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A controversial ‘oversight board’ could take over Puerto Rico’s hurricane rebuilding effort

- November 30, 2017

On Sept. 20, 2017, the world watched slack-jawed as Hurricane Maria flattened Puerto Rico, devastating the island and leaving more than 3 million people without power or clean water for weeks. On Nov. 13, Puerto Rico Gov. Ricardo Roselló appeared before Congress to ask for $94 billion to rebuild the U.S. territory.  

But can Roselló’s administration manage such a vast project? After a dubious $300 million no-bid contract to a small utility company called Whitefish to restore the island’s power, Rep. Rob Bishop (R-Utah), chairman of the House Natural Resources Committee, said that the island has a “credibility gap.” He and many others have called for the nonelected Financial Oversight and Management Board for Puerto Rico, popularly known as “la junta,” to extend its powers to overseeing the rebuilding effort as well.  

Many Puerto Ricans — including the pro-statehood governor — see this call as a threat to their democratic rights. Here’s what you need to know about the controversial fiscal oversight board.   

What is the Financial Oversight and Management Board for Puerto Rico? 

As President Trump’s notorious tweet five days after the catastrophe pointed out, Puerto Rico was already suffering “from broken infrastructure and massive debt.” In May 2015, former governor Alejandro García Padilla officially declared that the island would be unable to pay its $73 billion financial debt. This U.S. territory is unable to file for bankruptcy under Chapter 9, as only municipalities working the 50 states can do so.

To circumvent that problem, in June 2016, Congress passed and President Barack Obama signed a law creating alternative mechanisms to prevent the island from being sued for unpaid debts. The Puerto Rican Oversight, Management and Economic Stability Act (PROMESA) created an independent oversight board responsible for restructuring the debt and overseeing negotiations with creditors. In addition, PROMESA, which means “promise” in Spanish, established that the Financial Oversight and Management Board for Puerto Rico to oversee the island’s budget and its fiscal plan. 

Since the hurricane, calls to extend the oversight board’s powers have become louder, as many pundits and policymakers feel the island’s government is incompetent. But any such efforts are being reined in by federal courts. Last week, U.S. District Court Judge Laura Taylor Swain denied the oversight board’s request to appoint an emergency manager to the Puerto Rico Electric Power Authority, ruling that the oversight board does not have the authority to appoint public officials. Rosselló responded that the decision upheld his office’s position about the board’s power, writing:

It is clear that the [board] does not have the power to take full control of the Government or its instrumentalities. … [T]he administration and public management of Puerto Rico remains with the democratically elected government. 

So what exactly are fiscal oversight boards, and what issues do they bring? 

Puerto Rico’s board is often viewed as undemocratic — as is often true for such boards 

Since the board’s inception, many Puerto Ricans have disliked its membershipactions and prescriptions. Its seven voting members were appointed by Obama, as PROMESA required. The Puerto Rican governor serves as an ex officio member, with no voting rights. Several board members, including its chair, José B. Carrión — who is the brother-in-law of former pro-statehood resident commissioner Pedro Pierluisi — have direct ties with previous administrations. Although the board advises austerity for Puerto Rico, its executive director’s annual salary is $625,000. That’s five times the salary of, for example, the executive director of Detroit’s bankruptcy oversight board. And Puerto Rican taxpayers are footing that big bill.  

Both sides of the Puerto Rican political spectrum commonly view the unelected board as an undemocratic body that ultimately threatens the autonomy of the island’s government. The pro-statehood governor, for instance, has been very critical of the oversight board. He often sees it as an overreach of power.   

Fiscal oversight boards are often viewed as undemocratic, as happened, for example, in the District of Columbia in 1995 and Greece in 2015. After the District of Columbia Financial Control Board was created in response to a similar crisis, 7 out of 10 respondents to a 1997 D.C. survey agreed that replacing elected officials with unelected officials went against the principles of American democracy 

Financial oversight boards generally have these two elements in common 

Financial/fiscal oversight boards vary widely, but they generally have two elements in common. First, they are created to constrain local governments that are confronting fiscal or financial crises — and higher levels of government have determined that the local government cannot solve the fiscal or financial crisis alone. Usually, local governments don’t have much power to scrutinize and/or veto these boards’ decisions.  

Second, voters don’t have much say on oversight boards’ actions either. These boards are not popularly elected, but appointed. As a result, they have no incentives to be transparent and accountable to taxpayers. In Puerto Rico’s case, a group of journalists is asking local and district courts for clarification on the legal standards of transparency and accountability that should be applied to the board. The Puerto Rican Oversight Board claims that the right of access to information does not apply to it. 

On the other hand, fiscal oversight boards can take actions that local governments cannot  

Ideally, in supervising local governments, fiscal oversight boards can shield officials from pressure by partisan and outside actors. Their members’ expertise is usually beyond that of the elected officials, enabling them to help with complex fiscal and financial questions, including debt restructuring and access to markets and credit.  

Because they’re not affected by elections, oversight boards can sometimes implement unpopular but necessary policies like austerity. And they can plan beyond the next election, as members are interested in fostering long-term growth. Former D.C. mayor Marion Barry said the D.C. board “was able to do some things that needed to be done that, politically, I would not do, would not do, would not do,” such as firing 2,000 human-service workers.  

So on balance, do fiscal oversight boards in representative democracies violate local governments’ sovereignty — or help those governments out of jams? The conflict between those two questions hasn’t yet been studied, although they are proliferating both in the United States and around the world.

In the case of Puerto Rico, the conflicts are likely to continue in the near future in and outside courts. Despite the board’s recommendations, on Nov. 27, Rosselló announced that he would spend close to $113 million on government employees’ Christmas bonuses. The board quickly responded by stating that its members expect “to be consulted during the formulation and prior to the announcement of policies such as this to ensure the Government is upholding the principles of fiscal responsibility.” 

Mariely Lopez-Santana is associate professor in the Schar School of Policy and Government at George Mason University and author of “The New Governance of Welfare States in the United States and Europe: Between Decentralization and Centralization in the Activation Era” (SUNY Press, 2015).