[House Hearing, 116 Congress]
[From the U.S. Government Publishing Office]



 DISCUSSION DRAFT OF H.R. ____, ``TO AMEND THE PUERTO RICO OVERSIGHT, 
  MANAGEMENT, AND ECONOMIC STABILITY ACT OR `PROMESA,' AND FOR OTHER 
                        PURPOSES--PARTS 1 AND 2

=======================================================================

                          LEGISLATIVE HEARING

                             BEFORE THE

                     COMMITTEE ON NATURAL RESOURCES
                     U.S. HOUSE OF REPRESENTATIVES

                     ONE HUNDRED SIXTEENTH CONGRESS

                             FIRST SESSION

                               __________

                   Tuesday, October 22, 2019 (Part 1)
                  Wednesday, October 30, 2019 (Part 2)

                               __________

                           Serial No. 116-25

                               __________

       Printed for the use of the Committee on Natural Resources

[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

        Available via the World Wide Web: http://www.govinfo.gov
                                   or
          Committee address: http://naturalresources.house.gov
          
          
                             __________
                               

                    U.S. GOVERNMENT PUBLISHING OFFICE                    
38-348 PDF                  WASHINGTON : 2020                     
          
--------------------------------------------------------------------------------------          
          
          
                     COMMITTEE ON NATURAL RESOURCES

                      RAUL M. GRIJALVA, AZ, Chair
                    DEBRA A. HAALAND, NM, Vice Chair
   GREGORIO KILILI CAMACHO SABLAN, CNMI, Vice Chair, Insular Affairs
               ROB BISHOP, UT, Ranking Republican Member

Grace F. Napolitano, CA              Don Young, AK
Jim Costa, CA                        Louie Gohmert, TX
Gregorio Kilili Camacho Sablan,      Doug Lamborn, CO
    CNMI                             Robert J. Wittman, VA
Jared Huffman, CA                    Tom McClintock, CA
Alan S. Lowenthal, CA                Paul A. Gosar, AZ
Ruben Gallego, AZ                    Paul Cook, CA
TJ Cox, CA                           Bruce Westerman, AR
Joe Neguse, CO                       Garret Graves, LA
Mike Levin, CA                       Jody B. Hice, GA
Debra A. Haaland, NM                 Aumua Amata Coleman Radewagen, AS
Jefferson Van Drew, NJ               Daniel Webster, FL
Joe Cunningham, SC                   Liz Cheney, WY
Nydia M. Velazquez, NY               Mike Johnson, LA
Diana DeGette, CO                    Jenniffer Gonzalez-Colon, PR
Wm. Lacy Clay, MO                    John R. Curtis, UT
Debbie Dingell, MI                   Kevin Hern, OK
Anthony G. Brown, MD                 Russ Fulcher, ID
A. Donald McEachin, VA
Darren Soto, FL
Ed Case, HI
Steven Horsford, NV
Michael F. Q. San Nicolas, GU
Matt Cartwright, PA
Paul Tonko, NY
Vacancy

                     David Watkins, Chief of Staff
                        Sarah Lim, Chief Counsel
                Parish Braden, Republican Staff Director
                   http://naturalresources.house.gov

                                CONTENTS

                              ----------                              
                                                                   Page

Hearing held on Tuesday, October 22, 2019, Part 1................     1

Statement of Members:
    Bishop, Hon. Rob, a Representative in Congress from the State 
      of Utah, prepared statement of.............................     7
    Gonzalez-Colon, Hon. Jenniffer, Resident Commissioner from 
      the Commonwealth of Puerto Rico............................     4
    Grijalva, Hon. Raul M., a Representative in Congress from the 
      State of Arizona...........................................     1
        Prepared statement of....................................     3

Statement of Witnesses:
    Bhatia Gautier, Hon. Eduardo, Minority Leader, Senate of 
      Puerto Rico................................................    55
        Prepared statement of....................................    56
    Cruz Soto, Hon. Carmen Yulin, Mayor, City of San Juan, Puerto 
      Rico.......................................................    83
        Prepared statement of....................................    84
    Hernandez Montanez, Hon. Rafael, Minority Leader, Puerto Rico 
      House of Representatives...................................    71
        Prepared statement of....................................    73
    Jaresko, Natalie, Executive Director, Financial Oversight and 
      Management Board for Puerto Rico...........................    13
        Prepared statement of....................................    15
    Marrero, Omar, Executive Director, Puerto Rico Fiscal Agency 
      and Financial Advisory Authority...........................     8
        Prepared statement of....................................    10
    Rios Santiago, Hon. Carmelo, Majority Leader, Senate of 
      Puerto Rico................................................    52
        Prepared statement of....................................    53
    Soto Torres, Hon. Antonio L., Member, Puerto Rico House of 
      Representatives............................................    62
        Prepared statement of....................................    63

Additional Materials Submitted for the Record:
    Haddock, Jorge, President, University of Puerto Rico, 
      Statement for the Record...................................     5
    Schatz, Thomas Rivera, President, Senate of Puerto Rico, 
      Statement for the Record...................................    93
    Vazquez Garced, Wanda, Governor of Puerto Rico, Statement for 
      the Record.................................................    95
                                
                                
                                CONTENTS

                              ----------                              
                                                                   Page

Hearing held on Wednesday, October 30, 2019, Part 2..............    99

Statement of Members:
    Bishop, Hon. Rob, a Representative in Congress from the State 
      of Utah....................................................   100
    Grijalva, Hon. Raul M., a Representative in Congress from the 
      State of Arizona, prepared statement of....................   199
    Sablan, Hon. Gregorio Kilili Camacho, a Delegate in Congress 
      from the Commonwealth of the Northern Mariana Islands......    99

Statement of Witnesses:
    Butin-Rivera, Lyvan A., Student Representative, University of 
      Puerto Rico................................................   134
        Prepared statement of....................................   135
        Questions submitted for the record.......................   141
    Cubano, Liliana, President, Puerto Rico Products Association.   124
        Prepared statement of....................................   125
        Questions submitted for the record.......................   132
    Martinez, Adi, Senior Policy Advisor, Oxfam America..........   174
        Prepared statement of....................................   176
        Questions submitted for the record.......................   178
    Martinez Otero, Heriberto, President, Puerto Rico Economists 
      Association................................................   101
        Prepared statement of....................................   103
        Questions submitted for the record.......................   105
    Masses-Artze, Rodrigo, President, Private Alliance for the 
      Economic Growth of Puerto Rico.............................   169
        Prepared statement of....................................   170
        Questions submitted for the record.......................   174
    Mayol, Annie, President, Foundation for Puerto Rico..........   181
        Prepared statement of....................................   183
        Questions submitted for the record.......................   184
    Ortiz-Garcia, Cecilio, Senior Fellow, The National Council 
      for Science and the Environment............................   185
        Prepared statement of....................................   187
        Questions submitted for the record.......................   189
    Spiotto, James, Managing Director, Chapman Strategic Advisors   141
        Prepared statement of....................................   142
        Questions submitted for the record.......................   153
    Velazquez, Alvin, Associate General Counsel, Service 
      Employees International Union..............................   105
        Prepared statement of....................................   107
        Questions submitted for the record.......................   121

Additional Materials Submitted for the Record:
    List of documents submitted for the record retained in the 
      Committee's official files.................................   199



 
 LEGISLATIVE HEARING ON DISCUSSION DRAFT OF H.R. ____, ``TO AMEND THE 
   PUERTO RICO OVERSIGHT, MANAGEMENT, AND ECONOMIC STABILITY ACT OR 
               `PROMESA,' AND FOR OTHER PURPOSES--PART 1

                              ----------                              


                       Tuesday, October 22, 2019

                     U.S. House of Representatives

                     Committee on Natural Resources

                             Washington, DC

                              ----------                              

    The Committee met, pursuant to notice, at 10 a.m., in room 
1324, Longworth House Office Building, Hon. Raul M. Grijalva 
[Chairman of the Committee] presiding.
    Present: Representatives Grijalva, Napolitano, Sablan, 
Lowenthal, Gallego, Cox, Van Drew, Cunningham, Velazquez, 
DeGette, Soto, San Nicolas; Bishop, Gohmert, Lamborn, Wittman, 
McClintock, Westerman, Johnson, Gonzalez-Colon, Hern, and 
Fulcher.
    Also present: Representative Garcia.

    The Chairman. The Committee on Natural Resources will come 
to order.
    The Committee is meeting today and on October 30 to hear 
testimony on the draft bill on the amendments to the PROMESA 
Act of 2019.

    Under Committee Rules, any oral opening statements at the 
hearing are limited to the Chairman and the Ranking Minority 
Member or their designees. This will allow us to hear from our 
witnesses sooner, and help Members keep to their schedules.
    Therefore, I ask unanimous consent that all other Members' 
opening statements be made part of the hearing record if they 
are submitted to the Committee Clerk by 5 p.m. today, or at the 
close of the hearing, whichever comes first.
    Hearing no objection, so ordered.
    Let me begin with my statement.

  STATEMENT OF THE HON. RAUL M. GRIJALVA, A REPRESENTATIVE IN 
               CONGRESS FROM THE STATE OF ARIZONA

    The Chairman. We are here today to begin the first of 2 
days of hearings on the legislation to make changes to PROMESA, 
the Puerto Rico Oversight, Management, and Economic Stability 
Act.
    Today, we will hear from witnesses representing the 
Governor and the Legislature of Puerto Rico, as well as the 
Oversight Board and the Municipality of San Juan. Next week, at 
the second hearing, we will hear from non-profit organizations 
and representatives of labor and the private sector.
    Many of you heard me say that when Congress drafted and 
passed PROMESA, Democrats would have written a different law if 
we were in the Majority. I believe then, and still do today, 
that PROMESA relies too heavily on austerity measures falling 
on the backs of ordinary Puerto Ricans to achieve the goals of 
debt reduction and balanced budget. In this regard, the 
amendments to PROMESA that are contained in the draft that we 
will be discussing today deal with that.
    The draft bill includes provisions to improve PROMESA's 
implementation by defining essential public services, assigning 
Federal funding for the operation of the Oversight Board, 
reducing conflicts of interests, and auditing the public debt, 
among other policy priorities. It also includes provisions to 
address Puerto Rico's disaster recovery challenges.
    The purpose of today's hearing, as well as the one next 
week, is to receive feedback from all the stakeholders on the 
draft's provisions. As a result, I want to encourage anyone who 
is not able to be a witness at either hearing to submit 
comments for the record. We want to hear from all interested 
parties. We are not under any illusion that what we have 
proposed is the best way to address the challenges the people 
of Puerto Rico are facing because of the implementation of 
PROMESA, or the recovery from Hurricane Maria, and we welcome 
all those suggestions to improve this draft bill.
    We have already received numerous comments, both in favor 
and strongly opposed to some of the provisions in the draft. 
You will hear many of those comments from our witnesses today. 
However, I want to caution those who raise objections to the 
way we are proposing to limit austerity measures to also offer 
alternatives to accomplishing this goal.
    I plan on doing all that I can to prevent the Oversight 
Board from using the existing provisions of PROMESA as an 
excuse to cause further suffering to the residents of Puerto 
Rico. It is already the view of many that current policies 
contained in several fiscal plans and annual budgets will 
result in more social polarization, unemployment, extreme 
poverty, and lower educational levels in Puerto Rico.
    The draft bill also includes two coordinated provisions for 
PREPA and the overall disaster recovery of the island that have 
received significant opposition. Our goal in proposing these 
provisions was to eliminate concerns, which have led to severe 
delays in the release of recovery funds. Those concerns center 
around Puerto Rico's ability or inability to manage billions of 
Federal disaster funds in a transparent and open manner. To 
address these concerns, we propose using practices that were 
utilized during Hurricanes Katrina and Sandy recoveries.
    We also provide an opportunity for municipalities and 
community organizations to have input into recovery plans and 
decisions in response to criticism that they had been shut out.
    As with objections to our proposals for reversing austerity 
measures and increasing transparency, we also expect to hear 
alternatives to achieving our objective of expediting the 
release of Federal disaster funds and increasing participation 
in the recovery efforts.
    In closing, I want to welcome our witnesses and thank them 
for traveling all the way from Puerto Rico to be with us today.
    I look forward to receiving your testimony, and continuing 
to work with each of you in improving the lives of the people 
you represent, and the ordinary people of Puerto Rico.
    Like I said, this is a draft discussion. The legislation 
and the provisions are intended to be draft. They are intended 
to have feedback. They are intended for the discussion of the 
members of this Committee to also raise their concerns, offer 
alternatives, and, as we go forward, leading to a potential 
markup, those issues will become more and more prominent as we 
head toward the finalization of a piece of legislation.

    [The prepared statement of Mr. Grijalva follows:]
 Prepared Statement of the Hon. Raul M. Grijalva, Chair, Committee on 
                           Natural Resources
    We are here today to begin the first of 2 days of hearings on 
legislation I am considering, to make changes to PROMESA--the Puerto 
Rico Oversight, Management and Economic Stability Act.
    Today, we will hear from witnesses representing the Governor and 
Legislature of Puerto Rico as well as the Oversight Board and the 
Municipality of San Juan. Next week, at the second hearing, we will 
hear from nonprofit organizations and representatives of labor and the 
private sector.
    Many of you have heard me say that when Congress drafted and passed 
PROMESA, Democrats would have written a different law if we were in the 
Majority. I believed then and still do today, that PROMESA relies too 
heavily on austerity measures, falling on the backs of ordinary Puerto 
Ricans, to achieve its goals of debt reduction and balanced budgets.
    It is in this regard, that I wrote the amendments to PROMESA that 
are contained in the ``Draft'' we will be discussing today. The draft 
bill includes provisions to improve PROMESA's implementation by 
defining essential public services, assigning Federal funding for the 
operation of the Oversight Board, reducing conflicts of interests and 
auditing the public debt, among other policy priorities. It also 
includes provisions to address Puerto Rico's disaster recovery 
challenges.
    The purpose of today's hearing as well as the one next week, is to 
receive feedback from all stakeholders on the draft's provisions. As a 
result, I want to encourage anyone who is not able to be a witness at 
either hearing to submit comments for the record. We want to hear from 
all interested parties. We are not under any illusion that what we have 
proposed is the best way to address the challenges the people of Puerto 
Rico are facing because of the implementation of PROMESA or the 
recovery from Hurricane Maria and welcome all suggestions to improve 
the draft bill.
    We have already received a number of comments both in favor and 
strongly opposed to some of the provisions in the draft. You will hear 
many of those comments from our witnesses today. However, I want to 
caution those who raise objections to the way we are proposing to limit 
austerity measures, to also offer alternatives to accomplishing this 
goal.
    I plan on doing all that I can to prevent the Oversight Board from 
using the existing provisions of PROMESA as an excuse to cause further 
suffering for the residents of Puerto Rico. It is already the view of 
many, that the current policies contained in the several Fiscal Plans 
and annual budgets will result in more social polarization, 
unemployment, extreme poverty, and lower educational levels in Puerto 
Rico.
    The draft bill also includes two coordinator provisions for PREPA 
and the overall disaster recovery of the island that have received 
significant opposition. Our goal in proposing these provisions was to 
eliminate concerns--which have led to severe delays in the release of 
recovery funds--about Puerto Rico's inability to manage billions of 
Federal disaster funds in a transparent and trustworthy manner. To 
address those concerns we propose using practices that were utilized 
during Hurricanes Katrina and Sandy recoveries.
    We also provide an opportunity for municipalities and community 
organizations to have input in the recovery plans and decisions in 
response to criticisms that they are being shut out.
    As with objections to our proposals for reversing austerity 
measures and increasing transparency, we also expect to hear 
alternatives to achieving our objective of expediting the release of 
Federal disaster funds and increasing participation in recovery 
efforts.
    In closing, I want to welcome our witnesses and thank them for 
traveling all the way from Puerto Rico to be with us today. I look 
forward to receiving your testimony and continuing to work with each of 
you on improving the lives of ordinary Puerto Ricans.

                                 ______
                                 

    The Chairman. I want to thank you again, and I want to now 
yield to the Ranking Member, Miss Colon.
    The floor is yours.

   STATEMENT OF THE HON. JENNIFFER GONZALEZ-COLON, RESIDENT 
       COMMISSIONER FROM THE COMMONWEALTH OF PUERTO RICO

    Miss Gonzalez-Colon. Thank you, Mr. Chairman. And thank 
you, the witnesses, for coming here today.
    I think the first thing we should be looking at today is 
explaining the draft legislation to amend the Puerto Rico 
Oversight Board management, better known as PROMESA. This bill 
was enacted in 2016. I remember I was a Minority Leader at the 
time in the Puerto Rico House of Representatives. I opposed 
this bill, for two major reasons.
    First, it gave a federally-appointed board power over 
elected officials of a jurisdiction of more than 3 million 
Americans living on the island that have no votes in the 
Federal Government, other than the votes that I have in a few 
committees in the House, and now in the amendment process on 
the Floor. No other control board was named by officials for 
whom the people could not vote. The members of the Board are 
very capable, and should be greatly appreciated for their 
unpaid service. But, again, it is as undemocratic as can be.
    Relatedly, PROMESA's premise was that Americans of Puerto 
Rico were solely to blame for the territory deficit and debt, 
and I could not sponsor that premise. There was no recognition 
that our area of the United States was underdeveloped and in 
economic decline because of its unincorporated territory 
status, a status that has denied our islands the economic 
benefits of equal treatment in Federal laws and votes and those 
making those laws. There does not appear to be the same 
interest among the key leaders of improving PROMESA as there 
were in the past in passing it, and somewhat late in the 
process, but we should give it a try.
    For that reason, I will not decide how until we hear a 
witness today, but I have this initial inclination.
    First, I truly believe that we should have a realistic 
effort to amend PROMESA that requires a broad bipartisan and 
bicameral support. That was the way it was done in 2016. We 
should do the same thing now.
    For instance, the draft includes different kinds of 
controversial proposals regarding the debt. But in the other 
way, I support provisions that are worth exploring. For 
example, the bill seeks to define essential services to include 
public safety, health care, education, and pensions.
    It also incorporates language from H.R. 683, bipartisan 
legislation introduced by Congressman Velazquez--and I am a co-
sponsor of that bill--that would encourage increased disclosure 
requirements for persons employed by an oversight board to 
manage potential conflicts of interest. And I will always 
support measures that lead to more transparency and 
accountability, as well.
    On the other hand, the draft provision also established a 
Reconstruction Coordinator from Puerto Rico, a Reconstruction 
Coordinator for PREPA. In the past, I have been supporting and 
advocating for a Federal Coordinator that could work with 
various Federal agencies as a liaison to facilitate, access, 
and speed up the disbursement of disaster funds for the island. 
And that is the main issue. We approved the money, but still 
now a lot of local agencies and Federal agencies are not 
getting to a court to get that money down there.
    And as currently drafted, the office of the Reconstruction 
Coordinator will simply add more bureaucratic layers to the 
process. And that is the main question. This coordinator will 
likewise disrupt ongoing efforts to transform our energy system 
and restructure the public corporation finances.
    I believe we should also have a more in-depth discussion 
regarding the purpose and intent of the infrastructure 
Revitalization Coordinator, establish what type of life for 
PROMESA, before we move forward to eliminate it, as the draft 
bill proposed.
    There are several issues that I do support, and many others 
that we should have a more in-depth discussion.
    Additionally, we must recognize that solving Puerto Rico's 
fiscal and economic problems requires that we ultimately 
address the root of the problems: our unequal territorial 
status. Only through statehood will we be able to acquire the 
necessary tools to grow our economy and ensure our island's 3.2 
million Americans are being treated equally.
    I look forward to hearing today's witnesses, and I thank 
you.

    Before yielding back, I do want to introduce for the record 
this statement from the University of Puerto Rico President, 
Dr. Jorge Haddock, as well as our Ranking Member of this 
Committee, Rob Bishop.
    The Chairman. So ordered.

    [The information follows:]
                        Statement for the Record
                        Mr. Jorge Haddock, Ph.D.
                  President, University of Puerto Rico
    Thank you, Chairman Grijalva and Ranking Member Bishop for the 
opportunity to submit this written statement with our comments 
regarding the Discussion Draft to amend the Puerto Rico Oversight, 
Management, and Economic Stability Act of 2016 (also known as PROMESA, 
Public Law 114-187) under the consideration of this Committee.
    The University of Puerto Rico (``UPR'') was established by Puerto 
Rico Law No. 12 of March 1903. Pursuant to Puerto Rico Law No. 1 of 
January 1966, as a public institution of higher education, it is 
required to serve the people of Puerto Rico responding to the ideals of 
a democratic society such as ours. The mission of the University of 
Puerto Rico is to meet the following objectives: (1) Knowledge creation 
and dissemination in science and liberal arts, and service of the 
community by professors, investigators, and other university personnel, 
students and alumni; (2) Contribution to the development, culture, and 
enjoyment of the aesthetic and ethical values of society. The 
University must comply with the law that establishes it while 
fulfilling its mission and vision.
    Currently, the University of Puerto Rico has an enrollment of 
approximately 52,036 students, a reduction of 5,884 students since 
Fiscal Year 2017. Although Hurricanes Irma and Maria had an impact over 
the island's demographics, UPR's enrollment experienced a decrease of 
less than 1 percent from Fiscal Year 2013 to the current fiscal year. 
The University offers 649 academic programs throughout its 11 campuses. 
It has the highest annual graduation rate among all higher education 
institutions on the island.
    Since the enactment of PROMESA, the University of Puerto Rico has 
seen a drastic reduction of the budget that will eventually have a 
negative impact on the quality of its education, the number of low-
income students it can serve, and make it very difficult to fulfill its 
mission and vision.
    Prior to the enactment of PROMESA, the University received from the 
central government a formula-based appropriation established by Law No. 
2 of 1966 from the central government, which was equal to 9.6 percent. 
For Fiscal Year 2017, prior to the implementation of the 2019 UPR 
Fiscal Plan, the University received a total allocation of $879 million 
from the central government. Since Fiscal Year 2017-2018, the UPR has 
seen a reduction of an accumulated $379 million or 43 percent in the 
funds allocated to the institution from the central government budget. 
The graph below portrays the formula fund appropriations foreseen for 
the following years, including the decreased allocation from the state.
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]


    In light of the huge funding cuts it was facing, the UPR 
engaged in an urgent, yet effective, exercise to identify the areas 
that required modifications to reach a sound fiscal system and to 
update information and practices. This exercise included identifying 
methods to become more efficient without sacrificing student excellency 
and its accreditation. After an exhaustive revision of expenses, needs, 
and priorities to ensure it could continue to function appropriately 
and increase its sustainability, the University of Puerto Rico 
developed an action plan with specific timelines and presented a Fiscal 
Plan to the FOMB in compliance with the requirements established by 
PROMESA.
    The University revised its tuition exemption policy and the total 
amount of financial aid, focusing now on students' high performance, 
needs, and work study basis. Today, we estimate that 80 percent of the 
undergraduate students are covered by scholarships or financial aid, 
including Pell Grant, providing access to students with financial 
needs.
    Although the University is complying with its action and fiscal 
plans, and headed toward achieving sustainability, in order to remain 
competitive, it also needs to increase its investments in key areas. 
Among these are: faculty; increased minimum wage; additional income 
programs; investment in student services; financial systems and cloud 
infrastructure; and pension reform, among others. Investment in those 
key areas will result in modernization and a better allocation of 
resources to the academic community. It would specifically benefit the 
students directly in the short-, mid-, and long-term.
    The Middle States Commission on Higher Education (MSCHE), as well 
as other accreditation bodies, requires a certain level of full-time 
faculty members. The American Association of University Professors 
explains the importance of having full-time faculty members this way: 
``. . . tenure protects academic freedom by insulating faculty from the 
whims and biases of administrators, legislators, and donors, and 
provides the security that enables faculty to speak truth to power and 
contribute to the common good through teaching, research, and service 
activities.'' In the UPR, crucial full-time faculty positions remain 
vacant due to lack of funding. The aging workforce and faculty, similar 
to the island's aging demographics, means that more professors will 
retire annually and in light of the budgetary constraints, those 
positions will remain vacant, placing our most prestigious programs and 
their accreditations at risk.
    The FOMB just requested an additional amount of $80 million to fund 
the retirement pension plans. Those additional funds must come from an 
already significantly reduced operational budget that supports the 
minimum standards for the University of Puerto Rico. It is simply not 
feasible, in such a short amount of time, to recover through sponsored 
programs or grants the funds that were cut without making significant 
investments.
    The Federal Government has made substantial investments in the 
University of Puerto Rico through grants. These have furthered 
research, student services, and infrastructure improvements, among 
others things. Additional reductions threaten the upkeep and protection 
of these investments as well as the continuity of programs financed 
with Federal funds. The University of Puerto Rico received over 
$368,000,000 in grants from the Federal Government between Fiscal Years 
2015 and 2018. The abrupt and drastic reduction of funding threatens 
the maintenance and up-keep of infrastructure investments made with 
Federal funds that benefit the students. The University of Puerto Rico 
generates over 70 percent of the scientific publications on the island. 
These infrastructure investments (labs, software, computers) help make 
this possible.
    Hurricanes Irma and Maria in 2017 aggravated the University of 
Puerto Rico's dire economic situation. The total estimated in damages 
to the University is approximately $176,000,000. The recurrent 
financial cuts have reduced the University's financial liquidity, 
substantially threatening the access to an allocation of $100,000,000 
in CDBG-DR funds.
    The financial adjustments already made by the University of Puerto 
Rico have resulted in better management and use of funds, as well as a 
culture of transparency and reporting throughout all units and 
campuses. This institutional transformation is continuous. As a result, 
once full funding is reinstated the use of funds will be optimized, 
resulting in a return on investment that would be measured with 
tangible metrics.
    The University of Puerto Rico fully supports reinstating the funds 
for its operation as established by Puerto Rico Law No. 1 of 1966 or, 
$800,000,000 annually until termination of the Oversight Board pursuant 
to Section 209 as included in Section 4 of the Discussion Draft 
amending Section 201(b)(1)(B) of PROMESA. These funds will allow the 
University of Puerto Rico to fulfill its major role as an essential 
public service that is able to comply effectively with its obligations 
and accreditation requirements. This amendment will ensure 
accessibility of students to the best education possible, particularly 
to those that do not have the economic capacity to afford a quality 
higher education.

    Thank you

                                 ______
                                 

Prepared Statement of the Hon. Rob Bishop, a Representative in Congress 
                         from the State of Utah
    Three years ago this Committee crafted a bi-partisan compromise 
between the then Republican-controlled Congress and the Obama 
administration Treasury Department to help bring stability to Puerto 
Rico's quickly unraveling debt crisis. The effort it took for Congress 
to come together and craft such a complex and balanced law was nothing 
short of herculean. I was surprised we got it done.

    It was made possible by the sincere and genuine commitments made by 
both Democrats and Republicans to put aside politics, realize we were 
dealing with an unprecedented situation, and work for the betterment of 
the territory. At the time, there were no certain outcomes. We had a 
choice: have Puerto Rico continue its chaotic spiral into decades of 
litigation, or, provide them a legal mechanism for orderly and 
equitable adjustment of debt.

    There was no silver bullet then--nothing could cure decades of 
fiscal mismanagement at this scale--and there isn't one now. But, with 
PROMESA's enactment, we are in a far better situation than what the 
territory faced in 2016.

    Today, unfortunately, we sit here to consider the exact opposite of 
what a bi-partisan compromise looks like. The Majority has decided to 
propose an effort that would catastrophically dismantle every bit of 
the balanced law that Congress and the Obama administration worked so 
hard to put in place.

    With such blatant disregard for the well-being of the island's 
citizenry that this proposal represents, the question must be asked: 
who does this benefit? The answer, much to my dismay but to the 
surprise of no one is simple: Democrats would rather listen to their 
radical special interests groups than to consider the detrimental 
impacts this reckless proposal will have on the current fragile 
situation.

    I want to thank the Governor, Wanda Vazquez Garced, for declining 
to appear at this fabricated circus, and instead deciding to send her 
head of Federal affairs. A wise use of her time it would appear.

    I would also like to acknowledge the steadfast presence of Ms. 
Natalie Jaresko, the Executive Director of the Oversight Board, who has 
the thankless job of balancing the actual real work of righting Puerto 
Rico's debt crisis while having to also appear at these political 
circus rings that my Democrat colleagues feel the need to schedule. 
Nevertheless, Ms. Jaresko's testimony today will provide valuable 
insight into the actual progress the Board and the new governor are 
carrying out.

    It is important we all remember what got Puerto Rico into this 
mess: decades to fiscal mismanagement, a limitless appetite for 
borrowing to pay for bloated government services, lack of adequate 
structural reforms, and an inability to invest wisely in crucial energy 
infrastructure.

    Despite progress with the Board, little changed in the past 3 years 
in Puerto Rico's government, other than the resignation of the previous 
governor. Unfortunately, the prior governor refused to work 
productively with the Oversight Board to make the difficult choices to 
get the island on the path to fiscal and economic stability.

    Hurricanes are not the main cause of the chaotic situation Puerto 
Rico finds itself in today, they are merely another challenge the 
island was ill-equipped to face due to a catastrophic breakdown in 
local government that began long ago.

    Unfortunately, the Democrat bill under consideration here today is 
not a realistic step forward for the island, but another empty attempt 
to halt real progress for our fellow Americans.

    I thank the Resident Commissioner for her stalwart leadership and 
the work she conducts to find real solutions for her 3 million 
constituents, and I yield back.

                                 ______
                                 

    The Chairman. Let me now invite our first panel.
    Under Committee Rules, oral statements are limited to 5 
minutes, but your entire statement will be made part of the 
record, as submitted.
    The lights go from green to yellow, and then it is over.
    [Laughter.]
    The Chairman. That will give us enough time to follow up 
with the Members that are here with any questions that they 
might have for you.
    Let me begin with Mr. Omar Marrero, Executive Director of 
the Puerto Rico Fiscal Agency and Financial Advisory Authority.
    Sir, the floor is yours.

  STATEMENT OF OMAR MARRERO, EXECUTIVE DIRECTOR, PUERTO RICO 
         FISCAL AGENCY AND FINANCIAL ADVISORY AUTHORITY

    Mr. Marrero. Thank you. Good morning. Chairman Grijalva, 
Ranking Member, Congresswoman Jenniffer Gonzalez-Colon, and 
members of the Committee, it is a pleasure to be back in front 
of you.
    Governor Vazquez regrets that she was not able to attend 
today because of a critical meeting with the U.S. Department of 
Education to address, among other items, the freeze of more 
than $1.5 billion in Federal funding earmarked for Puerto 
Rico's public education system. The Governor asked me to attend 
today to provide the administration's perspective on the 
proposed amendments to PROMESA.
    As you know, I serve as Chief Financial Officer for the 
Government of Puerto Rico, and Executive Director of the Puerto 
Rico Fiscal Agency and Financial Advisory Authority.
    In addition, I would like to introduce the ex officio 
member to the Financial Oversight and Management Board for 
Puerto Rico, who is attending with me today.
    Since taking office on August 7, 2019, Governor Vazquez has 
made it a top priority to use the tools provided in PROMESA to 
advance the interests of the people of Puerto Rico. To that 
end, we have worked to establish a more collaborative 
relationship with the Oversight Board. We prioritize moving the 
debt restructurings forward, and meeting with various agencies 
and instrumentalities of the government in order to implement 
structural reforms and transparency within the government.
    Our administration is fully committed to making progress 
for the benefit of the people of Puerto Rico. We owe it to 
them.
    With regard to the proposed amendments to PROMESA, the 
written statement submitted sets forth the Governor's position 
of each of the amendments. However, I would like to highlight a 
few of those positions here.
    First, the proposed amendments related to territorial 
relief for unsecured public debt. While the proposed amendments 
may seem on their face to assist territories in relieving the 
debt burden, we believe the effect of the proposed amendments 
will be detrimental to Puerto Rico. Instead of being able to 
fully access the bond markets in the future, we will be limited 
to only the least optimal mechanism for funding future projects 
such as secure or high interest bonds.
    It would also make our restructuring more challenging, and 
likely prolong the existence of the Oversight Board. And with 
all due respect, we just want to get it done and terminate the 
Oversight Board role in Puerto Rico.
    Second, we would like to address the proposed amendments 
that will create additional bureaucracy in the form of a public 
credit comprehensive audit commission, an office of 
Reconstruction Coordinator, and a Revitalization Coordinator 
for PREPA. These functions are either unnecessary or are 
already being addressed by the government of Puerto Rico and/or 
the Oversight Board.
    Specifically, first, there is no need for a public credit 
comprehensive audit commission, because the Oversight Board has 
already completed and published a comprehensive audit of Puerto 
Rico's debt, and commenced litigation as a result thereof. Nor 
is such a commission necessary to address future debt 
obligations, as we are working with the Oversight Board to 
incorporate certain debt management policies into the Title III 
plan of adjustment. What we want to make sure of is that the 
practices that took Puerto Rico to where we are today, that 
they don't happen again. And we will make sure that doesn't 
happen again.
    Similarly, the office of Reconstruction Coordinator is 
unnecessary, because the challenge Puerto Rico faces is 
accessing Federal funding sources, not management of recovery 
funds. As required by the Federal Government, Puerto Rico 
established the COR3 as a centralized oversight authority to 
manage and oversee disaster funding, hired third-party experts 
with global disaster experience to implement best practices, 
and implemented the transparency measures, including, without 
limitation, a portal that provides detailed information about 
the uses of Federal recovery funds provided to the island. No 
other jurisdiction in U.S. history has come up with such 
transparency measures.
    Again, any amendment to PROMESA should be focused on 
centralized coordination at the Federal level.
    One option that needs to be is to really empower the 
Federal disaster recovery coordinator to direct and liaise with 
the various Federal agencies to assist the Puerto Rico 
government in accessing Federal funding sources. Because, as 
Congresswoman Gonzalez just mentioned, we need the close 
coordination at the Federal level.
    Finally, a Revitalization Coordinator for PREPA is 
unnecessary, and could be damaging to the ongoing 
transformation process. The government of Puerto Rico and the 
Oversight Board are working together to bring private 
management to the transmission and distribution system, 
encouraging private investment in and building of new 
generation, and creating a strong and predictable regulator.
    We have made substantial progress toward that effort, and 
are hoping to select a counterparty and begin implementation of 
the transaction in early 2020. Appointing a coordinator for 
PREPA will be disruptive to the ongoing process, and could 
damage Puerto Rico's overall recovery.
    In closing, on behalf of the Governor, I would like to 
express our continued appreciation for the efforts of the 
Committee to make PROMESA a more effective law that can better 
meet the needs of the people of Puerto Rico. Congress and the 
members of this Committee have always been great friends of 
Puerto Rico, and we look forward to that continued partnership, 
as well.
    I am happy to take your questions, sir.

    [The prepared statement of Mr. Marrero follows:]
  Prepared Statement of Omar Marrero, Chief Financial Officer for the 
  Government of Puerto Rico and Executive Director of the Puerto Rico 
              Fiscal Agency & Financial Advisory Authority
    Chairman Grijalva, Ranking Member Bishop, and members of the 
Committee, I am Omar Marrero, the Chief Financial Officer for the 
Government of Puerto Rico and Executive Director of the Puerto Rico 
Fiscal Agency and Financial Advisory Authority (``AAFAF'', by its 
Spanish acronym). Thank you for the opportunity to address the 
Committee today on the proposed amendments to PROMESA.
                            i. introduction
    It is a privilege to appear before you again this year, although 
this time in a different capacity. I was appointed Executive Director 
of AAFAF and CFO of the Government of Puerto Rico in July. Pursuant to 
its Enabling Act, AAFAF serves as the fiscal agent for the Commonwealth 
and its instrumentalities, and is tasked with communicating with the 
Oversight Board and overseeing matters of fiscal planning and debt 
restructuring on behalf of the Government of Puerto Rico. Prior to 
serving as the Executive Director of AAFAF, I served as the Executive 
Director of the Puerto Rico Public-Private Partnerships Authority and 
the Central Office for Recovery and Reconstruction of Puerto Rico--
roles that involved close coordination with the Oversight Board and 
Federal agencies.
    Since taking office on August 7, Governor Vazquez has been focused 
on promoting integrity and transparency in the public sphere and 
working with AAFAF to move Puerto Rico forward and give the people of 
Puerto Rico a bright future. Governor Vazquez and her administration 
are determined to bring real progress to Puerto Rico. We believe that 
Puerto Rico will benefit from cooperation between the Federal 
Government, both the legislative and executive branches, the Oversight 
Board, and the Government of Puerto Rico. It is in that spirit that we 
address the proposed amendments to PROMESA today.
            ii. general observations on proposed amendments
    The proposed amendments are a good faith attempt to address certain 
specific issues that have arisen in the implementation of PROMESA and 
many of them are worthy of consideration. We are concerned, however, 
that certain of the proposed amendments do not address critical issues 
that have hindered the effectiveness of PROMESA and impose unnecessary 
bureaucracy in areas where we are already making progress. We address 
those issues here.
Fiscal Plan and Budgeting Process
    The proposed amendments do not address the flawed fiscal plan and 
budgeting process. PROMESA created a power-sharing arrangement that 
contemplates the Oversight Board setting spending caps or limits within 
which the Government of Puerto Rico determines spending in line with 
its public policy. In certain instances, the Oversight Board has used 
its fiscal plan and budgetary power to impose detailed spending 
restrictions that have the effect of dictating public policy--an 
approach that undermines the Government's powers and turns the 
Oversight Board into something more akin to a control board. The lack 
of a forum for the Government of Puerto Rico to challenge the Oversight 
Board's decision to certify a fiscal plan or budget exacerbates this 
problem. While we are working diligently with the current Oversight 
Board to establish a more effective process, this concern with PROMESA 
is broader than our current relationship and will impact how future 
administrations and future oversight boards work together.

    To address this issue, we submit that Sections 201 and 202 of 
PROMESA should be amended to make clear that the Oversight Board's 
fiscal plan and budgetary powers do not extend to determining day-to-
day operating level expenditures. In addition, Section 106(e) of 
PROMESA should be amended to provide a mechanism for the Government of 
Puerto Rico (but not other third parties) to review and potentially 
challenge Oversight Board fiscal plan and budget certifications. This 
would (1) allow the Government of Puerto Rico to enforce the key 
provisions required in fiscal plan and budgets and (2) prevent abuses 
of power that strip the Government of Puerto Rico of its ability to 
make operational decisions.
Additional Bureaucracy
    The proposed amendments would create additional bureaucracy in the 
form of a Puerto Rico Public Credit Comprehensive Audit Commission, an 
Office of Reconstruction Coordinator for Puerto Rico, and a 
Revitalization Coordinator for Puerto Rico Electric Power Authority. 
These functions are either unnecessary or are already being addressed 
by the Government of Puerto Rico and/or the Oversight Board.

    Puerto Rico Public Credit Comprehensive Audit Commission. The 
Oversight Board has already completed and published a comprehensive 
audit of Puerto Rico's debt and commenced litigation to invalidate 
certain bond issues based on that audit. Repeating that exercise would 
only result in an unnecessary expense and create a strain on resources. 
Nor is such a Commission necessary to address future debt obligations 
as we are working with the Oversight Board to incorporate certain debt 
management policies into the Title III plan of adjustment that will 
limit Puerto Rico's ability to incur debt in the future to an 
appropriate level.

    Office of Reconstruction Coordinator for Puerto Rico. Establishing 
another agency to manage Puerto Rico's use of recovery funds is 
likewise unnecessary. Puerto Rico established the COR3 to promote and 
implement reconstruction efforts with efficiency, effectiveness, and 
transparency. Among its many other functions, COR3 established a 
transparency portal (found at https://www.recovery.pr/home) that 
provides detailed information about the uses of Federal recovery funds 
provided to the island. COR3 has been very successful in its mission 
and has provided unprecedented transparency on the use of recovery 
funds.

    The challenges with regard to Federal funding relate primarily to 
the difficulties in coordinating the various Federal agencies that 
provide funding. The requirements for receiving the appropriated 
funding are often opaque and seem to change regularly. We believe that 
Puerto Rico would benefit from the Federal Government providing a 
coordinator who could work with the various Federal agencies as a 
liaison to assist the Puerto Rico Government in accessing the Federal 
funding sources.

    Revitalization Coordinator for Puerto Rico Electric Power 
Authority. The Government of Puerto Rico and the Oversight Board share 
a common goal of transforming the electric system in Puerto Rico. We 
are working to bring private management to the transmission and 
distribution system, encouraging private investment in and building of 
new generation, and creating a strong and predictable regulator. We 
have made substantial progress with well-known and qualified private 
parties toward a contract for management of the transmission and 
distribution system and hope to select a counterparty and begin 
implementation of that transaction early in 2020. We have also 
established the Puerto Rico Energy Bureau and begun the revamping of 
the generation assets. Our goal is to address PREPA's liabilities 
through a plan of adjustment in 2020 concurrently with the transition 
to a private operator of the transmission and distribution system. We 
expect the transition to the private operator to start in early 2020 
and be completed by year-end. Appointing a Revitalization Coordinator 
for PREPA would disrupt the ongoing process and potentially damage 
Puerto Rico's overall recovery efforts.
         iii. specific observations on the proposed amendments
    In addition to the observations above, set forth below is a chart 
that summarizes our positions on the specific proposed amendments to 
PROMESA.


------------------------------------------------------------------------
   Proposed Amendment Title               Government Position
------------------------------------------------------------------------
Sec. 3. Federal Funding for    We do not object to the Federal
 Operation of Oversight Board   Government paying for the Oversight
 and Title III Proceedings      Board's operational and Title III costs.
                               The Committee should consider, however,
                                the potential legal risk that doing so
                                provides additional support for the
                                argument that the Oversight Board's
                                actions are actions of the Federal
                                Government and that any debt
                                restructuring could therefore give rise
                                to takings claims against the Federal
                                Government.
------------------------------------------------------------------------
Sec 4. Definition of           We oppose this amendment because a narrow
 Essential Public Services      definition of essential public services
                                could limit Puerto Rico's flexibility to
                                meet the needs of its citizens. If the
                                amendment is going to be included, then
                                we suggest that it be clear that the
                                word ``including'' means ``including
                                without limitation.''
------------------------------------------------------------------------
Sec 5. Definition of Economic  We support this proposed amendment and
 Growth                         suggest the Committee slightly modify
                                the proposed definition of
                                ``expenditures and investments necessary
                                to promote economic growth'' to also
                                include expenditures sufficient to cover
                                funding for disaster recovery
                                activities.
------------------------------------------------------------------------
Sec 6. Disclosure By           We support these new disclosure standards
 Professional Persons           because they facilitate transparency.
 Employed by Court Order
                               The Committee may wish to consider
                                modifying the mechanics so that the
                                process works more effectively with the
                                standards already implemented in the
                                Title III process and does not create
                                additional cost or competing standards.
------------------------------------------------------------------------
Sec 7. Access to Information   We oppose this proposed amendment for
                                several reasons including, without
                                limitation, the following:
                                First, this amendment could
                                infringe on privileges and immunities
                                that are important to the government
                                being able to function, such as the
                                attorney-client privilege and the
                                deliberative process privilege.
                                Second, this amendment could
                                result in bondholders having the ability
                                to obtain information that bondholders
                                would not otherwise be able to obtain
                                under the guise of free exchange of
                                information. That information could be
                                used to disadvantage Puerto Rico and the
                                Oversight Board in restructuring
                                negotiations.
                                Third, this amendment is
                                unnecessary because the Puerto Rico
                                Constitution provides sufficient
                                protections for parties seeking
                                information.
------------------------------------------------------------------------
Sec. 8. Puerto Rico            We do not have a position on this
 Infrastructure                 proposed amendment, but to the extent
 Revitalization Repealed        Title V of PROMESA is not repealed, we
                                suggest the Committee amend Title V to
                                include the Federal permitting process,
                                especially with respect to recovery
                                activities.
------------------------------------------------------------------------
Sec. 9. Territorial Relief     We oppose the proposed new Title VIII of
 for Unsecured Public Debt      PROMESA because we believe the provision
                                would eliminate Puerto Rico's ability to
                                access unsecured credit in the future
                                resulting in Puerto Rico having to
                                borrow only secured debt.
------------------------------------------------------------------------
Sec. 10. Puerto Rico Public    We oppose this proposed amendment for the
 Credit Comprehensive Audit     reasons set forth above.
 Commission
------------------------------------------------------------------------
Sec. 11. Office of             We oppose this proposed amendment for the
 Reconstruction Coordinator     reasons set forth above.
 for Puerto Rico
------------------------------------------------------------------------
Sec. 12. Revitalization        We oppose this proposed amendment for the
 Coordinator for Puerto Rico    reasons set forth above.
 Electric Power Authority
------------------------------------------------------------------------


                             iv. conclusion
    We appreciate the efforts of the Committee to make PROMESA a more 
effective law that can better meet the needs of Puerto Rico. Our 
comments are intended to be constructive in helping you evaluate the 
proposed amendments and focus on areas where change can be most 
effective. We look forward to working with you to achieve a brighter 
future for the people of Puerto Rico.

                                 ______
                                 

    The Chairman. Thank you. And please, sir, if you don't mind 
extending the appreciation of the Committee to the Governor, we 
understand that her presence at her meeting relative to the 
education issue is of utmost importance, and, while we miss her 
presentation, we understand the priority. So, I appreciate it 
very much.
    Mr. Marrero. Yes, sir.
    The Chairman. Let me now introduce Ms. Natalie Jaresko, 
Executive Director of the Financial Oversight and Management 
Board for Puerto Rico.
    The floor is yours.

  STATEMENT OF NATALIE JARESKO, EXECUTIVE DIRECTOR, FINANCIAL 
         OVERSIGHT AND MANAGEMENT BOARD FOR PUERTO RICO

    Ms. Jaresko. Chairman Grijalva, Ranking Congresswoman 
Gonzalez, and members of the Committee, thank you for this 
opportunity to update the Committee on the Board's work on 
behalf of the people of Puerto Rico.
    I have submitted written testimony for the record and look 
forward to your questions.
    In 2016, Congress passed PROMESA in a bipartisan manner. 
While we could all think of ways of improving compromise 
legislation such as this, the fact is PROMESA is working. 
Together with the new governor, Wanda Vazquez, and her 
administration, the bipartisan Oversight Board is making 
substantial progress on restructuring Puerto Rico's debt, and 
is continuing to improve fiscal responsibility and management 
on the island.
    Last month, the Board filed its proposed plan of adjustment 
to restructure $35 billion of debt and other claims against the 
Commonwealth, the Public Buildings Authority, and the 
employment retirement system, and more than $50 billion of 
unfunded pension liabilities. That plan reduces $35 billion in 
Commonwealth liabilities to $12 billion. That plan limits the 
annual maximum debt service from $4.2 billion to an annual $1.5 
billion. That plan keeps debt service to a sustainable level of 
less than 9 percent of government-owned source revenue, 
compared to 28 percent prior to PROMESA.
    It creates a debt management policy to ensure that Puerto 
Rico never again finds itself in this position, it provides 
that 74 percent of current and future pensions are not cut, and 
it establishes a multi-billion-dollar trust to support the 
payment of pensions for the next 30 years. It restores $1.3 
billion of mandatory employee contributions that no longer 
exist, and assumes new collective bargaining agreements with 
public-sector unions to give them predictability and certainty.
    In sum, this plan represents a series of compromises on the 
part of various stakeholders who all recognize the need to give 
Puerto Rico a fresh start. Together with COFINA, GDB, PREPA and 
PRASA, we are finally moving forward with restructuring most of 
Puerto Rico's debt.
    In addition to restructuring this immense debt load, 
PROMESA charges the Board with helping Puerto Rico to achieve 
fiscal sustainability. And to do this, Puerto Rico must focus 
its efforts on implementing structural reforms to improve the 
economy's competitiveness, managing its scarce funds more 
efficiently, consolidating the government agencies that exist, 
and attracting high-quality managers to a smaller, better-
managed government.
    If spending alone was the answer, the decades of excessive 
spending that led to this accumulation of debt would have left 
Puerto Rico with efficient infrastructure and robust government 
services. But it did not. That is because it is not just the 
amount of spending that matters, but how efficiently it is 
spent.
    For example, just last year the Department of Education in 
Puerto Rico underspent $56 million of its budget, despite the 
need to improve educational outcomes. The Department of 
Corrections left $22 million unspent, despite clear needs of 
adult and juvenile facilities. At the police bureau, $35.8 
million went unspent, despite clear needs for investment in 
personnel, and more and newer equipment. At the Highway and 
Transportation Authority last year, only 30 percent of 
available funds for investment into roads was used, despite the 
overwhelming need for repair.
    As I stated at the beginning, PROMESA is working. Having 
said that, we agree that certain parts of the discussion draft 
would improve PROMESA. For example, the proposed provision 
authored by Representative Velazquez to expand certain 
disclosure requirements for professionals in the Title III case 
would be effective at avoiding conflicts of interest and 
creating greater transparency.
    On the other hand, as my colleague has noted, the Board is 
concerned that other parts of the discussion draft, while well-
intentioned, could compromise the Board's ability to fulfill 
its mandate under PROMESA. For example, the unsecured debt 
discharge language may make it harder and more expensive for 
the Board to restructure Puerto Rico's debt. The provision on 
essential services could have the opposite of its intended 
effect, because it provides ammunition to those arguing and 
litigating that the Board should be limited to funding only 
those services that are truly essential, and only at the bare 
minimum.
    Finally, installing a Federal Revitalization Coordinator 
for PREPA would disrupt the transformation of the energy 
sector, which is well underway. The recently filed proposed 
plan of adjustment in ongoing work restoring fiscal 
responsibility and management has brought us substantially 
closer to satisfying the conditions that PROMESA establishes 
for termination of this Oversight Board. Rather than focusing 
on changes to PROMESA, we remain committed to working with the 
government to fulfill the mandates of PROMESA so that Puerto 
Rico can reach its real potential, where businesses can have 
the confidence they need to invest, and the people of Puerto 
Rico can live in a vibrant and sustainable economy.
    Thank you.

    [The prepared statement of Ms. Jaresko follows:]
 Prepared Statement of Natalie Jaresko, Executive Director, Financial 
             Oversight and Management Board for Puerto Rico
    Chairman Grijalva, Ranking Member Bishop, and members of the 
Committee, I am Natalie Jaresko, Executive Director of the Financial 
Oversight and Management Board for Puerto Rico (the ``Board'' or 
``Oversight Board''). Thank you for this opportunity to update the 
Committee in this hearing on the work the Board is doing for the 
benefit of the people of Puerto Rico. Since I testified before this 
Committee on May 2, 2019, the Board has made substantial progress 
toward achieving its mandate under PROMESA. I also appreciate the 
chance to comment on the PROMESA discussion draft and the impact of its 
proposed changes on the Board's work.
                            i. introduction
    Before PROMESA was adopted, Puerto Rico faced an unsustainable 
burden of more than $70 billion in debt and more than $50 billion in 
unfunded pension liabilities, exacerbated by a decade of economic 
decline and significant outmigration. The sitting governor had declared 
the debt was unsustainable and could not be paid, and more than 300,000 
people--10 percent of the population--had already left the Island in 
search of greater economic opportunity. Nonetheless, government 
spending remained bloated, government services were inefficient, 
liquidity shortfalls impaired strategic decision making, and no multi-
year, coordinated strategy existed to restore growth and opportunity to 
the people of Puerto Rico. In 2016, Congress through PROMESA provided a 
way forward for Puerto Rico.
    As the Board got underway with its work, Hurricanes Irma and Maria 
inflicted the most horrific natural disaster devastation to strike the 
United States in 100 years, compounding the financial and humanitarian 
distress to the Island and its people. The Board worked extensively 
with the Government in joint post-hurricane efforts, including the 
critical importance of transforming the power sector to be more 
reliable, resilient, and cost-effective. The Board continues to support 
the efforts of the Puerto Rico Government and the U.S. Government to 
provide the critical disaster relief funding to the Island and its 
residents.
    This summer the people of Puerto Rico spoke clearly about their 
demands for better governance and more responsive government services. 
The resignation of Governor Rossello was complex and disruptive to the 
ongoing work of the Puerto Rico Government for the Island and the 
people of Puerto Rico. However, it did not deter the Board in carrying 
out its obligations under PROMESA and persisting in its work to assure 
the efficient and effective delivery of those important government 
services. The Board has continued to work with the elected leaders of 
Puerto Rico to provide its people with the stability needed by all 
stakeholders. Since Governor Wanda Vazquez took office on August 7, the 
Board has engaged in a collaborative, working relationship with the 
Governor and her team. In addition to three working meetings of the 
Governor and the Board, the Board has held dozens of meetings with the 
Governor's team on fiscal plan and budget implementation. We have made 
great progress working together, despite ongoing differences which 
remain.
    As you know, a significant aspect of the Board's responsibility for 
administering the largest public entity restructuring in U.S. history 
includes defending against nearly 100 lawsuits filed in opposition to 
the Board's certified fiscal plans and budgets formulated to carry out 
PROMESA. Predictably, those creditors dissatisfied with the proposed 
Plan of Adjustment the Board recently filed are also gearing up to 
launch challenges to the Board's plan proposal. The Board continues to 
try to resolve these disputes as fairly and expeditiously as possible 
consistent with the mandates of PROMESA. The Board also continues to 
monitor more than 120 reform implementation plans the Board inserted 
into its certified fiscal plans, necessitating hundreds of working 
meetings with the Government and Legislature, and numerous hearings, as 
well as town hall meetings across the Island with members of the 
public.
    The month of September was of particular significance for the 
Board's work. Last month we filed our proposed Plan of Adjustment for 
the Commonwealth and a proposed disclosure statement explaining it. 
This filing is a major milestone for the Board, as it addresses over 
$35 billion of debt and other claims against the Commonwealth of Puerto 
Rico, the Public Buildings Authority (PBA), and the Employee Retirement 
System (ERS), and more than $50 billion of pension liabilities, and 
represents the beginning of the end of the bankruptcy-like state that 
Puerto Rico has been in since 2017. I will discuss the proposed Plan of 
Adjustment in detail further in my testimony.
    I will now cover the Board's main accomplishments since my previous 
testimony in the areas of debt restructuring and fiscal plan 
implementation and responsibility.
           ii. debt restructuring and the plan of adjustment
    On September 27, after years of extensive negotiations, the Board 
filed its proposed Plan of Adjustment (the ``Plan'') to restructure $35 
billion of debt and other claims against the Commonwealth of Puerto 
Rico, PBA, and ERS, and more than $50 billion of pension liabilities.
    The Plan has five main elements of debt restructuring: the debt of 
the central government, the debt of PBA, the debt of ERS, claims 
against the Commonwealth alleging wrongful clawback, as well as general 
unsecured claims against the Commonwealth, PBA, and ERS. Combined, 
those elements comprise about $35 billion in debt and claims, which the 
Plan seeks to haircut by more than 60 percent.
    The Plan would significantly reduce debt service from $82 billion 
over 30 years to $44 billion. Together with the debt of COFINA, which 
the Board restructured earlier this year through the Title III process, 
the amount the Government would have to spend on servicing its debt 
would fall from a maximum of $4.2 billion a year to $1.5 billion a 
year--a substantial reduction that leaves Puerto Rico with an amount it 
can sustainably afford over the next 30 years.

    The proposed Plan has 10 key points:

  1.  Reduces $35 billion in Commonwealth liabilities to $12 billion.

  2.  Ensures sustainable and affordable annual debt service of less 
            than 9% of government own-source revenue (from 28% prior to 
            PROMESA).

  3.  Ensures that 74% of current and future pensions are not cut.

  4.  Establishes a trust supporting pensions for 30 years.

  5.  Provides predictability to public employees via collective 
            bargaining agreements.

  6.  Restores $1.3 billion of withheld employee contributions to 
            Sistema 2000, which was until recently a virtually defunct 
            employee-funded retirement benefit fund.

  7.  Creates a mechanism to settle claims against challenged bonds.

  8.  Creates a mechanism to eliminate pension cuts to the extent that 
            in any fiscal year the surplus is greater than projected.

  9.  Allows retail bondholders to elect bonds with monthly interest 
            payments.

 10.  Establishes a debt management policy to ensure Puerto Rico never 
            again finds itself in this situation.

    In sum, this Plan represents a series of compromises on the part of 
various stakeholders who all recognize the need to move Puerto Rico out 
of Title III and toward a future of prosperity. All supporters of this 
Plan have compromised for the good of Puerto Rico.
A. PROMESA Requirements for Confirmation of the Plan:
    It is important to remember that PROMESA requires that the Title 
III Court confirm the Plan before it can become effective. For example, 
the Court must conclude that the Plan is feasible and in the best 
interests of creditors collectively. The Board believes this Plan is 
feasible and in the best interests of all creditors because it 
restructures Puerto Rico's debt and pension liabilities in a way that 
provides reasonable compensation to creditors without endangering 
Puerto Rico's fiscal future, while ensuring pensions and enabling 
Puerto Rico's renewed growth and investments needed to prosper. Without 
satisfying these legal requirements, Puerto Rico cannot exit Title III. 
That is why consensual support from retirees, public employees and 
bondholders is helpful to lifting the cloud of bankruptcy that 
endangers Puerto Rico's future well-being. With the support of these 
groups, the Board demonstrates that it has struck a fair balance in the 
best interest of all parties for a realistic restructuring Puerto Rico 
can afford.
B. Stakeholder Support of the Plan:
    The Board has, after months of rigorous negotiations, secured the 
support of three significant stakeholder groups for the Plan:

     the Official Committee of Retirees (COR), which represents 
            retired government employees;

     a group of current government employees represented by the 
            Public Service Union, the Puerto Rico chapter of AFSCME; 
            and

     the Lawful Constitutional Debt Coalition (LCDC), a group 
            of investors and funds who hold Puerto Rico's general 
            obligation bonds and PBA bonds.

C. Public Employee Retirees:
    Consistent with the consensual plan support agreement reached with 
the Official Committee of Retirees, the Plan restructures pension 
liabilities for the long-term, protects more than 74 percent of current 
and future retirees from any reduction, and ensures a reasonable 
reduction in pensions overall. Pensioners are considered unsecured 
creditors under the Title III restructuring process, whose treatment 
under the Plan will have to be approved by the Court. That makes the 
Board's consensual agreement with COR an important element of the Plan. 
The Board agreed with COR to a flat 8.5 percent pension cut provided 
that no one will have their total monthly retirement benefits reduced 
below $1,200. The Board also agreed the Commonwealth would establish a 
pension reserve fund for the PayGo pension system to support payment of 
pensions over the next 30 years. Moreover, if in any given year the 
surplus is larger than projected, 10 percent of the incremental surplus 
will be reserved to restore the pension cuts of that year.
D. Public Employees:
    As to public employees, the Plan covers over 11,000 active public 
employees and union members in eight agencies of the Government. The 
Board and the Public Servants United of Puerto Rico/AFSCME Council 95 
(``SPU'') reached an agreement that secures collective bargaining 
agreements, protects workers from further compensation cuts, provides 
workers with bonuses, and ensures savings projected in the Fiscal Plan. 
The proposed Plan includes the following benefits for public employees:

  1.  Collective bargaining agreements will remain in effect for 5 
            years, reflecting labor terms in the Fiscal Plan.

  2.  Guarantees stability in the working conditions of employees and 
            prevents further cuts to workers' benefits.

  3.  Any bonus or economic benefits to public employees lawfully 
            granted by the Government will also apply to SPU members. 
            This agreement, thus, represents the baseline of treatment 
            of public employees.

  4.  At least $1.3 billion of employees' contributions to Sistema 2000 
            will be restored.

  5.  Signing bonus of $1,000 to all SPU members that ratify the 
            agreement.

  6.  Employer contribution to medical plan set at $170 per month, 
            rather than the $125 previously proposed.

  7.  Establishes a $5 million trust for healthcare to support 
            transition of employees for whom $170 per month is below 
            their current benefit.

  8.  Affiliates may keep the right to negotiate the Single Medical 
            Plan, and they will not have to be changed to the 
            Government's health plan.

  9.  If Government outperforms the Fiscal Plan, 25% of the excess will 
            be allocated to public employees in that year, 
            incentivizing employees to help the Government work more 
            efficiently.

    The Board is seeking to broaden active public employee support for 
the Plan. As you may know, the Board negotiated a preliminary agreement 
with the ``Asociacion de Maestros'' (AMPR), represented nationally by 
the American Federation of Teachers. Unfortunately, AMPR was not able 
to secure a majority vote in support of the agreement with the Board. 
The Board is hopeful that the filing of the proposed Plan will 
encourage AMPR to reconsider engaging with the Board.
    For the prosperity of all government employees, it is important to 
move on, to leave this state of financial distress behind, to build a 
secure future for Puerto Rico. This secure future can only be built 
working hand in hand with the public sector employees who are critical 
to the success of Puerto Rico. For too long, so much was taken away 
from them. We look forward to continuing our discussions with other 
unions and groups so that they can also be consensual parts of this 
process.
E. Bondholder Support:
    As to the LCDC bondholders, their agreement with the Board includes 
meaningful reductions of the par value of Puerto Rico outstanding bonds 
and sustainable, affordable debt service payments over the next 30 
years. The Board remains committed to negotiations with additional 
bondholders who have yet to support Puerto Rico in this effort to 
secure an affordable level of debt and to rebuild a path to renewed 
prosperity.
F. Debt Investigation and Challenges:
    Under PROMESA, the Board undertook a careful review of any 
potential legal infirmities of the debt that was issued by Puerto Rico 
and its various agencies and instrumentalities. A Special Investigation 
Committee of the Board hired Kobre & Kim to conduct a comprehensive 
study of Puerto Rico's debt and its relationship to the financial 
crisis. In light of the Kobre & Kim findings, the Board immediately 
created a Special Claims Committee to determine whether any of Puerto 
Rico's debt should be challenged and to bring any other litigation 
involving the debt. As a result of this review, in January, 2019, the 
Board, along with the Official Committee of Unsecured Creditors (UCC) 
objected to the validity of over $6 billion of general obligation (GO) 
bonds as exceeding the debt limit in Article VI, Section 2, of Puerto 
Rico's Constitution (the ``Challenged Bonds''). This includes all GO 
bonds--bonds backed by the full faith and credit of Puerto Rico--issued 
by Puerto Rico in 2012 and 2014.

    This challenge was followed by other legal challenges, filed by 
other parties, to additional bond issuances:

     the UCC challenged the validity of approximately $2.1 
            billion of GO and PBA bonds issued in and after March 2011 
            as exceeding the constitutional debt Limit;

     the UCC and the Official Retiree Committee challenged the 
            validity of over $3 billion of bonds issued by ERS 
            asserting that ERS lacked the authority to issue the bonds; 
            and

     an ad hoc group of bondholders argued that if the 
            arguments in the Board's objection are sustained, then 
            certain GO and PBA bonds issued from and after 2009 may 
            also be invalid.

    These objections are forward-looking, meaning they are to determine 
whether Puerto Rico must repay obligations on these bonds in the 
future. To the extent, however, that any debt is determined to be 
invalid, the Commonwealth may be able to collect back prior payments of 
principal and interest on invalid debt. Thus, to preserve Puerto Rico's 
rights, other ``backward'' looking litigation was initiated by the 
Board:

     The Board and the UCC filed the ``Underwriter Complaint'' 
            against over 20 banks, law firms and other parties to 
            recover fees they earned when they helped Puerto Rico and 
            certain of its instrumentalities issue nearly $9 billion of 
            bonds. The Underwriter Complaint alleges that these parties 
            aided and abetted the Government Development Bank's breach 
            of its fiduciary duty to the people of Puerto Rico and, as 
            a result, were unjustly enriched by receiving hundreds of 
            millions of dollars in fees.

     The Board and the UCC filed several hundred complaints 
            against entities to recover payments they received on 
            account of the Challenged Bonds in the Title III cases. The 
            Board also initiated litigation against large bondholders 
            who own at least $2.5 million worth of the Challenged 
            Bonds. If the objections to the validity of the Challenged 
            Bonds are successful, then payments of purported principal 
            and interest may constitute fraudulent transfers that can 
            be recovered by Puerto Rico.

    When determining whether to object to the validity of the GO bonds 
and commence the related litigation, the Board considered its fiduciary 
responsibility to challenge debt that violates Puerto Rico law. The 
laws of Puerto Rico limit government borrowing authority for a reason: 
to prevent the Government and its financiers from obligating Puerto 
Rico and its instrumentalities, as well as taxpayers and legitimate 
creditors, to a level of debt that cannot be repaid without sacrificing 
services necessary to maintain the health, safety, and welfare of 
Puerto Rico and its people.
G. Final Confirmation of the Plan of Adjustment:
    The Board continues to negotiate with other groups to build an even 
stronger coalition of those willing to step forward and close this 
chapter of financial distress consensually. There may be amendments to 
the Plan of Adjustment as the Board brings additional stakeholders to 
support the Plan. The Board hopes the Title III court will be in a 
position to confirm the Plan in 2020.
       iii. fiscal plan implementation and fiscal responsibility
    The Board's duties and empowerment under Title II of PROMESA, as 
you will recall, center around the development and certification of 
multi-year fiscal plans which must balance competing priorities 
enumerated in the law and review or formulation, and certification of 
governmental budgets consistent with those fiscal plans.
A. Prioritizing Critical Spending:
    In June 2019, the Board certified Fiscal Year 2020 budgets for the 
Commonwealth of Puerto Rico, the Puerto Rico Electric Power Authority, 
the Puerto Rico Aqueduct and Sewer Authority, the Highways and 
Transportation Authority, the University of Puerto Rico, and COFINA. 
All these budgets are in full force and effect.
    The total amount of government spending (including General Fund, 
Special Revenue Funds and Federal Funds) for Fiscal Year 2020 is $20.2 
billion, which is broken down to the following priorities: 21% for 
health, 17% for education, 13% for pensions paid via PayGo, 12% for 
families and children, and 5% for public safety.\1\ For example, the 
budget provides for increased salaries (a 30% increase over 2 years) 
and benefits for police officers and more funding to purchase bullet 
proof vests, radios, and vehicles. Moreover, police officers will 
receive Social Security for the first time in this year's budget to 
provide them a more secure future retirement.
---------------------------------------------------------------------------
    \1\ See the Board's Fiscal Year 2020 budget presentation at: 
https://drive.google.com/file/d/1woI5 fhb02lfnW4GbF-B4xkgauDarWBSQ/
view.
---------------------------------------------------------------------------
    In addition, the budget raises teachers' and school principals' 
salaries for the second consecutive year and the salaries of 
firefighters. Notwithstanding these and other spending increases in 
priority areas, right-sizing the Government to create more efficient 
government services continues: professional fees declined by 30 percent 
year over year, and redundancy in administration within agencies is 
being reduced via consolidation of the more than 120 government 
agencies and public corporations.
    As in prior budgets under the Board's oversight, the Fiscal Year 
2020 budget intentionally does not provide for the Government spending 
all the revenues it collects in the current fiscal year. For example, 
much of the projected surplus of $2.6 billion is being reserved to 
protect future pension payments and manage other legacy obligations 
such as the debt. Given the limited structural reforms agreed upon with 
the Government and outlined in the Fiscal Plan generate insufficient 
growth to maintain long-term balanced budgets, some of the currently 
projected surpluses are dedicated to fund PayGo payments for retirees 
in those years when the Government projects a deficit. This is to 
ensure that retirees never again have to worry about future governments 
lacking the resources to fully pay their pension. The only solution to 
the unfortunate forecast return to deficits is increased commitment to 
new and additional structural reforms to make the economy of Puerto 
Rico more competitive and economic development more certain.
    Recently, the Board has been working closely with AAFAF and OMB to 
better understand the Department of Education and Correctional 
Department needs. Both the Department of Education and the Department 
of Corrections concluded Fiscal Year 2019 underspending their budgets, 
in personnel as well as and capital expenditures in some cases. Thus, 
more detailed analysis of the actual needs is necessary and underway to 
determine how funds can be best allocated to priority areas, while 
ensuring their efficient utilization.
B. Improved Financial Transparency in Government:
    The Fiscal Year 2020 budget includes four sets of major 
improvements in budgeting practices. First, the Board worked with the 
Government to provide a deeper level of detail in the budget, detail 
that had not previously been available to the Legislature or public, 
enabling a better understanding of how funds are being spent. Second, 
the consolidated budget is more comprehensive and captures items not 
budgeted previously, including all cash subsidies, which amount to 
approximately $428 million in Fiscal Year 2020. Moreover, the Fiscal 
Plan calls for the Government to consider limiting tax credits issued 
each year by capping the notional amount authorized, and including 
sunset provisions that eliminate the ability to claim unused credits 
previously issued. The Government also now has the capacity to make 
decisions around limiting and more selectively targeting tax 
expenditures based on the recent publication of the first-ever tax 
expenditures report. Third, the published budget resolution includes 
more detailed specific concepts of spending within the personnel and 
non-personnel categories for each agency to provide a more detailed 
look at how the Government uses its funds. Finally, a series of budget 
controls are established within the budget to improve fiscal 
responsibility and discipline.
    The Government has much more work to do to improve its budgeting 
practices. The Government still operates with six different accounting 
systems that need to be consolidated to provide better accountability 
over spending and visibility in budgeted to actual spend reporting. The 
Government also needs to finally complete the delayed financial audits 
for Fiscal Years 2017 and 2018. Completion of the overdue audits and 
implementing a process that will ensure best practices in issuance of 
the audited financial statements going forward (completed within 180 
days of the end of the fiscal year) is a critical element of fiscal 
responsibility.
C. Importance of Disaster Aid:
    The Fiscal Plan assumes the government of Puerto Rico receives $75 
billion in Federal disaster aid funding over more than a decade. This 
funding is critical to restoring resiliency to the power grid, to 
rebuilding schools, roads, and other critical infrastructure, and to 
generating positive economic growth on the Island.
    Unfortunately, this Federal aid, particularly public assistance 
funding from FEMA and CDBG-DR funding from HUD, has been slow to 
obligate and disburse. More than 2 years after the tragedies of 
Hurricanes Irma and Maria, very few permanent work projects have begun. 
This is highly unusual and does not remotely match the timeline from 
other disasters such as Hurricane Katrina and Hurricane Harvey. 
Additionally, of the $19.9 billion in CDBG-DR funds allocated to Puerto 
Rico, only $1.5 billion has been made available and only a fraction of 
that amount drawn down. Moreover, another $8.2 billion still requires 
HUD's authorization to release and $10.2 billion requires HUD's 
publication of notice in the Federal Register.
    The rapid and efficient deployment of this funding is critical to 
meeting fiscal plan targets and long-term recovery prospects.
D. Ensuring Fiscal Responsibility in Municipal Government:
    The Board announced its decision in May to require a fiscal plan 
from Puerto Rico's property tax collection agency, CRIM. Since then, 
the Board has been working with CRIM to outline a series of measures to 
improve collections without increased tax rates. The primary goals for 
the CRIM fiscal plan include strategies to update the property 
registry, revise the classification and valuation of registered 
properties, review administrative guidance regarding exemptions and 
exonerations, and improve enforcement and collection efforts. 
Notwithstanding ongoing litigation between the Board and the 
Commonwealth surrounding Act 29-2019, which burdens the Central 
Government with the municipalities' pension and healthcare costs, the 
Board seeks to continue working with CRIM to review and certify its 
fiscal plan in the upcoming weeks.
    The Board also designated all 78 municipalities as covered 
instrumentalities under PROMESA, though it has required a fiscal plan 
from only 10 municipalities at this time. The Board selected these 
municipalities after considering a combination of factors including 
fiscal challenges, impact of the reduction of transfers from the 
Central Government, and their experience implementing innovative and 
creative initiatives and collaborating with other municipalities. This 
was a proactive step toward helping the municipalities avoid 
insolvency, finding a path toward financial stability and economic 
development, and enabling municipalities to do what they do best: serve 
the needs of their residents. Following the certification of the CRIM 
fiscal plan, the Board will proceed with the review and certification 
of the municipality fiscal plans, including spending efficiency 
measures, such as intermunicipal shared services arrangements, programs 
to improve and optimize local revenue collection, economic development 
guidelines, and decentralization proposals. Throughout this fiscal plan 
development process, the Board has been visiting the municipalities and 
working with the mayors to better understand their realities. Just 2 
weeks ago, for instance, Chairman Carrion and I visited the 
municipalities of Aibonito and Barranquitas to hear about the 
successful collaboration between their municipalities and Comerio in 
the provision of permits and other shared services. I want to 
personally thank all the mayors for their commitment to this process.
E. Transformation of the Island's Power Sector:
    The Board continues to work with Government on the transformation 
of PREPA to ensure reliable energy for the residents, more effective 
and efficient management, as well as lower fuel costs. The Board and 
the Government are in full agreement that private management of the 
transmission and distribution system, as well as generation, are key to 
these improvements. The Board is working collaboratively with the 
Government on the pending Request for Proposal process for selection of 
a private operator for the grid and strongly supports the Government's 
efforts to secure FEMA funding to help with the cost of restoration and 
reconstruction of an affordable, resilient, and reliable power system 
that is environmentally compliant and that serves as a driver of 
economic growth. Selection of this operator and securing this Federal 
funding in the next few months are critical next steps in the 
modernization of PREPA which is essential to increased economic 
development on the Island. In order to ensure that PREPA adheres to its 
Fiscal Plan and the rate-reduction initiatives required, the Board is 
holding regular meetings with the PREPA Governing Board to ensure the 
PREPA Governing Board and PREPA management are all aligned.
F. Title V:
    On August 12, the Board designated the $5.3 million expansion of 
the Fajardo Municipal Landfill as a critical project under Title V of 
PROMESA. The Fajardo Municipal Landfill serves as the primary municipal 
and commercial disposal site for the north-eastern region of Puerto 
Rico, serving nine municipalities. Engineering estimates state that the 
current disposal space would be available for only 3 additional years, 
and the expansion represents approximately 20 additional years of 
operating capacity for this critical infrastructure. The project 
complies with the fundamental criteria to be considered a critical 
project and addresses two of the Island's most pressing issues: the 
need to diversify energy generation and to tackle the solid waste 
management crisis. During a recent visit, I was impressed with the 
facility and management's plans for the future. The landfill has a 
four-megawatt gas-to-energy operation and the expansion will allow the 
site to reach full capacity.
G. The Board's Operations:
    The Board remains a small organization, with a flat hierarchy. One 
of its organizational goals during Fiscal Year 2019 was to take 
advantage of Puerto Rico's incredible talent to build organizational 
strength through local recruiting, thereby reducing costs and the use 
of third-party mainland consultants. The overwhelming majority of the 
new hires are Puerto Ricans, several of whom have returned from the 
U.S. mainland to help the Island recover. The expenses incurred by the 
Board in carrying out its mission are substantial and necessary. 
Nevertheless, the Board was able to reduce its Fiscal Year 2020 budget 
by 11 percent from a year earlier, to $57.6 million.
    On July 31, the Board released its Fiscal Year 2019 annual report 
and sent it to the Governor of Puerto Rico, the Legislature, the U.S. 
Congress and the U.S. President, as required by PROMESA.\2\
---------------------------------------------------------------------------
    \2\ See the Board's Fiscal Year 2019 Annual Report at: https://
drive.google.com/file/d/19wcmgD-iYwi_JAsSGYWL_WK5kXJJggwV/view.
---------------------------------------------------------------------------
           iv. fiscal plan for the university of puerto rico
    As I stated in my prior testimony, the University of Puerto Rico 
(UPR) is undeniably a center of academic excellence and a source of 
pride for all Puerto Ricans. There's probably not one person in Puerto 
Rico who would disagree with that statement. The Board believes that 
UPR is genuinely one of the best things that Puerto Rico has to offer. 
The Board remains committed to targeted measures to increase revenues 
and reduce expenditures essential to UPR operating sustainably and 
ensuring it remains at the center of Puerto Rico's successful economic 
development. The reforms are focused on maintaining the ability of all 
students to access and benefit from an improved university system.
    As you will recall, the Government has been subsidizing UPR at a 
rate far exceeding the average for mainland U.S. states--roughly 70% 
instead of 20-30%--and at a time when it can no longer afford these 
subsidies in light of its own financial pressures. The UPR Fiscal Plan 
focused on creating savings by consolidating back-office functions 
across UPR's 11 campuses and improving procurement processes. Eleven 
campuses do not require 11 duplicative administrations. No cuts to 
faculty or student services are, or have ever been, planned, or are 
they necessary, if certain administrative savings and a new focus on 
improving revenues are implemented.
    Revenues are depressed and insufficient at UPR due to extremely low 
tuition levels for all regardless of ability to pay, few ``out of 
state'' students, little success in attracting Federal grants, and no 
active development of its superb alumni. The Fiscal Plan does require 
increased tuition but has ensured several safeguards to protect the 
most vulnerable. The maximum annual tuition ($5,090 in Fiscal Year 
2023) will remain below current Federal Pell Grant award levels 
($6,095), meaning all Pell Grant eligible students will be able to 
cover both tuition and some living expenses. The Fiscal Plan not only 
protects, but ensures funding of $280 million in needs-based 
scholarship funds over the Fiscal Plan period at both internal UPR and 
Commonwealth scholarship funds to guarantee that tuition increases 
never affect anyone who chooses to attend the UPR. If all these funds 
are disbursed each year (i.e. none of the external scholarship funds 
are converted to an endowment) they could provide the equivalent of 
over 12,000 full undergraduate scholarships (covering all tuition and 
fees) per year. Furthermore, after listening to the students of UPR, 
the Board increased the scholarship fund for students in need, so every 
Puerto Rican has access to the education they deserve. We have met with 
UPR administration numerous times and are willing to work with them to 
diversify UPR's sources of revenue.
    Unfortunately, the UPR Administration recently announced that it is 
contributing less than half the actuarially required pension 
contribution to the UPR Retirement Plan (``UPRRP'') for Fiscal Year 
2020. This decision to undermine its pension obligations and to put the 
pensions of its faculty and staff at risk is grossly irresponsible, 
contrary to the Government's public policy of prioritizing pensions, 
and violative of PROMESA and the UPR Fiscal Plan certified by the Board 
in June.
    According to the Board's recent actuarial analysis, if UPR makes no 
changes to its benefit structure or its funding policy, its pension 
plan could be insolvent by 2031, meaning that the UPRRP would not have 
sufficient funds to pay pension benefits after 2031. Rather than 
accepting that UPR may repeat the mistakes of ERS, JRS, and TRS at the 
Commonwealth, which became insolvent because their funding was far too 
low relative to the benefits they offered, the Fiscal Plan outlined 
three options that UPR could take to adequately fund the UPRRP, but 
each of the options requires UPR to make the full actuarially required 
contribution.
    Instead of pursuing one of these options, UPR is knowingly 
defunding the UPRRP, putting the pensions of its faculty and staff at 
risk rather than heeding the advice of its actuaries, the Fiscal Plan, 
and the unfortunate experience from the Commonwealth. The Board will 
continue urging UPR to act to stave off its looming pension crisis. The 
first step is UPR making a determination about whether or not it wishes 
to reduce its required actuarial contribution in the future, in other 
words reforming its pension system. But, whatever UPR chooses, it must 
not put the UPRRP or pensions of faculty and staff at risk.
    As stated in the UPR Fiscal Plan, the Board looks forward to 
partnering with UPR's stakeholders--including the Government of Puerto 
Rico, the UPR Governing Board, and the UPR Administration--in making 
the transition to a `new status quo' operating model--one that is both 
more efficient and effective to bring the student and future 
generations of Puerto Rico the higher education that they deserved.
    Although the path to implementing these reforms will not be easy, 
we want UPR to emerge a leaner and more effective academic institution 
among the best and most affordable in the United States and on the 
Island.
   v. first circuit decision on the unconstitutionality of the board
    As you know, on February 15, U.S. Court of Appeals for the First 
Circuit concluded that members of the Board are Federal officials whose 
appointments must be made consistent with the Appointments Clause of 
the U.S. Constitution. Based on our belief that the members of the 
Board are territorial officers, not Federal officers, and that the 
Appointments Clause does not apply to laws enacted pursuant to 
Congress' power under the Territories Clause, the Board filed a 
petition with the U.S. Supreme Court to review the decision by the 
First Circuit. The Supreme Court agreed to review the decision, and, at 
the Board's request, the First Circuit stayed its ruling pending the 
Supreme Court's final disposition of the case.
    On April 29, 2019, President Donald J. Trump announced his intent 
to nominate the current members of the Board to undergo U.S. Senate 
confirmation to serve out the remainder of their terms. Those 
nominations have yet to be formally submitted to the Senate.
    Last Tuesday, the Supreme Court heard oral arguments in the appeal, 
and we are expecting the Court's ruling in the coming months.
                      vi. promesa discussion draft
    I appreciate the opportunity to now comment on aspects of the 
PROMESA discussion draft published by the Committee and the impact of 
those provisions on the work of the Board. The Board has serious 
concerns that several of these provisions, while well intended, will 
undermine the Board's pending negotiations and efforts to achieve a 
fair and expeditious resolution of claims consistent with the mandates 
of PROMESA and in the best interests of Puerto Rico and the people of 
Puerto Rico.

