President Trump has renominated members of the federal board put in place by Congress and the Obama administration to oversee Puerto Rico’s recovery from a $70 billion debt crisis.
The late Monday move is a blow to the board’s critics, which include the governor of Puerto Rico, labor unions, and some of the island’s creditors, who objected to austerity measured proposed by the board.
The board has sought to make creditors take cuts on their investments through either court proceedings or negotiated settlements in an effort to relieve some of Puerto Rico’s massive debt.
If Trump had chosen to change board members or leave the board vacant, it could have thrown years of negotiations and court proceedings into doubt and opened up the commonwealth to creditor lawsuits that the board was able to shield.
Trump’s fraught relationship with the U.S. territory’s leadership may have played a role in the decision. In its announcement of the president’s intent to renominate the board late Monday night, the White House decried Puerto Rico’s past spending decisions, saying that “politicians in Puerto Rico have long mismanaged the Puerto Rican people’s finances.” The statement also said that “mismanagement, corruption, and neglect continues to hurt the people of Puerto Rico who deserve better from their government,” and that board’s work “is providing the stability and oversight needed to address these chronic issues that will bring hope of a brighter future for Puerto Rico.”
Congress granted the board power over revenue and spending decisions of the commonwealth in order to help it recover from its historic debt crisis and a decadelong recession. The board was put in place about a year before Hurricane Maria struck Puerto Rico.
The same law that created the board, known as PROMESA, also allowed the board to enter Puerto Rico and its agencies, including the territory’s government-run electric power utility, into de facto bankruptcy in order to renegotiate with creditors or ask a judge to relieve portions of the debt. That led to legal conflict with some of the hedge funds and other institutional creditors that hold own millions to billions of dollars in Puerto Rican debt.
The board was initially selected in a compromise between House and Senate leadership of both parties and the Obama administration that bypassed confirmation hearings in favor of President Barack Obama picking candidates from lists presented by Republican and Democratic leadership.
In February, a lawsuit led by two of those creditors, a hedge fund and a municipal bond insurer, succeeded in arguing that the board’s appointment violated the terms of nomination set out in the Constitution, after an initial ruling by a lower court in favor of the board’s appointment. The board appealed that decision to the Supreme Court, which has yet to make a decision about hearing the case.
It’s unclear how or if Trump’s intention to renominate the current members of the board — four Republicans and three Democrats — for three-year terms will affect that case. The board will need confirmation from the Senate this time, though its court battle with creditors continues.
“Those nominations require Senate confirmation. The case continues, however. This doesn’t change our position regarding the First Circuit decision,” said Kevin Kearney, a public relations consultant for the board.
Puerto Rico Gov. Ricardo Rosselló has also challenged the board’s authority in court, as have labor unions worried about cuts to billions in pension debts, cuts to traditional Christmas bonuses given to public employees, and other cost-cutting measures the board has tried to implement.
In a release published in Spanish, Puerto Rico’s Secretary for Public Affairs Anthony Maceira said that “the government of Puerto Rico is firm in that … [the board] must respect the limits of PROMESA and not interfere in the public policy determinations of the government elected by the People of Puerto Rico.”
