Responding to Fiscal, Political & Physical Storms

November 17, 2017

Good Morning! In today’s Blog, we consider, again, some of the governance and federalism challenges in the wake of the devastating Hurricane Maria impact on the U.S. territory of Puerto Rico.

Visit the project blog: The Municipal Sustainability Project 

Governor Ricardo Rosselló this week asked Congress to reject the requests of the PROMESA Oversight Board to be granted greater authority over the government of Puerto Rico in the wake of the slow process of recovery and reconstruction after Hurricane Maria. In his written statement to the House Natural Resources Committee, Governor Rosselló specifically requested that the efforts by the Board to control emergency assistance funds, public corporations, and be granted the authority to veto government legislation be dismissed, noting: “The Government and the Fiscal Oversight Board must be able to resolve any differences,” and that “collaboration, not control, is the key to a successful future for Puerto Rico.” The Governor’s views came as U.S. Judge Laura Taylor Swain dismissed the motion of the PROMESA Board to appoint engineer Noel Zamot as trustee of the AEE, under the title of principal Transformation official.

In addition, Puerto Rico is seeking $94 billion from Congress to help in the recovery efforts that devastated the U.S. territory in September, leaving much of the island still without power and worsening a fiscal crisis. The bulk of the funds the Gov. has requested, some $31 billion, would be focused on rebuilding homes, with another $18 billion requested for PREPA: in his epistle to President Trump, Gov. Rossello wrote: “The scale and scope of the catastrophe in Puerto Rico in the aftermath of Hurricane Maria knows no historic precedent…We are calling upon your administration to request an emergency supplemental appropriation bill that addresses our unique unmet needs with strength and expediency.” Natalie Jaresko, the PROMESA Board’s Executive Director, said that $13 billion to $21 billion was needed over the next two years just for Puerto Rico to keep the government running, given the toll the storm has taken on the economy and anticipated tax collections. (Two months after the storm, much of Puerto Rico remains without power, further eroding the government’s already precarious finances. Prior to the hurricane, the government had put together a fiscal plan to cut back spending severely and finance only a fraction of the debt payments due over the next decade—but, like the island’s physical situation, the storm also devastated its fiscal plight. Puerto Rico’s long-term economic recovery will depend not just on an equitable response by Congress and the White House, comparable to the aid provided to Houston and Florida, but also whether its citizens who fled to the mainland will return—or make their moves permanent. According to the PROMESA Board, about 100,000 residents have fled since the storm. The Board did not break down the data of those who had left; however, it seems likely that those who left were both younger—and better able to afford to depart. The Governor also warned that calls for him to raise taxes could further undermine the precarious state of the territory’s economy: “If Congress does not consider Puerto Rico in tax reform, it would lead to the exodus of companies that currently generate 42 percent of Puerto Rico’s gross domestic product, the loss of jobs on the island and exacerbate the outward migration of island residents moving to the mainland.” statement from the governor’s office accompanying the letter said.

In Congress, however, there appears to be growing skepticism with regard to the Governor’s ability to manage federal emergency assistance funds, as House Natural Resources Committee Chair Rob Bishop (R-Utah) warned: “There are serious concerns of committee members, and Congress in general, about the ability and the capacity of the current local government to adequately handle the massive amounts of dollars in federal assistance that has begun to be sent,” with the Chairman’s comments coming in the wake of the discovery of documents provided by the Puerto Rico Electric Power Authority (PREPA) about the contract with Whitefish Energy Holdings, which has become the symbol of Congressional apprehensions with regard to the administration of federal funds: the documents appear to 1) demonstrate that the Puerto Rican authority ignored recommendations of the Greenburg Traurig law firm to protect the public corporation in the contract, 2) raise complaints about the high cost of the fees requested by Whitefish, and 3) disclose a personal offer made by the president of the energy company, Andrew Techmanski to the head of the Supply Division of the public corporation, Ramón Caldas Pagán, to take supplies (generators, water or food), as part of the mobilization to Puerto Rico. Chairman Bishop noted: “Confidence in the ability of the public corporation to administer contracts and infrastructure work in response to the disaster, which is very sensitive in terms of time, disappeared a long time ago.” Adding to the Congressional apprehension, Rep. Bruce Westerman (R-Ca.), the Chair of the Committee’s Oversight and Investigations Subcommittee, pointed out that the contract with Whitefish underscored the need for the Board to have higher responsibilities over the government of Puerto Rico: “It is obvious that PREPA did not know how to draft a contract that complied with FEMA, nor did PREPA officials follow the advice of their own lawyers on how to comply with it. This is precisely the reason why the Board should be given more authority.”

The Congressional concerns came in the wake of U.S. Judge Laura Swain, at the beginning of the week, rejecting a motion by the PROMESA Board to impose engineer Noel Zamot as a trustee or Chief of Transformation of PREPA. Mr. Zamot has been the Revitalization official of the financial authority imposed on the government of Puerto Rico through the Promesa Law. Chairman Bishop, has defended the claims of the Board in favor of new powers to control emergency funds and to direct the work of PREPA. However, in the wake of Judge Swain’s decision, the Chairman said he wants to see the written opinion prior to deciding on a next course of action. In the hearing before the Senate Committee on Energy and Natural Resources, the executive director of the PROMESA Board, Natalie Jaresko, said that the judge’s decision had been “a setback,” but also preferred to wait to see the decision in writing before commenting publicly on the steps to follow—adding it was unrealistic to think that the federal government will provide new emergency funds without proper supervision.

