PUERTO RICO AND PROMESA

FISCAL ACCOUNTABILITY AND THE HIDDEN COST OF REFORM

Phillip H. Arroyo

----------------------------------------------- Summary--------------------------------------------------

Puerto Ricos continuously accelerating downward economic spiral continues

unabated. The manufacturing sector has literally collapsed. Health care delivery and
social welfare programs function, but just barely. Each year, roughly 84,000 Puerto
Ricans leave the islands to take up residence on the mainland. This stagnates economic
growth even further, and intensifies the brain-drain effect. In this climate of economic
stagnation and contraction, there is little hope that the territory can ever repay the
staggering $70+ billion owed to domestic and foreign investors. Total economic
collapse remains a distinct possibility. The chances for a structured debt workout
diminished further after Congress confirmed that the island territory cannot legally file
for bankruptcy protection under Chapter 9 of the U.S. Bankruptcy Code. As an
alternative solution to the islands economic crisis, Congress enacted corrective
legislation, the Puerto Rico Oversight, Management, and Economic Stability Act,
ironically short-titled as PROMESA, U.S.C., a Republican-sponsored bill with
support from a majority of House and Senate Democrats. Ironically, the bill was signed
into law by President Barack Hussein Obama on the same day that the U.S. Supreme
Court decided in Puerto Rico vs. Sanchez Valle1 that, given its status as a territory,
Puerto Rico lacks any meaningful form of sovereignty under existing Constitutional
norms. The new law has divided Puerto Rico along party lines. Independence
proponents have denounced PROMESA as a frontal assault against Puerto Rican
sovereignty. On the other hand, statehood proponents see the Bill as Puerto Ricos last
best hope of solving her deep-seated economic problems. This Paper examines key
provisions of PROMESA, especially the financial oversight provisions that undermine
important expressions of Puerto Rican economic sovereignty. It argues that the enacted
Bill is little more than a Congressionally-sanctioned tool to impose punishing austerity
measures against Puerto Rico and her desperately impoverished people despite of calls
from the United Nations warning that ratcheting up austerity measures will threaten
residents human rights and worsen the U.S. territorys high poverty levels.

INTRODUCTION

Phillip Arroyo holds a Juris Doctorate from Florida Agricultural and Mechanical University College of Law. This
article is dedicated to the children and future generations of Puerto Rico who hold the key to end more than 500 years
of colonialism in accordance with international law.

1 136 S.Ct. 1938 2016 WL 3221517

1
Young people have the duty of defending their country utilizing weapons of knowledge

- Pedro Albizu Campos

The island of Puerto Rico possesses a vast history of economic turmoil under United States
rule, problems that date to the genesis of the relationship. The island has been submerged under
levels of poverty for more than a century, and it is now suffering a crushing debt crisis caused by
an array of factors such as predatory lending by corporate financial investors, irresponsible
political and governmental decisions by Puerto Rico leaders and the lack of both equality in federal
funding and governmental representation at the federal level; all of which we shall elaborate on
further in this paper. Ironically, U.S. corporations operating in Puerto Rico have and continue to
garner great success in increased profits and federal2 and local3 tax incentives along with passive
foreign investment rules; make the U.S. Puerto Rico current status quo relationship highly
beneficial for the U.S. economy and its most powerful enterprises. This historical economic crisis
in Puerto Rico lead to the creation of the Puerto Rico Oversight, Management, and Economic
Stability Act4, also known as the PROMESA law by U.S. Congress which was moved forward
within the legislative process as an alleged immediate remedy to rescue5 the island from its
economic disaster.

The premier legislative intent of the PROMESA bill was to remedy Puerto Ricos economic
crisis by instituting governmental financial responsibility and facilitating the islands access to
capital markets.6 The bill centered its legislative intention around focusing on the repayment of
the islands debt to creditors and constituting strict austerity measures; both of which would

2 26 U.S. Code, Secs. 951-964

3 Annotated Laws of Puerto Rico (13 L.P.RA. Sec. 10832(a) (2012)

4 Public Law 114-187 (2016)

5
Patrick Rucker and Nick Brown, Puerto Rico draft rescue bill guided by U.S. bankruptcy rules, REUTERS
BUSINESS NEWS, Mar. 29, 2016, http://www.reuters.com/article/us-puertorico-debt-congress-idUSKCN0WW015

6 H.R.5278 PROMESA 114th Congress (2015-2016)

2
increase the islands economic recuperation and restore its access to capital and borrowing
markets.7 In order to guarantee PROMESAs legislative objective, the creation of a fiscal oversight
board composed of seven (7) members unilaterally appointed by the United States Congress and
the President of the United States would oversee the islands governmental activity to prevent past
practices of excessive spending and excessive borrowing while assuring the island complies with
its constitutional requirement of maintaining a balanced budget every year, which was specifically
included within the U.S. congressionally approved Jones Act of 1917, which conveyed U.S.
citizenship to the people of Puerto Rico .8

When pinpointing how Puerto Rico reached its economic crisis, we can arrive to four (4)
crucial factors which greatly contributed to the islands financial collapse; excessive governmental
spending, unequal access to federal healthcare programs, mismanagement of the islands pension
system and the phasing out of section 936 of the U.S. tax code. When analyzing Puerto Ricos
governmental spending history, it is clear elected leaders from both majority political parties on
the island have incurred in excessive borrowing and spending to enhance development of highly
visual public projects, most of which ended up costing two or three times more than its original
governmental cost estimates. One example was the construction of the Tren Urbano or Urban
Train which was designed to relieve the ever-mounting automobile traffic within Puerto Ricos
metropolitan and city regions. The original estimate of construction of the train rail was projected
at a little over $1 billion dollars, however after the trains construction and completion, it ended
up costing over $2.2 billion; more than double its original estimate. The public funds utilized for
this massive train rail system were appropriated by the islands government with a projected goal
of generating public usage by over 110,000 passengers a day. After the rail system was completed,
and inaugurated on December 19th, 2004, its projected passenger usage goals fell far below its
original projections. Although excitement over the completion of the rail system and am initial
period in which rides were free of charge, an average of over 40,000 passengers a day was

7 Id.

8 Pub. L. No. 64-368, 39 Stat. 951, An Act to provide a civil government for Porto Rico, and for other purposes.
(1917)

3
generated. However, by late 2005, passenger usage severely dropped to 24,000. Today, the
passenger usage rate is around 36,280, still well below the original projection of 110,000
passengers a day and operates on a budget of $100 million a year.