     Section 4. Definition of Essential Public Services

        This definition of essential public services specifies that 
        public education, public safety, healthcare, and pensions are 
        ``essential public services,'' with the stated purpose to 
        ensure their funding in the certified Fiscal Plan to the 
        maximum extent possible. However, the Board believes that this 
        provision could have the exact opposite effect, as it provides 
        ammunition to those who have been arguing that the Board cannot 
        fund services above and beyond their own highly restrictive 
        interpretation as to what services are truly essential. The 
        Board is facing this claim in the Title III cases. Creditors 
        would welcome congressional support for an essential service 
        definition that could be used to advance their arguments. The 
        result could be substantially reduced funding for services that 
        the Board and the Government consider essential but that other 
        parties convince the Court are not essential.

        As proposed, the definition in the discussion draft also 
        provides for a minimum annual appropriation of $800 million to 
        UPR. UPR's over-dependency on Central Government appropriations 
        has led to its lack of commitment to generate its own revenue 
        from out-of-state tuition, alumni donations, patent 
        monetization and other means and its unwillingness to implement 
        efficiencies. As previously noted, most U.S. universities 
        receive 20-30% of their revenue from state government, whereas 
        UPR received 70% from the Government in Fiscal Year 2018. The 
        Board also considers any mandatory appropriations ill advised, 
        as it does not and cannot take into consideration changes in 
        circumstances, such as a significant increase in revenue from 
        overseas students, a large increase in grant funding, or 
        significant donations.

     Section 6. Disclosure by Professional Persons Employed by 
            Court Order

        The Board supports the legislative proposal of Rep. Velazquez 
        incorporated in the discussion draft to extend certain 
        disclosure requirements from the Federal Rules of Bankruptcy 
        Procedure to professionals employed by the Board to avoid 
        conflicts of interest and its goal of greater transparency and 
        disclosure.

     Section 7. Access to Information

        The draft provides that any document, record, or information 
        relating to the public debt of the Commonwealth of Puerto Rico 
        is a public document and accessible to any interested party. 
        Existing Puerto Rico disclosure laws adequately provide the 
        public with rights to access to government documents. This 
        provision over-riding Puerto Rico law and making public any 
        document relating to the negotiations or restructuring of the 
        public debt would also be prejudicial and detrimental to the 
        Board's effort to effectively and expeditiously secure the best 
        deal possible for Puerto Rico and its people.

     Section 8. Puerto Rico Infrastructure Revitalization 
            Repealed

        The Title V process has had some successes, most recently a 
        generation facility for PREPA as noted above, but most private 
        investment activity in recent years has been through the Puerto 
        Rico P3 Authority, and those projects do not necessarily 
        require the benefits of the Title V permitting process.

     Section 9. Territorial Relief for Unsecured Public Debt

        The discussion of a provision to allow Puerto Rico to cancel 
        some of its unsecured debt may lead existing Puerto Rico 
        General Obligation bondholders to demand secured debt in the 
        current negotiations, which is more expensive and restrictive 
        than unsecured debt. In effect, this provision could ultimately 
        significantly reduce the amount of funding available to the 
        Government to provide critical services to the people of Puerto 
        Rico.
     Section 10. Puerto Rico Public Credit Comprehensive Audit 
            Commission

        The Kobre & Kim independent debt investigation mentioned above 
        effectively served the purpose of a debt audit. The Special 
        Claims Committee is pursuing valid claims arising out of that 
        report, and the Debt Management Policy in the Plan is designed 
        to make sure these issues do not arise again.

     Section 11. Office of Reconstruction Coordinator for 
            Puerto Rico

        The establishment of this office to manage and administer 
        Federal funds for the reconstruction of Puerto Rico as a result 
        of Hurricane Maria could be helpful if it effectively served as 
        a coordinator of the various Federal agencies administering 
        funding. Otherwise, the office risks becoming an unnecessary, 
        additional level of bureaucracy further slowing down deployment 
        of Federal funds.

     Section 12. Office of Revitalization Coordinator for 
            Puerto Rico Electric Power Authority (PREPA)

        The discussion of creating a Revitalization Coordinator for 
        PREPA risks disrupting and undermining the transformation 
        process of PREPA which is well underway. This process is being 
        jointly run by the Board and Government and involves hiring a 
        private operator to take over management of transmission and 
        distribution as well as opening up generation for private 
        investment and management.

    The Board remains committed to working with the Chairman, the 
Ranking Member and members of the Committee and the Congress as you 
continue oversight over implementation of PROMESA and consider any 
changes to the law.
            vii. federal legislation supporting puerto rico
    Finally, the Board also continues to support legislative efforts of 
Chairman Grijalva, Ranking Member Bishop, Puerto Rico Resident 
Commissioner Gonzalez-Colon, Representative Velazquez, Representative 
Soto, and many members of this Committee and Congress to provide 
fairness for Puerto Rico in the distribution of Federal funding and 
other Federal programs essential to Puerto Rico and its people.
    On behalf of the Board, I submitted a statement for the record in 
light of the Committee on Natural Resources' hearing on ``The Insular 
Areas Medicaid Cliff'' in support of equitable treatment for Puerto 
Rico in terms of the Medicaid program.\3\ On June 19, I submitted a 
statement to the House Ways and Means Committee in support of proposed 
legislation expanding the Earned Income Tax Credit to families in 
Puerto Rico.\4\ On June 20, I submitted the Board's statement of 
support to Congresswoman Anna Eshoo, Chair, House Energy and Commerce 
Subcommittee on Health, again in favor of proposed legislation for more 
equitable distribution of Medicaid funding to Puerto Rico.\5\
---------------------------------------------------------------------------
    \3\ See Executive Director Natalie A. Jaresko's statement on this 
topic at: https://drive. google.com/file/d/
1XeMmC0FCoq_S_uIdOR_JZU3FIO02Tmz-/view.
    \4\ See Executive Director Natalie A. Jaresko's statement on this 
topic at: https://drive. google.com/file/d/1EIjpHW-
FVgdgVOYV_ftlwti5GiS2mCAo/view.
    \5\ See Executive Director Natalie A. Jaresko's statement on this 
topic at: https://drive. google.com/file/d/
14PluCoX3012kDEY0CpZyDUgAkUl3k4CA/view.
---------------------------------------------------------------------------
    The Board also continues to support the Government's request to 
receive equitable treatment in Medicare. Residents of Puerto Rico pay 
the same level of Medicare taxes as mainland residents, but the Island 
receives substantially lower payments in Medicare programs.\6\
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    \6\ A non-exhaustive list of legislation supported by the Board is 
available on page 80 of the Board's Fiscal Year 2019 Annual Report at: 
https://drive.google.com/file/d/19wcmgD-iYwi_JAs SGYWL_WK5kXJJggwV/
view.
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                            viii. conclusion
    In 2016, PROMESA--although not perfect--provided Puerto Rico with 
an opportunity to reset its reality. The compromise between both sides 
of the aisle to provide the Island with a novel mechanism to 
restructure its debt was certainly not easy to achieve. The leadership 
at the time of PROMESA's adoption, and key figures such as 
Congresswoman Nydia Velazquez and Congressman Rob Bishop, fought hard 
to ensure Puerto Rico had a way out of its fiscal mess.
    The Board strongly believes that the proposed draft text is a 
distraction from the real work already in process that we all need to 
do: to focus on getting the debt restructuring behind us and ensure the 
Government of Puerto Rico continues implementing the structural 
reforms, the fiscal responsibility, and better delivery of public 
services that the people of Puerto Rico deserve.
    Massive debt is what caused Puerto Rico so much pain, and what is 
holding Puerto Rico's economic recovery back. That massive debt did not 
result in massively improved public safety, public health or public 
education. It takes a huge toll on the life of everyone who lives on 
this beautiful Island, and it is what denies us the stability Puerto 
Rico requires to rebuild its future and achieve prosperity.
    The proposed Plan of Adjustment the Oversight Board filed is the 
beginning of a process that enables Puerto Rico to reach its real 
potential, where businesses large and small can have the confidence 
they need to invest and expand with certainty, and where the people of 
Puerto Rico can expect their government to provide safety, education 
and the public services the island needs. This is an important first 
step. We hope to continue our progress and to continue providing 
certainty that a better future lies ahead for Puerto Rico.
    I concluded my May testimony with optimism and will conclude this 
one repeating it: Difficulties aside, I am optimistic and confident 
that we can and are all working together to ensure Puerto Rico's 
economic future is brighter than ever and that Congress finds 
confidence that Puerto Rico's problems can and will be solved.

                                 ______
                                 

    The Chairman. Mr. Marrero, the people of Puerto Rico are 
looking for some signal that their government is looking out 
for their interests, and is that complicit with the Oversight 
Board, and imposing further hardships on them.
    So, when we hear of the opposition of the administration to 
the provisions of the discussion draft that they perceive as 
beneficial to their interests, the people--the public, in 
general--such as defining essential services, doing an audit of 
the debt, that adds to the cynicism that is out there. They 
feel that PROMESA--and I heard that, and Members that have 
visited have heard that--and the Oversight Board is working 
against them.
    How do you respond to that concern, that there is no 
independent auditing transparency process that is going on, and 
the cynicism rises?
    Mr. Marrero. Thank you for the question, Mr. Chairman.
    First of all, as to the audit, as an accountant I can tell 
you that an audit can take many forms. I think that the most 
important part is the fact that the people of Puerto Rico would 
like to know if some of the issuance of debt was invalid, was 
illegal. Or, if that was illegally incurred, what are the 
rights and remedies for that?
    That is addressed in the 600-page report that the Oversight 
Board released in August 2018. It delineates specifically what 
happened and what many administrations did. Deficit financing, 
scope and talks financing, the interest financing, amortization 
principal, and many others. That report, it was done by 
international law firms who specialize in this.
    However, the Oversight Board is already invalidating or 
questioning the legality of several issues, including over $6 
billion of general obligations. So, that is part of the 
process.
    If there is any interest body that would like to audit or 
examine the closing binder of all the issuance of Puerto Rico, 
they are available. They can get a copy of that. Actually, we 
are working in order to digitalize that and make it available 
to the entire people of Puerto Rico.
    However, we already are 3 years into this game. We have 
already restructured over $23 billion. Our concern is that an 
audit or a comprehensive audit done by a new body, a new 
entity, how are they going to be chosen? That will take time, 
sir, and it will take years. And our specific objective is to 
comply with PROMESA and get out of bankruptcy as soon as 
possible, because that is the only way that the people of 
Puerto Rico will be better off, if we exit bankruptcy and we--
--
    The Chairman. OK, let me follow up. HUD recently told 
members of the House Appropriations Subcommittee that the 
Department had not released disaster funding to Puerto Rico, 
which I believe is central, because of the concerns that the 
money would not go to the people, but would be wasted and 
abused instead. The validity of that comment I don't subscribe 
to. But besides the point, how do you eliminate that concern?
    One of the reasons that we included a provision for a 
disaster Reconstruction Coordinator for Puerto Rico in the 
discussion draft is this coordinator would work with the local 
disaster recovery agency--at this point, COR3--and Federal 
officials to expedite and provide some reassurance to allow 
those funds to flow the way they should.
    So, the coordinator position along the lines that was 
created for Sandy and Katrina, could that be beneficial for 
Puerto Rico?
    Mr. Marrero. If we are talking about the Federal 
coordinating officer created under the national disaster 
framework that was used in Louisiana and any other state, yes, 
sir. Because that will help the coordination at the Federal 
level.
    At the state level, we already centralized the coordination 
based on the best practices following the model of New York, 
Louisiana, and many others. That is exactly the position of 
Ranking Member Congresswoman Jenniffer Gonzalez. That is 
exactly what we need. We need effective coordination at the 
Federal level.
    It is really hard when we, as officials, have to come to 
FEMA, HUD, Treasury, DOE, and many others, and sometimes we 
don't see that coordination that we have at the state level. 
Again, the last 2 years we have managed over $10 billion with 
zero funding at the state level, and I think that the record 
attests to the fact.
    The Chairman. My time is up. And if we have another 
opportunity, Ms. Jaresko, I will have a couple of questions for 
you, I will come back around to that. OK? Thank you.
    At this point, let me turn to the Ranking Member for her 
questions, comments.
    Miss Gonzalez-Colon. Thank you, Mr. Chairman. There are 
several issues that should be discussed here, and we were just 
talking about that Federal Coordinator.
    One thing is, Congress and the President signed a law 
approving $49 billion, approximately, to the island. Yet, we 
just have received $1.5 billion under the HUD Department on the 
island. Again, we haven't received the publication in the 
Federal Register for the next tranche of funds.
    We were talking about a Federal Coordinator or expediter to 
make this money available to the island. That is one thing. But 
adding layers with another appointee locally, I think, will do 
the worst in adding more bureaucratic layers.
    So, how can we mix having a Federal Coordinator like was 
used in other states, and the one proposed in the bill, Mr. 
Marrero?
    Mr. Marrero. Thank you, Ranking Member. Again, I totally 
agree with your position. If we add a layer, I think it will 
just, again, be disruptive to the process. The people of Puerto 
Rico, the government of Puerto Rico, has done everything that 
has been asked by the Federal Government to access this funding 
in less than a year. Not only have we developed the action 
plan, but we submitted it and got it approved, and we signed 
the grant agreement for the initial allocation.
    On the FEMA side, we were required in October 2017 to 
create a centralized oversight authority. We did that. We were 
required to hire third-party experts. We did that. We were 
required to implement internal controls, processes to make sure 
that the money will flow to the people that need it. We did 
that. And if you go to recovery.pr, we have the most 
transparent information of any other U.S. jurisdiction, as to 
recovery.
    The way that we see it is that, at the state level, ma'am, 
the COR3 director----
    Miss Gonzalez-Colon. Do you support a Federal Coordinator 
for expediting, not a local one?
    Mr. Marrero. Yes, ma'am.
    Miss Gonzalez-Colon. OK.
    Mr. Marrero. Yes, we will support a Federal Coordinator to 
expedite----
    Miss Gonzalez-Colon. The whole Federal Government, or just 
to PREPA----
    Mr. Marrero. No, I think it is to the Federal Government.
    Miss Gonzalez-Colon. OK.
    Mr. Marrero. To the Federal Government.
    Miss Gonzalez-Colon. I have a question to Ms. Jaresko. And 
although this was not supposed to be a hearing on recovery 
funds, it has been in the testimony. And this is one of the 
main issues the island is facing right now: How can we receive 
the funds that have been already appropriated by Congress and 
by the President?
    Your written testimony reports your projections counted on 
Puerto Rico receiving about $75 million in Federal recovery aid 
during the next decade. However, last Thursday the Board 
submitted to the Municipal Securities Regulatory Board a 
statement that, of $69 billion originally forecast in FEMA and 
CDBG-DR funds, they now expect that the obligations and delays 
will mean only $39 billion will get there. I don't know if we 
were talking about a 10-year period. What is this about?
    And, again, where did the expectation of $75 or $69 billion 
over the next decade came from?
    Second question will be how this will affect, then, the 
fiscal plan and the plan of adjustment.
    And third, it is not the case that much of the slowness in 
getting the funds going has been part of the Federal agencies 
themselves. HUD has been sitting on $8 billion in grant 
agreements since May. How can we complain, and how can the 
Federal agencies complain that we are not efficiently using the 
funds, when the money is not even in the island?
    Ms. Jaresko. Thank you, Congresswoman. With regard to the 
first question, there seems to be a misunderstanding as to the 
document that was released. The belief of the Board is what is 
represented in the fiscal plan with regard to the $75 billion 
or so of both Federal funds and private insurance proceeds 
expected, that number is built up from conversations with the 
Federal Government, FEMA, CDBG, as well as with the Insurance 
Commissioner of Puerto Rico with regard to the private 
insurance numbers. And that is the belief and our best judgment 
at this time as to what is expected.
    The document that was released last week is a document that 
came from discussions with creditors and was, specifically, an 
outline of risks to the fiscal plan, downside risks that the 
creditors had to keep in mind. As you can well imagine, in 
discussions with the creditors, the conversation most often 
leads to upside to the fiscal plan, how much more monies may be 
received by Puerto Rico, earned by Puerto Rico, or less can be 
spent. That document, which outlined a variety of risks, one of 
which was a slowing down or lack of receipt, had to be put 
together in response to those creditors who are asking all the 
time about upside, and we needed to share with them, as well, 
the downside risks that exist.
    It is the best judgment of the Oversight Board that all of 
the funds will be received and hopefully on the schedule that 
has been provided to us over time by the Federal Government, 
together with COR3 and the government of Puerto Rico.
    In terms of your second question, with regard to how would 
a slowdown affect the plan of adjustment. First and foremost, 
if the number remains the same, that would not affect it in any 
great amount.
    The Board has proposed, together with the government of 
Puerto Rico today, a plan of adjustment that limits annual debt 
service to $1.5 billion per year, which is less than 10 percent 
of own-source revenues--in other words, taxes and other 
revenues collected, not Federal funding, excluding Federal 
funding--less than 10 percent of Fiscal Year 2019 revenues, 
which is this year, and constant for the next 30 years.
    The Chairman. The time has expired. Let me now turn to Mrs. 
Napolitano for her time.
    Mrs. Napolitano. Thank you, Mr. Chairman. Ms. Jaresko, you 
represent a very impressive list of the accomplishments of the 
Board in your statement, including the recent proposed plan of 
adjustment, which you say enables Puerto Rico to reach its 
highest real potential.
    Where businesses large or small can have the confidence, 
they need to invest and expand with certainty, and where the 
people of Puerto Rico can expect the government to provide 
safety, education, and public services they need desperately.
    Are the people of Puerto Rico and others wrong in believing 
that all the Board has meant is crippling austerity measures?
    Ms. Jaresko. I understand and I accept that this fiscal 
plan and the measures taken by the Board can sometimes cause 
pain and cynicism.
    However, the fact of the matter is many of the things that 
the Board, together with the government of Puerto Rico, have 
been able to accomplish are for the benefit of the people of 
Puerto Rico, including in the plan of adjustment.
    In terms of the things that we have done, aside from the 
plan of adjustment, we have worked together with the government 
of Puerto Rico to provide greater transparency to the people--
--
    Mrs. Napolitano. Right, but when you do that, do you 
provide the same information to the general public?
    I would like to release the balance of my time to the 
Chair.
    The Chairman. Thank you.
    Ms. Jaresko, the Board has won almost every legal challenge 
brought by creditors on its decisions.
    So, my question is why would it be unreasonable to believe 
that, if essential services were defined as one of the 
provisions, one of the recommendations prescribed, as we do in 
this discussion draft, that you wouldn't win those challenges, 
as well?
    Ms. Jaresko. Thank you, Mr. Chair. I wish I could say that 
we had won all of our challenges, but we have not. And we have 
over 100 cases pending.
    I think that you have seen a variety of outcomes--in the 
Title III court, some having been overturned at the First 
Circuit, and there is no certainty.
    I think the key issue here is to narrowly define essential 
services or leave to the deliberation of the courtroom the 
narrow definition of essential services, potentially puts at 
risk things like costs that the Board has determined, together 
with the government of Puerto Rico, are very necessary, whether 
they be environmental, whether they be in the arts, in 
culture--the funding of the Institute of Culture of Puerto 
Rico, for example--as well as other areas which might be 
challenged in a courtroom.
    The Chairman. OK, so the point being it is more of 
definition than opposition in your statement?
    Ms. Jaresko. It is the risk of forcing and moving the 
definition into the courtroom, yes.
    PROMESA, as stated today, the language that Congress 
provided, does not require the Board to define it, but ensure 
the funding of, which we believe we have done, together with 
the government of Puerto Rico.
    The Chairman. OK, my last question, if I may, Ms. Jaresko. 
In your testimony, you claim that the discussion draft is a 
distraction from the real work already in progress that the 
Board is making. And, yet, ordinary Puerto Ricans continue to 
decry the Board's existence.
    In fact, having read the testimony of the next panel, and 
primarily the elected officials, the repeal of PROMESA seems to 
be a constant throughout those commentaries. Yet, they decry 
the Board's existence and call for its abolishment.
    And I am talking about the public, in general, because they 
believe the Board has primarily been working to ensure 
creditors receive as much repayment of their bonds as possible.
    And you talked about cynicism, and I mentioned the word, 
and others. Since it appears that you are not in support of 
most of the provisions in the draft, what do you suggest can be 
done to enable a favorable outlook by the Puerto Rican people 
of the work that you are doing, and that the Board is doing?
    Ms. Jaresko. I think the key issue is for us to move 
forward as quickly as possible, remove the burden of this 
bankruptcy, define what is affordable and sustainable, and work 
together with the government of Puerto Rico to put in place a 
sustainable financial budget, which then leads to the end of 
the Oversight Board as quickly as reasonably possible under the 
law.
    The Chairman. The support of the people of Puerto Rico, the 
voters of Puerto Rico, to that end, doesn't that facilitate 
what you are talking about and make it that much easier to have 
a support from the people in general, as opposed to the 
opposition?
    Ms. Jaresko. Of course, sir. And we do have the support of 
certain segments of the people on certain issues. When we work 
together with the government to increase pay for the police, I 
assure you that the police are supportive of that increase in 
pay, and the ability of the government, together with this 
Board, to find the funding within the budget and focus it on 
that need.
    The Chairman. Thank you very much.
    Mr. Lamborn, the time is yours, sir.
    Mr. Lamborn. Thank you, Mr. Chairman. And I also want to 
thank the Ranking Member for her leadership on this issue.
    Ms. Jaresko, I have a couple of questions. If the proposed 
legislation to amend PROMESA were enacted, how would it impact 
the work that the Board has done and is in the process of 
completing, especially when it comes to PREPA and the 
restructuring of the debt?
    I know you talked about this briefly in your opening 
remarks, but with a little bit more detail, please.
    Ms. Jaresko. Thank you. Specifically with regard to PREPA, 
as my colleague mentioned in his testimony, and I did, we are 
right now significantly progressing along a path of attracting 
a private operator to unbundle PREPA, separate the transmission 
and grid, and have it managed by a private operator. I believe 
that the selection could occur under the P3 law in Puerto Rico 
before the end of this year. I think that installing a 
Revitalization Coordinator at PREPA today would confuse those 
bidders, confuse the process, and potentially delay it, if not 
even make it impossible.
    From the perspective of transforming PREPA into something 
different, new, something in which both the Federal Government 
and the people of Puerto Rico could have confidence in the 
operations, I believe that the path that we are on is the most 
efficient, and that it is the most beneficial.
    With regard to the debt restructuring, the key concern we 
have is whether or not creditors will use the concept that is 
represented in the draft legislation with regard to discharging 
the unsecured debt to further demand, during this restructuring 
and in the future, secured debt from the government of Puerto 
Rico, which would incrementally be additional cost, and much 
less advantageous to the people of Puerto Rico.
    Mr. Lamborn. OK, thank you. And a general question I would 
like to ask--if there ever were to be a bailout that allows 
Puerto Rico to write off substantial amounts of debt, which I 
believe this bill does, to the detriment of investors who put 
money in, in good faith, what would that do to the future of 
investment in Puerto Rico?
    Ms. Jaresko. Yes, sir. That is, of course, an issue. 
Creditors who believe that they are at risk of being removed 
from the scene will likely not provide Puerto Rico in the 
future with access to funds that are desperately going to be 
needed to continue to invest in the capital infrastructure of 
the island.
    So, not only the bondholders themselves, but future 
investors in the island, both equity and debt, will take note 
and be fearful of investing into an environment like that.
    Mr. Lamborn. OK, thank you. I would like to yield the 
balance of my time to the Ranking Member.
    Miss Gonzalez-Colon. Thank you, Mr. Lamborn. This is a 
question to Mr. Marrero and to Ms. Jaresko.
    We were talking about the reduction to pension plans, and 
the plan of adjustment. And although I know the House and the 
Senate in Puerto Rico both approved being against any cuts to 
reduction to the pension system, some of you say that this is 
the best path to ensure Puerto Ricans come out of bankruptcy.
    My question will be what is the reasoning behind it, when 
you have pensioners that are gaining less than $1,200 a month, 
and you are proposing a cut of 8.9 percent to each of them.
    Ms. Jaresko?
    Ms. Jaresko. Thank you, Congresswoman. The pension cut that 
is proposed in the plan of adjustment is 8.5 percent, but never 
going below $1,200.
    The only reason that there is a pension cut proposed in the 
plan of adjustment is because of the bankruptcy laws in the 
United States, and the requirement to not have disparate 
treatment. There is no desire on the part of anyone in 
government, in the Oversight Board to cut pensions. However, 
left with no reasonable proposal that protects those pensioners 
at that $1,200, we again do not wish to leave it to the court 
and the creditors to argue.
    It is important to note that this pension proposal not only 
includes a cut, but also includes setting aside some $6 billion 
of available surplus in these early years, as per the fiscal 
plan, into a pension trust to assure that pensions can be paid 
for the next 30 years, regardless of the fiscal situation in 
Puerto Rico, even if we fall into deficit times.
    In addition to that, it has a segment that allows for the 
restoration of a cut if the government of Puerto Rico achieves 
excess surplus--in other words, has a better outcome in any 
fiscal year than is projected in the fiscal plan. Ten percent 
of that excess goes in any fiscal year, then, to restore that 
pension cut this year. So, in essence, when the Committee of 
Retirees agreed with the Board on supporting this plan, they 
did that because of the benefit of having 30 years of security 
of their pensions ahead of them, as well as the opportunity in 
better times to restore that cut.
    Miss Gonzalez-Colon. Mr. Marrero?
    Mr. Marrero. Thank you, Congresswoman. Just for the record, 
to be clear, the position on the public policy of the 
government of Puerto Rico is that we are opposed to any pension 
cuts. And that is why we left the negotiation table in June 
when the Official Committee of Retirees, a committee 
established by the U.S. Trustee as part of the bankruptcy 
proceeding, they agreed to a pension cut.
    However, after careful consideration, and in light of the 
best interests of the people of Puerto Rico, not only the 
retirees, but the people of Puerto Rico, we agreed not to 
oppose that agreement that was duly entered with the Official 
Committee of Retirees, because opposing that agreement will be 
harsher for them.
    The Chairman. Time is up. Thank you.
    Let me now turn to Mr. Gallego.
    Mr. Gallego. Thank you, Mr. Chairman. To all, thank you for 
your testimony at this important hearing.
    I was new to Congress when PROMESA was passed, but actually 
voted against it, knowing that it was a bad year for Puerto 
Rico. And in the years since, I have witnessed the plight of 
the Puerto Rican people as they have dealt with a struggling 
economy, the difficult, demoralizing process of implementing 
PROMESA, and, of course, the devastation of Hurricane Maria.
    While we continue to pressure this Administration to keep 
its promise to Puerto Rico and disperse the billions of dollars 
of aid Congress has already approved for relief, aid, and 
mitigation, it is important for us to also plan for the future. 
That is why I am grateful to all of our witnesses who are here 
today to make sure that we are doing what we can to ensure that 
Puerto Rico has a prosperous and empowered future.
    With that, I have a few questions for Mr. Marrero.
    Mr. Marrero, in your testimony, you mentioned some 
difficulties in the budgeting process under PROMESA related to 
the Board's ability to set overly restrictive limits and the 
Puerto Rican government's lack of ability to appeal. Could you 
expand on that, or give an example of this particular problem?
    Mr. Marrero. Sure, definitely. Thank you for the question 
and for all the help for the people of Puerto Rico, Mr. 
Gallego. I can attest to the fact that you have helped a lot 
under this process.
    As to the specific issue that we have in front of us, it is 
about micro-budgeting. We have been supportive of the 
restructuring tool that PROMESA has, and we understand that we 
have to collaborate with the Oversight Board in order to move 
forward. That is the spirit of the law, and we agree with it.
    However, we believe that the role of the Oversight Board 
should be tied to the fact that they have to set the spending 
limits. There are two objectives within PROMESA: to achieve 
fiscal responsibility that is essentially balanced budgets for 
4 consecutive years; and access to capital markets at 
reasonable rates. That is, essentially, get out of bankruptcy.
    And that is what we really want to make sure that we can be 
focused on, because that is the ultimate goal. Let's end 
bankruptcy, let's end Title III, let's terminate the Oversight 
Board, and we regain access to capital markets.
    However, we believe that the role of the Oversight Board 
should be to set the size of the room, not necessarily to 
arrange the furniture, or to tell me where the furniture is 
going to be. So, again, they have to set the spending limit, 
the cap limits, and will decide how it is going to spend the 
money. Because, in the end, that should be the responsibility 
of the elected government of the people of Puerto Rico to 
determine, according to its police power and policy-making 
functions, how the money is going to be spent, not only for our 
administration, but for many, many other----
    Mr. Gallego. And that over-prescription creates a scenario 
where it takes longer for the decision and execution cycle that 
the government has to make. Is that what I am hearing?
    Mr. Marrero. Yes, sir. Exactly.
    Mr. Gallego. OK, thank you. Let's switch over to Ms. 
Jaresko.
    Similar to my question to Mr. Marrero, how has the Board 
worked with the Puerto Rican government?
    Or not a similar question, a different question. How has 
the Board worked with the Puerto Rican government to improve 
the elected leaders' autonomy in this area, or eliminate the 
problems they have experienced with the budgeting process under 
PROMESA?
    Ms. Jaresko. It is our belief that, in working on a more 
detailed budget, and with giving more transparency and public 
knowledge to how the budget is being spent, we are helping the 
people of Puerto Rico to ensure better decisions, and helping 
the government of Puerto Rico.
    An example that I gave earlier is specifically with the 
police bureau. Last year, given that there is, unfortunately, 
little financial management in many of these spending entities, 
it came to the attention of the Board by following this level 
of detail that the police bureau had been underspending its 
personnel budget, even though the secretary at that time had 
been announcing that he did not have enough for personnel.
    He was misleading his own team, and police were leaving the 
island until we could hold a public hearing and show that, in 
fact, he had underspent, and had more than enough. In fact, 
some of that underspent went to solve other problems within the 
budget.
    We don't take a lot of time for the reapportionments, if 
the reapportionments are requested on a timely basis with 
information.
    When the issue of rape kits came up and the need to choose 
to spend $3 million, we gave our agreement within 40 minutes.
    Mr. Gallego. OK, and before our time runs out, are there 
any other ideas or proposals the Board may have regarding 
modifications to PROMESA that the Committee has not considered 
that could be helpful, that could both work for all sides 
included, and also, obviously, work for the PROMESA Board?
    Ms. Jaresko. We don't have any requests for further 
amendments to PROMESA.
    Mr. Gallego. You may not have any requests. Do you have any 
suggestions?
    Ms. Jaresko. Not at this time, sir.
    Mr. Gallego. So, your opinion is everything that we are 
doing right now is copacetic and it is working well.
    Ms. Jaresko. As I said in my testimony, we did agree that 
additional disclosure would be valuable. And other parts--a 
Federal Coordinator that, as my colleague had mentioned, would 
help with the Federal oversight of the disaster funds would be 
helpful. There are parts of this draft that we agreed with.
    Mr. Gallego. OK, thank you. Mr. Chairman, I yield my time.
    The Chairman. Mr. Wittman, sir.
    Dr. Wittman. Thank you, Mr. Chairman. I would like to thank 
our witnesses for joining us today.
    Ms. Jaresko, a question for you. You had mentioned in your 
testimony that the people of Puerto Rico were recently 
demanding better governance, and more responsive government 
services, and we know recently of the resignation of Governor 
Rossello. With all of this change happening within the 
Commonwealth's government, how challenging is it for the 
Financial Oversight Management Board going not only now, but in 
the future, given the government's opposition to helping 
correct some of the inefficiencies in local government?
    We know the dynamic between local government and state 
government or territory government there have been significant. 
So, I just want to get your perspective about how the current 
situation unfolds.
    Ms. Jaresko. I think we have had a very collaborative 
relationship with the new governor and the new government 
officials. Many of the people had stayed, so there has been 
some continuity. Others have changed, and there have been 
improvements.
    I think that our focus on working as quickly as possible to 
restore sustainability and remove this debt burden is probably 
the single thing that we can agree on. There are always 
differences in the details, but it generally, I think, is 
working better for the people of Puerto Rico not to be 
constantly litigating against each other.
    Dr. Wittman. That is good to hear, because I know the 
divisions there have created some challenges.
    I want to get your thought on Section 9 of this discussion 
draft, which would allow Puerto Rico to cancel some of its 
unsecured debt. What do you believe would be the effect of this 
provision on the Commonwealth's ability to fund services needed 
for the people of Puerto Rico?
    Ms. Jaresko. I believe there are two primary concerns that 
we need to have.
    One is that the risk of having that unsecured debt 
discharge raises the risk that creditors today, in the midst of 
negotiations, will demand better security for the debt, and 
that security is costly to the government of Puerto Rico.
    The second great risk, I believe, is what it means with 
regard to future potential access to markets and access to 
capital that Puerto Rico will, of course, need as they move 
forward.
    Dr. Wittman. Thank you. I want to also look at Section 8 of 
the draft bill that repeals Title V of PROMESA, which put in 
place a process by which the Revitalization Coordinator could 
designate critical infrastructure projects for expedited 
permitting process removal, trying to speed things up to make 
sure, when you see a need, that the need can be addressed 
quickly.
    I know in the past that there have been a number of hurdles 
for economic development that were really put in place by local 
government bureaucracy. Give me your sense on how this repeal 
of this section would hinder economic advancement.
    Ms. Jaresko. I think Title V was very well-intentioned when 
established, but the utilization of it has been very limited by 
the private sector for multiple reasons. The value that Title V 
brings is an accelerated permitting on the island. And to the 
extent that the government has worked to already accelerate 
that permitting process, many private-sector players have not 
chosen to apply for Title V.
    Title V has been of great interest to those who would like 
to invest in generation and generation facilities on the 
island, private sector energy generation. But given that 
situation, and the bankruptcy that we are working through at 
PREPA, those contracts, those opportunities have been somewhat 
delayed by the bankruptcy process.
    I believe that Title V could be improved if it included 
additional access to improving Federal permitting. And I 
believe that Title V still has an important role to play, as we 
move forward in economic development on the island.
    Dr. Wittman. Very good. Do you believe, in looking at the 
current situation and the expeditious manner in which projects 
either have or have not proceeded, that there are additional 
things that the Federal Government can do for the Commonwealth, 
or are there things that the Commonwealth can do by itself, or 
are there more efforts that need to take place in simplifying 
the relationship between the Commonwealth and the local 
governments?
    Ms. Jaresko. I think there is a great deal of work that 
still needs to be done in the ease of doing business for all 
business people, Puerto Rican business people, as well as non-
island investors. And I think that many of them are outlined in 
the fiscal plan, and are being worked on currently by the 
governor of Puerto Rico.
    One of the areas that has been focused on is permitting, in 
particular, because that is the No. 1 problem. But aside from 
permitting, there are a variety of other administrative 
burdens--for example, registration of property, the 
administrative nature and burdensome nature of taxes. So, I 
think there are many things there.
    I think, with regard to looking at municipalities and the 
relationship between the territories and municipalities, the 
single thing that is criticized most often by the business 
sector is something called an inventory tax, which is right now 
an important revenue stream for municipalities, but it is also 
very burdensome to the business sector.
    Dr. Wittman. Very good. Thank you, Mr. Chairman. I wanted 
to thank the witnesses again. My apologies, I think earlier I 
referred to Puerto Rico as the territory. It is, indeed, the 
Commonwealth, just as Virginia is the Commonwealth. So, my 
apologies for that oversight.
    Mr. Chairman, with that, I yield back.
    The Chairman. Thank you, sir.
    Mr. Sablan.
    Mr. Sablan. Thank you very much, Mr. Chairman, for holding 
today's hearing, and the hearing next week.
    We are in a very unfortunate situation, in terms of Puerto 
Rico. And I hope we get all of this. But I have some questions 
for Ms. Jaresko, if I may, please.
    Ms. Jaresko, in your testimony you stated the Board's 
proposed plan has 10 key points, and I see that. The plan is to 
ensure the 74 percent of current and future pensions are not 
cut. Who are the other 26 percent of those affected? And what 
are the proposed cuts to this population?
    Ms. Jaresko. The average pension of the 26 percent, on 
average, that are not being cut is $1,500. Again, no cut can 
take any pensioner below $1,200. What is being offered to all 
of those 100 percent is security that over the next 30 years, 
funds will be invested by an independent trust and can't be 
touched by governments, politicians in the future, and assure 
their pensions.
    Mr. Sablan. Yes, I see that. And it is too late to go back 
and point fingers of who is responsible for some of these 
problems, but let's hope and see that when, after all is said 
and done, that more is done than is said.
    You also mentioned the Board hopes to establish debt 
management policy to ensure Puerto Rico never again finds 
itself in this situation. Could you please elaborate on which 
steps the Board will be taking to ensure this, and what 
specific policy measures will you be promoting?
    Ms. Jaresko. Yes, the proposed plan of adjustment 
reflecting that Kobre & Kim debt review report that my 
colleague described to you earlier specifically outlines 
different principles so that Puerto Rico doesn't return to 
those practices.
    First, new debt can only be used to finance capital 
improvements, capital expenditures. It cannot be used, as it 
has in the past, to finance operating expenses and satisfy 
deficits.
    Second, refinancing debt can only be used to actually 
decrease the amount of debt, so you cannot borrow to take out 
borrowing if it increases your costs, overall.
    And finally, there has to be an amortization within 2 years 
for any new debt of its issuance date.
    Mr. Sablan. All right. Thank you. What has been the impact 
of the American Federation of State, County, and Municipal 
Employees' support for the plan of adjustment?
    And do you expect further support for the plan from any 
other organized unions?
    Ms. Jaresko. Yes, we have reached agreement with AFSCME, 
which on the island is SPU, and that agreement reflects, as I 
described earlier, the agreement to provide collective 
bargaining agreements to ensure 5 years, in terms of next 
policy and next agreement with that union, as well as providing 
a higher level of health care on a monthly basis, as well as 
restoring that $1.3 billion, as I said, of employee withholding 
in something called Sistema 2000, which was a hybrid pension 
system that has disappeared.
    We are in active discussions with other unions, both those 
represented nationally, as well as those with only local 
representation.
    And we do hope--and we believe--we will reach additional 
agreements.
    Mr. Sablan. Thank you. And what has been the impact of your 
constructive working relationship with Governor Vazquez on the 
Board's work with the government on fiscal plans, and 
government spending, and delivery of services?
    Ms. Jaresko. I believe that we have, together, made sure 
that we can answer questions more quickly, that we can restore 
things that have, for whatever reason, fallen on the side, and 
that we can respond to the needs of the people, whether they be 
providing air conditioning at a Bayamon women's correction 
facility quickly, or whether they are fixing problems and 
identifying where to find funds for very important things like 
special education needs.
    Mr. Sablan. All right. Thank you. Please excuse my cynicism 
sometimes because what happens in Puerto Rico affects the 
Northern Marianas. And both Puerto Rico and the Northern 
Marianas are commonwealths, but it doesn't really matter what 
you are called. We could be called colonies, so long as we have 
the insular cases doctrine, which is discriminatory and 
actually treats people--we are not possessions. You don't own 
us, Mr. Wittman. Nobody owns us.
    In the Commonwealth of Virginia, sir, they cannot impose a 
board like they did in Puerto Rico without your permission. But 
with Puerto Rico and the Northern Marianas, they could.
    But, excuse my cynicism. We are running off the Medicaid 
cliff, as you may understand, and we are having problems re-
negotiating both bipartisan and bicameral because of this 
problem that has happened in Puerto Rico. Very unfortunate. But 
my time is up, so I will come to that at some later time. Thank 
you very much for joining us this morning.
    I yield back, Mr. Chairman.
    The Chairman. Thank you, Mr. Sablan.
    Mr. McClintock, you are recognized.
    Mr. McClintock. Thank you, Mr. Chairman. I opposed PROMESA 
because I felt it broke the most important promise that a 
government can make, and that is to put its full faith and 
credit behind its bonds. I was concerned that this breach of 
faith would cost Puerto Rico access to credit markets at 
reasonable rates for many years to come, and establish a 
dangerous precedent that would affect our other territorial 
governments.
    I was also concerned that it would relieve the elected 
officials of their responsibility for this mess with an 
unelected board that is insulated from direct responsibility, 
which I think sets another dangerous precedent.
    This arrangement has now been in place for 3 years. We were 
promised it would put the government's finances in order, 
establish a plan to repay bondholders, and restore Puerto 
Rico's access to credit markets at reasonable rates. It is not 
clear to me that any of these objectives have been achieved. 
And, in fact, the degree of political instability seems to have 
increased, rather than decreased.
    So, my first question--and I will start with Mr. Marrero--
is what am I missing?
    Mr. Marrero. Well, I think that you are missing the fact 
that we have restructured $23 billion of debt already, not only 
tax back bonds, but also the water utility, as well as the 
government bank.
    We also have been able to give a security to pensioners. 
Today, the retirees are able to receive their pension checks at 
their mailbox because we transformed the depleted retirement 
system into a PAYGO. So, 22 percent of our budget goes to pay 
retirees.
    Also, I think that the fact that in 3 years we already have 
$23 million restructured, we have a plan of adjustment already 
filed----
    Mr. McClintock. Restructured or repaid?
    Mr. Marrero. Restructured, and we----
    Mr. McClintock. Restructured? Well, again, that is exactly 
the point that I am making. I don't see a lot of progress in 
straightening out the territory, the Commonwealth's finances.
    Mr. Marrero. With all due respect, sir, we have already--we 
have over----
    Mr. McClintock. How much debt has actually been retired, 
has been repaid?
    Mr. Marrero. The $23 billion we have of the--I think $6 
billion, around $6 to $8 billion between COFINA and----
    Mr. McClintock. OK, that is debt that has actually been 
repaid to----
    Mr. Marrero. No, no, no. I said restructured, I am sorry--
--
    Mr. McClintock. I understood.
    Mr. Marrero. I didn't get the question----
    Mr. McClintock. And what I am saying is there is a big 
distinction between restructured and repaid.
    Mr. Marrero. Yes, sir. And that is why we ask Congress--
when Congress passed PROMESA, it gave Puerto Rico a tool to 
restructure debt to a sustainable level in order to repay our 
debts.
    And yes, sir, the intent of the government of Puerto Rico 
is to repay its debts to a sustainable level.
    Mr. McClintock. But that was the intent 3 years ago. I 
wonder how different the situation would be if the full 
responsibility for this mess was placed where it belongs, on 
the elected officials of Puerto Rico, and that the normal 
process for dealing with this debt had actually been followed.
    Mr. Marrero. Well, if I may add, sir, before the approval 
of PROMESA, the government of Puerto Rico did not have the 
capacity to restructure its debt.
    Mr. McClintock. Why not?
    Mr. Marrero. Because it was not allowed. The bankruptcy 
code only allowed for municipalities of a state to restructure. 
So, a city or county can restructure, but no state can 
restructure its debts. There is no mechanism for that----
    Mr. McClintock. Well, that is exactly right, which is why 
their full faith and credit means something.
    Mr. Marrero. Exactly.
    Mr. McClintock. Puerto Rico's promise of full faith and 
credit now means absolutely nothing.
    Mr. Marrero. With all due respect, sir, Puerto Rico is a 
territory subject to the plenary powers of Congress under 
Article IV, and----
    Mr. McClintock. Yes, but this was a mess not made by 
Congress. We have made our own mess. This was a mess made by 
the people of Puerto Rico by electing irresponsible officials 
that made these decisions over the years, and I do wonder if at 
some point there is something to be said about accountability.
    Mr. Marrero. Yes, sir. However, I would have to disagree 
with you slightly. I think that the responsibility of Puerto 
Rico is shared, not only with the people of Puerto Rico, but 
also with the people of the United States and the Federal 
Government, as it is a territory subject to the plenary powers 
of Congress.
    Mr. McClintock. Well, many believe that a mess that is made 
in my state of California ought to stay in California, and a 
mess that is made in Puerto Rico ought to stay in Puerto Rico.
    Mr. Marrero. But to the extent that it is----
    Mr. McClintock. Ms. Jaresko, I will give you the last word.
    Ms. Jaresko. I will simply say, sir, that Puerto Rico has 
started to repay in those areas where they have restructured 
the debt, for example, and COFINA, which is a sales and use 
tax, we are starting to repay our debt. In fact, those new 
bonds are trading at above par and traditional municipal bond 
holders are once again holding Puerto Rico debt.
    I believe, in the end, that this restructuring, which 
enables it to be sustainable, provides those creditors with a 
better chance of a reasonable repayment of what is affordable 
than had no alternative to PROMESA been put in place.
    The Chairman. Mr. Soto, you are recognized.
    Mr. Soto. Thank you, Mr. Chairman, and thank you all for 
coming today.
    It is a complex history, the history of the debt of Puerto 
Rico. You have so much to do with both the relationship between 
the territory and the Federal Government--936, underfunding of 
Medicare and Medicaid, Social Security, child tax credit--all 
unequal treatment, and all helping contribute to where we are 
today.
    The good news is we have already passed bipartisan 
legislation to create Medicaid parity and, just recently, last 
week, to help low-income seniors on Medicare.
    And we know the history. Puerto Rico used to be able to 
file bankruptcy until, I think, about 1983, 1984. Because it is 
not a state, it doesn't have sovereign immunity, so it can't 
reject--it is in a weird spot, and it was taken out of the 
bankruptcy code without really much reason for it.
    And here we are, a few years ago, where you have to do 
something about it. So, PROMESA was this compromise that has 
been contorted and had sacrifices, and now we are here to see 
whether we need to reform it or not.
    We have had some movement, $23 billion in debt 
restructuring certainly is a lot. And lowering the debt service 
from $4.2 billion to $1.5 billion, those are all big 
milestones.
    One thing I continue to hear from a lot of folks on the 
island and in my district and others is about this idea of 
eliminating the debt. So, I want to start out with that.
    Mr. Marrero and Ms. Jaresko, is there any legal way to 
eliminate the entire debt?
    Ms. Jaresko. No, not under the bankruptcy code, as far as I 
understand it, sir. None.
    Mr. Soto. Mr. Marrero?
    Mr. Marrero. Right now we have to go through the process 
delineated by PROMESA. It is the only process that we have to 
restructure our debt.
    Mr. Soto. The bill draft talks about an audit, and I 
understand that PROMESA has already done an audit. But what 
would be the harm, since there is a perception that maybe the 
audit was done well, or maybe it wasn't?
    Would there be any harm in having an audit while we 
continue on with these issues, Mr. Marrero? Then Ms. Jaresko.
    Mr. Marrero. I believe it will be a waste of taxpayers' 
money. Because, in the end, let's remember the fact that not 
only all the fees that we were incurring as part of the 
process, the government has to pay them, but also the Oversight 
Board, as well as the advice of any other committee that is 
created through the process.
    So, for me, it is a waste of taxpayers' money and time.
    Mr. Soto. Thank you, Mr. Marrero.
    Ms. Jaresko? Sorry, my time is limited.
    Ms. Jaresko. I believe the two values of doing an audit 
have been achieved. One, to identify which debt needs to be 
invalidated in the court. And, as we described, we have 
submitted for over $9 billion, this is being invalidated by 
different players, including the special claims committee of 
the Board. And second, to identify the practices of the past 
that led Puerto Rico to this situation, and avoid them going 
forward by putting a debt management policy in place so that 
this never occurs again.
    Mr. Soto. OK. Ms. Jaresko, what do you think the timetable 
is of winding down PROMESA, based upon the current course of 
history so far?
    Ms. Jaresko. I believe that we first need to get the 
Commonwealth through this plan of adjustment and have a court 
confirm it. Hopefully, depending on the amount of litigation, 
that would be 2020, next year. After that, we would have 4 
years of balanced budgets. And that, in my mind, would take us 
through the end of PROMESA.
    Mr. Soto. So, 2024 is what you are estimating right now.
    What about you, Mr. Marrero, based upon your experience, 
where are we at?
    Mr. Marrero. Again, our priority is to get out of 
bankruptcy as soon as we can. And we do believe that, as soon 
as we get out of bankruptcy, out of Title III, and we have 
access to capital markets, we just have to finish the process 
to achieve fiscal responsibility.
    Mr. Soto. Thank you. Now, last, is the Reconstruction 
Coordinator. I can appreciate, having spoke with both the 
Governor and folks on both sides of the aisle about this, after 
already having a Federal layer with the PROMESA Fiscal Board, 
having just another layer is, obviously, something people are 
very concerned about.
    We know that COR3 has faced barriers with the 
Administration. So, Mr. Marrero, what are the barriers? Because 
we allocated $42.5 billion, and you have received, what, $14, 
$15 billion to date?
    What are the barriers you are facing with the Federal 
Government right now?
    Mr. Marrero. Well, with all due respect, we believe it is 
just bureaucracy and lack of timely decision making. From our 
perspective--on the CDBG side. Let's talk about the CDBG side. 
The CDBG side, for the $1.5 billion, which was the initial 
action plan, we did it in less than a year. It took Louisiana 3 
years to access the initial funding on the CDBG side. We did it 
in a record time.
    By the way, at that time, the undersecretary of HUD said 
publicly that it was the best action plan that she had seen at 
her post at HUD.
    Mr. Soto. Thank you, Mr. Marrero, because I have to wind 
up.
    But if we could just put a switch into this bill, Mr. 
Chairman, to make the Trump administration release the funds, I 
think we would actually resolve this. Thank you, and I yield 
back.
    The Chairman. Thank you very much.
    Mr. Westerman, sir, you are recognized.
    Mr. Westerman. Thank you, Mr. Chairman. Thank you to the 
witnesses.
    Ms. Jaresko, the current labor force participation numbers 
in Puerto Rico are hovering around 40 percent, which is 20 
percent or more lower than what we have here in the mainland. 
Can you tell me what factors would be contributing to that?
    Ms. Jaresko. Yes. The labor participation rate is affected 
tremendously by the amount of burdensome regulation in the 
labor market and the lack of free movement within the labor 
market.
    One of the things the Board had done previously, with the 
support of former Governor Rossello, was to suggest the repeal 
of Law 80, which did not allow for employment at will. 
Employment at will exists in 49 out of 50 states, with the 
exception of Montana. And that, unfortunately, was not 
acceptable at that time to the legislature. So, you continue to 
have very high severance levels, which is a discouragement to 
employers to employ in the formal market additional people.
    Amongst other things, of course, we need to increase the 
amount of investment on the island to create new jobs, jobs 
that the people of Puerto Rico can fulfill. And that then 
directly translates into our investment into human capital, 
making sure people are trained for the jobs of the future.
    Mr. Westerman. How has this low labor participation rate 
impeded the rebuilding process in Puerto Rico? And can you 
address that?
    Ms. Jaresko. I don't think at this point that it has 
impeded the reconstruction post-Hurricanes Irma and Maria. To 
the extent that there might be a possible conclusion, it is 
that we now do not have enough construction companies to 
support the level of construction that is being demanded.
    But I think that it is a broader and bigger issue for 
economic development in Puerto Rico.
    Mr. Westerman. Of this 40 percent that participates in the 
work force, what percentage of that is employed by the Puerto 
Rican government?
    Ms. Jaresko. I don't know the number, sir. I can get back 
to you. It is a significant portion, but I don't know the 
percentage.
    Mr. Westerman. And what effects does this have on the 
sustainability of Puerto Rico's pension system?
    Ms. Jaresko. We have just issued a report I recommend--it 
is called a 211--to talk about all of the different problems 
that have occurred to de-fund the pension system in Puerto 
Rico. I think that the number of employees is one element, but 
I think the greater elements that have led to the de-funding is 
an insufficient funding, borrowing from those funds, as well as 
increasing benefits that accrue additional pension liability 
without increasing the investment into the fund.
    Mr. Westerman. Do you believe the rightsizing of the Puerto 
Rican government is needed?
    Ms. Jaresko. I do believe that the rightsizing of the 
government is needed for several reasons: (1) to reflect the 
actual de-population of the island and the current demography 
of the island; (2) to reflect the fiscal capacity of the 
island; and (3) frankly speaking, because it is very difficult 
to manage a government with over 150 government agencies.
    Therefore, some rightsizing, some consolidation, and the 
previous governor and the Governor have agreed that some 
consolidation would make the government more efficient to 
manage and more responsive to the people of Puerto Rico.
    Mr. Westerman. Has the government, or has the Oversight 
Board worked to streamline or consolidate any aspects of the 
Puerto Rican government?
    Ms. Jaresko. Yes, we have. And we have seen success already 
in two departments in particular. The Department of Economic 
Development has consolidated a variety of bureaus, and the 
Department of Public Safety has consolidated and begun the 
process. This consolidation, to be clear, means a centralized 
administration, procurement, and budgeting, whereas the bureaus 
continue to do, of course, their individual functions, whether 
they be firefighters, or police, or other.
    Mr. Westerman. You talked about it a little bit, it has 
been brought up already. We know that the Puerto Rico pension 
system is virtually bankrupt. Can you go into more detail on 
what the Oversight Board is doing to prevent this situation 
from getting worse, especially with the sheer percentage of the 
island that is employed by the government and expects a 
pension?
    Ms. Jaresko. I think the most important thing we have done, 
and I think it is something that, in fact, places Puerto Rico 
maybe ahead of the 50 states that are also challenged at times 
with funding their pension systems, is that we have moved to a 
pay-as-you-go system.
    We no longer are attempting with the employment retirement 
system to continue to fund a defined benefit plan. All 
employees have moved, on a going forward basis, to a defined 
contribution type of plan. And payment for pensions, those who 
are currently retired, is paid from the budget from the general 
fund each year.
    Mr. Westerman. I know my colleague, Ranking Member Bishop, 
did a lot of work on that when he was in the Utah Legislature, 
and kind of led the country in getting pension systems 
sustainable. Maybe he could be a resource for you, because that 
is not just a problem in the Commonwealth, it is a problem in 
many states across our country.
    I yield back.
    The Chairman. Mr. San Nicolas, the floor is yours.
    Mr. San Nicolas. Thank you, Mr. Chairman.
    Mr. Marrero, you mentioned earlier that you believe the 
PROMESA Board should be determining the size of the room, not 
the placement of the furniture. Could you elaborate with some 
examples on how that is occurring?
    Mr. Marrero. Sure, definitely. I will take, for example, 
the Christmas bonus. I think that, to the extent that we have--
according to PROMESA, the Oversight Board will tell us what is 
the forecast on the revenues, and we will use that figure and 
start working on the budget. We believe that, according to 
PROMESA, the Oversight Board has fiscal and budgetary powers. 
We know that. Obviously, that was the responsibility that it 
was bestowed with.
    However, the fact that once that spending limit is 
determined, the elected government of the people of Puerto Rico 
should be the one to determine how that money should be spent. 
For example, the Christmas bonus. We have been working on that 
and we are confident that we will come to a resolution to this 
matter. But in the past, it was a point of contention because, 
even though it says a bonus for us, it was supplementary wages, 
it was a way to do social justice to the people of Puerto Rico, 
to the workers of Puerto Rico, that they don't earn the same as 
on the mainland.
    So, again, that was one of the areas, as many others, in 
which we believe the Oversight Board is overstepping its role 
into the area that should be left to the people of Puerto Rico.
    Mr. San Nicolas. Ms. Jaresko, we are all trying here.
    When I listen to Mr. Marrero and what he is sharing, I have 
a strong tendency to agree with him. I am a Congressman from 
Guam, and my district is also a U.S. territory similar to 
Puerto Rico and my colleague from the Northern Mariana Islands, 
as well as my colleague from the U.S. Virgin Islands and 
American Samoa.
    And we have a lot of fiscal challenges as territories, 
because we receive inequitable funding from the Federal 
Government for liabilities that would receive a much different 
rate of funding if they were being incurred in any of the 50 
states. And, oftentimes, our territories tend to try to get 
creative in ways to try to make up for those Federal funding 
shortfalls. It often results in deficit spending, bond 
borrowing, and the like. And I think that is something that 
territories need to work on to correct here at the Federal 
level, so that we are not suffering those same inequities that 
tend to contribute to our fiscal challenges.
    That being said, my concern is that, if the PROMESA Board 
is overly involved in the operational decisions of the 
government, how is the local government going to be able to 
build the credibility necessary to satisfy creditors and 
investors when PROMESA goes away?
    If the operational decisions are being made by the Board, 
and not the local government, wouldn't that make interest rates 
higher, and wouldn't that make investors more wary that when 
PROMESA is gone the local government hasn't demonstrated the 
credibility over the years that was in place?
    Ms. Jaresko. Thank you. I don't believe we are overstepping 
in the budgetary area, and I think what we are leaving behind 
is a much more detailed and transparent----
    Mr. San Nicolas. That is not my question, Ms. Jaresko. My 
question is, wouldn't that injure the credibility of the 
government, for investors and for creditors, if the government 
was not fully responsible for making the decisions during the 
period that PROMESA was in place?
    Ms. Jaresko. No, I don't believe so. I think what we are 
leaving behind is a better financial environment, one which is 
more transparent for those creditors, one where the government, 
on a going forward basis--the legislature, which you will hear 
from, on a going forward basis, will have more data and more 
ability to do the same work that we are doing right now from a 
budgetary standpoint, but they will be doing it themselves on a 
going-forward basis----
    Mr. San Nicolas. I really would have to respectfully 
disagree with you, because, at the end of the day, creditors 
and investors are going to be looking to management, and 
whether or not management is going to be able to deliver on the 
revenue projections that are being put in place. And if 
management are not the ones who are actively involved in making 
the financial decisions, and if they are not the final arbiters 
of those decisions, then the credibility isn't being 
established. And that is the case when you are talking about 
the private sector, that is the case when you are talking about 
municipal governments in the United States, and that is the 
case when you are talking about territorial governments.
    Ms. Jaresko, I just wanted to close with my concern with 
respect to this, and I hope my colleagues can indulge, but I 
pulled up your background, and your background in particular 
with respect to your work history in Ukraine. In Ukraine, you 
were advocating for a technocratic government, at least with 
respect to what I am reading here. And I am just concerned that 
this is almost turning into a practice that you are getting 
excited about without necessarily factoring in whether or not 
it is in the best interest of the people of Puerto Rico and the 
government of Puerto Rico to be able to establish the 
credibility necessary for them to be able to emerge from 
PROMESA with the full faith and confidence of creditors and 
investors when this process is over.
    Thank you, Mr. Chairman. I yield back.
    The Chairman. Mr. Gohmert, sir.
    Mr. Gohmert. Thank you, Mr. Chairman. I appreciate the 
witnesses being here. And like Mr. San Nicolas, I was looking 
at the background, Ms. Jaresko, that we were provided. It said 
you were an American, or are an American-born Ukrainian 
investment banker who served as Ukraine's Minister of Finance 
2014 to 2016.
    I am curious. In your position there in Ukraine, were you 
aware of Ukrainian President Petro Poroshenko dispatching Olga 
Bielkova or any other Ukrainian official to the United States 
in order to conduct an influence campaign on the 2016 election 
here in the United States?
    Ms. Jaresko. I am here to report on PROMESA, and Puerto 
Rico's----
    Mr. Gohmert. Your credibility is an issue, just as Mr. San 
Nicolas----
    Ms. Jaresko. I don't have any knowledge of the details that 
you just described, sir.
    Mr. Gohmert. I didn't ask you if you had knowledge of the 
details. I asked if you had any knowledge of the president 
sending Bielkova to the United States.
    Ms. Jaresko. I do not have any knowledge of that.
    Mr. Gohmert. You don't have any knowledge on how that was 
financed, as director of finance?
    Ms. Jaresko. It did not occur while I was Minister of 
Finance, sir.
    Mr. Gohmert. Well, you were there.
    The Chairman. Mr. Gohmert, if I may----
    Mr. Gohmert. This is critical to her credibility. She is 
now director of this finance operation in Puerto Rico.
    The Chairman. I am not trying to dictate the questions you 
can ask. The time is yours, sir. But the issue today is 
PROMESA, and any other conspiracy tale that we want to chase, 
that is up to you.
    Mr. McClintock. A point of order----
    Mr. Gohmert. My clock is still running, as the Chairman is 
eating up my time, lecturing me and trying to cover up this 
matter.
    But let me ask you, Ms. Jaresko, are you aware of Ukrainian 
parliamentarian Bielkova's April 12 meetings with Liz Zentos 
and Eric Ciaramella of the Obama National Security Council?
    Ms. Jaresko. No, sir.
    Mr. Gohmert. You were not aware of any meetings between 
them?
    Ms. Jaresko. None, sir.
    Mr. Gohmert. All right. How did you go about becoming the 
Executive Director of the Financial Oversight and Management 
Board of Puerto Rico? How did that come about?
    Ms. Jaresko. I was recruited by the members of the 
Oversight Board, based on my experience as Minister of Finance 
in both the fiscal area and the debt restructuring that I did 
in Ukraine.
    Mr. Gohmert. And those were the people in Puerto Rico, 
correct?
    Ms. Jaresko. The seven bipartisan members of the Oversight 
Board. One of them is resident in Puerto Rico, yes.
    Mr. Gohmert. Do you know who recommended you for that 
position?
    Ms. Jaresko. It was a recruitment firm that was hired, and 
a variety of candidates. I believe the Oversight Board was 
searching for almost a year, maybe 9 months. And it was at the 
recommendation of the Board members that the Board took that 
decision.
    Mr. Gohmert. Yes. To become the Executive Director of 
Finance in Ukraine--obviously, you are American born, you are 
an American citizen.
    Ms. Jaresko. Yes, sir.
    Mr. Gohmert. Did you have to become a citizen of Ukraine in 
order to take that position?
    Ms. Jaresko. Yes, sir. They awarded me citizenship the day 
I became minister.
    Mr. Gohmert. The day you became minister?
    Ms. Jaresko. Yes, sir.
    Mr. Gohmert. How long had you been living there?
    Ms. Jaresko. I lived in Ukraine from my initial posting in 
the U.S. State Department as the Economics Officer in 1992, and 
I left in 2017, when I accepted this position. So, 25 years.
    Mr. Gohmert. So, you were there until you accepted this 
position in 2017, correct?
    Ms. Jaresko. Yes, sir.
    Mr. Gohmert. All right. And what did you do from April 2016 
until you accepted this position and moved to Puerto Rico?
    Ms. Jaresko. I took a break from my role as Minister of 
Finance during the war and during the economic collapse of the 
country, which was very demanding. I did some public speaking, 
both here in the United States and in Europe, and reacquainted 
myself with my children.
    Mr. Gohmert. OK, so you were Director of Finance in Ukraine 
during the economic collapse?
    Ms. Jaresko. I was Minister of Finance. After the 
Revolution of Dignity, I became Minister in December 2014.
    Mr. Gohmert. Right.
    Ms. Jaresko. Remember, the revolution there ended in 
February. Crimea was occupied illegally. And then Eastern 
Ukraine was attacked.
    Mr. Gohmert. Was attacked--are you talking about by Russia?
    Ms. Jaresko. Yes, sir.
    Mr. Gohmert. And that was with regard to the Crimea?
    Ms. Jaresko. First Crimea, than Eastern Ukraine after that.
    Mr. Gohmert. Right.
    Ms. Jaresko. The war continues.
    Mr. Gohmert. OK. Is that what you are attributing the 
economic crisis to?
    Ms. Jaresko. It also was based on financial policies of 
past governments that led the country to be over-indebted, as 
well as to run very large and significant deficits.
    Mr. Gohmert. Indebted like Puerto Rico, I guess. My time 
has expired.
    The Chairman. Mr. Lowenthal.
    Dr. Lowenthal. Thank you, Mr. Chair. And thank you to the 
witnesses. As a former college professor, I have some questions 
myself about Ms. Jaresko, about what is occurring at the 
University of Puerto Rico.
    Ms. Jaresko, you mentioned in your written testimony, 
especially, that the UPR, the University of Puerto Rico, is 
genuinely one of the best things Puerto Rico has to offer. And 
I probably agree with you in many ways, in that you mentioned 
also it is a source of pride for all Puerto Ricans.
    However, I would like to ask you some things. In 2017, the 
University had a system-wide strike due to austerity measures, 
poor infrastructure, and increased tuitions. But you also 
stated in your testimony that the fiscal plan calls for an 
increase in tuition, and that the maximum annual tuition for 
Fiscal Year 2023 would be $5,090, and that all students will be 
able--you guarantee, basically, because of scholarships and 
others--that all students in Puerto Rico will be able to access 
education at this price.
    Are you really telling us that you are guaranteeing all 
students will be able to access the University, with a median 
income of less than $20,000 in Puerto Rico, and that the 
scholarships will make this up for all students applying?
    Ms. Jaresko. No, sir, not all students. What I was 
describing in my statement was that tuition has been raised to 
some level just under, excuse me, $1,000 under the Pell Grants.
    So, first of all, those who can apply for and achieve a 
Pell Grant can afford tuition.
    Dr. Lowenthal. Right.
    Ms. Jaresko. Second, that we have set aside the equivalent 
of 12,000 full-time scholarships per year for those who may not 
qualify for a Pell Grant but are still needs-based. It is not 
about providing tuition for those who can afford tuition who do 
not have a need.
    Dr. Lowenthal. All right, so you believe that will cover 
all the students at the University, either the Pell Grants or 
the scholarships, so the tuition increases will not impact 
students?
    Ms. Jaresko. That is correct. They should have access to 
needs-based scholarships if the Pell Grant is unavailable to 
them.
    Dr. Lowenthal. OK. Thank you, and I hope that is so. I am 
just not sure. And you are saying that student debt will not 
increase because of this?
    Ms. Jaresko. Again, I can't speak to student debt. The 
University has to determine what the elements of the needs-
based test will be. And I don't know whether other students 
will continue to take debt that perhaps wouldn't qualify for 
that.
    Dr. Lowenthal. I would be interested in knowing how this is 
going to impact student debt, not just because of Puerto Rico. 
You know, that is a crisis throughout the Nation, student debt. 
And I am just wondering how, with what is going on in Puerto 
Rico, if you could, at some point tell the Committee how is 
that going to impact student debt that is going on, because I 
agree with you, it is the hope and the pride of the 
Commonwealth of Puerto Rico.
    Ms. Jaresko. Yes, we will follow up.
    Dr. Lowenthal. The other question I want to ask you is, you 
mentioned about the looming pension crisis, UPR. Can you 
explain that?
    Ms. Jaresko. Yes. Unfortunately, although the University of 
Puerto Rico retirement system is better funded than the 
employee retirement system of the Commonwealth, which was 
funded at practically zero, the fact of the matter is that, at 
the current level of funding that the University is currently 
providing, it will become bankrupt within the next 10 years.
    Today, what we see is a funding of approximately $60 
million per year, when the requirement identified by actuaries 
is almost twice that.
    What we have suggested in our fiscal plan is that the 
University do one of three things: either fully fund what is 
necessary, and/or take on some pension reform aspects to reduce 
the amount that is necessary actuarially, but in no cases to 
under-fund and lead to the same situation that we find 
ourselves in at the Commonwealth, to learn from the lessons 
that we----
    Dr. Lowenthal. And where is the University administration, 
in terms of these recommendations?
    Ms. Jaresko. It is my understanding that they have begun to 
work specifically on one of those options.
    Dr. Lowenthal. Thank you.
    With that, Mr. Chair, I yield back.
    The Chairman. Thank you, Mr. Lowenthal.
    Mr. Bishop.
    Mr. Bishop. Thank you, Mr. Chairman. Like many people, I am 
not crazy to be here. That is why like many people, we are 
actually not here for us, we are here to talk to you and to 
those who are out there.
    So, Natalie, first, you have taken a couple of infamous 
shots here today. Let me apologize for that situation and thank 
you for what you are both doing. A lot of the things that have 
been charged to this panel really are the things that the 
second and third panel here had charged to them, but those are 
elected officials, so it comes with the territory, 
unfortunately. It is not the way things ought to be.
    So, since today is an important day, far more important 
than this hearing, this is the first day of the World Series.
    [Laughter.]
    Mr. Bishop. And I know this is more important to you, and 
if you don't, then ask the Alomar family, the Rodriguez, 
Clemente's relatives, they will say that that is more 
important.
    When one starts little league, home plate is 17 inches. And 
when you get to high school, it is still 17 inches. And the 
minors, it is 17 inches. And in the majors, it is still 17 
inches. And the pitchers are expected to hit those 17 inches. 
And even a major league pitcher that can't hit the 17 inches 
basically gets sent to Pocatello afterwards. One of the things 
that never happens in any of those levels is to say, ``OK, if 
you can't do the 17 inches, let's make it 18, or 20, 25 inches. 
We will change the plate so that you can actually do the job.''
    The draft that is floating around here is one of those 
things that is trying to change home plate, and it doesn't have 
to be. Keep home plate the same, and just do the proper and 
appropriate things.
    Let's face it, the problems that Puerto Rico is facing 
right now, that the island is facing, simply come from a lot of 
bad decisions that were made in past governments. Not all. 
There were some great governors and some great governments that 
tried, definitely, to institute those reforms. But they 
happened.
    The PROMESA legislation was unique in the annals of 
Congress. Our Committee was assigned to try to come up with 
something. We based it on a process that has historical 
precedents of effectiveness. If anyone thinks working with the 
Obama administration Treasury Department is an easy practice, I 
have some other oceanfront property in Phoenix to sell you. It 
just simply does not happen.
    But this was one of the bills that, ironically, had a 
majority of the House Republicans and a majority of the House 
Democrats in passing it. Even Mr. Grijalva said some nice 
things like it was necessary. And, as a compromise, it was 
workable. And the irony that the Senate didn't change a single 
word, that is unique for the Senators who still think they are 
paid by the word in the first place.
    Changing it is not going to solve the issue at hand. It is 
like trying to expand home plate. It simply won't be there. You 
have the tools that are there. What you need is to make sure 
you hit home plate, and that requires a government that is 
willing to work with the Board on this temporary procedure to 
solve the problems.
    I am proud of the current governor. She is doing, I think, 
a remarkable job, as she said in my office, and promised to 
solve these issues by working with the Board. And I am proud of 
the Board trying to now work with the Governor. And if we go 
forward with that, then actually you can accomplish something 
that is positive.
    This entire process was always intended to be temporary. 
And this entire process has three goals, at least in my mind. 
One is to provide economic success to an island that has 
potential--not a lot of resources, but you have potential. The 
second is to provide governmental stability, which hasn't 
happened necessarily in the last several years, but can happen 
in the future if the Board, as well as the Governor's office 
and the rest of the political appointees, actually are working 
together. And finally, for me, it is an avenue, a pathway to 
statehood, which is still the important process at the end of 
the day.
    Without this Board, without the structure we have in hand, 
those three goals--the economic success, the governmental 
stability, as well as the path to statehood--are going to be 
significantly retarded, if not eliminated. That is why I am 
proud of what you are attempting to do, and I am proud that the 
new governor is attempting to work very closely to actually 
solve problems, instead of creating problems, and that some of 
the draft that has been thrown out there can be situated as 
nothing short of political pandering to special interest 
groups.
    And the other bottom line about why this hearing and the 
next hearing is so significant is any of the proposals that 
have been floating out there aren't going anywhere. The idea 
that they will be passed in the Senate or signed by a President 
is delusional, at best. You have home plate; use it.
    Satchel Paige once said, ``Home plate don't move. Just 
throw strikes.'' Throw strikes.
    I actually have no time left. Mr. Grijalva, you are more 
generous to me than I would have been to me.
    [Laughter.]
    Mr. Bishop. Would you please gavel me down? But at least I 
said something intelligent.
    The Chairman. I am sorry, Mr. Bishop, it is a character 
flaw of mine, of being respectful.
    Mr. Bishop. If you say of your elders, I am going to go on 
for another 3 minutes.
    [Laughter.]
    The Chairman. Ms. Velazquez, you are recognized.
    Ms. Velazquez. Thank you, Mr. Chairman.
    Mr. Marrero, I gather from your testimony that you are open 
to supporting a Federal monitor coordinator. Is that true? Is 
that the case?
    Mr. Marrero. More than the name, I think that what we need 
is to expedite the recovery funds. So, if we can have someone 
to coordinate at the Federal level, that will be more 
efficient, and that will help the people of Puerto Rico.
    Ms. Velazquez. Do you think that adding another layer to 
what is already in place will facilitate accessing Federal 
money?
    Mr. Marrero. I don't see us----
    Ms. Velazquez. Yes, I hear you. I don't know if you are 
aware that last week before the Appropriations Subcommittee, 
the administration testified that intentionally they missed a 
legally required deadline that would have made congressionally 
appropriated funds available to Puerto Rico. And we are talking 
about HUD and CDBG-DR. Are you aware of that?
    Mr. Marrero. Fortunately, I am aware----
    Ms. Velazquez. So, is the issue adding another layer, or is 
the issue dealing with the fact that this Administration has 
put roadblock on top of roadblock to make it difficult for 
Puerto Rico to access that money?
    That has been the history of the disaster relief package 
that we passed. Seventeen localities that were affected by 
Maria, Harvey, all of them got their money, right? And yet 
Puerto Rico didn't.
    I just came back from a Financial Services Committee 
hearing where I questioned Secretary Carson on that respect.
    So, I don't believe that adding another layer will address 
the issue of the contempt of the Administration to make it 
difficult for the government of Puerto Rico to access the money 
that we appropriated. In fact, I consider that to be a 
violation of the law.
    And people love to talk and lecture us about accountability 
of the government of Puerto Rico, but we don't talk about 
accountability of the Federal Government. And people use 
corruption, but no one mentioned here that two Federal 
officials were arrested in Puerto Rico 3 or 4 weeks ago.
    So, I don't believe that adding another layer will resolve 
what is at the crossroad here, in terms of facilitating the 
money that was appropriated. No one, no agency, is empowered to 
unilaterally withhold CDBG-DR funds. You want to talk about 
accountability? Let's talk about accountability.
    Ms. Jaresko, according to the Board's own documents, 
further delays could reduce the amount of money reaching Puerto 
Rico by $30 billion. Given that this Federal aid is not coming 
in, and the economy is not growing, the people of Puerto Rico 
continue to suffer. Can you assure the people of Puerto Rico 
that any additional belt tightening will not be put on their 
backs?
    Ms. Jaresko. The document that you referred to, 
Congresswoman, was simply something that we were discussing 
with creditors as downside risks. We are still confident that 
Puerto Rico will receive the monies that it----
    Ms. Velazquez. I hear you. You are confident that Puerto 
Rico is going to get the money?
    Ms. Jaresko. Yes, ma'am.
    Ms. Velazquez. Yes? Here we are, how many years later after 
Maria?
    So, what is your plan B if Puerto Rico doesn't get the 
money?
    Ms. Jaresko. With regard to the plan of adjustment, it 
would not affect it. We have limited debt service to $1.5 
billion per year, which is less than 10 percent of own-source 
revenues this year, regardless of any future receipt or future 
growth in the economy. It would be terribly unfortunate, and we 
will do everything in our power to work with the government and 
with you to assure that they get the funds.
    Ms. Velazquez. Sure, I hear you, but you know what, Ms. 
Jaresko? The plan of adjustment is viewed by many as very 
generous to bondholders. It will be unacceptable for you to 
force more austerity on the people due to the Administration's 
willful withholding of funds.
    Ms. Jaresko, in a motion submitted to the court, it is 
alleged that Duff and Phelps, one of your many contractors, has 
overcharged the Board and, in turn, the people of Puerto Rico. 
So, we want to discuss accountability? Let's discuss 
accountability. How are you going to make sure that the people 
of Puerto Rico are not over-billed by your hundreds of 
contractors and consultants?
    Ms. Jaresko. That is a Title III expense. It went through 
the fee examiner, and that fee examiner is responsible for 
doing exactly what they have done. We don't review those bills. 
Those bills are reviewed by the court and the fee examiner. And 
we are grateful for the fee examiners' work in doing that.
    The Chairman. Thank you very much.
    Ms. Velazquez. But you can get consultants that will charge 
much less for the trip from San Juan to New York City. Five 
thousand?
    The Chairman. I want to thank both of you. I appreciate it. 
And thank you for the testimony and for your response.
    There are other follow-up questions that we will direct to 
you, for responses, with more specificity in terms of the 
coordinator question and other questions in terms of the 
question that Ms. Velazquez just came up with that she asked 
Ms. Jaresko having to do with delays, and the Federal funding 
being expeditiously coming in, and the consequences of that 
which the report alluded to, but we ask for some more 
specificity on it.
    With that, thank you very much. And let me invite the next 
panel up.
    Ms. Jaresko. Thank you.