Governor Rosselló, in his testimony, told Chairman Bishop that during the past 10 months the U.S. territory has collaborated much more than it has struggled, and alluded to the approval of the fiscal plan that now will have to be revised due to the catastrophe caused by Hurricane Maria. In response, Chairman Bishop noted: “There has to be an increase in collaboration, for the sake of Puerto Rico.” At the session, the Governor affirmed that the Central Recovery and Reconstruction Office of Puerto Rico, which he established by executive order, has been seeking to establish controls on the use of funds, an issue that is also under discussion with the White House and the Office of Management and Budget, regarding Puerto Rico’s request for some $94.4 billion in emergency assistance; moreover, in addition, the Governor told Chairman Bishop that any collaboration cannot be at the expense of “the sovereign powers” of the people of Puerto Rico and “the democratically elected government,” with his comments appearing to raise the specter of a governance challenge between the oversight PROMESA Board created by Congress and the Governor: last week, when she appeared before the Committee on Natural Resources, the oversight Board Chair Jaresko requested that, if necessary, Congress should modify federal legislation in order to “clarify” that the Board has the power to appoint a trustee in  PREPA or, she even suggested, that any new federal assistance to Puerto Rico be conditioned. During the hearing, other Members of the Committee queried why Governor Rossello did not consult with the PROMESA Board with regard to the decision to exempt small and medium-sized companies from the Sales and Use Tax during the period from January 20 to December 31, at a time when the government had a serious liquidity crisis that has forced it to request a credit line of up to $4.7 billion from the federal government. Interestingly, Rep. Don Young (R-Alaska) noted that “Puerto Rico would not have the problems it has if it were a state.” Rep. Garret Graves (R-La.) asked the Governor what he should say to one of his voters if questioned, in the wake of the PROMESA enactment, whether the law constituted a financial bailout at a time when its citizens do not pay federal income taxes—in response to which, the Governor replied that Puerto Ricans are U.S. citizens, who have faced a historical catastrophe that keeps the Island in an emergency situation and that it is not an issued related to “the strange territorial arrangement that we have.”

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Seeking Equitable Federal Assistance

November 15, 2017

Good Morning! In today’s Blog, we consider, again, some of the governance and federalism challenges in the wake of the devastating Hurricane Maria impact on the U.S. territory of Puerto Rico.

Visit the project blog: The Municipal Sustainability Project 

Governor Ricardo Rosselló will ask Congress today to reject the requests of the PROMESA Oversight Board to be granted greater authority over the government of Puerto Rico in the wake of the slow process of recovery and reconstruction after Hurricane Maria. In his written statement to the House Natural Resources Committee, Governor Rosselló specifically requested that the efforts by the Board to control emergency assistance funds, public corporations, and be granted the authority to veto government legislation be dismissed, noting: “The Government and the Fiscal Oversight Board must be able to resolve any differences,” and that “collaboration, not control, is the key to a successful future for Puerto Rico.” The Governor’s views came as U.S. Judge Laura Taylor Swain dismissed the motion of the PROMESA Board to appoint engineer Noel Zamot as trustee of the AEE, under the title of principal Transformation official.

Puerto Rico is seeking $94 billion from Congress to help in the recovery efforts that devastated the U.S. territory in September, leaving much of the island still without power and worsening a fiscal crisis. The bulk of the funds the Gov. has requested, some $31 billion, would be focused on rebuilding homes, with another $18 billion requested for PREPA: in his epistle to President Trump, Gov. Rossello wrote: “The scale and scope of the catastrophe in Puerto Rico in the aftermath of Hurricane Maria knows no historic precedent…We are calling upon your administration to request an emergency supplemental appropriation bill that addresses our unique unmet needs with strength and expediency.” Natalie Jaresko, the PROMESA Board’s Executive Director, said that $13 billion to $21 billion was needed over the next two years just for Puerto Rico to keep the government running, given the toll the storm has taken on the economy and anticipated tax collections. (Two months after the storm, much of Puerto Rico still remains without power, further eroding the government’s already precarious finances. Prior to the hurricane, the government had put together a fiscal plan to cut back spending severely and finance only a fraction of the debt payments due over the next decade—but, like the island’s physical situation, the storm also devastated its fiscal plight. Puerto Rico’s long-term economic recovery will depend not just on an equitable response by Congress and the White House, comparable to the aid provided to Houston and Florida, but also whether its citizens who fled to the mainland will return—or make their moves permanent. According to the PROMESA Board, about 100,000 residents have fled since the storm. The Board did not break down the data of those who had left; however, it seems likely that those who left were both younger—and better able to afford to depart. The Governor also warned that calls for him to raise taxes could further undermine the precarious state of the territory’s economy: “If Congress does not consider Puerto Rico in tax reform, it would lead to the exodus of companies that currently generate 42 percent of Puerto Rico’s gross domestic product, the loss of jobs on the island and exacerbate the outward migration of island residents moving to the mainland.” statement from the governor’s office accompanying the letter said.

Stormy Governance & Federalism Challenges in the Wake of a Storm

eBlog

November 14, 2017

Good Morning! In today’s eBlog, we consider the governance and federalism challenges in the wake of the devastating Hurricane Maria impact on the U.S. territory of Puerto Rico, where questions in a federal courtroom about the balance between Puerto Rico’s government and the federally appointed oversight board for Puerto Rico consider not just the Puerto Rican government’s authority—but also that of the Congress.  

Visit the project blog: The Municipal Sustainability Project 

U.S. District Judge Laura Taylor Swain has denied the PROMESA Oversight Board’s request to deny the request to appoint Noel Zamot as the Transformation Officer (CTO), noting that the powers granted to the special panel by Congress are insufficiently broad to limit the actions of the government of Puerto Rico, holding that the Puerto Rico Oversight Board lacked authority to replace the leader of the Puerto Rico Electric Power Authority (PREPA). The Board had requested the Judge to confirm its appointment of Noel Zamot as PREPA’s Chief Transformation Office—a position comparable to CEO. Instead, Judge Swain called on the Board and Gov. Ricardo Rosselló to work collaboratively to address the U.S. territory’s problems—a call, in response to which, Gov. Rosselló responded by noting: “We are very pleased with the decision issued today by Judge Laura Taylor Swain, since it reiterates our position regarding the limit of power of the Financial Oversight and Management Board.…It is clear that the Financial Oversight and Management Board does not have the power to take full control of the government or its instrumentalities…We recognize that the reconstruction and recovery of the island requires a union of wills; therefore, we welcome any collaboration or technical support that the Board wishes to offer to the government elected by Puerto Ricans to ensure the best interests of the people of Puerto Rico.” Judge Swain noted that Congress could have eased the governance role of the oversight board if it had given the Board direct authority over Puerto Rico’s government and public entities; however, as she noted: it had not—instead it deliberately split power between the federally appointed oversight board and the government, adding: “I urge you to work together,” in regard to the PROMESA Board and the Rosselló administration, noting that every moment spent on complicated and expensive litigation was time lost for the Puerto Rico people. Judge Swain noted that the Board has multiple mechanisms to discharge its functions without requiring its direct intervention after the Congressionally created public corporation, its governing board and its executive director, Ricardo Ramos, were unable to articulate and effectively implement a plan to restore the electricity grid after its collapse in the wake of Hurricane Maria. Nevertheless, Judge Swain also called on the government of Puerto Rico to address the situation of the island, noting that millions of American citizens remain in the dark and in a dangerous situation, while every controversy aired in court is “a minute lost” for the future of Puerto Rico.

