▶ 0:10:54Affairs will come to order. Without objection, the chair is authorized to declare a recess of the subcommittee at any time. The subcommittee is meeting today to hear testimony for an oversight hearing entitled puerto rico's fiscal recovery under promesa and the road ahead. Under committee rule four f any oral opening statements at hearings are limited to the chairman and the ranking minority member.
▶ 0:11:16I therefore ask unanimous consent that all other members opening statements be made part of the hearing record if they are submitted in accordance with committee rule three. Oh, without objection, so ordered. I ask unanimous consent that the gentleman from florida, Mr. soto, the gentlewoman from new york, miss ocasio-cortez, and the gentleman from new york, Mr. torres, be allowed to sit and participate in today's hearing. Without objection. So ordered. I will now recognize myself for an opening statement.
▶ 0:11:48Today, the subcommittee on indian and insular affairs is meeting to discuss puerto rico's fiscal recovery under the puerto rico oversight, management and economic stability act, also known as promesa. We'll explore the next steps in resolving puerto rico's debt crisis and work to ensure that proper safeguards are in place to prevent future financial risk. Almost a decade ago, congress enacted promesa to address the island's fiscal collapse.
▶ 0:12:12At the time, puerto rico had more than $100 billion in liabilities and had lost access to capital markets. Promesa was put in place by congress as a comprehensive financial oversight and restructuring framework for the island. Promesa established the fiscal oversight and management board, or omb, to oversee puerto rico's financial recovery.
▶ 0:12:34Because puerto rico is not eligible to declare bankruptcy, title three of promesa introduced a court supervised bankruptcy like bankruptcy like debt restructuring process. Under title three, only the omb acting as representative for the puerto rican government, can propose plans of adjustment. Plans of adjustment serve as debt restructuring petitions to a federal court.
▶ 0:12:59Today, omb has overseen the restructuring of roughly 80% of puerto rico's outstanding debt under title three. It has been the largest public debt restructuring in united states history. The puerto rico electric power authority, or prepa, is the last major bond issuer with unresolved debt. In 2016, prepa owed over $9 billion to creditors.
▶ 0:13:23This massive debt was the result of decades of political interference, mismanagement, and natural disasters that all left the public utility financially unstable and operationally inadequate. Restructuring prepa's debt has been slow. This is due to multiple factors. Perhaps most significantly, because of its sheer complexity, negotiations continue to this day. However, once prepa's obligations are resolved, all major outstanding debt on the island will have been restructured.
▶ 0:13:52Beyond debt restructuring, the omb also encourages fiscal discipline and economic growth through annual certification of comprehensive fiscal plans for puerto rico. These plans paint a blueprint for the puerto rican government to operate within, aided by the budgetary control enforcement. A decrease in overall expenditures, increase in net revenue, and emphasis on funding essential services on the island have been realized.
▶ 0:14:21Additionally, I would like to commend the puerto rican government for its role in this recovery, as shown by their adoption of formal debt management policies. Notably, the government now limits the annual debt service to no more than 8% of its own source revenues. The government also created the office of the budget of legislative assembly, which is modeled loosely after the congressional budget office and informs the legislature of the fiscal impacts of policy proposals. These are all positive developments.
▶ 0:14:50It signals productive collaboration between omb and puerto rico's government. Under promesa. The omb is set to terminate after four consecutive years of balanced budgets and the restoration of market access to the island. Notably, on june 25th, 2025, jenniffer gonzalez-colon signed puerto rico's first certified balanced budget into law. This is an important step toward fulfilling toward fulfilling promises conditions for omb termination.
▶ 0:15:21The omb has made clear that it intends to sunset once puerto rico's finances meet promesa. Statutory statutory conditions. I look forward to hearing more about that from our witnesses. Challenges to puerto rico's full financial recovery remain. But to be clear, significant progress has been made with continued political fiscal, with continued political political resolve, transparency and fiscal responsibility. The goals of promesa can be fully realized.
▶ 0:15:50Today's hearing is an opportunity for congress to assess the progress and help determine the best path forward for puerto rico's long term fiscal viability. I want to thank each of our witnesses for being with us, and I look forward to today's conversation. With that, the chair now recognizes the ranking minority member for any statement, miss leger-fernandez. >> thank you very much, Mr.
▶ 0:16:15Chairman, and thank you to our colleagues who have joined us today because of your intimate knowledge of what is happening on the island. We really welcome your participation. This is an important hearing to examine the effectiveness of promesa, which you adequately described. And it has been nine years since promesa enactment. And the verdict is been mixed.
▶ 0:16:38The law aimed to provide puerto rico with a path forward, to manage and resolve its over $70 billion of public sector debt, has indeed helped reduce puerto rico's debt by more than 40 billion, and saved the island over 50 billion in principal and interest payments. The law also included many compromises that reduced its effectiveness, resulted in unnecessary delays and increased execution costs.
▶ 0:17:10Congressional democrats, who oppose the imposition of the oversight board, initially supported the bill in the end, because it provided the only mechanism for puerto rico to restructure the over $70 billion of unpayable public bond debt, the largest in us history. But we must recognize that the people of puerto rico continue to face economic hardship. With the island's poverty rate at 40%, that's more than triple the national poverty rate.
▶ 0:17:35On top of that, puerto rican residential electricity rates are over $0.26 higher per kilowatt hour than the national average, 60% higher than the national average. While puerto ricans pay these extreme rates, they also experience regular blackouts as the utility's aging infrastructure desperately needs new investment.
▶ 0:18:01That's why we need to fight to complete the final debt restructuring under promesa for the puerto rico electric power authority, or prepa. At the time of promesa enactment, prepa had accumulated $9 billion in debt, but its bondholders aggressively opposed the utility filing for bankruptcy. Despite the urgent need to restore prepa's electric system and stop the blackouts.
▶ 0:18:27The utility's bondholders are urging the oversight board to prioritize paying them $3.7 billion in cash, on top of the 8.5 billion they are claiming they are owed. This would likely require painful payment structures like tapping into puerto rican central government funds, raising electric rates on customers who we've already discussed pay some of the highest in the country, or diverting funds for urgent repairs to the energy system.
▶ 0:18:58Puerto ricans deserve affordable electricity and reliable electric system. They deserve an economy that works for them. Natural resources committee democrats have consistently called for dissolving the oversight board, but only after all of puerto rico's bankruptcies are completed under promesa. Full payment of prepa's bond debt plus interest is simply factually unaffordable.
▶ 0:19:26It is not consistent with, as what the chair called a bankruptcy light situation where fairness to both the bondholders, but also to the people of puerto rico is very important. All parties should come together and consensually resolve prepa's bankruptcy, so that the people of puerto rico can have an electric utility that, at a minimum, can provide sustainable and reliable energy to support puerto rico's economic growth and fiscal stability.
▶ 0:19:54I want to welcome our witnesses, and I look forward to receiving your testimony. >> gentleman yields back. It's now my pleasure to introduce the witnesses for our panel. First, Mr. robert mojica, junior executive director of the financial oversight and management board for puerto rico in san juan, puerto rico. Next is Mr. andrew. Doctor andrew austin, analyst in economic policy for the congressional research service here in washington, D.C.
▶ 0:20:23And third is miss michelle sager, managing director of strategic issues at the us government accountability office in washington, dc. Welcome, miss sager. Let me remind the witnesses that under committee rules, they must limit their statements to five minutes. But your entire statement will appear in the hearing record. To begin your testimony, please press the talk button that you should see in front of you on the microphone. We do use timing lights.
▶ 0:20:51When you begin, the light will turn green. That means go. When you have one minute left, the light will turn yellow, and at the end of five minutes the light will turn red. And at that point, I would ask you to please complete your statement as soon as possible. I will also allow all witnesses to testify before member questioning. And with that, the chair now recognizes Mr. robert mojica for five minutes. Mr. mojica.
▶ 0:21:21>> good morning. Chairman, ranking member leger-fernandez and members of the committee. Thank you for the opportunity to testify. My name is robert mojica, and I serve as the executive director of the financial oversight and management board for puerto rico. I joined the oversight board in january of 2023, after serving as budget director for the state of new york for seven years.
▶ 0:21:43Throughout my 25 years in public service, I've worked on both sides of the aisle and learned that even though budgets may reflect different priorities, they must be fiscally responsible. A responsible budget is one that is balanced, transparent, and timely regardless of who is in power. That is the conviction that I brought with me to san juan. But I also brought something personal. My heritage. My family left puerto rico during the era of the great migration and found opportunity in new york.
▶ 0:22:13My grandfather owned a grocery store, which is where I learned to count money and to understand the discipline and responsibility that comes with running a business. My parents, dedicated public servants, taught me good government can change lives. That is what guides my work in puerto rico. I came here to help build a future where families have opportunities and where there is a path for progress. So this is personal to me.
▶ 0:22:38In 2016, congress acted decisively in a moment of crisis. Puerto rico was over $73 billion in debt, with over $55 billion in unfunded pension liabilities and no legal way to restructure. Over 16 years of deficit spending eroded fiscal stability. To put it in context, the monumental size of puerto rico's liabilities over $130 billion.
▶ 0:23:07This was comparable to the sovereign debt crises of argentina and greece. Promesa created the oversight board to help puerto rico regain fiscal responsibility and access to the credit markets. Promesa is working, and with the oversight board's support, puerto rico has made significant progress. The debt was reduced by more than 60%.
▶ 0:23:32The oversight board estimates that it has saved the people of puerto rico more than $55 billion in debt payments, and billions more by aligning spending with revenues. Debt service costs are now affordable. Government spending is now aligned with revenues, structural deficits have been eliminated, and pensions are funded. A $1.3 billion emergency reserve has been established. Financial transparency is improving, but we are not done.
▶ 0:24:02The final and most challenging debt restructuring remains the puerto rico electric power authority, or prepa, is still left. Prepa's infrastructure is failing, services unreliable electricity rates are among the highest in the united states. Nonetheless, the board reached an agreement with 44% of creditors.
