The chairman of the congressional committee that originated PROMESA has asked the Puerto Rico fiscal control board put in place by the law to explain all future decisions in writing to the committee.
The request by U.S. House of Representatives Natural Resources Committee Chairman Rob Bishop (R-UT) came in a letter that primarily complained about the Board’s inaction on the Puerto Rico Electric Power Authority (PREPA) restructuring agreement with creditors representing about 70% of PREPA’s debt. The letter stated that the failure to accept the accord was “problematic” for other members of Congress as well.
Bishop, one of PROMESA’s principal authors, asserted that a continued failure could have “serious, adverse effects” on Puerto Rico. He wrote that these would include “a dampening of the Board’s ability to negotiate in good faith with creditors and the erosion of Congressional confidence in the Oversight Board.”
The House committee chairman’s letter came after a letter on Tuesday in which Senator Tom Cotton (R-AR) reacted sharply to a Board response to an earlier letter from Cotton and Sen. Thom Tillis (R-NC) that Cotton found “vague and unresponsive.”
Cotton’s complaint was that the Board has treated the PROMESA requirement that the Board “respect” the priorities for expenditures in the Constitution and laws of Puerto Rico as non-binding. Both types of territorial law require payments on bonds issued or guaranteed by the Government (vs. its instrumentalities) from ”available” revenues before any other expenditure. The Board has treated debt payments as having a priority after non-debt payments.
The senator asked if the Board considered servicing debt to be “non-essential.”
He also asked if the Board had considered the impact of its interpretation on the bond market, pointing to a report that retail investors nationally stand to lose $5.4 billion in the case of Puerto Rico.
More ominously for the territory, Cotton, by copy of the letter, asked the Director of the President’s Office of Management and Budget, Mick Mulvaney, for a list of all “transfer payments” to the islands and a per-capita comparison with the States and other territories.
Bishop, who has previously suggested that the Board should be given flexibility to do its work, noted that PROMESA “grandfathered” the PREPA accord, and asserted that the Board’s ”dilatory tactics” on it “run counter to the plain language of PROMESA.”
The law “obviated the need for any substantive action” on it by the Board, the Chairman wrote, also stating that, ”The decision to implement” the debt agreement “had already been made by Congress.” The Board’s review and “the development of a Fiscal Plan” for PREPA covering the agreement “are outside the scope of the Oversight Board’s powers and a violation of PROMESA,” Bishop contended.
The crux of the underlying issue is that the Board has insisted that PREPA develop a plan to lower electricity rates in the territory to 21 cents per kilowatt hour and believes that the agreement undermines the utility’s ability to do that because of the recoveries that creditors would receive on their debt.
Reports vary as to whether three or four members of the seven-member Board are ready to approve the agreement but five votes are needed and a couple of members are said to want changes in the agreement to ensure lower electricity prices.
The agreement negotiated by the administration of Governor Alejandro Garcia Padilla (Popular Democratic Party) prior to the passage of PROMESA – and “grandfathered by the law” – was renegotiated by the administration of incumbent Governor Ricardo Rossello Nevares (New Progressive Party) to the further benefit of Puerto Rico. The Natural Resources subcommittee that handles territories matters held a hearing in March that clearly attempted to pressure Rossello into accepting the Garcia Padilla agreement. He did not but reached agreement on amendments after the hearing.
The Bishop letter is the latest evidence of congressional concern that the PROMESA board is not adhering to PROMESA in its handling of Puerto Rico debt issues.