[House Hearing, 115 Congress]
[From the U.S. Government Publishing Office]
EXAMINING CHALLENGES IN PUERTO RICO'S RECOVERY AND THE ROLE OF THE
FINANCIAL OVERSIGHT AND MANAGEMENT BOARD
=======================================================================
OVERSIGHT HEARING
before the
COMMITTEE ON NATURAL RESOURCES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED FIFTEENTH CONGRESS
FIRST SESSION
__________
Tuesday, November 7, 2017
__________
Serial No. 115-27
__________
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COMMITTEE ON NATURAL RESOURCES
ROB BISHOP, UT, Chairman
RAUL M. GRIJALVA, AZ, Ranking Democratic Member
Don Young, AK Grace F. Napolitano, CA
Chairman Emeritus Madeleine Z. Bordallo, GU
Louie Gohmert, TX Jim Costa, CA
Vice Chairman Gregorio Kilili Camacho Sablan,
Doug Lamborn, CO CNMI
Robert J. Wittman, VA Niki Tsongas, MA
Tom McClintock, CA Jared Huffman, CA
Stevan Pearce, NM Vice Ranking Member
Glenn Thompson, PA Alan S. Lowenthal, CA
Paul A. Gosar, AZ Donald S. Beyer, Jr., VA
Raul R. Labrador, ID Norma J. Torres, CA
Scott R. Tipton, CO Ruben Gallego, AZ
Doug LaMalfa, CA Colleen Hanabusa, HI
Jeff Denham, CA Nanette Diaz Barragan, CA
Paul Cook, CA Darren Soto, FL
Bruce Westerman, AR A. Donald McEachin, VA
Garret Graves, LA Anthony G. Brown, MD
Jody B. Hice, GA Wm. Lacy Clay, MO
Aumua Amata Coleman Radewagen, AS Jimmy Gomez, CA
Darin LaHood, IL
Daniel Webster, FL
Jack Bergman, MI
Liz Cheney, WY
Mike Johnson, LA
Jenniffer Gonzalez-Colon, PR
Greg Gianforte, MT
Cody Stewart, Chief of Staff
Lisa Pittman, Chief Counsel
David Watkins, Democratic Staff Director
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CONTENTS
----------
Page
Hearing held on Tuesday, November 7, 2017........................ 1
Statement of Members:
Bishop, Hon. Rob, a Representative in Congress from the State
of Utah.................................................... 1
Prepared statement of.................................... 4
Grijalva, Hon. Raul M., a Representative in Congress from the
State of Arizona........................................... 5
Prepared statement of.................................... 6
Statement of Witnesses:
Jaresko, Natalie, Executive Director, Financial Oversight and
Management Board for Puerto Rico, San Juan, Puerto Rico.... 9
Prepared statement of.................................... 11
Questions submitted for the record....................... 24
Otero, Hon. Angel Perez, Mayor, City of Guaynabo, Puerto Rico 32
Prepared statement of.................................... 33
Zamot, Noel, Revitalization Coordinator, Financial Oversight
and Management Board for Puerto Rico, San Juan, Puerto Rico 18
Prepared statement of.................................... 21
Questions submitted for the record....................... 24
Additional Materials Submitted for the Record:
List of documents submitted for the record retained in the
Committee's official files................................. 83
Massachusetts Black and Latino Legislative Caucus, September
29, 2017 Letter to Rep. Tsongas............................ 53
OVERSIGHT HEARING ON EXAMINING CHALLENGES IN PUERTO RICO'S RECOVERY AND
THE ROLE OF THE FINANCIAL OVERSIGHT AND MANAGEMENT BOARD
----------
Tuesday, November 7, 2017
U.S. House of Representatives
Committee on Natural Resources
Washington, DC
----------
The Committee met, pursuant to notice, at 10:09 a.m., in
room 1324, Longworth House Office Building, Hon. Rob Bishop
[Chairman of the Committee] presiding.
Present: Representatives Bishop, Gohmert, Lamborn, Wittman,
McClintock, Pearce, Thompson, Labrador, Tipton, LaMalfa,
Westerman, Graves, Hice, LaHood, Webster, Bergman, Cheney,
Johnson, Gonzalez-Colon, Gianforte; Grijalva, Napolitano,
Bordallo, Costa, Sablan, Tsongas, Lowenthal, Beyer, Torres,
Gallego, Hanabusa, Barragan, Soto, McEachin, Brown, Clay, and
Gomez.
Also present: Representatives Serrano, Gutierrez,
Velazquez, and Ruiz.
The Chairman. The Committee on Natural Resources will come
to order.
I welcome you all here today. We are meeting to hear
testimony on examining the challenges in Puerto Rico's recovery
and the role of the Financial Oversight and Management Board.
I ask unanimous consent that the gentleman from California,
Mr. Ruiz; the gentleman from New York, Mr. Serrano; the
gentleman from Illinois, Mr. Gutierrez; and the gentlewoman
from New York, Ms. Velazquez, all be allowed to sit with the
Committee and participate in the hearing. And I notice at least
three of you are already here, thank you.
Hearing no objections, that is so ordered.
Under Committee Rule 4(f), any oral opening statements at
the hearing are limited to the Chairman, the Ranking Minority
Member, and the Vice Chair. This will allow us to hear from our
witnesses sooner. I am asking unanimous consent that any other
Member that has an opening statement, they will be made part of
the hearing record if they are submitted to the Subcommittee
Clerk by 5:00 p.m. today.
Once again, without objection, that will be so ordered.
First, I appreciate the witnesses being on the panel. Let's
start with the opening statements first, and I will recognize
myself for the original opening statement.
STATEMENT OF THE HON. ROB BISHOP, A REPRESENTATIVE IN CONGRESS
FROM THE STATE OF UTAH
The Chairman. We are here today to look at the hurricane-
impacted territories of Puerto Rico and the Virgin Islands.
Next week, the governors from Puerto Rico and the Virgin
Islands will be here with us also to testify.
Before we start, I want it very clear that our thoughts and
prayers are with those who are still suffering in the Virgin
Islands and Puerto Rico, as well as in Florida and Texas who
have suffered these hurricane damages. I also want to thank the
emergency responders for all their hard work and kind efforts
and what they have done.
There is still a humanitarian crisis going on in Puerto
Rico and the Virgin Islands, but today we are going to
concentrate on Puerto Rico. The hurricanes may have gone, but
now mudslides are threatening people. So, this is not over yet,
and there is much work that still has to be done.
Today, the Committee is going to examine the challenges to
recovery in Puerto Rico and the role of the Financial Oversight
and Management Board.
The two hurricanes that hit may have been historic, but
they exposed a state of affairs in Puerto Rico that existed
well before any of the hurricanes made landfall. Decades of
mismanagement led to a paralyzing debt burden. Last year,
Congress stepped forward with a bipartisan PROMESA bill that
was signed into law to try to rectify this particular problem.
The Board has, so far, been focused on governance reform.
But now, with this hurricane, there is also other work that the
Board must be doing, and the Board's work has become even more
complicated as we move forward.
For example, we have to deal with the Puerto Rico Electric
Power Authority, known as PREPA, which was already bankrupt,
severely mismanaged, with a long history of inadequate
maintenance and political cronyism.
Recovering the power grid remains of paramount interest and
importance to us. Energy is not only important to the people's
lives in the emergency situation, but if Puerto Rico is to
economically recover and become vibrant, it has to have
reliable, abundant, and affordable energy. And that is really
one of the key elements if we are going to do anything
whatsoever with that.
I appreciate the appointment of the Chief Transformation
Officer of PREPA, and I appreciate the fact that the Board is
now looking at contract review policies as part of the role of
PROMESA. These are decisions that make it important, because we
do not want another situation like Whitefish to happen again,
which may have had some initial purpose to it, but the
procedure was certainly suspect. And I appreciate that there
has to be some kind of oversight for this going through there.
What we are concerned with today is making sure that the
Oversight and Management Board, the PROMESA board, has the
tools they need to fulfill this responsibility and move
forward, and also has cooperation. We have four entities down
there on the island that are working on the recovery. There is
the Commonwealth government, the Oversight Board, and there are
also two Federal agencies, FEMA and the Army Corps of
Engineers. All four of them have to work together. Otherwise,
it is simply chaos. This cannot be an adversarial situation.
And what we are going to do today is make sure that we have the
tools necessary to see that go into fruition. The Board is not
going to go away until their job happens to be finished at some
particular time.
So, in today's hearing we are not going to ascribe blame. I
hope we don't try to play politics. Our goal is to fix the
problems and help the people. The problems in Puerto Rico and
the Virgin Islands are too serious for us to politicize and try
to make headlines. We owe the citizens more than that.
Last week, or yesterday, actually, Mr. Graves came back
from Puerto Rico with Representative Gonzalez. Ten days ago,
there were five of us that went down there: Mr. Denham, Mrs.
Torres, Mr. Brown, myself, and Ms. Gonzalez, along with the
Majority Leader and the Minority Whip, to see firsthand what is
happening down there in both the Virgin Islands and in Puerto
Rico. It is very clear from what we saw that the devastation
and the suffering is sobering, and it is real.
[Slide.]
The Chairman. What was the positive aspect of this is, even
though their homes are broken, their spirits are not. We went
into the interior, not staying around San Juan, into this
particular community. As you can see, there was a bridge that
connected the one side of the valley with the other side of the
valley where the stores and the roads and the community were.
That bridge was washed out in the hurricane. That is all that
is left.
The ingenuity of those 22 families on the other side is
brilliant, because they have jerry-rigged this contraption,
which means it simply is a zip line with a supermarket cart
attached to it, where they can take it from the one side, where
the stores are, put the supplies in, and then manually bring it
across to the other side, a very ingenious contraption.
It is also one of those things in which we were able to,
you notice there is a very wooden ladder going up, give me the
next slide, if you would.
[Slide.]
The Chairman. And Tony here actually, Representative Brown,
was the first one to go across the river bed, to go up that
ladder, followed by the rest of us. I promise you OSHA did not
actually certify that particular ladder.
As we all walked to the other side to meet those 22
families that are not there, give me the next one, if you
could, and I think Mrs. Torres can verify this, going down was
a lot slower than it was going up. Yes, that ladder.
[Slide.]
The Chairman. But this is what I found on the other side.
The Governor and Representative Gonzalez are there, and I have
to give kudos to Representative Gonzalez. No one works harder
to try to help her constituents down there than Representative
Gonzalez has. She is not only the first female Representative
from Puerto Rico, she is also the youngest they have ever had.
And that energy is shown every time she has gone with every
single group that has gone down there, to show them exactly
what is taking place in that time.
But what I want to point out is the teenager that is
standing with us right there. I had the opportunity of meeting
that kid on the other side. He is one of the 22 families that
are cut off from the rest of the village, using the zip line
and the wooden ladder, just trying to get from side to side.
But that kid was amazing. He was a fascinating kid, he was
interested in what was going on, he was intellectual, he was
fluent, and he wanted to become involved in the future. I was
so excited talking to him, because that kid, that kid, is the
future of Puerto Rico. That kid is why I know that Puerto Rico
is not just going to recover, they are going to succeed. And
the spirit that he had is the kind of spirit we saw in all of
the citizens with whom we were talking that realize they were
not after some kind of blame, they are simply after a way of
making their lives better.
What I want our Committee to do, which has general
jurisdiction over there, is to make sure that we have the tools
for the Board, and we have the tools for the government to make
sure that the dreams that that kid has will be realized. That
is Puerto Rico to me.
[The prepared statement of Mr. Bishop follows:]
Prepared Statement of the Hon. Rob Bishop, Chairman, Committee on
Natural Resources
Good morning. This meeting is a continuation of oversight of
hurricane-impacted territories of Puerto Rico and the U.S. Virgin
Islands. In addition to today's hearing, next week we will hear from
the governors of Puerto Rico and the U.S. Virgin Islands.
Let me begin with thoughts and prayers for these communities, and
offer thanks to emergency responders and everyone involved for their
bravery during hardship. In both territories, the detestation is
overwhelming.
Today, the Committee will examine recovery challenges in Puerto
Rico and the role of the Financial Oversight and Management Board.
Hurricane Maria, although historic in its severity, exposed the
tragic state of affairs that existed on the island well before its
landfall. Decades of mismanagement led to a paralyzing debt burden. The
government and its municipalities, already constrained by the fiscal
crisis, are now severely overwhelmed despite Federal support.
Last year, Congress took a step forward to help Puerto Rico
restructure and reform with the creation of a Federal Oversight Board
under a law known as PROMESA that was signed into law on a bipartisan
basis in July 2016. Since their appointment, the Board has focused on
governance reform, the formulation of fiscal plans and budgets for the
territory and the facilitation of debt restructuring. With the recent
devastation, however, the Board's work has become even more difficult
and complicated.
For instance, the Puerto Rico Electric Power Authority, known as
PREPA, was already bankrupt and severely mismanaged with a long history
of inadequate maintenance and political cronyism. Restoring the power
grid is paramount to immediate emergency needs. Long-term energy
transformation is equally important. Transparent accountability at
PREPA, now and moving forward, is essential for both to succeed. The
Board will play a critical role ensuring all parts of this puzzle
align.
The Board's actions in this regard include the appointment of a
Chief Transformation Officer of PREPA, Mr. Noel Zamot, and the
implementation of a contract review policy in accordance with PROMESA.
Both steps will add needed transparency, accountability and structure
to the island's recovery.
While there is no question the Board provides a critical nexus for
Congress and the Administration to carry out a coordinated recovery
effort, there are concerns whether the tools the Board possesses can
meet the challenge and ensure long-term success. Transparent
accountability at all levels is essential to a sustained recovery with
the full support of Congress. With this imperative in my Committee, and
strong cooperation between the Commonwealth, the Oversight Board and
Federal partners--including FEMA and USACE--we can achieve a viable
path forward for Puerto Rico.
[Slideshow.]
Ten days ago, a congressional delegation led by the House Majority
and Minority Leader, visited both territories and Florida. In Puerto
Rico, residents are still suffering. The infrastructure is demolished
in many areas. Communities remain isolated.
During our visit to the central mountainous region of Puerto Rico,
we met with residents in the remote town of Utuado. A bridge connecting
the main north-south road was entirely wiped out. The residents had
built a pulley system overhanging the divide. Attaching a shopping cart
to the line, the jerry-rigged contraption was their lifeline to food,
water and supplies. We all walked across the river and up the stairs.
We spoke with residents. The conversations were fascinating. While
homes are broken and lives have been lost, spirits are not.
In this context, the point today isn't to ascribe blame or browbeat
or play politics. The goal isn't to shame for shame sake. The goal is
to fix problems and help people. The problems in Puerto Rico are too
serious for us to politicize or seek headlines. We owe these citizens
more than that.
I thank our witnesses for appearing today and look forward to
today's testimony.
______
The Chairman. With that, I apologize for going over, but I
didn't care, I wanted you to see that kid.
[Laughter.]
The Chairman. I will yield to the Ranking Member.
STATEMENT OF THE HON. RAUL M. GRIJALVA, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF ARIZONA
Mr. Grijalva. Thank you, Mr. Chairman. Yourself, and the
Members that have gone to Puerto Rico, have been on the ground,
and have firsthand experience and observations about the
urgency and the need for this Congress to respond in a
proactive and transparent way, and in a way that deals with the
emergency and the urgency as it is now. As we go forward, how
do we build sustainability, resilience for the long-term, both
in the economy and the growth of the rebirth of the
infrastructure on the island of Puerto Rico.
If a man is drowning in the ocean, you don't stop to tell
him he should take swimming lessons. If a woman is having a
heart attack, you don't take time to preach to her about the
value of a low-fat, gluten-free diet. Instead, you act
immediately to save lives. Our American brothers and sisters
living on the island of Puerto Rico are drowning in the ocean.
Their water, sewer, transportation, electricity, health, and
banking systems are in the midst of what we would consider
grave danger, if not close to a fatal heart attack.
Puerto Rico, quite frankly, does not need a lecture. They
don't need advice. What Puerto Rico needs, at this juncture in
time and in history, is help, our help.
A month-and-a-half after Hurricane Maria hit the island
with winds of 150 miles per hour, we still find two-thirds of
the Puerto Rico households without electricity, and 20 percent
are without potable, safe drinking water. The island continues
to see landslides, the record flooding that occurred, hundreds
of blocked roads, thousands of fallen trees, and damaged homes
and buildings. Tens of thousands of people have left Puerto
Rico, and thousands of businesses remain closed.
Puerto Rico's government expects an estimated cash loss of
$1.7 billion as a result of reduced collections, with an
additional $1.18 billion loss in power and water income. Those
two agencies are currently running on cash reserves.
The American people in Puerto Rico are counting on us to
help rebuild the island, starting with the basics. The disaster
supplemental spending package we passed is a start, but we need
to do much more, and we need to do it immediately.
The decimated electrical grid and water and sewer systems
must be restored, and no more sweetheart deals to fly-by-night
companies. That needs to stop, and it needs to stop
immediately, as well.
FEMA was slow to arrive and slow to engage. Even the
President's most recent amendment to the disaster declaration
issued on November 2 requires a 10 percent cost match for
certain assistance, while piling on extra requirements. These
attempts to get more blood out of a stone also need to stop.
Once the lights are back on, and the families have access
to clean drinking water and medical care, then Congress can
turn its attention to the future of the island and its economy.
We should not be asked to look away from this Administration's
embarrassing recovery effort, and respond to Puerto Rican
families not with the help they need, but with the help that
would please investors.
To use this natural disaster as an excuse to give even more
advantages to investors who bear much of the responsibility for
the shameful fiscal crisis that Puerto Rico finds itself in is
wrong. To use this natural disaster as an excuse to say that
those living on the island no longer deserve flood prevention
regulations or strong protections for clean air and clean
water, or that they no longer deserve the chance to participate
in transparent, public planning processes would be wrong.
Title V of PROMESA already gives investors the dual gift of
deregulation and privatization for no-bid infrastructure
projects. If the Majority would like to use the hurricane
devastation to ram these projects through even faster, then
that would be a mistake. How is it in the interest of the
people of Puerto Rico to get rid of the ability for the public
to comment on these projects, or to remove the Energy
Commission's authority to make sure that the project will work
with long-term grid plans? The Oversight Board has enough power
and doesn't really need more.
Our response to human suffering has to be about food,
shelter, and water first, not deregulation or politics. It is
time to assess the damage, get a real relief package together
as fast as possible, and start rebuilding in a sustainable way.
I hope that all my colleagues will join me in getting
resources to the people who need them most, and resist the urge
to haggle over the price tag or insist on weakening
environmental standards and public processes in exchange for
aid needed to save lives and rebuild communities.
[The prepared statement of Mr. Grijalva follows:]
Prepared Statement of the Hon. Raul M. Grijalva, Ranking Member,
Committee on Natural Resources
Mr. Chairman, if you see a man drowning in the ocean, you don't
stop to tell him he should take swimming lessons. If a woman is having
a heart attack, you don't take time to preach to her about the value of
a low-fat diet. Instead, you act immediately to save lives.
Our American brothers and sisters living on the island of Puerto
Rico are drowning in the ocean. Their water, sewer, transportation,
electricity, and banking systems are in the midst of what could be a
fatal heart attack.
Puerto Rico does not need a lecture. They don't need advice. Puerto
Rico needs our help!
A month and a half after Hurricane Maria hit the island with winds
of 150 miles per hour, more than two-thirds of Puerto Rico households
are still without electricity and 20 percent are without drinking
water. The island has seen landslides, record flooding, hundreds of
blocked roads, thousands of fallen trees, and damaged homes and
buildings. Tens of thousands of people have left Puerto Rico and
thousands of businesses remain closed.
Puerto Rico's government expects an estimated cash loss of $1.7
billion as a result of reduced collections, with an additional
estimated $1.18 billion loss in power and water income. Those two
agencies are currently running on cash reserves.
The American people in Puerto Rico are counting on us to help
rebuild the island, starting with the basics. The disaster supplemental
spending package we passed is a start, but we need to do much more and
we need to do it now.
The decimated electrical grid and water and sewer systems must be
restored; no more sweetheart deals to fly by-night companies.
FEMA was slow to arrive and slow to engage. Even the President's
most recent amendment to the disaster declaration issued on November 2
requires a 10 percent cost match for certain assistance while piling on
extra requirements. These attempts to get more blood from this stone
need to stop.
Once the lights are back on and families have access to clean
drinking water and medical care, then Congress can turn its attention
to the future of the island and its economy. But now, we are being
asked to look away from this Administration's embarrassing recovery
effort and respond to Puerto Rico families, not with the help they
need, but with the help that pleases investors.
To use this natural disaster as an excuse to give even more
advantages to the investors who bear much of the responsibility for the
fiscal crisis would be shameful. To use this natural disaster as an
excuse to say that those living on the island no longer deserve flood
prevention regulations or strong protections for clean air and water,
or that they no longer deserve the chance to participate in
transparent, public planning processes would be wrong.
Title V of PROMESA already gives investors the dual gift of
deregulation and privatization for no-bid infrastructure projects. The
Majority would like to use the hurricane devastation to ram those
projects through faster.
How is it in the interest of the people of Puerto Rico to get rid
of the ability for the public to comment on these projects, or to
remove the Energy Commission's authority to make sure the project will
work with long-term grid plans? As if the Oversight Board didn't
already have enough power.
Our response to human suffering has to be about food, shelter and
water first, not deregulation or politics. It's time to assess the
damage, get a real relief package together as fast as possible and
start rebuilding in a sustainable way. I hope my Republican colleagues
will join me in getting resources to the people who need them most, and
resist the urge to haggle over the price tag or insist on weakening
environmental standards in exchange for aid needed to save lives and
rebuild communities.
______
Mr. Grijalva. With that, Mr. Chairman, I yield back.
The Chairman. Thank you. I appreciate that. We will now
recognize our witnesses who are here.
I would first like to recognize, starting from my left: Ms.
Natalie Jaresko, who is the Executive Director of the PROMESA
Board; Mr. Noel Zamot, the Revitalization Coordinator of the
Financial Oversight and Management Board for Puerto Rico; and
also Mayor Perez Otero, who is here. I appreciate you getting
here at the last moment. I realize it was a rush job to get
here. Thank you for joining us.
I speak German, I don't speak Spanish, so when you are
recognized, you are going to tell us the name of your community
and where it is, because otherwise no one will ever find it if
I try to do that. So, thank you for being here.
I also want to say I am a little bit chagrined. We were
originally going to have a couple more panelists here. Last
night, two of the witnesses decided not to be here. One was the
PROMESA Director. He was here specifically to talk about
Whitefish.
[Laughter.]
The Chairman. I am sorry, PREPA, the PREPA Director. He was
going to be here to answer the questions about the Whitefish
contract. I understand there are circumstances that require
their efforts back on the island, but I am sad that it is going
to be there.
A couple of weeks ago we requested some documents. Those
documents arrived very late last Friday. We have only looked
through them very, very briefly. Already there are some other
circumstances within those documents that add more questions,
which means at some point I would like those to be answered,
and someone needs to look at that perhaps next week.
When the Governor is here with others, we can have somebody
from PREPA go through that. So, I am very disappointed they are
not here to answer our questions today, but that is the way it
is, because, obviously, we will take them at their word that
their work there on the island is significant, it is important,
and it needs to be done here.
Mr. Brown, you were not here originally when I showed the
slides. I did show the slides of you going down the
mountainside, going through the river, and up that ladder. I
just want you to know that you still have your athleticism and
dexterity, because you put mountain goats in Utah to shame with
the way you went down and climbed back up again. And it is your
fault, because you were the first one to go over, and you kind
of shamed the rest of us into following you.
[Laughter.]
The Chairman. Do you want to respond?
Mr. Brown. Mr. Chairman, as a point of personal privilege,
I do want to, in all seriousness, thank you for ensuring that I
was able to accompany you, Leader McCarthy, and Whip Hoyer on
what I thought was an important and enlightening delegation to
Puerto Rico, the U.S. Virgin Islands, and the Keys, and I hope
later today to be able to share some of my observations. Thank
you, Mr. Chairman.
The Chairman. No, thank you. Thank you very much. And
thanks to all the Members who actually have been down there. I
mentioned to Representative Graves that you just came back from
there yesterday.
Eventually you will shave, right? Never mind, never mind.
[Laughter.]
Mr. Graves. You know, Mr. Chairman, I have been seeking to
be more like you for some period of time now. And I was going
to color my hair white, but I decided that my wife would not be
happy about that. So, I decided to grow a beard and put little
white speckles in there.
The Chairman. If you are going to be like me, it is going
to be more than just speckles.
[Laughter.]
The Chairman. All right. Now, to get on to significant
stuff, let me turn to Ms. Jaresko from the Board for your
testimony.
I would like to coach all the witnesses that our Committee
Rules give you 5 minutes for oral testimony. Your written
testimony is already part of the record. Anything you want to
add to it will be part of it. If you have not been here before,
these are manual microphones, so you have to turn them on to
speak. And please watch the clock in front of you.
When the green light is on, that means everything is cool.
When it hits yellow, that means, like in traffic in the United
States, you have to speed up as fast as you can. When it goes
to red, that is when I want you to stop. And don't make me have
to cut you off. I do it with our Members with glee, but I don't
want to do it with you guys.
So, Ms. Jaresko, if you would, you are recognized for 5
minutes.
STATEMENT OF NATALIE JARESKO, EXECUTIVE DIRECTOR, FINANCIAL
OVERSIGHT AND MANAGEMENT BOARD FOR PUERTO RICO, SAN JUAN,
PUERTO RICO
Ms. Jaresko. Thank you, Chairman Bishop, Ranking Member
Grijalva, members of the Committee, and Mayor Perez. I am
Natalie Jaresko, Executive Director of the Puerto Rico
Financial Oversight and Management Board. Thank you for this
opportunity to update the Committee on the work of the Board
and the situation in Puerto Rico in light of the tragic damage
done to the island and its people by Hurricane Maria and, to a
lesser extent, Hurricane Irma.
I have submitted written testimony for the record, and I
look forward to the Committee's questions. I want to use my
oral statement to make just a few points.
First, I want to thank this Committee, Congress, the
Administration, and the American people for the generous just-
passed emergency aid package. Likewise, we are deeply grateful
for the extraordinary efforts of FEMA, the U.S. military, the
Army Corps of Engineers, and all those involved in this
historic relief effort.
I also wish to acknowledge the tireless efforts of Governor
Rossello, his administration, local mayors, and all those in
Puerto Rico who are saving lives and supporting the recovery
efforts.
Having served as Minister of Finance of Ukraine in times of
war and fiscal crisis, I understand the complicated and often
difficult measures that are required in times like these. I
lived through the painful process of determining how to use
limited funds to ensure that government could effectively
govern, despite the realities. And I know the importance of the
need to restore confidence and build a recovery that inspires
individuals and businesses to play their vital and valuable
ongoing role in rebuilding Puerto Rico.
As you well know, the Board was established by Congress to
support the fiscal and economic turnaround of Puerto Rico, as
well as to restructure the sizable debt obligations that the
Commonwealth and a number of governmental entities have
incurred over the years. The Board is fully authorized to deal
with the fiscal and debt issues that Puerto Rico faced before
Hurricane Maria.
After the hurricane, it is even more critical that the
Board be able to operate quickly and decisively. The Board,
therefore, asks that Congress underscore the importance of this
Board in this post-hurricane environment by clarifying that we
have this critical role to play in any Federal funding that the
Congress appropriates, which will, in large measure, define
Puerto Rico's future, given the devastation to the economy and
in any long-term liquidity mechanism.
Clarification in these regards will provide us with more
agility and certainty, avoid time-consuming and costly
litigation, and reduce the risks to the overall fiscal and
economic recovery of Puerto Rico.
I would like to conclude by outlining four ways we have
been pursuing our mission since the hurricane.
First, disciplined liquidity assistance processes. In my
written testimony, I have tried to summarize the hurricane-
caused liquidity needs as we best see them. In short, because
of the damage to the ability to collect revenues, the
disruption of the underlying economic activity, and storm
recovery spending, the Commonwealth and its instrumentalities
are facing billions of dollars in cash shortfalls, just to
provide the basic functions of government.
It is essential that the process of providing liquidity
assistance does not become detached from the fiscal plan
process that is the essence of our charge under PROMESA. The
longer-term solution that Congress is contemplating in the next
emergency supplemental should, in our view, have formalized
mechanisms to tie liquidity relief to the fiscal plans.
Second, revision of those fiscal plans. We are well aware
that, just as you have stated, Mr. Chairman, we will have to
revise the certified fiscal plans in light of the hurricane's
devastation. This process will take several weeks. The Board
will hold three listening sessions to which all stakeholders
are invited to provide input to those fiscal plans, as part of
the revision process. And we have also agreed with the Federal
mediators to hold two additional sessions with creditor
stakeholders.