Overpriced public projects with limited practical effectiveness for the public such as the tren
urbano exemplifies how political and governmental leaders on the island were willing to indebt
the islands government finances to create highly visual public projects that would enhance
political capital for local political parties on the island; in this case, the Partido Nuevo
Progresista, or New Progressive Party, a mostly conservative political party that advocates for
the admission of Puerto Rico as the fifty first (51 st) state of the United States. Similar practices
were incurred by the islands government in other projects over past decades which have also been
mired with incidents of corruption by both elected and appointed officials. Such was the case of
the Super Tubo project which installed a massive aqueduct system at the end of 1990 within the
northern region of Puerto Rico to remedy a severe drought problem the government faced at the
time; which caused the rationing of water service for more than one hundred and seventy (170)
days. Two (2) high officials of the administration in power during that time were convicted of
corruption within the federal court in Puerto Rico and additional public officials were convicted
on similar charges within the islands department of education.9 Within the municipal and
legislative sectors, elected and appointed public officials were also prosecuted and convicted by
the U.S. Department of Justice as well. 10
In healthcare, Puerto Rico as a U.S. territory, receives unequal treatment under Medicare and
most federal healthcare programs, despite the fact the American citizens of Puerto Rico pay into
the Medicare system at an equal footing as any other American citizen in the United States. The
same amount in Medicare tax is deducted from the checks of Puerto Rican workers as any other
worker in the United States, yet, Puerto Rico hospitals receive dramatically less medical

9 Corruption charges in Puerto Rico, C.N.N., Jan. 23, 2002 http://www.latinamericanstudies.org/puertorico/pr-

corruption1.htm

10
John Marino, U.S. Corruption Prosecutions Rock Puerto Rico, THE WASHINGTON POST, AUG. 27, 2000, also
available here https://www.washingtonpost.com/archive/politics/2000/08/27/us-corruption-prosecutions-rock-
puerto-rico/12e0ec42-e7b8-4cb1-aed4-090a3a78e1da/?utm_term=.8abfebe771ae

4
disbursements as opposed to hospitals in the United States. A study by the JAMA Archives of
Internal Medicine in 2011 revealed how unequal federal healthcare funding has contributed to
negative healthcare effects on the island. 11 This gap in federal funding caused the Puerto Rico
government to rely on governmental bonds and borrowing to cover healthcare costs, therefore
further contributing to the islands overall debt.
The mismanagement of Puerto Ricos pension system lead the overall public debt to
skyrocket. As of 2014, Puerto Ricos three major pension systems possessed liabilities of $45.5
billion compared to net assets of $1.9 billion. This significant gap of assets in Puerto Ricos
public employee pensions was the result of severe underfunding. For example, in the 2014 fiscal
year, public-sector employers made a total of $850 million in pension contributions versus total
required contributions of $2.572 billion. Essentially, public-sector employees paid only one-third
of the amount actuaries that were necessary to maintain the systems long-term solvency. Similar
underpayments occurred in previous years which exponentially contributed to the increase of the
islands overall debt.12 As Puerto Ricos pension systems assets diminished, the local
government leadership resorted to rely on pension obligation bonds (POBs), which is essentially
equivalent to gambling that investment returns they received on the borrowed funds will exceed
their borrowing costs. Unfortunately, the POBs were not a net positive in 2009 for Puerto Rico
and that gamble cost the islands pension system dearly. In 2009, the islands public employee
pension system suffered a 13 percent loss on their investments. 13
Finally, the phase out of section 936 of the U.S. tax code in Puerto Rico triggered many U.S.
corporations to cease operations on the island. Section 936 of the U.S. Internal Revenue Code,
exempted corporate income earned in Puerto Rico from taxation. When the phaseout period
reached its end in 2006, Puerto Rico entered into an recession.

11
Arch Intern Med. 2011;171(17):1525 Quality of Care in the U.S. Territories, Sep. 28, 2011, also available here
http://jamanetwork.com/journals/jamainternalmedicine/fullarticle/1105948

12 Marc D. Joffe and Jesse Martinez, Origins of the Puerto Rico Fiscal Crisis, Mercatus Research, Mercatus Center
at George Mason University, Arlington, VA, Apr. 2016, also available here
https://www.mercatus.org/system/files/Joffe-Puerto-Rico-Fiscal-Crisis-v1.pdf

13 Id.

5
 Before the creation of the PROMESA law, as a locally legislated alternative to Section 936, in
2012, the former Governor of Puerto Rico Luis Fortuno signed Acts 20 and 22 of 2012 14 into law,
which created corporate tax cuts for corporations and wealth individuals by offering a 100-percent
tax exemption on interest and dividends to resident individual investors To qualify, an individual
must not have resided in Puerto Rico at any time during the 15-year period ending on January 17,
2012, and the individual must become a resident of Puerto Rico after January 17, 2012 and prior
to 2036.15 A qualifying individual is exempt from Puerto Rico tax on capital gains attributable to
the period after the individual became a Puerto Rico resident. If gain is deemed to have accrued
before the individual became a Puerto Rico resident, the tax rate is 10 percent for gain recognized
during the first 10 years of residence and five percent for gain recognized after that 10-year period.
In addition to the before mentioned, municipal bonds in Puerto Rico are triple tax exempt which
is why only 42% of bond debt is held by Puerto Rican residents. However, these tax incentives
have not created anywhere near the amount of jobs as section 936 did while in effect in Puerto
Rico.
These exotic corporate tax realities coupled with irresponsible fiscal policies by the islands
political and governmental administrations led to a proliferation of predatory lending by Wall
Street and governmental credit-borrowing which in majority of cases severely lacked a clear plan
towards repayment. These governmental actions were carried out despite of the fact the
government of Puerto Rico specifically and constitutionally mandates its legislative and executive
branch leaders to balance the budget. 16 The before-mentioned elements created a perfect storm
composed of predatory lending, irresponsible governmental credit-borrowing and US corporate
exploitation which would go on to trigger Puerto Ricos catastrophic economic downward spiral.

