[House Hearing, 116 Congress]
[From the U.S. Government Publishing Office]
PROMESA IMPLEMENTATION DURING THE CORONAVIRUS PANDEMIC
=======================================================================
OVERSIGHT HEARING
before the
COMMITTEE ON NATURAL RESOURCES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTEENTH CONGRESS
SECOND SESSION
__________
Thursday, June 11, 2020
__________
Serial No. 116-35
__________
Printed for the use of the Committee on Natural Resources
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Available via the World Wide Web: http://www.govinfo.gov
or
Committee address: http://naturalresources.house.gov
______
U.S. GOVERNMENT PUBLISHING OFFICE
40-637 PDF WASHINGTON : 2020
COMMITTEE ON NATURAL RESOURCES
RAUL M. GRIJALVA, AZ, Chair
DEBRA A. HAALAND, NM, Vice Chair
GREGORIO KILILI CAMACHO SABLAN, CNMI, Vice Chair, Insular Affairs
ROB BISHOP, UT, Ranking Republican Member
Grace F. Napolitano, CA Don Young, AK
Jim Costa, CA Louie Gohmert, TX
Gregorio Kilili Camacho Sablan, Doug Lamborn, CO
CNMI Robert J. Wittman, VA
Jared Huffman, CA Tom McClintock, CA
Alan S. Lowenthal, CA Paul A. Gosar, AZ
Ruben Gallego, AZ Paul Cook, CA
TJ Cox, CA Bruce Westerman, AR
Joe Neguse, CO Garret Graves, LA
Mike Levin, CA Jody B. Hice, GA
Debra A. Haaland, NM Aumua Amata Coleman Radewagen, AS
Joe Cunningham, SC Daniel Webster, FL
Nydia M. Velazquez, NY Liz Cheney, WY
Diana DeGette, CO Mike Johnson, LA
Wm. Lacy Clay, MO Jenniffer Gonzalez-Colon, PR
Debbie Dingell, MI John R. Curtis, UT
Anthony G. Brown, MD Kevin Hern, OK
A. Donald McEachin, VA Russ Fulcher, ID
Darren Soto, FL
Ed Case, HI
Steven Horsford, NV
Michael F. Q. San Nicolas, GU
Matt Cartwright, PA
Paul Tonko, NY
Jesus G. ``Chuy'' Garcia, IL
Vacancy
David Watkins, Chief of Staff
Sarah Lim, Chief Counsel
Parish Braden, Republican Staff Director
http://naturalresources.house.gov
------
CONTENTS
----------
Page
Hearing held on Thursday, June 11, 2020.......................... 1
Statement of Members:
Gonzalez-Colon, Hon. Jenniffer, a Resident Commissioner in
Congress from the Territory of Puerto Rico................. 3
Prepared statement of.................................... 4
Grijalva, Hon. Raul M., a Representative in Congress from the
State of Arizona........................................... 2
Statement of Witnesses:
Jaresko, Natalie, Executive Director, Financial Oversight and
Management Board for Puerto Rico........................... 9
Prepared statement of.................................... 12
Supplemental testimony submitted for the record.......... 22
Questions submitted for the record....................... 27
Marrero, Omar, Executive Director, Puerto Rico Fiscal Agency
and Financial Advisory Authority........................... 49
Prepared statement of.................................... 51
Questions submitted for the record....................... 58
Additional Materials Submitted for the Record:
Hispanic Federation, Letter dated June 15, 2020 to Chair
Grijalva................................................... 101
OVERSIGHT HEARING ON PROMESA IMPLEMENTATION DURING THE CORONAVIRUS
PANDEMIC
----------
Thursday, June 11, 2020
U.S. House of Representatives
Committee on Natural Resources
Washington, DC
----------
The Committee met, pursuant to notice, at 3:31 p.m., via
Webex, Hon. Raul M. Grijalva (Chairman of the Committee)
presiding.
Present: Representatives Grijalva, Napolitano, Sablan,
Huffman, Lowenthal, Gallego, Cox, Haaland, Cunningham,
Velazquez, DeGette, Soto, San Nicolas, Cartwright, Tonko,
Garcia; Bishop, Gohmert, McClintock, Gosar, Westerman, Graves,
Hice, Radewagen, Webster, Gonzalez-Colon, and Hern.
The Chairman. Thank you very much. The Committee on Natural
Resources will come to order. The Committee is meeting today to
hear testimony on PROMESA Implementation During the Coronavirus
Pandemic.
Under Committee Rule 4(f), any oral opening statements at
this hearing are limited to the Chair and the Ranking Minority
Member or their designee. This will allow us to hear from our
witnesses sooner and help Members keep to their schedules.
Therefore, I ask unanimous consent that all other Members'
opening statements be made part of the hearing record if they
are submitted to the Clerk by 5 p.m. today or at the close of
the hearing, whichever comes first.
Hearing no objection, so ordered.
Without objection, the Chair may also declare a recess
subject to the call of the Chair. As described in the notice,
statements, documents, or motions must be submitted to the
electronic repository at hnrcdocs@mail.house.gov. Additionally,
please note that, as in-person meetings, Members are
responsible for their microphones and Members can be muted by
staff only to avoid inadvertent background noise.
Finally, Members or witnesses who experience technical
problems should inform Committee staff immediately. At this
point, I will read my opening statement. Then I will recognize
the designee for the Ranking Member for her opening statement.
I want to thank my colleagues for taking time to join us in
this remote Natural Resources Committee oversight hearing on
how the coronavirus pandemic is impacting the implementation of
the Puerto Rico Oversight Management and Economic Stability
Act, also known as PROMESA. I want to welcome our witnesses,
Ms. Natalie Jaresko, Executive Director of PROMESA Financial
Oversight and Management Board, and Mr. Omar Marrero,
representing the Governor of Puerto Rico. Thank you so much,
both of you, for joining us.
STATEMENT OF THE HON. RAUL M. GRIJALVA, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF ARIZONA
The Chairman. Some could say that the people of Puerto Rico
can't seem to catch a break. First the island's residents had
to deal with a debt burden that their governor declared in 2015
could not be repaid, which led to the enactment of PROMESA in
2016 and the imposition of the Oversight Board. While PROMESA
was designed to allow the island to restructure its debts, many
Puerto Ricans view it and the Oversight Board as an
undemocratic colonial takeover of the island's government.
In 2017, Puerto Rico was hit not by one but two Category 5
hurricanes. Hurricanes Irma and Maria devastated the island,
leaving billions of dollars in damage and island-wide loss of
electricity lasting months and nearly 4,000 deaths.
Then in 2019 and 2020, as the residents of the island were
recovering from the hurricanes, they were hit with a series of
earthquakes that caused widespread damage in the south of the
island. And they are still experiencing aftershocks even as we
speak today. Puerto Ricans and the government of Puerto Rico
have been recovering from these natural disasters without
adequate Federal assistance, since the Trump administration has
delayed the disbursements and opposed that the appropriation of
much-needed disaster relief aid to Puerto Rico was included.
Finally, if that devastation was not enough, the island,
like the rest of the planet, was hit with COVID-19 pandemic,
which put a significant strain on the island's already fragile
healthcare infrastructure and public services. Moreover, the
coronavirus pandemic is projected to severely affect Puerto
Rico's financial and economic recovery for years to come.
Puerto Rico is in an extremely vulnerable financial and
economic position. It is against this backdrop that we
scheduled today's hearing to better understand how the
government of Puerto Rico has been responding to the COVID-19
outbreak.
We also expect to discuss the recently certified 2020
Fiscal Plan and discuss strategies to reduce the island's debt
burden, what plans are there to grow the economy and create new
jobs, how to provide clean, affordable, and reliable
electricity and an efficient public sector. It is also
important for us to hear which of the oversight and government
of Puerto Rico's policy and budget priorities will include the
quality of life for the residents of the island.
Has having to function under the supervision of the
Oversight Board led to delays and other complications in the
Puerto Rican government's response to the pandemic? It is a
question. Were issues involving contracting and not being able
to acquire sufficient coronavirus testing equipment the result
of having to jump through too many hoops imposed by the Board,
or were these simply the result of poor performance on the part
of the central government? Question. I firmly believe that we
will receive answers to these and other questions from the
witnesses today. We cannot condemn the people of Puerto Rico in
the wake of a debt crisis, devastating storms, earthquakes to
an inadequate response to the coronavirus pandemic because they
are ruled by an oversight board.
And now it is my pleasure to yield to the Ranking Member
designee, the Resident Commissioner of Puerto Rico, Ms.
Gonzalez-Colon.
Madam Commissioner, the time is yours.
STATEMENT OF THE HON. JENNIFFER GONZALEZ-COLON, A RESIDENT
COMMISSIONER IN CONGRESS FROM THE TERRITORY OF PUERTO RICO
Miss Gonzalez-Colon. Thank you, Chairman. I am the Ranking
Member for the Republicans for this Committee, so it is not
just, obviously, me for today. Puerto Rico today shares with
many other parts of the Nation the challenge of facing COVID-
19. In our case, we have added complications and limitations:
(1) First, rebuilding from the 2017 hurricanes; (2) this year's
earthquakes; and (3) PROMESA's debt restructuring and other
fiscal challenges.
The way Puerto Rico accesses and uses all its resources,
both emergency as well as regular obligations, everything is
controlled by PROMESA. Congress imposed PROMESA even though
many, like me, were opposed. Many of the Members who voted for
it in 2016 are still in the Committee. After different legal
challenges ever since, it is here and it is what we have to
build with.
That is why I think we need to focus on what the people I
represent expect from Congress, Federal agencies, and local
government: (1) First, that the many tens of billions of
dollars in Federal aid that we have secured in Congress,
including those recently passed in response to the pandemic,
but also those passed over the last 3 years for disaster
recovery, are disbursed and finally reach those in need; (2)
how to get rid of the unnecessary red tape and bureaucracy in
the disbursement of these funds; (3) concrete proposals to
create a government and business environment favorable to
growing our economy, creating well-paying jobs, and reducing
poverty levels on the island; (4) a true picture of the
management of both locally raised and federally allocated
funds; (5) how the pandemic has affected the plans for the
territory's budget, public services and economy; and (6) last
but also of course not least, the efforts to improve Puerto
Rico's less than equal treatment in Federal programs.
We should work in a bipartisan way and a pragmatic manner
to help Puerto Rico. Some people should resist the temptation
to cater to those who would rather use the island as a
political talking point, a weapon against an opponent or a
platform for impractical solutions that would never happen. We
must focus on proposals and legislation that could pass and get
enacted into law, such as the bipartisan Puerto Rico Recovery
Accuracy in Disclosures Act, which addresses the need for
increased transparency in PROMESA proceedings and between those
employed by the Oversight Board, among others.
Let's become informed about what is happening on the
ground, on what challenges are pressing upon Puerto Rico's
fiscal resources so we can address them in a bipartisan way, in
a bicameral manner, and with the input from the people of
Puerto Rico. Targeting supposed villains and announcing utopian
proposals may get us good retweets and engagement on social
media but won't help the people of Puerto Rico. The people that
I am honored to represent in Congress do not have the luxury of
those political gains.
I must point out that in June of this year, the Supreme
Court of the United States validated an appointment process of
the Oversight Board, reaffirming that we are a possession, a
colony of the United States, without any political power. And
as long as this is the case, we will continue to be treated as
a second-class state. The citizens I represent will only be
able to have equal treatment and opportunity by becoming a
state. Today, actually, 65 percent of all Puerto Ricans are
living in a state. And Puerto Rico is obtaining that equality
individual by individual, family by family.
The island can never really prosper without equality and
democracy within the United States. This is the fundamental
problem ignored by Congress, ignored by PROMESA, with the
exception of its recognition that the people of the territory
have the right to determine its future political status
otherwise.
That is the reason we are here today in this hearing, and I
look forward for the testimony and questions of our witnesses,
and saying that with me today are Representative McClintock and
Representative Westerman. The three of us are here in
Washington in the Natural Resources Committee. With that, I
yield back.
[The prepared statement of Miss Gonzalez-Colon follows:]
Prepared Statement of the Hon. Jenniffer Gonzalez-Colon, a
Representative in Congress from the Territory of Puerto Rico
Thank you, Mr. Chairman.
Puerto Rico today shares with many other parts of the Nation the
challenge of facing CoVid-19. But, in our case, we have added
complications and limitations: (1) Rebuilding from the 2017 hurricanes,
(2) this year's earthquakes, and (3) PROMESA's debt restructuring and
other fiscal challenges.
The way Puerto Rico accesses and uses ALL its resources, both
emergency as well as regular obligations, is controlled by PROMESA.
Congress imposed PROMESA even though many like me were opposed. Many of
the members that voted for it in 2016 are still here. After different
legal challenges ever since, it's here and it is what we have to deal
with.
That is why we need to focus on what the people I represent expect
from their Federal and local governments:
1. First, that the many tens of billions in Federal aid we've
secured in Congress, including those recently passed in
response to the pandemic, but also those passed over the
last 3 years for disaster recovery, are disbursed and
finally reach those in need;
2. Second, how we get rid of unnecessary red tape and bureaucracy in
the disbursement of these funds;
3. Third, concrete proposals to create a government and business
environment favorable to growing our economy, creating
well-paying jobs, and reducing poverty levels on the
Island;
4. Fourth, a true picture of the management of both locally raised
and federally allocated funds.
5. Fifth, how the pandemic has affected the plans for the
territory's budget, public services, and economy; and
6. Last but not least, efforts to improve Puerto Rico's less than
equal treatment in Federal programs.
We should work in a bipartisan and pragmatic manner, to help Puerto
Rico.
Some people should resist the temptation to cater to those who
would rather use the Island as a political talking point, a weapon
against an opponent or a platform for impractical solutions that will
never happen; we must focus on proposals and legislation that could
pass and get enacted into law--such as the bipartisan Puerto Rico
Recovery Accuracy in Disclosures Act, which addresses the need for
increased transparency in PROMESA proceedings and between those
employed by the Oversight Board, among others.
Let's become informed about what is happening on the ground, on
what challenges are pressing upon Puerto Rico's fiscal resources, so we
can address them in a bipartisan, bicameral manner and with input from
the people of Puerto Rico. Targeting supposed villains or announcing
utopian proposals may get us good retweets and engagement on social
media but won't help the people of Puerto Rico. The people that I am
honored to represent do not have the luxury of these political games.
I must point out that, on June 1, the Supreme Court validated the
appointment process for the Oversight Board, reaffirming that we are a
``possession'', a colony without political power. As long as this is
the case, we will continue to be treated as a second-class state and
the citizens I represent will only be able to obtain equal treatment
and opportunity by becoming a State. Today, 65 percent of all Puerto
Rican now live in a State. Puerto Rico is obtaining equality individual
by individual and family by family. The Island can never really prosper
without equality and democracy within the United States. This is the
fundamental problem ignored by Congress and PROMESA, with the exception
of its recognition that the people of the territory have the right to
determine its future political status otherwise.
I look forward to the testimony and questioning of our witnesses.
______
Dr. Gosar. Mr. Chairman, this is Gosar.
The Chairman. Thank you, Mr. Gosar. The gentleman seeks
recognition for what purpose, Mr. Gosar?
Dr. Gosar. I have filed a motion to adjourn, and I move
that we adjourn this Committee.
The Chairman. The gentleman is recognized, and the Clerk
has confirmed that that motion has been circulated to the
Members?
Ms. Locke. We will be circulating shortly.
The Chairman. If we could pause for a second to allow
Members to have that motion, it is important for the record and
it is important for what follows----
[Pause.]
The Chairman. We are presently waiting for confirmation
from the Clerk and Counsel assuring that the motion has been
circulated as per the rules for online as adopted by the House
of Representatives. And as soon as we do that, then we will
turn to Mr. Gosar to reaffirm his motion and any comments he
might have at that point. So, we are waiting.
[Pause.]
Ms. Locke. The motion should have been distributed via e-
mail.
The Chairman. Thank you, and the motion to adjourn is not
debatable. The gentleman from Arizona, Mr. Gosar, has motioned,
and the motion has been circulated and confirmed by the Clerk
and Counsel. Move that the Committee do now adjourn. The
question is on the gentleman from Arizona's motion, Mr. Gosar.
All those in favor, indicate by saying aye. All those
opposed, say no. In the opinion of the Chair, the noes have it.
The motion is not----
Dr. Gosar. I ask for a recorded vote.
The Chairman. A recorded vote has been requested on the
question on the motion to adjourn this hearing. The Clerk shall
call the roll.
Ms. Locke. Mr. Grijalva?
The Chairman. No.
Ms. Locke. Mr. Grijalva votes no.
Mr. Bishop?
Mrs. Napolitano?
Mr. Young?
Mr. Costa?
Mr. Gohmert?
Mr. Sablan?
Mr. Lamborn?
Mr. Huffman?
Mr. Huffman. No.
Ms. Locke. Mr. Huffman votes no.
Mr. Wittman?
Mr. Lowenthal?
Mr. McClintock?
Mr. McClintock. Aye.
Ms. Locke. Mr. McClintock votes aye.
Mr. Gallego?
Mr. Gosar?
Dr. Gosar. Aye.
Ms. Locke. Mr. Gosar votes aye.
Mr. Cox?
Mr. Cox. No.
Ms. Locke. Mr. Cox votes no.
Mr. Cook?
Mr. Neguse?
Mr. Westerman?
Mr. Levin?
Mr. Graves?
Ms. Haaland?
Ms. Haaland. No.
Ms. Locke. Ms. Haaland votes no.
Mr. Hice?
Mr. Cunningham?
Mrs. Radewagen?
Ms. Velazquez?
Mr. Webster?
Ms. DeGette?
Ms. DeGette. No.
Ms. Locke. Ms. DeGette votes no.
Ms. Cheney?
Mr. Clay?
Mr. Johnson?
Mrs. Dingell?
Miss Gonzalez-Colon?
Miss Gonzalez-Colon. Aye.
Ms. Locke. Ms. Gonzalez-Colon votes aye.
Mr. Brown?
Mr. Curtis?
Mr. McEachin?
Mr. Hern?
Mr. Hern. Aye.
Ms. Locke. Mr. Hern votes aye.
Mr. Soto?
Mr. Fulcher?
Mr. Case?
Mr. Horsford?
Mr. San Nicolas?
Mr. Cartwright?
Mr. Cartwright. No.
Ms. Locke. Mr. Cartwright votes no.
Mr. Tonko?
Mr. Garcia?
The Chairman. If the Clerk will read the names of any
Members that are not recorded.
Ms. Locke. Mr. Bishop?
Mrs. Napolitano?
Mr. Young?
Mr. Costa?
Mr. Gohmert?
Mr. Sablan?
Ms. DeGette. I believe Mr. Sablan needs to unmute.
Ms. Locke. Mr. Sablan, your----
Mr. Sablan. Sablan is present. Hello?
Ms. Locke. How do you vote, Mr. Sablan?
Mr. Sablan. No.
Ms. Locke. Mr. Sablan votes no.
Mr. Lamborn?
Mr. Wittman?
Mr. Lowenthal?
Mr. Gallego?
Mr. Cook?
Mr. Neguse?
Mr. Westerman? Mr. Westerman, how do you vote?
Mr. McClintock. He has voted aye. A point of order, Mr.
Chairman. Mr. Westerman has repeatedly tried to vote. I am
witness to it right here in the hearing room, and you are not
recording it.
The Chairman. Mr. Westerman would you indicate your vote?
Mr. Westerman. I vote aye.
Ms. Locke. Mr. Westerman votes aye.
The Chairman. Thank you.
Ms. Locke. Mr. Levin?
Mr. Graves?
Mr. Hice?
Mr. Cunningham?
Mrs. Radewagen?
Ms. Velazquez? Ms. Velazquez, your mute button is on. Ms.
Velazquez, how do you vote?
Ms. Velazquez. Yes.
Ms. Locke. Ms. Velazquez votes aye.
Mr. Webster?
Ms. Cheney?
Mr. Clay?
Mr. Johnson?
Mrs. Dingell?
Mr. Brown?
Mr. Curtis?
Mr. McEachin?
Mr. Soto?
Mr. Fulcher?
Mr. Case?
Mr. Horsford?
Mr. San Nicolas?
Mr. Tonko?
Mr. Garcia?
The Chairman. Yes. Are all----
Miss Gonzalez-Colon. Mr. Chairman?
The Chairman. Yes?
Miss Gonzalez-Colon. Point of order. Amata Radewagen is
connected, and she is saying that she is voting aye but it is
not recorded.
Ms. Locke. I do not visually see Mrs. Radewagen.
The Chairman. If she would just indicate that she was
voting aye, according to the rules, that is sufficient. Where
is she?
Ms. Velazquez. Is she connected? She has to be connected
either by phone or by video.
Ms. Locke. I don't have an audio or a video.
Miss Gonzalez-Colon. Mr. Chairman, she was connected, but
now it looks like she is disconnected.
The Chairman. The situation, Miss Gonzalez-Colon, is that
we need to verify that. It can be by hand signal, yes, thumbs
up, or it can be verbally, but the requirement that it be, at
the minimum, that visual confirmation. We don't have that at
this point.
Mrs. Radewagen. Hello. This is Amata Radewagen.
The Chairman. Yes.
Mrs. Radewagen. Can you hear me?
The Chairman. Yes.
Mrs. Radewagen. Yes.
Ms. Locke. Yes.
The Chairman. Ms. Radewagen votes yes.
Ms. Locke. Ms. Radewagen votes yes.
The Chairman. Are there any Members who wish to vote that
have not voted or other Members who wish to change their vote?
Hearing no request for recognition, let me now turn to the
Clerk, and the Clerk will report the vote.
Ms. Locke. Mr. Chair, on this vote, the yeas are seven and
nays are seven.
Ms. Velazquez. Mr. Chairman? Mr. Chairman?
The Chairman. Ms. Velazquez, you are recognized.
Ms. Velazquez. Did I make a mistake?
The Chairman. Ms. Velazquez's vote was what, Clerk?
Ms. Locke. Ms. Velazquez's vote was a yea.
Ms. Velazquez. And that was supposed to be yes.
Ms. Locke. Correct.
The Chairman. And the Clerk will report.
Ms. Locke. Mr. Chair, on this vote, they yeas are seven and
the nays are seven.
Mr. Sablan. Point of inquiry. This is Sablan.
The Chairman. Mr. Sablan?
Mr. Sablan. Yes. Is my vote consistent with the Chairman's
vote?
The Chairman. Yes, the Chair voted no so that the hearing
could proceed.
Ms. Velazquez. Mr. Chairman?
The Chairman. Yes?
Ms. Velazquez. This is Ms. Velazquez.
The Chairman. Thank you, Ms. Velazquez.
Ms. Velazquez. I am supposed to vote no, and I want to
clarify that.
The Chairman. Ms. Velazquez is recognized, and she has
changed her vote to a no vote. Clerk will report.
Ms. Locke. Mr. Chair, on this vote, the yeas are six and
the nays are eight.
The Chairman. The nays have it. The motion fails, and I
will now introduce our witnesses. Let me remind the witnesses
that under our Committee Rules, they must limit their oral
statements to 5 minutes, but their entire statement will appear
in the hearing record. When you begin, the timer will begin,
and it will turn to 5 minutes and count down from there.
When you have 1 minute remaining, I recommend that Members
and witnesses joining remotely use grid view so that they may
pin the timer at that point. After your testimony is complete,
please remember to mute yourself to avoid any inadvertent
background noise. I will also allow the entire panel to testify
before questioning. The Chair now recognizes Ms. Natalie
Jaresko, who was designated Executive Director of the Financial
Oversight and Management Board for Puerto Rico in March 2017.
She is responsible for approving and certifying the fiscal
plans for the government of Puerto Rico and representing the
government during debt restructuring negotiations.
As Executive Director, is an American-born Ukrainian
investment banker who served as Ukraine's Minister of Finance
from December 2014 until April 2016. She also held several
economic-related positions at the U.S. Department of State.
Ms. Jaresko, the floor is yours for your time.
STATEMENT OF NATALIE JARESKO, EXECUTIVE DIRECTOR, FINANCIAL
OVERSIGHT AND MANAGEMENT BOARD FOR PUERTO RICO
Ms. Jaresko. Thank you, Mr. Chairman. As you said, I am
Natalie Jaresko, Executive Director of the Oversight Board.
Thank you for this opportunity to update the Committee. As you
said and as we all know, when the Board began its work, Puerto
Rico faced unsustainable debt of more than $70 billion and more
than $50 billion in unfunded pension liabilities, a decade of
economic decline, and significant outmigration. Shortly after
the Board got underway, Hurricanes Irma and Maria struck. And
most recently, we have endured major earthquakes.
Only 2 months later, Puerto Rico was confronted with a
pandemic. And overnight, the economy shut down except for the
most critical activities as the government took prudent steps
to mitigate the risk of a catastrophic public health crisis.
The government acted promptly and decisively. The board's
efforts over the past 4 years ensured that the government was
not forced to make drastic cuts to its expenditures as revenues
dropped.
Budgeting practices enabled setting aside emergency funds
at the onset and prior to the adoption of the CARES Act by
Congress. The board and the government mobilized to deliver
immediate support to residents and businesses. This included a
$787 million package and temporary tax relief. However, there
have also been several setbacks. The situation caused by the
purchase of test kits shows poor procurement practices despite
best intentions. Additionally, complications in distributing
school lunches, payments to frontline and employed workers
illustrate the challenges to efficiency.
The shock of the pandemic on Puerto Rico is severe.
Unemployment has skyrocketed. Our analysis shows that the
economy will contract by 4 percent in the current 2020 fiscal
year, just as it did after Hurricane Maria, a sharp decline in
real GNP, the very mild projected recovery in the next fiscal
year, further declines in 2022, 2023 and close to zero growth
in 2024 and 2025. Simply put, the economy will contract over
the next 5 years. So, reforms are more important than ever
because the economic decline is even more severe.
In that spirit, the 2020 Fiscal Plan reflects a 1-year
delay in most budgetary reductions to allow the government to
focus on implementation. This includes maintaining the
subsidies to the University of Puerto Rico and the
municipalities at current fiscal year levels. At UPR
specifically, tomorrow, the Board will----
Mr. McClintock. Mr. Chairman, point of order.
The Chairman. Mr. McClintock?
Mr. McClintock. Mr. Chairman, I am informed that Garret
Graves, a member of this Committee, has been trying to get on
this hearing and has not been able to. Is it the ruling of the
Chair that Members can be excluded from the deliberations of
this Committee because of this new process?
The Chairman. No. That is not the ruling of the Chair.
Let's not grab at straws right now, Mr. McClintock. This is a
difficult process.
Mr. McClintock. Well, I am trying to grab Garret Graves,
who has been thwarted in his attempts to join this Zoom call.
The Chairman. Mr. McClintock, every Member was given,
including Mr. Graves, the process to call the technical staff
on the Committee immediately if there were problems dealing
with the technology and being able to go online. I will----
Mr. McClintock. Then, Mr. Chairman, I would suggest that we
suspend this until Mr. Graves can join the Committee to which
he is duly appointed as an elected Member of the House of
Representatives.
The Chairman. Mr. McClintock, I would more than happily
pause and see if he has talked to our technical staff or his
staff has talked to our technical staff. And pending that short
pause, we will proceed. If he is able to be put online, that is
wonderful. And if there is some other technical issue that
there is no resolution to, we will know that as well. But at
this point, let me just pause for a second in the spirit of
fairness and make sure that he has communicated with our
technical staff. And I will also try to communicate with the
staff as well. So, let's just recess for a second.
[A brief recess was taken.]
The Chairman. Now that we have the pleasure of Mr. Graves'
company, we can proceed. The witness will continue her
testimony.
Ms. Jaresko. I think I lost a little bit of time. So, I
will try to----
The Chairman. We will accommodate that. Thank you.
Ms. Jaresko. Thank you. As I was saying, in that spirit,
the 2020 Fiscal Plan reflects a 1-year delay and most budgetary
reductions to allow the government to focus on implementation.
This includes maintaining the subsidies to the University of
Puerto Rico and municipalities at the current fiscal year
levels. At the University of Puerto Rico specifically, tomorrow
the Board will be certifying an updated fiscal plan that will
halt tuition increases by a year. Without the need to achieve
incremental budget savings, the government should re-double its
efforts to assure better delivery of services. The board has
also articulated a comprehensive roadmap of the actions that
must be taken to restore growth through economic development.
However, the Board must rely upon the political will of the
island's elected leadership in order to truly transform the
government of Puerto Rico and the economic landscape.
Even with implementation of far-reaching growth-inducing
structural reforms, the 2020 Fiscal Plan projects that the
government cannot afford to pay the public debt as originally
contracted. Recognizing the importance of the ongoing Title III
cases but taking into account these realities, on March 23, the
Board presented a motion requesting the Title III court to
adjourn consideration until further notice.
The board also continues to work with the government on the
transformation of PREPA to ensure reliable and low-cost energy.
The board and the government are in full agreement that private
generation and private management of the transmission and
distribution system are key to these improvements, and we look
forward to a positive announcement in the near future.
Regarding the recently introduced amendments to the PROMESA
Act, the Board supports several of the provisions on the
proposed changes but is very concerned that other provisions,
while well-intended, will compromise the Board's ability to
fulfill its mandate under PROMESA.
The board has a collaborative working relationship with the
Governor. However, change is hard. And as PROMESA states--and I
quote, ``a comprehensive approach to fiscal management and
structural problems and adjustments that exempts no part of the
government of Puerto Rico is necessary involving independent
oversight.''
While we will always collaborate in the best interest of
the people of Puerto Rico, it is in this same interest that
sometimes the Board must disagree with the government. In
conclusion, PROMESA is not perfect, but it has provided the
government with a stay on its debt payments while continuing to
fund essential services. And this compromise provided the
island with a way to restructure its debt under a bipartisan
board, preventing chaos in 2016 when its debts became
unpayable. The board's fiscal planning and budgeting discipline
have helped the island be more resilient and responsive to
crises. Unlike other states and local governments, Puerto Rico
has not been forced to cut essential services.
All said and done, however, debt restructuring and balanced
budgets are unfortunately not enough to return prosperity to
the people of Puerto Rico. Paramount is implementing the
reforms that the people of Puerto Rico need and deserve. Thank
you, Mr. Chairman.
[The prepared statement of Ms. Jaresko follows:]
Prepared Statement of Natalie Jaresko, Executive Director, Financial
Oversight and Management Board for Puerto Rico
Chairman Grijalva, Ranking Member Bishop, and members of the
Committee, I am Natalie Jaresko, Executive Director of the Financial
Oversight and Management Board for Puerto Rico (the ``Board''). Thank
you for this opportunity to update the Committee on the challenges and
the work of the Board during the COVID-19 pandemic. As soon as the
pandemic hit the Island, the Board began working closely with the
Commonwealth to provide the people of Puerto Rico critical support for
public health and financial assistance during the crisis. In addition,
the Board recently certified an updated 2020 Fiscal Plan which further
addresses the needs of residents and the Puerto Rican Government. I
would also like to take the opportunity to comment on the ``Amendments
to PROMESA Act'' recently introduced by Chair Grijalva and members of
the Committee.
I. Introduction
To put the Board's work during the pandemic in context, please
allow me to start by recounting some of the early work of the Board, as
well as our work leading up to the pandemic.
As you know, when the Board began its work, Puerto Rico faced an
unsustainable burden of more than $70 billion in debt and more than $50
billion in unfunded pension liabilities, a decade of economic decline,
and significant outmigration. In PROMESA, Congress charged us with
guiding and overseeing the restoration of the Island's fiscal health
via long-term fiscal planning and annual balanced budgeting, the
restoration of its ability to access private capital via both debt
restructuring and economic development and, as part of that, the
Island's transition to a sustainable economic model that provides
opportunities for our citizens.
A. The Board's Work in the Aftermath of Hurricanes Irma and Maria and
the Resignation of Governor Rossello
The pandemic afflicting the Island is not the first disaster Puerto
Rico has faced since the adoption of PROMESA. Shortly after the Board
got underway, Hurricanes Irma and Maria inflicted the most horrific
natural disaster devastation to strike the U.S. in 100 years,
compounding the financial and emotional distress of the Island and its
people. As detailed in my testimony before this Committee on November
17, 2017, the Board worked extensively with the Government in post-
hurricane efforts. On the day after Hurricane Maria hit, the Board
immediately provided Governor Rossello authority to reallocate up to $1
billion of the Commonwealth's budget to give the Government flexibility
to respond during the first weeks of the crisis. The Board also worked
closely with the Governor to help estimate the cash-flow shortfall and
need for emergency liquidity assistance caused by the sudden drop in
revenues and increase in expenditures. In the 2\1/2\ years since, the
Board continues to do everything in its power to support the efforts of
the Commonwealth and the U.S. Government to provide critical disaster
relief funding to the Island and its residents.
The subsequent political upheaval around the resignation of
Governor Rossello was unfortunate and very disruptive to the Government
and the people of Puerto Rico. The Oversight Board watched the protests
with admiration for the fortitude of the people of Puerto Rico and with
sadness for the crisis that made the protests necessary. For far too
long the Island's residents have not been treated with the respect that
they deserve. However, it did not deter the Board from carrying out its
obligations under PROMESA. The Board continued to work with the leaders
of Puerto Rico to provide its people with the stability needed by all
stakeholders. Since Governor Wanda Vazquez Garced took office last
August, the Board has engaged in a collaborative working relationship
with the Governor and her team. In many respects, the increase in
collaboration and engagement is a night and day difference as compared
with previous Governors and their respective staffs.
B. Board's Work Leading up to COVID-19
I think it is helpful to recap next the Board's progress leading up
to the pandemic, which represents the culmination of our work from the
start. In furtherance of PROMESA's mandates, the Board had taken the
following steps:
Section 201(b)(1) Budgetary controls and fiscal
discipline: Implemented best practices budgetary controls
and constraints on Government spending to avoid previous
overspending practices. Given the absence of audited
financial statements and previous spending practices, prior
multi-year appropriations are suspended with few
exceptions. Total Government spending must now be reviewed
and certified. All tax initiatives must have a neutral or
positive budgetary impact, and all expenses and revenue
must be conservatively estimated.
Section 201(b)(1) PayGo Pension System: Moved to a PayGo
pension system allowing retirees to receive their pensions
without interruption, despite the insolvency of Puerto
Rico's pension funds, and enrolled police officers in
Social Security to increase their security and retirement
benefits.
Section 202(e) Ensuring critical services: The Board-
certified budgets carefully balance the need to maintain
funding for critical services commensurate with the size of
the population and prioritize critical services such as
education, public safety, and healthcare. These include (1)
funding of $200 million a year to support increased labor
participation; (2) funding for safe kits to insure proper
forensic analysis and long-await justice for victims and
the accused; (3) pay increases for teachers and police to
ensure more competitive compensation; (4) funding new
positions for Forensics to rebuild capacity; (5) funding to
repay 10 years of back pay to police officers; (6) creating
a reserve account to ensure the ability to act to protect
the population immediately in case of future emergencies;
(7) budgeted funds to cover any cost-share required for
Federal disaster funding; (8) funding to enable compliance
with certain consent decrees; (9) budgeting $400 million
annually in Commonwealth capital expenditures to improve
significantly underfunded infrastructure; and (10) over
$300 million in needs-based scholarships for University of
Puerto Rico students.
Without the Board and associated fiscal plans, projections show
that Government spending would have ballooned from $19
billion in fiscal year 2018 to $22 billion in fiscal year
2025 (an increase of 16 percent). The Board, meanwhile, has
contained expenditures to a 2 percent increase between
fiscal year 2018 to fiscal year 2025, or up 12 percent on a
per-capita basis (given the decline in population), while
providing valuable investments in frontline services (in
the wake of multiple crises).
Section 204(b) Transparency and accountability in
government spending: Fostered more transparency and
visibility into Puerto Rico's government finances,
including Puerto Rico's liquidity, budgets, and other
intergovernmental spending--notwithstanding the
Government's continued delays in completing its overdue
audited financial statements. Moreover, the people of
Puerto Rico now have access to public reports, including:
bank balances, quarterly budget to actuals, payroll and
attendance, and tax expenditures.
Section 204(b) Contract Review: The Board reviews major
contracts before they can be ratified to ensure both
consistency with the certified fiscal plans and budgets, as
well as to ensure they promote market competition. This
process has brought much-needed transparency, with all
responses and analyses posted in the Board's website.
Since the inception of PROMESA, the Board has played a critical
role in helping Puerto Rico respond to crises. Moreover, it has worked
with the Government to institute much more effective fiscal management
after decades of mismanagement. The fiscal plans that the Board has
certified have walked a very prudent balance between driving more
effective and sustainable Government, while investing in critical needs
on the Island. Last, the Board has articulated a detailed and
comprehensive roadmap of the actions that must be taken to restore
growth through economic development, with structural reforms being
particularly critical. However, given the constraints of PROMESA, the
Board must rely upon the political will of the Island's elected
leadership in order to truly transform the Government of Puerto Rico
and the economic landscape into what the people and businesses of
Puerto Rico deserve.
II. COVID-19 and the Preceding Earthquakes
Before I address the Board's work with the Government during the
public health pandemic, I would like to update you on the earthquakes
that shook Puerto Rico about 6 months ago. Beginning in late December,
these were the most intense earthquakes on the Island in recent memory,
causing structural damage to buildings across southwestern Puerto Rico.
Residents of these communities were subjected to hundreds of
aftershocks over several months, some approaching the strength of the
first earthquakes. Communities face concerns over public safety as
infrastructure was affected, businesses suffered further disruption,
and the Government suffered damage to schools, prisons and other
crucial infrastructure. The full extent of the damage is still unknown,
and rebuilding efforts in some places have yet to begin.
Only 2 months later, Puerto Rico--along with the rest of the
world--was confronted with the COVID-19 pandemic. Overnight, the
economy shut down except for the most critical activities, as the
Government took prudent steps to mitigate the risk of a catastrophic
public health crisis. The Government acted promptly and decisively by
implementing a curfew, limiting entry to points to the Island monitored
by the National Guard, and shutting down virtually the entire economy
to enforce social distancing.
At the onset of the COVID-19 crisis and prior to the adoption of
the CARES Act, the Board in close partnership with the Government,
mobilized to deliver immediate support and relief to residents. This
included providing a $787 million package of measures including, among
other things, (1) hazard pay for front-line workers of $213 million;
(2) direct payments to residents of $160 million including a $500 one-
time cash payment to 20,000 self-employed individuals and a $1,500 one-
time cash payment to 40,000 small businesses; (3) essential supplies
and equipment of $50 million; (4) distance learning equipment in the
public education system of $255 million; (5) assistance in the face of
lost revenues for municipalities of $100 million; and (6) funding of
research and development of $2 million at UPR's Medical Sciences
Department.
The Board also supported Government executive actions to provide
temporary relief on tax payment deadlines, as well as to authorize more
than $50 million in sales and use taxes exemptions for prepared foods
and first-necessity items. The Board further approved and supported a
$400 million advance on Federal funding for economic rebate payments
administered by the local Treasury Department, as well as a liquidity
facility of up to $185 million for municipalities suffering from
revenue collection deferrals.
The Board also provided the Government with recommendations on how
to effectively disburse the $2.2 billion allocated to Puerto Rico
through the Coronavirus Aid, Relief, and Economic Security Act (CARES
Act) to finance eligible unbudgeted expenses related to the pandemic in
a way that is targeted to the most critical pandemic-related needs.
Since certifying its first Fiscal Plan in 2017, notwithstanding the
intervening emergencies, the Board has been able to drive meaningful
progress in creating a more affordable Government. This has resulted in
the ability of the Government to increase expenditures at a time of
crisis, while ensuring that total expenditure levels remain within
total available revenues. Puerto Rico was not forced to make urgent and
drastic cuts to its expenditures and essential services as revenues
dropped, as other states had to do. Moreover, budgeting practices
introduced by the Board enabled setting aside an Emergency Reserve Fund
to mitigate and contain COVID-19, as well as provide immediate support
after the earthquakes.
However, it cannot be denied that there have also been several
setbacks. The situation caused by the Commonwealth's procurement of
COVID-19 test kits shows that the Government gets easily trapped in its
own poor procurement practices despite best intentions. Additionally,
complications in ensuring the distribution of school lunches and the
slow distribution of payments to front-line workers and unemployed
workers illustrates the challenges to efficient implementation. The
good news is the economy is slowly reopening, and hospital capacity
remains ample, suggesting that the virus might be contained.
Nonetheless, the shock of the COVID-19 pandemic on Puerto Rico is
severe. Unemployment has skyrocketed, as many businesses have been
forced to shut down, and local and federal governments have quickly
mobilized to provide support. Many projections indicate the economic
shock due to COVID-19 will be worse than that of the Great Recession.
The pathway to economic recovery remains highly dependent on the
overall public health response and the Federal Government's ability to
provide economic support for those whose livelihoods are at risk.