▶ 0:24:22However, a specific group of bondholders is demanding full payment of principal and interest for a total of $12 billion, a recovery level that is grossly above and beyond what prepa's customers can afford and what is legally defensible. The first circuit court of appeals has ruled that the non-consenting bondholders have recourse only against prepa's net revenues.
▶ 0:24:46Puerto rico's electric system is still in a state of emergency, and its costs of maintenance, repair and operation needs leave little or no revenues in excess of expenses. To satisfy these bondholders claims. We stand by our proposal. A fair debt deal that is realistic for the people of puerto rico and its residents. But the non-consenting bondholders are engaged in delay tactics designed to stall progress.
▶ 0:25:17However, restructuring the debt is only half the job. Our work would not be finished without completing the permanent budget reforms necessary to ensure that puerto rico never goes back into bankruptcy. Promesa requires four consecutive years of balanced budgets in accordance with modified accrual standards and restored market access before the oversight board can terminate. That means establishing a framework for financial governance that outlasts the board.
▶ 0:25:46Multiyear financial planning, improved reporting, responsible borrowing, and stable government financial practices. Congress gave puerto rico a path out of crisis. That path is leading to results. Our commitment now is to finish the job to help puerto rico achieve sustainability, accountable governance and renewed opportunity. That is our mission. That is what the people of puerto rico deserve, and that is what congress intended.
▶ 0:26:14Thank you and I look forward to your questions. >> thank you very much, Mr. mujica. At this time, the chair would like to recognize the ranking member of the house committee on natural resources, Mr. huffman, for any opening statement. >> Mr. chairman, thank you so much for, uh, for the courtesy. Um, and I want to begin, Mr. chairman, just by asking unanimous consent to enter into the record an article from nbc news. The headline is us rocked by four one inch 1000 year storms in less than a week.
▶ 0:26:43Climate change is making severe storms both more common and more intense. Uh, I have objection. Yeah. Thank you, Mr. chair. I am going to make it a practice. At every hearing that I attend, every hearing that I speak at, uh, to speak out against the reckless and destructive policies, um, on climate, on energy, on resilience, uh, on our national security, uh, because they can't be normalized.
▶ 0:27:08Uh, this is a disastrous path that we are on, and we cannot allow it to become normalized. But today, Mr. chairman, um, we're talking about promesa. And I was here in 2016 when we, um, working with the obama administration, came up with a mechanism for puerto rico to reduce its huge, uh, bond debt and pension debt at the time. And by any measure, it's fair to say promesa has achieved its main objective.
▶ 0:27:34Uh, since passage, puerto rico has been able to reduce its debt by more than 40 billion, secure over 50 billion in savings on principal and interest payments. But the work is not done. And there's one final critical debt restructuring for the, uh, electric power authority. Prepa, uh, still holds about 9 billion in debt, and the majority of its bondholders are refusing to agree to a consensual reduction that would finally resolve this bankruptcy.
▶ 0:28:03This prepa bondholder, uh, these bondholders are insisting on full repayment of principal and interest, even though meeting those demands would almost certainly push prepa into bankruptcy in short order. The reason is pretty straightforward. People of puerto rico can't afford the drastic increase in electricity rates that would be required to satisfy what these bondholders are demanding.
▶ 0:28:26The holdout bondholders have accused the promesa oversight board of obstructing a settlement because it refuses to accept their economically unfeasible demands, but it is the bondholders who refuse to accept the reality that prepa and the residents of puerto rico cannot afford their overreaching demands. We know the oversight board has never been popular on the island. It is seen as an unelected overseer empowered to overrule actions of elected leaders on the island.
▶ 0:28:56It was included in promesa at the urging of bondholders determined to prevent puerto rico from restructuring their unaffordable debt, and democrats opposed, including the oversight board in promesa. But republicans at the time overruled us.
▶ 0:29:11Still, we believed that reducing the commonwealth's crushing debt burden was too important a problem to solve, and that accepting the oversight board was a price we had to pay for puerto rico's debt relief calls to eliminate the board now, simply because of its spending on consultants and its refusal to agree to the prepa. Bondholders overreaching demands are premature.
▶ 0:29:34In the last two congresses, democrats drafted and sponsored legislation to sunset the promesa board, but only after bankruptcy. After all, bankruptcy filings, including prepa's, are fully resolved, it is time for all parties to come together around a compromise that will ensure prepa's economic vitality without undermining the overall economy of puerto rico.
▶ 0:29:57Some bondholders have argued, because utility rates in hawaii and the us virgin islands are in the mid to high $0.40 per kilowatt hour, puerto rico should bear similar costs. That comparison ignores reality. Puerto rico's economy is much weaker than those jurisdictions. It has a poverty rate of 43%, more than three times the us national rate of 13%.
▶ 0:30:21The people of puerto rico are already paying high electric rates 20 to $0.25 per kilowatt hour. Uh, the objective analysis on this makes clear they simply cannot afford more. There's a recent article by the institute for energy economics and financial analysis highlighting this critical point, saying that the bondholders short term thinking overlooks the fact that restoring puerto rico's electrical system to fiscal solvency and reliable operation is essential to the long, long term credibility for the
▶ 0:30:53Bondholders on the island. That's exactly right. A sustainable path forward requires a solution that puts the needs of puerto rico's people and economy first, without sacrificing the future for the sake of immediate returns. For bondholders, it also requires acknowledging speculative investors who knowingly bought deep discounted debt. Also, uh, it was after default. Uh, they did so with full awareness of the challenges. They cannot pretend to expect full repayment as if a crisis never occurred.
▶ 0:31:22The people of puerto rico deserve a settlement grounded in economic reality and fairness, and that's what this committee should help them achieve. Thank you, Mr. chair, I yield back. >> the gentleman yields at this time. The chair would like to recognize doctor andrew austin for five minutes. Doctor austin. >> good morning. Subcommittee chair heard. Subcommittee ranking. Member leger-fernandez commissioner hernandez. Members of the subcommittee.
▶ 0:31:50My name is andrew austin. I'm a phd economist at the congressional research service and have been working on puerto rico's fiscal issues since 2014. Thank you for inviting me today to testify on behalf of crs. Puerto rico's economic and fiscal challenges have deep roots.
▶ 0:32:07During the 1940s, puerto rico formulated an economic development policy based on public corporations and tax incentives to shift its economy from agriculture to manufacturing. That strategy accelerated economic growth and raised living standards. In the early 1970s, that strategy faltered due to the energy crisis and a changing global economy.
▶ 0:32:30Prepa, the island's electric power utility, kept rates low to shield customers from elevated energy prices, lower revenues, management issues and other factors led to deferred maintenance and minimal capital investment. By 2014, economic and fiscal problems became a crisis. Prices for puerto rico's bonds fell sharply, and puerto rico lost its ability to borrow, which had helped cover budget shortfalls and support its public corporations.
▶ 0:32:56By 2015, then governor padilla declared his government's debt unpayable. In 2016, congress enacted promesa to establish the financial oversight and management board and granted it broad powers over the island's public sector. One major responsibility of the oversight board is to certify fiscal plans and budgets. Puerto rico's governor legislature retains substantial control over public priorities and operations. Conflicts, however, have been frequent.
▶ 0:33:24Still, budgeting and financial control practices were modernized and spending was reduced, helping to achieve balanced budgets. A second major responsibility is representing puerto rico in debt restructurings. Promesa set out two debt adjustment processes. Title six is a process similar to the strategies used in sovereign debt workouts. Title three is a process that draws on the us bankruptcy code.
▶ 0:33:50In 2019, debt backed by sales taxes was restructured through title three. In january 2022, debts of the central government were restructured and pension systems were reformed. According to the oversight board, puerto rico's debts, which had reached about $73 billion, have been reduced by some $40 billion. Disaster recovery was not a responsibility that the oversight board had anticipated.
▶ 0:34:18In september 2017, hurricanes irma and maria swept across puerto rico, causing catastrophic damage. Pandemic response funding has increased the federal share of puerto rico's budget resources, disbursement of some disaster recovery funds, however, has slowed slowly for several reasons, including rising prices, liquidity constraints and the use of alternative procedures. Under section 428 of the stafford act, all of which have complicated contracting and project completion.
▶ 0:34:49Restructuring the $10 billion prepa of prepa's debts is a final major title three case. In december 2022, the oversight board offered creditors a $2.6 billion settlement. A november 2024 first circuit opinion, however, bolstered creditors claims the title three district court has been urging parties to continue negotiations. The physical restructuring of the electrical power system is another outstanding issue. Puerto rico has moved to privatize system components.
▶ 0:35:19In 2020, the luma consortium took over the electrical grid. Island wide blackouts, however, persist. In january 2023, the new fortress energy unit genera began to take over prepa power generation. The new york fed recently raised several concerns and noted some bright spots regarding puerto rico's economy and competitiveness.
▶ 0:35:40The unemployment rate has fallen since the 2007 2008 great recession, although the labor participation rate remains below mainland levels. Gross national product, which had been falling from 2007 until 2021, has grown in the last few years. Other economic forecasters have been cautiously optimistic. Tax incentives remain central to puerto rico's economic strategy. Changes in tax laws could affect the island's hold on major employers.
▶ 0:36:10Some incentives aimed at attracting high net worth individuals to puerto rico may raise issues with federal tax compliance. Puerto rico's 2026 budget includes some contingencies to address changes in federal medicaid funding. Medicaid funding matters to puerto rico because 40% of the population is below the poverty line. Changes in the recent reconciliation measure could have fiscal effects as well. From promesa commissioned a report on how the federal government could aid puerto rico's economic growth.
▶ 0:36:38One suggestion was to strengthen coverage of puerto rico and federal statistics, and preserving the funding and independence of the puerto rico institute of statistics. Congress could consider whether revisiting federal restrictions on water transportation could encourage competition and lower costs. Thank you for the opportunity to testify today. I look forward to any questions you may have. >> thank you very much, doctor austin, for your testimony.
