The Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA) is a
U.S. federal law
The law of the United States comprises many levels of codified and uncodified forms of law, of which the most important is the nation's Constitution, which prescribes the foundation of the federal government of the United States, as well as va ...
enacted in 2016 that established a financial oversight board, a process for restructuring debt, and expedited procedures for approving critical infrastructure projects in order to combat the
Puerto Rican government-debt crisis
The Puerto Rican government-debt crisis was a financial crisis affecting the government of Puerto Rico. The crisis began in 2014 when three major credit agencies downgraded several bond issues by Puerto Rico to "junk status" after the governmen ...
.
Through PROMESA, the US Congress established an appointed Fiscal Control Board (FCB), known colloquially in
Puerto Rico
Puerto Rico (; abbreviated PR; tnq, Boriken, ''Borinquen''), officially the Commonwealth of Puerto Rico ( es, link=yes, Estado Libre Asociado de Puerto Rico, lit=Free Associated State of Puerto Rico), is a Caribbean island and Unincorporated ...
as "la junta," to oversee the
debt restructuring
Debt restructuring is a process that allows a private or public company or a sovereign entity facing cash flow problems and financial distress to reduce and renegotiate its delinquent debts to improve or restore liquidity so that it can continue ...
.
[ With this protection the then-]governor
A governor is an administrative leader and head of a polity or political region, ranking under the head of state and in some cases, such as governors-general, as the head of state's official representative. Depending on the type of political ...
of Puerto Rico, Alejandro García Padilla
Alejandro Javier García Padilla (; born August 3, 1971) is a Puerto Rican politician and attorney who served as the governor of Puerto Rico from 2013 to 2017.
Prior to this position, García Padilla held various roles in the political la ...
, suspended payments due on July 1, 2016.[ The FCB's approved fiscal ]austerity
Austerity is a set of political-economic policies that aim to reduce government budget deficits through spending cuts, tax increases, or a combination of both. There are three primary types of austerity measures: higher taxes to fund spend ...
plan for 2017-2026 cut deeply into Puerto Rico's public service budget, including cuts to health care, pensions, and education, in order to repay creditors. By May 2017, with $123 billion in debt owed by the Puerto Rican government and its corporations, the FCB requested the "immediate" appointment of a federal judge to resolve the "largest bankruptcy case in the history of the American public bond market."
In response to legal challenges by creditors trying to reverse the debt recovery actions, the Supreme Court
A supreme court is the highest court within the hierarchy of courts in most legal jurisdictions. Other descriptions for such courts include court of last resort, apex court, and high (or final) court of appeal. Broadly speaking, the decisions of ...
ruled in June 2020 that the Board's appointment, performed by the President only, was consistent with the Appointments Clause
The Appointments Clause of Article II, Section 2, Clause 2, of the United States Constitution empowers the President of the United States to nominate and, with the advice and consent (confirmation) of the United States Senate, appoint public offi ...
.
The Foraker Act of 1900 prevented the government of Puerto Rico and all of its municipalities from entering into debt in excess of seven percent of the aggregate tax value of its property.
Overview
PROMESA enables the island's government to enter a bankruptcy-like restructuring process and halt litigation in case of default. Specifically, the establishment of the Financial Oversight and Management Board of Puerto Rico known colloquially as "La Junta" (a short form of "La Junta de Control Fiscal"), operates as an automatic stay of creditor actions to enforce claims against the government of Puerto Rico. The oversight board is to facilitate negotiations, or, if these fail, bring about a court-supervised process akin to a bankruptcy. The board is also responsible for overseeing and monitoring sustainable budgets.[ The President appointed all seven members of the board, six of whom were chosen from a list of individuals recommended by Congressional leaders and had previous ties to profitable industries in Puerto Rico. The Governor of Puerto Rico (or a designee) serves ex officio as an eighth member without voting rights.]
