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House Natural Resources Committee Hearing on PROMESA

House Natural Resources Committee

“Legislative Hearing-PROMESA: Discussion Draft (Day Two)”

Wednesday, October 30, 2019

 

Key Topics & Takeaways

  • PROMESA Discussion Draft: Martínez Otero, Puerto Rico Economists Association, suggested that there be an increased emphasis on the need for infrastructure and standards to fight against corruption in Puerto Rico. He continued that there is a need to be more specific regarding which industrial sectors are being supported or invested in by the Financial Oversight Management Board (FOMB) and the Puerto Rican government. Alvin Velázquez, Service Employees International Union, said that more transparency for the FOMB would not be a bad thing and that the discussion draft should ensure higher standards for returns issued to bondholders. James Spiotto, Chapman Strategic Advisors, stated that the government could audit the public debt, but PROMESA already requires action on restructuring the debt.
  • Challenges of PROMESA: Velázquez said that the FOMB set benchmarks according to the top ten states in the U.S. and has set an unrealistic economic benchmark for Puerto Rico.
  • Debt Elimination: Alvin Velázquez said that H.R. 2526, the Territorial Relief Act would accomplish the goal of debt elimination or that it could be canceled via court action. Spiotto said that this would significantly degrade Puerto Rico’s ability to re-access capital markets and would also impact public-private partnerships. He added that New York, Washington D.C., and other U.S. cities restructured their debt and found success.
  • PREPA: Asked what the percentage of Puerto Rico’s debt is tied to PREPA and why the island would support selling PREPA bonds, Otero said it is about 22 percent of the debt. Lyvan A. Buntin-Rivera, University of Puerto Rico, stated that a review of the creation of PREPA would be necessary given the problems in Puerto Rico’s private sector funding.

Witnesses

Opening Statements

Rep. Gregorio Sablan (D-Northern Mariana Islands), House Natural Resources Committee

Sablan explained that the discussion draft would amend the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA) by adding provisions that define essential services, reduce government conflicts of interest and assist the audit of the debt. He recommended the witnesses and other members of Congress offer alternatives to provisions they object to in the discussion draft.

Ranking Member Rob Bishop (R-Utah), House Natural Resources Committee

Bishop said the discussion draft to amend PROMESA would not pass Congress nor be signed by the President. He recommended that the committee set goals to help Puerto Rico progress economically, to bolster political stability and to provide a pathway to statehood.

Testimony

Panel I:

Heriberto Martínez Otero, President, Puerto Rico Economists Association

In his testimony, Otero said that since the passage of PROMESA, Puerto Rico has faced a slowing economy coupled with expansive cuts due to austerity measures and the construction bubble collapse. He suggested that Congress amend sections three and four of the discussion draft to provide increased oversight of how federal dollars are allocated and to establish a list of essential services. Otero added that these amendments would help release $80 million worth of funds and help establish a financing system for Puerto Rico.

Alvin Velázquez, Associate General Counsel, Service Employees International Union

In his testimony, Velázquez said the people of Puerto Rico believe “PROMESA is poverty.” He noted that 49.7 percent of debt restructuring defaults have occurred within three years of sovereign debt restructuring. He noted that this increases to 70 percent when spanned over seven years. Velázquez stated that PROMESA requires another restructuring of debt within five years. He opined that Puerto Rico Urgent Interest Fund Corporation (COFINA) bondholders and Puerto Rico Electric Power Authority (PREPA) bondholders receiving preferential treatment at the cost of cutting public debt is harming the general public. Velázquez added that the audit of debt should be independent and that Congress should pass a Marshall plan for Puerto Rico.

Liliana Cubano, President, Puerto Rico Products Association

In her testimony, Cubano said the reforming of PROMESA’s austerity measures and economic growth is applaudable. She echoed the recommendations to define essential services, adding that this would help create meaningful jobs and keep youth in Puerto Rico. Cubano recommended that the Financial Oversight and Management Board (FOMB) decisions should be made with direct consideration of the impact on Puerto Rico. She stated that measures FOMB should work to reform building and business operation permits, simplify the tax code, maximize educational apprenticeship programs and address energy and infrastructure policies.

Lyvan A. Buntin-Rivera, Student Representative, University of Puerto Rico

In his testimony, Buntin-Rivera said before the passage of PROMESA, the University of Puerto Rico underwent major cuts. He stated that since passage in 2018, the University accumulated $450 million more in cuts. Buntin-Rivera said that these cuts have harmed the University’s ability to hire staff who provide student services and courses. He added that the University is essential for the future of Puerto Rico’s workforce and needs to be properly funded.

James Spiotto, Managing Director, Chapman Strategic Advisors

In his testimony, Spiotto stated that the public debt of Puerto Rico is a symptom of a larger systemic problem. He said Puerto Rico’s recovery plan should reinvest in the island by stimulating the economy, attracting business and a workforce, and increasing tax revenues. Spiotto added that Puerto Rico needs to maintain access to capital markets for the government to continue having liquidity. Spiotto said the current sovereign debt restructuring plan does not address the systemic problem of Puerto Rico’s debt and does not maintain access to the market. He said that it is important for municipal debt adjustment to occur rather than eliminating the debt of Puerto Rico. Spiotto recommended Puerto Rico’s economy be stimulated by making it a commerce center and foreign trade zone, and by attracting new business and jobs.

