Politics

GOP Power Play in Hurricane-Ravaged Puerto Rico

Conditional funding gains support amid talk of new Marshall Plan

Workers in Caguas, south of San Juan, Puerto Rico, repair electrical lines on Oct. 25, more than a month after Hurricane Maria hit the island. (Ramon Tonito Zayas/AP file photo)

In late September, just over a week after winds of 155 miles per hour flattened homes and struck down power lines and more than 30 inches of rain inundated parts of the island of Puerto Rico, a leader of the recovery efforts with the Army Corps of Engineers offered his blunt assessment of the damage.

“This is a massive undertaking, one in which I don’t think we’ve undertaken before in terms of this magnitude,” Col. James DeLapp told CNN. The closest thing he could think of by way of comparison? “When the Army Corps led the effort to restore … electricity in the early stages of the Iraq war in 2003 and 2004.”

That was a remarkable observation. It took multiple years and tens of billions of dollars to rebuild Iraq, where DeLapp served as a commander. And now, most everyone in Washington agrees, it’s going to take that kind of lift to remake Puerto Rico in the aftermath of Hurricane Maria. Already, Congress has approved $6 billion to help the island, and much more money is on the way.

“Without unprecedented levels of help from the United States government, the recovery we were planning for will fail,” Natalie A. Jaresko, the executive director of a board created by Congress that oversees the island’s finances, told the House Natural Resources Committee last month. A week later, the island requested a whopping $94.4 billion in additional aid — some $33 billion more than Texas had requested for its recovery efforts.

When the White House released its latest funding request on Nov. 17 — $44 billion in all — only a fraction in direct aid was designated to the island, prompting widespread criticism. The administration said in its letter to Congress that it is awaiting estimates on damages from both Puerto Rico and the U.S. Virgin Islands before providing additional funding.  But in a boon to advocates, it also stated for the first time that Congress should waive restrictions on reconstruction so Puerto Rico can be built to a better standard than before.

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As the wrangling continues over funding, Puerto Rico struggles to restore power and drinking water and buckles under a $74 billion debt that has left it unable to pay for virtually anything. Meanwhile, there are many in Washington who are looking at the near-total devastation on the island as a once-in-a-lifetime opportunity to transform the U.S. territory in a fundamental way. They are pushing not just for an improved electrical grid or sturdier buildings, but for a business-friendly, free-market tax haven that will be a boon for the U.S., not a drag.

Look no further than House Speaker Paul D. Ryan. In late October, the Republican from Wisconsin made a trip to the American Enterprise Institute, the conservative-leaning Washington think tank. There, in a closed-door talk, his thoughts turned to Puerto Rico, and he explained to those gathered that he wished to see the island transformed into the “Singapore of the Caribbean,” according to Andrew G. Biggs, a resident scholar at AEI who was told of the comments and later disclosed them at a public forum. 

That phrase is gaining currency in Washington. It was initially coined by John Paulson, a hedge fund manager who bought hotels and property in Puerto Rico. In 2014, he predicted that a new law allowing U.S. investors to pay little or no tax if they moved to the island would spur an influx of money to the island. That prediction hasn’t panned out.

Biggs, not to be confused with the congressman from Arizona, wholeheartedly endorses the idea of reinventing the island, and is no mere scholar at AEI. He is also a member of the Financial Oversight and Management Board for Puerto Rico — the body created by Congress in 2016 to oversee the island’s disastrous finances. He says he’s been on calls with congressional staff who ask: “How come we don’t have Singapore of the Caribbean?” His response: “We’re working on it,” with the warning that such changes won’t happen overnight.

Mostly that’s because Biggs and others believe that huge amounts of money — well over what might normally be required following a natural disaster — need to go to Puerto Rico in what amounts to a latter-day Marshall Plan (or more like a recent-day International Monetary Fund plan), but with one big catch: The funds need to be contingent on dramatic changes to the island’s labor, welfare and tax laws, all of which conservatives see as liberalism run amok. 