A. Crippling Debt

The islands of Puerto Ricos crushing $72 billion debt has generated severe governmental,
economic and social unrest that continues to threaten the stability of the islands political and

14 Sothebys International Realty| Puerto Rico Tax Incentives http://puertoricotaxincentives.com/

15
Annotated Laws of Puerto Rico 13 (L.P.R.A.) 10833(a) (2012).
16
P.R. Const. art. VI, 7.

6
economic structure. Over 150 schools have been forced to close 17 as a result of increased austerity
measures product of the ever-increasing debt. The legal facilitation and permissibility of the
reduction of the minimum wage in Puerto Rico to $4.2518 was solidified through the approval of
PROMESA and has been constituted as an additional premier element in the forced migration of
Puerto Ricans to the United States19. Around 10 years ago, in 2007 local economists in Puerto Rico
discovered the islands debt was representative of around 76% of its gross national product 20. In
2014, the concerns and economic collapse predictions would come to fruition when Standard &
Poors converted Puerto Ricos debt via downgrade to junk status 21 which would severely limit
Puerto Ricos access to capital

The distribution of Puerto Ricos debt is composed of five (5) primary sources of which
government owned corporations leads the pack at 37%, followed by GO bonds 22 at
29%,COFINA23 at 22%, municipal debt at 6% and retirement pension fund system debt loads at
4%24. This staggering debt has increased the poverty rate to 45% and has elevated unemployment

17
Patrick Gillespie, Hedge Funds want Puerto Rico to close Schools, C.N.N., Aug, 4 2015,
http://money.cnn.com/2015/08/04/investing/puerto-rico-hedge-funds-close-schools/

18
Sec. 403; PL 114187 [S 2328] 48 USCA; 29 U.S.C. 206(g)
19
Chris Streett, Congress Fears 1 Million Puerto Ricans Migrating to Mainland, BREITBART,, Apr. 17, 2016,
http://www.breitbart.com/big-government/2016/04/17/congress-fears-1-million-puerto-ricans-migrating-us-
mainland
20
Joanisabel Gonzlez, Debe Puerto Rico 76 centavos de cada dlar, EL NUEVO DIA, May. 2017 (Spanish)

21
John Wagner, Puerto Rico's debt downgraded to junk, USA TODAY, Feb. 5, 2014, also available at
http://www.usatoday.com/story/money/markets/2014/02/05/puerto-rico-downgraded-to-junk/5222499/

22A general obligation bond (GO) is a municipal bond backed by the credit and taxing power of the issuing
jurisdiction rather than the revenue from a given project. General obligation bonds are issued with the belief that a
municipality will be able to repay its debt obligation through taxation or revenue from projects.

23 The Puerto Rico Urgent Interest Fund Corporation (also known as the Puerto Rico Sales Tax Financing
Corporation) Spanish: Corporacin del Fondo de Inters Apremiante (COFINA) is a government-owned
corporation of Puerto Rico that issues government bonds and uses other financing mechanisms to pay and refinance
the public debt of Puerto Rico. The Corporation is a subsidiary of the Government Development Bank and was
created by Law No. 291 of 2006. Bonds issued by COFINA are called Puerto Rico Sales Tax Revenue Bonds., Act
91 of 2006 Annotated Laws of Puerto Rico (L.P.R.A.) (2006)

24
Puerto Rico Government Development Bank, Commonwealth of Puerto Rico Financial Information and
Operating Data Report, Dec. 18, 2016, also available at http://www.gdb-
pur.com/documents/CommonwealthofPuertoRicoFinancialInfoFY201612-18-16.pdf

7
to 12.4% double that of the mainland. As a result of consistent defaults by the Puerto Rican
government in the payment of the debt, on January 17th, 2017, the U.S. Secretary of the Treasury
Jacob Lew and Health and Human Services Secretary Sylvia M. Burwell warned how "Puerto
Ricos ability to execute contracts for Fiscal Year 2018 with its managed care organizations will
be threatened, thereby putting at risk beginning July 1, 2017 the health care of up to 900,000 poor
U.S. citizens living in Puerto Rico through a letter sent by them to U.S. Congress25 This prompted
the newly elected governor of Puerto Rico, Dr. Ricardo Rossello to announce his administrations
intention to establish heightened austerity measures in coordination with the Puerto Rico
Oversight, Management, and Economic Stability Act fiscal board26.

B. Bankruptcy Denied

Although Puerto Rico is a US territory, it cannot legally file for bankruptcy protection under
Chapter 9 of the US Bankruptcy Code. Corporations and banks in Puerto Rico can appeal to
federal bankruptcy law, much like in the United States, but Puerto Ricos government cannot
file for bankruptcy or amend their debt obligation under the US Bankruptcy Code. When
analyzing the legislative history and intent of the federal bankruptcy law, and the modern
bankruptcy code passed by US Congress in 1978, we discover how it says nothing regarding
Puerto Rico, much less about its inclusion in the code. The Act specifically states that only a
person that resides in the United States or municipality may be a debtor under this title, 27. The
term municipality as expressed in the 1978 US Bankruptcy Code was established as a
political subdivision or public agency or instrumentality of a State. Puerto Rico was not and is
still not a state today; as it remains a U.S. territory of the United States subject to the plenary
powers of the US Congress as a commonwealth 28.