Our aim is to move deliberately to prepare and approve
revised plans, and the deadline for the Commonwealth, PREPA,
and PRASA to submit these draft fiscal plans to the Board is
December 22, 2017, with review and revision ongoing through the
certification date of February 2, 2018. Deadlines for other
entities will follow closely on the heels of that.
Third, a chief transformation officer for PREPA. As the
Committee is aware, the Board has recently named Noel Zamot as
Chief Transformation Officer of PREPA, with all the powers of a
CEO, and reporting to the Board. We believe this is absolutely
essential, both to restoring service as soon as possible, and
to creating a sustainable, efficient, resilient, and fiscally
accountable power system for the island.
While the Board is confident that PROMESA, coupled with
fundamental aspects of bankruptcy law, gives us the power and
responsibility to do as we have done, some parties are
vigorously contesting our authority and proceedings before the
Title III judge. To avoid uncertainty and lengthy delays in
litigation, congressional reaffirmation of our exercise of our
authority is welcome.
Fourth, contract review. We have also implemented a
contract review policy as a tool to ensure transparency
throughout the government for the benefit of the people of
Puerto Rico and all stakeholders. The policy applies to all
contracts in which the Commonwealth or any covered
instrumentality is a counter-party, including those with the
Federal Government, state governments, and private parties. The
policy provides that all contracts of $10 million or more must
be submitted to the Board for its approval before execution.
In addition, the Board retains the authority to adopt other
methods, such as random sampling of contracts below that $10
million threshold, to assure that they promote market
competition and are not inconsistent with the approved fiscal
plan.
Again, Mr. Chairman, Ranking Member, and members of the
Committee, we deeply appreciate your concern for the American
citizens who live in Puerto Rico. And on behalf of the Board, I
pledge to continue to work with you to do all we can to meet
the new challenges and to achieve PROMESA's goals. I look
forward to your questions.
[The prepared statement of Ms. Jaresko follows:]
Prepared Statement of Natalie Jaresko, Executive Director, Financial
Oversight and Management Board for Puerto Rico
Chairman Bishop, Ranking Member Grijalva and members of the
Committee, I am Natalie Jaresko, Executive Director of the Puerto Rico
Financial Oversight and Management Board (the ``Board''). Thank you for
this opportunity to update the Committee on the work of the Board and
the situation in Puerto Rico in light of the tragic damage done to the
Island and its people by Hurricane Maria and to a lesser extent Irma.
Puerto Rico and its residents were engaging in often heroic efforts to
help those who suffered greatly from Irma when Maria unleashed its fury
on us. My testimony will concentrate on the Maria-caused challenges.
First, I want to thank this Committee, Congress, the Administration
and the American people for the generous, recently-enacted emergency
aid to the Island along with support for our fellow citizens in Texas,
Florida, California and USVI. Likewise, we are deeply grateful for the
efforts of FEMA, the U.S. military, the Army Corps of Engineers and all
those involved in this historic relief effort. I also wish to
acknowledge the efforts of Governor Rossello, local mayors, and all
those in Puerto Rico who are saving lives and supporting the recovery
efforts. Maria was the worst storm to hit Puerto Rico in the past 100
years. The entire island was devastated.
As you know, the Board was established by Congress to support the
fiscal and economic turnaround of Puerto Rico, as well as restructure
the sizable debt obligations that the Commonwealth and a number of
additional governmental entities in Puerto Rico have incurred over the
years. The terrible impact of Hurricane Maria makes these challenges
both more difficult and more urgent. The Board and I have been working
every day to make sure that we are providing the kind of support,
leadership and oversight necessary to help the Island.
The day after Hurricane Maria hit, the Board provided Governor
Rossello with the authority to reallocate up to $1 billion of the
Commonwealth's budget to give the government flexibility to respond to
the most pressing needs presented by the first weeks of the crisis.
Shortly thereafter, we focused on the need for emergency liquidity
assistance to deal with the fact that the hurricane caused revenues to
drop and expenditures to increase. We worked closely with the Governor
and his staff to estimate the dimensions of the cash-flow shortfall
caused by the hurricane's damage and disruption. We jointly presented
the results of that work to the Administration and Congress. Again, we
thank the Administration and Congress for including liquidity relief
via the Community Disaster Loan Program with the other essential
assistance provided in the emergency supplemental legislation. We know
that longer term liquidity to keep the government functioning and to
provide key basic services to the residents of the Island is a subject
that we will need to continue to work to address with the Governor,
Congress and the Administration.
I served as Minister of Finance of Ukraine after the Revolution of
Dignity and during the war in the east. I understand the complicated
and often difficult measures that are required in times of crisis. I
lived through the painful process of determining how to use limited
funds in the Treasury to ensure the government could effectively govern
despite the realities. I know the importance of the need to restore
confidence and build a recovery that inspires individuals and
businesses to play their valuable ongoing role in rebuilding Puerto
Rico. The work of recovery and rebuilding will be long and taxing. In
many ways it has barely begun. For these reasons, we will continue to
do everything in our power to help the Governor and local authorities
in the ongoing efforts.
The hard truth is that the Island now needs help--emergency and
restoration funds and assistance on an unprecedented scale. Before the
hurricanes, the Board was determined that Puerto Rico and its
instrumentalities could achieve balanced budgets, work its way through
its debt problems, and develop a sustainable economy without Federal
aid. That is simply no longer possible. Without unprecedented levels of
help from the United States government, the recovery we were planning
for will fail.
More immediately, there are areas of pressing need--problem areas
turned into full-blown emergencies by the hurricanes. These include
energy, water, housing, and health care. While conditions have
improved--for example, distribution of fuel has normalized and grocery
store shelves have been restocked--the Island continues to lack
electricity, which will not only frustrate economic recovery but
impacts daily life, particularly for people who need access to
refrigeration for their medicines. Thousands remain in shelters,
including seniors, people with disabilities and the bedridden. Tens of
thousands of houses do not have roofs, and the installation of
temporary tarps will not be completed for months.
In PROMESA, Congress charged us with guiding and overseeing the
restoration of the Island to fiscal health via long-term fiscal
planning and annual balanced budgeting, restoring its ability to access
private capital via both debt restructuring and economic development,
and, as part of that, helping the Island transition to a sustainable
economic model that provides opportunities for our citizens.
We are all too well aware, and as you, Mr. Chairman, and this
Committee well knows, that Hurricanes Irma and Maria have made our job
much more challenging. The hurricane-caused damage has added greatly--
and will add greatly--to the financial distress of the Commonwealth and
its instrumentalities. In our view, while our job has become more
difficult, it has also become ever more important.
Every dollar of relief funds must be used to address the hurricane-
caused needs of those on the Island and to meet the extraordinary
challenges of rebuilding a more resilient Puerto Rico with a
revitalized economy. It would be tragic if the hurricane-recovery
efforts were not integrated into the broader and lasting plan for
economic recovery upon which the Board and the Government were focused
prior to the hurricane.
Central to avoiding such outcomes will be rethinking and adapting
the Fiscal Plans created before the hurricanes in a way that is
cognizant of the on-the-ground realities of a hurricane-devastated
island but that does not lose sight of our charge to restore Puerto
Rico to long-term financial health. I will describe in some detail in
this testimony how we are approaching the dual challenges.
Hurricane Maria and the infusion of Federal rebuilding funds it
will involve likewise raise questions about how to apply PROMESA to the
challenges ahead which were not part of the original thinking when
PROMESA became law.
our work pre-maria
The period after the passage of PROMESA and before Hurricanes Irma
and Maria stretched a little more than a year. In that time, much had
been done to fulfill our charge to work with the government of Puerto
Rico to ensure Puerto Rico achieves fiscal balance, to provide a path
for its return to the capital markets, and to restore economic growth
and opportunity for the people of the Island.
Consistent with its charge under PROMESA, the Board conducted an
independent and comprehensive analysis of Puerto Rico's fiscal
situation. Before the hurricanes, Puerto Rico had over $74 billion in
debt, over $53 billion of unfunded pension liabilities, an economy that
had contracted nearly 15 percent over the last decade, and a nearly 50
percent poverty rate. In addition, Puerto Rico's structural budget
deficits were projected to average 50 percent of recurring revenues.
Severe liquidity challenges and persistent budget deficits have
contributed to a perilous lack of investment in infrastructure.
The certified Fiscal Plan for Puerto Rico and those for its covered
instrumentalities charted a path for a turnaround without new Federal
funding. The fiscal and structural reform measures--from transforming
the energy sector and modernizing labor laws to reducing government
spending by approximately 30 percent over 3 years--were ambitious and
required unprecedented levels of effort by the government of Puerto
Rico.
The government of Puerto Rico was acutely aware of the difficult
choices necessary to achieve fiscal balance and restore economic growth
when it developed 10-year Fiscal Plans for Puerto Rico and its
instrumentalities, as was the Board when it assessed, amended and
certified them. The government of Puerto Rico had begun the hard work
of implementing the changes required by the Fiscal Plans via the
adoption and certification of the first fiscal year budget compliant
with the Fiscal Plan, which included reducing subsidies, increasing tax
compliance, taking on direct payment of pensions in the budget, and
beginning a 3-year process of rightsizing the government. More medium-
term work had begun on deeper pension reform, as well as healthcare
reform that would reduce forecast costs some 30 percent within 10
years.
puerto rico's new reality
Puerto Rico is faced with a unique set of circumstances--the
largest public entity restructuring in the history of the United States
combined with the greatest hurricane devastation to strike in 100
years.
Liquidity
Let me shed some light on Puerto Rico's liquidity situation. The
devastation has destroyed critical infrastructure, making revenue
collection extremely difficult. Moreover, Hurricane Maria has caused
severe damages to the private sector. Many businesses were forced to
shut down due to structural damage, while those able to continue
operating will likely incur substantial losses due to the additional
expenses they must make in order to stay open, such as purchasing and
running generators for electricity. Puerto Rico's tax revenue
collection will be severely impacted.
At the same time, operating expenses during this period, such as
paying for essential services, will remain generally the same, while
disaster-related expenses will increase relative to the baseline, which
had not contemplated a historic hurricane. In addition, there is a
timing mismatch between when disaster-related expenses are incurred and
when, if at all, FEMA reimburses the government for those expenses.
Therefore, without support from the Federal Government, Puerto Rico
would run out of cash by the end of this quarter. That means no money
to make payroll for teachers, police, and first responders, or pay
pensions and other liabilities. This puts the Commonwealth, with
limited cash on hand, in a liquidity crisis.
In the first weeks after the hurricane, the Board and the
government jointly produced an estimate of the size of this liquidity
crisis based on the best available data. The extent of the short-term
impact of the hurricane on the capacity of the Commonwealth and its
instrumentalities is illustrated by the work we did with the government
in estimating its cash requirement through the end of this year to be
approximately $5 billion. The government subsequently revised the
estimate to $3.6 billion to account for the facts that the government
has been able to receive FEMA advances to pay for expenditures and FEMA
has been directly paying other Federal agencies, such as the U.S. Army
Corps of Engineers. The original $5 billion estimate did not anticipate
either of these developments.
The liquidity analysis relied on many factors, some of which are
difficult to forecast. For example, we know that Puerto Rico is
experiencing a massive population exodus, but the exact amount of that
exodus is unknowable. We used a figure of 5 percent, or 170,000 people
through the end of the calendar year. The number is certainly alarming,
but not far from reality. In fact, Florida Governor Rick Scott has said
that since October 3, more than 90,000 Puerto Ricans have arrived in
Florida through Miami, Orlando, and Port Everglades.
Most of the revised liquidity shortfall estimate of $3.6 billion
results from updates to disaster relief funding assumptions. In
particular, the funding requirement has been reduced by approximately
$1.5 billion to account for the fact that most disaster relief spending
is presently being funded directly and wholly by FEMA, rather than
being processed through Puerto Rico's Treasury Single Account with a
reimbursement lag and a partial cost share. The estimate for recovery
expenditures was based on the public portion of total reconstruction
costs from Hurricane Katrina, scaled to the population and construction
costs of Puerto Rico, and taking into account a timing lag of
reimbursements which is typical in recovery situations. The forecast
will continue to be updated to reflect official damage assessments and
updated relief funding projections as that data becomes available.
We have also worked with the government to provide a more medium-
term perspective. Our initial estimates of the Island's liquidity over
the next seven quarters, including the present quarter, for which
Congress has already provided liquidity assistance, are in the range of
$13 to $21 billion, but they are currently being revised. This is the
amount of money we, along with the government, project is necessary to
ensure provision of the basic functions of government, keep on the job
policemen, firemen, teachers, healthcare workers and all public service
employees who are helping in the hurricane recovery efforts, and
advance the funds required for recovery before FEMA reimburses.
As Congress considers its support for Puerto Rico, it will be vital
that any loans or grants provided to meet these needs be measured
against the Fiscal Plans and integrated with them. The mechanisms of
PROMESA and the full participation of the Board will be required. We
have proposed legislative language to this end with regard to
liquidity. It would require the Board to certify all requests for
liquidity advances. This will assure that only hurricane-caused
liquidity advances will be sought.
Fiscal Plan Revision
We are well aware that--just as you have stated, Mr. Chairman--we
will have to revise the certified Fiscal Plans in light of the
hurricanes' devastation. Working closely with the government of Puerto
Rico, it is essential to use the process of revising Fiscal Plans to
return to the PROMESA goals of fiscal responsibility, access to private
capital markets, and sustainable economic independence. The baseline of
the existing certified Fiscal Plans and their associated budgets
provides critical information against which to measure the changes
caused by the hurricane. But the existing Fiscal Plans do not provide a
map for the post-hurricane future and do not provide timely oversight.
In this light, the process of thinking through the nature and scope of
the changes to Puerto Rico's economy post-hurricane has already begun.
Responding to the humanitarian crisis on the Island must be the
government's first priority, and the Fiscal Plans must be revised to
reflect that priority--just as they must be revised to reflect the
economic-realities of hurricane devastation. Fiscal and structural
reforms need to be reviewed in light of the new baseline that results
from this disaster. A critical additional element in the Fiscal Plan
process will be understanding the amount of Federal funding for
rebuilding which we understand will be made available later this year
once more detailed damage assessments can be provided. These Federal
funds will be essential to understanding the economic assumptions,
projections and capital expenditure plans that will drive much of the
revised Fiscal Plan. Revisions to the Fiscal Plan are necessary due to
four primary reasons:
First, the Commonwealth's ability to collect revenues has
been significantly compromised as a result of the serious
negative effect of infrastructure damage and population
outflows on underlying economic activity.
Second, recovery-related expenses are substantial, not all
will be reimbursed by Federal aid, especially if local
share requirements are not waived, and are not currently
accounted for in the existing fiscal plans.
Third, many of the cost-saving measures built into the
budgets--the reduction in certain subsidies incorporated
into the certified budget, for example--must be looked at
with a fresh perspective given the demands of the recovery
process.
Fourth, the ``Federal line'' will be significantly larger
than the existing Fiscal Plans. It is important to note
that the revised plans will reflect any and all capital
expenditures funded by FEMA or other Federal recovery
assistance. It will also involve any revisions to Medicaid
funding.
The Board has outlined nine principles for the Government to guide
the work on revised Fiscal Plans:
Principle 1: The fiscal plan must reflect the current
demographic trends, economic challenges, hurricane damage
assessments, Federal funding commitments, and a government,
both the central government and local governments, sized to
this post-hurricane reality.
Principle 2: The revised fiscal plan must cover 5 fiscal
years, the first fiscal year being FY 18 and concluding
with FY 22.
Principle 3: To properly establish an accurate assessment
of the fiscal outlook, the base-case scenario within the
fiscal plan must assume no additional Federal support
beyond that which is already established by law.
Nevertheless, fiscal plans should be adjusted as additional
Federal funding is committed.
Principle 4: The revised fiscal plan must provide
sufficient resources to ensure appropriate immediate
emergency response and recovery effort in anticipation of
Federal funds, including provision of public safety, health
care and education, in order to avoid increased
outmigration--particularly by working families and working
age populations. The fiscal plan must include metrics
focused on the improvement of living standards, e.g.
education, health care, job creation.
Principle 5: Pension reform, corporate tax reform, and
other structural reforms necessary to improve the business
climate must remain priorities in the fiscal plan.
Principle 6: Based on available and dedicated resources,
the capital expenditure plan must provide the basis for a
long-term economic recovery plan for Puerto Rico, focusing
on increased and expedited support for rebuilding critical
infrastructure such as energy, water, transportation and
housing.
Principle 7: The fiscal plan must include the resources to
complete the FY 15 Commonwealth consolidated audited
financial statements by no later than December 31, 2017,
and FY 16 and FY 17 Commonwealth consolidated audited
financial statements by no later than June 30, 2018.
Thereafter, Commonwealth consolidated audited financial
statements should be issued no later than within 6 months
of the fiscal year-end.
Principle 8: Structural balance should be achieved as soon
as possible, in any event by no later than FY 22, after
taking into account the period of time required for the
stabilization of Puerto Rico's humanitarian crisis.
Principle 9: The fiscal plan must be accompanied by a
long-term debt sustainability analysis (DSA) and detailed
economic projections, reflecting a 30-year period.
Finally, the Commonwealth's Fiscal Plan revision process is based
on three key components:
Revising macroeconomic driver effects on revenue and
expenses,
Adapting fiscal and structural reform schedules based on
the recovery timeline and feasibility, and
Integrating recovery funds and reimbursement timing with a
capital plan.
This process will require us to make the best possible analytical
projections on the basis of all data available. However, given the
level of uncertainty, it is important to note that unlike the original
fiscal plan which covered 10 years, the revised fiscal plan will cover
5 years, as required by PROMESA, with the first fiscal year being FY 18
and concluding with FY 22.
In an effort to incorporate input from all stakeholders, the Board
will hold three listening sessions to which all stakeholders are
invited to provide input to the Fiscal Plans as part of the revision
process. They each will be a full day in duration; two of them in
Puerto Rico, and one in New York City. In addition, we have agreed with
the court-appointed mediators to hold two additional sessions with
creditor stakeholders. The government will participate in these
sessions as well.
Our aim is to move deliberately to prepare and approve revised
Fiscal Plans. The reason is simple: a revised fiscal plan is key for
the government to move forward in requesting Federal funds, outlining
structural and fiscal reforms, implementing capital expenditure plans,
and enabling proper oversight on a timely basis, as required by
PROMESA. The deadline for the Commonwealth, PREPA, and PRASA to submit
draft Fiscal Plans to the Board is December 22, 2017 with review and
revision ongoing through the goal certification date of February 2,
2018. The deadline for the University of Puerto Rico, HTA, GDB, and
COSSEC to submit draft Fiscal Plans to the Board is February 9, 2018
with review and revision ongoing through the goal certification date of
March 16, 2018.
In keeping with PROMESA's purposes, it will take great discipline,
transparency and accountability to make the best use of Federal and
Commonwealth rebuilding funds. To the full extent possible, the
rebuilding of hurricane-damaged Puerto Rico should serve PROMESA's goal
of a financially sustainable Puerto Rico enabled by a resilient and
vibrant economy that makes sense for the Commonwealth.
Contracts Review Policy
We have also taken other steps to fulfill our mandate under
PROMESA. As we embark on the immense task of rebuilding Puerto Rico in
the wake of Hurricanes Irma and Maria, we expect the government to
enter into numerous large contracts. We have implemented a Contract
Review Policy (``Policy'') as a tool to ensure transparency throughout
the entire government for the benefit of the people of Puerto Rico and
all stakeholders. The Policy is implemented pursuant to Section
204(b)(2) of PROMESA to assure that contracts promote market
competition and are not inconsistent with the approved fiscal plan. It
also follows sections 204(b)(3) and 204(b)(5).
In establishing the Policy, the Board is mindful of Section
204(d)(2) of PROMESA and does not intend to impede the government's
implementation of any Federal programs, particularly those related to
disaster response and recovery. To the contrary, the Board established
the Policy in large part to support the government's implementation of
Federal programs, including, for example, to ensure that contracts are
consistent with the requirements of Federal programs, particularly
those related to funding and reimbursement for disaster aid spending.
Non-compliance with Federal requirements could cause substantial fiscal
costs to be borne by the Commonwealth, having a severely adverse fiscal
effect on compliance with fiscal plans.
The Policy applies to all contracts in which the Commonwealth or
any covered instrumentality is a counterparty, including those with the
Federal Government, state governments, private parties, and nonprofit
organizations. The Policy provides that effective November 6, 2017, all
contracts or series or related contracts, inclusive of any amendments
or modifications, with an aggregate expected value of $10 million or
more must be submitted to the Board for its approval before execution.
In addition, the Board retains the authority to adopt other methods,
such as random sampling of contracts below the $10 million threshold,
to assure that they promote market competition and are not inconsistent
with the approved fiscal plan.
The Oversight Board is prepared to review contracts in a timely
manner. As such, we have identified an internal working group to take
the lead on the contract review process. We look forward to working
hand-in-hand with the government of Puerto Rico to ensure the upmost
transparent, fair, and competitive contracting processes.
Appointment of Chief Transformation Officer for PREPA
PREPA is a case in point of an entity within the government that
needs to be transformed. Past mismanagement has led to an outmoded,
unstable, patch-work grid and an inefficient and unduly expensive power
sector. Rebuilding efforts should be integrated into the planning that
avoids reprising past mistakes. We should plan and build for a better
power sector and one that can move rapidly toward attraction of private
capital to ensure the most effective transformation of the power
sector.
As a critical step toward this, the Board has appointed Noel Zamot,
the Board's current Revitalization Coordinator, as the Chief
Transformation Officer of PREPA in accordance with its authority under
Title III of PROMESA. The Title III court set a hearing for November
13, 2017 to consider our motion. In bankruptcy proceedings, it is
common practice for a debtor in possession to name a Chief
Transformation Officer, sometimes also referred to as a chief
restructuring officer, to help turn around organizations and manage
them while in bankruptcy. This is no different, but certainly more
urgent.
Upon confirmation by the court, Noel's task will be to lead the
transformation of PREPA and the rebuilding of the electricity sector
following the devastation of Hurricane Maria. His immediate priority
will be to fast-track reconstruction efforts on the Island in close
coordination with the government of Puerto Rico, the Board, and the
Federal Government. In addition, Noel will be fully committed to
bringing the resources necessary to restore electricity to the people
of Puerto Rico as quickly as possible, and to re-activate the economy
and bring normalcy to the Island.
The appointment of Noel is an essential step in achieving the goal
of providing Puerto Rico residents and businesses reliable, resilient
and reasonably priced electricity supply, which will also require
attracting the private capital we need to revitalize the power sector.
Our vision for the future of Puerto Rico's energy sector is simple: a
more modern, efficient and resilient power sector to revitalize the
economy and deliver a better future for the people of Puerto Rico.
Role of the Oversight Board
PROMESA and its tools were not written for responding to or
recovery from a catastrophic hurricane. The reality in which we
operated prior to the devastation is much different than Puerto Rico's
current reality. The tools to rebuild a more resilient and economically
viable Puerto Rico now include significant Federal funds, and we see
the Board having an active role in ensuring those monies are used in
the best interest of the Island. For us, ensuring fiscal controls to
deliver confidence in the government is key. The role we can play is
clear, but we remain cognizant that in several occasions in which we
have exercised our authority, there has been substantial opposition,
often resulting in litigation.
questions
I will now turn directly to the questions the Committee has posed
to us:
1. What is the Board doing now to fulfill its oversight function,
specifically with respect to revision of Fiscal Plans?
As indicated above, careful, principled and transparent revision of
the Fiscal Plans is essential. We are actively engaged, along with the
government, in the analytical work that underlies that process. The
extent of Federal aid in the year-end disaster relief package Congress
is planning is obviously a key variable. The ``Federal line'' will
constitute a very significant change from the existing Fiscal Plans. As
you know, the earlier plans were balanced without any Federal
assistance. The revised plans will reflect any and all capital
expenditures funded by FEMA or other Federal recovery assistance. It
will also involve any revisions adopted to Medicaid funding. As soon as
we know that and have had an opportunity to study its impact, we will
have all we need to work with the government in finalizing revised
Fiscal Plans. We aim to complete Board certification in the first week
of February 2018 for the Commonwealth, PREPA, and PRASA.
We are also reviewing and renewing all of the liquidity estimates
we submitted to Treasury and Congress with the government over the last
few weeks. The passage of a few months should give us a better idea of
the extent of revenue losses, hurricane-caused net increase in
expenditures, and delayed cost reductions. We will continue to monitor
liquidity weekly, which is now being published publicly by the
government.
With respect to budgeting, we are updating our reporting blueprint
to incorporate information on disbursements and use of Federal funds
received by the government and its instrumentalities, as well as
reallocation of budget items for emergency measures as we laid out in
our letter to the Governor the day after Hurricane Maria hit. We also
will receive a budget compliance report next week that will show how
actual expenses and revenues compare to budgeted expenses and revenues
for the first fiscal quarter, ending September 30, 2017.
Moreover, pursuant to Section 103(d) of PROMESA, the Board is
initiating formal requests to Federal department and agency heads to
detail personnel of their respective department and agencies to the
Board to assist it in carrying out its duties under the Act. We are
certain that we will receive cooperation from our Federal counterparts
in detailing subject matter experts to support the Board and the
government of Puerto Rico.
2. What can the Board do to oversee the proper expenditure of Federal
Hurricane recovery funds?
Through the process of working with the Governor to create and
certify Fiscal Plans under Section 201 of PROMESA, we can make sure
that hurricane recovery funds are properly accounted for and directed
in a revised Fiscal Plan. We have similar authority with respect to
making sure that the more detailed annual operating budgets developed
by the Governor or covered instrumentalities conform with the certified
Fiscal Plans.
Once certified Fiscal Plans and budgets are in place, we have
authority to ensure compliance with those Fiscal Plans and budgets.
Section 203 requires the Governor to submit a report at the end of each
fiscal quarter on actual receipts, expenditures and cash-flow. We are
instructed to alert the Governor to any inconsistencies with the
certified Fiscal Plan and budgets. If the Governor or a covered
instrumentality fails to make corrections, the Board is empowered to
make appropriate reductions in non-debt expenditures to ensure the
quarterly budget aligns with the certified budget. Further clarity with
regard to these authorities may prevent challenges that have previously
resulted in litigation.
With respect to the actual contracting process by the Commonwealth
or covered instrumentalities, as just described, we can review
contracts under our policy created under Section 204 to ensure they are
consistent with the fiscal plan, promote market competition, and as
applicable are consistent with Federal regulations pertaining to
reimbursement and funding. Section 204(d) does state that the Board
shall not impede the government's actions to implement Federal
authorized or federally delegate programs, but our policy does not
impede the implementation of Federal disaster relief programs--to the
contrary, it should provide stakeholders with greater confidence in the
process itself.
With respect to debt, pursuant to Section 207 the Board must
approve any new debt issuance or debt exchange or modification. Under
the legislation you just passed to assist Puerto Rico with its
liquidity challenges, the funds will be distributed via the Community
Disaster Loan Program. Because these are loans, the Board must and will
review each loan to ensure it is advisable that the borrower take out
that specific loan with those specific terms.
3. What additional tools does the Board need to ensure that Federal
funds are properly expended and that they are expended as part
of a plan that makes sense for Puerto Rico's future?
Mr. Chairman and members of the Committee, I understand the
importance of this question and the imperative for this Committee to
examine it. My general answer--and my answers to any particular
questions posed to me today--will of course reflect the current
limitations of the Board's ability to meet the great challenges that
the hurricanes' devastation has caused Puerto Rico and the new
challenges it presents to Congress and the PROMESA structure as well.
I want to emphasize, though, that while the question is expressed
in terms of ``need,'' the Board is not seeking additional
responsibilities nor the tools to go with them. The Board is a creature
of Congress, appointed on a voluntary, bipartisan basis, serving the
American citizens of Puerto Rico. We have been exercising our authority
under PROMESA.
If Congress determines that additional Board responsibilities will
enhance confidence and enable greater support for Puerto Rico after
these devastating hurricanes, I believe the Board would be willing to
accept additional responsibilities. Similarly, if Congress determines
that clarification and reaffirmation of our existing authority in light
of the new demands placed on all of us by the necessity of hurricane
recovery will be useful to avoid litigation and the uncertainty, time,
and cost it entails, we would of course welcome that. Like the people
and government of Puerto Rico, Congress and the Administration, we know
that the hurricanes have produced new realities we must deal with as
wisely and faithfully as we can.
I can give one example of where congressional clarification and
ratification of our authority may well be critical--the appointment of
the PREPA Chief Transformation Officer. We believe our authority--and
responsibility--under PROMESA and basic bankruptcy tenets is clear.
However, our authority is being vigorously opposed by some parties in
the Title III proceeding. Even after an initial ruling, litigation and
associated uncertainty may linger during appeals. Congressional
clarification would resolve what otherwise is potentially very damaging
litigation.
conclusion
Again, Mr. Chairman and members of the Committee, we deeply
appreciate your concern for the American citizens who live in Puerto
Rico, and, on behalf of the Board, I pledge to continue to work with
you to do all we can to meet the new challenges and to achieve
PROMESA's goals. I look forward to your questions.
