Is a Federal Fiscal Control Board
the Only Option for Puerto Rico?
CNE Conference Proceedings
March 2, 2016
Sparking a New Conversation about Puerto Rico in Washington D.C.
On March 2, 2016, the Center for a New Economy (CNE) broke new ground by hosting the conference “Is a Federal Fiscal Control Board the Only Option for Puerto Rico?” in Washington D.C. The forum sought to generate a balanced discussion on options for achieving fiscal balance for Puerto Rico beyond the current binary debate over the imposition of a federal control board.
The conference explored the concept of a Fiscal Responsibility Law (FRL) for Puerto Rico as a policy proposal that could lay the groundwork for the stabilization of Puerto Rico’s public finances and prompt a broad overhaul of Puerto Rico’s fiscal infrastructure. FRLs are mechanisms that allow for the establishment of monitorable fiscal targets and policy reforms. The panel discussed the benefits of enacting and implementing a FRL as the basis for a strong fiscal regime for Puerto Rico, and how it might fit within the broad framework of any federal policy that addresses the island’s current fiscal and economic crisis.
Miguel A. Soto-Class, President of CNE, introduced the discussion stressing that solutions to the Puerto Rico crisis need to have legitimacy within the island and seek to rebuild its fiscal institutions for the long-term.
Andrés Velasco, Former Finance Minister of Chile and Professor at Columbia University’s School of International and Public Affairs, discussed how Fiscal Responsibility Rules are being successfully applied throughout the world; while Tracy Gordon, Senior Fellow, Urban-Brookings Tax Policy Center, explored how they are applied in the United States and the type of oversight mechanisms with which they interplay.
Sergio Marxuach, Policy Director of CNE, discussed how a Fiscal Responsibility Law for Puerto Rico could be designed in order to deal with the current juncture and manage fiscal policy in the long-term; while Gordon Gray, Director of Fiscal Policy at the American Action Forum, cautioned about the challenges such a law would face in the context of Puerto Rico’s current politically charged atmosphere.
Puerto Rico’s elected officials, Congressman Pedro Pierluisi, Resident Commissioner for Puerto Rico, and Senator Eduardo Bhatia, President of the Puerto Rico Senate, closed the event, cautioning against externally imposed solutions to the Puerto Rico crisis.
If you want to be part of the conversation regarding Puerto Rico’s future, join us, and watch CNE’s DC panel on the link below.
Click on the tabs below for a look at each segment of the conference
Professor, Professional Practice in International Development
Columbia University’s School of International and Public Affairs, New York City
Velasco is a former presidential candidate and Finance Minister of Chile, and was also part of the team that negotiated Chile’s commercial agreements with Mexico, Canada and the United Sates. He has taught Development and International Finance at Harvard University, was Director of the Center for Latin American Studies of New York University, and has published over 100 articles and four books on international economics and development. Velasco holds a Ph.D. in Economics from Columbia University and a Post-Doctoral Degree in Political Economy in Harvard University and the Massachusetts Institute of Technology.
Sergio M. Marxuach
Public Policy Director
Center for a New Economy, San Juan
Prior to joining CNE, Marxuach served as Deputy Secretary of Commerce and Economic Development, and as Special Assistant to the Executive Director of the Office of Management and Budget for the Commonwealth of Puerto Rico. Before joining the Commonwealth government, he was an associate in the New York City law firm of Curtis, Mallet-Prevost, Colt & Mosle LLP, where he structured cross-border capital market transactions and arranged vendor financing and syndicated credit facilities for U.S. multinational firms in Latin America. Mr. Marxuach has a B.A. in Economics and Political Science from Yale University. He also has a Juris Doctor degree from the Georgetown University Law Center and a Master of Science in Foreign Service from the Graduate School of Foreign Service at Georgetown University.
Urban-Brookings Tax Policy Center, Washington D.C.
Gordon researches and writes about fiscal challenges facing state and local governments, including budget tradeoffs, intergovernmental relations, and long-term sustainability. Before joining Urban, she was a Senior Economist with the White House Council of Economic Advisers. She was also a member of the District of Columbia Tax Revision Commission, a fellow at the Brookings Institution, an assistant professor at the Maryland School of Public Policy, and a Fellow at the Public Policy Institute of California. Gordon currently serves on the board of trustees for the American Tax Policy Institute and is a member of the District of Columbia Infrastructure Task Force. She holds a Ph.D. in Public Policy with a concurrent M.A. in Economics from the University of California, Berkeley.
Director of Fiscal Policy
American Action Forum, Washington D.C.
Gordon joined the Forum after serving in a series of congressional and campaign positions. Most recently he served as Senior Policy Advisor to Senator Rob Portman, and also served as Policy Director during Senator Portman’s campaign. Prior to joining the campaign, he was a professional staff member for the Senate Budget Committee, and before that was Deputy Director of domestic and economic policy for Senator John McCain’s presidential campaign. He also spent several years with the American Enterprise Institute.
Hon. Pedro Pierluisi
Puerto Rico Resident Commissioner
U.S. House of Representatives, Washington D.C.
