When it’s simple, we call it common sense. When it’s complicated, we call it politics.
No matter your age, religion, or political party, there are a few simple principles on which we can all agree:
- Keep your promises.
- Don’t break the law.
- Spend less than you earn.
- Treat others as you would have them treat you.
It’s also not hard to agree that sometimes situations can become complicated, making it hard to find easy solutions. The more complicated the solution, the more likely it will stray from the basic common sense principles on which we all agree.
The people of Puerto Rico find themselves in the center of a manmade disaster made worse by a natural disaster. And when they most need a straightforward plan to get them out of debt and into recovery, they are instead being promised solutions that make no sense by those in charge – the Governor of Puerto Rico and the Oversight Board created by the Puerto Rico Oversight, Management, and Economic Stability Act known as PROMESA.
When people get mired in debt, we advise them to list their debts and financial resources, so they know exactly where they stand, and then to make a debt payment plan and stick to it.
Yet no one truly has any idea of the state of Puerto Rico’s finances. Until recently, there had been no audit of the commonwealth’s finances since the one for fiscal year (FY) 2013-2014. In July 2018, the FY 2014-2015 audit was finally released, but the auditor said it could not verify that the information was reliable.
People who are in debt work with their creditors to reach solutions. Once they have worked with creditors, they can create a final plan and work toward climbing out of debt and back into a place where income and spending are balanced. Yet the government of Puerto Rico has taken an adversarial position, refusing to work with creditors, positioning the debt as unpayable, and debt repayment as unnecessary.
Because these actions were both illegal and illogical, the Governor and the Oversight Board allocated billions for litigation expenses and outsized advisor fees while providing virtually nothing for debt service. This reflected their determination to litigate rather than work cooperatively with creditors and other stakeholders in developing a realistic solution.
And they are spending millions on advisory fees to consultants and advisors who are competing with each other, creating contradictory plans and overstaffing the work to drive up billable hours – and no one is managing them to prevent such abuse. It is in the interests of the consultants to bill as much as possible so when a judge reviews their fees and determines how much they can be paid – a determination that is made after the fact, not through the proactive setting of budgets – they can walk away with as much as possible, even if it’s only a percentage of what they billed.
Instead of wasting hundreds of millions of dollars on financial shenanigans, the Commonwealth and Oversight Board should be focused on the serious business of creating a feasible plan for meeting legal obligations, managing expenses, preventing waste, and reducing corruption, in order to foster a sustainable economic future for the citizens of Puerto Rico.
The grandstanding and mystery accounting are being used to justify the basic fact that promises are not being kept. The Puerto Rican constitution clearly states that Commonwealth public debt is to be paid first, before any other type of expense. Ordinary investors in Puerto Rico and throughout the United States relied on Puerto Rico’s constitution and laws when they invested in Puerto Rico.
Advocates of repudiating the debt are advocating a politically expedient “solution” that will slam the door shut on future access to capital for infrastructure investment, causing not only long-term problems for Puerto Rico but also creating a market-chilling ripple effect across U.S. municipal financial markets.
Puerto Rico’s long-term economic sustainability depends on future investment and access to capital markets. Yet investors won’t be willing to take a future risk if previous agreements aren’t honored. We’ve all heard the saying “Fool me once, shame on you; fool me twice, shame on me.” Investors are watching carefully, and they won’t be fooled again.
Finally, what is happening in Puerto Rico encourages conditions that prevent fair treatment of its residents. There is no spending oversight and no accountability for federal dollars being spent on the island. Corruption is so widespread that the recovery effort, and those depending on it, have not gotten the relief they needed quickly enough.
A self-sustaining economy is a complicated system that balances industry and humanity. It’s not easy to maintain in the best of times, and these are not the best of times in Puerto Rico. But even the most complex systems are built on fundamental principles. To deny or defy those foundational agreements moves the Commonwealth away from recovery, not toward it. There is no quick fix for the hard work of financial discipline and recovery planning.