How Trump can fix Puerto Rico’s broken infrastructure

Puerto Rico is facing its worst drought in nearly 100 years this summer. The majority of San Juan, Puerto Rico’s capital, is now under severe water rationing due to aging and poorly maintained water infrastructure that is incapable of handling the severe drought conditions. The current water crisis is only the latest manifestation of Puerto Rico’s infrastructure deficiencies. Unfortunately, Puerto Rico has been dealing with an electricity infrastructure failure for decades. Examining why electricity reliability hasn’t improved over the past 10 years despite immense federal supervision from the Federal Oversight and Management Board for Puerto Rico holds the key to solving Puerto Rico’s infrastructure challenges.

In 2016, Congress created the oversight panel to oversee Puerto Rico’s economic recovery. For the last 10 years, it has kept the territory’s sole provider of electricity, with the Puerto Rico Electric Power Company, known as PREPA, in a perpetual state of bankruptcy. This decision impairs both reliable power for Puerto Rico’s residents and the island’s future economic growth.

How could this happen? The short answer is that the current members of the federal oversight board charged with getting PREPA out of bankruptcy do not live in Puerto Rico. They do not experience firsthand the consequences of decisions that delay much-needed investment in the power grid to improve reliability upon PREPA’s exit from bankruptcy. Last August, President Trump dismissed six of the seven oversight board members for being ineffective at resolving the PREPA bankruptcy. Three of those dismissed members are prolonging the inevitable by challenging these dismissals in court .

The people of Puerto Rico deserve better. The solution seems obvious. PREPA needs capital to improve electric service for customers. Electric utilities depend on assets with long useful lives, such as power plants. Standard practice is to finance long-term assets with long-term debt, which spreads the cost to ratepayers over an extended period. Otherwise, today’s customers pay in full for assets today that will benefit future generations of ratepayers. PREPA’s existing bondholder investors, who comprise most of the municipal finance market, have already offered billions to PREPA to this end. The governor of Puerto Rico has also indicated that over $13 billion in Puerto Rico’s cash balance account could be part of a broad solution.

The result is a worst-case scenario for the people of Puerto Rico. Critical modernization efforts to the electric grid are delayed, all while current customers bear the cost of capital improvements that should be financed and pay high electric rates for unreliable and inadequate service.

Rather than resolve PREPA’s bankruptcy, the board has wasted over half a billion dollars of Puerto Rican taxpayers’ money on high-priced New York attorneys and consultants who haven’t advanced the bankruptcy case in nearly 10 years.

The current and the previous board chairs are both professors who specialize in teaching corporate bankruptcy law. Neither has real-world expertise in understanding how U.S. public utilities operate or finance themselves. The current board chair has also gone out of his way to reject two previously signed consensual PREPA debt restructuring agreements.

The board wasn’t always like this. When it convened in the summer of 2016, it had strong on-island representation and leadership for the first four years, led by local Puerto Rican businessman Jose Carrion serving as board chair. Through his efforts and those of other on-island board members, Puerto Rico reached largely consensual debt restructuring deals that led to the reduction of Puerto Rico’s government debt by more than $40 billion.

We need on-island business leaders, who have a much better understanding of the island’s needs than mainland bankruptcy professors and academics, to run the board once again.

Both the recent Trump v. Cook and Trump v. Slaughter U.S. Supreme Court rulings support the president’s right to hold the FOMB accountable for its failures, including through exercising the right to fire these officials.

I urge local elected officials to support the Trump administration in first filling the three vacant board seats with qualified individuals capable of solving PREPA’s crisis. Once those seats are filled, and consistent with the Supreme Court’s recent rulings affirming the president’s authority to hold the the board accountable, I urge the administration to terminate the three remaining board members who challenged the president’s decision, none of whom will take the steps needed to free PREPA from bankruptcy.

Luis Fortuño served as governor of Puerto Rico from 2009-2013.