The Board's analysis shows that the Puerto Rico economy will
contract by 4.0 percent in the current 2020 fiscal year. Financially,
the impact to the Puerto Rican economy is as devastating as the impact
of Hurricane Maria. There is a sharp decline in real GNP with a very
mild projected recovery of 0.5 percent in the 2021 fiscal year, with
the help of COVID-19-related Federal funds from the CARES Act, CDBG-DR,
and other Federal programs. To illustrate, we estimate a revenue
reduction of $1.3 billion in current fiscal year 2020, $1.2 billion in
fiscal year 2021, and $774 million in fiscal year 2022, relative to the
2019 Certified Fiscal Plan.
Our projections show further declines in real GNP in fiscal years
2022 and 2023, and close to zero growth in 2024 and 2025. Simply put,
the Puerto Rico economy will contract over the next 5 years, and Puerto
Rico can only recover if the Government implements the necessary
structural reforms. These reforms are more important than ever because
the economic decline is even more severe.
III. 2020 Commonwealth Fiscal Plan
The Board spent the last months analyzing the effects of the COVID-
19 pandemic on the Puerto Rican economy and the path to recovery in
times of uncertainty. Based on careful study of the data, in
particular, Congressional Budget Office data, the Board believes its
certified 2020 Fiscal Plan is the best possible forecast under the
current circumstances.
The 2020 Fiscal Plan is a road map for Puerto Rico's recovery and
prosperity. It outlines necessary Government action to improve fiscal
responsibility and foster economic growth. The effect of the
destructive hurricanes, political upheaval, earthquakes and COVID-19 on
the economy is severe and is exacerbated by the lack of structural
reform implementation necessary to improve economic growth in Puerto
Rico. With the ongoing support of the U.S. Government, this crisis
presents an opportunity to redouble all efforts to reform the economy
for the benefit of the people of Puerto Rico.
In that spirit, the 2020 Fiscal Plan requires commitment to swift
implementation of an agenda that will transform government services.
The 2020 Fiscal Plan reflects a one-year delay in most categories of
budgetary reductions to allow the Government to focus on
implementation. This pause in rightsizing includes maintaining the
subsidies to the University of Puerto Rico and the municipalities at
current fiscal year levels. Most agencies will maintain their fiscal
year 2020 budgets in fiscal year 2021.
A. Investments
The 2020 Fiscal Plan includes substantial investments in the
Government's response to the COVID-19 public health and economic
crisis, as well as critical investment in the Island's human capital
and telecommunications infrastructure to spur recovery and growth. It
continues several investments outlined in the 2019 Fiscal Plan and
provides new substantial investments of about $6 billion in fiscal
years 2020 through 2025. Some examples include investments in: (1)
healthcare, including capital expenditures for public hospitals, hiring
public school nurses, funding for opioid treatment, and increased
reimbursement rates for primary care and outpatient specialty
providers; (2) public education, including to improve English language
teaching, to incentivize schools to achieve better educational
outcomes, and payment of disputed salary increases to transitory
teachers; (3) public safety, including the third and final year of back
pay for police, the second half of their 30 percent salary increase,
funding for recruitment and training of cadets, and equipment for
firefighters; (4) technology, to improve access to broadband in rural
areas and increase business training; (5) a study for the private
sector and the Government to define a comprehensive and actionable plan
to reactivate the manufacturing sector; and (6) hurricane
reconstruction to expedite efforts by providing $750 million in working
capital to kick-off project work.
B. Financial Projections
As mentioned, the 2020 Fiscal Plan is based on the Board's
projection that the Puerto Rico economy will contract by 4.0 percent in
the 2020 fiscal year, with a mild 0.5 percent recovery in the 2021
fiscal year, dependent upon the support of Federal funds related to
COVID-19, and recent hurricanes and earthquakes. However, even with
complete and timely implementation of all structural reforms outlined
in the 2020 Fiscal Plan, the Board projects that the economy of Puerto
Rico will contract over the next 5 years, with meager economic growth
in some years.
The 2020 Fiscal Plan projects a Government deficit from fiscal year
2032 onward, 6 years sooner than the Board's 2019 Fiscal Plan
projected, and a total primary surplus of about $8 billion between
fiscal years 2020 and 2032, compared with an approximate $23 billion
surplus projected in the 2019 Fiscal Plan. That amounts to a 65 percent
decline in projected surplus.
Estimates of Federal funding in the 2020 Fiscal Plan include: (1)
hurricane-related funds amounting to $83 billion of disaster relief
funding to be disbursed over 15 years, of which $48 billion is
estimated to come from FEMA, $8 billion to come from private and
business insurance pay outs, $7 billion to come from other sources of
Federal funding, and $20 billion to come from CDBG-DR; (2) earthquake-
related funds amounting to $595 million from FEMA; and (3) COVID-19
related funds amounting to $14 billion based on U.S. Government
sources, Federal agency announcements, and past allocations under ARRA
of 2009.
Given the Board's projections, we consider it imperative that the
Government use the next year to implement critical, overdue structural
reforms. The 2020 Fiscal Plan continues to require an agenda of
Government transformation to efficiency, and outlines the minimal
reforms needed to change the structural nature of the Puerto Rican
economy. It requires commitment to swift implementation of an agenda
that will transform the Government and the economic landscape.
C. Structural Reforms
Since 2017, the Board has worked with the Government to implement
numerous structural reforms, but there has been little meaningful
progress in most areas. The structural reforms in the 2020 Fiscal Plan
are those where the Government has aligned with the need to pursue
change. Nonetheless, each year, as a result of disasters and poor
implementation, the reforms have been delayed. As such, the 2020 Fiscal
Plan provides an updated forecast reflecting such delays but also
outlining the potential positive impact looking forward, specifically:
Human capital and welfare reform: Promoting participation
in the formal labor force by creating incentives to work
through Earned Income Tax Credit (EITC) benefits and
Nutritional Assistance Program (NAP) reform, as well as
providing comprehensive workforce development
opportunities.
K-12 education reform: Transforming the K-12 education
system to dramatically improve student outcomes and
contribute to an effective workforce long-term.
Ease of doing business reform: Improving the
competitiveness and attractiveness of Puerto Rico's economy
in order to attract a greater amount of investment and job
creation. Promoting economic activity and reducing the
obstacles to starting and sustaining a business in Puerto
Rico. This includes comprehensive reform to permitting,
registering property, and tax administration. Establishing
best-in-class entities that can attract investment and
increase tourism.
Power sector reform: Providing lower cost and more
reliable energy through: (1) the transformation of PREPA;
(2) the establishment of an independent, expert, and well-
funded energy regulator; and (3) the development of cleaner
and lower cost power generation.
Infrastructure reform: Prioritizing economically
transformative capital investments with Federal funds
available as a result of recent disasters and on a regular
basis from annual obligations, for example from the Federal
Highway Administration.
Strengthening Puerto Rico's technology sector: Addressing
the digital divide is critical to ensuring that all
residents of Puerto Rico can take advantage of the well-
documented socioeconomic benefits afforded by Internet
connections (e.g., telehealth, distance learning, remote
work). Important infrastructure gaps remain, particularly
across rural areas of the Island. The 2020 Fiscal Plan
includes $400 million to expand access to broadband for the
residents of Puerto Rico, thereby improving economic
opportunities for those in rural areas. The 2020 Fiscal
Plan also recognizes that technology skills are critical
for the future of the workforce; it thus includes $50
million in funding to invest in workforce development,
specifically focused on business- and technology-related
disciplines.
D. Government Efficiency
Finally, the main measures in the 2020 Fiscal Plan aimed at
efficiency and cost reduction, some of which have not been implemented
since the 2018 Fiscal Plan, include: (1) agency efficiencies; (2)
creation of the Office of the CFO; (3) Medicaid reform; (4) enhanced
tax compliance and optimized taxes and fees; (5) reduction of
appropriations; and (6) comprehensive pension reform.
Without the need to achieve incremental budget savings, the
Government should focus all its efforts in fiscal year 2021 on real
changes across the Government that assure better delivery of essential
services. In that light, the 2020 Fiscal Plan outlines key reforms for
the Department of Education, Department of Health, Department of Public
Safety, Department of Corrections and Rehabilitation, and Department of
Economic Development. These reforms focus on improving implementation,
increasing efficiency, and consolidating regional and similar offices.
To drive implementation of key reforms and outcomes, the 2020
Fiscal Plan introduces milestone budgeting, which will allow for
investments in certain areas once key milestones are met. Milestone
budgeting is introduced because urgent action is necessary to support
the broader reform journey for particular agencies. Crucial milestones
and incentives include for the: (1) Employee Retirement System to
finalize establishment of defined contribution accounts for public
retirees and employees; (2) Department of Treasury to issue the 2017
Comprehensive Audited Financial Report, draft the 2018 Comprehensive
Audited Financial report, and develop an ERP system; (3) Department of
Education to implement attendance reporting, school scorecards, and
digitalization of Special Education Individualized Education Programs;
and (4) Department of Economic Development and Commerce to publish
regularly in a transparent manner economic incentives provided to
businesses and associated returns.
E. Implementation is Key to Puerto Rico's Success
Unfortunately, Governments have failed to achieve meaningful
economic growth through structural reforms or drive operational change
that would deliver greater responsiveness and efficiency of government
services. Efforts at private sector labor market reforms have stalled
and the impact of human capital and welfare reform is not expected for
several years. The Government's efforts to improve the ease of doing
business have not changed the burden on businesses in any meaningful
way.
To date, Government agencies have reduced expenditures but
generally not in an effective fashion, as included in the certified
fiscal plans. Rather than achieving budget savings by improving the way
services are delivered or discontinuing duplicative or unimportant
services, the Government has enacted broad-based early retirement
programs to reduce headcount, creating major gaps in capabilities and
functionality and potentially putting services at risk. Agencies should
rethink their business processes and priorities, instead of relying on
attrition and voluntary transition programs.
Across many areas, the Government has struggled to implement
changes, with even new investments often not driving the intended use.
For example, salary raises provided for teachers were improperly
implemented, bringing new litigation costs, while police officers'
enrollment in Social Security was delayed by 6 months. Despite efforts
by members of the Government, the Board, and the Federal Government--
which has increased oversight over Federal funds, installed Federal
monitors in certain agencies, and managed expectations via consent
decrees--the Government has been unable to meet the increasingly urgent
need for real change.
The 2020 Fiscal Plan includes dozens of practical actions that the
Government must take to create a more accountable, affordable, and
transparent government, with resources focused on improving the front-
line services that matter. Given the global COVID-19 pandemic, the 2020
Fiscal Plan pauses most government right-sizing measures for a year, so
that the full focus of Government may focus on recovery and
implementation.
Implementing the structural reforms and fiscal measures included in
the 2020 Fiscal Plan fully on a timely basis will enable the Island to
achieve low-cost and reliable energy, robust infrastructure, greater
labor participation, an improved regulatory and permitting environment,
and a more effective and efficient public sector. That said, these
reforms are insufficient to return the Island to prosperity, nor do
they allow Puerto Rico to avoid future deficits, which begin again in
fiscal year 2032. Thus, in the near future, the Government will be
required to take incremental measures, such as improving labor market
flexibility through repealing restrictive laws and pursuing meaningful
tax reform to broaden the base of collection and lower rates. These
incremental structural reforms go beyond the 5-year framework of this
2020 Fiscal Plan and are required to return the Island to prosperity.
Many of these reforms--which would reduce deficits and therefore make
funds available for a variety of potential uses, most importantly to
invest in the people of Puerto Rico--have been proposed by the Board,
but the Board cannot implement them without the support of Puerto
Rico's elected Government.
IV. Debt Restructuring
To date, the Board has: (1) developed and the District Court has
confirmed a Title III Plan of Adjustment for COFINA; (2) authorized and
the District Court has confirmed a Title VI Plan of Adjustment for GDB;
and (3) supported a nearly $1 billion loan restructuring agreement for
PRASA with EPA and USDA.
The Board proposed an amended Plan of Adjustment (the ``Plan'') in
February 2020 to restructure $35 billion of debt and other claims
against the Commonwealth of Puerto Rico, the Public Building Authority,
and the Employee Retirement System, and more than $50 billion of
pension liabilities. The Plan significantly reduces $35 billion in debt
liabilities to $11 billion, or about 70 percent, and ensures that
almost 75 percent of current and future pensioners are not cut. The
Plan also provides predictability to public employees via updated
collective bargaining agreements and restores over $1.3 billion of
withheld employee contributions to Sistema 2000.
The Plan has been supported by the Official Committee of Retirees
representing retired government employees, current government employees
represented by the Public Service Union as the Puerto Rico chapter of
AFSCME, and the Lawful Constitutional Debt Coalition, a group of
investors and funds holding Puerto Rico's general obligation bonds and
PBA bonds. The Board also has been seeking broader active public
employee support and feedback, including from teachers represented by
the Puerto Rico chapter of AFT.
The Board's Special Investigations Committee hired the law firm
Kobre & Kim to provide a complete, independent review of the
Government's debt, ultimately receiving a comprehensive investigative
report. Following on Kobre & Kim's findings, the Board undertook review
of potential infirmities of debt issued by Puerto Rico and its various
agencies and instrumentalities. Through its Special Claims Committee,
the Board objected to the validity of over $11 billion of general
obligations bonds and filed several hundred complaints against entities
to recover their payment related to issuance of that debt. That
committee also filed complaints against over 20 banks, law firms and
other parties to recover fees earned in issuance of nearly $9 billion
in bonds.
Given the considerable uncertainty about the effect of COVID-19 on
Puerto Rico, however, the Board continues to believe that the primary
focus of the Government and the Board should be to minimize and contain
the pandemic. Furthermore, even with implementation of far reaching
growth-inducing structural reforms, the 2020 Fiscal Plan projects that
the Government cannot afford to pay the public debt as originally
contracted.
Recognizing the importance of the ongoing Title III cases, but
taking into account these realities, on March 23 the Board presented a
motion requesting the Title III court to adjourn consideration of the
proposed Plan of Adjustment's disclosure statement hearing until
further notice. The amended proposed Plan of Adjustment, presented to
the Court on February 28, 2020, is now on hold and the next status
report is due on July 15. As to PREPA, the Board and the Government
filed a motion seeking to adjourn the hearing and all deadlines related
to the PREPA restructuring support agreement Rule 9019 motion. On May
15, the Board and the Government provided a required update, stating
that all briefing and hearing deadlines relating to the 9019 motion
should continue to be adjourned.
V. Municipalities
On April 15, 2020, the District Court held invalid and
unenforceable Puerto Rico Act 29-2019, which had eliminated the
municipalities' obligation to reimburse the Commonwealth for hundreds
of millions of dollars in pension and health care cost for their own
retirees. Contrary to what some mayors have said, the reversal of Act
29-2019 is not expected to have a significant impact on municipalities'
finances in the near term. The repeal of Act 29-2019 represents a
deficit of 3 percent of the total municipalities' budgets for fiscal
year 2020, and the Board outlined a process for municipalities to repay
these fiscal year 2020 obligations from incremental unbudgeted
revenues, thus not affecting municipalities' operating budgets.
Better budgetary practices, reduction of expenses through
consolidation or shared-services arrangements and increased own-revenue
streams should help municipalities remain sustainable for the benefit
of the people of Puerto Rico. Moreover, a new partnership model between
the Government and municipalities needs to be developed in order to
deliver important services. That is why the Board is working with
Mayors to develop potential solutions, as well as with the Municipal
Revenue Collection Center (``CRIM'' by its acronym in Spanish) on
initiatives aimed at modernizing and improving the management of the
property tax system and increasing the collection rate of such taxes.
In addition, the Board is directly working with 10 municipalities to
assist them with cost reduction and economic development measures.
Further, and as explained earlier, the Commonwealth's 2020 Fiscal Plan
maintains the level of support to the municipalities for the next
fiscal year at the same amount as in fiscal year 2020. Moreover, the
2020 Fiscal Plan provides an annual fund of $22 million during the next
5 fiscal years (for a total of $110 million) to incentivize
municipalities that achieve cost savings through cost sharing or
consolidation of services.
As a result of the extension of time granted to taxpayers for
filing their personal property tax returns from May to August 2020,
CRIM is facing a cash shortfall that has affected its ability to make
the monthly remittances of May through August to the municipalities. To
assist with this situation, the Board approved a Commonwealth liquidity
facility for CRIM of up to $185 million to help with monthly
remittances through July 2020. To date, CRIM has not accepted the terms
of the liquidity facility.
VI. Transformation of PREPA
The Board continues to work with Government on the transformation
of PREPA to ensure reliable energy for the residents, more effective
and efficient management, and lower fuel costs.
This transformation is important to every individual, every
business, and every potential investor. The people of Puerto Rico
deserve a power system that can withstand hurricanes to ensure they are
safe in their homes, and Puerto Rico's businesses deserve to open every
day without relying on back-up generators to ensure they can serve
their customers. Puerto Rico deserves manufacturing and service
industry jobs created by investors who don't turn away because its
electric power system is unreliable and antiquated.
The Board and the Government are in full agreement that private
generation and private management of the transmission and distribution
system are key to these improvements. The Board is working with the
Government on the pending public private partnership process for
selection of a private transmission and distribution operator and
strongly supports the Government's efforts to secure FEMA funding to
help with the cost of restoration and reconstruction of an affordable,
resilient, and reliable power system that is environmentally compliant
and that serves as a driver of economic growth. Selection of this
operator and securing this Federal funding are critical next steps in
the modernization of PREPA and increased economic development on the
Island.
VII. U.S. Government Matters
A. Supreme Court Decision
On June 1, 2020, the U.S. Supreme Court issued a unanimous decision
that will allow the Members of the Board and the Board to continue
their work under PROMESA. The Supreme Court confirmed that PROMESA
established the Board as an entity within the Government of Puerto Rico
and that the process for selecting and approving members of the
Oversight Board without Senate confirmation does not violate the
Constitution's Appointments Clause.
B. Amendments to PROMESA Act
I appreciate the opportunity to now comment on the Amendments to
PROMESA Act recently introduced by Chair Grijalva and members of the
Committee.
As mentioned in my October 22, 2019 testimony on an earlier version
of this proposed legislation, the Board has serious concerns that
several of these provisions, while well-intended, will substantially
hamper its ability to effectively negotiate settlement of claims at
this very critical juncture in implementation of PROMESA. Moreover,
The Board supports the legislative proposal of Rep.
Velazquez in the bill to extend the disclosure requirements
of the Federal Rules of Bankruptcy Procedure to
professionals employed by the Board, court, or debtor to
avoid conflicts of interest and its goal of greater
transparency and disclosure. The proposal, however, needs
to be interpreted or altered in a manner allowing its
practical implementation. It currently requires disclosures
of each professional's connections with all creditors, and
in the Puerto Rico Title III cases over 165,000 creditors
filed proofs of claim.
The provision for a GAO report on expenditures and
operation of the Board is understandable, and the Board
looks forward to working with Congress on the details.
The provision allowing the Legislature of Puerto Rico to
cancel some of its unsecured financial debt will lead
existing Puerto Rico bondholders to demand secured debt
during ongoing negotiations, which is more expensive and
restrictive than the unsecured debt. Moreover, this
provision could render the issuance of future municipal
debt in Puerto Rico and throughout the United States more
expensive, and will cause purchasers of new debt to require
that it be secured debt in all instances. The new discharge
provision is also likely not to inspire creditor trust and
confidence because no court is involved in the discharge
accomplished by the Legislature and Governor. The Board's
legal advisors also believe the criteria for the
application of this new discharge may only allow Puerto
Rico to qualify, in which case the statute will be subject
to constitutional challenge as not being a uniform
bankruptcy law. Additionally, the constitutionality of
discharging the unsecured financial debt for nothing, while
other debt is paid, will be challenged. It may well be that
these new provisions will be upheld because they are being
enacted under the Territories Clause, and not expressly the
Bankruptcy Clause, but that too will be litigated.
The proposed definition of essential public services
specifies that public education, public safety, healthcare,
and pensions are ``essential public services'', with the
ostensible purpose to ensure their funding in the certified
Fiscal Plan to the maximum extent possible. The Board
believes that this provision could have the exact opposite
effect, as it provides ammunition to those who have been
arguing that the Board cannot fund services above and
beyond their own highly restrictive interpretation as to
what services are truly essential. The Board is facing this
claim in Title III cases filed by creditors, who would
welcome congressional support for an essential service
definition that could be used to advance their argument.
The result could be substantially reduced funding for
services that the Board and the Government consider
essential but that other parties strongly believe
otherwise.
The prescribed funding for operation of UPR significantly
expanding and locking in an $800 million annual allocation
to UPR makes efficient and effective operation of the
Commonwealth substantially more difficult and delays any
strengthening or diversification of UPR's revenue base. To
put it in context, an $800 allocation represents 70-80
percent of UPR's total budget, versus a 20-30 percent
average for U.S. public universities. It is also diverts
resources away from the critical services funded by the
Commonwealth budget.
The provision expanding the definition of investments for
economic growth is consistent with the Certified Fiscal
Plan and Budget. The plan and budget already include
specific investments both in structural reform
implementation and in the economic development tools
necessary to reduce poverty, increase labor participation,
attract quality jobs to the Island, expand workforce
development programs--all leading to increased economic
growth.
The Board agrees with the importance of avoiding conflicts
of interest. The proposed language on prevention of
conflicts of interest as to the Board, however,
significantly reduces the number and quality of people who
can be Board members or Executive Director, which makes the
Board far less effective at performing its critically
important role and congressional mandate to help improve
Puerto Rico. The section further severely reduces the
amount on which the Board can rely for legal, financial,
economic, and operations external advisors, which strongly
impairs the Board's ability to effectively defend Puerto
Rico in court against creditors.
The initiation of Federal funding for operation of the
Board and Title III could well lead to a new constitutional
challenge to the Board's appointment without Senate
consent. Moreover, it significantly limits the ability of
the Board to determine how much money it needs to invest,
research, and implement the critically important Title III
work. It also makes the process harder, riskier for the
Board, Puerto Rico, and the U.S. Government. Currently, the
Title III fees are reviewed by the Title III Court and a
fee examiner it appointed. That part of the system has
worked well. If the Federal funding is insufficient, then
the Board would not have the financial resources to defend
against the attempts of secured and unsecured creditors to
obtain judgments awarding them Puerto Rico's various
revenue streams. To date, the Board has been sued over 100
times by creditors, and cannot afford to run short of funds
to defend.
The bill provides that any document, record, or
information relating to the public debt of the Commonwealth
of Puerto Rico is a public document and accessible to any
interested party. Making public any document relating to
the negotiations or restructuring of the public debt would
be prejudicial and detrimental to the Board's effort to
effectively and expeditiously secure the best debt deal
possible for Puerto Rico and its people.
In connection with the new disclosure obligations, the new
provision for assessing attorneys' fees is problematic
because it may deter highly qualified individuals from
serving as Board members. Furthermore, it contradicts
PROMESA's insulation of the Board and its staff from
liabilities and obligations for acts undertaken in carrying
out PROMESA.
The section creating a Puerto Rico Public Credit
Comprehensive Audit Commission disregards and duplicates
the work of the Board almost 2 years ago based on the over
600-page Investigative Report prepared by Kobre & Kim. That
independent report effectively served the purpose of a debt
audit. The Board's Special Claims Committee is pursuing
valid claims arising out of that report (subject to a stay
on some of the proceedings), and the Debt Management Policy
in the 2019 Fiscal Plan is designed to make sure these
issues do not arise again.
The Board remains committed to working with the Chairman, the
Ranking Member, and other members of the Committee and the Congress as
you continue oversight over implementation of PROMESA and consider any
changes to the law.
C. Legislation Expanding Manufacturing
The Board was established by law to create the conditions for
fiscal responsibility in Puerto Rico and restore access to capital
markets. One element of this mandate has been to take opportunities to
support the Government of Puerto Rico in its efforts to pursue prudent
actions to promote economic stability and create the conditions for
growth.
In this context, the Board wrote to the U.S. President and
Congressional leadership on March 18 stating that if Federal
policymakers consider actions to require increased manufacturing within
the U.S., the Board strongly believes that Puerto Rico is a center of
excellence within the Nation and can play a leading role in the
national portfolio of locations where this manufacturing re-locates.
The physical infrastructure, human capital, and regulatory processes
are already established and well positioned. Moreover, this is a
valuable opportunity to expand investment, jobs, and ultimately
prosperity on the Island.
We acknowledge there are a number of policy considerations that
would need to be discussed. Should policymakers pursue actions to
require additional manufacturing in the United States, we respectfully
encourage proactive dialogue between the Government of Puerto Rico and
Federal policymakers to find mutually acceptable solutions to these
issues. It is in this spirit that the Board will conduct a
comprehensive study to update the facts and acquire the knowledge
necessary for the private sector and the Government to define a
comprehensive and actionable plan to reactivate the manufacturing
sector in Puerto Rico. The Board would be proud for Puerto Rico to play
a leading role in bolstering our national security and stand ready to
assist however we can.
D. Legislation Supporting Puerto Rico
Finally, the Board continues to support legislative efforts of
Chairman Grijalva, Ranking Member Bishop, Puerto Rico Resident
Commissioner Gonzalez-Colon, Representative Velazquez, Representative
Soto, and many members of this Committee and Congress to provide
equitable distribution of Federal funding and other Federal programs
for Puerto Rico.
For example, the Board continues to support the Government's
request to receive equitable treatment in Medicaid and Medicare.
Residents of Puerto Rico pay the same level of Medicare taxes as
mainland residents, but the Island receives substantially lower
payments. Moreover, the Board is supportive of congressional action to
provide enable Puerto Rico to participate in the Federal Earned Income
Tax Credit program, which would bolster Puerto Rico's own local Earned
Income Tax Credit and create an even more powerful incentive to bring
more workers into the Commonwealth's formal labor market. Likewise, the
Board supports legislation that provides funding to extend the Federal
Child Tax Credit to more families with children in the Commonwealth.
The Board also supports Governor Vazquez Garced's request to authorize
Puerto Rico to participate in the Pandemic Electronic Benefits Transfer
program created by the Families First Coronavirus Response Act, to
ensure children on the Island have access to critically needed
nutritional assistance benefits.
VIII. Conclusion
PROMESA is not perfect, but it has provided Puerto Rico with the
protection of a stay on its debt payments while continuing to fund
essential services. The compromise between both sides of the aisle to
provide the Island with a novel mechanism to restructure its debt under
a bipartisan Board allowed the Government to prevent complete chaos in
2016 when the debts became unpayable.
The fiscal planning and budgeting discipline spearheaded by the
Board since its first certified fiscal plan has in fact allowed Puerto
Rico to be resilient and strong, with the ability to respond with
concrete actions to extraordinary natural disasters and the COVID-19
pandemic. The savings measures have been successful in driving some
meaningful progress in rightsizing the Government and enabled it to
immediately provide fiscal stimulus and economic support to those
affected by the COVID-19 measures. Unlike other local governments in
the United States, Puerto Rico was not forced to respond to lost
revenues with urgent and drastic cuts to its expenditures and essential
services. In fact, next year's budget will be higher than the current
budget, unlike most U.S. states, in part to respond to the need for
fiscal stimulus and economic growth drivers.
Since we began working with Governor Vazquez Garced, we have
engaged in a collaborative working relationship. We must clarify,
however, change can be hard. In accordance Section 405(m)(4) Congress'
own finding states: ``a comprehensive approach to fiscal, management
and structural problems and adjustments that exempts no part of the
Government of Puerto Rico is necessary, involving independent
oversight.'' While we will always collaborate in the best interest of
the people of Puerto Rico, it is in this same interest that sometimes
the Board must disagree with the Government and utilize the tools in
PROMESA to further its mandate. Simply stated, all efforts should be on
implementing the reforms that the people of Puerto Rico need and
deserve.
Since 2016, the Board has been carefully executing its mandate in
law. The fact that both sides--creditors and politicians--have material
disagreements with the Board means something. The Board is doing its
job and PROMESA is working. As stated earlier, the Board has serious
concerns that several of the proposed amendments to PROMESA, while
well-intended, will substantially hamper its ability to effectively
negotiate settlement of claims at this very critical juncture in
implementation of the law. These amendments should not become a
distraction from the real work we all have to do.
The Board appreciates this Committee's invitation to provide an
update on the status of the implementation of PROMESA and will continue
to follow the path outlined in law to ensure Puerto Rico returns to
fiscal responsibility and the capital markets.
______
Supplemental Testimony
Natalie Jaresko
Executive Director
Financial Oversight and Management Board for Puerto Rico
Submitted on July 2, 2020
Chairman Grijalva, Ranking Member Bishop, and all members of the
House Committee on Natural Resources, I humbly submit this supplemental
testimony in addition to my written and oral testimony from June 11,
2020. I reviewed the transcript from the hearing and have compiled the
information below to clarify some of the issues that were discussed.
new fortress energy agreement for the conversion of prepa
FOMB approved the agreement, even though the pricing structure was
higher than the industry benchmark; the price was cheaper than the oil
in use at that time. FOMB uses industry benchmarks and other pertinent
data to evaluate proposed contracts, but the industry benchmark is not
always available in Puerto Rico. In addition, since PREPA remains in
bankruptcy, bidders tend to factor that financial risk in the cost of
their bids. FOMB also approved the agreement because it would result in
moving to LNG as a cleaner fuel than the bunker fuel it replaced. FOMB
has seen recent media reports that San Juan 5 and 6 are still using
diesel because New Fortress Energy has failed in its LNG safety tests,
and FOMB is looking into that issue.
the ability of the department of health to deal with the pandemic after
rightsizing
The Department of Health's capacity to provide timely and reliable
data and administer diagnostic tests was not affected by previous
actions of FOMB as to the funding or administration of the Department.
The Fiscal Plans certified by FOMB have required a transformation of
the Island's health system into a more efficient one that provides
better services to the people of Puerto Rico. The Government had
several health-related agencies that were highly fragmented, driving up
costs and inefficiency as well as impairing the level of care. The
Fiscal Plan required that the Department of Health consolidate six of
the healthcare agencies with centralized support functions, and so far,
the Government has made limited progress. For example, the Department
of Health has struggled to establish an effective, centralized process
for managing COVID-19 testing results and municipalities outside San
Juan have found it hard to get access to tests.
the working capital of upr for fiscal year 2021 and beyond
FOMB's goal is to put the university--Puerto Rico's most important
engine for economic mobility--on a path to sustainability while also
ensuring the tools it needs to manage the current COVID-19 pandemic.
The FY2021 Budget for UPR tracks the 2020 UPR Fiscal Plan with modest
adjustments based on updated projections related to COVID-19
interruptions. The details are below:
Total revenues in this year's budget come to $1.2 billion:
-- Includes the delay in reduction of the Commonwealth
subsidy to UPR by 1 year, along with a corresponding delay in
scheduled tuition and fee increases to relieve burden on
students and families.
-- Revenues also decline this year due to decrease in
enrollment (4.6 percent for undergraduates); COVID-19 related
interruptions to self-generated revenues, such as hospital
income; and, macroeconomic declines that affect UPR-directed
funding streams (e.g., slot machine revenue).
-- Another major cause of the significant decline in
revenues versus FY2021 Budget is the fact that FY2020 included
significant federal and private insurance disaster relief.
This year's budget provides for $1.2 billion in
expenditures:
-- FOMB is expecting UPR to make marked progress in
implementing the administrative transformation this year.
-- Nonetheless, the Budget continues to invest in academic
excellence, including a 3 percent increase in faculty payroll,
continued growth in the university's pool of need-based
scholarships (beyond those provided through the Commonwealth
scholarship fund), and over $10 million to support
implementation of the system's much needed transformation.
-- The Budget also enables UPR to spend $30 million in
Capital Expenditures ($42 million including equipment
expenditures); this is significant as UPR has routinely
underinvested capex to cover its operating overruns.
-- FY2021 also assumes that roughly 50 percent of the
CARES Act funds not directly distributed to students will be
expended during the academic year to help the system adjust to
a ``new normal'', including expanded distanced learning,
physical reconfigurations of campus spaces, and student
counseling.
On pensions, specifically, this year's budget contemplates
freezing the defined benefit plan, moving to a defined
contribution plan, and reducing accrued benefits to bring
annual pension contributions to a sustainable level:
-- As a result of the pension measures, the total
contribution required falls this year by $40 million to $121
million in annual expenditures.
-- The FY2021 Budget also creates a $41 million emergency
reserve. This reserve is funded through the projected reduction
in procured and non-personnel services expected from the COVID
shutdown, and can be used, for example, to maintain pension
funding levels should UPR fail to implement the required
pension reforms.
The net deficit in this year's budget (post-debt service)
is about $33 million:
-- The Budget does imply an operating surplus (pre-debt
service) is $15 million.
-- FOMB has consistently said that even after measures are
implemented, UPR will not have enough operating surplus to
cover its $48 million in annual debt service (legacy debt of
$542 million outstanding).
FOMB believes this level of operating surplus provides the right
balance of allowing UPR to maintain its important function as an engine
of economic development while also requiring adequate transformation
efforts to right-size its administration and reinvest in academic
excellence.
fomb's authority
The recommendation that Mr. Marrero makes on FOMB's authority is
based on a false construct. There have been four issues, four
situations where there have been disputes between the Government and
FOMB regarding FOMB's authority. In all four of those cases since 2018,
the Court has agreed on the clarity and the authority that has been
provided by PROMESA to FOMB. If amendments were made as Mr. Marrero
suggested, then the definition of fiscal sustainability and balancing
budget might need to be changed. If FOMB is no longer responsible for
fiscal sustainability, then it will be difficult, if not impossible, to
ever restructure the debt without clarity and confidence that the debt
is sustainable.
title v
The demand for expedited permitting pursuant to Title V of PROMESA
has not been overwhelming. The demand that came into the pipeline
established was primarily PREPA related; however, all the PREPA
contracts needed to first either be approved or rejected in the Title
III court. It was only in early June of this year that PREPA announced
next steps for the PPOA contracts. Now, we expect that the demand for
Title V will grow as those contracts are in place. Moreover, we've also
started to see some other private sector investment. We are hopeful
that as the business environment improves, there will be more private
sector investment seeking to take advantage of Title V. To ensure FOMB
is prepared to manage the renewed demand, we are currently in the
process of hiring a full time Revitalization Coordinator.
fiscal plans and budgets
The reforms included in the fiscal plans and budgets have not
caused delays in the receipt of federal funds. It is true that the
fiscal plans and the budgets have reduced payroll spending over the
past 3 years. However, none of those payroll reductions should have
been implemented through frontline employees. The intention and the
agreement reached with the previous governor was that the bulk of the
right-sizing would happen through back office consolidation,
consolidation of bureaus into single departments, and those actions
actually haven't happened for the most part. What has happened instead
is the Government has used a very blunt tool for early retirement or
voluntary transition, which has been offered across practically all
front and back offices. Since that happened, it is has been difficult
to direct who stays and who leaves because people have a voluntary
choice to early retire. By implementing the reductions and in that
fashion, FOMB believes that these programs have caused a problem in
terms of capacity.
delay of federal funding
It is important to note that FEMA funding involves a very long and
complex process. The COR3 department is funded by the Federal
Government, not by the Commonwealth. So, it is a matter for COR3 and
FEMA to clarify. Similarly, for CDBG-DR, there is an entirely new group
of individuals hired with federal funds to implement the CDBG-DR
program. That CDBG-DR program is very complex, so having to learn
federal procurement rules and do what is required by the CDBG-DR
program is complex.
the effectiveness of promesa
PROMESA is not perfect, but it has provided Puerto Rico with the
protection of a stay on its debt payments while continuing to fund
essential services. The compromise between both sides of the aisle to
provide the Island with a novel mechanism to restructure its debt under
a bipartisan Board, allowed the Government to prevent complete chaos in
2016 when the debts became unpayable. The fiscal planning and budgeting
discipline spearheaded by FOMB since its first certified fiscal plan
has in fact allowed Puerto Rico to be resilient and strong, with the
ability to respond with concrete actions to extraordinary natural
disasters and the COVID-19 pandemic. The savings measures have been
successful in driving some meaningful progress in rightsizing the
Government and enabled it to immediately provide fiscal stimulus and
economic support to those affected by the COVID-19 measures. Unlike
other local governments in the United States, Puerto Rico was not
forced to respond to lost revenues with urgent and drastic cuts to its
expenditures and essential services. In fact, next year's budget will
be higher than the current budget, unlike most U.S. states, in part to
respond to the need for fiscal stimulus and economic growth drivers.
Since 2016, FOMB has been carefully executing its mandate in law.
The fact that both sides--creditors and politicians--have material
disagreements with FOMB means something. FOMB is doing its job, and
PROMESA is working. In furtherance of PROMESA's mandates, FOMB had
taken the following steps:
Section 201(b)(1) Budgetary controls and fiscal
discipline: Implemented best practices budgetary controls
and constraints on Government spending to avoid previous
overspending practices. Given the absence of audited
financial statements and previous spending practices, prior
multi-year appropriations are suspended with few
exceptions. Total Government spending must now be reviewed
and certified. All tax initiatives must have a neutral or
positive budgetary impact, and all expenses and revenue
must be conservatively estimated.
Section 201(b)(1) PayGo Pension System: Moved to a PayGo
pension system allowing retirees to receive their pensions
without interruption, despite the insolvency of Puerto
Rico's pension funds, and enrolled police officers in
Social Security to increase their security and retirement
benefits.
Section 202(e) Ensuring critical services: FOMB-certified
budgets carefully balance the need to maintain funding for
critical services commensurate with the size of the
population and prioritize critical services such as
education, public safety, and healthcare. These include (1)
funding of $200 million a year to support increased labor
participation; (2) funding for safe kits to insure proper
forensic analysis and long-await justice for victims and
the accused; (3) pay increases for teachers and police to
ensure more competitive compensation; (4) funding new
positions for Forensics to rebuild capacity; (5) funding to
repay 10 years of back pay to police officers; (6) creating
a reserve account to ensure the ability to act to protect
the population immediately in case of future emergencies;
(7) budgeted funds to cover any cost-share required for
federal disaster funding; (8) funding to enable compliance
with certain consent decrees; (9) budgeting $400 million
annually in Commonwealth capital expenditures to improve
significantly underfunded infrastructure; and (10) over
$300 million in needs-based scholarships for UPR students.
Without FOMB and associated fiscal plans, projections show that
Government spending would have ballooned from $19 billion
in fiscal year 2018 to $22 billion in fiscal year 2025 (an
increase of 16 percent). FOMB, meanwhile, has contained
expenditures to a 2 percent increase between fiscal year
2018 to fiscal year 2025, or up 12 percent on a per-capita
basis (given the decline in population), while providing
valuable investments in frontline services.
Section 204(b) Transparency and accountability in
government spending: Fostered more transparency and
visibility into Puerto Rico's government finances,
including Puerto Rico's liquidity, budgets, and other
intergovernmental spending--notwithstanding the
Government's continued delays in completing its overdue
audited financial statements. Moreover, the people of
Puerto Rico now have access to public reports, including
bank balances, quarterly budget to actuals, payroll and
attendance, and tax expenditures.
Section 204(b) Contract Review: FOMB reviews major
contracts before they can be ratified to ensure both
consistency with the certified fiscal plans and budgets, as
well as to ensure they promote market competition. This
process has brought much-needed transparency, with all
responses and analyses posted in FOMB's website.
Since the inception of PROMESA, FOMB has played a critical role in
helping Puerto Rico respond to crises. Moreover, it has worked with the
Government to institute much more effective fiscal management after
decades of mismanagement. The fiscal plans that FOMB has certified have
walked a very prudent balance between driving more effective and
sustainable Government, while investing in critical needs on the
Island. Last, FOMB has articulated a detailed and comprehensive roadmap
of the actions that must be taken to restore growth through economic
development, with structural reforms being particularly critical.
However, given the constraints of PROMESA, FOMB must rely upon the
political will of the Island's elected leadership in order to truly
transform the Government of Puerto Rico and the economic landscape into
what the people and businesses of Puerto Rico deserve.
audited financial statements
Completion of the Commonwealth of Puerto Rico's audited financial
statements is a top priority to FOMB and at the core of PROMESA's
objectives for the benefit of the people of Puerto Rico. FOMB is
committed to assist the Government in completing such an important
milestone, which will ultimately enable the Government to achieve
financial sustainability and access to the capital market at reasonable
rates.
For years, the issuance of the Commonwealth of Puerto Rico's
audited financial statements, better known as the Comprehensive Annual
Financial Reports or ``CAFRs'', has been delayed. Most notably the
FY2015 and FY2016 CAFRs were both issued and published over 1,000 days
after each fiscal year ended. The FY2017, FY2018, and FY2019 CAFRs have
yet to be issued as of this date. Despite best practices calling for
audited financial statements to be published no later than 180 days
after the end of each fiscal year, today is day 1097 for the FY17, day
732 for the FY18 and day 367 for the FY19.
