In passing the Puerto Rico Oversight, Management, and Economic Stability Act, the government sent out a want ad that might read something like this:
U.S. government seeks seven experts in finance, municipal bonds, management, law or the organization or operation of business or government. Puerto Rico government officials and bureaucrats need not apply; must be available to work fulltime for up to three years. Compensation: $0.
The PROMESA board was modeled on the Washington, D.C., control board that oversaw the capital's city government from 1995 to 2001, an assignment that was also unpaid. Though the model worked well in the nation's capital, some observers are questioning whether it will be able to get off the ground, given Puerto Rico's larger and more complex crisis.
"It will be difficult to find qualified people who want to serve on the board because of the complex and difficult tasks the board will have to perform," said David Dubrow, a partner in Arent Fox. "Many qualified people will have conflicts of interests of various types that will further narrow the pool. I think the lack of pay will be a marginal issue compared to these other challenges."
Most of the DC board's members held full-time jobs elsewhere. Yet, in the board's first year its members worked more than 40 hours a week on their board work, said Daniel Rezneck, who was the board's general counsel. Many meetings ran late into the night.
In the second year of the D.C. board, members didn't work as long, but were still working extensive hours, Rezneck said.
The Washington board members' paying employers frequently let them work reduced hours at their paid jobs, said Alice Rivlin, who organized the board in 1995 for President Bill Clinton and served as its chairwoman from 1998 to 2001. The first chairperson, Andrew Brimmer, had a consulting business and thus flexible paid work hours.
However, Puerto Rico has far more serious and complicated problems compared to what D.C. had, said Rivlin: The capital primarily had a budget crisis; Puerto Rico also has an economic and sovereign debt crisis.
Chapman Strategic Advisors managing director Jim Spiotto agreed that Puerto Rico's board will face much larger challenges than the boards that more or less ran New York City, Philadelphia, and Washington when these cities' governments hit hard times in the 1970s through 1990s.
The Republican members of the United States House of Representatives who drafted PROMESA used the Washington control board law as their starting point, Dubrow said.
Spiotto said the lack of pay is traditional for membership of these sorts of boards. The board needs to seek people from the top of their fields to gain credibility. These people may not be concerned by the lack of pay. While the board members may not be socioeconomically typical of either Puerto Rico or the United States, they should be expected to listen to input from the public, he said. Also Puerto Rico's public will be represented by their legislature and governor, which is supposed to work with the board.
Other municipal professionals said they didn't see the board's lack of pay as a serious issue. Dick Larkin, director of credit analysis at Stoever Glass & Co., said there are plenty of retired municipal experts who don't need the money and would be willing to serve. Urban Institute senior fellow Tracy Gordon agreed that many will want to serve, seeing the position as a "tremendous opportunity."
Spiotto said that PROMESA will allow board members to be reimbursed for their expenses and specifies that there will be paid staff members. The staffing will be robust, he said.
Asked if the lack of pay may limit those serving to wealthy people who may not be sympathetic to the needs of poor Puerto Ricans, Larkin and Dubrow said they did not think that would be the case.
Dubrow said that it was "crucial" that several people of Puerto Rican descent be appointed to the board.
Gordon said the exclusive representation of wealthy people could be a problem, but that President Obama and Congressional leaders "have signaled a desire to have as much local representation as possible."
Rivlin said a board composed exclusively of wealthy people might not be sensitive to the needs of Puerto Rico's poor. However, some potential board members may be able to get the organizations they work for, like unions, to pay for their work on the board, she said.
One difference between the Washington board and the Puerto Rico board is that with the former, its members were required to either live or work in the city, whereas with the latter only one member must either live or work on the island.
"I think it is difficult not to have the members in the place where there is the problem," Rivlin said.
If the Washington control board members had been spread out over the country or even the East Coast, "That would have been a problem because we met all the time," Rezneck said. "We had no problems getting all the people together."
As with the law establishing the Washington board, PROMESA will allow the Puerto Rico board to accept monetary and other gifts collectively.
Most of the analysts said they were untroubled by this provision. Some of them suggested that the board will simply adopt rules barring accepting gifts from entities and people with material interests in the board's decisions.
Larkin was more concerned about the allowing of gifts, saying "I see nothing good coming from the section." He said the gifts could lead to political influence.
Spiotto said the provision may bring benefits, like allowing someone to lend free office space to the board.
Rezneck said the D.C. board never got any gifts.
PROMESA has a provision requiring the board's staff and board members to be subject to conflict of interest requirements found in federal law. It also requires it to disclose any gifts it receives.
In 1997, about two years after the D.C. board was set up, the United State Congress voted to take over funding the city's underfunded employee pensions, increase the federal rate for Medicaid reimbursements, and take over the city's courts and prisons.
Congress had run Washington since its founding in the late 18th century. Home rule came to Washington in 1973. Since much of the underfunding of the pensions predated the home-rule period, Rivlin said it was fair for Congress to take responsibility for the pensions in 1997. Since the prison and the court system were state-like expenses and Washington wasn't a state, Congress was also amenable to taking these expenses over.
Congress' actions to help Washington in 1997 were important to the city financially, Rivlin said.
She added that she believed Puerto Rico will also need financial assistance to get on its feet.
For its part, Puerto Rico is also concerned with the PROMESA board. "As we've said, PROMESA is a mixed bag but ultimately provides several valuable tools that will give the 3.5 million American citizens of Puerto Rico a fighting chance for their futures," said Grace Santana, Chief of Staff to Governor Alejandro Garcia Padilla. "But the law will only achieve its stated goals if the members of the soon-to-be established Oversight Board are truly committed to the Commonwealth and its people."
