Governor of Puerto Rico Delivers Testimony on the Status of the Puerto Rico Oversight, Management and Economic Stability Act (PROMESA) Before the U.S. House of Representatives Committee on Natural Resources
WASHINGTON – Governor Ricardo Rosselló participated today in a hearing of the U.S. House of Representatives’ Committee on Natural Resources to provide testimony on the status of the Puerto Rico Oversight, Management and Economic Stability Act (PROMESA) two years after its creation by Congress.
In his written testimony and prepared remarks, the Governor noted that Congress “intended PROMESA to provide Puerto Rico tools that could be used to restructure its debts, achieve fiscal stability, and spur economic growth, under the public policy direction of the elected government of Puerto Rico,” but that, “the Oversight Board has not achieved the objectives for which it was created, and – worse of all – has overstepped its boundaries.”
The Governor also highlighted the tremendous progress his Administration has made under a policy roadmap that has resulted in the biggest operational budget cuts from year to year in recent history, while at the same time saving retiree pension payments, implementing significant structural reforms in education, energy, tax reform and promoting economic development. He highlighted the reduction of over 20,000 employees without layoffs, a 20% reduction in agencies, and a 17% reduction in operational budget expenditures, while also bringing unemployment to an all-time low in Puerto Rico.
Among successes with the Oversight Board, the Governor noted working “together with the board to restructure $21 billion dollars of our debt.” In his written testimony, the Governor lays out a compelling case that while “tools provided in PROMESA have been helpful in facilitating debt restructurings as evidenced by COFINA, PREPA and GDB…The Oversight Board has tried to use its powers to control the decisions of the duly-elected Government of Puerto Rico and to implement its own view of public policy.”
Governor Rosselló called on Congress to clarify that the Oversight Board should not infringe in the day to day operations of the democratically-elected government, require transparency, and revise the fiscal planning process to reign in overreach. Beyond PROMESA, the Governor also asked Congress to fix the inequities in disaster recovery funding that have plagued the response to Hurricane Maria, assure the Nutritional Assistance Program (NAP), institute equality in federal programs and tools for economic growth; save the healthcare system, fix the federal tax law to help spur economic growth, and to resolve the undemocratic and unequal territorial status of Puerto Rico.
The Governor’s testimony included a powerful call for Congress to treat the American citizens of Puerto Rico as equal to their fellow citizens across the country:
“The question of Puerto Rico’s ultimate political status and relationship with the federal government is intimately linked to the island’s prospects for economic growth, fiscal stability, and successful disaster recovery. Congress must resolve Puerto Rico’s status to unleash its full potential and should implement the democratically expressed will of voters who have expressed twice in the last six years a clear desire to end the current territory status and to achieve statehood for Puerto Rico.”
For the full text of the Governor’s remarks, [click here]. Excerpts are below:
On the Operational Reality of Two Years Under PROMESA
“…the Government of Puerto Rico has cooperated with the Oversight Board to craft and adjust the fiscal plans and certified budgets to meet the evolving needs of Puerto Rico in a way that not only addresses the fiscal imbalances of the past, but also prioritizes pro-growth structural reforms in our economy and reforms our government structures to better reflect and respond to the needs and carrying capacity of our society.”
• On Fiscal Plans and Budgets:
“The Oversight Board rightly and appropriately should assist Puerto Rico in setting fiscal targets, but decisions on how to achieve those targets should belong to the duly-elected Government of Puerto Rico. The Oversight Board should not be permitted to use the fiscal planning and budgeting process to dictate public policy choices for Puerto Rico.”
• On Title III Filings
“PROMESA provided for a litigation stay so that the Commonwealth could reach consensual arrangements with creditors. That stay was unrealistically short and the Oversight Board did not focus on negotiating forbearance agreements with creditors prior to expiration… The Title III filings sparked intense litigation initiated by various bondholder constituencies, the creditors committee and the Oversight Board… The litigation has been a significant burden for Puerto Rico and has delayed the restructuring process. In addition, professional costs have been astronomical.”
• Role of Government and Oversight Board
“We have also struggled to reach common ground with the Oversight Board on the terms of a consensual fiscal plan for the Commonwealth…The Oversight Board has fought for expansive powers and has failed to recognize the importance and role of the duly-elected Government of Puerto Rico.”