To that effect, FOMB in its oversight role, has been actively
collaborating in an attempt (1) to identify the challenges to issuance
(ii) to ensure that audits are completed as quickly as possible; (ii)
for the Government to institutionalize best practices; and (iii) for
the Government to have the appropriate resources for the preparation of
the CAFRs. During this fiscal year, FOMB has been conducting recurring
meetings, in some cases on a weekly basis, with the Department of the
Treasury, the Government's external auditors, and key component
entities within the Government to help expedite the overdue delivery of
the FY2017 CAFRs and assess the timing of the FY2018 audit. In this
spirit, FOMB has provided recommendations on relevant administrative
orders submitted for FOMB's consideration pursuant to the Rules,
Regulations and Orders Review Policy; and requested the Government
provide:
weekly updates from the Department of Treasury on progress
and risks to the completion of the FY2017 CAFRs;
progress reports on the FY2018 audit preparation;
submission of the FY2018 proposed external auditor
contract pursuant to FOMB's Contract Review Policy; and
any and all other information requested in an effort to
lend a hand, evaluate key constraints, and facilitate the
prompt delivery of current and future audits.
Furthermore, the latest 2020 Certified Fiscal Plan and Fiscal Year
2021 Certified Budget include incentive milestones and additional
resources to promote and assist with timely completion of the pending
audits. Some of these incentives and investments include:
a $1.6 million appropriation to hire staff accountants in
the Department of Treasury's Central Accounting Division so
that critical skills and capabilities can be retained in-
house while reducing the reliance on costly professional
services;
a one-time $1,500 bonus to Central Accounting employees,
estimated at total cost of $100,000, if both the official
2017 CAFR is published and a draft of the 2018 CAFR is
provided to the FOMB by November 2020; and
$36 million in capital expenditure appropriations for the
implementation of a new Government ERP system--broken down
into $14 million for Wave 1 once a dedicated project team
is in place by August 2020, and $22 million for Wave 2
after Wave 1 is completed between September 2020 and
February 2021.
Despite the Government's efforts to comply with issuance deadlines
and FOMB's willingness to assist the Government in any way possible,
there are still high risks in producing timely audits. Disaggregated
accounting systems, manual procedures, numerous circular letters, and a
decentralized OCFO function have contributed to consistent delays in
the production of audited reports. And that's the real question: what
will the Department do differently to change processes and procedures
to ensure we can fix this moving forward on a permanent basis and on
the basis of best practices?
FOMB is committed to transparency, accountability, and to the sound
administration that ultimately results in better services for the
people on the Island. In light of these goals, it is in the people's
best interest to conduct this public hearing on the status of the
overdue audited financial statements of the Commonwealth of Puerto
Rico. As always, FOMB is in the best position to collaborate with the
Government, accomplish the objectives of PROMESA, and ensure
responsible fiscal practices are institutionalized to achieve financial
sustainability and a return to capital market access at reasonable
rates.
______
Questions Submitted for the Record to Natalie Jaresko, Executive
Director, Financial Oversight and Management Board for Puerto Rico
Questions Submitted by Rep. Grijalva
Question 1. Please provide a status of the debt restructuring
negotiations and proceedings of the central government and its
instrumentalities in light of the economic impact of the COVID-19
pandemic.
Answer. Given the considerable uncertainty about the effect of
COVID-19 on Puerto Rico, FOMB believes that the primary focus of the
Government and FOMB should be to minimize and contain the pandemic.
As to debt restructuring, even with implementation of far reaching
growth-inducing structural reforms, the 2020 Fiscal Plan projects that
the Government cannot afford to pay the public debt as originally
contracted. Recognizing the importance of the ongoing Title III cases,
but taking into account these realities, on March 23 FOMB presented a
motion requesting to adjourn consideration of the proposed Plan of
Adjustment's disclosure statement hearing until further notice. The
amended proposed Plan of Adjustment is now on hold and the next status
report is due on July 15. Similarly, the Government and FOMB filed a
motion seeking to adjourn the hearing and all deadlines related to the
PREPA restructuring support agreement proceedings. On May 15, the
Government and FOMB provided an update stating that all briefing and
hearing deadlines relating to the restructuring support agreement
should continue to be adjourned.
Question 2. In April, the G20 announced a year-long moratorium for
low income countries on debt-payments and interest accumulation in
response to the global COVID-19 pandemic and economic crisis that is
going to hit vulnerable economies hardest. Will the Oversight Board
adopt a similar position given the already high levels of debt,
unemployment, and poverty in Puerto Rico, which will only be
exacerbated by the pandemic? What is your target for a principal
haircut on the debt that remains to be restructured?
Answer. A court approved stay is in effect for most of Puerto
Rico's debt payments, which has aided Puerto Rico in stabilizing its
finances and developing restructurings for its debt in a sustainable
manner. In effect, as a result of PROMESA, Puerto Rico has had some 3
years of relief already.
As for a target on restructuring of debt, we need to take one step
at a time. The first step was certifying the 2020 Fiscal Plan, which
reflects the new reality. The second step is to produce a certified
Budget consistent with this certified Fiscal Plan ensuring the funding
of essential services. Thereafter, we will determine how to most
effectively implement our mandate and restructure Puerto Rico's debts.
FOMB continues to believe that exiting from Title III is critically
important for Puerto Rico and we are dedicated to reevaluating our
existing developments.
Question 3. After the COVID-19 pandemic started, you made
statements saying that you would postpone austerity measures for a year
and acknowledged that the plan of adjustment and fiscal plan need to be
redrawn. Even the International Monetary Fund has stated that austerity
is not the answer in these times. Why not shelve austerity altogether
and focus on growth? How does it benefit the economy of the island to
continue gutting higher education, municipal budgets, retirees'
pensions, and other drastic cuts to government spending at a time of
world economic slowdown and recession?
Answer. The 2020 Fiscal Plan reflects a 1-year delay in most
categories of budgetary reductions to allow the Government to focus on
implementation. This pause in rightsizing includes maintaining the
subsidies to the University of Puerto Rico (``UPR'') and the
municipalities at current fiscal year levels. Most agencies will
maintain their fiscal year 2020 budgets in fiscal year 2021.
That said, the Fiscal Plans never ``gutted higher education,
municipal budgets, retirees' pensions or other.'' The Fiscal Plans
aimed only at achieving fiscal sustainability, 4 years of balanced
budgets per PROMESA, in light of the economic and population decline.
Two elements were required to achieve that balance: (1) structural
reforms that enabled a growing economy and increased budgetary revenues
as a result; and (2) efficiency measures to decrease expenditures while
improving government services.
During the 1-year delay in rightsizing, the fiscal plans will press
for major structural reforms to restore competitiveness and spur a
return to prosperity.
To further promote growth, the fiscal plans will accompany these
reforms with targeted investments in and support for those on the front
lines of service delivery.
Given FOMB's financial projections outlined in my written
testimony, we consider imperative the Government's implementation of
the critical, overdue structural reforms in the fiscal plans over the
next year.
Question 4. Please provide the projections for tax revenue
shortfalls this fiscal year FY2020, as well as FY2021.
Answer. We estimate a revenue reduction of $1.3 billion in the
current fiscal year 2020, $1.2 billion in fiscal year 2021, and $774
million in fiscal year 2022, relative to the revenue projections in the
2019 Fiscal Plan.
Question 5. The certified 2020 Fiscal Plan estimates that the
economy of Puerto Rico will receive an infusion of approximately $83
billion of disaster relief funding, from federal and private sources.
The expected funding from the Federal Government has been slow in
reaching the Island. The greatest share of that projected federal
funding is from FEMA ($48 billion) and HUD ($20 billion).
5a. How much of the federal funding has been received to date?
Answer. The $83 billion of disaster relief funding from federal and
private sources will be disbursed in the hurricane reconstruction
effort over a period of 15 years. It will be used for a mix of funding
for individuals, funding for the public, and to cover part of the
Commonwealth's share of the cost of disaster relief funding. In
addition, FOMB estimates earthquake-related funds amounting to $595
million from FEMA to cover the damage caused by the earthquakes at the
beginning of 2020. To date, the Commonwealth has received $16.2 billion
from FEMA and other federal agencies, $3.2 billion in CDBG-DR funds
from HUD, and over $6 billion from private insurance payments.
5b. Does the projected amount in FEMA funds for things like
Individual Assistance (IA) take into account FEMA's history of denying
over 60 percent of IA claims after Maria and the recent earthquakes?
Answer. The data we use is provided directly by FEMA regarding
approved IA only.
Question 6. The CARES Act made Puerto Rico eligible for low-
interest loans from the Federal Reserve needed due to the COVID-19
pandemic's impacts on the economy and local budget. A former PROMESA
Oversight Board contractor is handling this program at the Fed. Did he
consult with the Oversight Board before the Fed decided to exclude
Puerto Rico (and the other territories) from eligibility? Did the
Oversight Board or any of its contractors discuss Puerto Rico's
eligibility with anyone at the Fed or the U.S. Treasury Department?
Answer. FOMB has not engaged in any conversations with the Fed or
the U.S. Treasury Department as to the low-interest loans from the
Federal Reserve. We understand these are meant to help states and
municipalities with liquidity shortfalls, which is not the case of
Puerto Rico.
Question 7. $4.9 billion was appropriated after Hurricane Maria for
low-cost forgivable Community Disaster Loans for Puerto Rico and the
U.S. Virgin Islands based on projections of revenue losses that, in
Puerto Rico's case, were vastly overestimated. The White House
suggested Puerto Rico could expect about $4.65 billion of the total,
but only a few hundred million were disbursed to Puerto Rico's
municipalities because the territorial government did not have a
liquidity problem as projected. Since Puerto Rico was excluded from the
Federal Reserve program--contrary to Congress' intent--should a
reprogramming of the $4 billion in Community Disaster Loans that were
appropriated but have not been used be disbursed to Puerto Rico?
Answer. The intent of both the Community Disaster Loans and the
recent Federal Reserve program appear to be providing liquidity support
to local governments as needed when revenue losses are substantial. At
this time, the territorial government has not experienced liquidity and
revenue losses that would cause budgetary reductions. As a result of
the budgeting practices in place since PROMESA was adopted, the
territorial government was able to increase spending by some $500
million during the pandemic to support front line public health and
public safety workers, as well as those most affected by the economic
consequences of social distancing measures. Moreover, the FY2021
General Fund budget also is higher than the previous year budget,
notwithstanding revenue declines.
Question 8. Ms. Jaresko, in one of your previous congressional
testimonies before the House Natural Resources Committee, you said that
the Oversight Board concluded that at least $6 billion of Puerto Rico's
debt was illegal. Yet, instead of pursuing that claim you settled with
bondholders out of court. What message does it send during debt
restructuring negotiations that the Oversight Board is willing to allow
Wall Street and other investors to keep charging the people of Puerto
Rico for debts accrued in an illegal fashion?
Answer. A Special Investigation Committee of FOMB hired Kobre & Kim
to conduct a comprehensive study of Puerto Rico's debt and its
relationship to the financial crisis and to determine whether any of
Puerto Rico's debt should be challenged. As a result of this review,
FOMB with the Official Committee of Unsecured Creditors (``UCC'')
objected to the validity of over $6 billion of general obligation
(``GO'') bonds issued in 2012 and 2014. In early 2020, during the
negotiation over the Commonwealth Plan of Adjustment, FOMB through the
court-ordered mediation process reached a settlement on both the
validity of the 2012 and 2014 GO bonds. A settlement avoids the costly
and risky litigation that would be necessary to conclude the validity
claims. As noted, the Court proceedings as to the Plan of Adjustment
remain adjourned at this time.
Question 9. Serious concerns have been raised after it became
public that the Oversight Board has contracts with McKinsey, which has
a subsidiary that owns Puerto Rico bonds. What measures are you taking
to prevent this conflict of interest from happening again?
Answer. Transparency is critically important, and we are committed
to making sure our disclosure rules are fair and comprehensive. We
carefully looked into the disclosures of our consultants and hired an
independent law firm to do an independent investigation. The report \1\
did not find any violation of the disclosure rules governing our
vendors or those required by law. Nonetheless, we did implement
additional disclosure rules, as suggested in the report, to make more
explicit the intolerability of conflicts of interest.
---------------------------------------------------------------------------
\1\ Final Investigative Report--McKinsey & Company, Inc. prepared
by Luskin, Stern & Eisler LLP, special counsel to FOMB, available at
https://drive.google.com/file/d/1avv872k0XNon EiN9x0UzNUCUYDtYkqOd/
view.
Question 10. In October 2019, you testified before this Committee
that you supported Rep. Velazquez's H.R. 683--Puerto Rico Recovery
Accuracy in Disclosures Act of 2019 (PRRADA) bill to require all
PROMESA consultants, advisors, and law firms to disclose their
conflicts of interest. Do you still support Congress passing the PRRADA
bill and have PROMESA advisors like McKinsey increased their
transparency or at least ceased trading in Puerto Rico debt while they
---------------------------------------------------------------------------
also serve as a bankruptcy advisor?
Answer. FOMB continues to support the legislative proposal of Rep.
Velazquez in the bill to extend the disclosure requirements of the
Federal Rules of Bankruptcy Procedure to professionals employed by
FOMB, Court, or debtor to avoid conflicts of interest and advance
greater transparency and disclosure. The proposal, however, needs to be
modified to assure its practical implementation. It currently requires
disclosures of each professional's connections with all creditors, and
in the Puerto Rico Title III cases over 165,000 creditors filed proofs
of claim. We look forward to working with Congress on technical
amendments to further the bill's objectives.
Question 11. The Oversight Board wrote a letter supporting the
establishment of new incentives to reshore U.S. manufacturing
(specifically pharmaceutical and medical devices plants currently
located in China) to return to Puerto Rico. There are two bills that
have similar objectives, one by Rep. Plaskett, H.R. 6648--Territorial
Economic Recovery Act, to cut the GILTI tax for companies that create
jobs in the territories. The other is from Resident Commissioner
Gonzalez-Colon, H.R. 6443--Securing the National Supply Chain Act, that
would apply to the states and territories establishing depressed zones
for manufacturing investment. Which of these does the Oversight Board
support?
Answer. FOMB has not taken a position with regard to either bill.
We support the reshoring of U.S. manufacturing to Puerto Rico and
recognize the certain economic growth, jobs, and development that would
result.
One element of our mandate under PROMESA is to take opportunities
to support the Government in its efforts to pursue prudent actions to
promote economic stability and create the conditions for growth. Puerto
Rico is a center of excellence within the Nation and should play a
leading role in supporting pharmaceutical or medical device
manufacturing. It is in this spirit that FOMB is conducting a
comprehensive study for the private sector and the Government to define
a comprehensive, actionable plan to reactivate manufacturing.
Question 12. During recent natural disasters and the COVID-19
pandemic, the University of Puerto Rico (UPR) has been essential for
recovery efforts. As an example, we can see the work done by the Puerto
Rico Seismic Network, which is part of the UPR, and has been essential
during the earthquake emergency to evaluate, inform and educate in
protection of civil society. Also, health professionals of the Medical
Sciences Campus have been key to the COVID-19 medical task force
created by the Government of Puerto Rico to guide them in the decision-
making process to control the spread of the pandemic. In that sense,
the UPR can be distinguished from other Universities in the country,
because it provides essential public services and plays an important
socioeconomic role that otherwise would not exist for the residents of
Puerto Rico. As the fiscal plans for the next years keep reducing the
budget of the UPR, and thus the possibilities for it to operate and
develop such essential programs, has the Oversight Board identified
other ways that such essential public services would be provided to the
residents of Puerto Rico?
Answer. UPR has played and undoubtedly will continue to play an
essential role in Puerto Rico's recovery and its future. In light of
COVID-19, the 2020 UPR Fiscal Plan provides a 1-year delay in the
reduction of the annual appropriation from the Government and the
previously scheduled tuition, fees, and dues increases. In the longer
term and more fundamentally, FOMB believes that the greatest challenges
to UPR are falling enrollment, an aging infrastructure, and a pension
system that is at serious risk of insolvency soon.
In the coming fiscal year, UPR needs to focus on increasing
revenues, attracting more students, implementing scholarship funds to
help those students who need financial assistance, preserving its
faculty, securing the pensions of its staff, and cutting administrative
costs. The UPR Fiscal Plan does not foresee any campus closures, any
decreases in teaching staff, any decreases in student services, yet
does require efficiency in administration of the 11 campuses.
Furthermore, to address future tuition increases and students in need
of assistance, the Commonwealth Fiscal Plan establishes an over $200
million scholarship fund that will be administered by the non-profit
Fundacion Comunitaria. In addition, a special $30 million tuition-
remission fund is established for UPR medical students.
Question 13. The Oversight Board insists that budget cuts to the
University of Puerto Rico do not risk the accreditation of the
educational institution and will not result in it losing its U.S.
Department of Education certification. In several instances, the
Oversight Board cites an opinion provided by the U.S. Department of
Education to that effect. Can you confirm that this is the position of
the Oversight Board and that it is sustained in a written opinion of
the U.S. Department of Education? If so, can the Oversight Board
provide this Committee with a copy of the written opinion it refers to?
Answer. FOMB is not authorized to speak on behalf of the U.S.
Department of Education. A clean reading of Title IV of the Higher
Education Act makes it clear that a restructuring under Title III or
Title VI of PROMESA does not trigger the Title IV ``bankruptcy'' rules.
Question 14. In the 2020 Fiscal Plan, the Oversight Board
completely defunded the public broadcasting system and, according to
Director Marrero, attempted to micromanage the Government of Puerto
Rico through such measures as specifying what agencies should perform
promotional activities for the new earned income tax credit and
imposing requirements on street parking. Can you explain why the
Oversight Board needs to tell elected government officials what
agencies should be involved in promoting its earned income tax credit
and impose requirements on street parking? Or do you dispute his
testimony?
Answer. FOMB disputes Director Marrero's testimony
mischaracterizing FOMB's actions as micromanaging. In each of these
alleged instances, FOMB acted in accordance with its mandates under
PROMESA. For almost 4 years, the Government has been slow in
implementing the reforms needed to grow the economy.
On the two examples of ``micromanaging,'' we would like to correct
the record.
On ``promotional activities for the earned income tax
credit:''
The earned income tax credit (EITC) is key to promoting labor
force participation and reducing poverty. Implementation of
across mainland states and have resulted in meaningful
gains in formal labor force participation, especially among
low- to moderate-income workers. The of the EITC is
impactful when the targeted population's appreciation of
its value affects their decision whether to stay in the
formal economy or seek employment in Puerto Rico or
elsewhere.
Although the Government implemented an EITC for tax year 2019, it
did not include a robust promotional campaign as required
by the Certified Fiscal Plan. Hacienda's EITC outreach
centered on sending circular letters to tax preparers and
establishing a few outreach centers to discuss EITC with
potential filers. The centers opened in late February and
closed on March 15th due to the pandemic. By relying on an
in-person outreach campaign after the tax year was over and
failing to establish a more robust promotional strategy
(e.g. via digital channels, targeted marketing) throughout
2019, the benefit of the EITC has been muted. To maximize
the EITC's impact, the Government must urgently assure that
individuals are aware of its benefits.
On ``imposing requirements on street parking:''
As part of the Fiscal Plan development process, FOMB has required
from the Government ``initiatives to create an integrated
multimodal transport system across the Island, including a
plan to execute on the initiatives and reflect any
Government expenditures to implement these initiatives.''
When the Government failed to provide such detail, FOMB
included the following in the Fiscal Plan:
``Public transit agencies should work with the
Government and local municipal authorities to promote the
adoption of innovative curb management practices (e.g., dynamic
pricing for on-street parking, replacing on-street parking with
drop-off zones). These practices would raise the cost of car
usage and would incentivize commuters to use public transit.
They would also generate funds that could improve service
quality in the communities they service (e.g., construct more
and better bus shelters).''
Dynamic pricing for on-street parking and replacing on-street
parking with drop-off zones are examples of initiatives the
Government should undertake to improve the Island's transit
system, especially in the San Juan metropolitan area, which
is the 25th most congested city in the United States.
In both cases, if the Government had implemented best practices on
its own, there would be no need to describe the actions in the
Certified Fiscal Plan. However, to maximize the benefit of the EITC and
to increase the availability and convenience of public transport to
residents, which reduces congestion, pollution, and increases mobility,
we identified the best practices.
As to WIPR, in January 2019 FOMB recommended that the Government
transfer ownership of WIPR's assets to a private nonprofit entity. In
April 2019, the Government accepted the recommendation and began
implementing the change. However, to date, there has been no progress.
Question 15. The Oversight Board decided that a major way to
attract job-creating investments in Puerto Rico would be to repeal the
law that requires employers to provide severance pay if they fire
employees without being able to show cause, ``Law 80.'' The Oversight
Board convinced then Governor Ricardo Rossello and represented this as
an agreement with the entire Government. However, the Puerto Rico
Senate passed a bill that would have repealed Law 80 for new hires. The
Oversight Board rejected this proposal. Since the purpose of the repeal
was to create new jobs and the branch of government that writes the
laws in Puerto Rico was willing to repeal the law for new hires, why
didn't the Oversight Board accept the legislation?
Answer. FOMB believes that unless Puerto Rico substantially
increases its labor force participation and employment, incomes will
fall even farther below U.S. states and outmigration will continue to
grow. Pre-COVID labor participation in Puerto Rico was around 40
percent, while it was 60 percent on the mainland, and 60 percent in
nearby island economies such as Dominican Republic. Increasing labor
force participation may be the single most important objective for
long-term economic well-being in Puerto Rico.
FOMB believes that labor reform, especially including transforming
Puerto Rico into an ``employment-at-will'' jurisdiction, will improve
the vibrancy of the local labor market, make Puerto Rico more
competitive and attractive for job-creating investments, promote more
hiring within the formal economy, and produce more revenue to the
government.
The bill that you describe would have repealed Law 80 only for new
hires and provided that individuals formerly covered by Law 80 would
remain protected. Because that law failed to repeal Law 80, did not
change Puerto Rico to an at-will employment jurisdiction, and
potentially would have created greater administrative/regulatory burden
in recordkeeping for business, FOMB did not accept the legislation.
Question 16. Ms. Jaresko, you have sued the Government of Puerto
Rico for not turning over documents related to the controversial
purchase of rapid COVID-19 test kits for $38 million, that never
arrived. What are the systemic contracting issues you have identified
that should be addressed in order to prevent this kind of situation
from happening again?
Answer. FOMB asked the Government on April 6 and several times
thereafter for the documents that should precede any contract or
purchase order, such as emails, text messages and memos showing the
procurement and decision-making process. Given the numerous examples of
failure in emergency procurement in the past 3 years, we requested this
information to determine what procurement processes were indeed
executed, what lessons could be learned, so that a more transparent and
accountable emergency procurement process could be put in place to
avoid similar crises in the future. Unfortunately, the Government did
not send these documents despite multiple requests from FOMB.
Therefore, FOMB was forced to file a complaint in federal court to
compel the Government to provide the requested required documents. This
litigation is still pending.
Question 17. Senate Finance Committee Chairman Charles Grassley
wrote a letter to Governor Wanda Vazquez outlining a series of well-
documented incidents of corruption and mismanagement that have been
widely reported by the media in Puerto Rico. What specific measures is
the Oversight Board implementing to address each of his concerns and
what steps are you taking to ensure these incidents never happen again?
Answer. FOMB has taken the following actions:
Budgeting practices: FOMB-certified budgets include four sets of
major improvements in budgeting practices. First, FOMB worked with the
Government to provide a deeper level of detail in the budget, detail
that had not previously been available to the Legislature or public,
enabling a better understanding of how funds are being spent. Second,
the consolidated budget is more comprehensive and captures items not
budgeted previously, including all cash subsidies. Moreover, the Fiscal
Plan calls for the Government to consider limiting tax credits issued
each year by capping the notional amount authorized, and including
sunset provisions that eliminate the ability to claim unused credits
previously issued. The Government also now has the capacity to make
decisions around limiting and more selectively targeting tax
expenditures based on the recent publication of the first-ever tax
expenditures report. Third, the published budget resolution includes
more detailed specific concepts of spending within the personnel and
non-personnel categories for each agency to provide a more detailed
look at how the Government uses its funds. Finally, a series of budget
controls are established within the budget to improve fiscal
responsibility and discipline.
Transparency: Fostered more transparency and visibility into Puerto
Rico's government finances, including Puerto Rico's liquidity, budgets,
and other intergovernmental spending--notwithstanding the Government's
continued delays in completing its overdue audited financial
statements. Moreover, the people of Puerto Rico now have access to
public reports, including: bank balances, quarterly budget to actuals,
payroll and attendance, and tax expenditures.
Contract review: FOMB is reviewing contracts for approval pursuant
to Section 204(b)(2) of PROMESA to assure that they ``promote market
competition'' and ``are not inconsistent with the approved fiscal
plan''. Further, in an effort to comply with Section 204(b)(3) of
PROMESA, FOMB is currently enhancing its Contract Review & Procurement
Office with seasoned procurement, contract management and quality
resources with the sole purpose of bridging collaboration with the
government toward providing an end-to-end support in their procurement
process, from the identification of the need(s) to the award of the
service/product, the contract development itself and the subsequent
follow up on critical essential services deliverables/milestones. The
new office, which is expected to start in July 2020, is also working on
reviewing and approving Government procurement regulations on purchases
and contract registration to make the procurement and contracting
process more transparent. By promoting market competition, the Contract
Review & Procurement Office seeks to aid the Government in becoming
more transparent and accountable to the people of Puerto Rico.
Document requests for COVID-19 related issues: FOMB seeks to
understand the processes under which these contracts were negotiated,
procured, and approved to, among other things, increase the public's
faith in the Government contracting process and improve the emergency
procurement process. FOMB has requested all this information to the
Government. Unfortunately, much of it has not been provided after
months of requests in writing. For such reason, FOMB filed a complaint
in the U.S. District Court for the District of Puerto Rico to compel
the Government to provide the missing documents.
Question 18. Due to a lack of government revenue, municipalities in
Puerto Rico are highly concerned with liquidity. Although the Oversight
Board approved a $185 million line of credit for the Municipal Revenue
Collection Center, known as CRIM, the Government of Puerto Rico
rejected the loan. Shortly after, the Puerto Rican legislature tried to
push for a bill that would grant access to the Oversight Board's
emergency funds to obtain this $185 million line of credit. The
Oversight Board rejected this proposal. What steps will the Board be
taking to address the liquidity of municipalities given these
challenges?
Answer. FOMB is working with CRIM and the Government on how to
reimburse the Commonwealth for amounts paid to the municipalities under
the now invalid Law 29. FOMB has developed a plan to reimburse the
Commonwealth, with several options which only incrementally affects the
budgets of the municipalities in Fiscal Year 2020.
The Government and FOMB were aligned in offering CRIM a $185
million line of credit, to help with its decision to defer property tax
revenue in light of the pandemic, and CRIM rejected it. FOMB has asked
CRIM, repeatedly, for an amount works to structure a line of credit
facility. The Puerto Rico legislature was considering legislation in
the Senate enabling the $185 million line of credit and legislation in
the House providing unbudgeted funds to the municipalities.
Moreover, FOMB has also adopted a number of measures to address
these liquidity situation, such as authorizing use of funds from the
Emergency Reserve Fund for municipalities, $15 million for 18
municipalities impacted by the January 2020 earthquakes, $100 million
as part of the COVID Emergency Measures Support Package, and over $30
million to cover the demolition and debris removal in 11
municipalities. In addition, the territorial government has allocated
an additional $100 million to municipalities for eligible COVID-19
related expenses from its CARES Act funding.
Questions Submitted by Rep. Sablan
Question 1. The Oversight Board wrote in support of the
establishment of new incentives to restore U.S. manufacturing--
specifically pharmaceutical factories and medical device plants
currently located in China--to return to Puerto Rico. There are two
bills that have similar objectives. One by Rep. Stacey Plaskett to cut
the Global Intangible Low-taxed Income (GILTI) tax for companies that
create jobs in the territories. The other bill by Resident Commissioner
Jenniffer Gonzalez-Colon would provide federal tax incentives to
economically depressed areas, also known as distressed zones, for the
manufacturing of vital medical supplies. Which, if any, of these bills
does the Oversight Board support?
Answer. As stated in reply to the same question from Chair
Grijalva, FOMB has not taken a position on either bill. However, as
elaborated above, FOMB is conducting a comprehensive study for the
private sector and the Government to define a comprehensive, actionable
plan to reactivate manufacturing in Puerto Rico.
Questions Submitted by Rep. Costa
Question 1. In order to help Puerto Rico achieve fiscal
responsibility and sustainability, PROMESA required that Puerto Rico's
audited financials be made current yet Puerto Rico remains behind in
its audited financials even though PROMESA is now almost 5 years old.
Are there factors attributing to the delay of the financial auditing
process? If so, could you please elaborate on which factors?
Answer. FOMB has received the FY 2016 audited financial statements
from the Government, but the FY 2017 financial statements remain
incomplete. The latest date targeted by the Secretary of Hacienda to
provide those statements is July 30, 2020. For a significant period of
time, FOMB has been urging the Government to update its audited
financial statements and pressing the auditors to meet with those
elements that are delayed. The factors that have led to historic delays
in the issuance of audited financial statements include the numerous
and disaggregated accounting systems, manual procedures, numerous
circular letters, and a decentralized Chief Financial Officer function.
Question 2. The Financial Oversight & Management Board in an early
fiscal plan was projected to spend $1.5 billion on advisory fees.
However, since then, this number has increased and there are growing
concerns over where such fees are going. Could you please provide the
amount the Commonwealth and the Board has spent on aggregate financial
and legal advisory fees per year? Could please elaborate on why the
fees have increased?
Answer. FOMB's budget for this fiscal year is $58M, which we
decreased by 11 percent from last year by hiring more staff and
reducing our reliance on outside consultants. FOMB is working with the
Government to fix a decades-long problem. To do so, FOMB has recruited
the best firms that provide expertise in the many areas that FOMB needs
to work to achieve lasting, sustainable solutions to fiscal management
and practices.
FOMB's operating budget per year is included below:
----------------------------------------------------------------------------------------------------------------
FY 17 FY 18 FY 19 FY 20
----------------------------------------------------------------------------------------------------------------
$31M $60M $64M $58M
----------------------------------------------------------------------------------------------------------------
The Title III process includes many professional and advisor fees
from FOMB as well as the Government, the Unsecured Creditor Committee,
and the Committee of Retirees, among others. The growing cost for the
Title III process is largely due to the large number of lawsuits
pending and challenges in reaching consensual agreements for debt
restructuring.
In total, for the period from FY2018 to FY2024, the Title III
restructuring-related expenditures projection in the 2020 Fiscal Plan
continues to be $1.1 billion (same as the 2019 Fiscal Plan), however,
uncertainty stemming from the series of recent natural disasters and
ongoing COVID-19 pandemic have drawn out the restructuring process
longer than anticipated. When adding FOMB's operating costs for this
same period, the total cost adds up to around $1.5B. Thus, it is not
correct that the number has increased.
Questions Submitted by Rep. Cartwright
Question 1. The 2020 Fiscal Plan includes various projections of
the GNP shortfalls due to the pandemic. However, I'd like more clarity
on the impact on tax revenue for this year and upcoming years. How
severely were tax revenue projections impacted this fiscal year? What
do the projected tax revenue projections look like for the upcoming
years?
Answer. We estimate a revenue reduction of $1.3 billion in the
current fiscal year 2020, $1.2 billion in fiscal year 2021, and $774
million in fiscal year 2022, relative to the revenue projections in the
2019 Fiscal Plan.
Question 2. In the hearing before this Committee in May 2019, you
called the University of Puerto Rico ``the island's crown jewel'' and
stated that ``in many ways the future of Puerto Rico depends on a
vibrant and sustainable UPR''. What steps has the Financial Oversight
and Management Board taken to protect this crown jewel? How can the
Board ensure that there is sufficient funding for the institution to
fulfill its role?
Answer. In response to the same question from Chair Grijalva, I
have elaborated on FOMB's substantial commitment to the protection of
UPR and financial support for UPR, as well as the fundamental financial
challenges which UPR must address and the structural reforms it must
implement in the coming years.
To reiterate, in the coming fiscal year, UPR needs to focus on
increasing revenues, attracting more students, implementing its
scholarship funds, preserving its faculty, securing the pensions of its
staff, and cutting administrative costs.
Questions Submitted by Rep. Garcia
Question 1. During last week's hearing you stated that the
allegations of insider trading during the mediation process are not the
FOMB's responsibility and that the bankruptcy court, the mediation team
and law enforcement were responsible for evaluating these claims and
determining whether wrongdoing occurred. If participants in the
mediation process are found to have engaged in insider trading during
the private negotiations, could that revelation undermine the
legitimacy of the bankruptcy process? What will FOMB do to ensure
confidence in the process moving forward?
Answer. This question raises issues extremely important to FOMB.
The mediation process was introduced early in the Title III cases by
the presiding judge, U.S. District Judge Laura Taylor Swain. Judge
Swain appointed several sitting federal judges to serve as mediators.
The mediation process is governed by a mediation agreement approved by
Judge Swain. Among other things, it requires strict confidentiality.
The mediation process has had several huge successes that led to the
successful Title III restructuring of COFINA involving approximately
$18 billion of debt, and Title VI restructuring of Government
Development Bank involving more than $4 billion of debt. Just prior to
COVID-19, the mediation process led to the proposal of a Title III plan
of adjustment for the Commonwealth and PBA supported by the statutory
retiree committee and holders of many billions of the General
Obligation bonds.
From the beginning, the mediation process embodied several
practices designed to instill fairness and to deter or prevent wrongful
insider trading. These practices included (a) enforcement of Bankruptcy
Rule 2019 requiring groups of holders to disclose, among other things,
their debt holdings and changes in their debt holdings, (b) limiting
some mediation sessions to creditors' advisors so the creditors
themselves would not receive inside information about the negotiations,
and (c) `blowout dates,' under which the creditors themselves would
engage in mediation sessions knowing that the offers and counteroffers
would be publicly disclosed by a date certain (the blowout date) after
which creditors could trade because the information would no longer be
inside information.
Significantly, insider trading provides unfair profits to the
entity trading on material inside information and simultaneously causes
prices to move in the direction of fair value. Therefore, while such
insider trading is wrongful and its perpetrators should be punished, it
does not affect the legitimacy of the Title III process which benefits
from securities prices adjusting to fair value. FOMB is adamantly
opposed to allowing anyone in the Title III process to abuse it for any
purpose, especially for wrongful personal gain. Therefore, if changes
in price levels are shown to precede the blowouts of material inside
information, FOMB would support actions by the Title III court to
require creditors and anyone else privy to the information to disclose
their trading records. Any entities proven to have traded on material
inside information should be compelled to disgorge all wrongful profits
and to pay penalties.
Questions Submitted by Rep. Bishop
Question 1. PROMESA required that Puerto Rico's audited financials
be made current, yet Puerto Rico is further behind in its audited
financials today than it was when PROMESA was passed. Is this a failure
of the FOMB or the Commonwealth or both?
Answer. FOMB has helped foster more transparency and visibility
into Puerto Rico's government finances, including Puerto Rico's
liquidity, budgets, and other intergovernmental spending. The issue of
audited financials, however, is squarely within the authority and
responsibility of the Government. Disaggregated accounting systems,
manual procedures, numerous circular letters, and a decentralized Chief
Financial Officer function have contributed to consistent delays in the
production of audited reports.
FOMB, in its oversight role, has been actively collaborating in an
attempt (1) to identify the challenges to issuance (ii) to ensure that
audits are completed as quickly as possible; (ii) to institutionalize
best practices within the Government; and (iii) to enable the
Government to have appropriate resources for the preparation of the
CAFRs. During this fiscal year, FOMB has been conducting recurring
meetings, in some cases on a weekly basis, with the Department of the
Treasury, the Government's external auditors, and key component
entities within the Government to help expedite the overdue delivery of
the FY2017 CAFRs and assess the timing of the FY2018 audit. In this
spirit, FOMB has provided recommendations on relevant administrative
orders submitted FOMB's consideration pursuant to the Rules,
Regulations and Orders Review Policy; and requested the Government
provide:
weekly updates from the Department of Treasury on progress
and risks to the completion of the FY2017 CAFRs;
progress reports on the FY2018 audit preparation;
submission of the FY2018 proposed external auditor
contract pursuant to FOMB's Contract Review Policy; and
any and all other information requested in an effort to
lend a hand, evaluate key constraints, and facilitate the
prompt delivery of current and future audits.
On July 1, 2020, FOMB held a follow up hearing on the status of the
issuance of the audited financials, during which it required the
Government to submit a 30-day plan to urgently speed up the issuance of
the audited financials. This plan will be presented to FOMB at the end
of this month.
Question 2. With aggregate balances now totaling more than $19
billion sitting in Commonwealth accounts (and virtually half of that
being unrestricted in use), why have the Commonwealth and FOMB not been
able to make more development progress, and also bring bankruptcy
proceedings to a conclusion? Why haven't these funds been utilized to
help Puerto Rico develop, and to honor what obligations could be
honored in a timely fashion?
Answer.
(a) Answer Regarding Development
FOMB's fiscal plans have pressed for major structural reforms to
restore competitiveness, enable growth, and spur a return to
prosperity. These include human capital, welfare, and education reforms
to advance successful participation in the formal labor market, reforms
to streamline core business processes to improve the ease of doing
business and enable job creation, and proposals to enable reliable
power and stable infrastructure for businesses and households. In
addition to these structural reforms, the fiscal plans have focused on
improving the responsiveness and efficiency of the Government, while
reducing unnecessary administrative expenses.
Since 2017, and notwithstanding the environmental and public health
emergencies, FOMB has been able to drive meaningful progress in
creating a leaner, more affordable government. This has resulted in the
ability of the Government to increase expenditures at a time of crisis,
while ensuring total expenditure levels remain within total available
revenues.
Unfortunately, despite this real progress in the face of ongoing
crises, the Government has still failed to achieve meaningful economic
growth through structural reforms or drive operational change that
would deliver greater responsiveness and efficiency. Efforts at private
sector labor market reforms have stalled, the progress from human
capital and welfare reform is not expected for several years, and the
recent efforts to improve the ease of doing business have not changed
the burden on businesses in any meaningful way.
Rather than achieving budget savings by improving the way services
are delivered or discontinuing duplicative or unimportant services, the
Government has enacted broad-based early retirement programs to reduce
headcount, creating major gaps in capabilities and functionality and
potentially putting services at risk. Across many areas, the Government
has struggled to implement changes, with even new investments often not
driving the intended use. Absent real reform, Puerto Rico may not ever
fully recover from all its recent crises. The 2020 fiscal plan lays out
the meaningful changes needed to lead to an effective, responsive
government and growing economy.
(b) Answer Regarding Bankruptcy Proceedings
To date, FOMB has successfully: (1) developed and the District
Court has confirmed a Title III Plan of Adjustment for COFINA; (2)
authorized and the District Court has confirmed a Title VI Plan of
Adjustment for GDB; and (3) supported a nearly $1 billion loan
restructuring agreement for PRASA with EPA and USDA.
FOMB proposed an amended Plan of Adjustment in February 2020 to
restructure $35 billion of debt and other claims against the
Commonwealth of Puerto Rico, the Public Building Authority, and the
Employee Retirement System, and more than $50 billion of pension
liabilities. The Plan of Adjustment significantly reduces $35 billion
in debt liabilities to $11 billion, or about 70 percent, and ensures
that almost 75 percent of current and future pensioners are not cut.
The Plan of Adjustment also provides predictability to public employees
via updated collective bargaining agreements and restores over $1.3
billion of withheld employee contributions to Sistema 2000. The Plan of
Adjustment has been supported by the Official Committee of Retirees
representing retired government employees, current government employees
represented by the Public Service Union as the Puerto Rico chapter of
AFSCME, and the Lawful Constitutional Debt Coalition, a group of
investors and funds holding Puerto Rico's general obligation bonds and
PBA bonds.
FOMB also has been seeking broader active public employee support
and feedback, including from teachers represented by the Puerto Rico
chapter of AFT. The Special Investigations Committee hired the law firm
Kobre & Kim to provide a complete, independent review of the
Government's debt, ultimately receiving a comprehensive investigative
report. Following on Kobre & Kim's findings, FOMB undertook review of
potential infirmities of debt issued by Puerto Rico and its various
agencies and instrumentalities. Through its Special Claims Committee,
FOMB objected to the validity of over $11 billion of general
obligations bonds and filed several hundred complaints against entities
to recover their payment related to issuance of that debt.
That committee also filed complaints against over 20 banks, law
firms, and other parties to recover fees earned in issuance of nearly
$9 billion in bonds. Given the considerable uncertainty about the
effect of COVID-19 on Puerto Rico, however, FOMB continues to believe
that the primary focus of the Government and FOMB should be to minimize
and contain the pandemic. Furthermore, even with implementation of far
reaching growth-inducing structural reforms, the 2020 Fiscal Plan
projects that the Government cannot afford to pay the public debt as
originally contracted.