▶ 0:37:05The chair now recognizes michelle sager for five minutes, miss sager. >> good morning. Chairman. Ranking member. Fernandez. Ranking member. Huffman. Members of the committee and subcommittee, thank you for this opportunity to discuss jay's body of work on the commonwealth of puerto rico, the public debt, and the economic outlook. My remarks today focus on the overall message that, number one, puerto rico's fiscal conditions show improvement.
▶ 0:37:33Number two, there needs to be continued focus on financial management fundamentals. And number three, the road ahead includes management of fiscal, economic and other risks. My written statement submitted for the record provides additional details from jay's work regarding the factors contributing to puerto rico's debt, recent changes in the territory's fiscal and economic conditions, and the risks that continue to exist. First, it is important to acknowledge that puerto rico's fiscal conditions have improved.
▶ 0:38:03Since 2016, puerto rico has restructured most of its debt. The most recent government wide audited financial statements from fiscal year 2022 show a total net surplus of $1.9 billion, a reversal from prior years, which predominantly had net deficits.
▶ 0:38:23While most recent audited financial statements are not yet available, puerto rico officials reported to us that the government has not issued any tax supported debt unrelated to restructuring since 2022. Additionally, in 2024, fomby cited the territory's progress in aligning revenues and expenditures and stabilizing its finances.
▶ 0:38:47Second, continued focus on financial management fundamentals is critical to maintain momentum in puerto rico. Actions needed for the road ahead include, as we just heard, consecutive balanced budgets, balanced budgets are required as a statutory condition in promesa. Balanced budgets lay a foundation for revenues and expenditures that avoid deficits that then contribute to debt.
▶ 0:39:14Agreement on a balanced budget to begin fiscal year 2026 is an important development. In addition, budgets are now evaluated throughout the year to ensure that sufficient funding is available to cover expenses. The government also adopted a debt management policy in 2022 to help guard against unsustainable borrowing. The second action that is continues to be needed is sound financial management.
▶ 0:39:42The government of puerto rico and omb have worked to strengthen financial management. Puerto rico began implementing an enterprise resource planning system in 2022. The system is intended to streamline essential data reporting systems such as financial accounts and payroll. There have been delays.
▶ 0:40:02Puerto rico's auditors reported that they expect full implementation of the system will resolve a significant portion of the financial reporting and internal control issues. The government also continues to experience financial statement delays and issues, obtaining clean audit opinions. Financial statements for 2023 and 2024 were not yet available as of june 30th, 2025.
▶ 0:40:31Several departments also have recurring audit findings related to financial reporting and federal awards. Third, and finally, while puerto rico's fiscal conditions have improved, the territory continues to face long standing fiscal and economic risks. In addition to financial management issues, these risks include, as we just heard, access to reliable and affordable electricity, pension and other post-employment benefit liabilities.
▶ 0:41:02Increasingly powerful storms and population changes that affect revenue and economic activity. Policy decisions to manage these risks need to occur in tandem with actions to support fiscal stability and economic growth. Among the decisions that previously led to deficits were insufficiently addressing public pension funding and inadequately managing the electric utilities financial condition.
▶ 0:41:28These areas remain works in progress, and continued attention is needed to bolster efforts to address underfunded pension liabilities and a power grid that is unreliable and costly.
▶ 0:41:41Puerto rico's improved fiscal conditions are encouraging continued focus on the fundamentals of sound financial management is critical to move forward on the road toward fiscal sustainability and economic growth, chairman hurd, ranking member fernandez and members of the committee. This concludes my prepared statement. I look forward to any questions that you may have. Thank you. >> thank you very much, miss sager.
▶ 0:42:09The chair will now recognize members for five minutes of questions, and I will begin by recognizing myself for five minutes. And, Mr. mojica, if I could ask you the first question, could you help us understand how should we define success for promesa at this stage? Is it simply meeting the statutory benchmarks, or is there a broader standard that congress should consider before oversight ends? >> the statutory benchmarks are important, but it's what's underneath the statutory benchmark.
▶ 0:42:39So what would not be success is to merely solve the restructurings, because what you're doing then is we're only be creating moral hazard. You take away what occurred because of the financial mismanagement without the permanent reforms. So you need that's why I say half the work is done putting in permanent reforms that survive past the board is what would is what would be successful for the board so that this never happens again.
▶ 0:43:07To cut it off early would mean that you would just go back to what happened before and you would enable that. >> thank you very much. Uh, doctor austin, uh, in the lead up to your testimony or in your testimony, you you noted that the island's fiscal posture is now significantly better than it was prior to promesa. From cr's perspective, what are the next steps puerto rico's government and the omb need to take to fulfill fulfill promises mandate?
▶ 0:43:39>> I think what, uh, Mr. monico said makes a lot of sense. I think it's something where trying to align the revenues that are available with the spending and the needs of the population. Um, so it seems like, you know, there have been conflicts, but I think that there has been progress on that. Um, you know, I would say it's tough being an island. And I think it that's, uh, unavoidable.
▶ 0:44:03Uh, but, um, yeah, I think strengthening the, the financial controls, uh, getting I think, as Mr. manyika said, having some, um, systems that are permanent, uh, and persistent, I think that would be helpful. Uh, and obviously the big, uh, the big obstacle at the moment is the restructuring of the, the prepa debt.
▶ 0:44:27>> um, doctor austin, how does puerto rico's post promesa path compare to other historical fiscal restructuring efforts, either in us municipalities or in other sovereign states? Are there any lessons or or things that congress should keep in mind in light of those historical examples? >> um, so I think puerto rico's restructuring is bigger than, say, detroit. Um, I think that detroit has had, uh, somewhat of a renaissance. I think it's not back to where it was in the 60s.
▶ 0:44:55Uh, but I think that there has considerable bounce back since it declared bankruptcy in 2013. Uh, and I think that there was, uh, very innovative debt restructuring. Uh, there's a judge involved in michigan who knew all the players and was able to come to an agreement that I think was painful on lots of different sides, but I think was very useful in moving detroit forward.
▶ 0:45:18Um, there are other cases in california, san bernardino, and I don't know the details of that, but, uh, there have been a few very large municipal bankruptcies, and I think that those places are better off after the restructuring. >> thank you, doctor austin. Um, miss sager, tell us about the current status of puerto rico's financial reporting. How are delays in completing audits and implementing enterprise resource planning impacting transparency and investor confidence? >> thank you for that question.
▶ 0:45:49It's definitely a work in progress and there are steps in the right direction. But that momentum needs to continue. Once that is fully in place, that will automate many existing existing systems. And as that happens, that also further reinforces accountability as manual paper based processes become automated, that further reinforces accountability.
▶ 0:46:10And it really gets at the bottom line of being able to follow the money, knowing what expenditures are going out, what revenues are coming in, and not just at the beginning and end of the fiscal year, but at each stage along the way, such that you can make adjustments as needed depending on conditions that may shift, including federal funding, which puerto rico is not fortunate that puerto rico has experienced recent disasters, but that has meant they have been able to benefit from an infusion of federal funds. >> thank you. Mr. Mr.
▶ 0:46:39Back to you. Can you talk a little bit about prepa and what does the failure to resolve this piece of the of the puzzle mean for electric reliability in puerto rico? Can you talk about that. >> yeah. >> the board thinks it's extraordinarily important to resolve the prepa bankruptcy, because eventually prepa will be able to get back into the capital markets, and you have contractors that may not want to contract with the party that's still in bankruptcy.
▶ 0:47:08So it is important to get out of bankruptcy. But it's but not at any cost. And that is the concern of the board because you can't get out right now. We have agreements with 44% of the bondholders, but the non-consenting bondholders are preventing us from exiting the bankruptcy. Uh, the board has taken an extraordinary step by saying, you know, we will identify $2.6 billion for the creditors. Uh, that's how much we think is affordable. Um, but to stay in wood, it does prevent making progress.
▶ 0:47:36And we are working very hard to get out of the bankruptcy. But again, it cannot be, uh, at any cost. >> thank you, Mr. mujica. My time has expired at this time. I would like to recognize the gentleman from new york, miss velasquez, for five minutes, miss velazquez. >> thank you, Mr. chairman.
▶ 0:47:52Uh, doctor austin, do you recognize that almost eight years after the hurricanes, puerto rico's grid remains fragile, with chronic outages driven by a weak infrastructure and vegetation problems? >> well, I'd also add that there were earthquakes in 2022. Uh, so the earthquakes affected the power generation plants on the southwest coast.
▶ 0:48:20Um, and I think with the hurricanes, you know, when I've talked to my colleagues who are experts in the technical matters, you know, my impression is that the reconstruction of the grid after the hurricanes was more of a of a patching up rather than a full reconstruction.
▶ 0:48:40And so I think that the system is still very delicate, and I think that there are just, um, inherent difficulties because the south side is more protected. And that's where the power generation is. The power demand is more on the north side. >> thank thank you. Uh, would you agree that bondholders led by goldentree are counting on repayment from a system that is barely functional? >> um. >> yes or no?
▶ 0:49:11>> I think it's not a it's not functioning very well. It's expensive. There are lots of blackouts. There's deep unhappiness about prepa. >> thank you. Let me show you what that actually looks like. This is the system and the customers, they want to exploit. You see, this is the business model of vulture funds.
▶ 0:49:35Once again, they took advantage of a distressed government to buy cheap debt. And now they demand the maximum payment. This isn't longer. The story of prepa's bankruptcy. It is the story of goldentree versus the people of puerto rico. Thank you, doctor rothstein. Uh, Mr.
▶ 0:49:59Mojica goldentree owns $1.3 billion in prepa bonds to recover their investment. How much do you think? Do they think prepa should pay all bondholders.