Unsurprisingly, Governor Ricardo Rosselló Nevares responded he was pleased with Judge Swain’s decision, noting in written statements that the decision issued today by Judge Swain “reiterates our position on the power limit of the JSF: We have been clear from day one about the powers the [PROMESA] Board has, and those it does not have. It is clear that the (Board) does not have the power to take control of the government as a whole or its instrumentalities,” adding: “Our position is validated and it is recognized that the administration and public management of Puerto Rico remains with the democratically elected government…As Governor of Puerto Rico, I will defend the democratic rights of my people over any challenge and in any forum. We recognize that the reconstruction and recovery of the Island requires a union of wills, therefore, we welcome any collaboration or technical support that the Board wishes to offer to the Government elected by the Puerto Ricans to ensure the best interests of the People of Puerto Rico.”

The U.S. government yesterday filed notice it would defend the court supervised restructuring of Puerto Rico’s debt against a constitutional challenge by an investor—with the filing coming in response to the Title III bankruptcy case related to Puerto Rico’s government debt to an adversary proceeding filed last August by the Aurelius Capital hedge fund. (Aurelius owned $473 million of Puerto Rico municipal bonds as of July.) The government argued that the Title III bankruptcy petition should be dismissed, because its filing had not been authorized by a validly constituted oversight board, whilst the fund asserted that the appointments clause of the U.S. Constitution, Article II, Section 2, Clause 2 of the United States Constitution, which empowers the President to appoint certain public officials with the “advice and consent” of the U.S. Senate was breached in appointing the board’s members: the Board was appointed under the Puerto Rico Oversight Management and Economic Stability Act to oversee fiscal and economic management in the territory and the restructuring of more than $70 billion of debt that the Puerto Rico government said could not be repaid under current economic conditions.

Aurelius claimed that the PROMESA Board is “unconstitutional,” and, because it is, its actions are “are void,” pressing Judge Swain to dismiss the case. In response, the Justice Department notified the court it would file a memorandum supporting PROMESA’s constitutionality on or before December 6th. Part of the dispute will relate to the process itself: the Board, as we noted initially, was named by the U.S. House and Senate Majority and Minority leaders, the Speaker and House Minority Leader, and former President Obama: neither U.S. Senate committees nor the Senate as a whole voted on the confirmations. Last Friday, the government of Puerto Rico, the COFINA Seniors Bondholders Coalition, the Unsecured Creditors Committee, and the Official Committee of Retired Employees of the Commonwealth of Puerto Rico submitted memoranda against the Aurelius position, with the U.S. territory of Puerto Rico pressing the federal court to lift the stay on litigation outside of the bankruptcy process, arguing that Aurelius is seeking actions against the debtor and the Oversight Board outside the Title III process—something it asserts is barred by the PROMESA statute. In contrast, the COFINA Seniors argue that the Oversight Board’s membership is constitutional, because Congress’s power over the territories is plenary and not subject to the structural limitations of the United States Constitution, while the Unsecured Creditors argued that the “U.S. Constitution gives Congress virtually unlimited authority to govern unincorporated territories directly, or to delegate that power to such agencies as it” deems fit. This group said that there is precedent for the Board members’ appointment procedures, asserting the Board members are territorial officials and not U.S. government officials, as Aurelius claims.

Power to Puerto Rico. On a separate front, the Commonwealth of Puerto Rico notched a significant win in court yesterday when Judge Swain rejected the appointment of a former military officer to oversee the Puerto Rico Electric Power Authority (PREPA), after the PROMESA Board had sought to appoint retired Air Force Col. Noel Zamot to supervise the reconstruction and operations of PREPA in the wake of Hurricane Maria’s devastation of the U.S. territory’s utility and the subsequent territory-wide blackout on September 20th—an inability to restore service since has led to accusations of mismanagement, especially as, PREPA, two months after the hurricane, is generating only 48 percent of its normal output. Thus it was that Judge Swain ruled that the PROMESA Board may not unilaterally seize control of the U.S. territory’s government agencies—a signal legal victory for the administration of Gov. Ricardo Rosselló and others who have argued that no independent official should oversee a local government agency—or, as the Governor noted: “Our position has been validated and it has been recognized that the administration and public management of Puerto Rico remains with the democratically elected government.” PREPA is $9 billion in debt and continues to face scrutiny after signing a $300 million contract with Montana-based Whitefish Energy Holdings—a contract cancelled at the end of last month at the Governor’s request, but which is now undergoing federal and local audits. Both Gov. Rosselló and PREPA Director Ricardo Ramos are scheduled to testify this morning in Washington, D.C. before the Senate Energy and Natural Resources Committee.

Catalysts to Fiscal Recoveries

November 10, 2017

Good Morning! In today’s Blog, we consider the ongoing challenges to Detroit’s recovery from the nation’s largest ever chapter 9 municipal bankruptcy; the State of Michigan’s winnowing down of municipalities under state oversight; and the ongoing physical and fiscal challenges to Puerto Rico.