    Mr. Gallego [presiding]. Thank you, everybody. Let's 
continue on. I would like to now thank and welcome Panel 2. As 
part of our witness list, I would like to welcome the Honorable 
Carmelo Rios, the Honorable Eduardo Bhatia Gautier, the 
Honorable Antonio Soto Torres, and the Honorable Rafael 
Hernandez as part of our Panel 2 witnesses.
    I also want to remind the witnesses that we do have 5-
minute limits. You will see the lights in front of you. As the 
light turns yellow, that means you should start wrapping up 
your answers. And when it turns red, we ask you to please 
finish your answers.
    With that, the Chair now recognizes our Ranking Member, Mr. 
Bishop.
    Mr. Bishop. Thank you, Mr. Chairman pro tem. I just want to 
quickly thank the witnesses for being here.
    And not being rude, Miss Gonzalez-Colon is the Ranking 
Member of the T&I Committee, which is talking about the very 
issue you are talking about here. So, she has gone to fulfill 
her duties over there. I am going to sit in a few minutes, and 
then will apologize for leaving later. Mr. McClintock will be 
finishing up this panel. I want you to understand that is why 
we are playing musical chairs here, as well as thanking you for 
being here.
    I yield.
    Mr. Gallego. Thank you, Mr. Bishop.
    I now recognize the Honorable Carmelo Rios, the Majority 
Leader of the Senate of Puerto Rico, for his 5-minute 
testimony.

 STATEMENT OF THE HON. CARMELO RIOS SANTIAGO, MAJORITY LEADER, 
                     SENATE OF PUERTO RICO

    Mr. Rios. Thank you, Chair Gallego, Acting Chair, and thank 
you Mr. Bishop, as well as Mr. Grijalva and Commissioner 
Gonzalez. On behalf of the President of the Senate of Puerto 
Rico, the Honorable Thomas Rivera Schatz, I would like to thank 
you for this opportunity to share with the Committee our 
thoughts regarding the proposed amendments to PROMESA.
    During the Chairman's recent visit to Puerto Rico, Senator 
Rivera Schatz made clear our position regarding the draft under 
consideration today. PROMESA does not need to be amended. It 
needs to be repealed. After over 3 years since its enactment, 
PROMESA, with its Financial Oversight Management Board, has 
failed to bring fiscal responsibility and access to capital 
markets to the territory of Puerto Rico. Instead, PROMESA has 
exacerbated the economic situation on the island, putting a 
magnifying glass over 121 years of colonialism that are the 
real root of our problems.
    President Rivera Schatz believes that you should use your 
jurisdictional power under Article IV, Section 3, Clause 2 of 
the United States Constitution, not to amend a Federal law, but 
to enact the legislation that will do away with our second-
class status as a colony, and admit Puerto Rico as a state of 
the Union. Only then will Puerto Rico truly possess the tools 
and mechanisms necessary to solve the social and economic 
crisis.
    Nonetheless, we would like to thank the Chairman Grijalva 
and other Members of Congress for recognizing that PROMESA is 
not working, and for proposing a fix to what is, in our 
opinion, unfixable. With this total of $214 million in our 
budget from Fiscal Year 2017 to the current fiscal year, which 
includes a very lucrative salary, PROMESA is an unfunded 
mandate that has proved to be costly to the 3.1 million 
Americans in Puerto Rico.
    I would like to point out to this Committee that the annual 
salary of the Board's Executive Director, Ms. Jaresko, is 50 
percent more than the President of the United States and three 
times the Speaker's salary.
    In addition, through January 2019, the Title III court has 
approved $300 million in fees and expenses. In a letter 
addressed to various U.S. Senators dated October 7, 2019, the 
Chairman of the Board, Mr. Jose Carrion, referred to the cost 
of Puerto Rico's Title III cases as exorbitant and tragic.
    The Board has complete autonomy to exercise its power 
without any control, supervision, and oversight or review from 
the democratically-elected officials such as the governor of 
Puerto Rico or ourselves which has led to the decisions that 
have been detrimental to 3.1 million Americans in Puerto Rico. 
Yet, we remain without access to capital markets and ongoing 
debt restructuring process that is costing the government of 
Puerto Rico hundreds of millions of dollars.
    PROMESA has failed and threatened the economic stability of 
the island. The bill before us today contains amendments 
seeking to correct many of the flaws that have become so 
obvious during promised PROMESA's implementation. However, the 
main reason for PROMESA's failure is simple, and not addressed 
by any of the amendments being considered today by this 
Committee. PROMESA does not address the root cause of the 
problem on the island. It is colonial status, the same colonial 
status that allowed Congress to establish a fiscal control 
board that violates the principles of our democracy.
    It is unbelievable that after 121 years living under the 
flag of the Star-Spangled Banner, and 102 years of American 
citizenship, Puerto Ricans remain living on an island that 
cannot vote for its national election, or elect a commander-in-
chief, or have a full-fledged representation in Congress as a 
state of the Union. It is unbelievable that in the 21st 
century, the beacon of democracy for the rest of the world 
still has 3.1 million disenfranchised Americans and treats them 
as second-class citizens.
    Rather than extending full democratic rights to all the 
citizens, the United States of America has now chosen to 
curtail them by enacting a law that has proven to be flawed and 
ineffective.
    To blame our fiscal crisis solely on mismanagement on the 
local level is to turn a blind eye to the reality resulting 
from unequal and second-class treatment at the Federal level. 
It is to ignore that Puerto Ricans, by simply buying a one-way 
ticket to the Continental United States attain other rights, 
responsibilities, and privileges denied to them while on the 
island. It is to ignore that the 3.1 million proud U.S. 
citizens living in Puerto Rico deserve the same quality of life 
that their brothers and sisters in the states.
    The only real permanent solution to the fiscal problem of 
Puerto Rico before this Committee, in my opinion, is statehood. 
It is time to extend to the American citizens of Puerto Rico 
the equal treatment, rights, and respect they deserve and have 
earned through their 102 years of faithful service to this 
Nation. And statehood is the only real option viable for the 
solutions of the Puerto Rico challenge today.

    [The prepared statement of Mr. Rios follows:]
 Prepared Statement of the Hon. Carmelo Rios Santiago, Majority Leader
                              On behalf of
 the Hon. Thomas Rivera Schatz, President of the Senate of Puerto Rico
    Chairman Grijalva and Ranking Member Bishop: On behalf of the 
president of the Senate of Puerto Rico, Hon. Thomas Rivera Schatz, I 
would like to thank you for this opportunity to share with the 
Committee our thoughts regarding the proposed amendments to PROMESA.
    As recently as last month during the Chairman's visit to Puerto 
Rico, Senator Rivera Schatz made clear our position regarding the draft 
under consideration today. PROMESA does not need to be amended--it 
needs to be repealed. After 3 years and 4 months since its enactment, 
it has become clear that PROMESA--with its Financial Oversight 
Management Board (FOMB)--has failed in its main objective of bringing 
fiscal responsibility and access to capital markets to the territory of 
Puerto Rico. Instead, PROMESA has exacerbated the economic situation on 
the island, putting a magnifying glass over the 121 years of 
colonialism that are the real root of our problems. This Committee 
should use its jurisdictional power under Article IV Section 3 Clause 2 
of the United States Constitution, not to amend a failed law, but to 
enact legislation that will do away with our second-class status as a 
colony and admit Puerto Rico as a state of the Union. Only then will 
Puerto Rico truly possess the tools and mechanis1ns necessary to solve 
the social and economic crisis rooted in hundreds of years of unequal 
treatment at the Federal level.
    Nonetheless, I would like to thank the Chairman and the Ranking 
Member for recognizing that PROMESA is not working and for proposing a 
fix to what is, in our opinion, unfixable. With its total $214 million 
dollars in annual budgets from Fiscal Year 2017 through the current 
fiscal year (which include very lucrative salaries), PROMESA is an 
unfunded mandate that has proved to be very costly to the 3.1 million 
American citizens living in Puerto Rico. I would like to point out to 
this Committee that the annual salary of the FOMB Executive Director is 
32 times higher than the average annual salary in Puerto Rico. In 
addition, through January 2019 the Title III court has approved $300 
million in fees and expenses. In a letter addressed to various U.S. 
Senators and dated October 7, 2019, the Chairman of the Board, Mr. Jose 
B. Carrion, referred to the cost of Puerto Rico's Title III cases as 
``exorbitant and tragic.''
    The broad powers granted to the FOMB under PROMESA are excessive 
and have effectively usurped the powers vested upon its elected 
officials by the Constitution of Puerto Rico. Section 108 of PROMESA 
grants the FOMB complete autonomy to exercise its powers without any 
control, supervision, and oversight or review from duly and 
democratically elected such as the Governor of Puerto Rico or 
ourselves. This unrestrained power is granted to seven individuals who 
do not necessarily have the well-being of all the people of Puerto Rico 
at heart, and has led to decisions that have been detrimental to the 
quality of life of the 3.1 million U.S. citizens residing in Puerto 
Rico. Yet, Puerto Rico remains without access to capital markets and 
the ongoing debt restructuring process is costing the government of 
Puerto Rico millions of dollars.
    PROMESA has failed in its purpose and threatened the economic 
stability of everyone on the island. The bill before us today contains 
a series of amendments seeking to correct many of the flaws that have 
become so obvious during PROMESA's implementation. However, the main 
reason for PROMESA's failure is simple and not addressed by any of the 
amendments being considered today by this Committee. PROMESA does not 
address the root cause of the problems on the island: its colonial 
status. The same colonial status that allowed the U.S. Congress to 
establish a fiscal control board that violates the most basic 
principles of our democracy.
    It is unbelievable that after 121 years living under the flag of 
the United States of America and 102 years of American citizenship, 
Puerto Ricans living on the island cannot vote on the national general 
elections to elect its Commander in Chief or have full-fledged 
representation in Congress as a state of the Union. It is unbelievable 
that in the 21st century, the beacon of democracy for the rest of the 
world still has 3.1 million American citizens disenfranchised and 
treats them as second-class citizens. It is unbelievable that in the 
21st century, rather than expanding full democratic rights to all of 
its citizens, the United States of America has chosen to curtail them 
by enacting a law that has proven to be flawed and ineffective.
    The territory status and subsequent unequal treatment of Puerto 
Rico is the root cause of the problem that led to the enactment of a 
law that is flawed and unable to resolve Puerto Rico's fiscal problems. 
To blame Puerto Rico's fiscal crisis solely on mismanagement at the 
local level is to turn a blind eye to the reality resulting from 121 
years of unequal and second-class treatment at the Federal level. It is 
to ignore that Puerto Ricans, by simply buying a one-way ticket to the 
continental United States, can attain all the rights, responsibilities, 
and privileges denied to them while on the island. It is to ignore that 
the 3.1 million proud United States citizens living in Puerto Rico 
deserve the same quality of life as their brothers and sisters in the 
states.
    The only real and permanent solution to the fiscal problems of 
Puerto Rico before this Committee today is statehood. Only statehood 
can bring to Puerto Rico the political and economic stability it needs 
to be able to sustain the quality of life its 3.1 million American 
citizens deserve. Any other alternative will keep us in the vicious 
cycle of borrowing to be able to sustain our economy.
    It's time to extend to the American citizens of Puerto Rico the 
equal treatment, rights, and respect they deserve and have earned 
through its 102 years of faithful service to this Nation. Statehood is 
the only real and viable solution to the challenges Puerto Rico is 
facing today.

    Thank you.

                                 ______
                                 

    Mr. Gallego. Thank you.
    The Chair now recognizes the Honorable Eduardo Bhatia 
Gautier.

STATEMENT OF THE HON. EDUARDO BHATIA GAUTIER, MINORITY LEADER, 
                     SENATE OF PUERTO RICO

    Mr. Bhatia Gautier. Thank you, Mr. Gallego, Chairman 
Gallego--sounds good. Ranking Member Bishop and other members 
of the Committee, thank you for having us here.
    I represent the Popular Democratic Party as the Ranking 
Member or, I am sorry, the Minority Leader in the Senate of 
Puerto Rico, former President of the Senate.
    While PROMESA succeeded in providing a fair and orderly, 
yet imperfect, debt restructuring process, the Oversight Board 
has effectively become a supra-political entity governing the 
people of Puerto Rico in a naked colonial mode, and that is 
wrong. Whatever happened to government of the people, by the 
people, and for the people?
    So, any amendments that do not return the decision-making 
power to the people of Puerto Rico are nothing more than 
putting a Band-Aid on a bullet wound.
    Congress must acknowledge that it cannot continue to govern 
Puerto Rico indefinitely, pursuant to the property clause of 
the Constitution. Property rights was a central legal 
underpinning during slavery. Slaves were property of their 
masters, who could dispose of them as they pleased. The 
territorial clause gives Congress property rights over Puerto 
Rico, which it can manage and dispose of as it pleases.
    Really? As long as Congress uses and the Supreme Court 
interprets this clause unscrupulously, the people of Puerto 
Rico have become property by extension for all practical 
purposes. We are at the mercy of our masters, and that is 
wrong. Even the infamous racist insular cases recognize the 
fact that the territorial clause was not appropriate for Puerto 
Rico. It had too many people organizing a government with their 
own language and culture.
    At first, they ensured cases were used to discriminate 
against us. Later, they were used to allow self-rule and 
economic development. Now, we are going back to where we 
started, eliminating self-government to advance powerful 
economic interests. And that is shameful.
    In the 1900s, it was the sugar barons, and now it is Wall 
Street's hedge funds.
    Only because many in Congress continue to view Puerto Rico 
through this proprietary lens was it even conceivable to submit 
us to the supra-political entity that is the Oversight Board.
    The Oversight Board's authority must be limited to just 
prescribing achievable numerical targets for budgets and fiscal 
plans, period. Spending priorities and other public policy 
determinations would then be returned to us.
    Regarding certain amendments proposed:
    First, amending Section 201(b), the essential services and 
economic growth section, they identify a need for amendments 
defining essential services as spending priorities reiterates 
the Oversight Board's unrestrained power and displacement of 
the government of Puerto Rico's substantive policy-making 
functions.
    Such amendments would not be necessary if the government of 
Puerto Rico had not been stripped of these. The Oversight Board 
has created a parallel government structure led by expensive 
third-party consultants. A Supreme Court Justice, Sonia 
Sotomayor, recently noted the Oversight Board has effectively 
become an entity that no one can control.
    If Congress takes seriously its responsibilities to support 
Puerto Rico's economic growth, then it is time for a broader 
program. Congress must enact a permanent fix to Puerto Rico's 
inequitable growth, healthcare financing structure, and pursue 
economic development policies tailored to Puerto Rico. 
Rethinking Federal tax policy to encourage private-sector 
investment-driven recovery is indispensable. Either Puerto Rico 
grows, or it will be perpetually subjected to bankruptcy.
    Second, accountability, access to information, and ethical 
requirements. I welcome amendments promoting access to 
information incorporating disclosure provisions. But Congress 
must also address the absence of ethical legal requirements 
applicable to members of the Board.
    Third, reconstruction and revitalization. I support the 
Reconstruction Coordinator, provided its role is limited to 
that of a facilitator. The proposed amendments do not do that. 
Aid is not being received by Puerto Rico. People are still 
suffering. This is unacceptable. Your citizens, my citizens, 
deserve better. The Revitalization Coordinator for PREPA is 
different. It would be granted power to control tantamount to a 
Federal receivership. And, as I previously testified, I am not 
in favor of that.
    Finally, Puerto Rico public credit comprehensive audit. I 
fully support a comprehensive audit of the public debt. As 
President of the Senate of Puerto Rico, we passed Act 95-97-
2015, which is almost identical to that now proposed. My 
position remains the same. All public debt must be audited, 
illegal debt rejected, and the rest restructured.
    Thank you very much.

    [The prepared statement of Mr. Bhatia Gautier follows:]
Prepared Statement of the Hon. Eduardo Bhatia Gautier, Minority Leader, 
                         Senate of Puerto Rico
    Good morning, Chairman Grijalva, Ranking Member Bishop, and members 
of the Committee. Thank you for the invitation to participate in 
today's hearing to discuss potential amendments to the Puerto Rico 
Oversight, Management and Economic Stability Act of 2016 
(``PROMESA'').\1\ My name is Eduardo Bhatia Gautier. I am a former 
president of the Senate of Puerto Rico (2013-2016), and currently serve 
as the Minority leader for the Popular Democratic Party. On behalf of 
the people of Puerto Rico, we welcome the opportunity to have a 
constructive dialogue with you and your colleagues on PROMESA.
---------------------------------------------------------------------------
    \1\ Pub. L. No. 114-187, 130 Stat. 549 (2016), codified at 48 
U.S.C. Sec. Sec. 2101-2241.
---------------------------------------------------------------------------
    From the outset, it is important to underscore that I have always 
been opposed to the imposition by Congress of an undemocratic fiscal 
control board for the Government of Puerto Rico.\2\ As the former 
president of the Senate of Puerto Rico, I advocated for a comprehensive 
framework that would give Puerto Rico the tools it needed to reach a 
resolution with creditors and adjust its debts to a sustainable level. 
Recognizing that debt restructuring alone would be an insufficient path 
to Puerto Rico's recovery from its long-standing fiscal and economic 
crisis, together with multiple experts, I also encouraged Congress to 
address Puerto Rico's inequitable health care financing structure and 
adopt legislative measures promoting sustained economic growth. 
Regrettably, Congress did not heed such advice. It opted for a colonial 
and paternalistic approach that focused exclusively on fiscal 
adjustment, and by doing so, effectively stripped the people of Puerto 
Rico from the limited autonomy recognized pursuant to Public Act 600 of 
1950 and Public Act 447 of 1952.\3\
---------------------------------------------------------------------------
    \2\ See e.g., Bhatia: La imposicion de una junta de control fiscal 
no electa, Foro Noticioso, May 24, 2016, available at https://
www.foronoticioso.com/fn/bhatia-la-imposicion-de-una-junta-de-control-
fiscal-no-electa-con-enormes-poderes-administrativos-y-financieros-
sobre-puerto-rico-atenta-contra-los-valores- democraticos-que-hemos-
aspirado-desde-tiempo/.
    \3\ Pub. L. No. 81-600, 64 Stat. 319 (1950) and Pub. L. No. 82-447, 
66 Stat. 827 (1952), codified at 48 U.S.C. Sec. 731 et seq.
---------------------------------------------------------------------------
    My testimony today will first provide you with a general overview 
of the principal mistakes of PROMESA and then proceed to demonstrate 
why they are at the root of your concerns in proposing these 
amendments. A key aspiration today is for me to show how these 
amendments fall short and fail to properly address these concerns and, 
in some cases, generate new issues. Lastly, I will provide you with 
some of my recommendations for fixing PROMESA consistent with the 
stated goals behind its adoption. To be crystal clear: any amendments 
that do not return home rule to the people of Puerto Rico would 
constitute nothing more than putting a band-aid in a bullet wound.
                      promesa's principal mistakes
    As you are aware, Congress enacted PROMESA after finding that a 
``comprehensive approach to fiscal, management, and structural problems 
and adjustments that exempts no part of the Government of Puerto Rico 
[was] necessary, involving independent oversight and a Federal 
statutory authority for the Government of Puerto Rico to restructure 
debts in a fair and orderly process.'' \4\ While it generally succeeded 
in providing a fair and orderly--albeit imperfect--debt restructuring 
process, PROMESA transcended the stated objective of providing 
oversight of the Government of Puerto Rico. Rather than serving as a 
mechanism for fiscal oversight,\5\ the Puerto Rico Financial Oversight 
and Management Board (the ``Oversight Board'') has effectively become a 
supra-political entity governing the people of Puerto Rico in a naked 
colonial mode.
---------------------------------------------------------------------------
    \4\ 48 U.S. Code Sec. 2194(m)(4).
    \5\ 48 U.S. Code Sec. 2121(a).
---------------------------------------------------------------------------
    Regrettably, Congress opted to treat disparately the people of 
Puerto Rico when it also exempted the Oversight Board from the 
customary Federal supervision provided to governmental officers acting 
with commensurate duties and responsibilities. Federal oversight of the 
Oversight Board is limited to removal of its members by the President 
only ``for cause.'' \6\ As Supreme Court Justice Sotomayor recently 
indicated, it has effectively become ``an entity that no one can 
control.'' \7\ Notably, if the United States assumes the cost of the 
Oversight Board as proposed in these amendments, there is a change of 
course regarding Federal oversight. Congress would not be providing the 
same blank check it deemed acceptable with respect to the financial 
resources of the Government of Puerto Rico.
---------------------------------------------------------------------------
    \6\ Id at Sec. 2121(e)(5)(B).
    \7\ Transcript at pg. 8 of oral argument held on October 15, 2019 
before the U.S. Supreme Court in docket no. 18-1334, Financial 
Oversight and Management Board for Puerto Rico v. Aurelius Investment, 
LLC, et al., available at https://www.supremecourt.gov/oral_arguments/
argument_ transcripts/2019/18-1334_dc8f.pdf.
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    The current powers of the Oversight Board are not only an affront 
to core democratic values, but also to their utilitarian benefits. 
Rather than overthrowing a democratic form of self-government, PROMESA 
should instead promote the consented adoption of local policies based 
on an understanding that they are achievable and are in Puerto Rico's 
own interest.\8\ First, there is the failure of autocratic 
pronouncements in promoting policies arising from dialogue and 
participation.\9\ As such, local ownership of fiscal, management, and 
structural adjustments is lacking, making them less likely to be 
successful.\10\ Second, autocratic actions also adversely affect 
execution levels. In assuming de facto control over the Government of 
Puerto Rico, the Oversight Board has created a parallel governmental 
structure led by expensive third-party consultants.\11\ Rather than 
cultivating a new class of career public servants for the Government of 
Puerto Rico, the Oversight Board has spent hundreds of millions of 
dollars further developing the skills of state-side consultants that 
will move on to other matters after completing their work.\12\ 
Institutional memory will be lost.
---------------------------------------------------------------------------
    \8\ See, e.g., S. Nuri Erbas, IMF Working Paper, WP/03/98, IMF 
Conditionality and Program Ownership: A Case for Streamlined 
Conditionality (May 2003) (``A fundamental reason why such failures 
occur is the inability to engender explicit and implicit program 
ownership in a country'').
    \9\ While it is true that each of Section 201 (as to fiscal plans) 
and Section 202 (as to budgets) seeks to encourage some formal dialogue 
between the Government of Puerto Rico and the Oversight Board, nothing 
in PROMESA actually requires that the Oversight Board seriously 
consider the fiscal plans and budgets submitted to it by the Government 
of Puerto Rico. The result is that there is little incentive for a 
productive exchange. As currently in effect, any uncorrected violation, 
as determined by the Oversight Board in its ``sole discretion,'' serves 
as a pretext for the Oversight Board to adopt an entirely different 
fiscal plan or budget. This has arguably been the practice followed by 
it for the last couple of fiscal plans and budgets. PROMESA therefore 
needs to be amended to permit the Oversight Board to revise proposed 
fiscal plans and budgets exclusively to correct notified violations 
unaddressed by the Government of Puerto Rico. Only if no fiscal plan or 
budget has been timely submitted for its approval could the Oversight 
Board proceed to adopt its entirely own fiscal plan or budget.
    \10\ See, e.g., International Monetary Fund, Strengthening Country 
Ownership of Fund Supported Programs (July 17, 2001).
    \11\ Chutchian, Maria (2019), A Reasonable Proposal: How US Law 
Allows Puerto Rico's Legal Bills to Flourish, available at http://
investigations.debtwire.com/a-reasonable-proposal-how-us-law-allows-
puerto-ricos-legal-bills-to-flourish/.
    \12\ Balmaceda, Javier (2018), Puerto Rico Should Invest In Its 
Own, Not Just In Outsiders, available at https://www.forbes.com/sites/
debtwire/2018/07/09/puerto-rico-should-invest-in-its-own-not-just-in-
outsiders/#1e52ae064ab2.
---------------------------------------------------------------------------
    full control over puerto rico's affairs--essential services as 
                               priorities
    The identified need for amendments defining essential services as 
spending priorities reiterates the Oversight Board's displacement of 
the Government of Puerto Rico's substantive policy-making functions. 
Such amendments to Section 201(b) would not be necessary if the 
Government of Puerto Rico had not been stripped of these.
    Democratic processes are the best safeguards to ensure that 
essential services are delivered. As economist Amartya Sen has argued, 
democracies do not suffer from famines: ``If the government is 
vulnerable to public opinion, then famines are a dreadfully bad thing 
to have. You can't win many elections after a famine.'' \13\ To 
substitute the Oversight Board for Congress fails to provide the local 
level democratic accountability essential services protection requires 
as a backdrop. Furthermore, and at a fundamental political level, the 
imposition of value judgments in such an egregious undemocratic manner 
is the very essence of colonialism and should be ``intolerable in any 
country where freedom prevails.'' \14\
---------------------------------------------------------------------------
    \13\ Ebersole, Phil (2015) & Amartya Sen, On Democracy and Famine. 
Phil Ebersole's Blog: Thoughts about Politics and the Passing Scene, at 
https://philebersole.wordpress.com/2015/06/02/ amartya-sen-on-
democracy-and-famine/ (last accessed Oct. 17, 2019).
    \14\ Yick Wo v. Hopkins, 118 U.S. 356, 370 (1886).
---------------------------------------------------------------------------
    The imposition of further limitations on the Oversight Board is 
imperative. Rather than having Congress merely suggest essential 
services to the Oversight Board, PROMESA must be amended to limit its 
authority to the imposition of achievable numerical targets for budget 
and fiscal plans. Such an approach is practical and consistent with 
governmental practices. Balanced budget and debt limitation 
requirements are rules under which governments routinely operate, many 
of which are inscribed in constitutions. In the case of the Government 
of Puerto Rico, such limitations would also generally be consistent 
with its own Constitution.\15\
---------------------------------------------------------------------------
    \15\ See e.g., P.R. CONST art. IV, Sec. 7 and art. VI, Sec. 2.
---------------------------------------------------------------------------
                        economic growth policies
    The absence of provisions promoting economic growth under PROMESA 
is also proposed to be addressed by amending Section 201(b). Setting 
aside the fact that vesting the Oversight Board with such 
responsibilities is no substitute for real congressional measures 
promoting economic growth, anything found in this Section is 
essentially dead letter because only the Oversight Board can determine 
whether a fiscal plan complies with such requirements. Specifically, 
not only does Section 201(c)(3) of PROMESA provides the Oversight Board 
with ``sole discretion'' to determine whether a proposed fiscal plan 
satisfies the requirements of its Section 201(b), but Section 106(e) 
further bars any claim that challenges such a decision itself and any 
implicit judicial challenges for violating these requirements.\16\ 
Stated another way: irrespective of what Congress writes into Section 
201(b), the Oversight Board has the last word. Adding requirements or 
specificity to the already 14 specific objectives and requirements that 
a fiscal plan must meet is, quite frankly, meaningless.
---------------------------------------------------------------------------
    \16\ See Ambac Assurance Corp. v. Commonwealth of P.R. (In re Fin. 
Oversight & Mgmt. Bd. for P.R.), 297 F. Supp. 3d 269, 284 (D.P.R. 
2018).
---------------------------------------------------------------------------
    If Congress is to take seriously its responsibility to support 
Puerto Rico's fiscal and economic recovery, the time has come to adopt 
a broader program for Puerto Rico. The debt restructuring proposal 
recently submitted by the Oversight Board in Title III, if approved, 
may ``not go far enough to reduce the island's debt burden'' and 
certainly ``leaves no room for error.'' \17\ Congress must therefore 
finally enact a permanent fix to Puerto Rico's inequitable healthcare 
financing structure and adopt the other recommendations by the 
Congressional Task Force on Economic Growth in Puerto Rico. These offer 
a sound starting point and have bipartisan support.\18\ But more is 
necessary. The recommendations are primarily directed at eliminating 
certain aspects of Federal law and programs that hinder Puerto Rico's 
development. Congress must also pursue affirmative policies 
specifically tailored to Puerto Rico. Rethinking Federal tax policy 
regarding Puerto Rico to encourage a private-sector-investment driven 
recovery is indispensable. Without congressional action addressing 
these areas, Puerto Rico will not reach a sustainable forward path.
---------------------------------------------------------------------------
    \17\ Lachman, Desmond, Brad W. Sester and Antonio Weiss (2019), 
Puerto Rico's Debt Deal Leaves No Room for Error, available at https://
www.bloomberg.com/opinion/articles/2019-10-15/puerto-rico-s-debt-deal-
leaves-no-room-for-error.
    \18\ Congressional Task Force on Economic Growth for Puerto Rico, 
``Report to House and Senate, 114th Congress,'' December 20, 2016; 
available at https://www.finance.senate.gov/imo/media/doc/
Bipartisan%20Congressional%20Task%20Force%20on%20Economic%20Growth%20in 
%20Puerto%20Rico%20 Releases%20Final%20Report.pdf.
---------------------------------------------------------------------------
 lack of accountability, access to information and ethical requirements
    While I welcome the amendments' incorporation of the disclosure 
provisions for third-party professionals, designed to identify 
potential conflicts of interest, Congress must also address the absence 
of safeguards to ensure that the Oversight Board itself is not 
``influenced by the thought of later reaping a benefit from a private 
individual.'' \19\ Specifically, pursuant to PROMESA, there are no 
ethical legal requirements that would be applicable to the current 
members of the Oversight Board upon ceasing to serve in such 
capacities.\20\
---------------------------------------------------------------------------
    \19\ See cf., Brown v. District of Columbia Board of Zoning, 423 
A.2d 1276, 1282 (D.C. App. 1980); General Motors Corporation v. City of 
New York, 501 F.2d 639, 648-652 (2d Cir. 1974).
    \20\ To the extent the members are officers of the Government of 
Puerto Rico, they claim that federal preemption nevertheless exempts 
from the requirements found in the Puerto Rico Government Ethics Act of 
2011. On the other hand, if they were to be deemed officers of the 
United States, given the language found in Section 109 of PROMESA, it 
would nevertheless be uncertain whether any restrictions would apply to 
them beyond those imposed by the federal conflict of interest 
requirements described in section 208 of title 18, United States Code.
---------------------------------------------------------------------------
    Because Congress deems the Oversight Board part of the Government 
of Puerto Rico, its members and officers should be subject to the same 
cooling-off periods required by the Puerto Rico Government Ethics Act 
of 2011.\21\ Such ethical requirements (applicable for a period of 1 
year after ceasing in their positions) would guarantee that they would 
generally not be permitted to accept employment, have an economic 
interest or enter into a contractual relationship, directly or 
indirectly, with any person over which they took any official action in 
the preceding year. Considering that one of their primary duties and 
responsibilities is the allocation of resources to private parties--
whether it be to creditors or third-party consultants--such post-tenure 
limitations are reasonable.\22\
---------------------------------------------------------------------------
    \21\ Puerto Rico Act. No. 1-2012.
    \22\ While federal law is generally more lenient (senior federal 
officers are perceived to address nationwide concerns, rather than 
case-specific matters, and unlike the members of the Oversight Board, 
are first required to satisfy any potential concerns to the 
satisfaction of U.S. Senate as part of their confirmation process), 
under certain appropriate circumstances, it imposes post-employment 
restrictions exceeding those found in Section 203 and 207 of title 18, 
United States Code. See e.g., 41 U.S.C. Sec. 423(d)(1) (procurement 
officers); 12 U.S.C. 1820(k)(2)(A) (senior bank examiners).
---------------------------------------------------------------------------
    I also strongly support the amendments regarding access to 
information. In fact, lack of transparency regarding budget proposals 
by the Government of Puerto Rico to the Oversight Board forced me to 
successfully sue former Governor Ricardo Rossello in 2017.\23\ I would, 
however, be remiss not to mention that PROMESA does not establish a 
clear system of record keeping of documents for the Oversight Board, an 
essential element of transparency. Such an oversight is important given 
the inapplicability of both Federal and local regulation in this 
matter. As an entity purportedly part of the Government of Puerto Rico, 
the Federal Records Act of 1950 is inapplicable; and because PROMESA 
also arguably preempts local document retention law, there are no legal 
requirements mandating policies and procedures for creating, 
maintaining, and disposing of its records. Congress should act to 
ensure that all these records are properly maintained, including those 
that while confidential today, will not necessarily be so in the 
future.
---------------------------------------------------------------------------
    \23\ See e.g., Bhatia-Gautier v. Rosello-Nevares, Civil No. 
SJ2017CV00271 (P.R. Super. Ct. Mar. 16, 2018) (relying on Bhatia-
Gautier v. Rosello-Nevares, 2017 TSPR 173, 2017 WL 4975587 (P.R. 
2017)).
---------------------------------------------------------------------------
                office of the reconstruction coordinator
    The proposed amendments would create the Office of the 
Reconstruction Coordinator to ``collaborate with local agencies to 
ensure effective coordination among key stakeholders, public 
participation, and transparency in the recovery process.'' They seek to 
address the very real concern that the people of Puerto Rico are not 
receiving Federal reconstruction aid at a pace commensurate with their 
needs because of the deep--and mutual--distrust that currently exists 
between the Government of Puerto Rico and the Federal Government.
    The current administration of Puerto Rico--now headed by its third 
governor in 3 years--has been characterized by both lack of 
transparency and corruption at its highest levels. By way of example, 
during the summer of 2019, each of the Secretary of the Department of 
Education and the Executive Director of Puerto Rico Health Insurance 
Administration were indicted on corruption charges involving the use of 
Federal funds. These two entities manage almost half of all Federal 
funds customarily received by the Government of Puerto Rico on an 
annual basis. On the other hand, the Trump administration has become 
the poster child for bureaucratic stalemate and it too has not escaped 
corruption charges. Recently, the former deputy regional administrator 
of Federal Emergency Management Agency (FEMA) was indicted for 
allegedly taking bribes from an energy company that landed $1.8 billion 
in Federal contracts to repair our electric grid. Apprehension from 
both sides is warranted.
    Provided that strict mechanisms are also adopted to ensure that the 
role of the Office of the Reconstruction Coordinator is strictly 
limited to the role of a facilitator, I could support this concept but 
only if it can also be guaranteed that it will lead to the speedier 
receipt of Federal reconstruction aid by Puerto Rico. Nothing in the 
proposed amendments, however, provides this guaranty.
                  revitalization coordinator for prepa
    For years this Committee has been discussing the bureaucracy, 
patronage, corruption, and political intervention that are primarily 
responsible for Puerto Rico having an antiquated, pollutive and 
expensive electric system. I have previously testified before your 
Committee to express my own similar concerns regarding the state-owned 
monopoly that is PREPA. But I have also maintained that a Federal 
takeover of PREPA is not the answer.\24\ The Revitalization Coordinator 
proposed by the amendments is unacceptable because it is tantamount to 
placing PREPA under a Federal receivership.\25\
---------------------------------------------------------------------------
    \24\ Please see my July 25, 2018, testimony before this Committee, 
``Management Crisis at the Puerto Rico Electric Power Authority and 
Implications for Recovery,'' available at https://
naturalresources.house.gov/imo/media/doc/bhatia_testimony.pdf.
    \25\ Pursuant to the draft amendments, the Revitalization 
Coordinator would ``exercise supervision, control, and oversight of the 
operations'' of PREPA and to ``direct the reconstruction of the 
electric grid of Puerto Rico that is necessary as a result of Hurricane 
Maria.''
---------------------------------------------------------------------------
    I have been a leader in the effort to carefully craft and 
promulgate the current energy policy for Puerto Rico. We recently 
enacted Act 17-2019, a bipartisan measure that builds on the changes 
introduced by me as president of the Senate of Puerto Rico pursuant to 
Act 57-2014, to reform the energy sector in Puerto Rico. Taken 
together, Puerto Rico is on a path--driven by free market forces--to 
achieve cheap, clean and reliable energy. Our independent energy 
regulator has also been strengthened to ensure that the public interest 
continues to be served.
    We are for the first time seeing tangible results. As a result of 
this new energy policy, the transmission and distribution assets are 
scheduled to be transferred to a private operator pursuant to a public 
private partnership. All generation (100%) will eventually come from 
renewable sources. New opportunities are available to community 
organizations, electric coops, and the commercial and industrial 
sectors.\26\
---------------------------------------------------------------------------
    \26\ In April, this Committee witnessed firsthand Puerto Rico's 
first community solar project in Toro Negro Ciales--28 families 
operating their own solar microgrids. This project has been certified 
in accordance with regulations adopted by the Energy Bureau for the 
development of microgrids--the first of its kind in the United States. 
Also, under Act 258-2018, which I co-sponsored, electric coops are 
beginning to organize.
---------------------------------------------------------------------------
    The necessary transition to cheap, clean and reliable energy should 
nevertheless come faster. The primary obstacle has become the failure 
to receive Federal reconstruction aid appropriated by Congress to 
``build back better'' the electric system post-hurricane. These funds 
are still not available for such use. The lack of a clear roadmap for 
their deployment prevents proper planning and causes uncertainty to 
private operators and investors interested in fully participating in 
the process. However, the proposed Office of Reconstruction--not a 
Revitalization Coordinator unique to PREPA--would be the proper vehicle 
to assuage any concerns regarding the use of Federal funds. Inserting a 
Revitalization Coordinator to the equation would only serve to disrupt 
the ongoing efforts. The transition will only be successful if there is 
local ``ownership'' of the process.
    In lieu of a Federal takeover of PREPA, I would suggest the 
following measures: (a) continued congressional oversight regarding the 
reconstruction of the electrical system and its transition to cheap, 
clean and reliable energy; (b) the inclusion of amendments to PROMESA 
prohibiting any debt restructuring for PREPA that would be inconsistent 
with existing energy policy, including, without limitation, eliminating 
the existing restructuring supporting agreement's requirement of a 
securitization charge on energy produced by consumers behind-the-meter 
for their own consumption; and (c) that Congress adopts legislation 
requiring that nearly all of the CDBG-DR monies for community based 
energy projects ($436 million under the current Action Plan) be 
transferred to the new Green Energy Trust Fund created under Act 17-
2019--a private trust which will operate separate from the government 
of Puerto Rico. Supporting this Green Energy Trust Fund is key to 
furthering the transition to renewable energy.
                alternative debt restructuring mechanism
    The amendments currently under consideration also incorporate many 
of the provisions of the proposed U.S. Territorial Relief Act 
originally introduced by Senators Elizabeth Warren and Bernie 
Sanders.\27\ They would grant Puerto Rico's governor and legislature 
the option to terminate its public, unsecured financial debt if two of 
these three criteria are satisfied: (1) population has decreased 5 
percent over 10 years; (2) has received major Federal disaster 
assistance; and (3) per capita debt exceeds $15,000. To avoid 
constitutional concerns, provisions are included to provide protection 
for secured creditors and create a judicial process for them to contest 
the extent and perfection of their security interests. It does not 
exempt (other than to reiterate that its provisions are inapplicable to 
trade payables) any debt that has been restructured or is pending 
restructuring under Title III. Taken together, the primary objective of 
these amendments is to streamline and simplify a debt adjustment 
process during emergency periods for Puerto Rico.
---------------------------------------------------------------------------
    \27\ Joining them as co-sponsors were Senators Kirsten Gillibrand, 
Edward J. Markey, and Kamala Harris. Representative Nydia M. Velazquez 
also introduced companion legislation in the House of Representatives. 
The bill was reintroduced in 2019.
---------------------------------------------------------------------------
    While well-intentioned, any perceived benefits from these 
amendments may be outweighed by the resulting costs. The principal 
issues under Title III have been, and continue to be, determining the 
extent and perfection of creditor security interests. Such litigation 
would not be avoided by the proposed alternative mechanism. Moreover, 
creditors will likely demand higher returns for future debt issuances 
by Puerto Rico and other territories. While Title III is comparable to 
Chapter 9 of the Bankruptcy Code, the amendments result in less 
creditor rights than those afforded to the creditors of state municipal 
issuers. To compensate for lesser bankruptcy protections, creditors 
will also simply demand stronger security interests. The result may 
very well be that, rather than facilitating restructurings as intended, 
new issuances will be exempted debt from these provisions and harder to 
adjust in Title III.
        puerto rico public credit comprehensive audit commission
    I fully support the proposed amendments establishing the Puerto 
Rico Public Credit Comprehensive Audit Commission and further requiring 
a comprehensive audit of the public debt of the Government of Puerto 
Rico. In 2015, when I was president of the Senate of Puerto Rico, we 
passed Act 97-2015, which is almost identical to that now proposed by 
the amendments under consideration. I provided funding for the 
operations of the commission from the Senate's own budget, and even 
hosted their meetings. Regrettably, the local commission to audit the 
public debt regrettably was eliminated early in 2017 by the now deposed 
governor of Puerto Rico.
    My position remains the same as in 2015: the public debt must be 
audited, illegal debt rejected, and the rest restructured.
                               conclusion
    Finally, Congress must acknowledge that it cannot continue to 
govern Puerto Rico indefinitely pursuant to the Property Clause 
(Article IV, Section 3, Clause 2) of the Constitution. This is the same 
source of authority used to regulate grazing on the Federal public 
lands. Such treatment is the result of a series of decisions--now known 
as the Insular Cases--issued by a fractured Supreme Court in the early 
1900s. Invigorated by the same racial animus found in Plessy v. 
Ferguson that led to the legal doctrine of ``separate but equal,'' they 
sanctioned American colonialism under the guise of manifest destiny. 
Only because many in Congress continue to view Puerto Rico through this 
proprietary lens is that it was even conceivable to submit the people 
of Puerto Rico to the supra-political entity that is the Oversight 
Board.
    Thank you once again for having invited me here today. It is my 
sincere hope that you will continue this discussion and move to 
promptly address these matters.

    I am ready to answer your questions.

                                 ______
                                 

    Mr. Gallego. Thank you very much.
    I now recognize the Honorable Antonio L. Soto Torres.

 STATEMENT OF THE HON. ANTONIO L. SOTO TORRES, MEMBER, PUERTO 
                 RICO HOUSE OF REPRESENTATIVES

    Mr. Soto Torres. Dear Chairman Gallego and members of the 
Committee, on behalf of the Puerto Rico House of 
Representatives, and, most importantly, our constituents, we 
thank you for the opportunity to express our comments regarding 
the amendments to the PROMESA Act of 2019.
    We would like to express our appreciation to your 
continuous effort by the members of this Committee in the 
recovery process of Puerto Rico after Hurricanes Maria and 
Irma, especially our Congresswoman Jenniffer Gonzalez, for her 
ongoing work for our beloved island.
    Since 1898, Puerto Rico has been a territory of the United 
States. The creation of the Board and the imposed rules 
established by PROMESA can only be conceded and approved upon 
territories in accordance with the U.S. Constitution, not to 
any state of the Union.
    We need to remind Congress that Puerto Rico not only has 
rejected the territorial status, but favored statehood in most 
recent plebiscites held in both 2012 and 2017. None of these 
electoral events were contested or challenged in any court of 
law. On the contrary, they represented the will and the voice 
of the U.S. citizens in Puerto Rico who participated freely and 
voluntarily, and demanded full integration of Puerto Rico with 
the United States.
    Let us also not forget that Section 402 of PROMESA 
established that ``nothing in this Act shall be interpreted to 
restrict Puerto Rico's right to determine its future political 
status, including by conducting the plebiscite as authorized by 
Public Law 113-76.'' We request Congress to act now.
    Today, Congress could be acting on the incorporation of 
Puerto Rico as a state, instead of amending PROMESA imposed 
over the U.S. citizens of Puerto Rico.
    In regards to the amendments to the PROMESA Act of 2019, we 
want to be clear that we will support any congressional bill 
that will benefit and contribute for the better quality of life 
of the U.S. citizens in Puerto Rico. We definitely support all 
actions like those in Sections 3, 4, and 5 of APA 2019 that can 
and will contribute to the well-being of the people of Puerto 
Rico.
    We also agree that there needs to be total transparency in 
governmental transactions, like expressed in Section 6. This is 
the least our people deserve. We support disclosure of 
professional persons employed in order to submit any 
information and contract through the Oversight Board.
    We also believe it is necessary to provide trust to our 
constituency, so all documents relating to the public debt of 
the government of Puerto Rico should be classified as a public 
document, as established in Section 7.
    We understand and believe that the government of Puerto 
Rico is headed on the right track to gain the trust of the 
market and investors. This administration, with the support of 
our local legislative leadership, hasn't hesitated to meet the 
financial obligations, and to comply with Federal and local 
laws.
    The new Section 9, as proposed in APA 2019, establishes a 
mechanism that allows for unsecured financial obligations to be 
discharged. In order for any discharge of an unsecured 
financial obligation to be feasible, the trust of the 
government of Puerto Rico or its entities cannot be put in 
harm's way. It is necessary to have a balance of what the 
public interest needs in order to provide a stable and economic 
atmosphere for investment.
    We have always supported a comprehensive audit of Puerto 
Rico public debt in order to provide a clean and transparent 
process, but decide it has to be done in accordance to and with 
the endorsement of the Federal Government.
    After Hurricanes Irma and Maria, the government of Puerto 
Rico created the Central Office for Recovery, Reconstruction, 
and Resilience.
    Also, we approved local Law 17-2019 that established the 
energy public policy of Puerto Rico. In the proposed bill, 
Section 11 and Section 12 will over-rule those two local laws. 
So, there will be a redundancy if it is approved in its state.
    The best way to provide justice to the island is not by 
amending PROMESA, but by providing the necessary tools to fully 
incorporate Puerto Rico as a state of the Union.
    Nevertheless, we respectfully submit and enclose documents 
suggesting several additional amendments to APA 2019. Our 
suggestions are based on 3 years' experience working with the 
Board.
    There are issues in the preparation of the fiscal plans. 
There are issues in the budgeting process, as Congressman 
Gallego and San Nicolas mentioned, and also Darren Soto. So, 
those should be areas of consideration and/or amendment in the 
bill.
    Thank you.

    [The prepared statement of Mr. Soto Torres follows:]
         Prepared Statement of the Hon. Antonio L. Soto-Torres
                              on behalf of
   Johnny Mendez, Speaker of the Puerto Rico House of Representatives
    Dear Chairman Grijalva, Ranking Member Bishop and members of the 
Committee, on behalf of the Puerto Rico House of Representatives and 
most important our constituents, we thank you all for the opportunity 
given us today to express our comments and concerns regarding the 
Amendments to the PROMESA Act of 2019.
    We would like to express our appreciation to the continuous efforts 
by the members of this Committee in the recovery process of Puerto Rico 
after Hurricanes Irma and Maria. We would also like to thank our 
Congresswoman Jenniffer Gonzalez for her ongoing work for our beloved 
Islands.\1\
---------------------------------------------------------------------------
    \1\ Puerto Rico consists of78 municipalities, which includes the 
Island-Municipalities of Culebra and Vieques.
---------------------------------------------------------------------------
    In 2016 the U.S. Congress approved and President Barack Obama 
signed the Puerto Rico Oversight, Management, and Economic Stability 
Act also known as ``PROMESA''. Among many things, PROMESA created the 
Financial Oversight and Management Board (hereinafter ``Board'') with 
the intention to bring financial stability to Puerto Rico, which 
included restructuring the Island's debt and creating economic 
development.
    We would like to point out and make clear that PROMESA was enacted 
under the plenary powers conferred to Congress under the Territorial 
Clause established in Article VI, Section 3, Clause 2 of the U.S. 
Constitution.
    Since 1898, Puerto Rico has been a territory of the United States. 
The creation of the Board and the imposed rules established by PROMESA 
can only be conceded and approved upon territories in accordance with 
the U.S. Constitution, not to any state of the Union. We need to remind 
Congress that Puerto Rico, not only has rejected the territorial 
status, but favored statehood in the most recent plebiscites held in 
both 2012 and 2017. None of these electoral events were contested or 
challenged in any court of law. On the contrary, they represented the 
will and the voice of the U.S. citizens in Puerto Rico who participated 
freely and voluntarily and demanded full integration of Puerto Rico 
with the United States. Let us also not forget that Section 402 of 
PROMESA establishes that: ``[n]othing in this Act shall be interpreted 
to restrict Puerto Rico's right to determine its future political 
status, including by conducting the plebiscite as authorized by Public 
Law 113-76.'' We request Congress to act now.
    The importance of territorial status of Puerto Rico and the 
political hiatus in which 3.4 million U.S. citizens live on a daily 
basis in our Islands should be of concern and interest to our fellow 
Americans. Today Congress could be acting upon the full incorporation 
of Puerto Rico as a state instead of amendments to PROMESA and the 
Board imposed over the U.S. citizens in Puerto Rico. Statehood might 
not solve all problems at once, but definitely provides a better chance 
to obtain equal rights and a better life. Even our founding fathers 
expressed this sentiment and belief in the Declaration of Independence, 
and I quote: ``[w]e hold these truths to be self-evident, that all men 
are created equal, that they are endowed by their Creator, with certain 
unalienable Rights, that among these are Life, Liberty, and the pursuit 
of Happiness.'' It is our wish to obtain all these unalienable rights.
    Regardless, the Puerto Rico House of Representatives has worked 
with the Board created under PROMESA. At the same time, we have 
expressed that we are not going to give up on our position that the 
Board cannot interfere in public policy matters which fall under the 
responsibility of the elected officials of Puerto Rico. We will work 
and contribute with the Board, but never resign to our duty, so it can 
fulfill its mandate and implement the recommendations made in the 
report of the Congressional Task Force created by PROMESA.\2\ This 
report specified that the ``U.S. citizens in Puerto Rico confront 
significant economic, financial, and social challenges. A review of 
Puerto Rico's history demonstrates that these challenges are enduring, 
not transitory.'' The main reason for this enduring challenge is the 
territorial status.
---------------------------------------------------------------------------
    \2\ Which included passing federal legislation in favor of equal 
resources for Medicaid and improving Medicare Part A (hospital 
services), Part B (medical services), Part C (Advantage Programs) and 
Part D (drug coverage), among other.
---------------------------------------------------------------------------
    At the Puerto Rico House of Representatives our goals are clear. We 
need to provide to the U.S. citizens in our archipelago the opportunity 
to act and excel. It is our task as their elected officials to 
contribute to the economic growth and rebirth of the Islands. We have 
worked closely with the Governor of Puerto Rico, Hon. Wanda Vazquez and 
our colleagues in the Senate to make sure our constituents can have a 
brighter and better future. For the first time since 2004, the Planning 
Board declared that we will have an economic growth of 4.1 percent, 
which is the highest in the past 36 years, even after Hurricanes Irma 
and Maria. For the first time since the 1970s, the government's public 
debt was reduced by 10 percent. These are real accomplishments but we 
can't stop here.
    On May 2019, we had 871,000 people employed according to a 
Department of Labor and Human Resources' survey. This represents an 
increase of 1.6 percent over the same month last year. Employment has 
been increasing and we expect to continue this path, but still we can 
do more. In regards to the budget for next fiscal year, revenues to the 
General Fund have been greater than those projected. Also, in a 
historical effort we have reduced public spending.
    Recently we have approved various laws in order to attack the 
economic recession which has endured for more than 10 years in Puerto 
Rico. We adopted a new Incentives Code (Law 60 of 2019) which allows to 
bring specialized and expertise staff. Also it incorporates tax credits 
for the film industry: a 40 percent credit for eligible domestic 
expenses and 20 percent for eligible non-resident expenses. In 
addition, digital distribution projects qualify, which is a big step in 
the creation of a new industry.
    We have increased the assistance to special education students and 
programs along with better services and opportunities for our senior 
citizens. We are also working to offer an improved hospital to the 
island municipality of Vieques while also looking to provide for a 
better maritime transportation system between the Island of Puerto 
Rico, Culebra and Vieques. Even though we have done so much, we still 
have plenty to do. Imagine all the things we could attain if Congress 
granted Puerto Rico's request to be the next state of the Union.
    In regards to the Amendments to the PROMESA Act of 2019 
(hereinafter ``APA 2019''), we want to be clear that we will support 
any congressional bill that will benefit and contribute for a better 
quality of life for the U.S. citizens in Puerto Rico. We definitely 
support all actions, like those in Sections 3, 4, and 5 of APA 2019, 
that can and will contribute for a better education, public safety, 
healthcare system, pensions, investment and the creation of jobs, 
reduce unemployment, expand the work force, reduce informal economy, 
increase medium household income, reduce poverty level, among others.
    We also agree that there needs to be total transparency with 
governmental transactions, like expressed in Section 6 of APA 2019, 
this is the least our people deserve. So we support disclosure of 
professional persons employed in order to submit a verified statement 
setting forth the professional connections with debtors, creditors, 
third party with interest, attorneys, accountants, Oversight Board, and 
any person employed by the Oversight Board.
    We also believe it is necessary to provide trust to our 
constituency, so all documents relating to the public debt of the 
Government of Puerto Rico should be classified as a public document. 
See Section 7 of APA 2019.
    We understand and believe the Government of Puerto Rico is headed 
in the right track to gain the trust of the market and investors. This 
Administration, with the support of our local legislative leadership 
hasn't hesitated to meet the financial obligations and to comply with 
Federal and local laws. The new Section 9 as proposed by APA 2019 
establishes a mechanism that allows for unsecured financial obligations 
to be discharged. In order for any discharge of an unsecured financial 
obligation to be feasible, the trust of the Government of Puerto Rico 
or its entities can't be put in harm's way. It is necessary to have a 
balance of what the public interest needs in order to provide a stable 
and economic atmosphere for investment.
    We have always supported a comprehensive audit of Puerto Rico's 
public debt since 1972 until present, including its instrumentalities, 
in order to provide a clean and transparent process. But this audit has 
to be done in accordance to and with the endorsement of the Federal 
Government. We will support any bill or measure that can bring peace of 
mind to the people in Puerto Rico. According to the bill, the funding 
would be appropriated as necessary to carry out its duties. See Section 
10 of APA 2019.
    After Hurricanes Irma and Maria, the Government of Puerto Rico 
created the Central Office of Recovery, Reconstruction and Resiliency 
(known as ``COR3''), in order to provide disaster planning and 
transparent procedures. Its Executive Director is the person in charge 
and liaison between the Puerto Rico Government, its municipalities, and 
FEMA. The creation of the Office of Reconstruction Coordinator for 
Puerto Rico according to Section 11 of APA 2019 would carry out most or 
the same duties the COR3 Director so far has carried out.
    Local Law 17 of 2019 established the Energy Public Policy Law of 
Puerto Rico. This Law allows for the total transformation of energy, 
including generation, transmission and distribution. Section 12 of APA 
2019 creates the position of Revitalization Coordinator which would be 
the person who would exercise supervision, control and oversight of the 
operations of the Puerto Rico Electric Power Authority and direct the 
reconstruction of the electric grid of our archipelago.
    The best way to provide justice to the Islands is not by amending 
PROMESA, but by providing the necessary tools to fully incorporate 
Puerto Rico as a state of the Union. President William J. Clinton once 
said about Puerto Rico: ``[s]ome people question the option of 
statehood because of the Hispanic culture of Puerto Rico. And with all 
respect, I disagree with them. After all, this is an issue for the 21st 
century for America.'' And in the words of our beloved President George 
H.W. Bush: ``[t]here's another issue that I've decided to mention here 
tonight. I've long believed that the people of Puerto Rico should have 
the right to determine their own political future. Personally, I 
strongly favor statehood. But I urge the Congress to take the necessary 
steps to allow the people to decide in a referendum.'' Two great 
American Presidents that didn't hide their support for Puerto Rico.
    Nevertheless we respectfully submit an enclosed document suggesting 
several additional amendments, to APA 2019, Our suggestions are based 
in the 3 years of experience working with the Board.
    We humbly appreciate once again the opportunity given to us. Should 
you require any additional information feel free to contact us at any 
time. Thank you for your time and consideration. May God bless the 
United States of America.

                                 ______
                                 

                               APPENDIX 1

                          SUGGESTED AMENDMENTS

                                 *****

1. Section 201--Approval of Fiscal Plans
Participation of the Legislature in the Fiscal Plan

Certainly, a fiscal plan is a road map where the Government might 
establish substantive public and fiscal policy and requires an 
interactive process between the Governor and the Oversight Board. But 
PROMESA excludes the Legislature in the preparation of the Fiscal Plan. 
Since the Legislature does not have a say in the Fiscal Plan, many 
prerogatives of the elected officials are bypassed.

For example, the Fiscal Plans certified by the Oversight Board are very 
itemized with respect to line items budgets, stating a micro level of 
analysis. In other words, the Oversight Board, using the Fiscal Plan, 
is preparing a type of Budget in advance, instead of an estimate of 
expenditures for a period of 5 years, and when the Legislature entered 
to analyze the appropriations included in the Proposed Budget (sent by 
the Oversight Board), the Budget to be Adopted by the Legislature shall 
be almost identical to the Certified Fiscal Plan (initiated by the 
Governor and already certified by the Oversight Board). If not, the 
Oversight Board will determine, as it already did, that the Adopted 
Budget will be significantly inconsistent with the Fiscal Plan. Thus, 
the Fiscal Plan, far from being a road map to establish fiscal 
responsibility, it is in fact a straitjacket for the Legislature.

Based on the above, we have the following amendments:

``SEC. 201. APPROVAL OF FISCAL PLANS.

  (a)  IN GENERAL.--As soon as practicable after all of the members and 
            the Chair have been appointed to the Oversight Board in 
            accordance with section 101(e) in the fiscal year in which 
            the Oversight Board is established, and in each fiscal year 
            thereafter during which the Oversight Board is in 
            operation, the Oversight Board shall deliver a notice to 
            the Governor and the Legislature providing a schedule for 
            the process of development, submission, approval, and 
            certification of Fiscal Plans. The notice may also set 
            forth a schedule for revisions to any Fiscal Plan that has 
            already been certified, which revisions must be subject to 
            subsequent approval and certification by the Oversight 
            Board. The Oversight Board shall consult with the Governor 
            and the Legislature in establishing a schedule, but the 
            Oversight Board shall retain sole discretion to set or, by 
            delivery of a subsequent notice to the Governor and the 
            Legislature, change the dates of such schedule as it deems 
            appropriate and reasonably feasible.

  (b)  REQUIREMENTS.----

          (1)  IN GENERAL.--A Fiscal Plan developed under this section 
        shall, with respect to the territorial government or covered 
        territorial instrumentality, provide a method to achieve fiscal 
        responsibility and access to the capital markets, and----

                  (A)  provide for estimates of revenues and 
                expenditures, that might be used as a guidance in 
                developing the Territory Budget under section 202(c), 
                in conformance with agreed accounting standards and be 
                based on----

                          (i)  applicable laws; or

                          (ii)  specific bills that require enactment 
                        in order to reasonably achieve the projections 
                        of the Fiscal Plan;


  (c)  DEVELOPMENT, REVIEW, APPROVAL, AND CERTIFICATION OF FISCAL 
            PLANS.----

          (1)  . . .

          (2)  FISCAL PLAN DEVELOPED BY GOVERNOR AND THE LEGISLATURE.--
        The Governor and the Legislature shall submit to the Oversight 
        Board any proposed Fiscal Plan required by the Oversight Board 
        by the time specified in the notice delivered under subsection 
        (a).

          (3)  REVIEW BY THE OVERSIGHT BOARD.--The Oversight Board 
        shall review any proposed Fiscal Plan to determine whether it 
        satisfies the requirements set forth in subsection (b) and, if 
        the Oversight Board determines in its sole discretion that the 
        proposed Fiscal Plan----

                  (A)  . . .

                  (B)  does not satisfy such requirements, the 
                Oversight Board shall provide to the Governor and the 
                Legislature----

                          (i)  . . .

                          (ii)  . . .

  (d)  REVISED FISCAL PLAN.----

          (1)  IN GENERAL.--If the Governor and the Legislature 
        receives a notice of violation under subsection (c)(3), the 
        Governor and the Legislature shall submit to the Oversight 
        Board a revised proposed Fiscal Plan in accordance with 
        subsection (b) by the time specified in the notice delivered 
        under subsection (a). The Governor and the Legislature may 
        submit as many revised Fiscal Plans to the Oversight Board as 
        the schedule established in the notice delivered under 
        subsection (a) permits.

          (2)  DEVELOPMENT BY OVERSIGHT BOARD.--If the Governor and the 
        Legislature fails to submit to the Oversight Board a Fiscal 
        Plan that the Oversight Board determines in its sole discretion 
        satisfies the requirements set forth in subsection (b) by the 
        time specified in the notice delivered under subsection (a), 
        the Oversight Board shall develop and submit to the Governor 
        and the Legislature a Fiscal Plan that satisfies the 
        requirements set forth in subsection (b).

  (e)  APPROVAL AND CERTIFICATION.----

          (1)  . . .

          (2)  DEEMED APPROVAL OF FISCAL PLAN DEVELOPED BY OVERSIGHT 
        BOARD.--If the Oversight Board develops a Fiscal Plan under 
        subsection (d)(2), such Fiscal Plan shall be deemed approved by 
        the Governor and the Legislature, and the Oversight Board shall 
        issue a compliance certification for such Fiscal Plan to the 
        Governor and the Legislature.

  (f)  JOINT DEVELOPMENT OF FISCAL PLAN.--Notwithstanding any other 
            provision of this section, if the Governor, the Legislature 
            and the Oversight Board jointly develop a Fiscal Plan for 
            the fiscal year that meets the requirements under this 
            section, and that the Governor, the Legislature and the 
            Oversight Board certify that the fiscal plan reflects a 
            consensus between the Governor, the Legislature and the 
            Oversight Board, then such Fiscal Plan shall serve as the 
            Fiscal Plan for the territory or territorial 
            instrumentality for that fiscal year.''

Based on the above, we have the following amendments:

``SEC. 202. APPROVAL OF BUDGETS.

  (a)  . . .
  (b)  REVENUE FORECAST.--The Oversight Board shall submit to the 
            Governor and Legislature a forecast of revenues for the 
            period covered by the Budgets by the time specified in the 
            notice delivered under subsection (a), for use by the 
            Governor in developing the Budget under subsection (c). The 
            forecast of revenues shall include all the different types 
            of income that the territorial government will generate for 
            the period covered.''


                                 *****

2. Section 204(c)--Restrictions on Budgetary Adjustments

We need to start saying that the Oversight Board is not complying with 
this provision that states that when the Governor is reprogramming any 
amount of a certified Budget, the Oversight Board might provide the 
Legislature with an analysis that the proposed reprogramming is 
significantly inconsistent with the Budget and the Fiscal Plan. At this 
time, the Oversight Board has not complied with this process stated in 
PROMESA since the Legislature has not received any petition or any 
analysis with respect to a reprogramming of amounts of a certified 
Budget.

On the other hand, the Oversight Board understand that Joint 
Resolutions that appropriate on account of the Sales and Use Tax for 
capital expenditures, that belongs to prior fiscal years, are 
reprogramming amounts within the current certified budget. We 
vehemently disagree with the Oversight Board's interpretation. In fact, 
this kind of Joint Resolutions are consistent with a law enacted by the 
Government of Puerto Rico (Act No. 26-2017, known as the ``Fiscal Plan 
Compliance Act''), and approved by the Oversight Board. For instance, 
Chapter 6, Section 7(h) of such law, explicitly states that funds 
allocated through Legislative Donations or appropriations on account of 
the Sales and Use Tax will be excluded from being deposited in the 
Puerto Rico Treasury and are, therefore, not subject to the Budget 
process.

Based on the above, we have the following amendments:

``SEC. 204. REVIEW OF ACTIVITIES TO ENSURE COMPLIANCE WITH FISCAL PLAN.

  (a)  . . .

  (b)  . . .

  (c)  RESTRICTIONS ON BUDGETARY ADJUSTMENTS.----

          (1)  SUBMISSIONS OF REQUESTS TO OVERSIGHT BOARD.--If the 
        Governor submits a request to the Legislature for the 
        reprogramming of any amounts provided in a certified Budget, 
        the Governor shall submit such request to the Oversight Board, 
        which shall analyze whether the proposed reprogramming is 
        significantly inconsistent with the Budget, and submit its 
        analysis to the Legislature as soon as practicable after 
        receiving the request. This provision shall not apply to 
        previous fiscal year's appropriations for capital expenditures.''

                                 *****

3. Section 204(a)--Submission of Legislative Acts to Oversight Board
Revision of Enacted Laws:

Section 204(a) of PROMESA allows the Oversight Board to review any new 
legislation enacted by the Government of Puerto Rico. Specifically, 
this section prescribes the notification process required after the 
Oversight Board evaluates any law. In case that the Governor submits a 
certification that the law is significantly inconsistent with the 
Fiscal Plan, the Oversight Board shall direct the Governor and the 
Legislature to ``[1] correct the law to eliminate the inconsistency; or 
[2] provide an explanation for the inconsistency that the Oversight 
Board finds reasonable and appropriate.''

Please note that PROMESA does not address the situation when the 
Governor presented certifications of a law stating a lack of 
significantly inconsistent with the Fiscal Plan but the Oversight Board 
has a different conclusion. In several times, even after the Governor 
certificated that the law is not significantly inconsistent with the 
Fiscal Plan, the Oversight Board, after evaluated such laws enacted, 
has not express any substantive reason or provided sufficient grounds 
for their conclusions that the laws are inconsistent with the Fiscal 
Plan. Certainly, the Oversight Board is acting as if the Congress 
granted it the power to declare legislative acts null and void 
unilaterally.

On the other hand, this section does not prescribe the time the 
Oversight Board has to review any legislative acts.
Line Item Veto
The Oversight Board pretends that has the power to exercise a Line Item 
Veto of laws enacted by the Government of Puerto Rico. For example, 
after three (3) months that the Government enacted Act 257-2018 (the 
``Tax Bill''), the Oversight Board sent a letter that the compliance 
certification was deficient as to many articles of the Tax Bill. In 
such communication, the Oversight Board stated that ``it reserves the 
right to prevent the enforcement or application of such articles 
included in the Tax Bill.''

This action of the Board, of reserving a right to prevent the 
application of a part of the Tax Bill, but not on the remaining parts 
of that Act, is unconstitutional under federal law. These actions are 
analogue of what the Line Item Veto Act of 1996 proposed under 
President Clinton in the 90s. In Clinton v. City of New York, 524 U.S. 
417 (1998), the Supreme Court of the United States ruled that the Line 
Item Veto is not authorized by the Constitution of the United States 
because the Presentment Clause in Article 1, section 7 established 
three procedural steps to be taken to approve a bill: ``a bill 
containing its exact text was approved by a majority of the Members of 
the House of Representatives; the Senate approve precisely the same 
text; and the text was signed into law by the President of the United 
States. The Constitution explicitly requires that each of those three 
steps be taken before a bill may become law.'' If the Executive branch 
could exercise the power of the Line Item Veto, it would be leading to 
create a distinct law without the prerogatives of the legislative 
branch and infringe the Separation of Powers. If these actions were 
taken by Oversight Board, with the provisions of PROMESA, a federal 
law, it would be a violation of the Presentment Clause and that 
determination will be unconstitutional.

Remembering the famous words that Montesquieu once told about if the 
legislative, executive and judiciary powers were not separated and 
distinct from each other: ``There can be no liberty where the 
legislative and executive powers are united in the same person, or body 
of magistrates.'' \1\ And, ``[w]hen the legislative and executive 
powers are united in the same person or body, says he, there can be no 
liberty, because apprehensions may arise lest the same monarch or 
senate should enact tyrannical laws to execute them in a tyrannical 
manner''. Clinton v. City of New York, supra, at 451. Thus, the 
pretension that the Oversight Board has manifested in the past is 
contrary to the U.S. legal system and, thus, not allowed by PROMESA.
---------------------------------------------------------------------------
    \1\ The Federalist Papers: No. 47. Please refer also to Clinton v. 
City of New York, supra, at 451.

---------------------------------------------------------------------------
Based on the above, we have the following amendments:

``SEC. 204. REVIEW OF ACTIVITIES TO ENSURE COMPLIANCE WITH FISCAL PLAN.

  (a)  SUBMISSION OF LEGISLATIVE ACTS TO OVERSIGHT BOARD.----

          (1)  SUBMISSION OF ACTS.--Except to the extent that the 
        Oversight Board may provide otherwise in its bylaws, rules, and 
        procedures, not later than 7 business days after a territorial 
        government duly enacts any law during any fiscal year in which 
        the Oversight Board is in operation, the Governor shall submit 
        the law to the Oversight Board.

          (2)  COST ESTIMATE; CERTIFICATION OF COMPLIANCE OR 
        NONCOMPLIANCE.--The Governor shall include with each law 
        submitted to the Oversight Board under paragraph (1) the 
        following:

                  (A)  A formal estimate prepared by an appropriate 
                entity of the territorial government with expertise in 
                budgets and financial management of the impact, if any, 
                that the law will have on expenditures and revenues.

                  (B)  If the appropriate entity described in 
                subparagraph (A) finds that the law is not 
                significantly inconsistent with the Fiscal Plan for the 
                fiscal year, it shall issue a certification of such 
                finding.

                  (C)  If the appropriate entity described in 
                subparagraph (A) finds that the law is significantly 
                inconsistent with the Fiscal Plan for the fiscal year, 
                it shall issue a certification of such finding, 
                together with the entity's reasons for such finding.

          (3)  NOTIFICATION.--The Oversight Board shall send, not later 
        than 30 days after the submission of the law by the Governor, a 
        notification to the Governor and the Legislature if----

                  (A)  the Governor submits a law to the Oversight 
                Board under this subsection that is not accompanied by 
                the estimate required under paragraph (2)(A);

                  (B)  the Governor submits a law to the Oversight 
                Board under this subsection that is not accompanied by 
                either a certification described in paragraph (2)(B) or 
                (2)(C); or

                  (C)  the Governor submits a law to the Oversight 
                Board under this subsection that is accompanied by a 
                certification described in paragraph (2)(C) that the 
                law is significantly inconsistent with the Fiscal Plan.

                  (D)  The Oversight Board, after evaluation of the 
                law, concludes that the law is significantly 
                inconsistent with the Fiscal Plan.

          (4)  OPPORTUNITY TO RESPOND TO NOTIFICATION.----

                  (A)  FAILURE TO PROVIDE ESTIMATE OR CERTIFICATION.--
                After sending a notification to the Governor and the 
                Legislature under paragraph (3)(A) or (3)(B) with 
                respect to a law, the Oversight Board may direct the 
                Governor to provide the missing estimate or 
                certification (as the case may be), in accordance with 
                such procedures as the Oversight Board may establish.

                  (B)  SUBMISSION OF CERTIFICATION OF SIGNIFICANT 
                INCONSISTENCY WITH FISCAL PLAN AND BUDGET.--In 
                accordance with such procedures as the Oversight Board 
                may establish, after sending a notification to the 
                Governor and Legislature under paragraph (3)(C) and 
                (3)(D) that a law is significantly inconsistent with 
                the Fiscal Plan, the Oversight Board shall direct the 
                territorial government to----

                          (i)  correct the law to eliminate the 
                        inconsistency; or

                          (ii)  provide a substantive explanation for 
                        the inconsistency that the Oversight Board 
                        finds reasonable and appropriate.

          (5)  FAILURE TO COMPLY.--lf the territorial government fails 
        to comply with a direction given by the Oversight Board under 
        paragraph (4) with respect to a law, the Oversight Board may 
        take such actions as it considers necessary, consistent with 
        this Act, to ensure that the enactment or enforcement of the 
        law will not adversely affect the territorial government's 
        compliance with the Fiscal Plan, including preventing the 
        enforcement or application of the law. The Oversight Board 
        shall not have any Line Item Veto Authority.''



                                 *****

4. Section 205--Recommendations on Financial Stability and Management 
        Responsibility

Certainly, PROMESA allows the Oversight Board to submit recommendations 
to the Governor and/or the Legislature about policy actions to ensure 
compliance with the Fiscal Plan. But Congress did not give the 
Oversight Board the authority to repeal a current law in Puerto Rico.

For example, the Oversight Board, through the Fiscal Plan and the 
Certified Budget, is pretending to eliminate the Christmas Bonus that 
is mandatory based on Act Law No. 148 of June 30, 1969, as amended. 
Moreover, Act No. 26-2017, known as the ``Fiscal Plan Compliance Act,'' 
was enacted by the Government of Puerto Rico and approved by the 
Oversight Board. In Act 26-2017, states in its section 2.08 (Bonus) 
states that ``. . . the only financial bonus to be granted to 
government employees of the Central Government and the public 
corporations thereof shall be the Christmas Bonus. The employees shall 
be entitled to a bonus in the amount of six hundred dollars ($600) for 
every year said employee has rendered services in the Government of 
Puerto Rico for at least six (6) months.''

The Oversight Board, however, in the certified budget for fiscal year 
2019-2020 eliminated the Christmas Bonus de facto. The Budget, without 
any doubt, is a tool to achieve fiscal responsibility but it cannot 
supplant the fiscal and public policy stated by elected officials. We 
might recall that one of the draft of the PROMESA bill conferred the 
Oversight Board powers to review legislative acts enacted by the Puerto 
Rico Government and if the board concluded that the act was 
significantly inconsistent with the fiscal plan, the Oversight Board 
was granted with the authority to declare the act null and void. But 
Congress did not allow that, instead Congress allowed that the 
Oversight Board might submit recommendations to the Governor or the 
Legislature. If the recommendations are not adopted, PROMESA, 
prescribes the procedures to address the rejection of the 
recommendations. Thus, in our point of view, the Oversight Board do not 
have the authority to unilaterally repeal a law using a Fiscal Plan or 
Certified Budget. This is unlawful and exceed the Board's powers 
granted by Congress.

Based on the above, we have the following amendments:

``SEC. 205. RECOMMENDATIONS ON FINANCIAL STABILITY AND MANAGEMENT 
        RESPONSIBILITY.

  (a)  . . .

  (b)  RESPONSE TO RECOMMENDATIONS BY THE TERRITORIAL

          (1)  . . .

          (2)  . . .

          (3)  EXPLANATIONS REQUIRED FOR RECOMMENDATIONS NOT ADOPTED.--
        If the Governor or the Legislature (whichever is applicable) 
        notifies the Oversight Board under paragraph (1) that the 
        territorial government will not adopt any recommendation 
        submitted under subsection (a) that the territorial government 
        has authority to adopt, the Governor or the Legislature shall 
        include in the statement explanations for the rejection of the 
        recommendations, and the Governor or the Legislature shall 
        submit such statement of explanations to the President and 
        Congress. If a recommendation is rejected, the Oversight Board 
        shall not have the power to adopt any new legislation or to 
        rescind an existing law through a Fiscal Plan or Certified 
        Budget.

                                 ______
                                 

    Mr. Gallego. Thank you.
    We now recognize the Honorable Rafael Hernandez, the 
Minority Leader for the Puerto Rico House of Representatives.

   STATEMENT OF THE HON. RAFAEL HERNANDEZ MONTANEZ, MINORITY 
          LEADER, PUERTO RICO HOUSE OF REPRESENTATIVES

    Mr. Hernandez. Good morning, Chairman Gallego, Ranking 
Member Bishop, and members of the Committee. Thank you for the 
opportunity to appear before you to discuss these amendments to 
PROMESA.
    PROMESA is an imperfect solution to the frightening 
challenge Puerto Rico faced in 2016. No matter how many 
amendments we agree on today, we will never make it perfect. 
All of this could have been avoided if the Congress had adopted 
for Puerto Rico a Super Chapter 9 of the Bankruptcy Law.
    Why is this important? If the government of Puerto Rico had 
represented itself 3 years ago in the Bankruptcy Court directly 
with its own lawyers, this costly and exhausting litigation 
would have ended by now, and we wouldn't be here today.
    The Oversight Board is a distraction and has become a 
perfect political excuse for the local government to agree on 
something with the Board and then say something different to 
the public. The result, the government hides behind the Board 
and it creates political, social, and economic instability in 
Puerto Rico.
    But here we are. Congress will not eliminate the Board, 
which would be our preference, so we have to continue to work 
very hard to meet the conditions that you imposed on us to pave 
the way for the Board to get out. To this end, I am fully 
committed.
    We applaud that the U.S. Government assumed the 
responsibility for payment of all expenses of the Board. 
Although it is implied that the Board will have to comply with 
all the regulations in the use of Federal funds required by the 
U.S. Treasury, the local administration has refused to define 
essential services for purely political reasons.
    My suggestion is that we should strive to agree on a 
certain percentage of the total budget to be designated as a 
reasonable maximum amount that the government will set aside 
from its budget. We can look at the last 10 years and see how 
much we have spent on essential services as a percentage of the 
total expenditures and agree on a number.
    The strongest criticism to PROMESA has been that it did not 
provide for economic development, when we all know that the 
solution to our fiscal problems is to grow our economy. The 
proposed amendment set specific economic objectives that the 
Board should strive for, but it lacks metrics. If we don't set 
measurable goals, little will be done.
    Since fiscal plans for the next few years were drafted 
based on the flow of funds for the reconstruction of Puerto 
Rico, I suggest that PROMESA order the Board to draw plans 
based on a 5 percent GNP annual, sustained growth from 2023 on, 
and provide the specifics as to how this will be accomplished.
    What will happen after the reconstruction funds end? The 
Board needs to sit down now with our government to identify the 
competitive advantages that Puerto Rico offers investors, and 
both lobby Congress to legislate those incentives that will 
attract the capital that is needed to grow the economy. 
Needless to say, Puerto Rico cannot plan ahead its economic 
future on uncertainties such as the Federal credits for foreign 
companies, the recently enacted tax reform in the United 
States, and total dependence on concessions from the Federal 
Government, none of which provide a permanent solution to our 
economic challenges.
    In complete agreement with your amendment calling for total 
transparency in relation to contracting consultants, lawyers, 
and accountants by the Board. Requiring access to information 
and auditing the debt will also support this goal.
    In complete agreement with the elimination of the position 
of Infrastructure Coordinator. To this date, the Board has not 
approved one single critical project, except a housing 
development that is embroiled in serious controversies. An 
investigation by the local House of Representatives revealed 
that the then-coordinator and his attorney exerted undue 
pressure on certain House members, as denounced by the Speaker 
of the House.
    But the crucial need for infrastructure investment, 
particularly after Hurricane Maria, exists now, more than ever, 
and we are glad that you are addressing this issue with the 
creation of a Reconstruction Coordinator.
    The real need right now is the oversight and effective 
coordination of the Federal agencies to accelerate the 
disbursement of millions of dollars already approved by 
Congress.
    I cannot support the appointment of the Chief Executive 
Officer of PREPA with extraordinary powers that supersedes 
those of the existing management structure. We are handing over 
to the Committee specific language to improve those amendments. 
We urge you to consider it.
    Thank you for the opportunity to address the Committee.