PROMESA authorizes the oversight board to designate a territory or territorial instrumentality as a "covered entity." Once designated, the covered entity is subject to the terms of PROMESA. On September 30, 2016, the oversight board designated the Commonwealth of Puerto Rico and certain other territorial instrumentalities as covered entities under PROMESA. As a covered entity, Puerto Rico is required to submit a fiscal plan. A fiscal plan must provide a method to achieve fiscal responsibility and access to the capital markets, and:
* provide for estimates of revenues and expenditures in conformance with agreed accounting standards and be based on--
* applicable laws; or
* specific bills that require enactment in order to reasonably achieve the projections of the Fiscal Plan;
** ensure the funding of essential public services;
** provide adequate funding for public pension systems;
** provide for the elimination of structural deficits;
** for fiscal years covered by a Fiscal Plan in which a stay under subchapters III or IV is not effective, provide for a debt burden that is sustainable;
** improve fiscal governance, accountability, and internal controls;
** enable the achievement of fiscal targets;
** create independent forecasts of revenue for the period covered by the Fiscal Plan;
** include a debt sustainability analysis;
** provide for capital expenditures and investments necessary to promote economic growth;
** adopt appropriate recommendations submitted by the Oversight Board under section 2145(a) of this title;
** include such additional information as the Oversight Board deems necessary;
** ensure that assets, funds, or resources of a territorial instrumentality are not loaned to, transferred to, or otherwise used for the benefit of a covered territory or another covered territorial instrumentality of a covered territory, unless permitted by the constitution of the territory, an approved plan of adjustment under subchapter III, or a Qualifying Modification approved under subchapter VI; and
** respect the relative lawful priorities or lawful liens, as may be applicable, in the constitution, other laws, or agreements of a covered territory or covered territorial instrumentality in effect prior to June 30, 2016.
On October 14, 2016, Puerto Rico submitted a proposed fiscal plan to the oversight board. On November 23, 2016, the oversight board released its initial assessment of the fiscal plan submitted by Puerto Rico. The oversight board requested that the fiscal plan be amended to incorporate the following:
# Define and incorporate key aspirational goals, benchmarks and metrics for a ten-year vision for Puerto Rico. This aspirational vision should drive Puerto Rico to stabilize its current economic, social, demographic and financial situation, increase the economy's resilience, shore up public finances, support long-term, durable growth, address basic needs and restore opportunity for the people of Puerto Rico;
# Exclude any funding from an extension of Affordable Care Act as well as revenues from an extension of Act 154 revenues in light of their expiration (unless the assumption is accompanied by a specific bill). The Board supports efforts to extend Affordable Care Act funds and Medicaid parity for Puerto Rico, but consistent with the PROMESA Act the Board has to insure that the Fiscal Plan is based on existing law or a specific bill.
# Incorporate a revised baseline forecast to reflect pay-go funding for pension benefits and segregation of current employee contributions beginning no later than 2018; and
# Include a debt restructuring proposal and also a debt sustainability analysis.
On November 29, 2016, the Governor of Puerto Rico responded to the oversight board's assessment of the Commonwealth's proposed fiscal plan, asking for Medicaid parity in Puerto Rico, the extension of Obamacare funds, and requesting for further federal intervention and support.
With basic services risking privatization, and funding for pensions, education and healthcare already scarce, PROMESA strives to reallocate more public funding to restructure the $72 billion in debt. In late January 2017, the board created under PROMESA gave the government of Puerto Rico until February 28 to present a fiscal plan (including negotiations with creditors) to solve the problems. It is essential for the Commonwealth to reach restructuring deals to avoid a bankruptcy-like process under PROMESA. A moratorium on lawsuits by debtors was extended to May 31.
In January 2017 governor Ricardo Rosselló
Ricardo Antonio Rosselló Nevares (; born March 7, 1979) is a Puerto Rican politician who served as the governor of Puerto Rico from 2017 to 2019. He resigned on August 2, 2019, after protests related to the Telegramgate scandal. He is the s ...
replaced Millstein and co with investment expert Rothschild & Co
Rothschild & Co is a multinational investment bank and financial services company, and the flagship of the Rothschild banking group controlled by the French and British branches of the Rothschild family.
The banking business of the firm covers th ...
to assist in leading the restructuring process of Puerto Rico's debts. The company was also exploring the possibility of convincing insurers that had guaranteed some of the bonds against default, to contribute more to the restructuring, according to reliable sources. The governor also planned to negotiate restructuring of about $9 billion of electric utility debt, a plan that could result "in a showdown with insurers." Political observers suggest that his negotiation of the electrical utility debt indicated Rosselló's intention to take a harder line with creditors. Puerto Rico has received authority from the federal government to reduce its debt with legal action and this may make creditors more willing to negotiate instead of becoming embroiled in a long and costly legal battle.
Composition of the Financial Oversight and Management Board
On August 31, 2016, President Obama appointed the seven members of the board.
In March 2017, Natalie Jaresko
Natalie Ann Jaresko ( uk, Наталія Енн Яресько; born 24 April 1965) also known as Natalia Ivanivna Yaresko ( uk, Наталія Іванівна Яресько) is an American-born former U.S. State Department official and Ukrain ...