Visit the project blog: The Municipal Sustainability Project 

Reframing the Motor City’s Post Chapter 9 Future. Nolan Finley, a wonderful contributor to the editorial page of the Detroit News, this week noted “elections are a wonderful catalyst for refocusing priorities, as evidenced by the just-completed Detroit mayoral campaign, which moved the city’s comeback conversation away from the downtown development boom and centered it on the uneven progress of the neighborhoods. Never before has such an intense spotlight shown on the places where most Detroit voters actually live.” He attributed some of the credit to the loser in this week’s mayoral election, challenger Coleman Young II, who forced Mayor Mike Duggan to defend his record on improving quality of life in the neighborhoods. He perceptively wrote that while candidate Young’s ugly “Take back the Motherland” rallying cry was dispiriting, it spoke to the governing challenge the newly, re-elected Mayor confronts, writing: “Detroit is not a city united. It must become one. There were too many skirmishes along the racial divide in this mayoral contest. The old city versus suburb story line was replaced by a neighborhood versus downtown narrative, but both are code for black versus white. Four years ago, Duggan’s election as Detroit’s first white mayor in 40 years suggested much of the city was ready to stop looking back at its dark and divisive past and begin focusing on a brighter future.” Now, he wrote, after Mayor Duggan focused his first term on meeting the city’s plan of debt adjustment, and trying to improve the quality of life for residents—and as developers are beginning to add community projects to their downtown portfolios, “too many in the neighborhoods feel as if their lives are not getting better, or at least not fast enough.” Thus, he noted, Mayor Duggan needs to redouble his efforts to restore the city’s residential communities, and push ahead the timetable: “Four years from now, Detroit cannot still be wearing the mantle of America’s most violent city.” He added that while Mayor Duggan has little—too little—authority to address education in Detroit; nevertheless—just as his colleague Rahm Emanuel, the Mayor of Chicago recognized, needs to strongly back Detroit Public School Superintendent Nikolai Vitti’s efforts to rapidly boost the performance of the Detroit Public Schools Community District: it is a key to bringing young families back into the city. And, Mr. Finley wrote, the mayor “must also find a way to connect the neighborhoods to downtown, to instill in all residents a sense of ownership and pride in the rejuvenation of the core city. That means getting way better at inclusion. Downtown’s comeback must be more diverse, and include many more of the people who have grown up and stayed in the city. Encouraging and supporting more African-American entrepreneurs is a great place to begin breaking down the perception that downtown is just for white people: Detroit needs more diversity everywhere in the city, both racial and economic,” referring especially to young millennials who are steeped in social justice and imbued with the obsession to give back that marks their generation. “They are committed Detroiters. And they deserve to be appreciated for their contributions, not made to feel guilty or viewed as a threat to hard-won gains.”

Free, Free at Last. Michigan State officials have released Royal Oak Township, a municipality of about 2,500 just north of Detroit, from its consent agreement: Michigan Treasurer Nick Khouri said the Oakland County municipality has resolved its financial emergency and is ready to emerge from the state oversight imposed since 2014, stating: “I am pleased to see the significant progress Royal Oak Charter Township has made under the consent agreement…Township officials went beyond the agreement and enacted policies that provide the community an opportunity to flourish. I am pleased to say the township is released from its agreement and look forward to working with them as a local partner in the future.” The township’s financial emergency resulted in an assets FY2012 deficit of nearly $541,000. Township Supervisor Donna Squalls noted: “Royal Oak Charter Township is in better shape than ever…The collaboration between state and township has provided an opportunity to enact reforms to ensure our long-term fiscal sustainability.” Treasurer Khouri also said the township was the last Michigan remaining municipality following a consent agreement: Over the last two years, Wayne County, Inkster, and River Rouge were released from consent agreements because of fiscal and financial improvements and operational reforms. The Treasurer noted that today only three communities, Ecorse, Flint, and Hamtramck, remain under state oversight through a Receivership Transition Advisory Board.

Preempting Authority. House Natural Resources Committee Chair Rob Bishop (R—Utah) this week said the PROMESA Oversight Board should be granted even more power to preempt the authority of the government of Puerto Rico, stating: “Today’s testimony will inform the work of Congress to ensure the Oversight Board and federal partners have the tools to coordinate an effective and sustained recovery,” in a written statement after a hearing of the House Committee on Natural Resources: “It is clear that a stronger mechanism will be necessary to align immediate recovery with long-term revitalization and rebuilding.” Chairman Bishop added: “This committee will work to ensure [the Puerto Rico Oversight Board] has the tools to effectively execute that mission and build a path forward for this island and its residents.” The Board was created last year to oversee fiscal management by the island government, which had said more than $70 billion of debt was unpayable under current economic conditions. Since the hurricane, the Board has clashed with the territorial government over leadership at the power utility. During the hearing the board’s Executive Director, Natalie Jaresko, said the ability of Puerto Rico’s government to repay its debt was “gravely worse” than it was before Hurricane Maria, which arrived Sept. 20. By the end of December, the Board plans to complete a 30 year debt sustainability analysis with Puerto Rico’s government, she said: “After the hurricane, it is even more critical that the Board be able to operate quickly and decisively…to avoid uncertainty and lengthy delays in litigation, Congressional reaffirmation of our exercise of our authority is welcome.” On Oct. 27, the board had filed a motion in the Title III bankruptcy case for the Puerto Rico Electric Power Authority (PREPA) seeking the court’s permission to appoint Noel Zamot as the authority’s new leader. The government of Gov. Ricardo Rosselló has made it clear that it intends to challenge this motion. The court is scheduled to hold a hearing on the matter on Monday, November 13th.

In calling for more board power, Chairs Bishop and Jaresko probably were at least partly referring to the struggle over PREPA’s leadership. They may also want the Board’s power augmented in other ways: the Board has already announced that it will be creating five-year fiscal plan for Puerto Rico’s government and for its public authorities this winter. Puerto Rico’s government will have substantial needs for federal aid in the coming years, Ms. Jaresko said. Congress plans to tie this aid to the government following the Board’s fiscal plan and this would be appropriate, she said. “Before the hurricanes, the board was determined that Puerto Rico and its instrumentalities could achieve balanced budgets, work its way through its debt problems, and develop a sustainable economy without federal aid,” Ms. Jaresko said in her written testimony. “That is simply no longer possible. Without unprecedented levels of help from the United States government, the recovery we were planning for will fail.” She also said that over the next 1.75 years Puerto Rico’s government will need federal help closing a gap of between $13 billion and $21 billion for basic services. She added the federal government should change tax laws to benefit the island: “The representatives of the Financial Oversight and Management Board (FOMB) who appeared before the House Committee on Natural Resources insist on jeopardizing the necessary resources for the payment of pensions and job stability,” Gov. Rosselló testified in his written statement, adding to that the testimony of Ms. Jaresko and Mr. Zamot “evidenced ignorance about the recovery process in Puerto Rico, presenting incorrect figures relating to the existing conditions on the island,” adding: “I again invite the FOMB to collaborate so that the government of Puerto Rico, together with the support of the federal government, facilitates the fastest possible recovery of our island.” He noted that such assistance should not depend on the Board “assuming the administrative role” which belongs to the elected government of Puerto Rico.

