Dear Reader,
For many of us, the first week of the New Year has been challenging. Just as the holiday celebrations come to an end, Puerto Rico is struggling with a natural disaster that left many without a place to call home.
Last week, the Oversight Board authorized the use of $260 million of Emergency Reserve funds for earthquake emergency-related expenses. I went to Guayanilla and Guánica to get a sense of the destruction and the needs of the people in the areas hardest hit by the tremors before I traveled to Washington, D.C. for a long-planned trip that also gave me an opportunity to brief members of Congress about the situation in Puerto Rico.
We will continue to support the government during this difficult time and make sure funds for recovery are available. Our memory of Hurricane Maria is still fresh, but we know the people of Puerto Rico are strong and resilient.
I would also like to take this opportunity to reflect on the year that passed, a year with significant progress in Puerto Rico’s recovery. Puerto Rico is our home and our passion, and I am thankful for the honor to be able to contribute to its future.
In 2019 we accomplished a lot:
- The proposed Plan of Adjustment to restructure $35 billion of debt and other claims against the Commonwealth of Puerto Rico, and more than $50 billion of pension liabilities to allow Puerto Rico to exit bankruptcy
- An agreement with certain creditors to restructure PREPA’s debt, an important element for a Plan of Adjustment that would allow PREPA to exit bankruptcy and transform into a modern energy provider that delivers reliable, clean, and affordable electricity
- Restructured the debt of COFINA
- Certified a Fiscal Plan prioritizing public safety, healthcare and education while continuing to cut administrative expenses to better enable the government to deliver public services efficiently
- Certified a fiscally responsible budget that prioritizes critical government services, including $400 million in spending for infrastructure
The year 2020 may well be defining for Puerto Rico. We seek to leave bankruptcy behind, begin the transformation of PREPA, and continue to balance the Commonwealth’s budget – all to make Puerto Rico stronger.
The Oversight Board seeks to continue its working relationship with the current administration as we begin the budget process for the new fiscal year 2021 and continue our path out of bankruptcy.
The Oversight Board remains true to our unyielding commitment to transparency as the cornerstone of Puerto Rico’s social and economic transformation. Today, Puerto Rico’s foundation is strengthening. We need to keep on the path of progress and not loose aim of the objective: A vibrant Puerto Rico full of opportunity for all.
José Carrión
Dear Reader,
For me, as for many of you, the holidays are a time of reflection, and I would like to take a moment of your time to tell you about the Oversight Board’s accomplishments last year and what lies ahead for 2020.
The earthquakes and tremors that have brought so much tragedy to Puerto Rico remind us all how important it is to improve the Island’s infrastructure, to become more resilient in times of crisis, and to ensure public safety. I have seen the heartbreaking devastation in Ponce and Guánica, I have met with Mayor María “Mayita” Meléndez and Mayor Santos “Papichy” Seda to discuss the Emergency Reserve funds and to learn how we can help.
Over the last twelve months I have met with many of you, in town hall meetings and public hearings, in business meetings, on visits to municipalities and to the mainland. I have tremendously enjoyed meeting so many of you, listening to your stories and observations about Puerto Rico’s history and heritage, and, of course, your hopes and expectations for Puerto Rico’s future.
Let me assure you: none of those observations and suggestions will be forgotten. The experiences and expectations of the people of Puerto Rico do have an impact on how the Oversight Board makes decisions on our priorities and the solutions we identify for Puerto Rico’s path forward.
I know public safety and education remain important issues. I was deeply moved when I met recently with parents of children with special needs. The Oversight Board made sure special education is funded appropriately in the fiscal year 2020 budget and that necessary spending cuts at the Department of Education focus on administration, not teaching and children’s needs. In fact, the Fiscal Plan increased teachers’ pay for the second consecutive year.
The members of the Oversight Board listened carefully to the Department of Public Safety stakeholders during our public hearing the past year. We heard that our police need better pay and that their equipment is often inadequate. We added those elements – and the funds necessary to make it happen—to the Fiscal Plan and budget. Police compensation went up, and officers are now for the first time eligible for social security.
