Puerto Rico,
Statement for the Record................................... 5
Schatz, Thomas Rivera, President, Senate of Puerto Rico,
Statement for the Record................................... 93
Vazquez Garced, Wanda, Governor of Puerto Rico, Statement for
the Record................................................. 95
CONTENTS
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Page
Hearing held on Wednesday, October 30, 2019, Part 2.............. 99
Statement of Members:
Bishop, Hon. Rob, a Representative in Congress from the State
of Utah.................................................... 100
Grijalva, Hon. Raul M., a Representative in Congress from the
State of Arizona, prepared statement of.................... 199
Sablan, Hon. Gregorio Kilili Camacho, a Delegate in Congress
from the Commonwealth of the Northern Mariana Islands...... 99
Statement of Witnesses:
Butin-Rivera, Lyvan A., Student Representative, University of
Puerto Rico................................................ 134
Prepared statement of.................................... 135
Questions submitted for the record....................... 141
Cubano, Liliana, President, Puerto Rico Products Association. 124
Prepared statement of.................................... 125
Questions submitted for the record....................... 132
Martinez, Adi, Senior Policy Advisor, Oxfam America.......... 174
Prepared statement of.................................... 176
Questions submitted for the record....................... 178
Martinez Otero, Heriberto, President, Puerto Rico Economists
Association................................................ 101
Prepared statement of.................................... 103
Questions submitted for the record....................... 105
Masses-Artze, Rodrigo, President, Private Alliance for the
Economic Growth of Puerto Rico............................. 169
Prepared statement of.................................... 170
Questions submitted for the record....................... 174
Mayol, Annie, President, Foundation for Puerto Rico.......... 181
Prepared statement of.................................... 183
Questions submitted for the record....................... 184
Ortiz-Garcia, Cecilio, Senior Fellow, The National Council
for Science and the Environment............................ 185
Prepared statement of.................................... 187
Questions submitted for the record....................... 189
Spiotto, James, Managing Director, Chapman Strategic Advisors 141
Prepared statement of.................................... 142
Questions submitted for the record....................... 153
Velazquez, Alvin, Associate General Counsel, Service
Employees International Union.............................. 105
Prepared statement of.................................... 107
Questions submitted for the record....................... 121
Additional Materials Submitted for the Record:
List of documents submitted for the record retained in the
Committee's official files................................. 199
LEGISLATIVE HEARING ON DISCUSSION DRAFT OF H.R. ____, ``TO AMEND THE
PUERTO RICO OVERSIGHT, MANAGEMENT, AND ECONOMIC STABILITY ACT OR
`PROMESA,' AND FOR OTHER PURPOSES--PART 1
----------
Tuesday, October 22, 2019
U.S. House of Representatives
Committee on Natural Resources
Washington, DC
----------
The Committee met, pursuant to notice, at 10 a.m., in room
1324, Longworth House Office Building, Hon. Raul M. Grijalva
[Chairman of the Committee] presiding.
Present: Representatives Grijalva, Napolitano, Sablan,
Lowenthal, Gallego, Cox, Van Drew, Cunningham, Velazquez,
DeGette, Soto, San Nicolas; Bishop, Gohmert, Lamborn, Wittman,
McClintock, Westerman, Johnson, Gonzalez-Colon, Hern, and
Fulcher.
Also present: Representative Garcia.
The Chairman. The Committee on Natural Resources will come
to order.
The Committee is meeting today and on October 30 to hear
testimony on the draft bill on the amendments to the PROMESA
Act of 2019.
Under Committee Rules, any oral opening statements at the
hearing are limited to the Chairman and the Ranking Minority
Member or their designees. This will allow us to hear from our
witnesses sooner, and help Members keep to their schedules.
Therefore, I ask unanimous consent that all other Members'
opening statements be made part of the hearing record if they
are submitted to the Committee Clerk by 5 p.m. today, or at the
close of the hearing, whichever comes first.
Hearing no objection, so ordered.
Let me begin with my statement.
STATEMENT OF THE HON. RAUL M. GRIJALVA, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF ARIZONA
The Chairman. We are here today to begin the first of 2
days of hearings on the legislation to make changes to PROMESA,
the Puerto Rico Oversight, Management, and Economic Stability
Act.
Today, we will hear from witnesses representing the
Governor and the Legislature of Puerto Rico, as well as the
Oversight Board and the Municipality of San Juan. Next week, at
the second hearing, we will hear from non-profit organizations
and representatives of labor and the private sector.
Many of you heard me say that when Congress drafted and
passed PROMESA, Democrats would have written a different law if
we were in the Majority. I believe then, and still do today,
that PROMESA relies too heavily on austerity measures falling
on the backs of ordinary Puerto Ricans to achieve the goals of
debt reduction and balanced budget. In this regard, the
amendments to PROMESA that are contained in the draft that we
will be discussing today deal with that.
The draft bill includes provisions to improve PROMESA's
implementation by defining essential public services, assigning
Federal funding for the operation of the Oversight Board,
reducing conflicts of interests, and auditing the public debt,
among other policy priorities. It also includes provisions to
address Puerto Rico's disaster recovery challenges.
The purpose of today's hearing, as well as the one next
week, is to receive feedback from all the stakeholders on the
draft's provisions. As a result, I want to encourage anyone who
is not able to be a witness at either hearing to submit
comments for the record. We want to hear from all interested
parties. We are not under any illusion that what we have
proposed is the best way to address the challenges the people
of Puerto Rico are facing because of the implementation of
PROMESA, or the recovery from Hurricane Maria, and we welcome
all those suggestions to improve this draft bill.
We have already received numerous comments, both in favor
and strongly opposed to some of the provisions in the draft.
You will hear many of those comments from our witnesses today.
However, I want to caution those who raise objections to the
way we are proposing to limit austerity measures to also offer
alternatives to accomplishing this goal.
I plan on doing all that I can to prevent the Oversight
Board from using the existing provisions of PROMESA as an
excuse to cause further suffering to the residents of Puerto
Rico. It is already the view of many that current policies
contained in several fiscal plans and annual budgets will
result in more social polarization, unemployment, extreme
poverty, and lower educational levels in Puerto Rico.
The draft bill also includes two coordinated provisions for
PREPA and the overall disaster recovery of the island that have
received significant opposition. Our goal in proposing these
provisions was to eliminate concerns, which have led to severe
delays in the release of recovery funds. Those concerns center
around Puerto Rico's ability or inability to manage billions of
Federal disaster funds in a transparent and open manner. To
address these concerns, we propose using practices that were
utilized during Hurricanes Katrina and Sandy recoveries.
We also provide an opportunity for municipalities and
community organizations to have input into recovery plans and
decisions in response to criticism that they had been shut out.
As with objections to our proposals for reversing austerity
measures and increasing transparency, we also expect to hear
alternatives to achieving our objective of expediting the
release of Federal disaster funds and increasing participation
in the recovery efforts.
In closing, I want to welcome our witnesses and thank them
for traveling all the way from Puerto Rico to be with us today.
I look forward to receiving your testimony, and continuing
to work with each of you in improving the lives of the people
you represent, and the ordinary people of Puerto Rico.
Like I said, this is a draft discussion. The legislation
and the provisions are intended to be draft. They are intended
to have feedback. They are intended for the discussion of the
members of this Committee to also raise their concerns, offer
alternatives, and, as we go forward, leading to a potential
markup, those issues will become more and more prominent as we
head toward the finalization of a piece of legislation.
[The prepared statement of Mr. Grijalva follows:]
Prepared Statement of the Hon. Raul M. Grijalva, Chair, Committee on
Natural Resources
We are here today to begin the first of 2 days of hearings on
legislation I am considering, to make changes to PROMESA--the Puerto
Rico Oversight, Management and Economic Stability Act.
Today, we will hear from witnesses representing the Governor and
Legislature of Puerto Rico as well as the Oversight Board and the
Municipality of San Juan. Next week, at the second hearing, we will
hear from nonprofit organizations and representatives of labor and the
private sector.
Many of you have heard me say that when Congress drafted and passed
PROMESA, Democrats would have written a different law if we were in the
Majority. I believed then and still do today, that PROMESA relies too
heavily on austerity measures, falling on the backs of ordinary Puerto
Ricans, to achieve its goals of debt reduction and balanced budgets.
It is in this regard, that I wrote the amendments to PROMESA that
are contained in the ``Draft'' we will be discussing today. The draft
bill includes provisions to improve PROMESA's implementation by
defining essential public services, assigning Federal funding for the
operation of the Oversight Board, reducing conflicts of interests and
auditing the public debt, among other policy priorities. It also
includes provisions to address Puerto Rico's disaster recovery
challenges.
The purpose of today's hearing as well as the one next week, is to
receive feedback from all stakeholders on the draft's provisions. As a
result, I want to encourage anyone who is not able to be a witness at
either hearing to submit comments for the record. We want to hear from
all interested parties. We are not under any illusion that what we have
proposed is the best way to address the challenges the people of Puerto
Rico are facing because of the implementation of PROMESA or the
recovery from Hurricane Maria and welcome all suggestions to improve
the draft bill.
We have already received a number of comments both in favor and
strongly opposed to some of the provisions in the draft. You will hear
many of those comments from our witnesses today. However, I want to
caution those who raise objections to the way we are proposing to limit
austerity measures, to also offer alternatives to accomplishing this
goal.
I plan on doing all that I can to prevent the Oversight Board from
using the existing provisions of PROMESA as an excuse to cause further
suffering for the residents of Puerto Rico. It is already the view of
many, that the current policies contained in the several Fiscal Plans
and annual budgets will result in more social polarization,
unemployment, extreme poverty, and lower educational levels in Puerto
Rico.
The draft bill also includes two coordinator provisions for PREPA
and the overall disaster recovery of the island that have received
significant opposition. Our goal in proposing these provisions was to
eliminate concerns--which have led to severe delays in the release of
recovery funds--about Puerto Rico's inability to manage billions of
Federal disaster funds in a transparent and trustworthy manner. To
address those concerns we propose using practices that were utilized
during Hurricanes Katrina and Sandy recoveries.
We also provide an opportunity for municipalities and community
organizations to have input in the recovery plans and decisions in
response to criticisms that they are being shut out.
As with objections to our proposals for reversing austerity
measures and increasing transparency, we also expect to hear
alternatives to achieving our objective of expediting the release of
Federal disaster funds and increasing participation in recovery
efforts.
In closing, I want to welcome our witnesses and thank them for
traveling all the way from Puerto Rico to be with us today. I look
forward to receiving your testimony and continuing to work with each of
you on improving the lives of ordinary Puerto Ricans.
______
The Chairman. I want to thank you again, and I want to now
yield to the Ranking Member, Miss Colon.
The floor is yours.
STATEMENT OF THE HON. JENNIFFER GONZALEZ-COLON, RESIDENT
COMMISSIONER FROM THE COMMONWEALTH OF PUERTO RICO
Miss Gonzalez-Colon. Thank you, Mr. Chairman. And thank
you, the witnesses, for coming here today.
I think the first thing we should be looking at today is
explaining the draft legislation to amend the Puerto Rico
Oversight Board management, better known as PROMESA. This bill
was enacted in 2016. I remember I was a Minority Leader at the
time in the Puerto Rico House of Representatives. I opposed
this bill, for two major reasons.
First, it gave a federally-appointed board power over
elected officials of a jurisdiction of more than 3 million
Americans living on the island that have no votes in the
Federal Government, other than the votes that I have in a few
committees in the House, and now in the amendment process on
the Floor. No other control board was named by officials for
whom the people could not vote. The members of the Board are
very capable, and should be greatly appreciated for their
unpaid service. But, again, it is as undemocratic as can be.
Relatedly, PROMESA's premise was that Americans of Puerto
Rico were solely to blame for the territory deficit and debt,
and I could not sponsor that premise. There was no recognition
that our area of the United States was underdeveloped and in
economic decline because of its unincorporated territory
status, a status that has denied our islands the economic
benefits of equal treatment in Federal laws and votes and those
making those laws. There does not appear to be the same
interest among the key leaders of improving PROMESA as there
were in the past in passing it, and somewhat late in the
process, but we should give it a try.
For that reason, I will not decide how until we hear a
witness today, but I have this initial inclination.
First, I truly believe that we should have a realistic
effort to amend PROMESA that requires a broad bipartisan and
bicameral support. That was the way it was done in 2016. We
should do the same thing now.
For instance, the draft includes different kinds of
controversial proposals regarding the debt. But in the other
way, I support provisions that are worth exploring. For
example, the bill seeks to define essential services to include
public safety, health care, education, and pensions.
It also incorporates language from H.R. 683, bipartisan
legislation introduced by Congressman Velazquez--and I am a co-
sponsor of that bill--that would encourage increased disclosure
requirements for persons employed by an oversight board to
manage potential conflicts of interest. And I will always
support measures that lead to more transparency and
accountability, as well.
On the other hand, the draft provision also established a
Reconstruction Coordinator from Puerto Rico, a Reconstruction
Coordinator for PREPA. In the past, I have been supporting and
advocating for a Federal Coordinator that could work with
various Federal agencies as a liaison to facilitate, access,
and speed up the disbursement of disaster funds for the island.
And that is the main issue. We approved the money, but still
now a lot of local agencies and Federal agencies are not
getting to a court to get that money down there.
And as currently drafted, the office of the Reconstruction
Coordinator will simply add more bureaucratic layers to the
process. And that is the main question. This coordinator will
likewise disrupt ongoing efforts to transform our energy system
and restructure the public corporation finances.
I believe we should also have a more in-depth discussion
regarding the purpose and intent of the infrastructure
Revitalization Coordinator, establish what type of life for
PROMESA, before we move forward to eliminate it, as the draft
bill proposed.
There are several issues that I do support, and many others
that we should have a more in-depth discussion.
Additionally, we must recognize that solving Puerto Rico's
fiscal and economic problems requires that we ultimately
address the root of the problems: our unequal territorial
status. Only through statehood will we be able to acquire the
necessary tools to grow our economy and ensure our island's 3.2
million Americans are being treated equally.
I look forward to hearing today's witnesses, and I thank
you.
Before yielding back, I do want to introduce for the record
this statement from the University of Puerto Rico President,
Dr. Jorge Haddock, as well as our Ranking Member of this
Committee, Rob Bishop.
The Chairman. So ordered.
[The information follows:]
Statement for the Record
Mr. Jorge Haddock, Ph.D.
President, University of Puerto Rico
Thank you, Chairman Grijalva and Ranking Member Bishop for the
opportunity to submit this written statement with our comments
regarding the Discussion Draft to amend the Puerto Rico Oversight,
Management, and Economic Stability Act of 2016 (also known as PROMESA,
Public Law 114-187) under the consideration of this Committee.
The University of Puerto Rico (``UPR'') was established by Puerto
Rico Law No. 12 of March 1903. Pursuant to Puerto Rico Law No. 1 of
January 1966, as a public institution of higher education, it is
required to serve the people of Puerto Rico responding to the ideals of
a democratic society such as ours. The mission of the University of
Puerto Rico is to meet the following objectives: (1) Knowledge creation
and dissemination in science and liberal arts, and service of the
community by professors, investigators, and other university personnel,
students and alumni; (2) Contribution to the development, culture, and
enjoyment of the aesthetic and ethical values of society. The
University must comply with the law that establishes it while
fulfilling its mission and vision.
Currently, the University of Puerto Rico has an enrollment of
approximately 52,036 students, a reduction of 5,884 students since
Fiscal Year 2017. Although Hurricanes Irma and Maria had an impact over
the island's demographics, UPR's enrollment experienced a decrease of
less than 1 percent from Fiscal Year 2013 to the current fiscal year.
The University offers 649 academic programs throughout its 11 campuses.
It has the highest annual graduation rate among all higher education
institutions on the island.
Since the enactment of PROMESA, the University of Puerto Rico has
seen a drastic reduction of the budget that will eventually have a
negative impact on the quality of its education, the number of low-
income students it can serve, and make it very difficult to fulfill its
mission and vision.
Prior to the enactment of PROMESA, the University received from the
central government a formula-based appropriation established by Law No.
2 of 1966 from the central government, which was equal to 9.6 percent.
For Fiscal Year 2017, prior to the implementation of the 2019 UPR
Fiscal Plan, the University received a total allocation of $879 million
from the central government. Since Fiscal Year 2017-2018, the UPR has
seen a reduction of an accumulated $379 million or 43 percent in the
funds allocated to the institution from the central government budget.
The graph below portrays the formula fund appropriations foreseen for
the following years, including the decreased allocation from the state.
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
In light of the huge funding cuts it was facing, the UPR
engaged in an urgent, yet effective, exercise to identify the areas
that required modifications to reach a sound fiscal system and to
update information and practices. This exercise included identifying
methods to become more efficient without sacrificing student excellency
and its accreditation. After an exhaustive revision of expenses, needs,
and priorities to ensure it could continue to function appropriately
and increase its sustainability, the University of Puerto Rico
developed an action plan with specific timelines and presented a Fiscal
Plan to the FOMB in compliance with the requirements established by
PROMESA.
The University revised its tuition exemption policy and the total
amount of financial aid, focusing now on students' high performance,
needs, and work study basis. Today, we estimate that 80 percent of the
undergraduate students are covered by scholarships or financial aid,
including Pell Grant, providing access to students with financial
needs.
Although the University is complying with its action and fiscal
plans, and headed toward achieving sustainability, in order to remain
competitive, it also needs to increase its investments in key areas.
Among these are: faculty; increased minimum wage; additional income
programs; investment in student services; financial systems and cloud
infrastructure; and pension reform, among others. Investment in those
key areas will result in modernization and a better allocation of
resources to the academic community. It would specifically benefit the
students directly in the short-, mid-, and long-term.
The Middle States Commission on Higher Education (MSCHE), as well
as other accreditation bodies, requires a certain level of full-time
faculty members. The American Association of University Professors
explains the importance of having full-time faculty members this way:
``. . . tenure protects academic freedom by insulating faculty from the
whims and biases of administrators, legislators, and donors, and
provides the security that enables faculty to speak truth to power and
contribute to the common good through teaching, research, and service
activities.'' In the UPR, crucial full-time faculty positions remain
vacant due to lack of funding. The aging workforce and faculty, similar
to the island's aging demographics, means that more professors will
retire annually and in light of the budgetary constraints, those
positions will remain vacant, placing our most prestigious programs and
their accreditations at risk.
The FOMB just requested an additional amount of $80 million to fund
the retirement pension plans. Those additional funds must come from an
already significantly reduced operational budget that supports the
minimum standards for the University of Puerto Rico. It is simply not
feasible, in such a short amount of time, to recover through sponsored
programs or grants the funds that were cut without making significant
investments.
The Federal Government has made substantial investments in the
University of Puerto Rico through grants. These have furthered
research, student services, and infrastructure improvements, among
others things. Additional reductions threaten the upkeep and protection
of these investments as well as the continuity of programs financed
with Federal funds. The University of Puerto Rico received over
$368,000,000 in grants from the Federal Government between Fiscal Years
2015 and 2018. The abrupt and drastic reduction of funding threatens
the maintenance and up-keep of infrastructure investments made with
Federal funds that benefit the students. The University of Puerto Rico
generates over 70 percent of the scientific publications on the island.
These infrastructure investments (labs, software, computers) help make
this possible.
Hurricanes Irma and Maria in 2017 aggravated the University of
Puerto Rico's dire economic situation. The total estimated in damages
to the University is approximately $176,000,000. The recurrent
financial cuts have reduced the University's financial liquidity,
substantially threatening the access to an allocation of $100,000,000
in CDBG-DR funds.
The financial adjustments already made by the University of Puerto
Rico have resulted in better management and use of funds, as well as a
culture of transparency and reporting throughout all units and
campuses. This institutional transformation is continuous. As a result,
once full funding is reinstated the use of funds will be optimized,
resulting in a return on investment that would be measured with
tangible metrics.
The University of Puerto Rico fully supports reinstating the funds
for its operation as established by Puerto Rico Law No. 1 of 1966 or,
$800,000,000 annually until termination of the Oversight Board pursuant
to Section 209 as included in Section 4 of the Discussion Draft
amending Section 201(b)(1)(B) of PROMESA. These funds will allow the
University of Puerto Rico to fulfill its major role as an essential
public service that is able to comply effectively with its obligations
and accreditation requirements. This amendment will ensure
accessibility of students to the best education possible, particularly
to those that do not have the economic capacity to afford a quality
higher education.
Thank you
______
Prepared Statement of the Hon. Rob Bishop, a Representative in Congress
from the State of Utah
Three years ago this Committee crafted a bi-partisan compromise
between the then Republican-controlled Congress and the Obama
administration Treasury Department to help bring stability to Puerto
Rico's quickly unraveling debt crisis. The effort it took for Congress
to come together and craft such a complex and balanced law was nothing
short of herculean. I was surprised we got it done.
It was made possible by the sincere and genuine commitments made by
both Democrats and Republicans to put aside politics, realize we were
dealing with an unprecedented situation, and work for the betterment of
the territory. At the time, there were no certain outcomes. We had a
choice: have Puerto Rico continue its chaotic spiral into decades of
litigation, or, provide them a legal mechanism for orderly and
equitable adjustment of debt.
There was no silver bullet then--nothing could cure decades of
fiscal mismanagement at this scale--and there isn't one now. But, with
PROMESA's enactment, we are in a far better situation than what the
territory faced in 2016.
Today, unfortunately, we sit here to consider the exact opposite of
what a bi-partisan compromise looks like. The Majority has decided to
propose an effort that would catastrophically dismantle every bit of
the balanced law that Congress and the Obama administration worked so
hard to put in place.
With such blatant disregard for the well-being of the island's
citizenry that this proposal represents, the question must be asked:
who does this benefit? The answer, much to my dismay but to the
surprise of no one is simple: Democrats would rather listen to their
radical special interests groups than to consider the detrimental
impacts this reckless proposal will have on the current fragile
situation.
I want to thank the Governor, Wanda Vazquez Garced, for declining
to appear at this fabricated circus, and instead deciding to send her
head of Federal affairs. A wise use of her time it would appear.
I would also like to acknowledge the steadfast presence of Ms.
Natalie Jaresko, the Executive Director of the Oversight Board, who has
the thankless job of balancing the actual real work of righting Puerto
Rico's debt crisis while having to also appear at these political
circus rings that my Democrat colleagues feel the need to schedule.
Nevertheless, Ms. Jaresko's testimony today will provide valuable
insight into the actual progress the Board and the new governor are
carrying out.
It is important we all remember what got Puerto Rico into this
mess: decades to fiscal mismanagement, a limitless appetite for
borrowing to pay for bloated government services, lack of adequate
structural reforms, and an inability to invest wisely in crucial energy
infrastructure.
Despite progress with the Board, little changed in the past 3 years
in Puerto Rico's government, other than the resignation of the previous
governor. Unfortunately, the prior governor refused to work
productively with the Oversight Board to make the difficult choices to
get the island on the path to fiscal and economic stability.
Hurricanes are not the main cause of the chaotic situation Puerto
Rico finds itself in today, they are merely another challenge the
island was ill-equipped to face due to a catastrophic breakdown in
local government that began long ago.
Unfortunately, the Democrat bill under consideration here today is
not a realistic step forward for the island, but another empty attempt
to halt real progress for our fellow Americans.
I thank the Resident Commissioner for her stalwart leadership and
the work she conducts to find real solutions for her 3 million
constituents, and I yield back.
______
The Chairman. Let me now invite our first panel.
Under Committee Rules, oral statements are limited to 5
minutes, but your entire statement will be made part of the
record, as submitted.
The lights go from green to yellow, and then it is over.
[Laughter.]
The Chairman. That will give us enough time to follow up
with the Members that are here with any questions that they
might have for you.
Let me begin with Mr. Omar Marrero, Executive Director of
the Puerto Rico Fiscal Agency and Financial Advisory Authority.
Sir, the floor is yours.
STATEMENT OF OMAR MARRERO, EXECUTIVE DIRECTOR, PUERTO RICO
FISCAL AGENCY AND FINANCIAL ADVISORY AUTHORITY
Mr. Marrero. Thank you. Good morning. Chairman Grijalva,
Ranking Member, Congresswoman Jenniffer Gonzalez-Colon, and
members of the Committee, it is a pleasure to be back in front
of you.
Governor Vazquez regrets that she was not able to attend
today because of a critical meeting with the U.S. Department of
Education to address, among other items, the freeze of more
than $1.5 billion in Federal funding earmarked for Puerto
Rico's public education system. The Governor asked me to attend
today to provide the administration's perspective on the
proposed amendments to PROMESA.
As you know, I serve as Chief Financial Officer for the
Government of Puerto Rico, and Executive Director of the Puerto
Rico Fiscal Agency and Financial Advisory Authority.
In addition, I would like to introduce the ex officio
member to the Financial Oversight and Management Board for
Puerto Rico, who is attending with me today.
Since taking office on August 7, 2019, Governor Vazquez has
made it a top priority to use the tools provided in PROMESA to
advance the interests of the people of Puerto Rico. To that
end, we have worked to establish a more collaborative
relationship with the Oversight Board. We prioritize moving the
debt restructurings forward, and meeting with various agencies
and instrumentalities of the government in order to implement
structural reforms and transparency within the government.
Our administration is fully committed to making progress
for the benefit of the people of Puerto Rico. We owe it to
them.
With regard to the proposed amendments to PROMESA, the
written statement submitted sets forth the Governor's position
of each of the amendments. However, I would like to highlight a
few of those positions here.
First, the proposed amendments related to territorial
relief for unsecured public debt. While the proposed amendments
may seem on their face to assist territories in relieving the
debt burden, we believe the effect of the proposed amendments
will be detrimental to Puerto Rico. Instead of being able to
fully access the bond markets in the future, we will be limited
to only the least optimal mechanism for funding future projects
such as secure or high interest bonds.
It would also make our restructuring more challenging, and
likely prolong the existence of the Oversight Board. And with
all due respect, we just want to get it done and terminate the
Oversight Board role in Puerto Rico.
Second, we would like to address the proposed amendments
that will create additional bureaucracy in the form of a public
credit comprehensive audit commission, an office of
Reconstruction Coordinator, and a Revitalization Coordinator
for PREPA. These functions are either unnecessary or are
already being addressed by the government of Puerto Rico and/or
the Oversight Board.
Specifically, first, there is no need for a public credit
comprehensive audit commission, because the Oversight Board has
already completed and published a comprehensive audit of Puerto
Rico's debt, and commenced litigation as a result thereof. Nor
is such a commission necessary to address future debt
obligations, as we are working with the Oversight Board to
incorporate certain debt management policies into the Title III
plan of adjustment. What we want to make sure of is that the
practices that took Puerto Rico to where we are today, that
they don't happen again. And we will make sure that doesn't
happen again.
Similarly, the office of Reconstruction Coordinator is
unnecessary, because the challenge Puerto Rico faces is
accessing Federal funding sources, not management of recovery
funds. As required by the Federal Government, Puerto Rico
established the COR3 as a centralized oversight authority to
manage and oversee disaster funding, hired third-party experts
with global disaster experience to implement best practices,
and implemented the transparency measures, including, without
limitation, a portal that provides detailed information about
the uses of Federal recovery funds provided to the island. No
other jurisdiction in U.S. history has come up with such
transparency measures.
Again, any amendment to PROMESA should be focused on
centralized coordination at the Federal level.
One option that needs to be is to really empower the
Federal disaster recovery coordinator to direct and liaise with
the various Federal agencies to assist the Puerto Rico
government in accessing Federal funding sources. Because, as
Congresswoman Gonzalez just mentioned, we need the close
coordination at the Federal level.
Finally, a Revitalization Coordinator for PREPA is
unnecessary, and could be damaging to the ongoing
transformation process. The government of Puerto Rico and the
Oversight Board are working together to bring private
management to the transmission and distribution system,
encouraging private investment in and building of new
generation, and creating a strong and predictable regulator.
We have made substantial progress toward that effort, and
are hoping to select a counterparty and begin implementation of
the transaction in early 2020. Appointing a coordinator for
PREPA will be disruptive to the ongoing process, and could
damage Puerto Rico's overall recovery.
In closing, on behalf of the Governor, I would like to
express our continued appreciation for the efforts of the
Committee to make PROMESA a more effective law that can better
meet the needs of the people of Puerto Rico. Congress and the
members of this Committee have always been great friends of
Puerto Rico, and we look forward to that continued partnership,
as well.
I am happy to take your questions, sir.
[The prepared statement of Mr. Marrero follows:]
Prepared Statement of Omar Marrero, Chief Financial Officer for the
Government of Puerto Rico and Executive Director of the Puerto Rico
Fiscal Agency & Financial Advisory Authority
Chairman Grijalva, Ranking Member Bishop, and members of the
Committee, I am Omar Marrero, the Chief Financial Officer for the
Government of Puerto Rico and Executive Director of the Puerto Rico
Fiscal Agency and Financial Advisory Authority (``AAFAF'', by its
Spanish acronym). Thank you for the opportunity to address the
Committee today on the proposed amendments to PROMESA.
i. introduction
It is a privilege to appear before you again this year, although
this time in a different capacity. I was appointed Executive Director
of AAFAF and CFO of the Government of Puerto Rico in July. Pursuant to
its Enabling Act, AAFAF serves as the fiscal agent for the Commonwealth
and its instrumentalities, and is tasked with communicating with the
Oversight Board and overseeing matters of fiscal planning and debt
restructuring on behalf of the Government of Puerto Rico. Prior to
serving as the Executive Director of AAFAF, I served as the Executive
Director of the Puerto Rico Public-Private Partnerships Authority and
the Central Office for Recovery and Reconstruction of Puerto Rico--
roles that involved close coordination with the Oversight Board and
Federal agencies.
Since taking office on August 7, Governor Vazquez has been focused
on promoting integrity and transparency in the public sphere and
working with AAFAF to move Puerto Rico forward and give the people of
Puerto Rico a bright future. Governor Vazquez and her administration
are determined to bring real progress to Puerto Rico. We believe that
Puerto Rico will benefit from cooperation between the Federal
Government, both the legislative and executive branches, the Oversight
Board, and the Government of Puerto Rico. It is in that spirit that we
address the proposed amendments to PROMESA today.
ii. general observations on proposed amendments
The proposed amendments are a good faith attempt to address certain
specific issues that have arisen in the implementation of PROMESA and
many of them are worthy of consideration. We are concerned, however,
that certain of the proposed amendments do not address critical issues
that have hindered the effectiveness of PROMESA and impose unnecessary
bureaucracy in areas where we are already making progress. We address
those issues here.
Fiscal Plan and Budgeting Process
The proposed amendments do not address the flawed fiscal plan and
budgeting process. PROMESA created a power-sharing arrangement that
contemplates the Oversight Board setting spending caps or limits within
which the Government of Puerto Rico determines spending in line with
its public policy. In certain instances, the Oversight Board has used
its fiscal plan and budgetary power to impose detailed spending
restrictions that have the effect of dictating public policy--an
approach that undermines the Government's powers and turns the
Oversight Board into something more akin to a control board. The lack
of a forum for the Government of Puerto Rico to challenge the Oversight
Board's decision to certify a fiscal plan or budget exacerbates this
problem. While we are working diligently with the current Oversight
Board to establish a more effective process, this concern with PROMESA
is broader than our current relationship and will impact how future
administrations and future oversight boards work together.
To address this issue, we submit that Sections 201 and 202 of
PROMESA should be amended to make clear that the Oversight Board's
fiscal plan and budgetary powers do not extend to determining day-to-
day operating level expenditures. In addition, Section 106(e) of
PROMESA should be amended to provide a mechanism for the Government of
Puerto Rico (but not other third parties) to review and potentially
challenge Oversight Board fiscal plan and budget certifications. This
would (1) allow the Government of Puerto Rico to enforce the key
provisions required in fiscal plan and budgets and (2) prevent abuses
of power that strip the Government of Puerto Rico of its ability to
make operational decisions.
Additional Bureaucracy
The proposed amendments would create additional bureaucracy in the
form of a Puerto Rico Public Credit Comprehensive Audit Commission, an
Office of Reconstruction Coordinator for Puerto Rico, and a
Revitalization Coordinator for Puerto Rico Electric Power Authority.
These functions are either unnecessary or are already being addressed
by the Government of Puerto Rico and/or the Oversight Board.
Puerto Rico Public Credit Comprehensive Audit Commission. The
Oversight Board has already completed and published a comprehensive
audit of Puerto Rico's debt and commenced litigation to invalidate
certain bond issues based on that audit. Repeating that exercise would
only result in an unnecessary expense and create a strain on resources.
Nor is such a Commission necessary to address future debt obligations
as we are working with the Oversight Board to incorporate certain debt
management policies into the Title III plan of adjustment that will
limit Puerto Rico's ability to incur debt in the future to an
appropriate level.
Office of Reconstruction Coordinator for Puerto Rico. Establishing
another agency to manage Puerto Rico's use of recovery funds is
likewise unnecessary. Puerto Rico established the COR3 to promote and
implement reconstruction efforts with efficiency, effectiveness, and
transparency. Among its many other functions, COR3 established a
transparency portal (found at https://www.recovery.pr/home) that
provides detailed information about the uses of Federal recovery funds
provided to the island. COR3 has been very successful in its mission
and has provided unprecedented transparency on the use of recovery
funds.
The challenges with regard to Federal funding relate primarily to
the difficulties in coordinating the various Federal agencies that
provide funding. The requirements for receiving the appropriated
funding are often opaque and seem to change regularly. We believe that
Puerto Rico would benefit from the Federal Government providing a
coordinator who could work with the various Federal agencies as a
liaison to assist the Puerto Rico Government in accessing the Federal
funding sources.
Revitalization Coordinator for Puerto Rico Electric Power
Authority. The Government of Puerto Rico and the Oversight Board share
a common goal of transforming the electric system in Puerto Rico. We
are working to bring private management to the transmission and
distribution system, encouraging private investment in and building of
new generation, and creating a strong and predictable regulator. We
have made substantial progress with well-known and qualified private
parties toward a contract for management of the transmission and
distribution system and hope to select a counterparty and begin
implementation of that transaction early in 2020. We have also
established the Puerto Rico Energy Bureau and begun the revamping of
the generation assets. Our goal is to address PREPA's liabilities
through a plan of adjustment in 2020 concurrently with the transition
to a private operator of the transmission and distribution system. We
expect the transition to the private operator to start in early 2020
and be completed by year-end. Appointing a Revitalization Coordinator
for PREPA would disrupt the ongoing process and potentially damage
Puerto Rico's overall recovery efforts.
iii. specific observations on the proposed amendments
In addition to the observations above, set forth below is a chart
that summarizes our positions on the specific proposed amendments to
PROMESA.
------------------------------------------------------------------------
Proposed Amendment Title Government Position
------------------------------------------------------------------------
Sec. 3. Federal Funding for We do not object to the Federal
Operation of Oversight Board Government paying for the Oversight
and Title III Proceedings Board's operational and Title III costs.
The Committee should consider, however,
the potential legal risk that doing so
provides additional support for the
argument that the Oversight Board's
actions are actions of the Federal
Government and that any debt
restructuring could therefore give rise
to takings claims against the Federal
Government.
------------------------------------------------------------------------
Sec 4. Definition of We oppose this amendment because a narrow
Essential Public Services definition of essential public services
could limit Puerto Rico's flexibility to
meet the needs of its citizens. If the
amendment is going to be included, then
we suggest that it be clear that the
word ``including'' means ``including
without limitation.''
------------------------------------------------------------------------
Sec 5. Definition of Economic We support this proposed amendment and
Growth suggest the Committee slightly modify
the proposed definition of
``expenditures and investments necessary
to promote economic growth'' to also
include expenditures sufficient to cover
funding for disaster recovery
activities.
------------------------------------------------------------------------
Sec 6. Disclosure By We support these new disclosure standards
Professional Persons because they facilitate transparency.
Employed by Court Order
The Committee may wish to consider
modifying the mechanics so that the
process works more effectively with the
standards already implemented in the
Title III process and does not create
additional cost or competing standards.
------------------------------------------------------------------------
Sec 7. Access to Information We oppose this proposed amendment for
several reasons including, without
limitation, the following:
First, this amendment could
infringe on privileges and immunities
that are important to the government
being able to function, such as the
attorney-client privilege and the
deliberative process privilege.
Second, this amendment could
result in bondholders having the ability
to obtain information that bondholders
would not otherwise be able to obtain
under the guise of free exchange of
information. That information could be
used to disadvantage Puerto Rico and the
Oversight Board in restructuring
negotiations.
Third, this amendment is
unnecessary because the Puerto Rico
Constitution provides sufficient
protections for parties seeking
information.
------------------------------------------------------------------------
Sec. 8. Puerto Rico We do not have a position on this
Infrastructure proposed amendment, but to the extent
Revitalization Repealed Title V of PROMESA is not repealed, we
suggest the Committee amend Title V to
include the Federal permitting process,
especially with respect to recovery
activities.
------------------------------------------------------------------------
Sec. 9. Territorial Relief We oppose the proposed new Title VIII of
for Unsecured Public Debt PROMESA because we believe the provision
would eliminate Puerto Rico's ability to
access unsecured credit in the future
resulting in Puerto Rico having to
borrow only secured debt.
------------------------------------------------------------------------
Sec. 10. Puerto Rico Public We oppose this proposed amendment for the
Credit Comprehensive Audit reasons set forth above.
Commission
------------------------------------------------------------------------
Sec. 11. Office of We oppose this proposed amendment for the
Reconstruction Coordinator reasons set forth above.
for Puerto Rico
------------------------------------------------------------------------
Sec. 12. Revitalization We oppose this proposed amendment for the
Coordinator for Puerto Rico reasons set forth above.
Electric Power Authority
------------------------------------------------------------------------
iv. conclusion
We appreciate the efforts of the Committee to make PROMESA a more
effective law that can better meet the needs of Puerto Rico. Our
comments are intended to be constructive in helping you evaluate the
proposed amendments and focus on areas where change can be most
effective. We look forward to working with you to achieve a brighter
future for the people of Puerto Rico.
______
The Chairman. Thank you. And please, sir, if you don't mind
extending the appreciation of the Committee to the Governor, we
understand that her presence at her meeting relative to the
education issue is of utmost importance, and, while we miss her
presentation, we understand the priority. So, I appreciate it
very much.
Mr. Marrero. Yes, sir.
The Chairman. Let me now introduce Ms. Natalie Jaresko,
Executive Director of the Financial Oversight and Management
Board for Puerto Rico.
The floor is yours.
STATEMENT OF NATALIE JARESKO, EXECUTIVE DIRECTOR, FINANCIAL
OVERSIGHT AND MANAGEMENT BOARD FOR PUERTO RICO
Ms. Jaresko. Chairman Grijalva, Ranking Congresswoman
Gonzalez, and members of the Committee, thank you for this
opportunity to update the Committee on the Board's work on
behalf of the people of Puerto Rico.
I have submitted written testimony for the record and look
forward to your questions.
In 2016, Congress passed PROMESA in a bipartisan manner.
While we could all think of ways of improving compromise
legislation such as this, the fact is PROMESA is working.
Together with the new governor, Wanda Vazquez, and her
administration, the bipartisan Oversight Board is making
substantial progress on restructuring Puerto Rico's debt, and
is continuing to improve fiscal responsibility and management
on the island.
Last month, the Board filed its proposed plan of adjustment
to restructure $35 billion of debt and other claims against the
Commonwealth, the Public Buildings Authority, and the
employment retirement system, and more than $50 billion of
unfunded pension liabilities. That plan reduces $35 billion in
Commonwealth liabilities to $12 billion. That plan limits the
annual maximum debt service from $4.2 billion to an annual $1.5
billion. That plan keeps debt service to a sustainable level of
less than 9 percent of government-owned source revenue,
compared to 28 percent prior to PROMESA.
It creates a debt management policy to ensure that Puerto
Rico never again finds itself in this position, it provides
that 74 percent of current and future pensions are not cut, and
it establishes a multi-billion-dollar trust to support the
payment of pensions for the next 30 years. It restores $1.3
billion of mandatory employee contributions that no longer
exist, and assumes new collective bargaining agreements with
public-sector unions to give them predictability and certainty.
In sum, this plan represents a series of compromises on the
part of various stakeholders who all recognize the need to give
Puerto Rico a fresh start. Together with COFINA, GDB, PREPA and
PRASA, we are finally moving forward with restructuring most of
Puerto Rico's debt.
In addition to restructuring this immense debt load,
PROMESA charges the Board with helping Puerto Rico to achieve
fiscal sustainability. And to do this, Puerto Rico must focus
its efforts on implementing structural reforms to improve the
economy's competitiveness, managing its scarce funds more
efficiently, consolidating the government agencies that exist,
and attracting high-quality managers to a smaller, better-
managed government.
If spending alone was the answer, the decades of excessive
spending that led to this accumulation of debt would have left
Puerto Rico with efficient infrastructure and robust government
services. But it did not. That is because it is not just the
amount of spending that matters, but how efficiently it is
spent.
For example, just last year the Department of Education in
Puerto Rico underspent $56 million of its budget, despite the
need to improve educational outcomes. The Department of
Corrections left $22 million unspent, despite clear needs of
adult and juvenile facilities. At the police bureau, $35.8
million went unspent, despite clear needs for investment in
personnel, and more and newer equipment. At the Highway and
Transportation Authority last year, only 30 percent of
available funds for investment into roads was used, despite the
overwhelming need for repair.
As I stated at the beginning, PROMESA is working. Having
said that, we agree that certain parts of the discussion draft
would improve PROMESA. For example, the proposed provision
authored by Representative Velazquez to expand certain
disclosure requirements for professionals in the Title III case
would be effective at avoiding conflicts of interest and
creating greater transparency.
On the other hand, as my colleague has noted, the Board is
concerned that other parts of the discussion draft, while well-
intentioned, could compromise the Board's ability to fulfill
its mandate under PROMESA. For example, the unsecured debt
discharge language may make it harder and more expensive for
the Board to restructure Puerto Rico's debt. The provision on
essential services could have the opposite of its intended
effect, because it provides ammunition to those arguing and
litigating that the Board should be limited to funding only
those services that are truly essential, and only at the bare
minimum.
Finally, installing a Federal Revitalization Coordinator
for PREPA would disrupt the transformation of the energy
sector, which is well underway. The recently filed proposed
plan of adjustment in ongoing work restoring fiscal
responsibility and management has brought us substantially
closer to satisfying the conditions that PROMESA establishes
for termination of this Oversight Board. Rather than focusing
on changes to PROMESA, we remain committed to working with the
government to fulfill the mandates of PROMESA so that Puerto
Rico can reach its real potential, where businesses can have
the confidence they need to invest, and the people of Puerto
Rico can live in a vibrant and sustainable economy.
Thank you.
[The prepared statement of Ms. Jaresko follows:]
Prepared Statement of Natalie Jaresko, Executive Director, Financial
Oversight and Management Board for Puerto Rico
Chairman Grijalva, Ranking Member Bishop, and members of the
Committee, I am Natalie Jaresko, Executive Director of the Financial
Oversight and Management Board for Puerto Rico (the ``Board'' or
``Oversight Board''). Thank you for this opportunity to update the
Committee in this hearing on the work the Board is doing for the
benefit of the people of Puerto Rico. Since I testified before this
Committee on May 2, 2019, the Board has made substantial progress
toward achieving its mandate under PROMESA. I also appreciate the
chance to comment on the PROMESA discussion draft and the impact of its
proposed changes on the Board's work.
i. introduction
Before PROMESA was adopted, Puerto Rico faced an unsustainable
burden of more than $70 billion in debt and more than $50 billion in
unfunded pension liabilities, exacerbated by a decade of economic
decline and significant outmigration. The sitting governor had declared
the debt was unsustainable and could not be paid, and more than 300,000
people--10 percent of the population--had already left the Island in
search of greater economic opportunity. Nonetheless, government
spending remained bloated, government services were inefficient,
liquidity shortfalls impaired strategic decision making, and no multi-
year, coordinated strategy existed to restore growth and opportunity to
the people of Puerto Rico. In 2016, Congress through PROMESA provided a
way forward for Puerto Rico.
As the Board got underway with its work, Hurricanes Irma and Maria
inflicted the most horrific natural disaster devastation to strike the
United States in 100 years, compounding the financial and humanitarian
distress to the Island and its people. The Board worked extensively
with the Government in joint post-hurricane efforts, including the
critical importance of transforming the power sector to be more
reliable, resilient, and cost-effective. The Board continues to support
the efforts of the Puerto Rico Government and the U.S. Government to
provide the critical disaster relief funding to the Island and its
residents.
This summer the people of Puerto Rico spoke clearly about their
demands for better governance and more responsive government services.
The resignation of Governor Rossello was complex and disruptive to the
ongoing work of the Puerto Rico Government for the Island and the
people of Puerto Rico. However, it did not deter the Board in carrying
out its obligations under PROMESA and persisting in its work to assure
the efficient and effective delivery of those important government
services. The Board has continued to work with the elected leaders of
Puerto Rico to provide its people with the stability needed by all
stakeholders. Since Governor Wanda Vazquez took office on August 7, the
Board has engaged in a collaborative, working relationship with the
Governor and her team. In addition to three working meetings of the
Governor and the Board, the Board has held dozens of meetings with the
Governor's team on fiscal plan and budget implementation. We have made
great progress working together, despite ongoing differences which
remain.
As you know, a significant aspect of the Board's responsibility for
administering the largest public entity restructuring in U.S. history
includes defending against nearly 100 lawsuits filed in opposition to
the Board's certified fiscal plans and budgets formulated to carry out
PROMESA. Predictably, those creditors dissatisfied with the proposed
Plan of Adjustment the Board recently filed are also gearing up to
launch challenges to the Board's plan proposal. The Board continues to
try to resolve these disputes as fairly and expeditiously as possible
consistent with the mandates of PROMESA. The Board also continues to
monitor more than 120 reform implementation plans the Board inserted
into its certified fiscal plans, necessitating hundreds of working
meetings with the Government and Legislature, and numerous hearings, as
well as town hall meetings across the Island with members of the
public.
The month of September was of particular significance for the
Board's work. Last month we filed our proposed Plan of Adjustment for
the Commonwealth and a proposed disclosure statement explaining it.
This filing is a major milestone for the Board, as it addresses over
$35 billion of debt and other claims against the Commonwealth of Puerto
Rico, the Public Buildings Authority (PBA), and the Employee Retirement
System (ERS), and more than $50 billion of pension liabilities, and
represents the beginning of the end of the bankruptcy-like state that
Puerto Rico has been in since 2017. I will discuss the proposed Plan of
Adjustment in detail further in my testimony.
I will now cover the Board's main accomplishments since my previous
testimony in the areas of debt restructuring and fiscal plan
implementation and responsibility.
ii. debt restructuring and the plan of adjustment
On September 27, after years of extensive negotiations, the Board
filed its proposed Plan of Adjustment (the ``Plan'') to restructure $35
billion of debt and other claims against the Commonwealth of Puerto
Rico, PBA, and ERS, and more than $50 billion of pension liabilities.
The Plan has five main elements of debt restructuring: the debt of
the central government, the debt of PBA, the debt of ERS, claims
against the Commonwealth alleging wrongful clawback, as well as general
unsecured claims against the Commonwealth, PBA, and ERS. Combined,
those elements comprise about $35 billion in debt and claims, which the
Plan seeks to haircut by more than 60 percent.
The Plan would significantly reduce debt service from $82 billion
over 30 years to $44 billion. Together with the debt of COFINA, which
the Board restructured earlier this year through the Title III process,
the amount the Government would have to spend on servicing its debt
would fall from a maximum of $4.2 billion a year to $1.5 billion a
year--a substantial reduction that leaves Puerto Rico with an amount it
can sustainably afford over the next 30 years.
The proposed Plan has 10 key points:
1. Reduces $35 billion in Commonwealth liabilities to $12 billion.
2. Ensures sustainable and affordable annual debt service of less
than 9% of government own-source revenue (from 28% prior to
PROMESA).
3. Ensures that 74% of current and future pensions are not cut.
4. Establishes a trust supporting pensions for 30 years.
5. Provides predictability to public employees via collective
bargaining agreements.
6. Restores $1.3 billion of withheld employee contributions to
Sistema 2000, which was until recently a virtually defunct
employee-funded retirement benefit fund.
7. Creates a mechanism to settle claims against challenged bonds.
8. Creates a mechanism to eliminate pension cuts to the extent that
in any fiscal year the surplus is greater than projected.
9. Allows retail bondholders to elect bonds with monthly interest
payments.
10. Establishes a debt management policy to ensure Puerto Rico never
again finds itself in this situation.
In sum, this Plan represents a series of compromises on the part of
various stakeholders who all recognize the need to move Puerto Rico out
of Title III and toward a future of prosperity. All supporters of this
Plan have compromised for the good of Puerto Rico.
A. PROMESA Requirements for Confirmation of the Plan:
It is important to remember that PROMESA requires that the Title
III Court confirm the Plan before it can become effective. For example,
the Court must conclude that the Plan is feasible and in the best
interests of creditors collectively. The Board believes this Plan is
feasible and in the best interests of all creditors because it
restructures Puerto Rico's debt and pension liabilities in a way that
provides reasonable compensation to creditors without endangering
Puerto Rico's fiscal future, while ensuring pensions and enabling
Puerto Rico's renewed growth and investments needed to prosper. Without
satisfying these legal requirements, Puerto Rico cannot exit Title III.
That is why consensual support from retirees, public employees and
bondholders is helpful to lifting the cloud of bankruptcy that
endangers Puerto Rico's future well-being. With the support of these
groups, the Board demonstrates that it has struck a fair balance in the
best interest of all parties for a realistic restructuring Puerto Rico
can afford.
B. Stakeholder Support of the Plan:
The Board has, after months of rigorous negotiations, secured the
support of three significant stakeholder groups for the Plan:
the Official Committee of Retirees (COR), which represents
retired government employees;
a group of current government employees represented by the
Public Service Union, the Puerto Rico chapter of AFSCME;
and
the Lawful Constitutional Debt Coalition (LCDC), a group
of investors and funds who hold Puerto Rico's general
obligation bonds and PBA bonds.
C. Public Employee Retirees:
Consistent with the consensual plan support agreement reached with
the Official Committee of Retirees, the Plan restructures pension
liabilities for the long-term, protects more than 74 percent of current
and future retirees from any reduction, and ensures a reasonable
reduction in pensions overall. Pensioners are considered unsecured
creditors under the Title III restructuring process, whose treatment
under the Plan will have to be approved by the Court. That makes the
Board's consensual agreement with COR an important element of the Plan.
The Board agreed with COR to a flat 8.5 percent pension cut provided
that no one will have their total monthly retirement benefits reduced
below $1,200. The Board also agreed the Commonwealth would establish a
pension reserve fund for the PayGo pension system to support payment of
pensions over the next 30 years. Moreover, if in any given year the
surplus is larger than projected, 10 percent of the incremental surplus
will be reserved to restore the pension cuts of that year.
D. Public Employees:
As to public employees, the Plan covers over 11,000 active public
employees and union members in eight agencies of the Government. The
Board and the Public Servants United of Puerto Rico/AFSCME Council 95
(``SPU'') reached an agreement that secures collective bargaining
agreements, protects workers from further compensation cuts, provides
workers with bonuses, and ensures savings projected in the Fiscal Plan.
The proposed Plan includes the following benefits for public employees:
1. Collective bargaining agreements will remain in effect for 5
years, reflecting labor terms in the Fiscal Plan.
2. Guarantees stability in the working conditions of employees and
prevents further cuts to workers' benefits.
3. Any bonus or economic benefits to public employees lawfully
granted by the Government will also apply to SPU members.
This agreement, thus, represents the baseline of treatment
of public employees.
4. At least $1.3 billion of employees' contributions to Sistema 2000
will be restored.
5. Signing bonus of $1,000 to all SPU members that ratify the
agreement.
6. Employer contribution to medical plan set at $170 per month,
rather than the $125 previously proposed.
7. Establishes a $5 million trust for healthcare to support
transition of employees for whom $170 per month is below
their current benefit.
8. Affiliates may keep the right to negotiate the Single Medical
Plan, and they will not have to be changed to the
Government's health plan.
9. If Government outperforms the Fiscal Plan, 25% of the excess will
be allocated to public employees in that year,
incentivizing employees to help the Government work more
efficiently.
The Board is seeking to broaden active public employee support for
the Plan. As you may know, the Board negotiated a preliminary agreement
with the ``Asociacion de Maestros'' (AMPR), represented nationally by
the American Federation of Teachers. Unfortunately, AMPR was not able
to secure a majority vote in support of the agreement with the Board.
The Board is hopeful that the filing of the proposed Plan will
encourage AMPR to reconsider engaging with the Board.
For the prosperity of all government employees, it is important to
move on, to leave this state of financial distress behind, to build a
secure future for Puerto Rico. This secure future can only be built
working hand in hand with the public sector employees who are critical
to the success of Puerto Rico. For too long, so much was taken away
from them. We look forward to continuing our discussions with other
unions and groups so that they can also be consensual parts of this
process.
E. Bondholder Support:
As to the LCDC bondholders, their agreement with the Board includes
meaningful reductions of the par value of Puerto Rico outstanding bonds
and sustainable, affordable debt service payments over the next 30
years. The Board remains committed to negotiations with additional
bondholders who have yet to support Puerto Rico in this effort to
secure an affordable level of debt and to rebuild a path to renewed
prosperity.
F. Debt Investigation and Challenges:
Under PROMESA, the Board undertook a careful review of any
potential legal infirmities of the debt that was issued by Puerto Rico
and its various agencies and instrumentalities. A Special Investigation
Committee of the Board hired Kobre & Kim to conduct a comprehensive
study of Puerto Rico's debt and its relationship to the financial
crisis. In light of the Kobre & Kim findings, the Board immediately
created a Special Claims Committee to determine whether any of Puerto
Rico's debt should be challenged and to bring any other litigation
involving the debt. As a result of this review, in January, 2019, the
Board, along with the Official Committee of Unsecured Creditors (UCC)
objected to the validity of over $6 billion of general obligation (GO)
bonds as exceeding the debt limit in Article VI, Section 2, of Puerto
Rico's Constitution (the ``Challenged Bonds''). This includes all GO
bonds--bonds backed by the full faith and credit of Puerto Rico--issued
by Puerto Rico in 2012 and 2014.
This challenge was followed by other legal challenges, filed by
other parties, to additional bond issuances:
the UCC challenged the validity of approximately $2.1
billion of GO and PBA bonds issued in and after March 2011
as exceeding the constitutional debt Limit;
the UCC and the Official Retiree Committee challenged the
validity of over $3 billion of bonds issued by ERS
asserting that ERS lacked the authority to issue the bonds;
and
an ad hoc group of bondholders argued that if the
arguments in the Board's objection are sustained, then
certain GO and PBA bonds issued from and after 2009 may
also be invalid.
These objections are forward-looking, meaning they are to determine
whether Puerto Rico must repay obligations on these bonds in the
future. To the extent, however, that any debt is determined to be
invalid, the Commonwealth may be able to collect back prior payments of
principal and interest on invalid debt. Thus, to preserve Puerto Rico's
rights, other ``backward'' looking litigation was initiated by the
Board:
The Board and the UCC filed the ``Underwriter Complaint''
against over 20 banks, law firms and other parties to
recover fees they earned when they helped Puerto Rico and
certain of its instrumentalities issue nearly $9 billion of
bonds. The Underwriter Complaint alleges that these parties
aided and abetted the Government Development Bank's breach
of its fiduciary duty to the people of Puerto Rico and, as
a result, were unjustly enriched by receiving hundreds of
millions of dollars in fees.
The Board and the UCC filed several hundred complaints
against entities to recover payments they received on
account of the Challenged Bonds in the Title III cases. The
Board also initiated litigation against large bondholders
who own at least $2.5 million worth of the Challenged
Bonds. If the objections to the validity of the Challenged
Bonds are successful, then payments of purported principal
and interest may constitute fraudulent transfers that can
be recovered by Puerto Rico.
When determining whether to object to the validity of the GO bonds
and commence the related litigation, the Board considered its fiduciary
responsibility to challenge debt that violates Puerto Rico law. The
laws of Puerto Rico limit government borrowing authority for a reason:
to prevent the Government and its financiers from obligating Puerto
Rico and its instrumentalities, as well as taxpayers and legitimate
creditors, to a level of debt that cannot be repaid without sacrificing
services necessary to maintain the health, safety, and welfare of
Puerto Rico and its people.
G. Final Confirmation of the Plan of Adjustment:
The Board continues to negotiate with other groups to build an even
stronger coalition of those willing to step forward and close this
chapter of financial distress consensually. There may be amendments to
the Plan of Adjustment as the Board brings additional stakeholders to
support the Plan. The Board hopes the Title III court will be in a
position to confirm the Plan in 2020.
iii. fiscal plan implementation and fiscal responsibility
The Board's duties and empowerment under Title II of PROMESA, as
you will recall, center around the development and certification of
multi-year fiscal plans which must balance competing priorities
enumerated in the law and review or formulation, and certification of
governmental budgets consistent with those fiscal plans.
A. Prioritizing Critical Spending:
In June 2019, the Board certified Fiscal Year 2020 budgets for the
Commonwealth of Puerto Rico, the Puerto Rico Electric Power Authority,
the Puerto Rico Aqueduct and Sewer Authority, the Highways and
Transportation Authority, the University of Puerto Rico, and COFINA.
All these budgets are in full force and effect.
The total amount of government spending (including General Fund,
Special Revenue Funds and Federal Funds) for Fiscal Year 2020 is $20.2
billion, which is broken down to the following priorities: 21% for
health, 17% for education, 13% for pensions paid via PayGo, 12% for
families and children, and 5% for public safety.\1\ For example, the
budget provides for increased salaries (a 30% increase over 2 years)
and benefits for police officers and more funding to purchase bullet
proof vests, radios, and vehicles. Moreover, police officers will
receive Social Security for the first time in this year's budget to
provide them a more secure future retirement.
---------------------------------------------------------------------------
\1\ See the Board's Fiscal Year 2020 budget presentation at:
https://drive.google.com/file/d/1woI5 fhb02lfnW4GbF-B4xkgauDarWBSQ/
view.
---------------------------------------------------------------------------
In addition, the budget raises teachers' and school principals'
salaries for the second consecutive year and the salaries of
firefighters. Notwithstanding these and other spending increases in
priority areas, right-sizing the Government to create more efficient
government services continues: professional fees declined by 30 percent
year over year, and redundancy in administration within agencies is
being reduced via consolidation of the more than 120 government
agencies and public corporations.
As in prior budgets under the Board's oversight, the Fiscal Year
2020 budget intentionally does not provide for the Government spending
all the revenues it collects in the current fiscal year. For example,
much of the projected surplus of $2.6 billion is being reserved to
protect future pension payments and manage other legacy obligations
such as the debt. Given the limited structural reforms agreed upon with
the Government and outlined in the Fiscal Plan generate insufficient
growth to maintain long-term balanced budgets, some of the currently
projected surpluses are dedicated to fund PayGo payments for retirees
in those years when the Government projects a deficit. This is to
ensure that retirees never again have to worry about future governments
lacking the resources to fully pay their pension. The only solution to
the unfortunate forecast return to deficits is increased commitment to
new and additional structural reforms to make the economy of Puerto
Rico more competitive and economic development more certain.
Recently, the Board has been working closely with AAFAF and OMB to
better understand the Department of Education and Correctional
Department needs. Both the Department of Education and the Department
of Corrections concluded Fiscal Year 2019 underspending their budgets,
in personnel as well as and capital expenditures in some cases. Thus,
more detailed analysis of the actual needs is necessary and underway to
determine how funds can be best allocated to priority areas, while
ensuring their efficient utilization.
B. Improved Financial Transparency in Government:
The Fiscal Year 2020 budget includes four sets of major
improvements in budgeting practices. First, the Board worked with the
Government to provide a deeper level of detail in the budget, detail
that had not previously been available to the Legislature or public,
enabling a better understanding of how funds are being spent. Second,
the consolidated budget is more comprehensive and captures items not
budgeted previously, including all cash subsidies, which amount to
approximately $428 million in Fiscal Year 2020. Moreover, the Fiscal
Plan calls for the Government to consider limiting tax credits issued
each year by capping the notional amount authorized, and including
sunset provisions that eliminate the ability to claim unused credits
previously issued. The Government also now has the capacity to make
decisions around limiting and more selectively targeting tax
expenditures based on the recent publication of the first-ever tax
expenditures report. Third, the published budget resolution includes
more detailed specific concepts of spending within the personnel and
non-personnel categories for each agency to provide a more detailed
look at how the Government uses its funds. Finally, a series of budget
controls are established within the budget to improve fiscal
responsibility and discipline.
The Government has much more work to do to improve its budgeting
practices. The Government still operates with six different accounting
systems that need to be consolidated to provide better accountability
over spending and visibility in budgeted to actual spend reporting. The
Government also needs to finally complete the delayed financial audits
for Fiscal Years 2017 and 2018. Completion of the overdue audits and
implementing a process that will ensure best practices in issuance of
the audited financial statements going forward (completed within 180
days of the end of the fiscal year) is a critical element of fiscal
responsibility.
C. Importance of Disaster Aid:
The Fiscal Plan assumes the government of Puerto Rico receives $75
billion in Federal disaster aid funding over more than a decade. This
funding is critical to restoring resiliency to the power grid, to
rebuilding schools, roads, and other critical infrastructure, and to
generating positive economic growth on the Island.
Unfortunately, this Federal aid, particularly public assistance
funding from FEMA and CDBG-DR funding from HUD, has been slow to
obligate and disburse. More than 2 years after the tragedies of
Hurricanes Irma and Maria, very few permanent work projects have begun.
This is highly unusual and does not remotely match the timeline from
other disasters such as Hurricane Katrina and Hurricane Harvey.
Additionally, of the $19.9 billion in CDBG-DR funds allocated to Puerto
Rico, only $1.5 billion has been made available and only a fraction of
that amount drawn down. Moreover, another $8.2 billion still requires
HUD's authorization to release and $10.2 billion requires HUD's
publication of notice in the Federal Register.
The rapid and efficient deployment of this funding is critical to
meeting fiscal plan targets and long-term recovery prospects.
D. Ensuring Fiscal Responsibility in Municipal Government:
The Board announced its decision in May to require a fiscal plan
from Puerto Rico's property tax collection agency, CRIM. Since then,
the Board has been working with CRIM to outline a series of measures to
improve collections without increased tax rates. The primary goals for
the CRIM fiscal plan include strategies to update the property
registry, revise the classification and valuation of registered
properties, review administrative guidance regarding exemptions and
exonerations, and improve enforcement and collection efforts.
Notwithstanding ongoing litigation between the Board and the
Commonwealth surrounding Act 29-2019, which burdens the Central
Government with the municipalities' pension and healthcare costs, the
Board seeks to continue working with CRIM to review and certify its
fiscal plan in the upcoming weeks.
The Board also designated all 78 municipalities as covered
instrumentalities under PROMESA, though it has required a fiscal plan
from only 10 municipalities at this time. The Board selected these
municipalities after considering a combination of factors including
fiscal challenges, impact of the reduction of transfers from the
Central Government, and their experience implementing innovative and
creative initiatives and collaborating with other municipalities. This
was a proactive step toward helping the municipalities avoid
insolvency, finding a path toward financial stability and economic
development, and enabling municipalities to do what they do best: serve
the needs of their residents. Following the certification of the CRIM
fiscal plan, the Board will proceed with the review and certification
of the municipality fiscal plans, including spending efficiency
measures, such as intermunicipal shared services arrangements, programs
to improve and optimize local revenue collection, economic development
guidelines, and decentralization proposals. Throughout this fiscal plan
development process, the Board has been visiting the municipalities and
working with the mayors to better understand their realities. Just 2
weeks ago, for instance, Chairman Carrion and I visited the
municipalities of Aibonito and Barranquitas to hear about the
successful collaboration between their municipalities and Comerio in
the provision of permits and other shared services. I want to
personally thank all the mayors for their commitment to this process.
E. Transformation of the Island's Power Sector:
The Board continues to work with Government on the transformation
of PREPA to ensure reliable energy for the residents, more effective
and efficient management, as well as lower fuel costs. The Board and
the Government are in full agreement that private management of the
transmission and distribution system, as well as generation, are key to
these improvements. The Board is working collaboratively with the
Government on the pending Request for Proposal process for selection of
a private operator for the grid and strongly supports the Government's
efforts to secure FEMA funding to help with the cost of restoration and
reconstruction of an affordable, resilient, and reliable power system
that is environmentally compliant and that serves as a driver of
economic growth. Selection of this operator and securing this Federal
funding in the next few months are critical next steps in the
modernization of PREPA which is essential to increased economic
development on the Island. In order to ensure that PREPA adheres to its
Fiscal Plan and the rate-reduction initiatives required, the Board is
holding regular meetings with the PREPA Governing Board to ensure the
PREPA Governing Board and PREPA management are all aligned.
F. Title V:
On August 12, the Board designated the $5.3 million expansion of
the Fajardo Municipal Landfill as a critical project under Title V of
PROMESA. The Fajardo Municipal Landfill serves as the primary municipal
and commercial disposal site for the north-eastern region of Puerto
Rico, serving nine municipalities. Engineering estimates state that the
current disposal space would be available for only 3 additional years,
and the expansion represents approximately 20 additional years of
operating capacity for this critical infrastructure. The project
complies with the fundamental criteria to be considered a critical
project and addresses two of the Island's most pressing issues: the
need to diversify energy generation and to tackle the solid waste
management crisis. During a recent visit, I was impressed with the
facility and management's plans for the future. The landfill has a
four-megawatt gas-to-energy operation and the expansion will allow the
site to reach full capacity.
G. The Board's Operations:
The Board remains a small organization, with a flat hierarchy. One
of its organizational goals during Fiscal Year 2019 was to take
advantage of Puerto Rico's incredible talent to build organizational
strength through local recruiting, thereby reducing costs and the use
of third-party mainland consultants. The overwhelming majority of the
new hires are Puerto Ricans, several of whom have returned from the
U.S. mainland to help the Island recover. The expenses incurred by the
Board in carrying out its mission are substantial and necessary.
Nevertheless, the Board was able to reduce its Fiscal Year 2020 budget
by 11 percent from a year earlier, to $57.6 million.
On July 31, the Board released its Fiscal Year 2019 annual report
and sent it to the Governor of Puerto Rico, the Legislature, the U.S.
Congress and the U.S. President, as required by PROMESA.\2\
---------------------------------------------------------------------------
\2\ See the Board's Fiscal Year 2019 Annual Report at: https://
drive.google.com/file/d/19wcmgD-iYwi_JAsSGYWL_WK5kXJJggwV/view.
---------------------------------------------------------------------------
iv. fiscal plan for the university of puerto rico
As I stated in my prior testimony, the University of Puerto Rico
(UPR) is undeniably a center of academic excellence and a source of
pride for all Puerto Ricans. There's probably not one person in Puerto
Rico who would disagree with that statement. The Board believes that
UPR is genuinely one of the best things that Puerto Rico has to offer.
The Board remains committed to targeted measures to increase revenues
and reduce expenditures essential to UPR operating sustainably and
ensuring it remains at the center of Puerto Rico's successful economic
development. The reforms are focused on maintaining the ability of all
students to access and benefit from an improved university system.
As you will recall, the Government has been subsidizing UPR at a
rate far exceeding the average for mainland U.S. states--roughly 70%
instead of 20-30%--and at a time when it can no longer afford these
subsidies in light of its own financial pressures. The UPR Fiscal Plan
focused on creating savings by consolidating back-office functions
across UPR's 11 campuses and improving procurement processes. Eleven
campuses do not require 11 duplicative administrations. No cuts to
faculty or student services are, or have ever been, planned, or are
they necessary, if certain administrative savings and a new focus on
improving revenues are implemented.
Revenues are depressed and insufficient at UPR due to extremely low
tuition levels for all regardless of ability to pay, few ``out of
state'' students, little success in attracting Federal grants, and no
active development of its superb alumni. The Fiscal Plan does require
increased tuition but has ensured several safeguards to protect the
most vulnerable. The maximum annual tuition ($5,090 in Fiscal Year
2023) will remain below current Federal Pell Grant award levels
($6,095), meaning all Pell Grant eligible students will be able to
cover both tuition and some living expenses. The Fiscal Plan not only
protects, but ensures funding of $280 million in needs-based
scholarship funds over the Fiscal Plan period at both internal UPR and
Commonwealth scholarship funds to guarantee that tuition increases
never affect anyone who chooses to attend the UPR. If all these funds
are disbursed each year (i.e. none of the external scholarship funds
are converted to an endowment) they could provide the equivalent of
over 12,000 full undergraduate scholarships (covering all tuition and
fees) per year. Furthermore, after listening to the students of UPR,
the Board increased the scholarship fund for students in need, so every
Puerto Rican has access to the education they deserve. We have met with
UPR administration numerous times and are willing to work with them to
diversify UPR's sources of revenue.
Unfortunately, the UPR Administration recently announced that it is
contributing less than half the actuarially required pension
contribution to the UPR Retirement Plan (``UPRRP'') for Fiscal Year
2020. This decision to undermine its pension obligations and to put the
pensions of its faculty and staff at risk is grossly irresponsible,
contrary to the Government's public policy of prioritizing pensions,
and violative of PROMESA and the UPR Fiscal Plan certified by the Board
in June.
According to the Board's recent actuarial analysis, if UPR makes no
changes to its benefit structure or its funding policy, its pension
plan could be insolvent by 2031, meaning that the UPRRP would not have
sufficient funds to pay pension benefits after 2031. Rather than
accepting that UPR may repeat the mistakes of ERS, JRS, and TRS at the
Commonwealth, which became insolvent because their funding was far too
low relative to the benefits they offered, the Fiscal Plan outlined
three options that UPR could take to adequately fund the UPRRP, but
each of the options requires UPR to make the full actuarially required
contribution.
Instead of pursuing one of these options, UPR is knowingly
defunding the UPRRP, putting the pensions of its faculty and staff at
risk rather than heeding the advice of its actuaries, the Fiscal Plan,
and the unfortunate experience from the Commonwealth. The Board will
continue urging UPR to act to stave off its looming pension crisis. The
first step is UPR making a determination about whether or not it wishes
to reduce its required actuarial contribution in the future, in other
words reforming its pension system. But, whatever UPR chooses, it must
not put the UPRRP or pensions of faculty and staff at risk.
As stated in the UPR Fiscal Plan, the Board looks forward to
partnering with UPR's stakeholders--including the Government of Puerto
Rico, the UPR Governing Board, and the UPR Administration--in making
the transition to a `new status quo' operating model--one that is both
more efficient and effective to bring the student and future
generations of Puerto Rico the higher education that they deserved.
Although the path to implementing these reforms will not be easy,
we want UPR to emerge a leaner and more effective academic institution
among the best and most affordable in the United States and on the
Island.
v. first circuit decision on the unconstitutionality of the board
As you know, on February 15, U.S. Court of Appeals for the First
Circuit concluded that members of the Board are Federal officials whose
appointments must be made consistent with the Appointments Clause of
the U.S. Constitution. Based on our belief that the members of the
Board are territorial officers, not Federal officers, and that the
Appointments Clause does not apply to laws enacted pursuant to
Congress' power under the Territories Clause, the Board filed a
petition with the U.S. Supreme Court to review the decision by the
First Circuit. The Supreme Court agreed to review the decision, and, at
the Board's request, the First Circuit stayed its ruling pending the
Supreme Court's final disposition of the case.
On April 29, 2019, President Donald J. Trump announced his intent
to nominate the current members of the Board to undergo U.S. Senate
confirmation to serve out the remainder of their terms. Those
nominations have yet to be formally submitted to the Senate.
Last Tuesday, the Supreme Court heard oral arguments in the appeal,
and we are expecting the Court's ruling in the coming months.
vi. promesa discussion draft
I appreciate the opportunity to now comment on aspects of the
PROMESA discussion draft published by the Committee and the impact of
those provisions on the work of the Board. The Board has serious
concerns that several of these provisions, while well intended, will
undermine the Board's pending negotiations and efforts to achieve a
fair and expeditious resolution of claims consistent with the mandates
of PROMESA and in the best interests of Puerto Rico and the people of
Puerto Rico.
Section 4. Definition of Essential Public Services
This definition of essential public services specifies that
public education, public safety, healthcare, and pensions are
``essential public services,'' with the stated purpose to
ensure their funding in the certified Fiscal Plan to the
maximum extent possible. However, the Board believes that this
provision could have the exact opposite effect, as it provides
ammunition to those who have been arguing that the Board cannot
fund services above and beyond their own highly restrictive
interpretation as to what services are truly essential. The
Board is facing this claim in the Title III cases. Creditors
would welcome congressional support for an essential service
definition that could be used to advance their arguments. The
result could be substantially reduced funding for services that
the Board and the Government consider essential but that other
parties convince the Court are not essential.
As proposed, the definition in the discussion draft also
provides for a minimum annual appropriation of $800 million to
UPR. UPR's over-dependency on Central Government appropriations
has led to its lack of commitment to generate its own revenue
from out-of-state tuition, alumni donations, patent
monetization and other means and its unwillingness to implement
efficiencies. As previously noted, most U.S. universities
receive 20-30% of their revenue from state government, whereas
UPR received 70% from the Government in Fiscal Year 2018. The
Board also considers any mandatory appropriations ill advised,
as it does not and cannot take into consideration changes in
circumstances, such as a significant increase in revenue from
overseas students, a large increase in grant funding, or
significant donations.
