Breitbart announced that President Trump had fired 5 of the 7 members of the PROMESA Fiscal Oversight and Management Board (FOMB) last week. While the Board initially reacted with assurances that they had not received notice of any firings, the Wall Street Journal reports that they have now received the terminations via email. Under the terms of the PROMESA Act, “the President may remove any member of the Oversight Board only for cause.”
The Associated Press reports that the White House said the members were fired because the Board “has been run inefficiently and ineffectively by its governing members for far too long and it’s time to restore common sense leadership.”
Those fired included the chair, Arthur J. Gonzalez, as well as Cameron McKenzie, Betty A. Rosa, Juan A. Sabater, and Luis A. Ubiñas. The remaining two board members released a statement saying that they would “continue to work to fulfill the mandate of PROMESA and in the interest of the people of Puerto Rico.” Governor Jennifer González-Colón released a statement affirming her intention to work closely with the Board going forward, regardless of the composition of the FOMB.
Rep. Nydia Velazquez (D-NY) responded that the action “creates an opening to stack the board with even more extreme, pro-bondholder appointees who will continue to put the needs of hedge funds over the Puerto Rican people.” Velazquez, along with other members of Congress of Puerto Rican heritage including Ritchie Torres (D-NY) and Alexandria Occasio-Cortez (D-NY), has been a frequent critic of the Board. However, all three of the Congressional representatives argued in the recent hearing on the FOMB that a sudden shutdown of the Board could leave Puerto Rico vulnerable to vulture capitalists hoping to benefit from Puerto Rico’s financial crisis.
The background
The FOMB was put in place under PROMESA, the Puerto Rico Oversight, Management, and Economic Stability Act, in 2016. The object was to provide Puerto Rico, which is not able to declare bankruptcy under the U.S. bankruptcy code, an opportunity to reorganize its debt, which then-Governor Alejandro Garcia Padilla had deemed “unpayable.”
While the relationship between the FOMB and the territory’s government has been contentious, the Board takes credit for reducing the debt significantly. At this point, the only remaining debt which has not been handled is the money owed to a group of bondholders many of whom purchased the bonds after Puerto Rico’s bankruptcy had made them available at distress prices. These bondholders are demanding $8 to $12 billion, while the Board seeks to reduce the payment to $2.6 billion. Witnesses testified in the recent hearing that paying the full price the bondholders ask for would require even higher electricity payments for residents of Puerto Rico, which already has nearly the most expensive energy prices in the nation. Since nearly half the residents of the Island live in poverty and the electric power there is not reliable, the Board is not willing to allow that increase in prices.
The question is in litigation. The last ruling in the U.S. Court of Appeals favored the bondholders.
What’s next?
There has been no word from the administration about the people who will replace the fired board members. Since the law requires four members of the Board for a quorum, the Board cannot make any decisions or take any actions until the situation is resolved.
Update: Andrew Biggs has now also been fired, leaving just one member, John Nixon, on the board.