    [The prepared statement of Mr. Hernandez follows:]
  Prepared Statement of Rafael ``Tatito'' Hernandez Montanez, Popular 
     Democratic Party Delegation Leader, District 11 Representative
    PROMESA is an imperfect solution to a frightening challenge Puerto 
Rico faced in 2016. No matter how many amendments we agree on today, we 
will never make it perfect. All of this could have been avoided had the 
Congress adopted for Puerto Rico a Super Chapter 9 of the Bankruptcy 
Law.
    Why is this important? Had the Government of Puerto Rico 3 years 
ago, represented itself in the Bankruptcy Court, directly with its own 
lawyers, this costly and exhausting litigation would have ended by now, 
and we wouldn't be here today.
    The Oversight Board is a distraction and has become the perfect 
political excuse for the local government to agree something with the 
Board and then say something different to the public. The result--the 
Government hides behind the Board and creates political, social and 
economic instability in Puerto Rico.
    But here we are. Congress will not eliminate the Board, which would 
be our preference, so we have to continue to work very hard to meet the 
conditions you imposed on us, to pave the way for the Board to get out. 
To this end, I am fully committed.
    We applaud that the U.S. Government assume responsibility for the 
payment of all expenses of the Board. Although it is implied that the 
Board will then have to comply with all the regulations in the use of 
Federal funds required by the U.S. Treasury, something that has been 
absent heretofore, we urge the Committee to consider enacting 
restrictions to avoid conflicts of interest in the hiring of 
contractors by the Board to defend self-interests of its members.
    Local administrations have refused to define essential services for 
purely political reasons, because of the incapacity of politicians to 
be straightforward with the people. My suggestion is that we should 
strive to agree on a certain percentage of the total budget to be 
designated as a reasonable maximum amount that the government will set 
aside from its budget to pay for these services. We can look at the 
last 10 years and see how much we spent on essential services as a 
percentage of total expenditures and agree on a number.
    The strongest criticism to PROMESA has been that it did not provide 
for economic development, when we all know that the solution to our 
fiscal problems is to grow our economy. The proposed amendments set 
specific economic objectives that the Board should strive for, but it 
lacks metrics. If we don't set measurable goals, little will be done.
    Since fiscal plans for the next few years were drafted based on the 
flow of funds for the reconstruction of Puerto Rico, both Federal and 
private, I suggest that PROMESA order the Board to draw plans based on 
a 5 percent GNP annual, sustained growth from 2023 on, and provide the 
specifics as to how this will be accomplished.
    What will happen when reconstruction funds end? The Board needs to 
sit down now with our government to identify the competitive advantages 
that Puerto Rico offers investors, and both, the Board and the 
Government, lobby Congress to legislate those incentives that will 
attract the capital that is needed to grow the economy. Needless to 
say, Puerto Rico cannot plan ahead its economic future on uncertainties 
such as the Federal credit to foreign companies, the recently enacted 
tax reform in the United States, and total dependence on concessions 
from the Federal Government, none of which provide a permanent solution 
to our economic challenges.
    In complete agreement with your amendment calling for total 
transparency in relation to contracting consultants, lawyers and 
accountants by the Board, as Congresswoman Velazquez has been pushing 
for some time now. Requiring access to information and auditing the 
debt will also support this goal.
    In complete agreement with the elimination of the position of the 
Infrastructure Coordinator. PROMESA created this position to coordinate 
critical projects in infrastructure. To this date, the Board has not 
approved one single critical project, except a housing development that 
is embroiled in serious controversies. An investigation by the local 
House of Representatives revealed that the then Coordinator and his 
attorney exerted undue pressure on certain House members, as denounced 
by the Speaker of the House in a recent public hearing.
    But the crucial need for infrastructure investment, particularly 
after Hurricane Maria, exists now more than ever, and we are glad that 
you are addressing this issue with the creation of a Reconstruction 
Coordinator. This is all very positive, but not enough.
    The real need right now is the oversight and effective coordination 
of the Federal agencies to accelerate the disbursement of millions of 
dollars already approved by Congress, and his role should include these 
additional responsibilities as a priority.
    We cannot support the appointment by the President of the United 
States of a Chief Executive Officer for PREPA with extraordinary powers 
that supersedes those of the existing management structure at PREPA. I, 
among others, have filed a motion in the Federal court alleging that 
already certain actions of the Board violate the basic principles of 
our republican form of government by taking away prerogatives of the 
Executive and Legislative branches. The duties and responsibilities of 
this new position, as described in your draft, takes away all authority 
from this entity, something we strongly opposed in our statement before 
the Court.
    We are handing over to the Committee specific language to improve 
the proposed amendments, which we urge you to consider.
    Thank you for this opportunity to address the Committee.

                                 *****

                   AMENDMENTS TO THE DISCUSSION DRAFT

                      by Rafael Hernandez Montanez

Sec. 3, Page 2, IN BETWEEN Lines 17 and 18, ADD:

        ``(c) Rules and limitations.--In the use, expenditure and 
        disbursement of the funds herein appropriated, the FOMB, and 
        its members individually, will observe all federal laws 
        applicable, as well as any and all regulations specifically 
        provided by the Department of the Treasury relative to the use 
        of these funds. More specifically, the use of these funds by 
        the FOMB and its members for contracting professional services 
        from lawyers and lobbyists to promote before the Congress, 
        directly or indirectly, the nomination, renomination or 
        appointment of any of its members is prohibited.''
Sec. 4, Page 3, Line 9 AFTER ``requirements'' ADD:

        ``To establish that to the maximum extent possible the 
        territorial government will provide the FOMB an empirical study 
        analyzing, for the past 10 years, the expenditures, as herein 
        described, for the purpose of establishing a percentage of the 
        total budget for essential services to be included in the 
        Fiscal Plans.''
Sec. 5, Page 3, Line 17 AFTER ``level'' ADD:

        ``to create a New Economic Model of Economic Development that 
        will result in an annual growth of 5%, based on local and 
        federal incentives, as provided by existing and new 
        legislation, with measurable goals and where Puerlo Rico will 
        have clear competitive advantages over other jurisdictions 
        outside the United States, to attract private capital thereby 
        creating a stable business environment for investment and new 
        jobs.''
Sec. 10, Page 27, Lines 16 to 19 DELETE ALL AND REPLACE WITH:

        ``(2) One representative of each parliamentary majority, 
        selected by the members of the caucus in the Legislature.''

        (3) One representative of each parliamentary minority, selected 
        by the members of the caucus in the Legislature.''
Sec. 11, Page 29, IN BETWEEN Lines 15 and 16 ADD:

        ``(a) DEFINITION OF FEDERAL AGENCIES.--The term ``federal 
        agency'' means agencies of the federal government of the United 
        States responsible for disbursing federal funds for which the 
        Commonwealth of Puerto Rico qualifies or any territorial 
        instrumentality, or funds that have been granted by the 
        Congress for the reconstruction efforts resulting from the 
        devastation caused by Hurricane Maria.''
Sec. 11, Page 31, Line 8 ADD after ``with'' the phrase ``federal 
        agencies and''

Sec. 11, Page 32, IN BETWEEN Lines 11 and 12 ADD:

        ``(F) Act as liaison between the federal agencies and the local 
        government entities regarding the disbursement of funds, 
        obtaining permits, authorizations or endorsements and any other 
        similar function necessary for the expeditious realization of 
        all reconstruction projects and oversight the realization of 
        these projects.''
Sec. 12, Page 34, Line 8 AFTER ``(A)'' DELETE ``exercise supervision, 
        control and''

Sec. 12, Page 34, Line 11 AFTER ``(B)'' DELETE ``direct'' and REPLACE 
        WITH ``oversight''

Sec.12, Page 34, Line 19 AFTER ``(B)'' DELETE ``design and implement'' 
        AND REPLACE WITH ``recommend''

Sec. 12, Page 35, IN BETWEEN Lines 10 and 11 ADD:

        ``(F) File a motion in the court with jurisdiction over the 
        Title III process of PREPA if the public corporation is in 
        violation or not managing adequately the funds destined for the 
        reconstruction of the electric grid, in the sole discretion of 
        the Revitalization Coordinator, as mandated in this Section.''

                                 ______
                                 

    The Chairman [presiding]. I would like to thank my 
colleagues and elected officials for their testimony today. Let 
me recognize Mr. Gallego first for his questions and comments.
    Mr. Gallego. Thank you, Mr. Chairman. Thank you to the 
witnesses. Questions are first for Senator Rios.
    Section 8 of the discussion draft would repeal Title V of 
PROMESA, which was originally intended to designate and fast 
track ``critical infrastructure projects.'' Can you expand on 
why you think repealing Title V of PROMESA is necessary? Are 
there better, more sustainable ways to encourage infrastructure 
improvement on the island?
    Mr. Rios. Thank you for the question. As you know, if I was 
going to support something on the amendments to Section 5, 
which are titles that attempt to define the economic growth 
standards--I mean, so far what we have had in PROMESA and the 
Fiscal Oversight Board is a project that was worth $25 million, 
and the guy who was part of the Board had to leave the island--
with a $325,000 salary, by the way--and only to show for in 2 
years a $25 billion price where he had a conflict of interest.
    So, to define economic growth, it is something that is 
needed because right now it is too broad. And coming back to an 
analogy that Congressman Bishop had about home plate and 17 
inches, as you all know I have been a baseball player all my 
life, and I am part of the national team of Puerto Rico. I am a 
pitcher. And you can throw all the strikes you can, but if you 
don't have an umpire that can call strikes and balls, then you 
don't have a game.
    We have been throwing strikes for the last 3 years, and the 
umpire, which is the Board, in my opinion, hasn't been calling 
them fairly. So, when it comes to economic growth, when it 
comes to defining what are essential businesses to Puerto Rico, 
and services, the Board has its own playbook and its own set of 
rules that doesn't benefit the people of Puerto Rico.
    So, economic growth, Section 5 to amend Section 201, it is 
a good attempt to put us on the right track to actually make 
something happen. Because, after all, that is what I thought 
they were going to be doing when they visited and established 
themselves in the island.
    I hope I answered your question.
    Mr. Gallego. To go a little further, Section 3 of the 
discussion draft would authorize Federal funding for the 
operations of the Fiscal Board, money that currently comes from 
Puerto Rico's budget. Can you briefly explain the consequences 
of the way the Board is currently funded, and why you think 
this change is necessary?
    Mr. Rios. Well, as you know, as a Member of Congress--and I 
know you voted against it, and we had this discussion before, 
and we had this discussion with Chairman Grijalva, actually, 
even before the elections down in Arizona--Senator Bhatia was 
present at the time, and we talked about why the people of 
Puerto Rico have to be funding something that is not mandated. 
I don't know what it is up to today. I mean, it is called a 
board, but it is something that doesn't act like a board. It 
acts like something else, and it should be federalized.
    Natalie Jaresko shouldn't be earning $600,000--the people 
of Puerto Rico's money. She comes in and she is doing a lot of 
things for the police officers. What about the teachers, the 
retirees? What about medical? What about assisted services like 
health?
    Those are a part of it. And I am pretty sure if the United 
States of America and the Treasury Department was overseeing 
the way that the Board operates, Natalie Jaresko wouldn't be 
making $600,000. They wouldn't have six bodyguards to go 
around, and they would be responsible for what they do, and 
they would be transparent, something they don't do today.
    They ask the government of Puerto Rico to be transparent; 
when it comes to them they are foggy. So, it needs to be there, 
it needs to be funded by the Department of Treasury, and it 
needs to be Federal, in my opinion.
    Mr. Gallego. And the last question--the discussion draft 
also includes several provisions aimed at improving the 
transparency of the Board--you just kind of talked about this. 
Can you expand on the need for transparency, beyond what you 
just spoke, in the implementation of PROMESA?
    Mr. Rios. Well, when they ask the people of Puerto Rico and 
the governor of Puerto Rico to be transparent in all 
transactions. When we ask them to give us information, they 
don't have it. I mean, they change their fiscal plan, their 
very own fiscal plan. They changed it seven times. They do make 
mistakes. How many? We don't know, because they don't 
communicate the two ways that it should be with the government 
of Puerto Rico. They ask us and they ask Representative Soto 
all the time for information on the budget. When we come to ask 
them about budget, it is not there. So, it goes both ways.
    You can't ask for cooperation one way. It has to be--the 
other way would be a dictatorship. And my point is, they are 
not transparent. And Congress needs to call them to action and 
needs to call them to order and say, ``What are you guys doing? 
Three years and one project of $25 million?'' And they cost 
$214 million. Plus $200 million, $300 extra million dollars 
that are under Title III they were allowed to spend.
    Mr. Gallego. Thank you, sir. I yield back my time, Mr. 
Chair.
    The Chairman. Mr. McClintock, you are recognized, sir.
    Mr. McClintock. Thank you, Mr. Chairman.
    As I said, I am very sympathetic to your opposition to 
PROMESA. I opposed it when it was adopted. And the reason was 
because I think it strikes at the very core of the 
accountability not only that elected officials owe to the 
voters, but that the voters owe to themselves to deal with the 
consequences of the votes they have cast and the elected 
officials that they put into office.
    One thing is certain in a democracy: You are always 
guaranteed to get the government you vote for. And if it turns 
out it is a government that is not to your liking, that is just 
nature's way of warning you need to be a little more careful 
about the votes you cast. There is something to be said for 
going away sadder, but wiser.
    The central premise of PROMESA implies that the people of 
Puerto Rico are not competent to govern themselves, and I 
reject that premise categorically. But there is no denying that 
Puerto Rico's fiscal mess is a direct result of the votes that 
Puerto Rican voters cast for the officials that they elected.
    And that question, I think, is also central to statehood. 
Until the people of Puerto Rico take responsibility for their 
votes, for the officials they have elected, and then set things 
right, how can they make a case for statehood?
    My question of each of the panelists, very simply, is this: 
What would Puerto Rico's legislature do differently than the 
PROMESA Board has done? And I will go right down the list.
    Senator Rios?
    Mr. Rios. That is a great question. Coming back to the 
statehood issue, it is a civil rights issue. I am a U.S. 
citizen, just like you are. We elect to the Congress and I am 
an elected Senator of Puerto Rico, just like the states. So, 
calling me an equal and defend what they call insular cases, it 
will be a mistake, in my opinion.
    Mr. McClintock. What would you do differently?
    Mr. Rios. Of course, now, coming back to what I will do 
differently----
    Mr. McClintock. If I can narrow this down, my time is 
limited.
    Mr. Rios. Yes, sure. OK.
    Mr. McClintock. What is the most important thing that each 
of you would have seen the legislature do, the difference from 
what the PROMESA Board has done?
    Mr. Rios. First of all, balance a budget. You have $10 
billion, that is what it can spend. And we all know this on 
this table.
    The second thing is we need to pay our debts. And my 
government said from the get-go, we need to pay. Now, how much 
can we pay? That is a whole different question.
    I was listening to your point about the unsecured debt. I 
think we should pay them, as well, because it will send a wrong 
message, in my opinion, for the future market. And we need to 
get back in the market. That is point blank. We need to get in 
the market, and it can be at a high interest rate.
    So, that being said, we are in a pickle. We owe people 
money. And we told them we want to pay them money. And we have 
COFINA and we had all these matters that really is a contract--
--
    Mr. McClintock. I agree with you completely, but I want to 
also extend the question to the other witnesses.
    Mr. Bhatia Gautier. Sir, I thank you for your question. Let 
me just say this. Puerto Rico had a----
    Mr. McClintock. The most important thing that you would do 
that differs from----
    Mr. Bhatia Gautier. Three things, quickly. Three things: 
(1) Puerto Rico has to get economic growth if we don't get 
jobs, if we don't get investment, we are screwed. And we need 
to move forward in that direction. Puerto Rico had a great 
investment mechanism through taxation codes, and they were 
stricken away by Congress for no reason, no reason whatsoever. 
(2)----
    Mr. McClintock. Pardon me, stricken in PROMESA, or stricken 
in----
    Mr. Bhatia Gautier. No, stricken in the 1990s, Section 936 
in the 1990s.
    Mr. McClintock. Oh, of course, right, OK.
    Mr. Bhatia Gautier. (2) We approved the local bankruptcy 
law precisely because we could do it at home. We tried to do it 
at home, and it was stricken down by the U.S. Supreme Court. 
(3) I created, with the help of my colleagues----
    Mr. McClintock. But, again, you adopted a constitution that 
specifically pledged the full faith and credit and redemption 
of those bonds.
    Mr. Bhatia Gautier. Yes, and we----
    Mr. McClintock. And what you want to do is renounce that.
    Mr. Bhatia Gautier. No, we don't want to renounce that, not 
at all. We want to create a restructuring mechanism----
    Mr. McClintock. Representative, I am sorry, but I have very 
limited time.
    Representative Soto Torres?
    Mr. Soto Torres. Yes. Economic growth would be one of our 
priorities. Definitely. We just approved a new incentive code. 
We also approved local legislation for capitalizing an 
opportunities bill included in the Federal tax reform. So, 
those are two major changes----
    Mr. McClintock. Let me ask you one other question. What has 
Congress done that has impeded the economy of Puerto Rico? And 
I will direct that to you, Representative Soto Torres.
    Mr. Hernandez. Sir, the problem is certainty. How we can 
approve something in Puerto Rico, then you can change over here 
as a Federal law? We don't have any certainty. We don't have 
stability. That is why we have going into Puerto Rico we are 
changing the rules right now again.
    How are we going to have economic growth if somebody can 
come here, lobby something to change the status quo, the 
stability, the rule of law of the Puerto Rico? They even can 
change our constitution----
    Mr. McClintock. Basically, you are saying PROMESA itself is 
an impediment to----
    Mr. Hernandez. PROMESA itself, and these amendments, too.
    Mr. McClintock. Thank you.
    The Chairman. Mr. Soto.
    Mr. Soto. Thank you, Mr. Chairman. We talked a lot about 
the complex history and how the Federal Government has been 
complicit in a lot of this debt being accrued. I know a lot of 
you know that history well.
    I did want to mention again the good work we are doing in 
health care. We have bipartisan support both here and on the 
island, which is to finally treat Puerto Rico and all of our 
territories equal with regard to Medicaid.
    And then, just this last week, to help seniors in Puerto 
Rico with low-income senior assistance for prescription drugs. 
So, that area we are getting a lot of progress even beyond 
this.
    And then we talk a little bit about the bankruptcy reform 
in 1983, knocking Puerto Rico out of the code. And now PROMESA, 
this contorted law that we are now faced with. We are here to 
get your input.
    And that is why we put out a draft, rather than a bill, so 
far. So, first, how many of you support having the independent 
audit, just by show of hands, so we could get that one--raise 
your hand if you support an independent audit.
    OK, so we have consensus on that. How many of you support 
the current definition of essential public services? Raise your 
hand if you support that. The current definition of essential 
public services.
    Mr. Soto Torres. The ones included in the draft?
    Mr. Soto. Correct, the one included in the draft.
    Mr. Soto Torres. We, in the House of Representatives, we 
support it, but we believe that it should be more ample. The 
not-for-profit organizations that provide services to the 
people should be included. There are other areas like 
correctional services and the help for the correctional 
facilities that should be included, as well as the Treasury 
Department.
    Mr. Soto. OK. I----
    Mr. Bhatia Gautier. Can I just say one sentence about that?
    Mr. Soto. Sure.
    Mr. Bhatia Gautier. Sir, with all due respect, it should be 
the people of Puerto Rico who decide what their essential 
services are, not Members of Congress from different states. I 
am not telling you what the essential services are in Orlando. 
You know what the essential services are. We know what our 
essential services are. Let us make that decision based on our 
budget. You tell us what the ceiling is, and we will make that 
decision. It is for the people of Puerto Rico to make that 
decision.
    [Applause.]
    Mr. Rios. And let me just interject 1 second, and I think 
that Senator Bhatia is right on the issue. It is a matter of a 
local government, elected officials, and we take the 
responsibility. I am a politician. I mean, I show my face every 
time I make a decision, and I am responsible for that decision. 
And the budget is our decision, as well. If it goes wrong, my 
fault. If it goes right, you were supposed to do it right, 
anyway.
    So, at the end of the day, it is the only answer. Let the 
people of Puerto Rico decide what the benefits and the 
essential services are, and then they have no issues on 
reporting, OK, you have to balance your budget, OK, we will do 
it, to get out of PROMESA.
    Mr. Soto. Sure. Thank you for that passionate response.
    In addition, the issues of Revitalization and 
Reconstruction Coordinators, I understand a lot of you, as I, 
have a concern with that, because we already have this PROMESA 
Federal layer. Does everybody oppose or support having these 
two additional coordinators?
    Let's start with you, Leader Hernandez.
    Mr. Hernandez. We have----
    Mr. Soto. A simple yes or no would be helpful, because I 
have limited time.
    Mr. Hernandez. I support it, because we have cases of----
    Mr. Soto. OK.
    Mr. Hernandez. We need to push to have the resources on the 
island.
    Mr. Soto. Sure. Leader Soto Torres, do you all support or 
oppose the two coordinators?
    Mr. Soto Torres. If it is like a liaison for Puerto Rico 
and the Federal agencies, a facilitator. But not if it is a 
person taking the decisions over, and another layer of taking 
decisions over the coordinators that we already have.
    Mr. Soto. Leader Bhatia?
    Mr. Bhatia Gautier. I am against a PREPA Coordinator. I 
think that is wrong. Federalizing PREPA is wrong.
    And No. 2, we need to liberate the funds. If that is what 
it takes for the U.S. Government to liberate the funds, we may 
have to take it. We don't like it, but we may have to take it. 
I am against, unless it is a facilitator.
    Mr. Soto. Sure.
    Mr. Bhatia Gautier. I just want the funds to get to the 
poor people up in the mountains--50,000 people still with blue 
tarps makes no sense under the United States of America.
    Mr. Soto. Leader Rios?
    Mr. Rios. I am against the PREPA proposal. I thought the 
Federal Government was supposed to be fast, and we had a COR3 
that we can actually manage the funds. But if it is not the 
Board, and it is someone that will care about the people of 
Puerto Rico and not a salary, yes.
    Mr. Soto. Thank you all for your input. And I agree, Leader 
Bhatia, the people of Puerto Rico should be deciding the public 
services. If I could change this bill in a second, it would be 
to release all the FEMA funds immediately and end PROMESA. 
Unfortunately, since we don't have the bipartisan support for 
that, we find ourselves here today. But I appreciate all your 
concerns and passion over this issue, and appreciate you 
testifying today.
    Mr. Bhatia Gautier. Thank you.
    The Chairman. Thank you. Senator Rios, I agree. PROMESA was 
only a partial solution to the economic problems of Puerto 
Rico, and the imposition of the Oversight Board that has 
undemocratic power over decisions of the elected 
representatives of the people of Puerto Rico. I understand 
that. I understand that you and the President of the Senate 
think PROMESA should be repealed and be replaced by statehood.
    But if the law can't be repealed, and we follow the train 
of thought of the Ranking Member, that this has to stabilize 
first before the discussion of status is even considered by 
Congress or an Administration, given that, are there any 
amendments you think should be made?
    Are there any amendments that would help, in terms of 
dealing with the two issues that you brought up, the 
undemocratic power and the limiting of the role of elected 
officials in Puerto Rico?
    Mr. Rios. Well, as you know, I have to state what is the 
basics, which is equality.
    But to answer your question, if I was to amend what I think 
is a temporary case of diminished democracy for Puerto Ricans, 
first of all, who pays PROMESA? It should be the Federal 
Government, because it was imposed.
    The Chairman. OK, so that amendment----
    Mr. Rios. That is one.
    The Chairman. OK.
    Mr. Rios. When it comes to economic growth, it needs to be 
defined. So, that will be two.
    The Chairman. OK.
    Mr. Rios. When it comes to ethics, there should be ethics. 
So, that is three.
    And when it comes to essential services, you should listen 
to the people of Puerto Rico, my opinion, and how the people of 
Puerto Rico--like we are doing today--define what are the 
essential services.
    And last, OK, somebody has to call the Board to order. 
Their spending is unreasonable, and they think they are above 
the law. They think they are even above Congress.
    The Chairman. All right----
    Mr. Rios. So, you have to define the powers of the Board.
    The Chairman. Thank you, Senator.
    Mr. Rios. Thank you.
    The Chairman. Senator Bhatia, the discussion draft includes 
a provision requiring disclosures by the consultants employed 
by the Oversight Board to avoid any conflict of interest. In 
your testimony, you mentioned the need for introducing 
legislation to avoid conflicts of interest with members of the 
Oversight Board. Talk about that provision, and also the 
position on the draft bill's provision to enable territorial 
governments to write off all unsecured debt, other than from 
vendors and service providers, once every 7 years. On those two 
issues.
    Mr. Bhatia Gautier. Yes. No. 1, I am very concerned about 
the ethical issues involved with the Board. I think initially 
some of the Board members did not want to disclose any 
potential conflict of interest. And now, when Board members 
leave the Board, whenever that happens, we should have full 
disclosure. And I think it is an ethical issue. I think 
Congresswoman Velazquez has raised the issue, and I fully 
support her bill, and I fully support the disclosure which goes 
beyond the Board, the kind of disclosure that goes into all the 
consultants.
    The Chairman. OK.
    Mr. Bhatia Gautier. That is No. 1. No. 2, when it comes to 
just cleaning out the debt, of course, I would love that. But 
what are the consequences? And I think that we should be 
careful when we decide that we are going to erase that. I am 
all for erasing the debt. Perhaps if it is down to zero it 
would be great.
    The question, if it is federally mandated, what effect will 
it have on the future of Puerto Rico, I am concerned about 
that.
    The Chairman. Thank you, sir. Representative Soto Torres 
and Representative Hernandez, thank you for your feedback on 
the provisions of this discussion draft. In the testimony, you 
agree with amendments calling for protecting essential 
services. I think one of you gentlemen said it should be more 
ample, and the people of Puerto Rico should have a role in 
deciding what they are.
    The other one was ensuring transparency, avoiding conflict 
of interest by consultants, and a comprehensive audit of the 
debt.
    Are there any provisions that we did not include in the 
discussion draft, if this were to move forward, that you would 
recommend?
    Either or both of you.
    Mr. Soto Torres. We included and sent to the Committee a 
group of amendments in terms of the process for the preparation 
of the fiscal plan, in terms of the budgeting process, and 
establishing some parameters for the Board. I am going to give 
you a few examples.
    In the budget process, PROMESA established that the 
legislators, once it approves a budget, it is sent to the 
Oversight Board, and they have to certify that it is in 
compliance with the fiscal plan, and that it should be 
significantly consistent with the fiscal plan. What is 
significantly consistent with the fiscal plan?
    The Chairman. OK, if I may--Mr. Hernandez, a quick comment 
on any provision that, if we are going in that direction of 
reforming, what recommendation?
    Mr. Hernandez. We included an amendment considering 
enactment restrictions to avoid conflict of interest in the 
hiring of contractors by the Board, to defend self interest--as 
a member in the process of lobbying, and the process of 
reappointed--they are using resources of the people of Puerto 
Rico to lobby for itself.
    The Chairman. They are going to call votes in 40 minutes or 
so, so I want to thank all of you for your testimony. I 
appreciate it very much. It was very helpful.
    At this point, there are other questions for you that we 
are going to submit in writing because we didn't get a second 
round. But I want to thank you again. Let me now call the next 
panel up, and thank you again.
    [Pause.]
    The Chairman. Let me now welcome the Honorable Carmen Yulin 
Cruz Soto, Mayor, City of San Juan.
    Thank you. And thank you for your patience and for coming 
to visit us. I want to also, on a personal note, thank you very 
much for your insistence on a couple of points that are part of 
this, having to do with transparency issues within that audit, 
with the provisions, and if PROMESA is going to be reforming, 
defining the process for what essential services were. Our 
visit with you in San Juan, those were points that you made 
very, very clearly to us, so I appreciate that help.
    Five minutes. The floor is yours, Madam Mayor.

 STATEMENT OF THE HON. CARMEN YULIN CRUZ SOTO, MAYOR, CITY OF 
                            SAN JUAN

    Ms. Cruz Soto. Thank you, Mr. Grijalva.
    The presence of a Board comprised of non-elected officials 
making decisions on behalf of Puerto Rico constitutes a de 
facto financial dictatorship. Thus, PROMESA must be repealed. 
The Board continues to mortgage our future, while acting on 
behalf of vulture funds.
    Our debt must be canceled. However, since the political 
will for that seems distant, it must be fully audited. Reaching 
payment agreements without this audit is simply catering to the 
needs of bondholders. We are satisfied an audit commission has 
been included in the draft. We suggest the Committee revives 
the Commission [Speaking foreign language], as enacted by 
Puerto Rico's Law 97, approved in 2015. This would be a step 
toward restoring public trust and governmental accountability.
    Define Section 201--La Junta neglected to craft their 
fiscal plan with sufficient funding for essential services. The 
Board has strangled our limited budget to favor debt payment, 
disregarding the severe impact this would have on our people. 
The fiscal plan cannot be oblivious to governmental obligations 
to provide basic, essential services.
    Our position is simple: The people before the debt.
    The draft before us is an opportunity to remedy this wrong 
by ensuring funding for essential services such as pension 
payments for governmental retirees, education services, health 
services, and law enforcement services.
    We submit the draft should also include as essential 
services, municipal financing and transportation for the people 
of Vieques and Culebra. Financial recovery cannot come at the 
expense of neglecting to provide appropriate levels of 
essential services, for it is those who need the services the 
most who will bear the brunt of any austerity measures.
    The latest fiscal plan, which has been endorsed by Governor 
Vazquez, includes additional cuts to our pensions. These 
reductions will simply make it unbearable for many of our 
retirees to survive.
    Education is the strongest weapon against inequality, and 
the true path to achieving social justice and economic growth. 
The first step in guaranteeing a future for our young people 
must be safeguarding our most important higher education 
system, the University of Puerto Rico and its 11 campuses.
    This Committee needs to understand more fully that 
municipalities are the level of government closest to the 
people responsible for providing its citizens with essential 
services. The Board has already reduced $350 million in 
municipal funding for all municipalities, thus limiting their 
ability to provide essential services for our citizens. We urge 
you to include a disposition in the law to create an advisory 
committee composed of representatives from municipal 
governments aiming to ensure this level of government is part 
of the solution.
    The current draft includes two dispositions which we 
adamantly oppose. Sections 11 and 12 call for the creation of a 
Reconstruction Coordinator for Puerto Rico and a Revitalization 
Coordinator for the Puerto Rico Electric Power Authority. Legal 
figures such as these would further undermine democratic 
structure of our local government.
    In the case of PREPA, we are concerned the proposed 
structure would concede incalculable authority to one person, 
essentially making this coordinator into a super oversight 
board of one.
    PROMESA is a clear manifestation of the burden of 
colonialism. I appreciate the positive steps taken by this 
Committee in trying to ease the pains caused by the enactment 
of PROMESA. But the truth remains this can only happen because 
we are a colony. Until that is addressed, we will only be 
facing part of the problem.
    When thinking of PROMESA, this Committee must answer a 
fundamental question: [Speaking foreign language.] With the 
people, or with the Board? The answer must be clear and 
unequivocal. Puerto Ricans before the debt. The people of 
Puerto Rico must not be asked to sacrifice any more. God knows, 
we have sacrificed more than enough.
    Thank you very much, Mr. Chairman.

    [The prepared statement of Ms. Cruz Soto follows:]
              Prepared Statement of Carmen Yulin Cruz Soto
    Chairman Grijalva, Vice Chair Haaland, Ranking Member Bishop, and 
members of the Committee: My name is Carmen Yulin Cruz Soto, and I am 
the Mayor of San Juan. First, I thank you for the opportunity to 
express our views and opinions before this honorable Committee 
regarding a Discussion Draft provided by Chairman Grijalva about a 
series of proposed amendments to the Puerto Rico Oversight, Management, 
and Economic Sustainability Act (``PROMESA'').
    We have been invited today to discuss said amendments and their 
potential impact on the debt restructuring process that the 
Commonwealth of Puerto Rico currently faces. PROMESA has provided the 
parameters of the restructuring process amid great objection and 
criticism from publicly elected officials, trade unions, and the 
general population for establishing policy measures that erode basic 
principles of democracy and self-determination. Nevertheless, the 
current political landscape has presented new opportunities for 
improvement and it is within this context that we express our views 
today.
    From the outset, it is imperative to state that I firmly believe 
that PROMESA should be repealed. We must remember the road traveled in 
order to arrive at our current situation. A legislative gap prevented 
Puerto Rico from having access to the dispositions and protections set 
forth in Chapter 9, of the U.S. Bankruptcy Code. Because of the 
preemptive nature of Federal bankruptcy laws, the Commonwealth was 
precluded from enacting a statute of its own that would allow for 
public debt restructuring, whilst excluding Puerto Rico from the 
definition of ``state'' for purposes of Chapter 9.\1\ These mutually 
conflicting realities put the Commonwealth in a very precarious 
position at a time where its fiscal and economic situation had reached 
a tipping point.
---------------------------------------------------------------------------
    \1\ See, Puerto Rico v. Franklin Cal. Tax-Free Trust, et al. 136 S. 
Ct. 1938 (2016).
---------------------------------------------------------------------------
    Yet, in the absence of congressional interest toward repealing 
PROMESA, there are definitive areas of improvement that have been 
addressed in the Discussion Draft.
            a clear definition of essential public services
    At the core of every controversy surrounding the application of 
PROMESA, there has been an issue with the lack of a clear definition 
for Essential Public Services. In its conception, PROMESA did not 
include a definition that would serve the purpose of outlining 
government services which warranted protection during the debt 
restructuring process. Furthermore, it is our contention, that after 
the law became affective, the Financial Oversight and Management Board 
(``FOMB'') has evaded the responsibility of defining such concept.
    With the purpose of avoiding a capricious design or vague 
parameters, Section 201 of PROMESA establishes in detail the 
fundamental requirements that all fiscal plans should meet as it 
pertains to Covered Entities. Regarding this matter, the law states 
that all Fiscal Plans shall ``provide a method to achieve fiscal 
responsibility and access to the capital markets, and [ . . . ] ensure 
the funding of essential public services.'' \2\ This makes establishing 
a clear definition an inescapable duty for the FOMB, which has been 
avoided to the detriment of the people of Puerto Rico.
---------------------------------------------------------------------------
    \2\ Puerto Rico Oversight, Management, and Economic Stability Act, 
48 U.S.C. Sec. 2141(b) (2016).
---------------------------------------------------------------------------
    Moreover, in clear defiance of the legislative mandate set forth in 
PROMESA, the FOMB has jeopardized the already limited budget of the 
government of Puerto Rico for the payment of its public debt without 
much consideration of the severe impact that these policy measures have 
produced over areas that are universally considered essential for our 
people.
    The conduct exhibited by the FOMB so far, has been in clear 
conflict with Section 201 of PROMESA. The intentions of the FOMB are 
clear; by avoiding a clear definition of Essential Public Services, the 
Board also avoids being hamstrung by strict parameters that require the 
allocation of funds for specific purposes not related to the repayment 
of debt. Instead, what we currently have in place, is a more esoteric 
or philosophical concept which can be easily neglected.
    In short, the test to determine the viability of Fiscal Plans and 
policy measures cannot be oblivious to the obligations that the 
government of Puerto Rico has of providing essential services. Once the 
letter of the law provides a clear definition, we can make sure that 
services in the areas of Health, Education (especially the University 
of Puerto Rico), Law Enforcement, Government Pensions, and Municipal 
Financing can be safeguarded from excessive austerity measures. Puerto 
Rico's financial recovery cannot come at the expense of providing basic 
services for its people.
              the need for transparency and accountability
    The proposed amendments in the Discussion Draft bring significant 
changes in the area of transparency and access to information that are 
very important for promoting public trust. The unprecedented nature of 
the proceedings brought forth by PROMESA have placed the people of 
Puerto Rico in a very difficult position. The design of primary public 
policy objectives concerning debt restructuring, is being devised by 
individuals that were not elected by the people. The decisions made by 
the members of the FOMB will have repercussions for decades that will 
affect the lives of future generations. Naturally, this fact has 
particular relevance when it comes to the subject of transparency. The 
restructuring process must provide a minimum of confidence to the 
people of Puerto Rico. It is imperative that investigative journalists 
and public interest groups have access, not just to the information 
related to the restructuring process itself, but to each member of the 
Board and any sub-contracted entity that renders professional services. 
Congressional oversight and public scrutiny are fundamental elements 
for a successful restructuring process.
    In the same vein, the Discussion Draft establishes dispositions 
geared toward auditing Puerto Rico's public debt. Specifically, the 
creation of a comprehensive audit commission. Historically, public 
corporations have financed their deficits by relying on capital market 
financings or the central government, which in turn provided loans 
through the now defunct Government Development Bank or private sector 
banks.
    This practice has placed a shroud of controversy surrounding the 
legality of the billions of dollars in debt issued by the Puerto Rican 
Government. Therefore, a specific disposition in PROMESA that regulates 
an audit of public debt would go a long way toward restoring public 
trust and promoting accountability.
      the figures of reconstruction and revitalization coordinator
    One critical component of achieving fiscal recovery is ensuring 
that Puerto Rico's governmental instrumentalities are sufficiently 
funded. As you already know, in Puerto Rico, public services including 
water, electric power, and transportation are provided by state-owned 
public corporations. Such is the case of the Puerto Rico Electric Power 
Authority (``PREPA''). PREPA essentially provides all the electric 
power directly to consumers which includes residents, businesses and 
government entities. PREPA is currently under the provisions.
    In the Discussion Draft, there are two dispositions that we 
respectfully oppose. Specifically, Sections 11 and 12 call for the 
creation of a Reconstruction Coordinator for the Commonwealth and a 
Revitalization Coordinator for the Puerto Rico Electric Power Authority 
(PREPA).
    Legal figures such as these would further destabilize the 
democratic structure of our local government by taking more power from 
democratically elected officials and giving such powers to entities or 
individuals appointed by Congress or the FOMB. In the specific case of 
PREPA, we are concerned that the proposed structure would concede 
incalculable authority to a Revitalization Coordinator, essentially 
placing a single individual in an authoritative position similar to the 
entire FOMB.
            puerto rico's municipalities as covered entities
    Finally, we wish to express our sincere discontent with the 
Financial Oversight Management Board's (FOMB) decision to declare 
Puerto Rico's 78 Municipalities as Covered Entities under the Puerto 
Rico Oversight, Management, and Economic Sustainability Act (PROMESA). 
On May 9, 2019, the FOMB held a meeting in which it voted unanimously 
in favor of establishing a Pilot Program for ten (10) 
municipalities,\3\ that essentially requires them to operate under 
fiscal plans approved by the Board. Covered entities under PROMESA are 
subject to the development, implementation, oversight and evaluation of 
fiscal plans and budgets. As we stated before, each Fiscal Plan shall 
provide Puerto Rico with a ``method to achieve fiscal responsibility 
and access to the capital markets.'' \4\
---------------------------------------------------------------------------
    \3\ The list of Municipalities includes Quebradillas, Camuy, 
Isabela, San Sebastian, Orocovis, Barranquitas, Villalba, Aibonito, 
Comerio, and Cidra.
    \4\ Id.
---------------------------------------------------------------------------
    In the past, we have expressed our growing concern with the FOMB's 
austerity-based approach and have warned of its pernicious effects on 
the island's post-hurricane economy. In the same vein, we worry about 
the effects that this decision will have on both municipal governments, 
and the citizens of the island.
    It is immensely important to understand the key role that 
municipalities play in the well-being of the island's citizens. In its 
organic law, municipalities are described as the sociopolitical 
entities closest, and with the most knowledge of the needs of the 
people. In essence, Municipalities are creatures of statute, tasked 
with the responsibility of providing essential services in the areas of 
health, waste management, education and law enforcement, among others. 
They also serve as the main source of aid for natural disasters, which 
becomes even more relevant as we face the dire consequences of climate 
change. Although Municipalities have the capability to generate 
independent revenue, much of the economic support came from periodic 
disbursements made by the central government. Naturally, Puerto Rico's 
financial crisis has weakened the central government's ability to 
transfer money from the general fund to Municipalities. This is 
evidenced by the Commonwealth's most recent certified fiscal plan, 
which reduces allocations to municipalities by 80 percent over a period 
of 4 years.
    Coupled with the devastation caused by Hurricane Maria, Puerto 
Rico's stifled economy has caused lower wages, a reduction in fringe 
benefits for employees in the private and public sector, and an 
increase in prices for basic goods. It is therefore imperative that the 
citizens of Puerto Rico don't suffer another setback in the form of 
diminished essential services provided by municipalities. This would be 
an egregious result that would negatively affect the health, safety and 
overall well-being of the people of Puerto Rico.
    We strongly urge you to adhere to the congressional mandate set 
forth in PROMESA, of devising strategies geared toward promoting 
economic growth and a sustainable debt burden. It is important to find 
recurring sources of revenue for municipalities, so that any 
interruption in the provision of essential services can be avoided.
    In its bicameral letter dated December 6, 2018, a group of 
representatives expressed their concern with the FOMB's debt 
restructuring plans, which facilitate high recovery rates for creditors 
and significantly cuts funding for health care, education and public 
safety in Puerto Rico. It is our contention, that if the same policy 
approach that has been applied to covered entities is also applied to 
municipalities, the results can be disastrous.
    Regarding this specific matter, we urge you to include a 
disposition in the law that creates an advisory committee composed of 
representatives from Puerto Rico's municipal governments. To that end, 
it is imperative that you establish a consulting body protected by 
PROMESA that can contribute with a very necessary perspective. 
Municipalities are tasked with the responsibility of providing 
essential services in the areas of health, education, law enforcement 
and waste management, among others. This unique perspective will help 
Congress and the FOMB understand the practical effects that the imposed 
austerity measures have had on our people.
    In conclusion, I believe that most of the proposed amendments 
contained in the Discussion Draft are a step in the right direction and 
we should focus our attention toward learning and correcting the 
mistakes that have been made so far. There is widespread consensus on 
the fact that certain critical changes must be implemented in the law 
in order to guarantee the long-term financial recovery of the 
commonwealth of Puerto Rico.

                                 ______
                                 

    The Chairman. Thank you very much. Let me recognize my 
colleague, Mr. Soto, for any questions he may have.
    Mr. Soto.
    Mr. Soto. Thanks, Chairman. Thanks, Mayor, for coming 
today. I wanted to get some follow up. So, you support the 
audit and having the full commission of different groups to be 
part of that so you can get more community input into that 
audit, is that----
    Ms. Cruz Soto. I support the audit fully, and I would just 
revive a committee that was already implemented by the past 
legislature. Eduardo Bhatia talked about it, [Speaking foreign 
language]. This had input from various agents in Puerto Rico, 
and it made it more transparent and more accountable to the 
people of Puerto Rico.
    Mr. Soto. More accountable than a PROMESA audit that didn't 
include a lot of those stakeholders, right?
    Ms. Cruz Soto. Well, the problem with the members of a 
board is that some of the members of the boards were part of 
the problem. They were part of the process of ensuring that 
bondholders bought at prices that, frankly, were ridiculous, 
and now are getting repayments on prices that are strangling 
the people of Puerto Rico.
    So, when you begin with seven people that are not mandated 
by the people of Puerto Rico, and on top of that some of them 
were part of the problem that you are trying to fix--which, 
again, should be a problem fixed by the people of Puerto Rico--
it becomes an issue.
    Mr. Soto. As Mayor of San Juan, what kind of barriers did 
you face in drawing down Federal funds and working with the 
Trump administration?
    Ms. Cruz Soto. Well, it is no secret that President Trump 
and I don't see eye to eye. There is one thing that he said 
after the storm that we agree on totally. He said he thought 
the entire debt of Puerto Rico should be repealed, should be 
eliminated, should be brought down to zero. That is the one 
thing, and one thing only, that I agree with President Trump. 
But we have not yet received, as none of the other 
municipalities, any monies from the CDBG-DR fund, No. 1.
    No. 2, we are still waiting on FEMA to give us money from 
categories A, B, and Z. Some municipalities have not even been 
paid part of that. Mind you, for the people that are listening, 
those are the funds that we used in getting ready for the 
hurricane and in taking care of our citizens right after the 
hurricane.
    It is important to note that municipalities were the first 
level of support that people received and saw right after the 
hurricane. So, taking $350 million away from municipalities for 
San Juan--that was $21 million less--in what is wrongfully 
called subsidies, it is not subsidies. It is something like 
municipalities earned $1, the central government took that 
dollar, gave $.25 back, and now calls that a subsidy. It is 
merely retribution for earnings that the municipalities had in 
the past and no longer have.
    Mr. Soto. A lot of us, including you and I and others, are 
concerned about having these two coordinators when we already 
have the Federal fiscal board.
    So, whether it is them or COR3--what do you think we should 
be doing to help speed up the funding, other than the obvious, 
which is we are holding these hearings to put pressure on the 
Administration?
    Ms. Cruz Soto. Well, this is an issue of political will. It 
is an issue of President Trump, first of all, not understanding 
what the relationship of a colony is to the United States and, 
second, frankly, not paying attention.
    He said to the people of Puerto Rico that the reason why 
help was not getting there--and this is a quote--was because we 
are an island surrounded by water, lots and lots of water, 
ocean water. That was his excuse for not getting the help that 
the people of Puerto Rico needed.
    But the one thing is, No. 1, to put pressure. No. 2, it is 
just to make sure that the monies do not go directly only to 
the central government of Puerto Rico, that it goes directly to 
the 78 municipalities, because it is the municipalities that 
know exactly what the people of their cities need and would 
support.
    In fact, all of the mayors in Puerto Rico were asked to put 
forth a plan for CDBG-DR money, and the central government 
passed under Rossello--and Wanda Vazquez has not mentioned 
anything to the sort, she talks about helping municipalities, 
but nothing has come through to ensure that the power really 
goes in the distribution of the funds to the municipalities.
    I have had conversations with the mayor of Houston, the 
mayor of New York, the mayor of Atlanta, and really, this is an 
issue with mayors all over, this extra layer of FEMA and 
Federal Government suppression of funding going through the 
central governments, rather than directly into the cities. It 
is a hindrance that makes it really difficult to come back from 
not one, but two terrible disasters like Irma and Maria.
    Mr. Soto. Thanks, Mayor, and I yield back.
    The Chairman. Mr. McClintock, sir.
    Mr. McClintock. Thank you, Mr. Chairman. I think California 
and Puerto Rico share a lot in common. Ours are among the most 
beautiful and blessed parts of our country. Yet, every year, 
more people move out of our state, and more people move out of 
your commonwealth than move in. My God, Puerto Rico is an 
island paradise. It is a cruise ship destination, for heaven's 
sake. People ought to be flocking to it, rather than fleeing 
from it. These aren't acts of God, these are acts of 
government.
    Lincoln once said that the voters are everything. If the 
voters get their backsides too close to the fire, they will 
just have to sit on the blisters a while. It is a painful 
experience, but it is a learning experience, and voters go away 
from that sadder, but wiser.
    And I think the best thing that we could do for Puerto Rico 
is get rid of PROMESA, let the elected officials make these 
decisions, and allow the voters of Puerto Rico to live with 
those decisions, for better or for worse. I think before 
PROMESA voters were coming to these decisions, they were voting 
to change the government until PROMESA relieved them of this 
responsibility.
    What are your observations on that?
    Ms. Cruz Soto. Well, first of all, let me tell you, I 
happened to go to California for the first time this year, and 
we share a lot of things, except California is a state of the 
United States. That is your country. Puerto Rico is my country. 
I am a citizen of the United States, but I am a Puerto Rican 
national. And that makes a difference in the way that we see 
things.
    Mr. McClintock. But if I could interrupt, it doesn't make a 
difference on your sovereign debt.
    California and Puerto Rico both assumed the responsibility 
of sovereign debt, and both, in their constitutions, pledged 
their full faith and credit to that debt. Your philosophy is 
people before debt, but it is the credit worthiness of a 
government that is that government's lifeline. It is what makes 
it possible to respond to emergencies and to finance 
infrastructure over the life of that infrastructure.
    The irresponsible issuance of debt to pay ongoing expenses 
or to pay for pension obligations is the fastest way to 
bankrupt a government and to destroy its credit worthiness. And 
that is not an argument for statehood, if that is what you are 
arguing, it is an argument for separation and independence.
    Ms. Cruz Soto. I don't argue with statehood, sir. But let 
me tell you something. Governments make decisions. I agree with 
you. When the government of these United States decided to bail 
out Wall Street, that was a decision.
    Mr. McClintock. And, by the way, a bad one.
    Ms. Cruz Soto. Well, you think it was a bad one.
    So, it is time to bail out the people of Puerto Rico.
    Mr. McClintock. Well, again, that is not an argument for 
statehood. That is an argument against statehood.
    Ms. Cruz Soto. I know you are against it.
    Mr. McClintock. But let me ask you the same question I 
posed to the legislators. What would you do differently from 
PROMESA, other than renouncing your sovereign debt and 
completely destroying the credit worthiness of the government, 
what would you do differently from PROMESA?
    Ms. Cruz Soto. One thing would be economic growth. We 
cannot have economic growth if we cannot control our economic 
variables.
    Mr. McClintock. OK. For example?
    Ms. Cruz Soto. For example, we have to have a conversation 
with our brothers and sisters from the longshoreman's union to 
begin repealing the Jones Act.
    Mr. McClintock. Amen to that.
    Ms. Cruz Soto. Which makes it very difficult for Puerto 
Rico----
    Mr. McClintock. Sign me up for that.
    Ms. Cruz Soto. That is No. 1.
    Mr. McClintock. What other Acts of Congress have acted as 
an impediment to your economic----
    Ms. Cruz Soto. No. 2, Puerto Rico should be able to draw 
its own bankruptcy laws. It was in Chapter 9. In fact, I was in 
front of this Committee supporting a bill by the then-Resident 
Commissioner, Pedro Pierluisi, to enact that same legislation.
    Mr. McClintock. Well, if I could interrupt you right 
there----
    Ms. Cruz Soto. Yes.
    Mr. McClintock. No state has renounced its sovereign debt. 
You would be suggesting that Puerto Rico should be admitted 
with a record of simply dishonoring its sovereign debt----
    Ms. Cruz Soto. Sir, I do not favor statehood. I favor a 
process of a constitutional assembly for all the voices of 
Puerto Rico to be heard, similar to the one that you went 
through, and for Puerto Ricans to decide what their 
relationship with the United States would be. So, I do not--
[Speaking foreign language.] It is an expression in Spanish. I 
am not in support of Puerto Rico becoming a state, which is why 
I mentioned to you before, I am a Puerto Rican national who 
holds U.S. citizenship.
    Mr. McClintock. OK, I get that. But anything else that you 
can tell Congress right now that it needs to do to get out of 
the way of Puerto Rico's ability to grow its economy?
    Ms. Cruz Soto. One hundred percent Medicare and Medicaid 
parity. If we pay the same thing, we should get the same 
benefit.
    Mr. McClintock. You want bailouts. I get that part, but----
    Ms. Cruz Soto. No, it is not a bailout. We pay the same 
thing. We should get the same thing. That is what the American 
Dream is predicated upon, right? You work hard, you pay what 
you owe. And we have paid for Medicare and Medicaid. Again, we 
don't control our economic variables, so we should not be 
responsible.
    You invaded Puerto Rico. You put boots on the ground. You 
tried Agent Orange in our forest. You tried the pill with our 
women.
    Mr. McClintock. I get that.
    Ms. Cruz Soto. It is retribution.
    Mr. McClintock. I get that. My time is up. But I do want to 
invite you and the legislators who testified before you, any 
thoughts you have on what Congress can do to remove the 
impediments, the obstacles that we have placed in the way of 
Puerto Rico's economic growth, like repealing the Jones Act, 
which I agree with you completely, I would like to hear.
    Ms. Cruz Soto. Thank you, Mr. McClintock.
    The Chairman. Mayor, in your testimony, both written and 
oral, you crystallized the dilemma, I think, for Congress, and 
certainly for myself. It is how do you thread the needle, in 
terms of providing the essential support that our fellow 
citizens in Puerto Rico have earned and merit, not only in the 
fiscal issue, but also in the recovery issue, and doing so with 
the instrument that is before us, which has been categorized, 
accurately, as undemocratic, PROMESA. How do you thread that 
needle?
    So, the discussion in the draft is how do you reform it to 
make it less onerous, potentially more democratic, and expedite 
the resources. Because we have heard today from the Ranking 
Member that this is a process, in terms of status change, that 
is going to take a minimum of 5, 6, 7 years, given the 
timetable that was presented by the director of the Oversight 
Board, and by the elected representatives who spoke as well.
    So, my point is--can that needle be threaded?
    Ms. Cruz Soto. Yes, it can. One is by ensuring that full 
funding for essential services--and I agree with Senator Bhatia 
when he says the people of Puerto Rico should be the ones 
deciding what the essential services are, but there is a 
general consensus that pension payments should not be reduced 
any more, No. 1.
    No. 2, the University of Puerto Rico--and I know that the 
proposed bill suggests an $800 million allocation of resources 
to the University of Puerto Rico. But we must ensure that all 
the 11 campuses are kept open. They are not only a source of 
education, but they are a source of income for different 
municipalities.
    No. 3, Section 936 of the IRS code should be reinstated. 
Why? Because it provides for Puerto Ricans to have economic 
growth.
    No. 4, we should be allowed--and this goes to what Mr. 
McClintock was talking about--we should be allowed also to 
enter into international agreements with other countries, and 
the terms of that could be discussed with the United States.
    No. 5, it is imperative and important that our people that 
pay the same for certain benefits receive the same benefits. In 
terms of Medicaid and Medicare, of course, I am a supporter of 
Medicare for All, and that would be something that would be 
important to pass, in terms of legislation.
    But this is the truth. It is true that the Constitution of 
Puerto Rico states that the debt goes before the people. But as 
we all know, constitutions evolve. And our constitution, 
frankly, also we need to change it to ensure that that needle 
that you are talking about is finally threaded.
    But 120,000 people still live with blue tarps, Eduardo was 
talking about 50,000 homes, 1.3 million Puerto Ricans need some 
type of help to put food on the table, 900,000 Puerto Ricans 
are either under-insured or not insured at all. So, if we do 
not take care of essential services and fund them, we are going 
to condemn the people of Puerto Rico to even more dire levels 
of poverty. That is simply unacceptable to us and, frankly, it 
is unacceptable to you, as well.
    The Chairman. Yes, and the, I think, implicit threat--I 
will use the word ``threat''--or observation on the part of, to 
some extent, the Governor and the Oversight Board, was that in 
defining a provision of essential services, that the unintended 
circumstances that other government services that are not 
enumerated or defined--and I agree with you, the idea of the 
concept of the people on the island should decide what those 
priorities are--that are deemed not essential, therefore, would 
receive the essential cuts. It is kind of an implicit threat if 
something is going to give.
    And, obviously, there is some work ahead for us, if this is 
a provision that there is some support for, going forward. So, 
I appreciate that.
    The other thing you mentioned, and members of this 
Committee, many have visited Puerto Rico and taken the time to 
meet with the elected officials and others. On the visits that 
I have had, it has been, to me, one of the most eye-opening, 
with meeting with the municipalities and their leadership, 
meeting with the community organizations that are there, eye 
opening, in terms of how they feel kind of left out of this 
process, that it is done at a central level in Puerto Rico 
government, and then it is done at a Federal level, and no 
transparency.
    And some of the things about building confidence were 
directed at those municipal areas and those leadership or 
community organizations, where the audit, the transparency, the 
known conflict was to provide those groups some assurances that 
what is intended is actually going to happen.
    Ms. Cruz Soto. This is why we are suggesting to have an 
advisory committee at the municipal level, so that you can 
include NGOs also there, so that you could have that ear on the 
ground. Because, in fact, it is the municipal level that is 
closest to the people of Puerto Rico in providing those 
services.
    One last thing. Mr. McClintock mentioned President Lincoln. 
Eleanor Roosevelt said no one can make you feel inferior 
without your consent. Well, we are not going to consent any 
more.
    The Chairman. Thank you.
    Ms. Cruz Soto. Thank you very much, sir.
    The Chairman. Thank you very much. I appreciate all the 
witnesses, Madam Mayor, the Representatives, the Senators, and 
the representative of the Governor, and the representative of 
the Oversight Board.
    Before I leave, just some observations, if I may. We heard 
today about repeal. Repeal PROMESA and, essentially, let the 
democratic institutions within Puerto Rico deal with the issue 
and begin to formulate the response, not only to the fiscal, 
but also what the Federal Government needs to do, because a 
repeal, as a gesture, without the substantive support that is 
merited financially and with resources from the Federal 
Government, is an exercise that will just create more pain. But 
I understand that that was one of the options.
    The other option is the status quo. PROMESA is fine, leave 
it alone. Let it keep working its way, and eventually they will 
disappear because everything will be balanced and things will 
be fine.
    And the other issue is the one dealing with the reform 
choices.
    Mr. McClintock. Mr. Chairman, are we going to another 
panel, another round of questions?
    The Chairman. No, I am just finishing up, sir. You are 
welcome to leave.
    Mr. McClintock. I am quite sure I am. But I wonder on whose 
time is the Chairman speaking?
    The Chairman. Assuming the prerogative, sir.
    The choices that we placed in this were reform, upgrade, 
try to make more democratic the existing PROMESA legislation. 
That is the task that we have at hand, and it is a difficult 
task, to say the least, given today.
    I want to thank you all. I appreciate it. And, going 
forward, we will be in consultation with all of you.

    The meeting is adjourned.

    [Whereupon, at 12:58 p.m., the Committee was adjourned.]

            [ADDITIONAL MATERIALS SUBMITTED FOR THE RECORD]

                        Statement for the Record
                       Hon. Thomas Rivera Schatz
                 President of the Senate of Puerto Rico
    Chairman Grijalva and Ranking Member Bishop: thank you for the 
opportunity to testify before the Committee and share my thoughts 
regarding the proposed amendments to PROMESA.
    As I have stated in the past, most recently during the Chairman's 
visit to Puerto Rico last month, PROMESA does not need to be amended, 
it needs to be repealed. After 3 years and 4 months since its 
enactment, it has become clear that PROMESA--with its Financial 
Oversight Management Board (FOMB)--has failed in its main objective of 
bringing fiscal responsibility and access to capital markets to the 
territory of Puerto Rico. Instead, PROMESA has exacerbated the economic 
situation on the island putting a magnifying glass over the 121 years 
of colonialism that are the real root of our problems. This Committee 
should use its jurisdictional power, under Article IV Section 3 Clause 
2 of the United States Constitution, not to amend a failed law, but to 
enact legislation that will do away with our second-class status as a 
colony and admit Puerto Rico as a state of the Union. Only then, will 
Puerto Rico truly possess the tools and mechanisms to solve the social 
and economic crisis rooted in hundreds of years of unequal treatment at 
the Federal level.
    Nonetheless, I would like to thank the Chairman and the Ranking 
Member for recognizing that PROMESA is not working and for proposing, a 
fix, to what in my opinion, is unfixable. PROMESA with its total $214 
million in annual budgets from Fiscal Year 2017 through the current 
fiscal year, which include very lucrative salaries, is an unfunded 
mandate that has proved to be very costly to the 3.1 million American 
citizens living in Puerto Rico. I would like to point out to this 
Committee that the annual salary of the FOMB Executive Director is 32 
times higher than the average annual salary in Puerto Rico. In 
addition, through January 2019 the Title III court has approved $300 
million in fees and expenses. The own Chairman of the Board, Mr. Jose 
B. Carrion, in a letter dated October 7, 2019, addressed to various 
U.S. Senators referred to the cost of Puerto Rico's Title III cases as 
``exorbitant and tragic.''
    The broad powers granted to the FOMB under Title II of PROMESA are 
excessive and have effectively usurped the powers vested upon its 
elected officials by the Constitution of Puerto Rico. In fact, the 
United States Court of Appeals in Aurelius Investment LLV v. 
Commonwealth of Puerto Rico (1st Cir. 2019) held that the Board Members 
are ``Officers of the United States'' subject to the U.S. 
Constitution's Appointment Clause and declared the appointment of the 
Board Members as unconstitutional. As recently as last week, the U.S. 
Supreme Court heard the oral arguments on this case and we are eagerly, 
awaiting a decision that hopefully will offer some redress to the 
people of Puerto Rico who are suffering the consequences of the broad, 
undemocratic, and unconstitutional powers granted by this Congress to 
the FOMB.
    Section 108 of PROMESA grants the FOMB complete autonomy to 
exercise its powers without any control, supervision, and oversight or 
review from the duly and democratically elected Governor of Puerto Rico 
or from us, its duly and democratically elected legislative officials. 
This unrestrained power granted to seven individuals, who do not 
necessarily have the well-being of all the people of Puerto Rico at 
heart, has led to decisions detrimental to the quality of life of the 
3.1 million U.S. citizens residing in Puerto Rico. Among these 
decisions: cutting pensions; cutting the salaries of public servants 
already underpaid, like our police officers and our teachers; 
arbitrarily attempting to derogate laws that protect the rights of our 
employees, like Law 80; promoting the elimination of our 
municipalities, whose role as the first emergency responders proved 
essential during Hurricanes Irma and Maria; severely reducing the 
budget of the University of Puerto Rico limiting its capacity to 
produce well rounded professionals are just some of the decisions made 
by the FOMB that have had a negative effect in the lives of most Puerto 
Ricans. Yet, Puerto Rico remains without access to capital markets and 
the ongoing debt restructuring process is costing the government of 
Puerto Rico millions of dollars.
    PROMESA has failed on its purpose and threatened the economic 
stability of everyone on the island. The bill before us today contains 
a series of amendments seeking to correct many of the flaws that have 
become so obvious during PROMESA's implementation. It seeks to amend 
Section 107 to provide a Federal funding source to carry out the 
operations and proceedings of the Oversight Board under Title III 
instead of depleting Puerto Rico's government coffers. Perhaps, once 
the source of funding is authorized and appropriated by this Congress, 
Congress will become more vigilant over the FOMB's exorbitant salaries 
and expenses. In an attempt to somewhat limit the Board's power to 
continue cutting funds for essential services, the Discussion Draft 
before us seeks to provide a clearer definition of ``public services'' 
to include public education, public safety, health care, and pensions 
to ensure their funding. It tries to ensure that the University of 
Puerto Rico will have sufficient funds to be able to operate and comply 
with its accreditations requirements. It tries to establish new 
mechanisms that will improve transparency and accountability. It 
eliminates the position of the Revitalization Coordinator, which after 
3 years failed to identify at least one critical project on the island.
    I would like to thank Chairman Grijalva and Ranking Member Bishop 
and the distinguished members of this Committee for their genuine 
desire to help Puerto Rico stand on its feet again. However, the main 
reason for PROMESA's failure is simple and not addressed by any of the 
amendments been considered today by this Committee. PROMESA does not 
address the root cause of the problems on the island, its colonial 
status. The colonial status that allowed the U.S. Congress to establish 
a fiscal control board that violates the most basic principles of our 
democracy.
    It is unbelievable that after 121 years living under the flag of 
the United States of America and 102 years of American citizenship, 
Puerto Ricans living on the island cannot vote on the national general 
elections to elect its Commander in Chief or have full-fledged 
representation in Congress as a state of the Union. It is unbelievable 
that in the 21st century the beacon of democracy for the rest of the 
world, still has 3.1 million American citizens disenfranchised and 
treats them as second-class citizens. It is unbelievable that in the 
21st century the United States of America rather than expanding full 
democratic rights to all of its citizens has chosen to curtail them 
enacting a law that has proven to be flawed and ineffective.
    The unequal treatment of Puerto Rico enabled by its territory 
status is the root cause of the problem that led to the enactment of a 
law that is flawed and unable to resolve Puerto Rico's fiscal problems. 
To blame Puerto Rico's fiscal crisis solely on mismanagement at the 
local level, is to turn a blind eye to the reality resulting from 121 
years of unequal and second-class treatment at the Federal level. It is 
to ignore that Puerto Ricans, by simply buying a one-way ticket to the 
continental United States, can attain all the rights, responsibilities, 
and privileges denied to them while on the island. It is to ignore that 
the 3.1 million proud U.S. citizens living in Puerto Rico deserve the 
same quality of life as their brothers and sisters in the states.
    It was this desire to provide to the residents of Puerto Rico a 
quality of life similar to that in the 50 states of the Union what in 
great part led to our current fiscal crisis. It is a mirage to believe 
that under the current political status, without equal access to all 
Federal programs and as second-class citizens, the government of Puerto 
Rico could provide the same quality of public services to its residents 
as Florida or Texas can do. The only way the government of Puerto Rico, 
under the current political status, could sustain a quality of life 
similar to that in the states is through borrowing and issuing debt. 
The origin of the current fiscal crisis stems back to 1961 when the 
government of Puerto Rico, under the leadership of the Popular 
Democratic Party, held a referendum to ease the controls on debt 
capacity. The constitutional amendment of 1961 authorized the 
government of Puerto Rico to borrow or issue debt up to 15 percent of 
the average of its annual income in the last 2 fiscal years and 
encouraged the issuance of triple-exempt municipal bonds.
    The only real and permanent solution to the fiscal problems of 
Puerto Rico before this Committee today is statehood. Only statehood 
can bring to Puerto Rico the political and economic stability it needs 
to be able to sustain the quality of life its 3.1 million American 
citizens deserve. Any other alternative will keep us in the vicious 
cycle of borrowing to be able to sustain our economy. Only as a full-
fledged state of the Union will Puerto Ricans on the island be able to 
enjoy the same quality of life as their counterparts in the continental 
United States.
    It's time to extend to the American citizens of Puerto Rico the 
equal treatment, rights, and respect they deserve and have earned 
through its 102 years of faithful service to this Nation. Statehood is 
the only real and viable solution to the challenges Puerto Rico is 
facing today.

    Thank you.

                                 ______
                                 

                        Statement for the Record
                       Hon. Wanda Vazquez Garced
                        Governor Of Puerto Rico
    Chairman Grijalva, Ranking Member Bishop, and members of the 
Committee, I am Wanda Vazquez Garced, Governor of Puerto Rico. Thank 
you for the opportunity to submit this written testimony on the 
proposed amendments to PROMESA.
                            i. introduction
    Before addressing the specifics of the proposed amendments to 
PROMESA, I would like to take a few minutes to introduce myself. I was 
born in the Santurce neighborhood of San Juan and was educated at the 
University of Puerto Rico and Interamerican University of Puerto Rico 
School of Law. I have spent the last 32 years in public service--
primarily as a prosecutor in the Puerto Rico Justice Department and 
then as Secretary of Justice for Puerto Rico. My experience as a 
prosecutor taught me the importance of integrity and transparency 
particularly in the public sphere.

    I became Governor of Puerto Rico on August 7, 2019 through 
extraordinary circumstances in what are extraordinary times for Puerto 
Rico. I did not seek this office--but it is a position that I am 
honored to hold. I accepted the challenge of becoming Governor of 
Puerto Rico with a sincere belief that Puerto Rico must move forward. I 
am not a politician. I do not intend to run for any political office. I 
intend to use my time in this role to implement change and give the 
people what they need for a brighter future. I will stand for the 
interests of the people of Puerto Rico--just as I did throughout my 
career as an attorney--but I will not fight unnecessary battles that 
distract from the core mission of moving Puerto Rico forward.

    I believe that Puerto Rico will benefit from cooperation between 
the Federal Government, both the legislative and executive branches, 
the Financial Oversight and Management Board for Puerto Rico, and the 
Government of Puerto Rico. I have approached my relationship with Ms. 
Jaresko and the Oversight Board in recognition of that reality. I look 
forward to bringing that same collaborative approach to my relationship 
with the members of the Committee. It is in that spirit that I address 
the proposed amendments to PROMESA today.
            ii. general observations on proposed amendments
    The proposed amendments are a good faith attempt to address certain 
specific issues that have arisen in the implementation of PROMESA and 
many of them are worthy of consideration. I am concerned, however, that 
certain of the proposed amendments do not address critical issues that 
have hindered the effectiveness of PROMESA and impose unnecessary 
bureaucracy in areas where we are already making progress. I address 
those issues here.
Fiscal Plan and Budgeting Process
    The proposed amendments do not address the flawed fiscal plan and 
budgeting process. PROMESA created a power-sharing arrangement that 
contemplates the Oversight Board setting spending caps or limits within 
which the Government of Puerto Rico determines spending in line with 
its public policy. In certain instances, the Oversight Board has used 
its fiscal plan and budgetary power to impose detailed spending 
restrictions that have the effect of dictating public policy--an 
approach that undermines the Government's powers and turns the 
Oversight Board into something more akin to a control board. The lack 
of a forum for the Government of Puerto Rico to challenge the Oversight 
Board's decision to certify a fiscal plan or budget exacerbates this 
problem. While we are working diligently with the current Oversight 
Board to establish a more effective process, this concern with PROMESA 
is broader than our current relationship and will impact how future 
administrations and future oversight boards work together.

    To address this issue, I submit that Sections 201 and 202 of 
PROMESA should be amended to make clear that the Oversight Board's 
fiscal plan and budgetary powers do not extend to determining day-to-
day operating level expenditures. In addition, Section 106(e) of 
PROMESA should be amended to provide a mechanism for the Government of 
Puerto Rico (but not other third parties) to review and potentially 
challenge Oversight Board fiscal plan and budget certifications. This 
would (1) allow the Government of Puerto Rico to enforce the key 
provisions required in fiscal plan and budgets and (2) prevent abuses 
of power that strip the Government of Puerto Rico of its ability to 
make operational decisions.
Additional Bureaucracy
    The proposed amendments would create additional bureaucracy in the 
form of a Puerto Rico Public Credit Comprehensive Audit Commission, an 
Office of Reconstruction Coordinator for Puerto Rico, and a 
Revitalization Coordinator for Puerto Rico Electric Power Authority. 
These functions are either unnecessary or are already being addressed 
by the Government of Puerto Rico and/or the Oversight Board.

    Puerto Rico Public Credit Comprehensive Audit Commission. The 
Oversight Board has already completed and published a comprehensive 
audit of Puerto Rico's debt and commenced litigation to invalidate 
certain bond issues based on that audit. Repeating that exercise would 
only result in an unnecessary expense and create a strain on resources. 
Nor is such a Commission necessary to address future debt obligations 
as we are working with the Oversight Board to incorporate certain debt 
management policies into the Title III plan of adjustment that will 
limit Puerto Rico's ability to incur debt in the future to an 
appropriate level.

    Office of Reconstruction Coordinator for Puerto Rico. Establishing 
another agency to manage Puerto Rico's use of recovery funds is 
likewise unnecessary. Puerto Rico established the COR3 to promote and 
implement reconstruction efforts with efficiency, effectiveness, and 
transparency. Among its many other functions, COR3 established a 
transparency portal (found at https://www.recovery.pr/home) that 
provides detailed information about the uses of Federal recovery funds 
provided to the island. COR3 has been very successful in its mission 
and has provided unprecedented transparency on the use of recovery 
funds.

    The challenges with regard to Federal funding relate primarily to 
the difficulties in coordinating the various Federal agencies that 
provide funding. The requirements for receiving the appropriated 
funding are often opaque and seem to change regularly. I believe that 
Puerto Rico would benefit from the Federal Government providing a 
coordinator who could work with the various Federal agencies as a 
liaison to assist the Puerto Rico Government in accessing the Federal 
funding sources.

    Revitalization Coordinator for Puerto Rico Electric Power 
Authority. The Government of Puerto Rico and the Oversight Board share 
a common goal of transforming the electric system in Puerto Rico. We 
are working to bring private management to the transmission and 
distribution system, encouraging private investment in and building of 
new generation, and creating a strong and predictable regulator. We 
have made substantial progress with well-known and qualified private 
parties toward a contract for management of the transmission and 
distribution system and hope to select a counterparty and begin 
implementation of that transaction early in 2020. We have also 
established the Puerto Rico Energy Bureau and begun the revamping of 
the generation assets. Our goal is to address PREPA's liabilities 
through a plan of adjustment in 2020 concurrently with the transition 
to a private operator of the transmission and distribution system. We 
expect the transition to the private operator to start in early 2020 
and be completed by year-end. Appointing a Revitalization Coordinator 
for PREPA would disrupt the ongoing process and potentially damage 
Puerto Rico's overall recovery efforts.
         iii. specific observations on the proposed amendments7
    In addition to the observations above, set forth below is a chart 
that summarizes our positions on the specific proposed amendments to 
PROMESA.


------------------------------------------------------------------------
   Proposed Amendment Title               Government Position
------------------------------------------------------------------------
Sec. 3. Federal Funding for    I do not object to the Federal Government
 Operation of Oversight Board   paying for the Oversight Board's
 and Title III Proceedings      operational and Title III costs.
                               The Committee should consider, however,
                                the potential legal risk that doing so
                                provides additional support for the
                                argument that the Oversight Board's
                                actions are actions of the Federal
                                Government and that any debt
                                restructuring could therefore give rise
                                to takings claims against the Federal
                                Government.
------------------------------------------------------------------------
Sec 4. Definition of           I oppose this amendment because a narrow
 Essential Public Services      definition of essential public services
                                could limit Puerto Rico's flexibility to
                                meet the needs of its citizens. If the
                                amendment is going to be included, then
                                we suggest that it be clear that the
                                word ``including'' means ``including
                                without limitation.''
------------------------------------------------------------------------
Sec 5. Definition of Economic  I support this proposed amendment and
 Growth                         suggest the Committee slightly modify
                                the proposed definition of
                                ``expenditures and investments necessary
                                to promote economic growth'' to also
                                include expenditures sufficient to cover
                                funding for disaster recovery
                                activities.
------------------------------------------------------------------------
Sec 6. Disclosure By           I support these new disclosure standards
 Professional Persons           because they facilitate transparency.
 Employed by Court Order
                               The Committee may wish to consider
                                modifying the mechanics so that the
                                process works more effectively with the
                                standards already implemented in the
                                Title III process and does not create
                                additional cost or competing standards.
------------------------------------------------------------------------
Sec 7. Access to Information   I oppose this proposed amendment for
                                several reasons including, without
                                limitation, the following:
                                First, this amendment could
                                infringe on privileges and immunities
                                that are important to the government
                                being able to function, such as the
                                attorney-client privilege and the
                                deliberative process privilege.
                                Second, this amendment could
                                result in bondholders having the ability
                                to obtain information that bondholders
                                would not otherwise be able to obtain
                                under the guise of free exchange of
                                information. That information could be
                                used to disadvantage Puerto Rico and the
                                Oversight Board in restructuring
                                negotiations.
                                Third, this amendment is
                                unnecessary because the Puerto Rico
                                Constitution provides sufficient
                                protections for parties seeking
                                information.
------------------------------------------------------------------------
Sec. 8. Puerto Rico            I do not have a position on this proposed
 Infrastructure                 amendment, but to the extent Title V of
 Revitalization Repealed        PROMESA is not repealed, I suggest the
                                Committee amend Title V to include the
                                Federal permitting process, especially
                                with respect to recovery activities.
------------------------------------------------------------------------
Sec. 9. Territorial Relief     I oppose the proposed new Title VIII of
 for Unsecured Public Debt      PROMESA because we believe the provision
                                would eliminate Puerto Rico's ability to
                                access unsecured credit in the future
                                resulting in Puerto Rico having to
                                borrow only secured debt.
------------------------------------------------------------------------
Sec. 10. Puerto Rico Public    I oppose this proposed amendment for the
 Credit Comprehensive Audit     reasons set forth above.
 Commission
------------------------------------------------------------------------
Sec. 11. Office of             I oppose this proposed amendment for the
 Reconstruction Coordinator     reasons set forth above.
 for Puerto Rico
------------------------------------------------------------------------
Sec. 12. Revitalization        I oppose this proposed amendment for the
 Coordinator for Puerto Rico    reasons set forth above.
 Electric Power Authority
------------------------------------------------------------------------


                             iv. conclusion
    I appreciate the efforts of the Committee to make PROMESA a more 
effective law that can better meet the needs of Puerto Rico. My 
comments are intended to be constructive in helping you assess the 
proposed amendments and focus on areas where change can be most 
effective. I look forward to working with you to achieve a brighter 
future for the people of Puerto Rico.

                                 # # #

                                 

 LEGISLATIVE HEARING ON DISCUSSION DRAFT OF H.R. ____, ``TO AMEND THE 
   PUERTO RICO OVERSIGHT, MANAGEMENT, AND ECONOMIC STABILITY ACT OR 
               `PROMESA,' AND FOR OTHER PURPOSES--PART 2

                              ----------                              


                      Wednesday, October 30, 2019

                     U.S. House of Representatives

                     Committee on Natural Resources

                             Washington, DC

                              ----------                              

    The Committee met, pursuant to notice, at 2:04 p.m., in 
room 1324, Longworth House Office Building, Hon. Gregorio 
Kilili Camacho Sablan presiding.
    Present: Representatives Sablan, Gallego, Cox, Van Drew, 
Cunningham, Velazquez, Soto, Cartwright; Bishop, Young, 
Gohmert, McClintock, and Webster.
    Also present: Representative Garcia.

    Mr. Sablan. The Committee on Natural Resources will come to 
order. The Committee is meeting today to hear testimony on the 
discussion draft bill and amendments to the PROMESA Act of 
2019. Under Committee Rule 4(f), any oral opening statements at 
hearings are limited to the Chairman and the Ranking Minority 
Member or their designees. This will allow us to hear from our 
witnesses sooner and help Members keep to their schedules. 
Therefore, I ask unanimous consent that all other Members' 
opening statements be made a part of the hearing record if they 
are submitted to the Subcommittee Clerk by 5 p.m. today, or the 
close of the hearing, whichever comes first.
    Hearing no objections, so ordered.