Section 6. Disclosure by Professional Persons Employed by
Court Order
The Board supports the legislative proposal of Rep. Velazquez
incorporated in the discussion draft to extend certain
disclosure requirements from the Federal Rules of Bankruptcy
Procedure to professionals employed by the Board to avoid
conflicts of interest and its goal of greater transparency and
disclosure.
Section 7. Access to Information
The draft provides that any document, record, or information
relating to the public debt of the Commonwealth of Puerto Rico
is a public document and accessible to any interested party.
Existing Puerto Rico disclosure laws adequately provide the
public with rights to access to government documents. This
provision over-riding Puerto Rico law and making public any
document relating to the negotiations or restructuring of the
public debt would also be prejudicial and detrimental to the
Board's effort to effectively and expeditiously secure the best
deal possible for Puerto Rico and its people.
Section 8. Puerto Rico Infrastructure Revitalization
Repealed
The Title V process has had some successes, most recently a
generation facility for PREPA as noted above, but most private
investment activity in recent years has been through the Puerto
Rico P3 Authority, and those projects do not necessarily
require the benefits of the Title V permitting process.
Section 9. Territorial Relief for Unsecured Public Debt
The discussion of a provision to allow Puerto Rico to cancel
some of its unsecured debt may lead existing Puerto Rico
General Obligation bondholders to demand secured debt in the
current negotiations, which is more expensive and restrictive
than unsecured debt. In effect, this provision could ultimately
significantly reduce the amount of funding available to the
Government to provide critical services to the people of Puerto
Rico.
Section 10. Puerto Rico Public Credit Comprehensive Audit
Commission
The Kobre & Kim independent debt investigation mentioned above
effectively served the purpose of a debt audit. The Special
Claims Committee is pursuing valid claims arising out of that
report, and the Debt Management Policy in the Plan is designed
to make sure these issues do not arise again.
Section 11. Office of Reconstruction Coordinator for
Puerto Rico
The establishment of this office to manage and administer
Federal funds for the reconstruction of Puerto Rico as a result
of Hurricane Maria could be helpful if it effectively served as
a coordinator of the various Federal agencies administering
funding. Otherwise, the office risks becoming an unnecessary,
additional level of bureaucracy further slowing down deployment
of Federal funds.
Section 12. Office of Revitalization Coordinator for
Puerto Rico Electric Power Authority (PREPA)
The discussion of creating a Revitalization Coordinator for
PREPA risks disrupting and undermining the transformation
process of PREPA which is well underway. This process is being
jointly run by the Board and Government and involves hiring a
private operator to take over management of transmission and
distribution as well as opening up generation for private
investment and management.
The Board remains committed to working with the Chairman, the
Ranking Member and members of the Committee and the Congress as you
continue oversight over implementation of PROMESA and consider any
changes to the law.
vii. federal legislation supporting puerto rico
Finally, the Board also continues to support legislative efforts of
Chairman Grijalva, Ranking Member Bishop, Puerto Rico Resident
Commissioner Gonzalez-Colon, Representative Velazquez, Representative
Soto, and many members of this Committee and Congress to provide
fairness for Puerto Rico in the distribution of Federal funding and
other Federal programs essential to Puerto Rico and its people.
On behalf of the Board, I submitted a statement for the record in
light of the Committee on Natural Resources' hearing on ``The Insular
Areas Medicaid Cliff'' in support of equitable treatment for Puerto
Rico in terms of the Medicaid program.\3\ On June 19, I submitted a
statement to the House Ways and Means Committee in support of proposed
legislation expanding the Earned Income Tax Credit to families in
Puerto Rico.\4\ On June 20, I submitted the Board's statement of
support to Congresswoman Anna Eshoo, Chair, House Energy and Commerce
Subcommittee on Health, again in favor of proposed legislation for more
equitable distribution of Medicaid funding to Puerto Rico.\5\
---------------------------------------------------------------------------
\3\ See Executive Director Natalie A. Jaresko's statement on this
topic at: https://drive. google.com/file/d/
1XeMmC0FCoq_S_uIdOR_JZU3FIO02Tmz-/view.
\4\ See Executive Director Natalie A. Jaresko's statement on this
topic at: https://drive. google.com/file/d/1EIjpHW-
FVgdgVOYV_ftlwti5GiS2mCAo/view.
\5\ See Executive Director Natalie A. Jaresko's statement on this
topic at: https://drive. google.com/file/d/
14PluCoX3012kDEY0CpZyDUgAkUl3k4CA/view.
---------------------------------------------------------------------------
The Board also continues to support the Government's request to
receive equitable treatment in Medicare. Residents of Puerto Rico pay
the same level of Medicare taxes as mainland residents, but the Island
receives substantially lower payments in Medicare programs.\6\
---------------------------------------------------------------------------
\6\ A non-exhaustive list of legislation supported by the Board is
available on page 80 of the Board's Fiscal Year 2019 Annual Report at:
https://drive.google.com/file/d/19wcmgD-iYwi_JAs SGYWL_WK5kXJJggwV/
view.
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viii. conclusion
In 2016, PROMESA--although not perfect--provided Puerto Rico with
an opportunity to reset its reality. The compromise between both sides
of the aisle to provide the Island with a novel mechanism to
restructure its debt was certainly not easy to achieve. The leadership
at the time of PROMESA's adoption, and key figures such as
Congresswoman Nydia Velazquez and Congressman Rob Bishop, fought hard
to ensure Puerto Rico had a way out of its fiscal mess.
The Board strongly believes that the proposed draft text is a
distraction from the real work already in process that we all need to
do: to focus on getting the debt restructuring behind us and ensure the
Government of Puerto Rico continues implementing the structural
reforms, the fiscal responsibility, and better delivery of public
services that the people of Puerto Rico deserve.
Massive debt is what caused Puerto Rico so much pain, and what is
holding Puerto Rico's economic recovery back. That massive debt did not
result in massively improved public safety, public health or public
education. It takes a huge toll on the life of everyone who lives on
this beautiful Island, and it is what denies us the stability Puerto
Rico requires to rebuild its future and achieve prosperity.
The proposed Plan of Adjustment the Oversight Board filed is the
beginning of a process that enables Puerto Rico to reach its real
potential, where businesses large and small can have the confidence
they need to invest and expand with certainty, and where the people of
Puerto Rico can expect their government to provide safety, education
and the public services the island needs. This is an important first
step. We hope to continue our progress and to continue providing
certainty that a better future lies ahead for Puerto Rico.
I concluded my May testimony with optimism and will conclude this
one repeating it: Difficulties aside, I am optimistic and confident
that we can and are all working together to ensure Puerto Rico's
economic future is brighter than ever and that Congress finds
confidence that Puerto Rico's problems can and will be solved.
______
The Chairman. Mr. Marrero, the people of Puerto Rico are
looking for some signal that their government is looking out
for their interests, and is that complicit with the Oversight
Board, and imposing further hardships on them.
So, when we hear of the opposition of the administration to
the provisions of the discussion draft that they perceive as
beneficial to their interests, the people--the public, in
general--such as defining essential services, doing an audit of
the debt, that adds to the cynicism that is out there. They
feel that PROMESA--and I heard that, and Members that have
visited have heard that--and the Oversight Board is working
against them.
How do you respond to that concern, that there is no
independent auditing transparency process that is going on, and
the cynicism rises?
Mr. Marrero. Thank you for the question, Mr. Chairman.
First of all, as to the audit, as an accountant I can tell
you that an audit can take many forms. I think that the most
important part is the fact that the people of Puerto Rico would
like to know if some of the issuance of debt was invalid, was
illegal. Or, if that was illegally incurred, what are the
rights and remedies for that?
That is addressed in the 600-page report that the Oversight
Board released in August 2018. It delineates specifically what
happened and what many administrations did. Deficit financing,
scope and talks financing, the interest financing, amortization
principal, and many others. That report, it was done by
international law firms who specialize in this.
However, the Oversight Board is already invalidating or
questioning the legality of several issues, including over $6
billion of general obligations. So, that is part of the
process.
If there is any interest body that would like to audit or
examine the closing binder of all the issuance of Puerto Rico,
they are available. They can get a copy of that. Actually, we
are working in order to digitalize that and make it available
to the entire people of Puerto Rico.
However, we already are 3 years into this game. We have
already restructured over $23 billion. Our concern is that an
audit or a comprehensive audit done by a new body, a new
entity, how are they going to be chosen? That will take time,
sir, and it will take years. And our specific objective is to
comply with PROMESA and get out of bankruptcy as soon as
possible, because that is the only way that the people of
Puerto Rico will be better off, if we exit bankruptcy and we--
--
The Chairman. OK, let me follow up. HUD recently told
members of the House Appropriations Subcommittee that the
Department had not released disaster funding to Puerto Rico,
which I believe is central, because of the concerns that the
money would not go to the people, but would be wasted and
abused instead. The validity of that comment I don't subscribe
to. But besides the point, how do you eliminate that concern?
One of the reasons that we included a provision for a
disaster Reconstruction Coordinator for Puerto Rico in the
discussion draft is this coordinator would work with the local
disaster recovery agency--at this point, COR3--and Federal
officials to expedite and provide some reassurance to allow
those funds to flow the way they should.
So, the coordinator position along the lines that was
created for Sandy and Katrina, could that be beneficial for
Puerto Rico?
Mr. Marrero. If we are talking about the Federal
coordinating officer created under the national disaster
framework that was used in Louisiana and any other state, yes,
sir. Because that will help the coordination at the Federal
level.
At the state level, we already centralized the coordination
based on the best practices following the model of New York,
Louisiana, and many others. That is exactly the position of
Ranking Member Congresswoman Jenniffer Gonzalez. That is
exactly what we need. We need effective coordination at the
Federal level.
It is really hard when we, as officials, have to come to
FEMA, HUD, Treasury, DOE, and many others, and sometimes we
don't see that coordination that we have at the state level.
Again, the last 2 years we have managed over $10 billion with
zero funding at the state level, and I think that the record
attests to the fact.
The Chairman. My time is up. And if we have another
opportunity, Ms. Jaresko, I will have a couple of questions for
you, I will come back around to that. OK? Thank you.
At this point, let me turn to the Ranking Member for her
questions, comments.
Miss Gonzalez-Colon. Thank you, Mr. Chairman. There are
several issues that should be discussed here, and we were just
talking about that Federal Coordinator.
One thing is, Congress and the President signed a law
approving $49 billion, approximately, to the island. Yet, we
just have received $1.5 billion under the HUD Department on the
island. Again, we haven't received the publication in the
Federal Register for the next tranche of funds.
We were talking about a Federal Coordinator or expediter to
make this money available to the island. That is one thing. But
adding layers with another appointee locally, I think, will do
the worst in adding more bureaucratic layers.
So, how can we mix having a Federal Coordinator like was
used in other states, and the one proposed in the bill, Mr.
Marrero?
Mr. Marrero. Thank you, Ranking Member. Again, I totally
agree with your position. If we add a layer, I think it will
just, again, be disruptive to the process. The people of Puerto
Rico, the government of Puerto Rico, has done everything that
has been asked by the Federal Government to access this funding
in less than a year. Not only have we developed the action
plan, but we submitted it and got it approved, and we signed
the grant agreement for the initial allocation.
On the FEMA side, we were required in October 2017 to
create a centralized oversight authority. We did that. We were
required to hire third-party experts. We did that. We were
required to implement internal controls, processes to make sure
that the money will flow to the people that need it. We did
that. And if you go to recovery.pr, we have the most
transparent information of any other U.S. jurisdiction, as to
recovery.
The way that we see it is that, at the state level, ma'am,
the COR3 director----
Miss Gonzalez-Colon. Do you support a Federal Coordinator
for expediting, not a local one?
Mr. Marrero. Yes, ma'am.
Miss Gonzalez-Colon. OK.
Mr. Marrero. Yes, we will support a Federal Coordinator to
expedite----
Miss Gonzalez-Colon. The whole Federal Government, or just
to PREPA----
Mr. Marrero. No, I think it is to the Federal Government.
Miss Gonzalez-Colon. OK.
Mr. Marrero. To the Federal Government.
Miss Gonzalez-Colon. I have a question to Ms. Jaresko. And
although this was not supposed to be a hearing on recovery
funds, it has been in the testimony. And this is one of the
main issues the island is facing right now: How can we receive
the funds that have been already appropriated by Congress and
by the President?
Your written testimony reports your projections counted on
Puerto Rico receiving about $75 million in Federal recovery aid
during the next decade. However, last Thursday the Board
submitted to the Municipal Securities Regulatory Board a
statement that, of $69 billion originally forecast in FEMA and
CDBG-DR funds, they now expect that the obligations and delays
will mean only $39 billion will get there. I don't know if we
were talking about a 10-year period. What is this about?
And, again, where did the expectation of $75 or $69 billion
over the next decade came from?
Second question will be how this will affect, then, the
fiscal plan and the plan of adjustment.
And third, it is not the case that much of the slowness in
getting the funds going has been part of the Federal agencies
themselves. HUD has been sitting on $8 billion in grant
agreements since May. How can we complain, and how can the
Federal agencies complain that we are not efficiently using the
funds, when the money is not even in the island?
Ms. Jaresko. Thank you, Congresswoman. With regard to the
first question, there seems to be a misunderstanding as to the
document that was released. The belief of the Board is what is
represented in the fiscal plan with regard to the $75 billion
or so of both Federal funds and private insurance proceeds
expected, that number is built up from conversations with the
Federal Government, FEMA, CDBG, as well as with the Insurance
Commissioner of Puerto Rico with regard to the private
insurance numbers. And that is the belief and our best judgment
at this time as to what is expected.
The document that was released last week is a document that
came from discussions with creditors and was, specifically, an
outline of risks to the fiscal plan, downside risks that the
creditors had to keep in mind. As you can well imagine, in
discussions with the creditors, the conversation most often
leads to upside to the fiscal plan, how much more monies may be
received by Puerto Rico, earned by Puerto Rico, or less can be
spent. That document, which outlined a variety of risks, one of
which was a slowing down or lack of receipt, had to be put
together in response to those creditors who are asking all the
time about upside, and we needed to share with them, as well,
the downside risks that exist.
It is the best judgment of the Oversight Board that all of
the funds will be received and hopefully on the schedule that
has been provided to us over time by the Federal Government,
together with COR3 and the government of Puerto Rico.
In terms of your second question, with regard to how would
a slowdown affect the plan of adjustment. First and foremost,
if the number remains the same, that would not affect it in any
great amount.
The Board has proposed, together with the government of
Puerto Rico today, a plan of adjustment that limits annual debt
service to $1.5 billion per year, which is less than 10 percent
of own-source revenues--in other words, taxes and other
revenues collected, not Federal funding, excluding Federal
funding--less than 10 percent of Fiscal Year 2019 revenues,
which is this year, and constant for the next 30 years.
The Chairman. The time has expired. Let me now turn to Mrs.
Napolitano for her time.
Mrs. Napolitano. Thank you, Mr. Chairman. Ms. Jaresko, you
represent a very impressive list of the accomplishments of the
Board in your statement, including the recent proposed plan of
adjustment, which you say enables Puerto Rico to reach its
highest real potential.
Where businesses large or small can have the confidence,
they need to invest and expand with certainty, and where the
people of Puerto Rico can expect the government to provide
safety, education, and public services they need desperately.
Are the people of Puerto Rico and others wrong in believing
that all the Board has meant is crippling austerity measures?
Ms. Jaresko. I understand and I accept that this fiscal
plan and the measures taken by the Board can sometimes cause
pain and cynicism.
However, the fact of the matter is many of the things that
the Board, together with the government of Puerto Rico, have
been able to accomplish are for the benefit of the people of
Puerto Rico, including in the plan of adjustment.
In terms of the things that we have done, aside from the
plan of adjustment, we have worked together with the government
of Puerto Rico to provide greater transparency to the people--
--
Mrs. Napolitano. Right, but when you do that, do you
provide the same information to the general public?
I would like to release the balance of my time to the
Chair.
The Chairman. Thank you.
Ms. Jaresko, the Board has won almost every legal challenge
brought by creditors on its decisions.
So, my question is why would it be unreasonable to believe
that, if essential services were defined as one of the
provisions, one of the recommendations prescribed, as we do in
this discussion draft, that you wouldn't win those challenges,
as well?
Ms. Jaresko. Thank you, Mr. Chair. I wish I could say that
we had won all of our challenges, but we have not. And we have
over 100 cases pending.
I think that you have seen a variety of outcomes--in the
Title III court, some having been overturned at the First
Circuit, and there is no certainty.
I think the key issue here is to narrowly define essential
services or leave to the deliberation of the courtroom the
narrow definition of essential services, potentially puts at
risk things like costs that the Board has determined, together
with the government of Puerto Rico, are very necessary, whether
they be environmental, whether they be in the arts, in
culture--the funding of the Institute of Culture of Puerto
Rico, for example--as well as other areas which might be
challenged in a courtroom.
The Chairman. OK, so the point being it is more of
definition than opposition in your statement?
Ms. Jaresko. It is the risk of forcing and moving the
definition into the courtroom, yes.
PROMESA, as stated today, the language that Congress
provided, does not require the Board to define it, but ensure
the funding of, which we believe we have done, together with
the government of Puerto Rico.
The Chairman. OK, my last question, if I may, Ms. Jaresko.
In your testimony, you claim that the discussion draft is a
distraction from the real work already in progress that the
Board is making. And, yet, ordinary Puerto Ricans continue to
decry the Board's existence.
In fact, having read the testimony of the next panel, and
primarily the elected officials, the repeal of PROMESA seems to
be a constant throughout those commentaries. Yet, they decry
the Board's existence and call for its abolishment.
And I am talking about the public, in general, because they
believe the Board has primarily been working to ensure
creditors receive as much repayment of their bonds as possible.
And you talked about cynicism, and I mentioned the word,
and others. Since it appears that you are not in support of
most of the provisions in the draft, what do you suggest can be
done to enable a favorable outlook by the Puerto Rican people
of the work that you are doing, and that the Board is doing?
Ms. Jaresko. I think the key issue is for us to move
forward as quickly as possible, remove the burden of this
bankruptcy, define what is affordable and sustainable, and work
together with the government of Puerto Rico to put in place a
sustainable financial budget, which then leads to the end of
the Oversight Board as quickly as reasonably possible under the
law.
The Chairman. The support of the people of Puerto Rico, the
voters of Puerto Rico, to that end, doesn't that facilitate
what you are talking about and make it that much easier to have
a support from the people in general, as opposed to the
opposition?
Ms. Jaresko. Of course, sir. And we do have the support of
certain segments of the people on certain issues. When we work
together with the government to increase pay for the police, I
assure you that the police are supportive of that increase in
pay, and the ability of the government, together with this
Board, to find the funding within the budget and focus it on
that need.
The Chairman. Thank you very much.
Mr. Lamborn, the time is yours, sir.
Mr. Lamborn. Thank you, Mr. Chairman. And I also want to
thank the Ranking Member for her leadership on this issue.
Ms. Jaresko, I have a couple of questions. If the proposed
legislation to amend PROMESA were enacted, how would it impact
the work that the Board has done and is in the process of
completing, especially when it comes to PREPA and the
restructuring of the debt?
I know you talked about this briefly in your opening
remarks, but with a little bit more detail, please.
Ms. Jaresko. Thank you. Specifically with regard to PREPA,
as my colleague mentioned in his testimony, and I did, we are
right now significantly progressing along a path of attracting
a private operator to unbundle PREPA, separate the transmission
and grid, and have it managed by a private operator. I believe
that the selection could occur under the P3 law in Puerto Rico
before the end of this year. I think that installing a
Revitalization Coordinator at PREPA today would confuse those
bidders, confuse the process, and potentially delay it, if not
even make it impossible.
From the perspective of transforming PREPA into something
different, new, something in which both the Federal Government
and the people of Puerto Rico could have confidence in the
operations, I believe that the path that we are on is the most
efficient, and that it is the most beneficial.
With regard to the debt restructuring, the key concern we
have is whether or not creditors will use the concept that is
represented in the draft legislation with regard to discharging
the unsecured debt to further demand, during this restructuring
and in the future, secured debt from the government of Puerto
Rico, which would incrementally be additional cost, and much
less advantageous to the people of Puerto Rico.
Mr. Lamborn. OK, thank you. And a general question I would
like to ask--if there ever were to be a bailout that allows
Puerto Rico to write off substantial amounts of debt, which I
believe this bill does, to the detriment of investors who put
money in, in good faith, what would that do to the future of
investment in Puerto Rico?
Ms. Jaresko. Yes, sir. That is, of course, an issue.
Creditors who believe that they are at risk of being removed
from the scene will likely not provide Puerto Rico in the
future with access to funds that are desperately going to be
needed to continue to invest in the capital infrastructure of
the island.
So, not only the bondholders themselves, but future
investors in the island, both equity and debt, will take note
and be fearful of investing into an environment like that.
Mr. Lamborn. OK, thank you. I would like to yield the
balance of my time to the Ranking Member.
Miss Gonzalez-Colon. Thank you, Mr. Lamborn. This is a
question to Mr. Marrero and to Ms. Jaresko.
We were talking about the reduction to pension plans, and
the plan of adjustment. And although I know the House and the
Senate in Puerto Rico both approved being against any cuts to
reduction to the pension system, some of you say that this is
the best path to ensure Puerto Ricans come out of bankruptcy.
My question will be what is the reasoning behind it, when
you have pensioners that are gaining less than $1,200 a month,
and you are proposing a cut of 8.9 percent to each of them.
Ms. Jaresko?
Ms. Jaresko. Thank you, Congresswoman. The pension cut that
is proposed in the plan of adjustment is 8.5 percent, but never
going below $1,200.
The only reason that there is a pension cut proposed in the
plan of adjustment is because of the bankruptcy laws in the
United States, and the requirement to not have disparate
treatment. There is no desire on the part of anyone in
government, in the Oversight Board to cut pensions. However,
left with no reasonable proposal that protects those pensioners
at that $1,200, we again do not wish to leave it to the court
and the creditors to argue.
It is important to note that this pension proposal not only
includes a cut, but also includes setting aside some $6 billion
of available surplus in these early years, as per the fiscal
plan, into a pension trust to assure that pensions can be paid
for the next 30 years, regardless of the fiscal situation in
Puerto Rico, even if we fall into deficit times.
In addition to that, it has a segment that allows for the
restoration of a cut if the government of Puerto Rico achieves
excess surplus--in other words, has a better outcome in any
fiscal year than is projected in the fiscal plan. Ten percent
of that excess goes in any fiscal year, then, to restore that
pension cut this year. So, in essence, when the Committee of
Retirees agreed with the Board on supporting this plan, they
did that because of the benefit of having 30 years of security
of their pensions ahead of them, as well as the opportunity in
better times to restore that cut.
Miss Gonzalez-Colon. Mr. Marrero?
Mr. Marrero. Thank you, Congresswoman. Just for the record,
to be clear, the position on the public policy of the
government of Puerto Rico is that we are opposed to any pension
cuts. And that is why we left the negotiation table in June
when the Official Committee of Retirees, a committee
established by the U.S. Trustee as part of the bankruptcy
proceeding, they agreed to a pension cut.
However, after careful consideration, and in light of the
best interests of the people of Puerto Rico, not only the
retirees, but the people of Puerto Rico, we agreed not to
oppose that agreement that was duly entered with the Official
Committee of Retirees, because opposing that agreement will be
harsher for them.
The Chairman. Time is up. Thank you.
Let me now turn to Mr. Gallego.
Mr. Gallego. Thank you, Mr. Chairman. To all, thank you for
your testimony at this important hearing.
I was new to Congress when PROMESA was passed, but actually
voted against it, knowing that it was a bad year for Puerto
Rico. And in the years since, I have witnessed the plight of
the Puerto Rican people as they have dealt with a struggling
economy, the difficult, demoralizing process of implementing
PROMESA, and, of course, the devastation of Hurricane Maria.
While we continue to pressure this Administration to keep
its promise to Puerto Rico and disperse the billions of dollars
of aid Congress has already approved for relief, aid, and
mitigation, it is important for us to also plan for the future.
That is why I am grateful to all of our witnesses who are here
today to make sure that we are doing what we can to ensure that
Puerto Rico has a prosperous and empowered future.
With that, I have a few questions for Mr. Marrero.
Mr. Marrero, in your testimony, you mentioned some
difficulties in the budgeting process under PROMESA related to
the Board's ability to set overly restrictive limits and the
Puerto Rican government's lack of ability to appeal. Could you
expand on that, or give an example of this particular problem?
Mr. Marrero. Sure, definitely. Thank you for the question
and for all the help for the people of Puerto Rico, Mr.
Gallego. I can attest to the fact that you have helped a lot
under this process.
As to the specific issue that we have in front of us, it is
about micro-budgeting. We have been supportive of the
restructuring tool that PROMESA has, and we understand that we
have to collaborate with the Oversight Board in order to move
forward. That is the spirit of the law, and we agree with it.
However, we believe that the role of the Oversight Board
should be tied to the fact that they have to set the spending
limits. There are two objectives within PROMESA: to achieve
fiscal responsibility that is essentially balanced budgets for
4 consecutive years; and access to capital markets at
reasonable rates. That is, essentially, get out of bankruptcy.
And that is what we really want to make sure that we can be
focused on, because that is the ultimate goal. Let's end
bankruptcy, let's end Title III, let's terminate the Oversight
Board, and we regain access to capital markets.
However, we believe that the role of the Oversight Board
should be to set the size of the room, not necessarily to
arrange the furniture, or to tell me where the furniture is
going to be. So, again, they have to set the spending limit,
the cap limits, and will decide how it is going to spend the
money. Because, in the end, that should be the responsibility
of the elected government of the people of Puerto Rico to
determine, according to its police power and policy-making
functions, how the money is going to be spent, not only for our
administration, but for many, many other----
Mr. Gallego. And that over-prescription creates a scenario
where it takes longer for the decision and execution cycle that
the government has to make. Is that what I am hearing?
Mr. Marrero. Yes, sir. Exactly.
Mr. Gallego. OK, thank you. Let's switch over to Ms.
Jaresko.
Similar to my question to Mr. Marrero, how has the Board
worked with the Puerto Rican government?
Or not a similar question, a different question. How has
the Board worked with the Puerto Rican government to improve
the elected leaders' autonomy in this area, or eliminate the
problems they have experienced with the budgeting process under
PROMESA?
Ms. Jaresko. It is our belief that, in working on a more
detailed budget, and with giving more transparency and public
knowledge to how the budget is being spent, we are helping the
people of Puerto Rico to ensure better decisions, and helping
the government of Puerto Rico.
An example that I gave earlier is specifically with the
police bureau. Last year, given that there is, unfortunately,
little financial management in many of these spending entities,
it came to the attention of the Board by following this level
of detail that the police bureau had been underspending its
personnel budget, even though the secretary at that time had
been announcing that he did not have enough for personnel.
He was misleading his own team, and police were leaving the
island until we could hold a public hearing and show that, in
fact, he had underspent, and had more than enough. In fact,
some of that underspent went to solve other problems within the
budget.
We don't take a lot of time for the reapportionments, if
the reapportionments are requested on a timely basis with
information.
When the issue of rape kits came up and the need to choose
to spend $3 million, we gave our agreement within 40 minutes.
Mr. Gallego. OK, and before our time runs out, are there
any other ideas or proposals the Board may have regarding
modifications to PROMESA that the Committee has not considered
that could be helpful, that could both work for all sides
included, and also, obviously, work for the PROMESA Board?
Ms. Jaresko. We don't have any requests for further
amendments to PROMESA.
Mr. Gallego. You may not have any requests. Do you have any
suggestions?
Ms. Jaresko. Not at this time, sir.
Mr. Gallego. So, your opinion is everything that we are
doing right now is copacetic and it is working well.
Ms. Jaresko. As I said in my testimony, we did agree that
additional disclosure would be valuable. And other parts--a
Federal Coordinator that, as my colleague had mentioned, would
help with the Federal oversight of the disaster funds would be
helpful. There are parts of this draft that we agreed with.
Mr. Gallego. OK, thank you. Mr. Chairman, I yield my time.
The Chairman. Mr. Wittman, sir.
Dr. Wittman. Thank you, Mr. Chairman. I would like to thank
our witnesses for joining us today.
Ms. Jaresko, a question for you. You had mentioned in your
testimony that the people of Puerto Rico were recently
demanding better governance, and more responsive government
services, and we know recently of the resignation of Governor
Rossello. With all of this change happening within the
Commonwealth's government, how challenging is it for the
Financial Oversight Management Board going not only now, but in
the future, given the government's opposition to helping
correct some of the inefficiencies in local government?
We know the dynamic between local government and state
government or territory government there have been significant.
So, I just want to get your perspective about how the current
situation unfolds.
Ms. Jaresko. I think we have had a very collaborative
relationship with the new governor and the new government
officials. Many of the people had stayed, so there has been
some continuity. Others have changed, and there have been
improvements.
I think that our focus on working as quickly as possible to
restore sustainability and remove this debt burden is probably
the single thing that we can agree on. There are always
differences in the details, but it generally, I think, is
working better for the people of Puerto Rico not to be
constantly litigating against each other.
Dr. Wittman. That is good to hear, because I know the
divisions there have created some challenges.
I want to get your thought on Section 9 of this discussion
draft, which would allow Puerto Rico to cancel some of its
unsecured debt. What do you believe would be the effect of this
provision on the Commonwealth's ability to fund services needed
for the people of Puerto Rico?
Ms. Jaresko. I believe there are two primary concerns that
we need to have.
One is that the risk of having that unsecured debt
discharge raises the risk that creditors today, in the midst of
negotiations, will demand better security for the debt, and
that security is costly to the government of Puerto Rico.
The second great risk, I believe, is what it means with
regard to future potential access to markets and access to
capital that Puerto Rico will, of course, need as they move
forward.
Dr. Wittman. Thank you. I want to also look at Section 8 of
the draft bill that repeals Title V of PROMESA, which put in
place a process by which the Revitalization Coordinator could
designate critical infrastructure projects for expedited
permitting process removal, trying to speed things up to make
sure, when you see a need, that the need can be addressed
quickly.
I know in the past that there have been a number of hurdles
for economic development that were really put in place by local
government bureaucracy. Give me your sense on how this repeal
of this section would hinder economic advancement.
Ms. Jaresko. I think Title V was very well-intentioned when
established, but the utilization of it has been very limited by
the private sector for multiple reasons. The value that Title V
brings is an accelerated permitting on the island. And to the
extent that the government has worked to already accelerate
that permitting process, many private-sector players have not
chosen to apply for Title V.
Title V has been of great interest to those who would like
to invest in generation and generation facilities on the
island, private sector energy generation. But given that
situation, and the bankruptcy that we are working through at
PREPA, those contracts, those opportunities have been somewhat
delayed by the bankruptcy process.
I believe that Title V could be improved if it included
additional access to improving Federal permitting. And I
believe that Title V still has an important role to play, as we
move forward in economic development on the island.
Dr. Wittman. Very good. Do you believe, in looking at the
current situation and the expeditious manner in which projects
either have or have not proceeded, that there are additional
things that the Federal Government can do for the Commonwealth,
or are there things that the Commonwealth can do by itself, or
are there more efforts that need to take place in simplifying
the relationship between the Commonwealth and the local
governments?
Ms. Jaresko. I think there is a great deal of work that
still needs to be done in the ease of doing business for all
business people, Puerto Rican business people, as well as non-
island investors. And I think that many of them are outlined in
the fiscal plan, and are being worked on currently by the
governor of Puerto Rico.
One of the areas that has been focused on is permitting, in
particular, because that is the No. 1 problem. But aside from
permitting, there are a variety of other administrative
burdens--for example, registration of property, the
administrative nature and burdensome nature of taxes. So, I
think there are many things there.
I think, with regard to looking at municipalities and the
relationship between the territories and municipalities, the
single thing that is criticized most often by the business
sector is something called an inventory tax, which is right now
an important revenue stream for municipalities, but it is also
very burdensome to the business sector.
Dr. Wittman. Very good. Thank you, Mr. Chairman. I wanted
to thank the witnesses again. My apologies, I think earlier I
referred to Puerto Rico as the territory. It is, indeed, the
Commonwealth, just as Virginia is the Commonwealth. So, my
apologies for that oversight.
Mr. Chairman, with that, I yield back.
The Chairman. Thank you, sir.
Mr. Sablan.
Mr. Sablan. Thank you very much, Mr. Chairman, for holding
today's hearing, and the hearing next week.
We are in a very unfortunate situation, in terms of Puerto
Rico. And I hope we get all of this. But I have some questions
for Ms. Jaresko, if I may, please.
Ms. Jaresko, in your testimony you stated the Board's
proposed plan has 10 key points, and I see that. The plan is to
ensure the 74 percent of current and future pensions are not
cut. Who are the other 26 percent of those affected? And what
are the proposed cuts to this population?
Ms. Jaresko. The average pension of the 26 percent, on
average, that are not being cut is $1,500. Again, no cut can
take any pensioner below $1,200. What is being offered to all
of those 100 percent is security that over the next 30 years,
funds will be invested by an independent trust and can't be
touched by governments, politicians in the future, and assure
their pensions.
Mr. Sablan. Yes, I see that. And it is too late to go back
and point fingers of who is responsible for some of these
problems, but let's hope and see that when, after all is said
and done, that more is done than is said.
You also mentioned the Board hopes to establish debt
management policy to ensure Puerto Rico never again finds
itself in this situation. Could you please elaborate on which
steps the Board will be taking to ensure this, and what
specific policy measures will you be promoting?
Ms. Jaresko. Yes, the proposed plan of adjustment
reflecting that Kobre & Kim debt review report that my
colleague described to you earlier specifically outlines
different principles so that Puerto Rico doesn't return to
those practices.
First, new debt can only be used to finance capital
improvements, capital expenditures. It cannot be used, as it
has in the past, to finance operating expenses and satisfy
deficits.
Second, refinancing debt can only be used to actually
decrease the amount of debt, so you cannot borrow to take out
borrowing if it increases your costs, overall.
And finally, there has to be an amortization within 2 years
for any new debt of its issuance date.
Mr. Sablan. All right. Thank you. What has been the impact
of the American Federation of State, County, and Municipal
Employees' support for the plan of adjustment?
And do you expect further support for the plan from any
other organized unions?
Ms. Jaresko. Yes, we have reached agreement with AFSCME,
which on the island is SPU, and that agreement reflects, as I
described earlier, the agreement to provide collective
bargaining agreements to ensure 5 years, in terms of next
policy and next agreement with that union, as well as providing
a higher level of health care on a monthly basis, as well as
restoring that $1.3 billion, as I said, of employee withholding
in something called Sistema 2000, which was a hybrid pension
system that has disappeared.
We are in active discussions with other unions, both those
represented nationally, as well as those with only local
representation.
And we do hope--and we believe--we will reach additional
agreements.
Mr. Sablan. Thank you. And what has been the impact of your
constructive working relationship with Governor Vazquez on the
Board's work with the government on fiscal plans, and
government spending, and delivery of services?
Ms. Jaresko. I believe that we have, together, made sure
that we can answer questions more quickly, that we can restore
things that have, for whatever reason, fallen on the side, and
that we can respond to the needs of the people, whether they be
providing air conditioning at a Bayamon women's correction
facility quickly, or whether they are fixing problems and
identifying where to find funds for very important things like
special education needs.
Mr. Sablan. All right. Thank you. Please excuse my cynicism
sometimes because what happens in Puerto Rico affects the
Northern Marianas. And both Puerto Rico and the Northern
Marianas are commonwealths, but it doesn't really matter what
you are called. We could be called colonies, so long as we have
the insular cases doctrine, which is discriminatory and
actually treats people--we are not possessions. You don't own
us, Mr. Wittman. Nobody owns us.
In the Commonwealth of Virginia, sir, they cannot impose a
board like they did in Puerto Rico without your permission. But
with Puerto Rico and the Northern Marianas, they could.
But, excuse my cynicism. We are running off the Medicaid
cliff, as you may understand, and we are having problems re-
negotiating both bipartisan and bicameral because of this
problem that has happened in Puerto Rico. Very unfortunate. But
my time is up, so I will come to that at some later time. Thank
you very much for joining us this morning.
I yield back, Mr. Chairman.
The Chairman. Thank you, Mr. Sablan.
Mr. McClintock, you are recognized.
Mr. McClintock. Thank you, Mr. Chairman. I opposed PROMESA
because I felt it broke the most important promise that a
government can make, and that is to put its full faith and
credit behind its bonds. I was concerned that this breach of
faith would cost Puerto Rico access to credit markets at
reasonable rates for many years to come, and establish a
dangerous precedent that would affect our other territorial
governments.
I was also concerned that it would relieve the elected
officials of their responsibility for this mess with an
unelected board that is insulated from direct responsibility,
which I think sets another dangerous precedent.
This arrangement has now been in place for 3 years. We were
promised it would put the government's finances in order,
establish a plan to repay bondholders, and restore Puerto
Rico's access to credit markets at reasonable rates. It is not
clear to me that any of these objectives have been achieved.
And, in fact, the degree of political instability seems to have
increased, rather than decreased.
So, my first question--and I will start with Mr. Marrero--
is what am I missing?
Mr. Marrero. Well, I think that you are missing the fact
that we have restructured $23 billion of debt already, not only
tax back bonds, but also the water utility, as well as the
government bank.
We also have been able to give a security to pensioners.
Today, the retirees are able to receive their pension checks at
their mailbox because we transformed the depleted retirement
system into a PAYGO. So, 22 percent of our budget goes to pay
retirees.
Also, I think that the fact that in 3 years we already have
$23 million restructured, we have a plan of adjustment already
filed----
Mr. McClintock. Restructured or repaid?
Mr. Marrero. Restructured, and we----
Mr. McClintock. Restructured? Well, again, that is exactly
the point that I am making. I don't see a lot of progress in
straightening out the territory, the Commonwealth's finances.
Mr. Marrero. With all due respect, sir, we have already--we
have over----
Mr. McClintock. How much debt has actually been retired,
has been repaid?
Mr. Marrero. The $23 billion we have of the--I think $6
billion, around $6 to $8 billion between COFINA and----
Mr. McClintock. OK, that is debt that has actually been
repaid to----
Mr. Marrero. No, no, no. I said restructured, I am sorry--
--
Mr. McClintock. I understood.
Mr. Marrero. I didn't get the question----
Mr. McClintock. And what I am saying is there is a big
distinction between restructured and repaid.
Mr. Marrero. Yes, sir. And that is why we ask Congress--
when Congress passed PROMESA, it gave Puerto Rico a tool to
restructure debt to a sustainable level in order to repay our
debts.
And yes, sir, the intent of the government of Puerto Rico
is to repay its debts to a sustainable level.
Mr. McClintock. But that was the intent 3 years ago. I
wonder how different the situation would be if the full
responsibility for this mess was placed where it belongs, on
the elected officials of Puerto Rico, and that the normal
process for dealing with this debt had actually been followed.
Mr. Marrero. Well, if I may add, sir, before the approval
of PROMESA, the government of Puerto Rico did not have the
capacity to restructure its debt.
Mr. McClintock. Why not?
Mr. Marrero. Because it was not allowed. The bankruptcy
code only allowed for municipalities of a state to restructure.
So, a city or county can restructure, but no state can
restructure its debts. There is no mechanism for that----
Mr. McClintock. Well, that is exactly right, which is why
their full faith and credit means something.
Mr. Marrero. Exactly.
Mr. McClintock. Puerto Rico's promise of full faith and
credit now means absolutely nothing.
Mr. Marrero. With all due respect, sir, Puerto Rico is a
territory subject to the plenary powers of Congress under
Article IV, and----
Mr. McClintock. Yes, but this was a mess not made by
Congress. We have made our own mess. This was a mess made by
the people of Puerto Rico by electing irresponsible officials
that made these decisions over the years, and I do wonder if at
some point there is something to be said about accountability.
Mr. Marrero. Yes, sir. However, I would have to disagree
with you slightly. I think that the responsibility of Puerto
Rico is shared, not only with the people of Puerto Rico, but
also with the people of the United States and the Federal
Government, as it is a territory subject to the plenary powers
of Congress.
Mr. McClintock. Well, many believe that a mess that is made
in my state of California ought to stay in California, and a
mess that is made in Puerto Rico ought to stay in Puerto Rico.
Mr. Marrero. But to the extent that it is----
Mr. McClintock. Ms. Jaresko, I will give you the last word.
Ms. Jaresko. I will simply say, sir, that Puerto Rico has
started to repay in those areas where they have restructured
the debt, for example, and COFINA, which is a sales and use
tax, we are starting to repay our debt. In fact, those new
bonds are trading at above par and traditional municipal bond
holders are once again holding Puerto Rico debt.
I believe, in the end, that this restructuring, which
enables it to be sustainable, provides those creditors with a
better chance of a reasonable repayment of what is affordable
than had no alternative to PROMESA been put in place.
The Chairman. Mr. Soto, you are recognized.
Mr. Soto. Thank you, Mr. Chairman, and thank you all for
coming today.
It is a complex history, the history of the debt of Puerto
Rico. You have so much to do with both the relationship between
the territory and the Federal Government--936, underfunding of
Medicare and Medicaid, Social Security, child tax credit--all
unequal treatment, and all helping contribute to where we are
today.
The good news is we have already passed bipartisan
legislation to create Medicaid parity and, just recently, last
week, to help low-income seniors on Medicare.
And we know the history. Puerto Rico used to be able to
file bankruptcy until, I think, about 1983, 1984. Because it is
not a state, it doesn't have sovereign immunity, so it can't
reject--it is in a weird spot, and it was taken out of the
bankruptcy code without really much reason for it.
And here we are, a few years ago, where you have to do
something about it. So, PROMESA was this compromise that has
been contorted and had sacrifices, and now we are here to see
whether we need to reform it or not.
We have had some movement, $23 billion in debt
restructuring certainly is a lot. And lowering the debt service
from $4.2 billion to $1.5 billion, those are all big
milestones.
One thing I continue to hear from a lot of folks on the
island and in my district and others is about this idea of
eliminating the debt. So, I want to start out with that.
Mr. Marrero and Ms. Jaresko, is there any legal way to
eliminate the entire debt?
Ms. Jaresko. No, not under the bankruptcy code, as far as I
understand it, sir. None.
Mr. Soto. Mr. Marrero?
Mr. Marrero. Right now we have to go through the process
delineated by PROMESA. It is the only process that we have to
restructure our debt.
Mr. Soto. The bill draft talks about an audit, and I
understand that PROMESA has already done an audit. But what
would be the harm, since there is a perception that maybe the
audit was done well, or maybe it wasn't?
Would there be any harm in having an audit while we
continue on with these issues, Mr. Marrero? Then Ms. Jaresko.
Mr. Marrero. I believe it will be a waste of taxpayers'
money. Because, in the end, let's remember the fact that not
only all the fees that we were incurring as part of the
process, the government has to pay them, but also the Oversight
Board, as well as the advice of any other committee that is
created through the process.
So, for me, it is a waste of taxpayers' money and time.
Mr. Soto. Thank you, Mr. Marrero.
Ms. Jaresko? Sorry, my time is limited.
Ms. Jaresko. I believe the two values of doing an audit
have been achieved. One, to identify which debt needs to be
invalidated in the court. And, as we described, we have
submitted for over $9 billion, this is being invalidated by
different players, including the special claims committee of
the Board. And second, to identify the practices of the past
that led Puerto Rico to this situation, and avoid them going
forward by putting a debt management policy in place so that
this never occurs again.
Mr. Soto. OK. Ms. Jaresko, what do you think the timetable
is of winding down PROMESA, based upon the current course of
history so far?
Ms. Jaresko. I believe that we first need to get the
Commonwealth through this plan of adjustment and have a court
confirm it. Hopefully, depending on the amount of litigation,
that would be 2020, next year. After that, we would have 4
years of balanced budgets. And that, in my mind, would take us
through the end of PROMESA.
Mr. Soto. So, 2024 is what you are estimating right now.
What about you, Mr. Marrero, based upon your experience,
where are we at?
Mr. Marrero. Again, our priority is to get out of
bankruptcy as soon as we can. And we do believe that, as soon
as we get out of bankruptcy, out of Title III, and we have
access to capital markets, we just have to finish the process
to achieve fiscal responsibility.
Mr. Soto. Thank you. Now, last, is the Reconstruction
Coordinator. I can appreciate, having spoke with both the
Governor and folks on both sides of the aisle about this, after
already having a Federal layer with the PROMESA Fiscal Board,
having just another layer is, obviously, something people are
very concerned about.
We know that COR3 has faced barriers with the
Administration. So, Mr. Marrero, what are the barriers? Because
we allocated $42.5 billion, and you have received, what, $14,
$15 billion to date?
What are the barriers you are facing with the Federal
Government right now?
Mr. Marrero. Well, with all due respect, we believe it is
just bureaucracy and lack of timely decision making. From our
perspective--on the CDBG side. Let's talk about the CDBG side.
The CDBG side, for the $1.5 billion, which was the initial
action plan, we did it in less than a year. It took Louisiana 3
years to access the initial funding on the CDBG side. We did it
in a record time.
By the way, at that time, the undersecretary of HUD said
publicly that it was the best action plan that she had seen at
her post at HUD.
Mr. Soto. Thank you, Mr. Marrero, because I have to wind
up.
But if we could just put a switch into this bill, Mr.
Chairman, to make the Trump administration release the funds, I
think we would actually resolve this. Thank you, and I yield
back.
The Chairman. Thank you very much.
Mr. Westerman, sir, you are recognized.
Mr. Westerman. Thank you, Mr. Chairman. Thank you to the
witnesses.
Ms. Jaresko, the current labor force participation numbers
in Puerto Rico are hovering around 40 percent, which is 20
percent or more lower than what we have here in the mainland.
Can you tell me what factors would be contributing to that?
Ms. Jaresko. Yes. The labor participation rate is affected
tremendously by the amount of burdensome regulation in the
labor market and the lack of free movement within the labor
market.
One of the things the Board had done previously, with the
support of former Governor Rossello, was to suggest the repeal
of Law 80, which did not allow for employment at will.
Employment at will exists in 49 out of 50 states, with the
exception of Montana. And that, unfortunately, was not
acceptable at that time to the legislature. So, you continue to
have very high severance levels, which is a discouragement to
employers to employ in the formal market additional people.
Amongst other things, of course, we need to increase the
amount of investment on the island to create new jobs, jobs
that the people of Puerto Rico can fulfill. And that then
directly translates into our investment into human capital,
making sure people are trained for the jobs of the future.
Mr. Westerman. How has this low labor participation rate
impeded the rebuilding process in Puerto Rico? And can you
address that?
Ms. Jaresko. I don't think at this point that it has
impeded the reconstruction post-Hurricanes Irma and Maria. To
the extent that there might be a possible conclusion, it is
that we now do not have enough construction companies to
support the level of construction that is being demanded.
But I think that it is a broader and bigger issue for
economic development in Puerto Rico.
Mr. Westerman. Of this 40 percent that participates in the
work force, what percentage of that is employed by the Puerto
Rican government?
Ms. Jaresko. I don't know the number, sir. I can get back
to you. It is a significant portion, but I don't know the
percentage.
Mr. Westerman. And what effects does this have on the
sustainability of Puerto Rico's pension system?
Ms. Jaresko. We have just issued a report I recommend--it
is called a 211--to talk about all of the different problems
that have occurred to de-fund the pension system in Puerto
Rico. I think that the number of employees is one element, but
I think the greater elements that have led to the de-funding is
an insufficient funding, borrowing from those funds, as well as
increasing benefits that accrue additional pension liability
without increasing the investment into the fund.
Mr. Westerman. Do you believe the rightsizing of the Puerto
Rican government is needed?
Ms. Jaresko. I do believe that the rightsizing of the
government is needed for several reasons: (1) to reflect the
actual de-population of the island and the current demography
of the island; (2) to reflect the fiscal capacity of the
island; and (3) frankly speaking, because it is very difficult
to manage a government with over 150 government agencies.
Therefore, some rightsizing, some consolidation, and the
previous governor and the Governor have agreed that some
consolidation would make the government more efficient to
manage and more responsive to the people of Puerto Rico.
Mr. Westerman. Has the government, or has the Oversight
Board worked to streamline or consolidate any aspects of the
Puerto Rican government?
Ms. Jaresko. Yes, we have. And we have seen success already
in two departments in particular. The Department of Economic
Development has consolidated a variety of bureaus, and the
Department of Public Safety has consolidated and begun the
process. This consolidation, to be clear, means a centralized
administration, procurement, and budgeting, whereas the bureaus
continue to do, of course, their individual functions, whether
they be firefighters, or police, or other.
Mr. Westerman. You talked about it a little bit, it has
been brought up already. We know that the Puerto Rico pension
system is virtually bankrupt. Can you go into more detail on
what the Oversight Board is doing to prevent this situation
from getting worse, especially with the sheer percentage of the
island that is employed by the government and expects a
pension?
Ms. Jaresko. I think the most important thing we have done,
and I think it is something that, in fact, places Puerto Rico
maybe ahead of the 50 states that are also challenged at times
with funding their pension systems, is that we have moved to a
pay-as-you-go system.
We no longer are attempting with the employment retirement
system to continue to fund a defined benefit plan. All
employees have moved, on a going forward basis, to a defined
contribution type of plan. And payment for pensions, those who
are currently retired, is paid from the budget from the general
fund each year.
Mr. Westerman. I know my colleague, Ranking Member Bishop,
did a lot of work on that when he was in the Utah Legislature,
and kind of led the country in getting pension systems
sustainable. Maybe he could be a resource for you, because that
is not just a problem in the Commonwealth, it is a problem in
many states across our country.
I yield back.
The Chairman. Mr. San Nicolas, the floor is yours.
Mr. San Nicolas. Thank you, Mr. Chairman.
Mr. Marrero, you mentioned earlier that you believe the
PROMESA Board should be determining the size of the room, not
the placement of the furniture. Could you elaborate with some
examples on how that is occurring?
Mr. Marrero. Sure, definitely. I will take, for example,
the Christmas bonus. I think that, to the extent that we have--
according to PROMESA, the Oversight Board will tell us what is
the forecast on the revenues, and we will use that figure and
start working on the budget. We believe that, according to
PROMESA, the Oversight Board has fiscal and budgetary powers.
We know that. Obviously, that was the responsibility that it
was bestowed with.
However, the fact that once that spending limit is
determined, the elected government of the people of Puerto Rico
should be the one to determine how that money should be spent.
For example, the Christmas bonus. We have been working on that
and we are confident that we will come to a resolution to this
matter. But in the past, it was a point of contention because,
even though it says a bonus for us, it was supplementary wages,
it was a way to do social justice to the people of Puerto Rico,
to the workers of Puerto Rico, that they don't earn the same as
on the mainland.
So, again, that was one of the areas, as many others, in
which we believe the Oversight Board is overstepping its role
into the area that should be left to the people of Puerto Rico.
Mr. San Nicolas. Ms. Jaresko, we are all trying here.
When I listen to Mr. Marrero and what he is sharing, I have
a strong tendency to agree with him. I am a Congressman from
Guam, and my district is also a U.S. territory similar to
Puerto Rico and my colleague from the Northern Mariana Islands,
as well as my colleague from the U.S. Virgin Islands and
American Samoa.
And we have a lot of fiscal challenges as territories,
because we receive inequitable funding from the Federal
Government for liabilities that would receive a much different
rate of funding if they were being incurred in any of the 50
states. And, oftentimes, our territories tend to try to get
creative in ways to try to make up for those Federal funding
shortfalls. It often results in deficit spending, bond
borrowing, and the like. And I think that is something that
territories need to work on to correct here at the Federal
level, so that we are not suffering those same inequities that
tend to contribute to our fiscal challenges.
That being said, my concern is that, if the PROMESA Board
is overly involved in the operational decisions of the
government, how is the local government going to be able to
build the credibility necessary to satisfy creditors and
investors when PROMESA goes away?
If the operational decisions are being made by the Board,
and not the local government, wouldn't that make interest rates
higher, and wouldn't that make investors more wary that when
PROMESA is gone the local government hasn't demonstrated the
credibility over the years that was in place?
Ms. Jaresko. Thank you. I don't believe we are overstepping
in the budgetary area, and I think what we are leaving behind
is a much more detailed and transparent----
Mr. San Nicolas. That is not my question, Ms. Jaresko. My
question is, wouldn't that injure the credibility of the
government, for investors and for creditors, if the government
was not fully responsible for making the decisions during the
period that PROMESA was in place?
Ms. Jaresko. No, I don't believe so. I think what we are
leaving behind is a better financial environment, one which is
more transparent for those creditors, one where the government,
on a going forward basis--the legislature, which you will hear
from, on a going forward basis, will have more data and more
ability to do the same work that we are doing right now from a
budgetary standpoint, but they will be doing it themselves on a
going-forward basis----
Mr. San Nicolas. I really would have to respectfully
disagree with you, because, at the end of the day, creditors
and investors are going to be looking to management, and
whether or not management is going to be able to deliver on the
revenue projections that are being put in place. And if
management are not the ones who are actively involved in making
the financial decisions, and if they are not the final arbiters
of those decisions, then the credibility isn't being
established. And that is the case when you are talking about
the private sector, that is the case when you are talking about
municipal governments in the United States, and that is the
case when you are talking about territorial governments.
Ms. Jaresko, I just wanted to close with my concern with
respect to this, and I hope my colleagues can indulge, but I
pulled up your background, and your background in particular
with respect to your work history in Ukraine. In Ukraine, you
were advocating for a technocratic government, at least with
respect to what I am reading here. And I am just concerned that
this is almost turning into a practice that you are getting
excited about without necessarily factoring in whether or not
it is in the best interest of the people of Puerto Rico and the
government of Puerto Rico to be able to establish the
credibility necessary for them to be able to emerge from
PROMESA with the full faith and confidence of creditors and
investors when this process is over.
Thank you, Mr. Chairman. I yield back.
The Chairman. Mr. Gohmert, sir.
Mr. Gohmert. Thank you, Mr. Chairman. I appreciate the
witnesses being here. And like Mr. San Nicolas, I was looking
at the background, Ms. Jaresko, that we were provided. It said
you were an American, or are an American-born Ukrainian
investment banker who served as Ukraine's Minister of Finance
2014 to 2016.
I am curious. In your position there in Ukraine, were you
aware of Ukrainian President Petro Poroshenko dispatching Olga
Bielkova or any other Ukrainian official to the United States
in order to conduct an influence campaign on the 2016 election
here in the United States?
Ms. Jaresko. I am here to report on PROMESA, and Puerto
Rico's----
Mr. Gohmert. Your credibility is an issue, just as Mr. San
Nicolas----
Ms. Jaresko. I don't have any knowledge of the details that
you just described, sir.
Mr. Gohmert. I didn't ask you if you had knowledge of the
details. I asked if you had any knowledge of the president
sending Bielkova to the United States.
Ms. Jaresko. I do not have any knowledge of that.
Mr. Gohmert. You don't have any knowledge on how that was
financed, as director of finance?
Ms. Jaresko. It did not occur while I was Minister of
Finance, sir.
Mr. Gohmert. Well, you were there.
The Chairman. Mr. Gohmert, if I may----
Mr. Gohmert. This is critical to her credibility. She is
now director of this finance operation in Puerto Rico.
The Chairman. I am not trying to dictate the questions you
can ask. The time is yours, sir. But the issue today is
PROMESA, and any other conspiracy tale that we want to chase,
that is up to you.
Mr. McClintock. A point of order----
Mr. Gohmert. My clock is still running, as the Chairman is
eating up my time, lecturing me and trying to cover up this
matter.
But let me ask you, Ms. Jaresko, are you aware of Ukrainian
parliamentarian Bielkova's April 12 meetings with Liz Zentos
and Eric Ciaramella of the Obama National Security Council?
Ms. Jaresko. No, sir.
Mr. Gohmert. You were not aware of any meetings between
them?
Ms. Jaresko. None, sir.
Mr. Gohmert. All right. How did you go about becoming the
Executive Director of the Financial Oversight and Management
Board of Puerto Rico? How did that come about?
Ms. Jaresko. I was recruited by the members of the
Oversight Board, based on my experience as Minister of Finance
in both the fiscal area and the debt restructuring that I did
in Ukraine.
Mr. Gohmert. And those were the people in Puerto Rico,
correct?
Ms. Jaresko. The seven bipartisan members of the Oversight
Board. One of them is resident in Puerto Rico, yes.
Mr. Gohmert. Do you know who recommended you for that
position?
Ms. Jaresko. It was a recruitment firm that was hired, and
a variety of candidates. I believe the Oversight Board was
searching for almost a year, maybe 9 months. And it was at the
recommendation of the Board members that the Board took that
decision.
Mr. Gohmert. Yes. To become the Executive Director of
Finance in Ukraine--obviously, you are American born, you are
an American citizen.
Ms. Jaresko. Yes, sir.
Mr. Gohmert. Did you have to become a citizen of Ukraine in
order to take that position?
Ms. Jaresko. Yes, sir. They awarded me citizenship the day
I became minister.
Mr. Gohmert. The day you became minister?
Ms. Jaresko. Yes, sir.
Mr. Gohmert. How long had you been living there?
Ms. Jaresko. I lived in Ukraine from my initial posting in
the U.S. State Department as the Economics Officer in 1992, and
I left in 2017, when I accepted this position. So, 25 years.
Mr. Gohmert. So, you were there until you accepted this
position in 2017, correct?
Ms. Jaresko. Yes, sir.
Mr. Gohmert. All right. And what did you do from April 2016
until you accepted this position and moved to Puerto Rico?
Ms. Jaresko. I took a break from my role as Minister of
Finance during the war and during the economic collapse of the
country, which was very demanding. I did some public speaking,
both here in the United States and in Europe, and reacquainted
myself with my children.
Mr. Gohmert. OK, so you were Director of Finance in Ukraine
during the economic collapse?
Ms. Jaresko. I was Minister of Finance. After the
Revolution of Dignity, I became Minister in December 2014.
Mr. Gohmert. Right.
Ms. Jaresko. Remember, the revolution there ended in
February. Crimea was occupied illegally. And then Eastern
Ukraine was attacked.
Mr. Gohmert. Was attacked--are you talking about by Russia?
Ms. Jaresko. Yes, sir.
Mr. Gohmert. And that was with regard to the Crimea?
Ms. Jaresko. First Crimea, than Eastern Ukraine after that.
Mr. Gohmert. Right.
Ms. Jaresko. The war continues.
Mr. Gohmert. OK. Is that what you are attributing the
economic crisis to?
Ms. Jaresko. It also was based on financial policies of
past governments that led the country to be over-indebted, as
well as to run very large and significant deficits.
Mr. Gohmert. Indebted like Puerto Rico, I guess. My time
has expired.
The Chairman. Mr. Lowenthal.
Dr. Lowenthal. Thank you, Mr. Chair. And thank you to the
witnesses. As a former college professor, I have some questions
myself about Ms. Jaresko, about what is occurring at the
University of Puerto Rico.
Ms. Jaresko, you mentioned in your written testimony,
especially, that the UPR, the University of Puerto Rico, is
genuinely one of the best things Puerto Rico has to offer. And
I probably agree with you in many ways, in that you mentioned
also it is a source of pride for all Puerto Ricans.
However, I would like to ask you some things. In 2017, the
University had a system-wide strike due to austerity measures,
poor infrastructure, and increased tuitions. But you also
stated in your testimony that the fiscal plan calls for an
increase in tuition, and that the maximum annual tuition for
Fiscal Year 2023 would be $5,090, and that all students will be
able--you guarantee, basically, because of scholarships and
others--that all students in Puerto Rico will be able to access
education at this price.
Are you really telling us that you are guaranteeing all
students will be able to access the University, with a median
income of less than $20,000 in Puerto Rico, and that the
scholarships will make this up for all students applying?
Ms. Jaresko. No, sir, not all students. What I was
describing in my statement was that tuition has been raised to
some level just under, excuse me, $1,000 under the Pell Grants.
So, first of all, those who can apply for and achieve a
Pell Grant can afford tuition.
Dr. Lowenthal. Right.
Ms. Jaresko. Second, that we have set aside the equivalent
of 12,000 full-time scholarships per year for those who may not
qualify for a Pell Grant but are still needs-based. It is not
about providing tuition for those who can afford tuition who do
not have a need.
Dr. Lowenthal. All right, so you believe that will cover
all the students at the University, either the Pell Grants or
the scholarships, so the tuition increases will not impact
students?
Ms. Jaresko. That is correct. They should have access to
needs-based scholarships if the Pell Grant is unavailable to
them.
Dr. Lowenthal. OK. Thank you, and I hope that is so. I am
just not sure. And you are saying that student debt will not
increase because of this?
Ms. Jaresko. Again, I can't speak to student debt. The
University has to determine what the elements of the needs-
based test will be. And I don't know whether other students
will continue to take debt that perhaps wouldn't qualify for
that.
Dr. Lowenthal. I would be interested in knowing how this is
going to impact student debt, not just because of Puerto Rico.
You know, that is a crisis throughout the Nation, student debt.
And I am just wondering how, with what is going on in Puerto
Rico, if you could, at some point tell the Committee how is
that going to impact student debt that is going on, because I
agree with you, it is the hope and the pride of the
Commonwealth of Puerto Rico.
Ms. Jaresko. Yes, we will follow up.
Dr. Lowenthal. The other question I want to ask you is, you
mentioned about the looming pension crisis, UPR. Can you
explain that?
Ms. Jaresko. Yes. Unfortunately, although the University of
Puerto Rico retirement system is better funded than the
employee retirement system of the Commonwealth, which was
funded at practically zero, the fact of the matter is that, at
the current level of funding that the University is currently
providing, it will become bankrupt within the next 10 years.
Today, what we see is a funding of approximately $60
million per year, when the requirement identified by actuaries
is almost twice that.
What we have suggested in our fiscal plan is that the
University do one of three things: either fully fund what is
necessary, and/or take on some pension reform aspects to reduce
the amount that is necessary actuarially, but in no cases to
under-fund and lead to the same situation that we find
ourselves in at the Commonwealth, to learn from the lessons
that we----
Dr. Lowenthal. And where is the University administration,
in terms of these recommendations?
Ms. Jaresko. It is my understanding that they have begun to
work specifically on one of those options.
Dr. Lowenthal. Thank you.
With that, Mr. Chair, I yield back.
The Chairman. Thank you, Mr. Lowenthal.
Mr. Bishop.
Mr. Bishop. Thank you, Mr. Chairman. Like many people, I am
not crazy to be here. That is why like many people, we are
actually not here for us, we are here to talk to you and to
those who are out there.
So, Natalie, first, you have taken a couple of infamous
shots here today. Let me apologize for that situation and thank
you for what you are both doing. A lot of the things that have
been charged to this panel really are the things that the
second and third panel here had charged to them, but those are
elected officials, so it comes with the territory,
unfortunately. It is not the way things ought to be.
So, since today is an important day, far more important
than this hearing, this is the first day of the World Series.
[Laughter.]
Mr. Bishop. And I know this is more important to you, and
if you don't, then ask the Alomar family, the Rodriguez,
Clemente's relatives, they will say that that is more
important.
When one starts little league, home plate is 17 inches. And
when you get to high school, it is still 17 inches. And the
minors, it is 17 inches. And in the majors, it is still 17
inches. And the pitchers are expected to hit those 17 inches.
And even a major league pitcher that can't hit the 17 inches
basically gets sent to Pocatello afterwards. One of the things
that never happens in any of those levels is to say, ``OK, if
you can't do the 17 inches, let's make it 18, or 20, 25 inches.
We will change the plate so that you can actually do the job.''
The draft that is floating around here is one of those
things that is trying to change home plate, and it doesn't have
to be. Keep home plate the same, and just do the proper and
appropriate things.
Let's face it, the problems that Puerto Rico is facing
right now, that the island is facing, simply come from a lot of
bad decisions that were made in past governments. Not all.
There were some great governors and some great governments that
tried, definitely, to institute those reforms. But they
happened.
The PROMESA legislation was unique in the annals of
Congress. Our Committee was assigned to try to come up with
something. We based it on a process that has historical
precedents of effectiveness. If anyone thinks working with the
Obama administration Treasury Department is an easy practice, I
have some other oceanfront property in Phoenix to sell you. It
just simply does not happen.
But this was one of the bills that, ironically, had a
majority of the House Republicans and a majority of the House
Democrats in passing it. Even Mr. Grijalva said some nice
things like it was necessary. And, as a compromise, it was
workable. And the irony that the Senate didn't change a single
word, that is unique for the Senators who still think they are
paid by the word in the first place.
Changing it is not going to solve the issue at hand. It is
like trying to expand home plate. It simply won't be there. You
have the tools that are there. What you need is to make sure
you hit home plate, and that requires a government that is
willing to work with the Board on this temporary procedure to
solve the problems.
I am proud of the current governor. She is doing, I think,
a remarkable job, as she said in my office, and promised to
solve these issues by working with the Board. And I am proud of
the Board trying to now work with the Governor. And if we go
forward with that, then actually you can accomplish something
that is positive.
This entire process was always intended to be temporary.
And this entire process has three goals, at least in my mind.
One is to provide economic success to an island that has
potential--not a lot of resources, but you have potential. The
second is to provide governmental stability, which hasn't
happened necessarily in the last several years, but can happen
in the future if the Board, as well as the Governor's office
and the rest of the political appointees, actually are working
together. And finally, for me, it is an avenue, a pathway to
statehood, which is still the important process at the end of
the day.
Without this Board, without the structure we have in hand,
those three goals--the economic success, the governmental
stability, as well as the path to statehood--are going to be
significantly retarded, if not eliminated. That is why I am
proud of what you are attempting to do, and I am proud that the
new governor is attempting to work very closely to actually
solve problems, instead of creating problems, and that some of
the draft that has been thrown out there can be situated as
nothing short of political pandering to special interest
groups.
And the other bottom line about why this hearing and the
next hearing is so significant is any of the proposals that
have been floating out there aren't going anywhere. The idea
that they will be passed in the Senate or signed by a President
is delusional, at best. You have home plate; use it.
Satchel Paige once said, ``Home plate don't move. Just
throw strikes.'' Throw strikes.
I actually have no time left. Mr. Grijalva, you are more
generous to me than I would have been to me.
[Laughter.]
Mr. Bishop. Would you please gavel me down? But at least I
said something intelligent.
The Chairman. I am sorry, Mr. Bishop, it is a character
flaw of mine, of being respectful.
Mr. Bishop. If you say of your elders, I am going to go on
for another 3 minutes.
[Laughter.]
The Chairman. Ms. Velazquez, you are recognized.
Ms. Velazquez. Thank you, Mr. Chairman.
Mr. Marrero, I gather from your testimony that you are open
to supporting a Federal monitor coordinator. Is that true? Is
that the case?
Mr. Marrero. More than the name, I think that what we need
is to expedite the recovery funds. So, if we can have someone
to coordinate at the Federal level, that will be more
efficient, and that will help the people of Puerto Rico.
Ms. Velazquez. Do you think that adding another layer to
what is already in place will facilitate accessing Federal
money?
Mr. Marrero. I don't see us----
Ms. Velazquez. Yes, I hear you. I don't know if you are
aware that last week before the Appropriations Subcommittee,
the administration testified that intentionally they missed a
legally required deadline that would have made congressionally
appropriated funds available to Puerto Rico. And we are talking
about HUD and CDBG-DR. Are you aware of that?
Mr. Marrero. Fortunately, I am aware----
Ms. Velazquez. So, is the issue adding another layer, or is
the issue dealing with the fact that this Administration has
put roadblock on top of roadblock to make it difficult for
Puerto Rico to access that money?
That has been the history of the disaster relief package
that we passed. Seventeen localities that were affected by
Maria, Harvey, all of them got their money, right? And yet
Puerto Rico didn't.
I just came back from a Financial Services Committee
hearing where I questioned Secretary Carson on that respect.
So, I don't believe that adding another layer will address
the issue of the contempt of the Administration to make it
difficult for the government of Puerto Rico to access the money
that we appropriated. In fact, I consider that to be a
violation of the law.
And people love to talk and lecture us about accountability
of the government of Puerto Rico, but we don't talk about
accountability of the Federal Government. And people use
corruption, but no one mentioned here that two Federal
officials were arrested in Puerto Rico 3 or 4 weeks ago.
So, I don't believe that adding another layer will resolve
what is at the crossroad here, in terms of facilitating the
money that was appropriated. No one, no agency, is empowered to
unilaterally withhold CDBG-DR funds. You want to talk about
accountability? Let's talk about accountability.
Ms. Jaresko, according to the Board's own documents,
further delays could reduce the amount of money reaching Puerto
Rico by $30 billion. Given that this Federal aid is not coming
in, and the economy is not growing, the people of Puerto Rico
continue to suffer. Can you assure the people of Puerto Rico
that any additional belt tightening will not be put on their
backs?
Ms. Jaresko. The document that you referred to,
Congresswoman, was simply something that we were discussing
with creditors as downside risks. We are still confident that
Puerto Rico will receive the monies that it----
Ms. Velazquez. I hear you. You are confident that Puerto
Rico is going to get the money?
Ms. Jaresko. Yes, ma'am.
Ms. Velazquez. Yes? Here we are, how many years later after
Maria?
So, what is your plan B if Puerto Rico doesn't get the
money?
Ms. Jaresko. With regard to the plan of adjustment, it
would not affect it. We have limited debt service to $1.5
billion per year, which is less than 10 percent of own-source
revenues this year, regardless of any future receipt or future
growth in the economy. It would be terribly unfortunate, and we
will do everything in our power to work with the government and
with you to assure that they get the funds.
Ms. Velazquez. Sure, I hear you, but you know what, Ms.
Jaresko? The plan of adjustment is viewed by many as very
generous to bondholders. It will be unacceptable for you to
force more austerity on the people due to the Administration's
willful withholding of funds.
Ms. Jaresko, in a motion submitted to the court, it is
alleged that Duff and Phelps, one of your many contractors, has
overcharged the Board and, in turn, the people of Puerto Rico.
So, we want to discuss accountability? Let's discuss
accountability. How are you going to make sure that the people
of Puerto Rico are not over-billed by your hundreds of
contractors and consultants?
Ms. Jaresko. That is a Title III expense. It went through
the fee examiner, and that fee examiner is responsible for
doing exactly what they have done. We don't review those bills.
Those bills are reviewed by the court and the fee examiner. And
we are grateful for the fee examiners' work in doing that.
The Chairman. Thank you very much.
Ms. Velazquez. But you can get consultants that will charge
much less for the trip from San Juan to New York City. Five
thousand?
The Chairman. I want to thank both of you. I appreciate it.
And thank you for the testimony and for your response.
There are other follow-up questions that we will direct to
you, for responses, with more specificity in terms of the
coordinator question and other questions in terms of the
question that Ms. Velazquez just came up with that she asked
Ms. Jaresko having to do with delays, and the Federal funding
being expeditiously coming in, and the consequences of that
which the report alluded to, but we ask for some more
specificity on it.
With that, thank you very much. And let me invite the next
panel up.
Ms. Jaresko. Thank you.
Mr. Gallego [presiding]. Thank you, everybody. Let's
continue on. I would like to now thank and welcome Panel 2. As
part of our witness list, I would like to welcome the Honorable
Carmelo Rios, the Honorable Eduardo Bhatia Gautier, the
Honorable Antonio Soto Torres, and the Honorable Rafael
Hernandez as part of our Panel 2 witnesses.
I also want to remind the witnesses that we do have 5-
minute limits. You will see the lights in front of you. As the
light turns yellow, that means you should start wrapping up
your answers. And when it turns red, we ask you to please
finish your answers.
With that, the Chair now recognizes our Ranking Member, Mr.
Bishop.
Mr. Bishop. Thank you, Mr. Chairman pro tem. I just want to
quickly thank the witnesses for being here.
And not being rude, Miss Gonzalez-Colon is the Ranking
Member of the T&I Committee, which is talking about the very
issue you are talking about here. So, she has gone to fulfill
her duties over there. I am going to sit in a few minutes, and
then will apologize for leaving later. Mr. McClintock will be
finishing up this panel. I want you to understand that is why
we are playing musical chairs here, as well as thanking you for
being here.
I yield.
Mr. Gallego. Thank you, Mr. Bishop.
I now recognize the Honorable Carmelo Rios, the Majority
Leader of the Senate of Puerto Rico, for his 5-minute
testimony.
STATEMENT OF THE HON. CARMELO RIOS SANTIAGO, MAJORITY LEADER,
SENATE OF PUERTO RICO
Mr. Rios. Thank you, Chair Gallego, Acting Chair, and thank
you Mr. Bishop, as well as Mr. Grijalva and Commissioner
Gonzalez. On behalf of the President of the Senate of Puerto
Rico, the Honorable Thomas Rivera Schatz, I would like to thank
you for this opportunity to share with the Committee our
thoughts regarding the proposed amendments to PROMESA.
During the Chairman's recent visit to Puerto Rico, Senator
Rivera Schatz made clear our position regarding the draft under
consideration today. PROMESA does not need to be amended. It
needs to be repealed. After over 3 years since its enactment,
PROMESA, with its Financial Oversight Management Board, has
failed to bring fiscal responsibility and access to capital
markets to the territory of Puerto Rico. Instead, PROMESA has
exacerbated the economic situation on the island, putting a
magnifying glass over 121 years of colonialism that are the
real root of our problems.
President Rivera Schatz believes that you should use your
jurisdictional power under Article IV, Section 3, Clause 2 of
the United States Constitution, not to amend a Federal law, but
to enact the legislation that will do away with our second-
class status as a colony, and admit Puerto Rico as a state of
the Union. Only then will Puerto Rico truly possess the tools
and mechanisms necessary to solve the social and economic
crisis.
