A group of investigative journalists in Puerto Rico is suing the congressionally created board that acts as the island territory’s representative in bankruptcy proceedings, claiming they are failing to be transparent in their financial dealings.
The stakes are high for plenty of Americans, as Puerto Rico’s debt has far-reaching implications in a number of financial sectors in the U.S. as well as for privately held public debt in states like Illinois.
The Puerto Rico Center for Investigative Journalism (CPI) filed suit earlier this month against the Financial Oversight and Management Board to compel the disclosure of key documents in the bankruptcy case.
CPI alleges the board won’t share information that would reveal the commonwealth’s financial standing and also won’t release financial disclosures and conflict-of-interest forms submitted by the seven members of the board to the U.S. Department of Treasury and White House.
CPI also said the board won’t disclose documents and other communication between itself and the Puerto Rican government and/or federal agencies. It claims, as well, that the board won’t reveal what contracts have been granted to private entities or the minutes of its meetings.
Congress recommended, and President Barack Obama officially selected, the members of the oversight board in 2016 under the new Puerto Rico Oversight, Management and Economic Stability Act (PROMESA), passed and signed into law that year to deal with the territory’s mounting debt.
Puerto Rico owes an estimated $74 billion to creditors on the island and the mainland U.S. and has pension debt swelling above $40 billion. PROMESA created a process that combines elements of Chapter 9 and 11 bankruptcies, which will allow U.S. owned territories to adjust their debts and can be a future blueprint for future bankruptcy cases.
The U.S. Virgin Islands, for example, has debt of around $2 billion, and will watch this case with interest. States that have hefty pension liabilities – and that’s most of them, these days – might seek similar remedies if their situations worsen.
Under PROMESA, U.S. Supreme Court Chief Justice John Roberts appointed in May U.S. District Court Judge Laura Swain of the Southern District of New York to oversee the case.
The oversight board will renegotiate Puerto Rico’s debts with the island’s creditors and then present a debt adjustment plan to the court for approval.
PROMESA gives wide latitude to the oversight board, requiring its members to develop a plan to allow Puerto Rico to achieve fiscal responsibility in a manner that may not necessarily be in the territory’s best interests – even allowing the board to override the island’s laws and elected officials’ actions. PROMESA also provides legal immunity to the oversight board members for all of their actions under the act.
A financial advisor involved in the negotiations told Watchdog.org that given the governance power provided to the oversight board and the financial stakes for American taxpayers, it’s important the members conduct their work in an open manner.
“Democracy and good governance demands that decisions be made in a transparent manner – officials should be held accountable for their actions,” the advisor said. “Monumental decisions that will affect Puerto Rican citizens, the U.S. taxpayer and a $4 trillion municipal bond market are being taken under cover of darkness, with declarations of what is being decided, but not disclosure of how or why decisions are being made, or who exactly is responsible for making those decisions.”
CPI contends that the Constitution of Puerto Rico fully applies to the oversight board, however, because the commonwealth covers its expenses and the board isn’t defined as a federal entity under PROMESA.
“As expressed by the Puerto Rico Supreme Court, access to information constitutes an important component of a democratic society, in which the citizenry can issue an informed judgment regarding the actions of the government,” reads CPI’s lawsuit.
“The right to redress grievances is also implicated, in that without knowledge of the facts, one cannot judge, nor demand remedies with respect to grievances against the government either through judicial or electoral processes.”
The first hearing on the bankruptcy case was May 17 in what’s expected to be a lengthy process – and it’s one Americans shouldn’t ignore.
NBC News pointed out that because Puerto Rico’s bonds have been tax exempt since 1917, American investors have flocked to them, which puts billions of dollars in mutual funds at risk. The outlet noted that more than 40 percent of the Rochester Maryland Municipal Bond Fund and Rochester Virginia Municipal Bond Fund are invested in Puerto Rican bonds, potentially hammering public-sector retirees.
Investment companies that are heavily invested in Puerto Rico could collapse if they aren’t repaid, which could trigger a domino effect similar to the subprime mortgage crisis.
Swain ordered Puerto Rico to file a creditor matrix by June 30 and file a list of all of its creditors by Aug. 30.