IEEFA update: Puerto Rico crisis shows FOMB failed to do its job

August 05, 2019

Cathy Kunkel

The Puerto Rico Financial Oversight and Management Board (FOMB) has remained fairly quiet during the last several weeks of turmoil and massive demonstrations that have rocked Puerto Rico in protest over the corruption of the Rosselló administration. On July 23rd, the Board issued a press release stating that, “The people of Puerto Rico deserve a well-functioning, responsive, sustainable government that operates with integrity and transparency,” with the hope that the “political process swiftly resolves the current governance crisis.”

IN REALITY, THE POLITICAL CRISIS CURRENTLY GRIPPING PUERTO RICO IS EVIDENCE OF THE FOMB’S FAILURE TO PERFORM ITS MOST BASIC CHARGE. Congress established the FOMB to “provide a method for [Puerto Rico] to achieve fiscal responsibility.” The FOMB was granted broad power over contracts, and the PROMESA law that established the FOMB states that “it is the sense of Congress that any [contracting] policies established by the Oversight Board … should be designed to make the government contracting process more effective, to increase the public’s faith in this process, to make appropriate use of the Oversight Board’s time and resources, to make the territorial government a facilitator and not a competitor to private enterprise, and to avoid creating any additional bureaucratic obstacles to efficient contracting.” [Emphasis added]

The FOMB has made several valuable contributions towards improving the fiscal condition of the Commonwealth and its agencies – including the rejection of the 2016 Puerto Rico Electric Power Authority (PREPA) debt deal, a recent lawsuit against PREPA’s oil suppliers, a lawsuit to attempt to claw back some of Puerto Rico’s illegally issued general obligation debt from bond holders and advisors, and the publication of a detailed investigative report on the factors contributing to Puerto Rico’s fiscal crisis.

Yet, overall, as the recent crisis has so clearly demonstrated to the world, the Puerto Rican government has continued its long-standing practices of corruption and fraud in awarding public contracts. All attempts that the FOMB has made to oversee major government contracts have so far proved to be ineffective.

IN THE CASE OF PREPA IN PARTICULAR, THE FOMB HAS ACTIVELY OPPOSED EFFORTS TO IMPOSE AN INDEPENDENT PRIVATE SECTOR INSPECTOR GENERAL (IPSIG) at PREPA, even though the explicit purpose of such an entity would be to provide daily, on-the-ground monitoring of operations to root out waste, fraud and abuse. This is a task that is desperately needed, that would go directly to the heart of the necessary contracting reforms at PREPA, and which the FOMB clearly does not have the resources to perform. Yet, in PREPA’s debt restructuring case in bankruptcy court, the FOMB has supported a motion to dismiss the petition for an IPSIG. Instead, it has signed onto a joint motion supported by testimony from Puerto Rico government witness Christian Sobrino (recently fired for his role in the governor’s chat scandal), who argues that PREPA’s management reforms are working and its contracting process has sufficient oversight.

The FOMB’s willingness to trust in PREPA’s financial disclosures and contracting reforms in order to get a bond deal signed at any cost is emblematic of the Board’s overall inability to implement the kind of serious contracting and governance reforms that would have been needed to avert the recent crisis.

Rather than “hoping” for an end to the crisis, the FOMB should change course, start fulfilling its assignment, support an IPSIG at PREPA, and take seriously its duties to combat the corruption that caused the crisis.

Cathy Kunkel ([email protected]) is an IEEFA energy analyst.

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