Nonetheless, we would like to thank the Chairman Grijalva
and other Members of Congress for recognizing that PROMESA is
not working, and for proposing a fix to what is, in our
opinion, unfixable. With this total of $214 million in our
budget from Fiscal Year 2017 to the current fiscal year, which
includes a very lucrative salary, PROMESA is an unfunded
mandate that has proved to be costly to the 3.1 million
Americans in Puerto Rico.
I would like to point out to this Committee that the annual
salary of the Board's Executive Director, Ms. Jaresko, is 50
percent more than the President of the United States and three
times the Speaker's salary.
In addition, through January 2019, the Title III court has
approved $300 million in fees and expenses. In a letter
addressed to various U.S. Senators dated October 7, 2019, the
Chairman of the Board, Mr. Jose Carrion, referred to the cost
of Puerto Rico's Title III cases as exorbitant and tragic.
The Board has complete autonomy to exercise its power
without any control, supervision, and oversight or review from
the democratically-elected officials such as the governor of
Puerto Rico or ourselves which has led to the decisions that
have been detrimental to 3.1 million Americans in Puerto Rico.
Yet, we remain without access to capital markets and ongoing
debt restructuring process that is costing the government of
Puerto Rico hundreds of millions of dollars.
PROMESA has failed and threatened the economic stability of
the island. The bill before us today contains amendments
seeking to correct many of the flaws that have become so
obvious during promised PROMESA's implementation. However, the
main reason for PROMESA's failure is simple, and not addressed
by any of the amendments being considered today by this
Committee. PROMESA does not address the root cause of the
problem on the island. It is colonial status, the same colonial
status that allowed Congress to establish a fiscal control
board that violates the principles of our democracy.
It is unbelievable that after 121 years living under the
flag of the Star-Spangled Banner, and 102 years of American
citizenship, Puerto Ricans remain living on an island that
cannot vote for its national election, or elect a commander-in-
chief, or have a full-fledged representation in Congress as a
state of the Union. It is unbelievable that in the 21st
century, the beacon of democracy for the rest of the world
still has 3.1 million disenfranchised Americans and treats them
as second-class citizens.
Rather than extending full democratic rights to all the
citizens, the United States of America has now chosen to
curtail them by enacting a law that has proven to be flawed and
ineffective.
To blame our fiscal crisis solely on mismanagement on the
local level is to turn a blind eye to the reality resulting
from unequal and second-class treatment at the Federal level.
It is to ignore that Puerto Ricans, by simply buying a one-way
ticket to the Continental United States attain other rights,
responsibilities, and privileges denied to them while on the
island. It is to ignore that the 3.1 million proud U.S.
citizens living in Puerto Rico deserve the same quality of life
that their brothers and sisters in the states.
The only real permanent solution to the fiscal problem of
Puerto Rico before this Committee, in my opinion, is statehood.
It is time to extend to the American citizens of Puerto Rico
the equal treatment, rights, and respect they deserve and have
earned through their 102 years of faithful service to this
Nation. And statehood is the only real option viable for the
solutions of the Puerto Rico challenge today.
[The prepared statement of Mr. Rios follows:]
Prepared Statement of the Hon. Carmelo Rios Santiago, Majority Leader
On behalf of
the Hon. Thomas Rivera Schatz, President of the Senate of Puerto Rico
Chairman Grijalva and Ranking Member Bishop: On behalf of the
president of the Senate of Puerto Rico, Hon. Thomas Rivera Schatz, I
would like to thank you for this opportunity to share with the
Committee our thoughts regarding the proposed amendments to PROMESA.
As recently as last month during the Chairman's visit to Puerto
Rico, Senator Rivera Schatz made clear our position regarding the draft
under consideration today. PROMESA does not need to be amended--it
needs to be repealed. After 3 years and 4 months since its enactment,
it has become clear that PROMESA--with its Financial Oversight
Management Board (FOMB)--has failed in its main objective of bringing
fiscal responsibility and access to capital markets to the territory of
Puerto Rico. Instead, PROMESA has exacerbated the economic situation on
the island, putting a magnifying glass over the 121 years of
colonialism that are the real root of our problems. This Committee
should use its jurisdictional power under Article IV Section 3 Clause 2
of the United States Constitution, not to amend a failed law, but to
enact legislation that will do away with our second-class status as a
colony and admit Puerto Rico as a state of the Union. Only then will
Puerto Rico truly possess the tools and mechanis1ns necessary to solve
the social and economic crisis rooted in hundreds of years of unequal
treatment at the Federal level.
Nonetheless, I would like to thank the Chairman and the Ranking
Member for recognizing that PROMESA is not working and for proposing a
fix to what is, in our opinion, unfixable. With its total $214 million
dollars in annual budgets from Fiscal Year 2017 through the current
fiscal year (which include very lucrative salaries), PROMESA is an
unfunded mandate that has proved to be very costly to the 3.1 million
American citizens living in Puerto Rico. I would like to point out to
this Committee that the annual salary of the FOMB Executive Director is
32 times higher than the average annual salary in Puerto Rico. In
addition, through January 2019 the Title III court has approved $300
million in fees and expenses. In a letter addressed to various U.S.
Senators and dated October 7, 2019, the Chairman of the Board, Mr. Jose
B. Carrion, referred to the cost of Puerto Rico's Title III cases as
``exorbitant and tragic.''
The broad powers granted to the FOMB under PROMESA are excessive
and have effectively usurped the powers vested upon its elected
officials by the Constitution of Puerto Rico. Section 108 of PROMESA
grants the FOMB complete autonomy to exercise its powers without any
control, supervision, and oversight or review from duly and
democratically elected such as the Governor of Puerto Rico or
ourselves. This unrestrained power is granted to seven individuals who
do not necessarily have the well-being of all the people of Puerto Rico
at heart, and has led to decisions that have been detrimental to the
quality of life of the 3.1 million U.S. citizens residing in Puerto
Rico. Yet, Puerto Rico remains without access to capital markets and
the ongoing debt restructuring process is costing the government of
Puerto Rico millions of dollars.
PROMESA has failed in its purpose and threatened the economic
stability of everyone on the island. The bill before us today contains
a series of amendments seeking to correct many of the flaws that have
become so obvious during PROMESA's implementation. However, the main
reason for PROMESA's failure is simple and not addressed by any of the
amendments being considered today by this Committee. PROMESA does not
address the root cause of the problems on the island: its colonial
status. The same colonial status that allowed the U.S. Congress to
establish a fiscal control board that violates the most basic
principles of our democracy.
It is unbelievable that after 121 years living under the flag of
the United States of America and 102 years of American citizenship,
Puerto Ricans living on the island cannot vote on the national general
elections to elect its Commander in Chief or have full-fledged
representation in Congress as a state of the Union. It is unbelievable
that in the 21st century, the beacon of democracy for the rest of the
world still has 3.1 million American citizens disenfranchised and
treats them as second-class citizens. It is unbelievable that in the
21st century, rather than expanding full democratic rights to all of
its citizens, the United States of America has chosen to curtail them
by enacting a law that has proven to be flawed and ineffective.
The territory status and subsequent unequal treatment of Puerto
Rico is the root cause of the problem that led to the enactment of a
law that is flawed and unable to resolve Puerto Rico's fiscal problems.
To blame Puerto Rico's fiscal crisis solely on mismanagement at the
local level is to turn a blind eye to the reality resulting from 121
years of unequal and second-class treatment at the Federal level. It is
to ignore that Puerto Ricans, by simply buying a one-way ticket to the
continental United States, can attain all the rights, responsibilities,
and privileges denied to them while on the island. It is to ignore that
the 3.1 million proud United States citizens living in Puerto Rico
deserve the same quality of life as their brothers and sisters in the
states.
The only real and permanent solution to the fiscal problems of
Puerto Rico before this Committee today is statehood. Only statehood
can bring to Puerto Rico the political and economic stability it needs
to be able to sustain the quality of life its 3.1 million American
citizens deserve. Any other alternative will keep us in the vicious
cycle of borrowing to be able to sustain our economy.
It's time to extend to the American citizens of Puerto Rico the
equal treatment, rights, and respect they deserve and have earned
through its 102 years of faithful service to this Nation. Statehood is
the only real and viable solution to the challenges Puerto Rico is
facing today.
Thank you.
______
Mr. Gallego. Thank you.
The Chair now recognizes the Honorable Eduardo Bhatia
Gautier.
STATEMENT OF THE HON. EDUARDO BHATIA GAUTIER, MINORITY LEADER,
SENATE OF PUERTO RICO
Mr. Bhatia Gautier. Thank you, Mr. Gallego, Chairman
Gallego--sounds good. Ranking Member Bishop and other members
of the Committee, thank you for having us here.
I represent the Popular Democratic Party as the Ranking
Member or, I am sorry, the Minority Leader in the Senate of
Puerto Rico, former President of the Senate.
While PROMESA succeeded in providing a fair and orderly,
yet imperfect, debt restructuring process, the Oversight Board
has effectively become a supra-political entity governing the
people of Puerto Rico in a naked colonial mode, and that is
wrong. Whatever happened to government of the people, by the
people, and for the people?
So, any amendments that do not return the decision-making
power to the people of Puerto Rico are nothing more than
putting a Band-Aid on a bullet wound.
Congress must acknowledge that it cannot continue to govern
Puerto Rico indefinitely, pursuant to the property clause of
the Constitution. Property rights was a central legal
underpinning during slavery. Slaves were property of their
masters, who could dispose of them as they pleased. The
territorial clause gives Congress property rights over Puerto
Rico, which it can manage and dispose of as it pleases.
Really? As long as Congress uses and the Supreme Court
interprets this clause unscrupulously, the people of Puerto
Rico have become property by extension for all practical
purposes. We are at the mercy of our masters, and that is
wrong. Even the infamous racist insular cases recognize the
fact that the territorial clause was not appropriate for Puerto
Rico. It had too many people organizing a government with their
own language and culture.
At first, they ensured cases were used to discriminate
against us. Later, they were used to allow self-rule and
economic development. Now, we are going back to where we
started, eliminating self-government to advance powerful
economic interests. And that is shameful.
In the 1900s, it was the sugar barons, and now it is Wall
Street's hedge funds.
Only because many in Congress continue to view Puerto Rico
through this proprietary lens was it even conceivable to submit
us to the supra-political entity that is the Oversight Board.
The Oversight Board's authority must be limited to just
prescribing achievable numerical targets for budgets and fiscal
plans, period. Spending priorities and other public policy
determinations would then be returned to us.
Regarding certain amendments proposed:
First, amending Section 201(b), the essential services and
economic growth section, they identify a need for amendments
defining essential services as spending priorities reiterates
the Oversight Board's unrestrained power and displacement of
the government of Puerto Rico's substantive policy-making
functions.
Such amendments would not be necessary if the government of
Puerto Rico had not been stripped of these. The Oversight Board
has created a parallel government structure led by expensive
third-party consultants. A Supreme Court Justice, Sonia
Sotomayor, recently noted the Oversight Board has effectively
become an entity that no one can control.
If Congress takes seriously its responsibilities to support
Puerto Rico's economic growth, then it is time for a broader
program. Congress must enact a permanent fix to Puerto Rico's
inequitable growth, healthcare financing structure, and pursue
economic development policies tailored to Puerto Rico.
Rethinking Federal tax policy to encourage private-sector
investment-driven recovery is indispensable. Either Puerto Rico
grows, or it will be perpetually subjected to bankruptcy.
Second, accountability, access to information, and ethical
requirements. I welcome amendments promoting access to
information incorporating disclosure provisions. But Congress
must also address the absence of ethical legal requirements
applicable to members of the Board.
Third, reconstruction and revitalization. I support the
Reconstruction Coordinator, provided its role is limited to
that of a facilitator. The proposed amendments do not do that.
Aid is not being received by Puerto Rico. People are still
suffering. This is unacceptable. Your citizens, my citizens,
deserve better. The Revitalization Coordinator for PREPA is
different. It would be granted power to control tantamount to a
Federal receivership. And, as I previously testified, I am not
in favor of that.
Finally, Puerto Rico public credit comprehensive audit. I
fully support a comprehensive audit of the public debt. As
President of the Senate of Puerto Rico, we passed Act 95-97-
2015, which is almost identical to that now proposed. My
position remains the same. All public debt must be audited,
illegal debt rejected, and the rest restructured.
Thank you very much.
[The prepared statement of Mr. Bhatia Gautier follows:]
Prepared Statement of the Hon. Eduardo Bhatia Gautier, Minority Leader,
Senate of Puerto Rico
Good morning, Chairman Grijalva, Ranking Member Bishop, and members
of the Committee. Thank you for the invitation to participate in
today's hearing to discuss potential amendments to the Puerto Rico
Oversight, Management and Economic Stability Act of 2016
(``PROMESA'').\1\ My name is Eduardo Bhatia Gautier. I am a former
president of the Senate of Puerto Rico (2013-2016), and currently serve
as the Minority leader for the Popular Democratic Party. On behalf of
the people of Puerto Rico, we welcome the opportunity to have a
constructive dialogue with you and your colleagues on PROMESA.
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\1\ Pub. L. No. 114-187, 130 Stat. 549 (2016), codified at 48
U.S.C. Sec. Sec. 2101-2241.
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From the outset, it is important to underscore that I have always
been opposed to the imposition by Congress of an undemocratic fiscal
control board for the Government of Puerto Rico.\2\ As the former
president of the Senate of Puerto Rico, I advocated for a comprehensive
framework that would give Puerto Rico the tools it needed to reach a
resolution with creditors and adjust its debts to a sustainable level.
Recognizing that debt restructuring alone would be an insufficient path
to Puerto Rico's recovery from its long-standing fiscal and economic
crisis, together with multiple experts, I also encouraged Congress to
address Puerto Rico's inequitable health care financing structure and
adopt legislative measures promoting sustained economic growth.
Regrettably, Congress did not heed such advice. It opted for a colonial
and paternalistic approach that focused exclusively on fiscal
adjustment, and by doing so, effectively stripped the people of Puerto
Rico from the limited autonomy recognized pursuant to Public Act 600 of
1950 and Public Act 447 of 1952.\3\
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\2\ See e.g., Bhatia: La imposicion de una junta de control fiscal
no electa, Foro Noticioso, May 24, 2016, available at https://
www.foronoticioso.com/fn/bhatia-la-imposicion-de-una-junta-de-control-
fiscal-no-electa-con-enormes-poderes-administrativos-y-financieros-
sobre-puerto-rico-atenta-contra-los-valores- democraticos-que-hemos-
aspirado-desde-tiempo/.
\3\ Pub. L. No. 81-600, 64 Stat. 319 (1950) and Pub. L. No. 82-447,
66 Stat. 827 (1952), codified at 48 U.S.C. Sec. 731 et seq.
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My testimony today will first provide you with a general overview
of the principal mistakes of PROMESA and then proceed to demonstrate
why they are at the root of your concerns in proposing these
amendments. A key aspiration today is for me to show how these
amendments fall short and fail to properly address these concerns and,
in some cases, generate new issues. Lastly, I will provide you with
some of my recommendations for fixing PROMESA consistent with the
stated goals behind its adoption. To be crystal clear: any amendments
that do not return home rule to the people of Puerto Rico would
constitute nothing more than putting a band-aid in a bullet wound.
promesa's principal mistakes
As you are aware, Congress enacted PROMESA after finding that a
``comprehensive approach to fiscal, management, and structural problems
and adjustments that exempts no part of the Government of Puerto Rico
[was] necessary, involving independent oversight and a Federal
statutory authority for the Government of Puerto Rico to restructure
debts in a fair and orderly process.'' \4\ While it generally succeeded
in providing a fair and orderly--albeit imperfect--debt restructuring
process, PROMESA transcended the stated objective of providing
oversight of the Government of Puerto Rico. Rather than serving as a
mechanism for fiscal oversight,\5\ the Puerto Rico Financial Oversight
and Management Board (the ``Oversight Board'') has effectively become a
supra-political entity governing the people of Puerto Rico in a naked
colonial mode.
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\4\ 48 U.S. Code Sec. 2194(m)(4).
\5\ 48 U.S. Code Sec. 2121(a).
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Regrettably, Congress opted to treat disparately the people of
Puerto Rico when it also exempted the Oversight Board from the
customary Federal supervision provided to governmental officers acting
with commensurate duties and responsibilities. Federal oversight of the
Oversight Board is limited to removal of its members by the President
only ``for cause.'' \6\ As Supreme Court Justice Sotomayor recently
indicated, it has effectively become ``an entity that no one can
control.'' \7\ Notably, if the United States assumes the cost of the
Oversight Board as proposed in these amendments, there is a change of
course regarding Federal oversight. Congress would not be providing the
same blank check it deemed acceptable with respect to the financial
resources of the Government of Puerto Rico.
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\6\ Id at Sec. 2121(e)(5)(B).
\7\ Transcript at pg. 8 of oral argument held on October 15, 2019
before the U.S. Supreme Court in docket no. 18-1334, Financial
Oversight and Management Board for Puerto Rico v. Aurelius Investment,
LLC, et al., available at https://www.supremecourt.gov/oral_arguments/
argument_ transcripts/2019/18-1334_dc8f.pdf.
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The current powers of the Oversight Board are not only an affront
to core democratic values, but also to their utilitarian benefits.
Rather than overthrowing a democratic form of self-government, PROMESA
should instead promote the consented adoption of local policies based
on an understanding that they are achievable and are in Puerto Rico's
own interest.\8\ First, there is the failure of autocratic
pronouncements in promoting policies arising from dialogue and
participation.\9\ As such, local ownership of fiscal, management, and
structural adjustments is lacking, making them less likely to be
successful.\10\ Second, autocratic actions also adversely affect
execution levels. In assuming de facto control over the Government of
Puerto Rico, the Oversight Board has created a parallel governmental
structure led by expensive third-party consultants.\11\ Rather than
cultivating a new class of career public servants for the Government of
Puerto Rico, the Oversight Board has spent hundreds of millions of
dollars further developing the skills of state-side consultants that
will move on to other matters after completing their work.\12\
Institutional memory will be lost.
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\8\ See, e.g., S. Nuri Erbas, IMF Working Paper, WP/03/98, IMF
Conditionality and Program Ownership: A Case for Streamlined
Conditionality (May 2003) (``A fundamental reason why such failures
occur is the inability to engender explicit and implicit program
ownership in a country'').
\9\ While it is true that each of Section 201 (as to fiscal plans)
and Section 202 (as to budgets) seeks to encourage some formal dialogue
between the Government of Puerto Rico and the Oversight Board, nothing
in PROMESA actually requires that the Oversight Board seriously
consider the fiscal plans and budgets submitted to it by the Government
of Puerto Rico. The result is that there is little incentive for a
productive exchange. As currently in effect, any uncorrected violation,
as determined by the Oversight Board in its ``sole discretion,'' serves
as a pretext for the Oversight Board to adopt an entirely different
fiscal plan or budget. This has arguably been the practice followed by
it for the last couple of fiscal plans and budgets. PROMESA therefore
needs to be amended to permit the Oversight Board to revise proposed
fiscal plans and budgets exclusively to correct notified violations
unaddressed by the Government of Puerto Rico. Only if no fiscal plan or
budget has been timely submitted for its approval could the Oversight
Board proceed to adopt its entirely own fiscal plan or budget.
\10\ See, e.g., International Monetary Fund, Strengthening Country
Ownership of Fund Supported Programs (July 17, 2001).
\11\ Chutchian, Maria (2019), A Reasonable Proposal: How US Law
Allows Puerto Rico's Legal Bills to Flourish, available at http://
investigations.debtwire.com/a-reasonable-proposal-how-us-law-allows-
puerto-ricos-legal-bills-to-flourish/.
\12\ Balmaceda, Javier (2018), Puerto Rico Should Invest In Its
Own, Not Just In Outsiders, available at https://www.forbes.com/sites/
debtwire/2018/07/09/puerto-rico-should-invest-in-its-own-not-just-in-
outsiders/#1e52ae064ab2.
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full control over puerto rico's affairs--essential services as
priorities
The identified need for amendments defining essential services as
spending priorities reiterates the Oversight Board's displacement of
the Government of Puerto Rico's substantive policy-making functions.
Such amendments to Section 201(b) would not be necessary if the
Government of Puerto Rico had not been stripped of these.
Democratic processes are the best safeguards to ensure that
essential services are delivered. As economist Amartya Sen has argued,
democracies do not suffer from famines: ``If the government is
vulnerable to public opinion, then famines are a dreadfully bad thing
to have. You can't win many elections after a famine.'' \13\ To
substitute the Oversight Board for Congress fails to provide the local
level democratic accountability essential services protection requires
as a backdrop. Furthermore, and at a fundamental political level, the
imposition of value judgments in such an egregious undemocratic manner
is the very essence of colonialism and should be ``intolerable in any
country where freedom prevails.'' \14\
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\13\ Ebersole, Phil (2015) & Amartya Sen, On Democracy and Famine.
Phil Ebersole's Blog: Thoughts about Politics and the Passing Scene, at
https://philebersole.wordpress.com/2015/06/02/ amartya-sen-on-
democracy-and-famine/ (last accessed Oct. 17, 2019).
\14\ Yick Wo v. Hopkins, 118 U.S. 356, 370 (1886).
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The imposition of further limitations on the Oversight Board is
imperative. Rather than having Congress merely suggest essential
services to the Oversight Board, PROMESA must be amended to limit its
authority to the imposition of achievable numerical targets for budget
and fiscal plans. Such an approach is practical and consistent with
governmental practices. Balanced budget and debt limitation
requirements are rules under which governments routinely operate, many
of which are inscribed in constitutions. In the case of the Government
of Puerto Rico, such limitations would also generally be consistent
with its own Constitution.\15\
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\15\ See e.g., P.R. CONST art. IV, Sec. 7 and art. VI, Sec. 2.
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economic growth policies
The absence of provisions promoting economic growth under PROMESA
is also proposed to be addressed by amending Section 201(b). Setting
aside the fact that vesting the Oversight Board with such
responsibilities is no substitute for real congressional measures
promoting economic growth, anything found in this Section is
essentially dead letter because only the Oversight Board can determine
whether a fiscal plan complies with such requirements. Specifically,
not only does Section 201(c)(3) of PROMESA provides the Oversight Board
with ``sole discretion'' to determine whether a proposed fiscal plan
satisfies the requirements of its Section 201(b), but Section 106(e)
further bars any claim that challenges such a decision itself and any
implicit judicial challenges for violating these requirements.\16\
Stated another way: irrespective of what Congress writes into Section
201(b), the Oversight Board has the last word. Adding requirements or
specificity to the already 14 specific objectives and requirements that
a fiscal plan must meet is, quite frankly, meaningless.
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\16\ See Ambac Assurance Corp. v. Commonwealth of P.R. (In re Fin.
Oversight & Mgmt. Bd. for P.R.), 297 F. Supp. 3d 269, 284 (D.P.R.
2018).
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If Congress is to take seriously its responsibility to support
Puerto Rico's fiscal and economic recovery, the time has come to adopt
a broader program for Puerto Rico. The debt restructuring proposal
recently submitted by the Oversight Board in Title III, if approved,
may ``not go far enough to reduce the island's debt burden'' and
certainly ``leaves no room for error.'' \17\ Congress must therefore
finally enact a permanent fix to Puerto Rico's inequitable healthcare
financing structure and adopt the other recommendations by the
Congressional Task Force on Economic Growth in Puerto Rico. These offer
a sound starting point and have bipartisan support.\18\ But more is
necessary. The recommendations are primarily directed at eliminating
certain aspects of Federal law and programs that hinder Puerto Rico's
development. Congress must also pursue affirmative policies
specifically tailored to Puerto Rico. Rethinking Federal tax policy
regarding Puerto Rico to encourage a private-sector-investment driven
recovery is indispensable. Without congressional action addressing
these areas, Puerto Rico will not reach a sustainable forward path.
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\17\ Lachman, Desmond, Brad W. Sester and Antonio Weiss (2019),
Puerto Rico's Debt Deal Leaves No Room for Error, available at https://
www.bloomberg.com/opinion/articles/2019-10-15/puerto-rico-s-debt-deal-
leaves-no-room-for-error.
\18\ Congressional Task Force on Economic Growth for Puerto Rico,
``Report to House and Senate, 114th Congress,'' December 20, 2016;
available at https://www.finance.senate.gov/imo/media/doc/
Bipartisan%20Congressional%20Task%20Force%20on%20Economic%20Growth%20in
%20Puerto%20Rico%20 Releases%20Final%20Report.pdf.
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lack of accountability, access to information and ethical requirements
While I welcome the amendments' incorporation of the disclosure
provisions for third-party professionals, designed to identify
potential conflicts of interest, Congress must also address the absence
of safeguards to ensure that the Oversight Board itself is not
``influenced by the thought of later reaping a benefit from a private
individual.'' \19\ Specifically, pursuant to PROMESA, there are no
ethical legal requirements that would be applicable to the current
members of the Oversight Board upon ceasing to serve in such
capacities.\20\
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\19\ See cf., Brown v. District of Columbia Board of Zoning, 423
A.2d 1276, 1282 (D.C. App. 1980); General Motors Corporation v. City of
New York, 501 F.2d 639, 648-652 (2d Cir. 1974).
\20\ To the extent the members are officers of the Government of
Puerto Rico, they claim that federal preemption nevertheless exempts
from the requirements found in the Puerto Rico Government Ethics Act of
2011. On the other hand, if they were to be deemed officers of the
United States, given the language found in Section 109 of PROMESA, it
would nevertheless be uncertain whether any restrictions would apply to
them beyond those imposed by the federal conflict of interest
requirements described in section 208 of title 18, United States Code.
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Because Congress deems the Oversight Board part of the Government
of Puerto Rico, its members and officers should be subject to the same
cooling-off periods required by the Puerto Rico Government Ethics Act
of 2011.\21\ Such ethical requirements (applicable for a period of 1
year after ceasing in their positions) would guarantee that they would
generally not be permitted to accept employment, have an economic
interest or enter into a contractual relationship, directly or
indirectly, with any person over which they took any official action in
the preceding year. Considering that one of their primary duties and
responsibilities is the allocation of resources to private parties--
whether it be to creditors or third-party consultants--such post-tenure
limitations are reasonable.\22\
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\21\ Puerto Rico Act. No. 1-2012.
\22\ While federal law is generally more lenient (senior federal
officers are perceived to address nationwide concerns, rather than
case-specific matters, and unlike the members of the Oversight Board,
are first required to satisfy any potential concerns to the
satisfaction of U.S. Senate as part of their confirmation process),
under certain appropriate circumstances, it imposes post-employment
restrictions exceeding those found in Section 203 and 207 of title 18,
United States Code. See e.g., 41 U.S.C. Sec. 423(d)(1) (procurement
officers); 12 U.S.C. 1820(k)(2)(A) (senior bank examiners).
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I also strongly support the amendments regarding access to
information. In fact, lack of transparency regarding budget proposals
by the Government of Puerto Rico to the Oversight Board forced me to
successfully sue former Governor Ricardo Rossello in 2017.\23\ I would,
however, be remiss not to mention that PROMESA does not establish a
clear system of record keeping of documents for the Oversight Board, an
essential element of transparency. Such an oversight is important given
the inapplicability of both Federal and local regulation in this
matter. As an entity purportedly part of the Government of Puerto Rico,
the Federal Records Act of 1950 is inapplicable; and because PROMESA
also arguably preempts local document retention law, there are no legal
requirements mandating policies and procedures for creating,
maintaining, and disposing of its records. Congress should act to
ensure that all these records are properly maintained, including those
that while confidential today, will not necessarily be so in the
future.
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\23\ See e.g., Bhatia-Gautier v. Rosello-Nevares, Civil No.
SJ2017CV00271 (P.R. Super. Ct. Mar. 16, 2018) (relying on Bhatia-
Gautier v. Rosello-Nevares, 2017 TSPR 173, 2017 WL 4975587 (P.R.
2017)).
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office of the reconstruction coordinator
The proposed amendments would create the Office of the
Reconstruction Coordinator to ``collaborate with local agencies to
ensure effective coordination among key stakeholders, public
participation, and transparency in the recovery process.'' They seek to
address the very real concern that the people of Puerto Rico are not
receiving Federal reconstruction aid at a pace commensurate with their
needs because of the deep--and mutual--distrust that currently exists
between the Government of Puerto Rico and the Federal Government.
The current administration of Puerto Rico--now headed by its third
governor in 3 years--has been characterized by both lack of
transparency and corruption at its highest levels. By way of example,
during the summer of 2019, each of the Secretary of the Department of
Education and the Executive Director of Puerto Rico Health Insurance
Administration were indicted on corruption charges involving the use of
Federal funds. These two entities manage almost half of all Federal
funds customarily received by the Government of Puerto Rico on an
annual basis. On the other hand, the Trump administration has become
the poster child for bureaucratic stalemate and it too has not escaped
corruption charges. Recently, the former deputy regional administrator
of Federal Emergency Management Agency (FEMA) was indicted for
allegedly taking bribes from an energy company that landed $1.8 billion
in Federal contracts to repair our electric grid. Apprehension from
both sides is warranted.
Provided that strict mechanisms are also adopted to ensure that the
role of the Office of the Reconstruction Coordinator is strictly
limited to the role of a facilitator, I could support this concept but
only if it can also be guaranteed that it will lead to the speedier
receipt of Federal reconstruction aid by Puerto Rico. Nothing in the
proposed amendments, however, provides this guaranty.
revitalization coordinator for prepa
For years this Committee has been discussing the bureaucracy,
patronage, corruption, and political intervention that are primarily
responsible for Puerto Rico having an antiquated, pollutive and
expensive electric system. I have previously testified before your
Committee to express my own similar concerns regarding the state-owned
monopoly that is PREPA. But I have also maintained that a Federal
takeover of PREPA is not the answer.\24\ The Revitalization Coordinator
proposed by the amendments is unacceptable because it is tantamount to
placing PREPA under a Federal receivership.\25\
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\24\ Please see my July 25, 2018, testimony before this Committee,
``Management Crisis at the Puerto Rico Electric Power Authority and
Implications for Recovery,'' available at https://
naturalresources.house.gov/imo/media/doc/bhatia_testimony.pdf.
\25\ Pursuant to the draft amendments, the Revitalization
Coordinator would ``exercise supervision, control, and oversight of the
operations'' of PREPA and to ``direct the reconstruction of the
electric grid of Puerto Rico that is necessary as a result of Hurricane
Maria.''
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I have been a leader in the effort to carefully craft and
promulgate the current energy policy for Puerto Rico. We recently
enacted Act 17-2019, a bipartisan measure that builds on the changes
introduced by me as president of the Senate of Puerto Rico pursuant to
Act 57-2014, to reform the energy sector in Puerto Rico. Taken
together, Puerto Rico is on a path--driven by free market forces--to
achieve cheap, clean and reliable energy. Our independent energy
regulator has also been strengthened to ensure that the public interest
continues to be served.
We are for the first time seeing tangible results. As a result of
this new energy policy, the transmission and distribution assets are
scheduled to be transferred to a private operator pursuant to a public
private partnership. All generation (100%) will eventually come from
renewable sources. New opportunities are available to community
organizations, electric coops, and the commercial and industrial
sectors.\26\
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\26\ In April, this Committee witnessed firsthand Puerto Rico's
first community solar project in Toro Negro Ciales--28 families
operating their own solar microgrids. This project has been certified
in accordance with regulations adopted by the Energy Bureau for the
development of microgrids--the first of its kind in the United States.
Also, under Act 258-2018, which I co-sponsored, electric coops are
beginning to organize.
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The necessary transition to cheap, clean and reliable energy should
nevertheless come faster. The primary obstacle has become the failure
to receive Federal reconstruction aid appropriated by Congress to
``build back better'' the electric system post-hurricane. These funds
are still not available for such use. The lack of a clear roadmap for
their deployment prevents proper planning and causes uncertainty to
private operators and investors interested in fully participating in
the process. However, the proposed Office of Reconstruction--not a
Revitalization Coordinator unique to PREPA--would be the proper vehicle
to assuage any concerns regarding the use of Federal funds. Inserting a
Revitalization Coordinator to the equation would only serve to disrupt
the ongoing efforts. The transition will only be successful if there is
local ``ownership'' of the process.
In lieu of a Federal takeover of PREPA, I would suggest the
following measures: (a) continued congressional oversight regarding the
reconstruction of the electrical system and its transition to cheap,
clean and reliable energy; (b) the inclusion of amendments to PROMESA
prohibiting any debt restructuring for PREPA that would be inconsistent
with existing energy policy, including, without limitation, eliminating
the existing restructuring supporting agreement's requirement of a
securitization charge on energy produced by consumers behind-the-meter
for their own consumption; and (c) that Congress adopts legislation
requiring that nearly all of the CDBG-DR monies for community based
energy projects ($436 million under the current Action Plan) be
transferred to the new Green Energy Trust Fund created under Act 17-
2019--a private trust which will operate separate from the government
of Puerto Rico. Supporting this Green Energy Trust Fund is key to
furthering the transition to renewable energy.
alternative debt restructuring mechanism
The amendments currently under consideration also incorporate many
of the provisions of the proposed U.S. Territorial Relief Act
originally introduced by Senators Elizabeth Warren and Bernie
Sanders.\27\ They would grant Puerto Rico's governor and legislature
the option to terminate its public, unsecured financial debt if two of
these three criteria are satisfied: (1) population has decreased 5
percent over 10 years; (2) has received major Federal disaster
assistance; and (3) per capita debt exceeds $15,000. To avoid
constitutional concerns, provisions are included to provide protection
for secured creditors and create a judicial process for them to contest
the extent and perfection of their security interests. It does not
exempt (other than to reiterate that its provisions are inapplicable to
trade payables) any debt that has been restructured or is pending
restructuring under Title III. Taken together, the primary objective of
these amendments is to streamline and simplify a debt adjustment
process during emergency periods for Puerto Rico.
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\27\ Joining them as co-sponsors were Senators Kirsten Gillibrand,
Edward J. Markey, and Kamala Harris. Representative Nydia M. Velazquez
also introduced companion legislation in the House of Representatives.
The bill was reintroduced in 2019.
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While well-intentioned, any perceived benefits from these
amendments may be outweighed by the resulting costs. The principal
issues under Title III have been, and continue to be, determining the
extent and perfection of creditor security interests. Such litigation
would not be avoided by the proposed alternative mechanism. Moreover,
creditors will likely demand higher returns for future debt issuances
by Puerto Rico and other territories. While Title III is comparable to
Chapter 9 of the Bankruptcy Code, the amendments result in less
creditor rights than those afforded to the creditors of state municipal
issuers. To compensate for lesser bankruptcy protections, creditors
will also simply demand stronger security interests. The result may
very well be that, rather than facilitating restructurings as intended,
new issuances will be exempted debt from these provisions and harder to
adjust in Title III.
puerto rico public credit comprehensive audit commission
I fully support the proposed amendments establishing the Puerto
Rico Public Credit Comprehensive Audit Commission and further requiring
a comprehensive audit of the public debt of the Government of Puerto
Rico. In 2015, when I was president of the Senate of Puerto Rico, we
passed Act 97-2015, which is almost identical to that now proposed by
the amendments under consideration. I provided funding for the
operations of the commission from the Senate's own budget, and even
hosted their meetings. Regrettably, the local commission to audit the
public debt regrettably was eliminated early in 2017 by the now deposed
governor of Puerto Rico.
My position remains the same as in 2015: the public debt must be
audited, illegal debt rejected, and the rest restructured.
conclusion
Finally, Congress must acknowledge that it cannot continue to
govern Puerto Rico indefinitely pursuant to the Property Clause
(Article IV, Section 3, Clause 2) of the Constitution. This is the same
source of authority used to regulate grazing on the Federal public
lands. Such treatment is the result of a series of decisions--now known
as the Insular Cases--issued by a fractured Supreme Court in the early
1900s. Invigorated by the same racial animus found in Plessy v.
Ferguson that led to the legal doctrine of ``separate but equal,'' they
sanctioned American colonialism under the guise of manifest destiny.
Only because many in Congress continue to view Puerto Rico through this
proprietary lens is that it was even conceivable to submit the people
of Puerto Rico to the supra-political entity that is the Oversight
Board.
Thank you once again for having invited me here today. It is my
sincere hope that you will continue this discussion and move to
promptly address these matters.
I am ready to answer your questions.
______
Mr. Gallego. Thank you very much.
I now recognize the Honorable Antonio L. Soto Torres.
STATEMENT OF THE HON. ANTONIO L. SOTO TORRES, MEMBER, PUERTO
RICO HOUSE OF REPRESENTATIVES
Mr. Soto Torres. Dear Chairman Gallego and members of the
Committee, on behalf of the Puerto Rico House of
Representatives, and, most importantly, our constituents, we
thank you for the opportunity to express our comments regarding
the amendments to the PROMESA Act of 2019.
We would like to express our appreciation to your
continuous effort by the members of this Committee in the
recovery process of Puerto Rico after Hurricanes Maria and
Irma, especially our Congresswoman Jenniffer Gonzalez, for her
ongoing work for our beloved island.
Since 1898, Puerto Rico has been a territory of the United
States. The creation of the Board and the imposed rules
established by PROMESA can only be conceded and approved upon
territories in accordance with the U.S. Constitution, not to
any state of the Union.
We need to remind Congress that Puerto Rico not only has
rejected the territorial status, but favored statehood in most
recent plebiscites held in both 2012 and 2017. None of these
electoral events were contested or challenged in any court of
law. On the contrary, they represented the will and the voice
of the U.S. citizens in Puerto Rico who participated freely and
voluntarily, and demanded full integration of Puerto Rico with
the United States.
Let us also not forget that Section 402 of PROMESA
established that ``nothing in this Act shall be interpreted to
restrict Puerto Rico's right to determine its future political
status, including by conducting the plebiscite as authorized by
Public Law 113-76.'' We request Congress to act now.
Today, Congress could be acting on the incorporation of
Puerto Rico as a state, instead of amending PROMESA imposed
over the U.S. citizens of Puerto Rico.
In regards to the amendments to the PROMESA Act of 2019, we
want to be clear that we will support any congressional bill
that will benefit and contribute for the better quality of life
of the U.S. citizens in Puerto Rico. We definitely support all
actions like those in Sections 3, 4, and 5 of APA 2019 that can
and will contribute to the well-being of the people of Puerto
Rico.
We also agree that there needs to be total transparency in
governmental transactions, like expressed in Section 6. This is
the least our people deserve. We support disclosure of
professional persons employed in order to submit any
information and contract through the Oversight Board.
We also believe it is necessary to provide trust to our
constituency, so all documents relating to the public debt of
the government of Puerto Rico should be classified as a public
document, as established in Section 7.
We understand and believe that the government of Puerto
Rico is headed on the right track to gain the trust of the
market and investors. This administration, with the support of
our local legislative leadership, hasn't hesitated to meet the
financial obligations, and to comply with Federal and local
laws.
The new Section 9, as proposed in APA 2019, establishes a
mechanism that allows for unsecured financial obligations to be
discharged. In order for any discharge of an unsecured
financial obligation to be feasible, the trust of the
government of Puerto Rico or its entities cannot be put in
harm's way. It is necessary to have a balance of what the
public interest needs in order to provide a stable and economic
atmosphere for investment.
We have always supported a comprehensive audit of Puerto
Rico public debt in order to provide a clean and transparent
process, but decide it has to be done in accordance to and with
the endorsement of the Federal Government.
After Hurricanes Irma and Maria, the government of Puerto
Rico created the Central Office for Recovery, Reconstruction,
and Resilience.
Also, we approved local Law 17-2019 that established the
energy public policy of Puerto Rico. In the proposed bill,
Section 11 and Section 12 will over-rule those two local laws.
So, there will be a redundancy if it is approved in its state.
The best way to provide justice to the island is not by
amending PROMESA, but by providing the necessary tools to fully
incorporate Puerto Rico as a state of the Union.
Nevertheless, we respectfully submit and enclose documents
suggesting several additional amendments to APA 2019. Our
suggestions are based on 3 years' experience working with the
Board.
There are issues in the preparation of the fiscal plans.
There are issues in the budgeting process, as Congressman
Gallego and San Nicolas mentioned, and also Darren Soto. So,
those should be areas of consideration and/or amendment in the
bill.
Thank you.
[The prepared statement of Mr. Soto Torres follows:]
Prepared Statement of the Hon. Antonio L. Soto-Torres
on behalf of
Johnny Mendez, Speaker of the Puerto Rico House of Representatives
Dear Chairman Grijalva, Ranking Member Bishop and members of the
Committee, on behalf of the Puerto Rico House of Representatives and
most important our constituents, we thank you all for the opportunity
given us today to express our comments and concerns regarding the
Amendments to the PROMESA Act of 2019.
We would like to express our appreciation to the continuous efforts
by the members of this Committee in the recovery process of Puerto Rico
after Hurricanes Irma and Maria. We would also like to thank our
Congresswoman Jenniffer Gonzalez for her ongoing work for our beloved
Islands.\1\
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\1\ Puerto Rico consists of78 municipalities, which includes the
Island-Municipalities of Culebra and Vieques.
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In 2016 the U.S. Congress approved and President Barack Obama
signed the Puerto Rico Oversight, Management, and Economic Stability
Act also known as ``PROMESA''. Among many things, PROMESA created the
Financial Oversight and Management Board (hereinafter ``Board'') with
the intention to bring financial stability to Puerto Rico, which
included restructuring the Island's debt and creating economic
development.
We would like to point out and make clear that PROMESA was enacted
under the plenary powers conferred to Congress under the Territorial
Clause established in Article VI, Section 3, Clause 2 of the U.S.
Constitution.
Since 1898, Puerto Rico has been a territory of the United States.
The creation of the Board and the imposed rules established by PROMESA
can only be conceded and approved upon territories in accordance with
the U.S. Constitution, not to any state of the Union. We need to remind
Congress that Puerto Rico, not only has rejected the territorial
status, but favored statehood in the most recent plebiscites held in
both 2012 and 2017. None of these electoral events were contested or
challenged in any court of law. On the contrary, they represented the
will and the voice of the U.S. citizens in Puerto Rico who participated
freely and voluntarily and demanded full integration of Puerto Rico
with the United States. Let us also not forget that Section 402 of
PROMESA establishes that: ``[n]othing in this Act shall be interpreted
to restrict Puerto Rico's right to determine its future political
status, including by conducting the plebiscite as authorized by Public
Law 113-76.'' We request Congress to act now.
The importance of territorial status of Puerto Rico and the
political hiatus in which 3.4 million U.S. citizens live on a daily
basis in our Islands should be of concern and interest to our fellow
Americans. Today Congress could be acting upon the full incorporation
of Puerto Rico as a state instead of amendments to PROMESA and the
Board imposed over the U.S. citizens in Puerto Rico. Statehood might
not solve all problems at once, but definitely provides a better chance
to obtain equal rights and a better life. Even our founding fathers
expressed this sentiment and belief in the Declaration of Independence,
and I quote: ``[w]e hold these truths to be self-evident, that all men
are created equal, that they are endowed by their Creator, with certain
unalienable Rights, that among these are Life, Liberty, and the pursuit
of Happiness.'' It is our wish to obtain all these unalienable rights.
Regardless, the Puerto Rico House of Representatives has worked
with the Board created under PROMESA. At the same time, we have
expressed that we are not going to give up on our position that the
Board cannot interfere in public policy matters which fall under the
responsibility of the elected officials of Puerto Rico. We will work
and contribute with the Board, but never resign to our duty, so it can
fulfill its mandate and implement the recommendations made in the
report of the Congressional Task Force created by PROMESA.\2\ This
report specified that the ``U.S. citizens in Puerto Rico confront
significant economic, financial, and social challenges. A review of
Puerto Rico's history demonstrates that these challenges are enduring,
not transitory.'' The main reason for this enduring challenge is the
territorial status.
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\2\ Which included passing federal legislation in favor of equal
resources for Medicaid and improving Medicare Part A (hospital
services), Part B (medical services), Part C (Advantage Programs) and
Part D (drug coverage), among other.
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At the Puerto Rico House of Representatives our goals are clear. We
need to provide to the U.S. citizens in our archipelago the opportunity
to act and excel. It is our task as their elected officials to
contribute to the economic growth and rebirth of the Islands. We have
worked closely with the Governor of Puerto Rico, Hon. Wanda Vazquez and
our colleagues in the Senate to make sure our constituents can have a
brighter and better future. For the first time since 2004, the Planning
Board declared that we will have an economic growth of 4.1 percent,
which is the highest in the past 36 years, even after Hurricanes Irma
and Maria. For the first time since the 1970s, the government's public
debt was reduced by 10 percent. These are real accomplishments but we
can't stop here.
On May 2019, we had 871,000 people employed according to a
Department of Labor and Human Resources' survey. This represents an
increase of 1.6 percent over the same month last year. Employment has
been increasing and we expect to continue this path, but still we can
do more. In regards to the budget for next fiscal year, revenues to the
General Fund have been greater than those projected. Also, in a
historical effort we have reduced public spending.
Recently we have approved various laws in order to attack the
economic recession which has endured for more than 10 years in Puerto
Rico. We adopted a new Incentives Code (Law 60 of 2019) which allows to
bring specialized and expertise staff. Also it incorporates tax credits
for the film industry: a 40 percent credit for eligible domestic
expenses and 20 percent for eligible non-resident expenses. In
addition, digital distribution projects qualify, which is a big step in
the creation of a new industry.
We have increased the assistance to special education students and
programs along with better services and opportunities for our senior
citizens. We are also working to offer an improved hospital to the
island municipality of Vieques while also looking to provide for a
better maritime transportation system between the Island of Puerto
Rico, Culebra and Vieques. Even though we have done so much, we still
have plenty to do. Imagine all the things we could attain if Congress
granted Puerto Rico's request to be the next state of the Union.
In regards to the Amendments to the PROMESA Act of 2019
(hereinafter ``APA 2019''), we want to be clear that we will support
any congressional bill that will benefit and contribute for a better
quality of life for the U.S. citizens in Puerto Rico. We definitely
support all actions, like those in Sections 3, 4, and 5 of APA 2019,
that can and will contribute for a better education, public safety,
healthcare system, pensions, investment and the creation of jobs,
reduce unemployment, expand the work force, reduce informal economy,
increase medium household income, reduce poverty level, among others.
We also agree that there needs to be total transparency with
governmental transactions, like expressed in Section 6 of APA 2019,
this is the least our people deserve. So we support disclosure of
professional persons employed in order to submit a verified statement
setting forth the professional connections with debtors, creditors,
third party with interest, attorneys, accountants, Oversight Board, and
any person employed by the Oversight Board.
We also believe it is necessary to provide trust to our
constituency, so all documents relating to the public debt of the
Government of Puerto Rico should be classified as a public document.
See Section 7 of APA 2019.
We understand and believe the Government of Puerto Rico is headed
in the right track to gain the trust of the market and investors. This
Administration, with the support of our local legislative leadership
hasn't hesitated to meet the financial obligations and to comply with
Federal and local laws. The new Section 9 as proposed by APA 2019
establishes a mechanism that allows for unsecured financial obligations
to be discharged. In order for any discharge of an unsecured financial
obligation to be feasible, the trust of the Government of Puerto Rico
or its entities can't be put in harm's way. It is necessary to have a
balance of what the public interest needs in order to provide a stable
and economic atmosphere for investment.
We have always supported a comprehensive audit of Puerto Rico's
public debt since 1972 until present, including its instrumentalities,
in order to provide a clean and transparent process. But this audit has
to be done in accordance to and with the endorsement of the Federal
Government. We will support any bill or measure that can bring peace of
mind to the people in Puerto Rico. According to the bill, the funding
would be appropriated as necessary to carry out its duties. See Section
10 of APA 2019.
After Hurricanes Irma and Maria, the Government of Puerto Rico
created the Central Office of Recovery, Reconstruction and Resiliency
(known as ``COR3''), in order to provide disaster planning and
transparent procedures. Its Executive Director is the person in charge
and liaison between the Puerto Rico Government, its municipalities, and
FEMA. The creation of the Office of Reconstruction Coordinator for
Puerto Rico according to Section 11 of APA 2019 would carry out most or
the same duties the COR3 Director so far has carried out.
Local Law 17 of 2019 established the Energy Public Policy Law of
Puerto Rico. This Law allows for the total transformation of energy,
including generation, transmission and distribution. Section 12 of APA
2019 creates the position of Revitalization Coordinator which would be
the person who would exercise supervision, control and oversight of the
operations of the Puerto Rico Electric Power Authority and direct the
reconstruction of the electric grid of our archipelago.
The best way to provide justice to the Islands is not by amending
PROMESA, but by providing the necessary tools to fully incorporate
Puerto Rico as a state of the Union. President William J. Clinton once
said about Puerto Rico: ``[s]ome people question the option of
statehood because of the Hispanic culture of Puerto Rico. And with all
respect, I disagree with them. After all, this is an issue for the 21st
century for America.'' And in the words of our beloved President George
H.W. Bush: ``[t]here's another issue that I've decided to mention here
tonight. I've long believed that the people of Puerto Rico should have
the right to determine their own political future. Personally, I
strongly favor statehood. But I urge the Congress to take the necessary
steps to allow the people to decide in a referendum.'' Two great
American Presidents that didn't hide their support for Puerto Rico.
Nevertheless we respectfully submit an enclosed document suggesting
several additional amendments, to APA 2019, Our suggestions are based
in the 3 years of experience working with the Board.
We humbly appreciate once again the opportunity given to us. Should
you require any additional information feel free to contact us at any
time. Thank you for your time and consideration. May God bless the
United States of America.
______
APPENDIX 1
SUGGESTED AMENDMENTS
*****
1. Section 201--Approval of Fiscal Plans
Participation of the Legislature in the Fiscal Plan
Certainly, a fiscal plan is a road map where the Government might
establish substantive public and fiscal policy and requires an
interactive process between the Governor and the Oversight Board. But
PROMESA excludes the Legislature in the preparation of the Fiscal Plan.
Since the Legislature does not have a say in the Fiscal Plan, many
prerogatives of the elected officials are bypassed.
For example, the Fiscal Plans certified by the Oversight Board are very
itemized with respect to line items budgets, stating a micro level of
analysis. In other words, the Oversight Board, using the Fiscal Plan,
is preparing a type of Budget in advance, instead of an estimate of
expenditures for a period of 5 years, and when the Legislature entered
to analyze the appropriations included in the Proposed Budget (sent by
the Oversight Board), the Budget to be Adopted by the Legislature shall
be almost identical to the Certified Fiscal Plan (initiated by the
Governor and already certified by the Oversight Board). If not, the
Oversight Board will determine, as it already did, that the Adopted
Budget will be significantly inconsistent with the Fiscal Plan. Thus,
the Fiscal Plan, far from being a road map to establish fiscal
responsibility, it is in fact a straitjacket for the Legislature.
Based on the above, we have the following amendments:
``SEC. 201. APPROVAL OF FISCAL PLANS.
(a) IN GENERAL.--As soon as practicable after all of the members and
the Chair have been appointed to the Oversight Board in
accordance with section 101(e) in the fiscal year in which
the Oversight Board is established, and in each fiscal year
thereafter during which the Oversight Board is in
operation, the Oversight Board shall deliver a notice to
the Governor and the Legislature providing a schedule for
the process of development, submission, approval, and
certification of Fiscal Plans. The notice may also set
forth a schedule for revisions to any Fiscal Plan that has
already been certified, which revisions must be subject to
subsequent approval and certification by the Oversight
Board. The Oversight Board shall consult with the Governor
and the Legislature in establishing a schedule, but the
Oversight Board shall retain sole discretion to set or, by
delivery of a subsequent notice to the Governor and the
Legislature, change the dates of such schedule as it deems
appropriate and reasonably feasible.
(b) REQUIREMENTS.----
(1) IN GENERAL.--A Fiscal Plan developed under this section
shall, with respect to the territorial government or covered
territorial instrumentality, provide a method to achieve fiscal
responsibility and access to the capital markets, and----
(A) provide for estimates of revenues and
expenditures, that might be used as a guidance in
developing the Territory Budget under section 202(c),
in conformance with agreed accounting standards and be
based on----
(i) applicable laws; or
(ii) specific bills that require enactment
in order to reasonably achieve the projections
of the Fiscal Plan;
(c) DEVELOPMENT, REVIEW, APPROVAL, AND CERTIFICATION OF FISCAL
PLANS.----
(1) . . .
(2) FISCAL PLAN DEVELOPED BY GOVERNOR AND THE LEGISLATURE.--
The Governor and the Legislature shall submit to the Oversight
Board any proposed Fiscal Plan required by the Oversight Board
by the time specified in the notice delivered under subsection
(a).
(3) REVIEW BY THE OVERSIGHT BOARD.--The Oversight Board
shall review any proposed Fiscal Plan to determine whether it
satisfies the requirements set forth in subsection (b) and, if
the Oversight Board determines in its sole discretion that the
proposed Fiscal Plan----
(A) . . .
(B) does not satisfy such requirements, the
Oversight Board shall provide to the Governor and the
Legislature----
(i) . . .
(ii) . . .
(d) REVISED FISCAL PLAN.----
(1) IN GENERAL.--If the Governor and the Legislature
receives a notice of violation under subsection (c)(3), the
Governor and the Legislature shall submit to the Oversight
Board a revised proposed Fiscal Plan in accordance with
subsection (b) by the time specified in the notice delivered
under subsection (a). The Governor and the Legislature may
submit as many revised Fiscal Plans to the Oversight Board as
the schedule established in the notice delivered under
subsection (a) permits.
(2) DEVELOPMENT BY OVERSIGHT BOARD.--If the Governor and the
Legislature fails to submit to the Oversight Board a Fiscal
Plan that the Oversight Board determines in its sole discretion
satisfies the requirements set forth in subsection (b) by the
time specified in the notice delivered under subsection (a),
the Oversight Board shall develop and submit to the Governor
and the Legislature a Fiscal Plan that satisfies the
requirements set forth in subsection (b).
(e) APPROVAL AND CERTIFICATION.----
(1) . . .
(2) DEEMED APPROVAL OF FISCAL PLAN DEVELOPED BY OVERSIGHT
BOARD.--If the Oversight Board develops a Fiscal Plan under
subsection (d)(2), such Fiscal Plan shall be deemed approved by
the Governor and the Legislature, and the Oversight Board shall
issue a compliance certification for such Fiscal Plan to the
Governor and the Legislature.
(f) JOINT DEVELOPMENT OF FISCAL PLAN.--Notwithstanding any other
provision of this section, if the Governor, the Legislature
and the Oversight Board jointly develop a Fiscal Plan for
the fiscal year that meets the requirements under this
section, and that the Governor, the Legislature and the
Oversight Board certify that the fiscal plan reflects a
consensus between the Governor, the Legislature and the
Oversight Board, then such Fiscal Plan shall serve as the
Fiscal Plan for the territory or territorial
instrumentality for that fiscal year.''
Based on the above, we have the following amendments:
``SEC. 202. APPROVAL OF BUDGETS.
(a) . . .
(b) REVENUE FORECAST.--The Oversight Board shall submit to the
Governor and Legislature a forecast of revenues for the
period covered by the Budgets by the time specified in the
notice delivered under subsection (a), for use by the
Governor in developing the Budget under subsection (c). The
forecast of revenues shall include all the different types
of income that the territorial government will generate for
the period covered.''
*****
2. Section 204(c)--Restrictions on Budgetary Adjustments
We need to start saying that the Oversight Board is not complying with
this provision that states that when the Governor is reprogramming any
amount of a certified Budget, the Oversight Board might provide the
Legislature with an analysis that the proposed reprogramming is
significantly inconsistent with the Budget and the Fiscal Plan. At this
time, the Oversight Board has not complied with this process stated in
PROMESA since the Legislature has not received any petition or any
analysis with respect to a reprogramming of amounts of a certified
Budget.
On the other hand, the Oversight Board understand that Joint
Resolutions that appropriate on account of the Sales and Use Tax for
capital expenditures, that belongs to prior fiscal years, are
reprogramming amounts within the current certified budget. We
vehemently disagree with the Oversight Board's interpretation. In fact,
this kind of Joint Resolutions are consistent with a law enacted by the
Government of Puerto Rico (Act No. 26-2017, known as the ``Fiscal Plan
Compliance Act''), and approved by the Oversight Board. For instance,
Chapter 6, Section 7(h) of such law, explicitly states that funds
allocated through Legislative Donations or appropriations on account of
the Sales and Use Tax will be excluded from being deposited in the
Puerto Rico Treasury and are, therefore, not subject to the Budget
process.
Based on the above, we have the following amendments:
``SEC. 204. REVIEW OF ACTIVITIES TO ENSURE COMPLIANCE WITH FISCAL PLAN.
(a) . . .
(b) . . .
(c) RESTRICTIONS ON BUDGETARY ADJUSTMENTS.----
(1) SUBMISSIONS OF REQUESTS TO OVERSIGHT BOARD.--If the
Governor submits a request to the Legislature for the
reprogramming of any amounts provided in a certified Budget,
the Governor shall submit such request to the Oversight Board,
which shall analyze whether the proposed reprogramming is
significantly inconsistent with the Budget, and submit its
analysis to the Legislature as soon as practicable after
receiving the request. This provision shall not apply to
previous fiscal year's appropriations for capital expenditures.''
*****
3. Section 204(a)--Submission of Legislative Acts to Oversight Board
Revision of Enacted Laws:
Section 204(a) of PROMESA allows the Oversight Board to review any new
legislation enacted by the Government of Puerto Rico. Specifically,
this section prescribes the notification process required after the
Oversight Board evaluates any law. In case that the Governor submits a
certification that the law is significantly inconsistent with the
Fiscal Plan, the Oversight Board shall direct the Governor and the
Legislature to ``[1] correct the law to eliminate the inconsistency; or
[2] provide an explanation for the inconsistency that the Oversight
Board finds reasonable and appropriate.''
Please note that PROMESA does not address the situation when the
Governor presented certifications of a law stating a lack of
significantly inconsistent with the Fiscal Plan but the Oversight Board
has a different conclusion. In several times, even after the Governor
certificated that the law is not significantly inconsistent with the
Fiscal Plan, the Oversight Board, after evaluated such laws enacted,
has not express any substantive reason or provided sufficient grounds
for their conclusions that the laws are inconsistent with the Fiscal
Plan. Certainly, the Oversight Board is acting as if the Congress
granted it the power to declare legislative acts null and void
unilaterally.
On the other hand, this section does not prescribe the time the
Oversight Board has to review any legislative acts.
Line Item Veto
The Oversight Board pretends that has the power to exercise a Line Item
Veto of laws enacted by the Government of Puerto Rico. For example,
after three (3) months that the Government enacted Act 257-2018 (the
``Tax Bill''), the Oversight Board sent a letter that the compliance
certification was deficient as to many articles of the Tax Bill. In
such communication, the Oversight Board stated that ``it reserves the
right to prevent the enforcement or application of such articles
included in the Tax Bill.''
This action of the Board, of reserving a right to prevent the
application of a part of the Tax Bill, but not on the remaining parts
of that Act, is unconstitutional under federal law. These actions are
analogue of what the Line Item Veto Act of 1996 proposed under
President Clinton in the 90s. In Clinton v. City of New York, 524 U.S.
417 (1998), the Supreme Court of the United States ruled that the Line
Item Veto is not authorized by the Constitution of the United States
because the Presentment Clause in Article 1, section 7 established
three procedural steps to be taken to approve a bill: ``a bill
containing its exact text was approved by a majority of the Members of
the House of Representatives; the Senate approve precisely the same
text; and the text was signed into law by the President of the United
States. The Constitution explicitly requires that each of those three
steps be taken before a bill may become law.'' If the Executive branch
could exercise the power of the Line Item Veto, it would be leading to
create a distinct law without the prerogatives of the legislative
branch and infringe the Separation of Powers. If these actions were
taken by Oversight Board, with the provisions of PROMESA, a federal
law, it would be a violation of the Presentment Clause and that
determination will be unconstitutional.
Remembering the famous words that Montesquieu once told about if the
legislative, executive and judiciary powers were not separated and
distinct from each other: ``There can be no liberty where the
legislative and executive powers are united in the same person, or body
of magistrates.'' \1\ And, ``[w]hen the legislative and executive
powers are united in the same person or body, says he, there can be no
liberty, because apprehensions may arise lest the same monarch or
senate should enact tyrannical laws to execute them in a tyrannical
manner''. Clinton v. City of New York, supra, at 451. Thus, the
pretension that the Oversight Board has manifested in the past is
contrary to the U.S. legal system and, thus, not allowed by PROMESA.
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\1\ The Federalist Papers: No. 47. Please refer also to Clinton v.
City of New York, supra, at 451.
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Based on the above, we have the following amendments:
``SEC. 204. REVIEW OF ACTIVITIES TO ENSURE COMPLIANCE WITH FISCAL PLAN.
(a) SUBMISSION OF LEGISLATIVE ACTS TO OVERSIGHT BOARD.----
(1) SUBMISSION OF ACTS.--Except to the extent that the
Oversight Board may provide otherwise in its bylaws, rules, and
procedures, not later than 7 business days after a territorial
government duly enacts any law during any fiscal year in which
the Oversight Board is in operation, the Governor shall submit
the law to the Oversight Board.
(2) COST ESTIMATE; CERTIFICATION OF COMPLIANCE OR
NONCOMPLIANCE.--The Governor shall include with each law
submitted to the Oversight Board under paragraph (1) the
following:
(A) A formal estimate prepared by an appropriate
entity of the territorial government with expertise in
budgets and financial management of the impact, if any,
that the law will have on expenditures and revenues.
(B) If the appropriate entity described in
subparagraph (A) finds that the law is not
significantly inconsistent with the Fiscal Plan for the
fiscal year, it shall issue a certification of such
finding.
(C) If the appropriate entity described in
subparagraph (A) finds that the law is significantly
inconsistent with the Fiscal Plan for the fiscal year,
it shall issue a certification of such finding,
together with the entity's reasons for such finding.
(3) NOTIFICATION.--The Oversight Board shall send, not later
than 30 days after the submission of the law by the Governor, a
notification to the Governor and the Legislature if----
(A) the Governor submits a law to the Oversight
Board under this subsection that is not accompanied by
the estimate required under paragraph (2)(A);
(B) the Governor submits a law to the Oversight
Board under this subsection that is not accompanied by
either a certification described in paragraph (2)(B) or
(2)(C); or
(C) the Governor submits a law to the Oversight
Board under this subsection that is accompanied by a
certification described in paragraph (2)(C) that the
law is significantly inconsistent with the Fiscal Plan.
(D) The Oversight Board, after evaluation of the
law, concludes that the law is significantly
inconsistent with the Fiscal Plan.
(4) OPPORTUNITY TO RESPOND TO NOTIFICATION.----
(A) FAILURE TO PROVIDE ESTIMATE OR CERTIFICATION.--
After sending a notification to the Governor and the
Legislature under paragraph (3)(A) or (3)(B) with
respect to a law, the Oversight Board may direct the
Governor to provide the missing estimate or
certification (as the case may be), in accordance with
such procedures as the Oversight Board may establish.
(B) SUBMISSION OF CERTIFICATION OF SIGNIFICANT
INCONSISTENCY WITH FISCAL PLAN AND BUDGET.--In
accordance with such procedures as the Oversight Board
may establish, after sending a notification to the
Governor and Legislature under paragraph (3)(C) and
(3)(D) that a law is significantly inconsistent with
the Fiscal Plan, the Oversight Board shall direct the
territorial government to----
(i) correct the law to eliminate the
inconsistency; or
(ii) provide a substantive explanation for
the inconsistency that the Oversight Board
finds reasonable and appropriate.
(5) FAILURE TO COMPLY.--lf the territorial government fails
to comply with a direction given by the Oversight Board under
paragraph (4) with respect to a law, the Oversight Board may
take such actions as it considers necessary, consistent with
this Act, to ensure that the enactment or enforcement of the
law will not adversely affect the territorial government's
compliance with the Fiscal Plan, including preventing the
enforcement or application of the law. The Oversight Board
shall not have any Line Item Veto Authority.''
*****
4. Section 205--Recommendations on Financial Stability and Management
Responsibility
Certainly, PROMESA allows the Oversight Board to submit recommendations
to the Governor and/or the Legislature about policy actions to ensure
compliance with the Fiscal Plan. But Congress did not give the
Oversight Board the authority to repeal a current law in Puerto Rico.
For example, the Oversight Board, through the Fiscal Plan and the
Certified Budget, is pretending to eliminate the Christmas Bonus that
is mandatory based on Act Law No. 148 of June 30, 1969, as amended.
Moreover, Act No. 26-2017, known as the ``Fiscal Plan Compliance Act,''
was enacted by the Government of Puerto Rico and approved by the
Oversight Board. In Act 26-2017, states in its section 2.08 (Bonus)
states that ``. . . the only financial bonus to be granted to
government employees of the Central Government and the public
corporations thereof shall be the Christmas Bonus. The employees shall
be entitled to a bonus in the amount of six hundred dollars ($600) for
every year said employee has rendered services in the Government of
Puerto Rico for at least six (6) months.''
The Oversight Board, however, in the certified budget for fiscal year
2019-2020 eliminated the Christmas Bonus de facto. The Budget, without
any doubt, is a tool to achieve fiscal responsibility but it cannot
supplant the fiscal and public policy stated by elected officials. We
might recall that one of the draft of the PROMESA bill conferred the
Oversight Board powers to review legislative acts enacted by the Puerto
Rico Government and if the board concluded that the act was
significantly inconsistent with the fiscal plan, the Oversight Board
was granted with the authority to declare the act null and void. But
Congress did not allow that, instead Congress allowed that the
Oversight Board might submit recommendations to the Governor or the
Legislature. If the recommendations are not adopted, PROMESA,
prescribes the procedures to address the rejection of the
recommendations. Thus, in our point of view, the Oversight Board do not
have the authority to unilaterally repeal a law using a Fiscal Plan or
Certified Budget. This is unlawful and exceed the Board's powers
granted by Congress.
Based on the above, we have the following amendments:
``SEC. 205. RECOMMENDATIONS ON FINANCIAL STABILITY AND MANAGEMENT
RESPONSIBILITY.
(a) . . .
(b) RESPONSE TO RECOMMENDATIONS BY THE TERRITORIAL
(1) . . .
(2) . . .
(3) EXPLANATIONS REQUIRED FOR RECOMMENDATIONS NOT ADOPTED.--
If the Governor or the Legislature (whichever is applicable)
notifies the Oversight Board under paragraph (1) that the
territorial government will not adopt any recommendation
submitted under subsection (a) that the territorial government
has authority to adopt, the Governor or the Legislature shall
include in the statement explanations for the rejection of the
recommendations, and the Governor or the Legislature shall
submit such statement of explanations to the President and
Congress. If a recommendation is rejected, the Oversight Board
shall not have the power to adopt any new legislation or to
rescind an existing law through a Fiscal Plan or Certified
Budget.
______
Mr. Gallego. Thank you.
We now recognize the Honorable Rafael Hernandez, the
Minority Leader for the Puerto Rico House of Representatives.
STATEMENT OF THE HON. RAFAEL HERNANDEZ MONTANEZ, MINORITY
LEADER, PUERTO RICO HOUSE OF REPRESENTATIVES
Mr. Hernandez. Good morning, Chairman Gallego, Ranking
Member Bishop, and members of the Committee. Thank you for the
opportunity to appear before you to discuss these amendments to
PROMESA.
PROMESA is an imperfect solution to the frightening
challenge Puerto Rico faced in 2016. No matter how many
amendments we agree on today, we will never make it perfect.
All of this could have been avoided if the Congress had adopted
for Puerto Rico a Super Chapter 9 of the Bankruptcy Law.
Why is this important? If the government of Puerto Rico had
represented itself 3 years ago in the Bankruptcy Court directly
with its own lawyers, this costly and exhausting litigation
would have ended by now, and we wouldn't be here today.
The Oversight Board is a distraction and has become a
perfect political excuse for the local government to agree on
something with the Board and then say something different to
the public. The result, the government hides behind the Board
and it creates political, social, and economic instability in
Puerto Rico.
But here we are. Congress will not eliminate the Board,
which would be our preference, so we have to continue to work
very hard to meet the conditions that you imposed on us to pave
the way for the Board to get out. To this end, I am fully
committed.
We applaud that the U.S. Government assumed the
responsibility for payment of all expenses of the Board.
Although it is implied that the Board will have to comply with
all the regulations in the use of Federal funds required by the
U.S. Treasury, the local administration has refused to define
essential services for purely political reasons.
My suggestion is that we should strive to agree on a
certain percentage of the total budget to be designated as a
reasonable maximum amount that the government will set aside
from its budget. We can look at the last 10 years and see how
much we have spent on essential services as a percentage of the
total expenditures and agree on a number.
The strongest criticism to PROMESA has been that it did not
provide for economic development, when we all know that the
solution to our fiscal problems is to grow our economy. The
proposed amendment set specific economic objectives that the
Board should strive for, but it lacks metrics. If we don't set
measurable goals, little will be done.
Since fiscal plans for the next few years were drafted
based on the flow of funds for the reconstruction of Puerto
Rico, I suggest that PROMESA order the Board to draw plans
based on a 5 percent GNP annual, sustained growth from 2023 on,
and provide the specifics as to how this will be accomplished.
What will happen after the reconstruction funds end? The
Board needs to sit down now with our government to identify the
competitive advantages that Puerto Rico offers investors, and
both lobby Congress to legislate those incentives that will
attract the capital that is needed to grow the economy.
Needless to say, Puerto Rico cannot plan ahead its economic
future on uncertainties such as the Federal credits for foreign
companies, the recently enacted tax reform in the United
States, and total dependence on concessions from the Federal
Government, none of which provide a permanent solution to our
economic challenges.
In complete agreement with your amendment calling for total
transparency in relation to contracting consultants, lawyers,
and accountants by the Board. Requiring access to information
and auditing the debt will also support this goal.
In complete agreement with the elimination of the position
of Infrastructure Coordinator. To this date, the Board has not
approved one single critical project, except a housing
development that is embroiled in serious controversies. An
investigation by the local House of Representatives revealed
that the then-coordinator and his attorney exerted undue
pressure on certain House members, as denounced by the Speaker
of the House.
But the crucial need for infrastructure investment,
particularly after Hurricane Maria, exists now, more than ever,
and we are glad that you are addressing this issue with the
creation of a Reconstruction Coordinator.
The real need right now is the oversight and effective
coordination of the Federal agencies to accelerate the
disbursement of millions of dollars already approved by
Congress.
I cannot support the appointment of the Chief Executive
Officer of PREPA with extraordinary powers that supersedes
those of the existing management structure. We are handing over
to the Committee specific language to improve those amendments.
We urge you to consider it.
Thank you for the opportunity to address the Committee.
[The prepared statement of Mr. Hernandez follows:]
Prepared Statement of Rafael ``Tatito'' Hernandez Montanez, Popular
Democratic Party Delegation Leader, District 11 Representative
PROMESA is an imperfect solution to a frightening challenge Puerto
Rico faced in 2016. No matter how many amendments we agree on today, we
will never make it perfect. All of this could have been avoided had the
Congress adopted for Puerto Rico a Super Chapter 9 of the Bankruptcy
Law.
Why is this important? Had the Government of Puerto Rico 3 years
ago, represented itself in the Bankruptcy Court, directly with its own
lawyers, this costly and exhausting litigation would have ended by now,
and we wouldn't be here today.
The Oversight Board is a distraction and has become the perfect
political excuse for the local government to agree something with the
Board and then say something different to the public. The result--the
Government hides behind the Board and creates political, social and
economic instability in Puerto Rico.
But here we are. Congress will not eliminate the Board, which would
be our preference, so we have to continue to work very hard to meet the
conditions you imposed on us, to pave the way for the Board to get out.
To this end, I am fully committed.
We applaud that the U.S. Government assume responsibility for the
payment of all expenses of the Board. Although it is implied that the
Board will then have to comply with all the regulations in the use of
Federal funds required by the U.S. Treasury, something that has been
absent heretofore, we urge the Committee to consider enacting
restrictions to avoid conflicts of interest in the hiring of
contractors by the Board to defend self-interests of its members.
Local administrations have refused to define essential services for
purely political reasons, because of the incapacity of politicians to
be straightforward with the people. My suggestion is that we should
strive to agree on a certain percentage of the total budget to be
designated as a reasonable maximum amount that the government will set
aside from its budget to pay for these services. We can look at the
last 10 years and see how much we spent on essential services as a
percentage of total expenditures and agree on a number.
The strongest criticism to PROMESA has been that it did not provide
for economic development, when we all know that the solution to our
fiscal problems is to grow our economy. The proposed amendments set
specific economic objectives that the Board should strive for, but it
lacks metrics. If we don't set measurable goals, little will be done.
Since fiscal plans for the next few years were drafted based on the
flow of funds for the reconstruction of Puerto Rico, both Federal and
private, I suggest that PROMESA order the Board to draw plans based on
a 5 percent GNP annual, sustained growth from 2023 on, and provide the
specifics as to how this will be accomplished.
What will happen when reconstruction funds end? The Board needs to
sit down now with our government to identify the competitive advantages
that Puerto Rico offers investors, and both, the Board and the
Government, lobby Congress to legislate those incentives that will
attract the capital that is needed to grow the economy. Needless to
say, Puerto Rico cannot plan ahead its economic future on uncertainties
such as the Federal credit to foreign companies, the recently enacted
tax reform in the United States, and total dependence on concessions
from the Federal Government, none of which provide a permanent solution
to our economic challenges.
In complete agreement with your amendment calling for total
transparency in relation to contracting consultants, lawyers and
accountants by the Board, as Congresswoman Velazquez has been pushing
for some time now. Requiring access to information and auditing the
debt will also support this goal.