• Successes under PROMESA
“In recent months, we have restructured more than $21 billion in funded debt obligations. And we have done it largely consensually, balancing the needs and legal rights of Puerto Rico with the rights of the creditors. My administration has been at the forefront in negotiating with creditors and executing on complex new bond issuances…After years of hesitancy from the capital markets, we are seeing investors and investment begin to flow back to the Island, and we are determined to ensure that the human capital will follow. This marks a critical first step on our road to financial recovery.
“Again and again, Puerto Rico has demonstrated a willingness to make the sacrifices needed to achieve fiscal responsibility and meaningful structural change. We have consolidated numerous agencies through legislation and strengthened our underfunded pension system by moving to a ‘PayGo’ retirement system. I am also proud to report that we have fulfilled my ‘Pledge for Puerto Rico’ to reduce the size of the territorial government without firing anyone and while making it more efficient. We have reduced by 10.7% the number of government employees and are working to support those employees’ transition to the private sector. We have implemented the largest budget reduction from one year to the next in the last 40 years in all the United States. Additionally, we have passed local tax reform to reduce rates, simplify the tax code and broaden the tax base, as well as executing countless other reforms that seek to increase the ease of doing business and spur private sector investment…Despite the challenges of PROMESA, and that much remains to be done in terms of structural reforms, I am very proud of the economic progress we have made in Puerto Rico during my tenure. For the first time in the past 12 years, Puerto Rico’s economic activity index has grown - up 3%. Our unemployment rate is down to 8.8% from 12% when I took office. Other indicators are also positive…”
“We are also extremely proud of the progress we have made toward transforming our electric system. From the early days of my administration, I set a goal of assuring that all of our citizens had access to safe, reliable and affordable energy. Last June, I signed into law the Puerto Rico Electric System Transformation Act to begin the process of privatizing PREPA and, as discussed below, we are making steady progress in that direction. We also recently passed the Puerto Rico Energy Public Policy Act, which requires the island to obtain 100% of its electric energy from renewable sources by 2050, with an interim target of 40% percent by 2025, and to eliminate the use of coal in the generation of electricity by 2028. Both of those laws were critical steps to insuring the energy future of Puerto Rico.”
The Good and the Bad of PROMESA
“The tools provided in PROMESA have been helpful in facilitating debt restructurings as evidenced by COFINA, PREPA and GDB. Both Title VI and Title III of PROMESA have features that can be effectively used to structure and implement debt restructuring transactions that might not be possible without PROMESA.”
“The Oversight Board has tried to use its powers to control the decisions of the duly-elected Government of Puerto Rico and to implement its own view of public policy. These attempts by the Oversight Board to usurp governmental powers have delayed the restructuring process, created an environment of distrust and resulted in unnecessary litigation.”
Recommendations
• The Oversight Board should not infringe on the day to day operations of government
• Eliminate the Role of the Oversight Board as Title III Representative
• Revise Fiscal Planning Process
• Address Professional Costs
• Require Oversight Board Transparency
• Improve Title V Process.
“As I did at the outset of my testimony, I also note that the success or failure of PROMESA is also dependent on much more than the words of the statute or even the efforts of my administration of the Oversight Board. The unfortunate reality is that federal policy towards Puerto Rico is oftentimes executed as an afterthought and without a proper understanding of the circumstances of the island and its residents.”
“To that end, I call upon Congress and the federal government to address the following:”
• Cure the Inequity in Disaster Recovery Funding.
• Assure the Nutritional Assistance Program (NAP).
• Create Equality in Federal Programs & Tools for Economic Growth.
• Saving the Healthcare System.
• Federal Tax Law Revisions to Help Spur Economic Growth.
• Resolve Undemocratic & Unequal Territorial Status.
“The question of Puerto Rico’s ultimate political status and relationship with the federal government is intimately linked to the island’s prospects for economic growth, fiscal stability, and successful disaster recovery. Congress must resolve Puerto Rico’s status to unleash its full potential and should implement the democratically expressed will of voters who have expressed twice in the last six years a clear desire to end the current territory status and to achieve statehood for Puerto Rico.”
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