Jaresko: PROMESA amendments could derail debt reorganization
Puerto Rico’s debt restructuring would be derailed if Congress takes away public policy authority from the commonwealth’s Oversight Board, the board’s executive director warned a congressional committee Thursday.
Natalie Jaresko, executive director of the Financial Oversight and Management Board for Puerto Rico, told the House Natural Resources Committee that the current federal law is producing its intended results.
“Debt restructuring and balanced budgets are unfortunately not enough to return prosperity to the people of Puerto Rico,” Jaresko said. “Paramount is implementing the reforms that the people of Puerto Rico need and deserve.”
House Natural Resources Committee Chairman Raul Grijalva last month introduced H.R. 6975 to amend the Puerto Rico Oversight, Management, and Economic Stability Act known as PROMESA enacted in 2016 to establish the financial oversight board and provide a process for restructuring debt.
Grijalva’s Amendments to PROMESA Act gives Puerto Rico the option to discharge unsecured debt if it is deemed to be a financially excessive burden.
The bill also would prioritize funding for public health care, education, safety, pensions and the University of Puerto Rico as well as create a publicly-funded commission to audit Puerto Rico’s debt.
Omar Marrerro, the commonwealth’s chief financial officer and executive director of the Puerto Rico Fiscal Agency and Financial Advisory Authority, suggested additional changes at Thursday’s hearing on behalf of Gov. Wanda Vazquez Garced.
Marrerro suggested in his written and oral testimony that the fiscal plan and budgeting process should not be used as a public policy tool and the Oversight Board should be limited to the review of one-year budgets.
Marrerro complained that the Oversight Board’s role has been akin to that of a financial control board.
“While the Oversight Board has a critical role to play, it is not necessary to create conflicting roles by giving the board both the debtor role and the oversight function in the Title III process,” Marrerro said in his written statement.
Jaresko indicated those changes would undermine the role of the Oversight Board.
“If the amendments were made, as Mr. Marrerro suggested, then I think you'd have to change the definition of fiscal sustainability and balancing budgets,” Jaresko said.
“If you change fiscal sustainability and the board is no longer responsible for fiscal sustainability, then it will be difficult, if not impossible, to ever restructure the debt without clarity and confidence that the debt is sustainable,” she added.
There have been four disputes between the commonwealth’s government and the Oversight Board since 2018, all of which have been resolved in court in the Oversight Board’s favor, Jaresko said.
Grijalva’s bill has no Republican cosponsors and there’s been no indication it would be considered by the Republican-controlled Senate.
Thursday’s hearing mostly focused on how the commonwealth has been coping with the COVID-19 pandemic and the other disasters that have struck the island.
Jaresko said the Oversight Board responded on March 23 by asking the federal court handling the commonwealth’s bankruptcy reorganization under Title III of PROMESA to indefinitely suspend proceedings because of the pandemic.
“The board's efforts over the past four years ensured that the government was not forced to make drastic cuts to its expenditures as revenues dropped,” she said, because the Oversight Board had required the commonwealth to set aside emergency funds.
However, unemployment has skyrocketed and the economy has undergone a sharp decline.
Jaresko said the Oversight Board forecasts “a very mild projected recovery in the next fiscal year, further declines in 2023 and close to zero growth in ‘20 to ‘25.”
“Simply put, the economy will contract over the next five years,” she said. “So reforms are more important than ever, because the economic decline is even more severe. In that spirit, the 2020 fiscal plan reflects a one year delay in the most budgetary reductions to allow the government to focus on implementation.”
On the positive side, Marrerro said the governor and the Trump administration’s new disaster recovery liaison, U.S. Coast Guard Rear Adm. Peter Brown, have enjoyed a positive relationship.
Marrerro said the current level of cooperation and trust did not exist during the tenure of the previous governor and the new relationship is something he hopes will “continue to improve and to expand.”
“I think that he has been instrumental to help convey the message to the administration on what we are doing and what we need in order to expedite the recovery process in Puerto,” Marrerro said.
Jaresko also voiced optimism that the commonwealth eventually will receive all the emergency disaster aid that it has been promised.
The private sector insurance has, for the most part, all been received to date,” she said.
The FEMA aid of about $48 billion includes $17.4 billion that has been obligated or pledged to various projects and $13 billion of which has been dispersed.
Jaresko said the third large piece is $20 billion Congress appropriated under the Community Development Block Grant Disaster Relief program (CDBG-DR). Only about $70 million of that has been spent but $3.1 billion has been obligated to various projects.
A fourth category, according to Jaresko, involves federal funding coming through other programs such as the Job Corps and U.S. Department of Agriculture funding for supplemental food assistance.
“I would expect all of this funding to be received because all of it is necessary, needed, and appropriate for the disaster,” she said.