▶ 0:50:18>> what they have told the regulator, who is currently reviewing the rates in puerto rico, is that they are they would like the rates to be set high enough to be able to pay $12 billion, which includes $8.5 billion plus pre and post petition interest. >> they say they can get it from prepa's net revenues, but they are zero. Correct. >> we believe it's net. There are zero revenues once you maintain the system.
▶ 0:50:46So what they're actually advocating is for rates to go up in order to pay back the debt. >> so that means that the only way to create revenue and pay bondholders would be to raise energy rates for over 50 years. Isn't that correct? >> that's correct. >> okay. Then bondholders led by goldentree expect the people of puerto rico to pay higher electricity bills for decades just so they can keep profiting.
▶ 0:51:22>> the estimates are that they would have to raise the rates in order to pay them over 50 years. You would have to increase rates by approximately $0.08. >> thank you. And let me remind this committee that this is not the first time that goldentree imposes its predatory practices to hurt puerto ricans. Today, residents pay the highest sales tax when compared to the 50 states.
▶ 0:51:49Because of kofinas restructuring plan, from which goldentree made $437 million in profit. Their claims against prepa will make life even more dire in a jurisdiction where over 40% of the people live in poverty. Mr.
▶ 0:52:11Mojica, can you confirm the operational expenses of prepa cover things like fuel purchases, energy contracts and salaries? >> yeah, all of those things are in the total amount that is in that is in the rates. >> okay. So can you also confirm that recovery funding generally covers permanent rebuilding and modernization of the grid and its generation facilities. >> within the.
▶ 0:52:40She would also have to cover both repairs, maintenance operations of the system as well as fuel costs and as well as the other capital investments. >> so then why do you think Mr. fitzgerald is implying in his letter to the board that over $15 billion in general funding will help free up prepa's money to pay bondholders? >> I think the letter talks about $15 billion in federal funds that are available and that have not been spent yet.
▶ 0:53:09Those need to get invested in the grid, but our estimates are based on what the operators tell us is that the grid will need significantly more than the $15 billion that is left in federal funds in order to fix the system. >> well. >> gentlewoman's time has expired. Thank you very much. >> I yield back. Thank you, Mr. chairman. >> thank you. At this time, the chair recognizes the gentleman from oregon, miss hoyle, for five minutes, miss hoyle. >> thank you.
▶ 0:53:36Um, and thank you to the witnesses for being here today. Uh, puerto rico continues to face a series of devastating crises. And our response must focus on helping puerto rico, puerto ricans recover and thrive. We need to listen to and support the people of puerto rico, their needs, their goals, and their vision for the future. And that starts with ensuring that we're delivering results and not just talking about change.
▶ 0:54:02And I think there's real value in the work that the board has done to advance common sense reforms, from improving contracting processes to reducing the debt burden on puerto rican families. But one issue remains especially urgent, and that is the energy crisis.
▶ 0:54:23So even with ongoing efforts, puerto rico's electric grid is still unreliable, that everybody has acknowledged and access to consistent, affordable energy remains out of reach for too many people. Um, Mr. mojica, I, I was alarmed to learn, um, that new fortress energy company is withholding much needed liquefied natural liquefied natural gas shipment from puerto rico.
▶ 0:54:51Um, and in fact, uh, wasn't it the ceo said that they were just going to turn their ship around. That was headed for puerto rico. Can you explain what what your understanding is, what's driving that decision and the consequences that could happen for the residents and businesses on the island? >> uh. Thank you, congresswoman. The as I understand, we received the contract. It was a long term contract, uh, for fuel supply.
▶ 0:55:22Uh, we as our due diligence on the board, we wanted to review the contract. There is significant disparities between the contract and what the rfp said. And then part of our review process is to make sure that there is market competition in contracts. And it's consistent with the fiscal plan. In our review, we asked for more time. Uh, they wouldn't give us more time to do the review. Uh, there was two contracts. I'll make this very quick. There were two contracts under review.
▶ 0:55:49One expired, and then there was another contract that doesn't expire until next year, when we interviewed people who negotiated the contract, what they said to us was the reason we sent you that contract. And the contract was negotiated under the threat of, uh, that the fuel would not be delivered for, uh, the units where there is currently a contract that is active.
▶ 0:56:14If that is true, that fuel was going to be cut off as part of the negotiation. And then what we know as a fact is the fuel delivery. Then actually, when the contract wasn't approved, the fuel delivery actually was not delivered, in fact.
▶ 0:56:31So if the facts as reported to us are true, that would be a despicable act against the people of puerto rico to deny them the fuel that they would be needed in order to negotiate and push the terms of the contract. >> and Mr. mojica, can you, um, just address some of the more egregious provisions that were in that contract that they were trying to force the board to agree to? >> we're still reviewing the contract, and we haven't reached an opinion as to as to the contract itself.
▶ 0:57:00What we have said, however, is the contract gives exclusivity where there also where there already is exclusivity over the san juan port. This contract gives broader exclusivity. Uh, the contract is a take or pay. With regard to specific volumes. We need to understand of those volumes achievable because it may include new generation assets that are still not constructed.
▶ 0:57:25So we don't want to put puerto rico in a position where you're paying for fuel that you may not need because of delays. And puerto rico has not been successful in delivering projects on time. So it's the market competition aspect. It's the and it's also the aspect of what the volumes are.
▶ 0:57:41>> and then going back, uh, follow follow up question going back to what miss, uh, velasquez was talking about, golden tree is refusing to negotiate on the debt that's owed or interest or anything else.
▶ 0:57:58Do they have any interest, any skin in the in the game for the people of puerto rico, or how puerto ricans benefit at all whatsoever, or they're just people that buy debt for pennies on the dollar? >> yeah, I can't speak to the motivation of golden tree. I can tell you we are in mediation. We are in court ordered mediation. We are actively working in good faith.
▶ 0:58:23What we know is what the nonconsenting bondholders have filed with the regulator to what they expect the regulator to put into the rate is to pay the full 12 billion. Uh, we hope that mediation is confidential and we hope that we can get to a deal again. We have an agreement with 44% of bondholders, and we've reached agreements in 12 other times with 12 other entities with consensual agreements. So the board has actively negotiated settlements.
▶ 0:58:51In this instance, the gap is too far apart and it's unaffordable for the people of puerto rico. >> okay. Thank you. Yield back. >> the gentleman yields. The chair now recognizes the chairman of the house committee on natural resources, the gentleman from arkansas, Mr. westerman, for five minutes. Mr. westerman. >> thank you, chairman, and thank you to the witnesses for being here today. You know, I was already here in congress when we passed promesa, and it seemed like it's been a long time. I know there's been some progress made, but we've still got a lot of progress to make.
▶ 0:59:22And, um, Mr. mojica, the biggest unresolved amount of debt that is left to restructure is more than the 9 billion from prepa. Uh, as recently as march of this year, the fifth plan of adjustment was submitted, but is already facing resistance. Now, just pointedly does fomby think that the current strategy with prepa restructuring will realistically result in the restructuring and resolution of the debt? >> yes, I think it could get resolved one way or the other.
▶ 0:59:52It'll either get resolved by through a court order, or it'll get resolved by us reaching an agreement with with the parties. Uh, so we are pursuing and trying to do that as, as soon as possible, but yes, it will be resolved. >> so how do you intend to ensure that it is truly implemented? Is that through the court or. >> we're in mediation right now and we're trying in mediation. We're constantly we've had mediation sessions. We're talking to the parties. We're trying to explain to them what's going on with the system.
▶ 1:00:20But I think it's really important to know the system is deteriorating faster than it can be repaired right now. In the last year, puerto rico has experienced three island wide outages that really weren't related to storms. They're related to a system that is failing. And that's the concern as and the monies that are collected through the rates in first need to go into the system to make sure the system is operable. And then we need to make, uh, the payments to the debtors.
▶ 1:00:47We don't believe there's net revenues there. And again, we've hoped that we can get more creditors to agree with us. Right now, we're at 44% of creditors who have agreed with us. >> and you don't think this plan of adjustment is just a reshuffling of prepa's financial, um, liabilities, but it actually includes some operational reform. >> yes. We have reformed the system. We've privatized the system. We have private operators. We think they have the right incentives.
▶ 1:01:16They have struggled and we need to hold them accountable. But it's more than just eliminating the debt. And I think that's part of the concern. We want to make sure that there are permanent reforms in place, not just taking away their debt and then going back to practices. That's why it's important to stay with the course. With regard to the private operators operating the system. >> understand some of the legacy generating systems are open and operating now, which is helping out to some extent.
▶ 1:01:42But with the amount of money that's been sent to puerto rico for their energy generation and grid, it seems like, uh, uh, we've got some challenges ahead. I know that governor jenniffer gonzalez-colon, who used to sit on this committee, recently signed the first board certified balanced budget.
▶ 1:02:03What steps is the financial oversight management board taking to support the governor's efforts to meet prometheus requirements and eventually wind down the board's operational responsibility? >> chairman, we are working very closely with the governor, and I think, you know, for the first time, the board issued a joint press release with the government announcing a budget that was submitted that was balanced. Uh, and then we've passed.
▶ 1:02:29It still needs to be seen whether it is balanced at the end of the year. But unless something dramatic happens, right, that's the that's the path that we that we are on. We're working with the governor on many other reforms. Uh, for the first time, you'll see she's issued executive orders where she talks about working with the board. Uh, as we move forward. We're also working with her on the energy on the energy crisis. It is clear, uh, you know, there have been recent events that have been very dramatic, and we are working with her on that.
▶ 1:02:58And I think it's important to understand the generation assets in puerto rico are over 50 years old. They really need to be almost entirely replaced. And that's the reality of the system. Uh, and the, the, the fema dollars, the federal dollars will repair some of the system, but it is the result of 40 years of lack of investment and neglect. >> right.
▶ 1:03:20And, you know, getting the lng import terminals going strong and the gas turbines and all the all the other systems, which is, you know, really I don't really want to get into all the details of that, but we know that, um, promesa requires for balanced budgets and um.
