July 11, 2016
Puerto Rico: The End of the Beginning
With enactment of the “Puerto Rico Oversight, Management, and Economic Stability Act,” or “PROMESA,” Congress provided some of the overdue relief the 3.5 million Americans in the Commonwealth of Puerto Rico need to avert a worsening of the island’s financial and humanitarian crises and to set the table for renewed measures to spur economic growth on the island. PROMESA establishes a seven member Financial Oversight and Management Board (“the Board”) with extraordinary powers over the island’s finances. The Board also has authority to initiate debt restructuring proceedings, including with respect to debt of the island’s central government, if supported by five members, and only if it has determined that Puerto Rico’s government has made good faith efforts to negotiate a consensual restructuring with creditors and meets other requirements. PROMESA grants the island an immediate, automatic stay against creditor legal actions against the Commonwealth.
The scope and nature of the restructuring authority under PROMESA, the Board supermajority it requires for the initiation of debt restructuring, and the extent and scope of the Board’s powers all remain the subject of passionate debate. But the focus on next steps begins in Washington with two sets of appointments. The President will appoint one member of the Board at his sole discretion, and “should” appoint two members proposed by the Speaker of the House; two members proposed by the Senate Majority Leader; and one member each proposed by the House Minority Leader and the Senate Minority Leader. If the President selects a member not on one of these lists, that individual must be confirmed by the Senate. PROMESA sets September 15 as the deadline for appointments.
PROMESA also establishes a Congressional Task Force on Economic Growth in Puerto Rico. Moreover, PROMESA contains a sense of Congress provision acknowledging “that any durable solution for Puerto Rico’s fiscal and economic crisis should include permanent, pro-growth fiscal reforms…” Together, these provisions evince Congress’ important understanding that debt restructuring and steps addressing the island’s spending and tax policies alone are insufficient to pull the island’s economy out of its ten year recession. Congress phased-out a Federal tax incentive between 1996 and 2006, without replacing it, for example, resulting in the loss of tens of thousands of jobs.
The Congressional Task Force is charged with reporting, no later than December 31, 2016, principally on “impediments in current Federal law and programs to economic growth in Puerto Rico including equitable access to Federal health care programs; [and] recommended changes to Federal law and programs that, if adopted, would serve to spur sustainable long-term economic growth, job creation, reduce child poverty, and attract investment in Puerto Rico…”
The Task Force will consist of eight members. The Speaker, House Minority Leader, and the Senate Majority and Minority Leaders each make two appointments, with the Speaker selecting one of the members as chair of the Task Force. PROMESA calls for these appointments to be made within 15 days of its enactment, which is July 15.
In the long run, the work of this Task Force may prove to be the most important result of PROMESA. While there may be a variety of views on Federal measures to spur economic growth and to strengthen health care services on the island, and how or whether to pay for them, there is a consensus that Congress must maintain its engagement with Puerto Rico and find common ground in order to avoid facing continuing economic and financial crises on the island. And some current or former antagonists may also find common ground in this work, as Puerto Rico’s economic well-being is of vital interest to all parties, including the island’s creditors.