25
Dan Watson, Secretary Lew sends Letter to 115th Congress on Puerto Rico, US TREASURY LETTERS BLOG ARCHIVE,
https://www.treasury.gov/connect/blog/Pages/Secretary-Lew-Sends-Letter-to-115th-Congress-on-Puerto-Rico.aspx,
Jan. 17, 2017
26
Commonwealth of Puerto Rico Fiscal Plan, 2017, https://juntasupervision.pr.gov/wp-
content/uploads/wpfd/50/58c71815e9d43.pdf

27
11 U.S.C. 109(a)
28
Article 4, sec. 3 Clause 2, US Constitution

8
 In 1984, Congress directly denied Chapter 9 municipal bankruptcy protection, whereas,
before, Chapter 9 applied to a political subdivision or public agency or instrumentality of a
State. Although Puerto Rico is not a state, it may have been possible for courts to interpret that
the inclusion of municipalities in Puerto Rico would be possible due to its relationship as a
territory of the United States. However, the Bankruptcy Amendments and Federal Judgeship Act
of 198429 specifically excluded Puerto Rico and Washington, DC, from the protections of
Chapter 9 bankruptcy, and nowhere in the congressional record does the reason behind the
exclusion arise .
In 2016, the United States Supreme Court struck down a local law passed by the Puerto Rico
legislature that would permit the islands government to restructure the debt of its public
corporations in Puerto Rico v. Franklin California Tax-Free Trust30 . The courts majority opinion
concluded by stating that Puerto Ricos government had no power to modify bankruptcy laws on
the island, as this is US Congresss sole and plenary responsibility in accordance to both the US
Bankruptcy code and the territorial clause of the U.S. constitution31. The court expressed as
follows:
The amended definition of State excludes Puerto Rico for the single purpose of
defining who may be a debtor under chapter 9 of this title. 101(52) (emphasis
added). That exception unmistakably refers to the gateway provision in 109, titled
who may be a debtor. Section 109(c) begins, An entity may be a debtor under
chapter 9 of this title if and only if . . . . 109(c). We interpret Congress use of the
who may be a debtor language in the amended definition of State to mean that
Congress intended to exclude Puerto Rico from this gateway provision. Puerto
Rico, therefore, is not a State for purposes of the gateway provision, so it cannot
perform the single function of the State[s] under that provision: tospecifically
authoriz[e] municipalities to seek Chapter 9 relief. 109(c). As a result, Puerto
Ricos municipalities cannot satisfy the requirements of Chapter 9s gateway
provision until US Congress intervenes 32

29 Public Law 98-353, (1984)

30 136 S.Ct. 1938 2016 WL 3221517

31 Article 4, sec. 3 Clause 2, US Constitution

32 136 S.Ct. 1938 2016 WL 3221517

9
 Despite the US Supreme Courts reiteration that US Congress has the supreme authority to
modify bankruptcy laws under Chapter 9 of the US Bankruptcy code, to this very day it has failed
to do so. In 2015, Puerto Ricos sole representative in US Congress, Pedro Pierluisi filed a bill HR
860, known as the Puerto Rico Chapter 9 Uniformity Act of 2015 to amend title 11 of the United
States Code to treat Puerto Rico as a State for purposes of chapter 9 of such title relating to the
adjustment of debts of municipalities. The bill was filed before and during the Supreme Courts
deliberations regarding the 2014 Puerto Rico law declaring the islands ability to restructure its
own debt, but it died in US Congress during the 115 th congressional session. A senate version of
the bill was also filed by Senator Blumenthal of Connecticut also failed to reach enactment during
the same congressional session. In essence, the lack of political will in U.S. Congress, and the U.S.
Supreme Courts statutory nullification has effectively barred Puerto Rico from securing any
meaningful type of bankruptcy protection.

In her blistering dissenting opinion, U.S. Supreme Court Justice Sotomayor candidly
characterized these failures:

The government and people of Puerto Rico should not have to wait for possible
congressional action to avert the consequences of unreliable electricity,
transportation and safe water consequences that members of the executive and
legislature have described as a looming humanitarian crisis.

Despite of this powerful humanitarian based expression from Justice Sotomayor, US Congress
has refused to act on not only the inclusion of Puerto Rico in federal bankruptcy laws, but continues
to fail to address Puerto Ricos non-self-governing political relationship with the United States
which continues to curtail its sovereign powers as an island nation. At the time of the writing of
this paper, the governor of Puerto Rico, Dr. Ricardo Rossello, formally filed bankruptcy for Puerto
Rico under title three (3) of the PROMESA law 33 which permits the adjustment of the islands
debt through a federal judicial proceeding, similar, but distinct from an ordinary bankruptcy
proceeding under the U.S. Bankruptcy Code.

33 Sec. 304 (a), Title III, Public Law 114-187 (2016)

10
 C. Acts 20 and 22 of 2012 of Local Law: Corporate Exploitation
The island nation of Puerto Rico has been subjected to uneven federal tax structures initially
presented and established as measures of economic stimulation 34 or to attract investment35 as
the islands most recent local legislation signed into law states. These two laws, created powerful
tax incentives for both foreign and multi-national corporations and wealthy investors looking for
an investment haven which would exempt them from payment of federal corporate taxes on
earned dividends if they establish residence in Puerto Rico for the period of at least six months.

Numerous international realty firms have pounced to capitalize upon the creation of these
tax incentives. In the official website of Sothebys International Realty firm, the before-mentioned
laws are explained to potential investors and clients as follows:

The island has been part of the U.S. since 1898 and those born in Puerto Rico have
been citizens of the U.S. since 1917. Yet, because Puerto Rico is not a state, federal
taxes do not apply generally to income generated by individuals or corporations
within the Commonwealth. Puerto Rico corporations are treated for federal tax
purposes as foreign corporations and are not generally subject to U.S. corporate
taxes. Individual bona-fide residents of Puerto Rico are not subject to federal taxes
on income derived from Puerto Rico sources. In addition, Puerto Rico has provided
incentives for manufacturing operations for over four decades. Products
manufactured in Puerto Rico will carry the Made in USA label.36

