Two months later: Puerto Rico doesn’t have power, education or economy running again

 Two months later: Puerto Rico doesn’t have power, education or economy running again
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It has been over two months since Hurricane María passed through Puerto Rico and the short and long-term future looks bleak indeed.

Just last week Gov. Ricardo Rosselló declared in the Senate’s Energy Committee that the damages suffered by Puerto Rico in the public and private sector are estimated at $94 billion. Between 70,000 to 100,000 homes were either destroyed or seriously affected by the hurricane. At least 55 deaths have been officially reported related directly or indirectly to the hurricane.

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Even though the emergency conditions have passed and there is no immediate danger posed to the population, there is still urgent need to attend pressing problems. Most communities throughout the island have access to food, water and health services, although there are notable exceptions, particularly in the mountainous area of the island.

 

Most private schools have reinitiated classes, and many public schools have still to open. Bureaucratic infighting in the Department of Education appears to be the order of the day between teachers, parents and administrators on which schools to reopen given the sharp decline of the student population due to the decade-long migration. Most universities have reinitiated their respective semesters with difficulty and occasional interruptions.

The greatest challenge at this time, and the common denominator to many of our problems, is the rebuilding of Puerto Rico’s energy grid. According to government reports, close to 50 percent of the power generation — not distribution — has been reestablished, although there are frequent outages. About 4 out of 5 people in the island do not have electricity.

The government’s projection that by the Dec. 15, 95 percent of the population will have electricity appears to be overly optimistic. The lack of electric power has had a direct and ripples effect across the island’s economic activity. Many small business have not been able to reopen, unemployment has increased and close to 80,000 people have left the island since María.

Estimates provided to the Financial Oversight Board at the public hearings held on Nov. 16, are that Puerto Rico may lose up to 220,000 people within the next five years. Economic productivity is down and an increase in loan defaults, mortgage foreclosures and bankruptcy proceedings are expected in the near future.

Prior to the passing of María, of course, Puerto Rico was already in a deep financial and economic crisis. In June 2016, Congress legislated the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA) creating a Financial Oversight Board and a bankruptcy-like proceeding under its Title III.

Puerto Rico’s outstanding public debt is estimated at approximately $74 billion. In May 2017 the Financial Oversight Board filed in representation of the Government of Puerto Rico for judicial restructuring under Title III.

Soon thereafter, it also filed in representation of the Puerto Rico Energy Power Authority (PREPA). At the time of hurricane María there was a controversy between the Government of Puerto Rico and the Financial Oversight Board in the implementation of the approved Fiscal Plan, regarding the reduction government employee work hours and pension plan payments. In light of events the fiscal plan is again under review by the Financial Oversight Board.

After hurricane Maria and the contracting by PREPA of Whitefish Energy Holdings, a Montana corporation, with a $300 million contract for repair work on the energy grid — which raised serious questions concerning procurement procedures and the potential for mismanagement of FEMA funds — the Financial Oversight Board appeared before the House Committee on Natural Resources on Oct. 30 to request amendments to PROMESA for purposes of conferring broader authority over the operation of the Government of Puerto Rico and its public corporations. It is clear to all observers that there are serious concerns in Congress on whether the Government of Puerto Rico has the ability to efficiently manage the significant amount of FEMA and other federal funds that Puerto Rico requires to recover.

The Financial Oversight Board also filed in the district court a motion requesting authorization to name its Revitalizing Officer Noel Zamot to supervise PREPA. The Government of Puerto Rico opposed such request and argued that it was an overreach by the Financial Oversight Board and a usurpation of its legal authority. Judge Taylor Swain denied the Financial Oversight Boards motion because it did not have the statutory authority under PROMESA for such an appointment and called for both parties to work together for the benefit of Puerto Rico. It still too early to predict how Congress will respond to this judicial determination.

Adding to the mix is the proposed 2017 tax reform approved by the House this past week, which imposes a 20 percent tax rate on Controlled Foreign Corporation (CFC), and which particularly affects Puerto Rico’s diminished manufacturing base, unless amended by the Senate.

Speaker Paul RyanPaul Davis RyanMcConnell names Senate GOP tax conferees House Republican: 'I worry about both sides' of the aisle on DACA Overnight Health Care: 3.6M signed up for ObamaCare in first month | Ryan pledges 'entitlement reform' next year | Dems push for more money to fight opioids MORE stated on Nov. 16 that the tax reform would suffer amendments in conference which will take care of Puerto Rico. It is not clear at this moment what exactly that means.

It is within this confusing context that the jockeying between the various factions and actors needs to be understood. On the one hand, there clearly is a tug of war between the Government of Puerto Rico, the Financial Oversight Board and Puerto Rico’s secured and unsecured creditors.

On the other hand, the tax reform as approved by the House represents a real risk for the continued socio-economic and political viability of the territory as we know it. It is evident that the time has come review Puerto Rico’s political and legal arrangement with the United States.

Andrés L. Córdova is a law professor at Inter American University of Puerto Rico,. where he teaches contracts and property courses. He is also an occasional columnist on legal and political issues at the Spanish daily El Vocero de Puerto Rico.