Sanctioned Discrimination. The endorsement that the House Ways and Means Committee effectively incorporated in its “tax reform” legislation reported out of Committee this week appears to discriminate against Puerto Rico, imposing a tariff on the products which Puerto Rico exports to the mainland—threatening to deal a devastating blow to Puerto Rico’s industrial base at the very moment in time the territory is striving to recover from the already disparate hurricane recovery blows. According to economists Joaquín Villamil: “None of these measures, nor the repatriation of profits, the corporate rate and the 20% tax on imports is positive for the island…The companies are not going to pay a 4% royalty to Puerto Rico and a 20% tax to bring their product to the United States. They will leave the island, especially if the tax rate is lowered there.” Mr. Villamil added: “If that happens, 21% of the income received by the Puerto Rican Treasury is eliminated,” he added, referencing P.L. 154, the statute which established a 4% tax on sales of an operation in Puerto Rico to its parent company in the mainland. In its markup, yesterday, the House Ways and Means Committee left almost intact §4303 which establishes a 20% tariff on all imported goods for resale by companies and businesses in the United States. Moreover, the disposition forces multinationals with operations in places such as the U.S. territory of Puerto Rico to repatriate their income to the U.S. What that means is that the production of drugs, medical devices, and many other goods in Puerto Rico is done on U.S. soil; however, for federal tax purposes, Puerto Rico is deemed an international jurisdiction—or, as economist Luis Benítez notes: “This (House Ways and Means bill) generates greater uncertainty about what the economic future of the island should be: with this, the figure of the controlled foreign corporation (CFC) loses the competitive advantage it had (under §936).” He noted that by reducing the corporate rate to multinationals operating in Puerto Rico, the benefit of giving them tax exemptions at the local level is also reduced, as is the case of Law 73 on Industrial Incentives: via the elimination of §936, Puerto Rico, as a place to do business, went from competing with the continental U.S. to competing with countries such as Singapore and Ireland, adding that now a reduction in the corporate rate would cause Puerto Rico not only to compete with the rest of the world, but with jurisdictions on the mainland: “I think that if I were the Secretary of the Treasury, I would tremble with this situation.”

In Puerto Rico, he estimates manufacturing employs approximately 75,000 people directly—a number which rises to 250,000 when indirect and induced jobs are calculated, adding that even though the manufacturing sector has shrunk in the past years, the productive and contributory base rests on that activity, adding that: “As much as it is said that they do not pay taxes, this sector contributes 33% of the revenues…As long as jobs are lost there, the treasury will erode,” noting that the industrial sector plays such a large role in Puerto Rico’s economy that no other sector of the service economy can counterbalance it. He worries that if Congress fails to address the apparent discrimination, the chances that the PROMESA Board and the government of Puerto Rico can put together an economic recovery plan is minimal: “These are implications for all of Puerto Rico: It is difficult to think about options, because if this is approved, it would be disastrous, because of everything that has happened after Hurricane Maria.”

Last night, the former president of the Association of Certified Public Accountants, Kenneth Rivera Robles, who has been part of several lobbying delegations to Washington, remained relatively optimistic that the project language will be amended.

President Woodrow Wilson signed the Jones-Shafroth Act into law on March 2, 1917, with the law providing U.S. citizenship to Puerto Rico’s citizens, granting civil rights to its people, and separating the Executive, Judicial, and Legislative branches of its government. The statute created a locally elected bicameral legislature with a House and Senate—but retained authority for the Governor and the President of the United States to have the authority to veto any law passed by the legislature. In addition, the statute granted Congress the authority to override any action taken by the Puerto Rico legislature, as well as maintain control over fiscal and economic matters, including mail services, immigration, defense, and other basic governmental matters. 

Post-Chapter 9 Elections–and Post Physical & Fiscal Storms

November 6, 2017

Good Morning! In today’s Blog, we consider yesterday’s election results in municipalities we have followed through their fiscal stress or chapter 9 municipal bankruptcy, including: Flint, and Detroit, in its first Mayoral election since emerging from chapter 9, Then we turn to the historic municipality of Petersburg, Virginia—a municipality which avoided chapter 9 thanks to state intervention. Finally, we consider U.S. District Court Judge Laura Swain’s approval yesterday of an urgent motion from the government of Puerto Rico and the Fiscal Oversight Board (JSF) that requires all federal funds to be allocated for the tasks of assistance and recovery in the wake of Hurricane Maria, removing said funds from possible use in restructuring the U.S. territory’s restructuring of its public debt.

Visit the project blog: The Municipal Sustainability Project 

In Like Flint. Flint Mayor Karen Weaver yesterday prevailed over City Council member Scott Kincaid in a recall election involving 18 candidates, retaining the city’s proposed 30-year agreement with the Detroit water system, with Mayor Weaver prevailing by a 53-32 percent margin, according to the unofficial results. The recall had arisen from a controversy related to the Genesee County’s garbage contract: Mayor Weaver had pressed for an emergency trash collection contract with the former Rizzo Environmental Services in Macomb County over City Council opposition. The controversy arose because a former trash provider, Chuck Rizzo, and his father have reached plea deals with federal prosecutors and are expected to plead guilty this month for their roles in a wide-ranging public corruption scandal in Macomb County—a scandal which has, so far, led to criminal charges against 17 persons. The recall also came amid Mayor Weaver’s ongoing struggle with the Flint City Council with regard to the approval of a 30-year agreement with the Detroit area Great Lakes Water Authority—with City Council opposition arising from apprehension about increased water rates—and in response to last month’s decision by U.S. District Court Judge David Lawson taking the small city to task for failing to act on an April agreement supported by Mayor Weaver, the State of Michigan, and EPA which would have Flint remain on the Detroit area water system. Flint had been supposed to switch to the regional Karegnondi Water Authority; however, Mayor Weaver’s administration rejected that option, because updating of the Flint water treatment facility had been projected to cost more than $68 million and to consume more than three years to complete. The Flint Council had disregarded Judge Lawson’s decision, and approved a two-year extension of service with the Great Lakes Water Authority. Thus, while the prior agreement with the Detroit area water authority had lapsed, Mayor Weaver, the State of Michigan, the Great Lakes Authority, and other supporters have revived the agreement. Last week, the Michigan Department of Environmental Quality had filed an emergency motion asking Judge Lawson to approve giving Mayor Weaver the authority to sign the renewed contract by Election Day, because of the inability of the City Council to act—a request from the state which the Judge rejected; however, he has scheduled a hearing on the motion later this month.

