Sharp Board Response to Democratic Lawmakers

The PROMESA Financial Board (FOMB) recently sent a strong reply  to six of the 34 congressional Democrats who wrote a critical letter to the board three weeks ago.

The congressional letter was organized by the incoming chairman of the House committee with jurisdiction regarding PROMESA, Raul Grijalva (D-AZ), and signed by three senators who are 2020 presidential hopefuls: Kirsten Gillibrand (D-NY), Elizabeth Warren (D-MA), and Bernie Sanders (I-VT). Other signers included three representatives from States who are of Puerto Rican origin: Nydia Velazquez D-NY), Jose Serrano (D-NY), and Darren Soto(D-FL).

The Board response was sent to Representatives Mark Pocan (D-WI), Velazquez, Pramila Jayapal (D-WA), Grijalva, Serrano, and Sanders.

Criticism of the Board

The Democratic letter sharply criticized the Board’s Fiscal Plan for Puerto Rico and the agreement of the Board and the territorial government with creditors of the government’s Sales Tax Financing Corporation (COFINA).

It also challenged the Board’s $1.5 billion estimate of debt restructuring costs through Fiscal Year 2023 and questioned potential conflicts of interest of Board Members with potential beneficiaries of Board policies, including Banco Popular, Puerto Rico’s bankrupt Government Development Bank, and Santander Securities.

Additionally, the letter complained about a Puerto Rico law (“Act 22”) that enables “ultra-rich” who “reside in Puerto Rico part-time” to avoid paying taxes on capital gains, interest, and dividends, resulting in “lost potential revenue for Puerto Rico and the federal government” (not to mention State governments).

The 34 Democrats, further:

• asked the Board to “suspend all debt payments until all Puerto Ricans have access to electricity, clean water, primary and secondary education, and basic health care”
• charged that the Fiscal Plan “appears to directly contradict” PROMESA’s requirement that it “ensure funding of essential public services” and provide for a debt burden that is sustainable” and funds “investments necessary to promote growth”
• expressed “great surprise and consternation” that “even more funds will be available to creditors to claim than before” Hurricane Maria.

Response to criticism

The Board’s reply denied that the Fiscal Plan includes “any particular amount of debt payments” other than those “contemplated” by the COFINA agreement.

It also rejected that the Plan would impose ”austerity,” curiously contending that this is because many of its spending cuts were originally proposed by Government of Puerto Rico agencies. The Board response described government cuts as “rightsizing,” saying, “This does not make the Fiscal Plan an austerity-based plan.”

The panel characterized the concern over the Plan’s estimate that debt restructuring would cost $1.5 billion through FY 2023 as a “mischaracterization” because the Members of Congress did not write that the amount included Government of Puerto Rico costs.

The Board, additionally, rejected “any suggestion of conflicts of interest” between Board Members and the banks cited by the Democrats, although Board Members Jose Gonzalez and Carlos Garcia have worked for two of the financial institutions and relatives of Chairman Jose Carrion control the third.

The PROMESA panel sidestepped the Act 22 tax loophole and exemption issue by writing — as had the 34 Members of Congress —that the law is a territorial statute and by asserting that it had not “endorsed” or expressed any view on the statute, although the revenue loss significantly affects the Board’s Fiscal Plan.

The panel established by Federal law pointed out that it projects $80 billion in capital improvements in Puerto Rico, including $12 billion for the electricity system funded by Federal assistance over the next six years and $3 billion in transportation and $2 billion in water system projects funded by a combination of Federal and territorial funds.

Read the full FOMB Response to Congressional Letter.