What is inherently striking about this central overview and justification of Acts 20 and 22
is how a seemingly clear contradiction arises when we compare it to the US Supreme Courts
ruling in Puerto Rico v. Franklin California Tax-Free Trust37which stated in essence that only US
congress could modify or create federal laws in Puerto Rico. Puerto Rico Acts 20 and 22 of 2012
were originated within the Puerto Rico legislature and signed into law by then Governor of Puerto

34 Act 20 of 2012, Annotated Laws of Puerto Rico (LPPRA) 2012

35 Act 22 of 2012, Annotated Laws of Puerto Rico (LPPRA) 2012

36 Sothebys International Realty| Puerto Rico Tax Incentives: http://puertoricotaxincentives.com/

37 136 S.Ct. 1938 2016 WL 3221517

11
Rico Luis G. Fortuno Burset, not by US Congress. Both acts created exotic corporate tax incentives
for corporate entities and wealthy individuals, where US Congress had no involvement or
participation in its enactment. Yet, the federal government did not challenge the constitutionality
or validity of these laws as they did in Puerto Rico v. Franklin California Tax-Free Trust38 . This
contradiction begs the question: Is Puerto Ricos ability and permissibility to influence federal
law through local legislation subject to the convenience and beneficial interests of American and/or
foreign corporations doing business in Puerto Rico? The island nations attempt to file under
Chapter 9 of the US Bankruptcy Code was denied under the argument that only US Congress can
create, amend or repeal federal laws in Puerto Rico39 and yet Acts 20 and 22 of 2012 were
converted into law by the islands legislative and executive branches unilaterally, with no
opposition by federal authorities whatsoever.

The answer to this legitimate and concerning question of law may reside within the
interaction and influence of foreign and US based corporate entities within the political process
both in the United States and Puerto Rico. After the landmark US Supreme Court case Citizens
United vs Federal Elections Commission 40, which opened the floodgates for unlimited campaign
spending by corporate private entities as well as Unions in the political process in the United States,
the proliferation of corporate overreach in federal and state governments is on the rise and Puerto
Rico has not been the exception. Some of the United Statess most powerful and profitable
corporations have established subsidiaries in Puerto Rico with the sole purpose of legally dodging
federal corporate taxes.

Through acts 20 and 22 of 2012, U.S. corporate powerhouses such as Pfizer and Microsoft
have been able to cleverly save billions of dollars in US corporate tax responsibilities simply by
setting up operations through small subsidiaries in Puerto Rico that generate little to no impact in
terms of job creation or economic stimulation. According to US Department of Labor statistics

38 Id.

39 Id.

40 558 U.S. 310 159 Lab.Cas. P 10,166

12
and the Puerto Rico Department of Labor statistics there is a significant gap between the corporate
tax benefit Acts 20 and 22 of 2012 represent for corporate and investing entities when compared
to the social and economic benefits generated by both laws for the people of Puerto Rico and the
overall economic growth of the island. For instance, a 2011 US Senate investigation committee
hearing41 revealed how the American pharmaceutical company Pfizer and software company
Microsoft were able to save over 4.2 billion dollars in federal corporate taxes through a loophole
in the US Tax code. 42

In addition, some of the most powerful corporate law firms in Puerto Rico represent those
very same corporate entities that enjoy federal tax incentives in Puerto Rico; incentives nowhere
to be seen in any of the fifty states of the United States. For example, the corporate law firm
McConnel & Valdes in Puerto Rico represents four of the top ten corporate tax dodgers in the
United States43 according to the most recent report by the non-profit organization Americans for
Tax Fairness. Coincidentally, McConnel & Valdes is where former Puerto Rico governor and
proponent of Acts 20 and 22 of 2012, Luis Fortuno started his law career when he headed the
corporate consulting firm McConnel & Valdes in 1997. 44 Puerto Ricos former resident
commissioner in Congress Pedro Pierluisi was also a corporate attorney with the corporate
consulting firm Oneil & Borges, where his son also practiced law before being appointed as the
islands Secretary of Consumer Affairs by the current governor of Puerto Rico Dr. Ricardo
Rossello.45

41
U.S. Senate Subcommittee on Investigations Hearing, Offshore Profit Shifting and the U.S. Tax Code - Part 1
(Microsoft & Hewlett-Packard), Sep. 20, 2012, also available here
https://www.hsgac.senate.gov/subcommittees/investigations/hearings/offshore-profit-shifting-and-the-us-tax-code

42
Walter Hickey, The Ultra-Complicated Tax Measures That Microsoft Uses to Avoid $2.4 Billion In U.S. Taxes,
BUSINESS INSIDER, May.21, 2013, http://www.businessinsider.com/apple-microsoft-avoids-taxes-loopholes-irs-
2013-1

43
Americans for Tax Fairness, 10 companies and their Tax Loopholes, 2014
https://americansfortaxfairness.org/files/Corporate-Tax-Dodgers-Report-Final.pdf
44
Lida Estela Ruano, Fortuno heads up new consulting company, CARIBBEAN BUSINESS; Vol. 25 Issue 21, p24,
May. 1997
45
Cindy Alvarado; Rossell Picks Resident Commissioner Pierluisis son to Head Consumer Affairs Department
CARIBBEAN BUSINESS, Dec. 12, 2016 also available here http://caribbeanbusiness.com/resident-commissioner-
pierluisis-son-designated-daco-secretary/

13
 In turn, corporate clients such as Pfizer donate thousands of dollars to both principal
political parties in Puerto Rico and donates millions to members of US Congress 46, the
governmental body that has absolute power over Puerto Rico in accordance with the territorial and
property clause of the US constitution47 as we expressed earlier in this paper. According to federal
political donation reports issued by the Federal Elections Commission; in 2016 alone, the Pfizer
Inc. political action committee spent a total of $2,908,006 in political donations to members of
U.S. Congress averaging $259,900 48 to democratic members and $431,750 49 to Republican
members. Based on the judicial reasoning of the US Supreme Court in Puerto Rico v. Franklin
California Tax-Free Trust, which reiterated how US Congress has absolute power and authority
over Puerto Rico, it can be legitimately argued that Pfizer and Microsofts own respective
influence over US congress through its political donations may be transcending into the decisions
being taken in regards to Puerto Rico by U.S. Congress in Washington, DC.