▶ 1:03:38How does how does the omb view the fulfillment of those criteria and how how are you working to make sure that, um, these criteria are met? >> so the statute actually says the board shall not, uh, exit before there are for four consecutive balance, four consecutive balance budgets under modified accrual. The modified accrual standard is very important.
▶ 1:04:07Uh, and it's not just a checklist for the government to just wait us out, don't do the governmental reforms. Uh, and just see if the board can do balanced budgets. We need the government to actually do balanced budgets. That means the governor submitting a balanced budget. That means the legislature passing a balanced budget, and that means staying within balance for the entire year. That being said, this year we've made progress. Uh, and we want to make progress over the next four years to achieve that.
▶ 1:04:34The statute also refers to market access under reasonable rates in order to fund puerto rico's capital needs. That means you need a capital plan to know what your needs are. Puerto rico doesn't do long term financial planning. They don't have an accounting system that works. They don't have capital planning. So we are working with them to do these things. The governor has shown a commitment to do those things.
▶ 1:04:57We need to hold them accountable and make sure that we make progress, because it would not be a good result to just tick off the time and then say, well, we're done and the board is gone, then all you would have done is eliminated the debt, which resulted in a lot of people losing a lot of wealth and not doing what's necessary so that the bankruptcy in puerto rico never happens again. >> and Mr. chairman, thank you for letting.
▶ 1:05:27Letting the witness finish his statement. I would have asked Mr. austin to chime in about the factors contributing to the prolonged delay, but I'm obviously out of time. Hopefully he'll cover that at some point and I'll yield back. >> the gentleman's time has expired. At this time, the chair recognizes the resident commissioner from the commonwealth of puerto rico, Mr. hernandez, for five minutes. Mr. hernandez. >> thank you, Mr. chairman. This hearing feels like a celebration of promesa, and I would like my colleagues not to lose sight of the fact that promesa is a tragedy.
▶ 1:05:56It is a tragedy for puerto rico. It is a tragedy for the united states and for the values that this nation is supposed to stand for. For a quarter of my life, my vote and puerto rico's self-government has been shackled by promesa, has been shackled by la junta. We have an oversight board, a body of unelected officials, overriding decisions of puerto rico's elected leaders. I think most puerto ricans have two concerns when it comes to la junta.
▶ 1:06:23Number one, that its decisions regarding puerto rico's bankruptcy don't increase the cost of living. And as it relates to the prepa's litigation, I think my colleagues have done a great job of summarizing those concerns. The second concern is the board's longevity. So this longevity is a failure of public policy with many culprits. Congress is responsible for not exercising sufficient oversight.
▶ 1:06:53Puerto rican politicians across all parties, including my own, are responsible for chronic fiscal irresponsibility. And the board, well, the board has imposed austerity, raised the cost of living, dragged out prepa's bankruptcy, and it has enriched consultants who have no incentive for the board to cease its functions. Mr. mujica, congress promised the board would cost under $400 million in ten years. Can you tell me how much the board has actually spent during this period?
▶ 1:07:27>> the restructuring overall has cost over, and I think just the cbo estimate actually said that it would be done in the first two years, and then it would end after four consecutive years. So the reality is that it has taken much longer and it's taken much longer, partially because the government resisted the reforms. You had hurricane maria, you had the hurricanes.
▶ 1:07:49You had, I mean, sorry, you had hurricane maria, you had earthquakes, you had covid, all of these things intervening and the government actively resisting. >> I'm sorry to interrupt because we have limited time. Yeah. What's the amount? >> the total amount is about 1.4 billion is the cost of the restructuring. >> but we've heard about consultants costing over $2 billion. >> the restructuring has cost about one four.
▶ 1:08:11Now that's not all consultant costs that it would also include the numbers, the cost of the actual board itself, the board staff. But let's be clear. >> it's more than five times what congress estimated this would cost. You understand that this is creating a lot of distrust in puerto rico, because it appears that, especially when it comes to the excessive spending on consultants, the board is imposing austerity on the people of puerto rico. But then when it comes to its own expenses, it's not setting an example. >> yeah. Let's be clear.
▶ 1:08:39The board has saved the people of puerto rico over $60 billion, $60 billion that the elected officials of puerto rico incurred 16 consecutive years of unbalanced budgets, 16 consecutive years of borrowing money, and that that resulted in the reductions and the things that had to be done. Those things were done because of promesa, because. >> you are imposing austerity on many agencies, on many people and not exercising it yourself.
▶ 1:09:07Section 209 sets clear conditions for the board's departure. We've spoken a lot about that today. Puerto rico hasn't had one balanced budget since the board arrived in 2016. I understand we just approved one, but we have to wait and see if it actually stays within budget by the end of the year. Who decides if the budgets meet the required accounting standards? Is it the board? >> we will look at the audited financial statements. The last audited financial statements that we have are from 2022. Hacienda, the government. The government, the government pays for it. The government does it through kpmg.
▶ 1:09:37And that last report says that the 22 budget was not balanced under modified accrual. >> okay. So nine years zero balanced budgets. That is a big failure. Who is responsible for this? Is it the board's fault or is it the government's fault? >> it's the government's. It's the government's fault. The tools and the mechanisms for the board to leave are within the hands of the government.
▶ 1:10:00>> I think you are both to blame, but I agree the government hasn't delivered responsible budgets and the board, well, I feel that the board hasn't provided the leadership that we need. It's been almost a decade. Can you provide a roadmap for the board's departure? The people are asking, cuando se va la junta? >> yeah. >> and I think this budget is a really good start. And the governor has showed a commitment to do that. And we are working very hard with it.
▶ 1:10:28We are working with the office of management, the office of budget within puerto rico to build the capacity to do the knowledge transfer. >> can you provide an estimate of time, how many. >> you would have. >> for. >> the next four consecutive? The next four years could lead to four consecutive balanced budgets, and within that time we should be able to do those reforms. But we need to hold the government accountable to making sure that those reforms actually happen. And then I can report back in four years that we've that we've met those terms. >> and I agree with you.
▶ 1:10:55We need to and I wish the government were present in this hearing so that not just this government, the previous governments, all from the same party, have failed. The people of puerto. Rico expired, ending the oversight board's tenure in the island. Thank you, Mr. chairman. >> the gentleman's time has expired at this time. The chair would like to recognize the gentleman from the state of new york. Miss ocasio-cortez for five minutes. Miss ocasio-cortez, welcome back to natural resources. >> thank you so much, Mr. chairman.
▶ 1:11:25It's nice to and to the full committee chairman as well. Um, it's wonderful to be back. Um, you know, we're here today to discuss promesa, la junta and federal oversight management board, uh, which for years has imposed devastating budget cuts to healthcare, pensions and education in puerto rico. Um, but, you know, one of the things that we're seeing here and that we're hearing on both sides of this aisle of the aisle, is the idea of winding down promesas operations, ending promesa.
▶ 1:11:55There's a right way to do this that does right by people, and there's a wrong way to do this that devastates working people. Um, for years we talked about winding down and ending promesa, and there was resistance to it. And now all of a sudden, we're talking about a change in tune. Um, however, I have some questions. Mr. mojica, you are the executive director of omb.
▶ 1:12:24Um, commonly known to puerto ricans as la junta. Is it true that over the past ten years, your organization has restructured nearly all of puerto rico's debt. >> nearly all with the exception of prepa? Yes. >> and with prepa, um, that is the only significant remaining debt, according to your organization, how much debt should prepa pay to its current bondholders? >> what our our plan has it at $2.6 billion.
▶ 1:12:56>> $2.6 billion. And I understand that some of the bondholders disagree with this number demanding to be paid $12 billion. Correct. >> I just want to clarify $2.6 billion for. >> all creditors, which includes some for the for the bondholders. But yes, they're asking for 12 billion. >> thank you. So we are talking about this differential. The oversight management board independently has determined that that number is 2.6. The bondholders are asking for 12. Now, Mr.
▶ 1:13:26Mojica, I see here that one of the main wall street firms fighting for that 12 billion is goldentree asset management. Correct. Which has come up throughout this hearing. >> yes, that is correct. >> now I seek unanimous consent to enter into the record filing showing that one year after bankruptcy, goldentree first announced its investment in prepa. >> without objection.
▶ 1:13:51>> now, four and a half years after prepa went bankrupt, goldentree tripled its investment in prepa bonds, reaching $1 billion. That's after the bankruptcy. That is the definition of a vulture fund. This is an exploitation, a loophole, an unfair practice.
▶ 1:14:16And now these folks who knew that that debt was not viable, buying in after bankruptcy, are now demanding to be paid out $12 billion attempting to wind down promesas operations early so that they can be paid out at that 12 billion instead of the independently determined and negotiated 2.6 billion. And this is not a partizan thing. I'm sure Mr. mujica can testify himself.
▶ 1:14:43He and I scrap about things all the time when it comes to services delivered to the island. Um, and I've, you know, some would even argue that that 2.6 billion number is too high, but $12 billion is massive. It is one third of puerto rico's entire annual budget. It is ten times the size of puerto rico's university system. Mr.
▶ 1:15:09Mojica, if these vulture funds, like goldentree, get their way, you have calculated that that would lead to a 34% increase in electric rates or dramatic cuts to public services like healthcare or education to people on the island. Is that correct? >> the increase in the rates would be over 30% because that is the that is the eight cent increase that would be required to fund that.
▶ 1:15:35>> I am asking for my colleagues to really sit with the devastating consequences of what that means. Puerto rico, you know, detroit was brought up earlier. One of the reasons that this restructuring is different from detroit is because puerto rico is a colony of the united states, and detroit is not. Puerto rico has voting does not have a vote.
▶ 1:16:01Um, we have representation with the resident commissioner. We do not have a vote in the house. They do not have votes in the senate. Every single puerto rican elected official in serving in the united states house of representatives, sitting here right now, is telling you that this is going to decimate people. Kids are not able to go to the doctor as it is.
