Puerto Rico government facing difficulties dealing with Oversight Board

by | May 29, 2018 | Headlines, Puerto Rico | Comments

Puerto Rico has recently suffered the wrath of many economic woes, most which are tied to the territory’s budget shortfalls and overdue bills to creditors. As if the humanitarian crisis created by Hurricanes Maria and Irma in 2017 wasn’t enough, the fiscal crisis is ongoing, as Puerto Rico’s governor, Ricardo Rosselló, is going head-to-head against the Congressionally-mandated Financial Oversight and Management Board that was specifically created to help Puerto Rico deal with its bankruptcy issues.

The notion of enacting fiscal control boards is a newer concept, but is becoming more typical. It has become commonplace that US cities under fiscal control boards have often been forced to accept impositions such as  the firing of public employees, pension cuts, an increase in the cost of college education, and a reduction in essential services, as means to control costs and to get struggling communities back on their feet. One notorious example of the government’s use of this type of structured control was in Flint, Michigan. Flint has had several emergency managers, starting with Ed Kurtz, who was “appointed” by Gov. John Engler in 2002. Some of Kurtz’s directives were to reduce the pensions of about 350 retirees by 3.7 percent, temporarily closing Flint’s recreation centers, closing the city ombudsman’s office, raising water bills by 11%, laying off city workers, and approving more than $1 million for sewer and road improvements. After Gov. Rick Snyder declared Flint to be in a financial emergency again in 2010, and he signs an amended version of the state’s emergency manager law, what became of Snyder’s action? Interestingly enough, Darnell Earley and Gerald Ambrose, both appointed emergency managers at one time during Snyder’s term, are eventually taken to court and are each charged with two felonies that carry penalties of up to 20 years. The charges included false pretenses, conspiracy to commit false pretenses, and misconduct in office. These charges were a direct result of the managers’ roles in conspiring to operate the Flint Water Treatment Plant when it wasn’t safe to do so, thus poisoning residents’ water with unsafe levels of lead after rerouting the main lines to using contaminated water from Flint River. As of today, Flint’s water is still filled with lead and other contaminants; a direct result of several officials’ poor decisions to put profits above the health and safety of the residents of Flint.

Fast forward to Puerto Rico, 2016. President Barack Obama signs legislation to authorize the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA) in an effort to help stabilize Puerto Rico’s economy. At this point, Puerto Rico is drowning in debt and the territory is unable to pay its creditors, and since it is not technically a state, Puerto Rico cannot claim Chapter 9 bankruptcy like Flint did, thus a special oversight board was created to tackle this conundrum. Leading the call for this oversight was Rep. Rob Bishop (R) of Utah, chairman of the US House Committee on Natural Resources, who stated that Puerto Rico could not handle its debts, thus insisting that a non-elected Financial Oversight and Management Board (FOMB) for Puerto Rico should be installed. After Hurricanes Maria and Irma ravaged the territory in September 2017, the financial situation in Puerto Rico became more dire, adding a humanitarian crisis to the already complicated situation. After the Whitefish debacle surrounding questionable work bids to repair the electricity grid in Puerto Rico became a political scandal of sorts, at a hearing with Governor Rosselló , Bishop told the governor that  “One of the things that I think we’re walking into here is a tremendous credibility gap, based on Whitefish and other subsequent decisions that are going on there,” angering Rosselló  by questioning his ability to lead publicly. In November 2017, a US federal judge rejected a request by the Oversight Board to install former military officer, Colonel Noel Zamot to oversee Puerto Rico’s electric utility, PREPA, as its chief transformation officer. The Puerto Rican government’s liaison to the board, Christian Sobrino, said the appointment would essentially mean the board could replace any Puerto Rican government official, “maybe even the governor.” Rosselló responded by promising transparency as the rebuilding effort continues, but the relationship between Bishop and Rosselló has now soured even more, as new austerity measures are being imposed on the people of Puerto Rico, and Rosselló is fighting back once again.