Recognizing the importance of the ongoing Title III cases, but
taking into account these realities, on March 23 FOMB presented a
motion requesting the Title III court to adjourn consideration of the
proposed Plan of Adjustment's disclosure statement hearing until
further notice. The proposed Plan of Adjustment is now on hold and the
next status report is due on July 15.
As to PREPA, FOMB and the Government filed a motion seeking to
adjourn the hearing and all deadlines related to the PREPA
restructuring support agreement. On May 15, FOMB and the Government
provided a required update, stating that all briefing and hearing
deadlines relating to the restructuring support agreement should
continue to be adjourned.
(c) Answer Regarding Use of Funds to Help Puerto Rico Develop and Honor
Obligations
FOMB is dedicated to the development of the Island and honoring its
commitments to all stakeholders, including residents, retirees, and
creditors.
It is important to clarify that Puerto Rico's cash balances are not
all unrestricted. The major categories of restrictions that reduce the
cash available include monies with federal and state legal
restrictions, including federal funds, working capital requirements,
and cash set aside to replenish emergency reserves. Moreover, part of
the cash was contemplated to be used as part of the proposed
Commonwealth Plan of Adjustment, including union and retiree
settlements, a pension trust, and reinstatement of pensions
contributions.
Fiscal Plans certified by FOMB have pressed for major structural
reforms to restore competitiveness, enable growth, and spur a return to
prosperity. These include human capital, welfare, and education reforms
to advance successful participation in the formal labor market, reforms
to streamline core business processes (e.g., paying taxes, registering
property and obtaining permits) to improve the ease of doing business
and enable job creation, and proposals to enable reliable power and
stable infrastructure for businesses and households. In addition to
these structural reforms, the Fiscal Plans have focused on improving
the responsiveness and efficiency of the Government, while reducing
unnecessary administrative expenses and mitigating the escalating
growth of healthcare and pension costs, which could otherwise cripple
future governments.
The Fiscal Plans have accompanied these reforms with targeted
investments in and support for those on the front lines of service
delivery. Over the years, the Fiscal Plans have provided for salary
raises for teachers, school principals, firefighters, and police
officers to ensure salaries for these critical frontline roles are more
competitive. Strategic capital investments have been made in hospitals,
correctional institutions, public safety equipment, and other
infrastructure. Moreover, the Fiscal Plans have included increased
spending in areas that are important for the people of Puerto Rico:
funds for an Earned Income Tax Credit to encourage more formal labor
market participation, needs-based scholarships for UPR to ensure every
student on the Island can access higher education, funds for the Puerto
Rico Clean Water and Drinking Water State Revolving Fund, and an
emergency reserve to enable immediate Government action in times of
crisis, among others. A specific list categories of investments in
included herein:
Immediate support for COVID-19 response: Recognizing the
imperative for the public health system to focus its
efforts on slowing the spread of COVID-19 and healing those
affected, as part of the Emergency Measures Support Package
certified on March 28, 2020, the FOMB approved $787 million
in additional expenditures solely focused on COVID-19
response. These funds are intended to provide ``hazard
pay'' for frontline workers (including public and private
nurses and technicians, police, certain correctional staff,
and professionals managing taxes and financial operations),
medical and public safety supplies and capital
expenditures, distance learning in the public education
system, and $100 million in support for municipalities
facing reductions in revenue due to the pandemic.
Investing in critical healthcare infrastructure: FOMB
proposed the Government to use remaining FY2020 funds to
invest in near-term improvements to the Island's healthcare
infrastructure. These opportunities represent $313 million
of investment in areas that include addressing critical
infrastructure gaps in public hospitals (e.g., the
renovation of functionally obsolete facilities, purchase of
power generators), instituting and expanding the use of
Electronic Health Record programs, expanding access to care
through development of telehealth infrastructure, enhancing
access to opioid medication and treatment programs, and
providing scholarships to healthcare students who are
committed to working in underserved areas of Puerto Rico.
Enhancing healthcare services: The 2020 Fiscal Plan builds
on the strategic healthcare investments from prior Fiscal
Plans to stabilize and improve the healthcare system. It
directs $586 million to improve the availability and
quality of care under the Medicaid system, maintain nurse
and health professional staffing levels, increase hospital
capacity through major capital projects, operationalize the
Comprehensive Cancer Center, and enable operational
efficiencies.
Safeguarding public safety: The 2020 Fiscal Plan adds to
prior investments, enabling almost $1.3 billion in public
safety funding. This includes continuing significant
investments made in the May 2019 Fiscal Plan to provide
sworn police officers with more competitive salaries and
benefits (including, life and disability insurance, Social
Security coverage), as well as the final of three
installments to cover back pay for police, which represents
$122 million in FY2021. These investments are meant to
ensure that more sworn officers can remain on Island and
serve in the field. Given the emergencies that Puerto Rico
has recently experienced, FOMB also believes it is ever
more important to ensure that there are enough emergency
response personnel available to help residents. The 2020
Fiscal Plan provides funds to recruit paramedics and
dispatchers, hire additional specialists at the Forensic
Sciences Institute, support salary increases for
firefighters, and provide public safety equipment,
materials, and vehicles.
Driving education outcomes: FOMB has long recognized that
significant and thoughtful investment in the educational
system is key to a stronger economic future for Puerto
Rico. The 2020 Fiscal Plan includes over $760 million for
strengthening English Language Learning training for
teachers, bringing psychologists on staff to provide
evidence-based therapies for Special Education students,
hiring additional public-school nurses, driving
digitization to improve management and reporting, and
compensating transitory teachers and directors, who PRDE
mistakenly excluded from the FY2019 and FY2020 salary
raises previously funded by FOMB.
Strengthening the technology sector: Addressing the
digital divide is critical to ensuring that all residents
of Puerto Rico can take advantage of the well-documented
socioeconomic benefits afforded by Internet connections
(e.g., telehealth, distance learning, remote work).
Important infrastructure gaps remain, particularly across
rural areas of the Island. The 2020 Fiscal Plan includes
$400 million to expand access to broadband for the
residents of Puerto Rico, thereby improving economic
opportunities for those in rural areas. The 2020 Fiscal
Plan also recognizes that technology skills are critical
for the future of the workforce; it thus includes $50
million in funding to invest in workforce development,
specifically focused on business- and technology-related
disciplines.
Reactivating the manufacturing sector: The COVID-19
pandemic has made it apparent that most raw materials and
medical products necessary to ensure national security are
manufactured in China, India, and other countries outside
the United States. This represents a unique opportunity for
Puerto Rico as a capable and reliable venue for
manufacturing under the U.S. flag. As part of
implementation of the 2020 Fiscal Plan, FOMB will conduct a
comprehensive study to update the facts and acquire the
knowledge necessary for the private sector and the
Government to define a comprehensive and actionable plan to
reactivate the manufacturing sector in Puerto Rico.
University of Puerto Rico: The 2020 Fiscal Plan provides
$43 million in FY2021 for the UPR scholarship fund and a
total of $179 million over FY2020-FY2025 to meet the needs
of the most financially vulnerable students. The 2020
Fiscal Plan also provides $30 million for an independently
managed scholarship fund for healthcare (e.g., medical,
dental, nursing) students and residents who commit to
serving in rural and underserved areas.
Supporting the needs of municipalities: In addition to the
$100 million in support post-COVID-19, the Fiscal Plan
includes several investments to support municipalities.
These include: $185 million available through July 31,
2020, for a short-term liquidity facility to ensure that
monthly property tax remittances can continue to be
advanced to municipalities (given major delays in tax
payments), thereby supporting the viability of municipal
operations, $110 million ($22 million per year through
FY2025) as an incentive for voluntary service
consolidation, and up to $92 million to fund demolition and
debris removal projects for municipalities in the southwest
region of the Island.
Transforming government services: The 2020 Fiscal Plan
includes $94 million to support hiring of additional staff
in core programs (e.g., NAP, GSA procurement initiative) as
well as incentives to drive change in government, including
to publish the 2017 CAFR, conduct an analysis of the
correctional system footprint to enable consolidation,
implement a common ERP system, and publish private sector
incentives.
Expediting reconstruction efforts: The 2020 Fiscal Plan
provides for $750 million in working capital to be made
available to facilitate FEMA-approved reconstruction
efforts. These funds will accelerate rebuilding efforts by
providing the necessary capital upfront, with repayment via
reimbursement from the Federal Government.\2\
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\2\ The working capital facility is considered a use of the
Commonwealth balance sheet, not a Fiscal Plan expense.
Question 3. The FOMB in an early fiscal plan projected an
astonishing $1.5 billion to be spent on advisory fees. Several years
hence, how much money have the Commonwealth and FOMB in fact spent on
aggregate financial and legal advisory fees so far since Puerto Rico
began defaulting on its debt? Has this process created a class of
people that benefit financially from the prolonged continuation of
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bankruptcy?
Answer. In total, for the period from FY2018 to FY2024, the
restructuring-related expenditures projection in the 2020 Fiscal Plan
continues to be $1.1 billion (without change from the 2019 Fiscal
Plan), however, uncertainty stemming from the series of recent natural
disasters and ongoing COVID-19 pandemic have drawn out the
restructuring process longer than anticipated. When adding FOMB's
operating costs for this same period, the total cost adds up to around
$1.5B. Thus, there it is not correct that the number has increased.
Professionals for FOMB, the Government, the Unsecured Creditors'
Committee, the Retiree Committee, and the mediation team have requested
about $704 million in fees and expenses through the Title III
compensation process through June 8, 2020. The breakdown is as follows:
The $704 million figure includes:
FOMB: $326,706,771.01 (This includes the Special Claims
Committee firms)
Government: $234,687,347.34
COR/UCC: $118,997,235.43
The total of those three categories is $680,391,353.78.
COFINA Agent and professionals: $20,700,188.03
Mediation Team: $2,621,178.21
Fees were developed in conjunction with the Government and were
benchmarked versus comparable restructuring situations that yield an
average professional-fee-to-funded-debt ratio of 2.08 percent relative
to 1.68 percent projected for the Commonwealth. See Exhibit 20 from the
Fiscal Plan below:
Professional fees for restructuring
(Excludes pensions and other retirement liabilities)
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
.epsMoreover, expenses specifically related to the Title III
process under PROMESA are reviewed by a Court-appointed fee examiner.
For FOMB's operating expenses, FOMB has retained its own fee examiner.
Question 4. Even before the COVID-19 pandemic began, the FOMB and
Commonwealth had not abided by their own agreement under the 2019 PREPA
Restructuring Support agreement to raise a 1 cent interim rate increase
case to the PREB, why?
Answer. Under the PREPA restructuring support agreement, PREPA was
only obligated to implement the 1 cent ``settlement charge'' and
commence settlement payments to participating bondholders upon entry of
the order approving the RSA settlement. The hearing on the settlement
motion has been continued for various reasons and, as indicated in our
May 15, 2020 status report, we do not yet have sufficient visibility to
determine whether the RSA settlements are feasible in light of the
impact of the pandemic on the island economy. PREPA has therefore held
off on adding this charge and increasing rates near term until this
determination is made.
Question 5. We have entered into the 4th year of bankruptcy
proceedings, what has the FOMB accomplished to restore access to the
capital markets for Puerto Rico, one of the only two explicit
objectives of PROMESA?
Answer. Please see answer 2(b) above.
Question 6. The latest fiscal plan certified by the FOMB shows
Puerto Rico returning to long-term deficits after 2032 and beyond, even
before paying contractual debt service. How is it possible that there
are no reforms or potential recovery that can put Puerto Rico on the
right track in the long term?
Answer. There are indeed reforms that could put Puerto Rico on the
right track in the long term. However, only a portion of them are
agreed to in substance with the Government of Puerto Rico, and thus,
reflected in the 2020 Fiscal Plan. The 2020 Fiscal Plan financial
forecasts include:
Energy and ease of doing business reforms are projected to
increase GNP by 0.60% by FY2025;
Human Capital and welfare reform is expected to add
another 0.15% in FY2026; and
K-12 education reforms add an additional 0.01% annual
impact beginning in FY2037,
These sets of reforms result in total GNP increase from structural
reforms of 0.75 percent by FY2026 and 0.88 percent by FY2049. The
anticipated timing of the incremental positive impact of these reforms
has been delayed in this Fiscal Plan given the delay in the
Government's implementation efforts.
Yet even with full implementation of these, the 2020 Fiscal Plan
suggests that the current financial trajectory is not sustainable in
the long term. Perhaps more importantly, the 2020 Fiscal Plan, even if
implemented in full, will not raise Puerto Rico and its residents to a
level of prosperity comparable to even the poorest states on the U.S.
mainland. There continues to be insufficient political appetite to
drive the types of structural reforms that are needed to create
sustainable economic growth, and an inability to implement even reforms
that have been nominally agreed-upon.
While the 2020 Fiscal Plan projects deficits from FY2032 onward,
the Government will be required to take additional measures that go
beyond this 2020 Fiscal Plan. Accordingly, what follows are a set of
options that future governments can consider in order to obtain fiscal
balance in the out-years. Some of these reforms, which would reduce
deficits and therefore make funds available for a variety of potential
uses, have been proposed by FOMB but have not been adopted.
Private sector labor reform, generating an additional 0.50
percent GNP growth over 2 years, by repealing Law 80,
reducing paid leave, and eliminating the Christmas Bonus.
Key reforms could require incentives, such as wage
subsidies for low-income workers and training programs to
address identifiable skills gaps. The reform is projected
to increase the 30-year surplus by $10 billion if
implemented after 10 years (FY2030) and by $3 billion if
implemented within 20 years (FY2040).
Ease of Doing Business reform, generating an additional
0.15 percent GNP growth, based on instituting Trading
Across Borders reform to improve customs processes and
congestion and repealing restrictive laws (e.g., Laws 21
and 75 dictating terms for terminating commercial supplier
relationships). The 30-year surplus is projected to
increase by $3 billion if implemented after 10 years
(FY2030) and by $850 million if implementation lags by 20
years (FY2040).
Overhaul of the tax system of Puerto Rico to stimulate
growth, requiring short-term investment (lower revenues in
short-term) for long-term growth benefits up to 0.5 percent
spread over 5 years. The reform is projected to increase
the 30-year surplus by $9 billion if implemented after 10
years (FY2030) and by $2 billion if implementation lags by
20 years (FY2040).
Imposing a cap on total healthcare expenditure growth at 2
percent above standard inflation is projected to result in
savings of $14 billion by FY2049 if implemented in FY2030
and $3 billion if implemented in FY2040.
Securing additional permanent Federal funding for Medicaid
of $1 billion per year (and growing with inflation) is
projected to increase the 30-year surplus by $27 billion
if begun in FY2030 and $11 billion if begun in FY2040.
Risks to the long-term projections in the 2020 Fiscal
Plan. While the 2020 Fiscal Plan projects that $8 billion
surplus will be generated through FY2020-2031, there are
several variables that have a material impact on the long-
term financial projections in the 2020 Fiscal Plan. The
impacts of COVID-19 remain highly uncertain at this stage
and could prove to be longer-lasting and greater than
anticipated. Moreover, revenues could be compromised
through lower growth generated by delayed or not
implemented structural reforms, lower than expected federal
funding, and/or less efficient spending on capital than
projected. Both revenues and expenditures could be impacted
by demographic shifts not yet seen on the Island, and in
the areas of government expenditures.
Lack of implementation of healthcare reform measures could
affect the long-term projections of the 2020 Fiscal Plan.
If healthcare reform measures are not implemented starting
in FY2021, the surplus would decrease by $14 billion.
Implementation risk of agency efficiency measures also
exists. For example, if only 50 percent of the projected
run rate agency efficiency measures are achieved, the 30-
year surplus would decrease by $21 billion. Similarly, if
only 75 percent of the projected run rate agency efficiency
measures are achieved, the 30-year surplus would decrease
by $11 billion.
Question 7. PROMESA requires that any Certified Fiscal Plan respect
the Constitutional Priorities and lawful liens. How does this new
certified plan meet that requirement?
Answer. PROMESA section 201(b)(1)(N) provides the fiscal plan shall
``respect the relative lawful priorities or lawful liens, as may be
applicable, in the constitution, other laws, or agreements of . . .''
Puerto Rico. As you know, the fiscal plan is composed of FOMB's methods
for carrying out the congressional policies and requirements in section
201(b)(1). Notably, the fiscal plan is not a plan of adjustment. Plans
of adjustment discharge claims, extinguish liens, and determine how
each claim and lien is treated, and are governed by Title III of
PROMESA. PROMESA section 106(e) provides the court lacks subject matter
jurisdiction over challenges to FOMB's certifications of fiscal plans,
while the court can and must review plans of adjustment before they can
become effective. Therefore, the fiscal plans do not discharge any
debt, extinguish any lien, or determine the treatment of any claim, all
of which are done in Title III plans of adjustment.
Question 8. Why were all fiscal quarters before the COVID-19
lockdown producing revenues well in excess of FOMB near term
projections? What does this say about new projections that are even
more draconianly conservative than ever before? What about longer term
projections that are more difficult to make accurate predictions over
than short term ones?
Answer. The Fiscal Plan projects revenues based on underlying
economic and/or demographic indicators such as GNP growth and
population. Those projections are tracked against actual receipts, as
reported by Hacienda. In the first 6 months of the fiscal year (pre-
COVID), revenue receipts were largely in line with projections with the
exception of corporate income tax, which was significantly higher than
projected in large part due to a one-time payment of approximately $0.5
billion related to a large multinational M&A transaction. Some revenue
lines were ahead of forecast (individual income tax, motor vehicle
excise tax, rum tax, Act 154, and other general fund revenue), while
others were below forecast (non-resident withholdings, alcoholic
beverages, cigarette taxes, and sales and use tax). As explained in the
Fiscal Plan, long-term revenue projections depend directly on
projections of future economic growth and other demographic factors.
Question 9. Given that the FOMB is the debtor representative before
the bankruptcy courts, is it necessary to gain Commonwealth support for
every deal?
Answer. Support from the Commonwealth strongly helps the process to
move along more efficiently and effectively. Government support is
required to the extent that legislation is required to affect the
proposed transaction. Moreover, especially in the current complex
political environment, building support across the Government and
maintaining public goodwill is an important part of working within the
cultural and financial context of Puerto Rico.
Question 10. How and why does the FOMB project decreasing
population on the island ad infinitum, yet at the same time show
rapidly rising gross healthcare costs despite the declining population?
Answer. Even before Hurricanes Maria and Irma hit the Island in
2017, Puerto Rico's population had been trending downward by 1-2
percent every year as residents have left to seek opportunities
elsewhere and birth rates declined. In 2016, the U.S. Census Bureau's
official forecast, projected a worsening population outlook due in
large part to Puerto Rico's rapidly aging population. This high average
age range results from extremely low age-adjusted birth rates and
outmigration of younger people. Indeed, in 2016, Puerto Rico began to
experience negative natural population change (a higher number of
deaths than births). This negative natural change has continued
unabated into 2020.
Hurricanes Irma and Maria served to compound the problem, spurring
an additional outflow of people just as natural population decline has
set in, as many residents lost houses, jobs, and loved ones. While some
of these people have returned, the population is still projected to
decline over the course of the 2020 Fiscal Plan period and beyond.
Further disasters, such as the series of earthquakes experienced in
2020, have not made a swift return to balanced migration any more
likely. But while net migration is a larger driver of population change
in the short term, this factor is volatile; in the long run, net
migration is projected to return to more balanced trends. Meanwhile,
natural population change is not guaranteed to rebalance at any point,
and births are likely to continue declining, while deaths are projected
to rise or stay stable.
The COVID-19 pandemic has been less severe in Puerto Rico than in
many other areas thus far, and therefore no large epidemic-driven
mortality rate increase is anticipated. COVID-19 is expected to
suppress air traffic between Puerto Rico and the mainland, and thus
impact migration, but this effect will be transitory.
The 2020 Fiscal Plan projects that by FY2025, there will be 9
percent fewer people living on the Island than in FY2019, and that by
FY2049, the drop will grow to 30 percent.
Notwithstanding the population decline, the Commonwealth's
healthcare costs grow faster than inflation. Medicaid premiums grow at
a faster pace than standard inflation and are instead grown by a per
member per month (PMPM) growth rate and population change. On average,
costs per demographic group will increase consistent with historical
Puerto Rico healthcare costs, and in line with external data. However,
the latest projections suggest the magnitude of this trend will not be
as significant as reflected previous Fiscal Plans. From FY2026-FY2049,
the age-mix-adjusted PMPM growth rate is expected to decline from 5.30
percent in FY2026 to 4.75 percent in FY2049. This projection is driven
by two factors. First, current demographic projections suggest that the
population is not aging as fast as previously projected, which causes
declines in overall healthcare utilization. Second, general cost
efficiency spillovers from the U.S. mainland are expected to exert
downward pressure on PMPMs. In the near-term, PMPM growth is expected
to be muted in FY2020 due to lower utilization driven by the COVID-19
pandemic. Social distancing and stay-at-home guidance have lowered
utilization of the healthcare system. Between FY2020 and FY2022, the
PMPM growth rate is expected to increase from 4.5 percent to 5.5
percent as utilization recovers from both the COVID-19 pandemic and
persistent impact from Hurricane Maria.
Important to note is that in 2019, 37 percent of Puerto Ricans
received their health coverage through the Commonwealth's state-run
Medicaid program. This was a higher share of Medicaid/CHIP-funded
health insurance coverage than any U.S. state. In addition to its large
covered population, Puerto Rico has lagged U.S. states in both health
outcomes and access. Puerto Ricans face higher rates of chronic
conditions like hypertension, diabetes, and asthma than national
averages. Puerto Rico also has higher premature birth and infant
mortality rates, and higher rates of adults reporting fair or poor
health. At the same time, 72 of Puerto Rico's 78 municipalities are
deemed ``medically underserved areas,'' with 500 doctors leaving per
year. As a result, Puerto Rico has half the rate of specialists as
compared to U.S. states in critical fields.
Puerto Rico's Government-funded health plan, Vital, covers
individuals through three primary funding sources: federally matched
Medicaid funds, the Children's Health Insurance Program, and the
Commonwealth's self-funded insurance program for low-income adults. An
additional 8 percent of the Puerto Rican population receives some
benefits from the Government as part of the Platino program, which
supports Medicare Advantage recipients who also qualify for Medicaid.
Question 11. Puerto Rico has received near 80 percent Medicaid FMAP
since well before the fiscal crisis began. The funding has been
extended regularly. The Commonwealth draft fiscal plan projected 55
percent long-term funding. PROMESA explicitly allows for projections
based not just on approved legislation, but also on draft or introduced
legislation that has not yet been passed. Why does the FOMB choose to
assume that there will be virtually no Medicaid funding?
Answer. FOMB has chosen to reflect current legislation, rather than
draft or introduced legislation given the uncertainty of adoption.
Moreover, because Medicaid is such an important element of essential
services, it is important for the Government to budget and be able to
fund costs that are not known to be reimbursed with Federal funds.
Because Federal Medicaid funding for U.S. territories is subject to
an annual cap, Medicaid expenditures eligible for federal matching
often exceed available funding without supplemental legislated sources.
This makes Puerto Rico's Medicaid program very sensitive to rising
healthcare costs. Since 2011, Puerto Rico has received temporary relief
from rising healthcare costs through increased levels of federal
reimbursement made available through the passage of the Affordable Care
Act and the Bipartisan Budget Act of 2018. In December 2019, the
Further Consolidated Appropriations Act was passed, which provided
supplemental federal funding (up to $5.7B total) to Puerto Rico's
Medicaid program through September 30, 2021.
In addition, the law raised the FMAP--the portion of Medicaid
expenditures that federal funds can cover--from the standard level of
55 percent to 76 percent for most populations. In response to the
COVID-19 pandemic, the Families First Coronavirus Response Act was
passed in March 2020, further increasing both the available federal
funds and the FMAP.
The available supplemental federal funds and higher FMAP will both
return to standard levels in October 2021 without new federal
legislation. Accordingly, the Commonwealth will hit a ``Medicaid fiscal
cliff,'' whereby it will be responsible for multi-billion-dollar annual
healthcare expenditures that had been covered by federal funding since
2011.
It is crucial, therefore, that ASES take advantage of the
additional runway provided by recent federal legislation to put in
place reforms that reduce the long-term growth rate of healthcare
expenditures. Given the uncertainty as to future federal reimbursement
levels, the 2020 Fiscal Plan assumes that no further supplemental
funding will be provided beyond current programs, and thus, the
Commonwealth must be prepared to cover growing Medicaid costs as if
federal reimbursement rates reverts to steady-state levels.
Question 12. Why has the FOMB not made more utility out of PROMESA
Title VI mechanisms for consensual deals?
Answer. Actually, Title VI was the first provision used by the
Government and FOMB in a consensual debt restructuring, which was late
2018 Title VI consensual restructuring of the Government Development
Bank's debts. In addition, where possible FOMB and the Government have
successfully used PROMESA Section 207, rather than either Title III or
Title VI, in cases where unanimous consent could be obtained from
affected creditors to the consensual restructuring of their bonds. This
Section 207 approach was used to consensually restructure over $1
Billion of Federal EPA and USDA loans to PRASA, saving PRASA nearly
$400 million in the first 10 years and re-starting New Money Federal
lending from those agencies, while also avoiding putting PRASA through
either Title III or Title VI.
That said, both Section 207 and Title VI are narrower than Title
III in terms of the categories of claims and liabilities that can be
resolved through those procedures and the scope of relief available
from those approaches. Accordingly, Title VI and Section 207 are not
necessarily viable or effective approaches for Puerto Rico's other
government operating entities and public corporations.
Question 13. If the FOMB and creditors disagree over Commonwealth
revenue projections, could contingent notes be a partial answer to debt
restructurings so that creditors take the risk if revenues fail to
exceed projections?
Answer. At this point in time, as noted in the May 2020 Certified
Fiscal Plan for the Commonwealth, FOMB has put a pause on the existing
February 28, 2020 Plan of Adjustment and will be exploring a variety of
debt restructuring topics as it considers how to move forward in an
affordable, sustainable way.
Questions Submitted by Rep. Gohmert
Question 1. Ms. Jaresko, during your time as Ukrainian finance
minister, did you have a relationship with Alexandra Chalupa? If yes,
were you aware of any efforts to extract information from NABU (the
National Anti-Corruption Bureau of Ukraine)?
Answer. No, Ms. Jaresko had no relationship with Ms. Chalupa during
her time as Ukraine's finance minister. Ms. Jaresko knew her only as a
member of the Ukrainian-American community.
Question 2. You were the chief executive officer of the Western NIS
Enterprise Fund (WNISEF), correct?
Answer. Yes, Ms. Jaresko served as CEO of WNISEF from 2001-2014,
previously having served as Executive Vice President and Chief
Investment Officer from 1998-2001, and Country Manager from 1995-1998.
2a. Is it true that you shifted management of WNISEF to Horizon
Capital, a private company? What is your relationship with Horizon
Capital?
Answer. Yes, the goal of the Enterprise Funds, established
initially by President George H. Bush in eastern and central Europe,
was to act as a catalyst to private sector investment in the region of
their mandate. The goal was to move from USAID funding to attracting
private sector capital investment in the region, based on the track
record and team experience of the Enterprise Fund. The Polish American
Enterprise Fund was the first to succeed, having spun out their team
into Enterprise Investors, one of the most successful East European
private equity firms. The Hungarian fund, and others were also
successful in achieving the mandate. Western NIS Enterprise Fund was
successful in attracting over $100 million in private capital and
spinning off its investment team into Horizon Capital, a private
company, in 2006.
Ms. Jaresko was one of the Founders and the CEO of Horizon Capital
from 2006 through November 2014, when she left to take the position of
Minister of Finance in the Ukrainian Government. Since then, she has
had no role or relationship with Horizon Capital.
2b. Did you receive bonuses during your time as head of WNISEF? And
you received these bonuses while the fund was losing money, correct?
Answer. Yes, USAID approved a bonus program in the Enterprise
Funds, including, but not only WNISEF, that provided the investment
teams financial incentives (bonuses) to liquidate the investments made
with USAID funding at a profit. Incentives were only paid based on
profitable transactions. Given the Enterprise Funds initially were all
expected to return some portion of their capital to the U.S. Government
(which is a unique feature given almost all USAID programs are grants
and do not return funds to the USG), liquidation of the portfolio at a
profit was an important element of the Enterprise Funds.
2c. Was WNISEF audited for accounting irregularities that arose
during your time as head of the fund?
Answer. No, Ms. Jaresko does not recall any audit for accounting
irregularities during her leadership of WNISEF. All the audited
financial statements from inception are publicly available for the
record.
Questions Submitted by Rep. Gosar
Question 1. Can you please elaborate on current weaknesses of the
Government's contract procurement process and how this affected the
government's response to the needs presented by the pandemic crisis?
Answer. Despite some improvement, the Government still fails to
provide an adequate level of transparency when it comes to contract
procurement. In fact, when FOMB attempts to obtain information about
pending and executed contracts, it is often a very long and tedious
process. Currently, the Government is required to get approval from
FOMB for contracts that cost $10 million and over. Specifically, when
it comes to the pandemic, the Government failed to secure approval from
FOMB for a $38 million contract to purchase COVID-19 testing kits. FOMB
immediately requested the required information but unfortunately the
Government failed to provide the relevant procurement information.
Ultimately, FOMB had to file litigation in order to obtain the needed
information.
Question 2. Is the Board doing anything to provide accountability
in the government's contract procurement process?
Answer. In addition to instituting budgets and evaluating requests
by the Government for reapportionments, FOMB is reviewing contracts for
approval pursuant to Section 204(b)(2) of PROMESA to assure that they
``promote market competition'' and ``are not inconsistent with the
approved fiscal plan''.
Question 3. Based on your testimony, it sounds like it is difficult
to do business in Puerto Rico. How does Puerto Rico's business
environment compare to the mainland business environment? And how does
Puerto Rico get to the point where it is operating more like mainland
businesses?
Answer. In Puerto Rico, there are several barriers to entry for
businesses. Perhaps the largest barrier is the fact that there is no
at-will employment in the territory. Christmas bonuses of $600 are
mandated for employers regardless of employee performance. Moreover,
the licensing, permitting, and registration process is expensive and
difficult. The Island's energy supply is expensive and not reliable.
Construction permits are difficult and expensive, and the payment of
taxes is extremely complicated. Finally, transportation costs are
higher due, in part, to strict local regulations and federal laws, such
as the Jones Act.
Question 4. Can you elaborate on the spending trends for the
Government of Puerto Rico since the inception of the Board? Has the
Government of Puerto Rico spent most of its appropriated funds for key
agencies in this fiscal year?
Answer. FOMB used its mandate under PROMESA to break the Government
of Puerto Rico's cycle of deficit spending. The rightsizing measures in
the Certified Fiscal Plan have already reduced the Government's payroll
and overall operating expenses while securing essential government
services, as mandated under PROMESA. The General Fund budget, looking
only at operational costs, declined from $8.9 billion in fiscal year
2016 to $6.2 billion in fiscal year 2020, a more than 30 percent
reduction. The General Fund budget operational costs for the coming
fiscal year 2021 are projected to increase to $7 billion because of
COVID-19 and the reclassification of certain expenses (about $600,000)
from the Special Revenue budget.
Separately and in addition, since fiscal year 2018, the
Government's budget also includes Paygo pension costs, which did not
exist in General Fund budgets before. That cost fluctuates between $2.5
billion and $2.6 billion per year, prior to any pension reform proposed
in the Plan of Adjustment. Ensuring pensions is mandated under PROMESA.
Further, the Government must budget for Puerto Rico's expenditures on
Medicaid, which fluctuate dramatically based on Federal funding.
Medicaid costs not included in the above General Fund budget numbers
have fluctuated from about $400 million to over $1.5 billion. FOMB has
always ensured that the Certified Fiscal Plan projects costs of
Medicaid based on current Federal legislation.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
.epsQuestion 5. PROMESA outlines a process for the development of
the annual budgets. Describe collaboration between the Board and the
Government in developing these budgets.
Answer. Since November 2019, FOMB has been working hand-in-hand
with the Government to develop the budgets for the Commonwealth and
instrumentalities. This includes the Commonwealth (across General Fund
and Special Revenue Funds), COFINA, CRIM, PREPA, PRASA, HTA, UPR,
COSSEC, PRIDCO, and 10 municipalities in our pilot program.
Per PROMESA, the certified budgets need to be consistent with the
certified fiscal plans. The fiscal plans, which are updated annually to
incorporate the latest revenue and expenditure information and to
reflect macroeconomic conditions (namely, the impact of COVID-19), are
the 5-year blueprint to return prosperity to Puerto Rico and fiscal
sustainability to the government and its different instrumentalities.
In the last month, FOMB certified updated (or in some cases new) fiscal
plans for the 19 aforementioned entities. Since then, FOMB has worked
with the Government to develop budgets that are consistent with those
fiscal plans.
The budget process is not a simple one. FOMB requests a lot of
information to validate agency requests, understand how agencies spend
their taxpayer dollars, and make better management decisions that allow
prioritization of much-needed funds. FOMB also ensures that, in
addition to ensuring transparency and efficient use of public funds,
the budget also serves as a tool to ensure efficient implementation of
key priorities as outlined in the fiscal plans.
Unfortunately, for the fourth year in a row, the Government and the
Legislature were unable to submit a budget compliant with the
Commonwealth Fiscal Plan. In fact, the Legislature never submitted an
official budget to FOMB for its review. Notwithstanding several
meetings to try to find a consensus among FOMB, the Governor, the
Senate, and the House, FOMB was unable to do so.
Question 6. Many keep insisting that Puerto Rico is in trouble
because it does not have enough money and that the Federal Government
needs to throw more funds and resources at the territory. Is this an
accurate portrayal of why Puerto Rico is suffering?
Answer. It cannot be denied that Puerto Rico has been through
horrible disasters, including hurricanes, earthquakes, and a health
pandemic, all within the last 3 years. However, Puerto Rico has
received substantial funding for these disasters when it comes to
Medicaid, NAP, FEMA reimbursements, CDBG-DR, unemployment, and other
areas as well. These federal funds have been extremely helpful during
these difficult times. However, more federal funds alone will not solve
the problems in Puerto Rico. In order to be economically healthy, the
highest priority is for the Government to implement structural reform
related to labor, welfare reform, ease of doing business, rightsizing
of the government, pensions, healthcare, the power sector,
infrastructure, and education. In doing so, Puerto Rico needs to give
its residents confidence in future economic growth and opportunity to
stem, and even to reverse, the outmigration to the mainland United
States.
Question 7. Do you agree that the Board is forcing the
privatization of the Public Broadcasting Corporation without taking
into consideration the value of the FCC licenses?
Answer. No. In January 2019, FOMB recommended that the Government
transfer ownership of the Public Broadcasting Corporation's assets to a
private nonprofit entity. In April 2019, the Government accepted the
recommendation and said it would begin implementing the change. To
date, the Government has not acted on this reform and is extremely
delayed in doing so. The FCC licenses should be protected and a
transfer to a private nonprofit entity should not jeopardize the value
of the FCC licenses. There would need to be an appropriate transition
period in the process.
Question 8. The Board made the decision in the latest Certified
Fiscal Plan to freeze all budget cuts for the next year in order to
encourage the implementation of it is recommended reforms. Can you
please explain how you expect this to work? What is different this
time?
Answer. The 1-year delay of many budget reductions will give the
Government more bandwidth to handle effectively difficult policy and
implementation issues related to structural reform. In light of the
health pandemic and so many unknown factors, FOMB reinforces in its
fiscal plans that structural reforms are even more important.
Most of the initiatives in the Fiscal Plan do not require
legislation, just leadership from the executive branch and agency
heads. Government institutions and processes must continue operating
regardless of whether there is an election. These initiatives that are
necessary for our economy and people to recover from the pandemic.
The Government should focus all of its efforts in fiscal year 2021
on making real changes across the Government to ensure better delivery
of essential services. These reforms are designed to promote the focus
of finite Government resources on frontline service delivery that
matters to residents. Real changes include, but are not limited to:
For the Department of Education to implement a back to
school plan, a time and attendance reporting policy for all
employees, record daily student attendance, efficiently
manage its student-teacher ratio by observing its own
staffing policies, and generate savings through improved
procurement and more transparent accounting.
For the Department of Health to focus on core health care
services by saving money through centralized procurement of
supplies across agencies and public hospitals, develop an
action plan for telehealth, consolidate regional Medicaid
offices, improve hospital management, and merge the
Administracion de Seguros de Salud (ASES) into the
department.
For the Department of Public Safety to move more officers
from administrative positions to the field so they can
better serve residents, and reduce overtime with better
time management, fully consolidate the back office.
For the Department of Corrections and Rehabilitation to,
analyze the utilization of facilities given the decline in
the prison population, and generate savings through
improved procurement.
For the Department of Economic Development to finalize the
consolidation of the Puerto Rico Tourism Company into the
department, complete the ascription of the Planning Board,
renegotiate procurement contracts, and publish quarterly
reports of economic incentives.
Question 9. There are no work requirement for NAP in Puerto Rico.
In fact, the way that NAP is currently structured, it discourages
recipients from finding employment. What should Puerto Rico do to
change that? And if Puerto Rico does not do anything to change it, is
there anything the Federal Government could do to help in that arena?
Answer. The 2020 Fiscal Plan required the Government to adhere to a
set of parameters when implementing a NAP work/volunteer requirement.
Specifically, the Government should: (1) apply the requirement year-
round to all able-bodied NAP beneficiaries aged 18-59; (2) grant all
eligible recipients up to a 3-month transition period to secure
employment, begin volunteering, or enroll in qualified education or
training programs; (3) mandate that all eligible recipients complete 80
hours of qualifying activities per month; (4) redesign NAP eligibility
guidelines and benefit calculations to ensure that eligible recipients
are not penalized for seeking formal sector work; (5) redistribute
savings realized through the work/volunteer requirement to boost
working eligible recipients' take-home pay through an expansion of the
Earned Income Disregard; and (6) continue to extend NAP benefits to
children even if their parents are eligible recipients who do not
comply with the work/volunteer requirement.
NAP is a capped block grant, through which the food and nutrition
assistance program for Puerto Rico is funded at a fixed level. Since it
is a block grant, Puerto Rico must make its own decisions regarding
eligibility and work requirements and must also enforce those policy
decisions. The only way this could be changed is through federal
legislation.
Question 10. What growth has Puerto Rico foregone because of little
to no implementation of structural reform since the creation of the
Board?
Answer. Structural reforms were expected to cumulatively increase
nominal GNP by approximately $2.65 billion between FY20-25 if they were
to have been implemented as stated in the 2018 Certified Fiscal Plan.
This represented an incremental cumulative uptick of 1.8 percent in
Real GNP growth rates during this period. Due to the delay in
implementation, structural reforms, if fully implemented going forward
per the Certified Fiscal Plan, are now expected to increase nominal GNP
by only $242 million (an incremental cumulative uptick of 0.6 percent
in Real GNP growth rates). In other words, the economy has lost in
potential nominal growth approximately $2.4 billion dollars between
FY20-25 due to this delay.
In the long run the loss is even greater. Structural reforms were
expected to cumulatively increase nominal GNP by approximately $90.28
billion between FY20-49 if they were to have been implemented as stated
in the 2018 Certified Fiscal Plan. This represented an incremental
cumulative uptick of 1.97 percent in Real GNP growth rates. Due to the
delay in implementation, structural reforms are now expected to
increase nominal GNP by only $24.67 billion (an incremental cumulative
uptick of 0.88 percent in Real GNP growth rates).
Question 11. What is the status of the HUD GDBR funds for Puerto
Rico? Puerto Rico has received them, correct? Have the funds been
utilized yet?
Answer. To date, about $86 million have been disbursed of the $3.2
billion obligated by U.S. HUD. Most disbursements to date are related
to the flagship R3 Housing Program (repair, reconstruction, and
relocation), which is expected to impact a significant number of
families/homes in the following 6 months.
______
The Chairman. Thank you very much. Let me now recognize our
next witness, Mr. Omar Marrero, who is the Executive Director
of the Puerto Rican Fiscal Agency and Financial Advisory
Authority. In this role, he is responsible for leading the
preparation of fiscal plans for the government of Puerto Rico,
which are considered by the Oversight Board. Governor Wanda
Vazquez appointed Mr. Marrero to be the Puerto Rican
government's representative before the Oversight Board, and we
welcome you here, sir, and look forward to your testimony.
STATEMENT OF OMAR MARRERO, EXECUTIVE DIRECTOR, PUERTO RICO
FISCAL AGENCY AND FINANCIAL ADVISORY AUTHORITY
Mr. Marrero. Thank you, sir. Good afternoon, Chairman
Grijalva, Ranking Member Gonzalez-Colon and members of the
Committee. I am Omar Marrero, Executive Director of the Puerto
Rico Fiscal Agency and Financial Advisory Authority. I am
honored to appear here before you again on behalf of Governor
Wanda Vazquez and thank you for the opportunity.