▶ 1:16:31People are hardly able to pay their electrical bills, which are already some of the highest in the country. They they aren't able to keep their medicines refrigerated, winding down promesas operations early and de facto bringing that to it would be the governor then, who would have the power to decide how much these vulture funds receive? Is that correct? Um, Mr. mujica.
▶ 1:17:01>> the gentleman's time has expired. Uh, at this time, the chair would like to recognize the gentleman from new york, Mr. torres, for five minutes. Mr. new york, Mr. torres. >> uh, I just gave you a new title there, congressman. That's the understanding observer said about me. I appreciate that. Thank you. Uh, and I want to associate myself entirely with my with the comments from both of my colleagues from new york.
▶ 1:17:27Uh, it seems to me there's a concerted campaign to prematurely abolish the financial oversight management board in order to set the stage for a back room deal that sells out the people of puerto rico to the interest of the most predatory bondholders, the board. Me, I'm a critic of the board, but the board may be the one institution that's protecting the people of puerto rico from a highway robbery of the island's electric grid. And so I have two messages from my congressional colleagues.
▶ 1:17:55First, congress should not prematurely abolish the board into a fair debt. Restructuring is complete. And second, congress should not pressure the board to finalize a debt restructuring that jeopardizes grid reliability and energy affordability, the protection of ratepayers and the grid itself must be the non-negotiable principle that governs any debt restructuring.
▶ 1:18:21Both the board and congress have an obligation to prioritize the existential energy needs of puerto rico, above the narrow interest of a few bondholders. Every dollar spent on lining the pockets of predatory bondholders is a dollar not spent on maintaining and modernizing puerto rico's electric grid. And so, Mr.
▶ 1:18:42Mojica, my question is, which bondholder has emerged as the single greatest stumbling block to a restructuring that is fair to the people of puerto rico. >> there is a group of non-consenting bondholders. >> who's the worst among them. >> the lead of the group, goldentree, I believe, is what is leading. >> how much is goldentree demanding? Excuse me, how much is golden tree demanding? >> how much are they demand? Yes. The non-consenting bondholders as a group are demanding 8.5 billion pre and post petition interest.
▶ 1:19:11So 12 billion. >> and is it fair to say that the bondholders led by goldentree, is demanding a recovery that is five times larger than the recovery accepted by the consenting bondholders, including blackrock? Is that accurate? >> that's correct. >> now, puerto rico's greatest failing catastrophically. It needs every dollar it can possibly get. There are no net revenues.
▶ 1:19:35The notion of robbing a failing grid of desperately needed dollars in order to placate essentially one implacable bondholder, would represent the most profound betrayal of the people of puerto rico that one could imagine. And if puerto rico were a state, it would be the lowest income state in the country.
▶ 1:19:54And so the tragic story of puerto rico is one in which the lowest income ratepayers are paying among the highest electricity bills for the worst performing electric grid in the continent, resulting in a perfect storm of energy poverty. The ratepayers of puerto rico pay $0.26 per kilowatt hour, compared to a national average of 17, which is to say puerto rico pays 53% more than the rest of the country.
▶ 1:20:24For an electric grid that is failing catastrophically. And so a $12 billion recovery would be golden for golden tree, but it would not be so golden for the people of puerto rico. And if the board or the government of puerto rico were to give in to the extortionate demands of golden tree, how much more would the people of puerto rico pay in electricity rates? >> they would pay an additional $0.08 to fund the $12 billion. >> and that would include.
▶ 1:20:49And in addition, there would be 2.5 cents to cover underfunded pensions. Right? >> that's correct. >> so it's a total increase of 10.5 cents, $0.36 per kilowatt hour. At $0.26, puerto rico has the fifth highest electricity rates in the country compared to states, but at $0.36, it would have the highest electricity rates in the country, second only to hawaii. Is that accurate? >> yes.
▶ 1:21:16>> for me, this hearing is as important as any hearing we could hold in the united states congress. Like the stakes for puerto rico are existential. What is at stake is nothing less than the survival of the island itself. There may be nothing more foundational to an economy or a society than affordable and reliable electricity in puerto rico. For all its resilience, cannot long survive the absence of reliably functioning electric grid.
▶ 1:21:45And so any deal that existentially threatens the reliability and affordability of puerto rico's electricity should be seen as a nonstarter. That is rejected emphatically. That should be the universal position of every member of congress. And I'll leave you with the last word. >> thank you, congressman. And I just want to point out the board is not in a position. We don't pick winners and losers. We are blind to who is holding the debt. We are looking at what is in the best interest of the people of puerto rico. Is it viable for prepa?
▶ 1:22:15And that is where we determine the $2.6 billion. And as you pointed out, there are major creditors and bondholders who have accepted that deal. Recognizing the what the government accepted. >> so can golden tree. >> so thank you. >> the gentleman's time has expired. Thank you, Mr. torres. At this time, the chair recognizes the ranking member from the state of new mexico, miss leger fernandez, for five minutes. Miss leger fernandez. >> thank you very much. And I think what the questions and the answers provided by our witnesses.
▶ 1:22:43So to demonstrate is that the bond holders that are holding black back, golden tree understood at the time that they purchased these bonds, the exact condition of the electric grid. I'm taking that the electric didn't all of a sudden after they bought those bonds deteriorate. It was in a position of deterioration when they bought it.
▶ 1:23:11Is that correct, Mr. mujica? >> prepa was already a distressed asset. Yes. >> it was a distressed asset. And what did they pay? Did they pay basically cents on the dollar for the bonds that they purchased. >> we actually don't have the information of exactly what, how much they paid. We know that they bought it when it was already a distressed asset. But I actually don't know what the what the. >> we don't know.
▶ 1:23:36>> but but the sense is that they paid cents on the dollar and now they want to get recoup a profit. That is basically sucking blood out of a turnip. I don't know what the right word would be or what the white, white, white fruit would be in puerto rico. But clearly the puerto rican people and the possibility of economic development and opportunity in puerto rico is limited.
▶ 1:24:01If, uh, we'd go along the path and, and, and comply with their demands, which is what I understand you're saying is why the board cannot accept it, because you have an obligation to look out for what is fair for the island, the ratepayers, which includes the families, the working families, but also the possibility of economic growth and opportunity for puerto rico. Is that correct? >> yeah, that is correct.
▶ 1:24:29Look, the rates impact economic development. They impact families, but they also impact the future of puerto rico. And what bringing new businesses on the island, they want reliability and they want affordability. The rates are already high. And as the congressman pointed out, is also some of the least reliable service.
▶ 1:24:49So we need to make sure that there is a road for prepa to recover and build itself back, to have reliable service that serves people within a framework that the rates are not so high that they're unaffordable, and people will flee the system. If the rates are so high, businesses won't want to locate there, and people will leave and go to solar and go to other things that are going to be cheaper, and that will create a spiral in the system. And that is what we're trying to prevent against.
▶ 1:25:18>> and there is going to be a need for resiliency and the need to build in resiliency. And we do not want to limit the purpose of ability to actually build it in. So there is actually diversity in the system. And I think that that's the thing is when you hamstrung, when you create these conditions that do not allow prepa to respond to the conditions, to respond to new technologies, to respond to the need to improve, you are, in essence, sort of hamstringing puerto rico's future.
▶ 1:25:47Is that correct? >> yeah. The more of the rate that you fix permanently for things that are not to improve the system, the more you limit the ability to do to invest in reliability and invest in the things that are going to improve the system. >> uh, and I'm going to yield a minute of my time to representative velasquez, who wanted to follow up on a question, and then I'll I'll yield the remaining half a minute to, uh, I only have half a minute after that.
▶ 1:26:14And I was requested by our resident commissioner, miss sager. >> uh, based on your report, is it true that a stalled restructuring like prepa's can limit the ability of a territory to respond to emergencies like the storm that hit puerto rico every year?
▶ 1:26:35>> to the extent that the stalled restructuring limits the effectiveness of the utility and its ability to move forward and build in the resiliency that we were just talking about, then. Yes. >> then we can both agree that the bondholders stubbornness to settle is also contributing to puerto rico being less resilient in the face of future disasters and emergencies. That wasn't part of our. Yeah.
▶ 1:27:02Uh, is a logical inference that that we can, uh, make out of, uh, the current situation. You also found that the island's population decreased by 12% from 2010 to 2020, impacting puerto rico's capacity of repayment. Would this problem worsen if energy costs increase?
▶ 1:27:28>> if energy costs increase, then it does limit the territory's ability to attract new investment, as Mr. mujica was just talking about, both for residents as well as any business investors that may be interested in locating in puerto rico. >> thank you. >> the gentleman's time has expired at this time. The chair recognizes the gentleman from michigan, Mr. walberg, for five minutes. Mr. walberg. >> thank you, Mr. chairman. Thanks to the panel for being here.
▶ 1:27:53Uh, miss sager, what challenges, if any, does gao face in assessing the reliability of fiscal data and primary sources in puerto rico, given gaps in federal statistics and delays on local reporting?
▶ 1:28:10>> we, as you saw in gao's report issued in june 30th of this year and reported in this testimony, we rely on certified audited financial statements to the extent there are delays in those financial statements that limits the visibility into what is really happening within puerto rico. So to the extent those can be delivered more quickly, that will increase transparency and visibility into where the money is going in puerto rico. >> okay. Thank you.
▶ 1:28:39Um, has gao observed effective coordination between omb, puerto rico's government and federal agencies and also where, if any, uh, is there room for improvement. >> as part of our work? We do talk to omb. We talk to the government within puerto rico. We also talked to federal agency officials.
▶ 1:29:01And as is always the case, as we are doing that work, we look to corroborate the sources to make sure that we have the most factual information possible to provide to you as our clients. Uh, and as we are doing that, we also follow up with those agencies and provide them with our draft reports for comment to make sure that the facts that we are delivering are the facts that are accurate. >> so you do feel that there is effective coordination.
