The Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA) is a U.S. federal law enacted in 2016 that serves as a custom-made bankruptcy law for Puerto Rico. It establishes a process for restructuring debt, and expedited procedures for approving critical infrastructure projects in order to combat the Puerto Rican government-debt crisis.Lin, Tom C.W., Americans, Almost and Forgotten, 107 California Law Review (2019) Through PROMESA, the US Congress established a Financial Oversight and Management Board, known colloquially in Puerto Rico as "la junta" (the board), to oversee the debt restructuring. With this protection the then-governor of Puerto Rico, Alejandro García Padilla, suspended payments due on July 1, 2016. The FCB's approved fiscal austerity plan for 2017-2026 cut deeply into Puerto Rico's public service budget, including cuts to health care, pensions, and education, in order to repay creditors. By May 2017, with $123 billion in debt owed by the Puerto Rican government and its corporations, the FCB requested the "immediate" appointment of a federal judge to resolve the "largest bankruptcy case in the history of the American public bond market."
In response to legal challenges by creditors trying to reverse the debt recovery actions, the Supreme Court ruled in June 2020 that the Board's appointment, performed by the President only, was consistent with the Appointments Clause.
The Foraker Act of 1900 prevented the government of Puerto Rico and all of its municipalities from entering into debt in excess of seven percent of the aggregate tax value of its property.
Overview PROMESA enables the island's government to enter a bankruptcy-like restructuring process and halt litigation in case of default. Specifically, the establishment of the Financial Oversight and Management Board of Puerto Rico known colloquially as "La Junta" (a short form of "La Junta de Control Fiscal"), operates as an automatic stay of creditor actions to enforce claims against the government of Puerto Rico. The oversight board is to facilitate negotiations, or, if these fail, bring about a court-supervised process akin to a bankruptcy. The board is also responsible for overseeing and monitoring sustainable budgets. The President appointed all seven members of the board, six of whom were chosen from a list of individuals recommended by Congressional leaders and had previous ties to profitable industries in Puerto Rico. The Governor of Puerto Rico (or a designee) serves ex officio as an eighth member without voting rights. PROMESA authorizes the oversight board to designate a territory or territorial instrumentality as a "covered entity." Once designated, the covered entity is subject to the terms of PROMESA. On September 30, 2016, the oversight board designated the Commonwealth of Puerto Rico and certain other territorial instrumentalities as covered entities under PROMESA. As a covered entity, Puerto Rico is required to submit a fiscal plan. A fiscal plan must provide a method to achieve fiscal responsibility and access to the capital markets, and: provide for estimates of revenues and expenditures in conformance with agreed accounting standards and be based on-- applicable laws; or specific bills that require enactment in order to reasonably achieve the projections of the Fiscal Plan; ensure the funding of essential public services; provide adequate funding for public pension systems; provide for the elimination of structural deficits; for fiscal years covered by a Fiscal Plan in which a stay under subchapters III or IV is not effective, provide for a debt burden that is sustainable; improve fiscal governance, accountability, and internal controls; enable the achievement of fiscal targets; create independent forecasts of revenue for the period covered by the Fiscal Plan; include a debt sustainability analysis; provide for capital expenditures and investments necessary to promote economic growth; adopt appropriate recommendations submitted by the Oversight Board under section 2145(a) of this title; include such additional information as the Oversight Board deems necessary; ensure that assets, funds, or resources of a territorial instrumentality are not loaned to, transferred to, or otherwise used for the benefit of a covered territory or another covered territorial instrumentality of a covered territory, unless permitted by the constitution of the territory, an approved plan of adjustment under subchapter III, or a Qualifying Modification approved under subchapter VI; and respect the relative lawful priorities or lawful liens, as may be applicable, in the constitution, other laws, or agreements of a covered territory or covered territorial instrumentality in effect prior to June 30, 2016. On October 14, 2016, Puerto Rico submitted a proposed fiscal plan to the oversight board. On November 23, 2016, the oversight board released its initial assessment of the fiscal plan submitted by Puerto Rico. The oversight board requested that the fiscal plan be amended to incorporate the following: Define and incorporate key aspirational goals, benchmarks and metrics for a ten-year vision for Puerto Rico. This aspirational vision should drive Puerto Rico to stabilize its current economic, social, demographic and financial situation, increase the economy's resilience, shore up public finances, support long-term, durable growth, address basic needs and restore opportunity for the people of Puerto Rico; Exclude any funding from an extension of Affordable Care Act as well as revenues from an extension of Act 154 revenues in light of their expiration (unless the assumption is accompanied by a specific bill). The Board supports efforts to extend Affordable Care Act funds and Medicaid parity for Puerto Rico, but consistent with the PROMESA Act the Board has to insure that the Fiscal Plan is based on existing law or a specific bill. Incorporate a revised baseline forecast to reflect pay-go funding for pension benefits and segregation of current employee contributions beginning no later than 2018; and Include a debt restructuring proposal and also a debt sustainability analysis.
