Congressional hearing quashes the idea of ending the Financial Oversight Board before PREPA emerges from bankruptcy
Through differing opinions, Republicans and Democrats alike agreed Wednesday that the Puerto Rico Electric Power Authority (PREPA)’s debt restructuring must be completed before sunsetting the Financial Oversight and Management Board (FOMB), created by the PROMESA law nine years ago and which could remain in effect until at least 2030.
“We need to finish the job,” House Natural Resources Committee Chairman Bruce Westerman (R-Arkansas) told El Nuevo Día at the end of the hearing of the Indian and Insular Affairs subcommittee, which, held on the ninth anniversary of the PROMESA law – which entrenched Puerto Rico's colonial status – focused on the performance of the Oversight Board and PREPA’s restructuring.
The hearing’s witnesses were FOMB’s Executive Director, Robert Mujica (who faced the bulk of the questioning); Managing Director for Strategic Issues at the Government Accountability Office, Michelle Sager; and Andrew Austin, an economist at the Congressional Research Service.
As reported by El Nuevo Día, Mujica defended the Board, which – according to PROMESA – will remain in place until it certifies four balanced budgets (none so far) and determines that the Puerto Rican government can return to financial markets at reasonable rates.
While Committee Democrats – especially those of Puerto Rican heritage – warned that Congress should not bow to pressure from bondholders, led by GoldenTree Asset Management, who are not consenting to the Board’s debt restructuring plan for PREPA, the three Republicans who asked questions at the hearing did not advocate for ending the Board while the process is ongoing.
A few days ago, Governor Jenniffer González (R) stated that the Board must be sunset “immediately.” When Westerman reacted saying that he had not been approached on the issue, the Governor maintained that she would take the issue to Congress.
“At the moment, the Board will not leave unless PROMESA’s requirements are met and the government of Puerto Rico demonstrates more fiscal responsibility,” said Resident Commissioner Pablo José Hernández.
Although he expressed solidarity with his Puerto Rican colleagues in Congress in denouncing pressure from bondholders to sunset the Board before PREPA’s restructuring is completed, Hernández focused his questions around the “tragedy” of the Board’s imposition on the local elected government, the length of the Board’s mandate, and costs incurred in the process.
Westerman, who was present for most of the hearing, told El Nuevo Día that the Natural Resources Committee will be focused on rebuilding Puerto Rico’s electrical grid.
“We need to move this along as quickly as possible,” said Westerman, who did not confirm whether or not there would be another hearing on the matter after Congress returns from its August recess.
Westerman focused his questions around PREPA’s debt restructuring, later stating that the process must be resolved in order to strengthen investments in Puerto Rico’s electric grid. In his questioning of Mujica, Westerman asked whether grid reforms are being fulfilled and what measures can be taken to support Governor González in “meeting the basic requirements and ultimately reducing the Board’s operational responsibility.”
“We will explore next steps to resolve Puerto Rico’s debt crisis and we will work to guarantee adequate safeguards to prevent future financial risks,” said the chair of the Indian and Insular Affairs subcommittee, Rep. Jeff Hurd (R-Colorado).
Hurd recognized that PREPA’s debt restructuring process has been slow and complex, after the public utility incurred a bond debt of nearly $12 billion “as a result of decades of political interference, bad governance, and natural disasters that left [PREPA] in an unstable and operationally inadequate financial position.”
Representative Hurd maintained that “almost a decade after PROMESA’s passage, Puerto Rico has made significant progress towards financial stability, thanks to large-scale reforms and a difficult but necessary restructuring.”
In that regard, Hurd reiterated that the hearing looked to “guarantee continued progress through transparency, accountability, and a clear path towards long-term fiscal independence.”
The committee’s Democratic leaders were more direct.
“Calls to eliminate the Board now—simply because of its spending on consultants and its refusal to agree to the PREPA bondholders’ demands—are premature,” said the Ranking Member of the Natural Resources Committee, Rep. Jared Huffman (D-California).
