PROMESA

Puerto Rico Oversight, Management, and Economic Stability Act

Long title	To establish an Oversight Board to assist the Government of Puerto Rico, including instrumentalities, in managing its public finances, and for other purposes.
Acronyms (colloquial)	PROMESA
Enacted by	the 114th United States Congress
Effective	June 30, 2016
Citations
Public law	Pub.L. 114-187
Legislative history
Introduced in the House of Representatives by Sean Duffy on May 18, 2016 Committee consideration by United States House Committee on Natural Resources Passed the House of Representatives on June 9, 2016  Passed the United States Senate on June 29, 2016  Signed into law by President Barack Obama on June 30, 2016

H.R. 5278 —better known as the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA)— was a bipartisan bill in the United States Congress^[1] that was signed into law by President Obama on June 30, 2016.^[2] With this protection the governor of Puerto Rico, Alejandro Garcia Padilla, suspended payments due on July 1.^[2]

PROMESA establishes an oversight board, a process for restructuring debt, and expedited procedures for approving critical infrastructure projects in order to combat the Puerto Rican government-debt crisis.^[3] It enables the island's government to enter a bankruptcy-like restructuring process and halt litigation in case of default. Specifically, the establishment of the oversight board operates as an automatic stay of creditor actions to enforce claims against the government of Puerto Rico.^[4] 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.^[2] The President appointed all seven members of the board, six of whom were chosen from a list of individuals recommended by Congressional leaders. The Governor of Puerto Rico (or a designee) serves ex officio as an eighth member without voting rights.^[3]

On August 31, 2016, President Obama appointed the seven members of the board.^[5][6]

PROMESA authorizes the oversight board to designate a territory or territorial instrumentality as a "covered entity."^[7] Once designated, the covered entity is subject to the terms of PROMESA.^[8] On September 30, 2016, the oversight board designated the Commonwealth of Puerto Rico and certain other territorial instrumentalities as covered entities under PROMESA.^[9] As a covered entity, Puerto Rico is required to submit a fiscal plan.^[10] 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.^[11]

On October 14, 2016, Puerto Rico submitted a proposed fiscal plan to the oversight board.^[12]

Criticism

Critics indicate that the law continues to treat the island as an anomaly, neither as a state nor a municipality, fails to provide a way to statehood or independence, and does not deal with underlying economic problems such as high unemployment, lack of opportunities, welfare issues, and brain drain.^[13] The oversight board will have broad sovereign powers to effectively overrule decisions by Puerto Rico's legislature, governor, and other public authorities, under the federal government's constitutional power to "make all needful rules and regulations" regarding U.S. territories. For this reason, the board has been criticized as colonial and anti-democratic in nature.^[14]

References