During the last 2\1/2\ months, our Governor's top priority
has been COVID-19. Today, I will share some of the measures we
have implemented in order to manage the crisis. I will also
discuss the implementation of PROMESA during this period and
some areas of the law that need to be modified in order to make
them more effective. Based on our experience with the Board, we
believe that the best way PROMESA will be able to clarify the
unique power-sharing relationships between the government and
the Board is by limiting each to their respective public policy
and fiscal accountability roles, especially now as we continue
to respond to COVID-19 and as the Chairman said, rebuilding
from past and ongoing natural disaster.
Let's discuss the measure our administration has
implemented against COVID-19. First, on March 15, Governor
Vazquez imposed the first mandatory lockdown in the Nation, the
executive order that included the closure of non-essential
businesses, an island-wide curfew, and social distancing
measures.
On March 18, the Governor, who was the first in the Nation
as well, requested the FAA to limit the air traffic into Puerto
Rico, including suspending all domestic and international
flights. And the FAA agreed that all commercial flights must
land at the San Juan International Airport. Then we started
conducting COVID-19 testing for all passengers arriving at the
airport. That strategy has been praised by both our businesses
and residents.
On March 23, Governor Vazquez announced a local relief
package of approximately $787 million to provide immediate
emergency assistance. Some of the initiatives were aimed at the
self-employed, small and medium businesses, municipalities,
public hospitals, and some dedicated emergency response
personnel. We appreciate the help of the Oversight Board to
make it happen.
On March 27, the CARES Act was signed into law. And of the
$150 billion Congress appropriated to state and local
governments through the CRF, Puerto Rico was awarded roughly
$2.2 billion.
On May 15, Governor Vazquez announced our strategic
disbursement plan for the CRF funds. Under the plan, the CRF
funds are mainly prioritized for economic stimulus or health-
related expenses and for government-related expenses incurred
due to COVID-19.
The government's goal is to distribute funds as quickly as
possible while ensuring transparency, compliance, and
accountability. To ensure appropriate oversight, review panels
comprised of representatives from each lead agency are
providing input and recommendations on a newly created CRF
Disbursement Oversight Committee that serves as the centralized
oversight authority of all programs and disbursement. To date,
we have distributed from the CRF approximately $150 million to
self-employed individuals, approximately $100 million to small
and medium businesses and transferred around $150 million to
the State Unemployment Insurance Trust Fund.
In addition, we have allocated $150 million to private
hospitals and $100 million to the municipalities. All this
information is publicly available through our transparency
portal at the above COVID-19 website. Certainly, like any other
government, our response to this unprecedented crisis has not
been free of challenges and obstacles.
Similar situations have occurred stateside. However, our
governor remains committed to the principle of transparency and
accountability and that is what we have implemented for the
funds available for COVID-19. As to the implementation of
PROMESA during COVID-19, as this Committee knows, the
government and Board have had a long history marked with uneven
periods of cooperation and disagreement, some of which has
become the subject of litigation.
But despite some important disagreements, the Board and the
government have actually collaborated on successful
infrastructure, about $25 billion over the last few years.
Since taking office in August 2019, Governor Vazquez has
consistently sought to improve the relationship between the
government and the work by facilitating periodic meetings and
supporting the infrastructure and proceedings.
In addition, Governor Vazquez has worked with the Federal
administration, which Coast Guard Rear Admiral Brown, the Trump
administration's liaison to the government, acknowledged
earlier this year when he said that Puerto Rico's reputation
seems to lag the reality because the government has implemented
very strong internal control mechanisms to counter any attempts
at corruption or diversion of Federal funds. These measures
establish a new atmosphere of cooperation and trust that did
not exist with prior administrations and is a development that
we hope will continue to improve and expand.
Despite our best effort to minimize disagreements, PROMESA
allows the Board to blur the line between the government and
the Board. Over the last several years, the Board has taken the
advantage of such unclear separation of powers to gain more
control over the day-to-day operations, particularly by using
PROMESA certification processes to micromanage the public
governance in Puerto Rico.
The government believes that any attempt to actively impede
our public policy initiatives is counterproductive and
undermines the recent progress to work together. Therefore, due
to the lessons learned during the last 4 years, the government
recommends that if this Committee were to consider amendments
to PROMESA, this must be to clarify where the Board stands, as
I fully explained in my written statement.
Finally, as Justice Breyer advised in his book, Making Our
Democracy Work, a workable government requires trust among
government institutions and between those institutions and the
people. In order to achieve a long-term workable government for
the people of Puerto Rico, the government on the Board must
trust each other in their respective roles, respecting,
thereby, our democratic system which not only is fundamental to
our Puerto Rican community but also is intrinsically aligned
with the long-standing American principle that government of
the people, by the people, and for the people shall not perish
from the Earth. Thank you, Chairman.
[The prepared statement of Mr. Marrero follows:]
Prepared Statement of Omar J. Marrero, Esq., Chief Financial Officer of
the Government of Puerto Rico and Executive Director of the Puerto Rico
Fiscal Agency and Financial Advisory Authority (AAFAF) (on behalf of
Hon. Wanda Vazquez Garced, Governor of Puerto Rico)
Chairman Grijalva, Ranking Member Bishop, and members of the
Committee: Thank you once again for the opportunity to appear before
you to discuss ways to evaluate and improve the implementation of the
Puerto Rico Oversight, Management and Economic Stability Act (PROMESA).
Over the last 4 years, PROMESA attempted to provide Puerto Rico with
vital tools to restructure its debts, achieve fiscal stability, and
spur economic growth. While some of these tools have produced
meaningful results, there remain certain aspects of the law that need
to be reformulated to make these tools more effective, which will allow
Puerto Rico to finish the job of restructuring its debts, achieving
fiscal responsibility and exiting from the bankruptcy process. However,
in several respects, the amendments that have been proposed in the past
do not adequately address critical implementation issues that will
allow Puerto Rico to finish the job that PROMESA started. For instance,
none of the amendments that have been considered address the flawed
fiscal plan and budgeting process under PROMESA sections 201 and 202,
which continues to be the subject of ongoing friction between the
elected Government of Puerto Rico (the ``Government'') and the
Financial Oversight and Management Board (the ``Oversight Board'' or
the ``Board''). The best way for Congress to improve the efficiency and
effectiveness of PROMESA would be to clarify the unique power-sharing
relationship between the Government and Board by limiting each to their
respective public policy and financial accountability roles. Especially
now as Puerto Rico continues to respond to the COVID-19 pandemic and
rebuild from past and ongoing natural disasters, clarifying the roles
of the Board and the Government would substantially improve the
collaboration and cooperation that we have cultivated to date.
My testimony today will focus on five topics: (i) how Puerto Rico
has responded to the COVID-19 crisis; (ii) how PROMESA has facilitated
substantial progress in Puerto Rico; (iii) how PROMESA's unclear
delineation of power has led to unnecessary and wasteful conflict
between the Board and Government regarding the implementation of public
policy; (iv) how PROMESA has been implemented during the current COVID-
19 crisis; and (v) recommended changes to PROMESA that Governor
Vazquez's administration believes will facilitate a better long-term
future for Puerto Rico. While the administration believes the framework
and implementation of PROMESA can be improved, changing the law or the
way the law is implemented will not be sufficient alone to unlock the
full potential of Puerto Rico unless the federal government, including
Congress, demonstrates its commitment to Puerto Rico and works with us
to end the current unequal and undemocratic territory status and places
Puerto Rico on the definitive path to full equality through statehood.
I. Puerto Rico's Response to the COVID-19 Crisis
Since China first alerted the World Health Organization of flu-like
cases in Wuhan on December 31, 2019, the COVID-19 virus has spread to
188 countries in every continent except Antarctica with over 7,100,000
reported cases. Addressing this humanitarian challenge continues to be
the Government's top priority at this moment. As of June 9, 2020,
Puerto Rico had 5,185 cases that tested positive for COVID-19 and 142
deaths. The Government continues to take actions to combat the spread
of the virus, and today I would like to share with the Committee part
of the efforts we have implemented during this time.
On March 15, Governor Wanda Vazquez signed Executive Order OE-2020-
023, which mandated a lockdown, the closure of business, an island-wide
curfew and social distancing procedures. This was the first such
measure taken by any jurisdiction in the United States of America. On
March 18, the Governor requested the Federal Aviation Administration
(the ``FAA'') to take a series of steps to limit air traffic into
Puerto Rico, including suspending all domestic and international
flights to and from Puerto Rico. In response, the FAA agreed that all
commercial flights must land at Luis Munoz Marin International Airport,
located in San Juan, thereby making Puerto Rico the first jurisdiction
to receive tools from the FAA to control air traffic amid the COVID-19
threat. In addition, testing for COVID-19 is being carried out for
passengers arriving at the Luis Munoz Marin International Airport, a
strategy that has been welcomed by both our visitors as well as our
residents.
Since the COVID-19 crisis started, the Governor has issued several
executive orders to address, among other things, caring for the
homeless, school and private sector closures, the creation of a Medical
Task Force to provide counsel and recommendations to the Governor,
acquisition of goods and services, use of the National Guard, prompt
diagnosis of COVID-19, and the general state of emergency due to the
pandemic. Taken together, these measures help protect the physical,
mental, and economic health of the people of Puerto Rico, while
preserving the social fabric of the Island's diverse communities.
On March 23, Governor Vazquez, with the support of the Oversight
Board, announced a local emergency relief package of approximately $787
million, which was intended to provide short-term stimulus and
emergency assistance. On March 25, the Oversight Board issued a letter
to the Governor and Legislature outlining the stimulus measures and
necessary steps to secure the budgetary allocation. On March 28, the
Puerto Rico Legislature approved a Joint Resolution to provide the
allocation of $500 million from the General Fund to cover the initial
phase of the Government's stimulus package. On March 30, the Board
approved a reprogramming request to transfer $157 million under the
custody of the Puerto Rico Office of Management and Budget to various
agencies according to the Government's stimulus package.
I would like to provide some details on some of the specific
measures approved as part of the local economic stimulus package:
Under the Self-Employed incentive, approximately 200,000 self-
employed workers are eligible to receive a $500 one-time payment. The
estimated total cost of this measure is $100 million.
Under the Small Business Incentive, businesses with 50 employees or
less and with business volume of $10 million or less are eligible to
receive a $1,500 one-time cash payment. The estimated total cost of
this measure if $60 million.
Some workers are eligible to receive bonuses. These include
dedicated emergency response personnel including state police and
firefighters, medical emergency technicians, and staff of COVID-19
emergency response management agencies. Amounts awarded per worker
range between $2,000-$4,000.
On March 27, the Coronavirus Aid, Relief, and Economic Stability
Act (known as the ``CARES'' Act) was signed into law. Of the roughly
$2.3 trillion of approved funding under the CARES Act, Congress
appropriated about $150 billion to state and local governments through
the Coronavirus Relief Fund (CRF) under section 5001. Puerto Rico's
population of 3.2 million people accounts for 74.7 percent of the
entire pool for territories, thus awarding us roughly $2.2 billion
dollars.
On May 15, Governor Vazquez signed Executive Order EO-2020-040,
establishing a Strategic Disbursement Plan for CRF funds. Under the
Strategic Plan approved by the Governor, these funds have been
allocated in the following way: $965 million for economic stimulus,
$500 million for health related expenses, $290 million for government
related expenses and $485 million as a reserve for future programs. The
Government's goal is to distribute funds as quickly as possible to put
them into the hands of organizations and individuals that need them the
most, while ensuring transparency, compliance, and proper use of those
funds. To that end, the Government developed a Strategic Disbursement
Plan that, at the time of its publication, was more comprehensive and
detailed than any other state. To ensure appropriate allocation of
funds and oversight, review panels comprised of representatives from
each lead agency for individual Programs are providing input and
recommendations regarding Program guidelines and disbursement
allocations, and a newly constituted Coronavirus Relief Fund Committee
for the Oversight of Disbursements will maintain overall oversight and
governance of all Programs and authorize all disbursements.
On May 15, the Government began distributing the CRF funds. To
date, the Puerto Rico Treasury Department has distributed approximately
$150 million of the allocated $200 million for the Assistance Program
to Self-Employed Individuals Program, impacting over 149,000
individuals. This information is publicly available through our
Strategic Disbursement Plan Funding Report, hosted through the AAFAF
COVID-19 webpage.
On May 18, we opened the application period for the Assistance
Program to Private Hospitals and Assistance Program to Municipalities.
As of June 9, all applications for the Assistance Program to Private
Hospitals have been reviewed by the Program Grant Office, Compliance
Office and the Lead Agencies. In total, 47 applicants representing 51
hospitals were awarded almost $140 million of the $150 million
allocated to the program. These funds have begun to be disbursed, and
we anticipate all awarded funds will be disbursed in the next week.
On June 4, the assistance programs to Small and Medium Businesses
were launched. In the first 48 hours, over 21,000 small and medium
businesses applied for assistance through the program, and more than
$101 million was identified for disbursement. In the coming week, we
expect to continue to make progress on launching the remaining programs
as well as solidifying the process for fund recipients to document and
report their use of funds to ensure the strictest compliance with CARES
Act guidelines and the mitigation of fraud, waste, and abuse.
Like any other crisis, the Government's response has not been free
of errors and controversies. Similar situations have occurred in other
states and jurisdictions of the Nation. However, the Government remains
committed to the principles of transparency and accountability, and
will continue to work with our Federal counterparts in order to ensure
that the recovery funds available to combat the COVID-19 crisis go
directly to the people and entities that need it most.
II. PROMESA Has Facilitated Substantial Progress in Puerto Rico
I would now like to discuss how PROMESA has been implemented during
this current crisis. As this Committee knows, the Government and Board
have had a long history--across three different administrations in
nearly 4 years--marked with uneven periods of cooperation on the one
hand and disagreement on the other, some of which has become the
subject of litigation. Notwithstanding some important disagreements,
the Government and Board have actually collaborated and achieved
several restructurings over the last few years. For example, in
November 2018, the Government Development Bank of Puerto Rico (GDB)
completed a first-of-its-kind consensual restructuring of about $4
billion of debt under Title VI of PROMESA. In February 2019, COFINA
consummated its Title III plan of adjustment to restructure
approximately $18 billion of bond debt. And in July 2019, PRASA entered
into definitive agreements to restructure almost $1 billion in debt
under Federal programs administered by the EPA and USDA under section
207 of PROMESA, providing significant annual debt service relief, among
other benefits for PRASA. All of these efforts garnered the full
support of the Oversight Board and the Government, including both the
legislative and executive branches.
In the past, the Government and the Board have also had
disagreements over fiscal plans and budgets. But we have generally
agreed on many of the fiscal plan provisions. Any remaining
disagreements have been primarily based on public policy decisions,
such as civil service reform and the treatment of Government employee
compensation and pension benefits, among other things.
After Puerto Rico experienced an unexpected political upheaval in
July and August 2019, the relationship between the Government and Board
adjusted to a new administration under Governor Vazquez. Since taking
office, Governor Vazquez has consistently sought to mend the
historically fractious relationship between the Government and the
Oversight Board by facilitating informal discussions to achieve
meaningful solutions for the people of Puerto Rico including supporting
the restructuring proceedings. From the outset, Governor Vazquez's
administration has been, and will continue to be, fully committed to
(1) transparency, (2) accountability, and (3) fiscal responsibility. To
achieve these objectives, this administration has issued a series of
executive orders in the last year designed to combat corruption in
government contracting and restore Puerto Rico's credibility with the
Board and the Federal Government. In fact, after reviewing the
Government's recovery operations in February 2020, Coast Guard Admiral
Peter J. Brown--the Trump administration's liaison to the Government
for natural disaster recovery efforts--reported that Puerto Rico's
``reputation seems to lag the reality'' because the Government has
implemented ``very strong internal control mechanisms to counter any
attempts at corruption or diversion of funds.'' These measures have
helped to establish a new atmosphere of cooperation and trust between
the Government of Puerto Rico, the Oversight Board, and the Federal
Government that did not exist with prior administrations--a development
that we hope will continue to improve and expand.
In particular, this recent collaboration between the Government and
the Board has been vital to achieving a swift response to the negative
health and economic impacts of COVID-19 in Puerto Rico. On March 13,
2020, the Government sent a request to the Oversight Board seeking
authorization to use $160 million from an Emergency Reserve fund
established under the Commonwealth's fiscal plan for preparedness and
response to the COVID-19 emergency. That same day, the Oversight Board
authorized the use of these funds on the condition that the Puerto Rico
Office of Management and Budget (OMB) provide weekly reports to the
Board on its uses and the disbursements of emergency expenses. The OMB
has been providing these weekly reports to the Board. A few weeks
later--on March 23, 2020--Governor Vazquez, with the support of the
Oversight Board, announced a $787 million local emergency relief
package package to address local issues. This relief package was among
the most complete and ambitious packages awarded at the state/territory
level to face this unprecedented crisis, and required substantial
coordination between the Government and the Board to make available the
necessary funds.
This level of unprecedented collaboration between the Government
and the Board demonstrates how meaningful achievements are possible
under PROMESA when we work together. However, on June 8, 2020 the Board
commenced a new adversary proceeding against the Government over a
disagreement that, frankly, could have been resolved out of court. The
Government believes that this and other disagreements we still have are
reconcilable and we remain committed to working with the Board to
achieve consensus wherever possible to build upon these prior
successes.
III. Due to PROMESA's Unclear Delineation of Power, the Oversight Board
Has Engaged in Efforts to Impede the Government's Public Policy
Objectives
Despite our best efforts to minimize disagreements, the language
and structure of PROMESA as currently adopted by Congress, allows the
Board to blur the delineation of power between the Government and the
Oversight Board. Because the respective roles of the Government and
Oversight Board often overlap, the lack of clarity in the statute
creates too many opportunities to waste time jockeying for power rather
than creating and implementing meaningful solutions for the people of
Puerto Rico.
Over the last several years, the Board has attempted to take
advantage of this unclear separation of powers to gain control over
day-to-day operations of the Government. For instance, on October 26,
2017, the Oversight Board brought a motion in the Title III cases
seeking the appointment of a chief transformation officer (CTO) for
PREPA, the Island-wide public electric company. In its motion, the
Board argued that the broad powers granted to it under PROMESA
obligated the Board to act as a ``chief executive officer'' over both
long-term strategic planning and day-to-day management of PREPA, such
that it could unilaterally displace a statutorily created management
structure and direct the executive functions of PREPA (or any other
Puerto Rico public corporation). Fortunately, the Title III Court
denied the Board's request, noting that, unlike the establishment of
the D.C. control board, ``Congress did not grant the [Oversight Board]
the power to supplant, bypass, or replace the Commonwealth's elected
leaders and their appointees in the exercise of their managerial duties
whenever the Oversight Board might deem such a change expedient.'' In
re The Fin. Oversight & Mgmt. Bd. for Puerto Rico, 583 B.R. 626, 634
(D.P.R. 2017).
After failing to be acknowledged as the CEO of PREPA, the Oversight
Board pivoted its strategy to subvert the duly elected Government's
policy objectives through significant lobbying efforts, which have cost
a disturbingly considerable amount of Puerto Rico taxpayer dollars to
do it. The Board's use of such anti-democratic tactics to undermine the
elected Government's policy preferences should be a primary concern of
this Committee.
The Oversight Board has also seized the fiscal plan and budget
certification processes under PROMESA sections 201 and 202 to micro-
manage virtually all aspects of public governance in Puerto Rico,
including attempts to exercise managerial duties that the Title III
Court has already denied. For example, in 2018, the Oversight Board
refused to provide appropriations for public-sector employee Christmas
bonuses, and economic development initiatives for municipalities (among
other things) and insisted on a draconian cut to public pensions unless
the Government agreed to become an ``at will'' employment jurisdiction
by repealing Act 80. Act 80 requires employers to have ``just cause''
before terminating the employment of an employee hired for an
indefinite period of time. Although then-Governor Rossello agreed to
the Board's request in exchange for vital funding necessary to support
the Government's public policy objectives, the Puerto Rico Legislature
did not repeal Act 80. In retaliation, the Oversight Board re-certified
a new version of its fiscal plan and budget for fiscal year 2019
imposing severe austerity measures designed to punish the Government
for failing to adopt the Board's preferred public policy on employment.
In its latest Commonwealth-wide fiscal plan certified on May 27,
2020, the Board did it again when it completely defunded the State
Public Broadcast Corporation (``WIPR'', by its Spanish acronym) to
force the Government to comply with an unreasonable and unrealistic
timeframe that could jeopardize the crown jewel of WIPR: its licenses
issued by the Federal Communications Commission and their renewals. The
Board also included in the new Fiscal Plan a detailed K-12 education
reform plan that requires the Puerto Rico Department of Education to
implement non-financial reforms such as: (i) segmenting schools based
on performance outcomes; (ii) launching evidence-based curriculum
reforms; (iii) creating post-COVID-19 back-to-school plans and
improving distance learning capabilities; (iv) improving professional
development opportunities for directors and teachers; and (v)
implementing initiatives to boost family engagements. While the
Government does not necessarily disagree with these measures, the
Government believes that these types of detailed public policy
initiatives--which have nothing to do with fiscal responsibility,
ensuring sustainable debt levels, exiting the Title III bankruptcy, or
maintaining balanced annual budgets--go far beyond the intent of
PROMESA's fiscal plan and budget processes. These are matters for the
people of Puerto Rico to decide.
There is no doubt that an improved education system will help
propel Puerto Rico's economy forward by developing a more competitive
workforce and providing better opportunities for Island residents. In
fact, improving education in Puerto Rico is one of Governor Vazquez's
top priorities. But fiscal plans and budgets should not be a masquerade
for the Board to implement its own vision for the future of education
in Puerto Rico (or any other public policy for that matter). Puerto
Ricans have elected their own government to do that. If the Board can
use the fiscal plan and budget process to impose its own public
policies on the Government of Puerto Rico, then the Board can tie the
hands of elected officials (as it has done historically) and
effectively strip the people of Puerto Rico of their voice in an
elected government of their own choosing. Although we are cognizant of
the fact that territories are subject to the plenary powers of Congress
under Article IV of the U.S. Constitution, certainly, this is not what
Congress adopted or intended under PROMESA when it installed an
oversight board for Puerto Rico rather than a control board.
The May 27 Fiscal Plan includes many other policy initiatives that
have nothing to do with fiscal responsibility and financial management,
but instead impose directives on day-to-day governmental operations,
such as which agencies should perform promotional activities for the
earned income tax credit. These measures include the micromanagement of
government functions related to, among other things:
Business permitting and occupational licensing;
Workforce development programs;
Public safety programs;
Freight regulations;
Tourism marketing;
Broadband access programs; and
Street parking.
To be clear: the Government does not necessarily disagree with
these policies. The problem is that the Board should not be able to use
its fiscal plan and budgetary powers to dictate the specifics of every
policy the Government pursues. A proper division of power would allow
the Government to construct its own policies freely to meet the needs
of the people, and the Board's oversight role would be to intervene
only if the costs of Government policies significantly undermine the
financial framework of the certified fiscal plan. If the Government
acts within the broad revenue and expense targets in the fiscal plan,
then the Board's powers should end and the democratic will of the
people should prevail.
In addition to imposing its own policy preferences, the Board has
also used its fiscal plan and budgetary authority to impede the
Government's own public policies by seeking to nullify new laws. Over
the last several months, the Board has sent an excessive amount of
correspondence to the Government asserting rights and powers that the
Government believes exceeds the Oversight Board's capacities under
PROMESA and which the Government has spent considerable time and energy
responding to. A list of these efforts, including samples of the
related correspondence, is attached hereto as Appendix A. Some of these
letters touch upon aspects far removed from regular Oversight Board
work, including suggesting when and how the Puerto Rico Electric Power
Authority's (PREPA) vegetation management program should occur. But the
most troubling of these communications from the Government's
perspective include:
Directives to provide substantial unwarranted information
in support of the Government's fiscal plan compliance
certifications related to new laws designed to (i) better
regulate the healthcare industry in Puerto Rico (Act 82-
2019, Act 90-2019, and Act 138-2019); (ii) change employee
vacation and sick day accrual rates (Act 176-2019); (iii)
provide the Fire Department of Puerto Rico a pay increase
paid for with a new 3 percent tax on fire and allied lines
insurance policies (Act 181-2019); and (iv) provide tax
relief to health professionals in light of their personal
and professional sacrifices related to COVID-19 (Act 47-
2020); and
Assertions that the Board can unilaterally nullify these
new laws pursuant to PROMESA sections 204(a) and 108(a) if
the Government fails to comply with the foregoing
directives.
Furthermore, on June 8, 2020 the Oversight Board commenced yet
another adversary proceeding over certain information requests the
Board has sent to various Government agencies. Even though the
Government has cooperated with such requests by producing over 1,000
pages of documents, the Board still alleges some information is
missing. Rather than engaging with the Government and meeting with
public officials to discuss the alleged missing information, as the
Government has suggested, the Board decided to go through the courts,
once again antagonizing the Government in expensive judicial
proceedings that unnecessarily wastes public funds.
In contrast to the Board's interference with Government public
policies, the Board has not made efficient use of the economic
development tools provided by PROMESA. As of today, the position of
Revitalization Coordinator provided for in section 502, has been vacant
for over a year. And as far as the Government is aware, only one
critical project under section 503 of PROMESA has been approved by the
Board. Almost 4 years since the enactment of PROMESA, the economic
development tools provided to the Board by PROMESA are stalled. As with
the Board's imposition of public policies in the fiscal plan, the
Government believes that actively impeding the Government's own public
policy initiatives is counterproductive and undermines our recent
progress to work collaboratively with the Board to implement meaningful
fiscal and economic solutions for the people of Puerto Rico. It is
particularly disconcerting that the Board has used these letters to
make unwarranted threats to nullify the duly elected Government's
recently enacted laws. The Government believes that a more carefully
delineated division of power would avoid these wasteful and time-
consuming endeavors, while preserving effective governance in Puerto
Rico.
IV. Any PROMESA Amendments Should Clarify Where the Board's Powers End
As with prior proposed PROMESA amendments that this Committee has
considered, any further PROMESA amendments must address the most
important obstacle to effectively implementing the statute: Clarifying
where the Board's powers end. As such, the Government recommends that
Congress consider the following amendments to PROMESA:
Clarify the Roles of the Government and the Oversight
Board: It is critical to the legitimacy of this process
that the Government of Puerto Rico always retain its
democratically derived powers. Congress should make clear
that appropriate, important roles exist for each of the
Government of Puerto Rico and the Oversight Board. As
previously discussed, the Oversight Board has used its
fiscal plan and budgetary powers to impose detailed
spending restrictions that have the effect of dictating
public policy--an approach that undermines the Government's
powers and turns the Oversight Board into something more
akin to a control board. To address this issue, we submit
that sections 201 and 202 of PROMESA should be amended to
make clear that the Oversight Board's fiscal plan and
budgetary powers do not extend to determining day-to-day
operating level expenditures or the imposition of detailed
public policy (such as education reforms). The Government
of Puerto Rico should be responsible for setting public
policy, operating the government and implementing
solutions. The Oversight Board should provide financial
oversight and monitor the budget and fiscal health of the
Commonwealth to assure that appropriate controls are in
place and financial metrics are being met. While the
Government and the Oversight Board would still be required
to work diligently together to make their respective roles
work as a cohesive whole, a more careful delineation of
PROMESA's power-sharing arrangement would make for a much
more effective process.
Eliminate the Role of the Oversight Board as Title III
Representative: The insertion of the Oversight Board as the
Title III representative creates confusion and results in
litigation within the Title III process. The Title III
debtor is already subject to the scrutiny of the court
process. While the Oversight Board has a critical role to
play, it is not necessary to create conflicting roles by
giving the Board both the debtor role and the oversight
function in the Title III process.
Revise Fiscal Planning Process: The fiscal plan and
budgeting process should be revamped to provide a focus on
one-year budgets to make sure that Puerto Rico is not
spending more than it is taking in and that an objective
and reliable assessment is made each year to determine how
much the Government needs to pay for essential services.
The fiscal plan and budgeting process should not be used as
a public policy tool or turned into an endless modeling
exercise.
Conclusion
As Justice Breyer advised in his book ``Making Our Democracy
Work,'' a ``workable government'' requires trust among government
institutions and between those institutions and the people. In order to
achieve a long-term ``workable government'' for Puerto Rico, the
Government and the Board must trust each other in their respective
roles. But the people of Puerto Rico will not trust the dynamic between
the Board and their Government if the Board is able to impose its
public policy preferences at will over elected officials. Hence,
failing to amend PROMESA to more clearly delineate the respective roles
of the Board and the Government will result in only one thing: an
``unworkable government.'' Moreover, the Board may be tempted to
continue in their attempts to interfere with local governmental powers,
acting like a judicial branch by unilaterally enjoining the
implementation of local laws, like a legislative branch by illegally
incorporating and mandating public policy issues in certified fiscal
plans, and like an executive branch, by dictating when and how their
own public policy determinations are executed. Surely this is not the
type of entity Congress had in mind when PROMESA was approved. The
Government believes that, notwithstanding the substantial restructuring
progress we have made to date, further and faster progress could be
made, and the job of exiting Title III bankruptcy can be achieved, if
the Government and Board's powers were more clearly delineated in
PROMESA. By doing so, we will fully respect thereby both the democratic
system of the People of Puerto Rico, which the Preamble of our
Constitution acknowledges as fundamental to the life of our community,
as well as the long-standing tradition of our American democracy ``that
government of the people, by the people, for the people, shall not
perish from the earth.'' Thank you.
*****
The following documents were submitted as attachments to Mr. Marrero's
testimony. These documents are part of the hearing record and are being
retained in the Committee's official files:
Appendix A: Board Actions Interfering With Government Operations
-- Exhibit 1: U.S. District Court, District of Puerto Rico, Case
17-04780-LTS
-- Exhibit 2: FOMB, Letter to Governor Wanda Vazquez Garced, dated
November 15, 2019.
-- Exhibit 3: AAFAF's Response Letter to FOMB, dated November 22,
2019.
-- Exhibit 4: FOMB, Letter to Omar Marrero, dated December 18,
2019.
-- Exhibit 5: FOMB, Letter to Omar Marrero, dated April 27, 2020.
-- Exhibit 6: AAFAF's Response Letter to FOMB dated May 8, 2020.
-- Exhibit 7: FOMB, Letter to Ortiz Vazquez, PREPA, dated April 30,
2020.
-- Exhibit 8: FOMB, Letter to Governor Vazquez, Senate President
Thomas Rivera Schatz, and House Speaker Carlos J. Mendez
Nunez, dated May 11, 2020.
-- Exhibit 9:AAFAF's Response Letter to FOMB, dated May 19, 2020
-- Exhibit 10: FOMB, Letter to Governor Vazquez, Senate President
Thomas Rivera Schatz, and House Speaker Carlos J. Mendez
Nunez, dated May 11, 2020.
-- Exhibit 11: FOMB, Letter to Governor Vazquez, Senate President
Thomas Rivera Schatz, and House Speaker Carlos J. Mendez
Nunez, dated May 21, 2020.
-- Exhibit 12: AAFAF's Response Letter dated May 28, 2020.
-- Exhibit 13: FOMB, Letter to Omar Marrero, dated June 5, 2020.
______
Questions Submitted for the Record to Omar Marrero, Executive Director,
Puerto Rico Fiscal Agency & Financial Advisory Authority
Questions Submitted by Rep. Grijalva
Question 1. How does the 2020 Fiscal Plan certified by the
Oversight Board differ from the proposed Fiscal Plan presented by the
Government of Puerto Rico?
Answer. While there are many overlapping assumptions and measures
in the Government's fiscal plan proposal dated May 3, 2020 (the
``Government 2020 Fiscal Plan'') and the Oversight Board's fiscal plan
as certified on May 27, 2020 (the ``Certified 2020 Fiscal Plan''),
there are also areas where the Government and the Oversight Board
differ. Below please find a summary of certain provisions that are
fundamentally different.
Term of the Financial Forecast: The Government 2020 Fiscal
Plan includes a 20-year forecast through fiscal year 2039,
consistent with the life of the bonds as proposed in the
Board's as-filed plan of adjustment proposal dated February
28, 2020. The Certified 2020 Fiscal Plan includes a 30-year
forecast through fiscal year 2049.
Macro-Economic Forecast: The Government 2020 Fiscal Plan
reflects a slightly more pessimistic macroeconomic forecast
in fiscal year 2020 and fiscal year 2021 relative to the
Certified 2020 Fiscal Plan. This is a result of assumptions
related to United States economic growth, the COVID-19
shock, and the offsetting COVID-19 stimulus.
Long Term Medicaid Federal Funding: The Government 2020
Fiscal Plan includes an assumption that the Commonwealth
will receive long-term Medicaid federal funding of 55
percent after the current Medicaid Bill expires.
Conversely, the Certified 2020 Fiscal Plan does not assume
that there will be long-term Medicaid funding.
Pension Reform: The Government 2020 Fiscal Plan excludes
pension reform, such as pension cuts and a pension freeze.
Conversely, the Certified 2020 Fiscal Plan includes pension
reform measures such as the pension cuts and pension
freeze.
General Fund Expenses: The general fund expenses in the
Government 2020 Fiscal Plan are based on the Puerto Rico
Office of Management and Budget (``OMB'') proposed budget
for fiscal year 2021. Additionally, the Government 2020
Fiscal Plan includes several reinvestment initiatives such
as Uniform Remuneration, Police Retirement, Parametric
Insurance, and the payment of the ``Christmas Bonus,'' an
integral part of government employees' compensation for
over 40 years. The Certified 2020 Fiscal Plan is based on
the Oversight Board's target budget for fiscal year 2021.
Moreover, the Certified 2020 Fiscal Plan includes
approximately $5.5 billion in re-investment in Puerto Rico
on account of the COVID-19 crisis.
Measures and Appropriations: The Government 2020 Fiscal
Plan calls for a 2-year delay in rightsizing measures and
appropriations as a result of the COVID-19 pandemic.
Additionally, the Government 2020 Fiscal Plan excludes go-
forward measures related to education, health, and public
safety given their critical nature. The Certified 2020
Fiscal Plan includes a 1-year delay in rightsizing measures
and appropriations on account of COVID-19.
Question 2. Are austerity measures requested by the Oversight Board
impacting the Government's ability to provide essential public services
and/or respond to the current COVID-19 public health and economic
crises? For example, are austerity measures causing delays in
processing stimulus checks, unemployment applications, NAP expansion,
and/or local programs to respond to the pandemic?
Answer. The Oversight Board's austerity measures have affected the
Government's ability to provide services to the people of Puerto Rico
in some instances. Specifically, the Labor grouping in the Certified
2020 Fiscal Plan has already had its budget reduced by $8.9 million
from fiscal year 2018 through fiscal year 2020. Over the same time
period, headcount declined from 2,318 to 2,084, a 10 percent reduction.
Question 3. $4.9 billion was appropriated after Hurricane Maria for
low-cost forgivable Community Disaster Loans for Puerto Rico and the
U.S. Virgin Islands based on projections of revenue losses that, in
Puerto Rico's case, were vastly overestimated. The White House
suggested Puerto Rico could expect about $4.65 billion of the total,
but only a few hundred million were disbursed to Puerto Rico's
municipalities because the Government of Puerto Rico did not have a
liquidity problem as projected. Since Puerto Rico was excluded from the
Federal Reserve program--contrary to Congress' intent--should a
reprogramming of the $4 billion in Community Disaster Loans that were
appropriated but have not been used be disbursed to Puerto Rico?
Answer. The Government supports any initiative that allows it to
cope with the revenue losses caused by the substantial economic and
health impacts of the COVID-19 pandemic, including Puerto Rico's
participation in the Federal Reserve program or the revenues loss
provisions being contemplated in the HEROES Act currently under
evaluation in Congress.
Question 4. Through the CARES Act, the Federal Government assigned
$2.2 billion to Puerto Rico to address the COVID-19 pandemic. The 2020
Fiscal Plan outlines how the funds will be allocated by the government.
Mr. Marrero, how much of these funds has the Government already used?
Are you confident the government will be able to make use of the
available funds before the December 31, 2020 deadline established by
the CARES Act?
Answer. On May 15, 2020, Governor Wanda Vazquez Garced issued
Executive Order OE-2020-040 establishing Puerto Rico's Strategic
Disbursement Plan for the Coronavirus Relief Fund (the ``Strategic
Disbursement Plan'') under the Coronavirus Aid, Relief, and Economic
Security Act of 2020, Pub. L. 116-136 (the ``CARES Act''). A copy of
the Strategic Disbursement Plan is available at http://
www.aafaf.pr.gov/assets/strategic-disbursement-plan-crf.pdf.
The Strategic Disbursement Plan lays out 16 distinct programs that
address both government needs (mainly associated with attending to the
public health emergency and continuing government operations) and those
of the private sector, which has been severely affected by interruption
of operations. In addition, the Strategic Disbursement Plan established
a reserve of $486 million to be allocated at a later date. The
Government is currently considering options to deploy that reserve
based on a necessity standard as well as data gathered from the
applications received for the other Coronavirus Relief Fund (``CRF'')
programs.
As of June 17, 2020, 12 of the Strategic Disbursement Plan programs
are live and accepting applications, with the remaining programs
expected to go live in the next few weeks. $557 million in CRF funds
have been disbursed or transferred to entities who were deemed eligible
after completing the Strategic Disbursement Plan's CRF application
process. Based on the pace of disbursements to date as well as
additional eligible needs that have been identified, we expect the
Government will be able to make use of the available funds before the
deadline established by the CARES Act. Further information on CRF
disbursements can be found at http://www.aafaf.pr.gov/covid-19-
resource-center.html.
Question 5. Mr. Marrero, like most places around the world, Puerto
Rico is facing higher unemployment rates due to the COVID-19 pandemic.
However, Puerto Ricans trying to obtain unemployment benefits have
faced hours-long lines, faulty technology, and miscommunication from
the local Department of Labor. What steps will the Puerto Rico
Department of Labor take to immediately correct the current missteps in
disbursing local unemployment funds?
Answer. The State Unemployment Insurance Program (``UI'') and the
temporary unemployment benefits programs created under the CARES Act
(e.g., Pandemic Unemployment Assistance (``PUA''), Federal Pandemic
Unemployment Compensation (``FPUC'') and Pandemic Emergency
Unemployment Compensation (``PEUC'')) require compliance with Federal
law, which mandates that claimants should meet all eligibility
requirements. At present, there are more than 320,000 workers receiving
UI and PUA benefits. However, a portion of applicants have issues of
eligibility on their claims that must be solved through investigation
before a payment is issued. These issues arise from the information
provided by claimants in their benefits application.
Federal law requires the adjudication of eligibility issues to be
solved on a case-by-case basis before the issuance of a payment.
Sometimes, the adjudication of an issue may require interviewing not
only a claimant, but also his or her employer. Therefore, the payment
of unemployment funds cannot always be as fast as expected. See U.S.
Department of Labor, Unemployment Insurance Program Letter No. 23-20,
at p.4 (``Eligibility for [Unemployment Compensation (``UC'')] is based
on claimants demonstrating that they meet certain eligibility
requirements on a weekly basis . . . a state's failure to administer
its UI program in conformity and substantial compliance with federal
law can result in loss of the state's certification and loss of its
administrative grant to operate the UC program and/or its employers'
tax credits under [Federal Unemployment Tax Act] FUTA'') (emphasis
added).
Hence, issues on a claimant's eligibility can delay the receipt of
unemployment benefits. In order to speed up the issues-solving process,
the Puerto Rico Department of Labor (``PRDOL'') has contracted with a
company that provides software and virtual platform for employees to
solve claimant's issues by phone. Under this new software, claimants
will receive texts and e-mails informing the date and hour in which
PRDOL will call to solve their eligibility issues.
Claimants with issues of eligibility with an older date will be
called before claimants with recent eligibility issues. Therefore, the
software provides an efficient way to solve claims chronologically, so
that people that have been waiting longer for the resolution of their
claim can obtain their unemployment benefits payment first. PRDOL will
promote this phone-appointment system, so that claimants do not have to
visit their local PRDOL office. PRDOL will also promote the use of its
virtual document uploader so that claimants will be aware that they do
not have to hand in person the documentation required to solve their
eligibility issues. Moreover, new mailboxes were installed at the PRDOL
regional offices.
Regarding the acquisition of new technology to speed up the payment
of claims, PRDOL issued a request for proposal to analyze PRDOL's
processing of unemployment claims and issue an opinion with
recommendations. Currently there is a bill before the Puerto Rico
Legislature that will allow a collaboration between the PR Treasury
Department and PRDOL. Once the aforementioned bill becomes a law, the
PR Treasury Department will be allowed to provide data and its updated
technology to the PRDOL with the purpose of speeding up the processing
of unemployment claims. Furthermore, PRDOL is currently analyzing
various software proposals for a fastest processing of PUA and
``Disaster Unemployment Assistance'' (``DUA'') claims. Finally, it must
be pointed out that PRDOL expects to add approximately 200 temporary
employees (or more if needed) to its current workforce to help with the
resolutions of claims.
