Title III


            Today, President Donald Trump appointed Justin M. Peterson to the Fiscal and Supervisory Board for Puerto Rico. I was alerted to the appointment by a source in DC and was told that he was appointed by the President to “bring transparency to the Board.” What does that mean?

            From day one of its operation, the Board’s workings have been shrouded in mystery. Every so often it has meetings open to the public, but it is clear that all decisions have been made beforehand and rehearsed for public consumption.  I have attended or watched all its meetings and only once has there been any public dissent. Ana Matosantos voted against one of the Board’s fiscal plans for the Commonwealth. We also know that the Board’s decision not to approve the PREPA RSA negotiated between the Government and bondholders was not unanimous but rather 4-3, but this was leaked weeks after the fact. Also, the Board has negotiated deals with creditors in secrecy, leaving the taxpayers who fund its operation in the dark. Many, including myself, have criticized this continued secrecy, even though PROMESA section 101(f)(4) makes executive sessions the exception rather than the rule.

Now the Board’s business will be more transparent. Although Mr. Peterson is only one member, nothing in PROMESA prohibits a member of the Board from speaking out about what he believes should be discussed. Other members have resorted to Twitter to espouse their ideas on what should be done in the Title III and their views on the Government’s actions. “Sunlight is said to be the best of disinfectants; electric light the most efficient policeman” wrote Louis Brandeis in Other People’s Money And How the Bankers Use It (1914), a collection of his best essays. That is as true today as it was over 100 hundred years ago. Even if the Board was imposed on Puerto Rico, its inhabitants have a right to know how it conducts its business.

Also, this transparency will have to spill over into the Puerto Rico Government. Contrary to what the ample case law says, the island’s government is extremely opaque, something that the Board constantly criticizes. More transparency will help control corruption and waste, a major source of concern both for the President and for the island’s residents.

Finally, there are already voices criticizing Peterson for having advised GO bondholders. Need I remind them that many Puertorricans held and hold GO bonds? Need I remind them that GO bondholders settled their claims with the Board? Additionally, Andrew Scurria of the Wall Street Journal reported in his Twitter account that he spoke with Peterson and he said he did not work anymore for bondholders in the Puerto Rico case. If that is true, he would have no conflict of interest, especially since this is a known fact. Lest we forget, José Ramón González and Carlos García, both issued debt for Puerto Rico and were members of the Board. 

My only hope is that this appointment will help the Board become a better entity and finish Puerto Rico’s Title III cases in a satisfactory fashion.


Luego de la aplastante derrota de la Legislatura y el Gobernador ante su reclamo contra la Junta, Ricardo Rosselló indica que no va a cumplir con el presupuesto impuesto. Thomas Rivera Schatz aplaude su idea y lo apoya. ¿Cuales podrían ser las consecuencias de hacer esto?


La sección 203 de PROMESA establece el procedimiento. Cada tres meses, el Gobernador tiene que informar a la Junta de los ingresos y gastos del ELA. Si la Junta ve variación con el presupuesto aprobado, notifica de violación, pide explicación y si la explicación no le satisface, establece los remedios y una calendario para remediar las violaciones. Si no se remedian, la sección 203(d) establece así:


(d) BUDGET REDUCTIONS BY OVERSIGHT BOARD.—If the Oversight Board determines that the Governor, in the case of any then-applicable certified Instrumentality Budgets, and the Governor and the Legislature, in the case of the then-applicable certified Territory Budget, have failed to correct an inconsistency identified by the Oversight Board under subsection (c), the Oversight Board shall—

(1) with respect to the territorial government, other than covered territorial instrumentalities, make appropriate reductions in nondebt expenditures to ensure that the actual quarterly revenues and expenditures for the territorial government are in compliance with the applicable certified Territory Budget or, in the case of the fiscal year in which the Oversight Board is established, the budget adopted by the Governor and the Legislature; and

(2) with respect to covered territorial instrumentalities at the sole discretion of the Oversight Board—

(A) make reductions in nondebt expenditures to ensure that the actual quarterly revenues and expenses for the covered territorial instrumentality are in compliance with the applicable certified Budget or, in the case of the fiscal year in which the Oversight Board is established, the budget adopted by the Governor and the Legislature or the covered territorial instrumentality, as applicable; or

(B)(i) institute automatic hiring freezes at the covered territorial instrumentality; and

(ii) prohibit the covered territorial instrumentality from entering into any contract or engaging in any financial or other transactions, unless the contract or transaction was previously approved by the Oversight Board.


Si el Gobierno no quiere instituir las reducciones de presupuestos, la Junta siempre puede ir bajo la sec. 104 o 108 de PROMESA y solicitarle al Tribunal que se entregue las cuentas del Gobierno. Si la Juez Swain se negase o aún persiste la resistencia del Gobierno, esto traería otros problemas.


El propósito del Título III es que el territorio presente, a través de la Junta, un plan de ajuste de sus deudas. Bajo la sec. 314(b)(7) establece que el plan de ajuste tiene que ser consistente con el plan fiscal. Si el plan fiscal no esta en efecto porque el presupuesto no lo esta, no se puede presentar un plan de ajuste. Además, el 11 U.S.C. sec. 930, adoptada en PROMESA establece que, si el plan de ajuste no se radica y esto causa daño a los acreedores, se puede desestimar la quiebra. Igual si la Junta solicita su desestimación o si el plan de ajuste no se puede confirmar. Así que toda esta retórica barata del Gobierno y la Legislatura va a crear problemas mayores y todo para demostrar que están en control del Gobierno. Flaco servicio hará la clase política si continua con esta resistencia.