Motor City Victory Lap. Detroit Mayor Duggan was re-elected yesterday by more than a 2-1 margin over challenger State Sen. Coleman A. Young II, son of a former Detroit Mayor. In remarks after the decision, Mayor Duggan  noted: “I have been treated with nothing but warmth and kindness from Detroiters in every neighborhood in the city…I hope that this is the year where we put us-versus-them politics behind us forever because we believe in a one Detroit for all of us.” His opponent, in conceding, claimed he had commenced a movement to help the politically dispossessed: “The campaign might be over, but the passion and values are eternal…We are the voice for the voiceless. We are the hope for the hopeless.” Mayor Duggan, who won a write-in primary campaign in 2013 and then defeated Wayne County Sheriff Benny Napoleon in the general election, thus became the Motor City’s first mayor to serve two terms since Dennis Archer in the 1990’s.  In his campaign, the former CEO of the Detroit Medical Center gained prominent endorsements from city labor unions, clergy, and business groups—he overwhelmed his opponent in fundraising: he secured about $2.2 million; whereas Mr. Young raised just under $39,000. Mayor Duggan, in his victory remarks, noted his campaign had focused on spending “time talking about the vision of what we are going to do in the next four years,” adding: “I thought one of the most profound things President Obama ever said was ‘If you have to divide people in order to get elected, you’ll never be able to govern.’”

In his campaign, Mayor Duggan touted public service improvements under his administration in the wake of the nation’s largest-ever municipal bankruptcy, including new streetlights, improved public safety response, and more dependable bus lines. He said he intends to continue work on building a more unified Detroit—focusing now on a series of efforts to fix up neighborhood corridors, roads, and sidewalks—and stating: “There are haves and have-nots in every city in America. We’re building a city here that it doesn’t matter where you start, you have the opportunity to be successful,” adding that he believe the greatest challenge now confronting Motor City residents will be over automobile insurance reform legislation—referring to legislation rejected by the Michigan House last week, but making clear he does not intend to give up: “We were a lot closer this time than we were two years ago, and we have a plan to get it through the next time: It’s going to be one relationship at a time, one vote at a time, but we’ve already had several meetings with both the medical and the legal community, and I think they realize we were three votes away.” 

The Road Out of State Oversight. The re-election comes at a critical time, as the City expects to have its full municipal fiscal authority restored next spring for the first time since it exited the nation’s largest ever chapter 9 municipal bankruptcy three years ago—challenging the city’s appointed and elected leaders with the task of resuming governance after the end of state oversight—and as the Mayor and Council resume authority over budgets and contracts. With two balanced budgets and an audit of a third expected next May, city leaders anticipate Detroit will be released early next year from the strict financial controls required under the city’s approved plan of debt adjustment—a key issue during the just completed campaign, where both the Mayor and his challenger had proposed plans with regard to how they would fiscally guide the recovering city—and as Michigan Governor Rick Snyder expressed optimism about the city’s ability to manage its finances, telling the Detroit News: “They’ve been hitting those milestones, and I hope they continue to hit them—that’s a good thing for all of us.”

Indeed, the Motor City’s credit rating has been upgraded; its employment rate is up; assessed property values are climbing. In its financial update last month, the city noted economic development in some neighborhoods and Detroit’s downtown, job creation efforts, and growth in multifamily home construction. Nonetheless, the road to recovery will remain not just steep, but also pot-holed: it confronts very large future payments for past borrowing and public pension obligations under the plan of debt adjustment—or, as our colleague Lisa Washburn of Municipal Market Analytics noted: “It really takes the economic environment to cooperate, as well as some very good and focused financial management. Right now, that seems to be all there…Eventually, I suspect there will be another economic downturn and how that affects that region, that’s something outside of their control. But it can’t be outside of their field of vision.”

Petersburg. In one of the most closely watched municipal elections in Virginia, last night, Gloria Person-Brown, the wife of the current embattled City Treasurer Kevin Brown of Petersburg, was trounced by former City Council member Kenneth Pritchett, with Mr. Pritchett winning by a large margin: he captured more than 70 percent of the vote. In his campaign, stating he had been frustrated by the city’s low credit rating, and by the city’s struggles with collecting revenue and timely payment of bills, Mr. Pritchett vowed he would implement policies and standardize internal controls to improve the office’s operations. Likely, in the wake of a Virginia state fiscal report last September—a report which scrutinized eight specific aspects of city governance and fiscal responsibilities—and contained allegations of theft involving Ms. Person-Brown’s husband, City Treasurer Kevin Brown. Some Council members then had called for his resignation, and even Ms. Person-Brown had distanced herself from her husband’s actions during the election, albeit she did not say he had done anything wrong. Rather she ran on a platform of improving the Treasurer’s services, including instituting more checks and balances, and calling for more accountability.

Stepping in to Help Puerto Rico. U.S. District Court Judge Laura Taylor Swain has approved, with various changes, an urgent motion from the government of Puerto Rico and the PROMESA Fiscal Oversight Board which mandates that all federal funds to be allocated to the country for the tasks of assistance and recovery due to the passage of Hurricane Maria may not be claimed in the process of restructuring the public debt, accepting to the request of the Authority for Financial Supervision and Tax Agency and the JSF during the general hearing held in New York City‒in which it emerged that, in part, the order would restrict the use of disaster assistance funds as a condition of the federal government, so that Puerto Rico can receive assistance: the order will establish that the Federal Emergency Management Agency (FEMA) funds for Puerto Rico following in the wake of Hurricane Maria, as well as funds granted by other federal agencies, will be maintained. Judge Swain granted the order after listening to the arguments of Suzanne Uhland, legal representative of AAFAF, as well as lawyers from municipal insurers and the organized group of General Obligations bondholders (GOs), who underscored the need to incorporate into the order transparency criteria and mechanisms to ensure that some entity such as the JSF has influence in how federal funds granted by the government will be used. Matthew J. Troy, the federal government’s representative in the case, told Judge Swain that to include specific language which would give the Puerto Rican government priority in claiming funds that had been misused by state agencies or public corporations in the Island was indispensable for Puerto Rico to receive funds from the federal government: as part of the order, it would be established that, in the event federal funds were misused, it will be up to the central government to claim these funds from the agency or public corporation which received them from the federal government. Judge Swain has scheduled a follow-up hearing for next Wednesday.