Question 6. Senate Finance Committee Chairman Charles Grassley
wrote a letter to Governor Wanda Vazquez outlining a series of well-
documented incidents of corruption and mismanagement that have been
widely reported by the media in Puerto Rico. What specific measures is
the Government of Puerto Rico implementing to address each of his
concerns and what steps are you taking to ensure these incidents never
happen again?
Answer. As the Government's response to Chairman Grassley made
clear, the allegations in his letter appear to be unsupported and many
originated from unreliable sources or parties with partisan agendas.
Governor Vazquez's administration has fought to ensure that government
agencies take responsible measures to fairly and transparently
implement their procurement and contracting policies. This
administration has addressed issues related to irregularities in the
use of federal funds and ensured that relief is used to benefit the
people of Puerto Rico. Since assuming office in August 2019, Governor
Vazquez has issued a series of executive orders designed to combat
corruption in government contracting and restore Puerto Rico's
credibility with the Federal Government. In fact, after reviewing the
Government's recovery operations in February 2020, Coast Guard Admiral
Peter J. Brown--the Trump administration's liaison to the Government
for natural disaster recovery efforts--reported that Puerto Rico's
``reputation seems to lag the reality'' because the Government has
implemented ``very strong internal control mechanisms to counter any
attempts at corruption or diversion of funds.''
Question 7. Since the COVID-19 pandemic reached Puerto Rico, and
the shelter in place and lockdown restrictions were put in place, many
non-profits entities, community leaders and community-based
organizations have been working together in several groups to find
solutions to the social problems created by this new emergency. Some of
those groups include ``La Mesa Social'' and ``Task Force Social del
Pueblo'', comprising more than 150 organizations. These groups have
been working with vulnerable populations facing the new challenges
imposed by COVID-19, and also asking the Government for information and
specific actions that would help the residents of Puerto Rico. Why
hasn't the Government of Puerto created a social task force, similar to
the medical or economic task forces, to address the problems faced by
the most vulnerable populations of the island?
Answer. The Government continues to take all measures necessary to
combat the effects of the COVID-19 pandemic. The Governor has created a
medical task force and an economic task force to advise on matters on
how to handle the pandemic. The vulnerable population of the Island is
of the utmost importance to the Government. In fact, one of the first
Executive Orders signed by the Governor during the COVID-19 crisis was
geared toward protecting a sector of the most vulnerable population of
Puerto Rico; the homeless. Executive Order 202-25 ordered the PR
Department of the Family, the Department of Housing and the Health
Department to establish assistance centers to provide medical
attention, among others, to this vulnerable sector of the population.
In addition, as further explained in our answer to Question 8, under
the Strategic Plan for the Disbursement of CRF funds, nongovernmental
organization that work closely with these vulnerable communities are
eligible and encouraged to participate in many of the programs outlined
in the Strategic Plan. The Government will continue analyzing further
ways in which to address the problems of this important sector of our
population.
Question 8. After advocacy efforts from a group of Puerto Rican
NGOs, the Oversight Board wrote a letter to Governor Wanda Vazquez
supporting a petition that a portion of the discretionary funds under
federal stimulus packages be assigned to the social services NGOs in
Puerto Rico. However, the Government of Puerto Rico has not answered
this petition. What are the reservations to the petition made by the
NGO community and supported by the Oversight Board? Is the Government
of Puerto Rico going to act on this request any time soon?
Answer. On May 15, 2020, Governor Wanda Vazquez Garced issued
Executive Order OE-2020-040 establishing Puerto Rico's Strategic
Disbursement Plan for the use of CRF funds under the CARES Act. The
plan lays out 16 distinct programs that address both government needs
(mainly associated with attending to the public health emergency and
continuing government operations) and those of the private sector,
which has been severely affected by interruption of operations. Non-
governmental organizations (``NGOs'') are eligible for and have been
encouraged to participate in many of these programs.
Additionally, communication among representatives of the Puerto
Rico Fiscal Agency and Financial Advisory Authority (``AAFAF'') and
representatives of the NGO sector has been constant throughout the
process of developing these CRF programs. Representatives of AAFAF have
met with a group of representatives of the NGO sector three times and
continue to discuss with them ways to achieve their goals that are in
line with the CRF guidance provided by the U.S. Department of Treasury.
AAFAF remains available to continue discussions with representatives
from the NGO sector.
Question 9. Puerto Rico's power grid is particularly fragile after
Hurricane Maria and the earthquakes in southern Puerto Rico. After the
earthquakes this January, the Costa Sur power plant has been out of
service due to the significant damages made. The 2020 Hurricane season
began 2 weeks ago. Mr. Marrero, have you or Governor Wanda Vazquez been
in contact with FEMA to discuss the upcoming hurricane season? What
steps are being taken to plan and prepare for these upcoming months?
How are these being impacted by the upcoming privatization of the power
utility?
Answer. As a result of the multiple lessons learned following
Hurricanes Irma and Maria, PREPA has undertaken and implemented various
System Planning and Response Planning measures.
(a) System Planning--
Vegetation Management: PREPA commenced a pilot and a
comprehensive vegetation management program, consistent
with industry best practices, to protect the integrity of
PREPA's T&D infrastructure. The pilot program was supported
by a $7 million budget for two contractors (fiscal year
2019-2020), 1,098 areas assigned across six regions on 38
kV lines. The full T&D vegetation management program
(fiscal year 2020 and 2021) includes a $33 million budget
for three contractors, with 595 miles assigned across six
regions.
Enhanced Communications: PREPA also now has 68 satellite
phones and agreements with KP4 for radio communication in a
natural disaster event. This includes an installed
teleconference system island-wide that improves
communication reliability and redundancy.
(b) Response Planning--PREPA has aligned the following support in
the event response is needed to another natural disaster.
American Public Power Association (APPA) Agreement: The
Mutual Aid Program includes a variety of partners and
networks for the provision of external resources for power
restoration; This also contemplates coordination with APPA
within 72 hours.
Master Service Agreement (MSA) for Emergency Restoration:
PREPA issued an RFP during early May. Selected proponents
are expected to be announced in early July 2020.
Memorandum of Understanding (MOU) with Municipalities:
PREPA has made available an MOU agreement to those
municipalities that wish to provide restoration services at
a very local level.
Inventory: PREPA's inventory positions is currently at
$138 million versus $37 million prior to Hurricane Maria.
The $138 million amount includes $82 million of PREPA
inventory and $56 million of USACE inventory.
Additional Logistics in Place: Four functioning
helicopters; 160 call center resources at three different
locations throughout the island.
The above are only some of the preparedness measures undertaken by
PREPA. In addition thereto, PREPA has undertaken multiple and specific
initiatives that have been included within the FEMA claims process that
are designed to improve the island's ability to respond to hurricanes
and other atmospheric events/natural disasters. Initiatives include
recommendations made by the Department of Energy (``DOE''), FEMA, and
other stakeholders. These include peaking units, substation hardening,
upgraded codes and standards, underground critical feeders, substation
relocations for flooding prevention, and new buildings for storm
hardening, among others.
The Operation and Maintenance services management contract for the
Transmission and Distribution infrastructure will not negatively impact
any of the preparatory actions and strategies. To the contrary, the
selected operator and the underlying public-private partnership
agreement are contemplated to expressly augment the island's capacity--
from a financial, human resource, and practical expertise standpoint--
to improve, professionalize and react to any future event.
Questions Submitted by Rep. Sablan
Question 1. Like Puerto Rico, my district, the Northern Mariana
Islands, was recently devastated by multiple natural disasters. And,
like Puerto Rico, we are currently dealing with considerable fiscal,
economic, and social challenges during this pandemic. I imagine all the
territories are. What are some lessons learned during this crisis that
you believe might be useful for the territories and the rest of the
United States?
Answer. If the last 3 years has taught us anything it is that we
must be prepared for the unknown. Over this time period, Puerto Rico
has been struck with two devastating hurricanes, Irma and Maria,
countless earthquakes and is now facing the COVID-19 pandemic.
Territories must be financially and operationally equipped to respond
to events such as these. This includes budgeting for rainy-day funds,
ensuring adequate funding for emergency response and healthcare related
agencies and having action planes developed in advance of future
catastrophic events to ensure Government continuity and continuation of
essential services.
Question 2. The 2020 Hurricane season began just a few weeks ago,
while Puerto Rico is still recovering from several natural disasters.
Have you or the Puerto Rico government been in contact with FEMA to
discuss the upcoming hurricane season? What steps are being taken to
plan and prepare for these upcoming months?
Answer. The Government has regular communications with the Federal
Emergency Management Agency regarding both the continued work to
rebuild after Hurricanes Irma and Maria, the recent Earthquakes and
COVID-19. The Government anticipates a significant amount of monies to
be obligated this year for the rebuilding of the islands electric grid,
water infrastructure and schools.
The Government is also keenly aware of the hurricane season ahead
and the fact that certain experts are anticipating an extremely active
season. The Government continues to fund a rainy-day fund that will
grow over time to $1.3 billion by funding $130 million annually. The
monies in the rainy-day fund will be used, where needed, to respond to
external shocks including hurricanes and other natural disasters, among
other possibilities. In addition to the rainy-day fund, the Oversight
Board has finally acknowledged the need for a Disaster Relief Funds
(``DRF'') working capital facility. The Government has consistently
articulated the need of a DRF working capital facility to the Oversight
Board but the Oversight Board had objected to this concept until the
Certified 2020 Fiscal Plan, which includes a DRF working capital
facility in the amount of $750 million. The intent of the facility is
to accelerate the rebuilding process funded with Federal monies on a
spend and reimburse basis. The acceleration of permanent projects will
put the Island in a better position to withstand future hurricanes.
Questions Submitted by Rep. Cartwright
Question 1. Like most places around the world, Puerto Rico is
facing higher unemployment rates due to the coronavirus pandemic.
However, Puerto Ricans trying to obtain unemployment benefits have
faced hours-long lines, faulty technology, and miscommunication from
the local Department of Labor. Mr. Marrero, what steps is the Puerto
Rico Department of Labor taking to remedy this situation?
Answer. See response to Question 5 from Chair Grijalva above.
Questions Submitted by Rep. Bishop
Question 1. PROMESA required that Puerto Rico's audited financials
be made current, yet PR is further behind in its audited financials
today than it was when PROMESA was passed. Is this a failure of the
FOMB or the Commonwealth or both?
Answer. The expected issuance of audited financial statement for
fiscal year 2017 is no later than July 31. The Government is targeting
to have a draft of fiscal year 2018 financial statements for review by
external auditors by November 2018.
Question 2. With aggregate balances now totaling more than $19
billion sitting in Commonwealth accounts (and virtually half of that
being unrestricted in use), why have the Commonwealth and FOMB not been
able to make more development progress, and also bring bankruptcy
proceedings to a conclusion? Why haven't these funds been utilized to
help Puerto Rico develop, and to honor what obligations could be
honored in a timely fashion?
Answer. Respectfully, the premise of the question is misleading.
For example, the headline number of $19 billion (which was as of April
30, 2020 and does not reflect drops in revenue since then) includes
nearly $2 billion in CARES Act funding, $650 million in employee
retirement contributions, $660 million in unemployment trust funds, and
nearly a billion in funds belonging to Puerto Rico's water and sewer
authority (PRASA), which is current in its bond obligations. Funds
available to address creditor claims in each individual Title III case
are much lower.
Moreover, over the last several years, the Government has worked
with the Oversight Board to develop several strategies to emerge from
the Commonwealth's Title III cases. Many of these strategies have been
successful. For example, in November 2018, the Government Development
Bank of Puerto Rico completed a first-of-its-kind consensual
restructuring of about $4 billion of debt under Title VI of PROMESA.
And in February 2019, the Puerto Rico Sales Tax Financing Corporation
(known as COFINA) consummated its Title III plan of adjustment to
restructure approximately $18 billion of bond debt. Both of these
efforts garnered the full support of the Oversight Board and the
Government, including both the legislative and executive branches.
In addition, substantial progress has been made regarding the
Government's other Title III debtors. However, any consensual
resolution of the Title III cases must involve creditors recognizing
weaknesses in their legal positions as well as a realistic evaluation
of what the Title III debtors can provide for recoveries. The
unwillingness to this point of major creditor constituencies to face
these realities is a roadblock to progress.
In addition, the COVID-19 pandemic has materially impacted the
economic and cash-flow projections for the Island, consistent with what
all U.S. states are experiencing. As a result, the Government and
Oversight Board will need to re-assess all restructuring agreements to
determine which approaches remain viable in the post-COVID-19 economic
reality. Before the COVID-19 pandemic, the Government and Oversight
Board made the following progress in the Title III process:
Commonwealth: The Government worked closely with the
Oversight Board in the development of a Plan Support
Agreement (``PSA'') and Plan of Adjustment (``POA'') for
the Commonwealth. Although the Government and Oversight
Board did not agree on all aspects of the POA proposal,
they were working together to resolve them. The PSA and POA
contemplated the use of approximately $5.1 billion of cash
as part of settling various claims against the
Commonwealth. This disproves the assertion that the
Government is not willing to use cash to satisfy creditor
obligations.
Puerto Rico Electric Power Authority (``PREPA''): In the
case of PREPA, the Government supported, and was party to,
the Restructuring Support Agreement entered between the
PREPA Revenue Bond holders, the Oversight Board and AAFAF.
Employees Retirement System (``ERS''): The validity of the
Pension Obligation Bonds (``POBs'') and rights of the
Pension Obligation Bondholders are subject to various
complex litigation that has not yet been resolved.
Resolution of the legal issues surrounding the POBs will
facilitate and accelerate the Title III for ERS.
Highway & Transportation Authority (``HTA''): The
Government and Oversight Board have participated in
mediation sessions with the creditors of HTA, but they have
not yet reached an agreement with them.
Although the aggregate balances of the Commonwealth's funds is
currently approximately $19 billion, some of these funds are restricted
and cannot be used. Many of the accounts holding these funds are (i)
restricted by court order, (ii) earmarked for emergency use only by the
Oversight Board, (iii) federal funds limited to specific uses, (iv)
restricted by various federal laws or regulations, (v) held in
custodial or other segregated accounts for third parties, (vi) proceeds
of tax-exempt bonds with restrictions under the Internal Revenue Code,
or (vii) restricted due to third-party contracts (such as debt service
reserve funds held by a trustee). And many of the funds that are not
otherwise restricted are being fought over by hundreds of different
creditor constituencies involving complex legal issues that remain
subject to pending litigation. Although the Government is trying to
minimize the duration of litigation and reach consensual resolution
with creditors where possible, the vast number of competing parties and
interests has made global resolution difficult to achieve.
Before the COVID-19 pandemic, the Government also repeatedly
advocated for reserving excess cash and additional resources so that
Puerto Rico could adequately address future natural disasters or other
uncontrollable events that might negatively affect the economy. Recent
events have vindicated this position. In March 2020 alone, the
Oversight Board authorized the use of nearly $1 billion of Puerto Rico
funds, which included an increase and reallocation of $800 million for
the Government's fiscal year 2020 budget and $160 million of the
remaining balance available from the Government's Emergency Reserve
Fund to combat COVID-19. Earlier this year, the Oversight Board
authorized the use of $100 million from the Emergency Reserve Fund to
respond to Puerto Rico's recent earthquake emergency in January 2020.
Without the availability of these cash reserves, the Government would
not have been able to quickly and effectively address these emergency
situations. In order to successfully emerge from its Title III process
and minimize the risk of having to seek Title III relief again, the
Government continues to believe it should retain sufficient cash
reserves not only for emergency purposes but also to utilize any excess
available resources to reinvest in areas earmarked as the most critical
to Puerto Rico's future economic growth.
Thus, the Government is not simply sitting on a pile of cash and
doing nothing with it. To the contrary: the Government is trying to
preserve its available resources so that it can properly allocate and
utilize them in a potential global resolution of the Title III cases
that is both fair to creditors and protects the health, welfare, and
safety of the people of Puerto Rico.
Question 3. The FOMB in an early fiscal plan projected an
astonishing $1.5 billion to be spent on advisory fees. Several years
hence, how much money have the Commonwealth and FOMB in fact spent on
aggregate financial and legal advisory fees so far since PR began
defaulting on its debt? Has this process created a class of people that
benefit financially from the prolonged continuation of bankruptcy?
Answer. Perhaps the largest driver or professional fees has been
that creditors have engaged in failed litigation strategies, including
their challenge to PROMESA's appointment process, which was rejected by
a 9-0 vote in the U.S. Supreme Court. The scorched earth tactics of
creditors--who started the bankruptcy process filing fruitless lawsuits
rejected by the District Court, the Court of Appeals and the Supreme
Court and have continued a steady pace of motions and lawsuits since
then--forces the Oversight Board, the Government and the statutory
committees Congress required be appointed to spend resources. As
described above, the fastest way to stop professional fee expenditures
is for creditors to be willing to reach reasonable compromises instead
of seeking overreaching recoveries.
We also refer you to section 5.2.8 of the Certified 2020 Fiscal
Plan for a description of the professional fee forecast and Oversight
Board operating expense forecast. Additionally, Exhibit 20 of the
Fiscal Plan provides an analysis of professional fees as a percentage
of funded debt relative to other mega bankruptcy cases. As can be seen
in that analysis, the projected professional fees are in line with
other large, complex cases. The Title III cases in Puerto Rico are
arguably the most complex bankruptcy cases ever and involve many legal
and financial issues that have never been addressed before.
Restructuring over $100 billion in liabilities (funded debt and
unfunded pensions) with a wide array of creditors is a costly and
timely endeavor but a necessary one to put Puerto Rico on a path of
sustainability.
Question 4. Even before the COVID-19 pandemic began, the FOMB and
Commonwealth had not abided by their own agreement under the 2019 PREPA
Restructuring Support agreement to raise a 1 cent interim rate increase
case to the PREB, why?
Answer. PREPA filed a request before Puerto Rico Energy Bureau
(``PREB'') on July 3, 2019, to implement the settlement charge
contemplated by the PREPA Restructuring Support Agreement (the ``PREPA
RSA''). See In re: the Puerto Rico Electric Power Authority Initial
Rate Review No. CEPR-AP-2015-0001. On November 22, 2019, PREB denied
the motion on procedural grounds. The PREPA RSA provides that PREPA's
obligation to implement the one-cent settlement charge is subject to
entry of an order of the Title III Court approving the settlements
embodied in the PREPA RSA (the ``9019 Order''). The hearing on the 9019
Order has not yet occurred so no order has been entered.
Question 5. Where is PREPA today in its transformation and
privatization process? Have delays in this process directly and
negatively impacted its ability to provide stable electricity to
residents and hospitals on the island?
Answer. On June 22, 2020 the Government announced an agreement
between the Puerto Rico Public-Private Partnerships Authority (``P3A'')
and LUMA Energy to manage and operate the transmission and distribution
system of PREPA. PREB approved the contract last week. Under the
agreement, LUMA Energy will operate, manage, maintain, repair, and
restore PREPA's transmission and distribution system to help the
transformation of PREPA into a modern power company able to deliver
reliable, clean, and more affordable electricity to Puerto Rico's
households and businesses.
Question 6. What creditability will PREPA and the Commonwealth have
with potential new transformation partners, or in future attempts to
access the capital markets, if it is now on the verge of pulling out of
yet a third consensually agreed PREPA Restructuring Support Agreement?
Answer. The COVID-19 pandemic has materially impacted the economic
and cash-flow projections for the Island, consistent with what all U.S.
states are experiencing. As a result, the Government and Oversight
Board will need to re-assess all restructuring agreements to determine
which approaches remain viable in the post-COVID-19 economic reality.
Question 7. What has the Commonwealth government done to take
advantage of low oil prices to lock in future contracts for PREPA, and
to offset the increase in charges that are mandated by law to cover all
costs including those under the Commonwealth and FOMB agreements with
creditors?
Answer. During fiscal year 2020, PREPA has renegotiated its
existing Fuel Purchase Contract for the supply of bunker fuel to the
San Juan, Palo Seco, Aguirre, and Costa Sur steam plants. After
conducting an RFI process directed to different potential bunker fuel
suppliers, PREPA formally requested from the Oversight Board approval
of an amendment to an existing fuel provider with more favorable terms.
On June 2020, the Oversight Board approved the amended Fuel Purchase
Contract.
The contract amendment extended the term of the agreement until
October 31, 2020, with an automatic extension until October 31, 2021.
With this amendment, PREPA also secured a reduction in price adders of
just over 20 percent. Given PREPA's bunker fuel purchases from August
2019 through April 2020, the amended contract has resulted in
cumulative savings of $9.2 million in adder fees. Based on projected
bunker fuel purchases for May and June 2020, the amended contract is
expected to save PREPA an additional $3 million.
The Amendment generally seeks to stipulate that (i) the contract
shall be in effect until October 31, 2021, extendable by an additional
year and (ii) PREPA will pay a fixed price for bunker fuel oil,
regardless of the market price, for purchases between a minimum volume
of 250,000 barrels per month, up to a maximum of 400,000 barrels per
month. As such, the fuel provider guarantees the price and is
responsible for delivering the product at such price, regardless of the
actual price at which it can secure inventory. The FOMB approval
confirms that the renegotiated agreement is consistent with PREPA's
fiscal plan and that funds for the relevant fuel payments are included
in budget. Furthermore, the FOMB's analysis shows that these generally
align with typical hedging facilities and, while some costs may be
above typical benchmarks (i.e. hedging costs), the amended contract is
expected to produce savings to PREPA, if current projections for the
price of oil are realized.
Any increases in rates are regulated and subject to the Puerto Rico
Energy Bureau and the regulatory approval process thereunder.
Furthermore, PREPA has achieved certain efficiencies and operational
improvements that are contained in its current fiscal plan, which will
be further detailed and reported on in the new fiscal year 2021 fiscal
plan for PREPA that is expected to be certified by the Oversight Board
on or before June 30, 2020. In addition, the announcement made on June
22, 2020 by the Government regarding the selection of a Transmission
and Distribution (``T&D'') private operator will also leverage
additional and new operational and infrastructure efficiencies that
will be incorporated into the T&D system over the next few years.
Question 8. In the 2019 PREPA restructuring agreement the risk of a
declining population was borne by creditors with no true up to rates,
and if the B note in the transaction remained unpaid at maturity, it
simply disappeared. Isn't that deal even better for the Commonwealth
today than when it was struck given the greater uncertainty on economic
projections and collections?
Answer. Those are certainly good attributes of the PREPA
restructuring agreement. Unfortunately, the COVID-19 pandemic has
materially impacted the economic and cash-flow projections for the
Island, consistent with what all U.S. states are experiencing. As a
result, the Government and Oversight Board will need to re-assess all
restructuring agreements to determine which approaches remain viable in
the post-COVID-19 economic reality.
Questions Submitted by Rep. Gosar
Question 1. What does the law require of the Puerto Rico government
for procuring contracts? Did the law require the government to get
approval from the Financial Oversight Management Board for Puerto Rico
before the government entered a contract with Promedical for $38
million worth of COVID-19 testing kits? If so, why did the government
not follow the appropriate protocols?
Answer. On March 16, 2020, Governor Vazquez Garced signed executive
order EO-2020-024, which authorized the Government's agencies to
acquire the medical supplies necessary to prevent the contagion of
COVID-19 in Puerto Rico. As of the date of the executive order and
given the COVID-19 emergency, the Government's agencies were given a
60-day period to execute COVID-19 related contracts--effective for only
60 days--without the need to comply with any requirements established
by law, regulation, administrative order, or other applicable
guidelines. Governor Vazquez Garced implemented this aggressive measure
to acquire the medical equipment necessary to combat the virus as
expeditiously as possible.
The executive order also required that any contract executed within
the 60-day emergency period be remitted to the Oversight Board. This
provision was designed to minimize any disruptions to emergency
contracting related to the Board's contract review policy under PROMESA
section 204(b)(2), which authorizes the Oversight Board to require
prior approval of ``certain contracts'' in order ``to ensure such
proposed contracts promote market competition and are not inconsistent
with the approved Fiscal Plan.'' Section 204(b)(3) explains that any
Oversight Board contract review policy should be designed to: (1) make
the government contracting process more effective; (2) increase the
public's faith in the contracting process; (3) make appropriate use of
the Oversight Board's time and resources; (4) make the Commonwealth
government a facilitator and not a competitor to private enterprise;
and (5) avoid creating any additional bureaucratic obstacles to
efficient contracting. The Oversight Board's current contract review
policy provides that ``any contract or series of related contracts with
an aggregate expected value of $10 million or more'' must receive prior
Oversight Board review and approval. The Oversight Board believes this
policy applies to all contracts in which the Commonwealth or a covered
instrumentality is a counterparty. However, because (i) section
204(b)(2) on its face states that the purpose of any Oversight Board
review is to promote market competition and is limited to contracts
between the Commonwealth and another Puerto Rico Government entity, and
(ii) section 204(b)(3) suggests that the purpose of the law is to
promote private enterprise, the Government believes that the Oversight
Board's policy requiring its approval of all contracts valued at more
than $10 million is overbroad and at odds with section 204(b)(3).
In a collaborative effort to expedite the execution of the
emergency contracts, the Government and Oversight Board agreed to
temporarily relax the Oversight Board's contract review policy, even
though the Government still believes the contract review policy is
beyond the Oversight Board's authority under PROMESA section 204(b)(2).
As to the Promedical COVID-19 test kits, on April 6, 2020, the
Oversight Board sent the Governor a letter asserting that such
agreements should be canceled, and recommending the Government seek
reimbursements for any amounts disbursed in connection to these
agreements. AAFAF replied to the Oversight Board's letter confirming
that: (i) the purchase order for Promedical COVID-19 test kits was
canceled on April 2, 2020; and (ii) the Government was fully reimbursed
on April 6, 2020. AAFAF provided evidence of both the cancellation and
reimbursement of the $19 million deposit. As noted, the Promedical
COVID-19 test kits were requested through a purchase order. In its
April 9, 2020 letter to the Oversight Board, AAFAF explained that the
Promedical purchase order was not previously provided to the Oversight
Board because the Government's agencies understood that, as written,
the Oversight Board's contract review policy covered only formal
contracts, and not purchase orders.
Question 2. Puerto Rico is authorized to receive substantial funds
from the Federal Government for the distribution of needed school
breakfasts and lunches during this epidemic. However, I heard that
Puerto Rico had difficulties distributing the school meals. Can you
please explain why that is so? Can you please also elaborate on the
lawsuit that was brought against the government on this matter? And
please update the Committee on the current process and procedure being
utilized by the government to distribute the meals to qualifying
students.
Answer. The Government has made significant efforts to support its
most vulnerable citizens and to mitigate their health risks during the
COVID-19 outbreak. These efforts have been generally successful as
Puerto Rico continues to be on the lower end of COVID-19 cases per
capita in the United States. In mitigating these risks, the Government
has made many difficult choices that factor in public health,
government support, and economic impacts. In determining the best way
to feed children and their families, the Government has determined that
the best course of action is to rely on existing food banks located
throughout Puerto Rico. At the time of this decision, Puerto Rico's
food banks had measures in place to ensure the safe distribution of
food to reduce the likelihood of COVID-19 exposure. Unlike the
Government's School Food Authority, the Puerto Rico food banks were
already able to provide pre-packaged meals, which reduces the risk of
contamination. In addition, funding from other government programs
would support the transportation of these meals to areas where they are
most needed. While the Family First Coronavirus Response Act and CARES
Act provided additional funding to support school food programs, at the
time, much of the costs associated with meal delivery would not have
been covered. The time and cost for retrofitting School Food Authority
facilities to provide the same public health protections that already
existed within the Puerto Rico food bank program seemed inefficient.
Though these are difficult decisions, the Government's ability to slow
the spread of COVID-19 while maintaining food support programs,
indicates that the Government made the best choice under the
circumstances. It is our understanding that all of the above is being
explained to the Court as part of the pending lawsuit.
Question 3. Why are there no work requirements in Puerto Rico for
participants of NAP?
Answer. NAP (or ``PAN'' for its Spanish acronym) is Puerto Rico's
largest welfare program. It is similar to the mainland SNAP, but it is
funded and administered separately and does not include a work
requirement nor specific budget allocations to administer such
requirements. As part of the human capital and welfare reform package,
the Government will institute work requirements for able-bodied adults
without dependents in order to qualify for PAN benefits. Puerto Rico
has already submitted a work requirement language in its fiscal year
2019 Annual State Plan to the Food and Nutrition Service Agency. During
fiscal year 2019, the Government will develop, alongside the Food and
Nutrition Service Agency, the work requirement program policies,
parameters, operational guidelines and compliance oversight that will
be included in its fiscal year 2020 Annual State Plan submission. The
annual state plan may be amended at any point throughout the fiscal
year with the proper request, review, and approval by the Food and
Nutrition Service Agency.
The Government has maintained its stand in a phase-in of the work
requirement for NAP. Including a phase-in of the work requirement over
a 4-year period (Government proposal) versus launching a full work
requirement (with a 3-month transition time). The main reason for the
phase-in instead of 1-year full deployments has been high unemployment
(lack of supply of jobs) and high volume of training and re-training
(lack of skilled professionals), which represent a stumbling blocks
that could endanger the current benefits provided by NAP. Unlike U.S.
states, Puerto Rico receives the NAP benefits as a block grant and
cannot redistribute funds immediately in order to mitigate this
potential economic impact to over 150,000 citizens that would
potentially qualify for work requirements.
______
The Chairman. Thank you very much, and I appreciate both
witnesses and your indulgence as we go through this process.
Let me now turn to Mr. Sablan for any questions or comments he
might have for the witnesses. And then we will alternate, as we
do with in-person meetings, to the Minority side. But first let
me recognize Mr. Sablan. Sir.
Mr. Sablan. Yes. Thank you very much, Mr. Chairman, for
holding today's hearing. Thank you also to Ms. Jaresko and Mr.
Marrero for their presentations. I have a question. I am going
to make this short for Ms. Jaresko, if I may. Ms. Jaresko, if
Congress were to amend PROMESA, as Mr. Marrero advised, to
limit the Board's oversight over funding issues affecting
policy, how would that change the role of the Board going
forward and affect your ability to achieve the goals of
PROMESA?
Ms. Jaresko. Thank you, Representative Sablan. The
recommendation that Mr. Marrero makes is based on a false
construct. There have been four issues, four situations, where
there have been disputes between the government and the Board
with regard to our authority. Of those four cases, three were
litigated, were brought to the court by the government or the
legislature of Puerto Rico and won by the Board. In all four of
those cases since 2018, the court has agreed on the clarity and
the authority that has been provided by PROMESA to the Board.
If the amendment were made as Mr. Marrero suggested, then I
think you'd have to change the definition of ``fiscal
sustainability'' and ``balancing budgets.'' If you change
fiscal sustainability and the Board is no longer responsible
for fiscal sustainability, then it will be difficult, if not
impossible, to ever restructure the debts without clarity and
confidence that the debt is sustainable.
Mr. Sablan. All right. Thank you very much. I have other
questions, but I will submit them for the record and could
potentially probably get a response from you. Thank you very
much, Mr. Chairman. I yield back.
The Chairman. Thank you, Mr. Sablan. Let me recognize the
Ranking Member, Ms. Gonzalez-Colon. Madam Commissioner, the
floor is yours.
Miss Gonzalez-Colon. Thank you, Chairman. My first question
will be to Ms. Jaresko. As you are aware, there is a lot of
frustration on the island in terms of how long it is going to
take for the Federal and local government for a lot of the
disbursement of many of those Federal funds. And I share that
frustration. And that was the reason a few weeks ago we met
with the Governor, directly with the Governor's cabinet as well
to see why it is taking so long. And you have many, many
reasons for that, some of them, Federal agencies with a lot of
red tape. But other ones are at the state level.
One of the concerns that hit me most--and this was from all
cabinet members--was that they do not have the personnel with
the experience and the expertise to manage and comply with the
new requirements of Federal grants due to PROMESA board cuts. I
mean, that those reforms that were imposed by PROMESA are
limiting the budget to actually train and recruit employees in
different Federal and local agencies to comply with Federal
grants and actually make that happen. How do you respond to
this, and how does the 2020 Fiscal Plan address this issue?
Ms. Jaresko. Thank you for the question, Representative
Gonzalez. It is true that the fiscal plans and the budgets have
reduced payroll spending over the past 3 years. However, none
of those payroll reductions should have been implemented
through frontline employees. The intention and the agreement
reached with the previous governor was that the bulk of the
rightsizing would happen through back-office consolidation,
consolidation of bureaus into single departments. And those
actions actually haven't happened for the most part.
So, what has happened instead is the government has used a
very blunt tool, early retirement or voluntary transition,
which has been offered across practically all front and back
office. And when that has happened, it is very hard to direct
who stays and who leaves because people have a voluntary choice
to early retire. And indeed, by implementing the reductions in
payroll in that fashion, I believe that they have caused a
problem in terms of capacity. But that said, I don't think you
can allay the disbursement all at the feet of the civil
servants or payroll reductions. I think that in, for example,
the case of implementation of FEMA funding, it is just a very
long and complex process.
The COR3 Department is funded by the Federal Government,
not by the budget that is part of the fiscal plan. So, it is
not a matter for COR3 and FEMA programming and FEMA
disbursement that has anything to do with the budget because
their budget is not part of the general fund that we are
certifying. Similarly, for CDBG-DR, there is an entirely new
group of individuals, about 100, the last I recall, hired with
Federal funds to implement the CDBG-DR program.
That CDBG-DR program is very complex, and having to learn
Federal procurement rules and do what is required by the CDBG-
DR program is complex. But again, that capacity is not a
capacity funded by the general fund or part of the certified
fiscal plan or budgets. It is a separate Federal funding for
that personnel.
Miss Gonzalez-Colon. Ms. Jaresko, we also heard the
complaint that the Oversight Board takes too long to review
some documents and plans submitted by the government of Puerto
Rico. And it goes for the delays. So, I have two questions on
this. How do you see this, and how long does it typically take
the Board to review that documentation provided by the
government? And if you can actually submit to the Committee a
log of such requests and responses as well as--you understand
it is useful to require a fixed time frame to the Board to
either reject or approve, especially in the case of
expenditures that are already gone through the territory of
Federal regulatory agencies.
Ms. Jaresko. Thank you, Representative Gonzalez. I am more
than happy to submit a log of our responses along with response
times. It varies depending on what the issue is. For contract
review, we typically take 7 working days. The issue with a
review is whether or not the submission is complete. That is
probably the most basic issue that we have. When a submission
is complete, it can take 1 day to 7 days. With regard to budget
reapportionments, similarly, documents, if they are complete,
take up to a week, sometimes a bit more. And again, I will get
you that log. However, the longer delays have to do with
incomplete documentation, lack of bids that go with the cost or
other.
Miss Gonzalez-Colon. Thank you. I don't know how much time
I have left--I don't see the timer here--but I will make a
question of Mr. Marrero.
The Chairman. Thank you. Let me now turn to Mr. Huffman.
Miss Gonzalez-Colon. Mr. Chairman, is my time expired?
The Chairman. Yes.
Miss Gonzalez-Colon. I can't see the timer in my----
The Chairman. There is a timer--if your staff will call our
technical staff, it will appear on a screen that will ping you
when you have 1 minute left.
Miss Gonzalez-Colon. OK.
The Chairman. Mr. Cox, if you have any questions or
comments, sir.
Mr. Cox. Thank you for the witnesses being here today. As
chairman of the Oversight Subcommittee, I have observed that
the post-hurricane response to claims by first responding
agency seem unreasonably delayed by FEMA. And my question to
both of you is I understand your agencies have regular
interactions with PREPA. Can you tell me how much Puerto Rico
requested for emergency power restoration work performed
following Hurricanes Irma and Maria? What is the current status
of FEMA reimbursement for this work, and how much of the
request is still pending FEMA review? As you know, these storms
occurred in September 2017, almost 3 years ago. And there just
seems to be an undue delay with FEMA's processing these
requests for a reimbursement to some of the utility companies,
particularly the utility companies there in Florida that did a
lot of this important work.
Ms. Jaresko. I don't know if Mr. Marrero wants to go first.
I can speak generally to FEMA as a whole. And then maybe, Omar,
you can talk to PREPA.
Mr. Cox. OK.
Ms. Jaresko. We have estimated in the Fiscal Plan, total,
in terms of FEMA funding we expect. And the government is
generally in agreement--it is $48 billion over a period of 15
years. Of that $48 billion, $17.4 billion has been obligated.
And of the $17.4 billion obligated, $13 billion or so has been
disbursed to date. It is a long process. I won't speak again to
the specifics of the emergency generators.
But in general for PREPA, I understand that great progress
has been made and we are expecting an agreement to be reached
hopefully by the end of the summer, all else being equal. But
the damage assessment process has been very long, tedious, and
requiring incredible civil engineering work and a lot of
incomplete work. Omar?
Mr. Marrero. Sure. Thank you, Natalie. Thank you,
Congressman, for the question. I am trying to log into our
transparency portal. I don't know if you are familiar, but
Congressman, if you go to recovery.pr, that is our transparency
portal. It is updated on a weekly basis. And it has all the
information concerning FEMA funding, not only how much money
has been obligated, disbursed, how much has been waiting and
also by subrecipient and by project.
I am having some technical glitches to getting information.
But if you go to recovery.pr--it is in English and in Spanish,
and it has all the information concerning FEMA funding for both
Irma and Maria. And it has graphics. You can download the
information. But if the Committee wants, I can submit it for
the record as well. But it is all publicly available through
our recovery portal.
Mr. Cox. Thanks so much. And I understand that the
Administration has assigned a reconstruction coordinator, Rear
Admiral Peter Brown, to oversee the disbursement of recovery
funds in Puerto Rico after Hurricane Maria. How is that
relationship with the government of Puerto Rico, with the
coordinator--what support has it received, and how can we be of
assistance?
Mr. Marrero. Well, Congressman, I am going to be honest.
The relationship with the rear admiral, Peter Brown, has been
phenomenal. I think that he has been instrumental to help to
convey the message to the Administration on what we are doing
and what we need in order to expedite the recovery process in
Puerto Rico. So, everything that I have is just to congratulate
him for not only his commitment to work but also his real
involvement with the government of Puerto Rico, his meeting
with us on a regular basis as well as the Governor.
Mr. Cox. Right.
Mr. Marrero. Next week, we are going to have a 1-week visit
from him. So, we are going to be working with him. And, again,
he has been great, has been phenomenal. And hopefully he is
going to be the chief operating officer that we have been
waiting on.
Mr. Cox. Great. That is super to hear. And finally, Ms.
Jaresko, given the obligations that have been incurred for this
emergency restoration work following the hurricanes, how does--
really, I am worried about the delay in receiving FEMA funding.
How does that impact Puerto Rico and other debtors in the
payment of these obligations which have to be paid. My fear is
that if contractors don't get paid when they do the work after
the disaster, they are going to be less likely to step up the
next time a disaster hits Puerto Rico. So, if you could comment
on that very briefly----
Ms. Jaresko. I agree with you that that type of practice,
not being paid, creates consternation on the part of bidders
and private sector players. At this point, though, again, I
have to say that I don't see any reason why, if the monies have
been obligated, why they haven't been disbursed. So, if there
are those who have bills outstanding or invoices outstanding
that have not been approved by FEMA, I think that is a separate
category and COR3 and the government need to look into that.
But I have to remind you that we are outside of the Federal
funding. We don't have oversight over that level of detail in
the Federal funding, so I'd have to turn to my colleague.
Mr. Cox. OK. Well, we can follow up. We're out of time here
so thank you so much.
The Chairman. Thank you. The gentleman yields. Mr. Gohmert?
Mr. McClintock? Mr. McClintock, you are recognized.
Mr. McClintock. Thank you, Mr. Chair. Welcome. I am deeply
disappointed that this Committee hearing is conducted in a
manner that makes a mockery of the constitutional process of
government that is set forth in our Constitution. You know, the
founders might not have had Zoom and the internet, but they had
a very effective mail system. And there was nothing to stop
them from mailing their speeches and questions and votes to
each other. But that is not the system they created. In those
days, getting to Washington was dangerous, arduous, and time-
consuming, and yet through world wars, pandemics, epidemics, a
civil war and sleet and snow, they all managed to get here to
do their jobs until this Congress.
Congress, the very word means the act of getting together
and meeting. The Constitution calls for representatives to
attend, assemble, and meet. Congress is a deliberative body and
by its very nature, that requires the people's representatives
to interact with each other both through formal proceedings as
well as through the countless informal conversations that are
the unique product of coming together and meeting. That can't
be done on a Zoom call. We can't do our jobs in the manner our
responsibility demands by phoning it in from our living rooms
and our bathrobes.