______
Questions Submitted for the Record to Ms. Jaresko and Mr. Zamot are
combined and can be found on page 24
______
The Chairman. Thank you.
Mr. Zamot, 5 minutes. Welcome.
STATEMENT OF NOEL ZAMOT, REVITALIZATION COORDINATOR, FINANCIAL
OVERSIGHT AND MANAGEMENT BOARD FOR PUERTO RICO, SAN JUAN,
PUERTO RICO
Mr. Zamot. Chairman Bishop, Ranking Member Grijalva, and
members of the Committee, I am Noel Zamot. It is an honor for
me to appear before this Committee. I currently serve as the
Revitalization Coordinator for the Puerto Rico Financial
Oversight and Management Board.
I have also been named by the Oversight Board to serve as
the Chief Transformation Officer for the Puerto Rico Electric
Power Authority, or PREPA. A motion seeking confirmation of
that appointment is before the court overseeing the
restructuring of PREPA's debt under Title III of PROMESA. My
written testimony briefly describes my current role and my
conception of the PREPA CTO role. I will use my limited time in
this oral statement to outline some of the key aspects of the
CTO role and my plans for it.
As mentioned, my appointment as CTO is pending approval by
the Title III court. I do not want in any way to appear to be
presumptuous about the outcome, but I also understand the
Committee's need for information about my plans for this role.
I believe the court will understand that my testimony is
provisional. That is, it represents my plans if I am confirmed.
The role of CTO is essential, both to deal with the short-
term crisis and the long-term transformation of PREPA. We need
dramatic action to create a fast-moving, de-politicized entity
driven by a vision of an efficient, durable, sustainable, and
affordable power sector for the island.
I have three principal objectives for my role of Chief
Transformation Officer: first, bring all available resources to
bear to restore power to Puerto Rico as quickly as possible;
second, develop and implement the transformation plan for
PREPA, ensuring that the near-term recovery activity is
consistent with the long-term vision; and third, ensure the
utility exits PROMESA's Title III via the implementation of a
plan of adjustment.
The overall objective is a utility that provides stable,
reliable, and cost-effective power to Puerto Rico, and becomes
an engine of sustained economic growth.
The first objective requires us to leverage all available
resources for Puerto Rico. Much has already been done, but
there is much more to do. Based on my interactions to date, I
am encouraged that the Army Corps of Engineers, the Department
of Energy, and FEMA can provide us even greater and better
coordinated resources. Similarly, we can do much more to
involve industry groups such as APPA and the Edison Electric
Institute.
During this first phase, organizational structure will be
of critical importance. I will employ an approach that I have
used with success when I had to lead organizational
transformation in the middle of chaotic and uncertain
environments. I have followed this approach in the military,
where, as a colonel, I led organizations in peace time and
during emergencies, and in the private sector, where I had to
transform an organization in the middle of difficult economic
and market conditions.
I believe in establishing a straightforward, clear chain of
authority, with well-defined roles and responsibilities that
track with the overall objective and with strategic priorities.
I will retain key leaders on my staff to enable speed and
effectiveness in our decision making.
I would like to highlight two key roles.
The Chief Operations Officer will be responsible for day-
to-day operations of the utility. This will initially be a
senior leader from within PREPA, but will be augmented by an
industry executive identified in conjunction with input that we
are receiving from the Edison Electric Institute.
The Storm Boss will liaise directly with FEMA, the
government of Puerto Rico, local mayors, the Corps of
Engineers, as well as other stakeholders. This person will be
responsible for identifying, onboarding, and integrating all
help, as required, as well as acting as a primary stakeholder
to ensure that short-term recovery actions are consistent with
a long-range plan. I expect to coordinate with a Storm Boss
frequently, likely several times per day.
I have also identified key executives to serve on a Board
of Advisors. These are CEOs from public and private utilities
who have generously volunteered to bring their considerable
expertise to help with this task. I will also rely on an
internal group of world-class actors from multi-national
utilities, the energy sector, academia, and more.
The second objective is to transform PREPA under the fiscal
plan, which is developed by the Oversight Board, in conjunction
with the government of Puerto Rico and PREPA. This plan
reflects a transformation of PREPA in broad agreement with
Puerto Rico's energy strategy and the Governor's energy
priorities.
The end state is to provide stable, reliable, and cost-
effective power via a grid that incorporates best practices and
that acts as a catalyst for sustained economic growth. Puerto
Rico's energy strategy calls for 50 percent renewables by 2040,
with a balance of natural and LP gas mix, regional grids with
generation close to demand, physical hardening and control
systems to provide resiliency, and widespread distributed
generation, all wrapped by an empowered and accountable energy
regulator.
PROMESA is clear in its guidance to attract private capital
to achieve this end state. We need to do just that, not only
for generation, but to attract innovative capital solutions
from the private sector for transmission and distribution, as
well.
We will update the existing PREPA fiscal plan, based on
post-Maria reality. PREPA's asset base has been decimated, and
we will have to rebuild the infrastructure with virtually no
revenues and minimal liquidity. Fortunately, Congress and the
Administration created a Community Disaster Loan Program in
their recently passed supplemental appropriations bill and made
PREPA an eligible borrower.
Our FEMA and DOE colleagues have worked with us closely to
identify the proper Federal programs to rebuild the asset base,
and generously offered their considerable expertise. We will
work closely with the Governor, PREPA officials, professional
and industry groups, as well as thought leaders from the
private sector to amend the plan.
We are integrating outside stakeholders into our process,
with recurring milestone meetings every 10 days to 2 weeks. We
will have an additional draft of the revised plan by mid-
December, and a more polished version by mid-January. The
January product should include sufficient detail to be crafting
actionable engineering requirements to begin execution during
the second quarter of 2018.
Finally, the binding actionable implementation of the
amended transformative fiscal plan is via the plan of
adjustment. This is the legally enforceable outcome of the
Title III court proceeding. This plan assures the
transformation of a utility far beyond the termination of my
tenure, which will occur upon approval of this plan of
adjustment.
The court process associated with plan construction
approval also assures the input of creditors and the
recognition of their legal rights, as provided for in PROMESA.
I look forward to answering your questions.
[The prepared statement of Mr. Zamot follows:]
Prepared Statement of Noel Zamot, Revitalization Coordinator, Financial
Oversight and Management Board for Puerto Rico
Chairman Bishop, Ranking Member Grijalva and members of the
Committee, I am Noel Zamot, Revitalization Coordinator for the Puerto
Rico Financial Oversight and Management Board (the ``Board''). I have
also been named by the Oversight Board to serve as the Chief
Transformation Officer (``CTO'') for the Puerto Rico Electric Power
Authority (``PREPA''). A motion seeking confirmation of that
appointment by the Court overseeing the restructuring of PREPA's debt
under Title III of the Puerto Rico Oversight, Management and Stability
Act (``PROMESA'') is pending.
It is an honor for me to appear before the Committee. I will first
briefly describe my current role, next outline my conception of the
PREPA CTO role, and then stand ready to answer the Committee's
questions to the best of my ability.
revitalization coordinator
As the Committee well knows, the Revitalization Coordinator, like
the Board itself, owes its existence to Congress. Section 502 of
PROMESA established the position of Revitalization Coordinator, under
the Board. My role is part of Title V of PROMESA--Puerto Rico
Infrastructure Revitalization. My job, in a nutshell, is to accelerate
the Island's economic recovery by bringing private capital to address
infrastructure challenges, in order to create jobs and set the
conditions for growth.
This has become all the more important in the aftermath of
Hurricanes Irma and Maria. I am just back from the Island, where I have
been coordinating with the government of Puerto Rico, the U.S. Army
Corps of Engineers, military personnel generally, FEMA personnel and
others to address the immediate aspects of the Island's infrastructure
devastation in as coordinated and efficient a manner as possible. I
myself have a military background, having retired from the U.S. Air
Force in the rank of colonel. I have also been trained in and have led
emergency responses to crises.
I can assure you that the troops on the ground in Puerto Rico are
acting heroically. I can also assure you it is a daunting effort in
which they are engaged.
Our Executive Director, Natalie Jaresko, has delivered the Board
testimony in chief. For this portion of my testimony, I want to very
briefly discuss the great promise of private investment in Puerto Rico
as catalyzed by PROMESA, and, as the Committee has asked us to do,
briefly address some of the challenges presented by our limited role.
The good news is that even though Puerto Rico's ability to borrow
is compromised, it does have access to private capital--through
projects identified by the Board under PROMESA's Critical Project
provisions. The central mechanism of Title V is identification of
``Critical Projects.'' Once identified, these projects benefit from
provisions designed to expedite their realization. We have identified
to date $3.3 billion in private capital that seeks to invest in Puerto
Rico infrastructure projects.
One example is a waste-to-energy project sought by a New York-based
firm called Energy Answers. This project would involve an $800
million--fully private--investment to create a plant to convert waste
into electricity. It has a dual objective and many advantages. It would
not only generate electricity that would be contributed to the grid,
but also alleviate some of the pressure on a full and leaking landfill.
In recommending this project and approving it for the expedited
permitting provided for Critical Projects, we apply the statutory
PROMESA criteria. These include the ``impact it will have on an
emergency''; the availability of immediate private capital; the cost of
the project, if any, to Puerto Rico; and its jobs impact. With respect
to energy projects, the criteria also include whether the project will
reduce reliance on oil for energy generation, improve energy
infrastructure and overall energy efficiency, expedite conversion of
fuel sources to natural gas and renewables, contribute to transitioning
to private generation capacity, and support the Energy Commission of
Puerto Rico in achievement of its goal of reducing energy costs.
Private capital is an essential ingredient of restoration of the
Island's infrastructure, and the Critical Projects process has shown it
can be a valuable tool to help privately financed projects succeed.
The Committee has also asked what else is required for successful
rebuilding of Puerto Rico's infrastructure and what limitations I see
in Title V as a tool for aiding the rebuilding. That is an important
topic, and I look forward to discussing it in response to your
questions today.
As a general matter, I would emphasize that as useful as I think
Title V is, it is quite narrow. Beyond identifying and expediting
discrete Critical Projects, Title V offers few tools to the
Revitalization Coordinator to realize broader economic development in
Puerto Rico. The Revitalization Coordinator also does not have the
formal power to reform the management, operations, or contracting of
instrumentalities, such as PREPA--a void that has become much more
consequential after Hurricanes Irma and Maria.
prepa chief transformation officer
I would now like to share my thoughts on PREPA and the decision by
the Board to appoint a Chief Transformation Officer. My appointment as
CTO, as I have indicated, is pending approval by the Title III court. I
do not want in any way to appear to be presumptuous about the outcome,
but I also understand the Committee's need for information on my
understanding of and plans for the CTO role. I believe the Court will
understand that my testimony is provisional--that is, what I plan to do
assuming I am confirmed.
The decision to name a CTO was the Board's, not mine. Suffice it to
say that from my perspective of months on the ground in Puerto Rico,
and regardless of who fills the role, it is absolutely essential. Both
to deal with the short-term crisis and the long-term transformation of
PREPA, we need dramatic action that creates a fast-moving,
depoliticized entity driven by a compelling vision of an efficient,
durable, sustainable and affordable power sector for the island.
I have three principal objectives for my role as Chief
Transformation Officer. First, bring all available resources to bear to
restore power to Puerto Rico as quickly as possible. Second, develop
and implement the transformation plan for PREPA, ensuring that the
near-term recovery activity is consistent with the long-term vision.
And, third, ensure the utility exits PROMESA's Title III via the
implementation of a plan of adjustment as a system that can provide
stable, reliable, and cost-effective power to Puerto Rico's inhabitants
and institutions.
Restoring Power--and Early Organizational Steps
The first objective requires us to leverage all available resources
for Puerto Rico. Much has already been done, but there is much more to
do. Based on my interactions with them to date, I am greatly encouraged
that the Army Corps of Engineers, the Department of Energy and FEMA can
provide us even greater, and better coordinated, resources. Similarly,
we can do much more to involve industry groups such as the American
Public Power Association to a greater degree.
During this first phase, the organizational structure will be of
critical importance. I will employ an approach that I have used with
success in previous times when we had to transform organizations in the
middle of chaotic and uncertain environments. I have found success by
establishing a straightforward, clear chain of authority, with well-
defined roles and responsibilities that track with the overall
objective and with strategic priorities. Especially during this initial
phase, we must prioritize speed--with discipline, transparency and
integrity--over endless analysis. The people of Puerto Rico deserve no
less. We will keep our objectives--recovery and transformation--front
and center throughout every action we take.
I plan to have five key direct reports on my staff. They will
enable me both to act fast and effectively in the first phase and to
integrate our actions with our long-term transformation plan and to
ensure that I have advisors with the right expertise helping me achieve
our goals. These are a: Chief Operations Officer (``COO''), Storm Boss,
VP for Transition, Chief Financial Officer (``CFO''), and General
Counsel (``GC'').
The Chief Operations Officer will be responsible for day-to-day
operations of the utility. This will initially be a senior leader from
PREPA, but will be augmented by an industry executive, identified in
conjunction with input we are receiving from the Edison Electric
Institute.
The Storm Boss will liaise directly and freely with FEMA, the
government of Puerto Rico, the Army Corps of Engineers, as well as
other members of the team. This person will be responsible for
identifying, onboarding, and integrating all help as required, as well
as acting as the primary stakeholder to ensure that short-term recovery
actions under Stafford Act Category B are consistent with the long-term
plan for the island. I expect to coordinate with the Storm Boss
frequently--likely several times per day.
The VP for Transition will lead the mechanics of developing the
transformation plan, as embodied in the revised Fiscal Plan for PREPA,
ensuring that we remain on the timeline and that all stakeholders are
represented and contribute appropriately. This person will further
insure that the various working groups are integrated with the outside
and internal stakeholders, and that the evolving vision is shared with
the COO and Storm Boss to ensure continuity of effort and consistency
between near-term recovery and the transformation vision.
The CFO will have traditional financial responsibilities. The CFO
will develop an improved, open and transparent procurement process,
fully compliant with all Federal requirements, such as FEMA's. In my
experience, much of the challenge with problematic contracts has less
to do with the substance of the contract--which can be reviewed and
amended--than with the RFP process and selection criteria. Without
sound controls and protocols for those two, you could end up with a
perfectly executed contract that was awarded inappropriately.
Finally, we will have a General Counsel. As a three-time military
commander and industry executive, my experience is that the roles and
responsibilities of management and GC are and must be clear. Leadership
establishes vision and executes strategy; the GC ensures that those
objectives are accomplished in an ethical and legal manner.
I have been engaging in informal conversations with potential
candidates for all these positions so that they can be hired and join
the team as soon as I am confirmed to the role by the Court.
Outside of the organization, I have already identified key
executives to serve on a Board of Advisors. These are Chief Executive
Officers from public and private utilities, who have generously
volunteered to bring their considerable expertise to help with the
task. I will also rely on professional, engineering, and sector
insights from seasoned experts in the field. This is my ``deep bench,''
and it includes former executives from multi-national utilities, energy
experts, economists and more. These will include experts from McKinsey
& Company and Ernst & Young, who currently serve as outside consultants
to the Board, as well as economists from MIT's Sloan School, my alma
mater. My intent is to reach out to them on a regular, scheduled basis.
I have already asked this team to identify key process and
organizational efforts in the first critical days of transition.
The Fiscal Plan and Its Transformative Character
The Board, in conjunction with the government of Puerto Rico and
PREPA, has developed a Fiscal Plan that reflects a transformation of
PREPA that is in broad agreement with Puerto Rico's energy strategy and
the Governor's energy priorities. Our goal or ``end state'' is to
provide stable, reliable, and cost-effective power via a grid that
incorporates best practices, in order to act as a catalyst for
sustainable economic growth. Puerto Rico's energy strategy calls for:
50 percent renewables by 2040, with the balance a natural/LP gas mix;
regional grids with generation close to demand; physical hardening and
control schemes to provide resiliency; and widespread distributed
generation, all wrapped by an empowered, accountable energy regulator.
PROMESA is clear in its guidance to attract private capital to
achieve this end state. We intend to do just that, not only for
generation, but to attract innovative capital solutions from the
private sector for transmission and distribution as well.
To be sure, we must update the existing PREPA Fiscal Plan based on
the post-Maria reality. Not only has the asset base been decimated, but
now we have to rebuild the infrastructure with virtually no revenues
and minimal liquidity. Fortunately, Congress and the Administration
created a Community Disaster Loan Program in the recently passed
supplemental appropriations bill and made PREPA an eligible borrower.
Moreover, our FEMA and DOE colleagues have worked closely with us to
identify the proper Federal programs to rebuild the asset base and to
give us the benefit of their expertise. We will work closely with the
Governor and existing PREPA officials with expert knowledge of the
Fiscal Plan and its transformative role, and the process for amending
the Plan will also include professional and industry groups and thought
leaders.
We will begin integrating outside stakeholders into our process by
mid-November, with recurring milestone meetings every 10 days to 2
weeks. We will have an initial draft of the revised Plan by mid-
December, and a more polished version by mid-January. The January
product should include sufficient detail to begin crafting actionable
engineering and policy requirements to begin execution during the
second quarter of 2018.
Plan of Adjustment
The binding, actionable implementation of the resulting, amended
transformative Fiscal Plan is via the Plan of Adjustment, the legally
enforceable outcome of the Title III court proceeding. This Plan
ensures the transformation of the utility far beyond the termination of
my tenure, which will occur upon approval of the Plan. The court
process associated with Plan construction and approval also assures the
input of creditors and the recognition of their legal rights, as
provided for in PROMESA.
I look forward to answering your questions.
______
Questions Submitted for the Record to Natalie Jaresko, Executive
Director, and Noel Zamot, Revitalization Coordinator, Financial
Oversight and Management Board for Puerto Rico
Oral Questions Posed at the Hearing
Question 1. What is the latest damage assessment for Puerto Rico,
and in particular, for the energy sector?
Answer. The FOMB has not completed a damage assessment for Puerto
Rico and does not plan to. The only damage assessments that the FOMB is
aware of at this time are informal Federal Government agency estimates
of $5-$12 billion and the one released on November 13, 2017 by the
government of Puerto Rico, state of New York, Open Society Foundations,
Ford Foundation, and Rockefeller Foundation. That damage assessment
estimated a total of $94.4 billion in damage, of which the power grid
was responsible for $17.8 billion.
Question 2. What are the salaries for all executive staff and
deputies?
Answer. The FOMB has attached a table that shows the position,
compensation, and starting date for all executive staff and deputies.
[The information follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Question 3. When was the last time the trash incinerator was
tested for lead, arsenic, and other contaminants?
Answer. Since the waste-to-energy facility has not yet been built,
no emissions testing has been completed. However, the FOMB understands
that a similar facility of the same design has been operating
consistent with local and Federal regulations for several years in
Massachusetts.
Question 4. Why would Puerto Rico use the most expensive form of
energy, renewables, to comprise a portion of restoring its power?
Answer. The FOMB's energy plan for Puerto Rico envisions long term
a mix of renewables and natural gas. The FOMB's understanding is that
most of the work to restore power is being done on the transmission and
distribution portions of the grid, not the generation, so Puerto Rico
is not materially changing the existing energy mix as it restores
power.
Question 5. What are the interim and long-term costs to Puerto Rico
from the FOMB?
Answer. At the time PROMESA was passed, the Congressional Budget
Office projected that the FOMB would cost $370 million over 10 years.
Actual audited expenditures of the FOMB for Fiscal Year 2017 were
approximately $30 million. The FOMB's budget for Fiscal Year 2018 is
approximately $60 million.
Question 6. How will Noel Zamot as the CTO for PREPA be different
from existing PREPA management?
Answer. In light of the Title III court's ruling regarding the
FOMB's appointment of Noel Zamot as the Chief Transformation Officer
(``CTO'') for PREPA, the FOMB respectfully submits that this question
is now moot.
Question 7. What can the Federal Government do to restore
prosperity in Puerto Rico?
Answer. The FOMB has attached a separate letter describing actions
that the Federal Government can take, particularly with respect to tax
reform, recovery and rebuilding assistance, and economic development
that would catalyze economic growth in Puerto Rico.
[The information follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
November 22, 2017
Dear Chairman Bishop, Ranking Member Grijalva, and Members of the
Committee:
In the course of the Oversight Hearing, ``Examining Challenges in
Puerto Rico's Recovery and the Role of the Financial Oversight and
Management Board,'' on November 7, 2017, our Executive Director,
Natalie Jaresko, received numerous inquiries about various proposals to
aid Puerto Rico in light of the devastation caused by Hurricanes Maria
and Irma. In the same vein, many Oversight Board members and staff in
their interactions with Congress and the Administration have been asked
for their recommendations on what the Federal Government can and should
do to help.
We greatly appreciate the depth and breadth of concern expressed by
Congress and the Administration for the plight of the people of Puerto
Rico. We know that these questions are part of an ongoing and difficult
effort to put together a comprehensive plan to deal with the Island's
current distress as well as its long-term wellbeing.
Likewise, we acknowledge that, in light of the hurricanes, such
inquiries are deeply connected to our mission under PROMESA. As you
know, before the hurricanes we were dedicated to achieving fiscal and
economic health for Puerto Rico and its instrumentalities without
additional federal aid. After the hurricanes, of course, continued
generous and well directed federal aid is essential.
Accordingly, without in any way presuming to be experts in all the
areas affected or to be the final word on any of them, we want to be as
responsive as we can. This letter focuses on a few areas where we see
particular need.
Hurricanes Maria and Irma have fundamentally altered Puerto Rico's
fiscal and economic reality, worsening the Island's already deeply
troubled fiscal situation and destroying much of its infrastructure.
Tax reform legislation, if approved in its current form, would further
devastate the Island's economy. Achieving fiscal balance, providing a
path for the Island's return to capital markets, and restoring economic
growth and opportunity for the people of Puerto Rico, as required by
PROMESA, remains a critical priority. Achieving PROMESA's goals will
require significant investments in recovery efforts and in rebuilding
and transforming the Island's infrastructure, as well as tax reform
legislation that does not adversely impact businesses operating on the
Island. It will also require a new economic model bolstered by expanded
economic tools and increased labor force participation.
World-class pharmaceutical manufacturing plants and other multinational
corporations manufacturing and otherwise doing business in Puerto Rico
are a cornerstone of Puerto Rico's economy and a key source of income.
In fact, manufacturing exports account for roughly 30 percent of Puerto
Rico's general revenues. If not remedied, current federal tax reform
provisions that consider businesses operating in Puerto Rico as doing
work in a foreign jurisdiction could destroy the Island's manufacturing
base, causing critical tax revenues to evaporate. Puerto Rico's economy
was already in decline before the hurricanes. Tax changes that make
Puerto Rico's economy even less competitive with foreign jurisdictions
would be crushing and would frustrate efforts to restore growth. We
urge you to modify the current tax reform legislation to encourage
companies to remain in Puerto Rico and to increase their presence in
Puerto Rico instead of moving to truly foreign jurisdictions.
Puerto Rico's infrastructure, particularly its energy sector, water and
sewer systems, and roads need to be rebuilt and transformed in the
aftermath of Hurricanes Irma and Maria. Schools, hospitals and housing
have also suffered extensive damages and need substantial support for
repairs and replacement. Prior to the hurricanes, the Oversight Board
had certified fiscal plans that included well over $10 billion in
capital needs incorporating approximately $7 billion for energy
generation and for transmission and distribution of electricity, as
well as $2 billion for water systems. Extensive hurricane damages have
substantially increased the Island's infrastructure needs and
accelerated the timeline under which reconstruction efforts must occur.
Initial damage assessments estimate tens of billions in damages. It is
imperative that the federal government expeditiously complete its
assessments of the impacts of the hurricanes on Puerto Rico's
infrastructure and that Congress commit needed resources to support
rebuilding a stronger, more resilient Puerto Rico. Reconstruction funds
must be subject to effective oversight, spent judiciously and used to
support transformation efforts reflected in revised and improved Fiscal
Plans under PROMESA. Without rebuilding and transforming its
infrastructure, Puerto Rico will not be able to address its dire fiscal
and economic challenges, or restore growth and opportunity.
We are hopeful that Hurricanes Irma and Maria can be a catalyst for
change. Puerto Rico's fiscal, economic and demographic crisis preceded
the hurricanes. The challenges of limited economic tools, sub-state
funding levels for various critical programs, different eligibility
rules for Puerto Ricans living on the Island than U.S. citizens living
in the mainland, as well as multiple self-inflicted wounds already made
achieving the goals of PROMESA very difficult. The hurricanes have made
the job of restoring economic growth infinitely more so. However, in
crisis there is opportunity.
Puerto Rico needs a new economic model--a specific, attainable,
transformational economic plan. It needs to increase its labor force
participation. It needs to improve service delivery and fiscal
accountability. The Financial Oversight and Management Board will work
with the Government of Puerto Rico to accomplish these important goals.
However, to be successful in restoring opportunity for the people of
Puerto Rico, it is critical that tax reform legislation not further
cripple its economy and that Puerto Rico have the necessary resources
to recover from Hurricanes Irma and Maria and rebuild and transform its
infrastructure.
Sincerely,
Jose B. Carrion,
Chair.
______
Written Questions Submitted for the Record to Natalie Jaresko
Questions Submitted by Rep. Grijalva
Question 1. You indicate in your statement that the Oversight Board
has proposed legislative language to ensure that congressional support
to help Puerto Rico address its liquidity problems is consistent with
the Fiscal Plans. Said language would require the Board to certify all
requests for liquidity advances. Have you shared this language with the
Committee? Is such a degree of micromanagement of the Puerto Rican
government really necessary? Aren't Puerto Rico's current liquidity
problems the result of the hurricane?
Answer. Yes, the current liquidity problems are indeed a result of
the hurricane, which is the reason the FOMB believes it should certify
all liquidity advances. The FOMB, through the pre-hurricane fiscal
plans, can verify that the liquidity problems are in fact caused by the
hurricane. To the extent that liquidity support from the Federal
Government comes in the form of loans, such as Community Disaster
Loans, the FOMB has the responsibility to approve any such loans under
PROMESA. Yes, this language has been shared with the Committee.
Question 2. You point out that several areas of the island can be
classified as ``immediate or pressing needs.'' These include energy,
water, housing and health care. Besides installing the Title V
Revitalization Coordinator as the Chief Transformation Officer for
PREPA, what else is the Oversight Board doing to address these pressing
needs?
Answer. The FOMB acknowledges that the government of Puerto Rico
and the relevant Federal agencies are the proper entities for
addressing Puerto Rico's pressing needs. What the FOMB has done is
provide the Governor with the authority to reallocate up to $1 billion
of the budget to give the government of Puerto Rico flexibility to
respond to the disaster, worked with the government of Puerto Rico to
determine its short-term liquidity needs, and advocated in Washington
that Puerto Rico be given emergency liquidity assistance and
unprecedented Federal disaster assistance.
Question 3. What is the basis for the Board claiming that any money
from the Federal Government for disaster relief will fall under board's
purview? Aren't these funds to be used for specific purposes, such as
rebuilding damaged schools and hospitals and covered by various
agencies audit and other authorities to ensure they are used as
intended? Why is there a need for the Board to intervene is how
disaster funds are spent?
Answer. The FOMB and government of Puerto Rico are in the process
of developing revised fiscal plans, which include all capital
expenditures. After Hurricane Maria, the bulk of these capital
expenditures will be funded with Federal disaster funds. In addition,
the eventual fiscal plans for the Commonwealth and certain of its
instrumentalities that the FOMB certifies will contain reforms and
measures that should be consistent with how the disaster funds are
intended to be spent. The FOMB also believes that it can provide
effective oversight of the significant amount of Federal disaster funds
that will be spent in Puerto Rico, which in turn will create increased
confidence for all stakeholders.
Question 4. Congress recently approved a $4.9 billion loan in the
disaster relief package to ease the government of Puerto Rico's
liquidity crisis. You mentioned in your statement that additional
liquidity assistance will be necessary. Can you elaborate on what it
will mean if Puerto Rico runs out of cash due to the devastation caused
by the storm?
Answer. If Puerto Rico does not get liquidity assistance before it
runs out of cash, the government of Puerto Rico will not have
sufficient money to fund governance, and will have to choose among
making payroll for teachers, police, and first responders, paying
pensions, and honoring other liabilities.
Question 5. We have reports, both from humanitarian organizations
such as Oxfam who are on the ground, as well as through media coverage,
that supplies such as tarps, food, and water, are being shipped to
Puerto Rico are not reaching the highland and rural areas. Challenges
in road clearances, lack of telephone coverage or electricity
exacerbate these backlogs. Can you describe how the FOMB can help to
ensure that those difficult-to-reach areas are able to receive critical
supplies?
