The members of the financial oversight board to supervise Puerto Rico’s fiscal affairs were announced by the White House on August 31, 2016. The seven members are experts in finance and law and were chosen from lists provided President Barack Obama by the party leaders of both houses of Congress. The members of the oversight board include four Republicans and three Democrats. Four members are Puerto Ricans, three more than required under the new Puerto Rico Oversight, Management and Economic Stability Act (PROMESA).
As previously reported, Puerto Rico needed a special restructuring law because all branches of its government are specifically prohibited from seeking relief through bankruptcy. The island has $72 billion in outstanding debt. PROMESA extends bankruptcy like protections to Puerto Rico under the purview of a federal control oversight board and halted new debt related litigation against the island until February 2017.1
The Republican members are:
- Andrew G. Biggs, a resident scholar at the American Enterprise Institute.
- Jose B. Carrion III, president of Hub International, an insurance brokerage in Puerto Rico.
- Carlos M. Garcia, founder and chief executive of BayBoston Managers, a private equity firm.
- David A. Skeel, Jr., a University of Pennsylvania law professor with expertise in bankruptcy.
The Democrats are:
- Arthur J. Gonzales, a senior fellow at the New York University School of Law and former chief judge of the United States Bankruptcy Court for the Southern District of New York.
- Jose Ramon Gonzalez, president and chief executive of the Federal Home Loan Bank of New York.
- Ana J. Matosantos, president of Matosantos Consulting and a former director of the California Department of Finance.
In addition, the Governor of Puerto Rico Alejandro Garcia Padilla will hold a position on the board.
“These officials have the breadth and depth of knowledge that is needed to tackle this complex challenge,” said President Obama.
The oversight board is intended to remain in place until Puerto Rico regains the ability to raise money in the capital markets which could take a number of years.2
For the board to succeed, it “will need to establish an open process for working with the people and government of Puerto Rico,” President Obama said.
Fiscal plans submitted to the oversight board are expected to include significant debt restructuring. PROMESA outlines processes for voluntary negotiations between government and creditors and court supervised restructuring if those talks fail.
The board’s first substantive task would be to review the multi-year fiscal plan that Governor Garcia Padilla’s administration is preparing, make sure it meets all requirements under the law and propose revisions needed.
One of the thorniest tasks for the board will be to balance the island’s $72 billion debt load with another $43 billion in unfunded pension liabilities.
Approving fiscal plans also will be complicated by unanswered questions over federal policy, including how and whether the U.S. Congress might step in to avert a sharp drop-off on Medicaid funding that could hit in 2017.
PROMESA did not provide any federal funds to shore up healthcare programs or tax breaks for economic growth, two priorities of the Obama administration.3
On the island, public opinion about oversight has been mixed. Many see the board as an unwelcome vestige of colonialism. But at the same time, many Puerto Ricans have lost faith in their own elected officials and harbor some hope that the oversight board will help show the way out of the legal and financial maze in which they are lost.4
- Peluso, Romano I., “Hedge Funds Sue Puerto Rico And Its Governor,” Perkins Coie LLP, www.corporatetrustinsider.com, July 25, 2016.
- Walsh, Mary Williams, “Team of 7 From Finance and Law to Oversee Puerto Rico’s Fiscal Affairs,” The New York Times, September 1, 2016.
- Timiraos, Nick and Heather Gillers, “U.S. Names Members of Puerto Rico Board,” The Wall Street Journal, September 1, 2016.
- Endnote 2 and Peluso, Romano I., “Congress Passes Puerto Rico Debt Relief Law,” Perkins Coie LLP, www.corporatetrustinsider.com, July 5, 2016.