Washington Watch, Puerto Rico Special Edition: Federal Judge Blocks FOB PREPA appointment

By Jennice Fuentes / Fuentes Strategies

In an unexpected move, federal judge Laura Taylor Swain decided not to confirm the appointment of Noel Zamot as Chief Transformation Officer of the Electric Power Authority (PREPA). Zamot was appointed by the Fiscal Oversight Board (FOB) in the wake of the recently canceled $300 million contract with Whitefish Energy. Judge Swain said she will submit her decision in writing in the next couple of days, and will move forward with Title III debt restructuring proceedings. The FOB is expected to appeal the decision to the First Circuit Court of Appeals in Boston. Zamot will continue as Revitalization Coordinator, a position created under the PROMESA federal law to fast-track Commonwealth and federal regulation for “vital” infrastructure projects.

The contract with Whitefish was criticized for the company’s lack of expertise, and lack of employees (they had 2 full-time employees at the time the contract was awarded). In addition, there is little insight into the decision made to hire a little known Montana based company instead of turning to the American Public Power Association (APPA), a traditional mutual aid partnership between states, which would have probably cost far less.

Governor, PREPA Chief testify on Capitol Hill

Governor Ricardo Rosselló and PREPA Executive Director Ricardo Ramos are testifying today at House and Senate committee hearings that are looking into the federal response to Hurricane María, as well as the Whitefish contract controversy. The Senate Energy and Natural Resources Committee held their first hearing today, November 14 at 9:30am, where Governors Rosselló and Kenneth Mapp (USVI) will testified, along with Ramos, Zamot, Julio Rhymer (USVI Water and Power Authority), Bruce Walker (Assistant Secretary of Energy), Major General Donald E. Jackson (US Army Corps of Engineers), and José Román Morales (interim Chairman of the Energy Regulatory Commission).

The House Natural Resources Committee will also hold a hearing later today at 2:00 pm, titled “The Need for Transparent Financial Accountability in Territories’ Disaster Recovery Efforts”. Rosselló and Mapp will testify at that hearing.

Tax reform poses major challenge for Puerto Rico manufacturing sector

Congressional Republican efforts to overhaul the federal tax system has most of Puerto Rico’s economic and political class extremely concerned. The House Republican bill, which has already been approved by the Ways and Means Committee and is expected to come to a vote on the House floor this week, could impose a 20% tax on products manufactured by U.S. subsidiaries in Puerto Rico that export those goods to their headquarters in the continental U.S. Puerto Rico is considered an international jurisdiction for tax purposes, and the move is intended to recapture billions in revenues that currently sit “abroad” in Puerto Rico, outside the grasp of the IRS. The provision could be a death knell for 70,000+ jobs on the Island.

Governor Rosselló has been lobbying alongside members of the opposition pro-Commonwealth Popular Democratic Party for an exemption for Puerto Rico and the U.S. territories from the harmful provision. Resident Commissioner Jenniffer González came out against the provision late last week, but has been criticized for her slow response to the issue. Some accuse her of slow-walking advocacy for Puerto Rico because of pro-Statehood ideological considerations, since the Island would lose special tax incentives if it became the fifty-first state of the U.S.

The Senate’s tax bill applies similar taxes, but to intangible assets, such as patents and other intellectual property. The Senate Finance Committee is expected to mark up its bill this week.