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Friday, October 16, 2015

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

Press Release

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. 

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