Panel II:

Adi Martínez, Senior Policy Advisor, Oxfam America

In her testimony, Martínez said the challenges of Puerto Rico mostly impact those affected by disasters and poverty. She said the recovery efforts must be equitable, transparent and effective, while at the same time avoiding extreme centralization. Martínez stated her belief that there is nothing more effective in combating corruption than giving community leaders a voice for good governance as well as accountability measures. She recommended that legislative proposals appoint an independent reconstruction coordinator for Puerto Rico.

Annie Mayol, President, Foundation for Puerto Rico

In her testimony, Mayol said that non-governmental organizations (NGOs) have served as a fiscal arm and backbone for disaster relief efforts in Puerto Rico. She said her organization developed an initiative for small businesses based on the visitor economy to drive change in Puerto Rico. Mayol said that bureaucracy is not the solution for disaster relief and expressed concerns regarding liquidity and grant fund release challenges.

Dr. Cecilio Ortíz-García, Senior Fellow, National Council for Science and the Environment

In his testimony, Ortíz-García recommended the appointment of a recovery coordinator responsible for PREPA reconstruction in order to increase the quality of recovery effort outcomes and to centralize decision making. He said this recovery coordinator will need to be mindful of the environment of Puerto Rico as their decision making will require extreme care and planning.

Rodrigo Masses-Artze, President, Private Alliance for Economic Growth of Puerto Rico

In his testimony, Masses-Artze said that reconstruction is the most urgent issue and that PROMESA has not been conducive to these efforts. He emphasized the need to build a stable economy and help grow the island, which he said Congress had failed to accomplish. Masses-Artze suggested that the Puerto Rican government needs to increase transparency, increase labor force participation for women entrepreneurs, implement effective water and sustainable energy policies and implement regulated technology depository infrastructure. He said that Puerto Rico needs a roadmap that includes inclusive governance, enhanced manufacturing and promotion of innovation. He added that the Puerto Rican government should be required to submit 60-day progress reports.

Question & Answer

PROMESA Discussion Draft

Reps. Matt Cartwright (D-Pa.), Nydia Velázquez (D-N.Y.), and Sablan asked about ways to improve the discussion draft. Otero suggested that there be an increased emphasis on the need for infrastructure and standards to fight against corruption in Puerto Rico. He added that the University system is the most important sector in Puerto Rico. Otero continued that there is a need to be more specific regarding which industrial sectors are being supported or invested in by the FOMB and the Puerto Rican government. Cubano stated the need to identify essential services and to protect them in order to make economic growth possible. Alvin Velázquez said that more transparency for the FOMB would not be a bad thing and that the discussion draft should ensure higher standards for returns issued to bondholders. Spiotto stated that the government could audit the public debt, but PROMESA already requires action on restructuring the debt.

Challenges of PROMESA

Sablan and Cartwright asked what challenges PROMESA has caused in Puerto Rico. Otero echoed challenges of corruption, and Cubano reiterated challenges in terms of protecting essential services. Velázquez said that the FOMB set benchmarks according to the top ten states in the U.S. and has set an unrealistic economic benchmark for Puerto Rico. Buntin-Rivera said PROMESA has led to cuts in the University’s budget, calling such cuts illogical. He stated that the University provides the island many benefits and that the University needs help to run more effectively.

Debt Elimination

Reps. Darren Soto (D-Fla), Tom McClintock (R-Calif.) and Bishop asked about the effects of canceling Puerto Rico’s debt. Velázquez said that H.R. 2526, the Territorial Relief Act would accomplish the goal of debt elimination or that it could be canceled via court action. Spiotto said that this would significantly degrade Puerto Rico’s ability to re-access capital markets and would also impact public-private partnerships. He added that New York, Washington D.C., and other U.S. cities restructured their debt and found success.

PREPA

Rep. Don Young (R-Ala) asked what the percentage of Puerto Rico’s debt is tied to PREPA and why the island would support selling PREPA bonds. Otero said it is about 22 percent of the debt. Buntin-Rivera stated that a review of the creation of PREPA would be necessary given the problems in Puerto Rico’s private sector funding.

McClintock asked who established the credibility of PREPA. Otero said the former governor established PREPA’s credibility for purposes of creating sustainable energy. Cubano said PREPA’s credibility should be re-evaluated.

Disaster Relief

Reps. Daniel Webster (R-Fla.), Jesús “Chuy” García (D-Ill.), and Soto asked the panel for recommendations to address Puerto Rico’s disaster relief efforts. Martínez stated that bottlenecks and centralization have caused disbursement delays and said there need to be more civil society workgroups to flag such incidents. She added that these groups should be comprised of a diverse team to coordinate with agencies for people’s voices to be heard. Mayol echoed many of the same points and added that the key players in relief efforts must have experience, capacity, and trust.

For more information on this hearing, please click here.