NEW YORK – Despite the approval last year of the Debt Adjustment Plan (PAD) of the central government of Puerto Rico to advance the process of restructuring the island’s credit with the bonitas, Omar Marrero, representative of the Administration of the Governor Pedro Pierluisi before the Fiscal Control Board, estimated that the federal agency could be managing the territory’s finances for up to four more years.
“This year we must restructure the debt of the Electric Power Authority (AEE) and some minor credits. Once we are up to date with the financial statements, we can demonstrate that we meet the requirements and we are on the path to comply with the latest ones,” Marrero said in an interview with El Diario de Nueva York.
To the question of when would be the soonest that the Board could leave Puerto Rico in the event that the United States Congress does not legislate to force its early departure, he replied: “We understand that we are talking about the next term; Basically, the next four years, we would be talking about 2024 to 2028, when the specific objectives that PROMESA required in terms of restructuring, market access, audited financial statements and that demonstrate a balanced budget in accordance with accounting rules would be met.”
“We have two balanced budgets; Although we have additional ones, the reality is that from the payment to the service of the debt, which is from last year, we have two balanced budgets. PROMESA establishes that there are four (balanced budgets), and although we may want the Board to complete its mandate as soon as possible and we can regain control of our finances, we recognize that the recipe is established or the rules are established in PROMESA,” Marrero added. .
However, the island’s Secretary of State and executive director of the Financial Advisory Authority and Fiscal Agency (FAFAF) acknowledged that at the end of the day it is the Board, created through the aforementioned federal law, which has the last word on the issue of debt restructuring.
“The reality is that Puerto Rico is an unincorporated territory of the United States and (the law) PROMESA is approved by virtue of the territorial clause; and although it offends many of us, including me…, the reality is that our current status is territorial, by definition it is subject to the plenary powers of Congress, and that means that Congress can legislate when it sees fit and that is what made with PROMISE. He passed a law without our consent, where he established a Board made up of members not elected or subject to our consent, and where he gives it supra-parliamentary powers because we have no influence on the business and tasks of the Board. So to give you an idea, if we have a discrepancy on the budget, the last word is with the Board,” he said.
He added: “However, I recognize that the law establishes a deliberative process in which the Government and the Legislature have a participation, although it is more diminished than what the legislative process and the budgetary process allowed in the Constitution of Puerto Rico. So that part of our territorial condition, very unfortunate, as many of us recognize them”.
A decision of the Supreme Court of the United States last week precisely reaffirmed what Marrero points out and other sectors have been questioning since the application of the PROMESA law on the island in 2016: the sovereign position of the Board in terms of Puerto Rican affairs. . In the recent decision following a request for documents by the Center for Investigative Journalism (CPI), the highest forum decided that the Board, as part of the Government of Puerto Rico, enjoys “sovereign immunity,” which allows it not to submit to the right of access to information of the authorities in the territory. As a result of the ruling, the entity is exempted from delivering to the CPI hundreds of documents related to its communications with the Government of Puerto Rico and the US, contracts, minutes and financial reports, among others.
Marrero’s statements were given in advance of the celebration in New York, tomorrow and Friday, of the “PR Now” summit, in which representatives of the island’s main fiscal agencies expose the situation to the financial community on Wall Street. in terms of debt restructuring, after federal judge Laura Taylor Swain approved the PAD in January of last year to restructure some $33 billion in central government obligations.
It is the second time that this event or “credit conference” has been held, which will also be attended by local political leaders such as the state governor, Kathy Hochul, who will participate in a panel with Pierluisi and Marrero. An introductory message from the City’s mayor, Eric Adams, is also expected.
“Last year, after the confirmation of the Adjustment Plan (PAD); After having the opportunity to return to the market, and not only repay our debt, having substantially modified it for the benefit of Puerto Rico, we understood that it was important to resume that dialogue. So we started last year, and this year is the second edition, and we understood that it was prudent for it to be in New York. in such a way that we communicated directly to what the financial community is, the crediting houses, the pension banks and the New York community in general ”, he explained.
As part of the exchanges, the Pierluisi Administration will seek to establish contacts with companies in New York that can be integrated into the reconstruction on the island, a process for which billions in federal funds have been allocated from Congress, but it is progressing at a slow pace.
Marrero indicated that the workforce shortage continues to be a problem in Puerto Rico.