Answer. The FOMB does not have a direct role in carrying out the
disaster response efforts--that is the responsibility of the government
of Puerto Rico along with relevant Federal agencies. The FOMB is doing
what it can to support the government of Puerto Rico in Washington to
obtain the Federal assistance that it needs so that it the recovery
effort in difficult to reach areas is as effective as possible.
Question 6. One of the purposes of this hearing is to determine
whether and how to expand the jurisdiction of the Fiscal Oversight and
Management Board to shepherd the recovery efforts in Puerto Rico. We
know that local first responders, civil society organizations, and
citizens are working day-in and day-out to address acute needs. They
have the firsthand knowledge and relationships to know and adapt to
what communities most need. If the FOMB does acquire greater fiscal
control over recovery funds, what mechanisms will be in place to ensure
that these groups on the ground have a meaningful role in determining
how best to use the funds? Will there be any accountability to assure
that the money is targeting the most vulnerable individuals? What
mechanisms will be put into place to allow for civil society groups to
serve as watchdogs of funds?
Answer. Like it does with the development of fiscal plans, the FOMB
will solicit and welcome all input from all stakeholders, especially
local Puerto Ricans who are most effected by the FOMB's decisions. The
FOMB will seek out best practices from entities that have performed a
similar function for past natural disasters, like Hurricanes Katrina
and Sandy, and model its approach off those.
Question 7. As you are well aware, Puerto Rico is in a dire
financial state, with $74 billion in debt. It literally cannot cost-
share on the many desperately needed Federal programs that are
essential for it to rebuild. Some of these cost-sharing requirements
have been waived, but what other agencies require cost-shares and what
can be done to waive these requirements? What would happen if Puerto
Rico's local cost sharing requirements are not waived? What will happen
if Puerto Rico's local cost sharing requirements are not waived?
Answer. The FOMB is concerned about the government of Puerto Rico's
liquidity situation and supports the waiver of local cash sharing
requirements. Failure to waive local cost sharing requirements will
lead the government of Puerto Rico to require additional liquidity
assistance from the Federal Government, or reduce the amount of its
efforts to rebuild until such liquidity is made available.
Question 8. Nearly 60 percent of Puerto Rican children live below
the poverty line. Overall poverty is at nearly 50 percent. Families are
extremely vulnerable. How can we ensure that funding, including
reconstruction funds are supporting the need of these vulnerable
Americans?
Answer. The most vulnerable among the Puerto Rican population must
receive all the support they need in this dire situation. The FOMB
urges Congress to appropriate the necessary funds to the relevant
agencies that can provide the most effective assistance to those below
the poverty line.
Questions Submitted by Rep. Pearce
Question 1. What is the FOMB doing to ensure that disaster funds
are not used to fix pre-disaster problems?
Answer. Currently, the FOMB does not have a role in determining on
what projects the disaster funds are used and so the FOMB cannot ensure
that disaster funds are not used to fix pre-disaster problems.
Question 2. Do you believe the FOMB's new Contract Review Policy
will slow down disaster recovery?
Answer. No. The FOMB has committed to review and respond to all
contracts within 7 business days and is committed to working with the
government of Puerto Rico to make the review as fast as possible
without compromising the integrity of the process.
*****
Written Questions Submitted for the Record to Noel Zamot
Questions Submitted by Rep. Grijalva
Title V
Question 1. Mr. Zamot, I want to ask you about the dual approach of
Title V of PROMESA--privatization and deregulation. Under Puerto Rico's
Act 76, which was the model for Title V, a former governor tried to
rush through 2,200 megawatts of renewable energy projects starting in
2010. But because the process was rushed--as it would be under Title
V--someone missed that the grid could not handle it. The project
negotiations had to start from scratch. That was the most relevant
deregulation precedent for the approach taken in Title V. And it failed
because deregulation removed the protections that are in place to make
sure these kinds of projects actually work, and that they don't do more
harm than good. You are proposing to double down on that process by
expanding Title V authority before we have seen any proof it can work.
What protections have you put in place to make sure this precedent is
not repeated?
Answer. Title V specifies an evaluation process for projects, which
includes analyzing the project for job creation, economic impact, and
environmental safeguards. Only projects that meet these criteria can be
considered as candidates as Critical Projects. The FOMB closely follows
this process.
Question 2. Like PREPA, PRASA has suffered for a long time from an
old distribution system, lack of funds, and poor management. Title V of
PROMESA proposes to address the water infrastructure problem by
privatizing it. But that approach was tried twice in Puerto Rico. It
failed both times, according to an in depth study from the University
of Iowa. The relief promised by the companies who took over never came
to pass. The contracts had to be terminated. Same question; what
protections have you put in place to make sure this precedent is not
repeated? Why will this time be different?
Answer. Privatization of water infrastructure is one of many
options that may be considered under Title V. This Critical Projects
process includes evaluations to ensure job creation and economic growth
without compromising environmental protection.
Question 3. While much attention has been focused on getting the
lights back on, there is equal urgency around the water distribution
system. PRASA has a dilapidated infrastructure that requires major
work. Puerto Rico had the higest rates of Safe Drinking Water Act
violations of any state in the Nation. Businesses and economic recovery
depend on clean water. It is likely that there are waterborne outbreaks
happening under the radar because we cannot detect them--we cannot even
assess the damage to the infrastructure. What are the FOMB's plans for
revitalizing PRASA and getting people clean, reliable drinking water?
Answer. The PRASA transformation plan currently in development will
address a number of initiatives to provide clean, reliable water to the
people of Puerto Rico. Among these are improved metering,
organizational and governance changes, and capital investments.
Question 4. You hold up the proposed Arecibo trash incinerator as a
model project for the island. You testified that Arecibo is a privately
financed project. But it appears to depend on a loan or loan guarantee
from the USDA. In fact, the project's sponsors, Energy Answers, went
through an entire Environmental Impact Statement to get the loan. The
USDA is now saying they no longer want to issue the loan. Energy
Answers appears to be searching for funding in case they cannot get the
USDA to change their mind. How do you reconcile the project's need for
Federal financing with your testimony that says it is a fully privately
funded project?
Answer. Projects submitted through Title V are considered a
privately funded project if the majority of their capital structure
comes from private capital rather than from the government of Puerto
Rico. Many of the projects under the Title V process rely in part on a
variety of Federal funds, including grants and loans, that make the
overall capital structure more attractive to investors and less risky
for the population they will ultimately serve.
Question 5. The proposed incinerator is in a flood plain. It needs
at least two permits or waivers as a result. The site flooded after the
recent hurricanes. Designation of this project as a critical project
could allow it to bypass flood prevention regulations. Since those
safeguards would not be there, how would you ensure the project would
prevent waste ash and trash from migrating off-site into neighborhoods
in the event of a flood if there is no permitting process to do that?
Answer. The Energy Answers project had already received EPA and
local permits that addressed these issues in detail. Designation as a
Critical Project does not exempt projects from applicable Federal or
local regulations. To the contrary, Critical Projects must meet these
regulations.
Question 6. The island is already struggling with a massive coal
ash disposal problem. There's just no where to put it. It accumulates
in mounds across the island, creating health hazards for families
living downwind or downstream. According to the Environmental Impact
Statement, the proposed incinerator in Arecibo would generate 420 tons
of toxic ash per day. The plan is to put it in landfills, most of which
are already either full, out of compliance, or not equipped to handle
hazardous waste. How would you make sure Puerto Rico families are not
exposed to that ash?
Answer. The Energy Answers project had already received EPA and
local permits that addressed these issues in detail. Designation as a
Critical Project does not exempt projects from applicable Federal or
local regulations. To the contrary, Critical Projects must meet these
regulations.
Question 7. As you know, the mayors of areas surrounding the
proposed incinerator oppose it. If they refuse to send their trash
because they would lose tipping fees and instead would have to pay to
have the trash burned, and as a result there is not enough trash to
operate the plant, how will Energy Answers pay back the loan from
USDA's Rural Utility Service?
Answer. Puerto Rico is suffering from a severe shortage of landfill
capacity and the government of Puerto Rico, upon receipt of permits and
assuming Energy Answers demonstrates compliance with Federal and local
regulation, the FOMB considers the Energy Answers project a possible
tool to address the imminent business and environmental crises due to
the overuse of non-compliant landfills elsewhere on the Island.
PREPA
Question 8. Mr. Zamot, you have said that a strong regulator is
needed to oversee the PREPA or whatever its successor might be. The
Puerto Rico Energy Commission has more expertise in electric utility
regulation than you and the rest of the Oversight Board. How do you
think the Commission and the Oversight Board can work together to
ensure the rebuilding of a more sustainable grid?
Answer. The Energy Commission and the FOMB share the government of
Puerto Rico's vision of a sustainable, resilient grid. The FOMB is
already working closely with the Energy Commission to incorporate them
into the PREPA transformation process. As an example, we are
coordinating on the conceptual design of regional grids that will
provide greater resiliency for future hurricanes. The FOMB welcomes a
truly independent and professional energy regulator to assure all stake
holders of a fair rate policy and provide potential private sector
investors with confidence in the marketplace.
Question 9. As you know, Governor Rossello has weakened the Energy
Commission by installing his own appointees into positions, among other
actions. Will you fight to make the Energy Commission more independent
of the Governor and the Oversight Board? If so, how?
Answer. We support an independent, empowered, accountable Energy
Commission. Such an energy regulator is essential to Puerto Rico's
energy future and is essential for proper use of Federal and private
funds to rebuild the grid.
Question 10. What authorities do you or the Oversight Board believe
the Board has to take over the Energy Commission if the Board so
desired?
Answer. None. The FOMB cannot and has no desire or intent to take
over the Energy Commission. The FOMB supports a strong, independent
energy regulator.
Question 11. Mr. Zamot, do you think there needs to be a clear
vision of what the new grid will look like before we determine what the
management structure will look like, as has been suggested by experts
at the Institute for Energy Economics and Financial Analysis?
Answer. Regardless of the vision for the new grid, the future of
Puerto Rico's energy utility must incorporate organizational best
practices into its management structure. Among these are transparent,
documented procurement processes, organizational efficiency via clear
management structure, a quality management and process improvement
system, and a depoliticized workforce.
Question 12. When asked about implementing renewable energy on the
island during the hearing, you referenced a few times the island's
self-imposed renewable energy standards. As you know, those were made
before the hurricane. At the time, there was a limitation on renewables
that were implementable because of funds/credit and because the grid
was too old to handle it. Both limitations are expected to change
dramatically now. If the island is ever going to be more self-
sufficient with its energy supply and wean from imported fuel like
natural gas, now is the time to aim much higher than the modest pre-
hurricane goals and move toward more forward-looking energy plans for
island economies like those of Hawaii who has a 100 percent renewable
portfolio standard. As the potential CTO of PREPA, do you see any
reasons that Hawaii can do it but Puerto Rico cannot? As CTO of PREPA,
will you fight for that 100 percent renewable energy for Puerto Rico?
Answer. In light of the Title III court's ruling regarding the
FOMB's appointment of Noel Zamot as the CTO for PREPA, the FOMB
respectfully submits that this question is now moot.
Question 13. Electric sales in Puerto Rico are expected to decline
more than 23 percent over the next decade. The private utility business
model does not function effectively in an environment of declining
load. Why do you believe the private utility business model is
appropriate in this scenario?
Answer. Puerto Rico's electric sales are declining in part because
of high electricity prices, which leads to widespread grid defection. A
cost-effective, reliable, and stable electric utility would also have a
significant positive impact on Puerto Rico's economic growth, driving
up demand.
Question Submitted by Rep. Hanabusa
Question 1. After the devastation of hurricanes Irma and Maria in
September of this year, Puerto Rico Electric Power Authority (PREPA)
reported losing approximately 80 percent of its electrical
infrastructure. This left millions of Puerto Ricans without power, and
left hospitals unable to care for patients or store lifesaving
medicine. Currently, urban centers in Puerto Rico are being powered
primarily through generators, which can only serve as a temporary
solution to the crisis. There are also still many Puerto Ricans
sweltering without power in areas outside of urban centers.
Mr. Zamot, as Chief Transformation Officer your duties include
leading the development of a power restoration plan, and overseeing the
application process for Federal funds. You mentioned in your testimony
that you are currently coordinating with the Army Corps of Engineers,
the Department of Energy, and Federal Emergency Management Agency for
financial support and resources. However, their support has not been
sufficient to address the ultimate goal of repairing and updating
Puerto Rico's energy infrastructure for the long term.
You also mentioned in your testimony that exiting the $9 billion in
debt that belongs to PREPA is not the solution to enable PREPA to
restore electricity as soon as possible. We discussed during the
hearing that restoring electricity is the top priority, as it will
facilitate other disaster recovery efforts. With that goal in mind,
what are the necessary steps to restoring electricity in Puerto Rico?
How much money will it take to achieve this?
Answer. In light of the Title III court's ruling regarding the
FOMB's appointment of Noel Zamot as the CTO for PREPA, the FOMB
respectfully submits that this first question is now moot. The FOMB has
not completed a damage assessment for Puerto Rico and does not plan to.
The only damage assessments that the FOMB is aware of at this time are
informal Federal Government agency estimates of $5-$12 billion and the
one released on November 13, 2017 by the government of Puerto Rico,
state of New York, Open Society Foundations, Ford Foundation, and
Rockefeller Foundation. That damage assessment estimated a total of
$94.4 billion in damage, of which the power grid was responsible for
$17.8 billion.
Questions Submitted by Rep. Pearce
Question 1. Do you have an accurate damage assessment for the
island's energy infrastructure? If so, please provide.
Answer. The FOMB has not completed a damage assessment for Puerto
Rico and does not plan to. The only damage assessments that the FOMB is
aware of at this time are informal Federal Government agency estimates
of $5-$12 billion and the one released on November 13, 2017 by the
government of Puerto Rico, state of New York, Open Society Foundations,
Ford Foundation, and Rockefeller Foundation. That damage assessment
estimated a total of $94.4 billion in damage, of which the power grid
was responsible for $17.8 billion.
Question 2. What actions do you plan on taking to ensure that PREPA
will not run into the same problems it faced before the storm and the
FOMB's creation?
Answer. In light of the Title III court's ruling regarding the
FOMB's appointment of Noel Zamot as the CTO for PREPA, the FOMB
respectfully submits that this question is now moot.
______
The Chairman. Thank you. And finally, Mayor Perez, we
welcome you here. You are recognized for 5 minutes.
STATEMENT OF THE HON. ANGEL PEREZ OTERO, MAYOR, CITY OF
GUAYNABO, PUERTO RICO
Mr. Perez. Thank you, Chairman Bishop, Ranking Member
Grijalva, and all members of the Committee, for having convened
this hearing, and allowing us to share our experiences with the
aftermath of Hurricanes Irma and Maria. I especially recognize
our Resident Commissioner, who faced the hurricane right there,
and now is our advocate for recovery.
I come to you as Mayor of Guaynabo since August 18. As you
see, I received a very special welcome to my office.
My municipality is diverse. We do have upper-income
neighborhoods, art centers, industries, shopping, a military
post, but also working-class neighborhoods, public housing
projects, economically distressed communities, and hard-to-
reach rural areas.
In Guaynabo, like in all Puerto Rico, there was damage to
every aspect of infrastructure and the economy in the immediate
aftermath, besides the collapse of power and communications.
And today we still have from 75 to 80 percent of our families
without electricity.
Our municipality also suffered these major damages: three
bridges washed out, and another four compromised, resulting in
over 15 to 20 families having no vehicle access to their homes;
several partial roads collapsed; most of our rural areas
lacking water service, due to pumps being offline; and 3,000
families lost their homes or had them severely damaged.
It was a challenge to respond, but we stepped forward. From
the joint efforts of Puerto Rico and Federal Government
agencies, over 30,000 families have received food and water
supplies, but this has not always been reliable. The city has
received 10,000 gallons of diesel fuel, but we use 3,000 every
day. And we are being assisted with final debris disposal by
the Corps of Engineers.
So, work is being done, and we are grateful for the
response from the Administration and Congress. But more is
needed.
For instance, municipalities are the first responders, and
continue responding, being closest to the people. But with most
of our businesses closed due to no power, water, or fuel, how
do we pay our workers and expenses? We have lost a lot of
revenue.
Recently, Congress passed legislation that provides up to
$4.9 billion for support to Puerto Rico, precisely due to the
need to keep basic public services functioning in the face of
loss of a tax base. The government of Puerto Rico had been
granted almost an equivalent of 20 percent of its budget to
relieve its liquidity needs. The municipality needs, in a
future legislation, the same benefits to continue providing
essential services that our people need.
Another need is a disaster housing support benefit that can
extend for at least 1 or 2 years. Currently available housing
vouchers are too few and too low, compared with the number of
families who lost their homes and are living with family or
with a neighbor.
Another is easing FEMA caps on housing rehabilitation, so
families may rebuild with greater resiliency. Similarly, an
expansion and flexibilization of CDBG and Section 108 funds, so
that municipalities can better direct them to the community
needs. In a situation like this, it is important that funds for
the relief are guarded and used effectively, when the
temptation is to think ``it is an emergency'' justifies waste,
or worse. But this cannot end in more bureaucracy.
I believe God put me in this trying time at the head of a
city of 100,000 people, to do them justice and make a
difference. You, too, are called upon to do justice and make a
difference for the 3.4 million U.S. citizens in Puerto Rico. It
is not a time just to put on patches, but to make permanent
fixes looking toward the future. We cannot move the island away
from the Caribbean, so Congress and the Administration must
move to help our people.
Members of this Committee, Federal help has aided Puerto
Rico to survive and start a recovery. But more is needed, and I
encourage you to listen to our Governor and our Resident
Commissioner, our voice in this city, as she brings forward
what are our further needs. Thank you.
[The prepared statement of Mr. Perez follows:]
Prepared Statement of Mayor Angel Perez, City of Guaynabo, Puerto Rico
Thank you, Chairman Bishop, Ranking Member Grijalva and all members
of the Committee for having convened this hearing and allowing us to
share our experiences with the aftermath of Hurricanes Irma and Maria.
I specially recognize our Resident Commissioner who faced the hurricane
right there and now is our advocate for recovery.
I come to you as the Mayor of Guaynabo, Puerto Rico, since August
18. As you can see I received a very special welcome to the office.
My municipality is diverse. We do have upper income neighborhoods,
arts centers, industry, shopping, a military post, BUT also working
class neighborhoods, public housing projects, economically distressed
communities and hard to reach rural areas.
In Guaynabo like in all Puerto Rico there was damage to every
aspect of infrastructure and the economy. In the immediate aftermath,
besides the collapse of power and communications--and today we still
have 80 percent of our families without electricity--our municipality
also suffered these major damages:
Three bridges washed out and another four compromised,
resulting in over 15 families having no vehicular access to
their homes.
Several partial road collapses.
Most of our rural areas lacking water service due to pumps
being off line.
Three thousand families lost their home or had it severely
damaged.
It was a challenge to respond, but we stepped forward.
From the joint efforts of the Puerto Rico and Federal governments,
over 30,000 families have received food and water supplies (but this
has not been always reliable), the city has received 10,000 gallons of
diesel fuel (but we use over 3,000 per day), and we are being assisted
with final debris disposal by the Corps of Engineers. So, work is being
done, and we are grateful for the response from the Administration and
Congress.
But more is needed.
For instance, municipalities are first responders and continuing
responders, being closest to the people. But with most of our
businesses closed due to no power or water or fuel, how do we pay our
workers and expenses?
Recently Congress passed legislation that provides up to $4.9
billion for liquidity support for Puerto Rico, precisely due to the
need to keep basic public services functioning in the face of loss of
tax base.
The government of Puerto Rico has been granted almost the
equivalent of 20 percent of its budget to relieve its liquidity needs:
the municipalities need in a future legislation the same benefit to
continue providing essential services the people need.
Another need is for a disaster housing support benefit that can
extend for up to 2 years. Currently available housing vouchers are too
few and too low compared with the number of families who lost their
homes.
Another is the easing of FEMA caps on housing rehabilitation, so
families may rebuild with greater resiliency. Similarly, an expansion
and flexibilization of the CDBG and Section 108 funds so that
municipalities can better direct them to the community needs.
In a situation like this, it is important that funds for the relief
be guarded and used effectively, when the temptation is to think ``it's
an emergency'' justifies waste, or worse. But this cannot end with more
bureaucracy.
I believe God put me in this trying time, at the head of a city of
100,000 people, to do them justice and make a difference. You, too, are
called upon to do justice and make a difference for the 3.4 million
U.S. citizens in Puerto Rico. It is not a time to just put on patches
but to make permanent fixes looking toward the future. We cannot move
the island away from the Caribbean, so Congress and the Administration
must move to help our people.
Members of the Committee, Federal help has aided Puerto Rico to
survive and start a recovery. But more is needed, and I encourage you
to listen to our Resident Commissioner, our voice in this city, as she
brings forward what are our further needs.
Thank you.
______
The Chairman. I thank all three witnesses for your oral
testimony, as well as your written testimony. We will now start
the questioning process.
Members, since we were originally going to have two panels,
and now we just have one, I gave our witnesses some extra time
to make their statements. I appreciate them being here. I
especially appreciate, Mr. Mayor, your being here as a
representative, who is on the ground working with the American
citizens who actually live in Puerto Rico. Thank you for the
specifics you gave us.
I am just going to warn Members that you are not going to
be as nicely treated. You have 5 minutes. If you are going to
ask a question, give at least 30 seconds to answer it or don't
ask it in the first place, and we will move on from there.
I am going to actually break tradition and go first, if I
could, for my 5 minutes, so you are responsible for me. If I go
over 5 minutes, you have to shut me up, OK?
[Laughter.]
The Chairman. You said that too willingly.
Ms. Jaresko, if I could start with you. In August, there
were some in the creditor community that had a Title III case
about PREPA to appoint a receiver done by the court system. The
Oversight Board appears to actually have embraced that
particular idea with an independent oversight of PREPA that is
needed with the Board's recent urgent motion to appoint Mr.
Zamot as the Chief Transformation Officer.
Why did the Oversight Board reject the request to appoint a
receiver, and why from the courts? And why do you believe the
Oversight Board has the authority to appoint a Chief
Transformation Officer?
Ms. Jaresko. Thank you, Mr. Chairman. You are correct. At
that time, in very different circumstances, the Board did not
agree with the creditors' request. However, we see the
situation today as completely different, requiring a new set of
skills, resources, and additional focus.
The situation is different, simply because we no longer are
going through solely a Title III process. We are now, as well,
responding to this devastation. And for 40 years, for decades,
PREPA has not served the people of Puerto Rico well.
Our goal today is, with the appointment of Mr. Zamot, to
ensure that these short-term efforts to immediately and quickly
restore electricity are united with the medium- and long-term
requirements of making electricity not the Achilles heel of a
damaged economy, but instead, the solution to a new revitalized
economy.
The Chairman. Thank you.
Then, with that, Mr. Zamot, let me turn to you. Title V was
supposed to be in there to help expedite the process without
any kind of arbitrary roadblocks. Do you see roadblocks in
there prohibiting the construction or pending approval of
critical projects that we could address in some way?
Mr. Zamot. Mr. Chairman, thank you for the opportunity to
answer. Title V is a great tool for economic recovery, but it
is incomplete, in many of our opinions, and we would appreciate
some clarity on the powers that Title V actually gives to the
Revitalization Coordinator.
There are a number of issues that I have shared with your
staff, for example, the ability to actually follow some of the
permitting processes and actually ensure that they are executed
properly, and the ability to actually ensure that Title V
projects submitted through the critical projects process are
actually compatible with the rest of the covered entities'
transformation plans.
And finally, how do you actually incentivize additional
investments in areas that are critical to Puerto Rico's
economy, but not necessarily a critical infrastructure project?
The Chairman. Do you think that these require statute
changes in order to give you that authority to simply expedite
the issue and get to work?
Mr. Zamot. Sir, I will defer to the Committee on what the
solutions would be, but a clarification on what the powers of
the Revitalization Coordinator and the Board would be in those
cases would be appropriate.
The Chairman. That is a fair answer.
Mayor Perez, can you just share with the Committee your
experiences working with FEMA in the immediate aftermath of the
storm?
Mr. Perez. I think at the beginning it was hard, because no
communications were at the 78 municipalities. So, we just had
FEMA at San Juan, and it was very hard for the rest of our
mayors to communicate and to receive some help.
After that, they assigned, and I think it was the best
thing, they assigned some people to each mayor, to each
municipality, and the help is getting better, and the water,
the food, and all the help from FEMA and from the Corps of
Engineering, it is getting to our municipalities.
But at the beginning it was very hard, because we were
expecting that maybe some municipalities, some areas, will be
good. But no, the 78 municipalities, their communication were
down, roads were blocked, so it was very hard at the beginning.
The Chairman. I have 56 seconds. Can you communicate the
challenges that you are still going to face, going forward,
with both the state, the Board, as well as the Federal agencies
in reaching long-term goals in your community?
Mr. Perez. Right now, it is how they are going to respond
to give the benefits to the families, because we have thousands
of families living with their families or with a neighbor, but
that is not permanent. So, we don't know right now. There is a
cap of $30,000 to rebuild their houses. If we are going to
rebuild and make them the same as they were, we are going to be
here maybe next year, maybe next week, maybe, I don't know, in
a month. So, that is a challenge for us.
The Chairman. Thank you. And in the 9 seconds that remain,
before Mr. Grijalva shows me up by pronouncing your community's
name, pronounce your community for me.
Mr. Perez. Guaynabo. It is near San Juan. Guaynabo.
The Chairman. Oh, you can all say it----
Mr. Perez. We call it Guaynabo City.
[Laughter.]
The Chairman. Thank you very much. I recognize Mr.
Grijalva.
Mr. Grijalva. Thank you, Mr. Chairman, and I also want to
thank all the witnesses for their attendance and for being here
to give us some more information and answer our questions.
Ms. Jaresko, as you know, the fiscal plan approved by the
Board last year contemplated reducing Puerto Rico's annual debt
payments by 79 percent. In the wake of Hurricane Maria,
advocates in Puerto Rico and for Puerto Rico are making the
case that that devastation means that the 79 percent should be
taken up all the way to possibly full debt cancellation.
Should we anticipate that the Board will be considering
further debt reduction in the revised fiscal plan currently
under development?
Ms. Jaresko. Thank you. It is very difficult for anyone in
Puerto Rico to see the future at this stage. So much depends on
you, the Congress, the Administration, and how much funding
will be appropriated for Puerto Rico at this time.
We will begin this fiscal process to determine exactly what
you have asked, to determine how the island can manage
governance, ensure governance, whether or not there are funds
available for a variety of needs on the island, including, of
course, repayment of the debt.
What I can tell you is that, faced with the liquidity
crisis we have today and the requirements that you have already
adopted, we will require longer-term liquidity funding. In the
short term, there is no question that this will be very
difficult for creditors. I think, in terms of the future, much
depends on your response.
Mr. Grijalva. OK. And another question, if I may. Do you or
the Board hold the view that, relative to Title V, waiving or
eliminating additional Federal environmental safeguards like
NEPA or regulations will accelerate the recovery in Puerto
Rico?
Ms. Jaresko, if you, and then Mr. Zamot, if you don't mind,
as well, answering the question.
Ms. Jaresko. I certainly believe that further expeditious
permitting is a requirement. I am not an expert on the
individual sets of permitting, but I want to underline that it
is both Federal, Commonwealth, and municipality permitting at
all levels that needs to be expedited for any private-sector
investment to become a quick recovery.
Mr. Grijalva. Mr. Zamot, do you think that is needed?
Mr. Zamot. Thank you, sir. My view is that economic growth
and fast-tracking projects is not inconsistent with being good
stewards of the environment, and we have a very robust process
within Title V and within the working group that we have set
with the government to ensure that we, the residents of Puerto
Rico, are very----
Mr. Grijalva. Well, if I may, sir, let me just follow up
with you. You cite the proposed trash incinerator as an example
of a project, Title V, that could come to fruition. But I see
an example of why Title V, in this instance, does not work.
Public comments about the project are overwhelming in
opposition. It is opposed by both mayors' groups representing
all the mayors on the island. It was stalled in part because it
could not get a permit to drain 2.1 million gallons from a
protected wetland. Farmers and residents are concerned about
the effects on their health, that it could undermine recycling
programs that are in place.
[Slide.]
Mr. Grijalva. It flooded during the hurricane. We have a
before and after situation that is up on the screen. It flooded
and released hundreds of tons of toxic ash that could release,
in the future, toxins into the surrounding neighborhoods. And
it requires a major loan from the Federal Government to go
forward, even though it is fully privately funded for 67
megawatts of power.
Is that what we can expect, in terms of Title V critical
projects?
Mr. Zamot. Sir, there are many voices that, obviously, in a
democratic process, voice their concern with such a project.