In complete agreement with the elimination of the position of the
Infrastructure Coordinator. PROMESA created this position to coordinate
critical projects in infrastructure. To this date, the Board has not
approved one single critical project, except a housing development that
is embroiled in serious controversies. An investigation by the local
House of Representatives revealed that the then Coordinator and his
attorney exerted undue pressure on certain House members, as denounced
by the Speaker of the House in a recent public hearing.
But the crucial need for infrastructure investment, particularly
after Hurricane Maria, exists now more than ever, and we are glad that
you are addressing this issue with the creation of a Reconstruction
Coordinator. This is all very positive, but not enough.
The real need right now is the oversight and effective coordination
of the Federal agencies to accelerate the disbursement of millions of
dollars already approved by Congress, and his role should include these
additional responsibilities as a priority.
We cannot support the appointment by the President of the United
States of a Chief Executive Officer for PREPA with extraordinary powers
that supersedes those of the existing management structure at PREPA. I,
among others, have filed a motion in the Federal court alleging that
already certain actions of the Board violate the basic principles of
our republican form of government by taking away prerogatives of the
Executive and Legislative branches. The duties and responsibilities of
this new position, as described in your draft, takes away all authority
from this entity, something we strongly opposed in our statement before
the Court.
We are handing over to the Committee specific language to improve
the proposed amendments, which we urge you to consider.
Thank you for this opportunity to address the Committee.
*****
AMENDMENTS TO THE DISCUSSION DRAFT
by Rafael Hernandez Montanez
Sec. 3, Page 2, IN BETWEEN Lines 17 and 18, ADD:
``(c) Rules and limitations.--In the use, expenditure and
disbursement of the funds herein appropriated, the FOMB, and
its members individually, will observe all federal laws
applicable, as well as any and all regulations specifically
provided by the Department of the Treasury relative to the use
of these funds. More specifically, the use of these funds by
the FOMB and its members for contracting professional services
from lawyers and lobbyists to promote before the Congress,
directly or indirectly, the nomination, renomination or
appointment of any of its members is prohibited.''
Sec. 4, Page 3, Line 9 AFTER ``requirements'' ADD:
``To establish that to the maximum extent possible the
territorial government will provide the FOMB an empirical study
analyzing, for the past 10 years, the expenditures, as herein
described, for the purpose of establishing a percentage of the
total budget for essential services to be included in the
Fiscal Plans.''
Sec. 5, Page 3, Line 17 AFTER ``level'' ADD:
``to create a New Economic Model of Economic Development that
will result in an annual growth of 5%, based on local and
federal incentives, as provided by existing and new
legislation, with measurable goals and where Puerlo Rico will
have clear competitive advantages over other jurisdictions
outside the United States, to attract private capital thereby
creating a stable business environment for investment and new
jobs.''
Sec. 10, Page 27, Lines 16 to 19 DELETE ALL AND REPLACE WITH:
``(2) One representative of each parliamentary majority,
selected by the members of the caucus in the Legislature.''
(3) One representative of each parliamentary minority, selected
by the members of the caucus in the Legislature.''
Sec. 11, Page 29, IN BETWEEN Lines 15 and 16 ADD:
``(a) DEFINITION OF FEDERAL AGENCIES.--The term ``federal
agency'' means agencies of the federal government of the United
States responsible for disbursing federal funds for which the
Commonwealth of Puerto Rico qualifies or any territorial
instrumentality, or funds that have been granted by the
Congress for the reconstruction efforts resulting from the
devastation caused by Hurricane Maria.''
Sec. 11, Page 31, Line 8 ADD after ``with'' the phrase ``federal
agencies and''
Sec. 11, Page 32, IN BETWEEN Lines 11 and 12 ADD:
``(F) Act as liaison between the federal agencies and the local
government entities regarding the disbursement of funds,
obtaining permits, authorizations or endorsements and any other
similar function necessary for the expeditious realization of
all reconstruction projects and oversight the realization of
these projects.''
Sec. 12, Page 34, Line 8 AFTER ``(A)'' DELETE ``exercise supervision,
control and''
Sec. 12, Page 34, Line 11 AFTER ``(B)'' DELETE ``direct'' and REPLACE
WITH ``oversight''
Sec.12, Page 34, Line 19 AFTER ``(B)'' DELETE ``design and implement''
AND REPLACE WITH ``recommend''
Sec. 12, Page 35, IN BETWEEN Lines 10 and 11 ADD:
``(F) File a motion in the court with jurisdiction over the
Title III process of PREPA if the public corporation is in
violation or not managing adequately the funds destined for the
reconstruction of the electric grid, in the sole discretion of
the Revitalization Coordinator, as mandated in this Section.''
______
The Chairman [presiding]. I would like to thank my
colleagues and elected officials for their testimony today. Let
me recognize Mr. Gallego first for his questions and comments.
Mr. Gallego. Thank you, Mr. Chairman. Thank you to the
witnesses. Questions are first for Senator Rios.
Section 8 of the discussion draft would repeal Title V of
PROMESA, which was originally intended to designate and fast
track ``critical infrastructure projects.'' Can you expand on
why you think repealing Title V of PROMESA is necessary? Are
there better, more sustainable ways to encourage infrastructure
improvement on the island?
Mr. Rios. Thank you for the question. As you know, if I was
going to support something on the amendments to Section 5,
which are titles that attempt to define the economic growth
standards--I mean, so far what we have had in PROMESA and the
Fiscal Oversight Board is a project that was worth $25 million,
and the guy who was part of the Board had to leave the island--
with a $325,000 salary, by the way--and only to show for in 2
years a $25 billion price where he had a conflict of interest.
So, to define economic growth, it is something that is
needed because right now it is too broad. And coming back to an
analogy that Congressman Bishop had about home plate and 17
inches, as you all know I have been a baseball player all my
life, and I am part of the national team of Puerto Rico. I am a
pitcher. And you can throw all the strikes you can, but if you
don't have an umpire that can call strikes and balls, then you
don't have a game.
We have been throwing strikes for the last 3 years, and the
umpire, which is the Board, in my opinion, hasn't been calling
them fairly. So, when it comes to economic growth, when it
comes to defining what are essential businesses to Puerto Rico,
and services, the Board has its own playbook and its own set of
rules that doesn't benefit the people of Puerto Rico.
So, economic growth, Section 5 to amend Section 201, it is
a good attempt to put us on the right track to actually make
something happen. Because, after all, that is what I thought
they were going to be doing when they visited and established
themselves in the island.
I hope I answered your question.
Mr. Gallego. To go a little further, Section 3 of the
discussion draft would authorize Federal funding for the
operations of the Fiscal Board, money that currently comes from
Puerto Rico's budget. Can you briefly explain the consequences
of the way the Board is currently funded, and why you think
this change is necessary?
Mr. Rios. Well, as you know, as a Member of Congress--and I
know you voted against it, and we had this discussion before,
and we had this discussion with Chairman Grijalva, actually,
even before the elections down in Arizona--Senator Bhatia was
present at the time, and we talked about why the people of
Puerto Rico have to be funding something that is not mandated.
I don't know what it is up to today. I mean, it is called a
board, but it is something that doesn't act like a board. It
acts like something else, and it should be federalized.
Natalie Jaresko shouldn't be earning $600,000--the people
of Puerto Rico's money. She comes in and she is doing a lot of
things for the police officers. What about the teachers, the
retirees? What about medical? What about assisted services like
health?
Those are a part of it. And I am pretty sure if the United
States of America and the Treasury Department was overseeing
the way that the Board operates, Natalie Jaresko wouldn't be
making $600,000. They wouldn't have six bodyguards to go
around, and they would be responsible for what they do, and
they would be transparent, something they don't do today.
They ask the government of Puerto Rico to be transparent;
when it comes to them they are foggy. So, it needs to be there,
it needs to be funded by the Department of Treasury, and it
needs to be Federal, in my opinion.
Mr. Gallego. And the last question--the discussion draft
also includes several provisions aimed at improving the
transparency of the Board--you just kind of talked about this.
Can you expand on the need for transparency, beyond what you
just spoke, in the implementation of PROMESA?
Mr. Rios. Well, when they ask the people of Puerto Rico and
the governor of Puerto Rico to be transparent in all
transactions. When we ask them to give us information, they
don't have it. I mean, they change their fiscal plan, their
very own fiscal plan. They changed it seven times. They do make
mistakes. How many? We don't know, because they don't
communicate the two ways that it should be with the government
of Puerto Rico. They ask us and they ask Representative Soto
all the time for information on the budget. When we come to ask
them about budget, it is not there. So, it goes both ways.
You can't ask for cooperation one way. It has to be--the
other way would be a dictatorship. And my point is, they are
not transparent. And Congress needs to call them to action and
needs to call them to order and say, ``What are you guys doing?
Three years and one project of $25 million?'' And they cost
$214 million. Plus $200 million, $300 extra million dollars
that are under Title III they were allowed to spend.
Mr. Gallego. Thank you, sir. I yield back my time, Mr.
Chair.
The Chairman. Mr. McClintock, you are recognized, sir.
Mr. McClintock. Thank you, Mr. Chairman.
As I said, I am very sympathetic to your opposition to
PROMESA. I opposed it when it was adopted. And the reason was
because I think it strikes at the very core of the
accountability not only that elected officials owe to the
voters, but that the voters owe to themselves to deal with the
consequences of the votes they have cast and the elected
officials that they put into office.
One thing is certain in a democracy: You are always
guaranteed to get the government you vote for. And if it turns
out it is a government that is not to your liking, that is just
nature's way of warning you need to be a little more careful
about the votes you cast. There is something to be said for
going away sadder, but wiser.
The central premise of PROMESA implies that the people of
Puerto Rico are not competent to govern themselves, and I
reject that premise categorically. But there is no denying that
Puerto Rico's fiscal mess is a direct result of the votes that
Puerto Rican voters cast for the officials that they elected.
And that question, I think, is also central to statehood.
Until the people of Puerto Rico take responsibility for their
votes, for the officials they have elected, and then set things
right, how can they make a case for statehood?
My question of each of the panelists, very simply, is this:
What would Puerto Rico's legislature do differently than the
PROMESA Board has done? And I will go right down the list.
Senator Rios?
Mr. Rios. That is a great question. Coming back to the
statehood issue, it is a civil rights issue. I am a U.S.
citizen, just like you are. We elect to the Congress and I am
an elected Senator of Puerto Rico, just like the states. So,
calling me an equal and defend what they call insular cases, it
will be a mistake, in my opinion.
Mr. McClintock. What would you do differently?
Mr. Rios. Of course, now, coming back to what I will do
differently----
Mr. McClintock. If I can narrow this down, my time is
limited.
Mr. Rios. Yes, sure. OK.
Mr. McClintock. What is the most important thing that each
of you would have seen the legislature do, the difference from
what the PROMESA Board has done?
Mr. Rios. First of all, balance a budget. You have $10
billion, that is what it can spend. And we all know this on
this table.
The second thing is we need to pay our debts. And my
government said from the get-go, we need to pay. Now, how much
can we pay? That is a whole different question.
I was listening to your point about the unsecured debt. I
think we should pay them, as well, because it will send a wrong
message, in my opinion, for the future market. And we need to
get back in the market. That is point blank. We need to get in
the market, and it can be at a high interest rate.
So, that being said, we are in a pickle. We owe people
money. And we told them we want to pay them money. And we have
COFINA and we had all these matters that really is a contract--
--
Mr. McClintock. I agree with you completely, but I want to
also extend the question to the other witnesses.
Mr. Bhatia Gautier. Sir, I thank you for your question. Let
me just say this. Puerto Rico had a----
Mr. McClintock. The most important thing that you would do
that differs from----
Mr. Bhatia Gautier. Three things, quickly. Three things:
(1) Puerto Rico has to get economic growth if we don't get
jobs, if we don't get investment, we are screwed. And we need
to move forward in that direction. Puerto Rico had a great
investment mechanism through taxation codes, and they were
stricken away by Congress for no reason, no reason whatsoever.
(2)----
Mr. McClintock. Pardon me, stricken in PROMESA, or stricken
in----
Mr. Bhatia Gautier. No, stricken in the 1990s, Section 936
in the 1990s.
Mr. McClintock. Oh, of course, right, OK.
Mr. Bhatia Gautier. (2) We approved the local bankruptcy
law precisely because we could do it at home. We tried to do it
at home, and it was stricken down by the U.S. Supreme Court.
(3) I created, with the help of my colleagues----
Mr. McClintock. But, again, you adopted a constitution that
specifically pledged the full faith and credit and redemption
of those bonds.
Mr. Bhatia Gautier. Yes, and we----
Mr. McClintock. And what you want to do is renounce that.
Mr. Bhatia Gautier. No, we don't want to renounce that, not
at all. We want to create a restructuring mechanism----
Mr. McClintock. Representative, I am sorry, but I have very
limited time.
Representative Soto Torres?
Mr. Soto Torres. Yes. Economic growth would be one of our
priorities. Definitely. We just approved a new incentive code.
We also approved local legislation for capitalizing an
opportunities bill included in the Federal tax reform. So,
those are two major changes----
Mr. McClintock. Let me ask you one other question. What has
Congress done that has impeded the economy of Puerto Rico? And
I will direct that to you, Representative Soto Torres.
Mr. Hernandez. Sir, the problem is certainty. How we can
approve something in Puerto Rico, then you can change over here
as a Federal law? We don't have any certainty. We don't have
stability. That is why we have going into Puerto Rico we are
changing the rules right now again.
How are we going to have economic growth if somebody can
come here, lobby something to change the status quo, the
stability, the rule of law of the Puerto Rico? They even can
change our constitution----
Mr. McClintock. Basically, you are saying PROMESA itself is
an impediment to----
Mr. Hernandez. PROMESA itself, and these amendments, too.
Mr. McClintock. Thank you.
The Chairman. Mr. Soto.
Mr. Soto. Thank you, Mr. Chairman. We talked a lot about
the complex history and how the Federal Government has been
complicit in a lot of this debt being accrued. I know a lot of
you know that history well.
I did want to mention again the good work we are doing in
health care. We have bipartisan support both here and on the
island, which is to finally treat Puerto Rico and all of our
territories equal with regard to Medicaid.
And then, just this last week, to help seniors in Puerto
Rico with low-income senior assistance for prescription drugs.
So, that area we are getting a lot of progress even beyond
this.
And then we talk a little bit about the bankruptcy reform
in 1983, knocking Puerto Rico out of the code. And now PROMESA,
this contorted law that we are now faced with. We are here to
get your input.
And that is why we put out a draft, rather than a bill, so
far. So, first, how many of you support having the independent
audit, just by show of hands, so we could get that one--raise
your hand if you support an independent audit.
OK, so we have consensus on that. How many of you support
the current definition of essential public services? Raise your
hand if you support that. The current definition of essential
public services.
Mr. Soto Torres. The ones included in the draft?
Mr. Soto. Correct, the one included in the draft.
Mr. Soto Torres. We, in the House of Representatives, we
support it, but we believe that it should be more ample. The
not-for-profit organizations that provide services to the
people should be included. There are other areas like
correctional services and the help for the correctional
facilities that should be included, as well as the Treasury
Department.
Mr. Soto. OK. I----
Mr. Bhatia Gautier. Can I just say one sentence about that?
Mr. Soto. Sure.
Mr. Bhatia Gautier. Sir, with all due respect, it should be
the people of Puerto Rico who decide what their essential
services are, not Members of Congress from different states. I
am not telling you what the essential services are in Orlando.
You know what the essential services are. We know what our
essential services are. Let us make that decision based on our
budget. You tell us what the ceiling is, and we will make that
decision. It is for the people of Puerto Rico to make that
decision.
[Applause.]
Mr. Rios. And let me just interject 1 second, and I think
that Senator Bhatia is right on the issue. It is a matter of a
local government, elected officials, and we take the
responsibility. I am a politician. I mean, I show my face every
time I make a decision, and I am responsible for that decision.
And the budget is our decision, as well. If it goes wrong, my
fault. If it goes right, you were supposed to do it right,
anyway.
So, at the end of the day, it is the only answer. Let the
people of Puerto Rico decide what the benefits and the
essential services are, and then they have no issues on
reporting, OK, you have to balance your budget, OK, we will do
it, to get out of PROMESA.
Mr. Soto. Sure. Thank you for that passionate response.
In addition, the issues of Revitalization and
Reconstruction Coordinators, I understand a lot of you, as I,
have a concern with that, because we already have this PROMESA
Federal layer. Does everybody oppose or support having these
two additional coordinators?
Let's start with you, Leader Hernandez.
Mr. Hernandez. We have----
Mr. Soto. A simple yes or no would be helpful, because I
have limited time.
Mr. Hernandez. I support it, because we have cases of----
Mr. Soto. OK.
Mr. Hernandez. We need to push to have the resources on the
island.
Mr. Soto. Sure. Leader Soto Torres, do you all support or
oppose the two coordinators?
Mr. Soto Torres. If it is like a liaison for Puerto Rico
and the Federal agencies, a facilitator. But not if it is a
person taking the decisions over, and another layer of taking
decisions over the coordinators that we already have.
Mr. Soto. Leader Bhatia?
Mr. Bhatia Gautier. I am against a PREPA Coordinator. I
think that is wrong. Federalizing PREPA is wrong.
And No. 2, we need to liberate the funds. If that is what
it takes for the U.S. Government to liberate the funds, we may
have to take it. We don't like it, but we may have to take it.
I am against, unless it is a facilitator.
Mr. Soto. Sure.
Mr. Bhatia Gautier. I just want the funds to get to the
poor people up in the mountains--50,000 people still with blue
tarps makes no sense under the United States of America.
Mr. Soto. Leader Rios?
Mr. Rios. I am against the PREPA proposal. I thought the
Federal Government was supposed to be fast, and we had a COR3
that we can actually manage the funds. But if it is not the
Board, and it is someone that will care about the people of
Puerto Rico and not a salary, yes.
Mr. Soto. Thank you all for your input. And I agree, Leader
Bhatia, the people of Puerto Rico should be deciding the public
services. If I could change this bill in a second, it would be
to release all the FEMA funds immediately and end PROMESA.
Unfortunately, since we don't have the bipartisan support for
that, we find ourselves here today. But I appreciate all your
concerns and passion over this issue, and appreciate you
testifying today.
Mr. Bhatia Gautier. Thank you.
The Chairman. Thank you. Senator Rios, I agree. PROMESA was
only a partial solution to the economic problems of Puerto
Rico, and the imposition of the Oversight Board that has
undemocratic power over decisions of the elected
representatives of the people of Puerto Rico. I understand
that. I understand that you and the President of the Senate
think PROMESA should be repealed and be replaced by statehood.
But if the law can't be repealed, and we follow the train
of thought of the Ranking Member, that this has to stabilize
first before the discussion of status is even considered by
Congress or an Administration, given that, are there any
amendments you think should be made?
Are there any amendments that would help, in terms of
dealing with the two issues that you brought up, the
undemocratic power and the limiting of the role of elected
officials in Puerto Rico?
Mr. Rios. Well, as you know, I have to state what is the
basics, which is equality.
But to answer your question, if I was to amend what I think
is a temporary case of diminished democracy for Puerto Ricans,
first of all, who pays PROMESA? It should be the Federal
Government, because it was imposed.
The Chairman. OK, so that amendment----
Mr. Rios. That is one.
The Chairman. OK.
Mr. Rios. When it comes to economic growth, it needs to be
defined. So, that will be two.
The Chairman. OK.
Mr. Rios. When it comes to ethics, there should be ethics.
So, that is three.
And when it comes to essential services, you should listen
to the people of Puerto Rico, my opinion, and how the people of
Puerto Rico--like we are doing today--define what are the
essential services.
And last, OK, somebody has to call the Board to order.
Their spending is unreasonable, and they think they are above
the law. They think they are even above Congress.
The Chairman. All right----
Mr. Rios. So, you have to define the powers of the Board.
The Chairman. Thank you, Senator.
Mr. Rios. Thank you.
The Chairman. Senator Bhatia, the discussion draft includes
a provision requiring disclosures by the consultants employed
by the Oversight Board to avoid any conflict of interest. In
your testimony, you mentioned the need for introducing
legislation to avoid conflicts of interest with members of the
Oversight Board. Talk about that provision, and also the
position on the draft bill's provision to enable territorial
governments to write off all unsecured debt, other than from
vendors and service providers, once every 7 years. On those two
issues.
Mr. Bhatia Gautier. Yes. No. 1, I am very concerned about
the ethical issues involved with the Board. I think initially
some of the Board members did not want to disclose any
potential conflict of interest. And now, when Board members
leave the Board, whenever that happens, we should have full
disclosure. And I think it is an ethical issue. I think
Congresswoman Velazquez has raised the issue, and I fully
support her bill, and I fully support the disclosure which goes
beyond the Board, the kind of disclosure that goes into all the
consultants.
The Chairman. OK.
Mr. Bhatia Gautier. That is No. 1. No. 2, when it comes to
just cleaning out the debt, of course, I would love that. But
what are the consequences? And I think that we should be
careful when we decide that we are going to erase that. I am
all for erasing the debt. Perhaps if it is down to zero it
would be great.
The question, if it is federally mandated, what effect will
it have on the future of Puerto Rico, I am concerned about
that.
The Chairman. Thank you, sir. Representative Soto Torres
and Representative Hernandez, thank you for your feedback on
the provisions of this discussion draft. In the testimony, you
agree with amendments calling for protecting essential
services. I think one of you gentlemen said it should be more
ample, and the people of Puerto Rico should have a role in
deciding what they are.
The other one was ensuring transparency, avoiding conflict
of interest by consultants, and a comprehensive audit of the
debt.
Are there any provisions that we did not include in the
discussion draft, if this were to move forward, that you would
recommend?
Either or both of you.
Mr. Soto Torres. We included and sent to the Committee a
group of amendments in terms of the process for the preparation
of the fiscal plan, in terms of the budgeting process, and
establishing some parameters for the Board. I am going to give
you a few examples.
In the budget process, PROMESA established that the
legislators, once it approves a budget, it is sent to the
Oversight Board, and they have to certify that it is in
compliance with the fiscal plan, and that it should be
significantly consistent with the fiscal plan. What is
significantly consistent with the fiscal plan?
The Chairman. OK, if I may--Mr. Hernandez, a quick comment
on any provision that, if we are going in that direction of
reforming, what recommendation?
Mr. Hernandez. We included an amendment considering
enactment restrictions to avoid conflict of interest in the
hiring of contractors by the Board, to defend self interest--as
a member in the process of lobbying, and the process of
reappointed--they are using resources of the people of Puerto
Rico to lobby for itself.
The Chairman. They are going to call votes in 40 minutes or
so, so I want to thank all of you for your testimony. I
appreciate it very much. It was very helpful.
At this point, there are other questions for you that we
are going to submit in writing because we didn't get a second
round. But I want to thank you again. Let me now call the next
panel up, and thank you again.
[Pause.]
The Chairman. Let me now welcome the Honorable Carmen Yulin
Cruz Soto, Mayor, City of San Juan.
Thank you. And thank you for your patience and for coming
to visit us. I want to also, on a personal note, thank you very
much for your insistence on a couple of points that are part of
this, having to do with transparency issues within that audit,
with the provisions, and if PROMESA is going to be reforming,
defining the process for what essential services were. Our
visit with you in San Juan, those were points that you made
very, very clearly to us, so I appreciate that help.
Five minutes. The floor is yours, Madam Mayor.
STATEMENT OF THE HON. CARMEN YULIN CRUZ SOTO, MAYOR, CITY OF
SAN JUAN
Ms. Cruz Soto. Thank you, Mr. Grijalva.
The presence of a Board comprised of non-elected officials
making decisions on behalf of Puerto Rico constitutes a de
facto financial dictatorship. Thus, PROMESA must be repealed.
The Board continues to mortgage our future, while acting on
behalf of vulture funds.
Our debt must be canceled. However, since the political
will for that seems distant, it must be fully audited. Reaching
payment agreements without this audit is simply catering to the
needs of bondholders. We are satisfied an audit commission has
been included in the draft. We suggest the Committee revives
the Commission [Speaking foreign language], as enacted by
Puerto Rico's Law 97, approved in 2015. This would be a step
toward restoring public trust and governmental accountability.
Define Section 201--La Junta neglected to craft their
fiscal plan with sufficient funding for essential services. The
Board has strangled our limited budget to favor debt payment,
disregarding the severe impact this would have on our people.
The fiscal plan cannot be oblivious to governmental obligations
to provide basic, essential services.
Our position is simple: The people before the debt.
The draft before us is an opportunity to remedy this wrong
by ensuring funding for essential services such as pension
payments for governmental retirees, education services, health
services, and law enforcement services.
We submit the draft should also include as essential
services, municipal financing and transportation for the people
of Vieques and Culebra. Financial recovery cannot come at the
expense of neglecting to provide appropriate levels of
essential services, for it is those who need the services the
most who will bear the brunt of any austerity measures.
The latest fiscal plan, which has been endorsed by Governor
Vazquez, includes additional cuts to our pensions. These
reductions will simply make it unbearable for many of our
retirees to survive.
Education is the strongest weapon against inequality, and
the true path to achieving social justice and economic growth.
The first step in guaranteeing a future for our young people
must be safeguarding our most important higher education
system, the University of Puerto Rico and its 11 campuses.
This Committee needs to understand more fully that
municipalities are the level of government closest to the
people responsible for providing its citizens with essential
services. The Board has already reduced $350 million in
municipal funding for all municipalities, thus limiting their
ability to provide essential services for our citizens. We urge
you to include a disposition in the law to create an advisory
committee composed of representatives from municipal
governments aiming to ensure this level of government is part
of the solution.
The current draft includes two dispositions which we
adamantly oppose. Sections 11 and 12 call for the creation of a
Reconstruction Coordinator for Puerto Rico and a Revitalization
Coordinator for the Puerto Rico Electric Power Authority. Legal
figures such as these would further undermine democratic
structure of our local government.
In the case of PREPA, we are concerned the proposed
structure would concede incalculable authority to one person,
essentially making this coordinator into a super oversight
board of one.
PROMESA is a clear manifestation of the burden of
colonialism. I appreciate the positive steps taken by this
Committee in trying to ease the pains caused by the enactment
of PROMESA. But the truth remains this can only happen because
we are a colony. Until that is addressed, we will only be
facing part of the problem.
When thinking of PROMESA, this Committee must answer a
fundamental question: [Speaking foreign language.] With the
people, or with the Board? The answer must be clear and
unequivocal. Puerto Ricans before the debt. The people of
Puerto Rico must not be asked to sacrifice any more. God knows,
we have sacrificed more than enough.
Thank you very much, Mr. Chairman.
[The prepared statement of Ms. Cruz Soto follows:]
Prepared Statement of Carmen Yulin Cruz Soto
Chairman Grijalva, Vice Chair Haaland, Ranking Member Bishop, and
members of the Committee: My name is Carmen Yulin Cruz Soto, and I am
the Mayor of San Juan. First, I thank you for the opportunity to
express our views and opinions before this honorable Committee
regarding a Discussion Draft provided by Chairman Grijalva about a
series of proposed amendments to the Puerto Rico Oversight, Management,
and Economic Sustainability Act (``PROMESA'').
We have been invited today to discuss said amendments and their
potential impact on the debt restructuring process that the
Commonwealth of Puerto Rico currently faces. PROMESA has provided the
parameters of the restructuring process amid great objection and
criticism from publicly elected officials, trade unions, and the
general population for establishing policy measures that erode basic
principles of democracy and self-determination. Nevertheless, the
current political landscape has presented new opportunities for
improvement and it is within this context that we express our views
today.
From the outset, it is imperative to state that I firmly believe
that PROMESA should be repealed. We must remember the road traveled in
order to arrive at our current situation. A legislative gap prevented
Puerto Rico from having access to the dispositions and protections set
forth in Chapter 9, of the U.S. Bankruptcy Code. Because of the
preemptive nature of Federal bankruptcy laws, the Commonwealth was
precluded from enacting a statute of its own that would allow for
public debt restructuring, whilst excluding Puerto Rico from the
definition of ``state'' for purposes of Chapter 9.\1\ These mutually
conflicting realities put the Commonwealth in a very precarious
position at a time where its fiscal and economic situation had reached
a tipping point.
---------------------------------------------------------------------------
\1\ See, Puerto Rico v. Franklin Cal. Tax-Free Trust, et al. 136 S.
Ct. 1938 (2016).
---------------------------------------------------------------------------
Yet, in the absence of congressional interest toward repealing
PROMESA, there are definitive areas of improvement that have been
addressed in the Discussion Draft.
a clear definition of essential public services
At the core of every controversy surrounding the application of
PROMESA, there has been an issue with the lack of a clear definition
for Essential Public Services. In its conception, PROMESA did not
include a definition that would serve the purpose of outlining
government services which warranted protection during the debt
restructuring process. Furthermore, it is our contention, that after
the law became affective, the Financial Oversight and Management Board
(``FOMB'') has evaded the responsibility of defining such concept.
With the purpose of avoiding a capricious design or vague
parameters, Section 201 of PROMESA establishes in detail the
fundamental requirements that all fiscal plans should meet as it
pertains to Covered Entities. Regarding this matter, the law states
that all Fiscal Plans shall ``provide a method to achieve fiscal
responsibility and access to the capital markets, and [ . . . ] ensure
the funding of essential public services.'' \2\ This makes establishing
a clear definition an inescapable duty for the FOMB, which has been
avoided to the detriment of the people of Puerto Rico.
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\2\ Puerto Rico Oversight, Management, and Economic Stability Act,
48 U.S.C. Sec. 2141(b) (2016).
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Moreover, in clear defiance of the legislative mandate set forth in
PROMESA, the FOMB has jeopardized the already limited budget of the
government of Puerto Rico for the payment of its public debt without
much consideration of the severe impact that these policy measures have
produced over areas that are universally considered essential for our
people.
The conduct exhibited by the FOMB so far, has been in clear
conflict with Section 201 of PROMESA. The intentions of the FOMB are
clear; by avoiding a clear definition of Essential Public Services, the
Board also avoids being hamstrung by strict parameters that require the
allocation of funds for specific purposes not related to the repayment
of debt. Instead, what we currently have in place, is a more esoteric
or philosophical concept which can be easily neglected.
In short, the test to determine the viability of Fiscal Plans and
policy measures cannot be oblivious to the obligations that the
government of Puerto Rico has of providing essential services. Once the
letter of the law provides a clear definition, we can make sure that
services in the areas of Health, Education (especially the University
of Puerto Rico), Law Enforcement, Government Pensions, and Municipal
Financing can be safeguarded from excessive austerity measures. Puerto
Rico's financial recovery cannot come at the expense of providing basic
services for its people.
the need for transparency and accountability
The proposed amendments in the Discussion Draft bring significant
changes in the area of transparency and access to information that are
very important for promoting public trust. The unprecedented nature of
the proceedings brought forth by PROMESA have placed the people of
Puerto Rico in a very difficult position. The design of primary public
policy objectives concerning debt restructuring, is being devised by
individuals that were not elected by the people. The decisions made by
the members of the FOMB will have repercussions for decades that will
affect the lives of future generations. Naturally, this fact has
particular relevance when it comes to the subject of transparency. The
restructuring process must provide a minimum of confidence to the
people of Puerto Rico. It is imperative that investigative journalists
and public interest groups have access, not just to the information
related to the restructuring process itself, but to each member of the
Board and any sub-contracted entity that renders professional services.
Congressional oversight and public scrutiny are fundamental elements
for a successful restructuring process.
In the same vein, the Discussion Draft establishes dispositions
geared toward auditing Puerto Rico's public debt. Specifically, the
creation of a comprehensive audit commission. Historically, public
corporations have financed their deficits by relying on capital market
financings or the central government, which in turn provided loans
through the now defunct Government Development Bank or private sector
banks.
This practice has placed a shroud of controversy surrounding the
legality of the billions of dollars in debt issued by the Puerto Rican
Government. Therefore, a specific disposition in PROMESA that regulates
an audit of public debt would go a long way toward restoring public
trust and promoting accountability.
the figures of reconstruction and revitalization coordinator
One critical component of achieving fiscal recovery is ensuring
that Puerto Rico's governmental instrumentalities are sufficiently
funded. As you already know, in Puerto Rico, public services including
water, electric power, and transportation are provided by state-owned
public corporations. Such is the case of the Puerto Rico Electric Power
Authority (``PREPA''). PREPA essentially provides all the electric
power directly to consumers which includes residents, businesses and
government entities. PREPA is currently under the provisions.
In the Discussion Draft, there are two dispositions that we
respectfully oppose. Specifically, Sections 11 and 12 call for the
creation of a Reconstruction Coordinator for the Commonwealth and a
Revitalization Coordinator for the Puerto Rico Electric Power Authority
(PREPA).
Legal figures such as these would further destabilize the
democratic structure of our local government by taking more power from
democratically elected officials and giving such powers to entities or
individuals appointed by Congress or the FOMB. In the specific case of
PREPA, we are concerned that the proposed structure would concede
incalculable authority to a Revitalization Coordinator, essentially
placing a single individual in an authoritative position similar to the
entire FOMB.
puerto rico's municipalities as covered entities
Finally, we wish to express our sincere discontent with the
Financial Oversight Management Board's (FOMB) decision to declare
Puerto Rico's 78 Municipalities as Covered Entities under the Puerto
Rico Oversight, Management, and Economic Sustainability Act (PROMESA).
On May 9, 2019, the FOMB held a meeting in which it voted unanimously
in favor of establishing a Pilot Program for ten (10)
municipalities,\3\ that essentially requires them to operate under
fiscal plans approved by the Board. Covered entities under PROMESA are
subject to the development, implementation, oversight and evaluation of
fiscal plans and budgets. As we stated before, each Fiscal Plan shall
provide Puerto Rico with a ``method to achieve fiscal responsibility
and access to the capital markets.'' \4\
---------------------------------------------------------------------------
\3\ The list of Municipalities includes Quebradillas, Camuy,
Isabela, San Sebastian, Orocovis, Barranquitas, Villalba, Aibonito,
Comerio, and Cidra.
\4\ Id.
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In the past, we have expressed our growing concern with the FOMB's
austerity-based approach and have warned of its pernicious effects on
the island's post-hurricane economy. In the same vein, we worry about
the effects that this decision will have on both municipal governments,
and the citizens of the island.
It is immensely important to understand the key role that
municipalities play in the well-being of the island's citizens. In its
organic law, municipalities are described as the sociopolitical
entities closest, and with the most knowledge of the needs of the
people. In essence, Municipalities are creatures of statute, tasked
with the responsibility of providing essential services in the areas of
health, waste management, education and law enforcement, among others.
They also serve as the main source of aid for natural disasters, which
becomes even more relevant as we face the dire consequences of climate
change. Although Municipalities have the capability to generate
independent revenue, much of the economic support came from periodic
disbursements made by the central government. Naturally, Puerto Rico's
financial crisis has weakened the central government's ability to
transfer money from the general fund to Municipalities. This is
evidenced by the Commonwealth's most recent certified fiscal plan,
which reduces allocations to municipalities by 80 percent over a period
of 4 years.
Coupled with the devastation caused by Hurricane Maria, Puerto
Rico's stifled economy has caused lower wages, a reduction in fringe
benefits for employees in the private and public sector, and an
increase in prices for basic goods. It is therefore imperative that the
citizens of Puerto Rico don't suffer another setback in the form of
diminished essential services provided by municipalities. This would be
an egregious result that would negatively affect the health, safety and
overall well-being of the people of Puerto Rico.
We strongly urge you to adhere to the congressional mandate set
forth in PROMESA, of devising strategies geared toward promoting
economic growth and a sustainable debt burden. It is important to find
recurring sources of revenue for municipalities, so that any
interruption in the provision of essential services can be avoided.
In its bicameral letter dated December 6, 2018, a group of
representatives expressed their concern with the FOMB's debt
restructuring plans, which facilitate high recovery rates for creditors
and significantly cuts funding for health care, education and public
safety in Puerto Rico. It is our contention, that if the same policy
approach that has been applied to covered entities is also applied to
municipalities, the results can be disastrous.
Regarding this specific matter, we urge you to include a
disposition in the law that creates an advisory committee composed of
representatives from Puerto Rico's municipal governments. To that end,
it is imperative that you establish a consulting body protected by
PROMESA that can contribute with a very necessary perspective.
Municipalities are tasked with the responsibility of providing
essential services in the areas of health, education, law enforcement
and waste management, among others. This unique perspective will help
Congress and the FOMB understand the practical effects that the imposed
austerity measures have had on our people.
In conclusion, I believe that most of the proposed amendments
contained in the Discussion Draft are a step in the right direction and
we should focus our attention toward learning and correcting the
mistakes that have been made so far. There is widespread consensus on
the fact that certain critical changes must be implemented in the law
in order to guarantee the long-term financial recovery of the
commonwealth of Puerto Rico.
______
The Chairman. Thank you very much. Let me recognize my
colleague, Mr. Soto, for any questions he may have.
Mr. Soto.
Mr. Soto. Thanks, Chairman. Thanks, Mayor, for coming
today. I wanted to get some follow up. So, you support the
audit and having the full commission of different groups to be
part of that so you can get more community input into that
audit, is that----
Ms. Cruz Soto. I support the audit fully, and I would just
revive a committee that was already implemented by the past
legislature. Eduardo Bhatia talked about it, [Speaking foreign
language]. This had input from various agents in Puerto Rico,
and it made it more transparent and more accountable to the
people of Puerto Rico.
Mr. Soto. More accountable than a PROMESA audit that didn't
include a lot of those stakeholders, right?
Ms. Cruz Soto. Well, the problem with the members of a
board is that some of the members of the boards were part of
the problem. They were part of the process of ensuring that
bondholders bought at prices that, frankly, were ridiculous,
and now are getting repayments on prices that are strangling
the people of Puerto Rico.
So, when you begin with seven people that are not mandated
by the people of Puerto Rico, and on top of that some of them
were part of the problem that you are trying to fix--which,
again, should be a problem fixed by the people of Puerto Rico--
it becomes an issue.
Mr. Soto. As Mayor of San Juan, what kind of barriers did
you face in drawing down Federal funds and working with the
Trump administration?
Ms. Cruz Soto. Well, it is no secret that President Trump
and I don't see eye to eye. There is one thing that he said
after the storm that we agree on totally. He said he thought
the entire debt of Puerto Rico should be repealed, should be
eliminated, should be brought down to zero. That is the one
thing, and one thing only, that I agree with President Trump.
But we have not yet received, as none of the other
municipalities, any monies from the CDBG-DR fund, No. 1.
No. 2, we are still waiting on FEMA to give us money from
categories A, B, and Z. Some municipalities have not even been
paid part of that. Mind you, for the people that are listening,
those are the funds that we used in getting ready for the
hurricane and in taking care of our citizens right after the
hurricane.
It is important to note that municipalities were the first
level of support that people received and saw right after the
hurricane. So, taking $350 million away from municipalities for
San Juan--that was $21 million less--in what is wrongfully
called subsidies, it is not subsidies. It is something like
municipalities earned $1, the central government took that
dollar, gave $.25 back, and now calls that a subsidy. It is
merely retribution for earnings that the municipalities had in
the past and no longer have.
Mr. Soto. A lot of us, including you and I and others, are
concerned about having these two coordinators when we already
have the Federal fiscal board.
So, whether it is them or COR3--what do you think we should
be doing to help speed up the funding, other than the obvious,
which is we are holding these hearings to put pressure on the
Administration?
Ms. Cruz Soto. Well, this is an issue of political will. It
is an issue of President Trump, first of all, not understanding
what the relationship of a colony is to the United States and,
second, frankly, not paying attention.
He said to the people of Puerto Rico that the reason why
help was not getting there--and this is a quote--was because we
are an island surrounded by water, lots and lots of water,
ocean water. That was his excuse for not getting the help that
the people of Puerto Rico needed.
But the one thing is, No. 1, to put pressure. No. 2, it is
just to make sure that the monies do not go directly only to
the central government of Puerto Rico, that it goes directly to
the 78 municipalities, because it is the municipalities that
know exactly what the people of their cities need and would
support.
In fact, all of the mayors in Puerto Rico were asked to put
forth a plan for CDBG-DR money, and the central government
passed under Rossello--and Wanda Vazquez has not mentioned
anything to the sort, she talks about helping municipalities,
but nothing has come through to ensure that the power really
goes in the distribution of the funds to the municipalities.
I have had conversations with the mayor of Houston, the
mayor of New York, the mayor of Atlanta, and really, this is an
issue with mayors all over, this extra layer of FEMA and
Federal Government suppression of funding going through the
central governments, rather than directly into the cities. It
is a hindrance that makes it really difficult to come back from
not one, but two terrible disasters like Irma and Maria.
Mr. Soto. Thanks, Mayor, and I yield back.
The Chairman. Mr. McClintock, sir.
Mr. McClintock. Thank you, Mr. Chairman. I think California
and Puerto Rico share a lot in common. Ours are among the most
beautiful and blessed parts of our country. Yet, every year,
more people move out of our state, and more people move out of
your commonwealth than move in. My God, Puerto Rico is an
island paradise. It is a cruise ship destination, for heaven's
sake. People ought to be flocking to it, rather than fleeing
from it. These aren't acts of God, these are acts of
government.
Lincoln once said that the voters are everything. If the
voters get their backsides too close to the fire, they will
just have to sit on the blisters a while. It is a painful
experience, but it is a learning experience, and voters go away
from that sadder, but wiser.
And I think the best thing that we could do for Puerto Rico
is get rid of PROMESA, let the elected officials make these
decisions, and allow the voters of Puerto Rico to live with
those decisions, for better or for worse. I think before
PROMESA voters were coming to these decisions, they were voting
to change the government until PROMESA relieved them of this
responsibility.
What are your observations on that?
Ms. Cruz Soto. Well, first of all, let me tell you, I
happened to go to California for the first time this year, and
we share a lot of things, except California is a state of the
United States. That is your country. Puerto Rico is my country.
I am a citizen of the United States, but I am a Puerto Rican
national. And that makes a difference in the way that we see
things.
Mr. McClintock. But if I could interrupt, it doesn't make a
difference on your sovereign debt.
California and Puerto Rico both assumed the responsibility
of sovereign debt, and both, in their constitutions, pledged
their full faith and credit to that debt. Your philosophy is
people before debt, but it is the credit worthiness of a
government that is that government's lifeline. It is what makes
it possible to respond to emergencies and to finance
infrastructure over the life of that infrastructure.
The irresponsible issuance of debt to pay ongoing expenses
or to pay for pension obligations is the fastest way to
bankrupt a government and to destroy its credit worthiness. And
that is not an argument for statehood, if that is what you are
arguing, it is an argument for separation and independence.
Ms. Cruz Soto. I don't argue with statehood, sir. But let
me tell you something. Governments make decisions. I agree with
you. When the government of these United States decided to bail
out Wall Street, that was a decision.
Mr. McClintock. And, by the way, a bad one.
Ms. Cruz Soto. Well, you think it was a bad one.
So, it is time to bail out the people of Puerto Rico.
Mr. McClintock. Well, again, that is not an argument for
statehood. That is an argument against statehood.
Ms. Cruz Soto. I know you are against it.
Mr. McClintock. But let me ask you the same question I
posed to the legislators. What would you do differently from
PROMESA, other than renouncing your sovereign debt and
completely destroying the credit worthiness of the government,
what would you do differently from PROMESA?
Ms. Cruz Soto. One thing would be economic growth. We
cannot have economic growth if we cannot control our economic
variables.
Mr. McClintock. OK. For example?
Ms. Cruz Soto. For example, we have to have a conversation
with our brothers and sisters from the longshoreman's union to
begin repealing the Jones Act.
Mr. McClintock. Amen to that.
Ms. Cruz Soto. Which makes it very difficult for Puerto
Rico----
Mr. McClintock. Sign me up for that.
Ms. Cruz Soto. That is No. 1.
Mr. McClintock. What other Acts of Congress have acted as
an impediment to your economic----
Ms. Cruz Soto. No. 2, Puerto Rico should be able to draw
its own bankruptcy laws. It was in Chapter 9. In fact, I was in
front of this Committee supporting a bill by the then-Resident
Commissioner, Pedro Pierluisi, to enact that same legislation.
Mr. McClintock. Well, if I could interrupt you right
there----
Ms. Cruz Soto. Yes.
Mr. McClintock. No state has renounced its sovereign debt.
You would be suggesting that Puerto Rico should be admitted
with a record of simply dishonoring its sovereign debt----
Ms. Cruz Soto. Sir, I do not favor statehood. I favor a
process of a constitutional assembly for all the voices of
Puerto Rico to be heard, similar to the one that you went
through, and for Puerto Ricans to decide what their
relationship with the United States would be. So, I do not--
[Speaking foreign language.] It is an expression in Spanish. I
am not in support of Puerto Rico becoming a state, which is why
I mentioned to you before, I am a Puerto Rican national who
holds U.S. citizenship.
Mr. McClintock. OK, I get that. But anything else that you
can tell Congress right now that it needs to do to get out of
the way of Puerto Rico's ability to grow its economy?
Ms. Cruz Soto. One hundred percent Medicare and Medicaid
parity. If we pay the same thing, we should get the same
benefit.
Mr. McClintock. You want bailouts. I get that part, but----
Ms. Cruz Soto. No, it is not a bailout. We pay the same
thing. We should get the same thing. That is what the American
Dream is predicated upon, right? You work hard, you pay what
you owe. And we have paid for Medicare and Medicaid. Again, we
don't control our economic variables, so we should not be
responsible.
You invaded Puerto Rico. You put boots on the ground. You
tried Agent Orange in our forest. You tried the pill with our
women.
Mr. McClintock. I get that.
Ms. Cruz Soto. It is retribution.
Mr. McClintock. I get that. My time is up. But I do want to
invite you and the legislators who testified before you, any
thoughts you have on what Congress can do to remove the
impediments, the obstacles that we have placed in the way of
Puerto Rico's economic growth, like repealing the Jones Act,
which I agree with you completely, I would like to hear.
Ms. Cruz Soto. Thank you, Mr. McClintock.
The Chairman. Mayor, in your testimony, both written and
oral, you crystallized the dilemma, I think, for Congress, and
certainly for myself. It is how do you thread the needle, in
terms of providing the essential support that our fellow
citizens in Puerto Rico have earned and merit, not only in the
fiscal issue, but also in the recovery issue, and doing so with
the instrument that is before us, which has been categorized,
accurately, as undemocratic, PROMESA. How do you thread that
needle?
So, the discussion in the draft is how do you reform it to
make it less onerous, potentially more democratic, and expedite
the resources. Because we have heard today from the Ranking
Member that this is a process, in terms of status change, that
is going to take a minimum of 5, 6, 7 years, given the
timetable that was presented by the director of the Oversight
Board, and by the elected representatives who spoke as well.
So, my point is--can that needle be threaded?
Ms. Cruz Soto. Yes, it can. One is by ensuring that full
funding for essential services--and I agree with Senator Bhatia
when he says the people of Puerto Rico should be the ones
deciding what the essential services are, but there is a
general consensus that pension payments should not be reduced
any more, No. 1.
No. 2, the University of Puerto Rico--and I know that the
proposed bill suggests an $800 million allocation of resources
to the University of Puerto Rico. But we must ensure that all
the 11 campuses are kept open. They are not only a source of
education, but they are a source of income for different
municipalities.
No. 3, Section 936 of the IRS code should be reinstated.
Why? Because it provides for Puerto Ricans to have economic
growth.
No. 4, we should be allowed--and this goes to what Mr.
McClintock was talking about--we should be allowed also to
enter into international agreements with other countries, and
the terms of that could be discussed with the United States.
No. 5, it is imperative and important that our people that
pay the same for certain benefits receive the same benefits. In
terms of Medicaid and Medicare, of course, I am a supporter of
Medicare for All, and that would be something that would be
important to pass, in terms of legislation.
But this is the truth. It is true that the Constitution of
Puerto Rico states that the debt goes before the people. But as
we all know, constitutions evolve. And our constitution,
frankly, also we need to change it to ensure that that needle
that you are talking about is finally threaded.
But 120,000 people still live with blue tarps, Eduardo was
talking about 50,000 homes, 1.3 million Puerto Ricans need some
type of help to put food on the table, 900,000 Puerto Ricans
are either under-insured or not insured at all. So, if we do
not take care of essential services and fund them, we are going
to condemn the people of Puerto Rico to even more dire levels
of poverty. That is simply unacceptable to us and, frankly, it
is unacceptable to you, as well.
The Chairman. Yes, and the, I think, implicit threat--I
will use the word ``threat''--or observation on the part of, to
some extent, the Governor and the Oversight Board, was that in
defining a provision of essential services, that the unintended
circumstances that other government services that are not
enumerated or defined--and I agree with you, the idea of the
concept of the people on the island should decide what those
priorities are--that are deemed not essential, therefore, would
receive the essential cuts. It is kind of an implicit threat if
something is going to give.
And, obviously, there is some work ahead for us, if this is
a provision that there is some support for, going forward. So,
I appreciate that.
The other thing you mentioned, and members of this
Committee, many have visited Puerto Rico and taken the time to
meet with the elected officials and others. On the visits that
I have had, it has been, to me, one of the most eye-opening,
with meeting with the municipalities and their leadership,
meeting with the community organizations that are there, eye
opening, in terms of how they feel kind of left out of this
process, that it is done at a central level in Puerto Rico
government, and then it is done at a Federal level, and no
transparency.
And some of the things about building confidence were
directed at those municipal areas and those leadership or
community organizations, where the audit, the transparency, the
known conflict was to provide those groups some assurances that
what is intended is actually going to happen.
Ms. Cruz Soto. This is why we are suggesting to have an
advisory committee at the municipal level, so that you can
include NGOs also there, so that you could have that ear on the
ground. Because, in fact, it is the municipal level that is
closest to the people of Puerto Rico in providing those
services.
One last thing. Mr. McClintock mentioned President Lincoln.
Eleanor Roosevelt said no one can make you feel inferior
without your consent. Well, we are not going to consent any
more.
The Chairman. Thank you.
Ms. Cruz Soto. Thank you very much, sir.
The Chairman. Thank you very much. I appreciate all the
witnesses, Madam Mayor, the Representatives, the Senators, and
the representative of the Governor, and the representative of
the Oversight Board.
Before I leave, just some observations, if I may. We heard
today about repeal. Repeal PROMESA and, essentially, let the
democratic institutions within Puerto Rico deal with the issue
and begin to formulate the response, not only to the fiscal,
but also what the Federal Government needs to do, because a
repeal, as a gesture, without the substantive support that is
merited financially and with resources from the Federal
Government, is an exercise that will just create more pain. But
I understand that that was one of the options.
The other option is the status quo. PROMESA is fine, leave
it alone. Let it keep working its way, and eventually they will
disappear because everything will be balanced and things will
be fine.
And the other issue is the one dealing with the reform
choices.
Mr. McClintock. Mr. Chairman, are we going to another
panel, another round of questions?
The Chairman. No, I am just finishing up, sir. You are
welcome to leave.
Mr. McClintock. I am quite sure I am. But I wonder on whose
time is the Chairman speaking?
The Chairman. Assuming the prerogative, sir.
The choices that we placed in this were reform, upgrade,
try to make more democratic the existing PROMESA legislation.
That is the task that we have at hand, and it is a difficult
task, to say the least, given today.
I want to thank you all. I appreciate it. And, going
forward, we will be in consultation with all of you.
The meeting is adjourned.
[Whereupon, at 12:58 p.m., the Committee was adjourned.]
[ADDITIONAL MATERIALS SUBMITTED FOR THE RECORD]
Statement for the Record
Hon. Thomas Rivera Schatz
President of the Senate of Puerto Rico
Chairman Grijalva and Ranking Member Bishop: thank you for the
opportunity to testify before the Committee and share my thoughts
regarding the proposed amendments to PROMESA.
As I have stated in the past, most recently during the Chairman's
visit to Puerto Rico last month, PROMESA does not need to be amended,
it needs to be repealed. After 3 years and 4 months since its
enactment, it has become clear that PROMESA--with its Financial
Oversight Management Board (FOMB)--has failed in its main objective of
bringing fiscal responsibility and access to capital markets to the
territory of Puerto Rico. Instead, PROMESA has exacerbated the economic
situation on the island putting a magnifying glass over the 121 years
of colonialism that are the real root of our problems. This Committee
should use its jurisdictional power, under Article IV Section 3 Clause
2 of the United States Constitution, not to amend a failed law, but to
enact legislation that will do away with our second-class status as a
colony and admit Puerto Rico as a state of the Union. Only then, will
Puerto Rico truly possess the tools and mechanisms to solve the social
and economic crisis rooted in hundreds of years of unequal treatment at
the Federal level.
Nonetheless, I would like to thank the Chairman and the Ranking
Member for recognizing that PROMESA is not working and for proposing, a
fix, to what in my opinion, is unfixable. PROMESA with its total $214
million in annual budgets from Fiscal Year 2017 through the current
fiscal year, which include very lucrative salaries, is an unfunded
mandate that has proved to be very costly to the 3.1 million American
citizens living in Puerto Rico. I would like to point out to this
Committee that the annual salary of the FOMB Executive Director is 32
times higher than the average annual salary in Puerto Rico. In
addition, through January 2019 the Title III court has approved $300
million in fees and expenses. The own Chairman of the Board, Mr. Jose
B. Carrion, in a letter dated October 7, 2019, addressed to various
U.S. Senators referred to the cost of Puerto Rico's Title III cases as
``exorbitant and tragic.''
The broad powers granted to the FOMB under Title II of PROMESA are
excessive and have effectively usurped the powers vested upon its
elected officials by the Constitution of Puerto Rico. In fact, the
United States Court of Appeals in Aurelius Investment LLV v.
Commonwealth of Puerto Rico (1st Cir. 2019) held that the Board Members
are ``Officers of the United States'' subject to the U.S.
Constitution's Appointment Clause and declared the appointment of the
Board Members as unconstitutional. As recently as last week, the U.S.
Supreme Court heard the oral arguments on this case and we are eagerly,
awaiting a decision that hopefully will offer some redress to the
people of Puerto Rico who are suffering the consequences of the broad,
undemocratic, and unconstitutional powers granted by this Congress to
the FOMB.
Section 108 of PROMESA grants the FOMB complete autonomy to
exercise its powers without any control, supervision, and oversight or
review from the duly and democratically elected Governor of Puerto Rico
or from us, its duly and democratically elected legislative officials.
This unrestrained power granted to seven individuals, who do not
necessarily have the well-being of all the people of Puerto Rico at
heart, has led to decisions detrimental to the quality of life of the
3.1 million U.S. citizens residing in Puerto Rico. Among these
decisions: cutting pensions; cutting the salaries of public servants
already underpaid, like our police officers and our teachers;
arbitrarily attempting to derogate laws that protect the rights of our
employees, like Law 80; promoting the elimination of our
municipalities, whose role as the first emergency responders proved
essential during Hurricanes Irma and Maria; severely reducing the
budget of the University of Puerto Rico limiting its capacity to
produce well rounded professionals are just some of the decisions made
by the FOMB that have had a negative effect in the lives of most Puerto
Ricans. Yet, Puerto Rico remains without access to capital markets and
the ongoing debt restructuring process is costing the government of
Puerto Rico millions of dollars.
PROMESA has failed on its purpose and threatened the economic
stability of everyone on the island. The bill before us today contains
a series of amendments seeking to correct many of the flaws that have
become so obvious during PROMESA's implementation. It seeks to amend
Section 107 to provide a Federal funding source to carry out the
operations and proceedings of the Oversight Board under Title III
instead of depleting Puerto Rico's government coffers. Perhaps, once
the source of funding is authorized and appropriated by this Congress,
Congress will become more vigilant over the FOMB's exorbitant salaries
and expenses. In an attempt to somewhat limit the Board's power to
continue cutting funds for essential services, the Discussion Draft
before us seeks to provide a clearer definition of ``public services''
to include public education, public safety, health care, and pensions
to ensure their funding. It tries to ensure that the University of
Puerto Rico will have sufficient funds to be able to operate and comply
with its accreditations requirements. It tries to establish new
mechanisms that will improve transparency and accountability. It
eliminates the position of the Revitalization Coordinator, which after
3 years failed to identify at least one critical project on the island.
I would like to thank Chairman Grijalva and Ranking Member Bishop
and the distinguished members of this Committee for their genuine
desire to help Puerto Rico stand on its feet again. However, the main
reason for PROMESA's failure is simple and not addressed by any of the
amendments been considered today by this Committee. PROMESA does not
address the root cause of the problems on the island, its colonial
status. The colonial status that allowed the U.S. Congress to establish
a fiscal control board that violates the most basic principles of our
democracy.
It is unbelievable that after 121 years living under the flag of
the United States of America and 102 years of American citizenship,
Puerto Ricans living on the island cannot vote on the national general
elections to elect its Commander in Chief or have full-fledged
representation in Congress as a state of the Union. It is unbelievable
that in the 21st century the beacon of democracy for the rest of the
world, still has 3.1 million American citizens disenfranchised and
treats them as second-class citizens. It is unbelievable that in the
21st century the United States of America rather than expanding full
democratic rights to all of its citizens has chosen to curtail them
enacting a law that has proven to be flawed and ineffective.
The unequal treatment of Puerto Rico enabled by its territory
status is the root cause of the problem that led to the enactment of a
law that is flawed and unable to resolve Puerto Rico's fiscal problems.
To blame Puerto Rico's fiscal crisis solely on mismanagement at the
local level, is to turn a blind eye to the reality resulting from 121
years of unequal and second-class treatment at the Federal level. It is
to ignore that Puerto Ricans, by simply buying a one-way ticket to the
continental United States, can attain all the rights, responsibilities,
and privileges denied to them while on the island. It is to ignore that
the 3.1 million proud U.S. citizens living in Puerto Rico deserve the
same quality of life as their brothers and sisters in the states.
It was this desire to provide to the residents of Puerto Rico a
quality of life similar to that in the 50 states of the Union what in
great part led to our current fiscal crisis. It is a mirage to believe
that under the current political status, without equal access to all
Federal programs and as second-class citizens, the government of Puerto
Rico could provide the same quality of public services to its residents
as Florida or Texas can do. The only way the government of Puerto Rico,
under the current political status, could sustain a quality of life
similar to that in the states is through borrowing and issuing debt.
The origin of the current fiscal crisis stems back to 1961 when the
government of Puerto Rico, under the leadership of the Popular
Democratic Party, held a referendum to ease the controls on debt
capacity. The constitutional amendment of 1961 authorized the
government of Puerto Rico to borrow or issue debt up to 15 percent of
the average of its annual income in the last 2 fiscal years and
encouraged the issuance of triple-exempt municipal bonds.
The only real and permanent solution to the fiscal problems of
Puerto Rico before this Committee today is statehood. Only statehood
can bring to Puerto Rico the political and economic stability it needs
to be able to sustain the quality of life its 3.1 million American
citizens deserve. Any other alternative will keep us in the vicious
cycle of borrowing to be able to sustain our economy. Only as a full-
fledged state of the Union will Puerto Ricans on the island be able to
enjoy the same quality of life as their counterparts in the continental
United States.
It's time to extend to the American citizens of Puerto Rico the
equal treatment, rights, and respect they deserve and have earned
through its 102 years of faithful service to this Nation. Statehood is
the only real and viable solution to the challenges Puerto Rico is
facing today.
Thank you.
______
Statement for the Record
Hon. Wanda Vazquez Garced
Governor Of Puerto Rico
Chairman Grijalva, Ranking Member Bishop, and members of the
Committee, I am Wanda Vazquez Garced, Governor of Puerto Rico. Thank
you for the opportunity to submit this written testimony on the
proposed amendments to PROMESA.
i. introduction
Before addressing the specifics of the proposed amendments to
PROMESA, I would like to take a few minutes to introduce myself. I was
born in the Santurce neighborhood of San Juan and was educated at the
University of Puerto Rico and Interamerican University of Puerto Rico
School of Law. I have spent the last 32 years in public service--
primarily as a prosecutor in the Puerto Rico Justice Department and
then as Secretary of Justice for Puerto Rico. My experience as a
prosecutor taught me the importance of integrity and transparency
particularly in the public sphere.
I became Governor of Puerto Rico on August 7, 2019 through
extraordinary circumstances in what are extraordinary times for Puerto
Rico. I did not seek this office--but it is a position that I am
honored to hold. I accepted the challenge of becoming Governor of
Puerto Rico with a sincere belief that Puerto Rico must move forward. I
am not a politician. I do not intend to run for any political office. I
intend to use my time in this role to implement change and give the
people what they need for a brighter future. I will stand for the
interests of the people of Puerto Rico--just as I did throughout my
career as an attorney--but I will not fight unnecessary battles that
distract from the core mission of moving Puerto Rico forward.
I believe that Puerto Rico will benefit from cooperation between
the Federal Government, both the legislative and executive branches,
the Financial Oversight and Management Board for Puerto Rico, and the
Government of Puerto Rico. I have approached my relationship with Ms.
Jaresko and the Oversight Board in recognition of that reality. I look
forward to bringing that same collaborative approach to my relationship
with the members of the Committee. It is in that spirit that I address
the proposed amendments to PROMESA today.
ii. general observations on proposed amendments
The proposed amendments are a good faith attempt to address certain
specific issues that have arisen in the implementation of PROMESA and
many of them are worthy of consideration. I am concerned, however, that
certain of the proposed amendments do not address critical issues that
have hindered the effectiveness of PROMESA and impose unnecessary
bureaucracy in areas where we are already making progress. I address
those issues here.
Fiscal Plan and Budgeting Process
The proposed amendments do not address the flawed fiscal plan and
budgeting process. PROMESA created a power-sharing arrangement that
contemplates the Oversight Board setting spending caps or limits within
which the Government of Puerto Rico determines spending in line with
its public policy. In certain instances, the Oversight Board has used
its fiscal plan and budgetary power to impose detailed spending
restrictions that have the effect of dictating public policy--an
approach that undermines the Government's powers and turns the
Oversight Board into something more akin to a control board. The lack
of a forum for the Government of Puerto Rico to challenge the Oversight
Board's decision to certify a fiscal plan or budget exacerbates this
problem. While we are working diligently with the current Oversight
Board to establish a more effective process, this concern with PROMESA
is broader than our current relationship and will impact how future
administrations and future oversight boards work together.
To address this issue, I submit that Sections 201 and 202 of
PROMESA should be amended to make clear that the Oversight Board's
fiscal plan and budgetary powers do not extend to determining day-to-
day operating level expenditures. In addition, Section 106(e) of
PROMESA should be amended to provide a mechanism for the Government of
Puerto Rico (but not other third parties) to review and potentially
challenge Oversight Board fiscal plan and budget certifications. This
would (1) allow the Government of Puerto Rico to enforce the key
provisions required in fiscal plan and budgets and (2) prevent abuses
of power that strip the Government of Puerto Rico of its ability to
make operational decisions.
Additional Bureaucracy
The proposed amendments would create additional bureaucracy in the
form of a Puerto Rico Public Credit Comprehensive Audit Commission, an
Office of Reconstruction Coordinator for Puerto Rico, and a
Revitalization Coordinator for Puerto Rico Electric Power Authority.
These functions are either unnecessary or are already being addressed
by the Government of Puerto Rico and/or the Oversight Board.
Puerto Rico Public Credit Comprehensive Audit Commission. The
Oversight Board has already completed and published a comprehensive
audit of Puerto Rico's debt and commenced litigation to invalidate
certain bond issues based on that audit. Repeating that exercise would
only result in an unnecessary expense and create a strain on resources.
Nor is such a Commission necessary to address future debt obligations
as we are working with the Oversight Board to incorporate certain debt
management policies into the Title III plan of adjustment that will
limit Puerto Rico's ability to incur debt in the future to an
appropriate level.
Office of Reconstruction Coordinator for Puerto Rico. Establishing
another agency to manage Puerto Rico's use of recovery funds is
likewise unnecessary. Puerto Rico established the COR3 to promote and
implement reconstruction efforts with efficiency, effectiveness, and
transparency. Among its many other functions, COR3 established a
transparency portal (found at https://www.recovery.pr/home) that
provides detailed information about the uses of Federal recovery funds
provided to the island. COR3 has been very successful in its mission
and has provided unprecedented transparency on the use of recovery
funds.
The challenges with regard to Federal funding relate primarily to
the difficulties in coordinating the various Federal agencies that
provide funding. The requirements for receiving the appropriated
funding are often opaque and seem to change regularly. I believe that
Puerto Rico would benefit from the Federal Government providing a
coordinator who could work with the various Federal agencies as a
liaison to assist the Puerto Rico Government in accessing the Federal
funding sources.
Revitalization Coordinator for Puerto Rico Electric Power
Authority. The Government of Puerto Rico and the Oversight Board share
a common goal of transforming the electric system in Puerto Rico. We
are working to bring private management to the transmission and
distribution system, encouraging private investment in and building of
new generation, and creating a strong and predictable regulator. We
have made substantial progress with well-known and qualified private
parties toward a contract for management of the transmission and
distribution system and hope to select a counterparty and begin
implementation of that transaction early in 2020. We have also
established the Puerto Rico Energy Bureau and begun the revamping of
the generation assets. Our goal is to address PREPA's liabilities
through a plan of adjustment in 2020 concurrently with the transition
to a private operator of the transmission and distribution system. We
expect the transition to the private operator to start in early 2020
and be completed by year-end. Appointing a Revitalization Coordinator
for PREPA would disrupt the ongoing process and potentially damage
Puerto Rico's overall recovery efforts.
iii. specific observations on the proposed amendments7
In addition to the observations above, set forth below is a chart
that summarizes our positions on the specific proposed amendments to
PROMESA.
------------------------------------------------------------------------
Proposed Amendment Title Government Position
------------------------------------------------------------------------
Sec. 3. Federal Funding for I do not object to the Federal Government
Operation of Oversight Board paying for the Oversight Board's
and Title III Proceedings operational and Title III costs.
The Committee should consider, however,
the potential legal risk that doing so
provides additional support for the
argument that the Oversight Board's
actions are actions of the Federal
Government and that any debt
restructuring could therefore give rise
to takings claims against the Federal
Government.
------------------------------------------------------------------------
Sec 4. Definition of I oppose this amendment because a narrow
Essential Public Services definition of essential public services
could limit Puerto Rico's flexibility to
meet the needs of its citizens. If the
amendment is going to be included, then
we suggest that it be clear that the
word ``including'' means ``including
without limitation.''
------------------------------------------------------------------------
Sec 5. Definition of Economic I support this proposed amendment and
Growth suggest the Committee slightly modify
the proposed definition of
``expenditures and investments necessary
to promote economic growth'' to also
include expenditures sufficient to cover
funding for disaster recovery
activities.
------------------------------------------------------------------------
Sec 6. Disclosure By I support these new disclosure standards
Professional Persons because they facilitate transparency.
Employed by Court Order
The Committee may wish to consider
modifying the mechanics so that the
process works more effectively with the
standards already implemented in the
Title III process and does not create
additional cost or competing standards.
------------------------------------------------------------------------
Sec 7. Access to Information I oppose this proposed amendment for
several reasons including, without
limitation, the following:
First, this amendment could
infringe on privileges and immunities
that are important to the government
being able to function, such as the
attorney-client privilege and the
deliberative process privilege.
Second, this amendment could
result in bondholders having the ability
to obtain information that bondholders
would not otherwise be able to obtain
under the guise of free exchange of
information. That information could be
used to disadvantage Puerto Rico and the
Oversight Board in restructuring
negotiations.
Third, this amendment is
unnecessary because the Puerto Rico
Constitution provides sufficient
protections for parties seeking
information.
------------------------------------------------------------------------
Sec. 8. Puerto Rico I do not have a position on this proposed
Infrastructure amendment, but to the extent Title V of
Revitalization Repealed PROMESA is not repealed, I suggest the
Committee amend Title V to include the
Federal permitting process, especially
with respect to recovery activities.
------------------------------------------------------------------------
Sec. 9. Territorial Relief I oppose the proposed new Title VIII of
for Unsecured Public Debt PROMESA because we believe the provision
would eliminate Puerto Rico's ability to
access unsecured credit in the future
resulting in Puerto Rico having to
borrow only secured debt.
------------------------------------------------------------------------
Sec. 10. Puerto Rico Public I oppose this proposed amendment for the
Credit Comprehensive Audit reasons set forth above.
Commission
------------------------------------------------------------------------
Sec. 11. Office of I oppose this proposed amendment for the
Reconstruction Coordinator reasons set forth above.
for Puerto Rico
------------------------------------------------------------------------
Sec. 12. Revitalization I oppose this proposed amendment for the
Coordinator for Puerto Rico reasons set forth above.
Electric Power Authority
------------------------------------------------------------------------
iv. conclusion
I appreciate the efforts of the Committee to make PROMESA a more
effective law that can better meet the needs of Puerto Rico. My
comments are intended to be constructive in helping you assess the
proposed amendments and focus on areas where change can be most
effective. I look forward to working with you to achieve a brighter
future for the people of Puerto Rico.
# # #
LEGISLATIVE HEARING ON DISCUSSION DRAFT OF H.R. ____, ``TO AMEND THE
PUERTO RICO OVERSIGHT, MANAGEMENT, AND ECONOMIC STABILITY ACT OR
`PROMESA,' AND FOR OTHER PURPOSES--PART 2
----------
Wednesday, October 30, 2019
U.S. House of Representatives
Committee on Natural Resources
Washington, DC
----------
The Committee met, pursuant to notice, at 2:04 p.m., in
room 1324, Longworth House Office Building, Hon. Gregorio
Kilili Camacho Sablan presiding.
Present: Representatives Sablan, Gallego, Cox, Van Drew,
Cunningham, Velazquez, Soto, Cartwright; Bishop, Young,
Gohmert, McClintock, and Webster.
Also present: Representative Garcia.
Mr. Sablan. The Committee on Natural Resources will come to
order. The Committee is meeting today to hear testimony on the
discussion draft bill and amendments to the PROMESA Act of
2019. Under Committee Rule 4(f), any oral opening statements at
hearings are limited to the Chairman and the Ranking Minority
Member or their designees. This will allow us to hear from our
witnesses sooner and help Members keep to their schedules.
Therefore, I ask unanimous consent that all other Members'
opening statements be made a part of the hearing record if they
are submitted to the Subcommittee Clerk by 5 p.m. today, or the
close of the hearing, whichever comes first.
Hearing no objections, so ordered.
STATEMENT OF THE HON. GREGORIO KILILI CAMACHO SABLAN, A
DELEGATE IN CONGRESS FROM THE COMMONWEALTH OF THE NORTHERN
MARIANA ISLANDS
Mr. Sablan. Good afternoon. Welcome. We are here today for
a second day of hearings on Chairman Grijalva's draft
legislation to consider amending PROMESA, the Puerto Rico
Oversight, Management, and Economic Stability Act. The purpose
of this hearing is to receive feedback from certain
stakeholders on the draft's provisions, which include defining
essential public services, assigning Federal funding for the
operation of the Oversight Board, reducing conflicts of
interest, and auditing the debt. It must be a large amount if
we need to audit. The draft also includes provision to address
Puerto Rico's disaster recovery challenges.
Last week, we heard from officials representing the
government and legislature of Puerto Rico, as well as the mayor
of San Juan. Today, we will hear from witnesses representing
academia, non-profit organizations, and the labor and business
sectors. I encourage anyone who is not able to be a witness to
please submit statements for the record. We welcome those.
We have already received reactions both in favor and in
opposition to some of the provisions of the Chairman's
discussion draft. You will hear many of those comments from our
witnesses today. However, I want to ask everyone not to simply
object to provisions, but to also offer alternatives needed to
accomplish the desired goals.
In closing, I want to again welcome our witnesses and thank
them for traveling from Puerto Rico with us today. You guys
leave a beautiful island to come to Washington, DC. So,
welcome. We look forward to receiving your testimony and
working with each of you in improving the lives of the
residents of Puerto Rico.
At this time, I yield to the distinguished gentleman, the
Ranking Member of the Committee, Mr. Bishop, for his 5 minutes.
STATEMENT OF THE HON. ROB BISHOP, A REPRESENTATIVE IN CONGRESS
FROM THE STATE OF UTAH
Mr. Bishop. Mr. Sablan, thank you. To the staff here, once
again, I talk a great deal about procedure around this place,
but there was a reason why in 2010 we changed the House Rules
so that the House Floor would not start before 12 p.m., the
sole purpose of which is to allow committees to have
uninterrupted time in the morning to get these kinds of
hearings done. We find ourselves now, because of very poor
planning, having three bills on the Floor which Mr. Grijalva, I
am watching him now, he is on the Floor which he should be here
for, and I should be on the Floor at the same time, but I am
here as well, simply because we did a lousy job in the planning
process. The procedures make a difference, and I would hope
staff would understand, especially when you have our Committee
bills on the Floor and you have a Committee hearing now, you
can't be in two places at one time. And the efforts in 2010 to
try to alleviate that situation have been ignored. Don't ignore
them in the future as we go forward.
Now, to our good friends who are here. I appreciate you
coming all the way for what I think is a sad hearing. The
proposed amendments that have been floated around here are not
going anywhere. If they are passed in the House, which is
pretty iffy, could be, they will never be discussed in the
Senate and they will never be signed by the President. What we
really should be talking about are ways in which we can
actually make the system that you have possible for the three
goals that I still have for the island.
First is what we do to actually produce economic progress.
An island that doesn't have a whole lot of natural resources
but they have a lot of human resources and a lot of potential,
that could be a very productive area if we do things the right
way.
