Working Group Proposes Establishment of Puerto Rico Fiscal Oversight and Economic Recovery Board

Press Release

Government Development Bank for Puerto Rico

Independent, Non-Political Body Will Ensure Compliance with Fiscal 

and Economic Growth Plan

San Juan, P.R. – The Working Group for the Fiscal and Economic Reco-

very of Puerto Rico (the “Working Group”) today announced that Gover-

nor Alejandro Garcia Padilla has presented to the legislature the Puerto 

Rico Fiscal Responsibility and Economic Revitalization Act (the “Act”), 

which will establish the Puerto Rico Fiscal Oversight and Economic Re-

covery Board (the “Board”). The Act and the establishment of the Board 

will support Puerto Rico’s efforts to address its immediate fiscal crisis by 

seeking to restore public confidence in the Commonwealth, while also re-

maining incompliance with the Commonwealth’s constitution. Along with 

the Working Group, the Board will facilitate a return to long-term fiscal 

sustainability and economic growth and provide Puerto Rico’s creditors 

with assurance that conditions agreed to as part of any comprehensive debt 

restructuring agreement, as well as compliance with the Working Group’s

Fiscal and Economic Growth Plan (“FEGP”), will be monitored by an inde-

pendent, non-political body.

The Board will be comprised of five members appointed by the Governor 

and approved by the Senate. The members will select a chairperson from 

amongst themselves. The Board will have fiscal oversight authority over 

“Covered Entities,” which include: the Commonwealth; each individual 

department and agency of the Commonwealth; and each public corporation

or instrumentality, other than the Puerto Rico Electric Power Authority and 

the Puerto Rico Aqueduct and Sewer Authority, unless they are designated 

as a Covered Entity by the Governor. In order to respect their constitutiona-

lly protected independence, the judicial branch, the legislative branch, and

the Office of the Comptroller are not Covered Entities under the Act. The 

Government Ethics Office and the Office of the Special Independent Prose-

cutor are also not considered Covered Entities. The Act will require the 

Working Group to submit a proposed Commonwealth-wide, consolidated 

five‐year fiscal and economic growth plan to the Board for approval at the 

later of the end of the second quarter of 2016 or after all of the members of 

the Board shall have taken office. The Board will then be required to deter-

mine whether the Working Group’s plan complies with the objectives set 

forth in the Act, including:

* Implementing structural reforms with the goal of restoring economic 

growth and competitiveness in the Commonwealth

* Eliminating, over time, of the financing gaps and reducing of the debt 

burden of the Covered Entities to sustainable levels; and

* Improving institutional credibility across all government entities through 

improved budget formulation and execution, and data transparency.

If the Board concludes that the proposed fiscal and economic growth plan 

meets the objectives of the Act, the Working Group will submit the plan

to the Governor for review and approval. If the Board withholds approval,

it may provide recommendations for revisions to the proposal in order for

the plan to meet the objectives of the Act.

Further, under the Act, each entity must submit a proposed annual budget 

to the Board by no later than March 1 or such later date determined by the 

Board, in its sole discretion. The proposal must be accompanied by a report 

from the Office of Management and Budget identifying the individual mea-

sures of revenue increase and expense reductions included in the budget 

that conform to the approved Fiscal and Economic Growth Plan for that 

fiscal year. The Board shall have 30 days after the receipt of each budget 

to determine if the proposal complies with the Fiscal and Economic Gro-

wth Plan. The Board will be provided with information gathering authority 

in order to monitor each entity’s compliance with the Fiscal and Economic 

Growth Plan, and to approve annual budgets and monitor their compliance. 

The Act also imposes certain automatic expense control mechanisms and 

other measures to address non-compliance with approved budgets and with 

the Plan generally.

Finally, the Act amends certain provisions of the Organic Act of the Office

of Management and Budget and the Government Accounting Act for the 

purpose of, among other things, (a) implementing the requirement that the 

revenue estimates used to prepare the Commonwealth’s budget must be 

certified by an independent third-party selected by the Board, (b) providing

 that the Commonwealth’s budget shall identify certain appropriations, to be 

known as "Sequestered Appropriations,” representing 2.5% of the total app-

ropriations for operating expenses and special appropriations included in the

Commonwealth’s budget, which Sequestered Appropriations shall be relea-

sed or cancelled in accordance with the Act, and (c) implementing other mea-

sures aimed at ensuring sound fiscal and accounting practices.