Nobody is lounging around the pool today with a mai tai. I
say just give it time. There is nothing in these bizarre new
rules to stop it. Mr. Chairman, I hope you will take a step
back and consider the damage that you're doing to this
institution by conducting our affairs this way. I know it is
much easier to sit at home and phone it in. It is not what our
constituents have a right to expect of us. There are a few of
us here present in the Committee room today, and yet we're
staring at laptops.
If you persist in this farce, I am sure, one by one, we're
all going to conclude it is a lot easier to sit in our homes
too. I am certainly tempted. I could be home with my family
today too. And at some point soon, I will probably take you up
on this slovenly, sloppy, and extraconstitutional process. But
at that point, we might as well rent out the capitol for
weddings and banquets because there is no other use for it. So,
shame on this Committee.
Next, to the business at hand, I have been an opponent of
PROMESA since it was first introduced. And after 4 years of
watching this fiasco, I am more convinced than ever that it was
a terrible idea. I hold to the old-fashioned belief that a
government debt secured by a constitutional guarantee is
sacrosanct and the governments that created their own problems
must deal with their own problems without seeking a bailout
from others who have responsibly managed their affairs.
PROMESA's unelected management board is an affront to,
little D, democratic values and, little R, republican
institutions. And its repudiation of constitutionally protected
debt threatens to undermine the full faith and credit of every
state and territory in this Nation. It was enacted with the
promise that it would set the fiscal affairs of Puerto Rico in
order. And yet here we are 4 years later, as far as I can tell,
no better off. Self-government means not only electing our
representatives, but it also means dealing with the
consequences of their decisions.
In a democracy, we are always guaranteed to get the
government we vote for or, as Lincoln put it, the voters get
their backsides too close to the fire, they will just have to
sit on the blisters a while. It is a painful experience, but it
is a learning experience from which voters may go away sadder
but wiser. So, I will ask both of our witnesses, wherever they
are, what would be wrong with repealing PROMESA, disbanding its
management board and then handing the whole mess back to the
people who created it, Puerto Rico's elected government and the
voters who elected it? And I will wait for an answer.
Ms. Jaresko. Congressman McClintock, I will attempt to
answer. I understand your frustration. And I believe that the
people of Puerto Rico are equally frustrated that we are not
through this bankruptcy yet and on the road to prosperity and
sustainability. We need to work harder. We need to do more. The
elected government needs to do more in terms of structural
reforms to build a revenue base from which we couldn't possibly
pay back any/all of that debt.
Mr. McClintock. And our other witness wherever he is----
Mr. Marrero. Thank you, Congressman McClintock. Thank you
for your statement. I do, sir, think that we all have to share,
we all have to assume the responsibility. And I believe also
the Congress has to share the responsibility in making sure
that the people of Puerto Rico have the tools not only to exit
bankruptcy but also to pave the way for economic recovery. So,
definitely, I agree with you. I think that we will have to
assume our responsibility. That is the second----
Mr. McClintock. Thank you. Mr. Chairman, since I don't have
a timer, I don't know how much time I have left. But any that I
do have left, I will yield to Ms. Gonzalez-Colon.
The Chairman. You went over 11 seconds, Mr. McClintock. And
I am going to turn to----
Mr. McClintock. Show me.
The Chairman [continuing]. Mr. Huffman. Sir, the floor is
yours.
Mr. Huffman. Thank you, Mr. Chairman. We are hearing some
pretty rich stuff from the usual high tower of partisan
sanctimony. But let me say I am grateful that you are forging
ahead, getting this Committee back on the field so we can do
our work. We are trying to weather a deadly pandemic that has
killed over 110,000 Americans. This is no time to put the
interests of partisan politics above common sense and basic
public health protection. And I think in prior congresses, if
it had some of the tools during previous periods of difficulty,
some of the tools we are using right now, they would have used
them too. So, I wish that we were all pulling in the same
direction and trying constructively to make this work. But when
you hear these arguments that you have to use words like
``attend,'' ``assemble,'' and ``meet'' in the exact meaning
that someone thinks they had in 1787, I just have to say why
can't we apply that same standard to the Second Amendment right
to bear arms, which apparently you see very differently. There
is no modern weapon of war that you're not willing to interpret
back into that word from 1787.
This is disingenuous stuff, Mr. Chairman. I am so sorry
that on a subject that should be of great interest and
importance to all of us regardless of party lines that we see
these games and this obstructionism. But I want to apologize to
our panelists that they had to suffer through too much of it as
they gave us their very important feedback on how we are
recovering from these disasters and whether we're keeping faith
with our fellow American brother and sisters in Puerto Rico.
With that, Mr. Chairman, I will yield the balance of my time to
yourself or to Ms. Velazquez if you'd like to ask any more
questions.
The Chairman. Ms. Velazquez, the time is yours. The
gentleman has yielded to you.
Ms. Velazquez. Yes, sir. This will not count against my 5
minutes, right?
The Chairman. Absolutely not.
Ms. Velazquez. OK. Very good. Thank you. And thank you, Mr.
Huffman. You know, it is really sad. And I am sorry for the
people of Puerto Rico that in an issue that is so important and
that is not only the public debt restructuring but everything
that is happening regarding the rebuilding of Puerto Rico, the
earthquakes, the hurricanes, and the public policies enacted by
the U.S. Congress, Congress gives something to Puerto Rico and
then takes it away. And we have a responsibility with the
people of Puerto Rico because they are our colony.
When it comes to the unequal treatment, yes, that is right.
But some people in Puerto Rico feel that resolving the
political limbo where Puerto Rico is today or unequal treatment
doesn't mean statehood for Puerto Rico. Some other people in
Puerto Rico feel that it might be enhanced Commonwealth. Some
other people might think that that might be statehood. But for
anyone to come here and say that to respect the civil rights of
the people of Puerto Rico, you have to give them statehood,
well, that is for the people of Puerto Rico to decide.
And, by the way, PROMESA was written by the Republican
Majority. And thank God that some of the Democratic members
were there. You tried to water down the impact of that
legislation toward the people of Puerto Rico. Ms. Jaresko,
according to the government of Puerto Rico, the consequences of
COVID-19 will significantly impact UPR's available cash before
debt service. This amount is expected to decrease from $198
million to $98 million by June 30. So, my question to you is
what is the Board going to do to ensure that the University of
Puerto Rico system has enough working capital for Fiscal Year
2021 and beyond?
Ms. Jaresko. Thank you, Representative Velazquez. The
numbers that you state are never heard. I don't believe UPR is
actually utilizing its cash. Most of the cash has been set
aside for capital expenditures. So, that is news to me. That
said, what we have done is, as I described earlier, we have
left the subsidy from the Commonwealth to UPR at the same
level.
Ms. Velazquez. You are telling me that the government of
Puerto Rico is not providing real data? Those numbers are not
correct?
Ms. Jaresko. I don't know what those numbers are. I know
that UPR should not have to use its cash right now, that its
budget is sufficient for its operations this fiscal year. So,
if it is using its cash, I am unaware. And they have not let me
know that or I might be behind. But I am unaware of them
utilizing their cash.
Ms. Velazquez. OK. My time is up, and then, Mr. Chairman,
you will recognize me a second time.
The Chairman. Mr. Gosar, you are recognized, sir.
Dr. Gosar. Thank you, Mr. Chairman. And I yield to the
gentlewoman from Puerto Rico, Ms. Colon.
Miss Gonzalez-Colon. Thank you.
The Chairman. The floor is yours.
Miss Gonzalez-Colon. I am sorry. Thank you, Gosar, for
yielding. One of the questions I do have now is to Mr. Marrero.
And yes, I can see you. In the past, we heard that the governor
of Puerto Rico only participates in or competes in just 214 out
of 841 Federal competitive programs, failing to receive over $1
billion in Federal programs just because we are not even
competing or submitting in proposals or even matching the funds
for a lot of the programs that need to have at least a state
chair. What actions will the government of Puerto Rico need to
pursue to increase this participation in Federal programs? What
do you need from the fiscal board to make that happen? And how
does the Fiscal Plan build these capabilities?
Mr. Marrero. Excellent question, Congresswoman. Thank you
for it.
Miss Gonzalez-Colon. You are in mute. I can't hear you.
Mr. Marrero. Hello. Can you hear me?
Miss Gonzalez-Colon. Now, yes.
Mr. Marrero. OK. Thank you for your question,
Congresswoman. As you recall, one of the initiatives that we
were trying to achieve in order to optimize Federal funding,
was to create a Federal opportunities OGP or the local--what we
need is to fulfill the commitment of the Oversight Board with
the OMB in order to increase the staff which the Oversight
Board has said that it will support OGP not only to optimize
their system but also to increase the staff necessary in order
to make that work. So, one of the principle initiatives at OGP
is essentially to create this structure that will not only
advise but also support the different government agency that
does not have Federal funds to--local expertise in order to
provide that expertise to make sure that we participate.
Not only that, but in addition to that, as soon as I was
appointed to AAFAF, we also created an internal Federal funds
division in order to support not only the different
receiverships that we have been supporting through AAFAF but
also the different agency that may need support in order to
access Federal funding. So, not only the OGP has the intent and
the initiatives in order to pursue it but also AAFAF will be
supporting in that regard. And that is why, in one of the best
examples that we have been doing that is with the CRF fund.
Miss Gonzalez-Colon. Mr. Marrero, my second question will
be I do know that Congress approved some funds through the
CARES Act directly to the Governor's Fund. And I am aware that
there are some provisions regarding the Department of Education
that they are not allowing the government of Puerto Rico to
actually use those funds. And those funds are going to be
subject to third-party monitoring for the Oversight Board. What
is the reality behind that? And is that happening in any other
territory or state?
Mr. Marrero. Well, the quick answer, it is not happening in
any other state or territory. As you know, those funds that
were available not only for the Governor but also for the
education agencies from the states are funding for emergency
assistance. Unfortunately, the Department of Education at the
Federal level informed the local Department of Education that
in order to access that emergency aid, they needed to finalize
the engagement of the third-party fiduciary. We have been back
and forth.
The Committee--actually, the staff of this Committee--has
been helping the Puerto Rico government in order to make sure
that the Federal Education Department understands that the
third-party fiduciary engagement should not be a condition in
order to access emergency aid. That message has been conveyed
not only by us but also by different government agencies, the
Governor, as well as the staff. So, we will appreciate if you
could also help in that regard because we have been waiting for
the Department of Education. And unfortunately, the information
is not totally accurate, what we received from their end.
Miss Gonzalez-Colon. Thank you. Ms. Jaresko, I have another
question. You say you were expecting $48 billion in disaster
aid over the next 15 years. But the past fiscal plans have $72
billion. So, why the lower estimate and why do we need to speak
about 15 years? Have you done that in five?
Ms. Jaresko. The number has not decreased--$48 billion is
the FEMA portion of the hurricane funds. The number remains
approximately the same, but it is made up of multiple
components. So, there is approximately $20 billion you could
add to that for CDBG-DR. There are private-sector insurance
funds that are added to that. And in total, it is the same as
it was previously--$83 billion. In terms of the 15 years,
frankly speaking, that is not unknown. After Hurricane Katrina,
the 15-year process, given the level of destruction on the
island, it would not--in the best-case scenarios and how FEMA
has implemented reconstruction and other major areas of
devastation--it was very similar. So, it is not a testament to
anything out of the----
Miss Gonzalez-Colon. My time has expired, Chairman.
The Chairman. If the gentlelady, Commissioner, would yield
to me for a second, I wanted to ask you a question, if I may,
Ms. Gonzalez-Colon. Given the specificity of your questions and
your comments and the details that you know from representing
the island and from being involved in these issues, I have a
question that is puzzling me from the time you took the initial
vote to adjourn. Why would you vote to adjourn if this issue is
of critical importance to the people of Puerto Rico and the
people you represent? I am just curious.
Miss Gonzalez-Colon. So, Chairman, you are questioning me
as a member of the Committee on my decisions on how to vote?
The Chairman. No. That is not----
Miss Gonzalez-Colon. The Chairman of the Committee is
questioning one of the Members. How much time do I have to
answer? Do I have 5 minutes?
The Chairman. I just wanted to know. I think a lot of
people want to know because I think this discussion that we
planned from this was to talk about what the response to the
pandemic was. And my assumption is that this is of keen
interest. But having said that, I yield back.
Miss Gonzalez-Colon. Yes, I am willing to answer. My
question is do I have 5 minutes?
The Chairman. I am sure.
Miss Gonzalez-Colon. OK. I will answer my question. First
of all, I never expected this Committee to be so partisan that
the Chairman of the Committee needs to have time to question
one of the Members but I will do it. I am here in Washington,
DC----
The Chairman. I am constantly questioned myself by you
Members.
Miss Gonzalez-Colon. I am answering the question. If I am
here in DC willing to work and represent the people of the
island, why can't the rest of Congress do that? The Senate is
having hearings. The Senate are meeting. People in the
airlines, people in the hospitals, everybody is working, and we
are not doing that in Congress. I do believe that we should be
present doing the people's job in the Capitol, as many other
Members. That is the main reason I voted to adjourn for this.
And why the Committee has to have a different procedure to do
that? I am always meeting with Jaresko. I am always meeting
with Marrero. I am always meeting with the cabinet members on
the island. I am always doing my job in Puerto Rico. What is a
shame is that you use this Committee to have informal forums
without even inviting the members of this Committee like me and
Amata Radewagen when you are discussing territory issues.
So, if you want to talk about why you are using this
Committee and having this hearing, this one that we were
invited to, but not in the rest of the informal Zooms, that is
one of the reasons that if we have present meetings, hearings
like we used to have, like they have in the Senate, like they
are doing actually in Puerto Rico--the House and the Senate,
they are meeting and they are having session as we speak. Why
can't Congress do the same thing we are asking for all
Americans and all businesses among the nation? And that is why
I voted to actually adjourn the Committee and have a formal
meeting.
The Chairman. I appreciate your response and thank you. Not
really an answer but, nevertheless, an attempt. Let me now
recognize Ms. Velazquez. The time is yours.
Ms. Velazquez. Well----
The Chairman. Oh, Ms. Haaland. I am----
Ms. Velazquez. Oh, OK.
The Chairman. I am sorry. I didn't look at the list. Ms.
Haaland, the gentlelady from New Mexico, the time is yours.
Thank you.
Ms. Haaland. Thank you, Chairman, and I'd like to thank the
witnesses for being here today and would like to thank every
single one of my colleagues as well. I appreciate having all of
you here. I would like to yield my time to Ms. Velazquez if she
would like my time.
Ms. Velazquez. Thank you so much. Sure. And thank you for
yielding your time to me. You know, I was stricken by COVID-19,
and I self-quarantined here in my apartment in New York. It was
quite an experience when you have to be by yourself and you are
not allowed to bring anybody else to take care of yourself. So,
the fact of the matter is that there is a lockdown here in New
York. And there is a lockdown in many states in the country.
And if you look at the market today, the Dow Jones is 1,400
points down. You know why? Because the spike of coronavirus in
other states.
So, the fact that we are not conducting business in
Washington is related to the lack of strategy, a national
strategy, to deal with the coronavirus pandemic. It is quite
simple. Yesterday, I held a hearing in my committee. And one
member of the Republican Party was using my committee. And he
was just chastising off because we were not in Washington. And
I said to him, ``Well, now when you leave, we are going to have
to send a crew to disinfect the hearing room because that is
the guidance by the physician in the Capitol.''
So, until we have a national strategy to deal with the
pandemic, until we have testing, until we have PPE, I can
assure you that I am not going to put the lives of my staff at
risk and that is the issue here.
Ms. Jaresko, this past month San Juan Power Station 5 and 6
were converted to LNG under a $1.5 billion contract awarded to
New Fortress Energy.
Back in March 2019, the Oversight Board expressed concerns
that the New Fortress Energy agreement for the conversion of
San Juan 5 and 6 had a pricing structure 30 to 40 percent
higher than industry benchmark. Why did the Oversight Board
decide to approve this agreement notwithstanding the pricing
structure?
Ms. Jaresko. Thank you, Congresswoman Velazquez. We take
the situation at hand when we are provided those contracts. And
we try to move forward to the extent possible. Moving to LNG
was a critical part of reducing the cost of electricity on this
island and moving to cleaner fuel on the island from the bunker
fuel, bunker oil that is used currently in the----
Ms. Velazquez. Yes, I hear you but then----
Ms. Jaresko. We reviewed the contracts the best that we
could.
Ms. Velazquez [continuing]. You opposed the agreement or
you criticized the agreement because you said that the pricing
structure, 30, 40 percent higher than the industry benchmark.
How is that going to reduce the cost of energy in Puerto Rico?
Ms. Jaresko. Because it was still cheaper than oil, cheaper
than the fuel that they were using at the time. The RFP process
did not bring in other players. So, those industry benchmarks
are what we use and what we know. But that doesn't mean that
the industry benchmark necessarily is available to Puerto Rico.
In particular, available to PREPA, which remains in bankruptcy
so that every bidder sees that there is financial and fiscal
risk in bidding.
Ms. Velazquez. Ms. Jaresko, Mr. Jaramillo reported that San
Juan 5 and 6 are still using diesel because New Fortress Energy
has failed in the LNG safety tests. Are you aware of this
situation, and how does that impact PREPA's fiscal plan?
Ms. Jaresko. I saw this in the news as you did this
morning, and I do not know whether it is true or not that New
Fortress has failed in turning on the LNG.
Ms. Velazquez. And were you going to investigate whether or
not that is true?
Ms. Jaresko. Of course.
Ms. Velazquez. Mr. Marrero, the Washington Post--well, my
time is up.
The Chairman. Thank you, Ms. Velazquez. Let me now turn to
Mr. Westerman. Mr. Westerman, the floor is yours. Am I muted?
Would the staff indicate to Mr. Westerman's staff that he is
still muted.
Miss Gonzalez-Colon. He is unmuted, Mr. Chairman. I don't
know why we couldn't hear him.
The Chairman. Thank you.
Mr. Westerman. OK. I am using another computer now. Can you
hear me, Mr. Chairman?
The Chairman. Absolutely. Thank you, Mr. Westerman.
Mr. Westerman. OK. And before my time starts, can I make an
inquiry?
The Chairman. Please.
Mr. Westerman. OK. I don't know what the problem was with
the sound on my computer. We checked it out beforehand. I
logged on last week. Everything worked. But when we voted the
first time, my computer would not unmute even though it unmuted
on the screen. Ms. Radewagen couldn't be recognized, and Mr.
Graves couldn't get into the system. So, I don't know what the
problem is there, but it is ironic that it is just happening to
Republican members or to Minority side members.
And also, I have an inquiry as to who controls the mute
button because I don't think Members' microphones should be
muted unless they mute them. And an unelected staff member
shouldn't be controlling when a Member of Congress gets to make
a point of order or interject in a meeting.
The Chairman. It is my understanding from all the specific
guidelines that were sent to all the Members that the only time
that the staff is involved in any muting is if there is
inadvertent background noise. Other than that, that
responsibility is wholly the Members'. We are not gagging
anybody. There is no conspiracy to make sure you don't get on
but Ms. Haaland does get on. Those are technical issues above
my pay grade. And I would suggest that your staff work with the
technical staff of the Committee about any of these glitches.
They are----
Mr. Westerman. Well, we had a committee hearing in
Transportation and Infrastructure earlier this week. We met in
the committee room. They used the equipment. There was no
problem with Members being muted or not being able to be
recognized. So, I mean, if we're going to use this system,
let's at least try to get something that works and have it so
that Members can speak up when it is time for them to speak up
or when they wish to speak up. I was trying to notify you that
Mr. Garret couldn't get logged on, and he missed the vote
because--finally Mr. McClintock on his machine was able to make
a point of order.
The Chairman. Yes. I should note for the record that Mr.
Gallego on the Majority side has had technical problems, hasn't
been able to join us and is still attempting to do that. Like I
said, this is the first hearing that we have had for the
Natural Resources Committee as a full committee. And the
difficulties that you have encountered are purely of a
technical nature, not of a conspiratorial nature. And as such,
those can be worked out. The conspiracy thoughts that anybody
might have, I can't help you with that.
Mr. Westerman. Well, I am not raising a conspiracy. I am
just stating the facts of what happened. And I know that in the
T&I Committee there weren't any problems.
The Chairman. And I was just giving a disclaimer. That is
all.
Mr. Westerman. I will move on to questions now. And since
the rules seem to be changing here, if you want to put a
suggestion box in, my first suggestion would be to let Members
have control of their own mics.
Mr. Marrero, in the interest of transparency, did the
government of Puerto Rico submit agreements to purchase medical
products from 313 LLC, Apex General Contractors and perhaps
other vendors for review by the Oversight Board established in
PROMESA that is required under Section 204(b)(2) of PROMESA?
Mr. Marrero. Congressman, thank you for your question.
Unfortunately, those purchase orders that you are referring to
were not submitted to PROMESA with the contract review policy.
Mr. Westerman. I am sorry. Could you repeat that, please?
Mr. Marrero. Yes, sir. The purchase orders that you are
referring to, they were not submitted to the Oversight Board.
However, other contracts that had been executed during the
crisis have been submitted to the Oversight Board according to
the contract review policy.
Mr. Westerman. And why were those contracts not submitted?
Mr. Marrero. Unfortunately, sir, it was an interpretation
at a local government agency that because it was a purchase
order, which is a mechanism that some agencies use to purchase
goods and services during emergency that they thought they were
not required to submit those purchase orders under the contract
review policy.
Mr. Westerman. There was a May 19 article in El Nuevo Dia
which states that one of the lawyers for Apex General was
quoted as saying the deal would, ``make millions of dollars.''
Why was this contract not recorded through PROMESA, and what is
the government doing about it to ensure transparency going
forward?
Mr. Marrero. Excellent, excellent question. Well, first of
all, after we have been collaborating with the investigation
and the review that has been conducted by the Oversight Board,
the Department of Justice, the local Department of Justice, has
also conducted an investigation of those contracts. However, as
to the Federal funds for COVID-19, I will invite you to go to
the AAFAF COVID-19 website, which is a transfer in the portal
similar to what we did at the FEMA level as well as in the
CDBG. And you are going to be able to see information related
to the funds and the programs that we are implementing with
those Federal funds.
Mr. Westerman. Mr. Chairman, I would like to give Mr.
McClintock his machine back and yield the remainder of my time
to the gentlewoman from Puerto Rico, Ms. Gonzalez.
The Chairman. Ms. Gonzalez-Colon. The time is yours.
Miss Gonzalez-Colon. Thank you, Mr. Westerman. Thank you,
Mr. Chairman. I just want to clarify some of the issues that
were said a few minutes ago--I think the Republican Minority
never wrote PROMESA. Actually, PROMESA was brought by a
Democratic governor, Garcia Padilla, at the time when he
contracted John Ravitch--Richard Ravitch, actually, from New
York. And then it was pushed by the Treasury Department at that
time supporting that legislation.
And actually it was President Obama's Treasury Department.
And it passed because of the Democrats and the Republicans.
That is true, and actually the gentlelady from New York helped
out with that time the Minority leader, today, Speaker of the
House because the Republicans were divided in the House. That
is the reality behind it. Republicans and Democrats voted for
it. And President Obama signed it.
So, saying that this was just a Republican bill, that is
incorrect. But I do have another question to Mr. Marrero. And I
want you to tell me what are the recent developments on Title
V.
Mr. Marrero. On the Title V of PROMESA, Congresswoman,
unfortunately, the Title V of PROMESA has been stalled. The
process--I believe that the executive director could shed some
light on it. But the recovery coordinator position has been
vacant for over a year. And I believe that only one project was
being worked through that process. However, I would avail my
time of this opportunity to say that we believe that the Title
V could be more productive. However, it should be amended,
particularly for the Federal permitting processes. But I will
allow Ms. Jaresko to answer.
Ms. Jaresko. Representative Colon, the demand for the Title
V permitting has not been very great. The demand that came into
the pipeline when established was primarily PREPA-related. And
all the PREPA contracts needed to first be either approved or
rejected in the Title III court. PREPA only last week announced
what they were going to do with the bulk of those contracts.
And that process is ongoing.
I expect that the demand for Title V will grow now that
those contracts are in place. We have also started to see some
other private sector investment. Remember Title V is the only
private sector investment coming in. We have a new project that
has been put into the pipeline. So, as we encourage and as the
business environment gets better, hopefully, you will see more
private sector investment. And I believe they will take
advantage of Title V. We have a candidate that we are prepared
to hire. We have already discussed preliminary fashion with the
Governor's representative, Mr. Marrero.
Miss Gonzalez-Colon. Mr. Chairman----
The Chairman. Thank you. The time is up on the time yield.
Miss Gonzalez-Colon. I would like the----
The Chairman. Let me now turn to Ms. Velazquez for her 5
minutes. Ms. Velazquez.
Ms. Velazquez. Yes. The Chairman at the time was Mr.
Bishop, and we worked with him. But basically he carried the
bill, and we worked to make it more feasible for the people of
Puerto Rico to confront the public debt. Mr. Marrero, previous
press reports have indicated numerous problems with the
department's capability to process unemployment insurance
claims. How many pending claims currently exist?
Mr. Marrero. Thank you for the question, Ms. Velazquez. As
you know, Puerto Rico, as any other jurisdiction, has faced a
struggle a lot with the pandemic insurance benefits. Right now,
of the 300,000, approximately, applicants, 180,000 are already
receiving the benefits. And the remaining 100,000 are being
worked as we speak.
Ms. Velazquez. How many pandemic unemployment assistance
claims for the self-employed are still pending?
Mr. Marrero. I will submit that information in a reasonable
time frame, Ms. Congresswoman, because I don't want to inform
any, or provide any incorrect or inaccurate information.
Ms. Velazquez. What safeguards have you employed to address
the issues in unemployment insurance processing as reported by
the press? Has the Puerto Rico government designed a transition
plan at the Department of Labor considering the recent change
in leadership?
Mr. Marrero. Yes, ma'am. Not only do we have our recently
appointed or our newly appointed Secretary of Labor but also he
is already partnering up with the Secretary of Hacienda to see
how we can avail ourselves of the technology that has been
deployed at the Department of Hacienda. The provider of the
technology that we have been using at Hacienda in order to
expedite the disbursement to taxpayers--the same provider has a
solution that has been able to implement it stateside for the
pandemic unemployment benefits. So, right now, part of the
transition plan not only is to have several distribution
channels, several lines in order to serve the people, but also
to implement new technologies that have been successful
stateside in order to expedite those----
Ms. Velazquez. Well, we hope so. We all know how the people
of Puerto Rico are suffering. Particularly, 65 percent of the
children in Puerto Rico live in poverty. And every week, it is
promised that the money is going to get there. And then 5
months later, 3 months later, still people are waiting for
their unemployment insurance claims to be processed. So----
Mr. Marrero. We will not rest until that happens, ma'am.
Ms. Velazquez. Ms. Jaresko, at the start of the lockdown,
you claimed in the Puerto Rican press that the measures taken
by the Oversight Board have led to the successful response by
the Puerto Rico government. But just this week, the Washington
Post included Puerto Rico and seven other states that are,
right now, dealing with a spike in coronavirus.
As we all know, the local Department of Health has been
incapable of providing timely and reliable data and
administering the required diagnostic tests. This is partly due
to consistent personnel cuts and efforts to privatize key
functions to the local health system, a position that the
Oversight Board advocates. Are you willing to accept that many
of the shortcomings in the local Department of Health have been
caused by the rightsizing and austerity measures that the Board
has implemented since Day 1? In other words, do you also claim
responsibility for this debacle?
Ms. Jaresko. With all due respect, Representative
Velazquez, we do not. The Board has made it possible in a very
difficult environment for the Department of Health and for the
government of Puerto Rico to have funds available even prior to
the President's declaration of a disaster. So, with $160
million in an emergency reserve, the capacity to spend those
funds to purchase test kits was there from Day 1.
Ms. Velazquez. Ms. Jaresko, the problem is not the money
that you are giving them now. The problem is the money that was
taken away and the lack of infrastructure that they needed to
have in place in order to tackle the pandemic. That is the
issue, an infrastructure that basically has been destroyed by
the austerity measures taken by the Board at the expense of the
people of Puerto Rico. I yield back my time. My time has
expired, Mr. Chairman.
The Chairman. Thank you. The gentlelady yields back. Mr.
Graves, the time is yours.
Mr. Graves. Thank you, Mr. Chairman. Mr. Chairman, I
actually want to first thank Mr. McClintock for watching my
back earlier. But I also want to associate some of my concerns
with the gentleman from Arkansas, Mr. Westerman. Mr. Chairman,
we had three different people in the office, myself included,
trying to log on during the vote. Couldn't get in. Finally
sometime after the vote, using the exact same credentials, we
were able to get in. So, you can call me a conspiracy theorist
if you want, but I want to reiterate it was the exact same
credentials.
No. 2, in regard to the dialogue previously with Ms.
Gonzalez-Colon, I want to make note, Mr. Chairman, I have sat
here and listened to speakers virtually raising a concern about
Puerto Rico, about the Oversight Board, about FEMA, about
Federal agencies, yet grocery stores, barbershops that I need
to visit, tattoo parlors and other entities have opened right
now, yet the U.S. Congress as we sit here and beat the heck out
of what's going on in Puerto Rico, we can't meet and actually
devise solutions.
I don't believe that our role is less important than a
grocery store in a global pandemic, a civil rights crisis, and
many other challenges that are facing our Nation today. With
that being said, I actually do have some questions. No. 1, in
the 2020 certified fiscal plan for Puerto Rico, the plan
indicates a contracted or a shrinking of the economy of Puerto
Rico. It indicates a 65 percent reduction in savings or funds
available. I am struggling--and it appears to blame largely on
coronavirus. While I fully appreciate the devastating economic
consequences of the virus and, in some cases, exacerbated by
government response, I don't think that I fully understand how
in the world we could have that type of contracting projected
over that period of time with the extraordinary influx of
Federal funds. Could I get an understanding there, please?
Ms. Jaresko. Of course. Representative Graves, the 65
percent decline that you referred to is a 65 percent reduction
in the surplus over a period of time, not in revenues. Revenues
are not----
Mr. Graves. Availability of funds or savings, yes.
Ms. Jaresko. No. It is the excess of spending. So, it has
to do with the level of spending as much as it has to do with
the revenues. The decline in revenues is only about 12 percent
this year. We are in about the median of the U.S. states. And
it is about the same, about 10 percent next year. So, the
surplus declining is primarily for that reason but the issue in
terms of overall also has to do with the second element, which
is structural reforms that have been delayed.
The second change that is critical to the fiscal plan from
2019 to 2020 is the delay in the structural reforms. And by
delaying them, they don't start to provide growth, and the
growth doesn't start to generate revenues. So, revenues are
down as well because of the delay in full implementation of the
structural reforms. But that has a larger impact farther out,
not in the next 2, 3, 4 years because that accumulated growth
is later.
Mr. Graves. I am probably going to have some follow-up
questions because I don't want to belabor the question. But I
had a little bit different understanding of the out-year
projections and will submit some questions for the record. But
I do have another question on the Oversight Board. After
President Obama appointed members of the Oversight Board, the
audited financial statements went from being submitted within
approximately 1 year--and that was for about a 5-year period.
It was fairly consistent to now here we are in 2020, and we
still don't have certified statements from 2017. Can you help
me understand why that is happening?
Ms. Jaresko. During the time of PROMESA, we saw the 2016
fiscal year financial statements be completed. But, yes, the
2017 remained incomplete. The targeted date by the Secretary of
Hacienda, the Secretary of the Treasury, is July 30 for those
financial statements. But it has been a long slog. And we have
been doing everything we can to urge, to press the auditors, to
press the government, to meet with those elements of government
that are delayed. In this case, the government is waiting for
PREPA, the electricity utility, to complete its 2017 to be able
to consolidate. So, I can't explain. Perhaps Mr. Marrero can.
Mr. Graves. I apologize for interrupting but I am out of
time. I just want to ask. Could you please submit something to
the Committee in writing? I believe we are approaching 1,500
days after the end of the appropriate 2017 period to actually
have these documents available. We are talking tens of billions
of dollars in Federal funds. And it is difficult for us to have
an understanding of the financial situation without audited
statements. Thank you and I yield back. Thank you, Mr.
Chairman.
The Chairman. Thank you, sir.
Ms. Jaresko. Representative Graves, but the question also
needs to be answered by the government because I am not in
control of the financial statements.
The Chairman. Ms. DeGette.
Ms. DeGette. Thank you so much, Mr. Chairman. And I want to
thank you for having this hearing. I went to Puerto Rico in
2017 with Representative Gonzalez-Colon and others on a trip.
And what you said in your opening statement, Mr. Chairman,
really resonated with me. Puerto Rico has had one, two, three,
four punches. They had the two hurricanes. Then they had the
earthquake. And now they have COVID. And I frankly think that
the residents of Puerto Rico and everybody in this country
concerned about COVID are a lot more concerned about having
these facts get out into the open than to hear Republicans
griping about the process and having trouble using their
technology. So, thank you for doing this. And I know we're all
going to get better and better at it as it goes along.
I want to ask the witnesses today about something that I
have been amazed hasn't been asked before. And that is what's
going on in Puerto Rico with how they are dealing with the
COVID-19 pandemic. Currently, as you may know, as our witnesses
may know, Puerto Rico has one of the lowest testing rates in
the United States.
And we don't see much in the way of contact tracing
protocol. So, I'd like to ask you, Mr. Marrero, through the
CARES Act, the Federal Government assigned $2.2 billion to
Puerto Rico to address the coronavirus pandemic. And these
funds were then factored into the 2020 Fiscal Plan, which
outlines how the funds will be allocated by the government. As
of today, Mr. Marrero, how much of the CARES Act funds have
been distributed to Puerto Rico? How much have they gotten?
Mr. Marrero. Of the coronavirus relief fund? $2.2 billion,
ma'am.
Ms. DeGette. So, they got the whole $2.2 billion amount,
right?
Mr. Marrero. Of the coronavirus relief fund.
Ms. DeGette. OK. And how much of the funding has already
been used by the government?
Mr. Marrero. We are talking about--well, right now you have
to factor in also the----
Ms. DeGette. OK. How much has actually been used by the
government?
Mr. Marrero. Of the $2.2 billion, we are talking about $300
million that has been disbursed through the different programs.
Ms. DeGette. OK. So, a tiny fraction of it, really. Are you
confident that the government is going to be able to make use
of the available funds before the December 31, 2020, deadline
that has been established by the CARES Act?
Mr. Marrero. Yes, ma'am. As opposed to any other
jurisdiction, we unveil a very comprehensive plan, which is
publicly available----
Ms. DeGette. So, you're going to have to do that all
between now and the end of the year and you think you can do
that?
Mr. Marrero. Oh, yes.
Ms. DeGette. OK. Now, also you mentioned in your testimony
that $500 million is being allocated to health-related
expenses. Is the government prioritizing rapid deployment of
testing capability as part of these funds?
Mr. Marrero. Yes, ma'am.
Ms. DeGette. Thank you. Is the government using the funds
to also support better data collection?
Mr. Marrero. Yes, ma'am.
Ms. DeGette. And is the government using the funds to
develop and deploy a contact tracing system for the island?
Mr. Marrero. Yes, ma'am.
Ms. DeGette. OK. Now, I know we don't have time in this
hearing, but I would appreciate it if you could supplement your
testimony to give us a detailed written breakdown of the $500
million for healthcare-related expenses and where it is going
to go. Can you do that for us and when?
Mr. Marrero. I will provide you the detailed response for
the entire $2.2 billion.
Ms. DeGette. Thank you, sir. That would be fantastic. Now,
Ms. Jaresko, I'd like to talk about the role that the Oversight
Board is playing in Puerto Rico's coronavirus pandemic
response. The Oversight Board recently sued the government of
Puerto Rico for not turning over documents related to the
controversial purchase of rapid test kits for $38 million that
never arrived. What are the systemic issues that you have
identified that led to the decision to enter into the contract
with the Australian company, Promedical Equipment, for the
testing kits?
Ms. Jaresko. Thank you, Congresswoman. Unfortunately, I
can't answer that question because to answer that question, we
need to get the documents that come before any contracted
purchase order. The documents that show the procurement
process, the e-mails, the memos.
Ms. DeGette. And have you requested those documents?
Ms. Jaresko. We have requested them seven times but have
not received them from any contract.
Ms. DeGette. Well, Mr. Chairman, maybe we can get those
documents. And then we can have Ms. Jaresko answer that
question. And let me just ask one more question of you, Ms.
Jaresko. As we continue to address the challenges of the COVID-
19 pandemic, you recently said that you would postpone
austerity measures for a year and acknowledged the austerity
plan needs to be redrawn. If you're forecasting economic
contractions, why not shelve the austerity altogether and focus
on economic growth?
Ms. Jaresko. Economic growth is something that is primarily
in the government's hands. We have included economic growth
efforts in terms of structural reforms, but they have to be
implemented by the government, by the elected government of the
island. So, the only portion of this that is within PROMESA's
mandates to manage is the expenditure side of the budget. I
can't grow the revenues. I can't change the tax incentive
structure that is on the island.
In that light, to the extent that the economy continues to
become smaller, unfortunately, if we don't take these measures,
we will have to cut even more later. So, the combination of
non-action on the structural reforms to increase revenues and
not cutting costs, not making the government more affordable,
more efficient, more limber, will actually put us in a worse
position as the economy gets smaller.
Ms. DeGette. Thank you. Thank you very much, Mr. Chairman.
Thank you for your commenting.
The Chairman. Thank you.
Mr. Fulcher, the time is yours. Is he there? Mr. Fulcher?
Mr. Hern?
Mr. Hern. Thank you, Mr. Chairman. It is good to see
everyone today. These are long calls, doing it this way. But it
is good to be able to talk to our friends here. I thank the
witnesses for being here as well. It is always troubling to
see--we have had so many of these conversations about Puerto
Rico and about the economy there and what's going on. And
somebody that has been in business my entire life prior to
getting into Congress this term, I am shocked to see that
Puerto Rico has amassed about $72 billion in debt, bonded debt,
$40 billion--$49 billion in unfunded pension liabilities and
has effectively lost all access to the capital markets.
With that said, Ms. Jaresko, in your testimony, you touched
on this. And you state that the Oversight Board has worked with
the Puerto Rican government to implement numerous structural
reforms, but there has been little meaningful progress. You
state that this is a result of disasters, poor implementation
of the Board's recommendations. Could you explain how the lack
of structural reforms has hurt Puerto Rico's growth and how
implementation of the recommended structural reforms for the
last fiscal plan would improve Puerto Rico's economy on both a
short-term and a long-term basis?
Ms. Jaresko. Thank you, Congressman. The structural reforms
are meant to do a couple things in terms of changing the nature
of the economy: (1) to increase labor participation; (2) to
improve the environment for attracting investment, Puerto Rican
investment, national investment, international investment; and
(3) to improve the quality of electricity and resiliency of
electricity and the infrastructure of the island, all taken
together to make Puerto Rico a more competitive place for
businesses to invest and for jobs to be created.
In terms of the human welfare and human capital reforms
that would improve labor participation, the government did
implement an earned income tax credit. We did agree and put
money in the budget. However, they haven't made it well-known
throughout the island such that individuals could make time-
sensitive decisions about whether or not to stay in the formal
economy and get that credit or leave and go into the informal
economy or, worse yet, leave the island.
So, that EITC has to be developed further in terms of
getting people to understand it. On the welfare to work plan,
we asked for it to be implemented in a 1-year so that it could
be quick, so that people could actually understand and start
moving slowly, not necessarily to work but education, to
volunteer, along with the plan. And that has only been
implemented--or they agreed to implement it over 4 years.
Those delays mean our labor participation rate remains low.
It also means that the labor market is going to be more
difficult. We have a massive unemployment level right now,
close to 40 percent. And for those folks to re-enter the market
is going to be harder because labor participation rates are
low, and the environment for labor is complex. Not having those
structural reforms in the short-term has a $200 million effect
on the surplus, over the long-term, over 30 years, almost $25
billion.
Mr. Hern. Thank you. And you also talked about what is
equivalent to the SNAP in the United States. And you talked
about reform. And I was very happy back earlier in my first
time in Congress here to sign on with 64 other Members about
some reforms to SNAP. I noticed that there are no work
requirements whatsoever for your nutritional assistance
program. And in your opinion, what should we do to change that
in the last few seconds that I have here?
Ms. Jaresko. It is up to the government to file the plan
with the FNS, with USA FNS and commit to making it possible.
There is not a great deal more that is required.
Mr. Hern. So, there is really no encouragement to go back
to work, then, but to get assistance from the government? Is
that what you're saying? That is what you're alluding to?
Ms. Jaresko. No. I am not saying that. I am saying that it
would be better to have that work/volunteer/education
requirement such that people can start to make the move toward
work and we don't have that requirement at this time. The
government is committed to do it but only in the course of 4
years.
Mr. Hern. Well, I appreciate your details of what we need
to do. There is a lot of work to do. And as we're following
this on the Oversight Board's recommendation in helping to
incentivize people to join the workforce, as you just
mentioned, just unfortunately doesn't seem to be happening
right now. If we are going to help, we have to get people back
to work. As we know, Ronald Reagan once said, ``The greatest
social program in the world is a job,'' and we need to get
people back to work. Mr. Chairman, I yield back. Thank you.