But there are an equal number of voices on the positive side.
We don't look at this project in Arecibo necessarily as even a
power project. It is really a waste management project.
Puerto Rico has a crisis in waste management and landfill
use that has been identified by the EPA, and that is why the
EPA has actually been supportive of this program.
I currently live in Massachusetts, and we have a very
similar plant.
Mr. Grijalva. Well, the processes in place right now under
law are to assess risk factor, and under Title V we waive the
process of risk factoring. How would you contemplate assessing
risk?
The Chairman. In 5 seconds or less.
Mr. Zamot. When this process was submitted through Title V,
it already came with its permitting in place.
The Chairman. Thank you.
Mr. Grijalva. No, that is not the answer.
The Chairman. Mr. Lamborn.
Mr. Lamborn. Thank you, Mr. Chairman, and thank you for
having this important hearing. I appreciate your commitment to
making Puerto Rico more successful. No one should question your
commitment to that. And I share your disappointment that all
the invited witnesses were not here today.
Mr. Zamot, I would like to ask you some questions about
electricity generation. And I know you are provisional so far,
but still hopefully you can help us on these questions.
Is it safe in assuming that pretty much 100 percent of the
electricity generated in Puerto Rico today is from burning fuel
oil?
Mr. Zamot. I would say it is 96 percent. There is
approximately 4 percent that is renewables in Puerto Rico right
now.
Mr. Lamborn. And as we know, fuel oil is very expensive and
very dirty.
Mr. Zamot. That is correct, sir.
Mr. Lamborn. I like the plan. I think you said by 2040, 50
percent renewables, 50 percent natural gas through liquefied
form.
Mr. Zamot. That is correct.
Mr. Lamborn. Have you identified investors who are willing
to make that huge investment in a LNG terminal?
Mr. Zamot. Sir, there are a number of investors that are
actually very bullish on Puerto Rico's long-term prospects, and
we in the Board, and specifically in my role as Revitalization
Coordinator, we received a lot of proposals, a lot of questions
about how people can bring innovative capital solutions using
private capital to benefit the reconstruction of the grid and
the people of Puerto Rico.
Mr. Lamborn. Well, I would really urge you to keep pushing
in that direction, because I don't think nuclear or coal is
going to be a solution. Renewables are great, but to provide
that much electricity in that short a time is unrealistic. So,
I welcome the discussion about LNG.
Another issue with LNG possibly, and maybe enlighten us, is
the Jones Act. I want to commend one of our Representatives who
is here today, Representative Velazquez, for speaking out on
this issue. I think it is a problem for Puerto Rico, and I
would like to find a solution to the Jones Act problem in
general. But does that affect LNG imports?
Mr. Zamot. Sir, in general, what we are looking at is a
fuel mix that really provides a predictable cost curve in the
out years for that fuel. And we believe that a proper gas mix,
in conjunction with renewables, offers that opportunity for
Puerto Rico.
Our goal right now is to get that price at the meter below
a certain point to drive increased demand, and that is going to
act as an engine of economic growth.
Mr. Lamborn. Would the Jones Act come into play for
liquefied natural gas imports? Because it can be a real
restriction on shipping.
Mr. Zamot. Sure. Without going into specifics, we believe
that any measures that the Congress takes to ensure that the
cost of shipping fuels to Puerto Rico is reduced is a positive
step toward rebuilding the economy.
Mr. Lamborn. I, for one, would be willing to look at that,
and I think we should look at that. Congress should look at
that. Maybe just a very narrow exception to the Jones Act,
possibly, just as we need to look at environmental regulation
waivers. Everyone is not going to be happy about either one of
those things, but if we want to see Puerto Rico succeed and
thrive, as the Chairman was saying, I think those are the kinds
of hard decisions we have to be willing to make.
And the last thing I want to ask you about is that $800
million project, the Ranking Member referred to it, burning
waste to create electricity. My understanding is that it would
be privately funded and would not need government subsidies of
any kind?
Mr. Zamot. That is correct, sir. It is privately funded.
Some of the capital structure includes some Federal loans, but
there is no money from Puerto Rico, and it relies on relatively
new technology that is really respectful of emissions.
Mr. Lamborn. Thank you for your great answers, and if
either of the other witnesses want to weigh in on the things we
have just talked about, please do so in the last 45 seconds.
Ms. Jaresko. I wish to support your effort to relook at the
Jones Act. As the congressional task force has already
outlined, it is an additional cost for the island.
Mr. Lamborn. Mr. Mayor?
Mr. Perez. Yes, I think some changes have to be made,
amendments to the Jones law and other laws for the recovery of
Puerto Rico.
Mr. Lamborn. Thank you all for being here. I appreciate
what you are doing.
Mr. Chairman, I yield back.
The Chairman. Thank you.
Mrs. Napolitano.
Mrs. Napolitano. Mr. Chair, thank you.
Mr. Zamot, this is dovetailing on the Ranking Member's
questions that the incinerator would be built in an area
previously contaminated by a battery recycling plant, and it
was flooded during the hurricanes. Has the area been tested for
lead, arsenic, and other contaminants?
Mr. Zamot. Ma'am, I do not have specific details on what
work has been accomplished to date, but we do know that the
company that is planning that work has done extensive
mitigation pre-work----
Mrs. Napolitano. How long has the plant been there, that it
has not been tested?
Mr. Zamot. Ma'am, I do not have that information.
Mrs. Napolitano. Would you mind sending the answers to this
Committee, so we can understand that?
Mr. Zamot. Yes, ma'am, we will.
Mrs. Napolitano. And how does the Energy Answers Arecibo
LLC plan to prevent their landfill from being flooded by future
hurricanes?
Mr. Zamot. Ma'am, could you repeat the question?
Mrs. Napolitano. How do you prevent the landfill from being
flooded by hurricanes?
Mr. Zamot. That is an engineering question that I am not
prepared to answer right now. I would imagine that that has
been looked at in the permitting that the company has received
to date.
Mrs. Napolitano. OK. When and how does the company plan to
bury the toxic ashes generated by the incinerator?
Mr. Zamot. That is being currently discussed with the
current Puerto Rico administration.
Mrs. Napolitano. How many Puerto Rico municipalities
refused to send trash to the plant incinerator?
Mr. Zamot. I think the answer to that is many, because that
represents a threat to current waste management in Puerto Rico,
which the EPA has identified as a critical need to address.
Mrs. Napolitano. How many hospitals in Puerto Rico have
seen their power restored?
Mr. Zamot. Have seen their----
Mrs. Napolitano. How many hospitals had their power
restored?
Mr. Zamot. In Puerto Rico, ma'am, I don't know the answer
to that, but it is not a lot right now. I think we still have
several hospitals that are operating on generator power.
Mrs. Napolitano. The Mayor mentioned the percentages, 75 to
80 percent without restored power. How much longer do you think
this is going to take?
Mr. Zamot. Ma'am, we don't really have an answer to that
question. If confirmed by the court, I plan to work very
closely with the Corps of Engineers, with FEMA, and with other
assets on the ground to get a much better idea.
Mrs. Napolitano. Do they have an estimate on the time?
Mr. Zamot. We do not have an estimate at this time.
Mrs. Napolitano. The other question I have has to do with
the additional wave of people who are leaving Puerto Rico to
other states, and they will strain the state, local, and social
services funding. Has the Oversight Board taken this into
consideration?
Ms. Jaresko. Yes, madam. Of course, one of the efforts in
the fiscal plan development is to create an environment where
people will be able to stay, receive the social support they
need as families, whether that is a proper education, access to
health care, or living conditions.
So, every effort is being made in the fiscal plan to ensure
that the environment is such that people wish to stay at home
and have the ability to stay at home, as well as businesses
staying to generate jobs, which are----
Mrs. Napolitano. But so far they haven't been, because they
still don't have power.
Ms. Jaresko. Well, that certainly is the absolute, Number
one critical problem for both people and businesses today.
Mrs. Napolitano. OK. Then another question has to do with
the documented deaths. What assistance is the Federal
Government providing Puerto Rico mayors to provide a more
accurate count of the deaths?
[Pause.]
Mr. Perez. For example, in Guaynabo, we don't have any
deaths. But the government is the one that is giving the
numbers. Right now there are over 50 deaths. Not during the
hurricane. After the hurricanes. Now it is over 50.
Mrs. Napolitano. But the mayors have been reporting them?
Mr. Perez. Yes, the mayors have been reporting them. But
through the hospitals and through forensic science.
Mrs. Napolitano. Also, there are reports that residents
obtained drinking water from wells at hazardous waste superfund
sites in Puerto Rico. Have water testing efforts begun?
Ms. Jaresko. Madam, those are questions that really the
government would need to answer. I apologize, but that is not
information that we have access to.
Mrs. Napolitano. Why not? You are the mayors.
Ms. Jaresko. No, I am the head of the Oversight Board.
Mrs. Napolitano. Oh, the head of the Oversight Board. But
it is important for us to be able to narrow all these answers.
Thank you, Mr. Chair.
The Chairman. Mr. Wittman, and congratulations for being a
voter.
[Laughter.]
Dr. Wittman. Thank you, Mr. Chairman. I would like to thank
our witnesses for joining us today, and we want you to please
express to the people of Puerto Rico our thoughts and prayers.
I know it is a very challenging time. We appreciate what you
are doing here today to give us a perspective.
Mr. Zamot, I wanted to kind of follow up. You laid out the
framework on where you see things going with the restoration of
power. There are really two elements of that, I think, short-
term and long-term. Give us perspective, because there are a
lot of areas here that are either existing on generator power
with intermittent fuel there, sometimes they are up and down.
Give me a perspective on where things are, in your estimation.
But then also, in the longer term, there is generation,
capacity generation plants, and then the electrical
distribution system. We all know prior to the hurricane the
electrical distribution system was somewhat antiquated.
Give me your perspective on where is the generation
capacity. Is that reliable and up to speed now? Is it just a
matter of modernizing and building the distribution system?
So, if you can, give me those two layers: where are we
right now in getting that interim, until we can get the
distribution system rebuilt; and where is generation capacity
in a time frame where the distribution system is being rebuilt,
and when it becomes functional.
Mr. Zamot. Thank you, sir. As far as your first question,
the Corps of Engineers and FEMA are currently doing the damage
assessment right now, so that will be accomplished, we expect,
in the next 2 weeks.
I can broadly tell you that the big issue right now is that
distribution took a massive hit on the island. We know that
transmission lines were really affected, some of the long-haul
transmission lines from the south to the north, four major
ones, three of them had significant damage. But the real issue
is on a very, very vast distribution network. What we are
finding is the last mile problem is pretty significant.
Actually getting folks power from community substations and the
like.
As far as your second question, what about the generation,
one of the issues we have in Puerto Rico is that, historically,
we have had generation in the southwest, but demand is
predominantly in the northeast. So, we have a mismatch between
where the generation is and where the population is.
New technology allows us to actually do that in a better
way, while being respectful of the environment, emissions,
noise, and any of those things, and those are the solutions
that we are seeking with FEMA, the Department of Energy, and
private capital.
Dr. Wittman. In your estimation, how long do you think it
will take for that to occur? In other words, for it to be done
to completion, generation capacity, distribution capacity, in
your best judgment. I understand you said earlier that there
was not a definitive date, but in your professional judgment,
how long do you think that would be? And give us an idea of the
phasing of that. Obviously, it will be built in phases, or at
least generation and distribution, but give us your perspective
on that.
Mr. Zamot. Sir, it would be difficult for me to actually
give you a date. But what I will tell you is this, that it is
absolutely critical to start incorporating and integrating
near-term recovery activities with that long-term plan.
What we need to do is essentially start not just bringing
some of the distribution and wires up to code, which alone
would be an improvement in Puerto Rico, but now start making
the trade-offs, the cost benefit analyses in tactical
situations.
I will give you a quick example. The hurricane committee
from the southeast, an area named Yabucoa, has a big
transmission line going to the north. It is possible that
repairing that transmission line will actually be costlier than
actually having generation both close to that town and in the
metro area. And those are the decisions that we would seek.
Dr. Wittman. These are all critical-path decisions. And,
obviously, timeliness is key here to get that system back up as
quickly as we can. Obviously, it is food, water, shelter.
Electricity is part of the shelter element there, so the
timeliness of this is key. I think making sure that there is an
emphasis there, and the urgency of what needs to happen with
this, and maybe, like happens in the military realm, you can
pre-purchase some of that stuff.
It seems to me, you ought to be able to buy supplies
beforehand. Power poles is one of those things that we know we
are going to need. We know we are going to need wires. Is there
a way that you can pre-purchase that, get that to the island,
so when you have the plan, you are ready to go and you don't
have to wait for mobilization?
Mr. Zamot. Sir, that is a long-term fix, and you are
absolutely right. In my view, we need to have a better approach
to preparing the island. Resiliency is not just by building and
technology, it is also by preparation to make sure that we can
actually quickly recover from these types of events.
Dr. Wittman. I want to quickly go to Mayor Otero. I want to
get your perspective, because I think your role is absolutely
critical. Having been in your shoes, I know that is where the
rubber hits the road. Give me your perspective. What do we need
to do here to help the citizens of Puerto Rico get back to the
basic elements of food, water, shelter as quickly as we can?
Mr. Perez. First of all, we have both problems,
distribution and generation. For example, in Guaynabo they have
told me PREPA is--you have a lot of places ready, but now we
don't have generation. So, if generation comes to the
metropolitan area, we will have maybe 10, 15, 20 percent more
of our families in their places.
But as I told you, there is a cap in FEMA. There are some
laws that have to be amended for the help, for the families,
and they could go back to their homes. But if we keep on
putting patches, we are going to be here next week, as I told
you, or next year. Because we are in the Caribbean, so we need
to do permanent things there in Puerto Rico.
The Chairman. OK, thank you.
Dr. Wittman. Thank you, Mr. Chairman.
The Chairman. Ms. Bordallo.
Ms. Bordallo. Thank you very much, Mr. Chairman.
Mr. Zamot, my questions are for you, first. I want to thank
you for your service as an Air Force officer.
Many territories like Puerto Rico and Guam, given limited
resources on the island, are forced to make do with outdated
infrastructure and legacy systems, including substandard
electric grids, transmission lines, and power plants. What I
want to know from you, Mr. Zamot, is can you please speak to
the challenges that this presents?
Where are you today, that you weren't directly after the
hurricane? Are you, say, 5 percent better, 10 percent better?
Mr. Zamot. Ma'am, it would be very difficult to answer that
question. I think there is incremental improvement, as far as
understanding the magnitude of the damage. I will give you an
example.
Initial reports were that the transmission sector of the
grid actually took greater damage than distribution. We are
now, based on the very hard work of FEMA and the Corps of
Engineers, finding out that, actually, the distribution side,
especially the last mile, was really where the majority of the
damage was.
Ms. Bordallo. The power is absolutely the top essential,
yes.
Another question I have has to do with rebuilding better
and hardening our infrastructure for natural resources. I think
some of my colleagues have mentioned that. All U.S. territories
are prone to hurricanes, typhoons, and cyclones. Guam is
certainly no stranger. We have gone through typhoons at 200
miles per hour. When rebuilding after natural disasters, we
must always seek to rebuild better.
Mr. Zamot. Correct.
Ms. Bordallo. That is what has happened on Guam. We don't
have people in shelters now after typhoons. We call typhoons a
blessing, because we build better. No longer in wood and tin
roof, but we build in concrete.
So, can you give me some idea? Is FEMA giving funds to
rebuild as was, or are you going to be able to seek funds to
build better, so you can have concrete structures?
Mr. Zamot. Ma'am, the second case. We have a situation
right now where we are rebuilding to code under category B of
the Stafford Act, 100 percent reimbursables, and we are working
extremely closely with FEMA, the Department of Energy, and
other agencies to make sure that we can use a variety of public
assistance grants to actually build resiliency into the system
when we build it better.
It is clear that that is going to be a mix of Federal and
private funding at some point. We are working on a
transformation plan to do exactly that right now. We have a
meeting with our team this week, and we hope to have the
initial transformation plan by the middle of December.
Ms. Bordallo. And this is not just for San Juan, but for
all outlying districts. You are taking that into consideration?
Mr. Zamot. Yes, ma'am. It actually is a wholesale
reimagining, if you will, of the grid. A number of the best
practices that we have from industry tied in with the Puerto
Rico energy strategy, which has already been developed and, at
least as of 2 weeks ago, what the Governor personally sent as
his priorities for rebuilding.
Ms. Bordallo. Well, good. I am glad to hear that.
Can any of you give me an estimate of how many people have
left Puerto Rico and are now living in New York, or some other
state, the mainland?
Ms. Jaresko. The estimates are up to 100,000 at this point.
Ms. Bordallo. One hundred thousand? All right.
I want to close, Mr. Chairman, by saying that I strongly
support efforts to secure additional Federal resources for both
Puerto Rico and the Virgin Islands, as they rebuild from recent
hurricanes. I know, I have been through many of them.
And I also want to say that the residents of Puerto Rico
and the Virgin Islands are American citizens. I think this is
one point we forget about. They deserve nothing less than our
full support in this Committee and in the full Congress.
I yield back, Mr. Chairman.
The Chairman. Thank you.
Mr. McClintock.
Mr. McClintock. Thank you, Mr. Chairman. All of us have
been appalled by the devastation in Puerto Rico, and the
stories have been heart-rendering. Your Resident Commissioner
has kept us focused on that these past few weeks. And we do
recognize a very important responsibility to respond to the
cost of the natural disaster. That is our social contract as a
Federal union.
But in dealing with the natural disaster, we are also
confronting the fact that there was a pre-existing fiscal
condition of the Commonwealth that was not due to act of God,
but rather acts of government, a lot of very, very bad
decisions by the elected government officials of Puerto Rico,
and also perhaps a lot of bad decisions made by the Federal
Government over the years. The Jones Act was just mentioned as
one example.
The Federal Government is responsible for the acts of God
and the acts of the Federal Government, but it is not
responsible for the acts of the Puerto Rico government. Can you
offer us some guidance on how we separate these two
responsibilities?
Ms. Jaresko. Yes, sir. When we were charged, initially,
with implementing PROMESA, we adopted a fiscal plan for 10
years that brought the Commonwealth back to structural balance
without any additional Federal funding. That required, on the
part of Puerto Rico, extraordinary measures. It required a
rightsizing of the government by 30 percent, cutting 30 percent
of cost. It required over 10 years reducing healthcare costs by
30 percent. And we were on that path prior to this devastation.
I think that if we look at the original fiscal plan, for
example, the budget of this year that implemented that fiscal
plan, you have that baseline, what it looked like and what it
could have been, prior to the hurricane. Unfortunately, this
devastation makes some of those measures today impossible. And
it creates a situation where the uncertainty makes it hard for
us to determine exactly what type of measures we need to get
back to that structural balance.
That is why we have asked you, and you have graciously
given us a short-term liquidity window through the community
disaster loans. And we look forward to you doing the same for a
longer period of time, given the population outflow, and given
the fact that businesses continue to be closed because of lack
of electricity. Some have had their workers leave. Others are
looking to Federal tax reform and waiting for a solution on how
Puerto Rico will be treated in the Federal tax reform.
Mr. McClintock. I understand the liquidity concerns. But
again, we have to recognize part of those were pre-existing,
and the result of bad decisions by the Puerto Rican government.
Ms. Jaresko. Yes, sir.
Mr. McClintock. During the hearings on PROMESA, we just
heard that 100,000 have fled the island since the disaster. But
the fact is many were fleeing from it before. And during the
hearings on PROMESA, I pointed out Puerto Rico is a cruise ship
destination. It should be the gem of the Caribbean. People
should be flocking to it, not fleeing from it. Again, not acts
of God, but acts of government.
What can the Federal Government do, long term, in terms of
its overall policies? Again, the Jones Act has been mentioned.
What other suggestions could you have on Federal changes that
could restore the prosperity that Puerto Rico should naturally
enjoy?
Ms. Jaresko. First and foremost, it will be the response to
the devastation. I think the extent to which you help rebuild
the public sector, the extent to which FEMA and HUD and other
agencies are charged with coming in and helping with the
devastation will define Puerto Rico's future to a great extent.
But there are other things, indeed. I think with regard to
tax reform, you need to design something that encourages U.S.
companies to stay and even grow their manufacturing operations
in Puerto Rico. Puerto Rico should not be penalized in that
respect.
Mr. McClintock. My time is fleeting, but I very much want
to get the full answer to the question, not only from you, but
from our other witnesses. Could I ask that you respond to that
in writing? Give us your suggestions on what the Federal
Government can be doing to restore the natural prosperity that
the island should enjoy.
The final question I wanted to ask was to Mr. Zamot. You
mentioned electricity generation and a heavy reliance on
renewables. I assume that means solar and wind. My experience
has been those are the most expensive forms of electricity
generation, and in part because of the relatively low output,
but also because of the intermittent nature of them that
requires ready reserve power to back up.
Why, in a combined power and economic crisis, would you
insist on the most expensive and least productive electricity
sources?
The Chairman. You have 4 seconds to do it.
[Laughter.]
[Pause.]
The Chairman. You did it.
Mr. McClintock. Could I get that answer in writing?
Mr. Zamot. Yes, sir.
The Chairman. You get that in writing, too, yes. Thank you.
Mr. Costa.
Mr. Costa. Thank you very much, Mr. Chairman, I think the
witnesses here get a sense that there is a lot of concern about
not only the devastation and the lives that have been lost in
Puerto Rico, but also the response from the Federal Government,
which I, for one, feel has been lacking in terms of the
coordination.
We all know that natural disasters are devastating to the
communities that they impact, whether they are the hurricanes
in the Caribbean, or tornadoes, or earthquakes, or fires that
we have had in California. The response, though, on behalf of
the Federal Government, where we have a responsibility, I
think, should always be the same, which is that we should do
the best that we can do on behalf of American citizens.
And I think that is why this oversight hearing today and
future efforts are critical, because Members of Congress need
to understand that we, in fact, are doing our best. And if we
are not doing our best, then what is it going to take, in fact,
to provide that support necessary on behalf of people, Puerto
Rico, and the U.S. Virgin Islands.
I have spent a bit of time in that part of the world, and
those islands are beautiful. The people have always been a part
of the fabric of this country, so my thoughts and prayers are
with those families.
But, Mayor, I would like to ask you, and you are not, I
think, unfamiliar with these hurricanes that occur regularly in
the Caribbean. What has made this so different than previous
examples that you may be familiar with in Puerto Rico?
Mr. Perez. Well, the thing is that before you go, there are
some parts of the island, the communications, they were good,
partially good, and some places on the island were working
without a problem.
Right now we have the 78 municipalities devastated----
Mr. Costa. It took out the whole island, and that had never
happened before.
Mr. Perez. It took out the whole island. Different from----
Mr. Costa. So, Puerto Rico has been unable to provide the
response it would be able to provide in previous disasters.
Mr. Perez. Because of that, because this is the first
time----
Mr. Costa. The same with local government. As a mayor, you
have been just limited.
Mr. Perez. Yes, but I used to be an administrator, and----
Mr. Costa. What would you ask us to do in the short term
and the long term, realizing that we do triage in the short
term, but in the longer term we have to be smart about our
ability to get Puerto Rico back on its feet along with the U.S.
Virgins.
Mr. Perez. Sure, in the longer term, we have to work with
our infrastructure, and don't put patches. As was said before,
if we rebuild in concrete, we won't have this problem. If we
just do the same thing, we are going to be here next week,
maybe next year. We have the solution. All we have to do is
work with it.
Mr. Costa. Mr. Zamot, as the Revitalization Coordinator, I
can understand you may not have some of the answers to the
questions that have been asked at hand. But I would hope at
this point in time, given the responsibility that you are going
to have, that you begin to develop an interim and a long-term
plan, and how you will implement that interim and long-term
plan. Could you give us some detail?
Mr. Zamot. Yes, sir. Initially, what we want to ensure is
that we have clarity of purpose between the agencies that are
responsive for immediate----
Mr. Costa. OK, you are working on that now. Have you begun
to develop a price tag in terms of what you think this is going
to cost? Because at the end of the day, to the Mayor's point,
if we are going to do some sound investments, we have to be
clear about how much money it is going to cost, and do you have
the resources.
Mr. Zamot. We are looking at that right now, working with
the Corps of Engineers, FEMA, and the Department of Energy to
get a proper, ground-up estimate of----
Mr. Costa. And how long do you think that is going to take?
Mr. Zamot. My understanding is at least 2 more weeks.
Mr. Costa. All right. Will you be able to provide this
Committee in 2 more weeks, or in a month, what you think the
costs are going to be in the interim and the long term to do
the kind of things the Mayor is suggesting we need to be doing
if we are going to get Puerto Rico and the U.S. Virgins back on
their feet?
Mr. Zamot. We should be able to do that, sir.
Mr. Costa. OK. I think that is very important for members
of this Committee to understand, because there is going to be a
supplemental, and we are going to have to figure out, as we
deal with the situation in Texas and Louisiana, that we do the
same for the people in Puerto Rico and the U.S. Virgins.
Mr. Zamot. Yes, sir.
Mr. Costa. Thank you very much, Mr. Chairman.
The Chairman. Virgin Islands.
Mr. Pearce.
Mr. Costa. U.S. Virgin Islands, yes.
Ms. Bordallo. You said ``the virgins.''
Mr. Costa. Well, because those of us who sail in the U.S.
Virgin Islands refer to it as a pretty part of the world.
The Chairman. I am not touching that line.
[Laughter.]
The Chairman. Mr. Pearce.
Mr. Pearce. Thank you, Mr. Chairman, and thanks to each one
of you for being here. And know that I think each member of the
Committee has expressed their concerns for the situation and
our united desire to help restore power and to restore the
conditions that are just basic to human life.
Mr. Zamot, you kind of ran over time. I am going to call an
overtime period here and let you answer Tom's question, if you
could.
Mr. Zamot. Sir, the question, if I recall, is what are we
doing about integrating renewables into the energy mix of----
Mr. Pearce. Raise your microphone up just a bit.
Mr. Zamot. Yes, sir. Can you hear me now?
Mr. Pearce. Yes, thanks.
Mr. Zamot. The question, if I remember correctly, is how do
we integrate renewables, and why are we integrating renewables
at this point and for the energy strategy.
First off, that energy strategy is actually Puerto Rico's
own developed energy strategy. They developed this for 2040,
that renewables/gas mix.
Renewables, frankly, is a big private investment effort.
So, these are actually vendors from private industry who bring
their own capital to the table and can actually provide power
at competitive rates to the grid. And the issue is how do you
integrate that and have that to be a very resilient mix with
what we see, and the government sees, as predominantly gas for
the remainder of the----
Mr. Pearce. Those private funds, do they receive some sort
of tax credit or anything?
Mr. Zamot. Sir, I would imagine that some of them may, but
I do not have any specific detail on that.
Mr. Pearce. I am talking about from the Puerto Rican
government.
Mr. Zamot. I do not have that information, sir.
Mr. Pearce. OK. Ms. Jaresko, the utility is the absolute
important thing to get restored. In other words, if you are
going to pump water, it takes power, it takes electrical power,
just every basic service depends on that.
I understand that the power company had filed bankruptcy
prior to the storms. What is the status of the underlying
economic state of the company, or the agency?
Ms. Jaresko. PREPA had $9 billion of bonded debt prior to
the hurricane devastation, and that debt was why we ended up
filing Title III.
The fiscal plan process that I described that we will
follow for the Commonwealth, we will do the same for PREPA, and
we should have a sense of what this looks like, going forward,
by the middle of December. I can't say right now what their
financial capacity will be after this.
Mr. Pearce. OK, prior to the hurricane, they were not
paying their obligations. They had filed for bankruptcy, is
that correct?
Ms. Jaresko. That is correct. Yes, sir.
Mr. Pearce. One of the problems that I see, just as a
former business owner taking a look at it, one of the reasons
that residents had to pay such a high rate is that certain
entities did not have to pay for the electrical power. One of
those would be the hotels. Are they still exempt from paying
their power?
Ms. Jaresko. Each of the economic development plans that
Puerto Rico implemented over the years had individual tax
agreements with different businesses and energy--------
Mr. Pearce. I am just asking about the hotels. Are they
still exempt, or are they not exempt?
Ms. Jaresko. Some of them are, yes.
Mr. Pearce. Some of them are exempt?
Ms. Jaresko. That is correct.
Mr. Pearce. Cities were also exempt. And city governments
were exempt prior, according to what I have read.
Mr. Zamot. That is correct, sir.
Mr. Pearce. Yes. So, Mr. Otero, is your community paying
for electrical power, or is that something that you have an
exemption for?
Mr. Perez. We have an exemption, but PREPA does not pay us
for taxes and everything for their----
Mr. Pearce. I understand. But the exemption ends up lying
on the backs of the consumers, which brings their----
Mr. Perez. They don't pay us, we don't pay them.