Watch: Puerto Rican-Born Lawmaker Blasts Trump’s Puerto Rico Tweets

“I hope this will be like the alcoholic who hits rock-bottom, and says, ‘OK, we’re bankrupt, now we really gotta change the way we’re doing things,’” Biggs says. But he thinks a coercive approach is necessary. “It has to be conditional, where you have to give them incentive.”

Rebuild, yes — but with some very big strings attached.

Conditional rescue

What would that mean, exactly? Conservatives have long eyed exempting the island from the federal minimum wage, currently $7.25 per hour, which they say is too high relative to the standard of living there. Over Democratic objections, Republicans in 2016 lowered the island’s minimum wage to $4.25 per hour for some younger workers, though it did not take effect because the island’s governor declined to implement it.

It could also mean relaxing overtime pay requirements for workers. For instance, on the island now, an hourly worker must be paid overtime after eight hours worked in a calendar day. What’s more, all workers receive a Christmas bonus equal to two percent of annual pay. While the island is exempt from federal income taxes, anyone earning over $60,000 a year is taxed at a 33 percent rate. 

House Speaker Paul D. Ryan speaks with Puerto Rico Res. Cmmsr. Jenniffer González-Colón at a press conference on Oct. 13 in San Juan. Ryan led a delegation to visit areas damaged by Hurricane Maria. (Mario Tama/Getty Images file photo)
House Speaker Paul D. Ryan speaks with Puerto Rico Res. Cmmsr. Jenniffer González-Colón at a press conference on Oct. 13 in San Juan. Ryan led a delegation to visit areas damaged by Hurricane Maria. (Mario Tama/Getty Images file photo)

Some in Congress are warming up to making major changes to such laws. Asked if he’d favor conditions for future funding, Sen. Ron Johnson, a Republican from Wisconsin who heads the Homeland Security and Governmental Affairs Committee looking into problems with the recovery, said, “Yes, it’s been a troubled territory. It’s been bankrupt. The utility’s been bankrupt.” Asked if the island needs some sort of Marshall Plan, he said, “They need serious help, but they need serious reform.”

Even the territory’s nonvoting member of Congress from Puerto Rico, Jenniffer González-Colón, a Republican, seems open to this route. Questioned three times about whether she objected to strings-attached funding, she declined to rule out the idea, finally saying she believed reform efforts were needed.

“I think all states need to be accountable for the taxpayers’ money,” she says. “Puerto Rico will have some requirements that the rest of the states don’t have.”

That would be a bitter pill to swallow for most officials on the island and many Democrats in Washington. Recovery funding has never been tied to sweeping changes to local or state laws, and many blame Puerto Rico’s current predicament on Washington’s past actions.

In an interview, Ricardo Rosselló, the island’s Democratic governor, said he would oppose any effort to make future funds predicated on changing territorial law. “We don’t think it should be contingent on certain things,” he said. “We are committed to doing those reforms anyway.” He pointed to a measure he signed in January that made significant changes to the territory’s labor laws.

Some observers agree, noting that the territory’s oversight board, which was created by a 2016 law known as PROMESA — the Puerto Rico Oversight, Management and Economic Stability Act — has already prompted some changes to laws on the island, including to unfunded government pensions. They are skeptical that sweeping changes are needed.

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“I’m not saying it’s not a potential, but the argument for it is a little bit obviated by what’s in PROMESA already,” said Jeffrey L. Farrow, a former adviser for President Bill Clinton on Puerto Rico.

Antonio Weiss, a senior official at the Treasury Department under President Barack Obama and point person on matters dealing with Puerto Rico, is more blunt. “That strikes me as a wholly inappropriate means to try to extract reforms that a locality in the past has rejected,” he says. “You don’t throw a lifeline to someone in the water and say, ‘You can have this lifeline if only you do the following three things.’” That said, he does recommend future recovery and reconstruction funds be conditioned on “transparency and accountability and proper stewardship,” as well as outcomes and efficacy of funds.

Rosselló and other island officials sought to reassure skeptical members that Puerto Rico was up to the task of overseeing the rebuilding by pointing to renewed efforts at transparency. Still, the Republican chairman of the House Natural Resources Committee, Rob Bishop of Utah, said Puerto Rico had a “credibility gap” while casting doubt on just how much the island could be trusted with future funds.

