Menendez Leads Senate Call for Suspension of Puerto Rico’s Austerity Fiscal Plan in Hurricanes’ Aftermath

Menendez Leads Senate Call for Suspension of Puerto Rico’s Austerity Fiscal Plan in Hurricanes’ Aftermath

    

WASHINGTON, D.C. – As Puerto Rico continues to reel in the aftermath of Hurricanes Irma and Maria, U.S. Senator Bob Menendez (D-N.J.) today led a group of his Senate Democratic colleagues in writing to the Financial Oversight and Management Board (“Board”) which currently oversees the government of Puerto Rico on budgetary, fiscal, and debt restructuring matters. The Senators’ letter formally requests the Board to immediately suspend the fiscal plan for Puerto Rico that was drafted before the hurricanes devastated the island, and lists a series of necessary steps to stem the immediate crisis and begin the task of formulating a new fiscal plan that matches the reality on the ground. 

 “The stark reality is that these natural disasters have totally shattered almost every aspect of the Fiscal Plan that the Government, under Governor Rosselló’s leadership, worked diligently to design with Board approval.  Due to the sheer scope and magnitude of the damage inflicted by the storms, the Government is simply in no position through no fault of its own to meet the measures and requirements set by the Board in the Fiscal Plan,” wrote the Senators. “We believe that the recent catastrophic events dictate that the Board immediately suspend the Fiscal Plan. The Fiscal Plan’s right-sizing, revenue, and expenditure control measures are simply no longer operative until the Board and Government can better assess the inflows of funds and resources necessary for Puerto Rico to recover from the devastating effects of the storms.”

As a leading voice in Congress for a long-term recovery and supplemental aid package for Puerto Rico,  Menendez was joined on the letter with Senators Ed Markey (D-Mass.), Kirsten Gillibrand (D-N.Y.), Richard Blumenthal (D-Conn.), Dick Durbin (D-Ill.), Chris Murphy (D-Conn.), Cory Booker (D-N.J.), Tammy Duckworth (D-Ill.), Bernie Sanders (I-Vt.), Jeff Merkley (D-Ore.), Kamala Harris (D-Calif.), Catherine Cortez Masto (D-Nev.).

Senator Menendez is a member of the Congressional Task Force on Economic Growth in Puerto Rico, which was established by the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA) and was responsible for identifying impediments to economic growth in the territory and recommending changes.  Before Hurricane Irma and Maria struck the island, the Task Force released a comprehensive report on December 20, 2016 to promote long-term economic growth and stability; spur new job creation; reduce child poverty; and attract investment in the territory.

 

A copy of the full letter can be found below.

Mr. José B. Carrión

Chair

Financial Oversight and Management Board

 

Dear Mr. Chairman:

 

As the U.S. Senate members of the Congressional Task Force on Economic Growth in Puerto Rico, we are extremely concerned that without immediate action by the Financial Oversight and Management Board (the “Board”) the on-island situation will only worsen.  Our Task Force Report[1] submitted to Congress in December 2016 noted that Puerto Rico was facing many challenges and obstacles to its emergence from its long-term fiscal and economic crises.  The devastation caused by Hurricanes Maria and Irma have now pushed Puerto Rico to the point of a humanitarian crisis which could have long range and irreversible harmful implications.  For that reason, we urge the Board to suspend the Government of Puerto Rico’s (the “Government”) fiscal plan, certified by the Board on March 13, 2017 (the “Fiscal Plan”), and to take those steps described below to stem the immediate crisis and begin the task of formulating a new fiscal plan.

I.          The Current Situation

In rapid succession, Hurricanes Maria and Irma ravaged the island, leaving a trail of destruction that will require significant federal, commonwealth, and local resources.  The island’s critical energy infrastructure suffered catastrophic damage, thousands of families are homeless, communication is extremely limited, and the island is facing an immediate shortage of fuel, food, and access to clean water