Mr. Pearce. So again, looking at it from this end, we will
do what we have to do to help you out, but at some point the
system has to work inside itself.
Ms. Jaresko, do you have an idea of how much it is going to
cost to fix the system, just the electrical system. How much,
if you could just tell us what the check should be today, what
would that be?
Ms. Jaresko. [No response.]
Mr. Pearce. Mr. Zamot? I don't know, either one.
Ms. Jaresko. I can't tell you. I, myself, am waiting for
the assessments of damage from FEMA, so I can't give you an
assessment.
Mr. Pearce. One of the problems that I saw, also being
faced by the utility company, is the evacuation of experienced
personnel. They were just retiring and moving on, and were not
able to hire experienced people.
What is the status of the human capital? Do you have the
resources, internally, to fix and run the system, if we get it
back operational?
Mr. Zamot. Sir, we need all hands on deck to actually
recover the system, and from my initial assessment----
Mr. Pearce. But my question is, are you finding the
experienced people to hire inside the system?
Mr. Zamot. Yes, we will need additional people, experienced
people, to actually do the work to repair the system.
Mr. Pearce. So, I would interpret that as kind of a
hesitant no, that you are not finding--anyway, just significant
problems. Again, our heart goes out to you.
I yield back, Mr. Chairman. Thank you.
The Chairman. Thank you.
Mr. Sablan.
Mr. Sablan. Yes, thank you very much, Mr. Chairman. Thank
you for having this hearing.
Two things. My district is known as typhoon alley. I
represent an island that is about 400 miles in distance from
the northernmost part to the southernmost part. That is like
from San Diego to San Jose, California, almost.
I am very interested in the suggestions of the gentleman
from California, Mr. McClintock, on what the government can do
to help Puerto Rico and the rest of the territories pick
themselves up and move on. And one of the things we need to do
is look at Medicaid.
But having said that, because this is examining challenges
of the Puerto Rico recovery and the role of the Financial
Oversight and Management Board, my heart goes out to the people
of Puerto Rico and the destruction. I have seen typhoons like
that.
I would like to yield my time to a daughter of Puerto Rico
also, Ms. Velazquez from New York.
Ms. Velazquez. Thank you so much, Mr. Sablan. And let me
take this opportunity, Mr. Chairman and the Ranking Member, to
thank you for giving us the courtesy to participate in this
important hearing.
Ms. Jaresko, last week, former Senator Ramon Ruiz Nieves
testified before the Energy Subcommittee of the House Committee
on Energy and Commerce. In his very insightful remarks he
indicated, and I quote, ``As most Puerto Ricans sadly
understood after Hurricane Maria, the lack of a strong,
resilient, and smart energy system has the potential of killing
people and destroying the economy.'' And we know that is real.
So, to that point, I want to highlight some troublesome
statistics. Thirty-five percent of small businesses in Puerto
Rico have still not resumed operations, due to power outages.
Ten percent of Puerto Rico's small businesses are expected to
close their doors entirely. A hundred thousand people have left
the island since September 20.
My question is, how are you going to continue funding the
island as more and more businesses close and people continue to
leave?
Ms. Jaresko. Initially, it will require liquidity support
under the Community Disaster Loan Program. Over time, we will
have to determine how many of those people who have left have
left for good, how many will be returning. We will have to
determine and estimate how many of those businesses that have
closed can reopen. Or can new businesses reopen with the
support of SBA, for example?
So, our work, the work that we have ahead of us in our
fiscal plan, is to exactly look at those estimates and try to
rebuild an economy that can be balanced.
Ms. Velazquez. OK.
Ms. Jaresko. That is the charge of PROMESA.
Ms. Velazquez. So, to the question of the bondholders, how
do you foresee bondholders getting repaid?
Ms. Jaresko. I don't have a vision right now of how much,
or at what period of time. That will be defined by a longer
debt sustainability analysis that we need to complete, looking
at 30 years, beyond the 5 years of just the fiscal plan itself.
Ms. Velazquez. So, are you telling me, what do you say, 30
years?
Ms. Jaresko. We have to do a 30-year debt sustainability
analysis before the end of December with the government.
Ms. Velazquez. And the way things are done today, it might
take over 50 years for the bondholders to expect to be repaid,
because there is not going to be a tax base left in Puerto
Rico.
Ms. Jaresko. As you know, prior to the hurricane it
appeared impossible, and that is why we were in Title III, to
repay the creditors. Today, the situation is gravely worse.
Ms. Velazquez. Thank you.
Mr. Zamot, you have expressed in the past your preference
to privatize the electric power authority. And while I
understand that it is in the best interest of consumers and
businesses alike to depoliticize the public corporation, I am
not fully convinced that the only way to do so is by selling
off the grid to the highest bidder.
Can you explain the Board's vision for Puerto Rico's energy
future?
Mr. Zamot. Yes, ma'am. What we are trying to do is, the
Board is trying to consider all options for the future of
Puerto Rico's grid. Privatization may be one of those. But
clearly, attracting innovative capital solutions is a large
part of doing this, so that the Federal Government does not
have to rely on footing the bill.
Ms. Velazquez. And in that energy future, do you foresee
renewable energy playing an important role?
Mr. Zamot. Yes, ma'am. In accordance with Puerto Rico's own
energy strategy, it is a large part.
Ms. Velazquez. Thank you. I yield back.
The Chairman. Thank you.
Mr. Thompson.
Mr. Thompson. Chairman, thank you. Thank you to the panel.
I really appreciate the opportunity to talk about important
issues that impact all those American citizens in the short-
term or long-term Puerto Rico.
Ms. Jaresko, Governor Rossello has expressed his desire to
use microgrids in the rebuild of the island, and the use of
microgrids would allow the island to build back a stronger,
more resilient electrical system, since there would be fewer
points of failure if another hurricane were to hit.
Today, in Puerto Rico, most of the generation is on the
south side of the island and the load is on the north of the
island, with the two sides connected by transmission lines.
Locating generation closer to load, utilizing microgrids, would
alleviate some of the vulnerability that the transmission lines
pose to the current system.
What do we need to do to ensure that, at the very least, we
are building back critical infrastructure, like hospitals,
ports, emergency shelters, with more resilient technologies
like microgrids?
Ms. Jaresko. I think I will yield to Noel.
Mr. Thompson. Sir?
Mr. Zamot. We are working right now with FEMA, the
Department of Energy, and other Federal agencies to examine
exactly that question: What are the best solutions, best
practices out there, so that we can actually build in
resiliency, and actually leverage some Federal programs that
allow us to do just that, so that we don't incur this
tremendous cost the next time another hurricane hits Puerto
Rico?
Mr. Thompson. Thank you. Mayor, in the wake of these
devastating hurricanes, Congress is surely interested in
working with you and with other officials on the ground to
provide relief, again, short-term, looking long-term, in terms
of sustainability to Puerto Rico.
My office specifically worked with constituents who have
family in Puerto Rico to convey what Congress, FEMA, and the
National Guard are doing to provide relief to those who were
hit the hardest. Moving forward, what can we do to ensure that
relief efforts are being used in the most efficient and
impactful methods?
Mr. Perez. You have 78 mayors, and we are the first
responders. If you give us more participation and decision
making, we are the first face the people see and the first
responders for the emergency. All we are asking is to be there
and to receive the help, because everything that comes through
FEMA, through the Corps of Engineers goes through the
municipalities and from us to the people. So, you have 78
mayors and they are willing to help FEMA, the Congress, and the
Administration do the job.
Mr. Thompson. Thank you.
Mr. Zamot, through your experience as a Revitalization
Coordinator, you mentioned the successes of privately-funded
infrastructure improvement projects. You also mentioned that
your ability to provide broader economic development is
limited. How can Congress expand your abilities and help you
provide stable, reliable, and cost-effective power to the
people of Puerto Rico?
Mr. Zamot. Sir, I think I would defer any specific
statutory language to the Committee. But greater clarity on
what the authorities of the Revitalization Coordinator, and
broadly, PROMESA and the Board, would actually be very welcome.
Mr. Thompson. Just one additional question for you.
Certainly the devastating effects of Hurricane Maria have left
thousands without access to power and water. With equipment
that is, on the average, 44 years old, and based on technology
that is even older, Maria gives us the opportunity to bring
Puerto Rico's infrastructure into the 21st century.
How can innovative energy technology such as fuel cells
that utilize our Nation's resource of clean-burning natural gas
be used to revitalize the Puerto Rico energy grid?
Mr. Zamot. Sir, we would be excited to bring all those
solutions to the table, and incorporate any of those good
ideas, any of those fantastic ideas, into our transformation
plan that we are developing right now. We are working very
closely with the government of Puerto Rico, with PREPA, who
actually has provided a lot of technical insight into this
transformation plan.
But our focus is on actually achieving the goals that
Puerto Rico has set for itself in their energy strategy, and
that type of new technology is clearly a part of the future.
Mr. Thompson. Thank you, Chairman. I yield back.
The Chairman. Thank you.
Ms. Tsongas.
Ms. Tsongas. Thank you, Mr. Chairman, and thank you to our
witnesses.
I think it is important to remember that we are having this
hearing today because it has been 47 days since the landfall of
Hurricane Maria, and yet our fellow Americans in Puerto Rico
are still enduring a humanitarian crisis. The electricity
blackout is now the worst in our Nation's history. Many still
do not have safe drinking water. And constituents tell my
office that communication is extremely limited. Some people are
still having difficulty contacting family members in remote
parts of the island.
And I have to say that in my district about a week-and-a-
half ago we had a serious storm which left many of our
constituents without electricity for a day or two, and so many
said, ``I can't stand it after a day or two. What on earth is
it like in Puerto Rico,'' especially if you compound with that
the access to safe drinking water.
One in five of my constituents identify as Hispanic or
Latino, and 40 percent of them are from Puerto Rico. So, their
interest in the health, safety, and long-term economic
prosperity of the island is acute. And that is shared by many
of my constituents, who watch with dismay as our Federal
Government has taken so long to respond.
To address that, since the hurricane struck, I have seen a
tremendous response to help our fellow citizens. Volunteers in
the city of Lawrence organized a major donation drive for
clothing, bottled water, toiletries, and other necessary
supplies to be shipped to Puerto Rico. They just wanted to do
whatever they could to help.
A bipartisan group of elected leaders created the
Massachusetts United for Puerto Rico Fund, which is collecting
donations and distributing money to relief organizations
working directly on the island. So far they have raised over $2
million from over 1,500 individuals.
And the private sector has responded to the crisis, as
well. For example, a solar company in my district donated an
off-grid solar power system and batteries to a family medical
clinic that has been without electricity or clean water.
All wonderful actions, but really designed to try to offset
our Federal Government's slow response.
I received a letter from the Massachusetts Black and Latino
Legislative Caucus, urging Congress to support increased relief
efforts for Puerto Rico. With your permission, Mr. Chairman, I
ask that this letter be entered into the hearing record.
The Chairman. Without objection.
[The information follows:]
The Commonwealth of Massachusetts,
Massachusetts Black and Latino Legislative Caucus,
Boston, Massachusetts
September 29, 2017
Hon. Niki Tsongas,
1714 Longworth House Office Building,
Washington, DC 20515.
Dear Congresswoman Tsongas:
United States citizens are in need of your support, please consider
the plea of approximately 300,000 Puerto Ricans who call Massachusetts
their home. The Massachusetts Black and Latino Legislative Caucus
(MBLLC) would like your immediate support. We respectfully ask for you
to advocate to Congress to play a stronger role in the hurricane relief
efforts in Puerto Rico.
Latino and Black residents in Massachusetts are urging for your
leadership in supporting emergency assistance relief to the residents
of Puerto Rico. Our fathers, mothers, sisters, brothers, friends, and
loved ones are suffering following the devastating category 5 Hurricane
Maria that crossed the Island. Communities throughout Massachusetts
including Boston, Springfield, Lawrence, Holyoke, Westfield and others
are currently gathering items and donations to assist those in Puerto
Rico. We know that these efforts are not enough. The devastation caused
by Hurricane Maria is extensive and will require significant funding
and labor.
In this dire time, the MBLLC asks you to support Puerto Rico relief
efforts by advocating for the following:
Jones Act Suspension: Yesterday, we were relieved by the
Trump Administration's announcement to temporarily suspend
the Jones Act regulations for the next ten days. We believe
that this decision will help to allow for the transporting
of critically-needed cargo and personnel supports to the
region. However, we strongly believe that Congress should
use this natural tragedy to repeal the Jones Act as it
applies to Puerto Rico and any island United States
territories.
Federal Disaster Relief Package: We understand that
Congress has allocated $15.2 billion in Federal Emergency
Management Agency (FEMA) funding directed relief efforts in
Houston, Florida, and other states following Hurricanes
Harvey and Irma. We ask you to urge Congress to include
Puerto Rico to this disaster relief package to provide the
necessary funding stream to support the relief and
reconstruction activities on the Island.
Medicaid Parity Modification: Before Hurricane Maria,
residents of Puerto Rico were faced with higher Medicaid
costs in comparison to U.S. mainland residents. Currently,
Island residents receive a 55% reimbursement of all
Medicaid-related programs, including health care coverage
for the low-income; meanwhile mainland residents are
allocated a minimum of 83% of Medicaid expenses.\1\
Moreover, as soon as December 2017, Puerto Rico will face
the Medicaid Funding Cliff, when money allotted under the
Affordable Care Act (ACA) to finance the Medicaid is
projected to run out.\2\ For these reasons, Medicaid
mediation is urgently needed to enable Island residents to
access affordable health care while the region works to
rebuild. We ask you to urge Congress to pass Medicaid
parity for Puerto Rican residents.
---------------------------------------------------------------------------
\1\ Aponte-Hernandez, Jose. The Hill. http://thehill.com/blogs/
congress-blog/healthcare/348959-the-white-house-congress-must-move-on-
parity-in-medicaid-funds
\2\ Levis, Maria and Neoh, Karen. ACTION REQUIRED: How underfunding
Puerto Rico's health system costs federal and state governments more
money than it saves. Impactivo. http://www.impactivo.com/action-
reguired-how-underfunding-puerto-ricos-health-system-costs-federal-and-
state-governments-more-money-than-it-saves/
Your support for Puerto Rico is most crucial in helping to avoid a
humanitarian crisis. Many U.S. citizens in Puerto Rico are already
facing an economic crisis and now without an ability to work are
considering leaving the Island which will extremely impact the
Northeast, including Massachusetts. New York, Connecticut, Pennsylvania
and others have already mobilized for Puerto Rico. We hope our
---------------------------------------------------------------------------
Massachusetts federal delegation will do the same.
Sincerely,
Representative Frank Moran,
Chair.
______
Ms. Tsongas. With that, Ms. Jaresko, in your written
testimony, you go so far as to state that, ``Without
unprecedented levels of help from the U.S. Government, the
recovery we were planning for will fail.'' And you have said in
your testimony this morning just what is at stake and how
important it is that we respond in a way that helps move Puerto
Rico forward.
Can you give me a realistic sense of the support you would
need from the U.S. Government to help Puerto Rico recover in a
way that does put it in a better place, going forward, not to
just take care of the near-term tragedy and crisis, but helps
position it for the future?
Ms. Jaresko. Are you asking with regard to what the Board
requires, or Puerto Rico?
Ms. Tsongas. Well, I think as the Board would assess it.
Ms. Jaresko. Right now, the estimates that we have seen are
up to $100 billion of damages. Some portion of that, of course,
will be covered by insurance funds, and some portion of that is
private sector.
But the portion that is public sector needs to be rebuilt,
as we have described, and we need to rebuild it in a more
resilient fashion. The key is electricity. That is why the
Board has, first and foremost, made the appointment of Mr.
Zamot as a chief transformation officer a priority. Everything
else will fall from the quick and efficient restoration of
electricity. Above and beyond that, the Board believes that it
has the authority to continue to implement those fiscal
controls that are required to bring back structural balance.
But to the extent that the Congress can provide clarity, we
believe that we could avoid much lengthy legal litigation and
costly litigation when there are differences of opinion with
regard to our authority. And we think that will help ensure a
quicker and more efficient recovery, as things move forward.
So, that is one.
The second is on liquidity assistance. The Congress has
approved a short-term, we are looking forward in the
supplemental to long-term support for liquidity, long-term
meaning more than the next year, as we have described the
reasons for the revenues collapsing and our expenditures
remaining, relatively speaking, the same.
And third, I would just add that I believe that the Board
has a very important role in the long-term funding that
Congress will appropriate, to assure that it is aligned with
the fiscal plans, going forward.
Ms. Tsongas. Thank you. I yield back.
The Chairman. Thank you.
Mr. Gohmert.
Mr. Gohmert. Thank you. I appreciate the witnesses being
here.
Ms. Jaresko, if I understood you correctly, you said that
returning Puerto Rico, basically, to normal depended on quick
and efficient return of electricity. But isn't it too late for
it to have been considered quick and efficient?
I mean, I would have thought we were way past the quick
part of returning electricity. Do you still have hope it is
going to be quick?
Ms. Jaresko. As quick as is possible. I myself have no
electricity where I live with my daughter. We have a generator
for 12 hours in the evening, so I, myself, am looking forward
to being reconnected to electricity.
My point is the longer it lasts, the harder it is going to
be for everyone.
Mr. Gohmert. How long have you been without electricity?
Ms. Jaresko. Since day one.
Mr. Gohmert. OK. And how many days?
Ms. Jaresko. Well, we are a little past 50.
Mr. Gohmert. Yes. I would just suggest perhaps if your idea
of quick is somewhere beyond that, that ought to be
readdressed.
I understand that the Governor has been resistant to the
idea of privatizing the Puerto Rico Electric Power Authority.
But when I look at how long it is taking to return power, it
kind of looks like PREPA is Puerto Rico's, or it is to
electricity what the VA is to quick and efficient health care
for veterans. I cannot imagine it being worse if it were
privatized.
What are your feelings about privatization? I would like to
hear from you, Ms. Jaresko, and then from Mr. Zamot.
Ms. Jaresko. The Board certainly considers privatization as
one of the options, going forward. There is a question that
remains open to see whether it is privatization of the entire
power sector, meaning generation, transmission, and
distribution, or some select part, or whether it just means
bringing in private sector to compete and bring down the cost
and bring up the efficiency of electricity. We are looking at
all of those as we define this fiscal plan for PREPA.
Mr. Gohmert. I have said in the past and still believe,
Puerto Rico has the potential of being the Hong Kong of the
United States, where businesses would flood in there. But even
though Puerto Rico pays no Federal income tax, obviously the
local taxes are even higher than Federal income tax.
So, it has just been quite an anomaly. You have great
people, hardworking people, and one of the most beautiful
places in the world, and yet the people are desperate for help.
Can you put your finger on specifically what you think would
return electricity the quickest? Is all your faith in a small
repair company from Montana?
Mr. Zamot. Sir, rebuilding the grid will take coordination
of effort and clarity of purpose and a unified management and
leadership structure. We currently do not have that, and that
is why the Board has asked to name a Chief Transformation
Officer that would have exactly those authorities.
Mr. Gohmert. How far away are you from naming that
authority?
Mr. Zamot. Sir, I have been named as the Chief
Transformation Officer. It is pending approval from the court
on the 13th of----
Mr. Gohmert. OK, so have you been able to assume any of
those duties, or are you waiting for that formal authority?
Mr. Zamot. Sir, I am waiting for the court.
Mr. Gohmert. OK. Do you have any idea how long before that
would happen? Because it seems that if it is that important to
getting power restored more quickly, then it should not take
that long to have a meeting, grill you, if they have to, all
day, and then come to a decision. How long are you looking at
before you get that authority, if you get it?
Mr. Zamot. Sir, I don't know, but I know that upon
approval, I am ready to work immediately toward marshaling all
those efforts.
Mr. Gohmert. Well, I figured that. But the question is when
do you get that opportunity.
Ms. Jaresko. The court hearing is the 13th. The judge may
or may not decide that day. She may postpone. There could be
appeals, based on whatever the decision is. That is why, in our
testimony, we saw that if Congress agrees----
Mr. Gohmert. Is that totally up to the judge to set that
date?
Ms. Jaresko. She has set the date of the 13th, and it is up
to her to decide what----
Mr. Gohmert. And nobody else has any authority to move
things along more quickly?
Ms. Jaresko. No, but we believe if you, the Congress, agree
with this power that PROMESA has under Title III, that it would
be helpful and we would welcome clarification and ratification
by Congress of that power.
Mr. Gohmert. Is her caseload that overwhelming that she
cannot possibly get to it before the 13th?
Ms. Jaresko. I can't answer that question, sir.
Mr. Gohmert. Pitiful.
The Chairman. Mr. Lowenthal.
Dr. Lowenthal. Thank you, Mr. Chair, and thank you to all
the witnesses for being here and helping us to better
understand how to accelerate the ongoing recovery of Puerto
Rico.
One of the things that really stands out is how sad this is
for the residents of Puerto Rico, how things in terms of their
perspective have moved slowly, all the 70 percent of people
that are still without electricity, and how the restoration is
going to take a long time, and how much of the population lacks
clean drinking water, and hospitals still don't have power. It
is quite a picture you lay out for us.
Something that has really struck me, and two of my
colleagues have raised the issue, is that maybe some of the
problem is that we need to either have exemptions or really get
rid of the Jones Act. I am not sure I believe any of that, that
the Jones Act is really a problem.
I would like to know. Before Hurricane Maria and the other
hurricane, was there any concern about the Jones Act?
Ms. Jaresko. Yes, there was, and it was as well in the
congressional task force report. There have been studies on it.
It does add a level of cost to the island, which we could do
without the additional cost.
I can't say that the moment that the hurricane struck that
this was a critical issue, because the ports were limited in
how much capacity they could intake. But as a long-term----
Dr. Lowenthal. Yes, that is what we had heard. Let me go on
that the real issue was not so much the Jones Act, but the
issue was getting goods from the ports out, because there was
not a transportation system or an infrastructure that could
handle it. And there was really isolation of getting from the
ports to the communities. Can you comment on that?
Ms. Jaresko. What I can comment on is that I have never
seen, when I lived in Ukraine during war, during revolutions, I
have never seen a situation with a more complete total
breakdown of all communications and the structure of the
business environment. You could not function. There were 3 days
where I could not make a phone call to let anyone know that we
were safe. The roads were blocked and flooded. There was no
telephone communication, there was no electricity, no Internet.
And that was right near San Juan, where I live. I cannot even
imagine Utuado, Yabucoa, or other areas that were directly hit
on the incoming.
This is a situation that I think no one could have prepared
for. And it raises just extraordinary questions about how to
deal with an island that completely collapsed. Communications,
electricity, water, completely collapsed. People could not
communicate, even to bring bus drivers, truck drivers to the
ports to help bring the product out of the ports. It is an
incredibly difficult situation.
Dr. Lowenthal. Thank you. Mr. Zamot, I want to change the
topic a little bit, and talk about the trash incinerator
project. Could you tell us right now, prior to the hurricanes,
were there any issues in Puerto Rico about a coal ash problem,
and what to do with the coal ash, and where it was being
stored?
Mr. Zamot. Sir, that is an issue that the government of
Puerto Rico is currently addressing, and the Board was not
involved.
Dr. Lowenthal. So, you don't know whether there were any
problems with coal ash? Does anyone here know? Have there been
any problems with coal--they were able to utilize the existing
kind of landfills to do coal, or to get rid of some of this
toxic coal ash?
Ms. Jaresko. I am aware of the problem. I am also aware of
the environmental protesters and the issues that they have
raised.
Dr. Lowenthal. So, there was a problem before all of this
about coal ash.
Ms. Jaresko. Yes, sir.
Dr. Lowenthal. So, you understand that, and now we are
going to increase the amount of potentially toxic coal ash.
Where is it going to go? What are we going to do with the toxic
coal ash, if there were not landfills before to deal with the
coal ash? By increasing that problem, how do we deal with it?
How do we solve that, the public health----
Mr. Zamot. The particular vendor that has proposed this
project has been coordinating with the government of Puerto
Rico for a number of years now. And it is their assessment, and
the government of Puerto Rico actually agreed in some written
documentation, that this would actually decrease some of the
outcome of some of this waste management.
Therefore, the government of Puerto Rico had actually given
their support to this effort, if they met some of the required
Federal permitting guidelines, which it is our understanding
they did.
Dr. Lowenthal. Well, I am not quite sure. It seems like, in
trying to solve one problem about trash to energy, you are
creating another problem, a huge problem in terms of how to get
rid of the toxic coal ash that already existed on the island.
With that, I will yield back.
But I am not sure this is a resolution. Or rather, it may
solve one problem, but it may create other problems.
The Chairman. Thank you.
Mr. Labrador.
Mr. Labrador. Thank you, Mr. Chairman. Thank you all for
being here. I appreciate it. Having been born and raised in
Puerto Rico, this has been something that has devastated my
family, has devastated the people that I love. And I thank you
for your efforts.
There is an effort by some of my friends on the other side
to say that the Federal Government's response has been
inadequate. Would you say that the Federal Government's
response has been inadequate?
Ms. Jaresko. I think everyone would agree that they wish
that things were better today in Puerto Rico, and faster. But I
don't think I am a judge as to what could have been done
differently.
Mr. Labrador. Correct. So, we all wish that things were
better, and no one expected, I think you said in your testimony
that there was a complete breakdown of communications like we
have never seen before. No one could have prepared for this.
That is different than saying that the response was inadequate.
In fact, Colonel Michael Valle, an Air Force officer who
was born and raised in Puerto Rico, and who has been in charge
of some of the efforts in Puerto Rico, he said that any claim
that the response is inadequate is just not true. In fact, he
told the Huffington Post, and I want to make sure that this was
not a conservative publication, he told the Huffington Post
that, ``As a Puerto Rican, I can tell you that the problem has
nothing to do with the U.S. military, FEMA, or DoD. The aid is
getting to Puerto Rico. The problem is distribution.''
That is one of the problems that we have had from the
beginning, that there was a complete breakdown of the things
that were happening in Puerto Rico that no one could have
foreseen. You wanted to respond to that?
Ms. Jaresko. I want to add that part of it is also just
standard operating procedure. So, if you take your standard
operating procedures from a land mass like the mainland, and
you apply them on the island, where communications have failed,
it does not always work.
I don't think that right now my job is to assign blame, but
instead to just do what we all can do together to make this
recovery faster.
Mr. Labrador. I appreciate it, which is what we should be
doing.
Ms. Jaresko, how do you view the Oversight Board's role in
the recovery efforts?
Ms. Jaresko. I believe the Oversight Board's role is very
important in the recovery efforts. It can make it more speedy,
it can create greater confidence for all the taxpayers who are
funding that recovery effort by: (1) integrating it with the
fiscal plans; (2) integrating with the plans of adjustment in
the Title III cases; and (3) providing the oversight role that
PROMESA gave us, both with contracting and in other areas.
Mr. Labrador. OK. I am trying to read between the lines of
your testimony. I am hearing a call for more tools and
authority, while at the same time you are not calling for more
tools and authorities. So, I want you to be really specific. I
need you to be straight with us, because you have a very
important role.
You stated that prior to the hurricane, the Board possessed
the authority to execute its mission and deliver on the
underlying mandate Congress set with PROMESA, but with the
devastation, you allude that those tools may be inadequate. So,
please tell us, does the Board currently have the tools
necessary to facilitate efficient and effective recovery?
Ms. Jaresko. I will try to be clear. I believe the Board
has the tools, and PROMESA gives us the tools. That said, when
there are disagreements, the use of those tools ends up in
costly and time-consuming litigation.
Today, more than ever, that time and that cost is not
helping Puerto Rico. So, we ask for clarity of the tools that
we have, whether it is in the appointment of a CTO through
Title III, whether it is in the implementation of our contract
policy review, or whether or not it is the implementation of
the fiscal plans in full, when certified.
Mr. Labrador. What else do you need to be successful? Is
there anything else that we need to give you to be successful?
Ms. Jaresko. I think we would appreciate a legislative
affirmation of those and/or conditioning of appropriations on
those powers, as you see fit.
Mr. Labrador. OK. Mr. Zamot, in the October 26 filing, the
Oversight Board sought to give you significant authority to
oversee the power restoration plan and modernize PREPA. What
are your immediate short-term goals for PREPA?
Mr. Zamot. My immediate short-term goals are to actually
integrate a lot of the resources that we have on the ground,
and ensure that we actually reach out, both to all available
resources outside of the island, and integrate those in a
coherent manner.
We clearly need a better strategy to prioritize the areas,
regions, sectors, and clusters that we need to revitalize, to
repower, to grow, and give electric power to the people. And we
also need to ensure that we are very open and are reaching out
to the APPA, EEI, and other agencies to bring in broad support,
not just targeted support, to----
Mr. Labrador. Do you have any long-term goals for PREPA?