Troubled aftermath

It’s not hard to understand why conservatives are jumping up and down to remake the island in their image. The territorial government’s response to the disaster has been uneven at best, inept at worst.

While President Donald Trump came under sustained criticism regarding the administration’s early post-storm response (his comments wondering how long FEMA would remain while suggesting the people of Puerto Rico weren’t pulling their weight didn’t help), questionable actions on the island following the hurricane also hampered relief efforts, congressional testimony recently revealed.

The ongoing investigation of the contract with inexperienced Whitefish Energy is Exhibit A. In October, the Puerto Rico Electric Power Authority, or PREPA — the island’s bankrupt utility — awarded a $300 million contract to the two-man Montana company, which no one had heard of. Under a hail of criticism, the governor canceled the deal later that month.

Documents released by the House Natural Resources Committee show that Whitefish charged the government a rate of about $300 an hour — the national average is about $39. The contract also assumed a 16-hour, seven-day workweek, allowing for huge amounts of overtime. “Neither PREPA nor Whitefish seemed to know how to draft a FEMA compliant contract,” the committee concluded in a memo.

Puerto Rico Gov. Ricardo Rosselló met with members of Congress, including Alaska Sen. Lisa Murkowski, chairwoman of the Senate Energy and Natural Resources Committee, on Nov. 14. (Mark Wilson/Getty Images file photo)
Puerto Rico Gov. Ricardo Rosselló met with members of Congress, including Alaska Sen. Lisa Murkowski, chairwoman of the Senate Energy and Natural Resources Committee, on Nov. 14. (Mark Wilson/Getty Images file photo)

PREPA Executive Director Ricardo Ramos said the reason Puerto Rico picked Whitefish was simple. “My priority was securing the immediate assistance that we needed to begin restoring power as quickly as possible to our most critical customers,” he told the Senate Energy and Natural Resources Committee on Nov. 14. Whitefish was one of only two entities willing to come to the island, he said. Still, he allowed that some steps in the contracting process “could have been done better.”

Ramos resigned as PREPA’s executive director on Nov. 17.

Sen. Lisa Murkowski, the Alaska Republican who chairs the committee, seemed exasperated that Puerto Rico failed to seek immediate emergency assistance from the mainland.

“I heard many times as we were traveling there that in fact the real recovery … didn’t begin until a month later, effectively Oct. 30, when the mutual aid switch was flipped and the effort really began,” she responded to Ramos.

By that point, the oversight board had already begun flexing its muscles. In October, the seven-member board, which is controlled by Republicans, executed what amounted to a complete takeover of PREPA, appointing a former Air Force colonel, Noel Zamot, as “chief transformation officer” of the utility, a position that would have effectively made him CEO. Many in Congress approved Zamot’s appointment, including González-Colón and Rep. José E. Serrano, a Democrat from New York with ties to the island.

But Rosselló, who controls PREPA, vehemently opposed the appointment, saying the board was overstepping its authority. On Nov. 13, a federal court in San Juan agreed and blocked Zamot. Republicans are mulling tweaking the law that created the oversight board in order to install him.

The power grab did not end there. The board sought to exercise its authority under the law to review all contracts over $10 million executed by the territorial government. And it seems likely the board will try to wield even greater influence, including the likely privatization of PREPA.

“The past has shown us … a single monopoly, a state-owned monopoly does not work,” Jaresko told Natural Resources.

All this may sound like inside baseball, but there is a much bigger issue at stake here: It could well be that Puerto Rico will have even more of its sovereignty stripped away and more power given to an unelected board.

In a memo released ahead of the hearing in which Zamot and Jaresko appeared, the Natural Resources Committee suggested that strengthening the board’s powers was a distinct possibility. Bishop, the Utah Republican who chairs the committee, later said he’d rather have the territorial government and the board work together with the federal government, but warned that “new tools” might be needed.