The sad reality, is that the corporate exploitation of Puerto Rico is nothing new and did not
rise or proliferate through Puerto Rico Acts 20 & 22 of 2012. The economic exploitation of Puerto
Rico by foreign and US corporate entities can be traced as early as the early 1900s through the
business activity of the U.S. Sugar Trust, which dominated the sugar industry in the United States
by owning over 90% of the market at that time. Again, during that era, the US Sugar trust generated
low paying jobs which granted pay to its workers at a much lower rate than the Federal Labor
relations Act of that time. This triggered multiple sugar worker strikes throughout the island, many
of which resulted in violence. One of the most recognized leaders of the labor movement that
fought for equal labor rights and pay for Puerto Rico sugar cane workers was Harvard Law School
educated attorney and Puerto Rican revolutionary Pedro Albizu Campos in the mid 1920s and

46
Influence and Lobbying of Pfizer Inc., OPENSECRETS.ORG,
https://www.opensecrets.org/pacs/lookup2.php?strID=C00016683
47
Article 4, sec. 3 Clause 2, U.S. Constitution
48
Center for Responsive Politics, Pfizer Contributions to Federal Candidates, 2016 cycle,
https://www.opensecrets.org/pacs/pacgot.php?cycle=2016&cmte=C00016683

49
Id.

14
early 1930s. Albizu Campos would go on to be accused and convicted for conspiracy to take over
the United States government in Puerto Rico.
In the 1990s, Puerto Rico became a premier tax haven for the US manufacturing industry
through section 936 of the U.S. Tax code, which although it in fact created thousands of jobs on
the island, it did not do so on a permanent basis, due to its elimination and eventual phase out in
2006 through an accord between the Republican majority in US congress lead by then Speaker of
the US House of Representatives Newt Gingrich and then President of the United States, Bill
Clinton.50 After the subsequent phase out of section 936 of the US Tax Code, Puerto Ricos
economic downturn intensified and it was not until 2012 through Puerto Rico Acts 20 & 22 of
2012, that foreign and US wealthy investors and corporate entities could enjoy a revival of similar
tax incentives enjoyed by the manufacturing and corporate sector in the 1990s under section 936
of the US Tax code. The only difference between section 936 of the US Tax code of the 1990s and
Puerto Rico Acts 20 & 22 of 2012 is that the latter has yet to create anywhere near the amount of
jobs or economic stimulation as section 936 generated in the late 1980s and 1990s.
The accumulation of the economic and political factors delineated above, lead to the rise
of federal legislation specifically crafted to remedy Puerto Ricos financial crisis. This research
will unveil yet a new element in Puerto Ricos political status dilemma through an in-depth
analysis of the Puerto Rico Oversight, Management, and Economic Stability Act; more commonly
known as PROMESA, a piece of federal legislation which was unilaterally proposed and passed
by the United States government to remedy the fiscal economic crisis on the island.
However, an underlying question remains: Is fiscal responsibility truly the premier
objective and motivation behind the Puerto Rico Oversight, Management, and Economic Stability
Act, also known as PROMESA or is there a hidden cost of reform being concealed from both the
people of Puerto Rico and the American public?
I. PROMESA A Promise of Hope or a Pipeline towards Poverty?

A. Legislative History

50
Larry Rother, NY TIMES, Puerto Rico Fighting to Keep Its Tax Breaks for Businesses May. 10, 1993, also
available here http://www.nytimes.com/1993/05/10/business/puerto-rico-fighting-to-keep-its-tax-breaks-for-
businesses.html?pagewanted=all

15
 As a result of Puerto Ricos economic downfall, U.S. its plenary powers over the island in
accordance with the property clause of the US constitution51 by filing a bill known as the Puerto
Rico Oversight, Management, and Economic Stability Act, ironically short-titled as PROMESA,
U.S.C 52 . This federal piece of legislation was designed to serve as the congressionally mandated
solution to Puerto Ricos economic woes constituted on the foundational purpose of providing a
method for a covered territory to achieve fiscal responsibility and access to the capital markets.53
PROMESA was originally introduced on May 18th, 2016 in the United States House of
Representatives as H.R. 4900 and subsequently filed as H.R. 5278 by congressman Sean Duffy, a
republican representing Wisconsin, the same state as the Speaker of the US House of
Representatives Paul Ryan. The bill passed the 114th Congress (2015-2016) in less than a month,
on June 9th, 201654 , and was signed into law by President Barack Hussein Obama on June 30th,
2016. Coincidentally, on the very same day PROMESA was passed in Congress, two hours before,
the United States Supreme Court issued its decision in Puerto Rico vs. Sanchez Valle 55, where it
found that the island in fact lacked sovereignty, therefore barring Puerto Rico and the United States
from successively prosecuting a single person for the same conduct under equivalent criminal
laws. 56
On June 9th, 2016, the day PROMESA was passed, speaker Paul Ryan delivered a speech
on the floor of the United States House of Representatives calling on members of US congress to
vote in favor of the PROMESA bill by highlighting how said bill would prevent a bail-out of
Puerto Rico, which would ultimately come at the expense of the American taxpayer. 57 In summary,

Art IV, Sec 3, Clause 2 US Constitution - The Congress shall have Power to dispose of and make all needful
51

Rules and Regulations respecting the Territory or other Property belonging to the United States....
52
H.R.5278 PROMESA 114th Congress (2015-2016)

53
48 U.S.C. 2121

54
162 Cong. Rec. 3798 (2016)

55 This decision caused great controversy because it in fact revealed how the current territorial political status of
Puerto Rico was not truly sovereign in the sense that its powers do not emanate directly from its people as the United
States declared at the United Nations in 1952. This prompted the Governor of Puerto Rico Alejandro Garcia Padilla
to send a letter to the United Nations denouncing the United States for back tracking what it had declared at the United
Nations pertaining to Puerto Rico in 1952 and arguing that Puerto Rico is in fact a colony of the United States.