Mr. Zamot. Yes, sir. The transformation of PREPA is in
accordance with the Puerto Rico energy strategy, which is 50
percent renewables/50 percent gas, renewable, or regional
grids, and a lot of resiliency.
Mr. Labrador. Mayor Perez Otero, I am sorry I did not have
time to ask you any questions, but thank you for what you are
doing for the island, and for the people of Puerto Rico. Thank
you very much. I yield back.
The Chairman. Thank you.
Mrs. Torres.
Mrs. Torres. Thank you, Mr. Chairman. I also want to thank
you for the opportunity to travel with you to Puerto Rico. It
was certainly an eye-opening experience to hear not just from
your elected commissioner and be briefed on what is happening,
but to see for myself.
I am extremely disappointed at how much, as a Federal
Government, we have, I think, neglected just basic
infrastructure oversight within the territory of Puerto Rico.
The amount of rebuilding that will be necessary to restore
Puerto Rico is staggering. My visit reinforced my serious
concerns that we may be rebuilding to outdated standards that
will not sustain a storm in the strength of Hurricane Maria
Category 5.
Ms. Jaresko, it is my understanding that Puerto Rico has
not adopted updated building code standards since 2011, when
they adopted 2009 building standards, according to the
International Code Council. A lot of the buildings built before
2011 were built long before these codes came into
implementation, and were simply grandfathered in, so what do we
expect to happen when they are hit with a Category 5?
Ms. Jaresko, the scientific community agrees that storms
like Maria, a Category 5 storm, are likely to become more
common. This is the new normal for Puerto Rico and the Virgin
Islands. For Puerto Rico's economy to recover and grow,
Congress will need to step up and assist the island much more
than it has in the past.
If Puerto Rico were a state, it would rank last among all
states in support from the Federal Government in the way of
competitive Federal grants, last in healthcare spending, and
last in transportation.
Mayor Perez Otero, I was a former mayor. I also worked in
the city of Los Angeles. One of the very basic responsibilities
as a mayor and as an employee was to practice an emergency
plan. Everybody coordinated: the police department, the fire
department, City Hall, the lawyers who needed to write the
Federal FEMA grants--everybody coordinated. We coordinated with
ourselves, we coordinated with the county, we coordinated with
the state, southern and northern regions.
You did not have a way to communicate what you needed
because cell phone towers were down, so FEMA provided you with
a satellite phone. Now we have----
Mr. Perez. It did not work.
Mrs. Torres. OK. Well, today, I am finding out that the
satellite phone that you were provided did not work.
Mr. Bishop, I think that we need to have a real
conversation, and maybe we need to take some people to task.
Maybe a public, televised meeting is not the proper place,
because we don't want to be accused of politicizing the issues
that we have in Puerto Rico. But the bottom line is the
leadership is not there.
When FEMA arrived, they had no one to coordinate with, not
from the Governor's office, not from the regional offices. So,
they had to build an infrastructure. Now we have three-star
General Buchanan there. And I looked at the maps we drew up
with him, spent several hours in the back of a van with him. I
saw the maps. All of the roads have been cleared.
The problem is that every day that it rains, there are hill
landslides. The next day after a good storm, you have to go
back and clear those same roads, so they are having to redo
things that they have done over and over and over again.
Who ordered the light poles that you need in order to bring
back the infrastructure? And when was that ordered? Was that
ordered, did Texas get ahead? Did Florida get ahead? Did the
Virgin Islands get ahead of Puerto Rico? It seems like you have
been last in line at every single step of the way.
So, what do we expect from having you appointed in this
position, Mr. Zamot? And you have 20 seconds to answer.
[Laughter.]
Mr. Zamot. Thanks. You expect all of my energies to
integrate all of the resources toward a common vision----
Mrs. Torres. How is that going to be different than what we
have had before from the Governor's office and from everyone
else?
Mr. Zamot. I will need more than 6 seconds to answer that
question, ma'am, respectfully.
Mrs. Torres. Well, maybe you can do it in writing.
Mr. Zamot. Yes, ma'am.
The Chairman. Thank you. Actually, I appreciate Mrs.
Torres' questions there, because I think something we need to
realize is that we have another round of hearings with the
Governor's office coming next week. Some of those should be
directed to them.
I do appreciate the fact that what the Board is doing has
some specifics especially on oversight, and maybe even contract
issues. And contract oversights we have not talked about
before, but you hit on one of the basics, which is why I wish
there had been a couple more witnesses that would have been
here today.
Mr. Tipton.
Mr. Tipton. Thank you, Mr. Chairman, and thank the panel.
And I would concur. We certainly need to be having some
conversations in terms of some of the leadership that was on
the ground, in terms of pre-planning. Obviously, not a new
issue coming to Puerto Rico or the U.S. Virgin Islands down in
the area.
But I would like to start out with Ms. Jaresko first.
In your testimony, you talked about the challenges created
from the timing mismatch, when disaster-related expenses are
incurred and when FEMA reimburses the government for those
expenses. You have gone on to be able to talk about FEMA's
direct payments, which had not been considered in the original
estimate of the territory's liquidity crisis.
I would like to be able to get a little more clarity, if I
may, on that issue. How are the reimbursements working now?
Ms. Jaresko. At this time, for the short term, we were
pleasantly surprised by the fact that FEMA was advancing funds,
the last number I heard was over $350 million, to the
Commonwealth, PREPA, and PRASA. That meant that that did not
affect the liquidity of the Commonwealth, PREPA, and PRASA in
the way that we initially expected, so that was part of it.
The second part of the change in our liquidity estimates
had to do with the fact that the FEMA authority was in fact
directly contracting, for example, with the Army Corps of
Engineers, and that expense did not run through the liquidity,
the TSA, the Treasury Single Account of the Commonwealth. So,
those differences in the short term were important, and that
explains why, to a large extent, the cash on hand in the
Commonwealth is higher than what was forecast in the beginning.
Going forward, I would expect there to be, though, in
categories C through G, which now have been authorized, there
is both a local share that remains, 10 percent, unless you deem
it possible to waive that local share of 10 percent, and there
is a necessity for the Commonwealth to front the money and
reimbursements to be made later.
Mr. Tipton. OK. Great. And just in terms of some of the
accountability, not transfers from FEMA to the Corps of
Engineers, but over to the Commonwealth. Are there protocols in
place to make sure that those resources are going where they
need to be going?
Ms. Jaresko. I believe that the power of the Board through
its contract policy review to ensure that contracts are both
ensuring both market promotion, as written in the law, as well
as compliant with the fiscal plans. The key element there is
that contracts have to be compliant with Federal regulations
and be properly reimbursable to not have a major adverse fiscal
effect on the Commonwealth. And that is where our contract
policy review will help in that process.
Mr. Tipton. So, that was what you had spoke to in your
testimony on contracts--a million or above with random sampling
below those levels. Is that right?
Ms. Jaresko. That is correct, sir.
Mr. Tipton. OK, good. Are there other steps that you see
that the Federal Government needs to be able to take to ensure
that your board can estimate accurately the cash the territory
will need to be able to avoid a liquidity crisis?
Ms. Jaresko. I think having as much knowledge as possible
about the intention of Congress and the Federal Government, in
terms of longer-term liquidity funding, that we can then apply
that in the fiscal plans and then measure against it, as well
as the longer-term supplemental for emergency assistance.
We will not be able to measure against it if we don't know
what we are getting, so that knowledge is important for us.
Mr. Tipton. Again, just one final question to you. You also
wrote that the Board has proposed legislative language that
would require the Board certify all requests for liquidity
advances to ensure that only hurricane-caused liquidity
advances will be sought.
Why does the Board think that certifying these requests is
important?
Ms. Jaresko. I believe that it gives confidence to everyone
that, in fact, the liquidity that you are funding with taxpayer
dollars is, in fact, a result of hurricane disaster, and not a
result of not implementing other economic policies or fiscal
reforms that need to be implemented in any case.
So, I think it provides a baseline and a guideline, if the
Board is certifying those requests.
Mr. Tipton. Thank you. And Mr. Zamot, the whole set-up in
terms of the electrical grid, I think, is obviously very
important to the people of Puerto Rico. But I am also a little
curious for some of us that have a different set-up within our
communities, where the government effectively owns it--you
know, listening to the mayor, they don't charge, they don't
pay, kind of a unique structure.
Mr. Zamot. Yes, sir.
Mr. Tipton. Are there any legislative, any regulatory
limitations to be able to maybe seek private-sector solutions
to be able to expedite this, and to be able to actually get
something that is going to be sustainable?
Mr. Zamot. The fiscal plan that PREPA is currently in, it
is in Title III, and we are developing a fiscal plan for it
that includes a transformation. We will address a lot of those
regulatory options, and it also addresses attracting private
capital for a number of potential solutions to the challenge.
We see the transformation plan as being not just the wires
and the asset base, but also the very structure of the
organization, anything from management, governance, economic
impact, and beyond.
Mr. Tipton. Thank you.
The Chairman. Thank you.
Mr. Gallego.
Mr. Gallego. Thank you.
Mr. Perez, thank you for being here. I have been lucky
enough to go and visit your town a couple of times to visit
friends and for a wedding. It is a lovely, lovely city, not
town.
I am a veteran, a marine, and a member of the Armed
Services Committee. As you know, FEMA is often supported by
military efforts that provide critical capabilities, including
transportation support.
With that in mind, I would like to highlight some of the
differences that occurred between the U.S. response to the
Haiti earthquake, not part of the United States, in 2010, and
the Puerto Rico response following Hurricane Maria just this
year.
In Haiti, the United States provided overnight military
unit deployment. After Maria hit Puerto Rico, it was 5 days
before the first Federal official arrived on the island.
In Haiti, 8,000 troops were present within 2 days. In
Puerto Rico, military support did not reach this level for more
than 10 days. A week after the storm, a Member of Congress
finally encouraged the Pentagon to conduct a coordinated
military effort.
For a side note, I actually got on the phone with NORTHCOM
about 5 days later, and they still had not put on the necessary
assets, and had still not coordinated with FEMA the lists of
what they needed to be done. And that was just 5 days after the
hurricane.
In Haiti, within 2 weeks of the disaster, we had 22,000
troops on-site. But in Puerto Rico, at the 2-week mark, we only
saw about 9,000 military personnel on the island.
All this notwithstanding the fact that hurricanes, unlike
earthquakes, allow for much greater advance planning effort. We
did not see that.
Mayor, wouldn't you have preferred that the Administration
provide the most robust effort possible to attend to the
widespread destruction and suffering of many Puerto Ricans,
like we saw in Haiti?
Mr. Perez. Well, for most mayors, we like to see it faster.
That is what we said from the beginning. The help is coming
through. We would like to see it faster.
I think this is the first time FEMA, and the government of
Puerto Rico, and all of our mayors have faced this disaster and
this devastation over here. So, yes, we would like to see it
faster. That is what every mayor has been saying.
Mr. Gallego. What specifically, in your experience, could
be done to improve the coordination between civilian
authorities and our military after a disaster like this?
Mr. Perez. I think the most difficult for us, it was the
whole devastation in the island, the communications. If they
would come and, right now they establish, they assign some from
the military and from FEMA to each municipality.
I think we are all learning from this experience----
Mr. Gallego. How long did it take for that to occur?
Mr. Perez. It took, I don't know, maybe like 3 weeks
after----
Mr. Gallego. What is the distance between San Juan and
Guaynabo?
Mr. Perez. It is maybe, like 10, 15 minutes.
Mr. Gallego. By helicopter?
Mr. Perez. We are in the metropolitan area. For me it was
not a problem to move from Guaynabo to San Juan.
Mr. Gallego. No, but----
Mr. Perez. But I know, for most of the mayors it was very
hard.
Mr. Gallego. Yes, it was a problem for our military and
FEMA response people. It took 3 weeks to get to you. I have
been to Guaynabo. I drove to Guaynabo from San Juan. If I
remember correctly, I think the drive on a good day is an hour-
and-a-half, especially because I speed.
But now, in a helicopter, if this has been a priority for
the United States, considering that this is an American
municipality, it takes 10 to 15 minutes to put a coordinator in
there, and it took 3 weeks to get somebody to your city. Is
that what you are telling me?
Mr. Perez. No, not to my city, but to other cities.
Mr. Gallego. Yes.
Mr. Perez. It took a long time.
Mr. Gallego. For example, in terms of the Caguas
neighborhood, how long had they been separated?
Mr. Perez. Caguas is maybe 20, 25 minutes from San Juan.
But that is the importance of the mayors and the
municipalities, because we are the first responders. As soon as
the hurricane hits, and it ends, our people were opening the
roads and everything----
Mr. Gallego. Let me make this clear, Mayor. I am not
actually accusing you or the mayors of Puerto Rico of being
derelict in your duty. I am accusing the Federal Government,
FEMA, and our DoD for not responding quickly enough to the
needs of the local municipalities. So, if there is any illusion
on this somehow, that what occurred in Puerto Rico is normal,
or it was sufficient, they are deadly wrong. People died
because of this inaction from this Administration.
And the fact that anyone thinks it is acceptable is just
disgusting. If this had occurred on the mainland, if this had
occurred in, well, it did occur in Texas, and we had done this
type of inaction, we would have generals that had been stripped
of their stars. You would have FEMA administrators that had
been fired.
The idea that it took that long for some of our FEMA
coordinators to be able to coordinate with our municipalities
is absolutely ridiculous. I yield back my time.
The Chairman. The time is expired.
Mr. Gallego. Thank you.
The Chairman. Mr. Graves.
Mr. Graves. Thank you, Mr. Chairman, I appreciate it. Mr.
Chairman, earlier there was discussion about the Jones Act. I
serve on the Transportation Committee, and I want to echo some
of the comments that Mr. Lowenthal made earlier.
This has been fascinating, listening to people talk about
the Jones Act. Do any of you know how many vessels actually
took advantage of the waiver for Hurricane Maria to allow non-
Jones-Act-compliant vessels to serve Puerto Rico?
[No response.]
Mr. Graves. I can answer that question for you. One. One
vessel. The vessel actually required more time to deliver goods
to Puerto Rico than domestic Jones Act-compliant vessels. This
entire thing is a farce.
Mr. Chairman, right now do you know the prices in Miami are
23 percent higher than they are in San Juan? Twenty-three
percent higher in Miami than in San Juan. This is such a
disservice, because we can continue to sit here and make up
solutions in search of problems, or we can focus on real things
that are needed, real solutions that are needed.
I also want to remind you that GAO did a study, and it
could not determine that the Jones Act caused increased cost of
prices in Puerto Rico or otherwise. So, I am going to try to
stay focused on things that are real solutions.
I want to ask you a question. I just got back from Puerto
Rico last night and had a fantastic visit, learned a lot. Mr.
Mayor, it was great to meet with you yesterday. Can either of
you discuss your thoughts on the state of Puerto Rico, its
infrastructure, its economy prior to the hurricane, and how
that has exacerbated recovery?
Ms. Jaresko. Yes. I think, in terms of the electricity, it
is very, very clear that it had been neglected for decades,
that the maintenance had not been done, and that the investment
had not been made. I think, beyond that, we have a clear sense
of the same with regard to wastewater treatment and waste
treatment on the island.
In terms of the infrastructure more broadly, in terms of
governance, that is why PROMESA was put in place. In terms of
fiscal controls and in terms of moving to a structural balance,
I believe that is why the Congress put PROMESA here, to try to
work on those problems prior to the hurricane.
Mr. Graves. Thank you. After Hurricane Sandy, 95 percent of
electricity was restored 11 days after in New York, I believe
it was 23 days after Hurricane Katrina, 140 mile-per-hour
winds--as I recall, Maria was 155 mile-per-hour winds--we had
75 percent of electricity restored in New Orleans and south
Louisiana area. The disparity here is significant. We had 263
substations, 3,000 miles of lines that were destroyed,
affecting ultimately 28,000 miles of transmission lines in
Louisiana.
I want to totally change gears. The Governor recently
proposed a law to address emergencies and disasters. Part of
that law would allow basically eliminating or waiving sales tax
in Puerto Rico. Is that proposal on your radar screen? Were you
consulted?
Ms. Jaresko. No, we were not consulted, and I am aware that
there has been a problem because of the lack of electricity and
the collections of the sales and use tax. However, as
electricity comes back, the collection process should also
return.
Mr. Graves. So, you were not consulted, you were not aware
on the front end. If ultimately the Governor certifies that
this is in compliance with the fiscal plan, and you determine
otherwise, what happens then? How does that play out?
Ms. Jaresko. Well, I would hope that they would consult
prior to putting that policy in place, because it is something
that can have a direct adverse fiscal effect, and it could be
not in compliance with the fiscal plan. If they certify that it
is, as you described, then we have a situation which could
potentially, again, lead to difference of opinion in terms of
what our role is in PROMESA. And it is very difficult for us,
once it is certified by the government as being in compliance,
if we disagree to reverse that.
Mr. Graves. I am sorry. Could you say that last part again,
quick, quick----
Ms. Jaresko. If the government certifies that the executive
order or law is in compliance with the fiscal plan, it is
difficult for us----
Mr. Graves. Your hands are effectively tied. Do you think
Congress should revisit that in terms of something that you
believe causes economic harm, or undermines the objectives of
the fiscal plan, but you don't have the ability to actually
help reset that?
Ms. Jaresko. I think it should be very clear that the
intent of PROMESA was for us to be able to stop things that
were having an adverse effect on the fiscal plan, yes.
Mr. Graves. Thank you.
Mr. Chairman, in closing, I want to jump back over to the
Jones Act. The Jones Act is a national security issue, it is a
homeland security issue. That is why President Obama, that is
why President Clinton, both the President Bushes and
Secretaries of Defense, Joint Chiefs of Staff, the Commandant
of the Coast Guard and many, many other of our military and
national security leaders continue to support and defend the
importance of that law.
With that, I yield back.
The Chairman. Thank you.
Ms. Hanabusa.
Ms. Hanabusa. Thank you, Mr. Chair, and thank you to the
witnesses who are here today.
Director Jaresko, I want to understand the backdrop by
which we are dealing with here. And of course it is about
PROMESA. PROMESA was not intended to address the hurricane,
clearly. It was to address the economic turnaround of Puerto
Rico. And that was, of course, passed last year in the
Congress.
You said that the PROMESA tools are fine. What you would
like to see is basically the Congress put appropriations behind
some of the legislative mandates that we may have in there.
Yet, Mr. Zamot, who is really entrusted with doing the part
that you found to be so critical, because you also said that if
the electricity falls into place, then everything else will
sort of, I guess the domino effect would be that things would
get better.
But Mr. Zamot has said in his written testimony that he
feels that there is not enough teeth, I guess, for lack of a
better description, in PROMESA. He has three steps in his
testimony on page 3, and he says, ``first, bring all available
resources to bear to restore power to Puerto Rico as quickly as
possible; second, develop and implement the transformation plan
for PREPA, ensuring that the near-term recovery activity is
consistent with the long-term vision; and third, ensure the
utility exits PROMESA's Title III.'' Title III is the debt.
So, we have come full circle. Your debt is about $74
billion, right? And that is just the outstanding bond debt and
so forth. How are we going to do all of this, when one of the
major priorities of the recovery of the electrical grid--and
Mr. Zamot can, because this is his testimony--how are you going
to do that when $74 billion is not going to go away?
Ms. Jaresko. I think, first of all, we need to clarify.
PREPA, with regard to Mr. Zamot, has about $9 billion of that
$74 billion. The rest is the Commonwealth and other
instrumentalities.
Ms. Hanabusa. Right.
Ms. Jaresko. And I think the reason that the Board named
and decided at this very difficult time to appoint Mr. Zamot is
to bring all these processes together, because they can no
longer be looked at in separate silos. We cannot deal with the
bankruptcy and the Title III separate from the transformation
of the energy sector, because how we deal with private-sector
investment or not has to be in that plan of adjustment, and it
also has to be in the fiscal plan.
And then we have all this Federal funding hopefully coming
to PREPA to rebuild quickly, and the electricity, that now has
to be brought together----
Ms. Hanabusa. So, do you want $74 billion--I am just trying
to understand. You have $74 billion. I understand $9 billion is
PREPA.
Ms. Jaresko. Yes.
Ms. Hanabusa. But you are saying that the electrical
restoration is the most important.
Ms. Jaresko. Yes.
Ms. Hanabusa. Mr. Zamot, when you talk about exiting
``Title III,'' which is the debt, are you talking about exiting
$9 billion, or are you talking about the whole $74 billion?
Mr. Zamot. No, ma'am. We are talking about a transformation
plan that will address PREPA as a covered entity under Title
III, and exiting Title III via the plan of adjustment means
that we now have a legally enforceable way forward to transform
the electric utility. And part of that is actually the
renegotiation of that debt.
Ms. Jaresko. And it is the $9 billion, ma'am.
Ms. Hanabusa. But the Title III is about the whole debt.
Title V is what gives you your authority under PROMESA to come
up with these innovative plans. Isn't that correct?
Mr. Zamot. You are correct, Title III is, in large part,
having to do with the bankruptcy, the debt piece. But it also
provides the Board with a tool, this fiscal plan to actually
transform each of these covered entities. We incorporate the
economic development aspects of Title V into that.
Ms. Hanabusa. OK, so that we are clear, if we were looking
at how to get the electricity back as quickly as possible, it
would be to exit that $9 billion debt. That would be one of the
first things we would have to do, and then all your different
plans under Title V can take place. Is that a correct
statement, Mr. Zamot?
Mr. Zamot. Not exactly, ma'am. To exit and to get the power
back on, we need to take a number of tactical actions on the
ground through FEMA money, through grants, whatever it may be.
But there is a separate, related but separate, process in
renegotiating that, and coming up with a plan to do that under
Title III, and that is called a plan of adjustment.
Ms. Hanabusa. So, how much money is that? That is why you
are here. How much money is that?
Mr. Zamot. How much money is it to actually----
Ms. Hanabusa. Right.
Mr. Zamot. Ma'am, we could provide you some details very
soon as we work that.
Ms. Hanabusa. Please, thank you. And I yield back.
The Chairman. Mr. Hice.
Dr. Hice. Thank you, Mr. Chairman.
Ms. Jaresko, it looked like you had something you were
wanting to say. I wanted to give you an opportunity.
Ms. Jaresko. I just want to add that completing that Title
III process, having the court affirm a plan of adjustment,
which is, in essence, a business plan going forward, gives the
private sector, the new private sector, new investment, some
sense of stability and certainty, as they make new investments
into the electricity sector.
Dr. Hice. Thank you. As I look at all of this, it kind of
comes down to two key issues that are important to all of us,
and one is, first of all, to make sure our fellow Americans in
Puerto Rico are receiving the emergency care that they need at
such a time like this and, second, to make sure that we are
good stewards of the Federal resources that are going there,
and that kind of provides the umbrella for everything within
this discussion.
And I guess within that context, Ms. Jaresko, let me ask
you this, and thank you, each of you, for being here today. I
know the tasks that are currently facing Puerto Rico--and by
extension you, the Board, and those around you at this time--
are drastically different than they were before the hurricane.
And, of course, when Congress put forth PROMESA, there was no
way we could foresee a hurricane like this, either.
So, with all of that, should this Committee right now be
comfortable with PROMESA, with Board membership, with you, the
associate advisors, all of that put together, those that have
been hired, in light of the new task that you are dealing with
now?
Ms. Jaresko. I think we are blessed, in fact, with the
quality of the Board that was appointed. The expertise on the
Board that varies from dealing with other municipal
restructurings to dealing with running municipalities, running
municipal governments, dealing with complex situations, and
very, very difficult disasters.
I think both the staff and the Board have the group of
characteristics, experience, and dedication that you would need
and is required for the situation. And I think, in terms of our
hiring, we have had to hire additional staff, for example, in
order to meet the contracting policy needs. We don't want to
get in the way of government doing its business, we want to do
it in a quick and efficient fashion, so we have had to add
expertise in the areas where contracts are going to be written.
But I think we are capable of doing that, and we are on top
of it.
Dr. Hice. All right, so you would say, from a transparency
perspective to this Committee, that we should feel comfortable
with where things stand right now, in terms of leadership?
Ms. Jaresko. I believe so, yes, sir.
Dr. Hice. OK. Based on a Committee hearing we had here in
March, a significant complaint that came forward of the
creditors was the failure of the Board to meet with them and
understand the technical challenges of PREPA. It is my
understanding that the creditors actually offered PREPA a 5-
year debt holiday, debt forgiveness, and these types of things,
but the Board chose rather to go with bankruptcy.
Considering the hurricane and where we stand now, do you
still think that was the best decision?
Ms. Jaresko. I think that the RSA that you are describing,
in terms of what was negotiated between the Commonwealth and
the creditors, was one where reasonable people could differ.
I think today the Board and all of us should be very happy
that we did not enter into that agreement because, given the
situation, the cost of that agreement as written would have
been an unbearable burden for the electricity, those who use
electricity.
I think that we have established, to your first point, a
new dialogue with those creditors post that RSA decision and
the decision to take PREPA into Title III, and I think we were
on the way to finding something that would both serve Puerto
Rico and answer their concerns that they rightfully have. I
think we continue to have that dialogue and will continue to
have it, both in the mediation format--we have five Federal
mediators that work with us--as well as directly.
Dr. Hice. So, you stand by that decision and still feel
like it was the right decision to make?
Ms. Jaresko. Yes, sir.
Dr. Hice. OK. Can you tell me something about Mr. Armando
Silva, at this point? I have not been able to find much
information on him. He is a debt restructuring director, is
that correct?
Ms. Jaresko. Yes, sir.
Dr. Hice. OK. A little bit of his background, who is he?
Ms. Jaresko. He is a Puerto Rican financial expert. He has
worked for city, as well as for a few other investment banks.
He has both municipal banking and private banking experience.
He is working as my deputy in this area, because we have, as
you noted, an enormous amount of work.
Dr. Hice. Can you share with this Committee how much he is
being paid?
Ms. Jaresko. I can't. Off the top of my head, I can't tell
you. But I will give it to you in writing, sir.
Dr. Hice. OK. Thank you for that.
Thank you, Mr. Chairman, I yield.
The Chairman. Thank you.
Ms. Barragan.
Ms. Barragan. Thank you, Mr. Chairman. First, I actually
happen to sit on Homeland Security Committee, and we were
supposed to have hearings on the Federal response and FEMA
response, and it has been canceled three times. It has been
completely unacceptable that that has happened. I am glad to
hear that we are at least having a hearing here today on this,
so thank you, Mr. Chairman.
I wanted to echo my colleague's concerns about the
difference in response between the Haiti earthquake and in
Puerto Rico. There have been several articles, the facts are
there. You can't miss them. I mean, the fact that you had over
300 military helicopters within 2 weeks in Haiti, and only 40
within 8 days in Puerto Rico I think is just one of many
statistics out there that show the differences, which is why I
want to make sure to ask questions about why this has been
happening.
I think there has been a huge disparity, I think the
response has been inadequate, and that we need to continue to
not just be loud on this voice, but to continue to make sure we
are looking at all of the options to help Puerto Rico recovery.
I want to just highlight, and I know some people have
talked about this already, what is happening with the water
situation down there. We have heard instances where towns have
been so desperate that they have found these hazardous sites
where there has been water, and people have been drinking from
them. And for me, I don't understand why we are not talking
about this in this Committee, where we deal with water and
power. I get that the power thing is very important and that we
need to focus on that, but, Mr. Mayor, do you think that the 20
percent of people without clean drinking water believe the
Federal Government's response has been adequate?
Mr. Perez. Well, if you ask those people, they will say no.
As I told you, this Committee, if you ask the mayors, we would
like a faster response. For example, in Guaynabo----
Ms. Barragan. Sir, I am sorry, I don't want to cut you off,
I just want to make sure to get through some of my questions.
That was the answer I thought you would say.
You mentioned in your testimony, as well, that 80 percent
of families in your district are without electricity, and most
in rural areas also lack water. Are you satisfied with the rate
of progress in getting electricity and water out in your areas?
And a yes or no.
Mr. Perez. No, with the electricity, not at all.
Ms. Barragan. Thank you. With that, I want to go ahead and
yield the remaining time to my colleague, Mr. Gutierrez.
Mr. Gutierrez. I thank the gentlelady and I thank the
Chairman for allowing us to participate.
I want to go to Mr. Zamot. Coal ash, toxic coal ash, you
don't know about any controversy in Puerto Rico about toxic
coal ash?
Mr. Zamot. Sir, we have seen reports in the press.
Mr. Gutierrez. You have seen reports in the press? Well,
you would have to be pretty blind not to know that there is a
huge controversy already in Puerto Rico when it comes to toxic
coal and the opposition of people to it. And I hope, although
your Board does impose over the people of Puerto Rico a
supremacy, that you would not use that supremacy to continue to
use toxic coal ash.
Arecibo incinerator, Mr. Zamot, I would hope you would talk
to Secretary Vilsack, because you seem to have a different
perspective than he does, since the loan from the USDA is
through the rural utility services. In other words, the money
is not in order to do something with waste management. The
money is to create energy.