“There may be some opportunities to put into language some kinds of reforms,” he said. “There’s going to be a whole lot of people with a whole lot of ideas.”

While Republicans continue to mull tweaks to the law, Puerto Rico’s governor tried to reassure Congress that such actions were not needed.

“We’re working actually with the White House and with OMB for controls and transparencies,” Rosselló told the Senate Energy and Natural Resources Committee.

Indeed, in November, the island agreed to an arrangement with FEMA that would provide centralized oversight and control of FEMA funds in addition to independent, third-party reviews. PREPA’s  board also created an advisory council and named as its chair David K. Owens, the former vice president of the Edison Electric Institute, an industry group.

Debt headaches

By Dec. 5, months after Maria made landfall, roughly one third of the island of 3.4 million was still without power. When it comes to day-to-day living, that’s a humanitarian disaster.

But it is a disaster on another level too: No power means no economic activity. No economic activity means no revenue for the government. No revenue for the government means more money the U.S. has to pony up.

In the disaster assistance approved by Congress in October, Puerto Rico and the U.S. Virgin Islands were given a low-interest loan of $4.9 billion for expenses like paying for basic services. That money is expected to hold out until year’s end. The Trump administration has further waived or lowered many matching requirements for disaster assistance (typically about 25 percent for local governments) because, simply put, there is no money to match.

A mayor of the San Juan suburb of Guaynabo, Angel Pérez Otero, recently appeared before the Natural Resources Committee, and Rep. Darren Soto, a Democrat from Florida, asked him about setting up locally run energy companies and cooperatives similar to those in his state and then allowing towns to bid. Pérez Otero said something like that would be fine in the future, but there is no money to do anything like that right now.

“The thing is, right now there’s a fiscal problem,” he said. “We have lost revenues, we have lost businesses, and we have a lot of problems.”

All of this would be bad enough, but add to it the looming issue of the island’s debt, and the headaches become worse.

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“FEMA has never disbursed funds into a bankrupt entity,” said Weiss, the former Treasury Department official. “There is simply no playbook for how to address Puerto Rico today. It has to be written.”

What exactly will be written is still a big question.

Even before the storm, Puerto Rico had declared its debt unpayable under a type of bankruptcy granted by Congress in 2016 as part of PROMESA. The law allows the territory to reorganize its $74 billion debt in federal court. An attorney for the oversight board recently suggested that the board was mulling suspending debt payments for five years. Meanwhile, creditors have become increasingly concerned as they have seen the already low value of the bonds plunge even further.

Trump muddled matters further in early October when he said Puerto Rico’s debts may be “wiped out.”

While administration officials were quick to note that such a drastic step was unlikely, some in Congress have been clamoring for action. On Nov. 15, Sen. Elizabeth Warren of Massachusetts and Rep. Nydia M. Velázquez of New York, both Democrats, sent a letter to the oversight board seeking the elimination of all of the island’s debt. “Creditors must now finally face the reality that Puerto Rico will never be able to repay its pre-existing debt,” they wrote.

Bishop dismisses the idea of wiping the slate clean, though he doesn’t rule out the idea of the federal government taking it on. “I would have a hard time just having the government take over the debt without some significant structural reforms,” he said.

Building it out

Many in Congress, both on the left and the right, are talking in earnest about making Puerto Rico better than before: building underground transmission lines to better survive severe weather, creating so-called microgrids that will make the system more resilient during outages, expanding solar and wind power, improving the water system and making housing sturdier.

That all sounds great. The only problem is that under current law, that’s not allowed. 

Rep. Nydia Velazquez speaks during a news conference with House Democrats to call for immediate assistance for victims of Hurricane Maria in Puerto Rico and the Virgin Islands. (Tom Williams/CQ Roll Call file photo)
Rep. Nydia Velazquez speaks during a news conference with House Democrats to call for immediate assistance for victims of Hurricane Maria in Puerto Rico and the Virgin Islands. (Tom Williams/CQ Roll Call file photo)

Under the 1988 Stafford Act, rebuilding in a post-disaster world can be done only to pre-disaster standards. What that means in practical terms is that Puerto Rico can be rebuilt to the way it was, and of course no one wants that. Anything above that scope would require congressional action amending the law. The issue is likely to come up again in Houston and other parts of the country that are vulnerable to natural disasters.