The second is what we can do to provide political stability
on the island. You have a new governor, a governor who is
taking great strides to try to make sure that they bring about
the political stability that is there, and I wish you the best
of luck with that and I want to be as supportive of her as we
possibly can be.
And the third is how do you make sure we have a pathway to
statehood, which means if this Committee really wanted to be
doing something that would be positive, we should be taking
Mr.--the gentleman from North Carolina--never become my age
because nouns and names go first--no, not North Carolina, New
Jersey, who just introduced his bill that would require the
mandatory vote for statehood in Florida. That's what this
Committee should be talking about.
This bill, spending 2 days on this bill that is going
nowhere is sad. I apologize to you. I appreciate you coming up
here. We're going to be interested in listening to your
testimony, but this bill is going nowhere.
I yield back.
Mr. Sablan. Thank you. I am not going to respond to this
wisdom of the Ranking Member, but I will now introduce our
witnesses. Mr. Heriberto Martinez Otero, President of the
Puerto Rico Economists Association; Mr. Alvin Velazquez,
Associate General Counsel of SEIU. Any relation to the
distinguished lady from New York?
Mr. Velazquez. No, but I think our families are from the
same part of the island. I live near Juncal.
Ms. Sablan. OK. Ms. Liliana Cubano, President of the Puerto
Rico Products Association; Mr. Lyvan A. Butin-Rivera, Student
Representative of the University of Puerto Rico; and Mr. James
Spiotto, Managing Director, Chapman Strategic Advisors. Let me
remind the witnesses that under Committee Rules, they must
limit their oral statements to 5 minutes, but that their entire
statement will appear in the hearing record.
When you begin, the lights on the witness table will turn
green; after 4 minutes the yellow light will come on. Your time
will have expired when the red light comes on and I ask you to
please complete your statement at that time. I will also allow
the entire panel to testify before questioning the witnesses.
Let's start with Mr. Otero, please. Five minutes, sir.
STATEMENT OF HERIBERTO MARTINEZ OTERO, PRESIDENT, PUERTO RICO
ECONOMISTS ASSOCIATION
Mr. Martinez Otero. Good afternoon Representative Sablan
and members of the Committee. My name is Heriberto Martinez
Otero. I am the president of the Association of Economists of
Puerto Rico. I appreciate the opportunity this Committee has
offered me to express my opinion on possible amendments to the
PROMESA Act.
At the end of the 1970s up to 2006, the development model
of Puerto Rico's economy was based on the pharmaceutical
industry, which was implemented in our country as a result of
the approval of Section 936 of the Federal Internal Revenue
Code. As a consequence of Section 936 and our local talented
human capital, the pharmaceutical industry in Puerto Rico
reported billions of dollars in earnings per year, which we
deposited within the domestic financial system creating a
liquidity surplus.
During this period, the economy grew consistently at rates
that range from 3 percent to 5 percent of the Gross National
Product. But in 2006, the construction bubble collapsed, then
phasing out of Section 936 ended and since then the economy
began to decrease and unemployment increased. In 2009, massive
layoff in the public sector and cuts in government spending
began under the ideology of ``expansive austerity.''
In 2016, the PROMESA Act was approved, which allowed the
deepening of the cuts under the austerity logic. Hurricane
Maria caused more damage than anticipated because our
institutions were dismantled due to austerity policies.
Now, I want to comment on some of the proposed amendments.
First, Section 3. Having the Federal Government fund the
Board is a favorable idea. This proposal should release about
$80 million annually. What you have to keep an eye on is how
the money will be distributed. If the Board determines that the
monies saved will go to a fund for the payment of the debt of
Puerto Rico or any of its municipalities, then it will have no
positive impact on the local economy.
The way the PROMESA Act is designed allows the Board to put
a cap on the budget. If that ceiling contemplates the reduction
of the Federal money that previously went to the Board, we will
not be able to count on it for essential services in its other
areas of social investment.
Section 4. The definition of essential services has been a
constant grievance by the citizens of Puerto Rico. The
Association of Economists of Puerto Rico approved a resolution
to request that the government of Puerto Rico and the Board
establish a list of essential services: education, health,
safety, retirement, and the preservation of the only public
higher education institution that we have, the University of
Puerto Rico.
We must all be clear that the most important consequences
of the cuts to essential services are poverty and migration to
the mainland. Therefore, it seems to me that this amendment is
adequate, emphasizing the need to finance the University of
Puerto Rico as an engine for economic growth and development.
Section 318. The issue about disclosure by professional
persons is extremely important in Puerto Rico because hundreds
of millions of dollars have been spent on consulting without
any assessment to ensure transparency. We have learned from the
media that the FBI investigates local government agencies,
including arresting public officials, for hiring fraud and
corruption. While we support this amendment, we would like to
see that the hiring money is concentrated in local companies so
that the multiplier effect on the economy could be more
significant.
In conclusion, the economy of Puerto Rico is going through
its worst moment in decades. At this time, it remains afloat
thanks to the positive shock caused by Federal funds for
reconstruction. The main reason for the economy to go through
such a prolonged period of economic depression is the
application of austerity policies which have caused migration,
loss of wealth, and the deterioration of industrial
infrastructure. Puerto Rico is a colony of the United States.
The power to make structural changes to my country's economy
rests on the Congress and the Federal Government. The
amendments to the PROMESA Act are an excellent start to soften
economic conditions on the island, but insufficient to achieve
sustained long-term growth. However, the indispensable decision
that should come out of this process is the definition of
essential services, to ensure financing for retirement systems,
and to save the University of Puerto Rico.
Thank you for your time.
[The prepared statement of Mr. Martinez Otero follows:]
Prepared Statement of Heriberto Martinez-Otero, President, Association
of Economists of Puerto Rico
Good afternoon, Chairman Grijalva, members of the Committee. My
name is Heriberto Martinez-Otero, I am the president of the Association
of Economists of Puerto Rico. I appreciate the opportunity this
Committee has offered me to express my opinion on possible amendments
to the PROMESA Act. However, before going into the subject, I would
like to identify some ideas shared by a large group of economists in
Puerto Rico to understand the tremendous economic depression caused by
government bankruptcy, a fundamental reason why Congress approved the
PROMESA Act.
At the end of the 1970s up to 2006, the development model of Puerto
Rico's economy was based on the pharmaceutical industry, which was
implemented in our country as a result of the approval of Section 936
of the Federal Internal Revenue Code.\1\ As a consequence of Section
936 and a local talented human capital, the pharmaceutical industry in
Puerto Rico reported billions of dollars in earnings per year, which
were deposited within the domestic financial system, creating a
liquidity surplus. The liquidity surplus was used for credit for
consumers and firms, generating a robust macroeconomic performance
during the 1980s and 1990s in four major sectors: construction,
manufacturing, finance, and insurance.
---------------------------------------------------------------------------
\1\ Dietz, James. ``Economic History of Puerto Rico: Institutional
Change and Capitalist Development.'' (1987).
---------------------------------------------------------------------------
During this period, the economy grew consistently at rates that
ranged from 3 percent to 5 percent of the Gross National Product.\2\
The repeal of Section 936 in 1996 (phased out in a period of 10 years)
brought adverse consequences for the economy of Puerto Rico. In 2006,
the construction bubble collapsed, the phasing out of Section 936
ended, there was a government shutdown, and since then, the economy
began to decrease, and unemployment increased. In 2009, massive layoffs
in the public sector and cuts in government spending began under the
ideology of ``expansive austerity.'' \3\
---------------------------------------------------------------------------
\2\ Dietz, James. ``Economy of Puerto Rico: Negotiating Development
and Change.'' (May 1, 2013).
\3\ Martinez-Otero, Heriberto; Seda-Irizarry, Ian. ``The Origins of
the Puerto Rico debt crisis.'' Jacobin Magazine.
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
In 2016, the Promise Law was approved, which allowed the
deepening of the cuts under the austerity logic. Hurricane Maria caused
more damage than anticipated because our institutions were dismantled
due to austerity policies.
That is the main reason why I am here before you on behalf of the
Association of Economists of Puerto Rico, and I tell you: if austerity
policies are not stopped, the proposed changes to the PROMESA Act will
be insufficient because my country's economy will collapse. Now, I want
to comment some of the proposed amendments.
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
SEC. 3. FEDERAL FUNDING FOR OPERATION OF OVERSIGHT BOARD AND TITLE
III PROCEEDINGS
Having the Federal Government fund the Board is a favorable idea.
This proposal should release about $80 million annually. What you have
to keep an eye on is how the money will be distributed. If the Board
determines that the money saved will go to a fund for the payment of
the debt of Puerto Rico or any of its municipalities, then it will have
no positive impact on the local economy. The way PROMESA Act is
designed allows the Board to put a cap on the budget. If that ceiling
contemplates the reduction of the Federal money that previously went to
the Board, we will not be able to count on it for essential services in
its other areas of social investment.
SEC. 4. DEFINITION OF ESSENTIAL PUBLIC SERVICES
The definition of essential services has been a constant grievance
by the citizens of Puerto Rico. The Association of Economists of Puerto
Rico approved a resolution to request that the government of Puerto
Rico and the Board establish a list of essential services: education,
health, safety, retirement, and the preservation of the only public
higher education institution that we have, the University of Puerto
Rico. We must all be clear that the most important consequences of the
cuts to essential services are poverty and migration. Therefore, it
seems to me that this amendment is adequate, emphasizing the need to
finance the UPR as an engine for economic growth and development.
SEC. 318. DISCLOSURE BY PROFESSIONAL PERSONS EMPLOYED BY COURT ORDER
This issue is critical because, in Puerto Rico, hundreds of
millions of dollars have been spent on consulting without any
assessments to ensure transparency. We have learned from the media that
the FBI investigates local government agencies, including arresting
public officials, for hiring fraud and corruption. While we support
this amendment, we would like to see that the hiring money is
concentrated in local companies so that the multiplier effect on the
economy could be more significant.
The economy of Puerto Rico is going through its worst moment in
decades. At this time, it remains afloat thanks to the positive shock
caused by Federal funds for reconstruction. The main reason for the
economy to go through such a prolonged period of economic depression is
the application of austerity policies, which have caused migration,
loss of wealth, and deterioration of industrial infrastructure. Puerto
Rico is a colony of the United States; the power to make structural
changes to the country's economy rests on Congress and the Federal
Government. The amendments to the PROMESA Law are an excellent start to
soften economic conditions on the island, but insufficient to achieve
sustained long-term growth. However, the indispensable decision that
should come out of this process is the definition of essential services
and to ensure financing for retirement systems and to save the
University of Puerto Rico.
Thank you very much for your time.
______
Questions Submitted for the Record by Rep. Grijalva to Mr. Heriberto
Martinez Otero, President, Puerto Rico Economists Association
Mr. Martinez Otero did not submit responses to the Committee by the
appropriate deadline for inclusion in the printed record.
Question 1. In your testimony, you express support for Section 6--
Disclosure by Professional Persons Employed by Court Order to avoid
conflicts of interest by consultants providing services to the
Oversight Board. Several organizations have expressed there is also an
urgent need to include language in PROMESA to avoid conflicts of
interest by members of the Oversight Board.
Should this be a priority for the Committee? Why?
Question 2. Mr. Martinez, I am sure you have heard the critique
regarding our language defining essential services; that it would have
the unintended effect of leaving other government services, which are
not defined as essential, open to massive cuts.
Is this analysis correct? Can we define ``essential services'' to
protect the UPR for example, without negatively impacting other
services?
Question 3. In your testimony, you state that if the Board
determines that the money saved will go to a fund for the payment of
the debt or its municipalities, then it will have no positive impact on
the local economy.
Could you share more information about why investing in
municipalities would not have a positive impact on the local economy?
______
Mr. Sablan. Thank you very much, Mr. Martinez.
We now have Mr. Velazquez. You have 5 minutes, sir. Thank
you.
STATEMENT OF ALVIN VELAZQUEZ, ASSOCIATE GENERAL COUNSEL,
SERVICE EMPLOYEES INTERNATIONAL UNION
Mr. Velazquez. Mr. Sablan, Ranking Member Bishop, and
members of the Committee, thank you for the opportunity to
address you. I am addressing this Committee on SEIU's behalf
and not on behalf of the Unsecured Creditors Committee, to be
clear.
This summer, the people of Puerto Rico came together to
make their voices heard. SEIU's 23,000 members in Puerto Rico,
healthcare workers, janitors, and other public servants were
among the hundreds of thousands of Puerto Ricans who took to
the streets demanding the departure of ex-Governor Ricky
Rossello. The people chanted, ``Ricky, renuncia y llevate la
Junta!'' The English translation of that statement is ``Ricky,
resign and take the Oversight Board with you.'' The people also
chanted, ``Para sacar la porquera hay que hacer la auditoria,''
which means ``To clean out the filth you have to do an audit.''
The people got what they wanted with respect to Ricardo
Rossello, but so far their other demands have been ignored. But
now, people are shouting a different chant. They're shouting
``PROMESA is pobreza'' or ``PROMESA is poverty.'' The people's
chants should alert you to a grizzly economic truth. If the
Oversight Board continues on its current course, Title III of
PROMESA will ensure ``pobresa'' and a need to restructure
Puerto Rico's debt yet again in 5 to 10 years.
Indeed, all of the sovereign debt restructuring since 1970,
49.7 percent of them have been followed by another default or
restricting within 3 years. That percentage increases to 60
percent over 7 years.
When Dr. Guzman testified before this Committee in May, he
told you that the COFINA deal poses a serious risk of a failed
debt restructuring. He said, and I quote, ``The deal makes
sense only if other groups of Puerto Rico's bondholders get a
very large haircut. The arithmetic is simple: the generosity
with the COFINA bondholders can only be sustained if the
reduction on the rest of the public debt lies between roughly
85 and 95 percent.''
Yet, what has happened? Instead of an 85 to 95 percent cut
of the remaining debt, the Board's plan of adjustment proposes
giving hedge funds who hold pre-2012 General Obligation bonds a
possibility of up to 89.4 percent recovery. This is the exact
opposite of what simple arithmetic demands. And the Board wants
to give PREPA bondholders a similar favorable treatment.
So, who does that leave out in the cold? That leaves out
people like Ramon Ortiz Carro. Mr. Ortiz Carro once owned a
business that built affordable housing. Eleven years ago, he
built housing for the government of Puerto Rico. He is still
owed $11 million for that more than decade-old work. Mr. Ortiz
was a proud employer but now has had to let go of all 125 of
his staff. For Mr. Ortiz, the Oversight Board proposes a
recovery of less than 2 cents on the dollar.
Or consider Carmen Castro, a retired worker living on
social security. She regularly skips meals and doesn't turn on
her lights or air conditioning even during the summer so she
can pay her electrical bill. In order to give PREPA bondholders
a generous recovery, the Board intends to hike her electrical
rate by 47 percent over the next 5 years. No one is talking
about a scenario where there is going to be sufficient economic
growth to cover that increased cost in utilities.
It seems like the crowd was right. PROMESA is equaling
pobreza. Just not for the pre-2012 GO bondholders and the
COFINA bondholders.
How can Congress fix this? First, the people of Puerto Rico
want a truly independent audit of debts. To be clear, the
recent lawsuits after publication of the Kobre & Kim reports
seeking to invalidate that, were a step in the right direction,
but those actions were not an audit. Most governmental audits
are done to the standards of the U.S. GAO office. Those
standards require professionals to swear to independence and
objectivity.
When the law firm Kobre & Kim investigated Puerto Rico's
debt for the Oversight Board, they were not acting
independently. Quite the opposite. Legal ethics bound Kobre &
Kim to zealously represent their client's interest, meaning the
interest of the Oversight Board. What the people of Puerto Rico
demanded is an independent audit for the people of Puerto Rico
by the people of Puerto Rico.
Second, Congress needs to pass a Marshall Plan for Puerto
Rico that needs to have many parts. That plan has to have many
components such as Medicaid parity and substantial debt relief.
That would be a minimally acceptable start.
Measures like the Territorial Relief Act are a step in the
right direction although not sufficient. At least that Act
creates a sort of fail-safe mechanism in case the Board fails
to cut the debt to a sustainable level and action is required.
The Act requires local officials to make the decision about
debt relief, officials the people of Puerto Rico can actually
hold accountable.
SEIU was against PROMESA from the beginning. First, because
it is yet another colonialist incursion into Puerto Rico, the
latest in a long and shameful history. But second, SEIU opposed
PROMESA because we feared the outcome we now face: a Puerto
Rico unable to prosper and grow again because its people would
be saddled with an unsustainable debt load. At a bare minimum,
Congress must confront that reality head on and begin taking
steps to fix this failed policy.
Thank you.
[The prepared statement of Mr. Velazquez follows:]
Prepared Statement of Alvin Velazquez, Associate General Counsel of the
Service Employees International Union
Chairman Grijalva, Ranking Member Bishop, and members of the
Committee, I am Alvin Velazquez, Associate General Counsel for the
Service Employees International Union (``SEIU''), which represents 1.8
million workers in the United States, Canada, and Puerto Rico.\1\
---------------------------------------------------------------------------
\1\ SEIU presents this testimony on its own behalf, and not on
behalf of any Committee on which SEIU may be a member in the Title III
PROMESA proceedings. Any opinions contained in this testimony should be
attributed only to SEIU, not any other party or Committee. THIS
TESTIMONY IS NOT AND SHOULD NOT BE CONSTRUED AS A SOLICITATION OF VOTES
FOR OR AGAINST ANY PLAN OF ADJUSTMENT IN THE TITLE III PROMESA
PROCEEDINGS.
---------------------------------------------------------------------------
Thank you for the opportunity to address the Committee. In doing
so, I hope to bring to light the concerns of SEIU's 23,000 members
living in Puerto Rico, as well as the thousands of members in SEIU's
locals in the United States who are part of the Puerto Rican diaspora.
Our members in Puerto Rico are united in two local unions: Local
1996 SPT, the Sindicato Puertorriqueno de Trabajadores y Trabajadoras,
and Local 1199 UGT, the Union General de Trabajadores. The SEIU members
in these two unions provide custodial services in Puerto Rico's
schools, protect children as security guards in the schools, and serve
patients at Puerto Rico's public hospitals.
SEIU's members were among the hundreds of thousands of Puerto
Ricans who took to the streets in San Juan earlier this year demanding
the departure of ex-Governor Ricky Rossello. They lifted their voices
with those on the street who were chanting ``Ricky, renuncia y llevate
la Junta!'' The English translation of that statement is ``Ricky,
Resign and Take the Oversight Board with You!'' The first demand was
met when the Governor resigned, but, as I will discuss, it is now time
to focus on the second equally important demand and on the
circumstances of the Island's crippling debt.
personal background
First, let me tell you a bit about myself. I have been advising
SEIU with respect to Puerto Rico's finances since 2009, when then-
Governor Fortuno laid off 20,000 public workers under Law 7. I had the
privilege of serving as Executive Director of Puerto Rico's Commission
for the Comprehensive Audit of the Public Debt. Before joining SEIU, I
worked as an attorney on commercial disputes in the private sector.
My mother moved from Puerto Rico to the United States and worked as
a teacher's assistant. She was a proud union member. My father also
moved from Puerto Rico. He retired as a public school janitor and a
member of SEIU in Chicago. With their love and support, I was
ultimately able to graduate from Harvard Law School. My father is still
with us, but we lost my mother after a long battle with Lou Gehrig's
disease when I was a junior in high school. My father and I buried my
mother in Gurabo, Puerto Rico, near where she grew up. Today, I have
many family members on the Island who are struggling to make ends meet
due to the high electrical bills they have to pay, the highest sales
tax in the United States, and the other challenges of living on a fixed
income. Even though I reside in the DC metropolitan area, my heart is
very much in Puerto Rico.
i. how puerto rico got here
Now, let me turn to how Puerto Rico got here.
Puerto Rico is in bankruptcy because of mistakes made by this
Congress, the greed of Wall Street hedge funds, mistakes made by
politicians on the Island, and the pain inflicted by hurricanes. As
noted by the Tax Foundation, the U.S. Government began a process in
1996 to phase out Section 936 of the tax code over a period of 10
years. Section 936 had promoted manufacturing and finance on the
island. The tax break's expiration in 2006 eroded the manufacturing
sector and the Government's tax base, and led to what has become a
secular macroeconomic crisis.\2\ The Government then began to issue
more and more debt to offset its revenue loss, soon issuing more debt
than the Puerto Rico economy could sustain.
---------------------------------------------------------------------------
\2\ Scott Greenberg and Gavin Eakins, Tax Policy Helped Create
Puerto Rico's Fiscal Crisis, https://taxfoundation.org/tax-policy-
helped-create-puerto-rico-s-fiscal-crisis/, June 30, 2015.
---------------------------------------------------------------------------
In 2008, Wall Street greed led to the meltdown of the U.S. economy,
with which we are all familiar. That meltdown compounded Puerto Rico's
woes: It sent the cost of Puerto Rico's debt sky high, which in turn
forced Puerto Rico to take out high risk financial instruments such as
interest rate swaps, and led to massive foreclosures.
In 2009, the Government of Puerto Rico responded by laying off
20,000 public servants and raising taxes and authorizing the issuance
of more sales taxed backed debt--the layoffs and borrowing made things
worse rather than better. According to some economists, the layoffs
actually caused the Puerto Rican economy to shed more than 120,000 jobs
once the loss of secondary spending by those who formerly had public-
sector positions is taken into account.\3\ By 2012, the surge in
government debt, decline in economic activity, and growing exodus of
the Puerto Rican population put the Island into virtual bankruptcy,
causing its bond prices to collapse. As has happened in many other
places, like Peru and Argentina, hedge funds swooped in to purchase
Puerto Rican bonds at bargain basement prices.
---------------------------------------------------------------------------
\3\ https://www.primerahora.com/noticias/gobierno-politica/nota/
ley7fueadversaparalaeconomia-496760/, April 19, 2011.
---------------------------------------------------------------------------
More recently, Hurricane Maria devastated Puerto Rico and exposed
its fundamental infrastructure problems. Today, more than 250,000
families in Puerto Rico still face foreclosure,\4\ and 30,000 families
still have tarps on their homes.\5\
---------------------------------------------------------------------------
\4\ https://www.elnuevodia.com/negocios/finanzas/nota/
alertansobreunacrisisdeejecucionesdehipo tecasenlaisla-2494020/, May
15, 2019.
\5\ Ricardo Cortes Chico, 30,000 homes still have tarps from FEMA,
https://www.elnue vodia.com/noticias/locales/nota/
todavia30000casastienencomotechostoldosdefema-2493167/, May 10, 2019.
---------------------------------------------------------------------------
Given this series of calamities, it should come as no surprise that
Puerto Rico needed major change and a fresh start.
PROMESA led to a bankruptcy proceeding that was supposed to be that
fresh start. But the law has failed to achieve its goals and will
continue to fail. Indeed, the seeds of its failure were planted at the
very beginning, when Wall Street interests wrote the PROMESA law to
benefit themselves rather than Puerto Ricans.
In general, PROMESA's authors had a choice between two very
different financial paths for Puerto Rico and U.S. territories. One was
a path marked by immediate and extreme fiscal austerity for the purpose
of squeezing every possible penny out of the Island now in order to
repay Wall Street as much as possible as quickly as possible. The other
was a path focused on improving the Island and growing its economy to
achieve prosperity and long-term economic health, which would include
the repayment of a sustainable level of debt over a reasonable period
of time.
The first path would sacrifice the Island, its people, and any
chance of long-term growth on the altar of quick hedge fund payouts. It
is the path that would be chosen by someone with little interest in the
Puerto Rican people or the Island's continued viability. The second
path would take the Island and its people into account. It is the path
that would be chosen by anyone who cares more about Puerto Ricans than
about hedge funds for the already rich.
As you can likely guess, the hedge funds and their lawyers who
wrote PROMESA chose the first path. Thus, despite the best efforts of
some on this Committee, PROMESA passed with a mandate for austerity and
failed to include important economic stimulus measures such as Medicaid
parity or tax credits for workers. PROMESA's elaborate legal framework
tilts inexorably toward austerity while ignoring the long-term health
of Puerto Rico's economy and the ability of workers on the Island to
find jobs that pay a living wage and can support a family.
The reality of such policies is that they mean the end of Puerto
Rico as we know it. These policies are not and were never intended to
help Puerto Rico thrive.
But of course when PROMESA passed, this reality was obscured by a
fictional narrative that could easily have led someone to believe
exactly the opposite. Somehow Wall Street spun a story of austerity and
`` discipline'' that could not only repay the hedge funds at remarkable
rates but also benefit the Island and its people. A ``win win,'' so to
speak, is the story that was told.
That self-interested story, like many similar stories we heard
before 2008, turns out to have been a lie. There is no ``win win'' that
gives Wall Street huge, immediate payouts and also benefits Puerto
Ricans. And what we see now is that lie, that fiction on which PROMESA
was based, crashing headlong into the economic reality that Puerto
Rican workers do not make enough money to pay off a substantial amount
of Puerto Rico's debt and certainly do not make enough money to do so
while leaving anything meaningful for the Island, its economy, and its
people.
The PROMESA reforms we are here to discuss today do not go far
enough, in SEIU's view or in the view of the thousands of Puerto Ricans
who took to the streets earlier this year. And part of this testimony
will address major additional changes SEIU would like to see.
Nonetheless, the proposed amendments are without a doubt an
improvement on what we have now. The reforms begin to shed the fiction
that austerity will somehow lead to growth. These reforms begin to add
the Puerto Rican people and their interests back into the discussion.
They begin moving toward what we need: A plan, based in reality, for
long-term economic growth that will repay Puerto Rico's debt to the
extent possible without destroying the Island in the process.
ii. the fiction underlying promesa
Before I turn to the discussion draft of reforms, however, let me
provide a bit more detail about the fiction on which PROMESA is based
and that ex-Governor Rossello happily espoused in his campaign: The
notion that the people of Puerto Rico can pay enormous amounts to Wall
Street and survive.
According to Census Data, the average Puerto Rican household makes
$19,775 per year, https://www.census.gov/quickfacts/PR. For the sake of
comparison, that same data shows that households in Mississippi, our
poorest state, make more than twice as much, or $42,009 per year.\6\
---------------------------------------------------------------------------
\6\ https://www.census.gov/quickfacts/MS.
---------------------------------------------------------------------------
Given this reality of income on the Island, the Oversight Board's
May 9th Fiscal Plan was already a stretch when it claimed that Puerto
Rico could repay about $400 million per year in servicing its debt.\7\
Now, however, in its recently filed Plan of Adjustment, the Oversight
Board suddenly claims that Puerto Rico should pay $1.5 billion every
year for the next 30 years.\8\
---------------------------------------------------------------------------
\7\ See Exhibit 28, 2019 Fiscal Plan for Puerto Rico: Restoring
Growth and Prosperity, May 9, 2019, at https://drive.google.com/file/d/
13wuVn04-JKMEPKu-u-djZJHgTK-55aV/view, and attached herein as Exhibit
A. The Oversight Board's Board debt sustainability analysis indicates
radically different payments of debt. SEIU uses the debt to personal
income metric on this proposal, as it is the financial metric tied to
the median household income in Puerto Rico, and most accurately
demonstrates the ability of the tax base to pay back legacy debt.
\8\ Plan Support Agreement Announcement dated June 17, 2019 located
at https://drive.google.com/file/d/13RFAuRJX6Tkya66DTPz3V2uEUiTjwqvQ/
view, page 2.
---------------------------------------------------------------------------
Why? Even imagining for a moment that such money exists, who is the
Board proposing that it be paid to?
Well, the Board's recently filed Plan of Adjustment provides one of
the largest bondholder groups, the pre-2012 General Obligation
Bondholders (``GO Bondholders''), with a baseline recovery of 64
percent that could go as high as 89.4 percent.\9\ That would be a
nearly 90 percent recovery for a group of primarily off-Island hedge
funds unlikely ever to contribute to Puerto Rico's future. And on top
of that 90 percent, the Board proposes to reward the GO Bondholders
with $300 million extra if they support the Board's plan! Meanwhile,
the Oversight Board has also agreed to provide bondholders of its
electric utility (``PREPA Bondholders'') a recovery of up to 89
percent.
---------------------------------------------------------------------------
\9\ See page 24 of Disclosure Statement, attached herein as Exhibit
B. The pre-2012 bondholders are denoted as ``vintage bondholders'' and
designated as classes 6-12).
---------------------------------------------------------------------------
Contrast this with the Board's treatment of on-Island workers and
businesses, who will have to pay for this extraordinarily generous
recovery.
In order to fund an 89 percent recovery for PREPA bondholders,
Puerto Ricans will see their electricity rates, which are already
amongst the highest in the United States, rise 47 percent over the next
5 years, according to a study by noted economist Ramon Cao.\10\
---------------------------------------------------------------------------
\10\ Joanisabel Gonzalez, A Move to Avoid a Trusteeship in PREPA,
In El Nuevo Dia, dated September 10, 2019 at https://
www.elnuevodia.com/english/english/nota/amovetoavoidatrustee inprepa-
2516926/.
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Meanwhile, the Oversight Board has chosen to pay ``Unsecured
Creditors'' only 1.8 cents on the dollar, a far cry from the GO
bondholders' potential 89.4 cents on the dollar.\11\ Who are these
Unsecured Creditors? They are people like Ramon Ortiz Carro, the
founder of Unitech Engineering Group. He and his partners built public
housing for the Department of Housing over 10 years ago. There are now
dozens of families living in the housing Mr. Ortiz built. He employed
between 125 and 150 people but has now had to let them all go because
the Government of Puerto Rico refuses to pay him the more than $11
million it owes for his work. Mr. Ortiz has lost his business, and,
under the Board's Plan, he will get back at most 1.8 percent of what he
is owed, which is not enough to re-start his company or hire back his
workers.\12\
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\11\ See Exhibit 8. Unsecured creditors are designated as Class 27.
\12\ Joanisabel Gonzalez, Government Contractors and Suppliers Hit,
in El Nuevo Dia, dated October 19, 2019 at page 6 of the Business
Section.
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For workers themselves, things are even worse. Many will lose their
jobs altogether. By way of example, HIMA, the second largest hospital
system in Puerto Rico, has laid off more than 750 nurses and support
staff since 2015 as it struggles to stave off its own bankruptcy and
retain patients in the face of a massive population exodus.\13\ Puerto
Rico has lost over 14 percent of its population in the last decade, and
4 percent of the population since Hurricane Maria made landfall.\14\
---------------------------------------------------------------------------
\13\ BDC reporter, https://bdcreporter.com/company/grupo-hima-san-
pablo/.
\14\ https://www.noticel.com/economia/en-una-decada-puerto-rico-
perdio-14-de-su-poblacion/941 201401.
---------------------------------------------------------------------------
Those Puerto Rican employees who manage to keep their jobs are
facing the prospect of dramatic cuts to their medical plans. Their
living costs and electrical bills are going up, but they have received
only one nominal raise in 10 years and, under the Board's Plan, will
not see another anytime in the foreseeable future.
For those already retired, the Oversight Board proposes cuts of up
to 8.5 percent of retirement benefits for all those who earn anything
more than $1,200 a month.\15\ These are retirees who will have to
continue to pay the United States' highest sales tax and find the money
for 47 percent increase in their electricity bills, which are already
the second highest in the United States. The retirees will have to do
all of this while living on income that is below the poverty line for a
family of two.\16\
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\15\ Karen Pierog, Puerto Rico Oversight Boord reaches deal over
retirees pensions, Reuters, dated June 12, 2019, at https://
www.reuters.com/article/us-usa-puertorico/puerto-rico-oversight-board-
reaches-deal-over-retiree-pensions-idUSKCN1TD2RZ.
\16\ Federal Poverty Guidelines for 2019, at https://aspe.hhs.gov/
poverty-guidelines.
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Consider Carmen Castro's experience. Ms. Castro is a retired worker
living in a small home. She keeps her lights and air-conditioning off,
even during the summer, because she struggles to pay her electrical
bill. Ms. Castro tends to eat one full meal a day, a few crackers and
coffee, to keep costs down. She lives on social security alone. How
will PREPA's 47 percent rate increase to pay legacy debt help her buy
groceries or eat a real second meal? It will not. How does it provide a
future and incentivize the current crop of University of Puerto Rico
students to stay in Puerto Rico after graduation? It does not.
As is probably clear now, none of this makes sense. Puerto Ricans
are not superhuman. They cannot pay money to Wall Street that they do
not earn, and they cannot survive on nothing.
So why has the Oversight Board filed a plan that provides for $1.5
billion in annual debt payments that are completely unrealistic even
according to its own estimates of what Puerto Ricans can afford on
their incomes?
In large part, the Board has done so because, as discussed earlier,
PROMESA is structured to promote austerity-structured, that is, to give
Wall Street quick payouts with no regard for the Island's future.
PROMESA does not and never has given the Board the macroeconomic tools
it would need to choose the alternative path I mentioned earlier, a
path that would reinvigorate the economy and lead to sustained growth.
PROMESA has never allowed the Board to take that path because doing so
would require it to take an important initial step the hedge funds
oppose: reducing Puerto Rico's bond debt to a level that bears some
reasonable relationship to what Puerto Ricans actually earn, so that
the Island can pay back its debt at a sustainable rate. This is a
necessary pre-condition for other economically stimulative measures to
have their intended effect.
Speaking frankly, if the Oversight Board were actually to take that
step and do what it should, the Board would have to cut 85-95 percent
the bond debt that was left after the COFINA deal. As support for this
figure, I refer the Committee back to the testimony it received from
Dr. Martin Guzman, who is the Director of the Columbia University
Initiative for Policy Dialogue's Program on Debt Restructuring. Dr.
Guzman, who earned his Ph.D. in economics from Brown University and who
teaches at both Columbia University and the University of Buenos Aires,
testified as follows on May 2, 2019, and I quote:
`` . . . the COFINA deal poses a serious risk of a failed debt
restructuring. The deal makes sense only if the other groups of
Puerto Rico's bondholders get a very large haircut. The
arithmetic is simple. According to our calculations, as well as
calculations by others who arrived at similar results with
different methodologies, the generosity with the COFINA
bondholders can only be sustained if the reduction on the rest
of the public debt lies between roughly 85 percent and 95
percent.'' \17\
---------------------------------------------------------------------------
\17\ Testimony of Mr. Martin Guzman before the House Committee on
Natural Resources, dated May 2, 2019, at https://
naturalresources.house.gov/imo/media/doc/Mr.%20Guzman%20-%20
Written%20Testimony%20-%20FC%20Ov%20Hrg%205.2.19%20PROMESA.pdf.
In other words, experts and reality dictate an 85-95 percent cut in
remaining bond debt. But remember, the Oversight Board's Plan provides
not for a 95 percent haircut but for an up-to-89.4 percent recovery for
GO bondholders and a similarly high recovery for PREPA bondholders.
These are the imaginary economics that PROMESA's short-term Wall
Street focus and drive to austerity lead to, and they cannot continue.
SEIU members and the people of Puerto Rico have been saying this for a
long time, and I am happy to be here now to speak for them in support
of the discussion draft of reforms. While SEIU would prefer not to have
PROMESA at all, we believe that this draft takes a number of steps in
the right direction--away from fiction and towards reality.
iii. seiu supports section 4 of the discussion draft because puerto
rico needs essential services to grow
SEIU supports Section 4 of the discussion draft, which would define
a category of essential public services and ensure that those services
are funded. Essential services will include education, the University
of Puerto Rico, public safety, health care, and pensions.
These services must be adequately funded because they are necessary
pillars for Puerto Rico's future growth. Right now, the Island is
experiencing a ``brain drain'' of unprecedented proportions. An
education at the University of Puerto Rico is one of the most effective
mechanisms for enticing the Island's young people to stay. Without it,
and without the other essential services identified in Section 4, the
young will continue to abandon the Island. As they do so, they cripple
Puerto Rico's economy and increase the burden of debt repayment on
those who remain, in a downward spiral that is simply not sustainable.
The first step toward ensuring Puerto Rico's future, and its future
economic growth, is to make staying on the Island a viable alternative
for Puerto Rico's young people. Section 4 will help achieve that.
iv. seiu supports section 5 of the discussion draft because it will
improve growth and keep money on the island
PROMESA claims that its intent is to support economic growth on the
Island, but, not surprisingly given the Wall Street hedge fund
interests that were behind the law, PROMESA in its current form
encourages a view that equates ``economic growth'' with repaying off-
Island hedge funds and funneling additional money to those on the
Island who already have it. SEIU supports Section 5 of the Discussion
Draft because it is a step toward correcting this fatal flaw.
In recent years, economists the world over have come to recognize a
basic truth: Extreme income inequality and lackluster wage growth are
incompatible with sustained economic improvement.\18\ At the most basic
level, a hollowed-out middle class leaves no consumers who can afford
to purchase the goods and services a healthy economy might provide. And
ultimately, a hollow core will collapse the entire structure, as those
at the top--who can no longer sell their goods and services at home--
either face declining profits or, using the freedom their wealth
provides, take their money elsewhere.
---------------------------------------------------------------------------
\18\ See e.g. Joseph Stiglitz, The Price of Inequality (2012), see
also Thomas Piketty, Capital in the 21st Century (2013).
---------------------------------------------------------------------------
Puerto Rico is an object lesson in these realities.
Take, for example, income inequality: The GINI coefficient is a
well-used measure of income inequality. A GINI co-efficient of 0 means
that everyone has the same income. As incomes become more unequal, the
GINI coefficient inches closer to 1. In 2018, Puerto Rico had the most
unequal economy in the United States. Its GINI coefficient was .54.\19\
If Puerto Rico were a country, it would be seventh most unequal country
in the world. Puerto Rico's GINI coefficient is roughly equivalent to
that of Botswana (.533), Mozambique (.54), and Belize (.533), the
latter of which has defaulted and restructured its debt multiple
times.\20\
---------------------------------------------------------------------------
\19\ https://www.statista.com/statistics/227249/greatest-gap-
between-rich-and-poor-by-us-state/.
\20\ https://data.worldbank.org/indicator/
si.pov.gini?most_recent_value_desc=true.
---------------------------------------------------------------------------
As extreme inequality cripples the on-Island economy, money flows
off it at an ever-accelerating pace. Money leaves with migrants; it is
invested elsewhere by the rich; it travels to Wall Street for debt
repayment. In fact, Puerto Rico has the second largest spread in the
world between what its economy produces and what its residents keep at
home--second only to Iraq.
Think about that: At a time when Puerto Rico is in bankruptcy, and
its residents are being asked to shoulder the burden of billions of
dollars in debt, money is rushing off the island. Imagine something
like the ``giant sucking sound'' that Ross Perot talked about in the
1980s and you will have a sense of what is happening to Puerto Rico.
Until now, however, nothing in PROMESA has directed the Oversight
Board's attention to either of these problems, income inequality or the
flow of money off-Island. Section 5 begins to correct that by forcing
the Board to consider job creation and increased household income when
assessing appropriate capital investments. But SEIU urges the Committee
to go further, by amending PROMESA Sec. 201(b)(1)(J) to explicitly
include reducing income inequality and increasing Gross Domestic
Product and Gross National Product among the Board's goals for its
fiscal plan.
More specifically, SEIU requests that the Committee amend the
language of Section 201(b)(1)(J) by inserting before the semicolon the
following language: ``including investments and expenditures to
increase the creation of new jobs, reduce income inequality. increase
Gross National Product (`GNP') and Gross Domestic Product (`GDP'),
reduce the unemployment rate, expand workforce development programs,
reduce the informal economy, increase the median household income, and
reduce the number of residents living under the poverty level.''
Making these changes will appropriately focus the Board on reducing
the inequality and off-Island money flow that is currently hobbling the
Puerto Rico's growth.
v. seiu supports section 7 of the discussion draft because it will
increase transparency, but seiu believes an enforcement mechanism must
be added
Section 7 of the Discussion Draft is intended to increase
transparency and public access to records, and SEIU strongly supports
those goals.
Puerto Rico does not have its own freedom of information law, and
although the Island's Supreme Court has found a right of public access
in Puerto Rico's First Amendment, there is no statutory framework for
the release of public information.\21\ Instead, parties ask the
Government for information; the Government typically refuses the
request; and the parties seeking information must then go to court for
a writ of mandamus. This is a time-consuming, expensive, inefficient,
and ultimately ineffective process.
---------------------------------------------------------------------------
\21\ Soto v. Srio. de Justicia, 112 DPR 477 (TSPR 1982).
---------------------------------------------------------------------------
SEIU has first-hand experience with the lack of transparency that
results. Over the years, we have asked for data about our own members'
pensions and have had those requests denied. We have also sought
information about the Government's dealings with the financial sector
and been similarly denied.
The Oversight Board has continued this pattern. Although it spent
$16 million on an investigative report about potential legal claims it
might bring, the Board has not made any of the underlying investigative
documents public. The Board has also fought with parties in interest,
creditors, and the public over the release of documents related to the
underwriting of Puerto Rico's bond debts.
Section 7 of the Discussion Draft goes a long way toward improving
this situation, but it will effectively be a dead letter unless there
is a strong enforcement mechanism that provides the public with a cause
of action in court and the right to recover attorneys' fees. Thus, SEIU
recommends that the following be added to Section 7:
(c) ENFORCEMENT: On complaint, the District Court of the United
States in the District of Puerto Rico shall have jurisdiction
to enjoin the Oversight Board or any local agency from
withholding agency records and to order the production of any
agency records improperly withheld from the complainant. In
such a case the court shall determine the matter de novo and
may examine the contents of such agency records in camera to
determine whether the records or any part thereof should be
withheld under any of the exemptions set forth in subsection
(b) of the Federal Freedom of Information Act. The agency shall
bear the burden of proving that an exemption applies. The
district court's jurisdiction over these matters shall be non-
exclusive and without prejudice to any remedies provided under
local law.
(d) The court may assess against the Oversight Board or
relevant agency reasonable attorney fees and other costs
reasonably incurred in any case under this section in which the
complainant has substantially prevailed. For purposes of this
subparagraph, a complainant has substantially prevailed if the
complainant has obtained at least some relief through either--
--
(I) a judicial order or an enforceable written agreement or
consent decree; or
(II) a voluntary or unilateral change in position by the
agency, if the complainant's claim is not insubstantial.
This proposed addition to Section 7 of the Discussion Draft is
substantially similar to language in the Federal FOIA law.\22\ It
provides a neutral forum to hear disputes and provides incentives for
disclosure. It also allows for the plaintiff to decide whether they
wish to proceed in Federal court, or in local court.
---------------------------------------------------------------------------
\22\ See 5 U.S.C. 552(a)(4)(B) + (E).
---------------------------------------------------------------------------
vi. seiu endorses the territorial relief act
SEIU endorses Section 8 of the discussion draft, known as the
Territorial Relief Act. SEIU supports the Territorial Relief Act
because, if passed, it would provide an insurance mechanism should the
Oversight Board fail to restructure Puerto Rico's debt to an
economically sustainable level. It would also return some power to the
people of Puerto Rico.
The Territorial Relief Act addresses the fundamental problem of
PROMESA, namely the absence of powerful restructuring tools. The Act
will ensure that Puerto Rico can cut its debt to an economically viable
level; the current fiscal plans do not cut bonded debt enough. Indeed,
SEIU is not aware of a single published economic analysis that supports
the Board's apparent belief about how much debt the Island can continue
to carry. As Professor Guzman recently explained, ``(t)here is seldom
so much consensus amongst economists about the main premises of a
fiscal and debt policy path that needs to be followed in order to give
an economy a chance for recovery.'' \23\ Yet the Board has ignored that
expert consensus.
---------------------------------------------------------------------------
\23\ Martin Guzman and Pablo Gluzman, The Puerto Rico Debt Dilemma,
May 2019, at 21.
---------------------------------------------------------------------------
The debt cuts made possible by the Territorial Relief Act would
also give Puerto Rico important bargaining leverage at this moment. The
Act would create a very real incentive for bondholders to negotiate a
settlement that is payable over the long term, rather than over the
short term.
SEIU also supports the Territorial Relief Act because it provides a
mechanism for dealing with the very likely failure of the Oversight
Board's restructuring plan. Among other things, the Board's Plan of
Adjustment is flawed because it contains a 10-year no-call provision,
which means that the Island cannot refinance its debt at lower rates
for a period of 10 years. The Plan also proposes higher debt payments
up front, apparently based on the very suspect assumption that Puerto
Rico will experience significant economic growth in the short term
because of hurricane relief funds and reconstruction.\24\
---------------------------------------------------------------------------
\24\ Schedule of Cash Flow Bonds, Exhibit M to the Plan of
Adjustment at M-1, attached herein as Exhibit C.
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There is already reason to doubt the Board's assumption about
significant short-term growth. For one thing, the Trump Administration
has threatened to challenge the deductibility of Law 154 excise
payments against Federal income taxes.\25\ Currently, Law 154 excise
tax payments account for 18 percent of Puerto Rico's General Fund. The
Board had already assumed that it will lose about 50 percent of that
income over the next year, but if the deductibility of those payments
is eliminated, many more businesses may move away from the Island in an
attempt to exploit tax loopholes elsewhere.
---------------------------------------------------------------------------
\25\ Joanisabel Gonzalez, A Risk to the Adjustment Plan, in El
Nuevo Dia at https://www.elnuevodia.com/english/english/nota/
arisktotheadjustmentplan-2520083/, dated Sept. 26, 2019.
---------------------------------------------------------------------------
In addition, Puerto Rico is unlikely to receive the amount of
hurricane relief that the Board assumed it would receive. The Oversight
Board itself announced on October 21, 2019 that it is now expecting
only $39 billion in Federal funds, rather than the $69 billion it
originally assumed.\26\ As the Oversight Board noted in a September 17,
2019 presentation that it released to the market: ``We are already
seeing delays in disaster relief funding and have reason to question
the duration of the `boost' these funds are bringing to the economy.''
\27\ For this reason, the Board has indicated that it now anticipates a
``boost'' that will last only 3 years, rather than 5. Strangely enough,
this change does not appear to be reflected in the Board's proposed
amortization schedule in the Plan of Adjustment that it filed 10 days
later, on September 27, 2019.\28\
---------------------------------------------------------------------------
\26\ Release to market, Commonwealth Fiscal Plan Risks, dated
September 17, 2019 at p. 8. https://media.noticel.com/o2com-noti-media-
us-east-1/document_dev/2019/10/20/Informe%20de%
20Riesgos%20del%20Plan%20Fiscal%20septiembre%202019_1571626158096_395337
68_ver 1.0.pdf.
\27\ Id.
\28\ See exhibit M-1 to plan of adjustment.
---------------------------------------------------------------------------
These uncertainties highlight the need for the Territorial Relief
Act because they help show what a high risk of future default Puerto
Rico faces. In fact, subsequent defaults often follow sovereign
restructurings. According to Guzman and Lombardi's 2018 study, of all
the sovereign restructurings since 1970 that have involved private
creditors, 49.7 percent have been followed by another default or
restructuring within 3 years. That percentage increases to 60 percent
over 7 years.\29\
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\29\ Martin Guzman, Institute for New Thinking: Ending the Wild
West of Sovereign Debt Restructuring, https://www.ineteconomics.org/
perspectives/blog/ending-the-wild-west-of-sovereign-debt-restructuring,
dated July 23, 2018.
---------------------------------------------------------------------------
Even though SEIU has been against PROMESA since the outset, we
acknowledge that these proposed amendments would have some salutary
effect: They would return some measure of control to the people of
Puerto Rico by requiring elected leaders to pass a resolution in order
to begin the process of canceling bonded debt. Those same leaders will
have to face the public for re-election, meaning that the people will
have some say. The proceedings so far, by contrast, have taken place in
court, behind closed doors, and in rooms dominated almost entirely by a
small cadre of elite lawyers from the United States. The people of
Puerto Rico made very clear this summer that they want a say in their
future, and the Territorial Relief Act takes a step in that direction
by at least making leaders answerable to the Puerto Rican people for
any decisions to forgive debt.
Finally, let me address some concerns raised by creditors about the
Discussion Draft. Creditors purport to be concerned about the Island's
ability to take general obligation bonds to market in the future,
assuming these changes are made. But as noted by the head of BlackRock,
two-thirds of the municipal bond market is already revenue bonds rather
than GO bonds.\30\
---------------------------------------------------------------------------
\30\ Peter Hayes, The Case for Favoring Revenue Bonds Over General
Obligation Bonds, at https://www.investmentnews.com/article/20160613/
FREE/160619980/the-case-for-favoring-revenue-bonds-over-general-
obligation-bonds, dated July 13, 2016.
---------------------------------------------------------------------------
Moreover, available data does not support the creditors' view:
Argentina successfully issued $2.7 billion of 100-year bonds in June
2017 at a yield of 8 percent. Their offering was almost four times
oversubscribed. And Detroit, too, has begun to issue bonds after having
cut its debt substantially. There is no reason to believe Puerto Rico
cannot do the same.
vii. seiu supports section 9 of the discussion draft but believes it
must be strengthened
SEIU has been calling for a comprehensive audit of Puerto Rico's
debt since well before Law 97 was passed in 2015. Initially our demand,
like our union's demand for a $15 minimum hourly wage, was ridiculed.
Jose Carrion, the Chairman of Puerto Rico's Oversight Board, even
called the idea a ``waste of time.'' \31\ Yet this summer hundreds of
thousands of Puerto Ricans took to the streets calling not only for the
Governor's resignation but also for a comprehensive audit of the debt.
It seems times have changed.
---------------------------------------------------------------------------
\31\ Noticel, Carrion sobre la auditoria: ``es una perdida de
tiempo'' at https://www.noticel.com/ahora/carrin-sobre-la-auditora-
quotes-una-prdida-de-tiempoquot-video/609379956.
---------------------------------------------------------------------------
Before providing testimony regarding how the audit could be
strengthened, let me dispel some myths about what has already happened
with respect to a debt audit.
Myth No. 1: The Oversight Board, through its Special Claims
Committee, has conducted an audit of the debt.
Reality: The Oversight Board commissioned an investigation that did
not comply with any recognized auditing standards, such as the U.S.
General Accounting Office's Government Auditing Standards (better known
as the ``Yellow Book'') or the International Organization of Supreme
Audit Institutions' (INTOSAIs') Auditing Standards. Essentially, the
Board spent $16 million on what auditors would call a pre-audit survey,
without the procedures needed to complete an actual independent and
certified audit.
Myth No. 2: The Oversight Board does not need to conduct an audit
because it has filed several legal challenges to Puerto Rico's debt and
has sued several underwriters.
Reality: This myth confuses the bringing of a lawsuit with an audit
of the debt. The Oversight Board, along with the Unsecured Creditors
Committee, brought forth several claims seeking to challenge the
validity of Puerto Rico's debt. These lawsuits are all well and good
but until we have a complete audit of the debt that actually complies
with best practices we will never know the full extent of what
happened. We need a real audit to know.
A few details about auditing best practices will highlight the
flaws in what the Oversight Board has done. When any company or
governmental entity hires an independent auditor, best practice is that
the entity be involved only at the beginning, when deciding what the
scope of the audit will be. After that, the auditor must have free
reign to review relevant papers and make independent determinations and
to do so objectively.\32\ The company or government entity will
typically get a chance to review a draft of the auditor's report before
it is final to clarify matters, but the auditors at all times maintain
their independence.
---------------------------------------------------------------------------
\32\ See General Accountability Office, Government Auditing
Standards 3.01 et seq. (setting out standards for maintaining
independence and objectivity in the course of an audit). https://
www.gao.gov/assets/700/693136.pdf.
---------------------------------------------------------------------------
The Oversight Board did not, however, hire a truly independent
auditor. The Board hired a law firm, which owed an ethical duty to its
client--the Oversight Board--rather than fidelity to an independent
standard of review. By proceeding this way, the Board kept control over
the ultimate work product. This is not standard audit operating
procedure.
Furthermore, independent government auditors typically review
documents and issue reports before referring potential claims to legal
authorities. This approach makes sense because the auditing function
requires a measure of independence, whereas the legal and prosecutorial
function is one of advocacy rather than neutral independence. Also, in
most instances, the public will be able to see the audit report and
compare it to prosecutors' subsequent actions.
The Oversight Board did none of this. Why? Perhaps because they do
not want to lose control over the results or have an outside party tell
it what to do. Whatever the Board's rationale, the practical effect is
a lack of transparency or trust. The people of Puerto Rico have no way
to know whether the Board brought forth all the claims it could or
should have, or whether other claims could be pursued that would result
in larger financial recoveries. An independent audit commission will
bring closure and ensure that all money that should be recovered is
actually recovered.
In sum, SEIU strongly supports the Discussion Draft's audit
proposal but believes it should be strengthened as follows:
The following language should be added at the end of Sec.
901(b): ``The Commission shall conduct its audit in
conformance with the U.S. Government Accounting Office
Government Auditing Standards (``Yellow Book''). It shall
start its examination of the debt from the most recently
issued bonds and review issuances in reverse chronological
order.''
In addition, the following should be added to Section
901(b): ``The Commission shall be created as an independent
entity within the territorial government of Puerto Rico and
shall not be considered to be a department, agency,
establishment, or instrumentality of the Federal
Government.''
The ``Governor of Puerto Rico shall'' should be deleted
from Section 901(b) and replaced with ``the Commission
shall dissolve.'' Sections 901(f)(1)-(3) should also be
deleted so as to remove government from membership on the
Audit Commission.
The following language should be added to the end of
Sections 901(f)(4), (5), (6), (7), (8), and (9): ``as
chosen by the membership of the relevant professional
association recognized under the laws of Puerto Rico.''
These changes will ensure that the Commission operates without
political interference and is controlled primarily by the Puerto Rican
people, not by politicians who may have interests in protecting
themselves or their allies. These changes will also ensure that the
audit is conducted by professionals free from conflicts, even if some
members of the Commission have an interest in a certain outcome.
viii. the people should have a say in the issuance of any future debt
Last but certainly not least, SEIU urges consideration of
legislative reform to give the Puerto Rican people a voice in the
issuance of future debt. The current Plan of Adjustment limits debt
backed by taxes and changes the use of bond proceeds to align with best
practices.\33\ These are steps in the right direction but they are not
enough.
---------------------------------------------------------------------------
\33\ See 44.2 and 44.3 of Plan of Adjustment, filed on September
27, 2019.
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As the Kobre & Kim firm noted in their report to the Board, Puerto
Rico lacks a clear mechanism for validating a bond before it
issues.\34\ Twenty-seven states require voters, by special elections or
other mechanisms, to authorize issuance of a bond.\35\ Several other
states and territories authorize taxpayers to bring bond validation
proceedings to determine whether a proposed bond issuance is authorized
or legal.\36\ Kobre & Kim recommended the adoption of a similar
mechanism in Puerto Rico,\37\ but as of the date of this writing, the
Puerto Rican legislature has not introduced such a bill and the
Oversight Board has not made such a recommendation pursuant to Sec.
205(a) of PROMESA.
---------------------------------------------------------------------------
\34\ See Kobre and Kim report at 446. https://media.noticel.com/
o2com-noti-media-us-east-1/document_dev/2018/08/20/
Informe%20de%20Kobre%20Kim%20sobre%20la%20deuda%20de%20
PR_1534811503036_ 12865995_ver1.O.pdf.
\35\ https://ballotpedla.org/Bond_issue.
\36\ See, e.g., Ala. Code Sec. 11-81-220, et seq. (2018); Cal. Civ.
Proc. Code Sec. Sec. 860-871 (2018); Fla. Stat. Ann. Sec. 75.01, et
seq. (2018); Ga. Code Sec. 50-17-25 (2018); Ky. Rev. Stat. Sec. 66.191
(2018); La. Rev. Stat. Sec. 13:5121, et seq. (2018); Miss. Code
Sec. 31-15-5, et seq. (2018); Ohio Rev. Code Sec. 133.07, et seq.
(2018); Wash. Rev. Code Sec. 7.25.020, et seq. (2018); W. Va. Code
Sec. 13-1-25, et seq. (2018).
\37\ Kobre and Kim report at 448.
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At this point, Congress should step in to create a mechanism that
the people of Puerto Rico can use to challenge debt issues. Doing so
will make the Board and the Island's politicians more accountable to
the people and give the people some voice in these key decisions that
affect their future. This is especially true for when the Oversight
Board leaves Puerto Rico (which SEIU would prefer happen immediately).
Congress should also consider giving the Citizens Audit Commission
proposed in the Discussion Draft the ability to enforce the debt policy
that the Oversight Board adopts in its Plan of adjustment. In doing so,
it should give the Commission the ability to sue in Federal court to
enforce that policy. This will allow the people of Puerto Rico to have
a say in the economic decisions that will govern their lives for years
to come.
conclusion
SEIU urges this Committee to listen to the people. The hundreds of
thousands of Puerto Ricans who took to the streets are tired of
politics as usual, tired of the unaccountable Junta, and tired of not
knowing the truth about the debt that mortgaged their future.
SEIU was against PROMESA from the beginning, not only because it is
a colonialist incursion into Puerto Rico but also because SEIU feared
the outcome we now confront. At a minimum, the time has certainly come
to reform PROMESA to give more power to Puerto Ricans and to arm them
with the tools needed to achieve a sustainable, long-term plan. An
audit commission, the Territorial Relief Act, consideration of income
inequality . . . these steps are not true de-colonization. They are a
beginning, not the end. But in 2019, Puerto Rico at least deserves a
new beginning.
EXHIBIT A
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
EXHIBIT B
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
EXHIBIT C
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
__
Questions Submitted for the Record by Rep. Grijalva to Mr. Alvin
Velazquez, Associate General Counsel, Service Employees International
Union \1\
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\1\ SEIU is responding to these questions on its own behalf, and
not on behalf of any Committee on which SEIU may be a member in the
Title III PROMESA proceedings. Any opinions contained in the testimony,
or these answers to the questions presented post hearing by members of
the Natural Resources Committee, should be attributable only to SEIU,
and not any other party or Committee. THIS TESTIMONY, AND THIS RESPONSE
TO QUESTIONS BY MEMBERS OF THE HOUSE NATURAL RESOURCES COMMITTEE,
SHOULD NOT BE CONSTRUED AS A SOLICITATION OF VOTES FOR OR AGAINST ANY
PLAN OF ADJUSTMENT IN THE TITLE III PROMESA PROCEEDINGS.
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Question 1. If PROMESA has been the extraordinarily generous boon
for bondholders as you say, why is Aurelius Investment LLC asking the
Supreme Court to overturn it and throw out its debt agreements?
Answer. During oral argument at the Supreme Court, Justice Alita
asked counsel for Aurelius whether the matter was about correcting a
constitutional wrong, or something else. While Aurelius' counsel raised
concerns about the constitutionality of the Board, the Oversight Board
argued that Aurelius wants a different board so that such a new could
work out the debt problem differently.\2\ In many ways the question is
academic--whether Aurelius wins or the Oversight Board wins, the result
is the same for the people of Puerto Rico. They will be saddled with an
unsustainable debt load as a result of a legal fiction that does not
align with the economic realities of Puerto Ricans living there.
---------------------------------------------------------------------------
\2\ Tr. At 58:9-61:21, 93:1-9.
Question 2. Mr. Velazquez, you mention that Section 8--Territorial
Relief for Unsecured Public Debt would provide an insurance mechanism
should the Oversight Board fail to restructure Puerto Rico's debt to an
---------------------------------------------------------------------------
economically sustainable level.
If the restructuring plan fails, how do you envision the existing
provisions in Title III would interact with Section 8? What process
would the government of Puerto Rico follow?
Answer. As currently drafted, the government of Puerto Rico could
activate Section 8 at any time, and could reactivate it every 7 years.
Giving Puerto Rico the ability to discharge its debt now could provide
Puerto Rico with a credible tool to ensure that bondholders agree to
terms that are economically sustainable. The Oversight Board has
consistently stated that it wants to have ``a one and done''
restructuring process. Having this tool now would help it reach its
goal.
If the Natural Resources Committee does not want to take this
approach, SEIU would support the use of Section 8 as an insurance
mechanism if the Oversight Board fails in its current mission. Under
current law, if Puerto Rico becomes insolvent after the current plan of
adjustment is confirmed, the Oversight Board would have to file another
Title III to restructure Puerto Rico's debt. Section 8 could be used at
that time, or just before the filing of another Title III petition, to
discharge unsecured debt if one or more of the Section 8 criteria were
satisfied. Were there to be a discharge of unsecured debt under Section
8, another Title III proceeding might be rendered unnecessary, or at
least much simpler, since there would be much less debt to restructure.
In order to ensure that the mechanism is not abused, the ability to use
this mechanism could be tied to a court finding of insolvency (as
defined under current bankruptcy law in Chapter 9 cases) and be limited
to use for a period that is longer than the 7 years currently outlined
in the discussion draft.
Question 3. Mr. Velazquez, in your testimony you challenge the
government of Puerto Rico's and the Oversight Board's position that an
audit of the public debt has already taken place. You indicate that the
Oversight Board has not performed an audit of the public debt
recognized by the U.S. General Accounting Office's Government Auditing
Standards and that the bringing of a lawsuit is not necessarily a
complete audit of the debt. You also point out that the Oversight Board
has not hired a truly independent auditor, which is standard audit
operating procedure.
At this point in the debt restructuring proceedings, would the
residents of Puerto Rico benefit from an actual certified audit? If so,
how?
Answer. Yes. The residents of Puerto Rico would benefit from the
information that an actual audit of the debt would provide. Just having
that information would satisfy a hunger among Puerto Rico's residents
to understand the debt that is crushing their economy and imposing so
much hardship. They want an understanding of how the debt crisis came
to be and the extent to which the debt is legitimate or not. Such
information would also help Puerto Rico's residents choose leaders in
the future who will avoid such a disaster. The information that an
audit would yield could also lead the Puerto Rican government to take
appropriate legal action against those whose misconduct may have caused
or aggravated Puerto Rico's debt crisis, causes of actions which in
some cases do not have a statute of limitations attached to them.
The audit would also help with facilitating conclusion of the Title
III proceedings. Creditors have complained about a lack of information
as well and the lack of audited financials. The now extinct debt audit
commission proposed to conduct financial audits needed in order to
facilitate the compliance and performance audit work that the
Commission was to undergo. That work would facilitate completion of
this current Title III proceeding, and ensure that Puerto Rico's debt
has been examined going into a subsequent Title III proceeding, a
likelihood that appears more and more likely to occur unless somehow
the debt of Puerto Rico is cut to a level that is commensurate with the
economic output of its workers. The following link leads to the Request
for Qualifications that the Debt Audit Commission issued shortly before
being eliminated. It explains the methodology of its work and all of
the different functions that a debt audit would entail. http://
www.oslpr.org/auditoriadeladeudapr/assets/REQUEST-FOR-QUOTATIONS-AND-
QUALIFICATIONS.pdf.
Question 4. It is evident from your statement that you don't agree
with the Oversight Board's statement that the debt restructuring plan
they proposed last month will ultimately reduce the amount the
government of Puerto Rico will spend on debt service to an amount it
can sustainably afford over the next 30 years--``from $4.2 billion a
year to $1.5 billion a year.''
Answer. That is correct: I don't agree with the Oversight Board's
statement, for the reasons explained in my testimony on page 6.
According to Prof. Guzman's study, the Board was exceedingly generous
with the COFINA agreement. It would have had to cut Puerto Rico's
remaining debt between 85-95 percent to reach a sustainable result. The
Board did not do that. Assuming, for the sake of argument, that the
Oversight Board's estimate of its math is correct and it is cutting the
debt of Puerto Rico by 60 percent, it still does not reach the 85-95
percent debt restructuring that Prof. Guzman says is needed.
However, it is important to note that the Board's methodology for
announcing that it is cutting the debt by 60 percent also contains an
important flaw. The Board counts in that number ``unsecured
creditors,'' and not only bonded debt. Many of those ``unsecured
creditors'' are on-island businesses and government suppliers. The
Board are cutting their claims by 98 percent while cutting the claims
of certain bondholders groups by only 11 percent!
Puerto Rico's people cannot spend $1.5 billion a year in debt right
now until the median income begins to trend upwards, and unsecured
creditors and local businesses that actually employ people on island
are paid back a much greater amount than 2 percent.
Question 5. The government of Puerto Rico and the Oversight Board
oppose amendments to PROMESA to facilitate access to public debt
information. The Government argues that this level of transparency
would create problems in debt restructuring proceedings and negatively
impact attorney-client privilege.
Is this the case?
Answer. The concerns of the Government and the Oversight Board are
overblown. The Government would not lose the right to assert attorney-
client privilege and courts will undoubtedly continue to respect that
important privilege. As for debt restructuring proceedings, those
should be transparent. But if the Government or Oversight Board in a
given instance believed that the disclosure of documents would
compromise their ability to negotiate, they could always object to a
disclosure demand on that basis, and it would be up to a court to
decide if the objection was legitimate.
Question 6. Mr. Velazquez, you encourage Congress to establish a
broadly accepted mechanism for the residents of Puerto Rico to validate
and challenge future debt issuances.
Could you share more information about how this process would look
like and how could it interact with the establishment of a
Comprehensive Audit Commission?
Answer. As I explained in my testimony, Congress should look to
mechanisms adopted by many states that put limits on debt issuances and
that allow for challenges to debt issuances that violate those limits.
Congress should do this especially if the Governor of Puerto Rico does
not affirmatively add such a mechanism to current legislation that she
has proposed.
Just this past week the Governor of Puerto Rico introduced
legislation that would provide definitions of which bonded debt would
count toward Puerto Rico's constitutional debt limit. That legislation
also proposes to create debt management practices meant to ensure that
Puerto Rico will not repeat the mistakes of the past. These are steps
in the right direction, but the current legislative proposal repeats
the sins of the past by excluding the citizens of Puerto Rico from
having any say on how their money is spent.
This should not be the case. Ten days ago, voters in Virginia voted
for a new legislature. In certain counties, they also got to vote on
whether to issue bonds. For example, in Prince William County, voters
got to decide whether to approve the issuance of $600 million in bonds
for a new sports complex and the widening of certain roads.\3\ The
question on the ballot specified the roads which would receive the
improvements that the bonds would be funding. Why shouldn't Puerto
Ricans have the same opportunity?
---------------------------------------------------------------------------
\3\ Emily Slides, Prince William County Weights $600 Million Ballot
Questions. https://www.insidenova.com / news / politics /
prince_william / prince-william-county-weighs-m-ballot-questions/
article_af09d846-724d-11e9-ad83-2f5ca7efb4f7.html (last accessed
November 13, 2019).
---------------------------------------------------------------------------
Similarly, most states allow for taxpayers to sue to stop bonds
from issuing in novel circumstances. California is one of several
states with a statutory Pre-Issuance Validation Mechanism. California
uses their proceedings to evaluate whether proposed issuance would
violate any constitutional debt limits, whether it must be routed
through a referendum, or whether a proposed issuance actually serves a
public purpose (as it must).
As Kobre and Kim noted in its report,\4\ procedurally, pre-issuance
validation mechanisms vary by jurisdiction, but the statutes typically
incorporate several components such as the creation of a right to
initiate the proceeding, and the conferral of that right upon certain
stakeholders, the identification of the court in which the proceeding
must be filed, as well as a requirement that the general public be
properly notified of both the proposed bond issuance and the pending
validation proceeding.
---------------------------------------------------------------------------
\4\ Kobre and Kim, https://media.noticel.com/o2com-noti-media-us-
east-1/document_dev/2018/08/20/
Informe%20de%20Kobre%20Kim%20sobre%20la%20deuda%20de%20PR_1534811503036_
128 65995_ver1.0.pdf, at 450 (last accessed November 15, 2019).
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SEIU believes that the Audit Commission proposed in the discussion
draft can play a key role in bringing validation proceedings and also
acting as a gatekeeper to proposed plebescites. For example, the
Commission could draft the questions that voters should monitor in a
plebescite authorizing the issuance of a bond, and issue educational
materials about the impact that the issuance will have on a taxpayer's
bill. Similarly, the Commission could be given standing to bring
challenges if it determines that a proposed debt offering violates the
debt limit, or the debt standards that the Government of Puerto Rico is
now considering enacting. In other words, the Commission can serve an
important watchdog function for the people of Puerto Rico on an ongoing
basis.
______
Mr. Sablan. Thank you very much, Mr. Velazquez. Now Ms.
Cubano. Did I say that right?
Ms. Cubano. Yes, you said it right.
Mr. Sablan. OK, Ms. Cubano, you have 5 minutes.
STATEMENT OF LILIANA CUBANO, PRESIDENT, PUERTO RICO PRODUCTS
ASSOCIATION
Ms. Cubano. Thank you. Chairman Grijalva, Ranking Member
Bishop, and Committee members, good afternoon and thank you for
the opportunity to appear today before your Committee, and
especially for your interest in the 3.2 million U.S. citizens
residing in Puerto Rico, a U.S. jurisdiction larger in
population than 20 states.
I currently serve as the elected president of the Puerto
Rico Products Association, which is made up of several hundred
local companies operating in Puerto Rico. I am a woman
entrepreneur, business owner, and a board member of the Puerto
Rico Private Sector Coalition, which is my privilege today to
represent. The Private Sector Coalition of Puerto Rico is
comprised of 30 leading business, trade and professional
organizations which constitute up to 90 percent of our island's
economy, and 75 percent of our local jobs.
We appreciate the Chairman's effort to reform PROMESA and
shift the focus from austerity to one focused on economic
growth as noted in Section 4 of Amendments to the PROMESA Act
of 2019.
Restoring economic growth will help to create meaningful
and well-paid jobs, stop emigration and loss of our talented
young people, expand our middle class and generate the revenue
sorely needed by the local government to enable it to provide
services and maintain infrastructure.
While I will share our recommendations to our local elected
official as well as the Federal Oversight Management Board
later in my statement, there are some important actions where
Congress can be instrumental in putting Puerto Rico's economy
on the path to growth in the short term.
First of all, prevent the impending Medicaid cliff by
enabling the bipartisan Territories Health Improvement Act
advanced by unanimous vote in the House Energy & Commerce
Committee.
We ask Congress to work to ensure that the flow of the
Federal Hurricane Recovery Funds to the island is maintained in
a transparent and timely fashion. These funds have moved far
too slow due to unnecessary delays, notably almost 24,000
families still live under blue tarps almost 2 years after
Hurricane Maria.
We also recommend that Congress require that decisions made
by the FOMB must be made with full consideration of the direct
and indirect impact of the economy of Puerto Rico and our
island's ability to be competitive. The most obvious example of
why this is needed is the PREPA RSA being advocated by the FOMB
which will impose up to a 48 percent increase of Puerto Rico's
already high-sky electricity rate. Imagine the impact of
electricity rates of over 30 cents per kilowatt hour in your
state.
Puerto Rico has a diverse vigorous business class capable
of generating wealth and eager to make progress. It is time for
the local government and the FOMB to act on economic reforms
like, for example:
Permit reforms: Simplify and enhance the efficiency and
effectiveness of the government building and business operating
permits process in Puerto Rico.
Reduce taxes and simplify the tax code that suppresses the
business climate in Puerto Rico.
Air cargo trans-shipment hub: Pursue with the U.S.
Department of Transportation an application for expanded cargo
flexibility at its international airports to promote the use of
the airports and our former military airfields as an
international hub for air cargo transportation between Latin
American and Europe.
Education: Maximize apprenticeship programs in order to
obtain a certified and work-ready workforce.
Energy and infrastructure: Re-evaluate and reconstruct the
proposed PREPA RSA as mentioned.
Economic policy: Seek input from long-standing private
sector organizations representing local business, manufacturing
and employees in policy discussions as solutions to Puerto
Rico's challenges.
Labor costs: Request the FOMB to exercise their powers to
review and repeal Executive Order 2018-033 which compelled
government-sponsored construction projects in Puerto Rico to
increase labor costs.
Again, I want to thank the Committee for the opportunity to
represent the Private Sector Coalition of Puerto Rico today.
The Private Sector Coalition have argued that economic growth
is the only real solution to Puerto Rico's challenges and we
look forward to working with your Committee and the Congress to
advance real solutions. Thank you.
[The prepared statement of Ms. Cubano follows:]
Prepared Statement of Ms. Liliana Cubano, on behalf of the Puerto Rico
Private Sector Coalition
Chairman Grijalva, Ranking Member Bishop and Committee members:
Good afternoon and thank you for the opportunity to appear today before
your Committee, and especially for your interest in the 3.2 million
U.S. citizens residing in Puerto Rico, a U.S. jurisdiction larger in
population than 20 states.
I currently serve as the elected President of the Puerto Rico
Products Association which is made up of several hundred local
companies operating in Puerto Rico. I am a woman entrepreneur, business
owner, and a Board Member of the Puerto Rico Private Sector Coalition
which today is my privilege to represent. The Private Sector Coalition
of Puerto Rico is comprised of 30 leading businesses, trade and
professional organizations which constitute up to 90 percent of our
islands' $103 billion local GDP and 75 percent of the local jobs.
We appreciate the Chairman's efforts to reform PROMESA and the
initiative to shift the focus away from austerity to one focused on
economic growth as noted in Section Four of the Amendments to PROMESA
Act of 2019.
We believe it is time to recognize that economic growth is the only
true solution to the long-term challenges faced by Puerto Rico.
Economic growth is critical to addressing the difficulties facing our
island. Restoring economic growth will help create meaningful and well-
paying jobs, stop the emigration and loss of our talented young people,
expand our middle class, and generate revenues sorely needed by the
local government that enable it to provide services and maintain
infrastructure. Accomplishing this is the only way to successfully take
Puerto Rico out of bankruptcy.