▶ 1:29:27>> we did not specifically assess the coordination for the course of this work, but we did work with each of those parties individually. And then, as we have talked about in this hearing, just as part of the process of delivering a balanced budget, the government and omb are working together, as you would hope for under the statutory requirements. >> okay.
▶ 1:29:49Um, from gao perspective, has the oversight board effectively used its authority to improve fiscal governance across puerto rico's public entities? >> the new accounting system that we have talked about reflects both the work of omb as well as the work of the government. And so that is forward momentum that is heading in the right direction.
▶ 1:30:11And that, of course, as we all talked about, needs to continue for the next four years in order for it to satisfy the statutory requirements. >> okay. Thank you. Um, Mr. mojica, um, how does the board balance the use of its authority to enforce fiscal discipline with the autonomy of elected officials, particularly as puerto rico prepares for a transition back to full local control? >> yeah.
▶ 1:30:41>> we take that very seriously. And we are we step in when there is an issue that directly relates the finances and the budget and fiscal responsibility. You know, promesa specifically said part of the mandate is to restore fiscal responsibility. So when there are cases where actions of the government are going to impact the immediate budget or the long term fiscal stability, that is where we step in and we take it very seriously and we deliberate it before we do it.
▶ 1:31:12Other than that, the government makes policy decisions and continues. One of the things that early gao report referenced as to one of the reasons that the bankruptcy happened was because of bad policy decisions of the government of puerto rico. And so we focus on those fiscal policy decisions that affect the budget, and we leave everything else to the government. >> okay. Thank you, Mr. chairman, I yield back.
▶ 1:31:41>> gentleman, yields at this time. The chair recognizes the gentleman from florida, Mr. soto, for five minutes. Mr. soto. >> thank you, Mr. chairman. I think we need to establish a context here. You know, for many years the island had a 936 exemption, which led to tremendous growth. Uh, last century, um, capping it off with a population of 4.3 million people living on the island and, uh, growing corporate sector and manufacturing sector.
▶ 1:32:11I know my own family was part of that. And when that exemption went away, that was when a lot of my family moved to central florida from puerto rico. And we see so many stories like that. We also know the island is a territory, and so we're constantly fighting for more funding, especially in health care and in, um, in food assistance and in economic development.
▶ 1:32:33And so we're constantly seeing, seeing the struggle that happened because of actions both on the island but also taken in washington. And now we have a the population of 3.2 million. And there's been long time economic challenges because a lot of these, uh, different issues that have happened. Uh, and so when promesa happened, that was an attack on puerto rico's sovereignty and something that, uh, continues to be a yoke on the island's ability to govern.
▶ 1:33:00And, and so there's four budgets that we have to have that need to be certified. Uh, the 2025 budget appeared to be certified. It looks like the 2026 budget was certified, uh, recently. And, uh, and so, Mr. mujica, where are we at? How many budgets are approved? Because after four, the promesa board is dissolved by virtue of the statute. So where are we at?
▶ 1:33:28How many budgets are approved and why? >> yeah. I just want to clarify under under the, under the statute, the board should not be dissolved before it's had four consecutive balanced budgets under modified accrual standards. Uh, we think the governor submitted a budget that was balanced. The legislature passed the budget that we certified. This budget is on its path to be balanced. I want to add one caveat to that. >> so we're at two. So if this next one continues through we'd be at. >> at I'm sorry.
▶ 1:33:55It would be at one if this one's if this one is certified we certified this budget last year. >> one we this bill was passed in 2016 many years ago. How come only one has been certified so far. >> so up until 22, the government was still in bankruptcy. You didn't exit the title three court before that. They weren't making payments for debt service, so they weren't paying actually all their obligations.
▶ 1:34:23The modified accrual standard is critical to the statute, and it's a standard that is higher than some other jurisdictions, but is one that's appropriate for jurisdictions that have gone bankrupt. New york city still lives under that standard today, and that that's a higher standard. So it makes it harder. So we're working with the government to resolve the accrual accrual standard issue. But we need to move modified accrual over the next four years. >> so will the 2025 budget be certified. >> the 2025.
▶ 1:34:51>> budget 2026 looks like it's going to be certified. Will the will the 2025 budget be certified? >> no. I think the 26th budget would be the first one. >> wow. Okay. Thank you. Uh, then, uh, we saw the one big ugly law just passed it. Uh, it takes a hatchet to medicaid and snap. How how does the, uh, medicaid program, which we fought for parity for and nap, get affected by this new law?
▶ 1:35:20>> much of the new changes to the medicaid law are not applicable to the puerto rico program. The puerto rico program is distinguished from the medicaid program. It's called medicaid. But there are many elements that are different. And the biggest one is that it's not a permanent program. So it ends in 2027. So while this bill may not dramatically impact the medicaid program for puerto rico, the medicaid program for puerto rico actually expires on september 30th of 27. So through.
▶ 1:35:48>> the context of these cuts that have already happened, we have to swim upstream to try to get medicaid parity still, which will be a big battle that I know will will hopefully be able to wage in a bipartisan fashion. Uh, Mr. austin, what can congress do to improve jobs and economic activity in puerto rico? >> um. I'd say a couple things to consider. >> I mean, so I mentioned, um, lifting some restrictions on water transportation could improve, uh, competition and perhaps lower costs.
▶ 1:36:17Uh, I think improving the statistical system. Uh, so puerto rico and other territories used to participate in the us census bureau's census of governments, uh, that provides clarity on a apples to apples basis. I think that could provide information going forward. Um. >> what about for manufacturing, which is one of the strongest sectors down there? >> well, that depends a lot on the tax incentives.
▶ 1:36:43And I think, well, let's say first, all around most of the world that manufacturing employment has been going down. And that's been true in the us. Um, and puerto rico had a larger sector of manufacturing. Uh, but that's also been declining over time. And so that's a very tough thing about how do you get improve that. I mean, so one thing would be workforce development. Um, you know, that would be one thing I'd mention. >> thanks.
▶ 1:37:12So my time has expired. >> gentleman's time has expired. At this time. The chair recognizes the gentleman from utah, Mr. kennedy, for five minutes. Mr. kennedy. >> thank you, Mr. chair. And I'm congratulatory of puerto rico and its ability to balance its budget as of last month. That's an impressive achievement that I wish the united states congress would actually join you in. And so my congratulations and myself and my colleagues are focused on trying to do the same thing. Mr. chair, I yield the remainder of my time to you for further questions. >> thank you very much. Mr. kennedy. Yields to me, uh, Mr.
▶ 1:37:44Mojica, a few weeks ago, governor jenniffer gonzalez-colon signed puerto rico's first balanced budget, certified by the financial oversight board since its creation under promesa nine years ago. As the board alluded to in both its certification and its media release, this was a responsible budget jointly developed between the governor and her administration, the legislative assembly, and the board that prioritizes essential services for our fellow americans in puerto rico.
▶ 1:38:09Can you briefly discuss the oversight board's working relationship with governor gonzalez-colon and her administration, including the processing of and collaboration that led to the signing of puerto rico's first certified balanced budget? >> yes, Mr. chairman, I just want to clarify the point.
▶ 1:38:29The certification was that the governor submitted a balanced budget to the legislature, that that budget was substantially also then certified by the board, as balanced as passed in order to make the determination. If it's balanced, we'd have to wait till the end of the fiscal year to make sure that it stays in balance. Understood that stipulation. We are collaborating very well with the governor.
▶ 1:38:52We have, uh, we're the development of this budget, uh, is a new era in collaboration between the oversight board, uh, who's been doing a lot of work internally and then doing the budgets. We need to transfer that knowledge and transfer that work into the government, because you can't flip the switch one day, and then the government's now in charge of all of that.
▶ 1:39:14So the what we've committed to and the governor has committed to this to is working on building the capacity internally. We're working together with the government. Our teams, meet with them, discuss with them every single day. In the beginning of promesa, there was constant friction, constant fighting, constant challenging of the board's authority and congress's authority through promesa. Uh, that doesn't seem to be happening in this first six months of the governor's term. Will we disagree on things? Yes.
▶ 1:39:44And though there still will be challenges, but in terms of budget development and working on, I think what you saw is a good example of how we can work together with the governor. >> thanks. Mr. mica, if I could ask you a quick follow up question on prepa. We've heard that prepa has withheld funds from luma and genera's operational accounts. Has that issue been raised with omb and what, if any, actions have you taken? >> yeah. >> uh, yes, it has. Uh, we brought the parties together because there seems to be a disagreement as to these issues.
▶ 1:40:13Uh, but there are payments that are not being made both to luma and to zenaida in terms of their overall budget. And what was agreed to before the challenge is that the revenues just aren't there. So the prepa is just not taking in sufficient revenues to make all of the payments that luma and juanita expect. Before 2017, prepa hadn't done a rate case for 30 years, 28 to be exact.
▶ 1:40:41Uh, and then since 2017, they did one and now they just starting one. Now, hopefully that rate case will result in sufficient revenues so that they can actually make the payments that are that they need to make. >> as uh, miss sager, quick question for you. Has the gao identified any gaps in accountability, financial disclosure or stakeholder engagement, either for the omb or for the puerto rico government itself?
▶ 1:41:11>> we did not explicitly assess that as part of our review. Having said that, it also did not emerge as a challenge that we elicited during the course of our work. They I would reiterate what we just heard, that the collaboration has appears to demonstrate a culture change, which is what will be essential to the stability of that moving forward and institutionalizing the nature of transparency, accountability and visibility into where the money is going. >> understood. Thank you.
▶ 1:41:40Can you talk for a minute about opal? Uh, the budget office of the legislative assembly. Can you talk about the upsides and downsides of how it operates? >> we can. We talked about that in our most recent report and highlighted that in the testimony. So it essentially serves as a guardrail, roughly similar to what we know in the federal level as cbo. However, uh, one of the constraints with it is that as it issues its work, it is not always heeded by the legislature.
