Puerto Rico group raises concern over federal influence on Oversight Board

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A Puerto Rico journalist group is raising concerns over the Oversight Board’s independence from federal influence as it seeks to repair the debt-strapped territory's economy.

The Center for Investigative Journalism reported this week that aides for key U.S. Representatives like Rob Bishop, R-Utah and Paul Ryan, R-Wis., Senators including Orrin Hatch, R-Utah , and Mitch McConnell, R-Ky. and deputies at the U.S. Treasury frequently have made warnings and recommendations to board members and staff.

In October 2017, Sens. Jeff Flake, R-Ariz. and Mike Lee, R-Utah urged board members to consider privatizing the Puerto Rico Electric Power Authority, according to the journalism group. Both senators had a history of receiving campaign contributions from the energy industry. Neither senator immediately responded to a request for comment.

In January 2018 Gov. Ricardo Rosselló announced that he would seek PREPA privatization. The board endorsed the idea and it has been reported that the board had lobbied for this before the governor announced it.

The Center for Investigative Journalism presented the first three reports in what it plans to be a series of articles on its findings from documents, letters and emails it has gained through a law suit. The reports are based on 5,600 documents, letters, and emails and the group is seeking additional material from the board.

One of the three reports discusses the history and status of its efforts to get documents from the board.

When the United States Congress considered the Puerto Rico Oversight, Management, and Economic Stability Act in the first half of 2016, key government supporters said that the board would be “independent.”

For example, a White House web page from June 7, 2016 said, “PROMESA creates an independent oversight board to help implement needed reforms while respecting Puerto Rico’s self-governance. Congressional leaders from both parties have committed to work with President Obama to set politics aside and nominate a well-functioning, independent group of experts to serve on the board.”

As another example, a U.S. House Natural Resources Committee page on PROMESA quotes Massachusetts Institute of Technology Professor Simon Johnson and international arbitration litigator Mark Cymrot as supporting PROMESA because it would create an “independent oversight board.”

A source who formerly worked in the Obama administration concerning Puerto Rico said PROMESA explicitly said the federal government should provide information and administrative support to the board at the board’s request. He pointed to section 104 (c)(1) and (n) as addressing these topics.

He said he had many conversations with board but didn’t tell board members what to do.

The hurricanes in September 2017 were a “game changer,” the former official said. To deal with the outcome, the board has had to communicate more extensively with Washington to coordinate aid and determine how the aid will fit in with board-approved fiscal plans.

It is OK for Congress to run and influence Puerto Rico through open hearings and legislation, said Institute for Energy Economics and Financial Analysis director of finance Tom Sanzillo. However, he said the secrecy that Senators Flake and Lee used in trying to encourage privatization is concerning. Sanzillo added that he believed there was no economic rationale for privatizing PREPA.

The fact that the senators had accepted energy industry money is an added concern, according to Sanzillo, as it gives the perception that they have a conflict of interest.

In response to a Bond Buyer inquiry about the Center for Investigative Journalism articles, the board released a statement that said in part: “The Oversight Board maintains regular communications with multiple stakeholders, including federal government agencies and their officials, as well as members of Congress and their staff. The communications are an integral part of the Oversight Board’s responsibilities, as established in PROMESA, given the importance of these officials and the impact of their determinations on all economic sectors of Puerto Rico.”

In an email Ike Brannon, president of Capital Policy Analytics, also took issue with the Center for Investigative Journalism articles. “I’m confused: Because the board is regarded as autonomous that is supposed to mean that members of Congress and staff are not supposed to email them?”

“The Puerto Rican government attempted to subvert the rule of law in some instances, in my opinion, and when that happened I believe that the board was insufficiently vigilant about deterring such behavior. I told my congressman about it and asked that he weigh in on this – isn’t this how representative democracy is supposed to work?”

While a local Puerto Rico judge forced the board to release the documents examined by the journalist group, the board is continuing to retain five classes of documents. The first is documents the board claims are relevant to deliberative process leading to public policy decisions and thus may be kept private. The second is a “small number” of communications to Congress whose disclosure would be detrimental to the public interest. The third is communications with federal agencies whose disclosure would have an adverse effect on the island’s economy.

The fourth is documents that connect to the mediation process between the board and Puerto Rico’s bondholders. The fifth is communications that relate to federal law enforcement investigations.

In January the board plans to release additional communications outside of these categories that are between it and the local government.

The journalism group is continuing to seek the release of at least some of the documents in the five restricted categories.

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