We cannot lose sight of two key factors: One being that, since 2006
and prior to the 2017 hurricanes, our economy had been in free fall,
losing 15 percent of GDP. Reconstruction was needed, not just from the
hurricane, but from a long and deep economic contraction. Our
infrastructure is crumbling under the impact of over 13 years of
economic contraction and the effects of two major hurricanes in 2
weeks' time. The other factor is that the delay to obligate Federal
disaster recovery funds is delaying economic benefits to the people of
Puerto Rico. Also, it is important to stimulate the productive capacity
of the Island. In short, in order for Puerto Rico to recover a
sustained growth path much more needs to be done than is currently
underway.
Let's state the obvious: Puerto Rico needs an agreed upon,
holistic, long-term economic growth strategy. We all recognize that
meaningful economic growth in the productive sector is the only true
solution to Puerto Rico's challenges of labor participation and tax
revenue to support government services.
RECOMMENDED SHORT-TERM ACTION AGENDA FOR CONGRESS:
While I will share our recommendations to our local elected
officials as well as the Federal Oversight Management Board (FOMB)
later in my statement, there are some important actions where Congress
can be instrumental in putting Puerto Rico's economy on the path to
growth in the short-term, including:
1. Prevent the impending Medicaid Cliff by enacting the bipartisan
``Territories Health Improvement Act'' advanced by a
unanimous vote of the House Energy & Commerce Committee.
The Medicaid funding provided in this package is critical
to ensuring a vital healthcare system in Puerto Rico where
every hospital, doctor and clinic is a Medicaid provider.
If the Medicaid Cliff occurs, many local hospitals will be
forced into bankruptcy and close to a million U.S. citizens
will lose their Medicaid coverage.
2. We ask Congress to work to ensure that the flow of Federal
disaster recovery funds to the Island is maintained in a
transparent and timely fashion. These funds have moved far
too slow due to unnecessary delays. It is of particular
importance that HUD complies with what Congress required
under the 2019 Disaster Appropriations Act of 2019 and
publish requirements for CDBR-DR and mitigation funds. Of
similar importance is that FEMA comply with Section 428 of
the Stafford Act and allow PR professionally licensed
engineers to certify cost estimates and expedite the
project formulation process. There is still much
reconstruction work to be done that should be dealt with
immediately in order to be better prepared for the effects
of a changing climate. Notably, almost 24,000 families
still live under ``blue tarps'' over 2 years after
Hurricane Maria.
3. We also recommend that Congress require that decisions made by
the FOMB must be made with full consideration of the direct
and indirect impact on the economy of Puerto Rico and our
island's ability to be competitive. Our islands need to
achieve a goal of being a top 10 jurisdiction in
competitiveness and ease of doing business. The most
obvious example of why this is needed is the PREPA RSA
being advocated by the FOMB which will impose up to 48
percent increase on Puerto Rico's already sky-high
electricity rates. Imagine the impact of electricity rates
of over 30 cents/kwh in your state. We need to substitute
an inefficient public monopoly with an energy market that
paves the way to an economic renaissance.
RECOMMENDED SHORT-TERM ACTION AGENDA BY THE GOVERNMENT OF PUERTO RICO
AND THE FOMB:
Puerto Rico is at a historical juncture and faces great socio-
economic challenges. Recent studies conducted by the Federal Reserve
Bank of New York show that, in real terms, the economy of the Island
contracted by more than 15 percent during the last decade. The analyses
posed the following competitive challenges for the Island:
Improve labor market opportunities: Puerto Rico's labor
participation rate is among the lowest in the world, with
less than half of the eligible workers participating in the
formal economy. In addition, the unemployment rate has been
persistently well above the median of the United States.
The unemployment rate is especially high for young people.
Develop human capital: We have the second most productive
workforce in the hemisphere, second only to the mainland
United States. Although the workforce of the Island in
general is among the most educated in the world, having one
of the largest rates of college graduates in the Nation,
Puerto Rico is still lagging compared to the United States
and other countries in terms of skills. There is a
particularly high abundance of low-skilled workers. There
is also a growing concern that the quality of the education
system has deteriorated, especially at the primary and
secondary levels. We need to develop a workforce that
graduates from high school ``work-ready'' by the
strengthening of pre-apprenticeship, apprenticeship
programs.
Reduce the costs of doing business: The business
regulatory environment in Puerto Rico makes it expensive
and cumbersome to establish and grow new businesses and
expand existing ones. In particular, regulations, the high
cost of electricity, a cumbersome permitting process and
expensive underdeveloped transport infrastructure are
barriers to a more dynamic environment.
Other entities such as the World Economic Forum and the World Bank
point to the great potential and positive impact for the expansion of
the Puerto Rican local business sector if true reforms are enacted.
Puerto Rico has a diverse, vigorous business class capable of
generating wealth, and eager to make progress. It is vitally important
to expand efforts to take advantage of the considerable strengths that
Puerto Rico has, including a bilingual and well-educated adult
population, an open economy that occupies a central position in the
Caribbean, extensive experience as a host of multi-national
corporations and close ties with the United States. The public sector
and the private sector must work together to make Puerto Rico's
economic environment to support growth, development and innovation.
Given the background described above, economic activity and job
creation in the short and medium term are of great importance.
IT'S TIME FOR THE LOCAL GOVERNMENT AND THE FOMB TO ACT ON ECONOMIC
REFORMS:
Our Recommendations: Formulate and implement, during the next 30
days, an Action Plan that includes the following key actions which will
advance sustained economic growth for Puerto Rico:
1. PERMIT REFORMS--Simplify, and enhance the efficiency and
effectiveness of the government building and business
operating permits process in Puerto Rico
Streamline of permit procedures, differentiate
between complexity of types of applications, reduce time and
cost to complete all formalities and improve the quality
control and safety mechanisms in the construction permitting
system.
2. TAXES--Reduce and simplify the tax code that suppresses the
business climate in Puerto Rico.
Eliminate business inventory tax.
Eliminate B2B taxes to stimulate the hiring of
the services of local companies.
Eliminate charges to cargo terminal transport
trucks used in the inspection process (scanning) that is
already carried out by the U.S. Border Patrol. This duplicity
is unnecessary and adds unnecessary costs at the ports.
Conduct tax elasticity studies to assess which
taxes negatively impact the business climate and consumption
patterns in Puerto Rico.
3. AIR CARGO TRANSHIPMENT HUB--Pursue with the U.S. Department of
Transportation an application for expanded cargo
flexibility at its international airports to promote the
use of the airports and our former military airfields as
international hubs for air cargo transportation between
Latin America and Europe.
Puerto Rico is at the crossroads of the Caribbean
and is a logical connecting point on air routes between Europe
and Central and South America.
Encourage international cargo carriers to use
Puerto Rico airports as connecting hubs.
The Puerto Rican tourism industry also stands to
gain substantially from approval of the application. Puerto
Rico has the potential to become one of the great tourist
destinations of the world but lags behind our neighbors. We
need to triple our current hospitality stock.
4. EDUCATION
Maximize pre-apprenticeship and apprenticeship
programs in order to obtain a certified and ``work-ready''
workforce.
Implement Lifelong Learning concepts in order to
develop the human capital of Puerto Rico. This would include
initiatives to develop world-class practices of doing business
(ease-of-doing business), promoting the internationalization
and export of Puerto Rican products and services, and
developing a culture of innovation.
5. ENERGY AND INFRASTRUCTURE--Re-evaluate and restructure the
proposed Puerto Rico Power Authority Restructuring Support
Agreement (RSA) advocated by the FOMB.
The RSA, designed and approved by the FOMB, does
not promote the economic development of Puerto Rico. Instead,
its implementation could result in the loss of over 170,000
jobs, a 22 percent decrease in our island's GNP, and create
high inflationary pressures.
Establish an energy open market and eliminate
PREPA's role as the intermediary and unbundle tariffs.
Promote clean energy and recycling initiatives as
a priority of PREPA and other Puerto Rico government entities.
Diversify energy sources--waste to energy as a
way to help solve landfill problems, and seek a Jones Act
exemption for LNG. To date, there are no U.S. built vessels
that can transport clean and economical LNG from the U.S.
Mainland to Puerto Rico. This will help to ensure our energy
security and dramatically lower our generation costs.
Create regional infrastructure commissions aimed
at structuring recommendations that help the continuous
improvement of the energy infrastructure in terms of
maintenance, cleaning and repair needs.
6. ECONOMIC POLICY--Seek input from the long-standing private sector
organizations representing local business, manufacturing
and employees in policy discussions as solutions are
assembled to Puerto Rico's challenges.
Establish a permanent Joint Economic Development
Board, compromised by private and public sector
representatives, with the authority to recommend and supervise
the implementation of these and future key economic development
strategies and initiatives that will promote Puerto Rico's
competitiveness.
7. TRADE--Exports and trade are a key component needed for growth;
let's better position Puerto Rico with an aggressive export
agenda.
Actively promote trade with Puerto Rico as a
priority objective for all U.S. commercial missions abroad and
especially in the Caribbean and Latin America region.
8. LABOR COSTS--Request the FOMB to exercise their powers to review
and repeal Local Executive Order 2018-033 which compelled
government-sponsored construction projects in Puerto Rico
to instantaneous and disproportionately increase labor
costs.
Again, I want to thank the Committee for the opportunity to
represent the Private Sector Coalition of Puerto Rico today. The
Private Sector Coalition argues that economic growth is the only real
solution to Puerto Rico's challenges and we look forward to working
with your Committee and the Congress to advance real solutions.
*****
ATTACHMENTS
Private Sector Coalition Letter on Medicaid
COALICION del Sector Privado
September 4, 2019
Hon. Charles Grassley, Chairman,
Finance Committee,
United States Senate,
Washington, DC
Mr. Chairman:
The Private Sector Coalition of Puerto Rico is comprised of over
thirty business, trade and professional organizations representing the
primary job creators and taxpayers of Puerto Rico. We are committed to
fostering policies that advance the interests of the 3.4 million U.S.
Citizens who reside on our island and promoting economic growth.
Our letter serves to express our support for the provisions
contained in the ``Territories Health Improvement Act'' as approved by
the House Energy & Commerce Committee on July 23rd. We appreciate the
bipartisan work of this Committee and look forward to working with you
to enact this vital legislation into law.
We note that the availability of quality of health care is an
important component of our strategy to grow our local economy and
retain our workforce. Every family considers health care availability
as a factor in choosing where to live and work and we seek certainty
and stability for our local health care system. We continue to argue
that economic growth is the only true solution to the challenges faced
by Puerto Rico.
We welcome the Finance Committee's attention to the impending
``Medicaid Cliff' facing Puerto Rico's Medicaid system in the third
quarter of 2019. Without immediate action by Congress, we face a
devastating loss of 85% of our Federal Medicaid funding likely forcing
a large number of Medicaid enrollees to lose their coverage and also
jeopardize the financial stability of every hospital and health care
provider in Puerto Rico.
While we have always advocated for a permanent solution to the
recurring issue of the Medicaid Cliff and the need to more fairly
allocate funding for Puerto Rico's Medicaid program, we note that the
House Energy & Commerce Committee advanced legislation will provide
four years of increased Federal funding totaling $12 Billion and give
our local Medicaid program the stability to address key issues
impacting providers; especially our local hospitals and our patients.
Every Puerto Rico health willing care provider is a Medicaid provider
and after many years it's time for a rate increase in reimbursements
for local hospitals and providers, which among other is part of the
intent of the ``Territories Health Improvement Act''.
The Private Sector Coalition has also long supported efforts by
Congress to ensure the integrity of the Medicaid program and its
administration in Puerto Rico. We appreciate your desire to ensure
proper administration of Medicaid funding by the local government and
look forward to collaborating with you to design these additional
requirements to ensure the Government of Puerto Rico protects the
integrity of the program with no resulting harm to patients, to local
providers and their ability to deliver quality care for every Medicaid
eligible patients.
It's important to point out that health care providers in Puerto
Rico are forced to operate with much lower reimbursement rates than
their counterparts in the States. In fact, our Medicaid reimbursements
are barely one-half or less than the U.S. average and our local
hospitals have not received a rate increase since 2011.
The Medicaid Cliff and the uncertainty it has created over the past
decade has been a major contributing factor to the loss of doctors,
specialists and health care professionals who have been recruited away
by stateside health care systems offering more generous compensation
packages. The uncertainty and financial squeeze imposed on Puerto
Rico's health care providers has made it very difficult to offer
attractive and competitive compensation packages to retain our
experienced, bilingual medical staff and professionals. The inability
of our Medicaid system to provide a reimbursement increase for
hospitals and other providers since 2011 due to the combination of a
significantly lower level of Federal funding along with uncertainty of
the impending Medicaid Cliff has been a primary factor for this loss.
This has certainly impacted the ability of Puerto Rico's health care
system to provide readily available care to the Medicaid population as
well as to the general population throughout Puerto Rico.
Another consequence of the uncertainty created by the Medicaid
Cliff is the impact on the ability of Puerto Rico's hospitals and
clinics to modernize and upgrade their physical plant and facilities as
well as medical diagnostic and treatment technologies. Approximately,
90% of local hospitals are privately owned and have 30-40 year old
buildings and physical plant. These hospitals are dependent on bank
financing to make physical improvements and upgrades. However, the
short-term approach to addressing the Medicaid Cliff has resulted in
local banks being hesitant to provide financing for improvements.
Puerto Rico's providers are willing to invest and want the most state-
of-the-art facilities and equipment to provide quality health care. We
must remember that banks always look at the long-term ability of their
clients to repay their loans and without the guarantees provided by a
permanent solution to the Medicaid Cliff, bank financing has been
limited. This lack of financing has delayed and frozen the ability of
local hospitals and clinics to modernize and obtain the best medical
technologies.
In addition to the main issue of the Medicaid Cliff, in May of this
year, the Government of Puerto Rico, together with private sector
leaders, outlined a list of critical sustainability measures to provide
essential health services to Puerto Rico's Medicaid recipients. They
are very specific and have been enclosed with this letter.
Again, we are grateful for your leadership you have shown on issues
impacting the U.S. Citizens residing in Puerto Rico. We look forward to
working with you toward the timely enactment of a real solution to the
Medicaid Cliff and ensuring quality health care for the 3.4 million
U.S. Citizens residing in Puerto Rico.
Best Regards,
Puerto Rico Private Sector Coalition
***
Puerto Rico Hospital
Association Puerto Rico Farm Bureau
Puerto Rico Products
Association Puerto Rico Chamber of Commerce
Puerto Rico Manufacturers
Association Puerto Rico Hotel & Tourism
Association
Puerto Rico Builders
Association Puerto Rico Society of CPAs
Puerto Rico Business
Retailers Association Puerto Rico Automobile
Distributors Association
United Retailers
Association Puerto Rico Restaurant
Association
Puerto Rico Shippers
Association Medical Devices Cluster
Society for Human Resources
Management Latin American Business Council
Puerto Rico Chamber of
Marketing, Industry, and
Distribution of Food
*****
Private Sector Letter to Governor on PREPA RSA
COALICION del Sector Privado
MESSAGE TO THE GOVERNOR:
RETHINK PREPA'S RESTRUCTURING AGREEMENT (RSA) AND OTHER MEASURES IN
PREPA'S FISCAL PLAN TO PROMOTE PUERTO RICO'S ECONOMIC
DEVELOPMENT
Dear Governor Vazquez Garced:
Puerto Rico's economy is in jeopardy of being further weakened by
the actions of the Federal Oversight and Management Board (FOMB)
imposing significantly higher electricity (almost 10 cents/kilowatt-
hour) rates on consumers and business over the next five years.
The RSA, and other measures in the PREPA Fiscal Plan, as conceived
and approved by the Fiscal Oversight and Management Board, does not
help to promote the economic development of Puerto Rico. In fact, the
implementation of these measures is projected to cause over the next 5
years:
1. Loss of over 170,000 jobs.
2. 22% decrease in the Puerto Rico Gross National Product.
3. Triple the inflation rate and continues to increase further on
These significant increases in operating costs will have the
following negative effects on the economy:
1. In commerce, the increase is normally transferred to consumers,
reducing the purchasing power of the general population and
increasing incentives for migration.
2. In manufacturing, it reduces the ability to compete in
international markets.
3. In the government, it will aggravate the present fiscal crisis.
The study developed by the respected economist Ramon Cao-Garcia
Ph.D. and commissioned by the Consumers Representative on the PREPA
Governing Board is the only report and analysis that has been published
detailing the effects of the RSA agreement and the other measures in
the PREPA Fiscal Plan. This study provides the basis and starting point
of a broad discussion and responsible evaluation leading to solutions
and alternatives. We urge your Government to analyze Dr. Cao's study,
present any alternative study currently available in the Government,
and from the open analysis, Puerto Rico will benefit.
The Private Sector Coalition urges that the debt restructuring
agreement with bondholders (RSA) be openly discussed and reevaluated,
and if there are no documents or credible studies that support said
agreement, that it be withdrawn and re-submitted again after proper
revisions.
The Puerto Rico Energy Bureau is the proper entity for jurisdiction
over the periodical review of the debt restructuring charge and should
be given authority to adjust it to respond to changes in consumption.
The chart of pre-established Transition Charge increases included in
the RSA which showed increases in the charge by 64.5%, should not be
used.
The additional measures included in the PREPA Fiscal Plan should be
discussed with the Fiscal Oversight and Management Board to avoid or
redistribute them outside the electricity rate, to promote the
sustainability of our electrical system and the economic development of
Puerto Rico.
PREPA must pay its debt. However, it is important to consider how
much Puerto Rico can pay without overly restricting its financial
capabilities, and also considering the consequences these costs have on
the economy. This agreement must put consumers and the competitiveness
of Puerto Rico's business sector first in order to ensure our
sustainability and competitiveness.
Dr. Cao-Garcia's study provided a reasonable alternative and
proposes a moderate increase of 1.91 cents per kilowatt-hour, instead
of the close to 10 cents/kilowatt-hour resulting from the RSA and the
other measures in the Fiscal Plan. This increase is equivalent to an
annual debt service payment of $281 million, corresponding to a
restructured debt of $4,668 million, with a maturity of 40 years at an
interest rate of 5.25%.
The effects, over a period of five (5) years, of the moderate rate
increase of 1.91 cents/kilowatt-hour proposed on the Cao-Garcia report
compared to the increase of 10 cents/kilowatt-hour in the RSA and
Fiscal Plan, are as follows:
1. Employment:
a. Increase of 2,294 jobs, instead of a loss of over
170,000 jobs.
2. Gross National Product:
a. Decrease in the Gross National Product of 4.43% (with a
trend of economic growth) instead of a 22% decrease (with a
tendency to decrease in economic growth).
3. Production Costs:
a. Increase for the wholesale and retail sector of 0.22% (a
minimum increase) instead of an increase of 2.7%, which is
equivalent in many cases to the profit of a small and medium
business.
b. Increase in the manufacturing sector of 0.19% (a minimum
increase) instead of an increase of 1%, which is significant
considering global competitiveness.
Madam Governor, the RSA and the measures included in the Fiscal
Plan of PREPA go against the economic development of Puerto Rico. We
want to meet with you as soon as possible to identify ways to mitigate
the impact of the proposed increases in electricity costs to an already
fragile Puerto Rican economy.
Respectfully,
Board of Directors,
Puerto Rico Private Sector Coalition
***
Carlos M. Rodriguez,
President, Liliana Cubano, President,
Puerto Rico Manufacturers
Assoc. Puerto Rico Products Association
Jose Ledesma-Fuentes,
President, Emilio Colon-Zavala, PE,
Puerto Rico Chamber of
Commerce Puerto Rico Builders Association
______
Questions Submitted for the Record by Rep. Grijalva to Ms. Liliana
Cubano, President, Puerto Rico Products Association
As expressed during the hearing, we appreciate your efforts to
reform PROMESA and the initiative to shift the focus away from
austerity to one focused on economic growth as noted in Section 4 of
the Amendments to PROMESA Act of 2019.
Our answers on behalf of the Private Sector Coalition to your two
questions are listed below:
Question 1. In your testimony, you emphasize the importance of
shifting the focus away from austerity, due to its negative impact on
economic growth. Does the Coalition support defining and protecting
essential public services to ensure the basic needs of the residents of
Puerto Rico are met and to reduce migration?
Answer. PROMESA originated from uncertainty over Puerto's Rico's
finances due to lack of fiscal information, inaccurate projections and
the use of non-recurring revenues for recurring expenses. Accordingly,
PROMESA created a Financial Management and Oversight Board (FOMB) to
bring transparency to Puerto Rico's finances; restore the principle of
good government planning with a multi-year fiscal plan; establish 4
years of balanced budgets; and place the island on a path to return to
the financial markets. Unfortunately, the FOMB has not adequately met
these goals. Its fiscal plans and many of its actions have suffered
from some of the same problems FOMB was intended to address.
Although austerity measures seek to restore macroeconomic balances
through the control of budget deficits and public debts, the cutting of
wages, the trimming of social aid programs, the raising of taxes and
the imposition of new ones, such measures often result in negative
economic effects in spite of the goals at the outset. Research
conducted by the International Monetary Fund and other entities has
concluded that the need for cutting budgets during economic recessions
has a tendency to actually increase deficits while deepening and
prolonging the recession, worsening unemployment levels and extending
the time economies take to fully recover in economic terms. In the case
of Puerto Rico, added to the fact that well before Hurricanes Irma and
Maria hit, the Island had been experiencing years of severe economic
and social crisis, austerity measures have impacted essential
government services and diminish quality of living.
Austerity alone is not a path to recovery. While Puerto Rico needs
to do more, there are limits to the scale and pace of additional fiscal
adjustment that can be achieved. Restoring economic growth will help to
create meaningful and well-paying jobs, stop the out-migration and loss
of our talented young people, expand our middle class, and generate the
revenues sorely needed by the local government to enable it to provide
services and maintain infrastructure. Congress must recognize that
leveraging Federal programs' funding with private investment in order
to achieve sustained economic growth is key to getting Puerto Rico out
of the cycle austerity trap.
Economic development strategies, such as the ones included in our
earlier testimony (i.e., permit reforms, tax simplification, lower
energy cost, air cargo trans-shipment hub and expanded trade, among
others), could be enabled through economic development mechanisms and
tools not currently present under PROMESA, could provide an important
boost to labor force participation and private sector activity, helping
the island's competitiveness. It should be noted that PSC recommended
the establishment of a permanent Joint Economic Development Board,
compromised by private and public sector representatives, with the
authority to recommend and supervise the implementation of key economic
development strategies and initiatives that will jumpstart Puerto
Rico's economy.
The Puerto Rico Private Sector Coalition supports defining and
protecting essential public services to ensure the basic needs of the
residents of Puerto Rico. Essential public services should include
public health, education, law enforcement, firefighting, electricity,
among others. In its current form, PROMESA does not clearly define what
an essential service is. The PSC understand that given the fact that it
is fundamental to provide essential governmental services to the
health, safety and welfare of the residents of Puerto Rico, PROMESA
should provide, to the extent possible, for the definition of essential
services, and identification of a priority scheme for payment of these
services.
Question 2. You mention in your statement the importance of
ensuring a flow of Federal disaster recovery funds to the Island. Does
the Puerto Rico Private Sector Coalition have a proposal to address
this concern, or does the Coalition have a position on the
establishment of a Federal Reconstruction Coordinator and a PREPA
Revitalization Coordinator?
Answer. The Disaster Appropriations Act of 2019 required HUD to
publish requirements for the allocation for funds under the CDBG-MIT
program in September 2019. Puerto Rico is the only jurisdiction where
HUD did not comply with the required publication in the Federal
Register. Also, Puerto Rico is the only jurisdiction in which FEMA does
not accept the required Applicant Cost Estimates prepared by
Professionally Licensed Engineers as required under Section 428 of the
Stafford Act. Both are unacceptable.
HUD announced in July 2019 that a federal monitor would be required
for disaster recovery funding awarded by the Agency. This, without any
implementation plan or strategy as to if it will be a HUD employee, a
contractor, a panel or a working group. Lack of planning and
transparency on the process has significantly delayed recovery efforts
in Puerto Rico and left its residents in a position of elevated
vulnerability.
Taking into consideration that over 24,000 families still live
under a blue tarp, it is imperative that permanent reconstruction work
start. The Private Section Coalition believes these situations with
disaster recovery funding is discriminatory against the over 3MM U.S.
citizens that reside in Puerto Rico. The fact that corruption charges
regarding disaster recovery funding in Puerto Rico have been levied to
residents of CONUS only, further support our belief that these delays
are discriminatory in nature as Puerto Rico does not have two Senators
or voting Members of Congress to support our case.
Without any plan, clear guidance or vision as to what or who a
Federal Reconstruction Coordinator is to be hired, the CSP cannot
support such an initiative. The reason for this is precisely this will
further delay much needed reconstruction programs' start. Any concern
regarding corruption or misuse of Federal recovery funding can be
considered by:
1. Establishing transparency requirements in procurement processes.
2. Repeal of local Executive Order 2018-033 that artificially raised
the minimum wage for public construction contracts and
requires Project Labor Agreements, and substitute with U.S.
DOL's prevailing wage determination requirements as per
applicable Federal legislation.
3. Require corruption prevention management processes equal or
similar to ISO 37001 to Government Agencies and any
contractor that wishes to obtain a Federal grant or
contract.
4. Establishment of a transparency portal where all disaster
recovery grants and contracts are published.
5. Strong and continued monitoring from the Office of Inspector
General has as has been performed to date.
We feel that these controls will greatly restore confidence in the
use of Federal recovery funding.
______
Mr. Sablan. Thank you very much. In commentary, my island
also continues to be covered in blue tarp, and where you have
38 cents per kilowatt hour, it is 44 cents per kilowatt hour
where I come from, so I have an idea of what you are sharing. I
guess our only scholar, student scholar here, Mr. Butin-Rivera.
Welcome, you have 5 minutes.
STATEMENT OF LYVAN A. BUTIN-RIVERA, STUDENT REPRESENTATIVE,
UNIVERSITY OF PUERTO RICO
Mr. Butin-Rivera. Mr. Sablan, Ranking Member Bishop, and
Committee members, I am a senior accounting student at the
University of Puerto Rico. Until a few months ago, I worked as
a student representative on the University Board and its Budget
Committee. That gave me the opportunity to study the budget of
the UPR system and its 11 campuses, analyze the fiscal plan
approved by the FOMB, and submit specific recommendations for
next fiscal year.
Today, I am here on behalf of 53,000 students that need for
their voices to be heard to support the amendment to the Puerto
Rico Oversight, Management, and Economic Stability Act, also
known as PROMESA, proposed by Chairman Grijalva and to sustain
the fight of millions of Puerto Ricans off and on the island
that are fighting for a future with social economic development
in Puerto Rico.
Before the implementation of PROMESA, the UPR system had
already received drastic cuts to its budget that accumulated to
$550 million to Fiscal Year 2017. In Fiscal Year 2018, the
fiscal board presented a plan that included annual budget cuts
that accumulated to a total of $450 million by Fiscal Year
2024. That represents 56 percent of the total budget of the
University of Puerto Rico.
The University is not unaware of the need of fiscal
restraint. We have been working with these budget cuts,
adjusting multiple measures to continue providing quality
higher education on the island. First, the University has
tripled its tuition through annual increasing and created new
fees for students. This has affected directly the most
vulnerable students in the institution.
The institution reduced its faculty and administrative
personnel to the point that most of our campuses are
understaffed at all levels. This has translated in a limited
number of courses, deterioration of our infrastructure, and
limited staff attending student services. For example, some
offices that used to be operated by full staff now are being
operated by one or two work-study students.
The University has stopped some of its critical permanent
infrastructure projects. This is due to a combination of lack
of funding and FEMA not distributing the necessary funds for
reconstruction purposes. In some cases, campuses like Bayamon
and Rio Piedras completely lost buildings due to the damages of
Hurricane Maria, and to this day the reconstruction of those
buildings essential to the functioning of the University
campuses has not even begun.
As a result of the budget cuts, the University has
underfunded pension to the point that the net pension liability
has exploded to almost $3 billion and the amount that the
University must pay to sustain the system has doubled.
It is not difficult to see how the budget cuts are creating
massive deficits on the cashflows of the UPR. In the fiscal
plan for the University approved on June 5 by the FOMB, it
projects that the University will have a deficit of $88 million
by the end of this fiscal year. In the report that me and my
colleagues from the budget committee submitted to the
University board last semester, we concluded that if the budget
cuts imposed by the fiscal plan for the next 2 fiscal years for
the University are implemented, probably the University will be
obligated to close most of its campuses and it will lose its
accreditation due to its inability to meet the financial
obligations of the system.
The approval of the amendment proposed by Congressman
Grijalva is critical for the sustainability of the University
of Puerto Rico. Some of the University campuses with this
year's budget are not sure if they are going to be able to pay
their payroll or even pay their utility bills. By endorsing
this amendment, we ensure that the immediate future of the
University of Puerto Rico is secured. This will give the
opportunity for the University to reorganize, update its
infrastructure, acquire better technology, and in the near
future operate more effectively.
Referring to the University of Puerto Rico, Ms. Jaresko
stated, the University of Puerto Rico system is the crown jewel
of Puerto Rico. Having that in mind, it is important that the
University is properly funded for the well-being of its
citizens to secure the social and economic future of the
island.
We say that a government is defined by the opportunities it
gives to its citizens. For many Puerto Ricans, the University
of Puerto Rico represents our only hope for a better future as
well as the possibility of social and economic mobility. That
is one of the main reasons to grant the University of Puerto
Rico a status of an essential service. This will guarantee that
the University of Puerto Rico continues the educational legacy
initiated since 1903 and continues to educate and provide the
highest quality education available on the island.
[The prepared statement of Mr. Butin-Rivera follows:]
Prepared Statement of Lyvan Butin, Former member of the University
Board Budget Committee
Honorable Chairman Grijalva and Committee Members: My name is Lyvan
Butin and I am a senior student majoring in accounting at University of
Puerto Rico, Bayamon Campus. My presentation's purpose is to advocate
for the amendment proposed by the Honorable Congressman Raul Grijalva
to the Puerto Rico Oversight, Management, and Economic Stability Act
(PROMESA) on behalf of the 53,000 University students from the
University of Puerto Rico. This amendment will also protect Puerto
Rico's public education and allow economic growth and social
development.
I was a member of the University Board Budget Committee until
recently. This is the highest non-partisan body of governance of the
University of Puerto Rico. In this committee, I studied and revised the
multiple budgets that conform the University system as a whole,
particularly its 11 campuses and the fiscal plans approved by the
Financial Oversight and Management Board for Puerto Rico (FOMB) and the
University's Governing Board. I had the opportunity to examine the
different regulations and accreditations that govern the University of
Puerto Rico. This Budget Committee concluded that if the Fiscal Plan
projected cuts are implemented, the University of Puerto Rico--the only
public university--has a high probability of closing operations in a
near future, leaving Puerto Rico in a precarious economic state. This
in particular would contribute to social inequality and a mass
migration to the United States would be inevitable.
i. promesa goals
The primary purpose of the Puerto Rico Oversight, Management, and
Economic Stability Act (PROMESA), at section 101(a), is to promote a
method to achieve fiscal responsibility in the Territory of Puerto
Rico. Nonetheless, since the creation of the Financial Oversight &
Management Board for Puerto Rico (FOMB), the method used to achieve
fiscal responsibility has been through the implementation of austerity
measures in the government sector, as well as stimulating privatization
measures and granting tax exemptions to possible private sector
investment. All these without any reliable analysis of those strategies
or of the private sector investment. At the same time, there has been
no consideration of economic studies on the possible outcomes of these
investments. There has never been an economic analysis of the actions
proposed or implemented. The result of these measures has been a
massive migration of Puerto Ricans to the United States, engendering
social inequality, poverty and violence in Puerto Rico.
The University of Puerto Rico produces 73 percent of the scientific
knowledge in our region. An economic study established that the
University of Puerto Rico's return investment is $1.56 for each $1 that
the government contributes to the institution. This creates 164 jobs
for each one hundred (100) jobs generated as part of the institution's
activities.
The approved fiscal plan imposes a reduction of $512 million
without any scientific data or criteria and does not take into
consideration the University of Puerto Rico's social contribution to
the island's local recovery and economic development.
ii. budget cuts to the university of puerto rico
Before the implementation of PROMESA the University system had
already undergone mayor cuts to its budget. In 2014, the administration
of the Governor, Alejandro Garcia Padilla decides to freeze the
allocation of funds to the University of Puerto Rico. This without
following the established formula for the allocating of funds to our
university. The university is entitled to receive 9.6 percent of the
annual rental annuities by law. This represents a major part of our
consolidated budget. Ignoring the University's budget formula
established by law contributed to an accumulated loss of $550 million
through Fiscal Years 2015 to 2017.
The graph below shows the dramatic budget reduction suffered by the
University in recent years:
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
.epsIn Fiscal Year 2018, the FOMB started implementing their cuts
through their fiscal plan, which started with a reduction of $202
million to the University of Puerto Rico system. Two years has passed
since the first mayor cuts. Currently this Fiscal Year 2020, the budget
cuts have accumulated to a total of $333 million. However, we are still
projected to receive more cuts until the Fiscal Year of 2024; that adds
another $112 million to the reduction. In total, the budget cuts ascend
to $445 million. That represents a 56 percent of the total budget of
the University of Puerto Rico since the freezing of the University
formula used for the development of its budget.
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
.epsThe immediate effect of the severe budget cuts is the resulting
operational deficit. Under the fiscal plan, a deepening deficit began
this fiscal year.
Measures To Sustain Operations With The Budget Cuts
The University is not oblivious of the need for fiscal restraint
alternatives and has been working on those since 2014 with an economic
reduction from the Government. Thus, adopting multiple measures to
continue providing higher education excellence. Some of the drastic
adjustments that the University has been adopting in the past years
are:
Triple tuition fee increases and the creation of a new fee
for students.
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Reduction of faculty and administrative personnel.
Most of our campuses are understaffed and this jeopardizes
the multiple University of Puerto Rico accreditations. This
measure has contributed to the increased recruitment of
lecturers and part time Instructors. The hiring freeze of
tenure track faculty positions places at risk the
University of Puerto Rico accreditation. This has
translated in a limited number of courses for students, a
deterioration of our infrastructure and the limited staff
attending student services. For example, in some offices
used to be operated by full staff or administrative
personnel, now are being operated by one or two work-study
students.
Interruption of some of our essential infrastructure
projects. This is due to a combination of factors such as
the lack of funding and that FEMA has not disbursement the
necessary funds for the reconstruction required. Due to
these measures, the university is in a critical situation
regarding its infrastructure. There is an urgent necessity
to fund projects to rebuilt and repair the University of
Puerto Rico's infrastructure. In some cases, University
Campuses such as Bayamon and Rio Piedras, complete lost
buildings due to the damages of hurricane Maria. To this
day the reconstruction of those buildings essential to the
functioning of many units of the University Campuses have
not even begun.
Academic and administrative reorganization or
consolidation. At this moment, the university is evaluating
every academic program that it offers throughout the 11
campuses operated by the whole University of Puerto Rico
system; the University of Puerto Rico contemplates the
consolidating of programs. On the administrative level, the
University of Puerto Rico is working in economic strategies
to foster savings by restructuring operations and its
administration. I foresee this as one of the great
challenges because if we want to operate more effectively,
we need to invest in better technology, and infrastructure.
Regretfully, we simply do not have the funding for all
this.
iii. university's pension plan crisis
The pension plan of the university is being affected critically by
these drastic budget cuts. Since the first budget cuts, the university
no longer funds adequately its pension plan. As of today, the plan has
an actuarial liability ascending to $2,968,233,000.
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
According with the University of Puerto Rico fiscal Plan, the
university will have to pay about $150 to $160 million annually in
order to close the actuarial deficit. The FOMB has proposed three
different scenarios for the Pension Plan:
1. Leave the system as is, and increase the university's
contribution from $80 to $160 million or more annually.
2. Transform the retirement plan to a defined contribution plan and
pay somewhere close to $143 million annually.
3. Transform the retirement plan to a defined contribution plan and
reduce most of the benefits. Under this option, the
university must spend around $100 million annually to the
pension plan.
The university is leaning to sustain its pension plan as is, but
the problem is that the amount that we have to pay ($160 million) it is
incredibly high when compared to our budget. The uncertainty of the
future of the pension plan is forcing productive employees into
retirement because they are afraid that the university is going to
transform or eliminate their pension plan.
As of July 31, 2019, University's pensioners are 9,023, and their
monthly payroll amounts to around $16.5 million. Both numbers are
expected to increase given the large number of people who can retire
because they now meet the years of service for retirement as shown in
the table.
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
One can see that in the next 4 years the number of people that
can receive benefits from the pension plan would rise by 2,895.
Therefore, the situation is made more difficult for the institution
because it will have to disburse more money to the retirement system.
The University of Puerto Rico will not have the money to sustain its
pension plan and it will be forced to enter a pay as you go system,
requiring greater disbursements from the Central Government.
iv. budget deficits
It is easy to see how the budget cuts are creating a massive fiscal
deficit for the University of Puerto Rico. The Fiscal Plan approved
last June 5, 2019 by the FOMB projects that the University will have a
deficit of $88 million by the end of Fiscal Year 2020.
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
As anyone can see in this graphic, the Fiscal Board is
projecting that the deficit will disappear during the next fiscal
years. But, the truth is the opposite: the deficit will not disappear
any time soon, it will continue to increase. The University has already
taken all possible measures for the improvement of cash-flow and the
generation of major savings. Although we can still implement minor
adjustments that will save money, these adjustments yield minuscule
results when compared to the projected budget cuts.
If the next reductions are implemented, we will be obligated to
take drastic decisions regarding the future of the University of Puerto
Rico. We will probably have to close many of our campuses, leaving
thousands of students without a university center to attend. In Fiscal
Year 2021, the University of Puerto Rico will be receiving $430 million
from the Central Government. This will not be enough funding to operate
effectively: we will have to close several campuses to sustain the
system.
------------------------------------------------------------------------
Major Campuses Budget
------------------------------------------------------------------------
Rio Piedras $212,904,438
------------------------------------------------------------------------
Mayaguez $134,578,621
------------------------------------------------------------------------
Medical Science $118,353,984
------------------------------------------------------------------------
Total $465,837,043
------------------------------------------------------------------------
------------------------------------------------------------------------
Minor Campuses Budget
------------------------------------------------------------------------
Cayey $31,826,974
------------------------------------------------------------------------
Humacao $39,117,931
------------------------------------------------------------------------
Aguadilla $20,594,444
------------------------------------------------------------------------
Arecibo $29,570,029
------------------------------------------------------------------------
Bayamon $35,261,700
------------------------------------------------------------------------
Carolina $25,315,733
------------------------------------------------------------------------
Ponce $23,068,820
------------------------------------------------------------------------
Utuado $13,790,235
------------------------------------------------------------------------
Total $218,545,866
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The position of the President of the university and the FOMB is
that they want to keep all campuses open, but as you can see, this is
not going to be possible. The quality of education provided by the
University has never been questioned. When we were placed on ``show
cause'' by the Middle States Commission on Higher Education, it was for
two central reasons:
1. Failure to comply with the financial information requirements by
the MSCHE.
2. Concerns regarding the amount of fiscal resources the institution
has to fulfill the obligation with its students.
The budget cuts, as specified in the fiscal plan, are going to
force the closing of the University of Puerto Rico. We have to mention
that in 1992, Congress amended bankruptcy law to exclude an institution
of higher education that has filed for bankruptcy eligibility to
participate in Title IV financial aid programs.
The approval of the amendment proposed by Congressman Grijalva is
critical for the sustainability of the University of Puerto Rico. Some
of the university campuses with this year's budget are not sure if they
are going to be able to pay the payroll for the last months of the
fiscal year or pay the utility bills. By endorsing this amendment, we
ensure that the immediate future of the University of Puerto Rico is
secure. This will give the opportunity for the university to
reorganize, update infrastructure, acquire better technology, and in
the near future operate more effectively. Referring to the University
of Puerto Rico, Ms. Jaresko stated that, ``the University of Puerto
Rico system is the crown jewel of Puerto Rico.'' Having that in mind,
it is important that the university is properly funded for the well-
being of its citizens to secure the social and economic future of the
island. We say that, a government is defined by the opportunities it
gives its citizens. For many Puerto Ricans, the University of Puerto
Rico represents our only hope for a better future, as well as the
possibility for social and economic mobility. That is one of the main
reasons to grant the University of Puerto Rico the status of an
essential service. This will guarantee that the University of Puerto
Rico continues the educational legacy initiated since 1903 in
continuing to educate and provide the highest quality education
available in Puerto Rico. This is what characterizes my University of
Puerto Rico and what this University is known for.
______
Questions Submitted for the Record by Rep. Grijalva to Mr. Lyvan Butin-
Rivera, Student Representative, University of Puerto Rico
Mr. Butin-Rivera did not submit responses to the Committee by the
appropriate deadline for inclusion in the printed record.
Question 1. The Executive Director of the Oversight Board testified
that the government of Puerto Rico has been subsidizing the University
of Puerto Rico (UPR) at a rate far more than average for mainland U.S.
states--roughly 70 percent instead of 20-30 percent--and that the PR
Government can no longer afford these subsidies given that it is
bankrupt?
What is your reaction to the concern that the government of Puerto
Rico can no longer afford to subsidize the UPR at the same rate that
they were previously?
Question 2. We have received a number of crit icisms that the
language we have in the ``Discussion Draft'' defining essential
services to protect the UPR will have the unintended effect of leaving
other government services, which are not defined as essential, open to
massive cuts. Are these conclusions wrong or would you recommend that
we make all government services essential?
Question 3. The Oversight Board also asserts, that revenues are
depressed and insufficient at UPR because tuition levels are extremely
low for all students--regardless of ability to pay--and there is little
effort in attracting Federal grants and active development of alumni
contributions. Could charging a higher tuition for students of great
means, as well as securing more Federal grants and alumni
contributions, make up for the budget cuts in your opinion?
Question 4. Recognizing that the financial resources of the
government of Puerto Rico are scarce, has the University presented
recommendations to the Government to achieve cost savings that could
mitigate budget cuts to the University? Could you share some of the
recommendations with the Committee?
______
Mr. Sablan. Thank you. Thank you very much, right on time.
Finally the Chair now recognizes Mr. Spiotto. Sir, you have 5
minutes.
STATEMENT OF JAMES SPIOTTO, MANAGING DIRECTOR, CHAPMAN
STRATEGIC ADVISORS
Mr. Spiotto. Thank you. Chairman Grijalva, Ranking Member
Bishop, and distinguished members of the Committee, thank you
for the opportunity to address you. Certainly these amendments
raise very interesting issues.
The part of the amendments that I would like to address is
how do you effectively deal with public debt. If you look at
the over 600 sovereign debt restructurings since 1950 for 95
countries, you see that they get repeated time and time again
because the systemic problem was not addressed. Public debt is
not a systemic problem; it is a symptom of a systemic problem.
For Puerto Rico, I think people are united that there
should be a recovery plan that reinvests in Puerto Rico that
stimulates the economy, that creates new good jobs for the
people of Puerto Rico, attracts business and others to come,
and with that, you have an increase in tax revenues that will
be the high tide that raises all the boats.
The important thing is that, like any government, you need
to have access to the capital markets. Governments need to
borrow money because revenues do not come in on an even basis.
Sometimes what you think you levied, you don't collect. So, you
need a way of making sure there is liquidity to literally keep
the lights on. Access to the market is essential. The sovereign
debt restructurings that did not work did not address the
systemic problem and did not maintain good access to the
market.
The problem I have with Title VIII is that Title VIII
provides by legislative resolution the discharge of all
unsecured public debt. The problem with that is there is no
rationale, there is no justification. Chapter 9 of our
Municipal Bankruptcy Code basically is titled Municipal Debt
Adjustment. Title III of PROMESA is titled Debt Adjustment. It
is to be adjusted to what is sustainable and affordable. To
wipe it out without recognizing the principles of best
interests of creditors, feasibility, fair and equitable, which
are in PROMESA in Title III would be a mistake. What is
important is not the elimination of debt but it is the
adjustment to what is sustainable and affordable.
If you look at 180 restructurings recently of sovereign
debt, the mean haircut is only 38 percent. The reduction in
Detroit was only 38 percent. Obviously, it has to be adjusted
to what is sustainable and affordable, but that does not mean
that you have a process that just eliminates it. Why is that
important? Because Puerto Rico will need to go back to the
market to borrow money for its infrastructure and other
governmental services, and to do so it needs access and the
ability to borrow at a low cost.
The experiences of Greece, Argentina, Brazil, Peru, and
others is that if you don't respect that sacred obligation, you
wind up paying more, at least 2 percent more additional
interest rate per annum which equals on a 20-year bond bullet
maturity and a 5 percent discount, 25 percent of the principal
amount goes to additional interest, not to pay for services,
not to pay for infrastructure, not to pay for workers or
pensions or a tax relief. So, it is important to look at this.
Are there better ways? Yes. How can we help Puerto Rico
best? It is giving it what it lost in 936 being repealed, the
reason why governments need businesses to want to be there. We
ought to look at ways at stimulating the economy, making it a
center of commerce and finance, making it a foreign trade
source, increasing manufacturing, giving back what it lost when
it lost 936 to attract back the people who have left and bring
business to Puerto Rico that creates the new jobs, the
additional tax revenues, and the high tide that solves the
problem.
Thank you.
[The prepared statement of Mr. Spiotto follows:]
Prepared Statement of James E. Spiotto\1\
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\1\ As of January 1, 2014, I retired as a Partner of Chapman and
Cutler LLP. I am a Managing Director of Chapman Strategic Advisors,
LLC, a consultancy providing educational and strategic insights to
market participants concerning finance topics of interest. For further
detail, see my resume. The statements expressed in this material are
solely those of the author and do not reflect the position, views or
opinions of Chapman and Cutler LLP or Chapman Strategic Advisors LLC.
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Chairman Grijalva, Ranking Member Bishop and distinguished members
of the Committee, I am honored to address you at this hearing regarding
the Discussion Draft of H.R. ____, the Amendments to Puerto Rico
Oversight Management and Economic Stability Act of October 30, 2019
(``Proposed Amendments''). The following remarks are based on my
experience in refinancings, workouts and restructurings of state and
local debt obligations and those of other countries for over 40 years,
as well as my prior written testimony to House and Senate Committees on
Chapter 9 Municipal Bankruptcy and the government finance market
including in 1983, 1988, 1992, 1995, 2011, and with respect to Puerto
Rico in 2015, 2016 and 2018.
The history of sovereign debt restructurings and past state and
local government financial challenges has demonstrated that Puerto Rico
should develop a recovery plan that encourages reinvestment in Puerto
Rico, providing needed essential services and infrastructure
improvements. This plan would stimulate economic development,
rebuilding and enhancing infrastructure, motivating those who have left
the Island to return, spark expansion of local business, and attract
new business thereby creating new, good jobs. This raises the level of
employment and labor participation that increases personal, business
and tax revenues: the high tide that raises the economic fortunes and
health, safety and welfare of Puerto Rico's citizens and provides the
creditworthy basis for repaying creditors. There are some serious
questions as to whether the Proposed Amendments will accomplish this
goal of establishing fiscal responsibility and enhancing access to the
capital markets.
the gathering storm of puerto rico's financial distress
Historians may well debate the causes and impact of Puerto Rico's
financial and operational distress, but it should be clear that public
debt was not the cause of the financial distress of the government.
Rather, it is a symptom of a systemic problem. As Puerto Rico has
continually and correctly noted, the Merchant Marine Act of 1920 added
10-15 percent to the price of many goods carried by foreign vessels,
and the repeal of Section 936 of the IRS Code (previously Section 931)
removed the encouragement to U.S. corporations to invest in Puerto Rico
and Federal policy created inequities in Federal funding and treatment
of Medicaid and tax policy for Puerto Rico compared to states. This
purportedly has cost Puerto Rico billions annually for decades, and all
of these are a fertile ground for blame.
In 1996, Congress repealed (effective 2006) Section 936 of the
Internal Revenue Code (previously Section 931) that existed since the
1920s to encourage U.S. corporations to invest in Puerto Rico by
providing an exemption from Federal taxes. This measure promoted two-
thirds of Puerto Rico's GDP, namely, in finance, insurance, real estate
(19.6 percent), and manufacturing mainly in pharmaceuticals and
electronics (46.4 percent).
By 2006, Puerto Rico was in financial distress due at least in part
to the effect of the Jones Act, the repeal of Section 936 of the
Internal Revenue Code without any replacement, the inequity of Federal
Government funding compared to states costing Puerto Rico billions
annually for decades relating to Medicaid, Supplemental Security Income
(``SSI''), earned income tax credit (``EITC''), child tax credit
(``CTC''), etc. All of this culminated in financial distress. In 2006,
Puerto Rico had $40 billion of public debt and public debt per capita
of $10,666.66, double the average for state and local governments in
the United States. Also in 2006, Puerto Rico's public debt as a
percentage of GDP was 45.82 percent.
Put another way, by 2006, Puerto Rico, with $40 billion in public
debt, chose literally to double down on debt rather than face the then
need for financial restructuring or Federal Government assistance such
as oversight and refinancing of debt in 2006 rather than 2016, the
ultimate result. Between 2006 and 2015, $40 billion of public debt
became $72 billion, the percent of debt to GDP rose from 45.82 percent
to 69.83 percent, and per capita public debt more than doubled from
$10,666.66 to $20,727.38 (the average for state and local government
debt in the U.S.A. in 2015 was $5,633.88, one-quarter of Puerto
Rico's).
the evolution of promesa
In late 2015 and 2016, Congress was presented with the financial
problems and debt crisis the Commonwealth of Puerto Rico and its people
were suffering. The territory had over $70 billion of public debt and
pension liabilities of over $40 billion. The overall debt of Puerto
Rico and its instrumentalities debt were viewed as beyond their
respective liquidity and the perceived ability to pay as scheduled and
created what appeared to be an insurmountable burden to Puerto Rico and
its people.
During the first part of 2016, Congress considered what needful
rules and regulations would be appropriate. At the same time, the
Commonwealth itself enacted in April 2016 the Moratorium Law (Art. No.
21-2016) purporting to suspend payment on the public debt. This caused
the expected negative reaction from debtholders and increased the
necessity for an effective mechanism for the resolution of the
financial crisis. This Committee held hearings and Congress enacted the
Puerto Rico Oversight, Management and Economic Stability Act
(``PROMESA''), 48 U.S.C. Sec. Sec. 2101-2241, signed into law by
President Obama on June 30, 2016, which created Financial Oversight and
Management Board for Puerto Rico (the ``Oversight Board'' or ``FOMB'')
for supervision and assistance to Puerto Rico. In enacting PROMESA,
Congress exercised its power to ``make all needful rules and
regulations respecting the territory'' under the U.S. Constitution
(Article IV, Sec. 3, cl. 2).
The Oversight Board was charged under PROMESA with being the
mechanism to achieve fiscal responsibility and economic and operational
recovery from the financial distress and debt burdens that Puerto Rico
was suffering. PROMESA, as is evident from Congress' hearings in 2015
and 2016 on the Puerto Rico debt crisis, followed the tradition that
states and the Federal Government have chosen for providing oversight,
supervision and an effective mechanism to resolve the grave financial
distress of governments such as Puerto Rico and its related
governmental entities. The goal of all these legislative efforts is the
creation of a mechanism to encourage consensual resolution as in Title
VI of PROMESA. PROMESA is structured to foster such consensus and
provides a last resort to use a bankruptcy-like process for involuntary
resolution, as Title III of PROMESA does, to effectuate resolution of
debt issues that cannot effectively be resolved by agreement. PROMESA
was intended to provide financial oversight, assistance and supervision
for Puerto Rico. To a degree, PROMESA was to be similar to New York
City and the Municipal Assistance Corporation (``MAC'') in 1975,
Philadelphia and Pennsylvania Intergovernmental Cooperation Authority
(``PICA'') in 1991 and Washington, DC and its Financial Control Board
(``D.C. Control Board'') in 1995, which enhanced needed financial
credibility and access to the financial markets. It should be noted in
MAC for New York City, PICA for Philadelphia and D.C. Control Board for
Washington, DC there were no public debt restructurings but rather
refinancing of public debt. This was due, in part, to the acknowledged
need for governments to be able to borrow in the capital markets.
the promesa experience and recent approved and proposed settlements for
public debt and other creditors
Contrary to the hope for Title VI resolutions in the first 3 years
of PROMESA, the dynamic uncertainty of the situation continued with the
litigious response by creditors and the Commonwealth resulting in
limited consensual resolution in 2017 and 2018. Over 2 years ago, the
Oversight Board filed for the Commonwealth and some covered entities a
Title III bankruptcy proceeding that permits involuntary resolution if
consensual agreement is not reached. There have been recent
announcements of a settlement with the Commonwealth, Oversight Board,
COFINA bondholders and GDB creditors among others.\2\ There have been
recent efforts by the Title III District Court to stay active
litigation for a set period of mediation to attempt to foster
consensual resolution and a settlement proposal \3\ for the remaining
debt followed by a proposed plan of debt adjustment that generally
follows the proposed settlement. The employee retirement system
obligations to employees and retirees has also been the subject of a
proposed settlement.\4\ In past resolutions of state and local
government debt restructurings like Detroit, Jefferson County,
Stockton, San Bernardino and others, there came a time when virtually
all creditor constituents, with some reluctance, reached a global
agreement and settlement that resolved litigation and provided a path
forward. Given the passage of time and the continuing litigious spirit
that has prevailed with the absence of a global settlement and general
agreement, all creditor constituents' frustrations and fatigue can
motivate the desire for drastic approaches. The Discussion Draft
appears to be a product of this environment.
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\2\ Puerto Rico's approved settlement: There are two settlements of
major public debt that have been approved namely: (1) the GDB debt of
$4.1 billion with a 55 cents on the dollar recovery and the COFINA
settlement of $17.8 billion of debt and private loans with a 93%
recovery for senior and 53.5% recovery for subordinated for a blended
recovery of 68%. Accordingly, of public debt, 29% of the $73.8 billion
public debt and private loans have court approved settlements.
\3\ Puerto Rico's proposed settlements to public debt and
consensual creditors: $35 billion of claims: The $35 billion of G.O.
bond debt, Public Building Authority obligations and other debt
originally supported by $3 billion of public bond debt. The G.O. bond
debt has a proposed settlement for the vintage G.O.s (pre-2012) of $6.9
billion with a 64% recovery: the 2012 G.O.s of $2.7 billion with a 45%
recovery or litigate: the 2014 G.O.s of $3.6 billion with a 35%
recovery or litigate. The Public Building Authority obligations that
the FOMB and Commonwealth are now calling debt consist of vintage PBA
(pre-2012) of $3.9 billion with a 73% recovery and the 2012 PBA of $0.7
billion with a recovery of 23%. Also, there is other unsecured debt
(non-G.O. and non-PBA unsecured creditors) of $16 billion with a
recovery of 9%. When you add the $35 billion of proposed settlements to
the $21.6 billion of approved settlements for public debt and private
loans there are about $56.6 billion of proposed and approved
settlements. These proposed settlements have been generally
incorporated into a proposed plan of debt adjustment for the
Commonwealth and instrumentalities in the Title III proceedings.
Virtually all of the $51.461 of bond and private loans contained in the
fiscal plan is covered by approved proposed settlements not counting
ERS pension liabilities.
\4\ Proposed employees' retirement systems settlement: There is
also a proposed settlement of the ERS pension liabilities of about $50
billion that proposes an 8.5% cut in pension benefits over $1.200 a
month and that affects about 39% of the retirees. This settlement
proposal is supported by the Official Committee of Retired Employees.
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Unfortunately, financial challenges and distress were compounded by
the natural disasters of Hurricanes Irma and Maria and other ill winds.
The resulting broken infrastructure only magnified the distress and
human suffering. Such human tragedy may blur legal priorities and, to a
degree rightfully so, shift the focus of efforts and attention. Puerto
Rico really needs a Marshall Plan to reinvest in Puerto Rico and
rebuild its infrastructure and economy. It appears illogical to ask a
government to provide its best proposal for repayment of its debts or
creditors to expect the best recovery when the engine for payment, the
government's infrastructure and economy, is struggling to exist. But,
public debt elimination is not the historically best, preferred or
economically productive method of resolving Puerto Rico's financial and
infrastructure challenges.
the proposed legislation and discharge of public debt
The proposed legislation would inter alia (a) add some further
definition to essential public services and economic growth, (b)
require disclosure by professional persons employed by court order, (c)
provide for the legislative discharge of unsecured public debt without
corresponding discharge or impairment of unsecured debt for goods,
services, pensions, other retirement benefits or healthcare benefits of
any kind under a newly created Title VIII, and (d) create a Public
Credit Comprehensive Audit Commission, Office of Reconstruction
Coordinator for Puerto Rico and Revitalization Coordinator for Puerto
Rico Power Authority under the proposed new Title IX.
The new Title VIII of PROMESA would authorize Puerto Rico and its
instrumentalities to be able to discharge (eliminate so that there is
no future liability or obligation to pay), financial obligations
(public debt securities and loan financial guarantees and derivative
transactions, hereafter ``Public Debt'') that is unsecured by enacting
a resolution that either has been adopted by (a) an affirmative vote of
over a majority of the members of each house of the legislature and is
signed by the chief executive or (b) an affirmative vote of not less
than two-thirds (2/3) of the members of each house of the legislature.
As noted above, discharge is limited to unsecured financial
obligations/Public Debt and does not include similar ranked and
classified unsecured debt related to goods, services, labor, pension,
other retirement benefits, healthcare, tax refund or tax credit. Given
Puerto Rico's debt per capita outstanding, receipt of disaster relief
and emergency assistance and loss of population, there should be no
doubt of Puerto Rico's ability to qualify for the relief of Title VIII
as intended by the proposed legislation. Will a Title VIII discharge
resolution supersede and undo approved and proposed settlements for
Public Debt? Will current unsecured Public Debt creditors demand
secured debt payout for the restructured remaining amount of unsecured
debt?
Purportedly, the legislature of Puerto Rico under the proposed
Title VIII could discharge secured Public Debt and place the burden on
the secured Public Debt holder to bring a declaratory judgment action
either in the courts of Puerto Rico or the Federal courts in Puerto
Rico to have its debt declared secured and determine the extent of the
secured status (all or part of the debt). Any pledge of revenue or
future tax payments by Puerto Rico or its instrumentalities, which is
the essence of revenue bond financing and statutory lien financing,
would be terminated as of the date of the legislation effecting the
discharge. Virtually all of state and local government financing is
based on payment from future revenue and taxes and over half of state
and local government financing in the United States is revenue bond
financing. This is the financing that provides funding for needed
infrastructure, improvements and capital improvements (schools, roads,
water, sewer and electrical systems, public buildings, etc.) for state
and local government as well as territories of the United States. Such
legislation as the Proposed Amendments places a cloud over and
threatens the viability of such financing for territories and state and
local governments as will be further discussed below.
Once the legislature of Puerto Rico has appropriately adopted a
resolution of discharge, the creditor of a financial obligation of
Public Debt is stayed and estopped from any action to collect or
enforce the discharged debt except for the declaratory judgment action
to determine if and to the extent it is secured. It appears that, if a
plan of adjustment is not confirmed or the Oversight Board is
determined not to be validly appointed, some or all of the $73.8
billion of financial obligations/Public Debt could be subject to Title
VIII, including the $21.7 billion of prior court approved COFINA and
GDB Public Debt and the Public Debt portion of the proposed $35 billion
settlement. There is no exception for prior court approved settlements
from discharge or the need for declaratory judgment. If this is not
intended, it should be specifically spelled out and excepted. Clearly,
$13.2 billion of Puerto Rico's General Obligation Bonds, $4.1 billion
of Highway Toll Authority Bonds, $4.0 billion of Public Building
Authority Bonds, $4.1 billion of Employee Retirement System Bonds,
etc., could, absent a confirmed plan of adjustment and a valid,
appointed Board, be at risk of discharge. In addition, Title VIII also
provides that financial obligations/Public Debt can be avoided or
invalidated under traditional legal theories.
The proposal of a Puerto Rico Public Credit Comprehensive Audit
Commission, under Title IX, empowers the Commission to audit Public
Debt and the sustainability of outstanding Public Debt and to assess
how new rules, policies and controls over Public Debt can be developed
or improved and to investigate any irregularities. While these are
noble goals, the Oversight Board and others have long been engaged in
pursuing this. There already exist suggestions for best practices for
governance, management and financing of Puerto Rico and its
instrumentalities as have been developed for states and local
governments. (See Government Finance Officers Association Best
Practices available on its website.)
The real question is not what or how much debt can be eliminated
but rather how best to obtain a financial recovery for Puerto Rico and
its instrumentalities that stimulates economic growth, creates new,
good jobs, encourages those who have left the Island to return (both
individuals and businesses), attracts new business to Puerto Rico,
funds needed improvements of essential services and infrastructure, and
fosters financially sustainable government that is fiscally responsible
and enhances access to the capital market (the goal of PROMESA, Section
101).
RECOVERY MUST BE THE FOCUS
The United States is not alone in confronting the problem of
sovereign debt in crisis. Dealing with the financial distress of a
government requires not merely short-term actions to reduce debt
obligations, increase tax revenues and lower costs, but also the long-
term reinvestment in the government, its economy and its people. The
financial challenges, loss of business and jobs resulting in many not
being meaningfully employed, the need for economic stimulus and
business development, the demands for social programs and governmental
services, the level of poverty and financial strain on programs to
address human distress have been well documented by Puerto Rico, its
community leaders, its creditors and the financial markets. Puerto Rico
has over 45 percent of its residents living at or below poverty level,
it has lost over 250,000 jobs since 2006, labor force participation in
Puerto Rico is at approximately 40 percent compared to average of 62.7
percent in the States, and, most distressing, 58 percent of Puerto
Rico's children (its future) are living below the Federal poverty
level. There should be no debate over whether assistance is needed now,
only the question of by whom and what form the assistance will take
needs to be answered. The experience of other sovereigns is
instructive.
As a parade of over 600 sovereign debt defaults between 1950-2010
involving 95 countries has demonstrated, there are too many repetitive
problems because of a limited focus on reducing external debt without
addressing the systemic problem that caused the economic distress.\5\
The missing and needed ingredient in these failed sovereign
restructurings of debt is the long-term reinvestment in the government
and its people to improve and expand governmental services and
infrastructure and stimulate business opportunities. This creates
growth of new businesses and new jobs resulting in new taxpayers to
increase tax revenues that brings about the real recovery for the
health, safety and welfare of citizens. Such an approach is likely in
the best interests of not only the government but also its citizens and
taxpayers and its creditors, including employees and retirees. It is
only through a robust recovery plan that creditors, including employees
and retirees, will be paid to the fullest extent possible.
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\5\ See James E. Spiotto, Municipalities in Distress? (Second
Edition) 9-30 (Chapman and Cutler LLP 2016).
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concerns and consequences of the proposed legislation
The wholesale discharge or elimination of Public Debt without a
reasonable justification will result in higher borrowing costs for
Puerto Rico assuming it can achieve market access. A government
requires access to borrowing and the capital markets because tax
revenues are irregular in timing of payments and amount and needed
liquidity literally to keep the lights on requires market financial
credibility and access. Financial credibility is premised on the
ability and certainty of repayment of the borrowed debt. The past
experience of sovereign debt borrowers who default or repudiate debt
(discharge by elimination as the legislation proposes) has been to
suffer the significant increase in the cost of borrowing or annual
interest cost or yield due to recent failure to pay, especially if
there was not complete justification for the total elimination of the
debt or a justified inability to pay. For that reason, any sovereign,
state or local debt restructuring has been a partial reduction or
haircut in principle not a complete discharge or elimination of debt
going forward.
It should be noted for Public Debt of state and local governments
in the United States there has been a very low default rate and
generally a higher recovery rate than for corporate debt. Historically,
between 1839 and 1978 the annual default rate is about a .058 percent
or less than 6/100 of 1 percent for 130 years.
Recorded Defaults, by Type of Local Government Unit 1839-1969
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Sources: Default information in The Daily Bond Buyer, The
Commercial and Financial Chronicle and The Investment Bankers'
Associations Bulletin: default lists from Federal Deposit Insurance
Corporation, Life Insurance Commission, and U.S. Courts; and Albert M.
Hillhouse, Defaulted Municipal Bonds (Chicago: Municipal Financial
Officers Association, 1935). Number of local government units from:
U.S. Department of Commerce, Bureau of Census, Census of Governments,
1967, Vol. 1 ``Governmental Organization'' (Gov't Printing Office,
1969) and ACIR Report Bankruptcy, Defaults and Other Local Government
Financial Emergencies U.S. Government 1973.
Since 1970, Moody's reports that for rated state and local
government municipal bonds between 1970-2013 there was an average of
two rated bond defaults per year with a recovery rate of at least 60
percent which is higher than the recovery for corporate senior
unsecured bonds of 48 percent. Recoveries in recent Chapter 9
bankruptcies were 80 percent for sewer bonds in Jefferson County, 100
percent of principal for special revenue bonds for water and sewer in
Vallejo, Stockton and Detroit. There have been 684 Chapter 9 municipal
debt adjustments since 1937 the enactment of Chapter 9, 362 Chapter IX
between 1937 and 1972 with average recovery of 64.7 percent, and 18
Chapter IX between 1954-1972 with an average recovery of 73.9
percent.\6\ The default, repudiation and discharge of unsecured Public
Debt of Puerto Rico under the proposed Title VIII would be in stark
contrast to the historical default rate and recovery rate for state and
local governments in the United States and the overall percentage of
Haircuts (percent reduction of principal amount of debt) for sovereign
Public Debt globally.
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\6\ Prior to 1978, the roman numeral IX was used to indicate the
Chapter on municipal debt adjustment. Under the Federal Bankruptcy Code
after 1978, the Arabic number 9 was used.
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Without any justification for the reduction of debt based on
anticipated revenue and expense and sustainability, the proposed Title
VIII legislature resolution would discharge the unsecured Public Debt.
This result for sovereign, state and local government restructurings is
historically beyond rare and borders on dangerously unique. For the 180
sovereign restructurings between 1978-2010, the estimated Haircut was a
mean of 37 percent, median of 32.1 percent and standard deviation of
27.3 percent.\7\ The range was generally from a 2 percent Haircut to 80
percent Haircut. The potential results for Puerto Rico under proposed
Title VIII discharge would produce an extreme Haircut and stigma on the
credit worthiness of Puerto Rico that appears not only unprecedented
but also unjustified with no rationale for the extreme result.
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\7\ Sebastian Edwards, Sovereign Default, Debt Restructuring, and
Recovery Rates: Was the Argentinean ``Haircut'' Excessive? National
Bureau of Economic Research (Feb. 2015), https://www.nber.org/papers/
w20964, see also Maximiliano A. Dvorkin, Juan M. Sanchez, Horacio
Sapriza and Emircan Yurdagul, Sovereign Debt Restructurings, Federal
Reserve Bank of St. Louis (August 2019), https://doi.org/10.20955/
wp.2018.013.
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the discharge of public debt under proposed title viii would increase
the perception of risk and cost of borrowing for puerto rico
As noted above, the ability of government to borrow funds in the
capital market is critical to its long-term financial survival. Any
increased perception of risk from a high default rate and low recovery
rate of past government borrowing will increase the annual interest
rate which reflects the risk of repayment to the lenders.
Access to the market at a low cost of borrowing is desired by all
government borrowers. Access and the cost of borrowing is a reflection
of the perceived risk of the government credit: Fiscal distress for
government begets a higher cost of borrowing and even loss of access to
the market. On March 2, 2012, Greece had a 10-year bond annual yield of
37.1 percent and in July, 2015, after the third attempted bailout and
austerity package being implemented, Greece's annual yield is still
over 10.5 percent with a 52-week range of 5.5 percent and 19.5 percent.
Greece has defaulted on its sovereign debt since 1826 at least five
times prior to its recent financial crisis (1826, 1843, 1860, 1894 and
1932). Brazil, a large developing economy which defaulted or
restructured its sovereign debt 11 times since 1826, the last time
1990, had an average 10-year bond annual yield between 2006 and 2015 of
approximately 12.3 percent with an all-time high of 17.91 percent in
October, 2008. Puerto Rico, given its recent financial distress
experience, had yields on its 10-year G.O. bonds exceeding 10 percent
in February, 2014. At the same time, other sovereigns experienced
usually low bond annual yields of 2.27 percent for U.S.A., 1.52 percent
for Canada, .74 percent for Germany and 1.03 percent France. A review
of selected sovereigns that have defaulted since 1998 demonstrates
default does result in a time out or lack of access to the
international bond market.
Analysis of Recent Sovereign Restructurings 1998-2010
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Source: Federal Reserve Bank of Dallas, Global and Monetary
Policy Institute Working Paper No. 143, Aitor Erce, April 2013.
In the Detroit Chapter 9 municipal bankruptcy, the emergency
manager's unjustified attack on Unlimited Tax General Obligation Bonds
(ULTGOs) raised the perception of risk and increased annual interest
rates. The filing of the Detroit Chapter 9 proceedings and the
Emergency Manager's unwarranted attack on ULTGOs caused other
municipalities in Michigan, like school districts, to experience
approximately 100 basis points increase in the annual interest rate,
the cost of borrowing, on ULTGOs due to the Detroit contagion. In
California, the Detroit fall out cost school districts a 50-100 basis
point increase, which was historically unjustified given the Chapter 9
experience of San Jose School District and Sierra King Health Care
District cases. California response through the efforts of CDIAC was to
attempt to clarify the intended low risk of California ULTGO by passing
SB 222 to reconfirm that California state law provides a statutory lien
intended to be unimpaired and paid in a Chapter 9.
There is a 200-300 basis point spread between strong and weak
credits. Traditionally the spread in the state and local government
municipal market between strong credits (top investment grade) and
significantly weak credit (lower non-investment grade) was 200-300
basis points.\8\
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\8\ Traditionally the spread in the municipal market between strong
credits (top investment grade) and significantly weak credits (lower
non-investment grade) was 200-300 basis points (See e.g., approximate
200 basis point trading spread between Detroit sewer and water with and
without Chapter 9 threat and Chicago sale tax securitization
approximate 275 basis point lower than similar Chicago maturities.
https://fixedincome.fidelity.com/ftgw/fi/FINewsArticle?id=2018
01251903SM_BNDBYER_00000161-2a4f-dad2-a779-ff4fc963_110.1. Even if
weaker creditor or past defaulters suffer only a 200 to 300 basis point
rise in annual interest expense, that is 60% to 90% more payment of
principal over 30-year period. (Spread between AAA and BBB can vary 100
to 150 basis points. Baird Fixed Income Study, 4/7/14, p. 8.) February
28, 2018, S&P Municipal Bond Index AAA (average duration 4.9 years) to
B (average duration 6.08 years) on average 230 basis point yield
difference. Bloomberg Barclay BVAL scale 10 years AAA rated bond to BBB
rated bond, a difference of 97 basis points in yield (March 21, 2018).
That additional cost could have been used to reduce taxes, pay for
needed infrastructure or services or pay unfunded pension obligations.
In the near term spread may widen thereby increasing the cost of
borrowing for weaker credits.
Being classified as a weaker credit increases the cost of the
borrowing by 25 percent or more of the face amount of debt and should
be avoided if possible. To a state or local government or territory
like Puerto Rico, a 200 point per year or 2 percent more interest cost
a year on a 20-year bond with a bullet maturity would be 40 percent
more of the principal amount paid as interest over 20 years. Put
another way, on a billion dollar debt issue with a 20-year maturity and
a bullet payment of principal at maturity, a 2 percent additional
interest cost per annum would be a present value at a 5 percent
discount of about $250 million or 25 percent of the face amount. That
is $250 million not available to a state, local or territory government
to pay needed infrastructure improvements, public services, worker
salaries, retiree benefits or tax relief to its citizens. These are
funds desperately needed by Puerto Rico for reinvestment into Puerto
Rico.
puerto rico's historical and constitutional treatment of public debt is
turned on its head and is contrary to proposed title viii discharge
The Treaty of Paris ending the Spanish-American War of 1898
resulted in control of Cuba, Puerto Rico, Guam and The Philippine
Islands being given to the United States. Cuba in 1902 and The
Philippines in 1946 were given independence. Puerto Rico and Guam
remain territories of the United States. In recent years, Puerto Rico
as a Commonwealth flirted with independence or statehood with no clear
decision.
Puerto Rico was founded on the principles that Public Debt has a
first priority of payment upon default (along with expense of insular
government) embodied in Section 34 of the 1917 Jones Act, which
governed Puerto Rico prior the Commonwealth's Constitution in 1952. The
inclusion of Article VI, Sec. 8 in the 1952 Puerto Rico Constitution
continued this policy providing constitutional Public Debt, upon
insufficient funds to pay expenses, was first to receive payment from
``available resources.'' The statute and constitution mandate that upon
insufficient funds and default on general obligation bonds first
available funds are to pay Public Debt general obligation bonds. When
faced with the 2006 financial crisis, Puerto Rico, with $40 billion of
Public Debt outstanding, chose to borrow more rather than restructure
its debt. Puerto Rico used additional general obligation bonds and the
COFINA securitization structure to add another $17 billion of Public
Debt by 2015 that purportedly was not limited by the constitutional
debt limit, resulting in Public Debt of Puerto Rico totaling over $72
billion. Both the constitutional priority of general obligation bonds
and COFINA securitization bond structure were market accepted and
tested financing that enhanced repayment as well be discussed below.