56
136 S.Ct. 1938 2016 WL 3221517
57
162 Cong. Rec. 3798 (2016)

16
speaker Ryan utilized his allotted time during the final debate of the PROMESA bill by centering
his position around the following key statement:
If the [Puerto Rican] government cant meet its obligations, [these] families
will pay the price. Or even worse, taxpayers could be asked to bail it out. That is
simply unacceptable.. The Constitution gives Congress the duty to oversee
legislation for all U.S. territories. And now its time that we do our duty.. The
bill applies only to territoriesnot to states. I also want to point out: The Puerto
Rican government is not getting off scot-free. Not at all. It has not served the Puerto
Rican people well. It has spent money recklessly for decades. So this legislation
will make sure the government balances its budget and passes reforms that will
grow Puerto Ricos economy. It gives flexibility on the youth minimum wage, so
businesses will hire more young workers.

Similar congressional testimonies in support of PROMESA were heard that evening by a

majority of members of congress; most of which utilized nearly identical remarks as espoused by
Speaker Ryan.58 At first glance, the before referenced statement could legitimately lead a laymen
person to infer that the economic crisis in Puerto Rico was the Puerto Rican governments doing
and their doing alone. It could also legitimately be inferred by this statement that failing to pass
the PROMESA bill would have forced the American taxpayers to respond by bailing Puerto Rico
out, an unequivocal insinuation alluding to the United States own financial crisis in 2008, also
known as the global crisis; which most Americans remember vividly as the time the United States
Congress bailed out the nations premier financial institutions 59, after a market crash which was
ironically caused by improper financial practices within Wall Street.60 This led to the collapse of
financial institution juggernauts such as Lehman Brothers and others, which ultimately nearly
crippled the US economy.61 Naturally, much discussion and debate has been generated as to what
was the cause of that financial crisis in the United States at that time; however, one theory
summarized by the printed national publication The Economist suggested an irrationally

58 Id.

59 Pub.L. 111203 (2010)

60 Crash Course - The origins of the financial crisis

http://elearning.moodle2.unito.it/esomas/pluginfile.php/1736/course/section/1834/Economist_FinancialCrisis_sept1
3.pdf
61
Lehman Brothers collapse stuns global markets, C.N.N., Sept. 15, 2008,
http://edition.cnn.com/2008/BUSINESS/09/15/lehman.merrill.stocks.turmoil/index.html?eref=edition

17
exuberant Anglo Saxon sort, who claimed to have found a way to banish risk when in fact they
had simply lost track of it.62

The quickness in which the PROMESA bill passed through both federal legislative bodies was
extremely irregular considering the historically slow pace bills related to Puerto Rico have
experienced within the federal legislative process. For example, the most significant bills passed
in US Congress before the passage of PROMESA, was H.R. 856 of 1998 filed by Congressman
Don Young in 1997 and HR 2499 of 2010, filed by Puerto Ricos sole non-voting member of US
Congress Pedro Pierluisi, known as the Puerto Rico Democracy Act.
HR 856 was filed on February 27th, 1997 and took more than a year to reach passage which
occurred on March 4th, 1998. In the case of HR 2499, the bill was filed on May 19 th, 2009, and
also took a little over a year to pass the US House of Representatives as well, when it received
majority legislative approval on April 29th, 2010. The PROMESA bill took only 22 days to pass;
having been filed on May 18th, 2016 and swiftly passed on June 9th, 2016 just two (2) hours after
the U.S. Supreme Court released its historic decision in Puerto Rico v. Sanchez Valle63, which for
the very first time declared Puerto Rico possessed no sovereignty under its current political
relationship with the United States therefore leaving no room for potential challenges to the
PROMESA laws constitutionality. Coincidence or clear coordination between the legislative and
judicial branches of the United States government? Only time will tell.
When analyzing the Puerto Rico economic crisis, much blame has been shifted towards the
government and people of Puerto Rico; yet hardly any blame has been directed towards the
multiple U.S. and foreign corporations that have reaped immense financial gain before and during
the islands economic crisis. Corporate law firms and investing companies that represent the before
mentioned corporate entities are mentioned even less. Could it be possible that similar corporate
actors and financers that caused the United States financial crisis of 2008 be behind Puerto Ricos
economic downfall as well? Were the same improper predatory lending practices executed by

62 The origins of the financial crisis, THE ECONOMIST, Sept. 7, 2013, also available at
http://elearning.moodle2.unito.it/esomas/pluginfile.php/1736/course/section/1834/Economist_FinancialCrisis_sept1
3.pdf

63 Public Law 114-187 (2016)

18
Wall Street financial institutions in the market crash of 2008, being applied in Puerto Rico for
decades? Later in this paper we shall address the potential answers to these fundamental questions.
After the respective passage of the PROMESA bill within the legislative branch of the
United States, President Barack Hussein Obama signed the legislation into law not before stating:
This bill is not, in and of itself, going to be sufficient to solve all the problems
that Puerto Rico faces, but it is an important first step on the path of creating more
stability, better services, and greater prosperity over the long term for the people
of Puerto Rico.

The people of Puerto Rico need to know that they're not forgotten; that they're
part of the American family, and our Congress's responsiveness to this issue --
even though this is not a perfect bill -- at least moves us in the right direction. 64

The implementation of the laws fiscal board that will oversee the islands finances has been
met with resistance by numerous sectors in Puerto Rico while on the other hand has received
support and praise from conservative financial and political sectors both in Puerto Rico and the
United States. In the following sections of this paper we will analyze both sides of the argument
pertaining to PROMESA, its intended goals, its ultimate outlook for the future of the people of
Puerto Rico while exposing the true intentions of the bill and the entities that stand to gain from
its subsequent implementation.