During the hearing, an attorney, Marcia Goldstein, pointed out that it is urgent to know what role if any the Junta de Supervisión y Administración Financiera for Puerto Rico (the JSF) will have with regard to the approval of the contracts for the recovery tasks. The PROMESA law establishes, among other things, that the federal agency has the power to review the contracts granted by the Puerto Rican government or the dependencies subject to the control of the JSF. To date, however, it is uncertain whether the JSF has examined or had influence in the process of hiring dozens of companies which would be responsible for multiple tasks, from infrastructure repair to the audit of federal funds. In an interview with the Puerto Rican El Nuevo Día a little over a week ago, House Speaker Paul Ryan (R-Wis.), in the wake of his visit to Puerto Rico, pointed out that the JSF will have a key role in defining the scope of the aid package that Puerto Rico would need and how such resources would be allocated.

The Power of Storms & the Storms of Fiscal Power

October 31, 2017

Good Morning! In today’s Blog, we consider the growing questions with regard to both the federal and Puerto Rican response to the human and fiscal devastation caused by Hurricane Maria–and what the implication’s might be for the U.S. territory’s debt–and governance.

Visit the project blog: The Municipal Sustainability Project 

The Price of Solvency. Almost three weeks after the hiring of Whitefish Energy Holdings created its own storm wave of criticism and investigation claims, both the FBI and the PROMESA oversight board have commenced investigations about PREPA’s decision to award a $300 million contract to a small Montana energy firm, Whitefish Energy Holdings, to rebuild Puerto Rico’s electrical infrastructure—with the PROMESA Oversight Board intending to discuss and approve today a process to review Puerto Rico’s contract—one which Governor Ricardo Rosselló Nevares canceled on Sunday—at a time when only 30% of the U.S. territory’s power has been restored. The issue is anticipated to light up the agenda at the PROMESA Board’s tenth meeting today at the headquarters of the College of Engineers and Surveyors of Puerto Rico, in Hato Rey, under its authority to review and revoke laws which are incompatible with its Fiscal Plan, as well as any contract that the government of Puerto Rico has granted—marking the first time the Congressionally enacted entity will seek to exercise the authority Congress authorized to revoke contracts or laws of the Puerto Rican government. The House Committee on Natural Resources has scheduled hearings over the next three weeks in Washington on the storm recovery and transparency in the reconstruction process—although it remains unclear whether those hearings will closely examine the adverse fiscal, physical, and human costs imposed by the Jones Act on the recovery and loss of lives.  The Committee has not indicated whether it will compare the responses of FEMA in Puerto Rico to its responses in Houston and Florida.

Just after declaring an emergency due to the devastation wrought by Hurricane Maria, Gov. Rosselló Nevares had approved executive order 2018-53 to exempt government agencies from complying with the requirements of law when hiring and purchasing to deal with the ensuing physical disaster—effectively clearing the way to for the Electric Power Authority (AEE) to award a $ 300 million contract to Whitefish Energy-company, which, at the time of its hiring, had only two employees-to repair part of the electrical network devastated by the hurricane. That award, however, caused a governance storm of its own, triggering apprehensions by FEMA, Members of Congress, and now an investigation by the Federal Bureau of Investigation (FBI).

Thus the PROMESA Board holds its first meeting in the wake of the storm’s fiscal and physical devastation, mayhap marking a fiscal storm—albeit, presumably, the Board’s inquiries will examine not just PREPA’s responses, but also compare the responses of FEMA in Puerto Rico compared to its responses in Houston and Florida—that is, the PROMESA Board could question the accountability of FEMA.

As for the fiscal storm, the Oversight Board expects to be briefed on the process underway to reconfigure the Fiscal Plan, as well how the firm Kobre & Kim will investigate Puerto Rico’s debt: according to the report of the firm hired to investigate the reasons for the U.S. territory’s fiscal collapse and the issuance of debt, the first report of the causes of the crisis would take about 200 days: the investigator has already issued an information request to Banco Popular and has identified 79 witnesses who will he instructed to preserve documents.

 

Fiscal & Physical Storm Recoveries

October 30, 2017

Good Morning! In today’s Blog, we consider, again, the spread of Connecticut’s fiscal blues to its municipalities; then, we observe the lengthening fiscal and human plight of Puerto Rico.

Visit the project blog: The Municipal Sustainability Project 

The Price of Solvency. Ending months of fiscal frustration, the Connecticut House of Representatives late Thursday provided its strong, bipartisan endorsement (126-23) to two-year, $41 billion state budget which closes a gaping deficit, rejects large-scale tax increases, and seeks to bolster the state’s future fiscal stability. Notwithstanding, S&P Global Ratings, the following day, issued its own fiscal storm warnings that it is a budget which will still leave the state’s municipalities at fiscal risk. Governor Dannell Molloy has not yet said if or when he might sign that budget into state law; however, because it passed both Houses by veto-proof margins, the question is no longer “if,” but rather: what will it mean for the state’s municipalities? Thus, S&P warned:  “We note that virtually all local governments will see some reductions to state aid, while only a few—typically those with the greatest economic challenges—will see flat year-over-year state aid.” Similarly, Conn. House Majority Leader Matt Ritter (D-Hartford) told his colleagues: “We’re at the end of a journey: This budget offers needed reforms, but also some immediate comfort that is so needed by a lot of our residents and our towns…In the darkest of days…we found a way to pull through.”

As adopted, the budget bill provides financial assistance to eastern Connecticut homeowners dealing with crumbling foundations, reduced funding for UConn, offers $40 million to help the City of Hartford avoid filing for Chapter 9 municipal bankruptcy. The Connecticut Conference of Municipalities Executive Director Joe DeLong, in the League’s initial analysis of the municipal impact of the bipartisan budget agreement, noted: “Municipal leaders acknowledge the difficult choices made by state leaders in forging this bipartisan budget agreement and the impact they have on the lives of Connecticut residents: The actions taken by State leaders to support cities and towns protects the interests of residents and businesses across the state and for that we are grateful.” With the State facing a $5 billion biennial budget deficit, the state budget agreement spares towns and cities from the draconian cuts set to roll out under the Governor’s Executive Order and includes many significant structural reforms that municipalities have been advocating for years. Mr. DeLong added that the final budget agreement provides for numerous municipal reforms sought by the League last January in its groundbreaking public policy initiative, “This Report Is Different.”  

Connecticut House Speaker Joe Aresimowicz noted: “Leaders do things that are maybe not in their best interests, or may be against their own beliefs, in an effort to do what’s right. And I think that was done,’’ as Rep. Toni Walker (D-New Haven), Co-Chairwoman of the appropriations committee, described the bill as a significant step toward closing a $3.5 billion deficit over the next two years and righting the state’s wobbly finances for decades to come: “I want everybody to understand we must recalibrate the financial future of Connecticut, for our families and for our businesses and this budget begins that process.’’

