Puerto Rico holds a primary Sunday to narrow the field of candidates to serve as governor of the commonwealth – an office that may be subject to oversight by an appointed control board as the U.S. moves to help resolve the island's debt crisis.
The New Progressive Party will choose between the current Resident Commissioner Pedro Pierluisi and Ricardo Rosell- Neváres, the son of a former governor, to oppose former Puerto Rico Secretary of State David Bernier, who is running unopposed for the nomination of the ruling Popular Democratic Party.
The U.S. House Natural Resources Committee last month passed the Puerto Rico Oversight, Management, and Economic Stability Act. If signed into law, it would introduce the oversight board for Puerto Rico government activities, in particular its finances. It would also allow the board to petition for a restructuring of Puerto Rico's debt.
Bernier and Rosell- both have vowed to oppose a control board, which they say would undercut democratically chosen leaders. Pierluisi has indicated that the control board is politically necessary part of the solution to Puerto Rico's debt problems.
Analysts said the governorship will retain its importance, even with the introduction of a control board, as the governor will be in charge of implementing the recovery after the control board is gone.
"Elected officials can make a significant difference in bringing about best practices," said Jim Spiotto, managing director at Chapman Strategic Advisors. "In that way the necessary involvement of the board is lessened."
The Popular Democratic Party supports the continuation of the current non-state commonwealth status, while the NPP advocates statehood. Some PDP members call for modifying the status.
Gov. Alejandro García Padilla, who oversaw a contracting economy and supported unpopular measures to raise revenue and cut expenses, isn't running for reelection. The governor, a PDP member, has said he wanted to focus the rest of his term on the commonwealth's fiscal crisis and expanding its economy.
The PDP race for resident commissioner is being contested by professor and Puerto Rico Sen. Ángel Rosa Rodriguez and attorney and former Puerto Rico House of Representatives Minority Leader Héctor Ferrer Rios.
In the NPP Puerto Rico House Minority Leader Jenniffer González Col-n is competing with civil engineer Carlos Pesquera to be the next resident commissioner.
Rosell- is campaigning with González Col-n and Pierluisi is campaigning with Pesquera. However, the candidates will not rise or fall as pairs; one could win the primary while the other loses.
Though Democratic and Republican parties exist in Puerto Rico, affiliation with one or the other is unimportant in races for local election. For example, Rosell- is a Democrat and his running mate González Col-n is the leader of the Puerto Rico Republican Party.
Analysts offered contrasting views on the importance of the gubernatorial race.
Joseph Rosenblum, director of Municipal Credit Research, said the control board is likely to be the "primary driver" of actions to address Puerto Rico's fiscal problems. While Puerto Rico's legislature and governor will provide input, the U.S. Congress's action will be key.
"The governor will make an important difference in Puerto Rico," Spiotto said. Good elected officials will maintain the tradition of democracy. In the long-term, after the control board is gone, they will be in charge of bringing about a recovery.
Locally elected leaders in New York City, Philadelphia, and Pittsburgh played positive roles when control boards were set up to handle the cities' financial crises, Spiotto said.
Pierluisi Pushes Statehood
"The most pressing challenge we have is to get our economy to grow again," NPP candidate Pierluisi told The Bond Buyer. Outside of 2012, Puerto Rico's economy has contracted for the last 10 years.
There are obviously structural issues behind the contraction, he said. Puerto Rico is not treated fairly in many federal programs. Statehood is the solution, he said.
This spring Pierluisi opposed the increase of the business-to-business tax to 11.5% from its current 4% level and the related transformation of the consumption tax system to a value added tax.
On May 26 members of the NPP and PDP parties in the Puerto Rico Senate and House of Represented joined together to override García Padilla's veto, thereby blocking the increase and stopping the conversion to a VAT.
Pierluisi said that if elected he would help the economy by streamlining the government permitting process for businesses and simplifying its tax system.
In testimony to the House Natural Resources Committee, Pierluisi said he found it painful to support PROMESA because it would curb Puerto Ricans' democratic rights. However, he said the board was "necessary."
"For those Puerto Rican politicians who seek broad debt restructuring authority but oppose an oversight board – get real," he said.
Rosell- Seeks Local Debt Oversight
Rosell- has called for the formation of a Puerto Rico Debt Management Authority to deal with the island's debt problem.
In his proposal Puerto Rico would contract the U.S. Internal Revenue Service to collect some of its income taxes. These revenues would then be deposited at the new authority. On the basis of this arrangement the authority would sell new general obligation bonds.
The proceeds of the bonds would be used first to pay off legacy GO bonds. Then the proceeds would be used to pay off other commonwealth bonds according to a ranking to be determined.
Rosell- said he thought the arrangement could get Puerto Rico lower interest rates.
According to a spokesman, he is opposed to PROMESA, saying that it would return Puerto Rico to a colonial position to the United States. The U.S. government should treat Puerto Rico in its debt crisis in the same way as it would treat a state.
Regarding restoring economic growth, Rosell- cited several ideas.
The commonwealth government should reduce restrictions on permitting and simplify itself.
The government should do a better job promoting tourism, he said. The sector is now 6.5% of the economy and should become twice as large. Tourism companies should control and pay for a tourism promotion board.
Puerto Rico should get more federal government contracting work done on the island. A central office in charge of getting federal funds should be set up.
Bernier's Threat
PDP candidate Bernier has threatened to sue against PROMESA, if it were to become law. His chief objection is that it abrogates Puerto Rico's democracy.
As regards to the commonwealth's debt, he calls for negotiating a settlement. He said the government's essential services, payroll, and payments to suppliers should get first claim for revenues.
The government should pay all debt interest due on time, Bernier said.
As for debt principal, Bernier said on March 28 that the government should enter negotiations with bond holders and institute a unilateral moratorium if negotiations fail. Since this announcement, the government has issued a unilateral moratorium on the payment of the principal of the debt of the Government Development Bank for Puerto Rico.
Bernier's moratorium on principal payments would allow the government to use the resources to pay for capital improvement projects that create jobs. It would also allow it to make the necessary retirement system contributions and let the commonwealth catch up on paying its suppliers, he said.
From the federal government, Bernier wants parity in Medicare coverage, the elimination of the Jones Act that many believe increases shipping costs for the island, and incentives for manufacturing industry to locate on the island.