, former Minister of Finance in Ukraine, was appointed as the board's executive director. In 2019, Christian Sobrino, PROMESA's Representative of the Puerto Rican government, resigned in the wake of the Telegramgate
Telegramgate, also known as Chatgate or RickyLeaks, was a political scandal involving Ricardo Rosselló, then Governor of Puerto Rico, which began on July 8, 2019, with the leak of hundreds of pages of a group chat on the messaging application ...
scandal effective immediately on July 13, 2019. On September 1, 2020 ''El Nuevo Dia
EL, El or el may refer to:
Religion
* El (deity), a Semitic word for "God"
People
* EL (rapper) (born 1983), stage name of Elorm Adablah, a Ghanaian rapper and sound engineer
* El DeBarge, music artist
* El Franco Lee (1949–2016), American p ...
'' newspaper reports that USDA Rural Development
USDA Rural Development (RD) is a mission area within the United States Department of Agriculture which runs programs intended to improve the economy and quality of life in rural parts of the United States.
Rural Development has a loan portfolio o ...
State Director Josué Rivera was mentioned as a potential nominee for the Board.
The law gives immunity to these board members in the face of any potential future lawsuits, stipulating that “The Oversight Board, its members, and its employees shall not be liable for any obligation of or claim against the Oversight Board or its members or employees or the territorial government resulting from actions taken to carry out this to carry out this Act” (PROMESA, 561). The board also has the power to ensure “the prompt enforcement of any applicable laws of Puerto Rico prohibiting public sector employees from participating in a strike or lockout” (PROMESA, 559).
Response
Critics suggest that the law continues to treat the island as an "anomaly", remarking on Puerto Rico's somewhat unique status as a populous unincorporated territory of the United States, while also alleging that PROMESA does not do enough to deal with the problems that Puerto Rico's economy was facing when the bill was signed into law: high unemployment, welfare issues, and brain drain. Critics also claim that the United States Congress is granting unnecessarily broad powers to the new Fiscal Control Board, hindering Puerto Rico's development of democracy by allowing a federal body to effectively overrule all local authorities, and justifying such decisions through the Necessary and Proper Clause
The Necessary and Proper Clause, also known as the Elastic Clause, is a clause in Article I, Section 8 of the United States Constitution:
Since the landmark decision '' McCulloch v. Maryland'', the US Supreme Court has ruled that this clause gr ...
. According to Nelson Denis
Nelson Antonio Denis is an American attorney, author, film director, and former representative to the New York State Assembly. From 1997 through 2000, Denis represented New York's 68th Assembly district, which includes the East Harlem and Span ...
, the political and economic activities of the United States in Puerto Rico have created structural dependency, economic stagnation, and a growing debt problem that led to the creation of this fiscal plan in an attempt to resolve the situation. Some critics have accused the Fiscal Control Board of failing to look into the legitimacy of the lending-scheme debt.
In 2017, after the Board presented its plan, Joseph E. Stiglitz
Joseph Eugene Stiglitz (; born February 9, 1943) is an American New Keynesian economist, a public policy analyst, and a full professor at Columbia University. He is a recipient of the Nobel Memorial Prize in Economic Sciences (2001) and the ...
and Martin Guzman claimed that the Act and the Board that came with it " rebringing more problems than solutions" and that the appointed Board lacks "any understanding of basic economics and democratic accountability". As the Board's plan predicts a 16.2% decline in GNP for the next fiscal year with a further decline to follow and prioritizes payment to creditors, "a social ndeconomic catastrophe" is "all but guarantee . Stieglitz and Guzman proposed instead that steps to enhance economic growth and not debt repayments should be at center of a plan to solve the crisis. Similar critics have argued that the United States is attempting to enforce neoliberal economics on the island without its consent through the Board.
In 2017, Barry Sheppard wrote in Green Left Weekly
''Green Left'', previously known as ''Green Left Weekly'', is an Australian socialist newspaper, written by progressive activists to "present the views excluded by the big business media". The newspaper was founded in 1990. Green Left is the ...
that by 2014 when "the island's debt to US financial lenders hit US$73 billion," vulture capitalists bought the debt cheaply, demanded it be paid in full and that this law "created an un-elected seven-person financial board with sweeping powers over the island's economy".
In July 2019, Puerto Rican singers such as Bad Bunny
Benito Antonio Martínez Ocasio (born March 10, 1994), known professionally as Bad Bunny, is a Puerto Rican rapper and singer. His musical style is defined as Latin trap and reggaeton. He rose to prominence in 2016 with his song "Diles", wh ...
, La India
Linda Viera Caballero (born March 9, 1969), better known as La India, is a Puerto Rican singer and songwriter of salsa, house music and Latin pop. La India has been nominated for both Grammy and Latin Grammy Awards, winning the Latin Grammy Aw ...