On March 29, 2018 Bishop sent a letter addressed to the board that criticized Rossello’s fiscal plans for 2019, and accused Rosselló’s administration of requiring the “elimination of redundancy,” and questioning what constitutes “essential public services.”  The letter insists that that Puerto Rico’s recovery should be led by the Oversight Board and the islands’ creditors, implying that Rosselló’s administration has been incompetent thus far. Bishop also states that recognizing Puerto Rico’s debt will require more “transparency, accountability, goodwill, and cooperation,” which angered Rosselló and prompted a heated reply by the governor. As part of his 11 page response, Rosselló said: “I cannot and will not permit you to elevate concerns of bondholders on the mainland above concern for the well-being of my constituents,” implying that Bishop’s intentions only focus on monetary crises, and not the immediate needs of Rosselló’s constituents who are still dealing with the real life consequences that followed the devastating storms in September. Bringing up harsh realities concerning Puerto Rico’s ties to colonialism, Rosselló also reels: “Regrettably, your letter embodies everything that is wrong with this process and only serves to reinforce the dismissive and second-class colonial treatment Puerto Rico has suffered throughout its history as a territory of the United States, which undermines our efforts to address the Island’s fiscal, economic, and humanitarian crises,” an argument which extends far beyond criticisms of redundancy and transparency, as it touches on Puerto Ricans’ political fights  for the attainment of statehood, and human rights as a whole.

Although Rosselló’s letter is powerful and sincere, Rosselló recognizes that action is stronger than words. In a public response to the board’s suggestion of austerity measures such as reduction of private sector vacation and sick leave days by half, the elimination of the statutory Christmas Bonus, and a controversial pension reform, Rosselló announced on April 19 that his administration will not obey or implement the public policy measures the board certified by a majority vote, insisting that the board may tackle fiscal matters, but that Puerto Rico’s public policy, including pension cuts, is established by the government of Puerto Rico. Rosselló concedes that the board can make all the recommended policy changes it wants, but those changes they must still go through the Legislative Assembly, and the governor would have to sign them into law, promising that their current recommendations will be rejected and vetoed.  Fiscal board Chairman, José Carrión, warned that his panel is prepared to go to court if Rosselló does not implement the fiscal plans, thus setting up another possible battle over who can decide the fate of Puerto Ricans still who are living in the territory.

As of late, tensions between the Rosselló administration and the board seemed to have cooled off as some compromises have been reached in a move to avoid further litigation. Rosselló proposed a $25 billion budget to the island’s legislature on May 22, a plan which assures that retired government workers would keep their monthly pensions uncut, public school teachers and police officers would get pay raises, and  that Christmas bonuses and vacation and sick days for public workers would not be reduced or eliminated, at least for this fiscal year. The budget also contains $25 million for a voluntary buyout program. In exchange for these concessions, Rosselló  and the legislature agreed to repeal certain labor protections by incorporating at-will employment standards, as well as including a new work requirement for certain people enrolled in a nutritional assistance program. “At-will” means that an employer can terminate an employee at any time for any reason (except an illegal reason such as gender or racial discrimination), or for no reason at all without inviting legal liability. “At-will” also means that an employer can change the terms of the employment relationship (i.e. lowered wages, reduced benefits) with no notice and no consequences. The US is one of only a few countries where employment is mainly at-will (Montana being the only exception), as the majority of the world’s countries throughout  only allow employers to dismiss employees with cause.

This is not the end of this battle, as board Executive Director Natalie Jaresko stated that board is expected to try to push cuts through by other means, most likely by asking Puerto Rico’s bankruptcy judge to approve them as part of a future debt restructuring plan in bankruptcy. Jaresko said: “We expect to include [pension reform] in the plan of adjustment to be confirmed by the court,” thus implying that this battle between the board, Rosselló, and the legislature will most certainly not be ending soon. The board has said it expects to approve a revised fiscal plan and a government budget for the upcoming fiscal year by June 29.