On November 29, 2016, the Governor of Puerto Rico responded to the oversight board's assessment of the Commonwealth's proposed fiscal plan, asking for Medicaid parity in Puerto Rico, the extension of Obamacare funds, and requesting for further federal intervention and support.
With basic services risking privatization, and funding for pensions, education and healthcare already scarce, PROMESA strives to reallocate more public funding to restructure the $72 billion in debt. In late January 2017, the board created under PROMESA gave the government of Puerto Rico until February 28 to present a fiscal plan (including negotiations with creditors) to solve the problems. It is essential for the Commonwealth to reach restructuring deals to avoid a bankruptcy-like process under PROMESA. A moratorium on lawsuits by debtors was extended to May 31.
In January 2017 governor Ricardo Rosselló replaced Millstein and co with investment expert Rothschild & Co to assist in leading the restructuring process of Puerto Rico's debts. The company was also exploring the possibility of convincing insurers that had guaranteed some of the bonds against default, to contribute more to the restructuring, according to reliable sources. The governor also planned to negotiate restructuring of about $9 billion of electric utility debt, a plan that could result "in a showdown with insurers." Political observers suggest that his negotiation of the electrical utility debt indicated Rosselló's intention to take a harder line with creditors. Puerto Rico has received authority from the federal government to reduce its debt with legal action and this may make creditors more willing to negotiate instead of becoming embroiled in a long and costly legal battle.
On May 3, 2017, the Puerto Rico government formally invoked the bankruptcy-like restructuring procedure created by Title III of PROMESA by filing a petition in the U.S. federal district court for Puerto Rico. The petition did not use Official Form 201, Voluntary Petition for Non-Individuals Filing for Bankruptcy. Instead, it was filed on a similar-looking form for a "Title III Petition for Covered Territory or Instrumentality", on which the debtor's name was designated as "The Commonwealth of Puerto Rico".
Composition of the Financial Oversight and Management Board
On August 31, 2016, President Obama appointed the seven members of the board.
+ Name Began service PartyAndrew G. Biggs August 31, 2016 RepublicanBetty A. Rosa December 8, 2020 DemocraticJohn E. Nixon December 8, 2020 DemocraticArthur Gonzalez August 31, 2016 DemocraticDavid Skeel August 31, 2016 Democratic
Name Position David Skeel Chairman Robert Mujica Executive Director Jaime El Koury Legal Counsel José R. Pérez-Riera Revitalization Coordinator Omar Marrero Representative of the government of Puerto Rico
In March 2017, Natalie Jaresko, former Minister of Finance in Ukraine, was appointed as the board's executive director. Her chairmanship was accompanied by multiple protests against the FOMBPR in Puerto Rico, the largest being a protest of 100,000 people in San Juan in the summer of 2019, before announcing her resignation in February 2022 effective on 1 April 2022. In 2019, Christian Sobrino, PROMESA's Representative of the Puerto Rican government, resigned in the wake of the Telegramgate scandal effective immediately on July 13, 2019.Rosselló Makes Two Appointments Robert Mujica became the Oversight Board’s executive director on January 1, 2023.
The law gives immunity to these board members in the face of any potential future lawsuits, stipulating that “The Oversight Board, its members, and its employees shall not be liable for any obligation of or claim against the Oversight Board or its members or employees or the territorial government resulting from actions taken to carry out this to carry out this Act” (PROMESA, 561). The board also has the power to ensure “the prompt enforcement of any applicable laws of Puerto Rico prohibiting public sector employees from participating in a strike or lockout” (PROMESA, 559).
Response Critics suggest that the law continues to treat the island as an "anomaly", remarking on Puerto Rico's somewhat unique status as a populous unincorporated territory of the United States, while also alleging that PROMESA does not do enough to deal with the problems that Puerto Rico's economy was facing when the bill was signed into law: high unemployment, welfare issues, and brain drain. Critics also claim that the United States Congress is granting unnecessarily broad powers to the new Fiscal Control Board, hindering Puerto Rico's development of democracy by allowing a federal body to effectively overrule all local authorities, and justifying such decisions through the Necessary and Proper Clause. According to Nelson Denis, the political and economic activities of the United States in Puerto Rico have created structural dependency, economic stagnation, and a growing debt problem that led to the creation of this fiscal plan in an attempt to resolve the situation. Some critics have accused the Fiscal Control Board of failing to look into the legitimacy of the lending-scheme debt.