, Ricky Martin
Enrique Martín Morales (born December 24, 1971), known professionally as Ricky Martin, is a Puerto Rican singer, songwriter, and actor. He is known for his musical versatility, with his Ricky Martin albums discography, discography spanning ...
, and Residente
René Pérez Joglar (born February 23, 1978), known professionally as Residente (often stylized as Resīdɛntə), is a Puerto Rican rapper, singer, and songwriter. He is best known as one of the founders of the alternative rap band Calle 13. ...
led massive protests in Old San Juan demanding end of the Governor's reign and La Junta. Hundreds of thousands of people rallied for then-Governor Ricardo Rosello to “resign and take La Junta with you," and "cancel the debt." Many argue PROMESA amounts to the return of colonial rule over Puerto Rico. Filmmaker Francis Negrón-Muntaner stated that the Board is "composed of individuals with deep ties to the banking and investment world—including some involved in producing the debt crisis—and granted them broad powers over Puerto Rico’s elected government to assure that creditors will be paid.” In September 2019, thirteen members of the United States Congress included Alexandria Ocasio-Cortez
Alexandria Ocasio-Cortez (; ; born October 13, 1989), also known by her initials AOC, is an American politician and activist. She has served as the U.S. representative for New York's 14th congressional district since 2019, as a member of th ...
and Bernie Sanders
Bernard Sanders (born September8, 1941) is an American politician who has served as the junior United States senator from Vermont since 2007. He was the U.S. representative for the state's at-large congressional district from 1991 to 2007 ...
signed a letter that demanded that La junta disclose its conflicts of interest.
On February 22, 2021, U.S. Representative Nydia Velázquez
Nydia Margarita Velázquez Serrano (born March 28, 1953) is a politician serving in the United States House of Representatives since 1993. A Democrat from New York, Velázquez chaired the Congressional Hispanic Caucus until January 3, 2011. He ...
( D– NY) introduced the first amendment to PROMESA, the Puerto Rico Recovery Accuracy in Disclosures Act of 2021 or PRRADA to combat conflicts of interest related to debt recovery. The bill “requires professionals employed in debt adjustment cases involving Puerto Rico to file verified statements disclosing their connections with the debtor, creditors, and other interested parties before seeking compensation for their services.” On February 24, 2021, the amendment passed unanimously.
Supreme Court challenge
As the Board began to agree to bankruptcy agreements, several of Puerto Rico's creditors sought legal action to challenge the foundation of PROMESA. They challenged the appointment of members to the Board by the President without Senate approval as a violation of the Appointments Clause
The Appointments Clause of Article II, Section 2, Clause 2, of the United States Constitution empowers the President of the United States to nominate and, with the advice and consent (confirmation) of the United States Senate, appoint public offi ...
which requires that any appointment of public officers be made with Senate approval. Initial claims at the District Courts to the creditors were denied, but in a combined case at the First Circuit Court of Appeals, the Circuit Court ruled in February 2019 that PROMESA did violate the Appointments Clause, but also ruled that all prior transactions to nullify Puerto Rico's debts were still valid. Parties on both sides petitioned to the Supreme Court: Puerto Rico and the Board seeking to challenge the determination that the Board's appointment violated the Appointments Clause, while the creditors sought to have all former decisions of the Board reversed. The Supreme Court accepted the petitions, consolidating the case under ''Financial Oversight and Management Board for Puerto Rico v. Aurelius Investment, LLC'' (590 U.S. ___ (2020), Docket 18–1334). Oral arguments were heard on October 15, 2019. The Court issued its unanimous decision on June 1, 2020, reversing the First Circuit's decision and declaring that the appointment of the Board members was constitutional since their duties were, as established by Congress, at a nonfederal level and thus were not officers of the United States as demanded by the Appointments Clause. As such, this further reversed the claims on subsequent Board decisions as well, allowing these to stand.
References
External links
Puerto Rico Oversight, Management, and Economic Stability Act
PDFdetails
as amended in the GPO GPO may refer to:
Government and politics
* General Post Office, Dublin
* General Post Office, in Britain
* Social Security Government Pension Offset, a provision reducing benefits
* Government Pharmaceutical Organization, a Thai state enterpris ...
br>Statute Compilations collection
Puerto Rico Oversight, Management, and Economic Stability Act
PDF
as enacted in the US Statutes at Large
juntasupervision.pr.gov
- official site.
*
* {{cite web , url= https://naturalresources.house.gov/uploadedfiles/promesa_packet_-_5-18.pdf , title= PROMESA Information Release , publisher= HNR
Acts of the 114th United States Congress
2016 in Puerto Rico