Puerto Rican Democratic members Nydia Velázquez, Alexandria Ocasio Cortez, and Ritchie Torres, all representing New York districts and all critics of the Board, strongly denounced efforts by bondholders led by GoldenTree to convince Members of Congress to eliminate the Board and allow PREPA’s restructuring to be resolved outside of the territorial bankruptcy mechanism created by PROMESA.
GoldenTree Asset Management is considered the primary objector to the Board’s plan to reduce PREPA’s bond debt from $8.5 billion to $2.6 billion.
In speaking about ongoing mediation overseen by District Court Judge Laura Taylor Swain, Mujica argued that paying off PREPA’s debt in full would raise energy rates by over 30% at a moment where rates already amount to 26 cents per kilowatt-hour, the second-most expensive energy rates in any U.S. jurisdiction behind Hawaii.
“[GoldenTree] took advantage of a government in crisis to buy distressed debt. And now, they want the maximum payout. This is no longer a story about bankruptcy – this is the story of GoldenTree versus the people of Puerto Rico,” said Velázquez.
Torres, for his part, maintained that in PREPA’s debt restructuring, “what’s at stake is nothing less than the island’s very survival,” since “there is perhaps nothing more fundamental for an economy or a society than affordable, reliable electricity.”
In response to questions from Westerman, Mujica indicated that as part of the mediation process around PREPA’s debt restructuring, the Board seeks to prove that “the system is deteriorating faster than it can be repaired.”
Hernández focused on concerns around the longevity of the Board, which turns nine years old on August 31st.
The Resident Commissioner, who defends the current territorial status of the Free Associated State and who leads the Popular Democratic Party, asserted that the Board’s imposition was a tragedy and that its existence of almost a decade is “a failure of public policy.”
“The Board has imposed austerity measures and increased the cost of living directly as a result of the bankruptcy. And it relies on wealthy consultants who do not have any incentives for the Board to be dissolved,” Hernández claimed, questioning the fact that the Board has cost over $2 billion, five times greater than Congress’ estimate when PROMESA was passed.
Hernández noted that he would have liked to see his Puerto Rican colleagues in Congress “oversee the Board,” though he excluded Darren Soto (D-Florida) from this criticism.
As he stated in his written testimony, Mujica insisted that the Board has saved the people of Puerto Rico more than $60 billion by restructuring the government’s financial obligations and suspending their debt payments. “That’s $60 billion in debt that Puerto Rico’s elected officials incurred over 16 consecutive years of unbalanced budgets,” Mujica responded.
While Mujica blamed the Puerto Rican government for not yet certifying a balanced budget. Hernández stressed that the Board also shares the blame for “not providing the necessary leadership.”
Soto questioned why no balanced budget has been certified, as he thought this fiscal year’s budget would be the first. Mujica clarified in his testimony that in the previous fiscal year, the Puerto Rican legislature enacted “legislation that, by the government’s own estimates, would have added $500 million in costs to the budget if implemented, without identifying the resources to finance it.”
Soto, Hernández, and Mujica all emphasized the economic impact caused by the elimination of Section 936 of the federal Internal Revenue Code, which granted tax breaks to U.S. companies and helped boost Puerto Rico’s manufacturing industry.
Hernández highlighted bipartisan legislation led by Rep. Nicole Malliotakis (R-New York) that could help incentivize new manufacturing investment in Puerto Rico.
Of the six Republican members of the Indian and Insular Affairs subcommittee, four attended the hearing: Hurd, Mike Kennedy (Utah), Tim Walberg (Michigan), and Doug LaMalfa (California). On the Democratic side, all five members of the subcommittee were present: subcommittee Ranking Member Teresa Leger Fernández (New Mexico), Velázquez, Val Hoyle (Oregon), Hernández, and Emily Randall (Washington).
In addition to Huffman, Ocasio Cortez, Soto, and Torres joined the subcommittee.
Upon leaving the hearing, Mujica said that the hearing allowed him to underscore that “we need to achieve balanced budgets, clean up PREPA, and implement permanent reforms.” “I think the Committee recognizes that without these permanent reforms, we will return to bankruptcy,” he added.
By: José A. Delgado
Source: El Nuevo Día
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