(Bloomberg) -- Seems like everyone's angry with Puerto Rico's federal oversight board.
The U.S. House committee that created the eight-member panel to fix the bankrupt commonwealth's $74 billion debt crisis is ordering it to get deals done with creditors. Governor Ricardo Rossello, a Democrat, has balked at budget changes that the oversight board wants by reversing labor reforms he unveiled just last week. And many island residents view the federal panel as an insulting expression of colonialism for an island ceded to the U.S. after a war with Spain.
Almost two years after federal lawmakers in June 2016 enacted Promesa, the recovery legislation that created the board, a creditor deal continues to elude the island. So does a multi-year turnaround plan.
“I remain frustrated with the oversight board's inability and unwillingness to reach consensual restructuring agreements with the holders of Puerto Rico's debt,” Rob Bishop, the Republican chairman of the House Committee on Natural Resources, wrote to the federal board in a Thursday letter. “With such power governing the development of the fiscal plans, it is imperative you adhere to the tenets and Congressional mandate of Promesa, while providing an avenue for Puerto Ricans to recover from the storms.”
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The fiscal plan that would enable the commonwealth to repay some of its debt has been in flux since Hurricane Maria struck the island in September, destroying its electrical grid and exacerbating a decade of recession and emigration.
The federal board this week extended its deadline to certify the fiscal plan to April 20 from March 30. The board wants more changes, including cuts in pension benefits, before it will approve the road map. Rossello has until April 5 to file those revisions.
Rossello on Wednesday responded in a televised address in which he backed off his own labor-reform proposals that he unveiled just last week that would reduce vacation and sick days and end mandatory Christmas bonuses. Pension cuts have the governor's “tenacious opposition,” Rossello said during the address.
Prices on most Puerto Rico bonds have rallied in the past week even as the island struggles to formalize its plan. Rossello's latest version projects a nearly $6 billion surplus -- before paying debt service -- through fiscal 2023, that's more excess cash than earlier estimates.
General obligations maturing in 2035 traded Tuesday at an average price of 44 cents on the dollar, the highest in nearly six months and up from about 21 cents in December, according to data compiled by Bloomberg. The debt changed hands at an average 41.5 cents on Thursday.
Asserting Itself
While the control board can mandate budget and spending plans and has oversight of Puerto Rico's finances and its debt-restructuring negotiations, it has been trying to respect the commonwealth's right to self govern.
Bishop wrote that he recognizes the “careful balance,” but wants the board to act. The chairman wants the panel, rather than the commonwealth, to manage debt negotiations to reduce most of the $74 billion obligation through its bankruptcy process.
“Any certified fiscal plan should reflect the oversight board as the sole representative of debtors,” Bishop said. “And any attempt by the commonwealth to circumvent this uniformity of representation should be met with appropriate budget reductions.”
Bishop wants the board to force the commonwealth to make reforms and subpoena fiscal information to end a history of budget gaps and overspending and help Puerto Rico regain access to capital markets. Puerto Rico's creditors have fought in court for more access to fiscal data to get a better sense of how much the island spends.
Bishop reminded the board that the fiscal plan must adequately fund Puerto Rico's pension system and make sure the programs are properly maintained.
“A good start would be to determine what constitutes ‘essential public services,' clearly defining where governmental cuts should occur,” Bishop said.
--With assistance from Jonathan Levin
To contact the reporters on this story: Michelle Kaske in New York at mkaske@bloomberg.net, Ari Natter in Washington at anatter5@bloomberg.net.
To contact the editors responsible for this story: James Crombie at jcrombie8@bloomberg.net, Stephen Merelman, Michael B. Marois
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