Municipal Visits
There is great potential for economic growth. In Orocovis, I was impressed with the cluster of tourist attractions that show just how much Puerto Rico has to offer, far beyond sun and beaches, and how much promise tourism holds for Puerto Rico’s economic future. In Comerío, I heard about the successful cooperation between the municipality, non-profits, and the business community to help economic growth and improve social services.
In Aibonito, we visited a small business ready to grow, and the Oversight Board was able to help complete the process to get a larger building that fit the expansion. There are many more examples of economic development projects in Camuy, Barranquitas, and elsewhere.
Our work on the core mandates of PROMESA, the debt restructuring, and helping Puerto Rico achieve fiscal responsibility, also saw much progress. One of 2019’s most important milestones was filing the Plan of Adjustment for the Commonwealth’s debt, a framework for exiting bankruptcy and allowing Puerto Rico and its economy to grow again.
This Plan represents a series of compromises by various stakeholders who all recognize the need to move Puerto Rico forward. It is supported by the Official Committee of Retirees, the Public Service Union employees, and a group of bondholders.
The Plan reduces $35 billion in Commonwealth liabilities to $12 billion, based on a meaningful reduction of bondholder’s claims. It ensures Puerto Rico’s debt is sustainable and affordable: together with the COFINA restructuring we completed it the last year, the Plan would lower the amount the government would have to spend each year on servicing its debt from a maximum of $4.2 billion when Puerto Rico entered bankruptcy to $1.5 billion once the Court approves the Plan.
The Plan also ensures that 74% of current and future government retirees will not receive any reductions in their pensions – not today and not in the future because the Plan establishes a trust supporting pensions for 30 years. We hope the Plan will be approved by the Court this year.
Finally, the Oversight Board was able to work with the government and PREPA to reach an agreement with certain creditors that would lower PREPA’s debt load by more than 30% and allow the transition to private operators needed for the efficient generation and delivery of electricity.
Only a wholesale transformation of PREPA can ensure that we end up with more reliable, less costly, and cleaner energy. There are three parts to the costs we pay in electricity rates: cost of operating and maintaining the grid, the cost of fuels, and the cost of legacy obligations (debt and pensions). The transformation of PREPA would affect each of these three categories.
The cost of operating and the cost of fuel make up over 80% of our rates. That is our leverage: make PREPA more efficient and move it from burning expensive oil to achieve long-term savings. That’s what a private operator and investment in alternative energies will help us do.
There is a great deal more work ahead of us. We need to complete the PREPA transformation, we need to get the Commonwealth Plan of Adjustment approved by the court, and we need to continue pressing for the structural reforms essential for growth outlined in the Fiscal Plan. We need to improve the ease of doing business, and we need to improve educational outcomes, all while establishing the right size government to deliver efficient government services.
The Oversight Board continues to foresee hard choices by the government and instrumentalities. Some need to tighten their belts a lot more; others simply need to learn how to deploy the money they have in better ways. The Highway and Transportation Authority, the Department of Education, and a few others did not utilize all their available funds in the previous fiscal year of 2019. We questioned why. Money available should be invested, in schools, in roads, in the things that make a difference in the residents of Puerto Rico’s lives.
Many of you are concerned about fiscal mismanagement, but also about the impact of budget cuts. Let me be clear: Our goal is to make the government more efficient and ensure that Puerto Rico lives within its means. Our goal is to improve public services. Fiscal responsibility is about making choices, prioritizing where to reduce spending and where to invest. If we think about fiscal discipline in the context of making choices, a vision for government priorities will emerge, a vision that can lead Puerto Rico to sustainable economic growth.
I hope you support us in these goals, and together we can ensure Puerto Rico shines again.
Natalie Jaresko
For more details on the proposed Plan of Adjustment for the Commonwealth, visit https://oversightboard.pr.gov/plan-of-adjustment/.