“After the Sandy storm in NY, there were some novel and large-scale reconstructions. That expertise and that work that they have had with federal agencies as part of the reconstruction is expertise that we can definitely capitalize on. The reality is that we are going to have this titanic task that, when you look at it, at the local capacity level, we have a challenge. We need more people (to work on reconstruction), although we have seen that labor participation has grown and we have the lowest unemployment in our history, the reality is that we need more people, because at the end of the day, the titanic work that we need to do In the reconstruction sector, like other sectors of the economy, we need more compañeros and compañeras, not only Puerto Ricans, but also from other states that want to see Puerto Rico as a place to work and live,”
The battle before the Board for the pensions of public employees
As part of the fiscal adjustment process, Marrero insisted that the Administration he represents has done everything in its power to protect the pensions of public employees on the island, a constant demand from the labor sector.
“Today, 180,000 retirees from the central government continue to collect their pension check. They never saw their benefits, neither reduced nor paralyzed… We achieved the restructuring of the central government. Yes, it was a titanic job to sit down with the creditors, but at all times we maintained that we were not going to reduce what were the benefits to workers who had already retired. Regarding the freezing of the (teacher) pension system, that was a decision by the Fiscal Oversight Board to reduce what was $50,000 million in debt. The system was collapsed, before we arrived the system was already negative, it had no assets to be able to enforce those pensions. That is why we, basically, transferred that obligation to the central government, and today as part of the central government budget, over $2 billion dollars are paid in pensions…”, he explained.
On the other hand, the official highlighted the initiative of the Pension Reserve Trust created through the PAD that will receive more than $10,000 million in the next 10 years for the payment of benefits.
Even with the adjustments, groups such as active teachers still do not have their retirement guaranteed, since their pensions were frozen.
The teachers also went to the Supreme Court to challenge the changes to the pension system, but the court refused to review the requirements imposed by the PAD.
Despite the above, Marrero highlighted the $1,000 monthly increase for teachers through the Emergency Aid Fund for Elementary and Secondary Schools (ESSER) effective since July of last year.
The official ruled out that the fact that the salary increase is being paid for with federal funds from the “American Rescue Plan” implies that the funds are not permanent.
“What some sectors say that it is not permanent because we initially financed it with federal funds is incorrect. Even this was done in coordination with the federal Department of Education. The same secretary (Miguel Cardona) when these federal funds were granted to us through the different laws such as the ‘American Rescue Plan’, recognized that we could use them, even to give additional bonuses to guarantee that we had the necessary personnel to teach the classes . So it is a legible use, and the most important thing is that the commitment is already in the budget that it is a permanent increase, ”he explained.
Nothing wrong with federal funds
In the opinion of the Secretary of State, this money is a “blessing”, since it prevents a major catastrophe on the island.
“If we jump across the pond and go to the other side of the Atlantic, we see how the European Union makes European funds available to Spain, Greece, Italy and many other member states for economic development strategies, so in itself it is not a bad thing. . In the case of Puerto Rico, we are talking about an amount of federal funds that we are going to receive to rehabilitate the infrastructure that if we did not have it available, we would have to go to the market to borrow it, which is not an option for Puerto Rico,” highlighted the interviewee who equated the amount of federal funds for Puerto Rico in the next 15 years with the amount of debt on the island.
Marrero said that, in the case of the employees of the Electric Power Authority (PREPA), they are still struggling with the Board to pay the pensions of some 12,000 retirees. The Pierluisi Administration asked the entity to use certain funds from the public corporation and thus cover the payment of that obligation for a few months.
The Board, for its part, indicated that it is looking for a way to ensure retirement funds until the end of 2024.
Possible increase in electricity bill to pay ar to PREPA retirees?
In this sense, the official acknowledged that a possible increase in the electricity bill under Luma Energy (which some reports estimate at $15%) is still on the table, the Canadian company whose contract was extended last December for the transmission of electrical energy to the residents of the territory at least until the restructuring of PREPA’s debt is completed. Luma Energy has been the center of multiple protests since it took control of the Authority in the summer of 2021 in part due to the seven reported increases in subscriber bills and due to blackouts on the island beyond the hurricane period.