Generally, the Puerto Rico Public Debt structure has followed the
traditional structure used by U.S. states and local governments. Puerto
Rico's over $13 billion of General Obligation Bonds follow the
constitutional priority for payment of G.O. bond debt found in the
constitutions and statutes of U.S. states like New York. The financial
distress case of New York City in 1975 demonstrates the effectiveness
of this constitutional provision that was found to be binding and
enforceable to end the moratorium on payment of bond debt that mandated
a refinancing rather than a Chapter 9 bankruptcy for New York City as
the Flushing National Bank case, 40 N.Y.2d 731 (1976) described. The
New York highest court found that this constitutional provision in the
New York Constitution, which is similar to the Puerto Rico
constitutional provision that followed New York's model, mandates the
government to make payment of first available funds to the Public Debt
general obligation bonds and delay or non-payment were not to be
tolerated if funds were so available. Likewise, the COFINA
securitization structure is intended to be similar to New York City's
Sales Tax Receivable Corporation and not included in constitutional
debt limits or offensive to the rights of outstanding G.O. debt as the
Court of Appeals (the highest court in New York) ruled in 1977 in the
case of Quirk v. MAC for City of NY, 41 N.Y.2d 644 (1977). The passage
of the proposed Title VIII for discharge of unsecured Public Debt of
Puerto Rico like general obligation bonds would raise not only
constitutional challenges but be contrary to the provision of PROMESA
that creditor rights were to be honored consistent with Puerto Rico's
constitutional and statutory provisions. Any unjustified discharge of
Public Debt would further enflame litigation that is already overloaded
with issues and disputes.
the united states' tradition of honoring public debt obligation
Early in our country's history, the importance of honoring Public
Debt obligations was declared as the prudent and sound path to take as
a developing country. It should be remembered that ``No pecuniary
consideration is more urgent than the regular redemption and discharge
[payment] of Public Debt. On none can delay be more injurious or an
economy of time more valuable.'' These were the words of George
Washington, over 220 years ago, in his State of the Union address on
December 3, 1793. Washington and Hamilton were instrumental in having
the Federal Government assume the states' debt from the Revolutionary
War since some states were balking at paying such debt. Those states
feared their good tax dollars would go to pay Northern speculators (who
purchased the debt at a discount) or the debt of other states who were
big borrowers. Washington and Hamilton knew that the progress of the
Nation could be no swifter than its financial credibility. The Federal
Government assumed the states' Revolutionary War debt to avoid
repudiation and to assure financial credibility on the Federal and
state level. Now, there are echoes of this same debate over 225 years
later. Will there be the same result?
In the aftermath of the Panic of 1837 and the need for states to
borrow to pay for transportation improvements in the North (given the
success of the Erie Canal) and for banking services in the South, 19
out of 26 states and two territories borrowed money for economic
growth. By the 1840s, eight states and one territory defaulted on those
borrowings and repudiated those debt obligations. Those issuers that
repudiated the debt then experienced either an inability to borrow
additional funds or, if they could obtain financing for needed
governmental improvements and services, suffered the imposition of a
32%+ yield. By the late 1840s, seven of the eight states had renounced
their repudiation and resumed payment on the debt in order to obtain
market access at a lower cost. The state and one territory that were
left repudiating their debt struggled for over a decade to obtain
funds, let alone at a reasonable cost.
After the Civil War, in response to suggestions that the government
should discount the cost of war debt by paying it in greenbacks as a
devalued currency, President Grant, in the spirit of Washington and
Hamilton 80 years earlier, chose to protect national honor. He stated
every dollar of the government indebtedness should be paid in gold.
Unfortunately, such was not the fate of the failed confederate
government's war debt. By means of the 14th Amendment, debt incurred in
aid of insurrection was deemed illegal and void. Since the late 1880s,
no state has defaulted on its general obligation bonds except Arkansas
in 1933 which was quickly refinanced and paid.
the lack of a rationale for the extent of discharge contradicts the
purpose of promesa
As noted above, sovereign debt restructurings and Chapter 9
municipal debt adjustments are not efforts in debt elimination without
a justification for the wholesale elimination of Public Debt but were
efforts to provide a ``fresh start'' by reducing debt to an affordable
and sustainable level and discharging only that which is incapable of
being repaid due to the dire financial circumstances of the government
based on an established rationale or justification for the amount of
debt eliminated or discharged. As noted above, of the 600 plus
sovereign debt restructurings since 1950, there are no examples of a
legislative discharge like proposed Title VIII that eliminates all
unsecured Public Debt as of the legislative action and leaves
unimpaired trade creditors, public workers, pension and other
retirement benefits and tax refunds and credits,. The extreme and
discriminatory discharge of Public Debt appears to have no
justification or basis for the extent of discharge. Chapter 9 municipal
debt adjustment that PROMESA incorporates in part in Title III of
PROMESA specifically provides the adjustment of debt is for the ``best
interests of creditors'' (Section 314(b)(6) of PROMESA), to the extent
necessary to be ``feasible'' and is to be ``fair and equitable,''
(Section 314(c)(3) of PROMESA). These standards are not per se
attributable to the blanket discharge of unsecured Public Debt under
the proposed Title VIII. Further, PROMESA was premised on not altering
of ``pre-existing priorities of creditors in a manner outside the
ordinary course of business or inconsistent with territory's
constitution or laws of the territory as of, in the case of Puerto Rico
May 4, 2016 . . . [Section 204(c)(3)(ii) of PROMESA. For example, the
discharge of unsecured general obligation bonds while paying in full
trade vendors for goods and services, public workers, pension and other
retirement benefits, healthcare benefits and tax refunds and tax
credits purportedly in full from ``available revenues'' is a violation
of and contrary to the purpose and intent of Article VI, Section 8 of
Puerto Rico's Constitution that, as noted above, similar to New York
and other states, provides a priority of payment to ``unsecured general
obligation bonds'' where there are insufficient funds to pay all
liabilities.
proposed title viii would violate existing rights of secured creditors
The requirement in proposed Title VIII that a secured creditor
would not be secured by a pledge, dedication or mandate after the date
of the discharge legislation and future revenues would no longer be
paid to and be security for the secured debt violates the continuing
lien and pledge of special revenues which the District Court in the
Title III proceeding and the U.S. Court of Appeals for the First
Circuit have ruled is effective and valid and not terminated. Assured
Guaranty Corp., et al. v. The Financial Oversight and Management Board
for Puerto Rico, et al., 919 F.3d 121 (1st Cir. 2019). Further,
statutory liens purportedly granted by legislation of Puerto Rico
mandate the payment for such bonds as COFINA [P.R. Laws Ann. tit. 1399
11a-16] and PROMESA is not to rewrite prior existing laws of Puerto
Rico and creditor rights given the required compliance with
constitutional laws. Further, this restriction reducing or eliminating
the security for secured debt on pledged, dedicated, ``secured'' tax
revenues after the discharge legislation date raises the issues of
taking property (secured interest) without just compensation in
violation of the Fifth Amendment.
the proposed title viii legislation discharge of unsecured public debt
is a prohibited legislative punishment without trial and lacks due
process
The proposed Title VIII legislative discharge of unsecured Public
Debt provides no ability to contest, appeal or have the benefits of a
trial or due process. This amounts to a legislative punishment of
unsecured Public Debt holders without a trial equivalent to a bill of
attainder prohibited by Article I, Section 9, Clause 3 of the U.S.
Constitution. The holders of unsecured Public Debt are summarily
estopped and stayed from any further legal remedies or enforcement of
their debt and in effect barred from legal redress to the courts. This
threatens the traditional notion of due process and the limits of the
power of the legislature to punish without trial. [U.S. v. Lovett, 328
U.S. 303 (1946)]
the proposed title viii unfairly and inequitably discriminates against
holders of unsecured public debt
As noted above, without trial, rational standard for the extent of
discharge or reasonable justification to limit discharge to unsecured
Public Debt, the proposed Title VIII authorizes discharge of financial
obligations/Public Debt but does not deal with and leaves unimpaired
debt for goods, services, pension and other retirement benefits, health
care benefits, tax refunds and tax credits that are also unsecured and
of equal priority and standing. Such invidious discrimination among
creditors would not be tolerated, especially without due process and
trial in any Chapters 7, 11 or 9 bankruptcy proceeding. The lack of
uniformity and the failure to provide for fair and equitable treatment
of all creditors cannot be the basis for an appropriate amendment to
PROMESA.
there are systematic causes of puerto rico's financial distress
separate and apart from the devastation caused by hurricane maria that
promesa and any recovery plan must address
Counter past economic downturn with economic stimulation and
development. With the repeal of Section 936 and exit of corporate and
individual taxpayers, with the accompanying loss of tax revenues, there
has been no real replacement or long-term economic development strategy
to expand business in Puerto Rico. Key to recovery is attracting new
business to Puerto Rico, thereby providing new, good jobs for Puerto
Rico's population, and attracting a significant increase in population
and taxpayers.
Correction of adverse Federal policies that cost Puerto Rico
billions such as the permanent repeal of the Jones Act, elimination of
any inequalities in Medicare, Medicaid, SSI, EITC and CTC. Congress
should examine existing legislation that could be modified to assist
Puerto Rico in its effort to resolve its financial and infrastructure
crisis. The Jones Act that requires foreign flag vessels that stop in
the U.S.A. continental ports and Puerto Rico to pay a tariff increasing
the cost of goods for Puerto Rico should be repealed for Puerto Rico's
case permanently. Federal assistance in programs to develop new
commerce and economic stimulation (such as encouraging increased
business activity and supporting manufacturing opportunities, high
tech, green tech, creation of new energy generation and strategy for
the short- and long-range economic development by Puerto Rico that its
creditors can buy into).
Solving the tax collection problem through identification and
implementation of new or increased tax sources along with increasing
collection efficiency. The exploration of new tax policies that would
stimulate economic development, and new tax sources that do not
adversely affect such economic development efforts should be explored.
Dealing with deficiencies in tax collection methods are problems that
can be solved or at least greatly reduced, which would bring in
additional revenues even without adding new or higher taxes
Reverse the stigma of financial distress by improving financial
creditability in the capital markets. It would be counter-productive to
have the result of any recovery plan be less access and increased
borrowing cost for Puerto Rico. Accordingly, steps should be taken to
assure that the recovery plan will increase market access and lower
cost of borrowing both short-term and long-term. This can be done by
following established, best practices of government accounting,
administrative budgeting and financing to the extent they have not
already been adopted.
Treatment of outstanding Public Debt by PROMESA process must be
perceived by the market as fair. As a result of the widespread
devastation of the island caused by Hurricane Maria, holders of the
Public Debt of the Commonwealth and other related issuers are faced
with an inability to pay situation. While Federal assistance to the
island will be forthcoming, this assistance will not take the form of a
bailout of outstanding Public Debt. However, it will be important that
the ultimate resolution of the outstanding Public Debt be perceived as
fair to all parties, including the citizens of Puerto Rico and
creditors including Public Debt and not arbitrary under the
circumstances.
proposed further response to the financial crisis and hurricane maria
to address the need to rebuild puerto rico's infrastructure and
stimulate its economy
First stop human suffering and develop a Marshall-type plan for
Puerto Rico's governmental services and infrastructure. The first
immediate action is to assure the health, safety and welfare of the
citizens of Puerto Rico with provision of food, water, medical
services, governmental service and infrastructure all to a level deemed
acceptable. This is a Marshall-type plan for Puerto Rico for services
and infrastructure (roads, water, sewer, electricity, etc.) at a level
that can attract remaining and new citizens and businesses that want to
be there and expand their businesses in Puerto Rico. This will create
new, good jobs that produce additional tax revenues needed for a
recovery. The technical and financial assistance can be provided not
only by emergency relief but also other Federal agencies with
established expertise DOE (electricity), EPA (clean water) and HUD
(housing), etc.
Develop a long-range economic development strategy for Puerto Rico
to elevate Puerto Rico's business opportunities and roles in the
Caribbean. There should be a long-range economic recovery plan for
Puerto Rico which is implemented at the same time or in coordination
with the Marshall-type plan that establishes viable and desirable
services and infrastructure at the appropriate level as noted above.
This economic development plan should provide assured liquidity for
continued uninterrupted governmental operations and any necessary
bridge financing in coordination with the implementation of the
``Marshall-type plan.'' The economic recovery plan should consider
making Puerto Rico (which means Rich Port) the key point of commerce
for the Caribbean. Numerous islands have been continuously affected by
the hurricanes in the Caribbean, and Puerto Rico could be the port and
the location where all relief and all commercial activity is focused as
the staging and coordinating center. This allows a coordinated effort
and allows Puerto Rico to be elevated to a key role for the Caribbean.
Part of this would include establishing Puerto Rico as the center of
commerce for the Caribbean for banking, shipping and processing
assembly of goods from foreign manufacturers for distribution in the
Caribbean and possibly Central American and other locations.
Also, legislation by Congress and the Commonwealth could provide
for financial banking services to be the U.S.A. equivalent of the
Cayman Islands for specialty financings and investment vehicles. This
would facilitate Puerto Rico's becoming the banking center for the
Caribbean like London has been for Europe. There already exist programs
for high income persons to obtain tax benefits from a Puerto Rico
residence and investment in Puerto Rico, and this would be a further
expansion. Puerto Rico Laws Act 20 (Export Service Act) and Act 22
(Individual Investors Act). Also, as part of the economic recovery
plan, the whole island of Puerto Rico should become a foreign trade
zone (a free trade zone) where equipment, goods and parts manufactured
in foreign countries can be shipped to Puerto Rico duty-free and
processed, assembled or manufactured with only limited duties on the
finished product. Such actions would stimulate additional business
activity and the benefits of new financial, shipping and manufacturing
jobs [direct (the new jobs created by the economic policy), indirect
(jobs created for good and services to support the direct job) and
induced (jobs created by salaries spent for goods and services by those
with the direct and indirect jobs)]. Historically, Puerto Rico had 46
percent of its GDP attributed to manufacturing.
the path forward for puerto rico, its citizens, businesses and
creditors
Citizens, taxpayers, business interests, and creditors of Puerto
Rico should support the above proposal for an economic recovery plan,
since it is the economic growth and success of Puerto Rico that is the
means by which additional tax revenues will be raised, providing the
funds to pay debt and other obligations, and to fund governmental
services and infrastructure at the acceptable level. There is no
substitute for the practical ability to be paid from a recovery plan
that maximizes value and recovery to the extent reasonable and
reinvests in Puerto Rico to ensure continued operations and sufficient
tax revenues to pay off its creditors based on what can be paid. If
there is no money, there is no payment no matter the rights or
priorities. All the rights legally possible do not necessarily
translate into payment of Public Debt or assurance of funding of
essential services and needed infrastructure if an entire tax-base,
i.e., U.S. citizens, are left with nothing to rebuild and no
opportunity to recover.
______
Questions Submitted for the Record by Rep. Grijalva to Mr. James
Spiotto, Managing Director, Chapman Strategic Advisors
Question 1. Mr. Spiotto you say, that if a plan of adjustment is
not confirmed or the Oversight Board is determined not to be validly
appointed, some or all of the $73.8 billion of Puerto Rico Public Debt
including the $21.7 billion of prior court approved COFINA and GDB
Public Debt, could be eliminated under the ``Discussion Draft's''
proposal to allow for the discharge of unsecured debt.
How is this possible when we were advised that it would be
unconstitutional for secured Public Debt to be discharged except
through a court approved bankruptcy?
Answer. Unfortunately, the language of Title VIII of the Discussion
Draft Bill, Amendments to PROMESA Act (``Proposed Amendments'')
provides for the impairment and elimination of security interests,
liens and pledges of tax revenues to be collected in the future after
the date of the discharge resolution. Further, proposed Title VIII does
not clearly state whether the legislative discharge of unsecured public
debt could supersede or is subject to prior settlements approved by the
Title III or Title VI courts under PROMESA. Further, if the Plan of
Adjustment under Title III, as proposed by the Oversight Board, is not
confirmed by the courts (``Confirmation'') or if the U.S. Supreme Court
should rule in the Aurelius Appeal that the Oversight Board was not
validly appointed and all acts of the Oversight Board are null and void
and of no legal effect, including the prior court approved settlements
and those proposed in the Plan of Adjustment,\1\ and if the Proposed
Amendments are enacted, then the proposed Title VIII, by legislative
resolution, could discharge some or all of the $73.8 billion of Puerto
Rico debt including prior court approved COFINA and GDB public debt.
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\1\ The court approved settlements and proposed plan of adjustment
settlements are generally set forth in my written testimony, Footnote 2
and 3.
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This could be done by a resolution of the Puerto Rico legislature
under the proposed Title VIII. Under proposed Title VIII, financial
obligations/public debt is conclusively deemed to be unsecured (Section
804(a)). A holder of public debt which is secured must institute an
action in territorial courts or the U.S. District Court of the
territory within 180 days after the date of discharge and prove the
secured status extent and value of collateral related to the public
debt (Section 804(a)(1) and (2)). The burden of proof is on the holder
of public debt (Section 804(b)).
The value of collateral being a pledge of future tax revenues to be
collected to pay COFINA bonds would, pursuant to Title VIII (Section
804(h)(3)), not include future tax revenues collected after the date of
the discharge resolution even though, for example, the clear intent
under COFINA was that those future revenues would serve as collateral
and security for payment of the COFINA bonds. Prior legislation by
Puerto Rico provided that COFINA bonds were to have a statutory lien on
such levy and collection of sales and use tax revenues. 13 L.P.R.A.
Sec. Sec. 11a-16. This statutory lien would purportedly be eliminated
after the date of a discharge resolution under proposed Title VIII
(Section 803). Further, Federal bankruptcy courts have recognized that
statutory liens created by state (territory) statutes cannot be
rewritten, impaired, or avoided by a Federal bankruptcy court. See In
re County of Orange, 189 B.R. 499 (C.D. Cal. 1995). See also, Order
Pursuant to (I) 11 U.S.C. Secs. 105, 364(c), 364(d)(1), 364(e), 902,
904, 921, 922 and 928 (A) Approving Postpetition Financing and (B)
Granting Liens and (II) Bankruptcy Rule 9019 Approving Settlement of
Confirmation Objections, In re City of Detroit, Case No. 13-53846
(Bankr. E.D. Mich. Aug. 25, 2014), ECF No. 7028.
Further, the general obligation bonds issued by the Commonwealth
are to have a constitutional priority of being paid first from
``available revenues'' when there are insufficient funds to pay all
obligations under Article VI, Sec. 8 of the 1952 Puerto Rico
Constitution. This constitutional priority for general obligation bonds
and for pledges of future tax revenues has been honored in state
courts, such as in New York, as to general obligation bonds of the City
of New York during New York City's 1975 financial crisis and the New
York City Sales Tax Receivables Corporation bonds, similar to COFINA
bonds, as confirmed by ruling by the highest court in New York. (See
pages 10 and 11 of my written testimony.)
The result under proposed Title VIII discharging future payments of
tax revenues after the date of the discharge resolution and excluding
the value of such future revenues in the determination of the secured
value of the collateral and status is contrary to other provisions of
PROMESA. As noted in my written testimony, PROMESA was premised, not on
altering of ``pre-existing priorities of creditors in a manner outside
the ordinary course of business or inconsistent with the territory's
constitution or laws of the territory as of, in the case of Puerto
Rico, May 4, 2016 . . .'' (Section 204(c)(3)(ii) of PROMESA). Such a
result would violate not only PROMESA, but the takings clause of the
Fifth Amendment to the U.S. Constitution and traditional notions of due
process and established bankruptcy law. For these reasons and those set
forth in my written testimony, proposed Title VIII violates the
principles and provisions of PROMESA, the U.S. Constitution, and the
precedents set in previous sovereign debt restructurings as being too
drastic, without standards, rationale or justification for discharge of
unsecured debt and the improper avoidance and elimination of ``future
to be collected'' collateral for secured debt.
Question 2. Do you agree with the hypothesis ``that PROMESA was
premised on a path marked by immediate and extreme fiscal austerity in
order to repay Wall Street bondholders rather than one that was focused
on improving and growing the island's economy which would mean the
repayment of a sustainable level of debt over a reasonable time
period''?
Answer. No. I do not believe the intent and purpose of PROMESA is
or should be ``fiscal austerity in order to repay Wall Street
bondholders.'' Rather, the express purpose under Section 101(a) of
PROMESA is clearly stated: ``The purpose of the Oversight Board is to
provide a covered territory to achieve fiscal responsibility and access
to the capital markets.'' As I noted in my written and oral testimony,
there should be no dispute that Puerto Rico needs a recovery plan that
reinvests in Puerto Rico, that corrects past legislative inequities (as
noted in my testimony, in particular, the repeal of Section 936 of the
IRS Code effective in 2006 without a comparable replacement) and that
would stimulate economic development, encourage businesses to locate
their businesses in Puerto Rico, and invest in Puerto Rico thereby
creating new, good jobs for those in Puerto Rico. This economic
development would raise the labor participation rate from 40 percent
closer to the U.S. average of 62.7 percent and reduce the poverty level
from over 40 percent closer to the U.S. average of 12-15 percent. This
economic stimulus legislation could be fostering and creating Puerto
Rico as a center for financing, insurance, commercial activity and
manufacturing for the Caribbean with tax advantages or incentives for
expanding and creating a foreign trade zone for the whole Island,
exempting the 20 percent surcharge on foreign manufactured equipment
and parts for manufacturing or assembly in Puerto Rico.
Austerity per se reduces economic activity and is counter to the
development of a feasible recovery plan that enhances services and
infrastructure and repays restructured debt to the extent it is
affordable and sustainable. Assuring the funding of needed governmental
services at an acceptable level and needed infrastructure improvements
is essential to a successful recovery plan. Clearly inefficiencies,
waste and mismanagement of government and governmental services should
not be tolerated. This is not austerity, but prudent management of
government. Raising taxes beyond a reasonable level or reducing
services or necessary infrastructure improvement below what can be
tolerated by taxpayers and businesses results in the exodus of citizens
and taxpayers, as Puerto Rico knows so well, and, if not corrected, can
become a death spiral.
As noted in my testimony, given the disaster relief Puerto Rico is
to receive and needs to receive, it would be constructive for Congress
to consider an expedited ``Marshall Plan'' for Puerto Rico \2\
providing the needed rebuilding of its infrastructure and instilling
best practices in budgeting and finance for state and local governments
as espoused by the GFOA and others. With a rebuilt infrastructure,
Puerto Rico can better provide needed services to its citizens,
stimulate its economy \3\ and, with a reasonable replacement for the
repealed Section 936, attract new business and new taxpayers creating
increased revenues to ease the pain of repaying the adjusted
(affordable and sustainable) debt of Puerto Rico while providing needed
and improved services and infrastructure improvements. Without a
rebuilt infrastructure and stimulated economy, as noted above, it may
well be impossible to attempt to rationally discuss what adjustment of
debt is affordable or sustainable.
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\2\ The more expedited the payment of $41 billion in disaster
relief to rebuild Puerto Rico infrastructure, as well as the claimed
$50 billion of future FEMA cost over the life of the disaster, the
better it is for a successful recovery plan. The better supervised,
assured and efficient management and implementation of disaster relief
funding by the Federal Government, Oversight Board and Puerto Rico, the
better the economic stimulus to Puerto Rico will be.
\3\ Economic growth and job multiplier. Reinvestment in needed
infrastructure improvements creates increased GDP. As studies have
shown, $1.00 of hard infrastructure costs adds $3.20 over 20 years to
GDP growth. Further reinvestment in infrastructure translates into year
to year growth of the number of employed workers and GDP growth given
the economic stimulus and job multiplier. (Every new job creates
service jobs, indirect and induced, that increase productivity
indirectly. This can range from two or three to four or more new jobs
depending upon the industry it is created in.) See, Isabelle Cohen,
Thomas Freiling, Eric Robinson, The Economic Impact and Financing of
Infrastructure Spending (Dec. 14, 2011), https://www.wm.edu/as/
publicpolicy/documents/prs/aed.pdf. The stimulation of economic growth
through programs that attract new business to move into Puerto Rico
(like a replacement of the repealed Section 936) and create new jobs
increase the tax revenues that help resolve the financial distress and
lead to financial recovery.
Question 3. Can you explain your conclusion that Title VIII could
allow a secured creditor to lose their security when we expressly limit
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the title's application to ``unsecured debt''?
Answer. As noted above in the answer to Question No. 1, proposed
Title VIII provides in Section 804(a) of the Proposed Amendments that
financial obligations/public debt are conclusively deemed to be
unsecured debt except to the extent the holder of public debt can prove
the public debt is a secured obligation. Section 804(h) of the Proposed
Amendments provides that in the action to prove the public debt's
secured status, any pledge or security interest in tax revenues not in
existence at the date of the discharge resolution, such as tax revenues
pledged, dedicated, subject to a security interest or lien to pay
public debt and required to be collected after the date of the
discharge resolution, shall not be included as collateral value in
determining the extent of the secured value. This is contrary to the
principles of revenue bond financing and statutory lien bond financing
as recognized and enforced by state and local governments. This
conflicts and violates the statutory and constitutional provisions of
Puerto Rico's Constitution and Laws, as noted above, which, under the
terms of PROMESA, are not to be violated. The elimination and
termination of pledges, liens and security interests as to future tax
revenues or other property that comes into existence after the date of
the discharge resolution under Section 804(h) of Title VIII of the
Proposed Amendments causes secured creditors to lose their security
even though proposed Title VIII claims to only discharge ``unsecured
debt.''
Question 4. In your statement, you don't address the Discussion
Draft section that would define essential public services.
Nevertheless, you urge Congress to assure the health, safety and
welfare of the citizens of Puerto Rico with provision of food, water,
medical services, and infrastructure all to a level deemed acceptable.
Is that consistent with defining essential public services to
ensure they are funded by the Oversight Board?
Answer. As I stated in my written testimony, essential government
(public) services should be funded to an acceptable level. It is the
function of government to fund essential services and, given the
circumstances, fund the services at an acceptable, prudent level given
the ability to pay and the tax burden placed on citizens. As noted,
raising taxes and reducing expenditures for services given financial
distress is not a recovery plan and can lead to the exodus of
taxpayers, both individuals and businesses. Likewise, the unjustified
elimination of public debt while paying and not adjusting unaffordable
or wasteful costs for goods or services, labor costs, pensions,
healthcare or tax refunds and tax credits is not financially prudent.
That is because such action will be perceived in the capital markets as
inefficient and wasteful, thereby increasing the risk and cost of
future borrowing. Further, such approach may limit the ability of
government to borrow needed funds for capital improvements,
infrastructure enhancements, and needed public services including
education and health care.
The notion of funding essential governmental services at an
acceptable level includes services that are affordable, sustainable and
in balance with the overall ability of the government to pay for and
finance needed capital and infrastructure improvements, demonstrate
fiscal responsibility and enhance access to the capital market at
reasonable borrowing costs. PROMESA generally supports funding of
essential public services. There is no real need to further articulate
the detail of such service, since the detail is better left to Puerto
Rico to manage and budget effectively with the guidance and oversight
of Congress and the Oversight Board. Whatever is deemed the acceptable
level, it should be what the government determines is affordable and
sustainable over the long run. Too little services and infrastructure
improvements will lead to an exodus of individuals and businesses and
the failure of any recovery process. Excessive expenditures and
enhancement of services and infrastructure given the ability to pay
will lead to a default on future public debt borrowings and other
obligations and result in increased borrowing costs and limited access
to the capital markets to borrow money for needed infrastructure
improvements and services. As Aristotle said in his work Nicomachean
Ethics, ``virtue'' is nothing in excess. Funding of public services,
infrastructure, education, healthcare and pensions is required so that
government fulfills its essential mission of providing for the health,
safety and welfare of its citizens. The funding of essential
governmental services should not be beyond the ability to pay
(reasonable ability to tax and realistic ability to collect revenues)
and without causing increased perception of risk by the capital markets
as to the ability to repay public debt. Public debt must be reasonable
in amount and cost of borrowing--nothing in excess. To favor one side
of the equation, payment for goods, services, labor, pensions,
healthcare to the unreasonable detriment of inability to pay the cost
of financing capital improvements, infrastructure enhancements and
funding of basic service needed to keep the lights on creates an
extreme that is not virtuous and is hazardous to the financial health
and survival of government. On a positive note, under proposed
Commonwealth legislation backed by the Governor of Puerto Rico, the
Puerto Rico Fiscal Agency and Financial Advisory Authority would be
charged with developing a policy for the prudent issuance of public
debt in the future to avoid the practices that contributed to Puerto
Rico's fiscal problems. The measure would restrict debt financing
strictly for capital improvements and prohibit debt to cover
operational deficits. Jose Alvarado Vega, Governor Presents Bill to
Rein in Puerto Rico Debt Issuances, Caribbean Business, (November 5,
2019), https://caribbeanbusiness.com/governor-presents-bill-to-rein-in-
puerto-rico-debt-issuances/. The value to be obtained through the
enactment of thoughtful regulation of bond issuances would be
undermined by a history of debt repudiation without a rational basis.
In my testimony, I questioned, in response to Representative
McClintock's inquiry, whether Puerto Rico's financial problems would be
a contagion for state and local governments' ability to borrow in the
capital market. I believe, upon further reflection, that there is some
concern contagion could be suffered by state and local governments due
to Puerto Rico's response to its fiscal problems. The more extreme the
result in Puerto Rico, the more the perceived risk there is in any
government borrowing, and the more likely there will be an adverse
effect on borrowing by state and local governments. That is why it is
imperative that Congress, the Oversight Board and Puerto Rico reach a
credible and just outcome for public debt. There has been recognition
of the need for increased borrowing for required infrastructure
improvements and capital projects by state and local governments as
well as Puerto Rico.\4\ An extremely negative outcome for public debt,
disproportionate and unjustified compared to the recovery for creditors
of goods, services, labor, pensions, tax credit and tax refunds, will
necessarily mean both Puerto Rico and state and local governments
generally will find borrowing costs and access more challenging and
less user friendly. While Puerto Rico may have been viewed in the past
as an aberration compared to state and local government financing, the
more extreme the result for public debt in Puerto Rico, the less
virtuous and more costly the perception generally of government credit,
even for state and local governments.
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\4\ The American Society of Civil Engineers (``ASCE'') claims there
is at least a $2 trillion funding gap in needed infrastructure
improvements to be funded by 2025. In ASCE's 2017 Report stated the
cumulative infrastructure funding needs based on current trends
extended to 2025 is $4.59 trillion to have passable infrastructure
estimated funding has a gap of over $2 trillion. ASCE discovered in its
2016 economic study ``Failure to Act Closing the Infrastructure
Investment Gap for America's Economic Future'' that the failure to do
necessary infrastructure improvements in the U.S.A. will cost the
country $3.9 trillion in losses suffered to the GDP by 2025, $7
trillion in lost business sales by 2025 and $2.5 million in lost
American jobs in 2025. Am. Soc'y of Civil Eng'rs 2017 Infrastructure
Report Card, a Comprehensive Assessment of America's Infrastructure 8
(2017), https://www.infrastructurereportcard.org/wp-content/uploads/
2016/10/2107-Infrastructure-Report-Card.pdf.
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______
Mr. Sablan. Thank you, Mr. Spiotto.
I thank the panel for their testimony. Reminding the
Members that Committee Rule 3(d) imposes a 5-minute limit on
questions, the Chairman will now recognize Members for any
questions they may wish to ask of the witnesses. Let me start
with myself.
Mr. Martinez, sir, in your testimony you express support
for Section 6, disclosure by professional persons employed by
court order to avoid conflicts of interest by consultants
providing services to the Oversight Board. Several
organizations have expressed there is also an urgent need to
include language in PROMESA to avoid conflicts of interest by
members of the Oversight Board. Should this be a priority for
the Committee? And if so, why?
Mr. Martinez Otero. Yes, I think it is a priority because
in Puerto Rico right now probably 80 percent or more of the
corruption issues are related to hiring fraud and lack of
transparency. Why? Because right now we don't have the
institutions to prevent that kind of corruption, and when you
have a lot of Federal money and government without the
corresponding institution to fight against corruption, you
always will have the separation by the Department of Education,
Healthcare Education, in which in all of them the past
secretaries have been arrested because of corruption.
Mr. Sablan. Thank you.
Mrs. Cubano, thank you, again, for joining us and
representing the Puerto Rico Private Sector Coalition. In your
testimony, you emphasized the importance of shifting the focus
away from austerity due to degrading impact on economic growth.
Does the Coalition support defining and protecting essential
public services to ensure the basic needs of the residents, the
people of Puerto Rico, are met and to reduce migration
Mrs. Cubano. Yes, we agree that we have to identify those
essential services, and we think that the effort will not only
be on that, but at least it protects all the efforts. And
always directing all the public policy to make possible all the
economic growth in the island. We think that that is the way we
can help Puerto Rico, all the companies, and the people to
really conquer the challenge that we are facing at this moment.
Mr. Sablan. OK. Mr. Velazquez, it is evident from your
statement that you don't agree with the Oversight Board
statement that the debt restructuring plan they proposed last
month will ultimately reduce the amount the government of
Puerto Rico will spend on debt service to an amount it can
sustainably afford over the next 30 years, from $4.2 billion a
year to $1.5 billion a year. You don't believe that the Puerto
Rican government will be able to afford $1.5 billion dollars a
year in debt payments?
Mr. Velazquez. Absolutely not, Congressman. As I stated in
my testimony, and I would point to Exhibit A in my testimony,
the Oversight Board has a set of projections where they tie
personal income to debt service. This goes back to the concept
of rising tide lifting all boats. If you look at that number,
it is the bottom line in that exhibit in that graph, and what
they say is, no, we have about $4 billion based on personal
income when you benchmark it against the top 10 states in the
United States. In other words, states that have real economies.
Instead, the numbers we are talking about are closer to the
top end of that range. And the reason that there is a
disconnect there is because there is a difference between kind
of like the legal fiction that PROMESA has and the economic
reality. The economic reality that we have here is the wages
that are in the private sector that the private sector is
generating. That is the engine that ultimately affords debt
restricting. If the economy isn't working for workers, it isn't
going to work for Wall Street because you are not going to have
the money needed to pay back Wall Street from the workers that
you are trying to tax, and in this case, are getting taxed to
death.
Mr. Sablan. Thank you. I have one more question. I have
limited time so Mr. Butin, sir, what is your reaction to the
concern that the government of Puerto Rico can no longer afford
to subsidize the University of Puerto Rico at the same rate
that they were previously?
Mr. Butin-Rivera. Well, when you are talking about funding
the University of Puerto Rico, there are studies that establish
that for every dollar that you spend on the University of
Puerto Rico, it generates $1.25 back to the government. And
also for every hundred jobs that the University creates, it
gives back 164 jobs just by spending money on the University
because it is not logical to do what you are doing to the
University of Puerto Rico.
Mr. Sablan. Thank you, sir.
Mr. Butin-Rivera. Can I say one more thing?
Mr. Sablan. Hurry up.
Mr. Butin-Rivera. As Mr. Bishop said, Puerto Rico has a lot
of human resources and those human resources come through the
University of Puerto Rico, so you have to invest in the
University of Puerto Rico for the future.
Mr. Sablan. Thank you, sir. And the Ranking Member has told
me that he will yield to the dean of the House, Mr. Young, to
go first.
Mr. Young. Thank you, Mr. Chairman. This is for the whole
panel. Of the total debt, what percentage is PREPA? Anybody
know?
Mr. Martinez Otero. Heriberto Martinez, President of the
Economic Association of Puerto Rico. Like 22 percent, more or
less $10 billion over----
Mr. Young. What is the percentage of the debt of PREPA?
Like 44 percent?
Mr. Martinez Otero. No, not really. Let me----
Mr. Young. How much? 22 percent? When I am asking that
question, 22 percent, there have been some suggestions, even by
the Board and other people, that it should be sold. How many in
the panel support the selling of PREPA to private industry?
Nobody. If you are consuming money and not making money why
wouldn't you get rid of it?
Ms. Cubano. The private sector really encourages to have a
combination of public and private investment in PREPA.
Mr. Young. OK, I have been involved in this a long time, I
happen to be one of the sponsors of PROMESA, and I am just
looking for why we keep handling an electrical group that loses
money every year and why you keep putting up with that. If you
want to have money for the University, if there is a buyer, why
not sell it? Anyone here? You are a university student.
Mr. Butin-Rivera. Well, if you want to sell PREPA, you have
to see the history why PREPA was created. PREPA was created
because the private sector had a lot of problems with the
distribution of the energy on the island. Of course, a lot of
years have passed from that moment, but at this moment I think
we have to evaluate how we can sustain PREPA and match it with
private funding.
Mr. Young. With all due respect, it is a cow that hasn't
milked in years. It just eats hay. It doesn't do anything else,
but you know what, it is time for the chance for maybe
private--if there is a buyer, I don't know who would buy it,
but if there is a buyer you might want to consider that.
With that, I yield back. I yield back to my Ranking Member.
Mr. Sablan. Thank you. I now recognize 5 minutes to Mr.
Soto.
Mr. Soto. Thank you, Mr. Chairman. First, I want to thank
Liliana Cubano for talking a little bit about the work we are
doing in health care. I think that is one of the bright spots
happening through Congress right now. We have our bipartisan
Territories Health Care Improvement Act that was co-introduced
by Congressman Bilirakis; Congresswoman Nydia Velazquez is also
a big proponent of it. It would increase the amount of Medicaid
funding from $375 million a year to $400 billion a year for
Puerto Rico. That would shore up a lot of the issues at least
in the healthcare system. And we recently just passed Help for
Medicare Part D for Needy Seniors that right now it doesn't
apply in Puerto Rico, so a lot of movement on the healthcare
front.
Obviously, we are here for PROMESA today. I appreciate
Ranking Member Bishop's concern about having an open markup. We
look forward to ideas from all parties behind the dais when we
have that open markup, if there are economic development issues
you think would make this more bipartisan legislation.
And I agree with the Ranking Member's opinions on
statehood, and filed bills to support that. And I guess if I
filed an amendment, I could count on your support in subsequent
markups, so we will see on that later on. That would actually
render PROMESA potentially even obsolete because you would have
state-sovereign immunity at that point, and perhaps you
wouldn't need PROMESA anymore.
I wanted to go through a couple of the issues that I hear a
lot from constituents, issues related to canceling the entire
debt and ending PROMESA. Mr. Velazquez, do you know of a legal
way to cancel the entire debt? Is there a plan that you are
recommending? Because I know you were kind of dancing around
it, but I just was curious if there was a specific plan.
Mr. Velazquez. Well, one obviously, the Territorial Relief
Act considered in the discussion draft is one way to do it. The
other way is usually through court action. Court actions will,
for example, consider various legal issues as to whether a debt
was issued ultra vires or not, and obviously that is a question
that is very much at the center of the legal proceedings
occurring in PROMESA.
Mr. Soto. If PROMESA was terminated, what would your
recommendation be in the alternative?
Mr. Velazquez. If you get rid of--well, first of all, I was
going to say----
Mr. Soto. I just need a short version because my time is
limited.
Mr. Velazquez. Sure. Then you would very much need the
Territorial Relief Act or something similar to that if you get
rid of PROMESA.
Mr. Soto. OK. Mr. Spiotto, what would happen if we cancel
the debt and ended PROMESA and used the Territorial Relief Act,
in your opinion?
Mr. Spiotto. Without justification or rationale, it will
significantly impact the ability of Puerto Rico to go back into
the capital market and borrow. And the rates that it borrows at
will be increased, access in various respects may be limited,
and it may prevent doing the types of things that might make
sense with public-private partnerships and so forth for some of
the utilities that may help provide money.
Mr. Soto. Thank you, Mr. Spiotto, my time is limited. Mr.
Butin-Rivera, we have the essential services defined here.
Would that give some of that well-needed relief that you are
requesting for the University of Puerto Rico?
Mr. Butin-Rivera. Yes, and also to assure a quantity of
money that the University needs to run. The amendment talks
about $800 million from the central budget. That is about the
reality that the University needs right now, but that doesn't
mean that we can run more effectively. We have to invest in the
University for it to run more effectively.
Mr. Soto. Thank you. And Mr. Martinez Otero, what is your
opinion on both the economic development section and the audit
section that we have currently in the draft?
Mr. Martinez Otero. I support it and I like the definition
of economic growth, but I think that you need to be more
specific in which industrial sectors you want to support or
invest, like for example, corporate sector, or which part of
the private sector do you want to grow in our economy because
we need more private investment at this moment.
Mr. Soto. I share a lot of people's concern about the
economic development aspect. The only concern I have otherwise
though is, is this taking away, then, from the Puerto Rico
legislators' authority to be able to do that. So, that is
something that I am sort of grappling with.
I wanted to end by just a show of hands, how many of you,
raise your hand if you would support a Reconstruction
Coordinator. Raise your hand. OK, so none of you would support
a Reconstruction Coordinator. How many of you would support a
Revitalization Coordinator for PREPA? Raise your hand if you
would support that. OK, thank you so much.
Obviously these are complex issues. I appreciate all your
testimony, and I commend the Chairman for putting forward a
draft and then hosting now 2 days' worth of hearings with
multiple panels to hear from everybody before we come up with
an actual bill, and even from there we will have an opportunity
for markup. I yield back.
Mr. Sablan. OK, thank you, Mr. Soto. The Chair now
recognizes the Ranking Member of the Full Committee, Mr.
Bishop.
Mr. Bishop. Again, let me piggyback on what Mr. Soto said
at the very end on how much we appreciate you coming up here.
It is very good to have disparative views, especially from
those who are on the ground floor in what they are doing, even
though at some point that vision may necessarily have some
blinders on it on where it is supposed to be.
Also, see this is the problem of actually not reading
something that is prepared and just talking what I actually
believe. It is Serrano whose bill I wanted to talk about
statehood and he is from the Bronx, he is not from North
Carolina or New Jersey or anywhere close to that. You've seen
one Easterner, you've seen them all.
[Laughter.]
Mr. Bishop. But that is what we should be doing.
There are another couple of things that have been very
good, not only with some of the discussions in here and in your
written testimony, but stuff that was brought out in the last
hearing as well that deals with FEMA issues and CDBG-DR funds.
And, unfortunately, as significant as those are and the
problems I think we have talked about even when we were in
Puerto Rico, those are not the jurisdiction of this Committee.
We can't solve those problems in the Committee and that is why
in the last hearing Representative Gonzalez actually left the
chairing of this to go over to the committee of jurisdiction to
deal with those particular issues. That has to be part of the
equation that is still there.
Mr. Spiotto, if I could ask you the simple question as
well, the Congress crafted PROMESA with bipartisan support but
the goal of that was always to ensure that it regains financial
credibility by improving oversight and accounting measures with
the ultimate goal of having better government accounting
practices, a return to market access that would be at
reasonable rates. In your professional opinion, do you believe
this draft proposal that we are considering today is written
with those same goals in mind?
Mr. Spiotto. No, I believe it conflicts with those, and
could significantly impair the type of recovery that Puerto
Rico should have.
Mr. Bishop. Well, then let me just once again ask the same
question that Darren asked of you to give you the same
opportunity to respond to it one more time. If, indeed, any of
these draft proposals, which in my estimation are not going
anywhere, if these draft proposals ever actually became law,
would Puerto Rico have an easier time in reaccessing the
financial markets after they would have the Puerto Rico
Legislature as well as the governor simply wipe out the debt
obligations?
Mr. Spiotto. It would have a harder time because the fear
of the blanket wipeout of public debt would make creditors
demand security, it would create real problems in obtaining
credit, and it would put a block or an obstacle in doing the
types of things you want to do when doing a restructuring and a
recovery plan.
Mr. Bishop. So, I guess if we were to try to be cynical and
say that certain special interest groups that happen to be
there on the island that, yes, we should restructure you, wipe
out your debt, in the long term that would have a negative
overall effect of what you are trying to do, because I think
you were talking about the difference between the symptoms
versus the causal implication.
Mr. Spiotto. Yes.
Mr. Bishop. Is that a fair statement to make?
Mr. Spiotto. Yes, just because you have a large amount of
debt is really a symptom of having a financial problem that
wasn't addressed. If Puerto Rico had the ability to resolve
their problems in 2006, they would not have taken on another
$30-some billion worth of debt which created a lot of the
problems.
Mr. Bishop. I have maybe like 1 minute left. Are you
familiar with the efforts that were done in New York City in
1975, in Philadelphia in 1991, and in DC here in 1995?
Mr. Spiotto. Yes.
Mr. Bishop. Did any of those examples ever wipe out their
debt obligations wholesale in the manner that the Chairman's
draft of this legislation proposes?
Mr. Spiotto. No, they refinanced all of them; they paid
them back. In fact, DC and the Financial Control Board did the
same thing.
Mr. Bishop. So, if we want to learn from history, we don't
go down this road.
Mr. Spiotto. It creates more problems than benefits.
Mr. Bishop. Thank you. Once again, I appreciate all of your
efforts to come up here. What you should realize is that you
are coming up here at the wrong period of time. We should be
going down to Puerto Rico for these hearings in November and
December. If you wanted to come here, you can come up here in
the summer, we have to go down there in the winter. So, not
only are we doing it the wrong time of the day, we are doing it
in the wrong location.
Mr. Sablan. February.
Mr. Bishop. That is right, February. We just made a deal.
We will go down there in February.
[Laughter.]
Mr. Sablan. Thank you, Mr. Bishop. Thank you. At this time,
Mr. Cartwright, sir, you have 5 minutes.
Mr. Cartwright. Thank you, Mr. Chairman, and I would like
to thank the witnesses for traveling here and giving us your
testimony.
Mr. Velazquez, thank you for your testimony. I had a
question for you. The government of Puerto Rico and the
Oversight Board oppose amendments to PROMESA, and these
amendments would facilitate access to public debt information,
in other words make public debt information more transparent.
And what the government argues is that this level of
transparency would create problems in debt restructuring
proceedings, and, as they say, negatively impact attorney-
client privilege.
I want to find out if you agree that that is the case and
whether you could further explain what the negative impacts of
transparency would be on debt restructuring.
Mr. Velazquez. Congressman, thank you for the question.
That argument by both the Oversight Board and the government of
Puerto Rico is a complete red herring to keep you from actually
focusing in on what the real bogey is. The real bogey here is
getting information out to the people of Puerto Rico, and not
only that but to the financial markets. There is a lot of
information that has been asked about transparency that both
creditors and us, frankly as a labor union, and the people of
Puerto Rico want. I find those arguments to be a complete red
herring. What we need to focus on is transparency of the debt
and of those documents.
Mr. Cartwright. So, it is quite the opposite. You don't
believe that more transparency is a bad thing?
Mr. Velazquez. That is correct.
Mr. Cartwright. I see, OK. And to our student on the panel,
Mr. Butin-Rivera, thank you for your testimony as well. And
thank you for providing an overview of the challenges that the
University of Puerto Rico faces including a lack of funding for
its operations and its retirement system. Recognizing that the
financial resources of the government of Puerto Rico are
scarce, has the University presented recommendations to the
government to achieve cost savings that could mitigate budget
cuts to the University?
Mr. Butin-Rivera. Yes. The University has been open to give
services to the government through a deal, through this last
year that will be cheaper than the private sector, and we could
do an even a better job for the government. Even Ricardo
Rossello, when he came here, he mentioned that he signed an
order for the UPR to be the first in line when new contracts
are going to be held. But in reality, that number has not been
a big number that the University needs to run when compared to
the budget cuts.
Mr. Cartwright. You mentioned cheaper and better as
recommendations. Could you give us some specific examples?
Mr. Butin-Rivera. For example, we can give, when new laws
are being written and the University of Puerto Rico could help
with accessory to the legislation writing. We could help with
that and we could give really good recommendations from the
University. We have the best law school in Puerto Rico, but
simply the contracts are not being given to the University of
Puerto Rico. And in some cases like the police academy, the UPR
gave a proposition to help the police academy and it was given
to a private university.
Mr. Cartwright. So, if the University's recommendations
were accepted, how might that affect the quality of education
and the ability to attract top students at the University?
Mr. Butin-Rivera. We would have more money to invest in the
University. That is like the logic of what we can do for the
government. And also it will give opportunities for the
students to help the government, too.
Mr. Cartwright. I thank you for those answers, and I yield
back.
Mr. Sablan. Thank you very much, Mr. Cartwright. At this
time, the Chair recognizes Mr. Gohmert for 5 minutes.
Mr. Gohmert. Thank you, Mr. Chairman. It always seems to me
that Puerto Rico should be the Hong Kong of North America, and
obviously the financial issues are not helping, and of course
there is all the litigation over the Board and we will see how
that works out.
But I had the honor of serving with Luis Fortuno here in
Congress for a term before he was elected to governor, and my
understanding was he was trying to get the debt under control
and when you have 30 percent or so of the population working
for the government and you pay no Federal income tax but the
local tax is between 30 and 40 percent, it doesn't draw
businesses in like I would have thought there would be the
opportunity.
So, with PROMESA it seemed like there was at least a chance
to get debt under control; it looked like restructuring had
saved some money. But long term, people are going to need to
see that, and investors, that there is a good game plan.
We see here in the United States with the billions and
billions of dollars that was spent trying to drive green
energy, renewables, there was fiasco after fiasco. We had a
hearing previously, in a previous Congress, over the solar
power plant near the border of Nevada and California. They got
between $2.2 billion and $2.3 billion. And with all they have
done for a number of years now, when they testified, they had
paid back $6 million of the amount of loans.
It concerns me when I see the proposal go from 2 percent
renewables to 100 percent renewables because as a Democrat
colleague, the late John Dingell, pointed out, when you start
raising energy prices, it is a massive tax on the people that
can least afford it. And renewables get expensive. If it is
solar, if it is wind, then you have to have double the
production lines because you have to also draw energy from
something that you know you can count on since you can't always
count on wind and sun.
I am a little concerned about just the massive expense and
this driven desire to go from 2 percent to 100 percent
renewables, and just how devastating that might be. Let me go
from right to left. Mr. Spiotto, do you see going to 100
percent renewables helping the financial situation in Puerto
Rico?
Mr. Spiotto. I believe we need to redo the grid and provide
a method of providing good electrical services, and that is one
extreme which I don't think should be a near-term goal at
least, if not a long-term.
Mr. Gohmert. Mr. Butin-Rivera, surely paying energy bills
doesn't come easy to a student, does it?
Mr. Butin-Rivera. No, it is not, sir.
Mr. Gohmert. What have your energy bills done in recent
years when you were able to get energy?
Mr. Butin-Rivera. What are my bills? It has been really
high when compared to the states, and we have had problems with
the electrical system. As you know, I was one of those peoples
in the hurricane where I was 6 months with no energy in my
house. But I think that is an example of how renewable energy
can help the island. I was 6 months with no energy in my house
and solar panels that we bought from the internet was the thing
that helped me and my family to support ourself for those 6
months.
Mr. Gohmert. Well, it is good to hear. My time is expired,
but I appreciate all of you being here.
Mr. Sablan. All right, thank you very much, Mr. Gohmert. It
is now my distinguished pleasure to recognize the distinguished
lady from New York, a proud Puerto Rican and also chair of the
Small Business Committee.
Ms. Velazquez. Thank you, Mr. Chairman. Let me take this
opportunity to thank all of you for coming here and shedding
light of the struggle and the plight of the people of Puerto
Rico for justice and equality. Mr. Spiotto, I hear you when you
said that one of the most important outcomes of all this debt
restructuring of the public debt is how can we guarantee for
the people of Puerto Rico and the government of Puerto Rico
access to the capital markets. What is your opinion about the
need for the Oversight Board to audit the public debt?
Mr. Spiotto. Well, I believe both the notion of fiscal
responsibility and access--certainly they should determine what
is valid and what is not. Part of that is the court process in
Title III, of the amendments with regard to an audit
commission.
Ms. Velazquez. Do you support auditing the debt?
Mr. Spiotto. A government could do that; I don't think it
is necessary given the Title III action and the actions that
are presently pending.
Ms. Velazquez. So, you don't think that the people of
Puerto Rico deserve to know how the government got into this
mess.
Mr. Spiotto. I think the government of Puerto Rico can take
on, itself, a determination as to what happened. But as far as
the restructuring process in PROMESA, I leave it to the Title
III action to do it. Separately, you----
Ms. Velazquez. It is OK, I guess you are not going to
answer my question and I have limited time.
Mr. Velazquez, last week Omar Marrero from AAFAF publicly
stated that Puerto Rico's government opposes the definition of
essential services because creditors could argue that whatever
money not utilized to cover those services that are going to be
enumerated can be used for debt repayment. In your statement,
you support the definition of essential services. Is the
proposed language of the PROMESA draft clear enough to prevent
creditors from getting greater recoveries under this argument?
Mr. Velazquez. I actually think the language could be
improved upon. Let me give you an example. If you look at my
testimony, I have as an exhibit the amount of money that is
going to go out to bondholders starting the first 3 years. It
is Exhibit C to my testimony. If you look at the first 3 years,
there is actually much more money going out on the first 3
years than the later 3 years, and than the rest of the time.
And the reason for that, or the question I raise is, how did
you get that money? And it looks to me like, not knowing what
is going on, but the hurricane money is going out that way. And
that is a concern of mine, that you are using the Federal funds
as a way to actually make sure that there are higher gains for
the bondholders.
I would like to see language that defines essential
services in a way so that we don't have this situation where
extra money is going to the bondholders in the first years
while we are still trying to recover from the hurricane.
Ms. Velazquez. Thank you. You also recommended in your
testimony that we include some FOIA-type language. However, I
believe there is a commonwealth FOIA-type act called the
Transparency Act that was recently signed into law that will
provide the mechanisms for disclosure. In your opinion, that is
not enough?
Mr. Velazquez. No, our concern is getting access to the
courts for the people of Puerto Rico, and access to tools. When
it stays in the control of the government of Puerto Rico, those
tools, they have had a history of complicating things, and the
language we suggested was a way of giving an alternative forum
to those in Puerto Rico in case those procedures don't work.
Ms. Velazquez. Thank you. Mr. Martinez Otero, the
University of Puerto Rico has 11 campuses throughout the
island, including its main campuses in Rio Piedras and
Mayaguez. So, what would be the economic impact, and I
understand the economic impact that it will have on the
student, but at the municipal level have you done any study,
any research?
Mr. Martinez Otero. Yes, we have research from the
economist Jose Caraballo Cueto, former president of the Puerto
Rico Economies Association, and in that study he found that the
UPR is the most important economic sector, industrial sector in
like seven of the municipalities in Puerto Rico. That means 10
percent of the municipalities. And if you close, for example,
UPR Cayey, UPR Utuado, the economy of the municipality probably
will collapse.
Ms. Velazquez. Thank you. I yield back.
Mr. Sablan. Thank you, Ms. Velazquez. At this time, the
Chair recognizes Mr. McClintock for 5 minutes. You don't have
to use all of it, but you are recognized for 5 minutes.
[Laughter.]
Mr. McClintock. I won't, it will just seem that way. In
California, I find these hearings most reassuring. I find some
comfort in knowing there is a government as badly managed as my
own, and I do feel a certain camaraderie because both Puerto
Rico and California have the most beautiful climates, the most
beautiful resources, miles of gorgeous beaches. We are both
cruise destinations. We are both ideal for resorts, for
recreation. Yet, people and businesses are fleeing my state and
fleeing your commonwealth in droves. They ought to be flocking
to California; they ought to be flocking to Puerto Rico.
Instead, they are fleeing from them. And that is not because of
any act of God, that is because of acts of government. Really,
really bad public policy over a long period time, and people
end up voting with their feet.
I represent an area in Northern California, our power is
out today. Any time it is a windy day now in California you no
longer have power. When you do have power, you pay twice as
much as the average rate payer in the rest of the country. We
have become a third-world enclave when it comes to the delivery
of electricity. And I know that you are suffering the same
problem there.
In California, the utilities have been forced by stupid
government policies to, in the case of PG&E, divert $2.5
billion they could have been using for infrastructure upgrades
to protect their lines against fire, instead $2.5 billion a
year goes out the door for green energy schemes. There are also
mandates on PREPA for the same thing, are there not? How is
your electricity reliability? And how are your prices as a
result?
Ms. Cubano. Well, that is one of the things that we are
proposing, that the RSA from PREPA should be evaluated.
Mr. McClintock. Who is responsible for these green energy
policies? Who is imposing them on you? Is that some stupid idea
the commonwealth government came up with? Or is that something
we imposed on you? How did that work?
Mr. Martinez Otero. The issue about the Puerto Rico
Electric Power Authority, PREPA, is that last year ex-Governor
Rossello, he created an agreement for a public-private
partnership with some private corporations, we don't know, we
don't have the information----
Mr. McClintock. Public-private corporation, partnership----
Mr. Martinez Otero. Public-private partnership.
Mr. McClintock. That is another way of saying let's invite
corruption into the process. I just want to know where did this
come from? Just very quickly because my time is up.
Mr. Martinez Otero. The government.
Mr. McClintock. OK. Somebody said these issues are terribly
complicated. It doesn't seem to me they are complicated at all.
If you spend more than you take in, you are going to run out of
money. If you walk away from your debt, people stop loaning you
money. And socialism sucks. You take enough money from working
people, you pile enough regulations on businesses, people
leave. Mr. Spiotto, my principal concern is this: the
commonwealth seems to want very much to walk away from the
debts that it has incurred through a lot of very bad policies.
If they do that, who in his right mind would loan them any
money?
Mr. Spiotto. Well, that is the dilemma. A portfolio
manager, a major institutional investor, has to respond to
people as far as why their investments are prudent. And you
want to make sure that if there is the unfortunate debt
restructuring, it has a rational, justified basis.
Mr. McClintock. I actually opposed PROMESA because I
thought it was an intrusion on the right and the responsibility
of the voters of Puerto Rico to correct the mistakes they made
by changing the people they put into office that created all of
these bad decisions that now has brought Puerto Rico to this
sorry state. They do need to take responsibility for their own
actions and their own finances. If they choose to walk away
from debt, that comes with severe consequences. They lose
access to the credit market. No doubt there will be a movement
to come here to get loan guarantees from the U.S. government.
Sorry, we have our own problems that we created for ourselves.
But I do wonder if Puerto Rico does that, is there a
contagion in the credit markets? Do the credit markets look at
other municipal and sovereign debt issued within the United
States and say that is getting too risky, too, we are going to
have to charge more for interest?
Mr. Spiotto. I think a lot of people will try to say that
it is an aberration, but Puerto Rico has used, for example,
their constitution in 1952 as a provision that there is a
priority if there are insufficient funds to pay public debt.
California has a similar provision. New York has a similar
provision in their constitution. If one does not follow that,
it raises the question, will others follow. I think generally
the market will say no, because no state has defaulted on its
GO debt since the late 1800s with the exception of Arkansas in
1933, and that was immediately refinanced to pay it.
Mr. McClintock. So, you don't see a risk of contagion?
Mr. Sablan. Mr. McClintock, thank you very much.
Mr. McClintock. Just yes or no.
Mr. Spiotto. No.
Mr. McClintock. Thank you.
Mr. Sablan. Thank you, Mr. McClintock. The Chair now
recognizes Mr. Webster for 5 minutes, please.
Mr. Webster. Thank you, Mr. Chairman. I really don't have
anything to question. But I appreciate everyone coming. This is
very informative.
Mr. Sablan. Thank you, Mr. Webster.
I thank the witnesses for their valuable testimony, and the
Members for their questions. The members of the Committee may
have some additional questions for the witnesses, and we will
ask you to respond to these in writing. Under Committee Rule
3(o), members of the Committee must submit witness questions
within 3 business days following the hearing, and the hearing
record will be held open for 10 business days for these
responses.
If there is no further business, without objection the
Committee is recessed for the next panel. Thank you everyone.
Mr. Webster. Thank you.
Mr. Sablan. Thanks, Petie. Good luck to you.
Mr. Webster. Nice meeting you, sir. Great, great answers.
Thank you.
Mr. Soto [presiding]. If everybody could take their seats,
we would greatly appreciate it.
Thank you to our second panel for appearing today. We have
Mr. Rodrigo Masses-Artze, President of Private Alliance for
Economic Growth of Puerto Rico; Dr. Cecilio Ortiz-Garcia,
Senior Fellow in the National Council for Science and the
Environment; Ms. Annie Mayol, President, Foundation for Puerto
Rico; and Ms. Adi Martinez, Senior Policy Advisor, Oxfam
America. Thanks for being here today.
We are going to let Mr. Masses-Artze testify first, since
we know that you have to leave early, and the Ranking Member
has also agreed to that, Mr. Webster. So, if you would please
proceed, Mr. Masses.
STATEMENT OF RODRIGO MASSES-ARTZE, PRESIDENT, PRIVATE ALLIANCE
FOR ECONOMIC GROWTH OF PUERTO RICO
Mr. Masses-Artze. My name is Rodrigo Masses and I am here
representing the Alliance for Economic Growth of Puerto Rico.
The alliance was created by a group of business people and
other private sector stakeholders, including former presidents
of the principal trade associations of the island.
We all share a deep concern about the rapidly deteriorating
economic and social conditions in Puerto Rico, the absence of a
clear roadmap to a better future for the island, and a
dysfunctional political establishment that has shown very
little inclination to address and implement the profound
structural changes required for Puerto Rico to realize its full
potential as the economic powerhouse of the Caribbean.
I respectfully ask that my full statement be included in
the record, and I will now proceed to my testimony. Thank you.
To be clear, there is no more urgent issue before us today
than the reconstruction of the island. PROMESA was established
as a temporary means to provide much-needed stability. However,
if one were to do a cost-benefit assessment of PROMESA and of
the Oversight Board, I am afraid that the outcome would be
inclined toward a not-so-favorable result. Rather than just
proposing cuts, cuts, and more cuts, the Oversight Board should
join together with the other government and private
stakeholders, laying the groundwork for stable economic growth
on the island, as cuts alone--and you very well know that--do
not achieve the desired long-term outcome.
Congress recognized this vital need for economic growth
when enacting PROMESA. It did so by establishing a bipartisan
Congressional Task Force on Economic Growth in Puerto Rico, and
required it to produce a report. To date, however, Congress has
failed to consider, much less enact, most of the specific
recommendations unanimously agreed upon by the Task Force in
2016.
On the other hand, the government of Puerto Rico must stand
tall and also do its share, its fair part. As the other panel
mentioned, and I agree with most of the measures presented
here: First, there is a need to be completely transparent in
the oversight, and oversight of the contracting process, with
full access to the media.
Second, Puerto Rico has a very low labor force
participation rate, mainly because of the gender discrimination
and the absence of a clear-cut policy to support one of the
biggest assets our island has, women entrepreneurs.
Third, the effective transformation of the energy and water
government monopolies is essential if we want to end up with an
efficient, modern, and sustainable energy and water
infrastructure. In our view, cost-effective energy must not
exceed 15 cents/kWh. Further, it is critical that in defining
policy to deal with infrastructure, municipalities and
communities be brought into the process.
Fourth, solid waste disposal is an area that has already
reached a critical stage. Most of the island's landfills do not
meet EPA standards, and those that do are very short in life
span. Puerto Rico desperately needs a well-designed policy
aimed to recycling, minimizing solid waste, and ensuring that
materials used in construction and embedded in consumption
products are environmentally safe.
Fifth, Puerto Rico needs a telecommunications public policy
that recognizes the sector not only as infrastructure that
needs to be regulated, but as an enabling technology repository
that will stimulate economic growth.
Having said all of that, the fact is that Puerto Rico
urgently needs a development roadmap focused on the post-
reconstruction process. The new approach to development for
Puerto Rico must be based on solid knowledge of local
conditions and anticipate change in them. It must provide for
inclusive governance that incorporates municipalities and
community-based organizations.
Puerto Rico needs not only to protect but enhance its
manufacturing base and make possible the development of
advanced manufacturing activities, including tourism,
agroindustry, and women-driven enterprises. It also needs to
promote innovation across the complete spectrum of economic
activities, but special emphasis on local small- and medium-
sized firms.
Last, the alliance respectfully recommends that this
Committee require the governor of Puerto Rico to have the local
government agencies responsible for the economic affairs
present to the public a progress report every 60 days on what
has been achieved and what has not.
The alliance commits to submit its own every 60 days.
Mr. Soto. Mr. Masses, you need to wrap up your remarks
because your time has expired.
Mr. Masses-Artze. Yes. Basically, we commit to present our
report to you every 60 days as well. Thank you.
Mr. Soto. Thank you so much.
[The prepared statement of Mr. Masses-Artze follows:]
Prepared Statement of Rodrigo Masses-Artze, Private Alliance for the
Economic Growth of Puerto Rico
Chairman Grijalva, Ranking Member Bishop, Congresswoman Gonzalez-
Colon, and members of the Committee. My name is Rodrigo Masses-Artze,
and I'm here on behalf of the Private Alliance for the Economic Growth
of Puerto Rico (A4G). I am honored to once again appear before the
Committee, this time to present our position on this most critical
matter for the people of Puerto Rico, and most grateful for the
opportunity you have given me to do so.
A4G was created by a group of business people and other private
sector stakeholders concerned about the rapidly deteriorating economic
and social conditions in Puerto Rico, the absence of a clear roadmap to
a better future for the Island, and a dysfunctional political
establishment that has shown, to date, very little inclination to
address and implement the profound structural challenges required for
Puerto Rico to realize its full potential as the economic powerhouse of
the Caribbean. A4G is comprised of representatives from all key sectors
in the Island's economy and is already actively involved in the
development of important initiatives and proposals to drive Puerto
Rico's sustainable economic development. It has also offered its
support and expertise to the Governor and her administration to provide
needed advice on economic matters.
I know that the Committee is fully aware of recent events on the
Island, of the still ongoing recovery and reconstruction efforts and
the many problems confronted, including the snail's pace at which
congressionally allocated Federal funds have been disbursed. Likewise,
I am certain that, PROMESA being a creature of this Committee, you are
familiar with all the controversies and criticism surrounding the
Financial Oversight and Management Board (FOMB), and the PROMESA
legislation itself. Evidently, this is why we are here today.
However, the fact is that, putting these controversies aside, there
is no more urgent issue before us than the reconstruction of Puerto
Rico, not just from the devastation of Hurricanes Irma and Maria but,
perhaps more importantly, from the prolonged economic contraction of
the last decade. This fiscal crisis has eroded our institutions and
provoked the mass exodus of hundreds of thousands of Puerto Ricans to
the U.S. mainland, searching for opportunities in the States that are
unavailable to them back home.
Righting this ship--a ship carrying 3.2 million American citizens
whose lives and well-being are at stake--will require creativity,
outside of the box thinking, and close collaboration between the
Federal Government (Congress and the Executive Branch), the Government
of Puerto Rico, the FOMB, and the private sector.
promesa and the fomb
I am well aware that PROMESA created the FOMB to ensure that Puerto
Rico's long-standing fiscal mess was brought under control, that the
debt issue be dealt with, and that the Island could once again have a
healthy fiscal situation that would allow its return to the capital
markets. In short, it was established as a temporary means to provide
much needed stability that could lead to sustainable economic success.
However, if one were to do a cost-benefit assessment of PROMESA and the
FOMB, I am afraid that the outcome would be inclined toward a not so
favorable result.
A conservative estimate is that, since its inception, PROMESA has
cost the people of Puerto Rico well in excess of $600 million, precious
resources that could have been better invested in more productive
activities. So far, the results of this investment have been meager.
Granted, some progress has been achieved under Title III, and some
agreements have been attained with creditors, but the cost to Puerto
Rico and its business community has been immense. Furthermore, the
FOMB's insistence on pension cuts, eliminating municipal subsidies,
steamrolling over major institutions such as the University of Puerto
Rico, and reducing essential services, will likely result in very
concerning short- and long-term social repercussions. Were it not for
the limited recovery and reconstruction funds already on the ground, I
have absolutely no doubt that Puerto Rico's economy would have
contracted even more and more profoundly than it has as a result, at
least partially, of the FOMB's actions.
Rather than just proposing cuts, the FOMB should be, jointly with
other government and private stakeholders, laying the groundwork for
sustained economic growth on the Island, as cuts alone will not achieve
the desired long-term outcomes. Congress recognized this need for
economic growth when enacting PROMESA. It did so by establishing a
bipartisan Congressional Task Force on Economic Growth in Puerto Rico,
and requiring it to produce a report regarding: ``(1) impediments in
current Federal law and programs to economic growth in Puerto Rico
including equitable access to Federal healthcare programs; (2)
recommended changes to Federal law and programs that, if adopted, would
serve to spur sustainable long-term economic growth, job creation,
reduce child poverty, and attract investment in Puerto Rico.'' As
mandated by PROMESA, the Task Force unanimously issued a report on
December 2016, with numerous recommendations on very specific and
realistic actions Congress could take to assist Puerto Rico. To date,
Congress has failed to consider, much less enact, most if any of them.
And the FOMB, while actively engaged in other undisclosed lobbying
efforts in Washington, has only provided a very timid support to these
critical initiatives. That needs to change, and the FOMB must be
accountable to someone, perhaps this Committee.
That being said, it is also true that Puerto Rico cannot just sit
and wait for Congress to come up with all the solutions and for the
Federal recovery and reconstruction funds to flow into the Island. The
Government of Puerto Rico must also do its share. There are a number of
initiatives that the Government of Puerto Rico, in collaboration with
the Federal Government and the private sector, could implement to steer
the Island back in the right direction. Let me briefly enumerate some
of them.
complete transparency in the contracting process with full access to
the press
First of all, we need to make certain that Federal reconstruction
funds allocated to Puerto Rico are used effectively and efficiently as
Congress intended. The agile and swift allocation of these funds to
specific projects is critical, as is that municipalities are granted a
much more prominent role in the decision making and use of these funds.
There is ample evidence that municipal governments have been able to
deliver a number of services more efficiently and expeditiously than
central government agencies, including infrastructure projects.
Municipalities, however, have been sidelined from the process of fund
allocation, totally handled at the central government level. This is a
mistake and must be addressed.
A second area in which much can be done to improve the process of
fund allocation relates to the manner in which contracts for
reconstruction of the housing stock and infrastructure are being
issued. This has opened the door to corruption, both local and
stateside, as evidenced by the recent arrest of former top FEMA
officials who worked in Puerto Rico during the island's recovery from
Hurricane Maria as part of a Federal corruption investigation. What A4G
feels is needed is a competitive, open, transparent process for all
reconstruction projects, with strenuous oversight and accountability.
In addition, A4G feels that local contractors should be much more
involved in the reconstruction process. This has not been the case, as
evidenced by the FOMB and independent analysts who have estimated that
only 13 cents out of every dollar of Federal recovery spending has
actually benefited the local economy.
women entrepreneurship
Puerto Rico has a very low labor force participation rate (LFPR)
mainly because of gender discrimination and the absence of a clear-cut
policy to support women. It is clearly established that providing
support to women with children with daycare centers and other such
assistance will not only help women leave welfare programs and improve
their standard of living, but will constitute a powerful stimulus for
economic development. This is particularly important since over 60
percent of single women with children on the Island live below the
poverty level and women's LFPR is only around 33 percent.
mountain consortium: transformation of energy and water monopolies
Puerto Rico was devastated by Hurricanes Irma and Maria, and the
Island's reconstruction has been slow and will probably leave us with
an infrastructure not much better, if at all, than what we had prior to
the storms. But the problem with our infrastructure is not just its
physical and archaic condition. The fact is that the Island's energy
and water systems are both government monopolies that have,
unfortunately, acted as such for decades. Just recently, a new increase
in the power rate was announced only to be subsequently reversed after
Governor Vazquez intervened because no assessment of costs was made.
The transformation of these two monopolies is essential if we want
Puerto Rico to end up with an efficient, modern, and sustainable energy
and water infrastructure. A4G also feels that Puerto Rico should aim at
a power rate of no more than 15 cents per kWh. This could be
accomplished if PREPA would expeditiously begin working toward the
implementation of the government's much publicized public policy of
achieving 100 percent renewable energy production by 2050. But just a
few days ago, PREPA unilaterally suspended the ongoing year-long
negotiations with all the renewable energy shovel-ready projects, some
of which have signed PPOAs dating back to 2010. Thus, these goals are
achievable, but only if the aforementioned transformation leads to
privatizing both entities.
Further, it is important in defining policies to deal with
infrastructure that municipalities be brought into the process. An
excellent example of what can be done is provided by a consortium of
municipalities in the mountainous central Puerto Rico, led by the mayor
of Villalba, to construct a mini-grid that will power, not only his
municipality, but also Morovis, Orocovis, Ciales, and Barranquitas.
These municipalities constituted the ``last mile'' in the post Maria
power restoration.
zero waste
Solid waste disposal is an area that has already reached a critical
stage. Most of the Island's landfills do not meet EPA standards and
those that do have a very short life span. Puerto Rico desperately
needs a well-designed policy aimed at recycling, minimizing solid
waste, and ensuring that materials used in construction and embedded in
consumption products are environmentally safe. For a relatively small
island such as Puerto Rico, having an excellent environmental quality
is not only an objective by itself to improve quality of life, but is
also necessary as a determinant of competitiveness. Thus, not taking
proper care of our beaches will ultimately impact tourism, not taking
care of our solid waste disposal system will eventually increase costs
to our producers and thus reduce our capacity to compete for
investment.
continuous and uninterrupted connectivity
We are fortunate that the private firms that operate the
telecommunications system have taken it into themselves to provide a
much better, reliable and resilient system. Much remains to be done and
doing so will require a change in the manner in which the government
intervenes with the system. Although there has been some improvement,
the focus on the government's part has been to regulate rather than
stimulate the industry. Puerto Rico needs a telecoms public policy that
recognizes the sector not only as infrastructure that needs to
regulated, but as an enabling technology depository that will stimulate
economic growth.
new economic promotion approach
Having said all of the above, the fact is that Puerto Rico urgently
needs a Development Roadmap focused on the post reconstruction process.