    STATEMENT OF THE HON. GREGORIO KILILI CAMACHO SABLAN, A 
  DELEGATE IN CONGRESS FROM THE COMMONWEALTH OF THE NORTHERN 
                        MARIANA ISLANDS

    Mr. Sablan. Good afternoon. Welcome. We are here today for 
a second day of hearings on Chairman Grijalva's draft 
legislation to consider amending PROMESA, the Puerto Rico 
Oversight, Management, and Economic Stability Act. The purpose 
of this hearing is to receive feedback from certain 
stakeholders on the draft's provisions, which include defining 
essential public services, assigning Federal funding for the 
operation of the Oversight Board, reducing conflicts of 
interest, and auditing the debt. It must be a large amount if 
we need to audit. The draft also includes provision to address 
Puerto Rico's disaster recovery challenges.
    Last week, we heard from officials representing the 
government and legislature of Puerto Rico, as well as the mayor 
of San Juan. Today, we will hear from witnesses representing 
academia, non-profit organizations, and the labor and business 
sectors. I encourage anyone who is not able to be a witness to 
please submit statements for the record. We welcome those.
    We have already received reactions both in favor and in 
opposition to some of the provisions of the Chairman's 
discussion draft. You will hear many of those comments from our 
witnesses today. However, I want to ask everyone not to simply 
object to provisions, but to also offer alternatives needed to 
accomplish the desired goals.
    In closing, I want to again welcome our witnesses and thank 
them for traveling from Puerto Rico with us today. You guys 
leave a beautiful island to come to Washington, DC. So, 
welcome. We look forward to receiving your testimony and 
working with each of you in improving the lives of the 
residents of Puerto Rico.
    At this time, I yield to the distinguished gentleman, the 
Ranking Member of the Committee, Mr. Bishop, for his 5 minutes.

STATEMENT OF THE HON. ROB BISHOP, A REPRESENTATIVE IN CONGRESS 
                     FROM THE STATE OF UTAH

    Mr. Bishop. Mr. Sablan, thank you. To the staff here, once 
again, I talk a great deal about procedure around this place, 
but there was a reason why in 2010 we changed the House Rules 
so that the House Floor would not start before 12 p.m., the 
sole purpose of which is to allow committees to have 
uninterrupted time in the morning to get these kinds of 
hearings done. We find ourselves now, because of very poor 
planning, having three bills on the Floor which Mr. Grijalva, I 
am watching him now, he is on the Floor which he should be here 
for, and I should be on the Floor at the same time, but I am 
here as well, simply because we did a lousy job in the planning 
process. The procedures make a difference, and I would hope 
staff would understand, especially when you have our Committee 
bills on the Floor and you have a Committee hearing now, you 
can't be in two places at one time. And the efforts in 2010 to 
try to alleviate that situation have been ignored. Don't ignore 
them in the future as we go forward.
    Now, to our good friends who are here. I appreciate you 
coming all the way for what I think is a sad hearing. The 
proposed amendments that have been floated around here are not 
going anywhere. If they are passed in the House, which is 
pretty iffy, could be, they will never be discussed in the 
Senate and they will never be signed by the President. What we 
really should be talking about are ways in which we can 
actually make the system that you have possible for the three 
goals that I still have for the island.
    First is what we do to actually produce economic progress. 
An island that doesn't have a whole lot of natural resources 
but they have a lot of human resources and a lot of potential, 
that could be a very productive area if we do things the right 
way.
    The second is what we can do to provide political stability 
on the island. You have a new governor, a governor who is 
taking great strides to try to make sure that they bring about 
the political stability that is there, and I wish you the best 
of luck with that and I want to be as supportive of her as we 
possibly can be.
    And the third is how do you make sure we have a pathway to 
statehood, which means if this Committee really wanted to be 
doing something that would be positive, we should be taking 
Mr.--the gentleman from North Carolina--never become my age 
because nouns and names go first--no, not North Carolina, New 
Jersey, who just introduced his bill that would require the 
mandatory vote for statehood in Florida. That's what this 
Committee should be talking about.
    This bill, spending 2 days on this bill that is going 
nowhere is sad. I apologize to you. I appreciate you coming up 
here. We're going to be interested in listening to your 
testimony, but this bill is going nowhere.
    I yield back.
    Mr. Sablan. Thank you. I am not going to respond to this 
wisdom of the Ranking Member, but I will now introduce our 
witnesses. Mr. Heriberto Martinez Otero, President of the 
Puerto Rico Economists Association; Mr. Alvin Velazquez, 
Associate General Counsel of SEIU. Any relation to the 
distinguished lady from New York?
    Mr. Velazquez. No, but I think our families are from the 
same part of the island. I live near Juncal.
    Ms. Sablan. OK. Ms. Liliana Cubano, President of the Puerto 
Rico Products Association; Mr. Lyvan A. Butin-Rivera, Student 
Representative of the University of Puerto Rico; and Mr. James 
Spiotto, Managing Director, Chapman Strategic Advisors. Let me 
remind the witnesses that under Committee Rules, they must 
limit their oral statements to 5 minutes, but that their entire 
statement will appear in the hearing record.
    When you begin, the lights on the witness table will turn 
green; after 4 minutes the yellow light will come on. Your time 
will have expired when the red light comes on and I ask you to 
please complete your statement at that time. I will also allow 
the entire panel to testify before questioning the witnesses. 
Let's start with Mr. Otero, please. Five minutes, sir.

 STATEMENT OF HERIBERTO MARTINEZ OTERO, PRESIDENT, PUERTO RICO 
                     ECONOMISTS ASSOCIATION

    Mr. Martinez Otero. Good afternoon Representative Sablan 
and members of the Committee. My name is Heriberto Martinez 
Otero. I am the president of the Association of Economists of 
Puerto Rico. I appreciate the opportunity this Committee has 
offered me to express my opinion on possible amendments to the 
PROMESA Act.
    At the end of the 1970s up to 2006, the development model 
of Puerto Rico's economy was based on the pharmaceutical 
industry, which was implemented in our country as a result of 
the approval of Section 936 of the Federal Internal Revenue 
Code. As a consequence of Section 936 and our local talented 
human capital, the pharmaceutical industry in Puerto Rico 
reported billions of dollars in earnings per year, which we 
deposited within the domestic financial system creating a 
liquidity surplus.
    During this period, the economy grew consistently at rates 
that range from 3 percent to 5 percent of the Gross National 
Product. But in 2006, the construction bubble collapsed, then 
phasing out of Section 936 ended and since then the economy 
began to decrease and unemployment increased. In 2009, massive 
layoff in the public sector and cuts in government spending 
began under the ideology of ``expansive austerity.''
    In 2016, the PROMESA Act was approved, which allowed the 
deepening of the cuts under the austerity logic. Hurricane 
Maria caused more damage than anticipated because our 
institutions were dismantled due to austerity policies.
    Now, I want to comment on some of the proposed amendments.

    First, Section 3. Having the Federal Government fund the 
Board is a favorable idea. This proposal should release about 
$80 million annually. What you have to keep an eye on is how 
the money will be distributed. If the Board determines that the 
monies saved will go to a fund for the payment of the debt of 
Puerto Rico or any of its municipalities, then it will have no 
positive impact on the local economy.
    The way the PROMESA Act is designed allows the Board to put 
a cap on the budget. If that ceiling contemplates the reduction 
of the Federal money that previously went to the Board, we will 
not be able to count on it for essential services in its other 
areas of social investment.
    Section 4. The definition of essential services has been a 
constant grievance by the citizens of Puerto Rico. The 
Association of Economists of Puerto Rico approved a resolution 
to request that the government of Puerto Rico and the Board 
establish a list of essential services: education, health, 
safety, retirement, and the preservation of the only public 
higher education institution that we have, the University of 
Puerto Rico.
    We must all be clear that the most important consequences 
of the cuts to essential services are poverty and migration to 
the mainland. Therefore, it seems to me that this amendment is 
adequate, emphasizing the need to finance the University of 
Puerto Rico as an engine for economic growth and development.
    Section 318. The issue about disclosure by professional 
persons is extremely important in Puerto Rico because hundreds 
of millions of dollars have been spent on consulting without 
any assessment to ensure transparency. We have learned from the 
media that the FBI investigates local government agencies, 
including arresting public officials, for hiring fraud and 
corruption. While we support this amendment, we would like to 
see that the hiring money is concentrated in local companies so 
that the multiplier effect on the economy could be more 
significant.
    In conclusion, the economy of Puerto Rico is going through 
its worst moment in decades. At this time, it remains afloat 
thanks to the positive shock caused by Federal funds for 
reconstruction. The main reason for the economy to go through 
such a prolonged period of economic depression is the 
application of austerity policies which have caused migration, 
loss of wealth, and the deterioration of industrial 
infrastructure. Puerto Rico is a colony of the United States. 
The power to make structural changes to my country's economy 
rests on the Congress and the Federal Government. The 
amendments to the PROMESA Act are an excellent start to soften 
economic conditions on the island, but insufficient to achieve 
sustained long-term growth. However, the indispensable decision 
that should come out of this process is the definition of 
essential services, to ensure financing for retirement systems, 
and to save the University of Puerto Rico.

    Thank you for your time.

    [The prepared statement of Mr. Martinez Otero follows:]
Prepared Statement of Heriberto Martinez-Otero, President, Association 
                      of Economists of Puerto Rico
    Good afternoon, Chairman Grijalva, members of the Committee. My 
name is Heriberto Martinez-Otero, I am the president of the Association 
of Economists of Puerto Rico. I appreciate the opportunity this 
Committee has offered me to express my opinion on possible amendments 
to the PROMESA Act. However, before going into the subject, I would 
like to identify some ideas shared by a large group of economists in 
Puerto Rico to understand the tremendous economic depression caused by 
government bankruptcy, a fundamental reason why Congress approved the 
PROMESA Act.
    At the end of the 1970s up to 2006, the development model of Puerto 
Rico's economy was based on the pharmaceutical industry, which was 
implemented in our country as a result of the approval of Section 936 
of the Federal Internal Revenue Code.\1\ As a consequence of Section 
936 and a local talented human capital, the pharmaceutical industry in 
Puerto Rico reported billions of dollars in earnings per year, which 
were deposited within the domestic financial system, creating a 
liquidity surplus. The liquidity surplus was used for credit for 
consumers and firms, generating a robust macroeconomic performance 
during the 1980s and 1990s in four major sectors: construction, 
manufacturing, finance, and insurance.
---------------------------------------------------------------------------
    \1\ Dietz, James. ``Economic History of Puerto Rico: Institutional 
Change and Capitalist Development.'' (1987).
---------------------------------------------------------------------------
    During this period, the economy grew consistently at rates that 
ranged from 3 percent to 5 percent of the Gross National Product.\2\ 
The repeal of Section 936 in 1996 (phased out in a period of 10 years) 
brought adverse consequences for the economy of Puerto Rico. In 2006, 
the construction bubble collapsed, the phasing out of Section 936 
ended, there was a government shutdown, and since then, the economy 
began to decrease, and unemployment increased. In 2009, massive layoffs 
in the public sector and cuts in government spending began under the 
ideology of ``expansive austerity.'' \3\
---------------------------------------------------------------------------
    \2\ Dietz, James. ``Economy of Puerto Rico: Negotiating Development 
and Change.'' (May 1, 2013).
    \3\ Martinez-Otero, Heriberto; Seda-Irizarry, Ian. ``The Origins of 
the Puerto Rico debt crisis.'' Jacobin Magazine.

[GRAPHICS NOT AVAILABLE IN TIFF FORMAT] 


    In 2016, the Promise Law was approved, which allowed the 
deepening of the cuts under the austerity logic. Hurricane Maria caused 
more damage than anticipated because our institutions were dismantled 
due to austerity policies.
    That is the main reason why I am here before you on behalf of the 
Association of Economists of Puerto Rico, and I tell you: if austerity 
policies are not stopped, the proposed changes to the PROMESA Act will 
be insufficient because my country's economy will collapse. Now, I want 
to comment some of the proposed amendments.

[GRAPHICS NOT AVAILABLE IN TIFF FORMAT] 


SEC. 3. FEDERAL FUNDING FOR OPERATION OF OVERSIGHT BOARD AND TITLE 
        III PROCEEDINGS

    Having the Federal Government fund the Board is a favorable idea. 
This proposal should release about $80 million annually. What you have 
to keep an eye on is how the money will be distributed. If the Board 
determines that the money saved will go to a fund for the payment of 
the debt of Puerto Rico or any of its municipalities, then it will have 
no positive impact on the local economy. The way PROMESA Act is 
designed allows the Board to put a cap on the budget. If that ceiling 
contemplates the reduction of the Federal money that previously went to 
the Board, we will not be able to count on it for essential services in 
its other areas of social investment.

SEC. 4. DEFINITION OF ESSENTIAL PUBLIC SERVICES

    The definition of essential services has been a constant grievance 
by the citizens of Puerto Rico. The Association of Economists of Puerto 
Rico approved a resolution to request that the government of Puerto 
Rico and the Board establish a list of essential services: education, 
health, safety, retirement, and the preservation of the only public 
higher education institution that we have, the University of Puerto 
Rico. We must all be clear that the most important consequences of the 
cuts to essential services are poverty and migration. Therefore, it 
seems to me that this amendment is adequate, emphasizing the need to 
finance the UPR as an engine for economic growth and development.
SEC. 318. DISCLOSURE BY PROFESSIONAL PERSONS EMPLOYED BY COURT ORDER

    This issue is critical because, in Puerto Rico, hundreds of 
millions of dollars have been spent on consulting without any 
assessments to ensure transparency. We have learned from the media that 
the FBI investigates local government agencies, including arresting 
public officials, for hiring fraud and corruption. While we support 
this amendment, we would like to see that the hiring money is 
concentrated in local companies so that the multiplier effect on the 
economy could be more significant.
    The economy of Puerto Rico is going through its worst moment in 
decades. At this time, it remains afloat thanks to the positive shock 
caused by Federal funds for reconstruction. The main reason for the 
economy to go through such a prolonged period of economic depression is 
the application of austerity policies, which have caused migration, 
loss of wealth, and deterioration of industrial infrastructure. Puerto 
Rico is a colony of the United States; the power to make structural 
changes to the country's economy rests on Congress and the Federal 
Government. The amendments to the PROMESA Law are an excellent start to 
soften economic conditions on the island, but insufficient to achieve 
sustained long-term growth. However, the indispensable decision that 
should come out of this process is the definition of essential services 
and to ensure financing for retirement systems and to save the 
University of Puerto Rico.

    Thank you very much for your time.

                                 ______
                                 

 Questions Submitted for the Record by Rep. Grijalva to Mr. Heriberto 
     Martinez Otero, President, Puerto Rico Economists Association

Mr. Martinez Otero did not submit responses to the Committee by the 
appropriate deadline for inclusion in the printed record.

    Question 1. In your testimony, you express support for Section 6--
Disclosure by Professional Persons Employed by Court Order to avoid 
conflicts of interest by consultants providing services to the 
Oversight Board. Several organizations have expressed there is also an 
urgent need to include language in PROMESA to avoid conflicts of 
interest by members of the Oversight Board.

    Should this be a priority for the Committee? Why?

    Question 2. Mr. Martinez, I am sure you have heard the critique 
regarding our language defining essential services; that it would have 
the unintended effect of leaving other government services, which are 
not defined as essential, open to massive cuts.

    Is this analysis correct? Can we define ``essential services'' to 
protect the UPR for example, without negatively impacting other 
services?

    Question 3. In your testimony, you state that if the Board 
determines that the money saved will go to a fund for the payment of 
the debt or its municipalities, then it will have no positive impact on 
the local economy.

    Could you share more information about why investing in 
municipalities would not have a positive impact on the local economy?

                                 ______
                                 

    Mr. Sablan. Thank you very much, Mr. Martinez.
    We now have Mr. Velazquez. You have 5 minutes, sir. Thank 
you.

   STATEMENT OF ALVIN VELAZQUEZ, ASSOCIATE GENERAL COUNSEL, 
             SERVICE EMPLOYEES INTERNATIONAL UNION

    Mr. Velazquez. Mr. Sablan, Ranking Member Bishop, and 
members of the Committee, thank you for the opportunity to 
address you. I am addressing this Committee on SEIU's behalf 
and not on behalf of the Unsecured Creditors Committee, to be 
clear.
    This summer, the people of Puerto Rico came together to 
make their voices heard. SEIU's 23,000 members in Puerto Rico, 
healthcare workers, janitors, and other public servants were 
among the hundreds of thousands of Puerto Ricans who took to 
the streets demanding the departure of ex-Governor Ricky 
Rossello. The people chanted, ``Ricky, renuncia y llevate la 
Junta!'' The English translation of that statement is ``Ricky, 
resign and take the Oversight Board with you.'' The people also 
chanted, ``Para sacar la porquera hay que hacer la auditoria,'' 
which means ``To clean out the filth you have to do an audit.''
    The people got what they wanted with respect to Ricardo 
Rossello, but so far their other demands have been ignored. But 
now, people are shouting a different chant. They're shouting 
``PROMESA is pobreza'' or ``PROMESA is poverty.'' The people's 
chants should alert you to a grizzly economic truth. If the 
Oversight Board continues on its current course, Title III of 
PROMESA will ensure ``pobresa'' and a need to restructure 
Puerto Rico's debt yet again in 5 to 10 years.
    Indeed, all of the sovereign debt restructuring since 1970, 
49.7 percent of them have been followed by another default or 
restricting within 3 years. That percentage increases to 60 
percent over 7 years.
    When Dr. Guzman testified before this Committee in May, he 
told you that the COFINA deal poses a serious risk of a failed 
debt restructuring. He said, and I quote, ``The deal makes 
sense only if other groups of Puerto Rico's bondholders get a 
very large haircut. The arithmetic is simple: the generosity 
with the COFINA bondholders can only be sustained if the 
reduction on the rest of the public debt lies between roughly 
85 and 95 percent.''
    Yet, what has happened? Instead of an 85 to 95 percent cut 
of the remaining debt, the Board's plan of adjustment proposes 
giving hedge funds who hold pre-2012 General Obligation bonds a 
possibility of up to 89.4 percent recovery. This is the exact 
opposite of what simple arithmetic demands. And the Board wants 
to give PREPA bondholders a similar favorable treatment.
    So, who does that leave out in the cold? That leaves out 
people like Ramon Ortiz Carro. Mr. Ortiz Carro once owned a 
business that built affordable housing. Eleven years ago, he 
built housing for the government of Puerto Rico. He is still 
owed $11 million for that more than decade-old work. Mr. Ortiz 
was a proud employer but now has had to let go of all 125 of 
his staff. For Mr. Ortiz, the Oversight Board proposes a 
recovery of less than 2 cents on the dollar.
    Or consider Carmen Castro, a retired worker living on 
social security. She regularly skips meals and doesn't turn on 
her lights or air conditioning even during the summer so she 
can pay her electrical bill. In order to give PREPA bondholders 
a generous recovery, the Board intends to hike her electrical 
rate by 47 percent over the next 5 years. No one is talking 
about a scenario where there is going to be sufficient economic 
growth to cover that increased cost in utilities.
    It seems like the crowd was right. PROMESA is equaling 
pobreza. Just not for the pre-2012 GO bondholders and the 
COFINA bondholders.
    How can Congress fix this? First, the people of Puerto Rico 
want a truly independent audit of debts. To be clear, the 
recent lawsuits after publication of the Kobre & Kim reports 
seeking to invalidate that, were a step in the right direction, 
but those actions were not an audit. Most governmental audits 
are done to the standards of the U.S. GAO office. Those 
standards require professionals to swear to independence and 
objectivity.
    When the law firm Kobre & Kim investigated Puerto Rico's 
debt for the Oversight Board, they were not acting 
independently. Quite the opposite. Legal ethics bound Kobre & 
Kim to zealously represent their client's interest, meaning the 
interest of the Oversight Board. What the people of Puerto Rico 
demanded is an independent audit for the people of Puerto Rico 
by the people of Puerto Rico.
    Second, Congress needs to pass a Marshall Plan for Puerto 
Rico that needs to have many parts. That plan has to have many 
components such as Medicaid parity and substantial debt relief. 
That would be a minimally acceptable start.
    Measures like the Territorial Relief Act are a step in the 
right direction although not sufficient. At least that Act 
creates a sort of fail-safe mechanism in case the Board fails 
to cut the debt to a sustainable level and action is required. 
The Act requires local officials to make the decision about 
debt relief, officials the people of Puerto Rico can actually 
hold accountable.
    SEIU was against PROMESA from the beginning. First, because 
it is yet another colonialist incursion into Puerto Rico, the 
latest in a long and shameful history. But second, SEIU opposed 
PROMESA because we feared the outcome we now face: a Puerto 
Rico unable to prosper and grow again because its people would 
be saddled with an unsustainable debt load. At a bare minimum, 
Congress must confront that reality head on and begin taking 
steps to fix this failed policy.
    Thank you.

    [The prepared statement of Mr. Velazquez follows:]
Prepared Statement of Alvin Velazquez, Associate General Counsel of the 
                 Service Employees International Union
    Chairman Grijalva, Ranking Member Bishop, and members of the 
Committee, I am Alvin Velazquez, Associate General Counsel for the 
Service Employees International Union (``SEIU''), which represents 1.8 
million workers in the United States, Canada, and Puerto Rico.\1\
---------------------------------------------------------------------------
    \1\ SEIU presents this testimony on its own behalf, and not on 
behalf of any Committee on which SEIU may be a member in the Title III 
PROMESA proceedings. Any opinions contained in this testimony should be 
attributed only to SEIU, not any other party or Committee. THIS 
TESTIMONY IS NOT AND SHOULD NOT BE CONSTRUED AS A SOLICITATION OF VOTES 
FOR OR AGAINST ANY PLAN OF ADJUSTMENT IN THE TITLE III PROMESA 
PROCEEDINGS.
---------------------------------------------------------------------------
    Thank you for the opportunity to address the Committee. In doing 
so, I hope to bring to light the concerns of SEIU's 23,000 members 
living in Puerto Rico, as well as the thousands of members in SEIU's 
locals in the United States who are part of the Puerto Rican diaspora.
    Our members in Puerto Rico are united in two local unions: Local 
1996 SPT, the Sindicato Puertorriqueno de Trabajadores y Trabajadoras, 
and Local 1199 UGT, the Union General de Trabajadores. The SEIU members 
in these two unions provide custodial services in Puerto Rico's 
schools, protect children as security guards in the schools, and serve 
patients at Puerto Rico's public hospitals.
    SEIU's members were among the hundreds of thousands of Puerto 
Ricans who took to the streets in San Juan earlier this year demanding 
the departure of ex-Governor Ricky Rossello. They lifted their voices 
with those on the street who were chanting ``Ricky, renuncia y llevate 
la Junta!'' The English translation of that statement is ``Ricky, 
Resign and Take the Oversight Board with You!'' The first demand was 
met when the Governor resigned, but, as I will discuss, it is now time 
to focus on the second equally important demand and on the 
circumstances of the Island's crippling debt.
                          personal background
    First, let me tell you a bit about myself. I have been advising 
SEIU with respect to Puerto Rico's finances since 2009, when then-
Governor Fortuno laid off 20,000 public workers under Law 7. I had the 
privilege of serving as Executive Director of Puerto Rico's Commission 
for the Comprehensive Audit of the Public Debt. Before joining SEIU, I 
worked as an attorney on commercial disputes in the private sector.
    My mother moved from Puerto Rico to the United States and worked as 
a teacher's assistant. She was a proud union member. My father also 
moved from Puerto Rico. He retired as a public school janitor and a 
member of SEIU in Chicago. With their love and support, I was 
ultimately able to graduate from Harvard Law School. My father is still 
with us, but we lost my mother after a long battle with Lou Gehrig's 
disease when I was a junior in high school. My father and I buried my 
mother in Gurabo, Puerto Rico, near where she grew up. Today, I have 
many family members on the Island who are struggling to make ends meet 
due to the high electrical bills they have to pay, the highest sales 
tax in the United States, and the other challenges of living on a fixed 
income. Even though I reside in the DC metropolitan area, my heart is 
very much in Puerto Rico.
                      i. how puerto rico got here
    Now, let me turn to how Puerto Rico got here.

    Puerto Rico is in bankruptcy because of mistakes made by this 
Congress, the greed of Wall Street hedge funds, mistakes made by 
politicians on the Island, and the pain inflicted by hurricanes. As 
noted by the Tax Foundation, the U.S. Government began a process in 
1996 to phase out Section 936 of the tax code over a period of 10 
years. Section 936 had promoted manufacturing and finance on the 
island. The tax break's expiration in 2006 eroded the manufacturing 
sector and the Government's tax base, and led to what has become a 
secular macroeconomic crisis.\2\ The Government then began to issue 
more and more debt to offset its revenue loss, soon issuing more debt 
than the Puerto Rico economy could sustain.
---------------------------------------------------------------------------
    \2\ Scott Greenberg and Gavin Eakins, Tax Policy Helped Create 
Puerto Rico's Fiscal Crisis, https://taxfoundation.org/tax-policy-
helped-create-puerto-rico-s-fiscal-crisis/, June 30, 2015.
---------------------------------------------------------------------------
    In 2008, Wall Street greed led to the meltdown of the U.S. economy, 
with which we are all familiar. That meltdown compounded Puerto Rico's 
woes: It sent the cost of Puerto Rico's debt sky high, which in turn 
forced Puerto Rico to take out high risk financial instruments such as 
interest rate swaps, and led to massive foreclosures.
    In 2009, the Government of Puerto Rico responded by laying off 
20,000 public servants and raising taxes and authorizing the issuance 
of more sales taxed backed debt--the layoffs and borrowing made things 
worse rather than better. According to some economists, the layoffs 
actually caused the Puerto Rican economy to shed more than 120,000 jobs 
once the loss of secondary spending by those who formerly had public-
sector positions is taken into account.\3\ By 2012, the surge in 
government debt, decline in economic activity, and growing exodus of 
the Puerto Rican population put the Island into virtual bankruptcy, 
causing its bond prices to collapse. As has happened in many other 
places, like Peru and Argentina, hedge funds swooped in to purchase 
Puerto Rican bonds at bargain basement prices.
---------------------------------------------------------------------------
    \3\ https://www.primerahora.com/noticias/gobierno-politica/nota/
ley7fueadversaparalaeconomia-496760/, April 19, 2011.
---------------------------------------------------------------------------
    More recently, Hurricane Maria devastated Puerto Rico and exposed 
its fundamental infrastructure problems. Today, more than 250,000 
families in Puerto Rico still face foreclosure,\4\ and 30,000 families 
still have tarps on their homes.\5\
---------------------------------------------------------------------------
    \4\ https://www.elnuevodia.com/negocios/finanzas/nota/
alertansobreunacrisisdeejecucionesdehipo tecasenlaisla-2494020/, May 
15, 2019.
    \5\ Ricardo Cortes Chico, 30,000 homes still have tarps from FEMA, 
https://www.elnue vodia.com/noticias/locales/nota/
todavia30000casastienencomotechostoldosdefema-2493167/, May 10, 2019.
---------------------------------------------------------------------------
    Given this series of calamities, it should come as no surprise that 
Puerto Rico needed major change and a fresh start.
    PROMESA led to a bankruptcy proceeding that was supposed to be that 
fresh start. But the law has failed to achieve its goals and will 
continue to fail. Indeed, the seeds of its failure were planted at the 
very beginning, when Wall Street interests wrote the PROMESA law to 
benefit themselves rather than Puerto Ricans.
    In general, PROMESA's authors had a choice between two very 
different financial paths for Puerto Rico and U.S. territories. One was 
a path marked by immediate and extreme fiscal austerity for the purpose 
of squeezing every possible penny out of the Island now in order to 
repay Wall Street as much as possible as quickly as possible. The other 
was a path focused on improving the Island and growing its economy to 
achieve prosperity and long-term economic health, which would include 
the repayment of a sustainable level of debt over a reasonable period 
of time.
    The first path would sacrifice the Island, its people, and any 
chance of long-term growth on the altar of quick hedge fund payouts. It 
is the path that would be chosen by someone with little interest in the 
Puerto Rican people or the Island's continued viability. The second 
path would take the Island and its people into account. It is the path 
that would be chosen by anyone who cares more about Puerto Ricans than 
about hedge funds for the already rich.
    As you can likely guess, the hedge funds and their lawyers who 
wrote PROMESA chose the first path. Thus, despite the best efforts of 
some on this Committee, PROMESA passed with a mandate for austerity and 
failed to include important economic stimulus measures such as Medicaid 
parity or tax credits for workers. PROMESA's elaborate legal framework 
tilts inexorably toward austerity while ignoring the long-term health 
of Puerto Rico's economy and the ability of workers on the Island to 
find jobs that pay a living wage and can support a family.
    The reality of such policies is that they mean the end of Puerto 
Rico as we know it. These policies are not and were never intended to 
help Puerto Rico thrive.
    But of course when PROMESA passed, this reality was obscured by a 
fictional narrative that could easily have led someone to believe 
exactly the opposite. Somehow Wall Street spun a story of austerity and 
`` discipline'' that could not only repay the hedge funds at remarkable 
rates but also benefit the Island and its people. A ``win win,'' so to 
speak, is the story that was told.
    That self-interested story, like many similar stories we heard 
before 2008, turns out to have been a lie. There is no ``win win'' that 
gives Wall Street huge, immediate payouts and also benefits Puerto 
Ricans. And what we see now is that lie, that fiction on which PROMESA 
was based, crashing headlong into the economic reality that Puerto 
Rican workers do not make enough money to pay off a substantial amount 
of Puerto Rico's debt and certainly do not make enough money to do so 
while leaving anything meaningful for the Island, its economy, and its 
people.
    The PROMESA reforms we are here to discuss today do not go far 
enough, in SEIU's view or in the view of the thousands of Puerto Ricans 
who took to the streets earlier this year. And part of this testimony 
will address major additional changes SEIU would like to see.
    Nonetheless, the proposed amendments are without a doubt an 
improvement on what we have now. The reforms begin to shed the fiction 
that austerity will somehow lead to growth. These reforms begin to add 
the Puerto Rican people and their interests back into the discussion. 
They begin moving toward what we need: A plan, based in reality, for 
long-term economic growth that will repay Puerto Rico's debt to the 
extent possible without destroying the Island in the process.
                   ii. the fiction underlying promesa
    Before I turn to the discussion draft of reforms, however, let me 
provide a bit more detail about the fiction on which PROMESA is based 
and that ex-Governor Rossello happily espoused in his campaign: The 
notion that the people of Puerto Rico can pay enormous amounts to Wall 
Street and survive.
    According to Census Data, the average Puerto Rican household makes 
$19,775 per year, https://www.census.gov/quickfacts/PR. For the sake of 
comparison, that same data shows that households in Mississippi, our 
poorest state, make more than twice as much, or $42,009 per year.\6\
---------------------------------------------------------------------------
    \6\ https://www.census.gov/quickfacts/MS.
---------------------------------------------------------------------------
    Given this reality of income on the Island, the Oversight Board's 
May 9th Fiscal Plan was already a stretch when it claimed that Puerto 
Rico could repay about $400 million per year in servicing its debt.\7\ 
Now, however, in its recently filed Plan of Adjustment, the Oversight 
Board suddenly claims that Puerto Rico should pay $1.5 billion every 
year for the next 30 years.\8\
---------------------------------------------------------------------------
    \7\ See Exhibit 28, 2019 Fiscal Plan for Puerto Rico: Restoring 
Growth and Prosperity, May 9, 2019, at https://drive.google.com/file/d/
13wuVn04-JKMEPKu-u-djZJHgTK-55aV/view, and attached herein as Exhibit 
A. The Oversight Board's Board debt sustainability analysis indicates 
radically different payments of debt. SEIU uses the debt to personal 
income metric on this proposal, as it is the financial metric tied to 
the median household income in Puerto Rico, and most accurately 
demonstrates the ability of the tax base to pay back legacy debt.
    \8\ Plan Support Agreement Announcement dated June 17, 2019 located 
at https://drive.google.com/file/d/13RFAuRJX6Tkya66DTPz3V2uEUiTjwqvQ/
view, page 2.
---------------------------------------------------------------------------
    Why? Even imagining for a moment that such money exists, who is the 
Board proposing that it be paid to?
    Well, the Board's recently filed Plan of Adjustment provides one of 
the largest bondholder groups, the pre-2012 General Obligation 
Bondholders (``GO Bondholders''), with a baseline recovery of 64 
percent that could go as high as 89.4 percent.\9\ That would be a 
nearly 90 percent recovery for a group of primarily off-Island hedge 
funds unlikely ever to contribute to Puerto Rico's future. And on top 
of that 90 percent, the Board proposes to reward the GO Bondholders 
with $300 million extra if they support the Board's plan! Meanwhile, 
the Oversight Board has also agreed to provide bondholders of its 
electric utility (``PREPA Bondholders'') a recovery of up to 89 
percent.
---------------------------------------------------------------------------
    \9\ See page 24 of Disclosure Statement, attached herein as Exhibit 
B. The pre-2012 bondholders are denoted as ``vintage bondholders'' and 
designated as classes 6-12).
---------------------------------------------------------------------------
    Contrast this with the Board's treatment of on-Island workers and 
businesses, who will have to pay for this extraordinarily generous 
recovery.
    In order to fund an 89 percent recovery for PREPA bondholders, 
Puerto Ricans will see their electricity rates, which are already 
amongst the highest in the United States, rise 47 percent over the next 
5 years, according to a study by noted economist Ramon Cao.\10\
---------------------------------------------------------------------------
    \10\ Joanisabel Gonzalez, A Move to Avoid a Trusteeship in PREPA, 
In El Nuevo Dia, dated September 10, 2019 at https://
www.elnuevodia.com/english/english/nota/amovetoavoidatrustee inprepa-
2516926/.
---------------------------------------------------------------------------
    Meanwhile, the Oversight Board has chosen to pay ``Unsecured 
Creditors'' only 1.8 cents on the dollar, a far cry from the GO 
bondholders' potential 89.4 cents on the dollar.\11\ Who are these 
Unsecured Creditors? They are people like Ramon Ortiz Carro, the 
founder of Unitech Engineering Group. He and his partners built public 
housing for the Department of Housing over 10 years ago. There are now 
dozens of families living in the housing Mr. Ortiz built. He employed 
between 125 and 150 people but has now had to let them all go because 
the Government of Puerto Rico refuses to pay him the more than $11 
million it owes for his work. Mr. Ortiz has lost his business, and, 
under the Board's Plan, he will get back at most 1.8 percent of what he 
is owed, which is not enough to re-start his company or hire back his 
workers.\12\
---------------------------------------------------------------------------
    \11\ See Exhibit 8. Unsecured creditors are designated as Class 27.
    \12\ Joanisabel Gonzalez, Government Contractors and Suppliers Hit, 
in El Nuevo Dia, dated October 19, 2019 at page 6 of the Business 
Section.
---------------------------------------------------------------------------
    For workers themselves, things are even worse. Many will lose their 
jobs altogether. By way of example, HIMA, the second largest hospital 
system in Puerto Rico, has laid off more than 750 nurses and support 
staff since 2015 as it struggles to stave off its own bankruptcy and 
retain patients in the face of a massive population exodus.\13\ Puerto 
Rico has lost over 14 percent of its population in the last decade, and 
4 percent of the population since Hurricane Maria made landfall.\14\
---------------------------------------------------------------------------
    \13\ BDC reporter, https://bdcreporter.com/company/grupo-hima-san-
pablo/.
    \14\ https://www.noticel.com/economia/en-una-decada-puerto-rico-
perdio-14-de-su-poblacion/941 201401.
---------------------------------------------------------------------------
    Those Puerto Rican employees who manage to keep their jobs are 
facing the prospect of dramatic cuts to their medical plans. Their 
living costs and electrical bills are going up, but they have received 
only one nominal raise in 10 years and, under the Board's Plan, will 
not see another anytime in the foreseeable future.
    For those already retired, the Oversight Board proposes cuts of up 
to 8.5 percent of retirement benefits for all those who earn anything 
more than $1,200 a month.\15\ These are retirees who will have to 
continue to pay the United States' highest sales tax and find the money 
for 47 percent increase in their electricity bills, which are already 
the second highest in the United States. The retirees will have to do 
all of this while living on income that is below the poverty line for a 
family of two.\16\
---------------------------------------------------------------------------
    \15\ Karen Pierog, Puerto Rico Oversight Boord reaches deal over 
retirees pensions, Reuters, dated June 12, 2019, at https://
www.reuters.com/article/us-usa-puertorico/puerto-rico-oversight-board-
reaches-deal-over-retiree-pensions-idUSKCN1TD2RZ.
    \16\ Federal Poverty Guidelines for 2019, at https://aspe.hhs.gov/
poverty-guidelines.
---------------------------------------------------------------------------
    Consider Carmen Castro's experience. Ms. Castro is a retired worker 
living in a small home. She keeps her lights and air-conditioning off, 
even during the summer, because she struggles to pay her electrical 
bill. Ms. Castro tends to eat one full meal a day, a few crackers and 
coffee, to keep costs down. She lives on social security alone. How 
will PREPA's 47 percent rate increase to pay legacy debt help her buy 
groceries or eat a real second meal? It will not. How does it provide a 
future and incentivize the current crop of University of Puerto Rico 
students to stay in Puerto Rico after graduation? It does not.
    As is probably clear now, none of this makes sense. Puerto Ricans 
are not superhuman. They cannot pay money to Wall Street that they do 
not earn, and they cannot survive on nothing.
    So why has the Oversight Board filed a plan that provides for $1.5 
billion in annual debt payments that are completely unrealistic even 
according to its own estimates of what Puerto Ricans can afford on 
their incomes?
    In large part, the Board has done so because, as discussed earlier, 
PROMESA is structured to promote austerity-structured, that is, to give 
Wall Street quick payouts with no regard for the Island's future. 
PROMESA does not and never has given the Board the macroeconomic tools 
it would need to choose the alternative path I mentioned earlier, a 
path that would reinvigorate the economy and lead to sustained growth. 
PROMESA has never allowed the Board to take that path because doing so 
would require it to take an important initial step the hedge funds 
oppose: reducing Puerto Rico's bond debt to a level that bears some 
reasonable relationship to what Puerto Ricans actually earn, so that 
the Island can pay back its debt at a sustainable rate. This is a 
necessary pre-condition for other economically stimulative measures to 
have their intended effect.
    Speaking frankly, if the Oversight Board were actually to take that 
step and do what it should, the Board would have to cut 85-95 percent 
the bond debt that was left after the COFINA deal. As support for this 
figure, I refer the Committee back to the testimony it received from 
Dr. Martin Guzman, who is the Director of the Columbia University 
Initiative for Policy Dialogue's Program on Debt Restructuring. Dr. 
Guzman, who earned his Ph.D. in economics from Brown University and who 
teaches at both Columbia University and the University of Buenos Aires, 
testified as follows on May 2, 2019, and I quote:

        `` . . . the COFINA deal poses a serious risk of a failed debt 
        restructuring. The deal makes sense only if the other groups of 
        Puerto Rico's bondholders get a very large haircut. The 
        arithmetic is simple. According to our calculations, as well as 
        calculations by others who arrived at similar results with 
        different methodologies, the generosity with the COFINA 
        bondholders can only be sustained if the reduction on the rest 
        of the public debt lies between roughly 85 percent and 95 
        percent.'' \17\
---------------------------------------------------------------------------
    \17\ Testimony of Mr. Martin Guzman before the House Committee on 
Natural Resources, dated May 2, 2019, at https://
naturalresources.house.gov/imo/media/doc/Mr.%20Guzman%20-%20 
Written%20Testimony%20-%20FC%20Ov%20Hrg%205.2.19%20PROMESA.pdf.

    In other words, experts and reality dictate an 85-95 percent cut in 
remaining bond debt. But remember, the Oversight Board's Plan provides 
not for a 95 percent haircut but for an up-to-89.4 percent recovery for 
GO bondholders and a similarly high recovery for PREPA bondholders.
    These are the imaginary economics that PROMESA's short-term Wall 
Street focus and drive to austerity lead to, and they cannot continue. 
SEIU members and the people of Puerto Rico have been saying this for a 
long time, and I am happy to be here now to speak for them in support 
of the discussion draft of reforms. While SEIU would prefer not to have 
PROMESA at all, we believe that this draft takes a number of steps in 
the right direction--away from fiction and towards reality.
  iii. seiu supports section 4 of the discussion draft because puerto 
                 rico needs essential services to grow
    SEIU supports Section 4 of the discussion draft, which would define 
a category of essential public services and ensure that those services 
are funded. Essential services will include education, the University 
of Puerto Rico, public safety, health care, and pensions.
    These services must be adequately funded because they are necessary 
pillars for Puerto Rico's future growth. Right now, the Island is 
experiencing a ``brain drain'' of unprecedented proportions. An 
education at the University of Puerto Rico is one of the most effective 
mechanisms for enticing the Island's young people to stay. Without it, 
and without the other essential services identified in Section 4, the 
young will continue to abandon the Island. As they do so, they cripple 
Puerto Rico's economy and increase the burden of debt repayment on 
those who remain, in a downward spiral that is simply not sustainable.
    The first step toward ensuring Puerto Rico's future, and its future 
economic growth, is to make staying on the Island a viable alternative 
for Puerto Rico's young people. Section 4 will help achieve that.
  iv. seiu supports section 5 of the discussion draft because it will 
              improve growth and keep money on the island
    PROMESA claims that its intent is to support economic growth on the 
Island, but, not surprisingly given the Wall Street hedge fund 
interests that were behind the law, PROMESA in its current form 
encourages a view that equates ``economic growth'' with repaying off-
Island hedge funds and funneling additional money to those on the 
Island who already have it. SEIU supports Section 5 of the Discussion 
Draft because it is a step toward correcting this fatal flaw.
    In recent years, economists the world over have come to recognize a 
basic truth: Extreme income inequality and lackluster wage growth are 
incompatible with sustained economic improvement.\18\ At the most basic 
level, a hollowed-out middle class leaves no consumers who can afford 
to purchase the goods and services a healthy economy might provide. And 
ultimately, a hollow core will collapse the entire structure, as those 
at the top--who can no longer sell their goods and services at home--
either face declining profits or, using the freedom their wealth 
provides, take their money elsewhere.
---------------------------------------------------------------------------
    \18\ See e.g. Joseph Stiglitz, The Price of Inequality (2012), see 
also Thomas Piketty, Capital in the 21st Century (2013).
---------------------------------------------------------------------------
    Puerto Rico is an object lesson in these realities.

    Take, for example, income inequality: The GINI coefficient is a 
well-used measure of income inequality. A GINI co-efficient of 0 means 
that everyone has the same income. As incomes become more unequal, the 
GINI coefficient inches closer to 1. In 2018, Puerto Rico had the most 
unequal economy in the United States. Its GINI coefficient was .54.\19\ 
If Puerto Rico were a country, it would be seventh most unequal country 
in the world. Puerto Rico's GINI coefficient is roughly equivalent to 
that of Botswana (.533), Mozambique (.54), and Belize (.533), the 
latter of which has defaulted and restructured its debt multiple 
times.\20\
---------------------------------------------------------------------------
    \19\ https://www.statista.com/statistics/227249/greatest-gap-
between-rich-and-poor-by-us-state/.
    \20\ https://data.worldbank.org/indicator/
si.pov.gini?most_recent_value_desc=true.
---------------------------------------------------------------------------
    As extreme inequality cripples the on-Island economy, money flows 
off it at an ever-accelerating pace. Money leaves with migrants; it is 
invested elsewhere by the rich; it travels to Wall Street for debt 
repayment. In fact, Puerto Rico has the second largest spread in the 
world between what its economy produces and what its residents keep at 
home--second only to Iraq.
    Think about that: At a time when Puerto Rico is in bankruptcy, and 
its residents are being asked to shoulder the burden of billions of 
dollars in debt, money is rushing off the island. Imagine something 
like the ``giant sucking sound'' that Ross Perot talked about in the 
1980s and you will have a sense of what is happening to Puerto Rico.
    Until now, however, nothing in PROMESA has directed the Oversight 
Board's attention to either of these problems, income inequality or the 
flow of money off-Island. Section 5 begins to correct that by forcing 
the Board to consider job creation and increased household income when 
assessing appropriate capital investments. But SEIU urges the Committee 
to go further, by amending PROMESA Sec. 201(b)(1)(J) to explicitly 
include reducing income inequality and increasing Gross Domestic 
Product and Gross National Product among the Board's goals for its 
fiscal plan.
    More specifically, SEIU requests that the Committee amend the 
language of Section 201(b)(1)(J) by inserting before the semicolon the 
following language: ``including investments and expenditures to 
increase the creation of new jobs, reduce income inequality. increase 
Gross National Product (`GNP') and Gross Domestic Product (`GDP'), 
reduce the unemployment rate, expand workforce development programs, 
reduce the informal economy, increase the median household income, and 
reduce the number of residents living under the poverty level.''
    Making these changes will appropriately focus the Board on reducing 
the inequality and off-Island money flow that is currently hobbling the 
Puerto Rico's growth.
  v. seiu supports section 7 of the discussion draft because it will 
increase transparency, but seiu believes an enforcement mechanism must 
                                be added
    Section 7 of the Discussion Draft is intended to increase 
transparency and public access to records, and SEIU strongly supports 
those goals.
    Puerto Rico does not have its own freedom of information law, and 
although the Island's Supreme Court has found a right of public access 
in Puerto Rico's First Amendment, there is no statutory framework for 
the release of public information.\21\ Instead, parties ask the 
Government for information; the Government typically refuses the 
request; and the parties seeking information must then go to court for 
a writ of mandamus. This is a time-consuming, expensive, inefficient, 
and ultimately ineffective process.
---------------------------------------------------------------------------
    \21\ Soto v. Srio. de Justicia, 112 DPR 477 (TSPR 1982).
---------------------------------------------------------------------------
    SEIU has first-hand experience with the lack of transparency that 
results. Over the years, we have asked for data about our own members' 
pensions and have had those requests denied. We have also sought 
information about the Government's dealings with the financial sector 
and been similarly denied.
    The Oversight Board has continued this pattern. Although it spent 
$16 million on an investigative report about potential legal claims it 
might bring, the Board has not made any of the underlying investigative 
documents public. The Board has also fought with parties in interest, 
creditors, and the public over the release of documents related to the 
underwriting of Puerto Rico's bond debts.
    Section 7 of the Discussion Draft goes a long way toward improving 
this situation, but it will effectively be a dead letter unless there 
is a strong enforcement mechanism that provides the public with a cause 
of action in court and the right to recover attorneys' fees. Thus, SEIU 
recommends that the following be added to Section 7:

        (c) ENFORCEMENT: On complaint, the District Court of the United 
        States in the District of Puerto Rico shall have jurisdiction 
        to enjoin the Oversight Board or any local agency from 
        withholding agency records and to order the production of any 
        agency records improperly withheld from the complainant. In 
        such a case the court shall determine the matter de novo and 
        may examine the contents of such agency records in camera to 
        determine whether the records or any part thereof should be 
        withheld under any of the exemptions set forth in subsection 
        (b) of the Federal Freedom of Information Act. The agency shall 
        bear the burden of proving that an exemption applies. The 
        district court's jurisdiction over these matters shall be non-
        exclusive and without prejudice to any remedies provided under 
        local law.

        (d) The court may assess against the Oversight Board or 
        relevant agency reasonable attorney fees and other costs 
        reasonably incurred in any case under this section in which the 
        complainant has substantially prevailed. For purposes of this 
        subparagraph, a complainant has substantially prevailed if the 
        complainant has obtained at least some relief through either--
        --

         (I) a judicial order or an enforceable written agreement or 
        consent decree; or

         (II) a voluntary or unilateral change in position by the 
        agency, if the complainant's claim is not insubstantial.

    This proposed addition to Section 7 of the Discussion Draft is 
substantially similar to language in the Federal FOIA law.\22\ It 
provides a neutral forum to hear disputes and provides incentives for 
disclosure. It also allows for the plaintiff to decide whether they 
wish to proceed in Federal court, or in local court.
---------------------------------------------------------------------------
    \22\ See 5 U.S.C. 552(a)(4)(B) + (E).
---------------------------------------------------------------------------
              vi. seiu endorses the territorial relief act
    SEIU endorses Section 8 of the discussion draft, known as the 
Territorial Relief Act. SEIU supports the Territorial Relief Act 
because, if passed, it would provide an insurance mechanism should the 
Oversight Board fail to restructure Puerto Rico's debt to an 
economically sustainable level. It would also return some power to the 
people of Puerto Rico.
    The Territorial Relief Act addresses the fundamental problem of 
PROMESA, namely the absence of powerful restructuring tools. The Act 
will ensure that Puerto Rico can cut its debt to an economically viable 
level; the current fiscal plans do not cut bonded debt enough. Indeed, 
SEIU is not aware of a single published economic analysis that supports 
the Board's apparent belief about how much debt the Island can continue 
to carry. As Professor Guzman recently explained, ``(t)here is seldom 
so much consensus amongst economists about the main premises of a 
fiscal and debt policy path that needs to be followed in order to give 
an economy a chance for recovery.'' \23\ Yet the Board has ignored that 
expert consensus.
---------------------------------------------------------------------------
    \23\ Martin Guzman and Pablo Gluzman, The Puerto Rico Debt Dilemma, 
May 2019, at 21.
---------------------------------------------------------------------------
    The debt cuts made possible by the Territorial Relief Act would 
also give Puerto Rico important bargaining leverage at this moment. The 
Act would create a very real incentive for bondholders to negotiate a 
settlement that is payable over the long term, rather than over the 
short term.
    SEIU also supports the Territorial Relief Act because it provides a 
mechanism for dealing with the very likely failure of the Oversight 
Board's restructuring plan. Among other things, the Board's Plan of 
Adjustment is flawed because it contains a 10-year no-call provision, 
which means that the Island cannot refinance its debt at lower rates 
for a period of 10 years. The Plan also proposes higher debt payments 
up front, apparently based on the very suspect assumption that Puerto 
Rico will experience significant economic growth in the short term 
because of hurricane relief funds and reconstruction.\24\
---------------------------------------------------------------------------
    \24\ Schedule of Cash Flow Bonds, Exhibit M to the Plan of 
Adjustment at M-1, attached herein as Exhibit C.
---------------------------------------------------------------------------
    There is already reason to doubt the Board's assumption about 
significant short-term growth. For one thing, the Trump Administration 
has threatened to challenge the deductibility of Law 154 excise 
payments against Federal income taxes.\25\ Currently, Law 154 excise 
tax payments account for 18 percent of Puerto Rico's General Fund. The 
Board had already assumed that it will lose about 50 percent of that 
income over the next year, but if the deductibility of those payments 
is eliminated, many more businesses may move away from the Island in an 
attempt to exploit tax loopholes elsewhere.
---------------------------------------------------------------------------
    \25\ Joanisabel Gonzalez, A Risk to the Adjustment Plan, in El 
Nuevo Dia at https://www.elnuevodia.com/english/english/nota/
arisktotheadjustmentplan-2520083/, dated Sept. 26, 2019.
---------------------------------------------------------------------------
    In addition, Puerto Rico is unlikely to receive the amount of 
hurricane relief that the Board assumed it would receive. The Oversight 
Board itself announced on October 21, 2019 that it is now expecting 
only $39 billion in Federal funds, rather than the $69 billion it 
originally assumed.\26\ As the Oversight Board noted in a September 17, 
2019 presentation that it released to the market: ``We are already 
seeing delays in disaster relief funding and have reason to question 
the duration of the `boost' these funds are bringing to the economy.'' 
\27\ For this reason, the Board has indicated that it now anticipates a 
``boost'' that will last only 3 years, rather than 5. Strangely enough, 
this change does not appear to be reflected in the Board's proposed 
amortization schedule in the Plan of Adjustment that it filed 10 days 
later, on September 27, 2019.\28\
---------------------------------------------------------------------------
    \26\ Release to market, Commonwealth Fiscal Plan Risks, dated 
September 17, 2019 at p. 8. https://media.noticel.com/o2com-noti-media-
us-east-1/document_dev/2019/10/20/Informe%20de% 
20Riesgos%20del%20Plan%20Fiscal%20septiembre%202019_1571626158096_395337
68_ver 1.0.pdf.
    \27\ Id.
    \28\ See exhibit M-1 to plan of adjustment.
---------------------------------------------------------------------------
    These uncertainties highlight the need for the Territorial Relief 
Act because they help show what a high risk of future default Puerto 
Rico faces. In fact, subsequent defaults often follow sovereign 
restructurings. According to Guzman and Lombardi's 2018 study, of all 
the sovereign restructurings since 1970 that have involved private 
creditors, 49.7 percent have been followed by another default or 
restructuring within 3 years. That percentage increases to 60 percent 
over 7 years.\29\
---------------------------------------------------------------------------
    \29\ Martin Guzman, Institute for New Thinking: Ending the Wild 
West of Sovereign Debt Restructuring, https://www.ineteconomics.org/
perspectives/blog/ending-the-wild-west-of-sovereign-debt-restructuring, 
dated July 23, 2018.
---------------------------------------------------------------------------
    Even though SEIU has been against PROMESA since the outset, we 
acknowledge that these proposed amendments would have some salutary 
effect: They would return some measure of control to the people of 
Puerto Rico by requiring elected leaders to pass a resolution in order 
to begin the process of canceling bonded debt. Those same leaders will 
have to face the public for re-election, meaning that the people will 
have some say. The proceedings so far, by contrast, have taken place in 
court, behind closed doors, and in rooms dominated almost entirely by a 
small cadre of elite lawyers from the United States. The people of 
Puerto Rico made very clear this summer that they want a say in their 
future, and the Territorial Relief Act takes a step in that direction 
by at least making leaders answerable to the Puerto Rican people for 
any decisions to forgive debt.
    Finally, let me address some concerns raised by creditors about the 
Discussion Draft. Creditors purport to be concerned about the Island's 
ability to take general obligation bonds to market in the future, 
assuming these changes are made. But as noted by the head of BlackRock, 
two-thirds of the municipal bond market is already revenue bonds rather 
than GO bonds.\30\
---------------------------------------------------------------------------
    \30\ Peter Hayes, The Case for Favoring Revenue Bonds Over General 
Obligation Bonds, at https://www.investmentnews.com/article/20160613/
FREE/160619980/the-case-for-favoring-revenue-bonds-over-general-
obligation-bonds, dated July 13, 2016.
---------------------------------------------------------------------------
    Moreover, available data does not support the creditors' view: 
Argentina successfully issued $2.7 billion of 100-year bonds in June 
2017 at a yield of 8 percent. Their offering was almost four times 
oversubscribed. And Detroit, too, has begun to issue bonds after having 
cut its debt substantially. There is no reason to believe Puerto Rico 
cannot do the same.
 vii. seiu supports section 9 of the discussion draft but believes it 
                          must be strengthened
    SEIU has been calling for a comprehensive audit of Puerto Rico's 
debt since well before Law 97 was passed in 2015. Initially our demand, 
like our union's demand for a $15 minimum hourly wage, was ridiculed. 
Jose Carrion, the Chairman of Puerto Rico's Oversight Board, even 
called the idea a ``waste of time.'' \31\ Yet this summer hundreds of 
thousands of Puerto Ricans took to the streets calling not only for the 
Governor's resignation but also for a comprehensive audit of the debt. 
It seems times have changed.
---------------------------------------------------------------------------
    \31\ Noticel, Carrion sobre la auditoria: ``es una perdida de 
tiempo'' at https://www.noticel.com/ahora/carrin-sobre-la-auditora-
quotes-una-prdida-de-tiempoquot-video/609379956.
---------------------------------------------------------------------------
    Before providing testimony regarding how the audit could be 
strengthened, let me dispel some myths about what has already happened 
with respect to a debt audit.

    Myth No. 1: The Oversight Board, through its Special Claims 
Committee, has conducted an audit of the debt.

    Reality: The Oversight Board commissioned an investigation that did 
not comply with any recognized auditing standards, such as the U.S. 
General Accounting Office's Government Auditing Standards (better known 
as the ``Yellow Book'') or the International Organization of Supreme 
Audit Institutions' (INTOSAIs') Auditing Standards. Essentially, the 
Board spent $16 million on what auditors would call a pre-audit survey, 
without the procedures needed to complete an actual independent and 
certified audit.

    Myth No. 2: The Oversight Board does not need to conduct an audit 
because it has filed several legal challenges to Puerto Rico's debt and 
has sued several underwriters.

    Reality: This myth confuses the bringing of a lawsuit with an audit 
of the debt. The Oversight Board, along with the Unsecured Creditors 
Committee, brought forth several claims seeking to challenge the 
validity of Puerto Rico's debt. These lawsuits are all well and good 
but until we have a complete audit of the debt that actually complies 
with best practices we will never know the full extent of what 
happened. We need a real audit to know.

    A few details about auditing best practices will highlight the 
flaws in what the Oversight Board has done. When any company or 
governmental entity hires an independent auditor, best practice is that 
the entity be involved only at the beginning, when deciding what the 
scope of the audit will be. After that, the auditor must have free 
reign to review relevant papers and make independent determinations and 
to do so objectively.\32\ The company or government entity will 
typically get a chance to review a draft of the auditor's report before 
it is final to clarify matters, but the auditors at all times maintain 
their independence.
---------------------------------------------------------------------------
    \32\ See General Accountability Office, Government Auditing 
Standards 3.01 et seq. (setting out standards for maintaining 
independence and objectivity in the course of an audit). https://
www.gao.gov/assets/700/693136.pdf.
---------------------------------------------------------------------------
    The Oversight Board did not, however, hire a truly independent 
auditor. The Board hired a law firm, which owed an ethical duty to its 
client--the Oversight Board--rather than fidelity to an independent 
standard of review. By proceeding this way, the Board kept control over 
the ultimate work product. This is not standard audit operating 
procedure.
    Furthermore, independent government auditors typically review 
documents and issue reports before referring potential claims to legal 
authorities. This approach makes sense because the auditing function 
requires a measure of independence, whereas the legal and prosecutorial 
function is one of advocacy rather than neutral independence. Also, in 
most instances, the public will be able to see the audit report and 
compare it to prosecutors' subsequent actions.
    The Oversight Board did none of this. Why? Perhaps because they do 
not want to lose control over the results or have an outside party tell 
it what to do. Whatever the Board's rationale, the practical effect is 
a lack of transparency or trust. The people of Puerto Rico have no way 
to know whether the Board brought forth all the claims it could or 
should have, or whether other claims could be pursued that would result 
in larger financial recoveries. An independent audit commission will 
bring closure and ensure that all money that should be recovered is 
actually recovered.

    In sum, SEIU strongly supports the Discussion Draft's audit 
proposal but believes it should be strengthened as follows:

     The following language should be added at the end of Sec. 
            901(b): ``The Commission shall conduct its audit in 
            conformance with the U.S. Government Accounting Office 
            Government Auditing Standards (``Yellow Book''). It shall 
            start its examination of the debt from the most recently 
            issued bonds and review issuances in reverse chronological 
            order.''

     In addition, the following should be added to Section 
            901(b): ``The Commission shall be created as an independent 
            entity within the territorial government of Puerto Rico and 
            shall not be considered to be a department, agency, 
            establishment, or instrumentality of the Federal 
            Government.''

     The ``Governor of Puerto Rico shall'' should be deleted 
            from Section 901(b) and replaced with ``the Commission 
            shall dissolve.'' Sections 901(f)(1)-(3) should also be 
            deleted so as to remove government from membership on the 
            Audit Commission.

     The following language should be added to the end of 
            Sections 901(f)(4), (5), (6), (7), (8), and (9): ``as 
            chosen by the membership of the relevant professional 
            association recognized under the laws of Puerto Rico.''

    These changes will ensure that the Commission operates without 
political interference and is controlled primarily by the Puerto Rican 
people, not by politicians who may have interests in protecting 
themselves or their allies. These changes will also ensure that the 
audit is conducted by professionals free from conflicts, even if some 
members of the Commission have an interest in a certain outcome.
 viii. the people should have a say in the issuance of any future debt
    Last but certainly not least, SEIU urges consideration of 
legislative reform to give the Puerto Rican people a voice in the 
issuance of future debt. The current Plan of Adjustment limits debt 
backed by taxes and changes the use of bond proceeds to align with best 
practices.\33\ These are steps in the right direction but they are not 
enough.
---------------------------------------------------------------------------
    \33\ See 44.2 and 44.3 of Plan of Adjustment, filed on September 
27, 2019.
---------------------------------------------------------------------------
    As the Kobre & Kim firm noted in their report to the Board, Puerto 
Rico lacks a clear mechanism for validating a bond before it 
issues.\34\ Twenty-seven states require voters, by special elections or 
other mechanisms, to authorize issuance of a bond.\35\ Several other 
states and territories authorize taxpayers to bring bond validation 
proceedings to determine whether a proposed bond issuance is authorized 
or legal.\36\ Kobre & Kim recommended the adoption of a similar 
mechanism in Puerto Rico,\37\ but as of the date of this writing, the 
Puerto Rican legislature has not introduced such a bill and the 
Oversight Board has not made such a recommendation pursuant to Sec. 
205(a) of PROMESA.
---------------------------------------------------------------------------
    \34\ See Kobre and Kim report at 446. https://media.noticel.com/
o2com-noti-media-us-east-1/document_dev/2018/08/20/
Informe%20de%20Kobre%20Kim%20sobre%20la%20deuda%20de%20 
PR_1534811503036_ 12865995_ver1.O.pdf.
    \35\ https://ballotpedla.org/Bond_issue.
    \36\ See, e.g., Ala. Code Sec. 11-81-220, et seq. (2018); Cal. Civ. 
Proc. Code Sec. Sec. 860-871 (2018); Fla. Stat. Ann. Sec. 75.01, et 
seq. (2018); Ga. Code Sec. 50-17-25 (2018); Ky. Rev. Stat. Sec. 66.191 
(2018); La. Rev. Stat. Sec. 13:5121, et seq. (2018); Miss. Code 
Sec. 31-15-5, et seq. (2018); Ohio Rev. Code Sec. 133.07, et seq. 
(2018); Wash. Rev. Code Sec. 7.25.020, et seq. (2018); W. Va. Code 
Sec. 13-1-25, et seq. (2018).
    \37\ Kobre and Kim report at 448.
---------------------------------------------------------------------------
    At this point, Congress should step in to create a mechanism that 
the people of Puerto Rico can use to challenge debt issues. Doing so 
will make the Board and the Island's politicians more accountable to 
the people and give the people some voice in these key decisions that 
affect their future. This is especially true for when the Oversight 
Board leaves Puerto Rico (which SEIU would prefer happen immediately).
    Congress should also consider giving the Citizens Audit Commission 
proposed in the Discussion Draft the ability to enforce the debt policy 
that the Oversight Board adopts in its Plan of adjustment. In doing so, 
it should give the Commission the ability to sue in Federal court to 
enforce that policy. This will allow the people of Puerto Rico to have 
a say in the economic decisions that will govern their lives for years 
to come.
                               conclusion
    SEIU urges this Committee to listen to the people. The hundreds of 
thousands of Puerto Ricans who took to the streets are tired of 
politics as usual, tired of the unaccountable Junta, and tired of not 
knowing the truth about the debt that mortgaged their future.
    SEIU was against PROMESA from the beginning, not only because it is 
a colonialist incursion into Puerto Rico but also because SEIU feared 
the outcome we now confront. At a minimum, the time has certainly come 
to reform PROMESA to give more power to Puerto Ricans and to arm them 
with the tools needed to achieve a sustainable, long-term plan. An 
audit commission, the Territorial Relief Act, consideration of income 
inequality . . . these steps are not true de-colonization. They are a 
beginning, not the end. But in 2019, Puerto Rico at least deserves a 
new beginning.

                               EXHIBIT A

[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

                               EXHIBIT B

[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

                               EXHIBIT C

[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

                                __
                                 

   Questions Submitted for the Record by Rep. Grijalva to Mr. Alvin 
 Velazquez, Associate General Counsel, Service Employees International 
                               Union \1\
---------------------------------------------------------------------------
    \1\ SEIU is responding to these questions on its own behalf, and 
not on behalf of any Committee on which SEIU may be a member in the 
Title III PROMESA proceedings. Any opinions contained in the testimony, 
or these answers to the questions presented post hearing by members of 
the Natural Resources Committee, should be attributable only to SEIU, 
and not any other party or Committee. THIS TESTIMONY, AND THIS RESPONSE 
TO QUESTIONS BY MEMBERS OF THE HOUSE NATURAL RESOURCES COMMITTEE, 
SHOULD NOT BE CONSTRUED AS A SOLICITATION OF VOTES FOR OR AGAINST ANY 
PLAN OF ADJUSTMENT IN THE TITLE III PROMESA PROCEEDINGS.
---------------------------------------------------------------------------
    Question 1. If PROMESA has been the extraordinarily generous boon 
for bondholders as you say, why is Aurelius Investment LLC asking the 
Supreme Court to overturn it and throw out its debt agreements?

    Answer. During oral argument at the Supreme Court, Justice Alita 
asked counsel for Aurelius whether the matter was about correcting a 
constitutional wrong, or something else. While Aurelius' counsel raised 
concerns about the constitutionality of the Board, the Oversight Board 
argued that Aurelius wants a different board so that such a new could 
work out the debt problem differently.\2\ In many ways the question is 
academic--whether Aurelius wins or the Oversight Board wins, the result 
is the same for the people of Puerto Rico. They will be saddled with an 
unsustainable debt load as a result of a legal fiction that does not 
align with the economic realities of Puerto Ricans living there.
---------------------------------------------------------------------------
    \2\ Tr. At 58:9-61:21, 93:1-9.

    Question 2. Mr. Velazquez, you mention that Section 8--Territorial 
Relief for Unsecured Public Debt would provide an insurance mechanism 
should the Oversight Board fail to restructure Puerto Rico's debt to an 
---------------------------------------------------------------------------
economically sustainable level.

    If the restructuring plan fails, how do you envision the existing 
provisions in Title III would interact with Section 8? What process 
would the government of Puerto Rico follow?

    Answer. As currently drafted, the government of Puerto Rico could 
activate Section 8 at any time, and could reactivate it every 7 years. 
Giving Puerto Rico the ability to discharge its debt now could provide 
Puerto Rico with a credible tool to ensure that bondholders agree to 
terms that are economically sustainable. The Oversight Board has 
consistently stated that it wants to have ``a one and done'' 
restructuring process. Having this tool now would help it reach its 
goal.
    If the Natural Resources Committee does not want to take this 
approach, SEIU would support the use of Section 8 as an insurance 
mechanism if the Oversight Board fails in its current mission. Under 
current law, if Puerto Rico becomes insolvent after the current plan of 
adjustment is confirmed, the Oversight Board would have to file another 
Title III to restructure Puerto Rico's debt. Section 8 could be used at 
that time, or just before the filing of another Title III petition, to 
discharge unsecured debt if one or more of the Section 8 criteria were 
satisfied. Were there to be a discharge of unsecured debt under Section 
8, another Title III proceeding might be rendered unnecessary, or at 
least much simpler, since there would be much less debt to restructure. 
In order to ensure that the mechanism is not abused, the ability to use 
this mechanism could be tied to a court finding of insolvency (as 
defined under current bankruptcy law in Chapter 9 cases) and be limited 
to use for a period that is longer than the 7 years currently outlined 
in the discussion draft.

    Question 3. Mr. Velazquez, in your testimony you challenge the 
government of Puerto Rico's and the Oversight Board's position that an 
audit of the public debt has already taken place. You indicate that the 
Oversight Board has not performed an audit of the public debt 
recognized by the U.S. General Accounting Office's Government Auditing 
Standards and that the bringing of a lawsuit is not necessarily a 
complete audit of the debt. You also point out that the Oversight Board 
has not hired a truly independent auditor, which is standard audit 
operating procedure.

    At this point in the debt restructuring proceedings, would the 
residents of Puerto Rico benefit from an actual certified audit? If so, 
how?

    Answer. Yes. The residents of Puerto Rico would benefit from the 
information that an actual audit of the debt would provide. Just having 
that information would satisfy a hunger among Puerto Rico's residents 
to understand the debt that is crushing their economy and imposing so 
much hardship. They want an understanding of how the debt crisis came 
to be and the extent to which the debt is legitimate or not. Such 
information would also help Puerto Rico's residents choose leaders in 
the future who will avoid such a disaster. The information that an 
audit would yield could also lead the Puerto Rican government to take 
appropriate legal action against those whose misconduct may have caused 
or aggravated Puerto Rico's debt crisis, causes of actions which in 
some cases do not have a statute of limitations attached to them.
    The audit would also help with facilitating conclusion of the Title 
III proceedings. Creditors have complained about a lack of information 
as well and the lack of audited financials. The now extinct debt audit 
commission proposed to conduct financial audits needed in order to 
facilitate the compliance and performance audit work that the 
Commission was to undergo. That work would facilitate completion of 
this current Title III proceeding, and ensure that Puerto Rico's debt 
has been examined going into a subsequent Title III proceeding, a 
likelihood that appears more and more likely to occur unless somehow 
the debt of Puerto Rico is cut to a level that is commensurate with the 
economic output of its workers. The following link leads to the Request 
for Qualifications that the Debt Audit Commission issued shortly before 
being eliminated. It explains the methodology of its work and all of 
the different functions that a debt audit would entail. http://
www.oslpr.org/auditoriadeladeudapr/assets/REQUEST-FOR-QUOTATIONS-AND-
QUALIFICATIONS.pdf.

    Question 4. It is evident from your statement that you don't agree 
with the Oversight Board's statement that the debt restructuring plan 
they proposed last month will ultimately reduce the amount the 
government of Puerto Rico will spend on debt service to an amount it 
can sustainably afford over the next 30 years--``from $4.2 billion a 
year to $1.5 billion a year.''

    Answer. That is correct: I don't agree with the Oversight Board's 
statement, for the reasons explained in my testimony on page 6. 
According to Prof. Guzman's study, the Board was exceedingly generous 
with the COFINA agreement. It would have had to cut Puerto Rico's 
remaining debt between 85-95 percent to reach a sustainable result. The 
Board did not do that. Assuming, for the sake of argument, that the 
Oversight Board's estimate of its math is correct and it is cutting the 
debt of Puerto Rico by 60 percent, it still does not reach the 85-95 
percent debt restructuring that Prof. Guzman says is needed.
    However, it is important to note that the Board's methodology for 
announcing that it is cutting the debt by 60 percent also contains an 
important flaw. The Board counts in that number ``unsecured 
creditors,'' and not only bonded debt. Many of those ``unsecured 
creditors'' are on-island businesses and government suppliers. The 
Board are cutting their claims by 98 percent while cutting the claims 
of certain bondholders groups by only 11 percent!
    Puerto Rico's people cannot spend $1.5 billion a year in debt right 
now until the median income begins to trend upwards, and unsecured 
creditors and local businesses that actually employ people on island 
are paid back a much greater amount than 2 percent.

    Question 5. The government of Puerto Rico and the Oversight Board 
oppose amendments to PROMESA to facilitate access to public debt 
information. The Government argues that this level of transparency 
would create problems in debt restructuring proceedings and negatively 
impact attorney-client privilege.

    Is this the case? 

    Answer. The concerns of the Government and the Oversight Board are 
overblown. The Government would not lose the right to assert attorney-
client privilege and courts will undoubtedly continue to respect that 
important privilege. As for debt restructuring proceedings, those 
should be transparent. But if the Government or Oversight Board in a 
given instance believed that the disclosure of documents would 
compromise their ability to negotiate, they could always object to a 
disclosure demand on that basis, and it would be up to a court to 
decide if the objection was legitimate.

    Question 6. Mr. Velazquez, you encourage Congress to establish a 
broadly accepted mechanism for the residents of Puerto Rico to validate 
and challenge future debt issuances.

    Could you share more information about how this process would look 
like and how could it interact with the establishment of a 
Comprehensive Audit Commission?

    Answer. As I explained in my testimony, Congress should look to 
mechanisms adopted by many states that put limits on debt issuances and 
that allow for challenges to debt issuances that violate those limits. 
Congress should do this especially if the Governor of Puerto Rico does 
not affirmatively add such a mechanism to current legislation that she 
has proposed.
    Just this past week the Governor of Puerto Rico introduced 
legislation that would provide definitions of which bonded debt would 
count toward Puerto Rico's constitutional debt limit. That legislation 
also proposes to create debt management practices meant to ensure that 
Puerto Rico will not repeat the mistakes of the past. These are steps 
in the right direction, but the current legislative proposal repeats 
the sins of the past by excluding the citizens of Puerto Rico from 
having any say on how their money is spent.
    This should not be the case. Ten days ago, voters in Virginia voted 
for a new legislature. In certain counties, they also got to vote on 
whether to issue bonds. For example, in Prince William County, voters 
got to decide whether to approve the issuance of $600 million in bonds 
for a new sports complex and the widening of certain roads.\3\ The 
question on the ballot specified the roads which would receive the 
improvements that the bonds would be funding. Why shouldn't Puerto 
Ricans have the same opportunity?
---------------------------------------------------------------------------
    \3\ Emily Slides, Prince William County Weights $600 Million Ballot 
Questions. https://www.insidenova.com / news / politics / 
prince_william / prince-william-county-weighs-m-ballot-questions/
article_af09d846-724d-11e9-ad83-2f5ca7efb4f7.html (last accessed 
November 13, 2019).
---------------------------------------------------------------------------
    Similarly, most states allow for taxpayers to sue to stop bonds 
from issuing in novel circumstances. California is one of several 
states with a statutory Pre-Issuance Validation Mechanism. California 
uses their proceedings to evaluate whether proposed issuance would 
violate any constitutional debt limits, whether it must be routed 
through a referendum, or whether a proposed issuance actually serves a 
public purpose (as it must).
    As Kobre and Kim noted in its report,\4\ procedurally, pre-issuance 
validation mechanisms vary by jurisdiction, but the statutes typically 
incorporate several components such as the creation of a right to 
initiate the proceeding, and the conferral of that right upon certain 
stakeholders, the identification of the court in which the proceeding 
must be filed, as well as a requirement that the general public be 
properly notified of both the proposed bond issuance and the pending 
validation proceeding.
---------------------------------------------------------------------------
    \4\ Kobre and Kim, https://media.noticel.com/o2com-noti-media-us-
east-1/document_dev/2018/08/20/
Informe%20de%20Kobre%20Kim%20sobre%20la%20deuda%20de%20PR_1534811503036_
128 65995_ver1.0.pdf, at 450 (last accessed November 15, 2019).
---------------------------------------------------------------------------
    SEIU believes that the Audit Commission proposed in the discussion 
draft can play a key role in bringing validation proceedings and also 
acting as a gatekeeper to proposed plebescites. For example, the 
Commission could draft the questions that voters should monitor in a 
plebescite authorizing the issuance of a bond, and issue educational 
materials about the impact that the issuance will have on a taxpayer's 
bill. Similarly, the Commission could be given standing to bring 
challenges if it determines that a proposed debt offering violates the 
debt limit, or the debt standards that the Government of Puerto Rico is 
now considering enacting. In other words, the Commission can serve an 
important watchdog function for the people of Puerto Rico on an ongoing 
basis.

                                 ______
                                 

    Mr. Sablan. Thank you very much, Mr. Velazquez. Now Ms. 
Cubano. Did I say that right?
    Ms. Cubano. Yes, you said it right.
    Mr. Sablan. OK, Ms. Cubano, you have 5 minutes.

 STATEMENT OF LILIANA CUBANO, PRESIDENT, PUERTO RICO PRODUCTS 
                          ASSOCIATION

    Ms. Cubano. Thank you. Chairman Grijalva, Ranking Member 
Bishop, and Committee members, good afternoon and thank you for 
the opportunity to appear today before your Committee, and 
especially for your interest in the 3.2 million U.S. citizens 
residing in Puerto Rico, a U.S. jurisdiction larger in 
population than 20 states.
    I currently serve as the elected president of the Puerto 
Rico Products Association, which is made up of several hundred 
local companies operating in Puerto Rico. I am a woman 
entrepreneur, business owner, and a board member of the Puerto 
Rico Private Sector Coalition, which is my privilege today to 
represent. The Private Sector Coalition of Puerto Rico is 
comprised of 30 leading business, trade and professional 
organizations which constitute up to 90 percent of our island's 
economy, and 75 percent of our local jobs.
    We appreciate the Chairman's effort to reform PROMESA and 
shift the focus from austerity to one focused on economic 
growth as noted in Section 4 of Amendments to the PROMESA Act 
of 2019.
    Restoring economic growth will help to create meaningful 
and well-paid jobs, stop emigration and loss of our talented 
young people, expand our middle class and generate the revenue 
sorely needed by the local government to enable it to provide 
services and maintain infrastructure.
    While I will share our recommendations to our local elected 
official as well as the Federal Oversight Management Board 
later in my statement, there are some important actions where 
Congress can be instrumental in putting Puerto Rico's economy 
on the path to growth in the short term.
    First of all, prevent the impending Medicaid cliff by 
enabling the bipartisan Territories Health Improvement Act 
advanced by unanimous vote in the House Energy & Commerce 
Committee.
    We ask Congress to work to ensure that the flow of the 
Federal Hurricane Recovery Funds to the island is maintained in 
a transparent and timely fashion. These funds have moved far 
too slow due to unnecessary delays, notably almost 24,000 
families still live under blue tarps almost 2 years after 
Hurricane Maria.
    We also recommend that Congress require that decisions made 
by the FOMB must be made with full consideration of the direct 
and indirect impact of the economy of Puerto Rico and our 
island's ability to be competitive. The most obvious example of 
why this is needed is the PREPA RSA being advocated by the FOMB 
which will impose up to a 48 percent increase of Puerto Rico's 
already high-sky electricity rate. Imagine the impact of 
electricity rates of over 30 cents per kilowatt hour in your 
state.
    Puerto Rico has a diverse vigorous business class capable 
of generating wealth and eager to make progress. It is time for 
the local government and the FOMB to act on economic reforms 
like, for example:
    Permit reforms: Simplify and enhance the efficiency and 
effectiveness of the government building and business operating 
permits process in Puerto Rico.
    Reduce taxes and simplify the tax code that suppresses the 
business climate in Puerto Rico.
    Air cargo trans-shipment hub: Pursue with the U.S. 
Department of Transportation an application for expanded cargo 
flexibility at its international airports to promote the use of 
the airports and our former military airfields as an 
international hub for air cargo transportation between Latin 
American and Europe.
    Education: Maximize apprenticeship programs in order to 
obtain a certified and work-ready workforce.
    Energy and infrastructure: Re-evaluate and reconstruct the 
proposed PREPA RSA as mentioned.
    Economic policy: Seek input from long-standing private 
sector organizations representing local business, manufacturing 
and employees in policy discussions as solutions to Puerto 
Rico's challenges.
    Labor costs: Request the FOMB to exercise their powers to 
review and repeal Executive Order 2018-033 which compelled 
government-sponsored construction projects in Puerto Rico to 
increase labor costs.
    Again, I want to thank the Committee for the opportunity to 
represent the Private Sector Coalition of Puerto Rico today. 
The Private Sector Coalition have argued that economic growth 
is the only real solution to Puerto Rico's challenges and we 
look forward to working with your Committee and the Congress to 
advance real solutions. Thank you.