▶ 1:42:08And so going forward, I think it's going to be important for that relationship to continue to evolve so that it does, in fact, serve as the guardrail. That is, it is intended to do so. >> great. Uh, your timing was perfect. Uh, the time that had been yielded me is now expired. So the gentleman's time has expired. Um, and at this time, I would like to recognize the representative from the state of washington. Miss randall, for five minutes. Miss randall. >> thank you so much, mister chair.
▶ 1:42:38And thank you to our witnesses here to testify. Um, this this new policy area for me. And, um, I've been very interested in learning about the challenges, um, in both fighting corruption but also supporting the liberty and sovereignty of the puerto rican people, but would like to yield the balance of my time to, uh, the resident commissioner from puerto rico to complete some questions. He has. >> thank you. Uh, my dear colleague, randall. Um, Mr.
▶ 1:43:07Mojica, let's talk about things that congress can do to help puerto rico's financial stability. Would it be good for puerto rico for congress to approve a new tax incentive for manufacturing, to bring back manufacturing to the island?
▶ 1:43:23>> I can say, and I think you mentioned this in an earlier part, uh, a the loss of 936 contributed significantly to the economic decline that has happened since then, over 20 years. There's been some blips in between, but you can see a clear path that the economic decline is tied to the lack to that incentive. And that incentive also brought tremendous economic growth. So, you know, I I'll leave it up to congress is what to decide.
▶ 1:43:50But I can tell you that the that incentive and the loss of that incentive severely impacted the economy of puerto rico and led to some of the actions that led to the bankruptcy. >> and for the benefit of my colleagues, there is bipartisan legislation for a new tax incentive that would focus on supply chain resiliency by giving incentives for companies that relocate from foreign countries to puerto rico. And this would help the country as a whole.
▶ 1:44:15And brief history lesson 936, which was a great incentive for puerto rico, was a great incentive for the united states. And the reason it was eliminated was because the resident commissioner at the time believed it was incompatible with statehood for puerto rico, because the requirements of the uniformity clause. So it's important that we don't let status politics meddle with puerto rico's economic development. And I'm sure that that's something where we can find common ground.
▶ 1:44:38Would it be useful or positive for puerto rico, uh, to get equal treatment in federal programs like medicaid, medicare and, uh, snap. >> so all of the territories are treated differently in some of these programs. And we've advocated for, uh, the snap program. I believe there was some bipartisan support for changing that program that would result in, in more funding. Uh, you know, there is an issue that realistic with regard to the taxing situation that affects it.
▶ 1:45:06And I know, I know that, you know, that's something that's been discussed. But the we need certainty with regard to the medicaid program, you know, the fact that it expires and there's a cliff prevents long term budget planning in puerto rico. >> thank you. And I'm sorry to interrupt. It's just because of the limited time. And that's another area where there's opportunity for bipartisan collaboration. Uh, the medicaid extension is supported by governor gonzalez-colon fair treatment in medicare advantage as well. Uh, and the transition to snap as well.
▶ 1:45:32So I think that's an area where we can work together to benefit puerto rico and the nation more broadly. Mr. mojica, last week, the board voided a 15 year, multi-billion dollar lng contract between the government and new fortress energy. In your opinion, or in the board's opinion, was that deal rushed through a noncompetitive process? >> we haven't avoided it. We're still on. We're still reviewing it. Do I think the deal is rushed? Yes. Uh, we need time to evaluate it.
▶ 1:46:01We're speaking to the people who negotiated the contract, and we have not found anyone yet who defends all the terms of that deal. That is where we are right now. >> and just for time's sake, can you answer yes or no questions? The following ones. Does that contract hand one company near monopoly power over puerto rico's energy supply? >> that contract does provide exclusivity for all of the prepa. For all of any any additional lng supply. >> thank you.
▶ 1:46:28Was it written so one sided that it favored new fortress over the people of puerto rico? >> it seems to be a one sided contract. And based on what the people who negotiated the contrast told us, these were the terms that were given to them. And there was almost no flexibility in negotiating those terms. >> and do you think that a fair, transparent process would have delivered lower costs and more flexibility for our energy future? >> we think there are probably better terms that we can work out with with that contract, and we're working on those.
▶ 1:46:58>> and who would you consider that the party primarily responsible for negotiating this bad contract for the people of puerto rico? >> our understanding is the negotiation happened through an organization called the three. Ppo is the entity that negotiates these contracts. >> on behalf of the government of puerto rico, right? >> yes. >> okay. Thank you. Um, I'm almost out of time.
▶ 1:47:17Uh, there are concerns over the board's, uh, striking down contracts for renewable energy that that has slowed down puerto rico's energy reconstruction. Um, I share a lot of those concerns, as well as the ones related to net metering. I see that I'm out of time, but I wanted to state that for the record, and I'd like to submit questions for the record in writing for, uh, later on. >> certainly. Without objection, the gentleman yield. The time is expired. The gentlelady's time has expired.
▶ 1:47:45At this time, the chair recognizes the gentleman from the state of california. Mr. lamalfa, for five minutes. Mr. lamalfa. >> thank you, Mr. chairman. Appreciate it. Um, on a trip I made to puerto rico, uh, just a few years ago, I had a chance to tour and see quite a few things, uh, post-hurricane and such. And also part of was the generating system for prepa down there, and it was, uh, sadly pretty antiquated. And I'm just wondering, Mr. mojica, what what is the effort?
▶ 1:48:14What is the progress made on modernizing that system from diesel generation to something that's a little more, uh, favorable for costs as well as, uh, the other effects of that system. >> since since the governor took office, she has enacted a new law. The legislature in puerto rico enacted a new law, which changed, moved from intermediate renewable goals to allow for faster generation and conversions.
▶ 1:48:44And many of these facilities, uh, we are as contracts come to us, we'll be approving contracts. Puerto rico needs new generation. I think, as you point out, that facility is well, as many others are over 50 years old. They don't exist anywhere in the country. You have to, uh, make parts when they break. No one has them. And that's part of what's going on. We will approve contracts as long as they're affordable. And as long as they make sense for the people of puerto rico. But we need to do those conversions, and we need to do them quickly.
▶ 1:49:15>> uh, it would seem to me a modernized, uh, natural gas plants would be very, very helpful for, for all aspects. But with that, I'd like to yield the time to our chairman of our committee, Mr. westerman. >> Mr. westerman, you're recognized. >> thank you, Mr. chairman. Thank you, Mr. lamalfa. And, uh, Mr. mojica, you, in an answer to a question earlier, you said that the need for promesa came about because of bad policy decisions. What area were those main policy decisions in?
▶ 1:49:45>> many of them were around pensions. Uh, there were we? And we've changed it since the board's been there. All the pension systems were completely underfunded. They had not funded the pension systems. They were in danger of not making payments. Uh, we've moved from a defined benefit program to a defined contribution program, and we now have a path to fully fund those pensions over the next years and creating a reserve. But a lot of the policy decisions are they're all around financial management.
▶ 1:50:12Pensions is one of the bigger ones, because that created $50 billion in unfunded liabilities. But it's 16 years of consecutive unbalanced budgets. Um. >> but it's a good achievement to get the pension system back up. How much was the energy component, um, in bad policy decisions? >> excuse me, chairman, I left the energy part out the and I was focused on the commonwealth, the prepa. There was no investment in prepa.
▶ 1:50:42It was run by a an entity that was governed by politic political decisions, not what was in the best interest of the system. The generation assets that we're talking about had virtually no investment. Monies were borrowed sometimes to pay for other debt that was being borrowed. Uh, and the result of the system that we have today is a result of the bad policy decisions and the bad management of the prepa system.
▶ 1:51:10>> and the point I wanted to make is bad energy policy got us into this good energy policy, hopefully could help get us out of this. Uh, and going back earlier, Mr. austin, what are what do you see as the main contributing factors prolonging the delay in resolving prepa restructuring? If you could be quick on that. >> that's a very tough thing. It's very complicated. There are a lot of technical challenges.
▶ 1:51:37Um, as we've just heard, uh, there just been, uh, bad management, uh, political interference. Um, and I think some of the federal funds for reconstruction, um, uh, have been slow to come for various reasons. I think that the capacity to manage the contracts, uh, that took some time to develop, um, you know, and then just there's the technical challenge that a lot of the generations in the south, the demands in the north. Um. >> and so I kind of get where you're going with that.
▶ 1:52:07And that's what I've observed, uh, watching what's what's going on. But it was talked about the tax incentives that were in puerto rico before. And, you know, if you if you look, there's been outmigration not only of manufacturing but of people in puerto rico. We've seen the pharmaceutical industry move, uh, to, to china and other places.
▶ 1:52:29And I understand the argument that why should we give a special tax break to puerto rico and not to the rest of the country? But I think it shows that tax policy can, uh, help with economic development. But before you can have economic development, you have to have energy. Nobody's going to build any kind of facility, uh, somewhere where they don't have reliable energy.
▶ 1:52:52So I think it's important that we get the energy issues resolved as quickly as possible so we can start working on the next phases. Uh, I appreciate the gentleman yielding and I yield back. >> gentleman yields back. And the gentleman's time has expired at this time. I want to thank our witnesses for your valuable testimony. And also to my colleagues for your questions. Members of the committee may have some additional questions for the witnesses, and we would ask that you please respond to those in writing.
▶ 1:53:20Under committee rule three, members of the committee must submit those questions to the committee clerk by 5 p.m. On monday, july 1st, 2025. The hearing record will be held open for ten business days. For these responses. Is there any further business. >> Mr. chairman? Thank you, Mr. chairman. I request unanimous consent to enter into the record a letter addressed to you and me as chair and ranking member from ccne 25, puerto rico's think tank.
▶ 1:53:50Regarding many of the issues we have discussed today, it is dated july 9th, 2025. >> without objection. And with that, if there's no further business without objection, the committee stands adjourned. >> wow. >> I didn't think.