Board Seeks New Fiscal Plans in the Aftermath of Hurricane Maria

The Puerto Rico Financial Oversight and Management Board “is actively working to assess how” the 10-year fiscal adjustment plans for the Government of Puerto Rico and several of its instrumentalities that it adopted “should change in the aftermath of Hurricanes Irma and Maria.”

In a letter released Saturday, the Board wrote  to eleven Democratic U.S. Senators led by Bob Menendez (NJ) that “two of the most important variables in our analysis are” the damages that the territory suffered and Federal assistance.  The letter was also addressed to Senators Senators Durbin (IL), Booker (NJ), Gillibrand (NY), Sanders (VT), Murphy (CT), Merkley (OR), Markey (MA), Harris (CA), Cortez Masto (NV) and Duckworth (IL).

The letter disclosed that a working group would be created among Puerto Rico’s governor, the Board, and Federal disaster officials to “present a full damage assessment, and encourage Congress to take immediate and bold action to support Puerto Rico in its recovery.”

The fiscal plans will be adjusted once the Board has more clarity regarding the damages and Federal funding. Then, the Board established by PROMESA to control territorial spending and reduce the islands’ debt will ask the governor to submit revised fiscal plans for its consideration.

The Board released the letter the day after U.S. House of Representatives Speaker Paul Ryan (R-WI) and three other House leaders inspected the situation in Puerto Rico. Ryan, the leading force behind PROMESA along with Obama Administration Treasury Secretary Jacob Lew, said that he sees a key role for the Board in the territory’s recovery from the hurricanes. The disasters have “changed everything,” he said, adding the Board will now “make sure we are all going in the same direction. It will have to play a constructive role in ensuring that the assistance that will be provided is implemented well and will have to help ensure that it is designed in the right way.”

While Ryan was in Puerto Rico, the committee chairman who drafted PROMESA with the Treasury Department, Rob Bishop (R-UT) of Natural Resources, said in Washington, DC that he did not think the law needed to be amended to give Puerto Rico more assistance with its debt obligations because the Board has wide latitude in this regard. He noted that the territory’s fiscal adjustment plans would have to be changed because of the storms.

Bishop intends for the Natural Resources Committee to look into the Board’s functioning in addition to considering measures to help the territory recover. He feels that the Board defied congressional intent in PROMESA by rejecting the debt agreement for the Puerto Rico Electric Power Authority (PREPA) reached between the territorial government and 65% of PREPA’s creditors.

One specific issue regarding the Board that he acknowledged would be examined is the $625,000 salary that the Board is paying its Executive Director, Natalie Jaresko.

The Board has begun to prepare for its new areas of emphasis — Puerto Rico’s recovery and congressional questions about its operations and decisions — by hiring two lobbying firms in Washington, DC. Williams & Jensen and Off Hill Strategies will be paid $720,000 per year and $180,000 a year, respectively.

Off Hill Strategies has reported that it will be lobbying on disaster relief and recovery, Medicaid funding, tax reform, economic development, transportation, energy and electricity, financial services, and budget and appropriations matters.

Federal agencies are prohibited from using Federal appropriations to lobby the Congress for funds but the lobbying highlights the Board’s ‘neither here nor there’ status. It was Federally established and named but it is not a Federal entity according to PROMESA. Puerto Rican leaders consider it to be a Federal agency – and imposition – but it is funded by the Government of Puerto Rico with it unilaterally determining the amounts, although it is not subject to any control by the territory’s legislature or governor.

The Board also recently retained law firm Munger, Tolles, & Olson to represent it in cases challenging its constitutionality. The cases point out that its members were appointed by the President without the consent of the U.S. Senate. Instead, its seven members were appointed with six from lists submitted by the Republican and Democratic leaders of the Senate and the House.

The lead Munger, Tolles, & Olsen attorney on the account is Obama Administration Solicitor General Donald Verrilli. While Verrilli was Solicitor General, his office enraged then Puerto Rico Governor Alejandro Garcia Padilla (Popular Democratic Party) by emphasizing to the U.S. Supreme Court that Puerto Rico was subject to the Congress’ broad power to govern territories even though it calls itself “the Commonwealth.” The authority of the Constitution’s Territory Clause was used in PROMESA to supersede constitutional questions about the law as well as the local self-government that the territory had previously been granted.

House Leaders Want to Improve Power System

Puerto Rico’s electric power system will be improved and not only repaired, Ryan and Bishop said Friday.

Ryan declared that, “If we are going to put a power line back up, we are going to put one that can handle hurricane winds. It makes no sense to put temporary patches on problems that have a long-term need.” Bishop similarly pronounced that, “The Federal government can’t just rebuild Puerto Rico’s infrastructure to previous, sub-par conditions.

“What my Committee’s going to be looking at is . . . how we try to rebuild . . . and make it better,” Bishop continued. He explained, “One of the problems in law” is that “FEMA can only rebuild things to the way they were before the disaster hit,” adding that he did not want to “rebuild it to that state. We gotta fix it. There’s got to be some legislative language.”

Also chiming in, Minority Whip Steny Hoyer (D-MD) judged that, “It would be foolish to leave Puerto Rico . . . in a similar position as it was two months ago, so that other storms can have such a devastating effect. Will that money be available? It must be available because we need to prevent this from happening again and imposing another substantial cost.”

The electricity transmission and distribution ‘grid’ is the single most important cause of the islands’ continuing distress more than three weeks after Hurricane Maria.

PREPA’s electricity generation system only sustained some minor damage but Governor Ricardo Rossello Nevares (New Progressive Party) is intent on improving the entire power system, which has produced and delivered electricity at a relatively high cost, been a significant drag on the economy, and is in PROMESA Title III bankruptcy.

Officials say that power generation is now running at 15% of capacity – a figure that does not reflect the percentage of customers served, which is lower.

PREPA Executive Director Ricardo Ramos earlier said that he hoped all service would be restored within six months and the U.S. Army Corps of Engineers estimated nine months. The Governor Saturday promised that 95% of customers would have service in two months, with 30% back on line by October 30th, 50% by November 15th, and 80% by December 1st. The Corps of Engineers is helping PREPA with the repairs.

Under longstanding law, the Federal government pays 75% of the cost of repairs or of rebuilding to withstand future disasters. The President can waive all or part of the 25% local cost share for repairs but not for strengthening infrastructure.

President Trump has not waived or reduced local matching for repairs in Puerto Rico but he has proposed using a FEMA program that by law can loan up to $5 million to communities that have lost revenue and incurred unplanned expenses due to a disaster to loan $4.9 billion to Puerto Rico and the U.S. Virgin Islands, with $4.75 billion of that expected to go to Puerto Rico. Legislation for the loan earmarks $150 million of it for Puerto Rico’s infrastructure matching costs.

The loan is also expected to be forgiven. The legislation for it passed the House Thursday afternoon and is expected to pass the Senate this week.

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