    [The prepared statement of Ms. Cubano follows:]
Prepared Statement of Ms. Liliana Cubano, on behalf of the Puerto Rico 
                        Private Sector Coalition
    Chairman Grijalva, Ranking Member Bishop and Committee members: 
Good afternoon and thank you for the opportunity to appear today before 
your Committee, and especially for your interest in the 3.2 million 
U.S. citizens residing in Puerto Rico, a U.S. jurisdiction larger in 
population than 20 states.
    I currently serve as the elected President of the Puerto Rico 
Products Association which is made up of several hundred local 
companies operating in Puerto Rico. I am a woman entrepreneur, business 
owner, and a Board Member of the Puerto Rico Private Sector Coalition 
which today is my privilege to represent. The Private Sector Coalition 
of Puerto Rico is comprised of 30 leading businesses, trade and 
professional organizations which constitute up to 90 percent of our 
islands' $103 billion local GDP and 75 percent of the local jobs.
    We appreciate the Chairman's efforts to reform PROMESA and the 
initiative to shift the focus away from austerity to one focused on 
economic growth as noted in Section Four of the Amendments to PROMESA 
Act of 2019.
    We believe it is time to recognize that economic growth is the only 
true solution to the long-term challenges faced by Puerto Rico. 
Economic growth is critical to addressing the difficulties facing our 
island. Restoring economic growth will help create meaningful and well-
paying jobs, stop the emigration and loss of our talented young people, 
expand our middle class, and generate revenues sorely needed by the 
local government that enable it to provide services and maintain 
infrastructure. Accomplishing this is the only way to successfully take 
Puerto Rico out of bankruptcy.
    We cannot lose sight of two key factors: One being that, since 2006 
and prior to the 2017 hurricanes, our economy had been in free fall, 
losing 15 percent of GDP. Reconstruction was needed, not just from the 
hurricane, but from a long and deep economic contraction. Our 
infrastructure is crumbling under the impact of over 13 years of 
economic contraction and the effects of two major hurricanes in 2 
weeks' time. The other factor is that the delay to obligate Federal 
disaster recovery funds is delaying economic benefits to the people of 
Puerto Rico. Also, it is important to stimulate the productive capacity 
of the Island. In short, in order for Puerto Rico to recover a 
sustained growth path much more needs to be done than is currently 
underway.
    Let's state the obvious: Puerto Rico needs an agreed upon, 
holistic, long-term economic growth strategy. We all recognize that 
meaningful economic growth in the productive sector is the only true 
solution to Puerto Rico's challenges of labor participation and tax 
revenue to support government services.

RECOMMENDED SHORT-TERM ACTION AGENDA FOR CONGRESS:

    While I will share our recommendations to our local elected 
officials as well as the Federal Oversight Management Board (FOMB) 
later in my statement, there are some important actions where Congress 
can be instrumental in putting Puerto Rico's economy on the path to 
growth in the short-term, including:

  1.  Prevent the impending Medicaid Cliff by enacting the bipartisan 
            ``Territories Health Improvement Act'' advanced by a 
            unanimous vote of the House Energy & Commerce Committee. 
            The Medicaid funding provided in this package is critical 
            to ensuring a vital healthcare system in Puerto Rico where 
            every hospital, doctor and clinic is a Medicaid provider. 
            If the Medicaid Cliff occurs, many local hospitals will be 
            forced into bankruptcy and close to a million U.S. citizens 
            will lose their Medicaid coverage.

  2.  We ask Congress to work to ensure that the flow of Federal 
            disaster recovery funds to the Island is maintained in a 
            transparent and timely fashion. These funds have moved far 
            too slow due to unnecessary delays. It is of particular 
            importance that HUD complies with what Congress required 
            under the 2019 Disaster Appropriations Act of 2019 and 
            publish requirements for CDBR-DR and mitigation funds. Of 
            similar importance is that FEMA comply with Section 428 of 
            the Stafford Act and allow PR professionally licensed 
            engineers to certify cost estimates and expedite the 
            project formulation process. There is still much 
            reconstruction work to be done that should be dealt with 
            immediately in order to be better prepared for the effects 
            of a changing climate. Notably, almost 24,000 families 
            still live under ``blue tarps'' over 2 years after 
            Hurricane Maria.

  3.  We also recommend that Congress require that decisions made by 
            the FOMB must be made with full consideration of the direct 
            and indirect impact on the economy of Puerto Rico and our 
            island's ability to be competitive. Our islands need to 
            achieve a goal of being a top 10 jurisdiction in 
            competitiveness and ease of doing business. The most 
            obvious example of why this is needed is the PREPA RSA 
            being advocated by the FOMB which will impose up to 48 
            percent increase on Puerto Rico's already sky-high 
            electricity rates. Imagine the impact of electricity rates 
            of over 30 cents/kwh in your state. We need to substitute 
            an inefficient public monopoly with an energy market that 
            paves the way to an economic renaissance.

RECOMMENDED SHORT-TERM ACTION AGENDA BY THE GOVERNMENT OF PUERTO RICO 
        AND THE FOMB:

    Puerto Rico is at a historical juncture and faces great socio-
economic challenges. Recent studies conducted by the Federal Reserve 
Bank of New York show that, in real terms, the economy of the Island 
contracted by more than 15 percent during the last decade. The analyses 
posed the following competitive challenges for the Island:

     Improve labor market opportunities: Puerto Rico's labor 
            participation rate is among the lowest in the world, with 
            less than half of the eligible workers participating in the 
            formal economy. In addition, the unemployment rate has been 
            persistently well above the median of the United States. 
            The unemployment rate is especially high for young people.

     Develop human capital: We have the second most productive 
            workforce in the hemisphere, second only to the mainland 
            United States. Although the workforce of the Island in 
            general is among the most educated in the world, having one 
            of the largest rates of college graduates in the Nation, 
            Puerto Rico is still lagging compared to the United States 
            and other countries in terms of skills. There is a 
            particularly high abundance of low-skilled workers. There 
            is also a growing concern that the quality of the education 
            system has deteriorated, especially at the primary and 
            secondary levels. We need to develop a workforce that 
            graduates from high school ``work-ready'' by the 
            strengthening of pre-apprenticeship, apprenticeship 
            programs.

     Reduce the costs of doing business: The business 
            regulatory environment in Puerto Rico makes it expensive 
            and cumbersome to establish and grow new businesses and 
            expand existing ones. In particular, regulations, the high 
            cost of electricity, a cumbersome permitting process and 
            expensive underdeveloped transport infrastructure are 
            barriers to a more dynamic environment.

    Other entities such as the World Economic Forum and the World Bank 
point to the great potential and positive impact for the expansion of 
the Puerto Rican local business sector if true reforms are enacted.
    Puerto Rico has a diverse, vigorous business class capable of 
generating wealth, and eager to make progress. It is vitally important 
to expand efforts to take advantage of the considerable strengths that 
Puerto Rico has, including a bilingual and well-educated adult 
population, an open economy that occupies a central position in the 
Caribbean, extensive experience as a host of multi-national 
corporations and close ties with the United States. The public sector 
and the private sector must work together to make Puerto Rico's 
economic environment to support growth, development and innovation.
    Given the background described above, economic activity and job 
creation in the short and medium term are of great importance.

IT'S TIME FOR THE LOCAL GOVERNMENT AND THE FOMB TO ACT ON ECONOMIC 
        REFORMS:

    Our Recommendations: Formulate and implement, during the next 30 
days, an Action Plan that includes the following key actions which will 
advance sustained economic growth for Puerto Rico:

  1.  PERMIT REFORMS--Simplify, and enhance the efficiency and 
            effectiveness of the government building and business 
            operating permits process in Puerto Rico

              Streamline of permit procedures, differentiate 
        between complexity of types of applications, reduce time and 
        cost to complete all formalities and improve the quality 
        control and safety mechanisms in the construction permitting 
        system.

  2.  TAXES--Reduce and simplify the tax code that suppresses the 
            business climate in Puerto Rico.

             Eliminate business inventory tax.

              Eliminate B2B taxes to stimulate the hiring of 
        the services of local companies.

              Eliminate charges to cargo terminal transport 
        trucks used in the inspection process (scanning) that is 
        already carried out by the U.S. Border Patrol. This duplicity 
        is unnecessary and adds unnecessary costs at the ports.

              Conduct tax elasticity studies to assess which 
        taxes negatively impact the business climate and consumption 
        patterns in Puerto Rico.

  3.  AIR CARGO TRANSHIPMENT HUB--Pursue with the U.S. Department of 
            Transportation an application for expanded cargo 
            flexibility at its international airports to promote the 
            use of the airports and our former military airfields as 
            international hubs for air cargo transportation between 
            Latin America and Europe.

              Puerto Rico is at the crossroads of the Caribbean 
        and is a logical connecting point on air routes between Europe 
        and Central and South America.

              Encourage international cargo carriers to use 
        Puerto Rico airports as connecting hubs.

              The Puerto Rican tourism industry also stands to 
        gain substantially from approval of the application. Puerto 
        Rico has the potential to become one of the great tourist 
        destinations of the world but lags behind our neighbors. We 
        need to triple our current hospitality stock.

  4.  EDUCATION

              Maximize pre-apprenticeship and apprenticeship 
        programs in order to obtain a certified and ``work-ready'' 
        workforce.

              Implement Lifelong Learning concepts in order to 
        develop the human capital of Puerto Rico. This would include 
        initiatives to develop world-class practices of doing business 
        (ease-of-doing business), promoting the internationalization 
        and export of Puerto Rican products and services, and 
        developing a culture of innovation.

  5.  ENERGY AND INFRASTRUCTURE--Re-evaluate and restructure the 
            proposed Puerto Rico Power Authority Restructuring Support 
            Agreement (RSA) advocated by the FOMB.

              The RSA, designed and approved by the FOMB, does 
        not promote the economic development of Puerto Rico. Instead, 
        its implementation could result in the loss of over 170,000 
        jobs, a 22 percent decrease in our island's GNP, and create 
        high inflationary pressures.

              Establish an energy open market and eliminate 
        PREPA's role as the intermediary and unbundle tariffs.

              Promote clean energy and recycling initiatives as 
        a priority of PREPA and other Puerto Rico government entities.

              Diversify energy sources--waste to energy as a 
        way to help solve landfill problems, and seek a Jones Act 
        exemption for LNG. To date, there are no U.S. built vessels 
        that can transport clean and economical LNG from the U.S. 
        Mainland to Puerto Rico. This will help to ensure our energy 
        security and dramatically lower our generation costs.

              Create regional infrastructure commissions aimed 
        at structuring recommendations that help the continuous 
        improvement of the energy infrastructure in terms of 
        maintenance, cleaning and repair needs.

  6.  ECONOMIC POLICY--Seek input from the long-standing private sector 
            organizations representing local business, manufacturing 
            and employees in policy discussions as solutions are 
            assembled to Puerto Rico's challenges.

              Establish a permanent Joint Economic Development 
        Board, compromised by private and public sector 
        representatives, with the authority to recommend and supervise 
        the implementation of these and future key economic development 
        strategies and initiatives that will promote Puerto Rico's 
        competitiveness.

  7.  TRADE--Exports and trade are a key component needed for growth; 
            let's better position Puerto Rico with an aggressive export 
            agenda.

              Actively promote trade with Puerto Rico as a 
        priority objective for all U.S. commercial missions abroad and 
        especially in the Caribbean and Latin America region.

  8.  LABOR COSTS--Request the FOMB to exercise their powers to review 
            and repeal Local Executive Order 2018-033 which compelled 
            government-sponsored construction projects in Puerto Rico 
            to instantaneous and disproportionately increase labor 
            costs.

    Again, I want to thank the Committee for the opportunity to 
represent the Private Sector Coalition of Puerto Rico today. The 
Private Sector Coalition argues that economic growth is the only real 
solution to Puerto Rico's challenges and we look forward to working 
with your Committee and the Congress to advance real solutions.

                                 *****

                              ATTACHMENTS

              Private Sector Coalition Letter on Medicaid

                       COALICION del Sector Privado

                                                  September 4, 2019

Hon. Charles Grassley, Chairman,
Finance Committee,
United States Senate,
Washington, DC

    Mr. Chairman:

    The Private Sector Coalition of Puerto Rico is comprised of over 
thirty business, trade and professional organizations representing the 
primary job creators and taxpayers of Puerto Rico. We are committed to 
fostering policies that advance the interests of the 3.4 million U.S. 
Citizens who reside on our island and promoting economic growth.
    Our letter serves to express our support for the provisions 
contained in the ``Territories Health Improvement Act'' as approved by 
the House Energy & Commerce Committee on July 23rd. We appreciate the 
bipartisan work of this Committee and look forward to working with you 
to enact this vital legislation into law.
    We note that the availability of quality of health care is an 
important component of our strategy to grow our local economy and 
retain our workforce. Every family considers health care availability 
as a factor in choosing where to live and work and we seek certainty 
and stability for our local health care system. We continue to argue 
that economic growth is the only true solution to the challenges faced 
by Puerto Rico.
    We welcome the Finance Committee's attention to the impending 
``Medicaid Cliff' facing Puerto Rico's Medicaid system in the third 
quarter of 2019. Without immediate action by Congress, we face a 
devastating loss of 85% of our Federal Medicaid funding likely forcing 
a large number of Medicaid enrollees to lose their coverage and also 
jeopardize the financial stability of every hospital and health care 
provider in Puerto Rico.
    While we have always advocated for a permanent solution to the 
recurring issue of the Medicaid Cliff and the need to more fairly 
allocate funding for Puerto Rico's Medicaid program, we note that the 
House Energy & Commerce Committee advanced legislation will provide 
four years of increased Federal funding totaling $12 Billion and give 
our local Medicaid program the stability to address key issues 
impacting providers; especially our local hospitals and our patients. 
Every Puerto Rico health willing care provider is a Medicaid provider 
and after many years it's time for a rate increase in reimbursements 
for local hospitals and providers, which among other is part of the 
intent of the ``Territories Health Improvement Act''.
    The Private Sector Coalition has also long supported efforts by 
Congress to ensure the integrity of the Medicaid program and its 
administration in Puerto Rico. We appreciate your desire to ensure 
proper administration of Medicaid funding by the local government and 
look forward to collaborating with you to design these additional 
requirements to ensure the Government of Puerto Rico protects the 
integrity of the program with no resulting harm to patients, to local 
providers and their ability to deliver quality care for every Medicaid 
eligible patients.
    It's important to point out that health care providers in Puerto 
Rico are forced to operate with much lower reimbursement rates than 
their counterparts in the States. In fact, our Medicaid reimbursements 
are barely one-half or less than the U.S. average and our local 
hospitals have not received a rate increase since 2011.
    The Medicaid Cliff and the uncertainty it has created over the past 
decade has been a major contributing factor to the loss of doctors, 
specialists and health care professionals who have been recruited away 
by stateside health care systems offering more generous compensation 
packages. The uncertainty and financial squeeze imposed on Puerto 
Rico's health care providers has made it very difficult to offer 
attractive and competitive compensation packages to retain our 
experienced, bilingual medical staff and professionals. The inability 
of our Medicaid system to provide a reimbursement increase for 
hospitals and other providers since 2011 due to the combination of a 
significantly lower level of Federal funding along with uncertainty of 
the impending Medicaid Cliff has been a primary factor for this loss. 
This has certainly impacted the ability of Puerto Rico's health care 
system to provide readily available care to the Medicaid population as 
well as to the general population throughout Puerto Rico.
    Another consequence of the uncertainty created by the Medicaid 
Cliff is the impact on the ability of Puerto Rico's hospitals and 
clinics to modernize and upgrade their physical plant and facilities as 
well as medical diagnostic and treatment technologies. Approximately, 
90% of local hospitals are privately owned and have 30-40 year old 
buildings and physical plant. These hospitals are dependent on bank 
financing to make physical improvements and upgrades. However, the 
short-term approach to addressing the Medicaid Cliff has resulted in 
local banks being hesitant to provide financing for improvements. 
Puerto Rico's providers are willing to invest and want the most state-
of-the-art facilities and equipment to provide quality health care. We 
must remember that banks always look at the long-term ability of their 
clients to repay their loans and without the guarantees provided by a 
permanent solution to the Medicaid Cliff, bank financing has been 
limited. This lack of financing has delayed and frozen the ability of 
local hospitals and clinics to modernize and obtain the best medical 
technologies.
    In addition to the main issue of the Medicaid Cliff, in May of this 
year, the Government of Puerto Rico, together with private sector 
leaders, outlined a list of critical sustainability measures to provide 
essential health services to Puerto Rico's Medicaid recipients. They 
are very specific and have been enclosed with this letter.
    Again, we are grateful for your leadership you have shown on issues 
impacting the U.S. Citizens residing in Puerto Rico. We look forward to 
working with you toward the timely enactment of a real solution to the 
Medicaid Cliff and ensuring quality health care for the 3.4 million 
U.S. Citizens residing in Puerto Rico.

            Best Regards,

                       Puerto Rico Private Sector Coalition

                                  ***

        Puerto Rico Hospital 
        Association                   Puerto Rico Farm Bureau
        Puerto Rico Products 
        Association                   Puerto Rico Chamber of Commerce
        Puerto Rico Manufacturers 
        Association                   Puerto Rico Hotel & Tourism 
                                      Association
        Puerto Rico Builders 
        Association                   Puerto Rico Society of CPAs
        Puerto Rico Business 
        Retailers Association         Puerto Rico Automobile 
                                      Distributors Association
        United Retailers 
        Association                   Puerto Rico Restaurant 
                                      Association
        Puerto Rico Shippers 
        Association                   Medical Devices Cluster
        Society for Human Resources 
        Management                    Latin American Business Council
        Puerto Rico Chamber of 
        Marketing, Industry, and 
        Distribution of Food

                                 *****

             Private Sector Letter to Governor on PREPA RSA

                       COALICION del Sector Privado

MESSAGE TO THE GOVERNOR:

RETHINK PREPA'S RESTRUCTURING AGREEMENT (RSA) AND OTHER MEASURES IN 
        PREPA'S FISCAL PLAN TO PROMOTE PUERTO RICO'S ECONOMIC 
        DEVELOPMENT

    Dear Governor Vazquez Garced:

    Puerto Rico's economy is in jeopardy of being further weakened by 
the actions of the Federal Oversight and Management Board (FOMB) 
imposing significantly higher electricity (almost 10 cents/kilowatt-
hour) rates on consumers and business over the next five years.
    The RSA, and other measures in the PREPA Fiscal Plan, as conceived 
and approved by the Fiscal Oversight and Management Board, does not 
help to promote the economic development of Puerto Rico. In fact, the 
implementation of these measures is projected to cause over the next 5 
years:

  1.  Loss of over 170,000 jobs.

  2.  22% decrease in the Puerto Rico Gross National Product.

  3.  Triple the inflation rate and continues to increase further on

    These significant increases in operating costs will have the 
following negative effects on the economy:

  1.  In commerce, the increase is normally transferred to consumers, 
            reducing the purchasing power of the general population and 
            increasing incentives for migration.

  2.  In manufacturing, it reduces the ability to compete in 
            international markets.

  3.  In the government, it will aggravate the present fiscal crisis.

    The study developed by the respected economist Ramon Cao-Garcia 
Ph.D. and commissioned by the Consumers Representative on the PREPA 
Governing Board is the only report and analysis that has been published 
detailing the effects of the RSA agreement and the other measures in 
the PREPA Fiscal Plan. This study provides the basis and starting point 
of a broad discussion and responsible evaluation leading to solutions 
and alternatives. We urge your Government to analyze Dr. Cao's study, 
present any alternative study currently available in the Government, 
and from the open analysis, Puerto Rico will benefit.
    The Private Sector Coalition urges that the debt restructuring 
agreement with bondholders (RSA) be openly discussed and reevaluated, 
and if there are no documents or credible studies that support said 
agreement, that it be withdrawn and re-submitted again after proper 
revisions.
    The Puerto Rico Energy Bureau is the proper entity for jurisdiction 
over the periodical review of the debt restructuring charge and should 
be given authority to adjust it to respond to changes in consumption. 
The chart of pre-established Transition Charge increases included in 
the RSA which showed increases in the charge by 64.5%, should not be 
used.
    The additional measures included in the PREPA Fiscal Plan should be 
discussed with the Fiscal Oversight and Management Board to avoid or 
redistribute them outside the electricity rate, to promote the 
sustainability of our electrical system and the economic development of 
Puerto Rico.
    PREPA must pay its debt. However, it is important to consider how 
much Puerto Rico can pay without overly restricting its financial 
capabilities, and also considering the consequences these costs have on 
the economy. This agreement must put consumers and the competitiveness 
of Puerto Rico's business sector first in order to ensure our 
sustainability and competitiveness.
    Dr. Cao-Garcia's study provided a reasonable alternative and 
proposes a moderate increase of 1.91 cents per kilowatt-hour, instead 
of the close to 10 cents/kilowatt-hour resulting from the RSA and the 
other measures in the Fiscal Plan. This increase is equivalent to an 
annual debt service payment of $281 million, corresponding to a 
restructured debt of $4,668 million, with a maturity of 40 years at an 
interest rate of 5.25%.

    The effects, over a period of five (5) years, of the moderate rate 
increase of 1.91 cents/kilowatt-hour proposed on the Cao-Garcia report 
compared to the increase of 10 cents/kilowatt-hour in the RSA and 
Fiscal Plan, are as follows:

  1.  Employment:

          a.   Increase of 2,294 jobs, instead of a loss of over 
        170,000 jobs.

  2.  Gross National Product:

          a.   Decrease in the Gross National Product of 4.43% (with a 
        trend of economic growth) instead of a 22% decrease (with a 
        tendency to decrease in economic growth).

  3.  Production Costs:

          a.   Increase for the wholesale and retail sector of 0.22% (a 
        minimum increase) instead of an increase of 2.7%, which is 
        equivalent in many cases to the profit of a small and medium 
        business.

          b.   Increase in the manufacturing sector of 0.19% (a minimum 
        increase) instead of an increase of 1%, which is significant 
        considering global competitiveness.

    Madam Governor, the RSA and the measures included in the Fiscal 
Plan of PREPA go against the economic development of Puerto Rico. We 
want to meet with you as soon as possible to identify ways to mitigate 
the impact of the proposed increases in electricity costs to an already 
fragile Puerto Rican economy.

            Respectfully,

                                        Board of Directors,
                               Puerto Rico Private Sector Coalition

                                  ***

        Carlos M. Rodriguez, 
        President,                    Liliana Cubano, President,
        Puerto Rico Manufacturers 
        Assoc.                        Puerto Rico Products Association

        Jose Ledesma-Fuentes, 
        President,                    Emilio Colon-Zavala, PE,
        Puerto Rico Chamber of 
        Commerce                      Puerto Rico Builders Association

                                 ______
                                 

  Questions Submitted for the Record by Rep. Grijalva to Ms. Liliana 
          Cubano, President, Puerto Rico Products Association
    As expressed during the hearing, we appreciate your efforts to 
reform PROMESA and the initiative to shift the focus away from 
austerity to one focused on economic growth as noted in Section 4 of 
the Amendments to PROMESA Act of 2019.

    Our answers on behalf of the Private Sector Coalition to your two 
questions are listed below:

    Question 1. In your testimony, you emphasize the importance of 
shifting the focus away from austerity, due to its negative impact on 
economic growth. Does the Coalition support defining and protecting 
essential public services to ensure the basic needs of the residents of 
Puerto Rico are met and to reduce migration?

    Answer. PROMESA originated from uncertainty over Puerto's Rico's 
finances due to lack of fiscal information, inaccurate projections and 
the use of non-recurring revenues for recurring expenses. Accordingly, 
PROMESA created a Financial Management and Oversight Board (FOMB) to 
bring transparency to Puerto Rico's finances; restore the principle of 
good government planning with a multi-year fiscal plan; establish 4 
years of balanced budgets; and place the island on a path to return to 
the financial markets. Unfortunately, the FOMB has not adequately met 
these goals. Its fiscal plans and many of its actions have suffered 
from some of the same problems FOMB was intended to address.
    Although austerity measures seek to restore macroeconomic balances 
through the control of budget deficits and public debts, the cutting of 
wages, the trimming of social aid programs, the raising of taxes and 
the imposition of new ones, such measures often result in negative 
economic effects in spite of the goals at the outset. Research 
conducted by the International Monetary Fund and other entities has 
concluded that the need for cutting budgets during economic recessions 
has a tendency to actually increase deficits while deepening and 
prolonging the recession, worsening unemployment levels and extending 
the time economies take to fully recover in economic terms. In the case 
of Puerto Rico, added to the fact that well before Hurricanes Irma and 
Maria hit, the Island had been experiencing years of severe economic 
and social crisis, austerity measures have impacted essential 
government services and diminish quality of living.
    Austerity alone is not a path to recovery. While Puerto Rico needs 
to do more, there are limits to the scale and pace of additional fiscal 
adjustment that can be achieved. Restoring economic growth will help to 
create meaningful and well-paying jobs, stop the out-migration and loss 
of our talented young people, expand our middle class, and generate the 
revenues sorely needed by the local government to enable it to provide 
services and maintain infrastructure. Congress must recognize that 
leveraging Federal programs' funding with private investment in order 
to achieve sustained economic growth is key to getting Puerto Rico out 
of the cycle austerity trap.
    Economic development strategies, such as the ones included in our 
earlier testimony (i.e., permit reforms, tax simplification, lower 
energy cost, air cargo trans-shipment hub and expanded trade, among 
others), could be enabled through economic development mechanisms and 
tools not currently present under PROMESA, could provide an important 
boost to labor force participation and private sector activity, helping 
the island's competitiveness. It should be noted that PSC recommended 
the establishment of a permanent Joint Economic Development Board, 
compromised by private and public sector representatives, with the 
authority to recommend and supervise the implementation of key economic 
development strategies and initiatives that will jumpstart Puerto 
Rico's economy.
    The Puerto Rico Private Sector Coalition supports defining and 
protecting essential public services to ensure the basic needs of the 
residents of Puerto Rico. Essential public services should include 
public health, education, law enforcement, firefighting, electricity, 
among others. In its current form, PROMESA does not clearly define what 
an essential service is. The PSC understand that given the fact that it 
is fundamental to provide essential governmental services to the 
health, safety and welfare of the residents of Puerto Rico, PROMESA 
should provide, to the extent possible, for the definition of essential 
services, and identification of a priority scheme for payment of these 
services.

    Question 2. You mention in your statement the importance of 
ensuring a flow of Federal disaster recovery funds to the Island. Does 
the Puerto Rico Private Sector Coalition have a proposal to address 
this concern, or does the Coalition have a position on the 
establishment of a Federal Reconstruction Coordinator and a PREPA 
Revitalization Coordinator?

    Answer. The Disaster Appropriations Act of 2019 required HUD to 
publish requirements for the allocation for funds under the CDBG-MIT 
program in September 2019. Puerto Rico is the only jurisdiction where 
HUD did not comply with the required publication in the Federal 
Register. Also, Puerto Rico is the only jurisdiction in which FEMA does 
not accept the required Applicant Cost Estimates prepared by 
Professionally Licensed Engineers as required under Section 428 of the 
Stafford Act. Both are unacceptable.
    HUD announced in July 2019 that a federal monitor would be required 
for disaster recovery funding awarded by the Agency. This, without any 
implementation plan or strategy as to if it will be a HUD employee, a 
contractor, a panel or a working group. Lack of planning and 
transparency on the process has significantly delayed recovery efforts 
in Puerto Rico and left its residents in a position of elevated 
vulnerability.
    Taking into consideration that over 24,000 families still live 
under a blue tarp, it is imperative that permanent reconstruction work 
start. The Private Section Coalition believes these situations with 
disaster recovery funding is discriminatory against the over 3MM U.S. 
citizens that reside in Puerto Rico. The fact that corruption charges 
regarding disaster recovery funding in Puerto Rico have been levied to 
residents of CONUS only, further support our belief that these delays 
are discriminatory in nature as Puerto Rico does not have two Senators 
or voting Members of Congress to support our case.
    Without any plan, clear guidance or vision as to what or who a 
Federal Reconstruction Coordinator is to be hired, the CSP cannot 
support such an initiative. The reason for this is precisely this will 
further delay much needed reconstruction programs' start. Any concern 
regarding corruption or misuse of Federal recovery funding can be 
considered by:

  1.  Establishing transparency requirements in procurement processes.

  2.  Repeal of local Executive Order 2018-033 that artificially raised 
            the minimum wage for public construction contracts and 
            requires Project Labor Agreements, and substitute with U.S. 
            DOL's prevailing wage determination requirements as per 
            applicable Federal legislation.

  3.  Require corruption prevention management processes equal or 
            similar to ISO 37001 to Government Agencies and any 
            contractor that wishes to obtain a Federal grant or 
            contract.

  4.  Establishment of a transparency portal where all disaster 
            recovery grants and contracts are published.

  5.  Strong and continued monitoring from the Office of Inspector 
            General has as has been performed to date.

    We feel that these controls will greatly restore confidence in the 
use of Federal recovery funding.

                                 ______
                                 

    Mr. Sablan. Thank you very much. In commentary, my island 
also continues to be covered in blue tarp, and where you have 
38 cents per kilowatt hour, it is 44 cents per kilowatt hour 
where I come from, so I have an idea of what you are sharing. I 
guess our only scholar, student scholar here, Mr. Butin-Rivera. 
Welcome, you have 5 minutes.

  STATEMENT OF LYVAN A. BUTIN-RIVERA, STUDENT REPRESENTATIVE, 
                   UNIVERSITY OF PUERTO RICO

    Mr. Butin-Rivera. Mr. Sablan, Ranking Member Bishop, and 
Committee members, I am a senior accounting student at the 
University of Puerto Rico. Until a few months ago, I worked as 
a student representative on the University Board and its Budget 
Committee. That gave me the opportunity to study the budget of 
the UPR system and its 11 campuses, analyze the fiscal plan 
approved by the FOMB, and submit specific recommendations for 
next fiscal year.
    Today, I am here on behalf of 53,000 students that need for 
their voices to be heard to support the amendment to the Puerto 
Rico Oversight, Management, and Economic Stability Act, also 
known as PROMESA, proposed by Chairman Grijalva and to sustain 
the fight of millions of Puerto Ricans off and on the island 
that are fighting for a future with social economic development 
in Puerto Rico.
    Before the implementation of PROMESA, the UPR system had 
already received drastic cuts to its budget that accumulated to 
$550 million to Fiscal Year 2017. In Fiscal Year 2018, the 
fiscal board presented a plan that included annual budget cuts 
that accumulated to a total of $450 million by Fiscal Year 
2024. That represents 56 percent of the total budget of the 
University of Puerto Rico.
    The University is not unaware of the need of fiscal 
restraint. We have been working with these budget cuts, 
adjusting multiple measures to continue providing quality 
higher education on the island. First, the University has 
tripled its tuition through annual increasing and created new 
fees for students. This has affected directly the most 
vulnerable students in the institution.
    The institution reduced its faculty and administrative 
personnel to the point that most of our campuses are 
understaffed at all levels. This has translated in a limited 
number of courses, deterioration of our infrastructure, and 
limited staff attending student services. For example, some 
offices that used to be operated by full staff now are being 
operated by one or two work-study students.
    The University has stopped some of its critical permanent 
infrastructure projects. This is due to a combination of lack 
of funding and FEMA not distributing the necessary funds for 
reconstruction purposes. In some cases, campuses like Bayamon 
and Rio Piedras completely lost buildings due to the damages of 
Hurricane Maria, and to this day the reconstruction of those 
buildings essential to the functioning of the University 
campuses has not even begun.
    As a result of the budget cuts, the University has 
underfunded pension to the point that the net pension liability 
has exploded to almost $3 billion and the amount that the 
University must pay to sustain the system has doubled.
    It is not difficult to see how the budget cuts are creating 
massive deficits on the cashflows of the UPR. In the fiscal 
plan for the University approved on June 5 by the FOMB, it 
projects that the University will have a deficit of $88 million 
by the end of this fiscal year. In the report that me and my 
colleagues from the budget committee submitted to the 
University board last semester, we concluded that if the budget 
cuts imposed by the fiscal plan for the next 2 fiscal years for 
the University are implemented, probably the University will be 
obligated to close most of its campuses and it will lose its 
accreditation due to its inability to meet the financial 
obligations of the system.
    The approval of the amendment proposed by Congressman 
Grijalva is critical for the sustainability of the University 
of Puerto Rico. Some of the University campuses with this 
year's budget are not sure if they are going to be able to pay 
their payroll or even pay their utility bills. By endorsing 
this amendment, we ensure that the immediate future of the 
University of Puerto Rico is secured. This will give the 
opportunity for the University to reorganize, update its 
infrastructure, acquire better technology, and in the near 
future operate more effectively.
    Referring to the University of Puerto Rico, Ms. Jaresko 
stated, the University of Puerto Rico system is the crown jewel 
of Puerto Rico. Having that in mind, it is important that the 
University is properly funded for the well-being of its 
citizens to secure the social and economic future of the 
island.
    We say that a government is defined by the opportunities it 
gives to its citizens. For many Puerto Ricans, the University 
of Puerto Rico represents our only hope for a better future as 
well as the possibility of social and economic mobility. That 
is one of the main reasons to grant the University of Puerto 
Rico a status of an essential service. This will guarantee that 
the University of Puerto Rico continues the educational legacy 
initiated since 1903 and continues to educate and provide the 
highest quality education available on the island.

    [The prepared statement of Mr. Butin-Rivera follows:]
  Prepared Statement of Lyvan Butin, Former member of the University 
                         Board Budget Committee
    Honorable Chairman Grijalva and Committee Members: My name is Lyvan 
Butin and I am a senior student majoring in accounting at University of 
Puerto Rico, Bayamon Campus. My presentation's purpose is to advocate 
for the amendment proposed by the Honorable Congressman Raul Grijalva 
to the Puerto Rico Oversight, Management, and Economic Stability Act 
(PROMESA) on behalf of the 53,000 University students from the 
University of Puerto Rico. This amendment will also protect Puerto 
Rico's public education and allow economic growth and social 
development.
    I was a member of the University Board Budget Committee until 
recently. This is the highest non-partisan body of governance of the 
University of Puerto Rico. In this committee, I studied and revised the 
multiple budgets that conform the University system as a whole, 
particularly its 11 campuses and the fiscal plans approved by the 
Financial Oversight and Management Board for Puerto Rico (FOMB) and the 
University's Governing Board. I had the opportunity to examine the 
different regulations and accreditations that govern the University of 
Puerto Rico. This Budget Committee concluded that if the Fiscal Plan 
projected cuts are implemented, the University of Puerto Rico--the only 
public university--has a high probability of closing operations in a 
near future, leaving Puerto Rico in a precarious economic state. This 
in particular would contribute to social inequality and a mass 
migration to the United States would be inevitable.
                            i. promesa goals
    The primary purpose of the Puerto Rico Oversight, Management, and 
Economic Stability Act (PROMESA), at section 101(a), is to promote a 
method to achieve fiscal responsibility in the Territory of Puerto 
Rico. Nonetheless, since the creation of the Financial Oversight & 
Management Board for Puerto Rico (FOMB), the method used to achieve 
fiscal responsibility has been through the implementation of austerity 
measures in the government sector, as well as stimulating privatization 
measures and granting tax exemptions to possible private sector 
investment. All these without any reliable analysis of those strategies 
or of the private sector investment. At the same time, there has been 
no consideration of economic studies on the possible outcomes of these 
investments. There has never been an economic analysis of the actions 
proposed or implemented. The result of these measures has been a 
massive migration of Puerto Ricans to the United States, engendering 
social inequality, poverty and violence in Puerto Rico.
    The University of Puerto Rico produces 73 percent of the scientific 
knowledge in our region. An economic study established that the 
University of Puerto Rico's return investment is $1.56 for each $1 that 
the government contributes to the institution. This creates 164 jobs 
for each one hundred (100) jobs generated as part of the institution's 
activities.
    The approved fiscal plan imposes a reduction of $512 million 
without any scientific data or criteria and does not take into 
consideration the University of Puerto Rico's social contribution to 
the island's local recovery and economic development.
            ii. budget cuts to the university of puerto rico
    Before the implementation of PROMESA the University system had 
already undergone mayor cuts to its budget. In 2014, the administration 
of the Governor, Alejandro Garcia Padilla decides to freeze the 
allocation of funds to the University of Puerto Rico. This without 
following the established formula for the allocating of funds to our 
university. The university is entitled to receive 9.6 percent of the 
annual rental annuities by law. This represents a major part of our 
consolidated budget. Ignoring the University's budget formula 
established by law contributed to an accumulated loss of $550 million 
through Fiscal Years 2015 to 2017.

    The graph below shows the dramatic budget reduction suffered by the 
University in recent years:

[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

    .epsIn Fiscal Year 2018, the FOMB started implementing their cuts 
through their fiscal plan, which started with a reduction of $202 
million to the University of Puerto Rico system. Two years has passed 
since the first mayor cuts. Currently this Fiscal Year 2020, the budget 
cuts have accumulated to a total of $333 million. However, we are still 
projected to receive more cuts until the Fiscal Year of 2024; that adds 
another $112 million to the reduction. In total, the budget cuts ascend 
to $445 million. That represents a 56 percent of the total budget of 
the University of Puerto Rico since the freezing of the University 
formula used for the development of its budget.

[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

    .epsThe immediate effect of the severe budget cuts is the resulting 
operational deficit. Under the fiscal plan, a deepening deficit began 
this fiscal year.
Measures To Sustain Operations With The Budget Cuts
    The University is not oblivious of the need for fiscal restraint 
alternatives and has been working on those since 2014 with an economic 
reduction from the Government. Thus, adopting multiple measures to 
continue providing higher education excellence. Some of the drastic 
adjustments that the University has been adopting in the past years 
are:

     Triple tuition fee increases and the creation of a new fee 
            for students.
            
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
            

     Reduction of faculty and administrative personnel. 
            Most of our campuses are understaffed and this jeopardizes 
            the multiple University of Puerto Rico accreditations. This 
            measure has contributed to the increased recruitment of 
            lecturers and part time Instructors. The hiring freeze of 
            tenure track faculty positions places at risk the 
            University of Puerto Rico accreditation. This has 
            translated in a limited number of courses for students, a 
            deterioration of our infrastructure and the limited staff 
            attending student services. For example, in some offices 
            used to be operated by full staff or administrative 
            personnel, now are being operated by one or two work-study 
            students.
     Interruption of some of our essential infrastructure 
            projects. This is due to a combination of factors such as 
            the lack of funding and that FEMA has not disbursement the 
            necessary funds for the reconstruction required. Due to 
            these measures, the university is in a critical situation 
            regarding its infrastructure. There is an urgent necessity 
            to fund projects to rebuilt and repair the University of 
            Puerto Rico's infrastructure. In some cases, University 
            Campuses such as Bayamon and Rio Piedras, complete lost 
            buildings due to the damages of hurricane Maria. To this 
            day the reconstruction of those buildings essential to the 
            functioning of many units of the University Campuses have 
            not even begun.

     Academic and administrative reorganization or 
            consolidation. At this moment, the university is evaluating 
            every academic program that it offers throughout the 11 
            campuses operated by the whole University of Puerto Rico 
            system; the University of Puerto Rico contemplates the 
            consolidating of programs. On the administrative level, the 
            University of Puerto Rico is working in economic strategies 
            to foster savings by restructuring operations and its 
            administration. I foresee this as one of the great 
            challenges because if we want to operate more effectively, 
            we need to invest in better technology, and infrastructure. 
            Regretfully, we simply do not have the funding for all 
            this.

                 iii. university's pension plan crisis

    The pension plan of the university is being affected critically by 
these drastic budget cuts. Since the first budget cuts, the university 
no longer funds adequately its pension plan. As of today, the plan has 
an actuarial liability ascending to $2,968,233,000.


[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]


    According with the University of Puerto Rico fiscal Plan, the 
university will have to pay about $150 to $160 million annually in 
order to close the actuarial deficit. The FOMB has proposed three 
different scenarios for the Pension Plan:

  1.  Leave the system as is, and increase the university's 
            contribution from $80 to $160 million or more annually.

  2.  Transform the retirement plan to a defined contribution plan and 
            pay somewhere close to $143 million annually.

  3.  Transform the retirement plan to a defined contribution plan and 
            reduce most of the benefits. Under this option, the 
            university must spend around $100 million annually to the 
            pension plan.

    The university is leaning to sustain its pension plan as is, but 
the problem is that the amount that we have to pay ($160 million) it is 
incredibly high when compared to our budget. The uncertainty of the 
future of the pension plan is forcing productive employees into 
retirement because they are afraid that the university is going to 
transform or eliminate their pension plan.
    As of July 31, 2019, University's pensioners are 9,023, and their 
monthly payroll amounts to around $16.5 million. Both numbers are 
expected to increase given the large number of people who can retire 
because they now meet the years of service for retirement as shown in 
the table.

[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]


    One can see that in the next 4 years the number of people that 
can receive benefits from the pension plan would rise by 2,895. 
Therefore, the situation is made more difficult for the institution 
because it will have to disburse more money to the retirement system. 
The University of Puerto Rico will not have the money to sustain its 
pension plan and it will be forced to enter a pay as you go system, 
requiring greater disbursements from the Central Government.
                          iv. budget deficits
    It is easy to see how the budget cuts are creating a massive fiscal 
deficit for the University of Puerto Rico. The Fiscal Plan approved 
last June 5, 2019 by the FOMB projects that the University will have a 
deficit of $88 million by the end of Fiscal Year 2020.

[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]


    As anyone can see in this graphic, the Fiscal Board is 
projecting that the deficit will disappear during the next fiscal 
years. But, the truth is the opposite: the deficit will not disappear 
any time soon, it will continue to increase. The University has already 
taken all possible measures for the improvement of cash-flow and the 
generation of major savings. Although we can still implement minor 
adjustments that will save money, these adjustments yield minuscule 
results when compared to the projected budget cuts.
    If the next reductions are implemented, we will be obligated to 
take drastic decisions regarding the future of the University of Puerto 
Rico. We will probably have to close many of our campuses, leaving 
thousands of students without a university center to attend. In Fiscal 
Year 2021, the University of Puerto Rico will be receiving $430 million 
from the Central Government. This will not be enough funding to operate 
effectively: we will have to close several campuses to sustain the 
system.

------------------------------------------------------------------------
              Major Campuses                           Budget
------------------------------------------------------------------------
                     Rio Piedras                   $212,904,438
------------------------------------------------------------------------
                        Mayaguez                   $134,578,621
------------------------------------------------------------------------
                 Medical Science                   $118,353,984
------------------------------------------------------------------------
                           Total                   $465,837,043
------------------------------------------------------------------------



------------------------------------------------------------------------
              Minor Campuses                           Budget
------------------------------------------------------------------------
                                Cayey               $31,826,974
------------------------------------------------------------------------
                         Humacao                    $39,117,931
------------------------------------------------------------------------
                       Aguadilla                    $20,594,444
------------------------------------------------------------------------
                         Arecibo                    $29,570,029
------------------------------------------------------------------------
                         Bayamon                    $35,261,700
------------------------------------------------------------------------
                                Carolina            $25,315,733
------------------------------------------------------------------------
                           Ponce                    $23,068,820
------------------------------------------------------------------------
                          Utuado                    $13,790,235
------------------------------------------------------------------------
                           Total                   $218,545,866
------------------------------------------------------------------------


    The position of the President of the university and the FOMB is 
that they want to keep all campuses open, but as you can see, this is 
not going to be possible. The quality of education provided by the 
University has never been questioned. When we were placed on ``show 
cause'' by the Middle States Commission on Higher Education, it was for 
two central reasons:

  1.  Failure to comply with the financial information requirements by 
            the MSCHE.

  2.  Concerns regarding the amount of fiscal resources the institution 
            has to fulfill the obligation with its students.

    The budget cuts, as specified in the fiscal plan, are going to 
force the closing of the University of Puerto Rico. We have to mention 
that in 1992, Congress amended bankruptcy law to exclude an institution 
of higher education that has filed for bankruptcy eligibility to 
participate in Title IV financial aid programs.
    The approval of the amendment proposed by Congressman Grijalva is 
critical for the sustainability of the University of Puerto Rico. Some 
of the university campuses with this year's budget are not sure if they 
are going to be able to pay the payroll for the last months of the 
fiscal year or pay the utility bills. By endorsing this amendment, we 
ensure that the immediate future of the University of Puerto Rico is 
secure. This will give the opportunity for the university to 
reorganize, update infrastructure, acquire better technology, and in 
the near future operate more effectively. Referring to the University 
of Puerto Rico, Ms. Jaresko stated that, ``the University of Puerto 
Rico system is the crown jewel of Puerto Rico.'' Having that in mind, 
it is important that the university is properly funded for the well-
being of its citizens to secure the social and economic future of the 
island. We say that, a government is defined by the opportunities it 
gives its citizens. For many Puerto Ricans, the University of Puerto 
Rico represents our only hope for a better future, as well as the 
possibility for social and economic mobility. That is one of the main 
reasons to grant the University of Puerto Rico the status of an 
essential service. This will guarantee that the University of Puerto 
Rico continues the educational legacy initiated since 1903 in 
continuing to educate and provide the highest quality education 
available in Puerto Rico. This is what characterizes my University of 
Puerto Rico and what this University is known for.

                                 ______
                                 

Questions Submitted for the Record by Rep. Grijalva to Mr. Lyvan Butin-
       Rivera, Student Representative, University of Puerto Rico

Mr. Butin-Rivera did not submit responses to the Committee by the 
appropriate deadline for inclusion in the printed record.

    Question 1. The Executive Director of the Oversight Board testified 
that the government of Puerto Rico has been subsidizing the University 
of Puerto Rico (UPR) at a rate far more than average for mainland U.S. 
states--roughly 70 percent instead of 20-30 percent--and that the PR 
Government can no longer afford these subsidies given that it is 
bankrupt?

    What is your reaction to the concern that the government of Puerto 
Rico can no longer afford to subsidize the UPR at the same rate that 
they were previously?

    Question 2. We have received a number of crit icisms that the 
language we have in the ``Discussion Draft'' defining essential 
services to protect the UPR will have the unintended effect of leaving 
other government services, which are not defined as essential, open to 
massive cuts. Are these conclusions wrong or would you recommend that 
we make all government services essential?

    Question 3. The Oversight Board also asserts, that revenues are 
depressed and insufficient at UPR because tuition levels are extremely 
low for all students--regardless of ability to pay--and there is little 
effort in attracting Federal grants and active development of alumni 
contributions. Could charging a higher tuition for students of great 
means, as well as securing more Federal grants and alumni 
contributions, make up for the budget cuts in your opinion?

    Question 4. Recognizing that the financial resources of the 
government of Puerto Rico are scarce, has the University presented 
recommendations to the Government to achieve cost savings that could 
mitigate budget cuts to the University? Could you share some of the 
recommendations with the Committee?

                                 ______
                                 

    Mr. Sablan. Thank you. Thank you very much, right on time. 
Finally the Chair now recognizes Mr. Spiotto. Sir, you have 5 
minutes.

    STATEMENT OF JAMES SPIOTTO, MANAGING DIRECTOR, CHAPMAN 
                       STRATEGIC ADVISORS

    Mr. Spiotto. Thank you. Chairman Grijalva, Ranking Member 
Bishop, and distinguished members of the Committee, thank you 
for the opportunity to address you. Certainly these amendments 
raise very interesting issues.
    The part of the amendments that I would like to address is 
how do you effectively deal with public debt. If you look at 
the over 600 sovereign debt restructurings since 1950 for 95 
countries, you see that they get repeated time and time again 
because the systemic problem was not addressed. Public debt is 
not a systemic problem; it is a symptom of a systemic problem.
    For Puerto Rico, I think people are united that there 
should be a recovery plan that reinvests in Puerto Rico that 
stimulates the economy, that creates new good jobs for the 
people of Puerto Rico, attracts business and others to come, 
and with that, you have an increase in tax revenues that will 
be the high tide that raises all the boats.
    The important thing is that, like any government, you need 
to have access to the capital markets. Governments need to 
borrow money because revenues do not come in on an even basis. 
Sometimes what you think you levied, you don't collect. So, you 
need a way of making sure there is liquidity to literally keep 
the lights on. Access to the market is essential. The sovereign 
debt restructurings that did not work did not address the 
systemic problem and did not maintain good access to the 
market.
    The problem I have with Title VIII is that Title VIII 
provides by legislative resolution the discharge of all 
unsecured public debt. The problem with that is there is no 
rationale, there is no justification. Chapter 9 of our 
Municipal Bankruptcy Code basically is titled Municipal Debt 
Adjustment. Title III of PROMESA is titled Debt Adjustment. It 
is to be adjusted to what is sustainable and affordable. To 
wipe it out without recognizing the principles of best 
interests of creditors, feasibility, fair and equitable, which 
are in PROMESA in Title III would be a mistake. What is 
important is not the elimination of debt but it is the 
adjustment to what is sustainable and affordable.
    If you look at 180 restructurings recently of sovereign 
debt, the mean haircut is only 38 percent. The reduction in 
Detroit was only 38 percent. Obviously, it has to be adjusted 
to what is sustainable and affordable, but that does not mean 
that you have a process that just eliminates it. Why is that 
important? Because Puerto Rico will need to go back to the 
market to borrow money for its infrastructure and other 
governmental services, and to do so it needs access and the 
ability to borrow at a low cost.
    The experiences of Greece, Argentina, Brazil, Peru, and 
others is that if you don't respect that sacred obligation, you 
wind up paying more, at least 2 percent more additional 
interest rate per annum which equals on a 20-year bond bullet 
maturity and a 5 percent discount, 25 percent of the principal 
amount goes to additional interest, not to pay for services, 
not to pay for infrastructure, not to pay for workers or 
pensions or a tax relief. So, it is important to look at this.
    Are there better ways? Yes. How can we help Puerto Rico 
best? It is giving it what it lost in 936 being repealed, the 
reason why governments need businesses to want to be there. We 
ought to look at ways at stimulating the economy, making it a 
center of commerce and finance, making it a foreign trade 
source, increasing manufacturing, giving back what it lost when 
it lost 936 to attract back the people who have left and bring 
business to Puerto Rico that creates the new jobs, the 
additional tax revenues, and the high tide that solves the 
problem.

    Thank you.

    [The prepared statement of Mr. Spiotto follows:]
               Prepared Statement of James E. Spiotto\1\
---------------------------------------------------------------------------
    \1\ As of January 1, 2014, I retired as a Partner of Chapman and 
Cutler LLP. I am a Managing Director of Chapman Strategic Advisors, 
LLC, a consultancy providing educational and strategic insights to 
market participants concerning finance topics of interest. For further 
detail, see my resume. The statements expressed in this material are 
solely those of the author and do not reflect the position, views or 
opinions of Chapman and Cutler LLP or Chapman Strategic Advisors LLC.
---------------------------------------------------------------------------
    Chairman Grijalva, Ranking Member Bishop and distinguished members 
of the Committee, I am honored to address you at this hearing regarding 
the Discussion Draft of H.R. ____, the Amendments to Puerto Rico 
Oversight Management and Economic Stability Act of October 30, 2019 
(``Proposed Amendments''). The following remarks are based on my 
experience in refinancings, workouts and restructurings of state and 
local debt obligations and those of other countries for over 40 years, 
as well as my prior written testimony to House and Senate Committees on 
Chapter 9 Municipal Bankruptcy and the government finance market 
including in 1983, 1988, 1992, 1995, 2011, and with respect to Puerto 
Rico in 2015, 2016 and 2018.
    The history of sovereign debt restructurings and past state and 
local government financial challenges has demonstrated that Puerto Rico 
should develop a recovery plan that encourages reinvestment in Puerto 
Rico, providing needed essential services and infrastructure 
improvements. This plan would stimulate economic development, 
rebuilding and enhancing infrastructure, motivating those who have left 
the Island to return, spark expansion of local business, and attract 
new business thereby creating new, good jobs. This raises the level of 
employment and labor participation that increases personal, business 
and tax revenues: the high tide that raises the economic fortunes and 
health, safety and welfare of Puerto Rico's citizens and provides the 
creditworthy basis for repaying creditors. There are some serious 
questions as to whether the Proposed Amendments will accomplish this 
goal of establishing fiscal responsibility and enhancing access to the 
capital markets.
        the gathering storm of puerto rico's financial distress
    Historians may well debate the causes and impact of Puerto Rico's 
financial and operational distress, but it should be clear that public 
debt was not the cause of the financial distress of the government. 
Rather, it is a symptom of a systemic problem. As Puerto Rico has 
continually and correctly noted, the Merchant Marine Act of 1920 added 
10-15 percent to the price of many goods carried by foreign vessels, 
and the repeal of Section 936 of the IRS Code (previously Section 931) 
removed the encouragement to U.S. corporations to invest in Puerto Rico 
and Federal policy created inequities in Federal funding and treatment 
of Medicaid and tax policy for Puerto Rico compared to states. This 
purportedly has cost Puerto Rico billions annually for decades, and all 
of these are a fertile ground for blame.
    In 1996, Congress repealed (effective 2006) Section 936 of the 
Internal Revenue Code (previously Section 931) that existed since the 
1920s to encourage U.S. corporations to invest in Puerto Rico by 
providing an exemption from Federal taxes. This measure promoted two-
thirds of Puerto Rico's GDP, namely, in finance, insurance, real estate 
(19.6 percent), and manufacturing mainly in pharmaceuticals and 
electronics (46.4 percent).
    By 2006, Puerto Rico was in financial distress due at least in part 
to the effect of the Jones Act, the repeal of Section 936 of the 
Internal Revenue Code without any replacement, the inequity of Federal 
Government funding compared to states costing Puerto Rico billions 
annually for decades relating to Medicaid, Supplemental Security Income 
(``SSI''), earned income tax credit (``EITC''), child tax credit 
(``CTC''), etc. All of this culminated in financial distress. In 2006, 
Puerto Rico had $40 billion of public debt and public debt per capita 
of $10,666.66, double the average for state and local governments in 
the United States. Also in 2006, Puerto Rico's public debt as a 
percentage of GDP was 45.82 percent.
    Put another way, by 2006, Puerto Rico, with $40 billion in public 
debt, chose literally to double down on debt rather than face the then 
need for financial restructuring or Federal Government assistance such 
as oversight and refinancing of debt in 2006 rather than 2016, the 
ultimate result. Between 2006 and 2015, $40 billion of public debt 
became $72 billion, the percent of debt to GDP rose from 45.82 percent 
to 69.83 percent, and per capita public debt more than doubled from 
$10,666.66 to $20,727.38 (the average for state and local government 
debt in the U.S.A. in 2015 was $5,633.88, one-quarter of Puerto 
Rico's).
                        the evolution of promesa
    In late 2015 and 2016, Congress was presented with the financial 
problems and debt crisis the Commonwealth of Puerto Rico and its people 
were suffering. The territory had over $70 billion of public debt and 
pension liabilities of over $40 billion. The overall debt of Puerto 
Rico and its instrumentalities debt were viewed as beyond their 
respective liquidity and the perceived ability to pay as scheduled and 
created what appeared to be an insurmountable burden to Puerto Rico and 
its people.
    During the first part of 2016, Congress considered what needful 
rules and regulations would be appropriate. At the same time, the 
Commonwealth itself enacted in April 2016 the Moratorium Law (Art. No. 
21-2016) purporting to suspend payment on the public debt. This caused 
the expected negative reaction from debtholders and increased the 
necessity for an effective mechanism for the resolution of the 
financial crisis. This Committee held hearings and Congress enacted the 
Puerto Rico Oversight, Management and Economic Stability Act 
(``PROMESA''), 48 U.S.C. Sec. Sec. 2101-2241, signed into law by 
President Obama on June 30, 2016, which created Financial Oversight and 
Management Board for Puerto Rico (the ``Oversight Board'' or ``FOMB'') 
for supervision and assistance to Puerto Rico. In enacting PROMESA, 
Congress exercised its power to ``make all needful rules and 
regulations respecting the territory'' under the U.S. Constitution 
(Article IV, Sec. 3, cl. 2).
    The Oversight Board was charged under PROMESA with being the 
mechanism to achieve fiscal responsibility and economic and operational 
recovery from the financial distress and debt burdens that Puerto Rico 
was suffering. PROMESA, as is evident from Congress' hearings in 2015 
and 2016 on the Puerto Rico debt crisis, followed the tradition that 
states and the Federal Government have chosen for providing oversight, 
supervision and an effective mechanism to resolve the grave financial 
distress of governments such as Puerto Rico and its related 
governmental entities. The goal of all these legislative efforts is the 
creation of a mechanism to encourage consensual resolution as in Title 
VI of PROMESA. PROMESA is structured to foster such consensus and 
provides a last resort to use a bankruptcy-like process for involuntary 
resolution, as Title III of PROMESA does, to effectuate resolution of 
debt issues that cannot effectively be resolved by agreement. PROMESA 
was intended to provide financial oversight, assistance and supervision 
for Puerto Rico. To a degree, PROMESA was to be similar to New York 
City and the Municipal Assistance Corporation (``MAC'') in 1975, 
Philadelphia and Pennsylvania Intergovernmental Cooperation Authority 
(``PICA'') in 1991 and Washington, DC and its Financial Control Board 
(``D.C. Control Board'') in 1995, which enhanced needed financial 
credibility and access to the financial markets. It should be noted in 
MAC for New York City, PICA for Philadelphia and D.C. Control Board for 
Washington, DC there were no public debt restructurings but rather 
refinancing of public debt. This was due, in part, to the acknowledged 
need for governments to be able to borrow in the capital markets.
the promesa experience and recent approved and proposed settlements for 
                    public debt and other creditors
    Contrary to the hope for Title VI resolutions in the first 3 years 
of PROMESA, the dynamic uncertainty of the situation continued with the 
litigious response by creditors and the Commonwealth resulting in 
limited consensual resolution in 2017 and 2018. Over 2 years ago, the 
Oversight Board filed for the Commonwealth and some covered entities a 
Title III bankruptcy proceeding that permits involuntary resolution if 
consensual agreement is not reached. There have been recent 
announcements of a settlement with the Commonwealth, Oversight Board, 
COFINA bondholders and GDB creditors among others.\2\ There have been 
recent efforts by the Title III District Court to stay active 
litigation for a set period of mediation to attempt to foster 
consensual resolution and a settlement proposal \3\ for the remaining 
debt followed by a proposed plan of debt adjustment that generally 
follows the proposed settlement. The employee retirement system 
obligations to employees and retirees has also been the subject of a 
proposed settlement.\4\ In past resolutions of state and local 
government debt restructurings like Detroit, Jefferson County, 
Stockton, San Bernardino and others, there came a time when virtually 
all creditor constituents, with some reluctance, reached a global 
agreement and settlement that resolved litigation and provided a path 
forward. Given the passage of time and the continuing litigious spirit 
that has prevailed with the absence of a global settlement and general 
agreement, all creditor constituents' frustrations and fatigue can 
motivate the desire for drastic approaches. The Discussion Draft 
appears to be a product of this environment.
---------------------------------------------------------------------------
    \2\ Puerto Rico's approved settlement: There are two settlements of 
major public debt that have been approved namely: (1) the GDB debt of 
$4.1 billion with a 55 cents on the dollar recovery and the COFINA 
settlement of $17.8 billion of debt and private loans with a 93% 
recovery for senior and 53.5% recovery for subordinated for a blended 
recovery of 68%. Accordingly, of public debt, 29% of the $73.8 billion 
public debt and private loans have court approved settlements.
    \3\ Puerto Rico's proposed settlements to public debt and 
consensual creditors: $35 billion of claims: The $35 billion of G.O. 
bond debt, Public Building Authority obligations and other debt 
originally supported by $3 billion of public bond debt. The G.O. bond 
debt has a proposed settlement for the vintage G.O.s (pre-2012) of $6.9 
billion with a 64% recovery: the 2012 G.O.s of $2.7 billion with a 45% 
recovery or litigate: the 2014 G.O.s of $3.6 billion with a 35% 
recovery or litigate. The Public Building Authority obligations that 
the FOMB and Commonwealth are now calling debt consist of vintage PBA 
(pre-2012) of $3.9 billion with a 73% recovery and the 2012 PBA of $0.7 
billion with a recovery of 23%. Also, there is other unsecured debt 
(non-G.O. and non-PBA unsecured creditors) of $16 billion with a 
recovery of 9%. When you add the $35 billion of proposed settlements to 
the $21.6 billion of approved settlements for public debt and private 
loans there are about $56.6 billion of proposed and approved 
settlements. These proposed settlements have been generally 
incorporated into a proposed plan of debt adjustment for the 
Commonwealth and instrumentalities in the Title III proceedings. 
Virtually all of the $51.461 of bond and private loans contained in the 
fiscal plan is covered by approved proposed settlements not counting 
ERS pension liabilities.
    \4\ Proposed employees' retirement systems settlement: There is 
also a proposed settlement of the ERS pension liabilities of about $50 
billion that proposes an 8.5% cut in pension benefits over $1.200 a 
month and that affects about 39% of the retirees. This settlement 
proposal is supported by the Official Committee of Retired Employees.
---------------------------------------------------------------------------
    Unfortunately, financial challenges and distress were compounded by 
the natural disasters of Hurricanes Irma and Maria and other ill winds. 
The resulting broken infrastructure only magnified the distress and 
human suffering. Such human tragedy may blur legal priorities and, to a 
degree rightfully so, shift the focus of efforts and attention. Puerto 
Rico really needs a Marshall Plan to reinvest in Puerto Rico and 
rebuild its infrastructure and economy. It appears illogical to ask a 
government to provide its best proposal for repayment of its debts or 
creditors to expect the best recovery when the engine for payment, the 
government's infrastructure and economy, is struggling to exist. But, 
public debt elimination is not the historically best, preferred or 
economically productive method of resolving Puerto Rico's financial and 
infrastructure challenges.
         the proposed legislation and discharge of public debt
    The proposed legislation would inter alia (a) add some further 
definition to essential public services and economic growth, (b) 
require disclosure by professional persons employed by court order, (c) 
provide for the legislative discharge of unsecured public debt without 
corresponding discharge or impairment of unsecured debt for goods, 
services, pensions, other retirement benefits or healthcare benefits of 
any kind under a newly created Title VIII, and (d) create a Public 
Credit Comprehensive Audit Commission, Office of Reconstruction 
Coordinator for Puerto Rico and Revitalization Coordinator for Puerto 
Rico Power Authority under the proposed new Title IX.
    The new Title VIII of PROMESA would authorize Puerto Rico and its 
instrumentalities to be able to discharge (eliminate so that there is 
no future liability or obligation to pay), financial obligations 
(public debt securities and loan financial guarantees and derivative 
transactions, hereafter ``Public Debt'') that is unsecured by enacting 
a resolution that either has been adopted by (a) an affirmative vote of 
over a majority of the members of each house of the legislature and is 
signed by the chief executive or (b) an affirmative vote of not less 
than two-thirds (2/3) of the members of each house of the legislature. 
As noted above, discharge is limited to unsecured financial 
obligations/Public Debt and does not include similar ranked and 
classified unsecured debt related to goods, services, labor, pension, 
other retirement benefits, healthcare, tax refund or tax credit. Given 
Puerto Rico's debt per capita outstanding, receipt of disaster relief 
and emergency assistance and loss of population, there should be no 
doubt of Puerto Rico's ability to qualify for the relief of Title VIII 
as intended by the proposed legislation. Will a Title VIII discharge 
resolution supersede and undo approved and proposed settlements for 
Public Debt? Will current unsecured Public Debt creditors demand 
secured debt payout for the restructured remaining amount of unsecured 
debt?
    Purportedly, the legislature of Puerto Rico under the proposed 
Title VIII could discharge secured Public Debt and place the burden on 
the secured Public Debt holder to bring a declaratory judgment action 
either in the courts of Puerto Rico or the Federal courts in Puerto 
Rico to have its debt declared secured and determine the extent of the 
secured status (all or part of the debt). Any pledge of revenue or 
future tax payments by Puerto Rico or its instrumentalities, which is 
the essence of revenue bond financing and statutory lien financing, 
would be terminated as of the date of the legislation effecting the 
discharge. Virtually all of state and local government financing is 
based on payment from future revenue and taxes and over half of state 
and local government financing in the United States is revenue bond 
financing. This is the financing that provides funding for needed 
infrastructure, improvements and capital improvements (schools, roads, 
water, sewer and electrical systems, public buildings, etc.) for state 
and local government as well as territories of the United States. Such 
legislation as the Proposed Amendments places a cloud over and 
threatens the viability of such financing for territories and state and 
local governments as will be further discussed below.
    Once the legislature of Puerto Rico has appropriately adopted a 
resolution of discharge, the creditor of a financial obligation of 
Public Debt is stayed and estopped from any action to collect or 
enforce the discharged debt except for the declaratory judgment action 
to determine if and to the extent it is secured. It appears that, if a 
plan of adjustment is not confirmed or the Oversight Board is 
determined not to be validly appointed, some or all of the $73.8 
billion of financial obligations/Public Debt could be subject to Title 
VIII, including the $21.7 billion of prior court approved COFINA and 
GDB Public Debt and the Public Debt portion of the proposed $35 billion 
settlement. There is no exception for prior court approved settlements 
from discharge or the need for declaratory judgment. If this is not 
intended, it should be specifically spelled out and excepted. Clearly, 
$13.2 billion of Puerto Rico's General Obligation Bonds, $4.1 billion 
of Highway Toll Authority Bonds, $4.0 billion of Public Building 
Authority Bonds, $4.1 billion of Employee Retirement System Bonds, 
etc., could, absent a confirmed plan of adjustment and a valid, 
appointed Board, be at risk of discharge. In addition, Title VIII also 
provides that financial obligations/Public Debt can be avoided or 
invalidated under traditional legal theories.
    The proposal of a Puerto Rico Public Credit Comprehensive Audit 
Commission, under Title IX, empowers the Commission to audit Public 
Debt and the sustainability of outstanding Public Debt and to assess 
how new rules, policies and controls over Public Debt can be developed 
or improved and to investigate any irregularities. While these are 
noble goals, the Oversight Board and others have long been engaged in 
pursuing this. There already exist suggestions for best practices for 
governance, management and financing of Puerto Rico and its 
instrumentalities as have been developed for states and local 
governments. (See Government Finance Officers Association Best 
Practices available on its website.)
    The real question is not what or how much debt can be eliminated 
but rather how best to obtain a financial recovery for Puerto Rico and 
its instrumentalities that stimulates economic growth, creates new, 
good jobs, encourages those who have left the Island to return (both 
individuals and businesses), attracts new business to Puerto Rico, 
funds needed improvements of essential services and infrastructure, and 
fosters financially sustainable government that is fiscally responsible 
and enhances access to the capital market (the goal of PROMESA, Section 
101).

                       RECOVERY MUST BE THE FOCUS

    The United States is not alone in confronting the problem of 
sovereign debt in crisis. Dealing with the financial distress of a 
government requires not merely short-term actions to reduce debt 
obligations, increase tax revenues and lower costs, but also the long-
term reinvestment in the government, its economy and its people. The 
financial challenges, loss of business and jobs resulting in many not 
being meaningfully employed, the need for economic stimulus and 
business development, the demands for social programs and governmental 
services, the level of poverty and financial strain on programs to 
address human distress have been well documented by Puerto Rico, its 
community leaders, its creditors and the financial markets. Puerto Rico 
has over 45 percent of its residents living at or below poverty level, 
it has lost over 250,000 jobs since 2006, labor force participation in 
Puerto Rico is at approximately 40 percent compared to average of 62.7 
percent in the States, and, most distressing, 58 percent of Puerto 
Rico's children (its future) are living below the Federal poverty 
level. There should be no debate over whether assistance is needed now, 
only the question of by whom and what form the assistance will take 
needs to be answered. The experience of other sovereigns is 
instructive.
    As a parade of over 600 sovereign debt defaults between 1950-2010 
involving 95 countries has demonstrated, there are too many repetitive 
problems because of a limited focus on reducing external debt without 
addressing the systemic problem that caused the economic distress.\5\ 
The missing and needed ingredient in these failed sovereign 
restructurings of debt is the long-term reinvestment in the government 
and its people to improve and expand governmental services and 
infrastructure and stimulate business opportunities. This creates 
growth of new businesses and new jobs resulting in new taxpayers to 
increase tax revenues that brings about the real recovery for the 
health, safety and welfare of citizens. Such an approach is likely in 
the best interests of not only the government but also its citizens and 
taxpayers and its creditors, including employees and retirees. It is 
only through a robust recovery plan that creditors, including employees 
and retirees, will be paid to the fullest extent possible.
---------------------------------------------------------------------------
    \5\ See James E. Spiotto, Municipalities in Distress? (Second 
Edition) 9-30 (Chapman and Cutler LLP 2016).
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         concerns and consequences of the proposed legislation
    The wholesale discharge or elimination of Public Debt without a 
reasonable justification will result in higher borrowing costs for 
Puerto Rico assuming it can achieve market access. A government 
requires access to borrowing and the capital markets because tax 
revenues are irregular in timing of payments and amount and needed 
liquidity literally to keep the lights on requires market financial 
credibility and access. Financial credibility is premised on the 
ability and certainty of repayment of the borrowed debt. The past 
experience of sovereign debt borrowers who default or repudiate debt 
(discharge by elimination as the legislation proposes) has been to 
suffer the significant increase in the cost of borrowing or annual 
interest cost or yield due to recent failure to pay, especially if 
there was not complete justification for the total elimination of the 
debt or a justified inability to pay. For that reason, any sovereign, 
state or local debt restructuring has been a partial reduction or 
haircut in principle not a complete discharge or elimination of debt 
going forward.
    It should be noted for Public Debt of state and local governments 
in the United States there has been a very low default rate and 
generally a higher recovery rate than for corporate debt. Historically, 
between 1839 and 1978 the annual default rate is about a .058 percent 
or less than 6/100 of 1 percent for 130 years.

     Recorded Defaults, by Type of Local Government Unit 1839-1969

[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]


    Sources: Default information in The Daily Bond Buyer, The 
Commercial and Financial Chronicle and The Investment Bankers' 
Associations Bulletin: default lists from Federal Deposit Insurance 
Corporation, Life Insurance Commission, and U.S. Courts; and Albert M. 
Hillhouse, Defaulted Municipal Bonds (Chicago: Municipal Financial 
Officers Association, 1935). Number of local government units from: 
U.S. Department of Commerce, Bureau of Census, Census of Governments, 
1967, Vol. 1 ``Governmental Organization'' (Gov't Printing Office, 
1969) and ACIR Report Bankruptcy, Defaults and Other Local Government 
Financial Emergencies U.S. Government 1973.

    Since 1970, Moody's reports that for rated state and local 
government municipal bonds between 1970-2013 there was an average of 
two rated bond defaults per year with a recovery rate of at least 60 
percent which is higher than the recovery for corporate senior 
unsecured bonds of 48 percent. Recoveries in recent Chapter 9 
bankruptcies were 80 percent for sewer bonds in Jefferson County, 100 
percent of principal for special revenue bonds for water and sewer in 
Vallejo, Stockton and Detroit. There have been 684 Chapter 9 municipal 
debt adjustments since 1937 the enactment of Chapter 9, 362 Chapter IX 
between 1937 and 1972 with average recovery of 64.7 percent, and 18 
Chapter IX between 1954-1972 with an average recovery of 73.9 
percent.\6\ The default, repudiation and discharge of unsecured Public 
Debt of Puerto Rico under the proposed Title VIII would be in stark 
contrast to the historical default rate and recovery rate for state and 
local governments in the United States and the overall percentage of 
Haircuts (percent reduction of principal amount of debt) for sovereign 
Public Debt globally.
---------------------------------------------------------------------------
    \6\ Prior to 1978, the roman numeral IX was used to indicate the 
Chapter on municipal debt adjustment. Under the Federal Bankruptcy Code 
after 1978, the Arabic number 9 was used.
---------------------------------------------------------------------------
    Without any justification for the reduction of debt based on 
anticipated revenue and expense and sustainability, the proposed Title 
VIII legislature resolution would discharge the unsecured Public Debt. 
This result for sovereign, state and local government restructurings is 
historically beyond rare and borders on dangerously unique. For the 180 
sovereign restructurings between 1978-2010, the estimated Haircut was a 
mean of 37 percent, median of 32.1 percent and standard deviation of 
27.3 percent.\7\ The range was generally from a 2 percent Haircut to 80 
percent Haircut. The potential results for Puerto Rico under proposed 
Title VIII discharge would produce an extreme Haircut and stigma on the 
credit worthiness of Puerto Rico that appears not only unprecedented 
but also unjustified with no rationale for the extreme result.
---------------------------------------------------------------------------
    \7\ Sebastian Edwards, Sovereign Default, Debt Restructuring, and 
Recovery Rates: Was the Argentinean ``Haircut'' Excessive? National 
Bureau of Economic Research (Feb. 2015), https://www.nber.org/papers/
w20964, see also Maximiliano A. Dvorkin, Juan M. Sanchez, Horacio 
Sapriza and Emircan Yurdagul, Sovereign Debt Restructurings, Federal 
Reserve Bank of St. Louis (August 2019), https://doi.org/10.20955/
wp.2018.013.
---------------------------------------------------------------------------
 the discharge of public debt under proposed title viii would increase 
      the perception of risk and cost of borrowing for puerto rico
    As noted above, the ability of government to borrow funds in the 
capital market is critical to its long-term financial survival. Any 
increased perception of risk from a high default rate and low recovery 
rate of past government borrowing will increase the annual interest 
rate which reflects the risk of repayment to the lenders.

    Access to the market at a low cost of borrowing is desired by all 
government borrowers. Access and the cost of borrowing is a reflection 
of the perceived risk of the government credit: Fiscal distress for 
government begets a higher cost of borrowing and even loss of access to 
the market. On March 2, 2012, Greece had a 10-year bond annual yield of 
37.1 percent and in July, 2015, after the third attempted bailout and 
austerity package being implemented, Greece's annual yield is still 
over 10.5 percent with a 52-week range of 5.5 percent and 19.5 percent. 
Greece has defaulted on its sovereign debt since 1826 at least five 
times prior to its recent financial crisis (1826, 1843, 1860, 1894 and 
1932). Brazil, a large developing economy which defaulted or 
restructured its sovereign debt 11 times since 1826, the last time 
1990, had an average 10-year bond annual yield between 2006 and 2015 of 
approximately 12.3 percent with an all-time high of 17.91 percent in 
October, 2008. Puerto Rico, given its recent financial distress 
experience, had yields on its 10-year G.O. bonds exceeding 10 percent 
in February, 2014. At the same time, other sovereigns experienced 
usually low bond annual yields of 2.27 percent for U.S.A., 1.52 percent 
for Canada, .74 percent for Germany and 1.03 percent France. A review 
of selected sovereigns that have defaulted since 1998 demonstrates 
default does result in a time out or lack of access to the 
international bond market.

         Analysis of Recent Sovereign Restructurings 1998-2010

[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

    Source: Federal Reserve Bank of Dallas, Global and Monetary 
Policy Institute Working Paper No. 143, Aitor Erce, April 2013.

    In the Detroit Chapter 9 municipal bankruptcy, the emergency 
manager's unjustified attack on Unlimited Tax General Obligation Bonds 
(ULTGOs) raised the perception of risk and increased annual interest 
rates. The filing of the Detroit Chapter 9 proceedings and the 
Emergency Manager's unwarranted attack on ULTGOs caused other 
municipalities in Michigan, like school districts, to experience 
approximately 100 basis points increase in the annual interest rate, 
the cost of borrowing, on ULTGOs due to the Detroit contagion. In 
California, the Detroit fall out cost school districts a 50-100 basis 
point increase, which was historically unjustified given the Chapter 9 
experience of San Jose School District and Sierra King Health Care 
District cases. California response through the efforts of CDIAC was to 
attempt to clarify the intended low risk of California ULTGO by passing 
SB 222 to reconfirm that California state law provides a statutory lien 
intended to be unimpaired and paid in a Chapter 9.
    There is a 200-300 basis point spread between strong and weak 
credits. Traditionally the spread in the state and local government 
municipal market between strong credits (top investment grade) and 
significantly weak credit (lower non-investment grade) was 200-300 
basis points.\8\
---------------------------------------------------------------------------
    \8\ Traditionally the spread in the municipal market between strong 
credits (top investment grade) and significantly weak credits (lower 
non-investment grade) was 200-300 basis points (See e.g., approximate 
200 basis point trading spread between Detroit sewer and water with and 
without Chapter 9 threat and Chicago sale tax securitization 
approximate 275 basis point lower than similar Chicago maturities. 
https://fixedincome.fidelity.com/ftgw/fi/FINewsArticle?id=2018 
01251903SM_BNDBYER_00000161-2a4f-dad2-a779-ff4fc963_110.1. Even if 
weaker creditor or past defaulters suffer only a 200 to 300 basis point 
rise in annual interest expense, that is 60% to 90% more payment of 
principal over 30-year period. (Spread between AAA and BBB can vary 100 
to 150 basis points. Baird Fixed Income Study, 4/7/14, p. 8.) February 
28, 2018, S&P Municipal Bond Index AAA (average duration 4.9 years) to 
B (average duration 6.08 years) on average 230 basis point yield 
difference. Bloomberg Barclay BVAL scale 10 years AAA rated bond to BBB 
rated bond, a difference of 97 basis points in yield (March 21, 2018). 
That additional cost could have been used to reduce taxes, pay for 
needed infrastructure or services or pay unfunded pension obligations. 
In the near term spread may widen thereby increasing the cost of 
borrowing for weaker credits.