Rep. Luis V. Gutiérrez of Illinois, a Democrat who owns property in Puerto Rico and has at times lived there, believes the issue of what kind of repairs FEMA has authority to perform must be addressed in future recovery spending.

“Anybody that believes there’s not going to be another hurricane, in Puerto Rico, I mean, that’s like saying there won’t be any more tornadoes in Kansas or forest fires in California,” Gutiérrez said. “So what FEMA should do is say, ‘Hey, this is extraordinary circumstances. Look, we need special permission.’”

Murkowski said she has been speaking with members in both parties in the Senate and the House and many of them believe Congress needs to provide greater flexibly in how Stafford Act funds can be used.

“I certainly am going to work with my colleagues and the administration to help implement that change,” she said.

David Bibo, FEMA’s acting associate administrator for policy, program analysis and international affairs, said this is an issue that’s not going away. “The more disasters that we face, and the older the nation’s infrastructure gets, the more we’re going to be faced with these questions,” he says. “The Stafford Act has a construct in place where we’re building back to pre-existing design and capacity. And the degree to which there was some debilitation to begin with, it’s a challenge.”

In his Nov. 17 request to Congress, Office of Management and Budget Director Mick Mulvaney made clear that the administration was on board with building bigger and better, noting that it wants Congress to provide funds under the Stafford Act “without limitation of pre-disaster condition and causation.” Some advocates saw that as a huge step.

“This is actually something the federal government has never done before,” said Farrow, the former Clinton adviser who is providing advice to clients on the island and the mainland. “The administration is doing quite a lot here. Both in terms of its providing funding and what it’s providing funding for. It’s a huge open door for Puerto Rico.”

FEMA’s Disaster Relief Fund, which pays for rescue efforts, housing assistance and other resources in the immediate aftermath of a disaster, isn’t strapped for cash — an estimate of the fund on Nov. 17  placed the balance at $15 billion.

Already, some conservatives in Congress have started to warn that the money may not be limitless.

“We’re not Santa Claus bringing gifts,” said Rep. Blake Farenthold, a Texas Republican whose Gulf Coast district was slammed by Hurricane Harvey and who voted in favor of both earlier disaster recovery bills. “We’re the federal government that’s out of money trying to help people and government entities that are also out of money. So we want to help … get people back to where they were, but we also don’t want to be wasteful.”

And Rep. Mark Meadows, the Republican from North Carolina who chairs the hard-right House Freedom Caucus, says that offsets should be considered on big-ticket items. “A supplemental of $100 billion or more will need to have some kind of offsets,” he said.

Fighting for aid

The disaster effort — while expected to pass before lawmakers leave for the December holidays — faces steep competition for political attention and a place on Congress’ packed legislative calendar.

The GOP majority’s main focus through the end of the year is its work on a broad overhaul of the tax code and a debate on reshaping the health care system. Indeed, there is a major provision in the House version of the GOP tax overhaul that Puerto Rico strenuously opposes — it would essentially impose a new 20 percent excise tax on U.S. subsidiaries doing business on the island. 

Rosselló wants Puerto Rico exempted from that provision. González-Colón, the island’s delegate, wants alternative tax incentives and believes the only chance to make changes would be when the bills get ironed out in conference committee.

It’s also worth pointing out that Puerto Rico is now fighting for disaster funding with another island territory and at least three other states: Texas, Florida and California.

John Cornyn of Texas, who as majority whip is the second-ranking Senate Republican, is unhappy with the level of funding for his state thus far, and worries that wrapping the supplementals in a potential omnibus would make things harder. “I think we’re all in this together, but it also could jeopardize our ability to pass the omnibus, because that touches a lot of delegations: the Florida delegation, the people who care about Puerto Rico and the Virgin Islands, the Texas and the California delegation,” he said.

“This makes me kind of nervous to think we’re putting all our eggs in that one basket,” Cornyn said. 

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