“What we are looking for, our objective is to reduce the amount significantly and find a way to make the charge to be established as minimal as possible. We recognize that in all jurisdictions, both debt and pensions come out of these fees. However, what we have obtained from the Fiscal Control Board is to ask the Energy Bureau, which is the independent regulatory entity in Puerto Rico, to look at all the initiatives that are being implemented in order to determine if an additional charge is necessary. or if the income generated by the utility is sufficient to cover the operational charges”, he explained.
What is the economic development strategy?
Beyond the efforts to get Puerto Rico out of debt, to questions about the Pierluisi Administration’s economic development strategy, Marrero referred to the “PRopósito” initiative led by the Department of Economic Development and Commerce (DECC) in coordination with various sectors. When Pierluisi mentioned this point during his third message on the situation of the State, several opponents questioned that it was a road map, but not a concrete plan.
Marrero also highlighted the impact of the creation of the “Discover Puerto Rico” corporation, through the “Act for the Promotion of Puerto Rico as a Destination.”
“Since then we have seen not only an unprecedented record. This year we are looking at and we passed 12 million visitors through the Luis Muñoz Marín Airport. The revenues to the treasury from the tourism sector have also been historic. So we also see how the line of tourism that previously was 6%, 7% of our gross domestic product has had a dizzying growth to the level that we are no longer talking about high season… we are talking about a season throughout the year”, exposed.
The impact of the Incentives Code and the challenges to Law 22 for foreign investors
In the opinion of the interviewee, incentives such as resident aliens are an essential part of the economic development strategy not only for Puerto Rico, but also for other countries.
The Law to Encourage the Relocation of Individual Investors to Puerto Rico (known as Law 22) contained in the Incentives Code (Law 60) grants tax exemptions with respect to the income, product of investments, earned by individuals who become residents of Puerto Rico until December 31, 2035.
Opponents of the decrees granted under Law 22 allege, among other things, that the statute has caused the displacement of premises to favor the presence of foreigners who arrive with the promise of investing and creating jobs, which is not always fulfilled.
In addition, they argue that the Government receives less income because this group does not pay taxes on capital income.
In this context, Marrero aligned himself with the position that the supposed benefits of the law are more than its failures.
“The Incentives Code, which today is Law 60, includes all those different incentives that are provided and must be complied with. As for Law 22, which is for resident investors… I have to admit that it has given results. There are areas where these investors have been able to buy and locate their properties, and we have, at the moment, neighborhoods that, previously, you couldn’t even visit and had no economic life and now they do…so in that sense, although they have an exemption tax in the area of passive income, they have to pay income tax like any neighbor’s son, for example, when they sell a property, and that has been seen”, he argued.
However, the FAAF executive director confirmed that there are hundreds of decrees that have been canceled and that the impact of the incentive is evaluated annually with the Board. “The Department of Economic Development and its secretary have established a record in the number of decrees that have been canceled due to non-compliance or because the person who has the decree does not comply with its objectives. In this sense, it is being audited and the Department of the Treasury has also been looking at it, “he assured.
Marrero mentioned several amendments that could be made to the law so that it better fulfills its purpose.
“We understand that a very important amendment must be to require a greater investment; and second, to monitor and require that these true resident investors meet the requirements of that investor that you are trying to find. For example, that there is a minimum requirement of cash on hand, a minimum requirement of ‘net worth’ (net value) in such a way that it avoids having the cases that anyone can request the decree ”, he listed.
On the argument that the law has created a real estate bubble in which locals cannot compete with foreigners in the acquisition of properties, he stated: “It’s just that I don’t see a foreign American. I don’t see my cousin who was born in Virginia as a foreigner. This concept that they are trying to create that she is moving, well no; In the end, they are Puerto Ricans who are selling, who had a property that had not been sold for years, and, for now, someone has arrived to buy it. If the person who buys it is Chilean, Colombian, American, Indian, this is the United States; in the same way that we cannot pretend that a Puerto Rican is denied housing in Florida or that a Puerto Rican is denied housing in New York; or for Dominicans to be denied a home in Puerto Rico, ”he considered.
“At the end of the day this is a law and order, democratic jurisdiction, where private property is respected and that as American citizens you have rights protected by clause 14 of the United States Constitution that allow you free movement throughout the United States. USA, including Puerto Rico”, he defended.
He added that most of the DDEC decrees are in the hands of Puerto Ricans, such as that of Young Entrepreneurs, which grants 100 percent exemption in the payment of taxes on personal property and 100 percent exemption in the payment of municipal contributions, directly related to the operation of the business.
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