    Being classified as a weaker credit increases the cost of the 
borrowing by 25 percent or more of the face amount of debt and should 
be avoided if possible. To a state or local government or territory 
like Puerto Rico, a 200 point per year or 2 percent more interest cost 
a year on a 20-year bond with a bullet maturity would be 40 percent 
more of the principal amount paid as interest over 20 years. Put 
another way, on a billion dollar debt issue with a 20-year maturity and 
a bullet payment of principal at maturity, a 2 percent additional 
interest cost per annum would be a present value at a 5 percent 
discount of about $250 million or 25 percent of the face amount. That 
is $250 million not available to a state, local or territory government 
to pay needed infrastructure improvements, public services, worker 
salaries, retiree benefits or tax relief to its citizens. These are 
funds desperately needed by Puerto Rico for reinvestment into Puerto 
Rico.
puerto rico's historical and constitutional treatment of public debt is 
  turned on its head and is contrary to proposed title viii discharge
    The Treaty of Paris ending the Spanish-American War of 1898 
resulted in control of Cuba, Puerto Rico, Guam and The Philippine 
Islands being given to the United States. Cuba in 1902 and The 
Philippines in 1946 were given independence. Puerto Rico and Guam 
remain territories of the United States. In recent years, Puerto Rico 
as a Commonwealth flirted with independence or statehood with no clear 
decision.
    Puerto Rico was founded on the principles that Public Debt has a 
first priority of payment upon default (along with expense of insular 
government) embodied in Section 34 of the 1917 Jones Act, which 
governed Puerto Rico prior the Commonwealth's Constitution in 1952. The 
inclusion of Article VI, Sec. 8 in the 1952 Puerto Rico Constitution 
continued this policy providing constitutional Public Debt, upon 
insufficient funds to pay expenses, was first to receive payment from 
``available resources.'' The statute and constitution mandate that upon 
insufficient funds and default on general obligation bonds first 
available funds are to pay Public Debt general obligation bonds. When 
faced with the 2006 financial crisis, Puerto Rico, with $40 billion of 
Public Debt outstanding, chose to borrow more rather than restructure 
its debt. Puerto Rico used additional general obligation bonds and the 
COFINA securitization structure to add another $17 billion of Public 
Debt by 2015 that purportedly was not limited by the constitutional 
debt limit, resulting in Public Debt of Puerto Rico totaling over $72 
billion. Both the constitutional priority of general obligation bonds 
and COFINA securitization bond structure were market accepted and 
tested financing that enhanced repayment as well be discussed below.
    Generally, the Puerto Rico Public Debt structure has followed the 
traditional structure used by U.S. states and local governments. Puerto 
Rico's over $13 billion of General Obligation Bonds follow the 
constitutional priority for payment of G.O. bond debt found in the 
constitutions and statutes of U.S. states like New York. The financial 
distress case of New York City in 1975 demonstrates the effectiveness 
of this constitutional provision that was found to be binding and 
enforceable to end the moratorium on payment of bond debt that mandated 
a refinancing rather than a Chapter 9 bankruptcy for New York City as 
the Flushing National Bank case, 40 N.Y.2d 731 (1976) described. The 
New York highest court found that this constitutional provision in the 
New York Constitution, which is similar to the Puerto Rico 
constitutional provision that followed New York's model, mandates the 
government to make payment of first available funds to the Public Debt 
general obligation bonds and delay or non-payment were not to be 
tolerated if funds were so available. Likewise, the COFINA 
securitization structure is intended to be similar to New York City's 
Sales Tax Receivable Corporation and not included in constitutional 
debt limits or offensive to the rights of outstanding G.O. debt as the 
Court of Appeals (the highest court in New York) ruled in 1977 in the 
case of Quirk v. MAC for City of NY, 41 N.Y.2d 644 (1977). The passage 
of the proposed Title VIII for discharge of unsecured Public Debt of 
Puerto Rico like general obligation bonds would raise not only 
constitutional challenges but be contrary to the provision of PROMESA 
that creditor rights were to be honored consistent with Puerto Rico's 
constitutional and statutory provisions. Any unjustified discharge of 
Public Debt would further enflame litigation that is already overloaded 
with issues and disputes.
    the united states' tradition of honoring public debt obligation
    Early in our country's history, the importance of honoring Public 
Debt obligations was declared as the prudent and sound path to take as 
a developing country. It should be remembered that ``No pecuniary 
consideration is more urgent than the regular redemption and discharge 
[payment] of Public Debt. On none can delay be more injurious or an 
economy of time more valuable.'' These were the words of George 
Washington, over 220 years ago, in his State of the Union address on 
December 3, 1793. Washington and Hamilton were instrumental in having 
the Federal Government assume the states' debt from the Revolutionary 
War since some states were balking at paying such debt. Those states 
feared their good tax dollars would go to pay Northern speculators (who 
purchased the debt at a discount) or the debt of other states who were 
big borrowers. Washington and Hamilton knew that the progress of the 
Nation could be no swifter than its financial credibility. The Federal 
Government assumed the states' Revolutionary War debt to avoid 
repudiation and to assure financial credibility on the Federal and 
state level. Now, there are echoes of this same debate over 225 years 
later. Will there be the same result?
    In the aftermath of the Panic of 1837 and the need for states to 
borrow to pay for transportation improvements in the North (given the 
success of the Erie Canal) and for banking services in the South, 19 
out of 26 states and two territories borrowed money for economic 
growth. By the 1840s, eight states and one territory defaulted on those 
borrowings and repudiated those debt obligations. Those issuers that 
repudiated the debt then experienced either an inability to borrow 
additional funds or, if they could obtain financing for needed 
governmental improvements and services, suffered the imposition of a 
32%+ yield. By the late 1840s, seven of the eight states had renounced 
their repudiation and resumed payment on the debt in order to obtain 
market access at a lower cost. The state and one territory that were 
left repudiating their debt struggled for over a decade to obtain 
funds, let alone at a reasonable cost.
    After the Civil War, in response to suggestions that the government 
should discount the cost of war debt by paying it in greenbacks as a 
devalued currency, President Grant, in the spirit of Washington and 
Hamilton 80 years earlier, chose to protect national honor. He stated 
every dollar of the government indebtedness should be paid in gold. 
Unfortunately, such was not the fate of the failed confederate 
government's war debt. By means of the 14th Amendment, debt incurred in 
aid of insurrection was deemed illegal and void. Since the late 1880s, 
no state has defaulted on its general obligation bonds except Arkansas 
in 1933 which was quickly refinanced and paid.
  the lack of a rationale for the extent of discharge contradicts the 
                           purpose of promesa
    As noted above, sovereign debt restructurings and Chapter 9 
municipal debt adjustments are not efforts in debt elimination without 
a justification for the wholesale elimination of Public Debt but were 
efforts to provide a ``fresh start'' by reducing debt to an affordable 
and sustainable level and discharging only that which is incapable of 
being repaid due to the dire financial circumstances of the government 
based on an established rationale or justification for the amount of 
debt eliminated or discharged. As noted above, of the 600 plus 
sovereign debt restructurings since 1950, there are no examples of a 
legislative discharge like proposed Title VIII that eliminates all 
unsecured Public Debt as of the legislative action and leaves 
unimpaired trade creditors, public workers, pension and other 
retirement benefits and tax refunds and credits,. The extreme and 
discriminatory discharge of Public Debt appears to have no 
justification or basis for the extent of discharge. Chapter 9 municipal 
debt adjustment that PROMESA incorporates in part in Title III of 
PROMESA specifically provides the adjustment of debt is for the ``best 
interests of creditors'' (Section 314(b)(6) of PROMESA), to the extent 
necessary to be ``feasible'' and is to be ``fair and equitable,'' 
(Section 314(c)(3) of PROMESA). These standards are not per se 
attributable to the blanket discharge of unsecured Public Debt under 
the proposed Title VIII. Further, PROMESA was premised on not altering 
of ``pre-existing priorities of creditors in a manner outside the 
ordinary course of business or inconsistent with territory's 
constitution or laws of the territory as of, in the case of Puerto Rico 
May 4, 2016 . . . [Section 204(c)(3)(ii) of PROMESA. For example, the 
discharge of unsecured general obligation bonds while paying in full 
trade vendors for goods and services, public workers, pension and other 
retirement benefits, healthcare benefits and tax refunds and tax 
credits purportedly in full from ``available revenues'' is a violation 
of and contrary to the purpose and intent of Article VI, Section 8 of 
Puerto Rico's Constitution that, as noted above, similar to New York 
and other states, provides a priority of payment to ``unsecured general 
obligation bonds'' where there are insufficient funds to pay all 
liabilities.
 proposed title viii would violate existing rights of secured creditors
    The requirement in proposed Title VIII that a secured creditor 
would not be secured by a pledge, dedication or mandate after the date 
of the discharge legislation and future revenues would no longer be 
paid to and be security for the secured debt violates the continuing 
lien and pledge of special revenues which the District Court in the 
Title III proceeding and the U.S. Court of Appeals for the First 
Circuit have ruled is effective and valid and not terminated. Assured 
Guaranty Corp., et al. v. The Financial Oversight and Management Board 
for Puerto Rico, et al., 919 F.3d 121 (1st Cir. 2019). Further, 
statutory liens purportedly granted by legislation of Puerto Rico 
mandate the payment for such bonds as COFINA [P.R. Laws Ann. tit. 1399 
11a-16] and PROMESA is not to rewrite prior existing laws of Puerto 
Rico and creditor rights given the required compliance with 
constitutional laws. Further, this restriction reducing or eliminating 
the security for secured debt on pledged, dedicated, ``secured'' tax 
revenues after the discharge legislation date raises the issues of 
taking property (secured interest) without just compensation in 
violation of the Fifth Amendment.
the proposed title viii legislation discharge of unsecured public debt 
  is a prohibited legislative punishment without trial and lacks due 
                                process
    The proposed Title VIII legislative discharge of unsecured Public 
Debt provides no ability to contest, appeal or have the benefits of a 
trial or due process. This amounts to a legislative punishment of 
unsecured Public Debt holders without a trial equivalent to a bill of 
attainder prohibited by Article I, Section 9, Clause 3 of the U.S. 
Constitution. The holders of unsecured Public Debt are summarily 
estopped and stayed from any further legal remedies or enforcement of 
their debt and in effect barred from legal redress to the courts. This 
threatens the traditional notion of due process and the limits of the 
power of the legislature to punish without trial. [U.S. v. Lovett, 328 
U.S. 303 (1946)]
the proposed title viii unfairly and inequitably discriminates against 
                    holders of unsecured public debt
    As noted above, without trial, rational standard for the extent of 
discharge or reasonable justification to limit discharge to unsecured 
Public Debt, the proposed Title VIII authorizes discharge of financial 
obligations/Public Debt but does not deal with and leaves unimpaired 
debt for goods, services, pension and other retirement benefits, health 
care benefits, tax refunds and tax credits that are also unsecured and 
of equal priority and standing. Such invidious discrimination among 
creditors would not be tolerated, especially without due process and 
trial in any Chapters 7, 11 or 9 bankruptcy proceeding. The lack of 
uniformity and the failure to provide for fair and equitable treatment 
of all creditors cannot be the basis for an appropriate amendment to 
PROMESA.
    there are systematic causes of puerto rico's financial distress 
separate and apart from the devastation caused by hurricane maria that 
               promesa and any recovery plan must address
    Counter past economic downturn with economic stimulation and 
development. With the repeal of Section 936 and exit of corporate and 
individual taxpayers, with the accompanying loss of tax revenues, there 
has been no real replacement or long-term economic development strategy 
to expand business in Puerto Rico. Key to recovery is attracting new 
business to Puerto Rico, thereby providing new, good jobs for Puerto 
Rico's population, and attracting a significant increase in population 
and taxpayers.

    Correction of adverse Federal policies that cost Puerto Rico 
billions such as the permanent repeal of the Jones Act, elimination of 
any inequalities in Medicare, Medicaid, SSI, EITC and CTC. Congress 
should examine existing legislation that could be modified to assist 
Puerto Rico in its effort to resolve its financial and infrastructure 
crisis. The Jones Act that requires foreign flag vessels that stop in 
the U.S.A. continental ports and Puerto Rico to pay a tariff increasing 
the cost of goods for Puerto Rico should be repealed for Puerto Rico's 
case permanently. Federal assistance in programs to develop new 
commerce and economic stimulation (such as encouraging increased 
business activity and supporting manufacturing opportunities, high 
tech, green tech, creation of new energy generation and strategy for 
the short- and long-range economic development by Puerto Rico that its 
creditors can buy into).

    Solving the tax collection problem through identification and 
implementation of new or increased tax sources along with increasing 
collection efficiency. The exploration of new tax policies that would 
stimulate economic development, and new tax sources that do not 
adversely affect such economic development efforts should be explored. 
Dealing with deficiencies in tax collection methods are problems that 
can be solved or at least greatly reduced, which would bring in 
additional revenues even without adding new or higher taxes

    Reverse the stigma of financial distress by improving financial 
creditability in the capital markets. It would be counter-productive to 
have the result of any recovery plan be less access and increased 
borrowing cost for Puerto Rico. Accordingly, steps should be taken to 
assure that the recovery plan will increase market access and lower 
cost of borrowing both short-term and long-term. This can be done by 
following established, best practices of government accounting, 
administrative budgeting and financing to the extent they have not 
already been adopted.

    Treatment of outstanding Public Debt by PROMESA process must be 
perceived by the market as fair. As a result of the widespread 
devastation of the island caused by Hurricane Maria, holders of the 
Public Debt of the Commonwealth and other related issuers are faced 
with an inability to pay situation. While Federal assistance to the 
island will be forthcoming, this assistance will not take the form of a 
bailout of outstanding Public Debt. However, it will be important that 
the ultimate resolution of the outstanding Public Debt be perceived as 
fair to all parties, including the citizens of Puerto Rico and 
creditors including Public Debt and not arbitrary under the 
circumstances.
 proposed further response to the financial crisis and hurricane maria 
    to address the need to rebuild puerto rico's infrastructure and 
                         stimulate its economy
    First stop human suffering and develop a Marshall-type plan for 
Puerto Rico's governmental services and infrastructure. The first 
immediate action is to assure the health, safety and welfare of the 
citizens of Puerto Rico with provision of food, water, medical 
services, governmental service and infrastructure all to a level deemed 
acceptable. This is a Marshall-type plan for Puerto Rico for services 
and infrastructure (roads, water, sewer, electricity, etc.) at a level 
that can attract remaining and new citizens and businesses that want to 
be there and expand their businesses in Puerto Rico. This will create 
new, good jobs that produce additional tax revenues needed for a 
recovery. The technical and financial assistance can be provided not 
only by emergency relief but also other Federal agencies with 
established expertise DOE (electricity), EPA (clean water) and HUD 
(housing), etc.

    Develop a long-range economic development strategy for Puerto Rico 
to elevate Puerto Rico's business opportunities and roles in the 
Caribbean. There should be a long-range economic recovery plan for 
Puerto Rico which is implemented at the same time or in coordination 
with the Marshall-type plan that establishes viable and desirable 
services and infrastructure at the appropriate level as noted above. 
This economic development plan should provide assured liquidity for 
continued uninterrupted governmental operations and any necessary 
bridge financing in coordination with the implementation of the 
``Marshall-type plan.'' The economic recovery plan should consider 
making Puerto Rico (which means Rich Port) the key point of commerce 
for the Caribbean. Numerous islands have been continuously affected by 
the hurricanes in the Caribbean, and Puerto Rico could be the port and 
the location where all relief and all commercial activity is focused as 
the staging and coordinating center. This allows a coordinated effort 
and allows Puerto Rico to be elevated to a key role for the Caribbean. 
Part of this would include establishing Puerto Rico as the center of 
commerce for the Caribbean for banking, shipping and processing 
assembly of goods from foreign manufacturers for distribution in the 
Caribbean and possibly Central American and other locations.
    Also, legislation by Congress and the Commonwealth could provide 
for financial banking services to be the U.S.A. equivalent of the 
Cayman Islands for specialty financings and investment vehicles. This 
would facilitate Puerto Rico's becoming the banking center for the 
Caribbean like London has been for Europe. There already exist programs 
for high income persons to obtain tax benefits from a Puerto Rico 
residence and investment in Puerto Rico, and this would be a further 
expansion. Puerto Rico Laws Act 20 (Export Service Act) and Act 22 
(Individual Investors Act). Also, as part of the economic recovery 
plan, the whole island of Puerto Rico should become a foreign trade 
zone (a free trade zone) where equipment, goods and parts manufactured 
in foreign countries can be shipped to Puerto Rico duty-free and 
processed, assembled or manufactured with only limited duties on the 
finished product. Such actions would stimulate additional business 
activity and the benefits of new financial, shipping and manufacturing 
jobs [direct (the new jobs created by the economic policy), indirect 
(jobs created for good and services to support the direct job) and 
induced (jobs created by salaries spent for goods and services by those 
with the direct and indirect jobs)]. Historically, Puerto Rico had 46 
percent of its GDP attributed to manufacturing.
    the path forward for puerto rico, its citizens, businesses and 
                               creditors
    Citizens, taxpayers, business interests, and creditors of Puerto 
Rico should support the above proposal for an economic recovery plan, 
since it is the economic growth and success of Puerto Rico that is the 
means by which additional tax revenues will be raised, providing the 
funds to pay debt and other obligations, and to fund governmental 
services and infrastructure at the acceptable level. There is no 
substitute for the practical ability to be paid from a recovery plan 
that maximizes value and recovery to the extent reasonable and 
reinvests in Puerto Rico to ensure continued operations and sufficient 
tax revenues to pay off its creditors based on what can be paid. If 
there is no money, there is no payment no matter the rights or 
priorities. All the rights legally possible do not necessarily 
translate into payment of Public Debt or assurance of funding of 
essential services and needed infrastructure if an entire tax-base, 
i.e., U.S. citizens, are left with nothing to rebuild and no 
opportunity to recover.

                                 ______
                                 

   Questions Submitted for the Record by Rep. Grijalva to Mr. James 
         Spiotto, Managing Director, Chapman Strategic Advisors
    Question 1. Mr. Spiotto you say, that if a plan of adjustment is 
not confirmed or the Oversight Board is determined not to be validly 
appointed, some or all of the $73.8 billion of Puerto Rico Public Debt 
including the $21.7 billion of prior court approved COFINA and GDB 
Public Debt, could be eliminated under the ``Discussion Draft's'' 
proposal to allow for the discharge of unsecured debt.

    How is this possible when we were advised that it would be 
unconstitutional for secured Public Debt to be discharged except 
through a court approved bankruptcy?

    Answer. Unfortunately, the language of Title VIII of the Discussion 
Draft Bill, Amendments to PROMESA Act (``Proposed Amendments'') 
provides for the impairment and elimination of security interests, 
liens and pledges of tax revenues to be collected in the future after 
the date of the discharge resolution. Further, proposed Title VIII does 
not clearly state whether the legislative discharge of unsecured public 
debt could supersede or is subject to prior settlements approved by the 
Title III or Title VI courts under PROMESA. Further, if the Plan of 
Adjustment under Title III, as proposed by the Oversight Board, is not 
confirmed by the courts (``Confirmation'') or if the U.S. Supreme Court 
should rule in the Aurelius Appeal that the Oversight Board was not 
validly appointed and all acts of the Oversight Board are null and void 
and of no legal effect, including the prior court approved settlements 
and those proposed in the Plan of Adjustment,\1\ and if the Proposed 
Amendments are enacted, then the proposed Title VIII, by legislative 
resolution, could discharge some or all of the $73.8 billion of Puerto 
Rico debt including prior court approved COFINA and GDB public debt.
---------------------------------------------------------------------------
    \1\ The court approved settlements and proposed plan of adjustment 
settlements are generally set forth in my written testimony, Footnote 2 
and 3.
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    This could be done by a resolution of the Puerto Rico legislature 
under the proposed Title VIII. Under proposed Title VIII, financial 
obligations/public debt is conclusively deemed to be unsecured (Section 
804(a)). A holder of public debt which is secured must institute an 
action in territorial courts or the U.S. District Court of the 
territory within 180 days after the date of discharge and prove the 
secured status extent and value of collateral related to the public 
debt (Section 804(a)(1) and (2)). The burden of proof is on the holder 
of public debt (Section 804(b)).
    The value of collateral being a pledge of future tax revenues to be 
collected to pay COFINA bonds would, pursuant to Title VIII (Section 
804(h)(3)), not include future tax revenues collected after the date of 
the discharge resolution even though, for example, the clear intent 
under COFINA was that those future revenues would serve as collateral 
and security for payment of the COFINA bonds. Prior legislation by 
Puerto Rico provided that COFINA bonds were to have a statutory lien on 
such levy and collection of sales and use tax revenues. 13 L.P.R.A. 
Sec. Sec. 11a-16. This statutory lien would purportedly be eliminated 
after the date of a discharge resolution under proposed Title VIII 
(Section 803). Further, Federal bankruptcy courts have recognized that 
statutory liens created by state (territory) statutes cannot be 
rewritten, impaired, or avoided by a Federal bankruptcy court. See In 
re County of Orange, 189 B.R. 499 (C.D. Cal. 1995). See also, Order 
Pursuant to (I) 11 U.S.C. Secs. 105, 364(c), 364(d)(1), 364(e), 902, 
904, 921, 922 and 928 (A) Approving Postpetition Financing and (B) 
Granting Liens and (II) Bankruptcy Rule 9019 Approving Settlement of 
Confirmation Objections, In re City of Detroit, Case No. 13-53846 
(Bankr. E.D. Mich. Aug. 25, 2014), ECF No. 7028.
    Further, the general obligation bonds issued by the Commonwealth 
are to have a constitutional priority of being paid first from 
``available revenues'' when there are insufficient funds to pay all 
obligations under Article VI, Sec. 8 of the 1952 Puerto Rico 
Constitution. This constitutional priority for general obligation bonds 
and for pledges of future tax revenues has been honored in state 
courts, such as in New York, as to general obligation bonds of the City 
of New York during New York City's 1975 financial crisis and the New 
York City Sales Tax Receivables Corporation bonds, similar to COFINA 
bonds, as confirmed by ruling by the highest court in New York. (See 
pages 10 and 11 of my written testimony.)
    The result under proposed Title VIII discharging future payments of 
tax revenues after the date of the discharge resolution and excluding 
the value of such future revenues in the determination of the secured 
value of the collateral and status is contrary to other provisions of 
PROMESA. As noted in my written testimony, PROMESA was premised, not on 
altering of ``pre-existing priorities of creditors in a manner outside 
the ordinary course of business or inconsistent with the territory's 
constitution or laws of the territory as of, in the case of Puerto 
Rico, May 4, 2016 . . .'' (Section 204(c)(3)(ii) of PROMESA). Such a 
result would violate not only PROMESA, but the takings clause of the 
Fifth Amendment to the U.S. Constitution and traditional notions of due 
process and established bankruptcy law. For these reasons and those set 
forth in my written testimony, proposed Title VIII violates the 
principles and provisions of PROMESA, the U.S. Constitution, and the 
precedents set in previous sovereign debt restructurings as being too 
drastic, without standards, rationale or justification for discharge of 
unsecured debt and the improper avoidance and elimination of ``future 
to be collected'' collateral for secured debt.

    Question 2. Do you agree with the hypothesis ``that PROMESA was 
premised on a path marked by immediate and extreme fiscal austerity in 
order to repay Wall Street bondholders rather than one that was focused 
on improving and growing the island's economy which would mean the 
repayment of a sustainable level of debt over a reasonable time 
period''?

    Answer. No. I do not believe the intent and purpose of PROMESA is 
or should be ``fiscal austerity in order to repay Wall Street 
bondholders.'' Rather, the express purpose under Section 101(a) of 
PROMESA is clearly stated: ``The purpose of the Oversight Board is to 
provide a covered territory to achieve fiscal responsibility and access 
to the capital markets.'' As I noted in my written and oral testimony, 
there should be no dispute that Puerto Rico needs a recovery plan that 
reinvests in Puerto Rico, that corrects past legislative inequities (as 
noted in my testimony, in particular, the repeal of Section 936 of the 
IRS Code effective in 2006 without a comparable replacement) and that 
would stimulate economic development, encourage businesses to locate 
their businesses in Puerto Rico, and invest in Puerto Rico thereby 
creating new, good jobs for those in Puerto Rico. This economic 
development would raise the labor participation rate from 40 percent 
closer to the U.S. average of 62.7 percent and reduce the poverty level 
from over 40 percent closer to the U.S. average of 12-15 percent. This 
economic stimulus legislation could be fostering and creating Puerto 
Rico as a center for financing, insurance, commercial activity and 
manufacturing for the Caribbean with tax advantages or incentives for 
expanding and creating a foreign trade zone for the whole Island, 
exempting the 20 percent surcharge on foreign manufactured equipment 
and parts for manufacturing or assembly in Puerto Rico.
    Austerity per se reduces economic activity and is counter to the 
development of a feasible recovery plan that enhances services and 
infrastructure and repays restructured debt to the extent it is 
affordable and sustainable. Assuring the funding of needed governmental 
services at an acceptable level and needed infrastructure improvements 
is essential to a successful recovery plan. Clearly inefficiencies, 
waste and mismanagement of government and governmental services should 
not be tolerated. This is not austerity, but prudent management of 
government. Raising taxes beyond a reasonable level or reducing 
services or necessary infrastructure improvement below what can be 
tolerated by taxpayers and businesses results in the exodus of citizens 
and taxpayers, as Puerto Rico knows so well, and, if not corrected, can 
become a death spiral.
    As noted in my testimony, given the disaster relief Puerto Rico is 
to receive and needs to receive, it would be constructive for Congress 
to consider an expedited ``Marshall Plan'' for Puerto Rico \2\ 
providing the needed rebuilding of its infrastructure and instilling 
best practices in budgeting and finance for state and local governments 
as espoused by the GFOA and others. With a rebuilt infrastructure, 
Puerto Rico can better provide needed services to its citizens, 
stimulate its economy \3\ and, with a reasonable replacement for the 
repealed Section 936, attract new business and new taxpayers creating 
increased revenues to ease the pain of repaying the adjusted 
(affordable and sustainable) debt of Puerto Rico while providing needed 
and improved services and infrastructure improvements. Without a 
rebuilt infrastructure and stimulated economy, as noted above, it may 
well be impossible to attempt to rationally discuss what adjustment of 
debt is affordable or sustainable.
---------------------------------------------------------------------------
    \2\ The more expedited the payment of $41 billion in disaster 
relief to rebuild Puerto Rico infrastructure, as well as the claimed 
$50 billion of future FEMA cost over the life of the disaster, the 
better it is for a successful recovery plan. The better supervised, 
assured and efficient management and implementation of disaster relief 
funding by the Federal Government, Oversight Board and Puerto Rico, the 
better the economic stimulus to Puerto Rico will be.
    \3\ Economic growth and job multiplier. Reinvestment in needed 
infrastructure improvements creates increased GDP. As studies have 
shown, $1.00 of hard infrastructure costs adds $3.20 over 20 years to 
GDP growth. Further reinvestment in infrastructure translates into year 
to year growth of the number of employed workers and GDP growth given 
the economic stimulus and job multiplier. (Every new job creates 
service jobs, indirect and induced, that increase productivity 
indirectly. This can range from two or three to four or more new jobs 
depending upon the industry it is created in.) See, Isabelle Cohen, 
Thomas Freiling, Eric Robinson, The Economic Impact and Financing of 
Infrastructure Spending (Dec. 14, 2011), https://www.wm.edu/as/
publicpolicy/documents/prs/aed.pdf. The stimulation of economic growth 
through programs that attract new business to move into Puerto Rico 
(like a replacement of the repealed Section 936) and create new jobs 
increase the tax revenues that help resolve the financial distress and 
lead to financial recovery.

    Question 3. Can you explain your conclusion that Title VIII could 
allow a secured creditor to lose their security when we expressly limit 
---------------------------------------------------------------------------
the title's application to ``unsecured debt''?

    Answer. As noted above in the answer to Question No. 1, proposed 
Title VIII provides in Section 804(a) of the Proposed Amendments that 
financial obligations/public debt are conclusively deemed to be 
unsecured debt except to the extent the holder of public debt can prove 
the public debt is a secured obligation. Section 804(h) of the Proposed 
Amendments provides that in the action to prove the public debt's 
secured status, any pledge or security interest in tax revenues not in 
existence at the date of the discharge resolution, such as tax revenues 
pledged, dedicated, subject to a security interest or lien to pay 
public debt and required to be collected after the date of the 
discharge resolution, shall not be included as collateral value in 
determining the extent of the secured value. This is contrary to the 
principles of revenue bond financing and statutory lien bond financing 
as recognized and enforced by state and local governments. This 
conflicts and violates the statutory and constitutional provisions of 
Puerto Rico's Constitution and Laws, as noted above, which, under the 
terms of PROMESA, are not to be violated. The elimination and 
termination of pledges, liens and security interests as to future tax 
revenues or other property that comes into existence after the date of 
the discharge resolution under Section 804(h) of Title VIII of the 
Proposed Amendments causes secured creditors to lose their security 
even though proposed Title VIII claims to only discharge ``unsecured 
debt.''
    Question 4. In your statement, you don't address the Discussion 
Draft section that would define essential public services. 
Nevertheless, you urge Congress to assure the health, safety and 
welfare of the citizens of Puerto Rico with provision of food, water, 
medical services, and infrastructure all to a level deemed acceptable.

    Is that consistent with defining essential public services to 
ensure they are funded by the Oversight Board?

    Answer. As I stated in my written testimony, essential government 
(public) services should be funded to an acceptable level. It is the 
function of government to fund essential services and, given the 
circumstances, fund the services at an acceptable, prudent level given 
the ability to pay and the tax burden placed on citizens. As noted, 
raising taxes and reducing expenditures for services given financial 
distress is not a recovery plan and can lead to the exodus of 
taxpayers, both individuals and businesses. Likewise, the unjustified 
elimination of public debt while paying and not adjusting unaffordable 
or wasteful costs for goods or services, labor costs, pensions, 
healthcare or tax refunds and tax credits is not financially prudent. 
That is because such action will be perceived in the capital markets as 
inefficient and wasteful, thereby increasing the risk and cost of 
future borrowing. Further, such approach may limit the ability of 
government to borrow needed funds for capital improvements, 
infrastructure enhancements, and needed public services including 
education and health care.
    The notion of funding essential governmental services at an 
acceptable level includes services that are affordable, sustainable and 
in balance with the overall ability of the government to pay for and 
finance needed capital and infrastructure improvements, demonstrate 
fiscal responsibility and enhance access to the capital market at 
reasonable borrowing costs. PROMESA generally supports funding of 
essential public services. There is no real need to further articulate 
the detail of such service, since the detail is better left to Puerto 
Rico to manage and budget effectively with the guidance and oversight 
of Congress and the Oversight Board. Whatever is deemed the acceptable 
level, it should be what the government determines is affordable and 
sustainable over the long run. Too little services and infrastructure 
improvements will lead to an exodus of individuals and businesses and 
the failure of any recovery process. Excessive expenditures and 
enhancement of services and infrastructure given the ability to pay 
will lead to a default on future public debt borrowings and other 
obligations and result in increased borrowing costs and limited access 
to the capital markets to borrow money for needed infrastructure 
improvements and services. As Aristotle said in his work Nicomachean 
Ethics, ``virtue'' is nothing in excess. Funding of public services, 
infrastructure, education, healthcare and pensions is required so that 
government fulfills its essential mission of providing for the health, 
safety and welfare of its citizens. The funding of essential 
governmental services should not be beyond the ability to pay 
(reasonable ability to tax and realistic ability to collect revenues) 
and without causing increased perception of risk by the capital markets 
as to the ability to repay public debt. Public debt must be reasonable 
in amount and cost of borrowing--nothing in excess. To favor one side 
of the equation, payment for goods, services, labor, pensions, 
healthcare to the unreasonable detriment of inability to pay the cost 
of financing capital improvements, infrastructure enhancements and 
funding of basic service needed to keep the lights on creates an 
extreme that is not virtuous and is hazardous to the financial health 
and survival of government. On a positive note, under proposed 
Commonwealth legislation backed by the Governor of Puerto Rico, the 
Puerto Rico Fiscal Agency and Financial Advisory Authority would be 
charged with developing a policy for the prudent issuance of public 
debt in the future to avoid the practices that contributed to Puerto 
Rico's fiscal problems. The measure would restrict debt financing 
strictly for capital improvements and prohibit debt to cover 
operational deficits. Jose Alvarado Vega, Governor Presents Bill to 
Rein in Puerto Rico Debt Issuances, Caribbean Business, (November 5, 
2019), https://caribbeanbusiness.com/governor-presents-bill-to-rein-in-
puerto-rico-debt-issuances/. The value to be obtained through the 
enactment of thoughtful regulation of bond issuances would be 
undermined by a history of debt repudiation without a rational basis.
    In my testimony, I questioned, in response to Representative 
McClintock's inquiry, whether Puerto Rico's financial problems would be 
a contagion for state and local governments' ability to borrow in the 
capital market. I believe, upon further reflection, that there is some 
concern contagion could be suffered by state and local governments due 
to Puerto Rico's response to its fiscal problems. The more extreme the 
result in Puerto Rico, the more the perceived risk there is in any 
government borrowing, and the more likely there will be an adverse 
effect on borrowing by state and local governments. That is why it is 
imperative that Congress, the Oversight Board and Puerto Rico reach a 
credible and just outcome for public debt. There has been recognition 
of the need for increased borrowing for required infrastructure 
improvements and capital projects by state and local governments as 
well as Puerto Rico.\4\ An extremely negative outcome for public debt, 
disproportionate and unjustified compared to the recovery for creditors 
of goods, services, labor, pensions, tax credit and tax refunds, will 
necessarily mean both Puerto Rico and state and local governments 
generally will find borrowing costs and access more challenging and 
less user friendly. While Puerto Rico may have been viewed in the past 
as an aberration compared to state and local government financing, the 
more extreme the result for public debt in Puerto Rico, the less 
virtuous and more costly the perception generally of government credit, 
even for state and local governments.
---------------------------------------------------------------------------
    \4\ The American Society of Civil Engineers (``ASCE'') claims there 
is at least a $2 trillion funding gap in needed infrastructure 
improvements to be funded by 2025. In ASCE's 2017 Report stated the 
cumulative infrastructure funding needs based on current trends 
extended to 2025 is $4.59 trillion to have passable infrastructure 
estimated funding has a gap of over $2 trillion. ASCE discovered in its 
2016 economic study ``Failure to Act Closing the Infrastructure 
Investment Gap for America's Economic Future'' that the failure to do 
necessary infrastructure improvements in the U.S.A. will cost the 
country $3.9 trillion in losses suffered to the GDP by 2025, $7 
trillion in lost business sales by 2025 and $2.5 million in lost 
American jobs in 2025. Am. Soc'y of Civil Eng'rs 2017 Infrastructure 
Report Card, a Comprehensive Assessment of America's Infrastructure 8 
(2017), https://www.infrastructurereportcard.org/wp-content/uploads/
2016/10/2107-Infrastructure-Report-Card.pdf.

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                                 ______
                                 

    Mr. Sablan. Thank you, Mr. Spiotto.
    I thank the panel for their testimony. Reminding the 
Members that Committee Rule 3(d) imposes a 5-minute limit on 
questions, the Chairman will now recognize Members for any 
questions they may wish to ask of the witnesses. Let me start 
with myself.
    Mr. Martinez, sir, in your testimony you express support 
for Section 6, disclosure by professional persons employed by 
court order to avoid conflicts of interest by consultants 
providing services to the Oversight Board. Several 
organizations have expressed there is also an urgent need to 
include language in PROMESA to avoid conflicts of interest by 
members of the Oversight Board. Should this be a priority for 
the Committee? And if so, why?
    Mr. Martinez Otero. Yes, I think it is a priority because 
in Puerto Rico right now probably 80 percent or more of the 
corruption issues are related to hiring fraud and lack of 
transparency. Why? Because right now we don't have the 
institutions to prevent that kind of corruption, and when you 
have a lot of Federal money and government without the 
corresponding institution to fight against corruption, you 
always will have the separation by the Department of Education, 
Healthcare Education, in which in all of them the past 
secretaries have been arrested because of corruption.
    Mr. Sablan. Thank you.
    Mrs. Cubano, thank you, again, for joining us and 
representing the Puerto Rico Private Sector Coalition. In your 
testimony, you emphasized the importance of shifting the focus 
away from austerity due to degrading impact on economic growth. 
Does the Coalition support defining and protecting essential 
public services to ensure the basic needs of the residents, the 
people of Puerto Rico, are met and to reduce migration
    Mrs. Cubano. Yes, we agree that we have to identify those 
essential services, and we think that the effort will not only 
be on that, but at least it protects all the efforts. And 
always directing all the public policy to make possible all the 
economic growth in the island. We think that that is the way we 
can help Puerto Rico, all the companies, and the people to 
really conquer the challenge that we are facing at this moment.
    Mr. Sablan. OK. Mr. Velazquez, it is evident from your 
statement that you don't agree with the Oversight Board 
statement that the debt restructuring plan they proposed last 
month will ultimately reduce the amount the government of 
Puerto Rico will spend on debt service to an amount it can 
sustainably afford over the next 30 years, from $4.2 billion a 
year to $1.5 billion a year. You don't believe that the Puerto 
Rican government will be able to afford $1.5 billion dollars a 
year in debt payments?
    Mr. Velazquez. Absolutely not, Congressman. As I stated in 
my testimony, and I would point to Exhibit A in my testimony, 
the Oversight Board has a set of projections where they tie 
personal income to debt service. This goes back to the concept 
of rising tide lifting all boats. If you look at that number, 
it is the bottom line in that exhibit in that graph, and what 
they say is, no, we have about $4 billion based on personal 
income when you benchmark it against the top 10 states in the 
United States. In other words, states that have real economies.
    Instead, the numbers we are talking about are closer to the 
top end of that range. And the reason that there is a 
disconnect there is because there is a difference between kind 
of like the legal fiction that PROMESA has and the economic 
reality. The economic reality that we have here is the wages 
that are in the private sector that the private sector is 
generating. That is the engine that ultimately affords debt 
restricting. If the economy isn't working for workers, it isn't 
going to work for Wall Street because you are not going to have 
the money needed to pay back Wall Street from the workers that 
you are trying to tax, and in this case, are getting taxed to 
death.
    Mr. Sablan. Thank you. I have one more question. I have 
limited time so Mr. Butin, sir, what is your reaction to the 
concern that the government of Puerto Rico can no longer afford 
to subsidize the University of Puerto Rico at the same rate 
that they were previously?
    Mr. Butin-Rivera. Well, when you are talking about funding 
the University of Puerto Rico, there are studies that establish 
that for every dollar that you spend on the University of 
Puerto Rico, it generates $1.25 back to the government. And 
also for every hundred jobs that the University creates, it 
gives back 164 jobs just by spending money on the University 
because it is not logical to do what you are doing to the 
University of Puerto Rico.
    Mr. Sablan. Thank you, sir.
    Mr. Butin-Rivera. Can I say one more thing?
    Mr. Sablan. Hurry up.
    Mr. Butin-Rivera. As Mr. Bishop said, Puerto Rico has a lot 
of human resources and those human resources come through the 
University of Puerto Rico, so you have to invest in the 
University of Puerto Rico for the future.
    Mr. Sablan. Thank you, sir. And the Ranking Member has told 
me that he will yield to the dean of the House, Mr. Young, to 
go first.
    Mr. Young. Thank you, Mr. Chairman. This is for the whole 
panel. Of the total debt, what percentage is PREPA? Anybody 
know?
    Mr. Martinez Otero. Heriberto Martinez, President of the 
Economic Association of Puerto Rico. Like 22 percent, more or 
less $10 billion over----
    Mr. Young. What is the percentage of the debt of PREPA? 
Like 44 percent?
    Mr. Martinez Otero. No, not really. Let me----
    Mr. Young. How much? 22 percent? When I am asking that 
question, 22 percent, there have been some suggestions, even by 
the Board and other people, that it should be sold. How many in 
the panel support the selling of PREPA to private industry? 
Nobody. If you are consuming money and not making money why 
wouldn't you get rid of it?
    Ms. Cubano. The private sector really encourages to have a 
combination of public and private investment in PREPA.
    Mr. Young. OK, I have been involved in this a long time, I 
happen to be one of the sponsors of PROMESA, and I am just 
looking for why we keep handling an electrical group that loses 
money every year and why you keep putting up with that. If you 
want to have money for the University, if there is a buyer, why 
not sell it? Anyone here? You are a university student.
    Mr. Butin-Rivera. Well, if you want to sell PREPA, you have 
to see the history why PREPA was created. PREPA was created 
because the private sector had a lot of problems with the 
distribution of the energy on the island. Of course, a lot of 
years have passed from that moment, but at this moment I think 
we have to evaluate how we can sustain PREPA and match it with 
private funding.
    Mr. Young. With all due respect, it is a cow that hasn't 
milked in years. It just eats hay. It doesn't do anything else, 
but you know what, it is time for the chance for maybe 
private--if there is a buyer, I don't know who would buy it, 
but if there is a buyer you might want to consider that.
    With that, I yield back. I yield back to my Ranking Member.
    Mr. Sablan. Thank you. I now recognize 5 minutes to Mr. 
Soto.
    Mr. Soto. Thank you, Mr. Chairman. First, I want to thank 
Liliana Cubano for talking a little bit about the work we are 
doing in health care. I think that is one of the bright spots 
happening through Congress right now. We have our bipartisan 
Territories Health Care Improvement Act that was co-introduced 
by Congressman Bilirakis; Congresswoman Nydia Velazquez is also 
a big proponent of it. It would increase the amount of Medicaid 
funding from $375 million a year to $400 billion a year for 
Puerto Rico. That would shore up a lot of the issues at least 
in the healthcare system. And we recently just passed Help for 
Medicare Part D for Needy Seniors that right now it doesn't 
apply in Puerto Rico, so a lot of movement on the healthcare 
front.
    Obviously, we are here for PROMESA today. I appreciate 
Ranking Member Bishop's concern about having an open markup. We 
look forward to ideas from all parties behind the dais when we 
have that open markup, if there are economic development issues 
you think would make this more bipartisan legislation.
    And I agree with the Ranking Member's opinions on 
statehood, and filed bills to support that. And I guess if I 
filed an amendment, I could count on your support in subsequent 
markups, so we will see on that later on. That would actually 
render PROMESA potentially even obsolete because you would have 
state-sovereign immunity at that point, and perhaps you 
wouldn't need PROMESA anymore.
    I wanted to go through a couple of the issues that I hear a 
lot from constituents, issues related to canceling the entire 
debt and ending PROMESA. Mr. Velazquez, do you know of a legal 
way to cancel the entire debt? Is there a plan that you are 
recommending? Because I know you were kind of dancing around 
it, but I just was curious if there was a specific plan.
    Mr. Velazquez. Well, one obviously, the Territorial Relief 
Act considered in the discussion draft is one way to do it. The 
other way is usually through court action. Court actions will, 
for example, consider various legal issues as to whether a debt 
was issued ultra vires or not, and obviously that is a question 
that is very much at the center of the legal proceedings 
occurring in PROMESA.
    Mr. Soto. If PROMESA was terminated, what would your 
recommendation be in the alternative?
    Mr. Velazquez. If you get rid of--well, first of all, I was 
going to say----
    Mr. Soto. I just need a short version because my time is 
limited.
    Mr. Velazquez. Sure. Then you would very much need the 
Territorial Relief Act or something similar to that if you get 
rid of PROMESA.
    Mr. Soto. OK. Mr. Spiotto, what would happen if we cancel 
the debt and ended PROMESA and used the Territorial Relief Act, 
in your opinion?
    Mr. Spiotto. Without justification or rationale, it will 
significantly impact the ability of Puerto Rico to go back into 
the capital market and borrow. And the rates that it borrows at 
will be increased, access in various respects may be limited, 
and it may prevent doing the types of things that might make 
sense with public-private partnerships and so forth for some of 
the utilities that may help provide money.
    Mr. Soto. Thank you, Mr. Spiotto, my time is limited. Mr. 
Butin-Rivera, we have the essential services defined here. 
Would that give some of that well-needed relief that you are 
requesting for the University of Puerto Rico?
    Mr. Butin-Rivera. Yes, and also to assure a quantity of 
money that the University needs to run. The amendment talks 
about $800 million from the central budget. That is about the 
reality that the University needs right now, but that doesn't 
mean that we can run more effectively. We have to invest in the 
University for it to run more effectively.
    Mr. Soto. Thank you. And Mr. Martinez Otero, what is your 
opinion on both the economic development section and the audit 
section that we have currently in the draft?
    Mr. Martinez Otero. I support it and I like the definition 
of economic growth, but I think that you need to be more 
specific in which industrial sectors you want to support or 
invest, like for example, corporate sector, or which part of 
the private sector do you want to grow in our economy because 
we need more private investment at this moment.
    Mr. Soto. I share a lot of people's concern about the 
economic development aspect. The only concern I have otherwise 
though is, is this taking away, then, from the Puerto Rico 
legislators' authority to be able to do that. So, that is 
something that I am sort of grappling with.
    I wanted to end by just a show of hands, how many of you, 
raise your hand if you would support a Reconstruction 
Coordinator. Raise your hand. OK, so none of you would support 
a Reconstruction Coordinator. How many of you would support a 
Revitalization Coordinator for PREPA? Raise your hand if you 
would support that. OK, thank you so much.
    Obviously these are complex issues. I appreciate all your 
testimony, and I commend the Chairman for putting forward a 
draft and then hosting now 2 days' worth of hearings with 
multiple panels to hear from everybody before we come up with 
an actual bill, and even from there we will have an opportunity 
for markup. I yield back.
    Mr. Sablan. OK, thank you, Mr. Soto. The Chair now 
recognizes the Ranking Member of the Full Committee, Mr. 
Bishop.
    Mr. Bishop. Again, let me piggyback on what Mr. Soto said 
at the very end on how much we appreciate you coming up here. 
It is very good to have disparative views, especially from 
those who are on the ground floor in what they are doing, even 
though at some point that vision may necessarily have some 
blinders on it on where it is supposed to be.
    Also, see this is the problem of actually not reading 
something that is prepared and just talking what I actually 
believe. It is Serrano whose bill I wanted to talk about 
statehood and he is from the Bronx, he is not from North 
Carolina or New Jersey or anywhere close to that. You've seen 
one Easterner, you've seen them all.
    [Laughter.]
    Mr. Bishop. But that is what we should be doing.
    There are another couple of things that have been very 
good, not only with some of the discussions in here and in your 
written testimony, but stuff that was brought out in the last 
hearing as well that deals with FEMA issues and CDBG-DR funds. 
And, unfortunately, as significant as those are and the 
problems I think we have talked about even when we were in 
Puerto Rico, those are not the jurisdiction of this Committee. 
We can't solve those problems in the Committee and that is why 
in the last hearing Representative Gonzalez actually left the 
chairing of this to go over to the committee of jurisdiction to 
deal with those particular issues. That has to be part of the 
equation that is still there.
    Mr. Spiotto, if I could ask you the simple question as 
well, the Congress crafted PROMESA with bipartisan support but 
the goal of that was always to ensure that it regains financial 
credibility by improving oversight and accounting measures with 
the ultimate goal of having better government accounting 
practices, a return to market access that would be at 
reasonable rates. In your professional opinion, do you believe 
this draft proposal that we are considering today is written 
with those same goals in mind?
    Mr. Spiotto. No, I believe it conflicts with those, and 
could significantly impair the type of recovery that Puerto 
Rico should have.
    Mr. Bishop. Well, then let me just once again ask the same 
question that Darren asked of you to give you the same 
opportunity to respond to it one more time. If, indeed, any of 
these draft proposals, which in my estimation are not going 
anywhere, if these draft proposals ever actually became law, 
would Puerto Rico have an easier time in reaccessing the 
financial markets after they would have the Puerto Rico 
Legislature as well as the governor simply wipe out the debt 
obligations?
    Mr. Spiotto. It would have a harder time because the fear 
of the blanket wipeout of public debt would make creditors 
demand security, it would create real problems in obtaining 
credit, and it would put a block or an obstacle in doing the 
types of things you want to do when doing a restructuring and a 
recovery plan.
    Mr. Bishop. So, I guess if we were to try to be cynical and 
say that certain special interest groups that happen to be 
there on the island that, yes, we should restructure you, wipe 
out your debt, in the long term that would have a negative 
overall effect of what you are trying to do, because I think 
you were talking about the difference between the symptoms 
versus the causal implication.
    Mr. Spiotto. Yes.
    Mr. Bishop. Is that a fair statement to make?
    Mr. Spiotto. Yes, just because you have a large amount of 
debt is really a symptom of having a financial problem that 
wasn't addressed. If Puerto Rico had the ability to resolve 
their problems in 2006, they would not have taken on another 
$30-some billion worth of debt which created a lot of the 
problems.
    Mr. Bishop. I have maybe like 1 minute left. Are you 
familiar with the efforts that were done in New York City in 
1975, in Philadelphia in 1991, and in DC here in 1995?
    Mr. Spiotto. Yes.
    Mr. Bishop. Did any of those examples ever wipe out their 
debt obligations wholesale in the manner that the Chairman's 
draft of this legislation proposes?
    Mr. Spiotto. No, they refinanced all of them; they paid 
them back. In fact, DC and the Financial Control Board did the 
same thing.
    Mr. Bishop. So, if we want to learn from history, we don't 
go down this road.
    Mr. Spiotto. It creates more problems than benefits.
    Mr. Bishop. Thank you. Once again, I appreciate all of your 
efforts to come up here. What you should realize is that you 
are coming up here at the wrong period of time. We should be 
going down to Puerto Rico for these hearings in November and 
December. If you wanted to come here, you can come up here in 
the summer, we have to go down there in the winter. So, not 
only are we doing it the wrong time of the day, we are doing it 
in the wrong location.
    Mr. Sablan. February.
    Mr. Bishop. That is right, February. We just made a deal. 
We will go down there in February.
    [Laughter.]
    Mr. Sablan. Thank you, Mr. Bishop. Thank you. At this time, 
Mr. Cartwright, sir, you have 5 minutes.
    Mr. Cartwright. Thank you, Mr. Chairman, and I would like 
to thank the witnesses for traveling here and giving us your 
testimony.
    Mr. Velazquez, thank you for your testimony. I had a 
question for you. The government of Puerto Rico and the 
Oversight Board oppose amendments to PROMESA, and these 
amendments would facilitate access to public debt information, 
in other words make public debt information more transparent. 
And what the government argues is that this level of 
transparency would create problems in debt restructuring 
proceedings, and, as they say, negatively impact attorney-
client privilege.
    I want to find out if you agree that that is the case and 
whether you could further explain what the negative impacts of 
transparency would be on debt restructuring.
    Mr. Velazquez. Congressman, thank you for the question. 
That argument by both the Oversight Board and the government of 
Puerto Rico is a complete red herring to keep you from actually 
focusing in on what the real bogey is. The real bogey here is 
getting information out to the people of Puerto Rico, and not 
only that but to the financial markets. There is a lot of 
information that has been asked about transparency that both 
creditors and us, frankly as a labor union, and the people of 
Puerto Rico want. I find those arguments to be a complete red 
herring. What we need to focus on is transparency of the debt 
and of those documents.
    Mr. Cartwright. So, it is quite the opposite. You don't 
believe that more transparency is a bad thing?
    Mr. Velazquez. That is correct.
    Mr. Cartwright. I see, OK. And to our student on the panel, 
Mr. Butin-Rivera, thank you for your testimony as well. And 
thank you for providing an overview of the challenges that the 
University of Puerto Rico faces including a lack of funding for 
its operations and its retirement system. Recognizing that the 
financial resources of the government of Puerto Rico are 
scarce, has the University presented recommendations to the 
government to achieve cost savings that could mitigate budget 
cuts to the University?
    Mr. Butin-Rivera. Yes. The University has been open to give 
services to the government through a deal, through this last 
year that will be cheaper than the private sector, and we could 
do an even a better job for the government. Even Ricardo 
Rossello, when he came here, he mentioned that he signed an 
order for the UPR to be the first in line when new contracts 
are going to be held. But in reality, that number has not been 
a big number that the University needs to run when compared to 
the budget cuts.
    Mr. Cartwright. You mentioned cheaper and better as 
recommendations. Could you give us some specific examples?
    Mr. Butin-Rivera. For example, we can give, when new laws 
are being written and the University of Puerto Rico could help 
with accessory to the legislation writing. We could help with 
that and we could give really good recommendations from the 
University. We have the best law school in Puerto Rico, but 
simply the contracts are not being given to the University of 
Puerto Rico. And in some cases like the police academy, the UPR 
gave a proposition to help the police academy and it was given 
to a private university.
    Mr. Cartwright. So, if the University's recommendations 
were accepted, how might that affect the quality of education 
and the ability to attract top students at the University?
    Mr. Butin-Rivera. We would have more money to invest in the 
University. That is like the logic of what we can do for the 
government. And also it will give opportunities for the 
students to help the government, too.
    Mr. Cartwright. I thank you for those answers, and I yield 
back.
    Mr. Sablan. Thank you very much, Mr. Cartwright. At this 
time, the Chair recognizes Mr. Gohmert for 5 minutes.
    Mr. Gohmert. Thank you, Mr. Chairman. It always seems to me 
that Puerto Rico should be the Hong Kong of North America, and 
obviously the financial issues are not helping, and of course 
there is all the litigation over the Board and we will see how 
that works out.
    But I had the honor of serving with Luis Fortuno here in 
Congress for a term before he was elected to governor, and my 
understanding was he was trying to get the debt under control 
and when you have 30 percent or so of the population working 
for the government and you pay no Federal income tax but the 
local tax is between 30 and 40 percent, it doesn't draw 
businesses in like I would have thought there would be the 
opportunity.
    So, with PROMESA it seemed like there was at least a chance 
to get debt under control; it looked like restructuring had 
saved some money. But long term, people are going to need to 
see that, and investors, that there is a good game plan.
    We see here in the United States with the billions and 
billions of dollars that was spent trying to drive green 
energy, renewables, there was fiasco after fiasco. We had a 
hearing previously, in a previous Congress, over the solar 
power plant near the border of Nevada and California. They got 
between $2.2 billion and $2.3 billion. And with all they have 
done for a number of years now, when they testified, they had 
paid back $6 million of the amount of loans.
    It concerns me when I see the proposal go from 2 percent 
renewables to 100 percent renewables because as a Democrat 
colleague, the late John Dingell, pointed out, when you start 
raising energy prices, it is a massive tax on the people that 
can least afford it. And renewables get expensive. If it is 
solar, if it is wind, then you have to have double the 
production lines because you have to also draw energy from 
something that you know you can count on since you can't always 
count on wind and sun.
    I am a little concerned about just the massive expense and 
this driven desire to go from 2 percent to 100 percent 
renewables, and just how devastating that might be. Let me go 
from right to left. Mr. Spiotto, do you see going to 100 
percent renewables helping the financial situation in Puerto 
Rico?
    Mr. Spiotto. I believe we need to redo the grid and provide 
a method of providing good electrical services, and that is one 
extreme which I don't think should be a near-term goal at 
least, if not a long-term.
    Mr. Gohmert. Mr. Butin-Rivera, surely paying energy bills 
doesn't come easy to a student, does it?
    Mr. Butin-Rivera. No, it is not, sir.
    Mr. Gohmert. What have your energy bills done in recent 
years when you were able to get energy?
    Mr. Butin-Rivera. What are my bills? It has been really 
high when compared to the states, and we have had problems with 
the electrical system. As you know, I was one of those peoples 
in the hurricane where I was 6 months with no energy in my 
house. But I think that is an example of how renewable energy 
can help the island. I was 6 months with no energy in my house 
and solar panels that we bought from the internet was the thing 
that helped me and my family to support ourself for those 6 
months.
    Mr. Gohmert. Well, it is good to hear. My time is expired, 
but I appreciate all of you being here.
    Mr. Sablan. All right, thank you very much, Mr. Gohmert. It 
is now my distinguished pleasure to recognize the distinguished 
lady from New York, a proud Puerto Rican and also chair of the 
Small Business Committee.
    Ms. Velazquez. Thank you, Mr. Chairman. Let me take this 
opportunity to thank all of you for coming here and shedding 
light of the struggle and the plight of the people of Puerto 
Rico for justice and equality. Mr. Spiotto, I hear you when you 
said that one of the most important outcomes of all this debt 
restructuring of the public debt is how can we guarantee for 
the people of Puerto Rico and the government of Puerto Rico 
access to the capital markets. What is your opinion about the 
need for the Oversight Board to audit the public debt?
    Mr. Spiotto. Well, I believe both the notion of fiscal 
responsibility and access--certainly they should determine what 
is valid and what is not. Part of that is the court process in 
Title III, of the amendments with regard to an audit 
commission.
    Ms. Velazquez. Do you support auditing the debt?
    Mr. Spiotto. A government could do that; I don't think it 
is necessary given the Title III action and the actions that 
are presently pending.
    Ms. Velazquez. So, you don't think that the people of 
Puerto Rico deserve to know how the government got into this 
mess.
    Mr. Spiotto. I think the government of Puerto Rico can take 
on, itself, a determination as to what happened. But as far as 
the restructuring process in PROMESA, I leave it to the Title 
III action to do it. Separately, you----
    Ms. Velazquez. It is OK, I guess you are not going to 
answer my question and I have limited time.
    Mr. Velazquez, last week Omar Marrero from AAFAF publicly 
stated that Puerto Rico's government opposes the definition of 
essential services because creditors could argue that whatever 
money not utilized to cover those services that are going to be 
enumerated can be used for debt repayment. In your statement, 
you support the definition of essential services. Is the 
proposed language of the PROMESA draft clear enough to prevent 
creditors from getting greater recoveries under this argument?
    Mr. Velazquez. I actually think the language could be 
improved upon. Let me give you an example. If you look at my 
testimony, I have as an exhibit the amount of money that is 
going to go out to bondholders starting the first 3 years. It 
is Exhibit C to my testimony. If you look at the first 3 years, 
there is actually much more money going out on the first 3 
years than the later 3 years, and than the rest of the time. 
And the reason for that, or the question I raise is, how did 
you get that money? And it looks to me like, not knowing what 
is going on, but the hurricane money is going out that way. And 
that is a concern of mine, that you are using the Federal funds 
as a way to actually make sure that there are higher gains for 
the bondholders.
    I would like to see language that defines essential 
services in a way so that we don't have this situation where 
extra money is going to the bondholders in the first years 
while we are still trying to recover from the hurricane.
    Ms. Velazquez. Thank you. You also recommended in your 
testimony that we include some FOIA-type language. However, I 
believe there is a commonwealth FOIA-type act called the 
Transparency Act that was recently signed into law that will 
provide the mechanisms for disclosure. In your opinion, that is 
not enough?
    Mr. Velazquez. No, our concern is getting access to the 
courts for the people of Puerto Rico, and access to tools. When 
it stays in the control of the government of Puerto Rico, those 
tools, they have had a history of complicating things, and the 
language we suggested was a way of giving an alternative forum 
to those in Puerto Rico in case those procedures don't work.
    Ms. Velazquez. Thank you. Mr. Martinez Otero, the 
University of Puerto Rico has 11 campuses throughout the 
island, including its main campuses in Rio Piedras and 
Mayaguez. So, what would be the economic impact, and I 
understand the economic impact that it will have on the 
student, but at the municipal level have you done any study, 
any research?
    Mr. Martinez Otero. Yes, we have research from the 
economist Jose Caraballo Cueto, former president of the Puerto 
Rico Economies Association, and in that study he found that the 
UPR is the most important economic sector, industrial sector in 
like seven of the municipalities in Puerto Rico. That means 10 
percent of the municipalities. And if you close, for example, 
UPR Cayey, UPR Utuado, the economy of the municipality probably 
will collapse.
    Ms. Velazquez. Thank you. I yield back.
    Mr. Sablan. Thank you, Ms. Velazquez. At this time, the 
Chair recognizes Mr. McClintock for 5 minutes. You don't have 
to use all of it, but you are recognized for 5 minutes.
    [Laughter.]
    Mr. McClintock. I won't, it will just seem that way. In 
California, I find these hearings most reassuring. I find some 
comfort in knowing there is a government as badly managed as my 
own, and I do feel a certain camaraderie because both Puerto 
Rico and California have the most beautiful climates, the most 
beautiful resources, miles of gorgeous beaches. We are both 
cruise destinations. We are both ideal for resorts, for 
recreation. Yet, people and businesses are fleeing my state and 
fleeing your commonwealth in droves. They ought to be flocking 
to California; they ought to be flocking to Puerto Rico. 
Instead, they are fleeing from them. And that is not because of 
any act of God, that is because of acts of government. Really, 
really bad public policy over a long period time, and people 
end up voting with their feet.
    I represent an area in Northern California, our power is 
out today. Any time it is a windy day now in California you no 
longer have power. When you do have power, you pay twice as 
much as the average rate payer in the rest of the country. We 
have become a third-world enclave when it comes to the delivery 
of electricity. And I know that you are suffering the same 
problem there.
    In California, the utilities have been forced by stupid 
government policies to, in the case of PG&E, divert $2.5 
billion they could have been using for infrastructure upgrades 
to protect their lines against fire, instead $2.5 billion a 
year goes out the door for green energy schemes. There are also 
mandates on PREPA for the same thing, are there not? How is 
your electricity reliability? And how are your prices as a 
result?
    Ms. Cubano. Well, that is one of the things that we are 
proposing, that the RSA from PREPA should be evaluated.
    Mr. McClintock. Who is responsible for these green energy 
policies? Who is imposing them on you? Is that some stupid idea 
the commonwealth government came up with? Or is that something 
we imposed on you? How did that work?
    Mr. Martinez Otero. The issue about the Puerto Rico 
Electric Power Authority, PREPA, is that last year ex-Governor 
Rossello, he created an agreement for a public-private 
partnership with some private corporations, we don't know, we 
don't have the information----
    Mr. McClintock. Public-private corporation, partnership----
    Mr. Martinez Otero. Public-private partnership.
    Mr. McClintock. That is another way of saying let's invite 
corruption into the process. I just want to know where did this 
come from? Just very quickly because my time is up.
    Mr. Martinez Otero. The government.
    Mr. McClintock. OK. Somebody said these issues are terribly 
complicated. It doesn't seem to me they are complicated at all. 
If you spend more than you take in, you are going to run out of 
money. If you walk away from your debt, people stop loaning you 
money. And socialism sucks. You take enough money from working 
people, you pile enough regulations on businesses, people 
leave. Mr. Spiotto, my principal concern is this: the 
commonwealth seems to want very much to walk away from the 
debts that it has incurred through a lot of very bad policies. 
If they do that, who in his right mind would loan them any 
money?
    Mr. Spiotto. Well, that is the dilemma. A portfolio 
manager, a major institutional investor, has to respond to 
people as far as why their investments are prudent. And you 
want to make sure that if there is the unfortunate debt 
restructuring, it has a rational, justified basis.
    Mr. McClintock. I actually opposed PROMESA because I 
thought it was an intrusion on the right and the responsibility 
of the voters of Puerto Rico to correct the mistakes they made 
by changing the people they put into office that created all of 
these bad decisions that now has brought Puerto Rico to this 
sorry state. They do need to take responsibility for their own 
actions and their own finances. If they choose to walk away 
from debt, that comes with severe consequences. They lose 
access to the credit market. No doubt there will be a movement 
to come here to get loan guarantees from the U.S. government. 
Sorry, we have our own problems that we created for ourselves.
    But I do wonder if Puerto Rico does that, is there a 
contagion in the credit markets? Do the credit markets look at 
other municipal and sovereign debt issued within the United 
States and say that is getting too risky, too, we are going to 
have to charge more for interest?
    Mr. Spiotto. I think a lot of people will try to say that 
it is an aberration, but Puerto Rico has used, for example, 
their constitution in 1952 as a provision that there is a 
priority if there are insufficient funds to pay public debt. 
California has a similar provision. New York has a similar 
provision in their constitution. If one does not follow that, 
it raises the question, will others follow. I think generally 
the market will say no, because no state has defaulted on its 
GO debt since the late 1800s with the exception of Arkansas in 
1933, and that was immediately refinanced to pay it.
    Mr. McClintock. So, you don't see a risk of contagion?
    Mr. Sablan. Mr. McClintock, thank you very much.
    Mr. McClintock. Just yes or no.
    Mr. Spiotto. No.
    Mr. McClintock. Thank you.
    Mr. Sablan. Thank you, Mr. McClintock. The Chair now 
recognizes Mr. Webster for 5 minutes, please.
    Mr. Webster. Thank you, Mr. Chairman. I really don't have 
anything to question. But I appreciate everyone coming. This is 
very informative.
    Mr. Sablan. Thank you, Mr. Webster.
    I thank the witnesses for their valuable testimony, and the 
Members for their questions. The members of the Committee may 
have some additional questions for the witnesses, and we will 
ask you to respond to these in writing. Under Committee Rule 
3(o), members of the Committee must submit witness questions 
within 3 business days following the hearing, and the hearing 
record will be held open for 10 business days for these 
responses.
    If there is no further business, without objection the 
Committee is recessed for the next panel. Thank you everyone.
    Mr. Webster. Thank you.
    Mr. Sablan. Thanks, Petie. Good luck to you.
    Mr. Webster. Nice meeting you, sir. Great, great answers. 
Thank you.
    Mr. Soto [presiding]. If everybody could take their seats, 
we would greatly appreciate it.
    Thank you to our second panel for appearing today. We have 
Mr. Rodrigo Masses-Artze, President of Private Alliance for 
Economic Growth of Puerto Rico; Dr. Cecilio Ortiz-Garcia, 
Senior Fellow in the National Council for Science and the 
Environment; Ms. Annie Mayol, President, Foundation for Puerto 
Rico; and Ms. Adi Martinez, Senior Policy Advisor, Oxfam 
America. Thanks for being here today.
    We are going to let Mr. Masses-Artze testify first, since 
we know that you have to leave early, and the Ranking Member 
has also agreed to that, Mr. Webster. So, if you would please 
proceed, Mr. Masses.

STATEMENT OF RODRIGO MASSES-ARTZE, PRESIDENT, PRIVATE ALLIANCE 
               FOR ECONOMIC GROWTH OF PUERTO RICO

    Mr. Masses-Artze. My name is Rodrigo Masses and I am here 
representing the Alliance for Economic Growth of Puerto Rico. 
The alliance was created by a group of business people and 
other private sector stakeholders, including former presidents 
of the principal trade associations of the island.
    We all share a deep concern about the rapidly deteriorating 
economic and social conditions in Puerto Rico, the absence of a 
clear roadmap to a better future for the island, and a 
dysfunctional political establishment that has shown very 
little inclination to address and implement the profound 
structural changes required for Puerto Rico to realize its full 
potential as the economic powerhouse of the Caribbean.
    I respectfully ask that my full statement be included in 
the record, and I will now proceed to my testimony. Thank you.

    To be clear, there is no more urgent issue before us today 
than the reconstruction of the island. PROMESA was established 
as a temporary means to provide much-needed stability. However, 
if one were to do a cost-benefit assessment of PROMESA and of 
the Oversight Board, I am afraid that the outcome would be 
inclined toward a not-so-favorable result. Rather than just 
proposing cuts, cuts, and more cuts, the Oversight Board should 
join together with the other government and private 
stakeholders, laying the groundwork for stable economic growth 
on the island, as cuts alone--and you very well know that--do 
not achieve the desired long-term outcome.
    Congress recognized this vital need for economic growth 
when enacting PROMESA. It did so by establishing a bipartisan 
Congressional Task Force on Economic Growth in Puerto Rico, and 
required it to produce a report. To date, however, Congress has 
failed to consider, much less enact, most of the specific 
recommendations unanimously agreed upon by the Task Force in 
2016.
    On the other hand, the government of Puerto Rico must stand 
tall and also do its share, its fair part. As the other panel 
mentioned, and I agree with most of the measures presented 
here: First, there is a need to be completely transparent in 
the oversight, and oversight of the contracting process, with 
full access to the media.
    Second, Puerto Rico has a very low labor force 
participation rate, mainly because of the gender discrimination 
and the absence of a clear-cut policy to support one of the 
biggest assets our island has, women entrepreneurs.
    Third, the effective transformation of the energy and water 
government monopolies is essential if we want to end up with an 
efficient, modern, and sustainable energy and water 
infrastructure. In our view, cost-effective energy must not 
exceed 15 cents/kWh. Further, it is critical that in defining 
policy to deal with infrastructure, municipalities and 
communities be brought into the process.
    Fourth, solid waste disposal is an area that has already 
reached a critical stage. Most of the island's landfills do not 
meet EPA standards, and those that do are very short in life 
span. Puerto Rico desperately needs a well-designed policy 
aimed to recycling, minimizing solid waste, and ensuring that 
materials used in construction and embedded in consumption 
products are environmentally safe.
    Fifth, Puerto Rico needs a telecommunications public policy 
that recognizes the sector not only as infrastructure that 
needs to be regulated, but as an enabling technology repository 
that will stimulate economic growth.
    Having said all of that, the fact is that Puerto Rico 
urgently needs a development roadmap focused on the post-
reconstruction process. The new approach to development for 
Puerto Rico must be based on solid knowledge of local 
conditions and anticipate change in them. It must provide for 
inclusive governance that incorporates municipalities and 
community-based organizations.
    Puerto Rico needs not only to protect but enhance its 
manufacturing base and make possible the development of 
advanced manufacturing activities, including tourism, 
agroindustry, and women-driven enterprises. It also needs to 
promote innovation across the complete spectrum of economic 
activities, but special emphasis on local small- and medium-
sized firms.
    Last, the alliance respectfully recommends that this 
Committee require the governor of Puerto Rico to have the local 
government agencies responsible for the economic affairs 
present to the public a progress report every 60 days on what 
has been achieved and what has not.
    The alliance commits to submit its own every 60 days.
    Mr. Soto. Mr. Masses, you need to wrap up your remarks 
because your time has expired.
    Mr. Masses-Artze. Yes. Basically, we commit to present our 
report to you every 60 days as well. Thank you.
    Mr. Soto. Thank you so much.

    [The prepared statement of Mr. Masses-Artze follows:]
 Prepared Statement of Rodrigo Masses-Artze, Private Alliance for the 
                     Economic Growth of Puerto Rico
    Chairman Grijalva, Ranking Member Bishop, Congresswoman Gonzalez-
Colon, and members of the Committee. My name is Rodrigo Masses-Artze, 
and I'm here on behalf of the Private Alliance for the Economic Growth 
of Puerto Rico (A4G). I am honored to once again appear before the 
Committee, this time to present our position on this most critical 
matter for the people of Puerto Rico, and most grateful for the 
opportunity you have given me to do so.
    A4G was created by a group of business people and other private 
sector stakeholders concerned about the rapidly deteriorating economic 
and social conditions in Puerto Rico, the absence of a clear roadmap to 
a better future for the Island, and a dysfunctional political 
establishment that has shown, to date, very little inclination to 
address and implement the profound structural challenges required for 
Puerto Rico to realize its full potential as the economic powerhouse of 
the Caribbean. A4G is comprised of representatives from all key sectors 
in the Island's economy and is already actively involved in the 
development of important initiatives and proposals to drive Puerto 
Rico's sustainable economic development. It has also offered its 
support and expertise to the Governor and her administration to provide 
needed advice on economic matters.
    I know that the Committee is fully aware of recent events on the 
Island, of the still ongoing recovery and reconstruction efforts and 
the many problems confronted, including the snail's pace at which 
congressionally allocated Federal funds have been disbursed. Likewise, 
I am certain that, PROMESA being a creature of this Committee, you are 
familiar with all the controversies and criticism surrounding the 
Financial Oversight and Management Board (FOMB), and the PROMESA 
legislation itself. Evidently, this is why we are here today.
    However, the fact is that, putting these controversies aside, there 
is no more urgent issue before us than the reconstruction of Puerto 
Rico, not just from the devastation of Hurricanes Irma and Maria but, 
perhaps more importantly, from the prolonged economic contraction of 
the last decade. This fiscal crisis has eroded our institutions and 
provoked the mass exodus of hundreds of thousands of Puerto Ricans to 
the U.S. mainland, searching for opportunities in the States that are 
unavailable to them back home.
    Righting this ship--a ship carrying 3.2 million American citizens 
whose lives and well-being are at stake--will require creativity, 
outside of the box thinking, and close collaboration between the 
Federal Government (Congress and the Executive Branch), the Government 
of Puerto Rico, the FOMB, and the private sector.
                          promesa and the fomb
    I am well aware that PROMESA created the FOMB to ensure that Puerto 
Rico's long-standing fiscal mess was brought under control, that the 
debt issue be dealt with, and that the Island could once again have a 
healthy fiscal situation that would allow its return to the capital 
markets. In short, it was established as a temporary means to provide 
much needed stability that could lead to sustainable economic success. 
However, if one were to do a cost-benefit assessment of PROMESA and the 
FOMB, I am afraid that the outcome would be inclined toward a not so 
favorable result.
    A conservative estimate is that, since its inception, PROMESA has 
cost the people of Puerto Rico well in excess of $600 million, precious 
resources that could have been better invested in more productive 
activities. So far, the results of this investment have been meager. 
Granted, some progress has been achieved under Title III, and some 
agreements have been attained with creditors, but the cost to Puerto 
Rico and its business community has been immense. Furthermore, the 
FOMB's insistence on pension cuts, eliminating municipal subsidies, 
steamrolling over major institutions such as the University of Puerto 
Rico, and reducing essential services, will likely result in very 
concerning short- and long-term social repercussions. Were it not for 
the limited recovery and reconstruction funds already on the ground, I 
have absolutely no doubt that Puerto Rico's economy would have 
contracted even more and more profoundly than it has as a result, at 
least partially, of the FOMB's actions.
    Rather than just proposing cuts, the FOMB should be, jointly with 
other government and private stakeholders, laying the groundwork for 
sustained economic growth on the Island, as cuts alone will not achieve 
the desired long-term outcomes. Congress recognized this need for 
economic growth when enacting PROMESA. It did so by establishing a 
bipartisan Congressional Task Force on Economic Growth in Puerto Rico, 
and requiring it to produce a report regarding: ``(1) impediments in 
current Federal law and programs to economic growth in Puerto Rico 
including equitable access to Federal healthcare programs; (2) 
recommended changes to Federal law and programs that, if adopted, would 
serve to spur sustainable long-term economic growth, job creation, 
reduce child poverty, and attract investment in Puerto Rico.'' As 
mandated by PROMESA, the Task Force unanimously issued a report on 
December 2016, with numerous recommendations on very specific and 
realistic actions Congress could take to assist Puerto Rico. To date, 
Congress has failed to consider, much less enact, most if any of them. 
And the FOMB, while actively engaged in other undisclosed lobbying 
efforts in Washington, has only provided a very timid support to these 
critical initiatives. That needs to change, and the FOMB must be 
accountable to someone, perhaps this Committee.
    That being said, it is also true that Puerto Rico cannot just sit 
and wait for Congress to come up with all the solutions and for the 
Federal recovery and reconstruction funds to flow into the Island. The 
Government of Puerto Rico must also do its share. There are a number of 
initiatives that the Government of Puerto Rico, in collaboration with 
the Federal Government and the private sector, could implement to steer 
the Island back in the right direction. Let me briefly enumerate some 
of them.
 complete transparency in the contracting process with full access to 
                               the press
    First of all, we need to make certain that Federal reconstruction 
funds allocated to Puerto Rico are used effectively and efficiently as 
Congress intended. The agile and swift allocation of these funds to 
specific projects is critical, as is that municipalities are granted a 
much more prominent role in the decision making and use of these funds. 
There is ample evidence that municipal governments have been able to 
deliver a number of services more efficiently and expeditiously than 
central government agencies, including infrastructure projects. 
Municipalities, however, have been sidelined from the process of fund 
allocation, totally handled at the central government level. This is a 
mistake and must be addressed.
    A second area in which much can be done to improve the process of 
fund allocation relates to the manner in which contracts for 
reconstruction of the housing stock and infrastructure are being 
issued. This has opened the door to corruption, both local and 
stateside, as evidenced by the recent arrest of former top FEMA 
officials who worked in Puerto Rico during the island's recovery from 
Hurricane Maria as part of a Federal corruption investigation. What A4G 
feels is needed is a competitive, open, transparent process for all 
reconstruction projects, with strenuous oversight and accountability. 
In addition, A4G feels that local contractors should be much more 
involved in the reconstruction process. This has not been the case, as 
evidenced by the FOMB and independent analysts who have estimated that 
only 13 cents out of every dollar of Federal recovery spending has 
actually benefited the local economy.
                         women entrepreneurship
    Puerto Rico has a very low labor force participation rate (LFPR) 
mainly because of gender discrimination and the absence of a clear-cut 
policy to support women. It is clearly established that providing 
support to women with children with daycare centers and other such 
assistance will not only help women leave welfare programs and improve 
their standard of living, but will constitute a powerful stimulus for 
economic development. This is particularly important since over 60 
percent of single women with children on the Island live below the 
poverty level and women's LFPR is only around 33 percent.
   mountain consortium: transformation of energy and water monopolies
    Puerto Rico was devastated by Hurricanes Irma and Maria, and the 
Island's reconstruction has been slow and will probably leave us with 
an infrastructure not much better, if at all, than what we had prior to 
the storms. But the problem with our infrastructure is not just its 
physical and archaic condition. The fact is that the Island's energy 
and water systems are both government monopolies that have, 
unfortunately, acted as such for decades. Just recently, a new increase 
in the power rate was announced only to be subsequently reversed after 
Governor Vazquez intervened because no assessment of costs was made. 
The transformation of these two monopolies is essential if we want 
Puerto Rico to end up with an efficient, modern, and sustainable energy 
and water infrastructure. A4G also feels that Puerto Rico should aim at 
a power rate of no more than 15 cents per kWh. This could be 
accomplished if PREPA would expeditiously begin working toward the 
implementation of the government's much publicized public policy of 
achieving 100 percent renewable energy production by 2050. But just a 
few days ago, PREPA unilaterally suspended the ongoing year-long 
negotiations with all the renewable energy shovel-ready projects, some 
of which have signed PPOAs dating back to 2010. Thus, these goals are 
achievable, but only if the aforementioned transformation leads to 
privatizing both entities.
    Further, it is important in defining policies to deal with 
infrastructure that municipalities be brought into the process. An 
excellent example of what can be done is provided by a consortium of 
municipalities in the mountainous central Puerto Rico, led by the mayor 
of Villalba, to construct a mini-grid that will power, not only his 
municipality, but also Morovis, Orocovis, Ciales, and Barranquitas. 
These municipalities constituted the ``last mile'' in the post Maria 
power restoration.
                               zero waste
    Solid waste disposal is an area that has already reached a critical 
stage. Most of the Island's landfills do not meet EPA standards and 
those that do have a very short life span. Puerto Rico desperately 
needs a well-designed policy aimed at recycling, minimizing solid 
waste, and ensuring that materials used in construction and embedded in 
consumption products are environmentally safe. For a relatively small 
island such as Puerto Rico, having an excellent environmental quality 
is not only an objective by itself to improve quality of life, but is 
also necessary as a determinant of competitiveness. Thus, not taking 
proper care of our beaches will ultimately impact tourism, not taking 
care of our solid waste disposal system will eventually increase costs 
to our producers and thus reduce our capacity to compete for 
investment.
               continuous and uninterrupted connectivity
    We are fortunate that the private firms that operate the 
telecommunications system have taken it into themselves to provide a 
much better, reliable and resilient system. Much remains to be done and 
doing so will require a change in the manner in which the government 
intervenes with the system. Although there has been some improvement, 
the focus on the government's part has been to regulate rather than 
stimulate the industry. Puerto Rico needs a telecoms public policy that 
recognizes the sector not only as infrastructure that needs to 
regulated, but as an enabling technology depository that will stimulate 
economic growth.
                    new economic promotion approach
    Having said all of the above, the fact is that Puerto Rico urgently 
needs a Development Roadmap focused on the post reconstruction process. 
I understand that the government's attention is now on the 
reconstruction process. That is correct, but it means that developing 
that Roadmap should be a concern not only of the private sector but is 
something that the FOMB should be paying attention to, at a minimum, by 
assuring that its actions do not have a negative impact on sustained 
economic growth.
    A new approach to development for Puerto Rico must be based on 
thorough knowledge of global conditions and anticipated changes in 
them. It must provide for inclusive governance that incorporates 
municipalities and community-based organizations. There is much to 
learn from others: Ireland's Social Partnership, Pittsburgh's use of 
community resources to stimulate its transformation, Singapore's 
emphasis on education as a key component of any development roadmap. 
Puerto Rico needs to not only protect, but enhance its manufacturing 
base and make possible the development of advanced manufacturing 
activities. It also needs to promote innovation across the complete 
spectrum of economic activities but with special emphasis on local 
small and medium size firms.
    Additionally, Puerto Rico has significant competitive advantages 
that it can lever to achieve sustained growth: our access to the U.S. 
markets, a highly trained labor force, a strong manufacturing base and, 
increasingly, a dynamic technology sector that is already exporting 
services globally and providing needed technological foundations to 
local entities in health services, education, and other areas.
                                tourism
    The opportunity for growth and development of the tourism industry 
should be an immediate priority of the Committee, the local government, 
and the FOMB. The hotel industry, by its nature, is a labor-intensive 
industry. Direct and indirect jobs, local food chain and supply 
purchasing, and construction and redevelopment are direct by-products 
of successful tourism. Efforts to develop the potential that Puerto 
Rico has in this segment of the economy should be addressed. Puerto 
Rico has the wherewithal to be competitive in the tourism industry and 
its promotion can have immediate impacts on our economy.
                             accountability
    We respectfully ask the Committee to require the Governor of Puerto 
Rico to have those agencies responsible for economic affairs to present 
to the public a progress report every 60 days on what has been achieved 
or not in their particular areas. This report should be made public by 
a respected entity such as the Comptroller's Office so as to avoid the 
political paraphernalia that typically accompany these announcements.
    Mr. Chairman, as I indicated at the beginning of my testimony, the 
need to restart the Puerto Rican economy's engine is an urgent matter. 
Not to do so is to condemn the Island to continued loss of population 
and its young people leaving the Island in search of a better quality 
of life in the States. This will require close collaboration between 
the Federal and Puerto Rican governments, the FOMB, and the private 
sector. If the Committee intends to move forward with this effort to 
change PROMESA, I urge you to consider amendments that will make it 
possible to use PROMESA and the FOMB's unquestioned influence in 
securing a better future for Puerto Rico. The 3.2 million American 
citizens of Puerto Rico deserve no less.