I understand that the government's attention is now on the
reconstruction process. That is correct, but it means that developing
that Roadmap should be a concern not only of the private sector but is
something that the FOMB should be paying attention to, at a minimum, by
assuring that its actions do not have a negative impact on sustained
economic growth.
A new approach to development for Puerto Rico must be based on
thorough knowledge of global conditions and anticipated changes in
them. It must provide for inclusive governance that incorporates
municipalities and community-based organizations. There is much to
learn from others: Ireland's Social Partnership, Pittsburgh's use of
community resources to stimulate its transformation, Singapore's
emphasis on education as a key component of any development roadmap.
Puerto Rico needs to not only protect, but enhance its manufacturing
base and make possible the development of advanced manufacturing
activities. It also needs to promote innovation across the complete
spectrum of economic activities but with special emphasis on local
small and medium size firms.
Additionally, Puerto Rico has significant competitive advantages
that it can lever to achieve sustained growth: our access to the U.S.
markets, a highly trained labor force, a strong manufacturing base and,
increasingly, a dynamic technology sector that is already exporting
services globally and providing needed technological foundations to
local entities in health services, education, and other areas.
tourism
The opportunity for growth and development of the tourism industry
should be an immediate priority of the Committee, the local government,
and the FOMB. The hotel industry, by its nature, is a labor-intensive
industry. Direct and indirect jobs, local food chain and supply
purchasing, and construction and redevelopment are direct by-products
of successful tourism. Efforts to develop the potential that Puerto
Rico has in this segment of the economy should be addressed. Puerto
Rico has the wherewithal to be competitive in the tourism industry and
its promotion can have immediate impacts on our economy.
accountability
We respectfully ask the Committee to require the Governor of Puerto
Rico to have those agencies responsible for economic affairs to present
to the public a progress report every 60 days on what has been achieved
or not in their particular areas. This report should be made public by
a respected entity such as the Comptroller's Office so as to avoid the
political paraphernalia that typically accompany these announcements.
Mr. Chairman, as I indicated at the beginning of my testimony, the
need to restart the Puerto Rican economy's engine is an urgent matter.
Not to do so is to condemn the Island to continued loss of population
and its young people leaving the Island in search of a better quality
of life in the States. This will require close collaboration between
the Federal and Puerto Rican governments, the FOMB, and the private
sector. If the Committee intends to move forward with this effort to
change PROMESA, I urge you to consider amendments that will make it
possible to use PROMESA and the FOMB's unquestioned influence in
securing a better future for Puerto Rico. The 3.2 million American
citizens of Puerto Rico deserve no less.
Thank you.
______
Questions Submitted for the Record by Rep. Grijalva to Mr. Rodrigo
Masses-Artze, President, Private Alliance for Economic Growth for
Puerto Rico
Mr. Masses-Artze did not submit responses to the Committee by the
appropriate deadline for inclusion in the printed record.
Question 1. I agree with your statement that laying the groundwork
for sustained economic growth in the Island should be high priority for
the government of Puerto Rico, the Oversight Board and this Committee.
You also mention the importance of granting municipalities a more
prominent role in the reconstruction process as active decision makers.
How do you envision the participation of municipalities and the private
sector in the planning phase of the reconstruction process to ensure
improvements in the economic and social conditions in Puerto Rico?
Question 2. In your testimony, you emphasize the need for a
Development Roadmap for Puerto Rico. Could you provide more information
about what this Roadmap would address?
______
Mr. Soto. We are going to continue on with our regular
order now, and Ms. Adi Martinez, you are recognized.
STATEMENT OF ADI MARTINEZ, SENIOR POLICY ADVISOR, OXFAM AMERICA
Ms. Martinez. Thank you, Mr. Soto, Chairman, members of the
Committee, and staff, for giving us this opportunity to talk
about Federal recovery funds coordination and Section 11 of the
discussion draft.
Oxfam is an international non-profit, non-partisan
organization that for decades has delivered disaster and
development assistance around the world. Our work has taught us
that effective and lasting recovery and development is
dependent on empowering local people and communities to claim
their rights, fight injustice, and hold their government and
private sector accountable.
The challenges that we see in Puerto Rico are very similar
to challenges we have worked to solve in many other communities
that are recovering from disasters and lifting themselves out
of poverty.
I have lived in Puerto Rico all my life. I was there when
Hurricane Maria hit, and as a director of Fundacion Fondo de
Acceso a la Justicia, plunged into getting resources for legal
assistance teams who traveled to rural, poor, and
disenfranchised communities on the island and who, to this day,
are struggling to access recovery assistance.
In my work at Oxfam, I remain tightly connected and consult
daily with communities and civil society leaders in Puerto
Rico, and I can tell you that our low-income and marginalized
communities are facing critical challenges that impede their
recovery and puts them in harm's way in the face of future
disasters.
We believe our recovery must be equitable, transparent, and
effective. We have seen over and over again around the world
that extreme centralization of the kind seen in Puerto Rico
invites corruption and leads to ineffective and poorly
prioritized spending. It does not take advantage of the local
community's historical and institutional knowledge.
I would like to submit for the record an Oxfam report
entitled ``To Fight Corruption, Localize Aid,'' together with
other documents that show support to my statements.
As an evidence-based organization, we strongly believe that
there is nothing more powerful or effective to combat
corruption and ensure that Federal dollars really meet people's
needs than to give voice to community leaders. They know best
what they need, and in Oxfam's experience around the world,
they are by far the most effective and reliable voices pressing
for good governance, accountability, and transparency.
We know that in the face of corruption, Congress and
Federal agencies often propose further centralized controls. In
Puerto Rico, this includes the withholding of funds, the
assignment of independent financial monitors, while other
policy makers suggest intervention of the Fiscal Oversight
Management Board.
The legislative proposal being discussed here today also
includes the appointment of a Reconstruction Coordinator. It is
important to establish immediately that the whole discussion of
Federal recovery funds coordination or any legislation thereof
should be separate from PROMESA or its amendments. Also, it is
clear to us that civil society in Puerto Rico overwhelmingly
rejects the idea of greater centralization and the continued
disconnect from those who matter most, the people.
Oxfam's core message to the Committee and the U.S. Congress
is that those measures will not solve the challenges at hand
and will not yield the results we all seek.
We believe this moment is a critically important
opportunity for the U.S. Congress to demonstrate that it is
listening to the civil society in Puerto Rico. A fast-growing
list of civil society organizations and supporters has endorsed
the concept of a civil society working group as an alternative
for the coordination of recovery funds.
Note that in our current endorsement list are organizations
that represent hundreds of smaller ones: United Way of Puerto
Rico, Grupo G8, PRODEV, and VAMOS, among others.
Also, we are submitting draft language to create a civil
society task force that has been developed in dialogue and with
the direct input of many of these and other groups. As we work
with partners on the ground to socialize the task force idea
and get input, that support list continues to grow.
The civil society task force will consist of 13 elected
representatives from across civil society and 4 highly
experienced professionals who will be embedded in each key
recovery agency: FEMA, HUD, COR3, and Vivienda.
As asked by those groups endorsing the concept, this task
force would: First, advise and advocate for transparent,
accountable, and effective decisions and outcomes that address
urgent needs and achieve equitable and resilient recovery in
Puerto Rico; second, it would oversee processes to ensure
stakeholder participation and incorporation of stakeholder
input, and ensure the voices of women, elders, the disabled,
and marginalized communities are heard and addressed.
The embedded representatives will be the main support to
the task force in the execution of its duties. They would serve
for 1 year with the possibility of term renewals if re-
nominated unanimously by the task force. Other task force
members would be elected to serve for 3 years, unless the
sector they represent decides in their assembly established
procedure that their mandate should be revoked.
In closing, the urgency for recovery in Puerto Rico makes
these considerations of utmost importance. I look forward to
answering any questions and continued work with Committee staff
to make this a reality.
Thank you.
[The prepared statement of Ms. Martinez follows:]
Prepared Statement of Adi Martinez-Roman, Oxfam America
Thank you, Mr. Chairman, members of the Committee, and staff, for
giving us this opportunity talk to about Federal recovery funds
coordination and Section 11 of the Discussion Draft. Our testimony will
only touch upon Section 11 and will not present any position as to the
other components of the discussion draft. In fact, as explained below,
we strongly think the two themes, PROMESA amendments and Federal
recovery coordination should be completely separate.
Oxfam is an international non-profit, non-partisan organization
that for decades has delivered disaster and development assistance
around the world. Our work has taught us that effective and lasting
recovery and development is dependent on empowering local people and
communities to claim their rights, fight injustice and hold their
government and private sector accountable. The challenges that we see
in Puerto Rico are very similar to challenges we have worked to solve
in many other communities that are recovering from disasters and
lifting themselves out of poverty.
Mr. Chairman, I have lived all of my life in Puerto Rico, only
being away for college and post-graduate studies. I worked for 10 years
in the University of Puerto Rico Law School as a professor and Dean of
Student Affairs, and as the coordinator of the student ProBono Program,
after which I worked as the Executive Director of Fundacion Fondo de
Acceso a la Justicia (FFAJ), a local non-profit that finds resources
for civil legal aid to the poor. After the hurricane hit, I continued
as director of the FFAJ and plunged into getting resources for legal
assistance teams who traveled to rural, poor and disenfranchised
communities on the island and who--to this day--are struggling to
access recovery assistance. As you can see in my CV, since my student
days I have continuously worked with poor communities, its leaders, and
for access to justice in Puerto Rico.
In my work at Oxfam I remain tightly connected and consult daily
with communities and civil society leaders in Puerto Rico. Together
with Oxfam's Program Manager in our office in Puerto Rico, Ms. Maria
Concepcion, we can tell you that our low income and marginalized
communities are facing critical challenges that impede their recovery
and puts them in ``harm's way'' in the face of future disasters.
We believe our recovery must be equitable. It must address people's
needs--prioritizing those of the more than 40 percent of people who
live in poverty and the communities where the needs are greatest. The
recovery must also be transparent, accountable and effective. Oxfam
America is uniquely independent because we take no U.S. government
dollars--and we have for years been a leading voice on Capitol Hill for
policy solutions aimed at achieving effective, transparent and
accountable U.S. assistance. Those approaches and solutions need to be
applied in Puerto Rico. I'd like to submit for the record an Oxfam
Report entitled, ``To Fight Corruption, Localize Aid,'' together with a
graphical presentation and other documents that show support to my
statements below.
Mr. Chairman, we have seen over and over again around the world
that extreme centralization of the kind seen in Puerto Rico invites
corruption and leads to ineffective and poorly prioritized spending. It
does not take advantage of the local community's historical and
institutional knowledge.
We are an evidence based organization and we strongly believe that
effective and equitable planning, execution, and oversight is only
possible when affected communities are fully engaged. Local people must
be included and empowered. There is nothing more powerful or effective
to combat corruption and ensure that Federal dollars really meet
people's needs--than to give voice to community leaders. They know best
what they need, and in Oxfam's experience around the world, they are by
far the most effective and reliable voices pressing for good
governance, accountability and transparency. In Puerto Rico, this is
not different, as it has been demonstrated repeatedly in their
effective work after the hurricane and by the movement of its
population requiring good governance this past summer of 2019.
We know that in the face of corruption, Congress and Federal
agencies often propose further centralized controls. In Puerto Rico,
these currently include the withholding of funds, steeper compliance
requirements, and the assignment of independent financial monitors,
while other policy makers suggest the intervention of the Fiscal
Oversight Management Board. The legislative proposal being discussed
here today also includes the appointment of a Reconstruction
Coordinator that represents another layer of centralized control.
It is important to establish immediately that the whole discussion
of Federal recovery funds coordination or any legislation thereof
should be separate from the PROMESA law or its amendments. It is very
important to maintain a clear separation between the Federal recovery
funds and considerations on debt repayment and restructuring. These
resources should not in any way be thought of as a way to pay creditors
and/or inflate economic prospects for the fiscal plans. The urgency for
Federal recovery funds lies exclusively in the dire needs of a disaster
hit population, and we must insure that legislative attempts for its
effectiveness pass political muster without being tangled to other
unrelated political considerations. Any legislation developed should be
separate from PROMESA amendments.
Also, it is clear to us that civil society in Puerto Rico
overwhelmingly rejects the idea of greater centralization and the
continued disconnect from those who matter most--the PEOPLE. Oxfam's
core message to the Committee and the U.S. Congress is that in our
experience, those measures will not solve the challenges at hand, and
will not yield the results we all seek.
Mr Chairman, we believe this moment is a critically important
opportunity for the U.S. Congress to demonstrate that it is listening
to civil society in Puerto Rico. Congress is clamoring for good
governance and accountability--and so are the people in Puerto Rico. It
is time for Congress to put them in the driver's seat as key players,
fully engaged and empowered, to ensure the right Federal recovery
dollar decisions are made, and the people of Puerto Rico begin to
really see and feel the effects of effective and equitable recovery
investments.
A fast-growing list of civil society organizations and supporters
has endorsed the concept of civil society working group as an
alternative for the coordination of recovery funds. We submit for the
record a copy of the petition to Congress to avoid further
centralization initiatives, including the appointment of a Federal
Coordinator, and that any recovery coordination must be done with a
group of elected civil society representatives. Note that on our
current ``endorsement'' list and letters are organizations that
represent hundreds of smaller organizations--United Way of Puerto Rico,
Grupo G8, PRODEV, VAMOS, among others. There is also an ample spectrum
of organizations in terms of type, composition and area of services,
such as professional schools, law clinics, planners and unions.
Also, we are submitting draft language for the creation of a Civil
Society Task Force that has been developed in dialogue and with the
direct input of many of these and other groups. As we work with
partners on the ground to socialize the Task Force idea and get input,
the proposed language has been enriched with local knowledge and the
support list continues to grow.
As currently conceived, the Civil Society Task Force would consist
of 13 elected representatives from across civil society, and 4 highly
experienced professionals who would be embedded in each key recovery
agency, FEMA, HUD, COR3 and Vivienda. The embedded representatives
would be recruited by the agencies from the three qualified candidates
proposed by the Task Force to each of the agencies. Their
qualifications, the required monthly meetings with the Task Force and
reporting requirements of these professionals are specified in the
language.
As asked by the groups endorsing the concept, this Task Force
would:
First: Advise and advocate for transparent, accountable and
effective decisions and outcomes that address urgent needs and achieve
equitable and resilient recovery in Puerto Rico.
Second: Oversee processes to (1) ensure stakeholder participation
and incorporation of stakeholder input and (2) ensure the voices of
women, elders, the disabled and marginalized communities are heard and
addressed.
The embedded representatives will be the main support to the Task
Force in the execution of its duties within the agencies, which
include, among other things:
Promote agency and regional collaborative actions
Oversee proper stakeholder analysis
Review the data and make sure it is made public
Identify duplication and propose solutions
Monitor violation of human rights
Eliminate barriers to participation of local organizations
and businesses
It is important to note that the four embedded representatives
would serve for 1 year, with the possibility of term renewals if re-
nominated unanimously by the Task Force. Other Task Force members would
be elected to serve for 3 years, unless the sector they represent
decides in their assembly established procedure that their mandate
should be revoked. This to ensure the answerability of these persons to
the groups represented, which is a key element of this proposal. The
election assemblies for the Task Force members would be supervised by
locally trusted groups like the Commission of Civil Liberties, the
Association of Professional Social Workers of Puerto Rico, and the Law
School Clinics.
In closing, and as proven internationally, only with civil society
direct involvement will Congress achieve transparency, accountability
and resiliency for Puerto Rico. The urgency for this in Puerto Rico
makes these considerations of utmost importance. For these reasons we
urge you to work with us and civil society leaders in Puerto Rico to
achieve our common goals by quickly introducing and fast tracking House
passage of civil society task force legislation--separate from PROMESA
reform--to kick start our way to an empowered civil society ensuring
transparent, accountable and effective and equitable recovery in Puerto
Rico.
I look forward to answering any questions and continued work with
Committee staff to make this a reality.
Thank you.
*****
The following documents were submitted as supplements to Ms. Martinez's
testimony. These documents are part of the hearing record and are being
retained in the Committee's official files:
-- Letter from Annie Mayol, President & COO, Foundation for Puerto
Rico to Oxfam America dated October 9, 2019.
-- Letter from Samuel Gonzalez, President, Fondos Unidos de Puerto
Rico/United Way to Oxfam America dated October 21, 2019.
-- Oxfam America Research Report titled, ``To Fight Corruption,
Localize Aid: How U.S. Foreign Assistance Can Support a
Locally Driven Fight Against Corruption.''
-- Petition Proposing a Puerto Rico Civil Society Task Force and
Civil Society Representatives to Facilitate Recovery
Efforts.
______
Questions Submitted for the Record by Rep. Grijalva to Ms. Adi
Martinez, Senior Policy Advisor, Oxfam America
Question 1. You propose a Civic Society Task Force to increase the
participation of civic society in Puerto Rico's disaster recovery
process. I have expressed that engaging municipalities, communities,
and non-profit organizations should be a priority for the Federal and
local government. Please share what sectors--in your view--should be
represented in the Civic Society Task Force?
Answer. Our main argument is that locally elected civil society
representation in the form of a task force is the only effective way to
insure transparency, accountability and resiliency in the use of
Federal funds. In our dialogues and experiences with groups in Puerto
Rico, we have identified sectors in civil society that have actively
and effectively worked on emergency aid and recovery, with very good
results despite small amount of resources. These include
municipalities, low-income community leaders, non-profits,
philanthropic organizations, universities, private businesses, and
workers' unions. That is why we have proposed that each sector selects
their own representatives to the CSTF, in assemblies, with the help of
trusted institutions like the Commission of Civil Liberties, the
Association of Professional Social Workers of Puerto Rico, and the Law
School Clinics. Each group (see diagram below) will have different
amounts of representatives, according to their involvement in recovery
and size, with low-income community leadership being the group with
most representation, as there are thousands of low-income communities
in Puerto Rico that still need effective recovery.
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
It is important to clarify that these civil society
representatives in the CSTF would have as one of its main purposes to
insure spaces and processes of real and effective participation of the
general public. The CSTF should not be construed as a body that
substitutes the public participation that is required for effective
recovery, but as a group that will guarantee those processes exist.
Question 2. How do you envision the Civic Society Task Force would
influence the decision-making process of Federal and local agencies
that play a role in the reconstruction process? What would be their
authority?
Answer. Once the CSTF has elected its main members, it will
organize its processes and elect a full-time Chairperson that would be
the principal point of contact between Congress and the CSTF.
Nevertheless, the CSTF would also proceed to propose 4 highly
experienced professionals who would be embedded in each key recovery
agency, FEMA, HUD, COR3 and Vivienda, and who would be the main support
to the Task Force in the execution of its duties within these agencies.
The embedded representatives would be recruited by the agencies from
the three qualified candidates proposed by the Task Force to each of
the agencies. Their qualifications, the required monthly meetings with
the Task Force and reporting requirements of these professionals are
specified in the language.
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
The legislation created by Congress, as proposed in the
language we have been working on with the groups, will specify the
duties of the members of the task force and its embedded
representatives, and their authority to act, propose and require. We
envision that the CSTF would have meetings and processes to work with
their represented groups on the ground, identify bottlenecks, needs of
public participation, problems of transparency, etc. These could even
work with regional groups to further enrich the process. But the
authority of the CSTF would be clearly delineated by statute and should
be sufficient for the CSTF to truly implement its mission.
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
This authority, as conceded by Congress, would be executed in
the agencies through the embedded representatives. That is why they are
so essential to the model, as they would be professionals with the
mission to, among other things, raise red flags on agency actions and
work directly with the agency Secretary (or appointed contact) to
execute the duties of the CSTF.
Please let us know if you have further questions. We are available
and look forward to continuing work with the Committee in the
development of this language. As emphasized, the urgency for recovery
in Puerto Rico makes these considerations of utmost importance, and we
firmly believe that our common goals of an empowered civil society
ensuring transparent, accountable and effective and equitable recovery
in Puerto Rico can be achieved. Thanks again for the opportunity.
______
Mr. Soto. Thank you for your remarks, Ms. Martinez.
Ms. Mayol, you are recognized.
STATEMENT OF ANNIE MAYOL, PRESIDENT, FOUNDATION FOR PUERTO RICO
Ms. Mayol. Good afternoon, Chairman and Committee members.
My name is Annie Mayol. I am President and Chief Operating
Officer of Foundation for Puerto Rico. I am honored and
grateful to be here.
Foundation for Puerto Rico is a 501(c)(3) local not-for-
profit organization. Since our creation in 2011, our mission
has been to transform Puerto Rico through sustainable socio-
economic development strategies. Our goal is a prosperous
Puerto Rico that unleashes the talent, creativity, and passion
in the people of Puerto Rico.
In the aftermath of Hurricane Maria, Foundation for Puerto
Rico became an active participant in the relief and recovery
efforts, including serving as a backbone to support non-
governmental organizations in the island. We hosted over 180
organizations in our space, El Colaboratorio, where more than
230 relief missions around the island were coordinated.
In addition, we served as a fiscal sponsor to other NGOs so
they could implement important programs around the island in
areas like aid to farmers and resiliency programs for local
community centers.
While providing immediate relief around the island,
Foundation for Puerto Rico identified critical gaps in the
support of small business owners. We developed a small business
cash grant program to help hundreds of businesses in key
economic clusters stay open, and we grew the program into the
Bottom Up Destination Recovery Initiative.
This initiative uses the visitor economy as a strategy for
recovery. Originally funded by private donations, we have
expanded to 12 towns around the island through a grant of EDA.
Last year, the Puerto Rico Department of Housing asked our
organization to lead the whole community resiliency planning
program. This program channels HUD community development block
grant disaster recovery funds to develop community-led plans,
focused on making them more prepared and resilient in the face
of future events like Maria.
Foundation for Puerto Rico has been working with the
Federal and local government, with business owners, with local
community leaders, and have seen the commitment of all of our
partners to guarantee the good use of the disaster funds and
the interest, not only to achieve compliance but to drive real
change to Puerto Rico.
We have firsthand experience with the integrity and
discipline with which the Puerto Rico Department of Housing is
managing these funds. However, the delay in the disbursement of
CDBG-DR funds has directly affected the capacity to implement
these disaster recovery programs and is impacting the most in
need.
Due to the reimbursement nature of the funds, non-
governmental organizations like Foundation for Puerto Rico face
additional liquidity challenges and burdens that directly
impact implementation. We believe Puerto Rico's NGO sector can
play a game-changing role, healing the distrust between the
island and the Federal Government while helping to keep the
focus on recovery, prosperity, and integrity.
Foundation for Puerto Rico believes adding more layers and
bureaucratic processes is not the solution to ensuring the
proper use of disaster relief funds. This is what motivates our
concern over the proposed creation of the Office of the
Reconstruction Coordinator for Puerto Rico.
Instead, Foundation for Puerto Rico recommends the creation
of a Federal point person whose role is to ensure the timely
release of the CDBG-DR and FEMA funds. There is a major lack of
Federal coordination and vision in the use of these funds.
Thus, we recommend that the primary focus of this role should
be to jumpstart our recovery.
This role should assist both Federal and local agencies
with the development of an organized and transparent process in
which recovery projects will be funded, and ensure adequate
participation from communities, municipalities, and NGOs.
Our concern should not only be the potential improper use
of funds for which numerous safeguards already exist, but we
should also be breaking silos and creating connections between
all of the programs to ensure we implement projects that have
the most direct and enduring positive impact on the quality of
life of the people of Puerto Rico.
At Foundation for Puerto Rico, we like to say there is no
future in rebuilding the past. This is our opportunity to build
a better future for Puerto Rico.
We strongly encourage the Federal Government to facilitate
local NGOs' participation in the implementation of these
disaster recovery funds. No one sector alone can do this job.
Only when every sector--that is, government, private industry,
NGOs, and the community--work together for a common goal does
the possibility of permanent transformation exist.
To achieve this, we also recommend that the House Natural
Resources Committee look at ways that other Federal disaster
funds can be more accessible to communities. Where there is a
requirement for local matching funds, such as EDA, that
requirement should also be waived for a minimum of 3 years to
ensure that funds flow faster and more effectively.
In summary, our three recommendations are to establish a
Federal point person, ensure optimal participation of the NGO
sector in the recovery, and waive the local match requirement
for disaster funds.
Thank you for your interest and support for Puerto Rico's
recovery.
[The prepared statement of Ms. Mayol follows:]
Prepared Statement of Annie Mayol Del Valle, President & Chief
Operating Officer, Foundation for Puerto Rico
Good afternoon Chairman Grijalva, Ranking Member Bishop, and
members of the Committee. My name is Annie Mayol, and I'm president and
chief operating officer of Foundation for Puerto Rico. I am honored and
grateful to have the opportunity to speak with you today.
Foundation for Puerto Rico is a 501(c)(3) local non-profit
organization. Since our creation in 2011, our mission has been to
transform Puerto Rico through sustainable socio-economic development
strategies. Our goal is a prosperous Puerto Rico that unleashes the
talent, creativity, and passion of the Puerto Rican people.
In the aftermath of Hurricane Maria, Foundation for Puerto Rico
became an active participant in relief and recovery efforts, including
serving as a backbone to support other NGOs on the island. We hosted
over 180 organizations in our space, El Colaboratorio, where more than
230 relief missions around the island were coordinated. Also, we served
as Fiscal Sponsor raising more than $10 million for other local NGOs,
so they could implement important programs around the island in areas
like aid to farmers, support to artists, and resiliency programs for
local community centers.
While providing immediate relief around the Island, Foundation for
Puerto Rico identified critical gaps in support for small businesses in
key regional areas. We developed the Small Business Cash Grant Program
to help hundreds of businesses in key economic clusters stay open, and
we grew the program into the Bottom Up Destination Recovery Initiative.
This initiative uses the Visitor Economy as a strategy for recovery.
The Visitor Economy is a concept much broader than tourism. It
aggregates all direct, indirect, and induced economic activity
resulting from visitors' interactions with their destination.
Foundation for Puerto Rico has been advocating for implementing a
Visitor Economy strategy as a spearhead for Puerto Rico's economic
development which will produce the most immediate and accessible
economic benefits for our communities. Using this framework, the Bottom
Up Destination Recovery Initiative, originally funded by private
donations, has now expanded to 12 municipalities thanks to a grant from
the U.S. Economic Development Administration.
The Bottom Up Destination Recovery Initiative teaches communities
to identify their most important assets (cultural, businesses,
attractions, natural resources, etc.), learn how to market them,
identify ways to attract more visitors (accommodation, attractions,
experiences), to create their own Destination Plan. A crucial part of
the initiative is to also train and coach the community on readiness
efforts to face future disasters, the adoption of resilience practices
and sustainability. The aim is to identify and mobilize individual and
community assets, skills and passions to build sustainable economic
development from the bottom up. Through the Bottom Up Initiative, we
are currently impacting more than 500 businesses around the island,
creating 30 new businesses and developing eight Community Destination
Plans.
Foundation for Puerto Rico serves as a leader on the island's
economic development stage, with the results to show for it, including
the incubation of Discover Puerto Rico, the new non-governmental
destination marketing organization that has already succeeded in
restoring visitor numbers to pre-Hurricane Maria levels. As champions
of the Visitor Economy, we believe that in a few short years Puerto
Rico can double the level of visitor activity, add billions of dollars
to its GDP and tens of thousands of new jobs to lift the island up and
out of recession.
Last year, the Puerto Rico Department of Housing asked our
organization to lead the Whole Community Resiliency Planning Program.
This program channels HUD Community Development Block Grant-Disaster
Relief funds to develop community-led plans focusing on making them
more prepared and resilient in the face of future events like Maria.
The Whole Community Resilience Planning Program is an integral part
of the approved Disaster Recovery Action Plan of the Puerto Rico
Department of Housing. It is designed to enable communities throughout
the island to determine their unique needs, set long-term goals and
short-term objectives, identify priorities and request funding for the
development of long-term resilience plans.
As part of this program, we have formed multisectoral working
groups composed of representatives from Federal and Puerto Rico
government agencies, sister non-profit organizations, trade groups and
professional associations that possess the knowledge and experience
required in the areas of economic, educational, infrastructural,
health, environmental and housing development.
Through our work, Foundation for Puerto Rico has been collaborating
with the Federal and local government, with business owners, with local
community leaders, and have seen the commitment by all our partners to
guarantee the good use of these disaster funds and the interest, not
only to achieve compliance, but to drive real change for Puerto Rico.
We have firsthand experience with the integrity and discipline with
which the Puerto Rico Department of Housing is managing these funds.
However, the delay in the disbursement of CDBG-DR funds has
directly affected the capacity to implement these disaster recovery
programs and is impacting the most in need. Due to the reimbursement
nature of the funds, non-governmental organizations, like Foundation
for Puerto Rico, face additional liquidity challenges and burdens that
directly impact implementation.
Puerto Rico's NGO sector can play a game-changing role in healing
the distrust between the island and the Federal Government while
helping to keep the focus on recovery, prosperity, and integrity. NGOs
are perceived by residents as trusted partners that can operate free
from partisan political or other narrow economic interests, continuity
and needed agility for the effective implementation of projects leading
to sustainable results. We have studied the post-disaster trajectories
of New Orleans and New York, where NGOs like ours were instrumental in
achieving successful outcomes. By giving well-governed, well-structured
NGOs a greater role, we can do more with less, while maintaining
integrity, discipline, transparency, and professionalism.
While Foundation for Puerto Rico believes that adding more layers
and bureaucratic processes is not the solution to ensuring the proper
use of disaster relief funds, we do believe that more players are
needed at the table. This is what motivates our concerns over the
proposed creation of the Office of the Reconstruction Coordinator for
Puerto Rico.
Foundation for Puerto Rico recommends the creation of a Point
Person at the Federal level whose role is to ensure the timely release
of CDBG-DR and FEMA funds. There is a major lack of Federal
coordination and vision in the use of these funds, thus we recommend
that the primary focus of this Federal Point Person should be to
jumpstart our recovery.
This Federal point-person should assist both Federal and local
agencies with the development of an organized and transparent process
in which recovery projects will be funded and ensure adequate
participation from communities, municipalities, and NGOs. Our concern
should not only be the potential improper use of funds, for which
numerous safeguards already exist, but we should also be breaking silos
and creating connections between all the programs to ensure we
implement projects that have the most direct and enduring positive
impact on the quality of life of the people of Puerto Rico. At
Foundation for Puerto Rico, we believe that there is no future in
rebuilding the past and this is our opportunity to build a better
future.
We strongly encourage the Federal Government to facilitate local
NGO participation in the implementation of these disaster recovery
funds. No one sector alone can do this job. Only when every sector,
that is, the government, private industry, NGOs, and the community work
together for a common goal does the possibility of permanent
transformation exist.
To achieve this, we also recommend that the House Natural Resources
Committee looks at ways that other Federal disaster funds can be more
accessible to the communities. Where there is a requirement for local
matching funds, such as the U.S. Economic Development Administration,
that requirement should also be waived for a minimum of 3 years to
ensure that the funds flow faster and more effectively.
In summary, our three recommendations are to establish a Federal
Point Person, ensure optimal participation of the NGO sector in the
recovery, and waive the local match requirement for disaster funds.
Thank you for interest and support for Puerto Rico's recovery.
Foundation for Puerto Rico and I welcome the opportunity to work with
members of this Committee toward that end.
______
Questions Submitted for the Record by Rep. Grijalva to Ms. Annie Mayol,
President, Foundation for Puerto Rico
Question 1. You mention that NGOs can play a game changing role in
healing the distrust between the local and the Federal Government. Tell
us more how this can be done? Would it be helpful to have other NGOs
participating as subrecipients in the disaster recovery process?
Answer. NGOs can heal the distrust between the local and federal
governments by being an impartial ally to achieve local disaster
recovery goals while maintaining a reputation of honesty. NGOs maintain
trust and good use of funds at their core and have experience with the
management of federal funds, making them the ideal subrecipient
candidate of federal funds. At the local level, NGOs are at the heart
of community building and development. These organizations were part of
the initial response after Hurricane Maria, accessing hard-to-reach
communities. Due to the decades-long relationships many local NGOs have
with Puerto Ricans, there is an underutilized opportunity to integrate
them in the disaster recovery process.
Given the relationship NGOs have with local communities,
incorporating them in the disaster recovery conversations and process
would create an integrated, multi-jurisdictional, comprehensive and
efficient process. Following the method Puerto Rico Department of
Housing has used with the Foundation for Puerto Rico, there is massive
potential for comprehensive disaster recovery.
Question 2. In addition to the issue of the disbursement of CDBG-DR
funds, at the end of your testimony you also mentioned the Bottom Up
Destination Recovery Initiative your organization has expanded through
a grant from the U.S. Economic Development Administration. Can you
explain how the agency's matching funds requirement impacts that
important recovery initiative?
Answer. It is very challenging for NGOs to acquire the capital
necessary to match federal grants. Most NGOs have modest endowments or
no endowments at all, making it challenging to find matching funds for
even a 20 percent match. This makes it difficult for NGOs to meet the
requirements necessary when applying for federal grants like those in
the EDA. In addition, most federal funds are through reimbursements
creating a need for largest amount of working capital and cash flow
than most local NGOs can afford.
It is common to hear in the news that Puerto Rico has been given
billions of dollars in federal recovery funds, however, these dollars
are barely utilized due to the large match requirement. The Secretary
of Commerce has the discretion to issue a directive waiving the
matching requirements for EDA grants. The Foundation for Puerto
recommends the Committee request that the Secretary consider waiving
matching funds for a few years, for example 3 years, to help jumpstart
the flow of federally allocated dollars.
______
Mr. Soto. Thank you, Ms. Mayol.
Next we recognize Dr. Ortiz-Garcia. Thanks for being here.
STATEMENT OF CECILIO ORTIZ-GARCIA, SENIOR FELLOW, THE NATIONAL
COUNCIL FOR SCIENCE AND THE ENVIRONMENT
Dr. Ortiz-Garcia. Thank you, Mr. Chairman. Good afternoon
to you and to the members of this Committee.
My name is Cecilio Ortiz-Garcia and I appear in front of
you today as Senior RISE Fellow at the National Council for
Science and the Environment here in Washington, DC. I hold a
PhD in Public Policy and Administration from the Arizona State
University and for the last 15 years I have been involved in
numerous research projects, programs and policy-making
activities related to the sustainable transition of Puerto
Rico's electrical system.
My remarks today will circumscribe to the figure of the
Recovery Coordinator for PREPA, and I have the following points
to offer, which I hope will get us into a deeper conversation
about this.
No. 1, we recommend the figure of the Recovery Coordinator
for PREPA. Recent studies on recovery and reconstruction
processes suggest that having such a figure might help decrease
the length of the recovery and reconstruction process and also
increase the quality on the outcomes that could emerge from a
better governance and decision-making model. It is important to
frame this Recovery Coordinator in the context of
deconcentrating the current power structure, and second of all,
the decentralization of energy decision making. This is going
to be crucial for its success in Puerto Rico.
No. 2, the RC, as I call it, also needs to be mindful about
the extreme operating environment that he or she is dropping
into. Because of the extreme complexity of Puerto Rico's post-
Maria recovery and reconstruction process, extreme care should
be given to determine: (a) how the interaction between the RC
and PREPA's internal and external communities will be framed;
and (b) most importantly, what role will the RC play in the
overall planning of Puerto Rico's electric system from here
thereon.
No. 3, the RC must be perceived as an agent of Puerto Rican
society and not as an agent of Congress, PREPA, or the state
governmental institutions in Puerto Rico, whether state or
local.
While this amendment visualizes the RC as a supervisor,
controller and overseer of PREPA operations--and we agree that
those are important objectives--the people of Puerto Rico need
to have confidence in the RC's abilities to open PREPA's
governance black box. Integrating the RC figure in a framework
of conflict would only exacerbate the climate of acrimonious
fighting and could, in fact, lengthen the recovery and
reconstruction process of the island's electric system.
In fact, the RC should help the people of Puerto Rico to
reach its vision for a sustainable, resilient, prosperous,
just, equitable, democratic, sustainable electrical system as
expressed in the Energy Stakeholder Forum vision document in
the past.
No. 4, ultimately, the RC needs a tool to help him or her
achieve these boundary-spanning objectives. That body should be
the Technical Advisory Committee composed by local expertise,
local scientific and non-scientific knowledge, with connections
nationwide to filling the gaps and legitimize their work.
The National Institute for Energy and Island Sustainability
is, as the DOE has stated in the reconstruction report, the
best resource equipped to help the RC achieve this. The
Technical Advisory Committee is absolutely necessary as a
boundary-spanning tool to assist the RC in effectively engaging
with different sectors of Puerto Rican society, capturing and
internalizing their values, perceptions, attitudes, not only as
PREPA customers, but also as electricity users in Puerto Rico.
And No. 5, effectively co-producing the knowledge necessary
to transform not only the agency but the electric system in
general.
In closing, Puerto Rico is right now the quintessential
canary in the mine, not only because of its island condition
but geographical location in the path of possible and more
frequent and stronger weather events.
Also, and more importantly, because of its current colonial
condition, this makes Puerto Rico perhaps the greatest
experiment in democracy in the hands of the United States.
Thank you and I remain available for your questions.
[The prepared statement of Dr. Ortiz-Garcia follows:]
Prepared Statement of Cecilio Ortiz Garcia, Senior RISE Fellow,
National Council for Science and the Environment, Washington, DC
Good morning Honorable Chairman and members of the Committee. My
name is Cecilio Ortiz Garcia and I appear in front of you today as
Senior RISE Fellow at the National Council for Science and the
Environment in Washington, DC. I am currently in residence at the
Institutes for Energy and the Environment at Penn State University. I
hold a PhD in Public Policy and Administration from The Arizona State
University and for the last 15 years I have been involved in numerous
research projects, programs and policy-making activities related to the
sustainable transition of Puerto Rico's electrical system. Also, since
my arrival at NCSE, I have been involved in the design, construction
and operation of the RISE Network.
My remarks today will circumscribe to the issue of the proposed
Monitor for the reconstruction of PREPA and will lead to the formation
of a Technical Advisory Committee to those ends. We believe that the
amendment to introduce the proposed Revitalization Coordinator (RC) for
the Puerto Rico Electric Power Authority (PREPA) is warranted. However,
because of the extreme complexity of Puerto Rico's post-Maria recovery
and reconstruction process, extreme care should be given to determine:
(a) what will frame the interactions of the RC with internal actors
inside PREPA?; (b) what would frame the RC interactions with
stakeholders outside of PREPA?; and (c) what role would the RC play in
the overall planning of the electric system from here on after? These
questions are important because recovery processes are complex, not
only about speed but also about the quality of the decision-making
process. Although speed is necessary (if agencies do not act quickly,
many victims will begin to rebuild where they have access to and how
they can afford), it is also vital to take the time to plan post-
disaster reconstruction. The amendment, as currently written only
visualizes an RC to supervise, control and oversee PREPA operations,
but doesn't contemplate the RC having a role in opening up what has up
until now being considered PREPA's black box. We would argue that
integrating the RC figure in a framework of conflict will only
exacerbate the climate of acrimonious fighting and could in fact
lengthen the recovery and reconstruction process of the island electric
system.
Due to the time constraints, I will concentrate on the following
three main points:
1. The current extreme operating environment in Puerto Rico after
hurricane Maria is extremely complex and the proposed
monitor will have to face and embrace that complexity.
2. His or her success will require, more than technological
innovation, governance innovation.
3. And ultimately, I would like to offer the Committee a glimpse or
a vision of the possible opportunities these amendments to
PROMESA could bring both to the people of Puerto Rico and
to the rest of the Nation.
1. The current extreme operating environment in Puerto Rico after
hurricane Maria is extremely complex and the proposed monitor
will have to face and embrace that complexity--
Platt (2017) has recently studied the factors affecting the speed
and quality of post disaster recovery and resilience. Interestingly,
the most important factors that influence the speed and quality of the
recovery are endogenous like the characteristics of decision-making
processes. Exogenous factors like the size of impact, population
demographics and economic factors seem to have little or no impact. He
argues that ``The relationship between post-disaster decision making
and the quality of recovery in terms of whether crucial aspects of the
society and economy are `built back better' is striking.'' Among the
experiences presented by Platt the case of Chile after the Maule
Earthquake in 2010, provides us with few lessons. The Chilean
government appointed a national coordinator to develop a reconstruction
plan. The plan was based on the premise that ``the State is unable to
reconstruct everything or even control de process of recovery centrally
from Santiago. With the support of the State it is the responsibility
of each region, town council and community, to develop its own plan.''
The distinctive aspect about the Chilean example is the quality of the
participation process that involved the communities in decision making
and kept them informed about the progress. The client of the RC is the
people of PR, not PREPA, not the PR Government. This example shows that
framing the RC in the context of deconcentration of power and
decentralization of energy decision making is crucial to its success in
PR.
Several decision-making bodies continue to fight over PREPA's
future and that of the electric system. Moreover, due to the now
admitted shortcomings by FEMA and other Federal agencies in the
handling of Puerto Rico's post-Maria recovery process, we are now
looking at a 10- to 15-year window for reconstruction. Last, we stand
now in front of an ill designed ``two-teared electrical system'' that
promises to become an energy planning nightmare at multiple levels. Let
me explain. According to the solar map of Puerto Rico, and anecdotal
evidence from NGOs that are actively engaged in the installation of
these types of systems, there are about 200 renegade decentralized
renewable systems, including micro grids and individual installations.
2. His or her success will require, more than technological innovation,
governance innovation--
Puerto Rico's energy governance remains extremely concentrated,
extremely hierarchical, extremely centralized and completely devoid of
spaces for active participation of all energy stakeholders in the
archipelago. This is so, despite (a) the enactment of executive orders
declaring energy emergencies in the island, two in the past two
decades, (b) the passage of Law 57 in 2014, (c) the actions of Alix
Partners to restructure PREPA's debts after the bankruptcy, and (d) the
emergence of an incipient yet promising renewable energy industry and
market in Puerto Rico. If Hurricane Maria showed us anything, it was
that the lack of effective participation of communities, mayors, civic
organizations, professional associations and even the University of
Puerto Rico, became our Achilles' heel at a time of crises. Therefore,
while we support the intervention of the RC, we believe it must go
beyond just monitoring, receiving or generally inspecting PREPA. There
is a need for this figure to become a boundary spanning agent between
the needs of these stakeholders and the future shape that PREPAs
organization takes. In other words, this figure needs to be an agent of
Puerto Rican society to educate the way PREPA is transformed to be able
to transition Puerto Rico into a sustainable energy future.
Currently, the internal organizational environment of PREPA is
toxic. There are three main reasons for this assessment. The first one
is that the political capture of every single aspect of PREPA's
decision making and operational structure continues even after the
resignation of Governor Rossello. Second, the current board of
governors of PREPA is an insult to the people of Puerto Rico. For the
sake of professionalizing PREPA's board we have now open its door to
energy speculators and marketing agents of outside fossil fuel
interests with little or no knowledge of the geographical, cultural,
socio-economic and political realities of the archipelago. I want to
give you one example: Robert G. Poe. A well-known figure in Alaskan
politics having run for governor in past elections and well connected
in the U.S. Senate, he now figures as one of PREPA board members,
having barely arrived to the Island of Vieques after the hurricane.
While this has happened, the number of representatives on behalf of
costumer on PREPA's Board has been cut to 50 percent, going down to
one. As recent accounts in Puerto Rico's media, this representative has
been consistently blocked to effectively represent PREPA's costumers in
deliberations dealing with electricity rates and subcontracting. In
other words, we cannot sacrifice representation for
professionalization. This is an incorrect dichotomy that furthers
alienates PREPA from the current realities of energy insecurity, high
energy burden and low levels of energy democracy existent today. The
third reason is that internal voices inside of PREPA's organizational
structure still do not talk to each other and operate in an environment
of conflict and very little collaboration toward a common goal,
whatever it is. PREPA continues to achieve its mission and goals
despite of its most valuable assets and not with their collaboration.
The innovation necessary to tackle these governance shortcoming is
the formation of a Technical Advisory Committee (TAC) composed by local
expertise. The TAC is absolutely necessary as a boundary spanning tool
to assist the RC in (1) effectively engaging with different sectors
with Puerto Rican society; (2) capturing and internalizing the values,
perceptions and attitudes not only of PREPA's costumers but all
electricity users in PR; and (3) effectively co-producing the knowledge
necessary to transform not only the agency but the electric system in
general. There is a proposal by the National Institute for Energy and
Island Sustainability to assist this committee in the formation of the
TAC. Furthermore, the National Council for Science and the Environment,
a non-partisan, non-governmental organization with the affiliation of
more than 700 universities and colleges nationwide, is involved in the
creation of the RISE Network in collaboration with the National
Institute for Energy and Island Sustainability. The RISE Network would
provide support to the TAC in areas that might go beyond the existing
capabilities of Puerto Rico's technical, scientific and non-scientific
expertise. Regarding the role that institutions of higher education can
play in recovery and reconstruction processes, Platt (2017) argues that
``Universities are uniquely positioned to provide opportunities to
lower not only the speed of recovery, but as a consequence the levels
of deaths, ecosystem damage and economic disruption, in other words
Sustainable Recovery and Reconstruction.''
More than 90 percent of the reconstruction contracts so far have
been awarded to external contractors and consultants. Sadly, these
contractors, come back to Puerto Rican experts under the guise of
collegiality further colonizing the knowledge and expertise already
existent in our scientific community. Therefore, we feel that the
composition of the Technical Advisory Committee needs to be
specifically composed by local Puerto Rican experts in all areas of the
social and natural sciences, engineering, public health, arts and the
humanities, etc. Furthermore, the Technical Advisory Committee will be
structured as an inter and transdisciplinary platform to open the way
for contributions by communities and other non-academic sectors that
bring sector to our energy decision-making processes. Ultimately the
TAC will engage in collaborative partnerships by means of a network-of-
networks, to fill the knowledge gaps and fulfill its responsibilities
to the new proposed figure.
3. A glimpse or a vision of the possible opportunities these amendments
to PROMESA could bring--
Now, imagine with me an electrical system for Puerto Rico that is
resilient, prosperous, just, equitable, democratic, sustainable, and
that becomes the instrument to achieve happiness in our society; that
maximizes the use of free, renewable and local energy sources; it is
innovative and adaptive to social, climatic, consumption needs and
economic changes; and its decision-making processes are transparent,
participatory, inclusive, integrative, ample and effective regarding
all societal sectors. Imagine an electric system that can integrate the
knowledge that Minnesotan and Alaskan communities have on electric
coops. Imagine an electric system that learns from the experiences of
Sonoma County and its wildfires, Arizona and its integration of
renewable solar energy, as well as from the myriad of experiences
across the Nation and the world. Imagine a Puerto Rico electric system
that can serve as a learning platform for other islands. We don't come
to you with the hubris of complete knowledge and expertise about
electric systems or Puerto Rico's. But we most recognized that Puerto
Rican local expertise is central to a better understanding of our
island condition and that this understanding can then serve the rest of
the world in the co-production of new knowledge that can serve others
as well.
Let me finish Mr. Chairman by saying that Puerto Rico is right now
the quintessential ``canary in the mine,'' not only because of its
island condition and geographical location in the path of possible more
frequent and stronger extreme weather events, but also because its
current colonial condition. This makes Puerto Rico an unequal partner
in perhaps the greatest experiment in democracy. Let's end the
governance aberration known as PROMESA by collaboratively enabling
processes that guarantee equity and justice not only in energy
decisions but all aspects of Puerto Rican life. The people of Puerto
Rico have a right to it, and the world is looking at us and the way we
handle this delicate issue. Thank you and I remain available to your
questions.
______
Questions Submitted for the Record by Rep. Grijalva to Mr. Cecilio
Ortz-Garcia, Senior Fellow, National Council for Science and the
Environment
Mr. Ortz-Garcia did not submit responses to the Committee by the
appropriate deadline for inclusion in the printed record.
Question 1. You propose a Technical Advisory Committee to increase
participation of local experts in the transformation of PREPA. Please
share what sectors--in your view--should be represented in the
Technical Advisory Committee. Could this Committee assist the PREPA
Revitalization Coordinator proposed in the Discussion Draft?
Question 2. Groups like the Institute for Energy Economics and
Financial Analysis (IEEFA), UTIER, and other local organizations
support the establishment of an Independent Private Sector Inspector
General (IPSIG) for PREPA. The IPSIG would be responsible for creating
personnel hiring regulations, overseeing procurements, supervising
fiscal and accounting activities, and providing regulatory oversight
for PREPA.
Do you support this proposal? Would an IPSIG have positive impact
in PREPA's current operating environment?
______
Mr. Soto. Thank you, Dr. Ortiz-Garcia, for your testimony.
As a reminder, I thank the panel for their testimony and
remind Members that Committee Rule 3(d) imposes a 5-minute
limit on questions.
I will now recognize myself for 5 minutes.
First, I want to thank you all for coming. We find
ourselves here--the last panel was probably more PROMESA-
focused--but we find ourselves here also because Congress
allocated $42.5 billion back in February 2018, and it has been
over a year and a half since then and 2 years since the storm,
and the money just is not flowing. Less than half of it has
been flowing.
So, our Committee is doing our best to try to break that
logjam that has held that money here in Washington for so long.
And I can appreciate the quandary of having these coordinators.
There is already PROMESA. There is already a layer of Federal
Government that is now facing the people of Puerto Rico, so to
add another Federal Coordinator obviously is something that we
all have to work through. It did work for Louisiana quite well,
and I think that is where a lot of folks are coming from on
that.
I want to start with Ms. Martinez. You had mentioned the
civic society task force. You will notice in our audit
provision, which we are not going to go into, there is a multi-
sectoral commission that kind of does a similar thing. Local
input is key from the community. What assurances could we have
if we did something like this that it wouldn't slow down the
funding flowing even more?
Ms. Martinez. Thank you for the question. Right now, the
bottlenecks in the centralization are the reasons why the funds
are taking so long to be disbursed and to reach the people that
really need them. So, for us, in order to solve those
bottlenecks you have to have direct incidence of the civil
society sectors that have already done recovery work with very
little resources that they have been able to get.
So, having a work group that can facilitate those
participation instances and raising the red flags when there
are bottlenecks, and also ensuring that the contracts that are
made and the decisions that are taken by the government and the
agencies are really attending to the needs of the people is not
going to make it slow for our results to be better, it is going
to make it more agile.
Mr. Soto. Thank you, Ms. Martinez.
And to Ms. Mayol, I know you all awarded a $30-plus million
contract and you have, what, $16,000 so far I think I was
briefed the other day by my staff. Do you think a coordinator
would help with our NGOs and with our local governments getting
this money down quicker, or would it be another layer of
government that would make it tougher? Help us with this
quandary.
Ms. Mayol. The importance is the coordinator has the
authority to make sure to look at how to find ways to expedite
the process. One of the things that we talk about is the
Federal Government needs to find ways to facilitate, not
hinder, the process, ensuring Federal compliance, but at the
same time ensuring coordination and new ways that can be
implemented.
You mentioned Louisiana, for example. The Federal
Government and the Federal agencies have experience of things
that have worked and haven't worked in other states, and I
think that having a Federal facilitator--their job is to make
sure, I say they are herding the cats. It is just to make sure
the process is moving forward and that, in fact, the agencies
are becoming facilitators and not just hinderers.
I think the key here with your question also is that the
delay of reimbursements of funds are creating a liquidity issue
and it is making it impossible to be accessible. But that also
is one of the reasons why we talk about bringing more people to
the table and the importance of diversifying the distribution
of funds through other areas like NGOs.
Mr. Soto. Thank you, Ms. Mayol.
Dr. Ortiz-Garcia, we face a similar quandary here with a
Revitalization Coordinator. Obviously, having a Technical
Advisory Committee may spread around at least community input.
Do you think that this would help us with the $2 billion we are
trying to get down for renewables and some of this other HUD
funding that hasn't gotten to PREPA yet?
Dr. Ortiz-Garcia. Congressman, I think it would, but the
devil is always in the details. How we frame the intervention
of this figure really will determine the kind of perception all
other actors and stakeholders will have of him or her, and as a
consequence, it might facilitate the flow not only of
information but of trust.
We don't necessarily have a lack of technical information
about our system, while we could certainly have more if we
opened the black box, but we have a lack of trust. So, in
framing that figure of the Recovery Coordinator for PREPA, that
is the key element that could make this quicker. Yes.
Mr. Soto. Thank you, Dr. Ortiz-Garcia. My time is expired.
First, before we recognize the Ranking Member, I ask for
unanimous consent that the gentleman from Illinois, Mr. Garcia,
be allowed to sit on the dais and question witnesses from
today's hearing. Without objection, so ordered.
Now we recognize the acting Ranking Member, Mr. Webster, my
fellow central Floridian.
Mr. Webster. Thank you, Mr. Chairman. Thank you all for
appearing.
Ms. Martinez, you have mentioned a lot of issues here for
us. We are here, you are there. It is real hard to sort through
it.
If you were to pick out the biggest root problem, would it
be the debt, or would it be unemployment, or would it be a lack
of direction, or is it corruption? Or is there a word that
would say, OK, here is the biggest one? It is not the solve-
all, what is the biggest root problem?
Ms. Martinez. With the administration of Federal recovery
funds, I think the word would be bottlenecks. There is one type
of bottleneck in the Federal level, which is the mistrust about
concerns about capacity and corruption. And then there are the
bottlenecks in the local level, which pertain to capacity and
to contracts and a special interest being attended to first and
then the ones of people that need the most.
So, those bottlenecks are what concerns us, and that is why
we sustain that in order to solve those in those two sectors,
you have to have the people that are actually doing the work on
the ground to be direct participants to break those
bottlenecks.
Mr. Webster. OK, so the bottleneck--is it you are talking
about flow of money?
Ms. Martinez. Flow of money and for them to get to the
people that really need them, the programs to work for the
people that really need them, the most vulnerable.
Mr. Webster. So, there is not a process by which the money
could get to the right people? Is that true?
Ms. Martinez. The collaborators and organizations that we
work with in Puerto Rico have constantly tried since the
beginning to have more incidence in the creation of the
programs in Puerto Rico and trying to help the government to
get things get done. And it hasn't worked that way.
Mr. Webster. Is corruption a part of the problem then of
these bottlenecks? Let us say the money is not released, is not
released because there is some kind of distrust. Is that it?
Ms. Martinez. From the Federal level?
Mr. Webster. Yes.
Ms. Martinez. Yes. And that was completely revealed by HUD
in the hearings last week when they said that they had two
options, to release the funds fast or hold them for them to be
safeguarded. That is one.
But over in Puerto Rico, I would say that there are special
interests that are being taken care of that are not the ones of
the people.
Mr. Webster. OK. And that is in the government itself?
Ms. Martinez. The government, the agencies, the private
contractors, et cetera. And you have non-governmental
organizations that are ready to do the work and they have all
these blockades in order to do it because of the reimbursement
requirements, it is the auditing, the constant intervention of
consultants. It is really hard for non-government organizations
that are actually doing the work in the field to do it
effectively.
Mr. Webster. So, what would be your solution to it? OK, the
biggest problem is the bottleneck, so what would you do to
solve that problem?
Ms. Martinez. For us, any type of instance of coordination
of Federal funds has to be done with a team, a team from the
people on the ground that includes community leaders, includes
non-profit organizations, philanthropy, municipalities that
have suffered also a lot, and businesses. That team can be able
to really tell the agencies--HUD, FEMA, COR3 and Vivienda--get
over your bottlenecks and this is what needs to be done.
Mr. Webster. Ms. Mayol, do you have the same thought, that
these bottlenecks are a big problem?
Ms. Mayol. I want to add a comment to a question you asked.
I think the important thing is in the fact of distrust. With
the case of Federal CDBG-DR, which is the one that we have been
working with directly in HUD, I think that distrust is
unfounded. There are no findings and no issues of corruption
with regards to the use of CDBG-DR funding right now.
I do 100 percent agree with Ms. Martinez that when you
centralize $19 billion into one agency to be able to manage all
of the programs, you have to find ways to be able to bring
other players to support you in that bottleneck.
So, with regards to the work we are doing, we are one of
those people at the table and we are asking the government--
both Federal and state, because the Federal also opposes a lot
of people coming to the table--bring more players into the mix
so that there is more oversight as well as better
implementation, and more agile.
So, bringing more NGOs like Foundation for Puerto Rico to
participate in the action plan of CDBG-DR is an answer to
making sure that the funding is well used, you don't have
issues of distrust and corruption, but at the same time the
movement is quicker.
Mr. Webster. OK. I am out of time. Thank you. I yield back.
Mr. Soto. Next, we recognize the gentleman from Illinois,
Mr. Garcia.
Mr. Garcia. Thank you, Mr. Chairman and Mr. Ranking Member,
for the privilege of coming before this Committee and the
opportunity to both hear the testimonies and engage the
panelists. I apologize for my tardiness. Quite a hectic day
around here. All the committees seem to be meeting.
I would like to ask a question of Ms. Martinez. For months,
I have been focused on the Trump administration's delays and
obstruction in disbursing hurricane relief to Puerto Rico. Of
course, that is my opinion. More than 2 years after Hurricane
Maria, there are still thousands of people in Puerto Rico
living under tarps for shelter. Yet, we have seen the Trump
administration throw up new obstacles to delivering aid and
even threaten to divert relief funding to pay for a border
wall. This is, of course, unacceptable.
Disaster relief in Puerto Rico deserves to be treated as an
urgent priority, not used as a negotiating tool for unrelated
purposes. You testified that Federal recovery funds should not
be in any way thought of as a way to pay creditors and/or
inflate economic prospects for the fiscal plans. Can you
elaborate on your concern that relief is tied to PROMESA and
issues related to Puerto Rico's debt restructuring?
Ms. Martinez. Thank you so much for the question, Mr.
Garcia. Definitely, there is a big concern to have them both in
the same text, even because, as you say, many times those
funds, the Federal recovery funds, have been talked about by
Mr. Trump and others from his administration as a--that it is
going to be used to pay creditors when that is not true.
Also, it has been used--and this was testified by our
previous colleagues--as a way to inflate economic prospects for
the fiscal plans in the restructuring of the debt, and that is
also a bad thing for Puerto Rico and, of course, for the
Federal recovery process.
The urgency, though, as you say, lies in the people of
Puerto Rico needing this to get done and needing recovery from
the situation, being in harm's way from hurricanes. So, our
legislative attempts here in Congress should be to try to pass
this in a fast way without being tangled in the PROMESA
controversies, because those, as we have seen in previous
statements here in this room, are more difficult and are
probably going to face much rejection in the House and the
Senate.
We think it is more important to solve recovery in Puerto
Rico in an urgent way, so we have to separate them. Thank you.
Mr. Garcia. Thank you. You have mentioned in previous
conversations I have had with you, and I think it was part of
your testimony, that Oxfam's proposal for a civil society task
force would be preferable to coordinate recovery funds because,
in your view, it is not a single hierarchical, centralized
approach to it.
Can you talk about why that approach, the more centralized
approach, is problematic and why you think that a decentralized
approach to having the aid become more impactful might be
preferable?
Ms. Martinez. Yes. And for the record, I have to clarify.
The proposal is a development of a concept that has been done
with organizations in Puerto Rico, so we don't call it Oxfam's
proposal for that reason. It is that there is a consensus in
Puerto Rico that a centralized figure will not have the
knowledge or the means to be able to solve the problems, the
bottlenecks.
You need a team. You need a team that meets where the needs
lie, and where you can make more effective the plans that have
already been laid out by the government agencies.
There are problems of transparency in the local level, but
there are also problems of transparency and efficiency in the
Federal level. So, this team of local stakeholders that are the
ones that have been ensuring true recovery would be the ones
that have the knowledge and the capacity to do those actions
and to tell what has to be done to get the money to the right
hands.
Mr. Garcia. Thank you.
Mr. Soto. Thank you, and the gentleman's time is expired.
By agreement with the acting Ranking Member, Mr. Webster,
we are going to go into a second round of questions. First, I
recognize myself again.
Ms. Martinez, how do you envision the civic society task
force would influence the decision-making process of Federal
and local agencies that play a role in the reconstruction
process? Essentially, how would they interact and what would
their authority be?
Ms. Martinez. I appreciate very much the question. Yes. For
this, we have envisioned that that team of locally elected
representatives of the civil society will nominate candidates
to work in each of the agencies as special advisors. You would
have one in COR3, one in Vivienda, one in HUD, and one in FEMA
that would be special advisors and would report back to the
civil society task force to be able to execute the duties of
the task force inside the agencies.
So, they would have--we call it civil society
representatives within the agencies that would meet monthly
with this working group from the civil society of Puerto Rico
to be able to communicate what the red flags are, where the
bottlenecks are, what needs to be done, and execute it in the
agencies.
Mr. Soto. Thank you, Ms. Martinez.
Ms. Mayol, you mentioned that NGOs can play a game-changing
role in healing the distrust between the local and Federal
Governments. How can this be done and what would be helpful to
have other NGOs participating as sub-recipients in the
reconstruction process?
Ms. Mayol. Thank you. As mentioned before, NGOs were a key
player in the relief and recovery, and they continue to be
leaders in the recovery process of Puerto Rico. Because of long
history in working in communities, NGOs have experience,
capacity and trust, and they get to the hardest places.
When you think about government structures around the
Nation, there are areas that are very hard to reach for any of
the government, even if they have the intention. But the NGOs
work directly with those communities. During disaster recovery
efforts, those are the communities that we have to make sure
are sitting at the table.
One of the things that NGOs have is they have been managing
Federal funds. They have contracts with Federal agencies
directly, like we do and others. We have organizations like the
Fundacion Comunitaria of Puerto Rico, the Puerto Rico Community
Foundation, that has been working in putting together energy
grids in the mountains. We have the Ricky Martin Foundation
working in recovering homes in Loiza, and many of them work
with Federal agencies. They have experience. They have
capacity.
And at the end of the day, they are not tied to political
and private interests, so they have to go abide by the Federal
501(c)(3) requirements. They have a board. So, I think the
structure that the NGOs provide has been effective in other
states--Florida is an example that has amazing NGOs that have
participated in programs of impact of economic development and
of impact of disaster recovery.
So, bringing more of those NGOs into the work I think is
the solution.
Mr. Soto. Thank you, Ms. Mayol.
Dr. Ortiz, groups like the Institute of Energy Economics
and Financial Analysis, UTIER, and other local organizations
support the establishment of an Independent Private Sector
Inspector General for PREPA. The IPS IG would be responsible
for creating personnel hiring regulations, overseeing
procurements, supervising fiscal and accounting activities, and
providing regulatory oversight for PREPA.
Would you support a proposal like that and would an IPS IG
have a positive impact on PREPA's current operating
environment?
Dr. Ortiz-Garcia. Thank you, Congressman. Again, the
context is everything. If the figure you institute inside our
energy policy process is simply going to be inserted into the
current organizational structure of PREPA and will serve you
just as an auditor, let's say as an opener of black boxes, that
is certainly an improvement but it doesn't get us where we need
to get with our electric system.
To use the example my colleagues are bringing here, NGOs
are now installing--whether it is micro grids or personal
systems in the island--to the tune of over 100 of those
systems. If you add the systems that the Red Cross is also
putting together, you might go over 200 of those decentralized
systems. That is creating the risk of a planning catastrophe in
terms of energy in Puerto Rico. You are developing a two-tier
system that does not talk to each other and are not
coordinating.
So, we see the figure of the IPS IG as the possible
boundary spanner that could come in and help bridge those gaps
that are right now taking us in the wrong direction.
Mr. Soto. Thank you, Dr. Ortiz. My time is expired.
Next, we recognize the acting Ranking Member, Mr. Webster.
Mr. Webster. Thank you, Mr. Chair.
OK, I didn't get to you, Doctor. Do you believe in the
bottleneck problem as being the biggest problem?
Dr. Ortiz-Garcia. If not the biggest, it is certainly one
of the biggest, sir.
Mr. Webster. Do you have a solution for that?
Dr. Ortiz-Garcia. There are really no silver bullets to
wicked problems, but I will take a shot at it.
The bottleneck problem is a symptom of a much bigger
problem, which is the small amount of spaces, if I may call
them that way, that Puerto Rican society, Federal Government,
all the different stakeholders in the island have to actually
do this that we are doing here today.
The more centralized decision-making processes are and the
less connected they are, the more of a probability of
bottlenecks being created you foster. It is just a matter of
that concentration of power and decision making not being
dispersed throughout all of those that are actually affected by
the problem.
Mr. Webster. OK, I think it was Ms. Martinez, or was it you
that mentioned that there was a person in each one of these
agencies that would sort of be the person that put the stent in
so the flow would go? Like you said, FEMA and other places.
Ms. Martinez. Yes.
Mr. Webster. Would those people, in your mind, be elected
officials or appointed officials or would they----
Ms. Martinez. As the language has developed, we have
suggested that those people would be nominated by the civil
society task force group. They would give the options to three
professionals with the qualifications already lined out, like
it has to be three professionals and the agency can recruit out
of those three, and that they would work for 1 year.
The reason for that is to have them answer to the groups
that they are working for so there is some sort of
answerability to what they are doing. And we call them the
embedded civil society representatives because they would be
executing the duties of the task force that would also be
really well defined in the text.
Mr. Webster. Do you think in 1 year----
Ms. Martinez. If they can be renewed, they can keep going
if they are unanimously approved by the task force. It is just
that they would have to renew their work.
Mr. Webster. I think we are going to see improvements, so
do you think we could turn the corner in a year? Do you think
that is possible?
Ms. Martinez. I think that what we need are people that
really answer to the people of Puerto Rico and their needs. In
that sense, the requirements of the temporality and for them to
pass muster each year is to make sure that they are doing their
job.
Mr. Webster. Ms. Mayol, anything to add?
Ms. Mayol. I think the Foundation for Puerto Rico supports
Oxfam's proposition of bringing civil society and making sure
that they have the expertise in the area but are connected
somehow to what is happening in Puerto Rico. But I think the
point is, as you stated, at the end of the day, finding more
people to be at the table.
One of the things is working in the models with the Federal
Government. I think they have models like mentioned before in
Louisiana. What are the models that have worked of bringing
people to the table in the decision-making process?
For us, we are at the table in all government. Sometimes
when we are sitting at the table, we are the only non-
government entity sitting at the table with the Federal
Government and the local government. And just making them
realize the challenges that other sectors face by decisions
they make--fiscal challenges, operational challenges that they
are not aware of because they don't have to face them
themselves as government agencies.
I think that is the key in making the right decisions in a
more agile way. We support Oxfam's policy. The details of how
to implement them, I think those are very good questions that
still have to be addressed.
Mr. Webster. OK. I yield back. Thank you.
Mr. Soto. The gentleman yields back. I now recognize the
gentleman from Illinois, Mr. Garcia. And please note votes have
been called, but we will stay as long as we need to, Mr.
Garcia.
Mr. Garcia. Thank you, Mr. Chairman. I will be brief.
I would like to ask Dr. Ortiz-Garcia and Ms. Mayol the
following question: Given the 2-year delay, what has that done
for the people of Puerto Rico, the NGOs in particular, over
that period of time about deep thinking about the best ways to
rebuild the island for the long haul, with greater resiliency,
et cetera, et cetera? And has that enabled groups to acquire
more capacity and are there more hands ready to implement the
aid and to make sure that the reconstruction is done in an
effective manner?
For example, one of the more recent difficulties and
learnings that people have had, I am sure, has been the
political tumult that the people of the island have
experienced. So, I am wondering, what is different about 2
years ago after Maria and today in all of the frustrations and
all of the thinking that obviously has gone on and part of the
reason that you are here today?
Ms. Mayol. Three things have happened in the last 2 years.
One, as mentioned, not-for-profits have had to start working on
projects through other sources of funding--private funding and
working on the projects in the community, making sure they are
sitting at the community and they have to make sure the
community is being taken care of. So, they are doing projects
disconnected to an overall plan that the government has
presented to Congress. They are working toward, in silos in
order to make sure that things are addressed as quickly as
possible through private funding, whether it is philanthropy
from the United States, whether it is other Federal funds.
However, on the other hand, those that have put together
really good strategies and can really help in the long run
implement sustainable economic development strategies that are
going to have an impact, and avoid having to have another debt
and go back and really help the fact of the debt in Puerto Rico
and create a common growth--they are sitting waiting to see how
they can participate in this process.
One of the biggest--getting capital for the not-for-profit
sector in Puerto Rico has always been an amazing challenge.
Fundraising is very difficult. Private capital does not come to
Puerto Rico for the not-for-profit sector as it does for the
United States. And many people--we were able to get some
private capital because of the concern of the hurricane, but we
had to use it right away because the government couldn't help
in the immediate relief.
Right now, in our case specifically, we are being
challenged in liquidity. So, for example, we have a $37 million
grant. We have only gotten .02 percent of that reimbursement in
the period of 6 months, or actually 10 months. Where do we have
to go? Get a line of credit. So, the liquidity issue is
impacting as well.
Mr. Garcia. And, Dr. Ortiz-Garcia, you have a minute and 50
seconds.
Dr. Ortiz-Garcia. The variable of time is the most
important variable I believe in Puerto Rico's case. We have had
two impacts, the impact of our bankruptcy plus the impact of a
hurricane. If one looks like it is going to take a long time--
our debt, take care of our debt. FEMA is now saying that they
are going to be in Puerto Rico in recovery and reconstruction
for the next 10 to 15 years.
So, when you look at Puerto Rico's timeline, unfortunately,
more things remain the same than have evolved. And those that
have evolved are evolving in negative trends. This is a red
flag that I want to raise here. The more we wait--this is a
function of time and doing things right. We do not want to rush
things and then create planning problems for the future, but at
the same time to get it right you need all voices represented
on the table as soon as possible.
Whether we have different ideas of how to do it, we can sit
down and resolve those. But I think all at this table are
pulling toward the same side, to tell you that to deal with
wicked problems like this, you need extended peer communities
that look at each other in a level playing base and that feel
that they can trust each other as they inch forward toward
progress.
Mr. Garcia. Thank you. I yield back, Mr. Chairman.
Mr. Soto. The gentleman yields back. I ask for unanimous
consent to enter into the record statements from the United
Auto Workers of Puerto Rico, the Center for a New Economy, and
Espacios Abiertos.
Seeing no objection, that is approved.
I thank the witnesses for their valuable testimony and the
Members for their questions. The members of the Committee may
have some additional questions for the witnesses, and we will
ask you to respond to these in writing under Committee Rule
3(o). Members of the Committee must submit witness questions
within 3 business days following the hearing, and the hearing
record will be held open for 10 business days for these
responses.
If there is no further business, without objection, the
Committee stands adjourned.
[Whereupon, at 4:19 p.m., the Committee was adjourned.]
[ADDITIONAL MATERIALS SUBMITTED FOR THE RECORD]
Prepared Statement of the Hon. Raul M. Grijalva, Chair, Committee on
Natural Resources
We are here today for the second day of hearings on legislation I
am considering to make amendments to PROMESA--the Puerto Rico
Oversight, Management and Economic Stability Act.
I continue to believe this Federal law relies on austerity measures
that severely impact the quality of life of ordinary Puerto Ricans, to
achieve its goals of debt reduction and balanced budgets. For this
reason, I wrote the amendments to PROMESA that are part of the
``Discussion Draft'' we will be discussing today.
The purpose of the hearing is to receive feedback from all
stakeholders on the draft's provisions, which include defining
essential public services, assigning Federal funding for the operation
of the Oversight Board, reducing conflicts of interests, and auditing
the debt. The draft also includes provisions to address Puerto Rico's
disaster recovery challenges.
Last week, we received opinions and proposals from officials of the
government of Puerto Rico to address PROMESA and a Federal disaster
recovery process plagued by inequity toward the residents of the
Island. Today, we will hear from witnesses representing academia, non-
profit organizations, and the labor and business sectors. I want to
encourage anyone who is not able to be a witness to submit comments for
the record.
We have already received reactions both in favor and opposition to
some of the provisions in the Discussion Draft. You will hear many of
those comments from our witnesses today. I want to caution again those
who raise objections to the provisions, to also offer alternatives to
accomplish their goals.
There are two points I would like to emphasize. First, although the
Ranking Member has expressed opposition to this effort, it is my
responsibility and the responsibility of my colleagues to identify
areas of consensus that may have the potential of moving forward. And,
if that is not the case in the short-term, to lay the foundation for
making improvements in the future.
Second, I recognize that it is impossible to discuss PROMESA
without discussing the subordinate political relationship of Puerto
Rico with the United States, and the need for new measures to foster
economic development in Puerto Rico. As I have expressed before, I
remain committed to having that discussion here after introducing
legislation to address the shortfalls of PROMESA and disaster recovery
efforts in the Island.
Although it is not a priority for the President and the leadership
in the Senate, I acknowledge that discussing the political status of
Puerto Rico is a priority for the political leaders of the Island, and
most importantly for the people of Puerto Rico. Therefore, it should
also be a priority for this Congress to hear from representatives of
all political ideologies--their visions and plans for the political
future of the Island.
In closing, I want to welcome our witnesses and thank them for
traveling from Puerto Rico to be with us today. I look forward to
receiving your testimony and working with each of you on improving the
lives of the residents of Puerto Rico.
______
[LIST OF DOCUMENTS SUBMITTED FOR THE RECORD RETAINED IN THE COMMITTEE'S
OFFICIAL FILES]
Submissions for the Record by Reps. Grijalva and Soto
-- Center for a New Economy, Statement by Rosanna Torres,
Director, Washington, DC Office, dated October 30,
2019.
-- Daniel Santamaria Ots, Senior Public Policy Analyst,
Espacios Abiertos, Letter to Chair Grijalva, dated
October 28, 2019.
-- United Auto Workers, Statement by Beverley Brakeman,
Director, dated October 30, 2019.
[all]