Congressman Pierluisi has been Puerto Rico’s sole Member of Congress, known as the Resident Commissioner, since January 2009. He represents 3.5 million U.S. citizens, the most of any member of the U.S. House of Representatives. Congressman Pierluisi is an attorney with 24 years of legal experience in the public and private sector. He began his career in Washington, D.C. working as litigator at an internationally recognized law firm. From 1993 to 1996, he served as Attorney General of Puerto Rico. In that role, he supervised over 500 attorneys and argued two landmark constitutional law cases before the Supreme Court of Puerto Rico. He was active in the National Association of Attorneys General and served as Chairman of its Eastern Region in 1996. Pierluisi is a graduate of Tulane University and The George Washington University Law School.
Hon. Eduardo Bhatia
President, Puerto Rico Senate
San Juan, Puerto Rico
During his term as President of the Senate, Senator Bhatia has been a driving force in the overhaul of the broken fiscal system of Puerto Rico, actively advocating for a balanced budget, restructuring the Island’s debt and eliminating waste, fraud and abuse of public funds. He is the author of a comprehensive energy reform law, legislation to revamp the Puerto Rico’s public education system as well as major civil rights and environmental legislation. Senator Bhatia served as Co-Chair of the Eastern Regional Conference of the Council of State Governments (CSG-ERC) in the United States, and was elected President of the National Hispanic Caucus of State Legislators (NHCSL) becoming the first Senate President to hold the title. He obtained his Bachelor’s Degree from the Woodrow Wilson School of Public and International Affairs at Princeton University and graduated from Stanford Law School.
Conversation on March 7, 2016 with Richard Ravitch, Former Lieutenant Governor of New York, on Fiscal Responsibility Rules and their applicability to Puerto Rico
Mr. Ravitch was unable to attend the Center for a New Economy’s March 2 panel “Is a Federal Fiscal Control Board the Only Option for Puerto Rico?” due to an unforeseen situation, but he kindly shared some of his thoughts with the panel’s moderator, Deepak Lamba-Nieves, after the event.
DLN: Mr. Ravitch, since we did not have the pleasure of having you as a panelist in DC, we wanted to make sure we captured your insights and ideas in order to continue enriching the conversation on Fiscal Responsibility Laws.
RR: Let me give you first a summary of my view. What Treasury is trying to accomplish in Congress is absolutely correct. Whereas in some respects the egregious level of borrowing engaged by the Puerto Rico government exceeds the most imaginative case of other promiscuous borrowers, it is no different than what Chicago did, or Illinois did, or Jersey did, or New York did prior to 1975. In my judgment, the problem of state and local politicians around the country is that they function on a cash flow basis, year to year. And to whatever extent they can meet their cash obligations by borrowing or selling assets, many jurisdictions are doing it. Arizona sold its state capitol and used the proceeds to balance its budget; New York State sold Attica prison for $ 200 million […] There’s $ 4 trillion in municipal debt outstanding in the U.S., then the question is, how much of it has been incurred for the purpose of balancing budgets as distinct of investing in the future.
DLN: Do you think that this proposal that we are making for a Fiscal Responsibility Law can help?
RR: I thought it was very well thought. The only thing I would say about your proposal is that you don’t put enough emphasis on GAAP-based budgeting. If you don’t budget on an accrual basis, you make it easy for politicians to kick the can down the road.
DLN: So, the Fiscal Responsibility Law, you think is a good exercise.
Now, do you see it working on its own or in conjunction with a federal oversight or control board? In that same line, what do you think could be the optimal mechanism for federal supervision?
RR: Whether it is called a Control Board or an Oversight Board, I think that what is important is, first, the reality: you are not going to get any federal legislation without an oversight board. But the really relevant question is what powers it is going to have. In my opinion, if you believe that the democratic process is the most sacrosanct thing of all, then you don’t want to turn over the power to decide on education, on health, on this and that to people who are not elected. But you can probably, given the severity of the problem, the number of years it’s going to take to fix it, the general seduction of politicians to spend money, it is very helpful to have an oversight body that can say “No” to politicians: “go back to the drawing board. We’re not telling you how to spend your money, but telling you that you can only spend that what you get. Recurring expenditures cannot be greater that your recurring revenues. And you can’t borrow money without coming to us. Because we are not only protecting the world against your eagerness to borrow; we are protecting the people of Puerto Rico from all those greedy people willing to make loans.”
DLN: So the board should have oversight over balanced budgets and decisions over borrowing. Can these Rules that we propose work alongside the mandate of a Fiscal Control Board? Could that be one of the key elements that the Board monitors?
RR: Sure, absolutely. I don’t think that it is inappropriate interference. Let me tell you the structure that we have here. We have in the office of the New York State Comptroller, a Deputy Comptroller for New York City. He makes an annual report on the state of affairs in New York City. Now, you don’t have a Deputy above the Commonwealth, but the point is that if he ever finds that the City budget is in deficit for more than a $ 100 million, it automatically recreates the Oversight Board.
DLN: Thank you so much, we appreciate your time.