Puerto Rico has been in a long process to recover from deep financial and fiscal trouble cemented over years of overspending and other budget issues.
The process for the U.S. territory is the result of federal legislation in 2016 called the PROMESA Act that created a federally appointed independent fiscal oversight board with authority to, among other things, restructure the debt to Puerto Rico’s creditors. HLF president Mario H. Lopez has previously weighed in on issues pertaining to Puerto Rico and its fiscal crisis, most recently here, and here).
The oversight board has laid out a current “Plan of Adjustment” that includes a restructuring the more than $50 billion in unfunded pension liabilities. Just this week, a group of creditors released a letter saying the current plan is insufficient and will not give Puerto Rico access to the capital markets. Throughout the bankruptcy process there have been major complaints about the lack of transparency from the Puerto Rican government, which raises serious questions about the pension estimates.
The congressional committee in charge of oversight for this is weighing in. House Natural Resources Committee Chair Congressman Raúl Grijalva (D-AZ) recently called for the Oversight Board to define the government’s essential services to better understand which services cannot be reduced, and also called for an audit of the island’s debt.
Committee member Tom McClintock (R-CA) has also sent a letter to the oversight board requesting the board commission an independent audit of pension funds for certain government workers. A section of the letter:
These funds—which total $55 Billion according to the Oversight Board’s most recent estimates—do not appear to have been properly verified as to either amount or validity. Given that pension obligations are larger than all of the Commonwealth’s remaining unresolved debt obligations combined, I request that there be a compete and irreproachable audit of the Puerto Rico pension systems before proceedings relating to the Commonwealth’s currently proposed Plan of Adjustment moves forward.
Another cause for concern is that the only firm that has performed any auditing service for the teachers’ pension fund (part of the government worker funds referenced by McClintock) is a company called BDO, which last year faced negative attention due to several of its high ranking officials, along with government officials in Puerto Rico, being indicted in a massive corruption scandal (see here and here) that included allegations of money laundering, theft, and wire fraud.
All of this means that the additional steps requested by Reps. Grijalva and McClintock are a good idea for continuing the process of getting Puerto Rico back on solid financial footing.