  • Power, Water and Telecommunications.  The island’s only electricity service provider, PREPA, cannot provide power to any of its customers at this moment. Approximately 80% of the energy transmission infrastructure has been damaged.  More than 70% of the customers of the Puerto Rico Aqueduct and Sewer Authority are also without potable water.  Although the roads have generally been cleared of debris, Puerto Rico’s telecommunications infrastructure has been shattered, with much of island left without phone or internet communications.  The lack of a fully functional telecommunications infrastructure is the main obstacle in coordinating the Government’s relief efforts.
  • Flooding.  Flooding is also a major issue.  During the height of the storm, the rising floodwaters forced some residents to their rooftops while awaiting rescue.  The flooding also caused severe structural damage to a dam. In addition to displacing people from their homes, the flooding is also negatively affecting sanitary services, which can lead to the outbreak of tropical diseases (such as the dengue and Zika viruses) and environmental contamination of land.  There is also a threat of dangerous mudslides.
  • Limited Business Activity.  Local business, including tourism, has come to a complete standstill, which in turn will deny the Government related revenue. Some businesses are trying to reopen, but the lack of electricity and telecommunications only permits business to continue in limited areas.
  • Home Displacement. Thousands of families have been displaced from their homes, which have been destroyed, and are now either living with family members or being indefinitely relocated to shelters.
  • Hospitals.  Multiple hospitals were severely damaged. The Government is currently coordinating the transfer of patients to other hospitals.  In addition, the lack of access to gasoline is making travel difficult, including preventing doctors from easily getting to hospitals and patients from getting to medical facilities and pharmacies.
  • Schools.  The educational system has also come to a grinding halt, with many schools damaged and students unable to attend class because of hardships faced by teachers and students alike. Many of Puerto Rico’s schools are currently being used as shelters, so schools will not be able to reopen until displaced people can be relocated to other facilities.

The projected dollars needed to restore the essential necessities of life to the citizens on the island is still being assessed.  Needless to say, there will be tremendous financial demands placed upon the Government leaving it without adequate resources and liquidity during the short term. 

 

II.        Status of Fiscal Plan and Budget

As this Board is aware, the Fiscal Plan and fiscal year 2018 budget placed strict requirements on the Government to improve collection of revenues and control expenditures.  The financial and economic impact of a strong category four hurricane passing over Puerto Rico, causing destruction unparalleled in the island’s history, was certainly not contemplated by the Board when the Fiscal Plan was certified, nor was it contemplated by the authors of PROMESA.

Moreover, we note that a critical component of the Fiscal Plan was forecasted macro-economic growth.  The danger is that unless the grave crisis that is now unfolding on the island is alleviated, the island may suffer significant permanent outmigration of citizens to the mainland which will seriously impede future economic growth that will be instrumental to Puerto Rico’s long-term recovery.

The stark reality is that these natural disasters have totally shattered almost every aspect of the Fiscal Plan that the Government, under Governor Rosselló’s leadership, worked diligently to design with Board approval.  Due to the sheer scope and magnitude of the damage inflicted by the storms, the Government is simply in no position through no fault of its own to meet the measures and requirements set by the Board in the Fiscal Plan.

III.       Immediate Action Items

 

  1. Suspension of Fiscal Plan

We believe that the recent catastrophic events dictate that the Board immediately suspend the Fiscal Plan. The Fiscal Plan’s right-sizing, revenue, and expenditure control measures are simply no longer operative until the Board and Government can better assess the inflows of funds and resources necessary for Puerto Rico to recover from the devastating effects of the storms.

  1. Use of Funds

In addition, the Board should provide the Government with flexibility to use existing funds to support emergency response, essential public services and disaster relief on an as needed basis.  We are aware that the Board announced last week that it will provide the Government flexibility to reallocate $1 billion from the current budget to disaster relief.  However, given the extent of the growing toll of the devastation afflicting the island significantly more funding and flexibility during the short term will be of critical importance to the Government.

  1. New Fiscal Plan and Budget

The groundwork of a new fiscal plan needs to begin in earnest with a full assessment of the scope of damage and the funds necessary to repair and rebuild within both the near and long term.  We recognize this assessment will not occur overnight.  However, as a first step we suggest that the Board immediately convene a meeting with the Governor and appropriate federal disaster officials to form a working group charged with the task of assessing the full extent of damages and the nature of the remedial steps and actions that need to be taken. We would expect the working group report to be submitted as quickly as possible to the Board and Governor and presented at a public meeting.

Once the Board and Government have completed the study on how much the recovery effort will cost and how long it will take, a new fiscal plan reflecting the reality of post-storm conditions on the island can be prepared.  We respectfully request that at the appropriate time the Governor be allowed to submit a new fiscal plan for the Board’s approval and certification

We appreciate your commitment to the financial stability of Puerto Rico, and we look forward to working with you to assist the 3.4 million U.S. citizens in Puerto Rico recover from the hurricanes. Time is of the essence, and we urge you to act swiftly to assist the government of Puerto Rico in its efforts. Please provide a response no later than October 11, 2017.

 

Sincerely,

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[1]      Congressional Task Force on Economic Growth in Puerto Rico, Report to the House and Senate, 114th Congress (Dec. 20, 2016); see also PROMESA § 409 (establishing the Congressional Task Force on Economic Growth in Puerto Rico and requiring that it issue a report of its findings).