The Chairman. Thank you, Mr. Hern.
Mr. Soto. Sir, the time is yours.
Mr. Soto. Thank you, Mr. Chairman. And it is important to
start by getting the record straight. We saw recession hit
Puerto Rico well before the Great Recession even hit the United
States, in part, by the loss of the 936 exemption and,
unfortunately, pharmaceutical companies and others leaving the
island. Then we saw PROMESA because bankruptcy was taken away
from them for absolutely no reason. So, PROMESA represented a
compromise, an imperfect one.
The we saw Hurricane Maria and Hurricane Irma leading to
the largest death toll of Americans in modern history, over
3,000 people dying because of the terrible response by the
Trump administration. Then we saw earthquakes hit where this
House has passed $5 billion with some bipartisan support while
the Senate sits there and does nothing.
Now add COVID-19 on top of it, and it is just one after
other after another. And it is important to get the record
straight because it is very difficult to be able to speak up
accurately, particularly for many elected officials back on the
island who have to work with the Trump administration and are
concerned about President Trump's well-known vengeful nature.
So, they have to tiptoe around. But we need to keep the record
straight so this Committee knows what actually is happening. We
know that Americans in Puerto Rico continue to be treated like
second-class citizens.
The territorial status is part of this problem. There are
3.2 million Americans living in Puerto Rico. It is 20 times the
second-largest territory. It is also more populous than 20
states--so it just doesn't work for them. So, having two U.S.
senators, four Members of Congress, and a vote for president
would go a long way to helping fix a lot of these things. I do
agree the people of Puerto Rico have to determine this future,
and they will have a vote on a simple statehood yes-or-no
question this November, a simple question in a high-turnout
election. And we need to respect the results and act upon them,
regardless of what they are.
And I do want to talk a little bit about the PROMESA
reforms that this Committee has already filed. Mr. Marrero, you
had talked about legitimate concerns about there is not a good
dividing line of what essential services are in protecting
Puerto Rico's sovereignty. So, the new definition of essential
services, including public education, public safety, health
care, pensions, and the University of Puerto Rico, does that
better protect--does that get the dividing line right on
protecting Puerto Rico's sovereignty to handle its day-to-day
affairs?
Mr. Marrero. Thank you, Congressman Soto, for your support
with the people of Puerto Rico. I am going to be completely
honest. Since the beginning, we have been reluctant to support
this additional language because current interpretation of
essential public services has been very beneficial for the
people of Puerto Rico. Even though the including word can be
interpreted as expansively and not necessarily limited
essential public services--however, we believe that in order to
make that workable, we will also need to amend other sections
of PROMESA to make sure that the Oversight Board does not use
other provisions of PROMESA to circumvent what you are trying
to achieve there.
Mr. Soto. OK. So, there are additional suggestions you have
of potentially improving the legislation. We appreciate it. If
you wouldn't mind sending those to the Committee, that would be
helpful. Do you think us going to define this better--let's say
we adopt the recommendations you just stated. Would this help
ensure better response to COVID-19? I know it has been
difficult to get tests there. And would this help improve the
healthcare system to improve your COVID-19 response? Would this
be a help to you on that?
Mr. Marrero. Being honest, Congressman, I don't see one as
a significant requirement for the other. I believe that the
challenges that we have faced in Puerto Rico during the COVID-
19 are very similar to what other states and other
jurisdictions in the world have been facing. I think that the
most important amendment that PROMESA needs right now is to
delineate the powers of the work, to make sure that the public
policy of the government--the elected government at the time
because this is not only for the present or the current
government of Puerto Rico but also for any other government of
Puerto Rico--is to make sure that the public policy, that it
has been elected at the ballot with the power of the vote. It
is totally respected.
Mr. Soto. Well, that is the intent that we are seeking in
this legislation, to define essential services in a way that
protects the day-to-day responsibility and the duty and powers
of the duly elected central government. So, please continue to
work with us on that because we want to get that definition
right. We have the same goal in mind, which is to protect
services and the sovereignty of the island. It also includes
relief for unsecured debt, an audit, which I know a lot of
folks have asked about.
I want to first thank you, Ms. Jaresko, for mentioning in
your past testimony that you would be happy to cooperate to
supply documents for any independent audit. That certainly
would be helpful. Let's assume for a moment this became law.
How would you be able to implement the conflict of interest
provisions of it that are in the pending legislation?
Ms. Jaresko. Very supportive, Mr. Congressman, of the
conflicts of interest provisions in general. We have been very
supportive of Congresswoman Velazquez's approach to that
amendment. I think that the current version, frankly, is over-
expansive. To be very clear, the conflict of interest as
written currently would force everyone to clarify whether there
was a conflict with over 165,000 creditors that have made
claims in the courts against the government of Puerto Rico. For
anyone, whether it is Mr. Marrero or whether it is a Board
member, or whether it is an advisor, to clarify 165,000
conflicts of interest at every level would be an impossible
exercise. So, we are in favor of and we are supportive of
improving conflict of interest disclosure. But I believe that
the current language is overly expansive.
Mr. Soto. Well, we look forward to your additional guidance
on that so that we could get it right. And certainly having
Federal funding for the Board will allow you to be a little
more independent of having to utilize the current revenue from
the island, which certainly makes it more----
The Chairman. Thank you, Mr. Soto.
Mr. Soto. Thank you, Chairman.
The Chairman. The gentleman yields back. Ms. Radewagen? Is
she still with us? I had called her before.
Mrs. Radewagen. Thank you, Mr. Chairman.
The Chairman. Thank you.
Mrs. Radewagen. Can you hear me?
The Chairman. Yes. The floor is yours.
Mrs. Radewagen. I yield my time to the gentlelady from
Puerto Rico.
The Chairman. The gentlelady yields. Ms. Gonzalez-Colon.
Miss Gonzalez-Colon. Thank you. Thank you, Amata, for
yielding and Chairman for recognizing. I have a question to Mr.
Marrero. In terms of--we have been losing a lot of money and a
lot of revenue during the last 3 months with the situation of
COVID-19. Many people may not be aware. But the first lockdown
in the Nation actually was in Puerto Rico since March 15. There
was a curfew. There was a lockdown. I think at that time, there
were proper decisions. The Governor just announced a few
minutes ago that they are getting rid of the lockdown and
moving the curfew to 10 p.m., which is good. I do understand
that we should open and be prepared for living with this kind
of pandemic. Today, it is COVID. It will be another in a few
months, sadly.
But my concern is there is a projection that we are going
to be losing between $1.5 billion to $3 billion during the next
3 years because of the revenue that we lost. What is the plan
of the government of Puerto Rico to close the budget due to the
loss of revenue and the measures that need to be taken in order
to comply with the fiscal plan?
Mr. Marrero. Excellent question, Congresswoman. Thank you
for it. As you mentioned for Fiscal Year 2020, the government,
as well as the Oversight Board, anticipates a decrease in
revenue of around 18.9 percent--but a small increase the next
fiscal year of 1.7. However, we have to stress the timing
difference that we have because there are several tax returns
that has been postponed or delayed for the next fiscal year.
So, that takes into account also that percentage or that high
percentage of decreasing revenues. However, as any other
government in the Nation, we will use reserved funds to manage
some of the shortfall as provided in the fiscal plan and the
budget. However, I think that this brings the question, more
importantly, that we would like to support and we would like to
ask Congress to act and pass legislation to provide support to
state and local governments across the Nation as well as
territories that we are dealing with lost revenue because, as
you know, the funds that have been available through the
coronavirus relief fund under the CARES Act are not allowed to
be used for lost revenue, only expenses.
Miss Gonzalez-Colon. I know, and actually, my second
question will be--and this is for you and for Ms. Jaresko.
There are many in Congress discussing even another phase of
recovery process for COVID-19 through the Nation. What
specifically will we need in Puerto Rico--like in Florida, the
tourism industry has been impacted, the hospital industry as
well. What specifically should be included in the case of
Puerto Rico, Mr. Marrero, Ms. Jaresko?
Mr. Marrero. Obviously lost revenue for state and local
governments, as well as public corporations, which have been
hit by COVID-19. And also, I would say that, in addition--the
government, hospitals, and the tourism industry definitely
should be a priority in Puerto Rico because of the lockdown,
how they affected not only the revenues and the visitors but
also the elective operations and elective procedures the
hospital used to be making before COVID-19.
Miss Gonzalez-Colon. Ms. Jaresko?
Ms. Jaresko. I would just add that I would hope, in
addition to what Mr. Marrero has said, that you would consider
the Governor's request and ours to support including Puerto
Rico in the pandemic EBT program such that in case--God
forbid--we're back in this situation again in the autumn when
the children are back in school that we can more easily get the
breakfast and lunch to them on the EBT cards, as is allowed
under the SNAP program.
Miss Gonzalez-Colon. We are pushing for that as well,
sending letters and dealing with that with the USDA since the
beginning. So, once we're in that, I think the poverty level on
the island is more than 60 percent. It is actually among
children, women. But if we do have specifics--because we have
been having meetings with the hospital industry and medical
industry. And we are facing at the same time the new hurricane
season. My third question, Mr. Marrero, will be specifically do
we have enough----
The Chairman. I am going to have to go to another--Miss
Gonzalez-Colon, your time has already passed.
Miss Gonzalez-Colon. I do have 13 seconds, sir, so I am not
finished.
The Chairman. When it turns that color, that means you went
over.
Miss Gonzalez-Colon. No. Actually, it is saying 4, 5. When
it is over, it is going red.
The Chairman. OK. Thirteen seconds. Start counting.
Miss Gonzalez-Colon. Thank you, and stop chasing me, sir.
The Chairman. I am just asking the question.
Miss Gonzalez-Colon. Mr. Marrero, you should be giving us a
complete number of what specifically you understand the
industry is requesting in terms of power. Do we have enough
resource for back-up for the industry on the island?
Mr. Marrero. I will provide that information in more detail
but definitely. We will need more back-up in order to make sure
that we are as resilient----
Miss Gonzalez-Colon. Thank you. I am waiting.
The Chairman. Mr. Tonko, you are recognized, sir.
Mr. Tonko. Can you hear me, sir?
The Chairman. Absolutely.
Mr. Tonko. OK. Thank you, Mr. Chair, for hosting this
important discussion. And let me just state that I regret that
this hearing has been so contentious. It breaks my heart that
the people of Puerto Rico have to deal with this. We shouldn't
have this kind of partisan trouble to talk about aid to peoples
who are desperately in need. Like many of my colleagues, I am
concerned about the speed at which aid has been delivered, Mr.
Chair, to our Puerto Rican brothers and sisters.
I have heard that up to $3.1 billion in community
development block grant dollars under the disaster recovery
have been approved for Puerto Rico. Only $47.3 million has been
disbursed. Can someone tell me what the hold up is, and how can
the government or the Board help solve that concern?
Mr. Marrero. Well, definitely. Thank you for that question,
Congressman Tonko. The reality is the CDBG-DR program, it is
not as straightforward as we would like. Since the beginning of
the allocation by Congress, we have been working very actively
to make sure that we have the action plan in place, the
structure, the policies, and procedure. Everything has been
done at the Department of Housing locally. However, once the
grant agreement included additional requirements for the second
tranche or the second allocation of the CDBG funds, additional
structure, additional policies needed to be put in place.
However, the government, the governors and myself, it is a
priority to make sure that we expedite the CDBG funding. Right
now, obviously, the COVID-19 and the earthquakes prior to the
COVID-19 delayed the launch date for several of the 26 programs
included in the action plan. However, the Secretary of Housing
has already launched the R3, which is the most important
housing program.
However, I am going to be honest. It is not up to the speed
that we would like to see it. The Governor, nor myself, nor
anyone within the team is satisfied with the speed of those
fundings. So, again, we are looking for ways within the four
corners of the law to make sure that we can expedite the
funding to make sure that who needs it the most have them,
obviously, as soon as possible.
Mr. Tonko. OK. I appreciate that. Any other response?
Ms. Jaresko. I would just add that our only role in that
program is the certification that was included in the grant
agreement and in the Federal Register. We did do that very
expeditiously, in less than 45 days, so that there would be no
hold-up in that second approval. But other than that, we don't
have any visual entry into what's going on in the disbursement.
Mr. Tonko. Well, it seems to me that there should be some
effort to coordinate so that the people can rightfully get the
dollars that they so desperately need. Puerto Rico is poor.
Their power grid is particularly fragile after Hurricane Maria
and the earthquakes in Southern Puerto Rico. And after the
earthquakes this January, the Costa Sur Power Plant has been
out of service. What are some of the preparations that the
Puerto Rico Power Electric Authority is taking for the upcoming
hurricane season?
Mr. Marrero. Thank you, Congressman. As opposed to what
happened when we got into office in 2017 when Maria hit, this
hurricane season, we have several warehouses across the island.
Not only do we have several warehouses, but we also have around
$150 million in materials and equipment across the island to
make sure that, if something happens, PREPA, the electric
utility, is able to respond in a swift manner. Not only that--
we have made sure that also PREPA has entered into initial aid
agreements with the utilities stateside to make sure that if
there is any help that we may need when a disaster strikes that
we can, again, go through those initial aids and be able to get
that help from our counterparts on the mainland.
So, as opposed to Maria and Irma, we believe that we are in
a situation better prepared because we have the materials,
equipment, the initial aid, and obviously the lessons learned
from it.
Mr. Tonko. And how will that all be impacted by the
upcoming privatization of the power utility?
Mr. Marrero. Excellent question, Congressman. When we
designed the old operation and maintenance agreement, when we
designed the structure of this agreement for PREPA, we made
sure that only we preserve the access to current and future
disaster funding. But also we made sure that doesn't derail or
affect the tax-exempt financing. This is quite technical, but,
again, we made sure that any agreement that we enter will not
affect the requirements of the Stafford Act under FEMA as well
as the health regulation for the CDBG funding. And that is
because we are retaining the ownership of the title for the
people of Puerto Rico.
Mr. Tonko. OK, thank you so much. Mr. Chair, do I have any
time remaining?
The Chairman. No.
Mr. Tonko. Oh. Well, I yield back then, Chair.
The Chairman. Thank you, sir. Ranking Member Bishop, sir,
you are recognized. Mr. Bishop.
Mr. Bishop. Yes. All right. Am I on here? Have all the
other Republicans already gone? Am I the last one? You can't
hear me, can you?
The Chairman. As far as I can tell, you are the last member
of the Minority to speak.
Mr. Bishop. All right. Well, fine. Mr. Chairman, a couple
of complaints, obviously, as we go forward with this. The
voting that took place earlier on was a huge kerfuffle. We will
be asking some specific questions of how we can avoid those
kinds of problems in the future and avoid staff telling how
Members should or should not be voting.
Mr. Grijalva, I also wanted to take issue with you on some
of the conversations you have had with the Ranking Chairwoman
of this particular portion. It is better than that. You are a
better person than that. I also realize that this is unique in
some situations. You have had a whole lot of these kinds of
hearings going on. This is probably the first time you have had
more than one point of view that has been presented with it.
And that presents some difficult situations.
And some of those in the past have been on issues that I
think are somewhat extreme. However, I just want this Committee
to realize, despite this vehicle that we are using which is so
inappropriate, that any discussions on solutions or changes of
what will take place in Puerto Rico without the discussions or
the commitment and inclusion of the Resident Commissioner from
Puerto Rico are futile. She is the Representative and the
spokesman for the island, and her point of view must be
considered at all times. And because of that, Ms. Gonzalez-
Colon, if you have another question, I would like to yield the
remainder of my time to you.
Miss Gonzalez-Colon. Thank you. Thank you, Mr. Chairman,
for always allowing us to represent the people of Puerto Rico.
And that is what I am doing here in Congress. The people voted
for me for 4 years even when some people want to represent the
island in their own views. I am the one elected to do the job.
And I appreciate my delegation for always being available and
allowing me to do my job as every other member of this
Committee do represent their districts.
And this is the same thing we are all doing, representing
our people. So, in that sense, we have been always available to
work in a bipartisan way. Actually, all my bills in this
Committee and in the rest of the committees are bipartisan, all
of them. And the reason for that is that not having the power
of vote in the Floor, not having a formal Delegation of four or
five members, not having a Senate representative of Puerto
Rico, that is the way to do things in a bipartisan way. And I
am so sorry that some folks would try to do politicking or
trying to do this in a partisan way. I think that if you really
want to help Puerto Rico, that is not the way to do it. It is
sitting. It is having discussions. It is having a reflection
and actually working to that end.
And I want to say thank you to all the members of this
Committee that actually--every time I reach to them asking for
their help, they have been doing that. Many of them here today
are being sponsors or leading sponsors in many of those
legislation so thank you for all the people that have voted for
Puerto Rico not once, but many times. And I am not going to aim
at all of you, but you all know who you are.
Ms. Jaresko, I do have other questions. I want you to
provide the Committee a list or log of the issues that you
understand may be helpful if we amend the PROMESA law. What can
be expedited? How can we cut red tape and bureaucracy, not just
at the Federal level but what should be done at the government
of Puerto Rico level to access, enhance a clear way to move the
Federal funds.
In terms of Mr. Marrero, my question will be how to make
that happen. How the people of Puerto Rico can access--
honestly, if it were not for the Federal funds, how bad would
the situation on the island be right now?
Ms. Jaresko. Of course, Congresswoman, we will get that to
you.
Miss Gonzalez-Colon. Thank you. Mr. Marrero, how bad would
the situation in terms of the fiscal plan, in terms of the
budget, be right now for the people of Puerto Rico if not for
the Federal funds that were approved in the last 3 years?
Mr. Marrero. Definitely, without the Federal funds, with
the Federal support that we have gathered from Congress and the
Administration, Puerto Rico will not have the resources to
recover from Irma, Maria, earthquake, COVID-19 and everything
that we have been suffering since 2006 of the fiscal economic
crisis.
Miss Gonzalez-Colon. What is your understanding of what
should be the first priority right now if you got the access to
make a change in the law?
Mr. Marrero. On the PROMESA, to make sure that the public
policy in Puerto Rico is fully respected. Again, I think that
the best idea to describe this, Congresswoman, is PROMESA, the
Board, should be able to set the size of the room. But the
government, the elected government of Puerto Rico, this current
government as any other future government, should have the
ability to decide how to arrange the furniture to the extent
that you are within the size of the room. As simple as that.
Miss Gonzalez-Colon. Thank you. My time is expired,
Chairman. I yield back.
The Chairman. Mrs. Napolitano. The time is yours. You are
recognized.
Mrs. Napolitano. Thank you. And I won't tell Bruce and
Garret that I have been trying to get on for an hour and a
half. So, don't feel like you go arrange your swords--it is
bipartisan. Mr. Marrero, on the task force, the Governor
created a medical task force. Can you go into detail on the
role of the task force and address the impact during the last
four events that you have had that are horrible and give
statistics or how much funding is addressed to mental health?
Nobody has addressed the issue of mental health, and it is a
critical thing for the people who are facing unemployment, who
are facing just everything else that you can think of.
Mr. Marrero. Thank you, ma'am, for the question. First of
all, as to the mental health area, I really want to make sure
that you know this. Not only were we able to identify or
earmark $150 million for private hospitals, but we were also
able to for mental health institutions, private hospitals that
are aimed to treat those important patients that are
participating. And then we are able to assign money in order to
cover those expenses----
Mrs. Napolitano. How much money? And is it sufficient
personnel?
Mr. Marrero. I will provide every detail to you, ma'am. We
are making sure that all this information is publicly available
on your website. But I will provide it with the detail that you
requested.
Mrs. Napolitano. I would really like to know any
information you may be able to provide on it because it is an
important issue for the people of Puerto Rico. Another question
has to deal with the Army Corps of Engineers and the power
grid. Have they done everything they are supposed to, and what
status do you have on that?
Mr. Marrero. On the power grid, ma'am, the Corps of
Engineers, their main responsibility was during the emergency
response phase. Now, as we are transitioned into the
reconstruction work and as FEMA obligates the permanent work
funding, the Army Corps does not have that leading role that
they used to have during the emergency response phase, ma'am.
Mrs. Napolitano. Are they done with their part of it?
Mr. Marrero. Yes, ma'am.
Mrs. Napolitano. OK. I yield my extra time to Nydia
Velazquez.
The Chairman. The gentlelady yields. Ms. Velazquez.
Mrs. Napolitano. Has she left?
The Chairman. I think she has left.
Mrs. Napolitano. Well, I would appreciate if those
questions were answered for the whole Committee, not just for
us. Thank you, and I yield back.
The Chairman. Thank you very much, Mrs. Napolitano. Mr.
Garcia, you are recognized.
Mr. Garcia. Thank you, Mr. Chairman. Can you hear me?
The Chairman. Yes, sir.
Mr. Garcia. And I apologize. Just to show fairness, I was
not able to get on via my computer, so it is a bipartisan
effect. Thank you, Chairman and Ranking Member, for convening
this hearing. And thank you, Ms. Jaresko, from the FOMB and Mr.
Marrero from the government of Puerto Rico. Natural disasters
and crises are not new to Puerto Rico and neither is a poor
government response. In the last few years, the people of
Puerto Rico have faced hurricanes, earthquakes, and now a
pandemic. This comes after decades of disinvestments,
ineffective economic policies, and a broken, shortchanged
healthcare system due to its status.
The U.S. citizens of Puerto Rico have suffered too much for
too long. While much-needed funds from the CARES Act and other
relief packages reach the island, we know that it falls short.
And despite the worsening fiscal crisis, Puerto Rico was
excluded from the Federal Reserve's emergency loan program
during this public health crisis.
The Puerto Rican government is already anticipating a $1.6
billion deficit by the end of this month due to the virus.
Congress approved trillions of dollars worth of relief to help
fix our economy. It still isn't enough. What has been clear
throughout this process, however, is that communities need
stimulus and investment to come back strong, not austerity and
cuts. That is not how economics works.
And even Mitch McConnell and President Trump recognize that
in working to pass the CARES Act that was the case. So, why are
we acting like cuts and austerity will work for Puerto Rico if
it doesn't work for the 50 states? I appreciate that the FOMB
delayed the implementation of its plan of adjustment, but I
still hear talk about leaner government, rightsizing, and
pension cuts.
These words mean the same thing for the people in
Guayanilla and San Juan that they mean for my constituents in
Chicago. And they mean less money for communities and longer,
harder economic recovery. The sacrifices are made by working-
class people and investors take profits. Question No. 1, in
February, Researcher Cate Long from the Puerto Rico
Clearinghouse wrote a letter to Bankruptcy Judge Laura Swain
and mediator Barbara Houser with some alarming allegations.
She provided data indicating that people involved in this
winter's mediation negotiations have traded bonds based on
information that was not available to the public. In other
words, bondholders may have conducted insider trading. Ms.
Jaresko, are you aware of these allegations of insider trading?
And is the Board investigating them?
Ms. Jaresko. Thank you, Congressman. Yes, I am aware that
allegations have been made. But, no, we are not investigating
them. They are in the hands of the court and the mediator.
Mr. Garcia. Do you think that there is a role for
investigation by you?
Ms. Jaresko. It wasn't delivered to me. We weren't asked to
do so. And I don't have the means to do so, in fact. It really
is a law enforcement issue. And we would expect law enforcement
to be engaged.
Mr. Garcia. OK. Do you know what the consequences would be
if a bondholder in the mediation process was found to be
insider trading?
Ms. Jaresko. I am not a securities lawyer, but I can
imagine what the securities law would require.
Mr. Garcia. OK. On bankruptcy. Sometimes these plans look
like they are constructed backward, starting with payments to
creditors and then filling in the rest of the economy after
that. The fiscal plan certified by the FOMB last month admits
that Puerto Rico has not achieved significant growth after
years of austerity. The plan predicts more tough times ahead,
projecting GNP growth of .5 percent next year followed by a
contraction when Federal funds for fighting COVID wind down.
It looks like Federal funds are the only concrete positive
input to the Puerto Rican economy in the next few years. Other
growth factors seem much more vague. And the government of
Puerto Rico is blocked from spending its billions in reserves.
Mr. Marrero, if Puerto Rico's economy fails to grow over the
next 2 years, are you concerned that the island will face
another bankruptcy?
Mr. Marrero. Definitely, sir. And more importantly than
that, I think that in the end, more than the bankruptcy, the
more important part is the people. The people will continue to
leave the island, and we will end up with less folks, not only
to pay our debts but also to maintain a government that needs
to provide essential services to the people.
Mr. Garcia. Thank you. I find it disgraceful that nearly 3
years after Maria, our sisters and brothers on the island
remain without roofs. Children don't have schools, and people
continue to die as a result of inadequate access to health
care. This pandemic has only exacerbated the situation on the
island. One thing is clear. We can't continue squeezing the
people, and we can't go back to normal. Normal is what got us
here in the first place. We must do everything we can to put
the people of Puerto Rico on the path to long-term recovery and
economic stability. Thank you, Mr. Chairman and Members. I
yield back.
The Chairman. Thank you very much, Mr. Garcia. I appreciate
it. And I believe that that is the end of the questions by
Members. I will be submitting some questions in writing to both
our witnesses and thank you very much. But just a couple of
quick notes before adjourning the hearing. Ms. Jaresko, the
2020 Fiscal Plan relies on approximately $83 billion of
disaster relief funding in total to be disbursed from Federal
and private sources, part of Maria and Irma reconstruction
effort. And of this amount, how much has been disbursed so far
by the Federal Government, and how confident are you that the
remaining balance would be disbursed to the government of
Puerto Rico?
Ms. Jaresko. Yes. Thank you, Chairman. Let's take different
pieces of the numbers. And I will go through them individually.
The private sector funding, the private sector insurance, has,
for the most part, all been received to date. The FEMA funding,
which I described to you, is estimated to be $48 billion--$17.4
has been obligated, and $13 billion of that has been disbursed.
If you ask me what my expectation is, my expectation is
that Puerto Rico will receive everything it is estimated to
cover the full $48 billion. The third large piece is the $20
billion that you have all appropriated already for CDBG-DR. Of
that, $3.1 has been obligated. And actually, the current
disbursement level is about $70 million. I think someone used
something lower. But now that the economy is starting to open,
the disbursements are starting to flow, in particular, in the
construction area.
And I would expect all of the $20 billion appropriated to
indeed be received as it has already been appropriated. The
last category is a combination of various Federal programs,
some of which has been received--I don't have that list in
front of me right now--and others which are still being
received over time. Those are things like Job Corps, like the
USDA funding, incremental funding for supplemental food
assistance, and so on.
But the general answer to your question, I would expect all
of this funding to be received because all of it is necessary,
needed, and appropriate for the disaster. Chairman, I can't
hear you. You are on mute.
The Chairman. Thank you because Congress does appropriate.
But the implementation on disbursement and the guidelines that
follow those kinds of appropriations have not always expedited
the money to get to the targets that it was intended for. We
have many examples of that. But Mr. Marrero, does the
government of Puerto Rico project it will receive the Federal
aid that Ms. Jaresko just talked to from the present
Administration to rebuild? And if we continue at this
percentage that we are talking about, what would be the impact
if the funds aren't received?
Mr. Marrero. Well, sir, I am very hopeful that that promise
will be fulfilled and that Puerto Rico will receive the funding
that has been promised. However, if we don't get that funding,
definitely all the entire fiscal plan, entire fiscal roadmap
that we are trying to lay out for the next couple years will
not be attainable. Puerto Rico will not only not be able to pay
their debt as contracted, but it will not be able to provide
essential services. And the economy will not grow.
The Chairman. Yes. And like I said, I have specific
questions on PREPA and specific questions on some things that
haven't been requested by the government of Puerto Rico and the
status of those requests. I will send those forward. But Mr.
Marrero, just one question that was brought to my attention by
a resident of the island, a teacher, that as of 2 weeks ago,
141 of 834 school cafeterias in Puerto Rico were providing
children with hot meals. And the Puerto Rican Department of
Education has argued in court the department does not have the
duty to provide meals. Could you elaborate on why the
department has taken this stance and how will we deal with
this, and have Federal funds already been authorized for the
ability to provide nutrition to children?
Mr. Marrero. Definitely, sir. Well, first of all, the
Governor and myself have been committed to make sure that we
can expedite the opening of the school cafeteria to provide
that food that is needed, obviously, as the Resident
Commissioner, Congresswoman Gonzalez-Colon, said. Sixty percent
of our children live below poverty levels, so we have to make
sure that we can fulfill that duty, particularly during COVID-
19. The initial reluctance of the secretary was because, at
that time, the personnel of the school cafeteria were the
vulnerable population that could be affected by COVID-19.
However, we have already opened several cafeterias, several
places around the island. Right now, it is making sure that can
be fulfilled through NGOs and through other organizations to
make sure that we can provide that food.
The Chairman. Thank you. And I want to thank the panel for
the testimony. And like I said, all of the full testimony was
in writing. Members will follow up in writing. We will
distribute it to the rest of the Committee in terms of your
responses before adjourning. Let me thank you again. Well, I
did want to say that I appreciate the fact that we are trying
to work through some of the newness to say the least of the
process that we're going through to have these hearings. I
think it is important.
To sit on our hands for the next 45 days, 35 days, 60 days
without having hearings, oversight, without having markups and
moving legislation along, I think is a detriment to the people
that elected us to office. And that is No. 1. You know,
discretion being the better part of valor, some people choose
to be there in face versus the person right next door doing
business. God bless you. I personally think that some of the
other Members that are indicating their willingness to be part
of an online process that has been approved by Congress, by the
House of Representatives, as part of the rules, that we do so
with discretion in the sense that not only for self-
preservation but also the preservation of others, the staffs,
the public that we come in contact. And as we see some surges
and some spiking going on in terms of the pandemic--and Puerto
Rico is not alone. Unfortunately, the state of Arizona is right
up there.
I think No. 1 on the hit parade list of least testing and
the surge coming back with a lot of ferocity and a lot of
strength here in the state of Arizona--so I mention those
things. This isn't about not who was more macho, about being
able to sit on the dais. This is about getting business done.
This is a vehicle to do it. I prefer the in-person. I always
have. The format is not the favorite thing that I like to do.
But we will be there at that other point as well.
I also want to say that this is not a partisan issue. I
struggled through this issue of Puerto Rico and what's
happened. And we already went through the accumulation, the
cumulative effect of what has occurred in Puerto Rico from
nature to the virus and to the economic collapse. And I think
we struggled on how to balance the sovereignty and the self-
determination of the Puerto Rican people and the need for the
Federal Government to intervene and provide supplemental
support to Puerto Rico, for it to be able to not only survive
but develop and become sustainable. That is the goal. It is not
a partisan issue. It is not partisan when we want to do reform
for PROMESA to make the process more defined and provide the
people of Puerto Rico a forum and transparency, making sure
that either government, whether it is the Federal Government or
the central government, are being transparent, clean, and free
of conflict.
H.R. 5687, that the House of Representatives passed, that
the Senate has killed, and the President has indicated he
wouldn't sign, provides earned income tax credit for the people
of Puerto Rico, child tax credit, and additional support after
the hurricanes that was badly needed and is since in the abyss
on the other chamber. There are steps to go forward. And as we
go forward to look at markups for reforms to PROMESA, as we
look at other pieces of legislation in other oversight
hearings, I am taking the advice and the suggestions of my
colleagues on both sides of the aisle on how to technologically
make ourselves better, not necessarily make us more
comfortable, but it should make us better. With that, let me
adjourn the meeting. Thank you for your attendance and----
Miss Gonzalez-Colon. Mr. Chairman, just one point.
The Chairman. The meeting is adjourned.
[Whereupon, at 6:15 p.m., the Committee was adjourned.]
[ADDITIONAL MATERIALS SUBMITTED FOR THE RECORD]
Hispanic Federation
San Juan, Puerto Rico
June 25, 2020
Hon. Raul M. Grijalva, Chairman,
House Committee on Natural Resources,
1324 Longworth House Office Building,
Washington, DC 20515.
Re: June 11, 2020 HNR Committee Hearing: PROMESA Implementation during
the Coronavirus Pandemic
Dear Chairman Grijalva:
Hispanic Federation (HF) is a leading social service and advocacy
member organization with a national network of hundreds of Latino
community-based health and human service agencies working to promote
the social, political, and economic well-being of Latino communities.
Founded in 1990 to support Latino institutions in New York City, today
the Federation works in twenty-two states, Puerto Rico, and the
District of Columbia.
On June 11, 2020, the House Committee on Natural Resources held a
hearing titled ``PROMESA implementation during the Coronavirus Pandemic
in Puerto Rico.'' We thank you and the Committee for holding this
important hearing to ascertain the impact of the PROMESA law on the
island's ability to respond effectively to the current health crisis
combined with the preexisting crises created by the previous economic
and natural disasters.
In our opinion, the following five areas are especially important
for Puerto Rico's economic and social recovery, self-determination, and
wellbeing:
1. A moratorium on debt payments and suspension of austerity
policies until the economy has fully recovered and the
needs of the people struggling to recover from years of
economic and natural disasters have been met.
2. A commitment to investing in the development of human capital and
expertise instead of restricting the local government's
capacity to respond effectively to the ongoing crises, as
opposed to so-called ``right-sizing'' (Jaresko, p. 15) to
save money and hinder provision of government services and
essential services--especially in times of emergencies.
3. Compliance with provisions outlined in the Amendment to PROMESA
Act (H.R. 6975) that require full disclosure of conflicts
of interest of all FOMB members, employees, contractors,
and advisors as well as public disclosure of every
document, record, or information relating to the public
debt of the Commonwealth of Puerto Rico.
4. Compliance with provisions outlined in the Amendment to PROMESA
ACT (H.R. 6075) requirement for full funding of essential
services such as public education, public safety, health
care, and pensions, and any other essential service, before
prioritizing payments to bondholders.
5. A full and public evaluation of the FOMB's effectiveness,
utility, and success achieving the goals set out in PROMESA
to determine if the Board has failed in its mission (which
we believe), and, if so, to proceed with its disbanding and
respect Puerto Rico's sovereignty and self-determination by
providing the mechanisms available to other U.S. states and
municipalities to address its ongoing debt and economic
crisis.
In written testimony, the Executive Director of the FOMB, Ms.
Natalie Jaresko, states:
``The 2020 Fiscal Plan reflects a one-year delay in most
categories of budgetary reductions to allow the Government to
focus on implementation''.\1\
---------------------------------------------------------------------------
\1\ Written Testimony of Natalie Jaresko, Executive Director,
Financial Oversight and Management Board for Puerto Rico, at page 5 of
15, https://naturalresources.house.gov/imo/media/doc/
Written%20Testimony%20-%20Ms.%20Natalie%20Jaresko%20-
%20Remote%20FC%20Ov%20Hrg
%2006.11.20%20(PROMESA%20COVID%20Response).pdf.
This is a necessary but insufficient step. U.S. Congress and the
FOMB must understand that austerity measures, such as budgetary
reductions, and continued prioritizing of debt payments over the needs
of the people of Puerto Rico will inhibit economic growth in the
island. In April, the G20 announced a year-long moratorium on debt-
payments and interest accumulation for low income countries in response
to the global pandemic and economic crisis that is going to hit
vulnerable economies hardest. Why didn't the FOMB adopt a similar
position given the already high levels or debt, unemployment, and
poverty in Puerto Rico which will only be exacerbated by the Covid-19
---------------------------------------------------------------------------
crisis?
During the hearing, Ms. Jaresko argued that the FOMB can only
reduce spending and does not have the power to increase revenues, and
therefore can only limit budgets to ensure debt payment. This
demonstrates a lack of creativity and willingness to use the power of
the FOMB budgetary oversight to increase revenues in other ways. For
example, it could authorize a budget that will increase Puerto Rico's
capacity to spend money on instead of cutting spending on essential
services and needed human resources to promote sustainable economic
growth in the island. It has become widely apparent that austerity
measures imposed by the FOMB have only hurt the people of Puerto Rico
while not increasing the island's ability to create a sustainable debt
repayment plan. Therefore, harmful austerity measures and policies must
be ended, especially while the island is reeling from disaster after
disaster, and experiencing record high levels of poverty, food
insecurity, and unemployment.
Basic essential services must be defined, able to adapt to changing
needs, prioritized, and sustainably funded to ensure long term results.
For example, the FOMB keeps pushing for the University of Puerto Rico's
budget reduction and has already promoted the closure of hundreds of
schools across the island. These closures in the name of ``austerity''
have promoted unemployment, displacement of students, and inhibited the
fulfillment of the right to education. Limited access to higher
education eliminates the best opportunity of poor, vulnerable, or dis-
advantaged populations to attain a college education and contribute to
the island's professional force and long-term economic sustainability.
Last year, Hispanic Federation's Puerto Rico team members visited a
community in the municipality of Carolina, Puerto Rico, and heard from
local leaders how the closing of their elementary school by the
government as part of island-wide austerity and cost-saving measures
negatively impacted their lives. Every day, their children struggle to
get to other schools without adequate public transportation or safety
measures. Other community leaders shared their frustration with the
bureaucratic hurdles to adapt the closed local school building into a
center for community development. This is only one example on how
austerity measures that prioritize the debt over basic services such as
access to education negatively impact peoples' lives and abilities to
access adequate public education--an essential public service.
The FOMB does not seem to understand that prioritizing the
financial bottom line can have long-term negative effects on the lives
and futures of real people. Payment of the debt should not hinder the
ability of Puerto Rico's essential services' institutions to pursue
their prime objectives or sustain themselves as solvent institutions.
There will be no economic growth if education, physical and mental,
food, energy, water, employment, among other critical needs, are not
adequately addressed.
Previous austerity measures imposed by the FOMB have caused the
significant reduction of human resources in Puerto Rico's agencies. As
Hon. Nydia Velazquez mentioned in the hearing, these measures have
significantly reduced the resiliency and capacity of agencies to
respond adequately to major disasters, such as hurricanes, earthquakes
and/or pandemics. The U.S. government constantly asks Puerto Rico to
lead a successful recovery from repeated disasters yet, on the other
hand, imposed an FOMB with the power to limit the tools Puerto Rico
needs to succeed. This is a set up for failure and must end. The FOMB
must stop prioritizing the payment of an unaudited debt over
investments in sound governmental human resources, adequate provision
of essential services, and measures to reduce poverty and stimulate the
economy such as investments in education.
Hispanic Federation strongly refutes the following statement by Ms.
Jaresko in her written testimony (page 13) regarding the provision
related to transparency and accountability in the Amendment to PROMESA
ACT (H.R. 6075):
``Making public any document relating to the negotiations or
restructuring of the public debt would be prejudicial and
detrimental to the Board's effort to effectively and
expeditiously secure the best debt deal possible for Puerto
Rico and its people.'' \2\
---------------------------------------------------------------------------
\2\ Written Testimony of Natalie Jaresko, Executive Director,
Financial Oversight and Management Board for Puerto Rico, at page 13 of
15, https://naturalresources.house.gov/imo/media/doc/
Written%20Testimony%20-%20Ms.%20Natalie%20Jaresko%20-
%20Remote%20FC%20Ov%20Hrg
%2006.11.20%20(PROMESA%20COVID%20Response).pdf.
The FOMB was created to protect the interests of the people of
Puerto Rico and the Board's role is not to first protect the interests
of Wall Street. The interests of the people of Puerto Rico are best
served with transparency and accountability. The members of the FOMB
are not negotiating personal debts. In fact, every document, record, or
information relating to the public debt of the Commonwealth of Puerto
Rico is a public document and must be accessible to any interested
party. Congress is correct in requesting full transparency and
---------------------------------------------------------------------------
accountability from the FOMB.
Finally, Hispanic Federation believes that following its oversight
duties, the ultimate goal of the U.S. Congress should be the
elimination of the FOMB which has not accomplished the intended to help
the people of Puerto Rico by renegotiating its debt in ways that
resolve its debt crisis and help move the island forward and begin the
long road of financial recovery. After 122 years of colonial oversight,
the United States of America has the obligation to respect Puerto
Rico's self-determination. Instead of imposing a colonial FOMB,
Congress should respect Puerto Rico's sovereignty and support its
democratic institutions and right to self-governance. Puerto Ricans
were able to peacefully achieve the resignation of former governor
Ricardo Rosello, and keep standing up with dignity, pride, unity, and
hard work even after one of its worst natural disasters, Hurricane
Maria in 2017. Only through self-determination and democracy will
Puerto Rico overcome its economic crisis.
Thank you for your attention to these concerns. Hispanic Federation
is committed to remain on the front lines to ensure that rights of
Latino communities across the Nation are upheld.
Feel free to contact Laura M. Esquivel at
lesquivel@hispanicfederation.org or Charlotte Gossett-Navarro at
cgossett@hispanicfederation.org should you have any questions.
Cordially,
Charlotte Gossett Navarro, Laura Esquivel,
Puerto Rico Chief Director VP for Federal Policy and
Advocacy