But you said to us earlier, and correct me if I am wrong,
if I misunderstood, that the purpose is for, basically, garbage
disposal, and not for energy. How do you see it? Is it garbage
disposal or energy? What is the primary purpose of it?
Mr. Zamot. Sure. The government of Puerto Rico has a letter
out, and they consider that plant in Arecibo to be both a
provider of energy----
Mr. Gutierrez. But when you said primarily, you said
primarily.
Mr. Zamot. The plant at Arecibo, about 2 percent of the
aggregate electrical demand----
Mr. Gutierrez. OK, so primarily, I heard you, and we can go
back to the record, you said that it was primarily, yet they
are asking for a loan between half-a-million and $750 million.
And let me just assure you and everybody here--given the
fact that the government of Puerto Rico already owes over $2
billion, unless Ms. Jaresko is going to use some of her skills
to eliminate that debt, I don't see how we are going to do
that.
In the last 25 seconds, because I want to focus on this
issue with you, do you believe that the control board has such
power that you do not have to take into consideration the
concerns of the duly elected mayors of the cities that will be
affected by the incinerator, or do you feel you need to consult
with them before you make a decision, going forward?
Mr. Zamot. Sir, in 9 seconds, the statute provides for a
public comment period that----
Mr. Gutierrez. So, you don't believe, you do believe that
you are a supreme, you are kind of a dictator over everything?
[Pause.]
The Chairman. Miss Gonzalez.
Miss Gonzalez-Colon. Thank you, Mr. Chairman, and thank
you, all of you, for being here, the panel.
First of all, I want to thank the Chairman and all members
of this Committee that have been traveling to the island during
the last month-and-a-half. I think it is important for Congress
and all Members from the House and the Senate to actually go
there. It is totally different when you receive a report and
actually look at the people there.
People say that the roads are clear. They are not. I was
there yesterday in Barranquitas, and we have more than 18
bridges that were washed away by the rivers. We still have a
lot of roads that have collapsed, and others that are still
closed because of the debris that is still on the roads. So, we
still face a lot of challenges.
First of all, at this time, 67 percent of our people are
still without power. I mean I think that is unacceptable. More
than 20 percent of the island is without running water. A lot
of issues regarding communications, as the Mayor established in
his testimony. But how do we actually make things change on the
island?
One of the issues regarding this oversight is, what
challenges does Puerto Rico have in the recovery process? And I
may say the first challenge is how the Stafford Act actually
permits FEMA and the government of Puerto Rico to work with the
rebuilding process.
And for that I want to thank Congressman Jose Serrano for
allowing me to join him in filing a bill last Friday that would
make direct amendments to the Stafford Act, in the area of
allowing not just repair, or to get back to the 1950s or 1960s
infrastructure that we have on the island, but actually going
into this century, in terms of technology, in terms of making a
rebuild of the island, not a repair. I think the people of
Puerto Rico can have that.
And for that reason, I am also disappointed that I am not
seeing here I think one of the star witnesses to this
Committee, the PREPA Executive Director. I think this Committee
and the rest of the people in Congress need to know what
happened, in terms of the maintenance, in terms of the efforts
from PREPA on the connection of the grid. And if you ask
somebody from the island what is their main concern at this
time, it is that they don't have access to power, to the power
grid.
And we can continue to see more than 100,000 people leaving
the island every day, 1,000 a day, a doctor per day or more. If
we don't have connection to power, we are going to continue to
suffer in our hospitals. There are 19 of them still working on
generators. That is unacceptable.
If we don't have access to electricity, we may lose our
manufacturing industry, our pharmaceutical industry, our
medical device industry. And that represents more than 32
percent of our GDP.
So, for the last month we are going to be with zero
revenue, and we are not tackling those problems. So, not having
the PREPA Director here means--I mean, what is happening there,
what happened about the contract, the transparency, in terms of
negotiation with the contracts regarding the recovery process.
And in that regard, I will directly ask the Board Executive
Director in terms of--you say that the Board has the power to
name a Chief Transformation Officer to take over the management
of PREPA. And at the same time, I know that state governments,
state legislators, the Governor, are against that. And you
filed a motion in the court to allow that to happen.
Do you have the power, or don't you, to actually name the
coordinator board?
Ms. Jaresko. Thank you. We believe we do have that power,
and that is why we filed that petition in court. We believe we
have that power under Title III, as any representative of a
debtor. And the Board is named the representative of the debtor
in the Title III in the law, in PROMESA, to name a chief
restructuring officer, a receiver, a chief transformation
officer, as we call it----
Miss Gonzalez-Colon. Sorry to interrupt you, but then you
don't need any change in the PROMESA law? You don't need any
power to make that happen? Because that is the question this
Committee is doing.
What do you need, in terms of helping the people of Puerto
Rico to recover power? I think that is the main question. If we
were a state, we would not have you. If we were a state, we
would have full funding in all Federal programs. And that is a
problem all territories have.
Ms. Jaresko. The Board believes that appointing a CTO will
help us move more quickly to restoration of power. That is the
only reason the Board took this position, and it took it at
this time.
In terms of what we need, the judge can make a decision on
our own. But again, the reaffirmation of the Congress and/or
conditioning of further appropriations on this would be
helpful.
Miss Gonzalez-Colon. Thank you, Mr. Chairman. And I have
plenty of questions that 5 minutes will not make it, so I will
submit them in writing. I yield back.
The Chairman. I want to thank Representative Gonzalez for
being on all of these CODELs that have gone down there to see
firsthand, especially the one I was on.
We will also tolerate a second round. I can yield you some
more time when I get there, but we have a couple of speakers
who have not asked any questions yet. We have to go through
that first.
Mr. Soto, you are recognized.
Mr. Soto. Thank you, Mr. Chairman. I represent the Orlando,
Florida area, and we have hosted over 90,000 of our fellow
Puerto Ricans in Florida and care deeply about the recovery.
I know I don't have to convince the people of Puerto Rico
that FEMA's response has been wholly inaccurate. They are
already living that nightmare. However, PREPA is part of the
problem. We all know it has been a vehicle of political
patronage for decades. It has exhibited gross incompetence by
overseeing a declining grid, approved a no-bid, insider
Whitefish contract, and has been mired in debt. PREPA is
failing the Puerto Rican people.
As we look to the rebuild, Mr. Chairman, I encourage this
Committee, along with Governor Rossello and the Puerto Rico
legislature, to embrace three principles: (1) to embrace
renewables; (2) to rebuild with resiliency; and (3) to enact
critical reforms.
As to embracing renewables, we must continue on this path
of having 50 percent of our energy by renewable energy, and I
think we take up the task of innovators like Elon Musk and
others to look at solar and wind, and look at biofuels, since
we have an all-season-long, year-long growing cycle in Puerto
Rico. And this can be an energy model for the 21st century if
we invest right.
In addition, we must rebuild with resiliency. By building
an infrastructure that is going to withstand future hurricanes,
that is putting power lines underground, where appropriate and,
in other places, using cement poles rather than frail wooden
ones. And last, we need to enact reform. I encourage Governor
Rossello, the Puerto Rican legislature, to work along with
PROMESA to break up PREPA's failing monopoly.
Florida has investor-owned utilities. We have rural
cooperatives. We also have municipal energy associations that
work together to create our system in Florida. And this is
common throughout the United States. I encourage you all to set
up regions to be bid out and allow utilities, both our cities,
rural cooperatives, and investor-owned utilities, to be able to
bid. And if they bid, they have to pay for the rebuild, or at
least part of it, and they should be meeting these renewables
standards.
And the recently created Public Service Commission should
be overseeing rates, because I worry that the Federal
Government, along with the Puerto Rico Commonwealth Government
is not going to be able to pay for this on its own.
So, Mr. Zamot, what is the total cost of the rebuild of the
grid right now?
Mr. Zamot. Sir, we are looking at that right now. We don't
have a final estimate. The estimates are broad.
Mr. Soto. Would it be north of $50 billion?
Mr. Zamot. For the island, in total? I think there are some
estimates that suggest that.
Mr. Soto. So, is it reasonable to think that the Federal
Government, along with the Commonwealth Government, is not
going to be able to pay that on its own?
Mr. Zamot. Sir, speaking to the electric utility in
particular, I think it is only reasonable to have a mix of
Federal and private dollars for that recovery.
Mr. Soto. Mr. Perez Otero, Mayor, do you think that mayors
such as yourself and other municipalities would be interested
in bidding as municipalities to have a utility?
Mr. Perez. Well, the thing is, right now there is a fiscal
problem in the municipalities, and that is why I am saying you
took care of the liquidity of the state government, now you
have to see the municipalities, because we have lost revenues,
we have lost our businesses, and we have a lot of problems. And
we are the first responders.
Mr. Soto. Sure, but a possibility in the future of being
interested in that, is that correct?
Mr. Perez. It will be a possibility in the future.
Mr. Soto. And Ms. Jaresko, do you think that this would
necessarily have to be part of that vision, if we are going to
be able to rebuild a more resilient, a more renewable-based
grid in Puerto Rico?
Ms. Jaresko. Yes, sir.
Mr. Soto. And why?
Ms. Jaresko. I think that is the only solution for Puerto
Rico right now. The past has shown us that the past, in terms
of a single monopoly, a state-owned monopoly, does not work.
And we also have a responsibility to the taxpayers who are
helping to rebuild, hopefully, very quickly, to make this as
efficient and as resilient as you have described.
Mr. Soto. Thank you, Ms. Jaresko.
Chairman, I encourage this Committee to work with our
Governor Rossello, the Puerto Rican legislature, and the
PROMESA board to embrace renewables, to rebuild with
resiliency, and to enact these well-needed reforms by embracing
competition. And I yield back.
The Chairman. Thank you. We are coming close to the
witching hour when we have to go, but I want to make sure that
everyone who has not yet addressed or asked a question has a
chance to do so, and then we will see where we are at that
stage of the game.
Mr. Brown.
Mr. Brown. Thank you, Mr. Chairman. Two weeks ago I had the
privilege of joining with you, as I mentioned earlier, and a
number of our colleagues to visit Puerto Rico and the U.S.
Virgin Islands, as well as the Florida Keys. I do want to take
the time to thank Ms. Jaresko and Mr. Zamot for your role in
addressing the financial stability of Puerto Rico.
And Mayor Otero, I want to thank you for your leadership,
particularly in this very trying time for the residents of the
town that I know you hold dear in your heart.
When we were on the ground in Puerto Rico, I witnessed the
challenges that Puerto Ricans face every day, and what it will
take to rebuild a stronger Puerto Rico in the aftermath of
these storms. We visited Utuado, a town in the interior of the
island, where homes and infrastructure were extensively
damaged, and ongoing landslides and rain make progress
extremely difficult. Many residents struggle without power or
access to clean drinking water, food, or medication. But they
do all they can to support one another and simply survive.
It has been a month-and-a-half since Hurricane Maria hit.
And, as we have heard, more than 60 percent of Puerto Ricans
are still without power, more than 20 percent of the population
does not have access to a source of clean drinking water, close
to 5,000 continue to live in temporary shelters, and 21 of 51
sewage treatment plants are down. People are suffering from
mold on their skin, and sepsis in their water. And this simply
cannot be tolerated.
The Puerto Rican people are resilient, but they feel
isolated and forgotten. And I cannot even begin to describe in
words that frightening, eerie feeling that I got, even knowing
that I was going to be leaving Utuado in minutes, when the sun
set and darkness descended and completely encompassed this
small town in darkness. It is frightening. It is no wonder
people feel isolated and forgotten.
Congress' Number one priority must be the ongoing short-
term relief and recovery efforts that will allow Puerto Ricans
to get back on their feet and return to a sense of normalcy to
their everyday lives. Then, and only then, after ensuring the
immediate needs are met, should we turn to the longer-term
recovery and rebuild effort that must focus on establishing a
safer and more resilient infrastructure and a financially
stable Puerto Rico.
I get that it is overlapping, but I would hope that our
discussion today, whether it is PROMESA and its authorities,
procedures, oversight, and roles and responsibilities; whether
it is NEPA and its requirements, and whether they should be
waived or exempted; or the Jones Act--that should not eclipse
the more immediate concern that we need to address and not
forget regarding Puerto Rico.
The Stafford will require the reconstruction of Puerto
Rico's power grid, not only rebuilding it in the way that it
was before, but doing it in a new and better way; a focus on
building resilient and sustainable infrastructure moving
forward, especially outside of San Juan; a requirement that
building codes that are designed to minimize the loss of homes
and commercial buildings are actually enforced. And I know that
that is an issue, as well.
But our focus today should be on the dire situation on the
ground and providing Puerto Ricans with every Federal resource
that they need. Better coordination between FEMA, the Army
Corps of Engineers, the Oversight Board, local NGOs, and the
government, and avoiding controversial and unaccountable
contracts like that with Whitefish. You cannot turn this around
overnight, but we have to remain focused on the immediate,
tangible needs to our fellow Americans in Puerto Rico.
And Mr. Chairman, with that, I will yield to Mr. Gutierrez
the balance of my time.
Mr. Gutierrez. I thank the gentleman. Mayor, thank you very
much for being here with us. Could you tell us your annual
salary?
Mr. Perez. Mine?
Mr. Gutierrez. Yes.
Mr. Perez. $96,000.
Mr. Gutierrez. $96,000. Mr. Zamot, what is your annual
salary?
Mr. Zamot. Sir, that is a matter of public record.
Mr. Gutierrez. How much is it?
Mr. Zamot. I think it is in the record, sir.
Mr. Gutierrez. Can't you just tell us how much it is? You
know how much you are getting paid. Why are you so reluctant to
give it to us, this is a committee, I just want to know how
much you are getting paid. The Mayor was very forthcoming.
Mr. Zamot. The Board found a competitive compensation of
$315,000.
Mr. Gutierrez. $315,000. Well, my time is up. I would have
asked----
The Chairman. Thank you. Once again, we are running really
short on time here, but Mr. Serrano, Mr. Ruiz, you have not had
a chance to say anything. Let me make sure we give you the 5
minutes, and then we will see where we are from there.
Mr. Serrano.
And by the way, I like your bill. Next time you write it,
give it so I get some jurisdiction over that as well, it
doesn't always go to a different committee.
Mr. Serrano, you are recognized.
Mr. Serrano. Thank you for inviting us today, and for all
your work. I thank my colleague, Jenniffer, for all her work.
Ms. Jaresko, do you believe the Financial Oversight and
Management Board for Puerto Rico is subject to the oversight
power of the Congress? Do you believe the Board is accountable
to Congress?
Ms. Jaresko. Yes, sir. We are a creature of Congress.
Mr. Serrano. Then I have to tell you that I am very
disappointed that a letter that my sister and friend, Ms.
Velazquez, and I wrote on August 22, expressing our concerns
over the lack of transparency and independent supervision over
the spending decisions made by the Board, has not been
answered.
Ms. Jaresko. Yes, sir. We had an answer for you, we were
waiting to complete our audit, and the hurricane hit. That
response should be received within 24 hours because we have now
completed our audit, which we wanted to attach to the response.
Mr. Serrano. OK. Well, I appreciate as things get somewhat
to normal, that we could get a response.
Ms. Jaresko. Absolutely, sir.
Mr. Serrano. As a result of Hurricane Maria, will the Board
change its austerity-based plan on the island? And how does it
plan to improve the finances of the government of Puerto Rico
at a time in which the government is having very little, if
any, revenues?
Ms. Jaresko. First and foremost, the Board immediately
withdrew its petition to fully enforce the fiscal plan, which
included those furloughs, and made the statement that it will
not look at reinstating those furloughs at least within the
first year.
In terms of how we look at improving the revenues, the
Number one issue we will keep returning to is, obviously,
electricity. So, Number one, the focus of the Board is in the
appointment of the CTO and getting the electricity back for all
the reasons you have described, but not less, as well, the
ability to actually have a revenue generation on the island
which can provide tax revenue for the running of the
government.
Beyond that, we will continue to look at all measures over
the next few months, in terms of improving compliance, the
kinds of things we looked at before, in terms of reducing
expenditures wherever possible.
In the end, we will have to be looking at the population in
Puerto Rico and how we can ensure that we can provide the
government services necessary for that population with the
revenues that we have, and the support of the Federal
Government and Congress in the interim to provide the liquidity
that we cannot generate.
Mr. Serrano. Thank you.
Mr. Zamot, you were appointed coordinator by the Board and
you have two titles with the Board. And while I supported your
appointment, and I did, as CTO, I do have some concerns about
you and the Board upholding collective bargaining agreements.
What are your goals and what do you hope to accomplish in
this new role? Do you plan to privatize PREPA or open the
electricity market up for competition? And how do you plan to
make PREPA more efficient, effective, and honest?
Mr. Zamot. Sir, we are developing a transformation plan for
PREPA. The exit or the approval of that plan under the plan of
adjustment will be a legally binding document. Among the
options in there are a number of uses of private capital for
that.
With regards to your question to collective bargaining, we
see any of those options as compatible with current labor
practices.
Mr. Serrano. Well, I hope that you keep us informed as to
my first question. We don't want to micromanage, and the
Chairman doesn't want to micromanage, but keeping us informed
is very important, because eventually we get asked questions,
too, back home in our districts and throughout the Nation and
from Puerto Rico.
Mr. Zamot. Yes, sir. We will keep you informed.
Mr. Serrano. Social media has a wonderful way of asking you
questions, even if you are not there.
Mr. Zamot. Yes, sir.
Mr. Serrano. Mr. Mayor, thank you for all you do. I can't
imagine being a mayor of Puerto Rico at this time. I can't
imagine being the governor at this time.
Mr. Perez. Absolutely.
Mr. Serrano. I know that there was a feeling that you were
prepared, both the mayor and the central government. Looking
back now, and this is not about criticizing anybody, is there
something you, as mayor, could have done to be more prepared,
and the central government could have done to be more prepared?
Or was this so devastating that you never saw it coming?
Mr. Perez. This is the first time. I think we are all going
to learn from this. And after this we have to sit down and
establish a new form to receive these storms.
This is why we are asking you for the help, and doing
things different. If we want different results, we have to do
things different. So----
The Chairman. I hate to cut you off, Mr. Mayor, especially
at the end of this, but we have to move on. I have one last
person who has not had any questions at all.
Mr. Ruiz.
Dr. Ruiz. Thank you, Mr. Chairman. It is good to be here
again. Thank you for calling this hearing today.
By way of background, I just want everybody to know I am
coming to this with someone who has experience and training in
humanitarian disaster relief. I am a graduate of Harvard School
of Public Health, focusing on humanitarian disaster aid, with
training with the Harvard Humanitarian Initiative, the
International Committee of the Red Cross. I was one of the
first responders in Haiti, and was the medical director for the
largest internally displaced camp in all of Port au Prince, it
was about 60,000, 70,000 individuals living under sheets and
sticks.
So, I have seen firsthand the challenges that arise in the
middle of a humanitarian crisis, and the importance of having
clear leadership, coordination, and a plan, the importance of
making sure that everybody is participating.
I also understand that there are two phases, the initial,
most important, most urgent phase of humanitarian disaster
response in order to prevent loss of life, and then also what
you are involved in, which is the longer-term infrastructure
development, so that we can have economic revitalization and
keep the population in Puerto Rico.
The topic of this hearing, obviously, is important. I am
glad to hear that you are thinking long-term in ways that will
help rebuild Puerto Rico and make it less vulnerable for the
next Category 5 hurricane that we know is going to come at some
point in the future.
But let me tell you what I found 2 weeks ago when I flew
down to Puerto Rico to see the conditions for myself and to do
a needs assessment based on my training and experience and to
give some recommendations.
First, the people in Puerto Rico are very hardworking,
humble, appreciative individuals who, despite the living
conditions that they are in, are looking out for one another
and helping one another with everything that they have left in
order to help each other. OK?
Two, the men and women in DMAT, FEMA, HHS, Army Corps of
Engineers, DoD are doing an exceptional, good job within their
own departments. And I am very proud of the work that they are
doing.
But let me ask you a question to stress a point. Mayor, who
is in charge? Name me the organization that is in charge of
overseeing the entire coordination.
Mr. Perez. Well, it is from the government and FEMA----
Dr. Ruiz. Which government?
Mr. Perez. Rossello and FEMA. They are the ones that----
Dr. Ruiz. OK, so government and FEMA.
Mr. Perez. Yes.
Dr. Ruiz. Who is in charge?
Mr. Zamot. Sir, I would submit that, for many areas, it is
still unclear.
Dr. Ruiz. That is my point. What I found is that there is a
lack of clarity in leadership. FEMA officials say that the
Puerto Rico government is in charge, and the high levels in the
Puerto Rican government say FEMA is in charge, they are running
the show. I also found that, while there are countless men and
women on the ground doing meaningful and effective work, that
work is largely being done in silos, OK?
So, right now, the central command model, a hub-and-spoke
model, is not effective for the type of crisis in Puerto Rico.
Everybody is concentrated in San Juan in a convention center,
air conditioned, food, et cetera, and comfortable. But the
people on the ground, as you said, Mayor, the first responders,
the communities at the local level, are dealing with problems
that keep arising with electricity, food needs, shelter,
everybody is moving from one place to another.
What we need is to change that structure to have field
command posts with everybody who is involved, and the
stakeholders holding each other accountable, having less
bureaucracy, more flexibility, more decision-making control, so
that when there is a new challenge, you can respond in a rapid
manner to deal with that crisis.
Having said that, Mayor, what do you think about that idea
of having field command posts with briefings and collaboration
out in the community, rather than all of it being done in
central command?
Mr. Perez. That is what I said. When they changed that and
they assigned some people to----
Dr. Ruiz. So, you would participate in that?
Mr. Perez. Yes.
Dr. Ruiz. You think that is a good idea?
Mr. Perez. Yes, I have----
Dr. Ruiz. Mr. Zamot, would----
Mr. Zamot. Sir, based on my military background, we had a
saying: centralized control, decentralized execution. So, if
that is consistent with what you are saying, I think that is
one of the best ways to actually bring resources to bear.
Dr. Ruiz. Absolutely. You know what? I saw that with the
82nd Airborne when I was in Haiti. I worked side by side with
the 82nd Airborne. And they had all the stakeholders together
around the table, and we were able to address immediate needs
as they arose. And we worked together in a collaborative method
to save lives and to move resources into the community. And I
see that is lacking in Puerto Rico.
That can easily be resolved if we change the coordination--
--
The Chairman. All right, we have several things that need
to go on here today in the room.
Let me break the rules and give Ms. Velazquez and Mr.
Gutierrez 1 more minute to ask their last questions. And maybe
also Ms. Gonzalez to actually get 1 more minute.
So, Mr. Gutierrez, let's go with you first, just 1 last
minute.
Mr. Gutierrez. Thank you. I will ask Ms. Jaresko. I did not
get to ask you. What is your annual salary?
Ms. Jaresko. $625,000.
Mr. Gutierrez. $625,000. What is the total cost to the
taxpayers of Puerto Rico for the imposition of the Jones Act?
What is the total cost, do you know?
Ms. Jaresko. No, I do not, sir.
Mr. Gutierrez. At $625,000, you make three times what the
Chairperson of the Federal Reserve Board makes, and you don't
know the cost?
Ms. Jaresko. That is correct, sir.
Mr. Gutierrez. How can you plan for the future of Puerto
Rico if you don't know a fundamental cost that has such a huge
impact on the economy of Puerto Rico?
Do you know when the Jones Act was imposed on Puerto Rico?
Ms. Jaresko. Yes, sir, and I did look at the cost, sir----
Mr. Gutierrez. I am sorry, do you know when the Jones, I am
very limited in time----
Ms. Jaresko. The year? No, I don't know off the top----
Mr. Gutierrez. You don't, so you neither know when the
Jones Act was imposed on Puerto Rico in 1920, nor do you know
the cost.
Ms. Jaresko. That is correct.
Mr. Gutierrez. But many economists have suggested that the
cost is between $350 to $400 million a year. And if you
multiply that over the time the Jones Act has been imposed, you
can see how minuscule the $74 billion would be. I would hope,
could you please provide us with the total salaries of your
deputies and all----
The Chairman. Thank you. She can do that. She can do that
in writing, too.
Mr. Gutierrez. Sure, I just wanted to make sure we got it
in writing. Also, how many people are assigned as bodyguards to
each member of the Board.
Ms. Jaresko. Yes, sir.
Mr. Gutierrez. Thank you.
The Chairman. Ms. Velazquez, please.
Ms. Velazquez. Thank you, Mr. Chairman. I was just in
Puerto Rico last weekend. For the first time I was able to go
and see my family in Yabucoa, where the hurricane made
landfall. It looked like someone dropped a bomb. And still they
are waiting for people to show up.
My brother, who got surgery on his shoulder, was cutting
trees with a saw, and the debris is still there on the side of
the roads, on the side of the streets.
This is going to be a very painful and long recovery. And
people are not even discussing the emotional stress and toll
that it is taking on the people of Puerto Rico. People are
leaving because they feel that they have no other option.
People are leaving the island, coming to Florida, Ohio,
Pennsylvania, New York, because there is no hope.
And there will be no hope if we don't have accountability.
Whitefish was not discussed. I hope that you do your job and
make sure that the taxpayers' money is protected and that we
use that money to rebuild Puerto Rico.
The Chairman. Ms. Velazquez, thank you.
Ms. Velazquez. Thank you.
The Chairman. And you are right, we should have had a
witness, we had a witness who bailed on us last minute who
could have been answering those Whitefish questions, you are
right.
Ms. Hanabusa, do you have a motion?
Ms. Hanabusa. Yes. Mr. Chair, I would like to move that the
following letters be added to the record by unanimous consent:
one from the National Hispanic Leadership Agenda; one from
Earthjustice; one from the Hispanic Federation; and the last
from VOCES.
The Chairman. Ms. Gonzalez, I said, as you are a
representative of this island, I will give you 1 minute also to
conclude here.
Miss Gonzalez-Colon. Thank you, Mr. Chairman. I think the
greatest heroes working this project are the people of Puerto
Rico. They are the ones doing all they can to surpass this
difficult time. We never before experienced this kind of
catastrophe. And I want to thank all the personnel that are
still working there, all the municipalities, the government of
Puerto Rico, doing all they can to recover.
But we need, as Congress, to make many changes in a lot of
Federal laws to provide for those services to the island. Of
course, I do think that because of our condition as a territory
we are not receiving the same amount of funds, the same amount
of attention in many areas, and we do need the tools.
My question to you will be to submit in writing all your
proposals for the tax reform, all your proposals for healthcare
reform, all your proposals for infrastructure reform. And I
need that all in writing, because we cannot continue to discuss
things in the air without having a written position from the
Board.
Thank you, Chairman.
The Chairman. No, thank you. I thank you all for being
here. I thank our guests for joining us in this Committee. I do
thank the three witnesses for being here very much. Mayor,
thank you for coming all the way up here. The Board, as well as
Mr. Zamot, thank you for being here.
I think we have heard very clearly the importance of a
congressional reaffirmation to go forward. Ms. Velazquez was
actually right. Whitefish was not discussed here, but I look at
the Board, in looking at that in the future, because there is a
procedure that needs to be reviewed.
As we have said at the very beginning, to solve this
problem it must be done with coordination, and not in an
adversarial concept for all the players, including the
government of Puerto Rico, the Oversight and Management Board,
as well as FEMA, and the Army Corps of Engineers going
together.
And, look, the Board is not going to go away until your job
is finished. We have to recognize that. We want to make sure
that you have the tools necessary to make sure it is
efficiently and effectively done. And let's face it, the grid
is the future of Puerto Rico. That has to be the first thing,
as everyone has been saying here.
So, under Committee Rule 3(o), Committee members have up to
3 days to submit any other questions to you all. You get the
joy of answering those questions, and you have 10 days to do it
before our record is actually closed. Nothing personal, but
that is life.
[Laughter.]
The Chairman. With that, I want to thank everyone for being
here. This has generated a great deal of attention. We will
still have another sequel to this next week. The Governor and
some of his staff are also up here to answer the same kinds of
questions.
With that, thank you for your participation; we are
adjourned.
[Whereupon, at 1:10 p.m., the Committee was adjourned.]
[LIST OF DOCUMENTS SUBMITTED FOR THE RECORD RETAINED IN THE COMMITTEE'S
OFFICIAL FILES]
Rep. Hanabusa Submissions
--Letter addressed to Chairman Bishop and Ranking Member
Grijalva from Earthjustice dated November 7, 2017.
--Letter addressed to Chairman Bishop and Ranking Member
Grijalva from the Hispanic Federation dated
November 5, 2017.
--Letter addressed to President Trump from the National
Hispanic Leadership Agenda dated October 1, 2017.
--Statement for the Record from VOCES Leadership in Action,
titled ``Congress must act now to respond to the
crisis in Puerto Rico and the USVI''