Four Democratic members of Congress who are active on Puerto Rico related issues have written to the PROMESA Financial Board to strongly object to the Fiscal Plan for the territory it adopted a week ago citing the “devastating impact” the plan’s “overly generous debt service” and “severe austerity” would have on Puerto Ricans.
Senator Elizabeth Warren (D-MA) and Representatives Nydia Velazquez (D-NY), Jose Serrano (D-NY) and Darren Soto (D-FL) charged the Board with “siphoning” Federal disaster aid for the islands to pay bond creditors and took aim at the COFINA debt agreement.
“Congress never intended PROMESA to be used to grant Puerto Rico’s creditors a priority,” the four congressional officials wrote, “yet your fiscal plans would appear to do so, which is a clear contravention of Congressional intent.”
The letter, sent to Financial Oversight and Management Board (FOMB) Chairman Jose B. Carrion, refers to the new fiscal plan approved by the board. Titled, “Restoring Growth and Prosperity,” the plan cuts $629,000,000 in education, pensions, and healthcare spending. It also predicts surplus funds to pay creditors if the required cuts and changes are made.
The authors of the letter contend that the plan for the territory’s $30 billion surplus over the next 15 years “driven in large part” by disaster relief “should be invested in growth initiatives and a reduction of austerity measures, so that the economy has a chance to grow” and the territory avoids “the long-term perpetual deficits that are forecast by the plan.”
The letter noted that “Puerto Rico bonds have been among the best performing debt instruments of 2018” and insular GOs — “many of them bought at a steep discount” — “rallied strongly upon release” of last week’s plan. It also pointed out that COFINA juniors “traded as low as 8.2 cents” and “are projected to recover 56 cents.”
The authors insist that “siphoning federal funds intended to benefit the people of Puerto Rico to creditors would be simply unacceptable.”
The letter also posed questions to the Board, generally requesting justification for the austerity measures. The authors demand answers to these questions by Friday.
“The oversight board was established to help shepherd Puerto Rico back to financial health, not to protect the interests of Wall Street investors. We urge you to fulfill that mandate,” the letter concludes.
If the Democrats take the House in the upcoming election, as is expected, it is anticipated that bondholder profitability, particularly at the expense of Puerto Rico social services, will be a topic of an oversight hearing.
The board has denied any intention of using disaster relief funds to pay creditors. When President Trump tweeted that Puerto Rico politicians were planning to do so, the board’s executive director, Natalie Jaresko, said, “Federal disaster funds do not run through the budget or the calculation of surpluses.”