As adopted, the budget does not increase income or sales tax rates, although it raises hundreds of millions of dollars in revenue via an assortment of smaller measures, such as higher taxes on cigarettes, a $10 surcharge on motor vehicle registrations to support parks, and new fees on ride-sharing companies, such as Uber. On the other hand, the final agreement rolled back proposed taxes on cellphone plans, second homes, and restaurant meals. In the end, small tax increases represent just .85 percent of the budget; fee hikes constituted an even smaller contribution .11%. On the revenue side, the new budget proposes the elimination of a property tax credit for many middle-income homeowners, raises the cigarette tax, and sweeps $64 million from a clean energy fund.

In the wake of the passage, S&P Global Ratings indicated it would review the state’s municipal bond rating, but noted the municipal impact, citing the $31.4 million cut to the Education Cost Sharing Grant, the primary state grant which goes to cities and towns to help operate their schools—albeit, the cut is to be nearly fully restored next year, and distributed using an updated formula which more heavily favors the state’s lowest-performing school districts. The adopted budget also rejected Gov. Malloy’s proposal to mandate that the state’s cities and towns assume some fiscal share of the state’s soaring contributions to the teachers’ pension fund. Nevertheless, the budget was less generous to municipalities on the revenue front: the 2015 state plan to share sales tax receipts with cities and towns is all but eliminated in this budget, which officially ends the diversion of these receipts into a special account: the last remnants of a program which was supposed to distribute more than $300 million per year in sales tax receipts are: A “municipal transition grant” worth $13 million in FY 2017 and $15 million for next year. Similarly axed: a $36.5 million payment this year to offset a portion of the funds communities with high property tax rates lose because of a state-imposed cap on motor vehicle taxes: the new budget would cut $19 million in each year from grants that reimburse communities for taxes they cannot collect on exempt property owned by the state and by private colleges, hospitals and other nonprofit entities.

The adopted budget, however, from a municipal perspective, proposes to revise the prevailing wage and binding arbitration systems: municipalities would have greater flexibility to launch more publicly financed capital projects without having to pay union-level construction wages, and arbiters would have more options when ruling on wage and other contract issues involving municipalities and their employees.

Nevertheless, S&P noted: “Since new state revenue measures would have less than a year to be collected, this may leave the state without the available resources to fully appropriate for these (municipal grants),” adding: “The length of the budget impasse underscores the state’s struggling financial health.” The rating agency last month had already placed nine Connecticut municipalities and one school district on a “negative” credit watch, warning it could lead to a rating downgrade within 90 days unless their fiscal outlook improves, citing the uncertainty of Connecticut’s ability to maintain existing levels of municipal aid, reinforcing Moody’s moody outlook earlier this month when it warned that the state actions could lead to lower bond ratings for 51 municipalities and six regional school districts, placing ratings for 26 cities and towns and three regional school districts under review for downgrade, and assigning negative outlooks to an additional 25 municipalities and three more regional school districts. For its part, S&P warned: “In the end, if state fiscal pressures persist, all local governments in Connecticut will continue to be affected…and the degree of credit deterioration will depend on each government’s level [of] budgetary reserves and ability to adapt.”

Underpowered. House Natural Resources Committee Chairman Rob Bishop (R-Utah) said he does not want to “come to conclusions” before he has all the information regarding the controversial $300 million contract of the Montana-based company, Whitefish Energy Holdings, with the Puerto Rico Electric Power Authority (PREPA); nevertheless, Chairman Bishop has given PREPA Chairman Ricardo Ramos until this Thursday to submit a series of documents related to the contract with the company—a company whose largest project prior to Hurricane Maria was $ 1.3 million in the state of Arizona—especially in the wake of the contract award here made without bidding—ergo triggering a series of questions and requests for investigations by the Office of  Inspector General and from the Government Accountability Office (GAO). Chairman Bishop was part of the Congressional delegation with House Majority Leader Kevin McCarthy (R-Ca.) and Deputy Minority Leader Steny Hoyer (D-Md.), as well as Puerto Rico resident Commissioner in Washington, D.C., Jennifer González. House Speaker Paul Ryan ((R-Wis.) who had earlier visited the town of Utuado, known as “El Pueblo del Viví,’ which was founded in 1739 by Sebastían de Morfi, and derives its name from a local Indian Chief Otoao, which means between the mountains, to see first-hand the devastation caused by Hurricane Maria—in the wake of which he noted: “Our committee, like other groups, will investigate and we will know what is behind the Whitefish contract. I do not know enough right now to come to a conclusion against or in favor, but that’s the idea, to know the details and how it happened.”

The Chairman was not alone: the Federal Agency for Emergency Management (FEMA) has released a statement making clear that agency’s concerns about certain aspects of the contract, including an absence of certainty that some prices were even “reasonable,” in apparent reference to the hourly pay of some employees of the company. FEMA also warned that entities that fail to meet FEMA requirements may not see their expenses reimbursed. Nevertheless, Chairman Bishop said he will not “let” any concern of FEMA “get in the way…FEMA will do its job,” he insisted when asked if he was worried that FEMA would not reimburse the Puerto Rico government for payments to Whitefish. (Last night, Governor Ricardo Rosselló Nevares confirmed that he was about to receive a report he had requested from the Office of Management and Budget about the contract.).

Chairman Bishop noted that, as a result of the destruction caused by Hurricane Maria, he is considering possible changes to the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA), albeit, when asked about specific changes, he limited himself to saying that the Oversight Board “does not need more authority;” rather, he said, the focus now needs to be on the provision of power and drinking water. Asked by Majority Leader McCarthy whether the devastation he had witnessed makes him think that the aid mechanism for Puerto Rico should change, he answered that “a lot of infrastructure is needed, and we have to lift the electrical system…I spoke with (Minority Leader) Steny Hoyer. I do not think it would be the best use of taxpayers’ money to build the same grid that we had. We need a 21st century one that is more efficient and effective and we can do it with more transparency,” albeit he was unclear what he meant by transparency. Rep. Hoyer noted: “We know there is an urgency,”  adding the delegation needed to all go back to Washington, D.C. to work together, but “we need an urgency to fix the electrical system and for power to reach the whole island. Governor Rosselló Nevares, who accompanied them on the tour, has said that if the quality of life in Puerto Rico does not reach what it should be: “People will be disappointed, and they will leave.”