    Thank you.

                                 ______
                                 

  Questions Submitted for the Record by Rep. Grijalva to Mr. Rodrigo 
   Masses-Artze, President, Private Alliance for Economic Growth for 
                              Puerto Rico

Mr. Masses-Artze did not submit responses to the Committee by the 
appropriate deadline for inclusion in the printed record.

    Question 1. I agree with your statement that laying the groundwork 
for sustained economic growth in the Island should be high priority for 
the government of Puerto Rico, the Oversight Board and this Committee.

    You also mention the importance of granting municipalities a more 
prominent role in the reconstruction process as active decision makers. 
How do you envision the participation of municipalities and the private 
sector in the planning phase of the reconstruction process to ensure 
improvements in the economic and social conditions in Puerto Rico?

    Question 2. In your testimony, you emphasize the need for a 
Development Roadmap for Puerto Rico. Could you provide more information 
about what this Roadmap would address?

                                 ______
                                 

    Mr. Soto. We are going to continue on with our regular 
order now, and Ms. Adi Martinez, you are recognized.

STATEMENT OF ADI MARTINEZ, SENIOR POLICY ADVISOR, OXFAM AMERICA

    Ms. Martinez. Thank you, Mr. Soto, Chairman, members of the 
Committee, and staff, for giving us this opportunity to talk 
about Federal recovery funds coordination and Section 11 of the 
discussion draft.
    Oxfam is an international non-profit, non-partisan 
organization that for decades has delivered disaster and 
development assistance around the world. Our work has taught us 
that effective and lasting recovery and development is 
dependent on empowering local people and communities to claim 
their rights, fight injustice, and hold their government and 
private sector accountable.
    The challenges that we see in Puerto Rico are very similar 
to challenges we have worked to solve in many other communities 
that are recovering from disasters and lifting themselves out 
of poverty.
    I have lived in Puerto Rico all my life. I was there when 
Hurricane Maria hit, and as a director of Fundacion Fondo de 
Acceso a la Justicia, plunged into getting resources for legal 
assistance teams who traveled to rural, poor, and 
disenfranchised communities on the island and who, to this day, 
are struggling to access recovery assistance.
    In my work at Oxfam, I remain tightly connected and consult 
daily with communities and civil society leaders in Puerto 
Rico, and I can tell you that our low-income and marginalized 
communities are facing critical challenges that impede their 
recovery and puts them in harm's way in the face of future 
disasters.
    We believe our recovery must be equitable, transparent, and 
effective. We have seen over and over again around the world 
that extreme centralization of the kind seen in Puerto Rico 
invites corruption and leads to ineffective and poorly 
prioritized spending. It does not take advantage of the local 
community's historical and institutional knowledge.
    I would like to submit for the record an Oxfam report 
entitled ``To Fight Corruption, Localize Aid,'' together with 
other documents that show support to my statements.
    As an evidence-based organization, we strongly believe that 
there is nothing more powerful or effective to combat 
corruption and ensure that Federal dollars really meet people's 
needs than to give voice to community leaders. They know best 
what they need, and in Oxfam's experience around the world, 
they are by far the most effective and reliable voices pressing 
for good governance, accountability, and transparency.
    We know that in the face of corruption, Congress and 
Federal agencies often propose further centralized controls. In 
Puerto Rico, this includes the withholding of funds, the 
assignment of independent financial monitors, while other 
policy makers suggest intervention of the Fiscal Oversight 
Management Board.
    The legislative proposal being discussed here today also 
includes the appointment of a Reconstruction Coordinator. It is 
important to establish immediately that the whole discussion of 
Federal recovery funds coordination or any legislation thereof 
should be separate from PROMESA or its amendments. Also, it is 
clear to us that civil society in Puerto Rico overwhelmingly 
rejects the idea of greater centralization and the continued 
disconnect from those who matter most, the people.
    Oxfam's core message to the Committee and the U.S. Congress 
is that those measures will not solve the challenges at hand 
and will not yield the results we all seek.
    We believe this moment is a critically important 
opportunity for the U.S. Congress to demonstrate that it is 
listening to the civil society in Puerto Rico. A fast-growing 
list of civil society organizations and supporters has endorsed 
the concept of a civil society working group as an alternative 
for the coordination of recovery funds.
    Note that in our current endorsement list are organizations 
that represent hundreds of smaller ones: United Way of Puerto 
Rico, Grupo G8, PRODEV, and VAMOS, among others.
    Also, we are submitting draft language to create a civil 
society task force that has been developed in dialogue and with 
the direct input of many of these and other groups. As we work 
with partners on the ground to socialize the task force idea 
and get input, that support list continues to grow.
    The civil society task force will consist of 13 elected 
representatives from across civil society and 4 highly 
experienced professionals who will be embedded in each key 
recovery agency: FEMA, HUD, COR3, and Vivienda.
    As asked by those groups endorsing the concept, this task 
force would: First, advise and advocate for transparent, 
accountable, and effective decisions and outcomes that address 
urgent needs and achieve equitable and resilient recovery in 
Puerto Rico; second, it would oversee processes to ensure 
stakeholder participation and incorporation of stakeholder 
input, and ensure the voices of women, elders, the disabled, 
and marginalized communities are heard and addressed.
    The embedded representatives will be the main support to 
the task force in the execution of its duties. They would serve 
for 1 year with the possibility of term renewals if re-
nominated unanimously by the task force. Other task force 
members would be elected to serve for 3 years, unless the 
sector they represent decides in their assembly established 
procedure that their mandate should be revoked.
    In closing, the urgency for recovery in Puerto Rico makes 
these considerations of utmost importance. I look forward to 
answering any questions and continued work with Committee staff 
to make this a reality.

    Thank you.

    [The prepared statement of Ms. Martinez follows:]

        Prepared Statement of Adi Martinez-Roman, Oxfam America

    Thank you, Mr. Chairman, members of the Committee, and staff, for 
giving us this opportunity talk to about Federal recovery funds 
coordination and Section 11 of the Discussion Draft. Our testimony will 
only touch upon Section 11 and will not present any position as to the 
other components of the discussion draft. In fact, as explained below, 
we strongly think the two themes, PROMESA amendments and Federal 
recovery coordination should be completely separate.

    Oxfam is an international non-profit, non-partisan organization 
that for decades has delivered disaster and development assistance 
around the world. Our work has taught us that effective and lasting 
recovery and development is dependent on empowering local people and 
communities to claim their rights, fight injustice and hold their 
government and private sector accountable. The challenges that we see 
in Puerto Rico are very similar to challenges we have worked to solve 
in many other communities that are recovering from disasters and 
lifting themselves out of poverty.

    Mr. Chairman, I have lived all of my life in Puerto Rico, only 
being away for college and post-graduate studies. I worked for 10 years 
in the University of Puerto Rico Law School as a professor and Dean of 
Student Affairs, and as the coordinator of the student ProBono Program, 
after which I worked as the Executive Director of Fundacion Fondo de 
Acceso a la Justicia (FFAJ), a local non-profit that finds resources 
for civil legal aid to the poor. After the hurricane hit, I continued 
as director of the FFAJ and plunged into getting resources for legal 
assistance teams who traveled to rural, poor and disenfranchised 
communities on the island and who--to this day--are struggling to 
access recovery assistance. As you can see in my CV, since my student 
days I have continuously worked with poor communities, its leaders, and 
for access to justice in Puerto Rico.

    In my work at Oxfam I remain tightly connected and consult daily 
with communities and civil society leaders in Puerto Rico. Together 
with Oxfam's Program Manager in our office in Puerto Rico, Ms. Maria 
Concepcion, we can tell you that our low income and marginalized 
communities are facing critical challenges that impede their recovery 
and puts them in ``harm's way'' in the face of future disasters.

    We believe our recovery must be equitable. It must address people's 
needs--prioritizing those of the more than 40 percent of people who 
live in poverty and the communities where the needs are greatest. The 
recovery must also be transparent, accountable and effective. Oxfam 
America is uniquely independent because we take no U.S. government 
dollars--and we have for years been a leading voice on Capitol Hill for 
policy solutions aimed at achieving effective, transparent and 
accountable U.S. assistance. Those approaches and solutions need to be 
applied in Puerto Rico. I'd like to submit for the record an Oxfam 
Report entitled, ``To Fight Corruption, Localize Aid,'' together with a 
graphical presentation and other documents that show support to my 
statements below.

    Mr. Chairman, we have seen over and over again around the world 
that extreme centralization of the kind seen in Puerto Rico invites 
corruption and leads to ineffective and poorly prioritized spending. It 
does not take advantage of the local community's historical and 
institutional knowledge.
    We are an evidence based organization and we strongly believe that 
effective and equitable planning, execution, and oversight is only 
possible when affected communities are fully engaged. Local people must 
be included and empowered. There is nothing more powerful or effective 
to combat corruption and ensure that Federal dollars really meet 
people's needs--than to give voice to community leaders. They know best 
what they need, and in Oxfam's experience around the world, they are by 
far the most effective and reliable voices pressing for good 
governance, accountability and transparency. In Puerto Rico, this is 
not different, as it has been demonstrated repeatedly in their 
effective work after the hurricane and by the movement of its 
population requiring good governance this past summer of 2019.

    We know that in the face of corruption, Congress and Federal 
agencies often propose further centralized controls. In Puerto Rico, 
these currently include the withholding of funds, steeper compliance 
requirements, and the assignment of independent financial monitors, 
while other policy makers suggest the intervention of the Fiscal 
Oversight Management Board. The legislative proposal being discussed 
here today also includes the appointment of a Reconstruction 
Coordinator that represents another layer of centralized control.

    It is important to establish immediately that the whole discussion 
of Federal recovery funds coordination or any legislation thereof 
should be separate from the PROMESA law or its amendments. It is very 
important to maintain a clear separation between the Federal recovery 
funds and considerations on debt repayment and restructuring. These 
resources should not in any way be thought of as a way to pay creditors 
and/or inflate economic prospects for the fiscal plans. The urgency for 
Federal recovery funds lies exclusively in the dire needs of a disaster 
hit population, and we must insure that legislative attempts for its 
effectiveness pass political muster without being tangled to other 
unrelated political considerations. Any legislation developed should be 
separate from PROMESA amendments.

    Also, it is clear to us that civil society in Puerto Rico 
overwhelmingly rejects the idea of greater centralization and the 
continued disconnect from those who matter most--the PEOPLE. Oxfam's 
core message to the Committee and the U.S. Congress is that in our 
experience, those measures will not solve the challenges at hand, and 
will not yield the results we all seek.

    Mr Chairman, we believe this moment is a critically important 
opportunity for the U.S. Congress to demonstrate that it is listening 
to civil society in Puerto Rico. Congress is clamoring for good 
governance and accountability--and so are the people in Puerto Rico. It 
is time for Congress to put them in the driver's seat as key players, 
fully engaged and empowered, to ensure the right Federal recovery 
dollar decisions are made, and the people of Puerto Rico begin to 
really see and feel the effects of effective and equitable recovery 
investments.

    A fast-growing list of civil society organizations and supporters 
has endorsed the concept of civil society working group as an 
alternative for the coordination of recovery funds. We submit for the 
record a copy of the petition to Congress to avoid further 
centralization initiatives, including the appointment of a Federal 
Coordinator, and that any recovery coordination must be done with a 
group of elected civil society representatives. Note that on our 
current ``endorsement'' list and letters are organizations that 
represent hundreds of smaller organizations--United Way of Puerto Rico, 
Grupo G8, PRODEV, VAMOS, among others. There is also an ample spectrum 
of organizations in terms of type, composition and area of services, 
such as professional schools, law clinics, planners and unions.

    Also, we are submitting draft language for the creation of a Civil 
Society Task Force that has been developed in dialogue and with the 
direct input of many of these and other groups. As we work with 
partners on the ground to socialize the Task Force idea and get input, 
the proposed language has been enriched with local knowledge and the 
support list continues to grow.

    As currently conceived, the Civil Society Task Force would consist 
of 13 elected representatives from across civil society, and 4 highly 
experienced professionals who would be embedded in each key recovery 
agency, FEMA, HUD, COR3 and Vivienda. The embedded representatives 
would be recruited by the agencies from the three qualified candidates 
proposed by the Task Force to each of the agencies. Their 
qualifications, the required monthly meetings with the Task Force and 
reporting requirements of these professionals are specified in the 
language.
    As asked by the groups endorsing the concept, this Task Force 
would:

    First: Advise and advocate for transparent, accountable and 
effective decisions and outcomes that address urgent needs and achieve 
equitable and resilient recovery in Puerto Rico.

    Second: Oversee processes to (1) ensure stakeholder participation 
and incorporation of stakeholder input and (2) ensure the voices of 
women, elders, the disabled and marginalized communities are heard and 
addressed.

    The embedded representatives will be the main support to the Task 
Force in the execution of its duties within the agencies, which 
include, among other things:

     Promote agency and regional collaborative actions

     Oversee proper stakeholder analysis

     Review the data and make sure it is made public

     Identify duplication and propose solutions

     Monitor violation of human rights

     Eliminate barriers to participation of local organizations 
            and businesses

    It is important to note that the four embedded representatives 
would serve for 1 year, with the possibility of term renewals if re-
nominated unanimously by the Task Force. Other Task Force members would 
be elected to serve for 3 years, unless the sector they represent 
decides in their assembly established procedure that their mandate 
should be revoked. This to ensure the answerability of these persons to 
the groups represented, which is a key element of this proposal. The 
election assemblies for the Task Force members would be supervised by 
locally trusted groups like the Commission of Civil Liberties, the 
Association of Professional Social Workers of Puerto Rico, and the Law 
School Clinics.
    In closing, and as proven internationally, only with civil society 
direct involvement will Congress achieve transparency, accountability 
and resiliency for Puerto Rico. The urgency for this in Puerto Rico 
makes these considerations of utmost importance. For these reasons we 
urge you to work with us and civil society leaders in Puerto Rico to 
achieve our common goals by quickly introducing and fast tracking House 
passage of civil society task force legislation--separate from PROMESA 
reform--to kick start our way to an empowered civil society ensuring 
transparent, accountable and effective and equitable recovery in Puerto 
Rico.
    I look forward to answering any questions and continued work with 
Committee staff to make this a reality.

    Thank you.

                                 *****

The following documents were submitted as supplements to Ms. Martinez's 
testimony. These documents are part of the hearing record and are being 
retained in the Committee's official files:

  --  Letter from Annie Mayol, President & COO, Foundation for Puerto 
            Rico to Oxfam America dated October 9, 2019.

  --  Letter from Samuel Gonzalez, President, Fondos Unidos de Puerto 
            Rico/United Way to Oxfam America dated October 21, 2019.

  --  Oxfam America Research Report titled, ``To Fight Corruption, 
            Localize Aid: How U.S. Foreign Assistance Can Support a 
            Locally Driven Fight Against Corruption.''

  --  Petition Proposing a Puerto Rico Civil Society Task Force and 
            Civil Society Representatives to Facilitate Recovery 
            Efforts.

                                 ______
                                 

    Questions Submitted for the Record by Rep. Grijalva to Ms. Adi 
             Martinez, Senior Policy Advisor, Oxfam America
    Question 1. You propose a Civic Society Task Force to increase the 
participation of civic society in Puerto Rico's disaster recovery 
process. I have expressed that engaging municipalities, communities, 
and non-profit organizations should be a priority for the Federal and 
local government. Please share what sectors--in your view--should be 
represented in the Civic Society Task Force?
    Answer. Our main argument is that locally elected civil society 
representation in the form of a task force is the only effective way to 
insure transparency, accountability and resiliency in the use of 
Federal funds. In our dialogues and experiences with groups in Puerto 
Rico, we have identified sectors in civil society that have actively 
and effectively worked on emergency aid and recovery, with very good 
results despite small amount of resources. These include 
municipalities, low-income community leaders, non-profits, 
philanthropic organizations, universities, private businesses, and 
workers' unions. That is why we have proposed that each sector selects 
their own representatives to the CSTF, in assemblies, with the help of 
trusted institutions like the Commission of Civil Liberties, the 
Association of Professional Social Workers of Puerto Rico, and the Law 
School Clinics. Each group (see diagram below) will have different 
amounts of representatives, according to their involvement in recovery 
and size, with low-income community leadership being the group with 
most representation, as there are thousands of low-income communities 
in Puerto Rico that still need effective recovery.


[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]


    It is important to clarify that these civil society 
representatives in the CSTF would have as one of its main purposes to 
insure spaces and processes of real and effective participation of the 
general public. The CSTF should not be construed as a body that 
substitutes the public participation that is required for effective 
recovery, but as a group that will guarantee those processes exist.

    Question 2. How do you envision the Civic Society Task Force would 
influence the decision-making process of Federal and local agencies 
that play a role in the reconstruction process? What would be their 
authority?

    Answer. Once the CSTF has elected its main members, it will 
organize its processes and elect a full-time Chairperson that would be 
the principal point of contact between Congress and the CSTF. 
Nevertheless, the CSTF would also proceed to propose 4 highly 
experienced professionals who would be embedded in each key recovery 
agency, FEMA, HUD, COR3 and Vivienda, and who would be the main support 
to the Task Force in the execution of its duties within these agencies. 
The embedded representatives would be recruited by the agencies from 
the three qualified candidates proposed by the Task Force to each of 
the agencies. Their qualifications, the required monthly meetings with 
the Task Force and reporting requirements of these professionals are 
specified in the language.


[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]


    The legislation created by Congress, as proposed in the 
language we have been working on with the groups, will specify the 
duties of the members of the task force and its embedded 
representatives, and their authority to act, propose and require. We 
envision that the CSTF would have meetings and processes to work with 
their represented groups on the ground, identify bottlenecks, needs of 
public participation, problems of transparency, etc. These could even 
work with regional groups to further enrich the process. But the 
authority of the CSTF would be clearly delineated by statute and should 
be sufficient for the CSTF to truly implement its mission.


[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

    This authority, as conceded by Congress, would be executed in 
the agencies through the embedded representatives. That is why they are 
so essential to the model, as they would be professionals with the 
mission to, among other things, raise red flags on agency actions and 
work directly with the agency Secretary (or appointed contact) to 
execute the duties of the CSTF.
    Please let us know if you have further questions. We are available 
and look forward to continuing work with the Committee in the 
development of this language. As emphasized, the urgency for recovery 
in Puerto Rico makes these considerations of utmost importance, and we 
firmly believe that our common goals of an empowered civil society 
ensuring transparent, accountable and effective and equitable recovery 
in Puerto Rico can be achieved. Thanks again for the opportunity.

                                 ______
                                 

    Mr. Soto. Thank you for your remarks, Ms. Martinez.
    Ms. Mayol, you are recognized.

STATEMENT OF ANNIE MAYOL, PRESIDENT, FOUNDATION FOR PUERTO RICO

    Ms. Mayol. Good afternoon, Chairman and Committee members. 
My name is Annie Mayol. I am President and Chief Operating 
Officer of Foundation for Puerto Rico. I am honored and 
grateful to be here.
    Foundation for Puerto Rico is a 501(c)(3) local not-for-
profit organization. Since our creation in 2011, our mission 
has been to transform Puerto Rico through sustainable socio-
economic development strategies. Our goal is a prosperous 
Puerto Rico that unleashes the talent, creativity, and passion 
in the people of Puerto Rico.
    In the aftermath of Hurricane Maria, Foundation for Puerto 
Rico became an active participant in the relief and recovery 
efforts, including serving as a backbone to support non-
governmental organizations in the island. We hosted over 180 
organizations in our space, El Colaboratorio, where more than 
230 relief missions around the island were coordinated.
    In addition, we served as a fiscal sponsor to other NGOs so 
they could implement important programs around the island in 
areas like aid to farmers and resiliency programs for local 
community centers.
    While providing immediate relief around the island, 
Foundation for Puerto Rico identified critical gaps in the 
support of small business owners. We developed a small business 
cash grant program to help hundreds of businesses in key 
economic clusters stay open, and we grew the program into the 
Bottom Up Destination Recovery Initiative.
    This initiative uses the visitor economy as a strategy for 
recovery. Originally funded by private donations, we have 
expanded to 12 towns around the island through a grant of EDA.
    Last year, the Puerto Rico Department of Housing asked our 
organization to lead the whole community resiliency planning 
program. This program channels HUD community development block 
grant disaster recovery funds to develop community-led plans, 
focused on making them more prepared and resilient in the face 
of future events like Maria.
    Foundation for Puerto Rico has been working with the 
Federal and local government, with business owners, with local 
community leaders, and have seen the commitment of all of our 
partners to guarantee the good use of the disaster funds and 
the interest, not only to achieve compliance but to drive real 
change to Puerto Rico.
    We have firsthand experience with the integrity and 
discipline with which the Puerto Rico Department of Housing is 
managing these funds. However, the delay in the disbursement of 
CDBG-DR funds has directly affected the capacity to implement 
these disaster recovery programs and is impacting the most in 
need.
    Due to the reimbursement nature of the funds, non-
governmental organizations like Foundation for Puerto Rico face 
additional liquidity challenges and burdens that directly 
impact implementation. We believe Puerto Rico's NGO sector can 
play a game-changing role, healing the distrust between the 
island and the Federal Government while helping to keep the 
focus on recovery, prosperity, and integrity.
    Foundation for Puerto Rico believes adding more layers and 
bureaucratic processes is not the solution to ensuring the 
proper use of disaster relief funds. This is what motivates our 
concern over the proposed creation of the Office of the 
Reconstruction Coordinator for Puerto Rico.
    Instead, Foundation for Puerto Rico recommends the creation 
of a Federal point person whose role is to ensure the timely 
release of the CDBG-DR and FEMA funds. There is a major lack of 
Federal coordination and vision in the use of these funds. 
Thus, we recommend that the primary focus of this role should 
be to jumpstart our recovery.
    This role should assist both Federal and local agencies 
with the development of an organized and transparent process in 
which recovery projects will be funded, and ensure adequate 
participation from communities, municipalities, and NGOs.
    Our concern should not only be the potential improper use 
of funds for which numerous safeguards already exist, but we 
should also be breaking silos and creating connections between 
all of the programs to ensure we implement projects that have 
the most direct and enduring positive impact on the quality of 
life of the people of Puerto Rico.
    At Foundation for Puerto Rico, we like to say there is no 
future in rebuilding the past. This is our opportunity to build 
a better future for Puerto Rico.
    We strongly encourage the Federal Government to facilitate 
local NGOs' participation in the implementation of these 
disaster recovery funds. No one sector alone can do this job. 
Only when every sector--that is, government, private industry, 
NGOs, and the community--work together for a common goal does 
the possibility of permanent transformation exist.
    To achieve this, we also recommend that the House Natural 
Resources Committee look at ways that other Federal disaster 
funds can be more accessible to communities. Where there is a 
requirement for local matching funds, such as EDA, that 
requirement should also be waived for a minimum of 3 years to 
ensure that funds flow faster and more effectively.
    In summary, our three recommendations are to establish a 
Federal point person, ensure optimal participation of the NGO 
sector in the recovery, and waive the local match requirement 
for disaster funds.
    Thank you for your interest and support for Puerto Rico's 
recovery.

    [The prepared statement of Ms. Mayol follows:]
    Prepared Statement of Annie Mayol Del Valle, President & Chief 
             Operating Officer, Foundation for Puerto Rico
    Good afternoon Chairman Grijalva, Ranking Member Bishop, and 
members of the Committee. My name is Annie Mayol, and I'm president and 
chief operating officer of Foundation for Puerto Rico. I am honored and 
grateful to have the opportunity to speak with you today.
    Foundation for Puerto Rico is a 501(c)(3) local non-profit 
organization. Since our creation in 2011, our mission has been to 
transform Puerto Rico through sustainable socio-economic development 
strategies. Our goal is a prosperous Puerto Rico that unleashes the 
talent, creativity, and passion of the Puerto Rican people.
    In the aftermath of Hurricane Maria, Foundation for Puerto Rico 
became an active participant in relief and recovery efforts, including 
serving as a backbone to support other NGOs on the island. We hosted 
over 180 organizations in our space, El Colaboratorio, where more than 
230 relief missions around the island were coordinated. Also, we served 
as Fiscal Sponsor raising more than $10 million for other local NGOs, 
so they could implement important programs around the island in areas 
like aid to farmers, support to artists, and resiliency programs for 
local community centers.
    While providing immediate relief around the Island, Foundation for 
Puerto Rico identified critical gaps in support for small businesses in 
key regional areas. We developed the Small Business Cash Grant Program 
to help hundreds of businesses in key economic clusters stay open, and 
we grew the program into the Bottom Up Destination Recovery Initiative. 
This initiative uses the Visitor Economy as a strategy for recovery. 
The Visitor Economy is a concept much broader than tourism. It 
aggregates all direct, indirect, and induced economic activity 
resulting from visitors' interactions with their destination. 
Foundation for Puerto Rico has been advocating for implementing a 
Visitor Economy strategy as a spearhead for Puerto Rico's economic 
development which will produce the most immediate and accessible 
economic benefits for our communities. Using this framework, the Bottom 
Up Destination Recovery Initiative, originally funded by private 
donations, has now expanded to 12 municipalities thanks to a grant from 
the U.S. Economic Development Administration.
    The Bottom Up Destination Recovery Initiative teaches communities 
to identify their most important assets (cultural, businesses, 
attractions, natural resources, etc.), learn how to market them, 
identify ways to attract more visitors (accommodation, attractions, 
experiences), to create their own Destination Plan. A crucial part of 
the initiative is to also train and coach the community on readiness 
efforts to face future disasters, the adoption of resilience practices 
and sustainability. The aim is to identify and mobilize individual and 
community assets, skills and passions to build sustainable economic 
development from the bottom up. Through the Bottom Up Initiative, we 
are currently impacting more than 500 businesses around the island, 
creating 30 new businesses and developing eight Community Destination 
Plans.
    Foundation for Puerto Rico serves as a leader on the island's 
economic development stage, with the results to show for it, including 
the incubation of Discover Puerto Rico, the new non-governmental 
destination marketing organization that has already succeeded in 
restoring visitor numbers to pre-Hurricane Maria levels. As champions 
of the Visitor Economy, we believe that in a few short years Puerto 
Rico can double the level of visitor activity, add billions of dollars 
to its GDP and tens of thousands of new jobs to lift the island up and 
out of recession.
    Last year, the Puerto Rico Department of Housing asked our 
organization to lead the Whole Community Resiliency Planning Program. 
This program channels HUD Community Development Block Grant-Disaster 
Relief funds to develop community-led plans focusing on making them 
more prepared and resilient in the face of future events like Maria.
    The Whole Community Resilience Planning Program is an integral part 
of the approved Disaster Recovery Action Plan of the Puerto Rico 
Department of Housing. It is designed to enable communities throughout 
the island to determine their unique needs, set long-term goals and 
short-term objectives, identify priorities and request funding for the 
development of long-term resilience plans.
    As part of this program, we have formed multisectoral working 
groups composed of representatives from Federal and Puerto Rico 
government agencies, sister non-profit organizations, trade groups and 
professional associations that possess the knowledge and experience 
required in the areas of economic, educational, infrastructural, 
health, environmental and housing development.
    Through our work, Foundation for Puerto Rico has been collaborating 
with the Federal and local government, with business owners, with local 
community leaders, and have seen the commitment by all our partners to 
guarantee the good use of these disaster funds and the interest, not 
only to achieve compliance, but to drive real change for Puerto Rico. 
We have firsthand experience with the integrity and discipline with 
which the Puerto Rico Department of Housing is managing these funds.
    However, the delay in the disbursement of CDBG-DR funds has 
directly affected the capacity to implement these disaster recovery 
programs and is impacting the most in need. Due to the reimbursement 
nature of the funds, non-governmental organizations, like Foundation 
for Puerto Rico, face additional liquidity challenges and burdens that 
directly impact implementation.
    Puerto Rico's NGO sector can play a game-changing role in healing 
the distrust between the island and the Federal Government while 
helping to keep the focus on recovery, prosperity, and integrity. NGOs 
are perceived by residents as trusted partners that can operate free 
from partisan political or other narrow economic interests, continuity 
and needed agility for the effective implementation of projects leading 
to sustainable results. We have studied the post-disaster trajectories 
of New Orleans and New York, where NGOs like ours were instrumental in 
achieving successful outcomes. By giving well-governed, well-structured 
NGOs a greater role, we can do more with less, while maintaining 
integrity, discipline, transparency, and professionalism.
    While Foundation for Puerto Rico believes that adding more layers 
and bureaucratic processes is not the solution to ensuring the proper 
use of disaster relief funds, we do believe that more players are 
needed at the table. This is what motivates our concerns over the 
proposed creation of the Office of the Reconstruction Coordinator for 
Puerto Rico.
    Foundation for Puerto Rico recommends the creation of a Point 
Person at the Federal level whose role is to ensure the timely release 
of CDBG-DR and FEMA funds. There is a major lack of Federal 
coordination and vision in the use of these funds, thus we recommend 
that the primary focus of this Federal Point Person should be to 
jumpstart our recovery.
    This Federal point-person should assist both Federal and local 
agencies with the development of an organized and transparent process 
in which recovery projects will be funded and ensure adequate 
participation from communities, municipalities, and NGOs. Our concern 
should not only be the potential improper use of funds, for which 
numerous safeguards already exist, but we should also be breaking silos 
and creating connections between all the programs to ensure we 
implement projects that have the most direct and enduring positive 
impact on the quality of life of the people of Puerto Rico. At 
Foundation for Puerto Rico, we believe that there is no future in 
rebuilding the past and this is our opportunity to build a better 
future.
    We strongly encourage the Federal Government to facilitate local 
NGO participation in the implementation of these disaster recovery 
funds. No one sector alone can do this job. Only when every sector, 
that is, the government, private industry, NGOs, and the community work 
together for a common goal does the possibility of permanent 
transformation exist.
    To achieve this, we also recommend that the House Natural Resources 
Committee looks at ways that other Federal disaster funds can be more 
accessible to the communities. Where there is a requirement for local 
matching funds, such as the U.S. Economic Development Administration, 
that requirement should also be waived for a minimum of 3 years to 
ensure that the funds flow faster and more effectively.
    In summary, our three recommendations are to establish a Federal 
Point Person, ensure optimal participation of the NGO sector in the 
recovery, and waive the local match requirement for disaster funds.
    Thank you for interest and support for Puerto Rico's recovery. 
Foundation for Puerto Rico and I welcome the opportunity to work with 
members of this Committee toward that end.

                                 ______
                                 

Questions Submitted for the Record by Rep. Grijalva to Ms. Annie Mayol, 
                 President, Foundation for Puerto Rico
    Question 1. You mention that NGOs can play a game changing role in 
healing the distrust between the local and the Federal Government. Tell 
us more how this can be done? Would it be helpful to have other NGOs 
participating as subrecipients in the disaster recovery process?

    Answer. NGOs can heal the distrust between the local and federal 
governments by being an impartial ally to achieve local disaster 
recovery goals while maintaining a reputation of honesty. NGOs maintain 
trust and good use of funds at their core and have experience with the 
management of federal funds, making them the ideal subrecipient 
candidate of federal funds. At the local level, NGOs are at the heart 
of community building and development. These organizations were part of 
the initial response after Hurricane Maria, accessing hard-to-reach 
communities. Due to the decades-long relationships many local NGOs have 
with Puerto Ricans, there is an underutilized opportunity to integrate 
them in the disaster recovery process.
    Given the relationship NGOs have with local communities, 
incorporating them in the disaster recovery conversations and process 
would create an integrated, multi-jurisdictional, comprehensive and 
efficient process. Following the method Puerto Rico Department of 
Housing has used with the Foundation for Puerto Rico, there is massive 
potential for comprehensive disaster recovery.

    Question 2. In addition to the issue of the disbursement of CDBG-DR 
funds, at the end of your testimony you also mentioned the Bottom Up 
Destination Recovery Initiative your organization has expanded through 
a grant from the U.S. Economic Development Administration. Can you 
explain how the agency's matching funds requirement impacts that 
important recovery initiative?

    Answer. It is very challenging for NGOs to acquire the capital 
necessary to match federal grants. Most NGOs have modest endowments or 
no endowments at all, making it challenging to find matching funds for 
even a 20 percent match. This makes it difficult for NGOs to meet the 
requirements necessary when applying for federal grants like those in 
the EDA. In addition, most federal funds are through reimbursements 
creating a need for largest amount of working capital and cash flow 
than most local NGOs can afford.
    It is common to hear in the news that Puerto Rico has been given 
billions of dollars in federal recovery funds, however, these dollars 
are barely utilized due to the large match requirement. The Secretary 
of Commerce has the discretion to issue a directive waiving the 
matching requirements for EDA grants. The Foundation for Puerto 
recommends the Committee request that the Secretary consider waiving 
matching funds for a few years, for example 3 years, to help jumpstart 
the flow of federally allocated dollars.

                                 ______
                                 

    Mr. Soto. Thank you, Ms. Mayol.
    Next we recognize Dr. Ortiz-Garcia. Thanks for being here.

STATEMENT OF CECILIO ORTIZ-GARCIA, SENIOR FELLOW, THE NATIONAL 
            COUNCIL FOR SCIENCE AND THE ENVIRONMENT

    Dr. Ortiz-Garcia. Thank you, Mr. Chairman. Good afternoon 
to you and to the members of this Committee.
    My name is Cecilio Ortiz-Garcia and I appear in front of 
you today as Senior RISE Fellow at the National Council for 
Science and the Environment here in Washington, DC. I hold a 
PhD in Public Policy and Administration from the Arizona State 
University and for the last 15 years I have been involved in 
numerous research projects, programs and policy-making 
activities related to the sustainable transition of Puerto 
Rico's electrical system.
    My remarks today will circumscribe to the figure of the 
Recovery Coordinator for PREPA, and I have the following points 
to offer, which I hope will get us into a deeper conversation 
about this.
    No. 1, we recommend the figure of the Recovery Coordinator 
for PREPA. Recent studies on recovery and reconstruction 
processes suggest that having such a figure might help decrease 
the length of the recovery and reconstruction process and also 
increase the quality on the outcomes that could emerge from a 
better governance and decision-making model. It is important to 
frame this Recovery Coordinator in the context of 
deconcentrating the current power structure, and second of all, 
the decentralization of energy decision making. This is going 
to be crucial for its success in Puerto Rico.
    No. 2, the RC, as I call it, also needs to be mindful about 
the extreme operating environment that he or she is dropping 
into. Because of the extreme complexity of Puerto Rico's post-
Maria recovery and reconstruction process, extreme care should 
be given to determine: (a) how the interaction between the RC 
and PREPA's internal and external communities will be framed; 
and (b) most importantly, what role will the RC play in the 
overall planning of Puerto Rico's electric system from here 
thereon.
    No. 3, the RC must be perceived as an agent of Puerto Rican 
society and not as an agent of Congress, PREPA, or the state 
governmental institutions in Puerto Rico, whether state or 
local.
    While this amendment visualizes the RC as a supervisor, 
controller and overseer of PREPA operations--and we agree that 
those are important objectives--the people of Puerto Rico need 
to have confidence in the RC's abilities to open PREPA's 
governance black box. Integrating the RC figure in a framework 
of conflict would only exacerbate the climate of acrimonious 
fighting and could, in fact, lengthen the recovery and 
reconstruction process of the island's electric system.
    In fact, the RC should help the people of Puerto Rico to 
reach its vision for a sustainable, resilient, prosperous, 
just, equitable, democratic, sustainable electrical system as 
expressed in the Energy Stakeholder Forum vision document in 
the past.
    No. 4, ultimately, the RC needs a tool to help him or her 
achieve these boundary-spanning objectives. That body should be 
the Technical Advisory Committee composed by local expertise, 
local scientific and non-scientific knowledge, with connections 
nationwide to filling the gaps and legitimize their work.
    The National Institute for Energy and Island Sustainability 
is, as the DOE has stated in the reconstruction report, the 
best resource equipped to help the RC achieve this. The 
Technical Advisory Committee is absolutely necessary as a 
boundary-spanning tool to assist the RC in effectively engaging 
with different sectors of Puerto Rican society, capturing and 
internalizing their values, perceptions, attitudes, not only as 
PREPA customers, but also as electricity users in Puerto Rico.
    And No. 5, effectively co-producing the knowledge necessary 
to transform not only the agency but the electric system in 
general.
    In closing, Puerto Rico is right now the quintessential 
canary in the mine, not only because of its island condition 
but geographical location in the path of possible and more 
frequent and stronger weather events.
    Also, and more importantly, because of its current colonial 
condition, this makes Puerto Rico perhaps the greatest 
experiment in democracy in the hands of the United States.
    Thank you and I remain available for your questions.

    [The prepared statement of Dr. Ortiz-Garcia follows:]
    Prepared Statement of Cecilio Ortiz Garcia, Senior RISE Fellow, 
    National Council for Science and the Environment, Washington, DC
    Good morning Honorable Chairman and members of the Committee. My 
name is Cecilio Ortiz Garcia and I appear in front of you today as 
Senior RISE Fellow at the National Council for Science and the 
Environment in Washington, DC. I am currently in residence at the 
Institutes for Energy and the Environment at Penn State University. I 
hold a PhD in Public Policy and Administration from The Arizona State 
University and for the last 15 years I have been involved in numerous 
research projects, programs and policy-making activities related to the 
sustainable transition of Puerto Rico's electrical system. Also, since 
my arrival at NCSE, I have been involved in the design, construction 
and operation of the RISE Network.
    My remarks today will circumscribe to the issue of the proposed 
Monitor for the reconstruction of PREPA and will lead to the formation 
of a Technical Advisory Committee to those ends. We believe that the 
amendment to introduce the proposed Revitalization Coordinator (RC) for 
the Puerto Rico Electric Power Authority (PREPA) is warranted. However, 
because of the extreme complexity of Puerto Rico's post-Maria recovery 
and reconstruction process, extreme care should be given to determine: 
(a) what will frame the interactions of the RC with internal actors 
inside PREPA?; (b) what would frame the RC interactions with 
stakeholders outside of PREPA?; and (c) what role would the RC play in 
the overall planning of the electric system from here on after? These 
questions are important because recovery processes are complex, not 
only about speed but also about the quality of the decision-making 
process. Although speed is necessary (if agencies do not act quickly, 
many victims will begin to rebuild where they have access to and how 
they can afford), it is also vital to take the time to plan post-
disaster reconstruction. The amendment, as currently written only 
visualizes an RC to supervise, control and oversee PREPA operations, 
but doesn't contemplate the RC having a role in opening up what has up 
until now being considered PREPA's black box. We would argue that 
integrating the RC figure in a framework of conflict will only 
exacerbate the climate of acrimonious fighting and could in fact 
lengthen the recovery and reconstruction process of the island electric 
system.

    Due to the time constraints, I will concentrate on the following 
three main points:

  1.  The current extreme operating environment in Puerto Rico after 
            hurricane Maria is extremely complex and the proposed 
            monitor will have to face and embrace that complexity.

  2.  His or her success will require, more than technological 
            innovation, governance innovation.

  3.  And ultimately, I would like to offer the Committee a glimpse or 
            a vision of the possible opportunities these amendments to 
            PROMESA could bring both to the people of Puerto Rico and 
            to the rest of the Nation.

1. The current extreme operating environment in Puerto Rico after 
        hurricane Maria is extremely complex and the proposed monitor 
        will have to face and embrace that complexity--
    Platt (2017) has recently studied the factors affecting the speed 
and quality of post disaster recovery and resilience. Interestingly, 
the most important factors that influence the speed and quality of the 
recovery are endogenous like the characteristics of decision-making 
processes. Exogenous factors like the size of impact, population 
demographics and economic factors seem to have little or no impact. He 
argues that ``The relationship between post-disaster decision making 
and the quality of recovery in terms of whether crucial aspects of the 
society and economy are `built back better' is striking.'' Among the 
experiences presented by Platt the case of Chile after the Maule 
Earthquake in 2010, provides us with few lessons. The Chilean 
government appointed a national coordinator to develop a reconstruction 
plan. The plan was based on the premise that ``the State is unable to 
reconstruct everything or even control de process of recovery centrally 
from Santiago. With the support of the State it is the responsibility 
of each region, town council and community, to develop its own plan.'' 
The distinctive aspect about the Chilean example is the quality of the 
participation process that involved the communities in decision making 
and kept them informed about the progress. The client of the RC is the 
people of PR, not PREPA, not the PR Government. This example shows that 
framing the RC in the context of deconcentration of power and 
decentralization of energy decision making is crucial to its success in 
PR.
    Several decision-making bodies continue to fight over PREPA's 
future and that of the electric system. Moreover, due to the now 
admitted shortcomings by FEMA and other Federal agencies in the 
handling of Puerto Rico's post-Maria recovery process, we are now 
looking at a 10- to 15-year window for reconstruction. Last, we stand 
now in front of an ill designed ``two-teared electrical system'' that 
promises to become an energy planning nightmare at multiple levels. Let 
me explain. According to the solar map of Puerto Rico, and anecdotal 
evidence from NGOs that are actively engaged in the installation of 
these types of systems, there are about 200 renegade decentralized 
renewable systems, including micro grids and individual installations.
2. His or her success will require, more than technological innovation, 
        governance innovation--
    Puerto Rico's energy governance remains extremely concentrated, 
extremely hierarchical, extremely centralized and completely devoid of 
spaces for active participation of all energy stakeholders in the 
archipelago. This is so, despite (a) the enactment of executive orders 
declaring energy emergencies in the island, two in the past two 
decades, (b) the passage of Law 57 in 2014, (c) the actions of Alix 
Partners to restructure PREPA's debts after the bankruptcy, and (d) the 
emergence of an incipient yet promising renewable energy industry and 
market in Puerto Rico. If Hurricane Maria showed us anything, it was 
that the lack of effective participation of communities, mayors, civic 
organizations, professional associations and even the University of 
Puerto Rico, became our Achilles' heel at a time of crises. Therefore, 
while we support the intervention of the RC, we believe it must go 
beyond just monitoring, receiving or generally inspecting PREPA. There 
is a need for this figure to become a boundary spanning agent between 
the needs of these stakeholders and the future shape that PREPAs 
organization takes. In other words, this figure needs to be an agent of 
Puerto Rican society to educate the way PREPA is transformed to be able 
to transition Puerto Rico into a sustainable energy future.
    Currently, the internal organizational environment of PREPA is 
toxic. There are three main reasons for this assessment. The first one 
is that the political capture of every single aspect of PREPA's 
decision making and operational structure continues even after the 
resignation of Governor Rossello. Second, the current board of 
governors of PREPA is an insult to the people of Puerto Rico. For the 
sake of professionalizing PREPA's board we have now open its door to 
energy speculators and marketing agents of outside fossil fuel 
interests with little or no knowledge of the geographical, cultural, 
socio-economic and political realities of the archipelago. I want to 
give you one example: Robert G. Poe. A well-known figure in Alaskan 
politics having run for governor in past elections and well connected 
in the U.S. Senate, he now figures as one of PREPA board members, 
having barely arrived to the Island of Vieques after the hurricane. 
While this has happened, the number of representatives on behalf of 
costumer on PREPA's Board has been cut to 50 percent, going down to 
one. As recent accounts in Puerto Rico's media, this representative has 
been consistently blocked to effectively represent PREPA's costumers in 
deliberations dealing with electricity rates and subcontracting. In 
other words, we cannot sacrifice representation for 
professionalization. This is an incorrect dichotomy that furthers 
alienates PREPA from the current realities of energy insecurity, high 
energy burden and low levels of energy democracy existent today. The 
third reason is that internal voices inside of PREPA's organizational 
structure still do not talk to each other and operate in an environment 
of conflict and very little collaboration toward a common goal, 
whatever it is. PREPA continues to achieve its mission and goals 
despite of its most valuable assets and not with their collaboration.
    The innovation necessary to tackle these governance shortcoming is 
the formation of a Technical Advisory Committee (TAC) composed by local 
expertise. The TAC is absolutely necessary as a boundary spanning tool 
to assist the RC in (1) effectively engaging with different sectors 
with Puerto Rican society; (2) capturing and internalizing the values, 
perceptions and attitudes not only of PREPA's costumers but all 
electricity users in PR; and (3) effectively co-producing the knowledge 
necessary to transform not only the agency but the electric system in 
general. There is a proposal by the National Institute for Energy and 
Island Sustainability to assist this committee in the formation of the 
TAC. Furthermore, the National Council for Science and the Environment, 
a non-partisan, non-governmental organization with the affiliation of 
more than 700 universities and colleges nationwide, is involved in the 
creation of the RISE Network in collaboration with the National 
Institute for Energy and Island Sustainability. The RISE Network would 
provide support to the TAC in areas that might go beyond the existing 
capabilities of Puerto Rico's technical, scientific and non-scientific 
expertise. Regarding the role that institutions of higher education can 
play in recovery and reconstruction processes, Platt (2017) argues that 
``Universities are uniquely positioned to provide opportunities to 
lower not only the speed of recovery, but as a consequence the levels 
of deaths, ecosystem damage and economic disruption, in other words 
Sustainable Recovery and Reconstruction.''
    More than 90 percent of the reconstruction contracts so far have 
been awarded to external contractors and consultants. Sadly, these 
contractors, come back to Puerto Rican experts under the guise of 
collegiality further colonizing the knowledge and expertise already 
existent in our scientific community. Therefore, we feel that the 
composition of the Technical Advisory Committee needs to be 
specifically composed by local Puerto Rican experts in all areas of the 
social and natural sciences, engineering, public health, arts and the 
humanities, etc. Furthermore, the Technical Advisory Committee will be 
structured as an inter and transdisciplinary platform to open the way 
for contributions by communities and other non-academic sectors that 
bring sector to our energy decision-making processes. Ultimately the 
TAC will engage in collaborative partnerships by means of a network-of-
networks, to fill the knowledge gaps and fulfill its responsibilities 
to the new proposed figure.
3. A glimpse or a vision of the possible opportunities these amendments 
        to PROMESA could bring--
    Now, imagine with me an electrical system for Puerto Rico that is 
resilient, prosperous, just, equitable, democratic, sustainable, and 
that becomes the instrument to achieve happiness in our society; that 
maximizes the use of free, renewable and local energy sources; it is 
innovative and adaptive to social, climatic, consumption needs and 
economic changes; and its decision-making processes are transparent, 
participatory, inclusive, integrative, ample and effective regarding 
all societal sectors. Imagine an electric system that can integrate the 
knowledge that Minnesotan and Alaskan communities have on electric 
coops. Imagine an electric system that learns from the experiences of 
Sonoma County and its wildfires, Arizona and its integration of 
renewable solar energy, as well as from the myriad of experiences 
across the Nation and the world. Imagine a Puerto Rico electric system 
that can serve as a learning platform for other islands. We don't come 
to you with the hubris of complete knowledge and expertise about 
electric systems or Puerto Rico's. But we most recognized that Puerto 
Rican local expertise is central to a better understanding of our 
island condition and that this understanding can then serve the rest of 
the world in the co-production of new knowledge that can serve others 
as well.
    Let me finish Mr. Chairman by saying that Puerto Rico is right now 
the quintessential ``canary in the mine,'' not only because of its 
island condition and geographical location in the path of possible more 
frequent and stronger extreme weather events, but also because its 
current colonial condition. This makes Puerto Rico an unequal partner 
in perhaps the greatest experiment in democracy. Let's end the 
governance aberration known as PROMESA by collaboratively enabling 
processes that guarantee equity and justice not only in energy 
decisions but all aspects of Puerto Rican life. The people of Puerto 
Rico have a right to it, and the world is looking at us and the way we 
handle this delicate issue. Thank you and I remain available to your 
questions.

                                 ______
                                 

  Questions Submitted for the Record by Rep. Grijalva to Mr. Cecilio 
   Ortz-Garcia, Senior Fellow, National Council for Science and the 
                              Environment

Mr. Ortz-Garcia did not submit responses to the Committee by the 
appropriate deadline for inclusion in the printed record.

    Question 1. You propose a Technical Advisory Committee to increase 
participation of local experts in the transformation of PREPA. Please 
share what sectors--in your view--should be represented in the 
Technical Advisory Committee. Could this Committee assist the PREPA 
Revitalization Coordinator proposed in the Discussion Draft?

    Question 2. Groups like the Institute for Energy Economics and 
Financial Analysis (IEEFA), UTIER, and other local organizations 
support the establishment of an Independent Private Sector Inspector 
General (IPSIG) for PREPA. The IPSIG would be responsible for creating 
personnel hiring regulations, overseeing procurements, supervising 
fiscal and accounting activities, and providing regulatory oversight 
for PREPA.

    Do you support this proposal? Would an IPSIG have positive impact 
in PREPA's current operating environment?

                                 ______
                                 

    Mr. Soto. Thank you, Dr. Ortiz-Garcia, for your testimony.
    As a reminder, I thank the panel for their testimony and 
remind Members that Committee Rule 3(d) imposes a 5-minute 
limit on questions.
    I will now recognize myself for 5 minutes.
    First, I want to thank you all for coming. We find 
ourselves here--the last panel was probably more PROMESA-
focused--but we find ourselves here also because Congress 
allocated $42.5 billion back in February 2018, and it has been 
over a year and a half since then and 2 years since the storm, 
and the money just is not flowing. Less than half of it has 
been flowing.
    So, our Committee is doing our best to try to break that 
logjam that has held that money here in Washington for so long. 
And I can appreciate the quandary of having these coordinators. 
There is already PROMESA. There is already a layer of Federal 
Government that is now facing the people of Puerto Rico, so to 
add another Federal Coordinator obviously is something that we 
all have to work through. It did work for Louisiana quite well, 
and I think that is where a lot of folks are coming from on 
that.
    I want to start with Ms. Martinez. You had mentioned the 
civic society task force. You will notice in our audit 
provision, which we are not going to go into, there is a multi-
sectoral commission that kind of does a similar thing. Local 
input is key from the community. What assurances could we have 
if we did something like this that it wouldn't slow down the 
funding flowing even more?
    Ms. Martinez. Thank you for the question. Right now, the 
bottlenecks in the centralization are the reasons why the funds 
are taking so long to be disbursed and to reach the people that 
really need them. So, for us, in order to solve those 
bottlenecks you have to have direct incidence of the civil 
society sectors that have already done recovery work with very 
little resources that they have been able to get.
    So, having a work group that can facilitate those 
participation instances and raising the red flags when there 
are bottlenecks, and also ensuring that the contracts that are 
made and the decisions that are taken by the government and the 
agencies are really attending to the needs of the people is not 
going to make it slow for our results to be better, it is going 
to make it more agile.
    Mr. Soto. Thank you, Ms. Martinez.
    And to Ms. Mayol, I know you all awarded a $30-plus million 
contract and you have, what, $16,000 so far I think I was 
briefed the other day by my staff. Do you think a coordinator 
would help with our NGOs and with our local governments getting 
this money down quicker, or would it be another layer of 
government that would make it tougher? Help us with this 
quandary.
    Ms. Mayol. The importance is the coordinator has the 
authority to make sure to look at how to find ways to expedite 
the process. One of the things that we talk about is the 
Federal Government needs to find ways to facilitate, not 
hinder, the process, ensuring Federal compliance, but at the 
same time ensuring coordination and new ways that can be 
implemented.
    You mentioned Louisiana, for example. The Federal 
Government and the Federal agencies have experience of things 
that have worked and haven't worked in other states, and I 
think that having a Federal facilitator--their job is to make 
sure, I say they are herding the cats. It is just to make sure 
the process is moving forward and that, in fact, the agencies 
are becoming facilitators and not just hinderers.
    I think the key here with your question also is that the 
delay of reimbursements of funds are creating a liquidity issue 
and it is making it impossible to be accessible. But that also 
is one of the reasons why we talk about bringing more people to 
the table and the importance of diversifying the distribution 
of funds through other areas like NGOs.
    Mr. Soto. Thank you, Ms. Mayol.
    Dr. Ortiz-Garcia, we face a similar quandary here with a 
Revitalization Coordinator. Obviously, having a Technical 
Advisory Committee may spread around at least community input. 
Do you think that this would help us with the $2 billion we are 
trying to get down for renewables and some of this other HUD 
funding that hasn't gotten to PREPA yet?
    Dr. Ortiz-Garcia. Congressman, I think it would, but the 
devil is always in the details. How we frame the intervention 
of this figure really will determine the kind of perception all 
other actors and stakeholders will have of him or her, and as a 
consequence, it might facilitate the flow not only of 
information but of trust.
    We don't necessarily have a lack of technical information 
about our system, while we could certainly have more if we 
opened the black box, but we have a lack of trust. So, in 
framing that figure of the Recovery Coordinator for PREPA, that 
is the key element that could make this quicker. Yes.
    Mr. Soto. Thank you, Dr. Ortiz-Garcia. My time is expired.
    First, before we recognize the Ranking Member, I ask for 
unanimous consent that the gentleman from Illinois, Mr. Garcia, 
be allowed to sit on the dais and question witnesses from 
today's hearing. Without objection, so ordered.
    Now we recognize the acting Ranking Member, Mr. Webster, my 
fellow central Floridian.
    Mr. Webster. Thank you, Mr. Chairman. Thank you all for 
appearing.
    Ms. Martinez, you have mentioned a lot of issues here for 
us. We are here, you are there. It is real hard to sort through 
it.
    If you were to pick out the biggest root problem, would it 
be the debt, or would it be unemployment, or would it be a lack 
of direction, or is it corruption? Or is there a word that 
would say, OK, here is the biggest one? It is not the solve-
all, what is the biggest root problem?
    Ms. Martinez. With the administration of Federal recovery 
funds, I think the word would be bottlenecks. There is one type 
of bottleneck in the Federal level, which is the mistrust about 
concerns about capacity and corruption. And then there are the 
bottlenecks in the local level, which pertain to capacity and 
to contracts and a special interest being attended to first and 
then the ones of people that need the most.
    So, those bottlenecks are what concerns us, and that is why 
we sustain that in order to solve those in those two sectors, 
you have to have the people that are actually doing the work on 
the ground to be direct participants to break those 
bottlenecks.
    Mr. Webster. OK, so the bottleneck--is it you are talking 
about flow of money?
    Ms. Martinez. Flow of money and for them to get to the 
people that really need them, the programs to work for the 
people that really need them, the most vulnerable.
    Mr. Webster. So, there is not a process by which the money 
could get to the right people? Is that true?
    Ms. Martinez. The collaborators and organizations that we 
work with in Puerto Rico have constantly tried since the 
beginning to have more incidence in the creation of the 
programs in Puerto Rico and trying to help the government to 
get things get done. And it hasn't worked that way.
    Mr. Webster. Is corruption a part of the problem then of 
these bottlenecks? Let us say the money is not released, is not 
released because there is some kind of distrust. Is that it?
    Ms. Martinez. From the Federal level?
    Mr. Webster. Yes.
    Ms. Martinez. Yes. And that was completely revealed by HUD 
in the hearings last week when they said that they had two 
options, to release the funds fast or hold them for them to be 
safeguarded. That is one.
    But over in Puerto Rico, I would say that there are special 
interests that are being taken care of that are not the ones of 
the people.
    Mr. Webster. OK. And that is in the government itself?
    Ms. Martinez. The government, the agencies, the private 
contractors, et cetera. And you have non-governmental 
organizations that are ready to do the work and they have all 
these blockades in order to do it because of the reimbursement 
requirements, it is the auditing, the constant intervention of 
consultants. It is really hard for non-government organizations 
that are actually doing the work in the field to do it 
effectively.
    Mr. Webster. So, what would be your solution to it? OK, the 
biggest problem is the bottleneck, so what would you do to 
solve that problem?
    Ms. Martinez. For us, any type of instance of coordination 
of Federal funds has to be done with a team, a team from the 
people on the ground that includes community leaders, includes 
non-profit organizations, philanthropy, municipalities that 
have suffered also a lot, and businesses. That team can be able 
to really tell the agencies--HUD, FEMA, COR3 and Vivienda--get 
over your bottlenecks and this is what needs to be done.
    Mr. Webster. Ms. Mayol, do you have the same thought, that 
these bottlenecks are a big problem?
    Ms. Mayol. I want to add a comment to a question you asked. 
I think the important thing is in the fact of distrust. With 
the case of Federal CDBG-DR, which is the one that we have been 
working with directly in HUD, I think that distrust is 
unfounded. There are no findings and no issues of corruption 
with regards to the use of CDBG-DR funding right now.
    I do 100 percent agree with Ms. Martinez that when you 
centralize $19 billion into one agency to be able to manage all 
of the programs, you have to find ways to be able to bring 
other players to support you in that bottleneck.
    So, with regards to the work we are doing, we are one of 
those people at the table and we are asking the government--
both Federal and state, because the Federal also opposes a lot 
of people coming to the table--bring more players into the mix 
so that there is more oversight as well as better 
implementation, and more agile.
    So, bringing more NGOs like Foundation for Puerto Rico to 
participate in the action plan of CDBG-DR is an answer to 
making sure that the funding is well used, you don't have 
issues of distrust and corruption, but at the same time the 
movement is quicker.
    Mr. Webster. OK. I am out of time. Thank you. I yield back.
    Mr. Soto. Next, we recognize the gentleman from Illinois, 
Mr. Garcia.
    Mr. Garcia. Thank you, Mr. Chairman and Mr. Ranking Member, 
for the privilege of coming before this Committee and the 
opportunity to both hear the testimonies and engage the 
panelists. I apologize for my tardiness. Quite a hectic day 
around here. All the committees seem to be meeting.
    I would like to ask a question of Ms. Martinez. For months, 
I have been focused on the Trump administration's delays and 
obstruction in disbursing hurricane relief to Puerto Rico. Of 
course, that is my opinion. More than 2 years after Hurricane 
Maria, there are still thousands of people in Puerto Rico 
living under tarps for shelter. Yet, we have seen the Trump 
administration throw up new obstacles to delivering aid and 
even threaten to divert relief funding to pay for a border 
wall. This is, of course, unacceptable.
    Disaster relief in Puerto Rico deserves to be treated as an 
urgent priority, not used as a negotiating tool for unrelated 
purposes. You testified that Federal recovery funds should not 
be in any way thought of as a way to pay creditors and/or 
inflate economic prospects for the fiscal plans. Can you 
elaborate on your concern that relief is tied to PROMESA and 
issues related to Puerto Rico's debt restructuring?
    Ms. Martinez. Thank you so much for the question, Mr. 
Garcia. Definitely, there is a big concern to have them both in 
the same text, even because, as you say, many times those 
funds, the Federal recovery funds, have been talked about by 
Mr. Trump and others from his administration as a--that it is 
going to be used to pay creditors when that is not true.
    Also, it has been used--and this was testified by our 
previous colleagues--as a way to inflate economic prospects for 
the fiscal plans in the restructuring of the debt, and that is 
also a bad thing for Puerto Rico and, of course, for the 
Federal recovery process.
    The urgency, though, as you say, lies in the people of 
Puerto Rico needing this to get done and needing recovery from 
the situation, being in harm's way from hurricanes. So, our 
legislative attempts here in Congress should be to try to pass 
this in a fast way without being tangled in the PROMESA 
controversies, because those, as we have seen in previous 
statements here in this room, are more difficult and are 
probably going to face much rejection in the House and the 
Senate.
    We think it is more important to solve recovery in Puerto 
Rico in an urgent way, so we have to separate them. Thank you.
    Mr. Garcia. Thank you. You have mentioned in previous 
conversations I have had with you, and I think it was part of 
your testimony, that Oxfam's proposal for a civil society task 
force would be preferable to coordinate recovery funds because, 
in your view, it is not a single hierarchical, centralized 
approach to it.
    Can you talk about why that approach, the more centralized 
approach, is problematic and why you think that a decentralized 
approach to having the aid become more impactful might be 
preferable?
    Ms. Martinez. Yes. And for the record, I have to clarify. 
The proposal is a development of a concept that has been done 
with organizations in Puerto Rico, so we don't call it Oxfam's 
proposal for that reason. It is that there is a consensus in 
Puerto Rico that a centralized figure will not have the 
knowledge or the means to be able to solve the problems, the 
bottlenecks.
    You need a team. You need a team that meets where the needs 
lie, and where you can make more effective the plans that have 
already been laid out by the government agencies.
    There are problems of transparency in the local level, but 
there are also problems of transparency and efficiency in the 
Federal level. So, this team of local stakeholders that are the 
ones that have been ensuring true recovery would be the ones 
that have the knowledge and the capacity to do those actions 
and to tell what has to be done to get the money to the right 
hands.
    Mr. Garcia. Thank you.
    Mr. Soto. Thank you, and the gentleman's time is expired.
    By agreement with the acting Ranking Member, Mr. Webster, 
we are going to go into a second round of questions. First, I 
recognize myself again.
    Ms. Martinez, how do you envision the civic society task 
force would influence the decision-making process of Federal 
and local agencies that play a role in the reconstruction 
process? Essentially, how would they interact and what would 
their authority be?
    Ms. Martinez. I appreciate very much the question. Yes. For 
this, we have envisioned that that team of locally elected 
representatives of the civil society will nominate candidates 
to work in each of the agencies as special advisors. You would 
have one in COR3, one in Vivienda, one in HUD, and one in FEMA 
that would be special advisors and would report back to the 
civil society task force to be able to execute the duties of 
the task force inside the agencies.
    So, they would have--we call it civil society 
representatives within the agencies that would meet monthly 
with this working group from the civil society of Puerto Rico 
to be able to communicate what the red flags are, where the 
bottlenecks are, what needs to be done, and execute it in the 
agencies.
    Mr. Soto. Thank you, Ms. Martinez.
    Ms. Mayol, you mentioned that NGOs can play a game-changing 
role in healing the distrust between the local and Federal 
Governments. How can this be done and what would be helpful to 
have other NGOs participating as sub-recipients in the 
reconstruction process?
    Ms. Mayol. Thank you. As mentioned before, NGOs were a key 
player in the relief and recovery, and they continue to be 
leaders in the recovery process of Puerto Rico. Because of long 
history in working in communities, NGOs have experience, 
capacity and trust, and they get to the hardest places.
    When you think about government structures around the 
Nation, there are areas that are very hard to reach for any of 
the government, even if they have the intention. But the NGOs 
work directly with those communities. During disaster recovery 
efforts, those are the communities that we have to make sure 
are sitting at the table.
    One of the things that NGOs have is they have been managing 
Federal funds. They have contracts with Federal agencies 
directly, like we do and others. We have organizations like the 
Fundacion Comunitaria of Puerto Rico, the Puerto Rico Community 
Foundation, that has been working in putting together energy 
grids in the mountains. We have the Ricky Martin Foundation 
working in recovering homes in Loiza, and many of them work 
with Federal agencies. They have experience. They have 
capacity.
    And at the end of the day, they are not tied to political 
and private interests, so they have to go abide by the Federal 
501(c)(3) requirements. They have a board. So, I think the 
structure that the NGOs provide has been effective in other 
states--Florida is an example that has amazing NGOs that have 
participated in programs of impact of economic development and 
of impact of disaster recovery.
    So, bringing more of those NGOs into the work I think is 
the solution.
    Mr. Soto. Thank you, Ms. Mayol.
    Dr. Ortiz, groups like the Institute of Energy Economics 
and Financial Analysis, UTIER, and other local organizations 
support the establishment of an Independent Private Sector 
Inspector General for PREPA. The IPS IG would be responsible 
for creating personnel hiring regulations, overseeing 
procurements, supervising fiscal and accounting activities, and 
providing regulatory oversight for PREPA.
    Would you support a proposal like that and would an IPS IG 
have a positive impact on PREPA's current operating 
environment?
    Dr. Ortiz-Garcia. Thank you, Congressman. Again, the 
context is everything. If the figure you institute inside our 
energy policy process is simply going to be inserted into the 
current organizational structure of PREPA and will serve you 
just as an auditor, let's say as an opener of black boxes, that 
is certainly an improvement but it doesn't get us where we need 
to get with our electric system.
    To use the example my colleagues are bringing here, NGOs 
are now installing--whether it is micro grids or personal 
systems in the island--to the tune of over 100 of those 
systems. If you add the systems that the Red Cross is also 
putting together, you might go over 200 of those decentralized 
systems. That is creating the risk of a planning catastrophe in 
terms of energy in Puerto Rico. You are developing a two-tier 
system that does not talk to each other and are not 
coordinating.
    So, we see the figure of the IPS IG as the possible 
boundary spanner that could come in and help bridge those gaps 
that are right now taking us in the wrong direction.
    Mr. Soto. Thank you, Dr. Ortiz. My time is expired.
    Next, we recognize the acting Ranking Member, Mr. Webster.
    Mr. Webster. Thank you, Mr. Chair.
    OK, I didn't get to you, Doctor. Do you believe in the 
bottleneck problem as being the biggest problem?
    Dr. Ortiz-Garcia. If not the biggest, it is certainly one 
of the biggest, sir.
    Mr. Webster. Do you have a solution for that?
    Dr. Ortiz-Garcia. There are really no silver bullets to 
wicked problems, but I will take a shot at it.
    The bottleneck problem is a symptom of a much bigger 
problem, which is the small amount of spaces, if I may call 
them that way, that Puerto Rican society, Federal Government, 
all the different stakeholders in the island have to actually 
do this that we are doing here today.
    The more centralized decision-making processes are and the 
less connected they are, the more of a probability of 
bottlenecks being created you foster. It is just a matter of 
that concentration of power and decision making not being 
dispersed throughout all of those that are actually affected by 
the problem.
    Mr. Webster. OK, I think it was Ms. Martinez, or was it you 
that mentioned that there was a person in each one of these 
agencies that would sort of be the person that put the stent in 
so the flow would go? Like you said, FEMA and other places.
    Ms. Martinez. Yes.
    Mr. Webster. Would those people, in your mind, be elected 
officials or appointed officials or would they----
    Ms. Martinez. As the language has developed, we have 
suggested that those people would be nominated by the civil 
society task force group. They would give the options to three 
professionals with the qualifications already lined out, like 
it has to be three professionals and the agency can recruit out 
of those three, and that they would work for 1 year.
    The reason for that is to have them answer to the groups 
that they are working for so there is some sort of 
answerability to what they are doing. And we call them the 
embedded civil society representatives because they would be 
executing the duties of the task force that would also be 
really well defined in the text.
    Mr. Webster. Do you think in 1 year----
    Ms. Martinez. If they can be renewed, they can keep going 
if they are unanimously approved by the task force. It is just 
that they would have to renew their work.
    Mr. Webster. I think we are going to see improvements, so 
do you think we could turn the corner in a year? Do you think 
that is possible?
    Ms. Martinez. I think that what we need are people that 
really answer to the people of Puerto Rico and their needs. In 
that sense, the requirements of the temporality and for them to 
pass muster each year is to make sure that they are doing their 
job.
    Mr. Webster. Ms. Mayol, anything to add?
    Ms. Mayol. I think the Foundation for Puerto Rico supports 
Oxfam's proposition of bringing civil society and making sure 
that they have the expertise in the area but are connected 
somehow to what is happening in Puerto Rico. But I think the 
point is, as you stated, at the end of the day, finding more 
people to be at the table.
    One of the things is working in the models with the Federal 
Government. I think they have models like mentioned before in 
Louisiana. What are the models that have worked of bringing 
people to the table in the decision-making process?
    For us, we are at the table in all government. Sometimes 
when we are sitting at the table, we are the only non-
government entity sitting at the table with the Federal 
Government and the local government. And just making them 
realize the challenges that other sectors face by decisions 
they make--fiscal challenges, operational challenges that they 
are not aware of because they don't have to face them 
themselves as government agencies.
    I think that is the key in making the right decisions in a 
more agile way. We support Oxfam's policy. The details of how 
to implement them, I think those are very good questions that 
still have to be addressed.
    Mr. Webster. OK. I yield back. Thank you.
    Mr. Soto. The gentleman yields back. I now recognize the 
gentleman from Illinois, Mr. Garcia. And please note votes have 
been called, but we will stay as long as we need to, Mr. 
Garcia.
    Mr. Garcia. Thank you, Mr. Chairman. I will be brief.
    I would like to ask Dr. Ortiz-Garcia and Ms. Mayol the 
following question: Given the 2-year delay, what has that done 
for the people of Puerto Rico, the NGOs in particular, over 
that period of time about deep thinking about the best ways to 
rebuild the island for the long haul, with greater resiliency, 
et cetera, et cetera? And has that enabled groups to acquire 
more capacity and are there more hands ready to implement the 
aid and to make sure that the reconstruction is done in an 
effective manner?
    For example, one of the more recent difficulties and 
learnings that people have had, I am sure, has been the 
political tumult that the people of the island have 
experienced. So, I am wondering, what is different about 2 
years ago after Maria and today in all of the frustrations and 
all of the thinking that obviously has gone on and part of the 
reason that you are here today?
    Ms. Mayol. Three things have happened in the last 2 years. 
One, as mentioned, not-for-profits have had to start working on 
projects through other sources of funding--private funding and 
working on the projects in the community, making sure they are 
sitting at the community and they have to make sure the 
community is being taken care of. So, they are doing projects 
disconnected to an overall plan that the government has 
presented to Congress. They are working toward, in silos in 
order to make sure that things are addressed as quickly as 
possible through private funding, whether it is philanthropy 
from the United States, whether it is other Federal funds.
    However, on the other hand, those that have put together 
really good strategies and can really help in the long run 
implement sustainable economic development strategies that are 
going to have an impact, and avoid having to have another debt 
and go back and really help the fact of the debt in Puerto Rico 
and create a common growth--they are sitting waiting to see how 
they can participate in this process.
    One of the biggest--getting capital for the not-for-profit 
sector in Puerto Rico has always been an amazing challenge. 
Fundraising is very difficult. Private capital does not come to 
Puerto Rico for the not-for-profit sector as it does for the 
United States. And many people--we were able to get some 
private capital because of the concern of the hurricane, but we 
had to use it right away because the government couldn't help 
in the immediate relief.
    Right now, in our case specifically, we are being 
challenged in liquidity. So, for example, we have a $37 million 
grant. We have only gotten .02 percent of that reimbursement in 
the period of 6 months, or actually 10 months. Where do we have 
to go? Get a line of credit. So, the liquidity issue is 
impacting as well.
    Mr. Garcia. And, Dr. Ortiz-Garcia, you have a minute and 50 
seconds.
    Dr. Ortiz-Garcia. The variable of time is the most 
important variable I believe in Puerto Rico's case. We have had 
two impacts, the impact of our bankruptcy plus the impact of a 
hurricane. If one looks like it is going to take a long time--
our debt, take care of our debt. FEMA is now saying that they 
are going to be in Puerto Rico in recovery and reconstruction 
for the next 10 to 15 years.
    So, when you look at Puerto Rico's timeline, unfortunately, 
more things remain the same than have evolved. And those that 
have evolved are evolving in negative trends. This is a red 
flag that I want to raise here. The more we wait--this is a 
function of time and doing things right. We do not want to rush 
things and then create planning problems for the future, but at 
the same time to get it right you need all voices represented 
on the table as soon as possible.
    Whether we have different ideas of how to do it, we can sit 
down and resolve those. But I think all at this table are 
pulling toward the same side, to tell you that to deal with 
wicked problems like this, you need extended peer communities 
that look at each other in a level playing base and that feel 
that they can trust each other as they inch forward toward 
progress.
    Mr. Garcia. Thank you. I yield back, Mr. Chairman.
    Mr. Soto. The gentleman yields back. I ask for unanimous 
consent to enter into the record statements from the United 
Auto Workers of Puerto Rico, the Center for a New Economy, and 
Espacios Abiertos.
    Seeing no objection, that is approved.
    I thank the witnesses for their valuable testimony and the 
Members for their questions. The members of the Committee may 
have some additional questions for the witnesses, and we will 
ask you to respond to these in writing under Committee Rule 
3(o). Members of the Committee must submit witness questions 
within 3 business days following the hearing, and the hearing 
record will be held open for 10 business days for these 
responses.
    If there is no further business, without objection, the 
Committee stands adjourned.

    [Whereupon, at 4:19 p.m., the Committee was adjourned.]

            [ADDITIONAL MATERIALS SUBMITTED FOR THE RECORD]

 Prepared Statement of the Hon. Raul M. Grijalva, Chair, Committee on 
                           Natural Resources
    We are here today for the second day of hearings on legislation I 
am considering to make amendments to PROMESA--the Puerto Rico 
Oversight, Management and Economic Stability Act.
    I continue to believe this Federal law relies on austerity measures 
that severely impact the quality of life of ordinary Puerto Ricans, to 
achieve its goals of debt reduction and balanced budgets. For this 
reason, I wrote the amendments to PROMESA that are part of the 
``Discussion Draft'' we will be discussing today.
    The purpose of the hearing is to receive feedback from all 
stakeholders on the draft's provisions, which include defining 
essential public services, assigning Federal funding for the operation 
of the Oversight Board, reducing conflicts of interests, and auditing 
the debt. The draft also includes provisions to address Puerto Rico's 
disaster recovery challenges.
    Last week, we received opinions and proposals from officials of the 
government of Puerto Rico to address PROMESA and a Federal disaster 
recovery process plagued by inequity toward the residents of the 
Island. Today, we will hear from witnesses representing academia, non-
profit organizations, and the labor and business sectors. I want to 
encourage anyone who is not able to be a witness to submit comments for 
the record.
    We have already received reactions both in favor and opposition to 
some of the provisions in the Discussion Draft. You will hear many of 
those comments from our witnesses today. I want to caution again those 
who raise objections to the provisions, to also offer alternatives to 
accomplish their goals.
    There are two points I would like to emphasize. First, although the 
Ranking Member has expressed opposition to this effort, it is my 
responsibility and the responsibility of my colleagues to identify 
areas of consensus that may have the potential of moving forward. And, 
if that is not the case in the short-term, to lay the foundation for 
making improvements in the future.
    Second, I recognize that it is impossible to discuss PROMESA 
without discussing the subordinate political relationship of Puerto 
Rico with the United States, and the need for new measures to foster 
economic development in Puerto Rico. As I have expressed before, I 
remain committed to having that discussion here after introducing 
legislation to address the shortfalls of PROMESA and disaster recovery 
efforts in the Island.
    Although it is not a priority for the President and the leadership 
in the Senate, I acknowledge that discussing the political status of 
Puerto Rico is a priority for the political leaders of the Island, and 
most importantly for the people of Puerto Rico. Therefore, it should 
also be a priority for this Congress to hear from representatives of 
all political ideologies--their visions and plans for the political 
future of the Island.
    In closing, I want to welcome our witnesses and thank them for 
traveling from Puerto Rico to be with us today. I look forward to 
receiving your testimony and working with each of you on improving the 
lives of the residents of Puerto Rico.

                                 ______
                                 

[LIST OF DOCUMENTS SUBMITTED FOR THE RECORD RETAINED IN THE COMMITTEE'S 
                            OFFICIAL FILES]

Submissions for the Record by Reps. Grijalva and Soto

  --  Center for a New Economy, Statement by Rosanna Torres, 
            Director, Washington, DC Office, dated October 30, 
            2019.

  --  Daniel Santamaria Ots, Senior Public Policy Analyst, 
            Espacios Abiertos, Letter to Chair Grijalva, dated 
            October 28, 2019.

  --  United Auto Workers, Statement by Beverley Brakeman, 
            Director, dated October 30, 2019.

                                 [all]