On June 30, 2016, President Obama signed the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA) legislation into law.  The legislation is designed to address the serious financial, economic, competitive, and other challenges facing Puerto Rico.  It provides for the establishment of a temporary and independent Financial Oversight and Management Board funded by Puerto Rico with extensive responsibilities and authorities.  It also provides for the creation of a temporary Congressional Task Force to assess and make recommendations regarding Puerto Rico’s economic growth challenges.

The bi-partisan and bi-cameral Congressional Task Force was appointed in July 2016.  It is scheduled to report its findings and recommendations by Dec. 31, 2016. President Obama announced his seven appointments to the Financial Oversight and Management Board on Aug. 31, 2016. The Board elected its Chair, José Carrión III, on Sept. 30, 2016.  The Chair will be responsible for hiring an Executive Director and a Revitalization Coordinator, in consultation with the Board.  

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The Financial Oversight and Management Board has a great amount of work to do and yet PROMESA only provides for a “stay” of creditor litigation until the later of Feb. 15, 2017 or six months after the Financial Oversight and Management Board  is established.  That stay can be extended for another 75 days by the Board if certain criteria are met.  A recent federal court ruling has called into question the applicability of this stay for litigation that was filed between June 30, 2016 and prior to the election of a Board Chair.

There were, strong proponents and opponents of PROMESA. However, one thing was is clear, given recent defaults on debt issued by Puerto Rico, the “status quo” was both unacceptable and unsustainable.  Now that the Financial Oversight and Management Board members have been named, there has been some public concern regarding the role of the Board.  Some have asserted that, given its composition, the Board is designed to serve as a collection agent for creditors.  PROMESA envisions a much broader role for the Board and it is of critical importance to the future of Puerto Rico that the Board pursues a broad range of transformational changes that will help create a better future for Puerto Rico.

The PROMESA legislation does charge the Financial Oversight and Management Board with working with creditors to achieve a reasoned and reasonable resolution of their claims in a manner that respects the Constitution of Puerto Rico and is consistent with the laws in Puerto Rico.  This needs to include a review on the nature and extent of creditor claims as well as their legal standing and relative priority.  At the same time, the legislation also charges the Board with working with the duly elected Government of Puerto Rico to achieve a balanced budget for at least four years and the creation of a long-term fiscal plan for the future.  For this to become a reality, the Board will need to explore a broad range of government transformation-related issues and the legislation gives the Board the authority to do so.  For example, the Board will need to explore ways to improve tax administration and enforcement, look for ways to reduce spending in a sensible manner while maintaining essential services, consider the proper role of the public corporations of the government of Puerto Rico (e.g., Puerto Rico Electric Power Authority PREPA, Aqueduct and Sewer Authority, University of Puerto Rico Plaza Universitaria) and municipalities, modernize government human capital practices, and reform government compensation, pension/retirement and other employee benefit programs.  

In order for the Financial Oversight and Management Board to achieve sustainable success, among other things, it needs to consider the following:

  • Establish a constructive working relationship with the Governor and other key elected officials within Puerto Rico. This should include reaching out to the major gubernatorial candidates since a change of Administration will occur as a result of the November elections.
  • Conduct an initial outreach effort to communicate to the people of Puerto Rico the broad scope of the Board’s responsibilities and authorities and how it plans to discharge them.
  • Create a core staff through details of government personnel and external hiring that can support the Board in planning and executing its work, including overseeing the work of external contractors.
  • Partner with selected government agencies (e.g., Puerto Rico’s Comptroller’s Office, U.S. Treasury) to help get the facts and assess options for proceeding.
  • Conduct periodic internal and external briefing sessions with appropriate government leaders as well as the press and the public to note progress and be transparent with all stakeholders the above approach will serve to maximize the likelihood that creditors, the people of Puerto Rico and other key stakeholders will be treated equitably based on a comprehensive and long-term plan. It will also help to facilitate a successful and sustainable transformation that is needed to create a better future for Puerto Rico and its people.  These are all goals worth achieving.  

Pursuing the above approach will serve to maximize the likelihood that creditors, the people of Puerto Rico and other key stakeholders will be treated equitably based on a comprehensive and long-term plan. It will also help to facilitate a successful and sustainable transformation that is needed to create a better future for Puerto Rico and its people.  These are all goals worth achieving.  

Hon. David M. Walker is senior strategic advisor for PwC and a former U.S. Comptroller General.


The views expressed by authors are their own and not the views of The Hill.