PROMESA Fiscal Board Releases Annual Report

The Financial Oversight and Management Board for Puerto Rico which was put in place under PROMESA has released its second annual report. Acknowledging that Hurricanes Irma and Maria “utterly upended” life in Puerto Rico and the work of the board, the report nonetheless claims that the board “continued to make progress” toward its goals.

Those goals: “helping Puerto Rico to

  • achieve fiscal responsibility
  • regain access to capital markets
  • restructure its outstanding debt, and
  • return to economic growth”

The report mentions specific responses to the disaster, including allowing the Puerto Rico government to redirect expenditures toward disaster relief and assistance in gaining disaster loans.

Fiscal plans

“Because Hurricanes Irma and Maria defined a new reality for Puerto Rico,” the report continues, “the Oversight Board also initiated the process of rewriting the fiscal plans for the Commonwealth and the covered instrumentalities.” This process is described as “interactive and collaborative engagement” among multiple stakeholders.

“Because the fiscal plans and budgets were certified at the very end of the fiscal year, the most critical phase – implementation – has just begun,” the report explains. Part of that implementation which is currently underway, now that the fiscal plans have been certified, is negotiation with Puerto Rico’s creditors.

The report continues with a month-by-month timeline of the efforts of the board and the dramas surrounding them, including the Board’s lawsuit to compel Governor Rossello to institute furloughs for government workers, the discovery of “previously-undisclosed” bank accounts belonging to the government and forensic examination of those accounts, and the eventual certification of the fiscal plan.

The fiscal plan is described as “deeply collaborative,” but the Board states several times that it did not accept the fiscal plans submitted by the Puerto Rico government and therefore created its own fiscal plan. This plan was, the report says, largely copied from the governor’s plan, but had a number of differences.

For example, each agency now has its own budget for utilities and pensions. The financial forecast assumes only “tepid” economic growth for the Island. Services for people living on the Island were “rightsized.” Pensions are to be reduced.

In addition to preparation and certification of a budget, the Board has been involved in helping Puerto Rico reform financial systems. “Perhaps the most critical component of the Oversight Board’s efforts in this area in the past year,” says the report, “is the build out of the Office of the Chief Financial Officer for Puerto Rico (“OCFO”) and its incorporation into the certified fiscal plan.” This office will be responsible for budgeting and accounting, procurement and sourcing, and for financial reporting.

Reporting now includes requirements for weekly and monthly reporting on liquidity and expenditures. While the University of Puerto Rico is not complying with this requirement, the report says that the government as a whole is doing so.

The Board also supported the maintenance of the Puerto Rico Institute of Statistics as an independent agency.

Debt

The Board is engaged, along with the Puerto Rico government and the courts, in negotiating with creditors. PREPA, the electric power authority which has been one of the central players in the debt crisis, is still taking center stage. However, the experience of Hurricane Maria made it clear that the electrical system in Puerto Rico was inadequate. The Board’s report calls for a complete transformation of PREPA. The goal is to provide stable electrical power at a reasonable price.

An extensive investigation of the other kinds of debt involved in the financial crisis is being undertaken. The Board will issue a report once the investigation is complete.

Economic development

The Board is still waiting on a “Recovery Plan” from the governor, as requested by Congress.

The report mentions a “pipeline” or projects intended to help economic recovery in Puerto Rico. The one specific example mentioned is “Viewpoint at Roosevelt,” a federally-funded housing project expected to provide local jobs as well as 130 much-needed affordable housing units.

Recommendations

The report concludes with a list of specific changes and actions requested of the federal government:

  • “Provide fair and equitable treatment to residents of Puerto Rico in all Medicare programs.
    Residents of Puerto Rico pay the same level of Medicare taxes as mainland residents, but the Island receives substantially lower payments in Medicare programs.”
  • “Recommend that Congress explore ways to minimize the challenges and maximize the
    opportunities of extending an Earned Income Tax Credit to residents of Puerto Rico.”
  • “Extend the full federal Child Tax Credit to residents of Puerto Rico to allow otherwise eligible
    families in Puerto Rico with one child or two children to claim the additional child tax credit.”
  • “Work with the Government of Puerto Rico to institute a work requirement for able-bodied participants aged 18-59 to receive the Nutritional Assistance Program (NAP).”
  • “Encourage the National Science Foundation to collaborate with all possible stakeholders to avoid funding loss for the Arecibo Observatory and to increase science and education-focused operations.”
  • “Establish a Manufacturing USA institute in Puerto Rico to equip Puerto Rico with the partnerships and resources necessary to continue developing as a world renowned pharmaceutical manufacturing center and to become a global biotech innovation hub.”
  • “Request that the Secretary of Commerce appoint at least one member who has special expertise on tourism in Puerto Rico to the United States Travel and Tourism Advisory Board.”

There are additional, more complex recommendations to help small businesses, to adjust cabotage laws, and to rethink some of the tax incentive proposals and banking changes which have taken place in the past year. There is a list of current bills supported by the Board, and a request that no changes be made to PROMESA.

Finally, the report includes a budget for the coming year to finance the Board.

Read the full report.

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