B. PROMESAs Legislative Intent and Goals

The premier duties, goals and intent of the fiscal board created under the PROMESA law are
categorized under various key objectives which require strict compliance by the government of
Puerto Rico and its municipalities. The fundamental core duties of the fiscal board is to evaluate
and approve all fiscal and budget plans submitted by the islands legislature and/or governor as
well as establish framework for the restructuring of Puerto Ricos outstanding debt. 65 Any
violation, inconsistency or non-conformity of the government of Puerto Rico with the directions
of the fiscal board enshrined in the before referenced duties would result in the board reporting the

64
Heather Long, President Obama signs Puerto Rico rescue bill, C.N.N. MONEY, Jun. 30, 2016,
http://money.cnn.com/2016/06/29/investing/puerto-rico-debt-promesa/

65
H.R.5278 PROMESA 114th Congress (2015-2016)

19
government of Puerto Rico to the President of the United States and US Congress for further
action.66

The PROMESA bill, which was ultimately enacted as Public Law 114-187, also mandates a
series of specific directives under Title IV of the bill titled Miscellaneous Provisions 67 to attend
a variety of additional accessory matters within the Puerto Rico government. One specific
provision which generated controversy was the provision that permitted amending the Fair Labor
Relations Act of 193868, to lower the minimum wage in Puerto Rico to $4.25 an hour for citizens
in Puerto Rico aged twenty-five (25) years or younger69. Members of congress that supported this
provision argued it would create economic growth in Puerto Rico through the private sector by
stimulating businesses to hire young workers, which in turn would contribute to the essential goal
of the fiscal board for island, which is economic recovery and access to capital markets.

This specific provision was challenged by the Congresswoman of the 35 th district of California,
Norma Torres who filed an amendment to strike out the entire provision related to the reduction
of the minimum wage in Puerto Rico. 70 The amendment was debated for a very brief time on the
floor of the U.S. House of Representatives by only three (3) members; democratic congressman
Alan Grayson of Florida, Republican congressman Phil Roe of Tennessee and the proponent of
the amendment, democratic congresswoman Norma Torres of California,71 who aggressively
attempted to persuade her fellow members of congress to support her amendment by stating the
following:

The minimum wage provision in this bill is bad for young workers, and its bad for
Puerto Rico. It does not fix the islands problems and in the long run, may make them

66
Sec 201-205 Title II Responsibilities of Oversight Board H.R.5278 PROMESA 114th Congress (2015-2016)
67
Title IVMiscellaneous Provisions Secs 401-413, H.R.5278 PROMESA 114th Congress (2015-2016)
68
Pub.L. 75718, ch. 676, 52 Stat. 1060, June 25, 1938, 29 U.S.C. ch. 8

69
Sec 401, Title IVMiscellaneous Provisions H.R.5278 PROMESA 114th Congress (2015-2016)
70
H.Amdt.1163 to H.R.5278 PROMESA 114th Congress (2015-2016)

71
Id.

20
 worse. The island is already experiencing a mass exodus of young people. Lowering
wages will only compel more young people to leave and will have a detrimental impact
on Puerto Ricos current and future workforce, its tax base, and ultimately its ability
to repay its debt. Lowering the minimum wage sets a troubling precedent, particularly
given the uncertainty regarding the bills language. If we want to help Puerto Rico
overcome this current crisis, we need to make sure the island is a place where young
people can see a future, start a family, and grow a business, not a place that devalues
their work and their contributions. There is no question that Puerto Rico will need to
make sacrifices, but it cant do so on the backs of these hard-working, young American
citizens. My amendment would strip this provision from the bill. In todays dollars,
American workers havent had a minimum wage this low since the 1940s.The young
men and women of Puerto
Rico are American citizens, and they dont deserve to be treated like second class
workers.72

Immediately following congresswoman Torress remarks, republican Congressman Phil

Roe counter-argued by debating in support of the PROMESA minimum wage provision73 by
stating that the reduction of minimum wage for young workers in Puerto Rico would essentially
assist local businesses expand and hire new young workers of limited skills ultimately
contributing to the economic growth and recovery of the island. 74

The debate on Congresswoman Torress amendment closed with the remarks of congressman
Alan Grayson of Florida who zealously expressed his opposition to the reduction of the minimum
wage in Puerto Rico, by highlighting the impossibility for young workers to live off a wage of
$4.25 an hour in todays economy which would force young Puerto Rican workers to flee the
island and relocate 75

Congresswoman Norma Torres, 162 Cong. Rec. 3798 (2016), H.Amdt.1163 to H.R.5278 PROMESA 114th
72

Congress (2015-2016)
73
Sec 401, Title IVMiscellaneous Provisions H.R.5278 PROMESA 114th Congress (2015-2016)
74
Mr. Chair, I respectfully rise in opposition to the amendment by my colleague from California because this is
exactly the kind of thinking that led Puerto Rico into the fiscal situation in which they now find themselves. As we all
know, one thing that would help address Puerto Ricos fiscal crisis is a stronger, more vibrant local economy. That
is why this legislation includes a number of provisions aimed at helping local businesses expand and hire new
workers. This recommended change will support economic growth and provide more job opportunities for the local
workforce, particularly younger workers and workers with fewer skills. These are commonsense policies that will
help address Puerto Ricos fiscal crisis by supporting a stronger, more prosperous local economy. For these
reasons, I urge my colleagues to oppose this amendment and support the underlying legislation.- Congressman Phil
Roe, 162 Cong. Rec. 3798 (2016) H.Amdt.1163 to H.R.5278 PROMESA 114th Congress (2015-2016).
75
Mr. Chairman, we are talking about a minimum wage of $4.25 an hour. That is less than $700 per month. Tell me
how anybody can survive anywhere on the island of Puerto Rico on less than $700 a month. It simply isnt possible.

21
 A final vote of passage was taken by electronic device per request of the proponent of the
amendment resulting in the defeat of Congresswoman Torress amendment which failed by a vote
along party lines of 196 ayes and 225 noes. 76 This provision in the PROMESA bill was significant
because it formally revealed the severe level of austerity measures US Congress was willing to
implement on the island in order to place Puerto Rico back on track towards economic recovery.

C. Composition and Powers of PROMESAs Fiscal Oversight Board

Sections 101 to 109 of the PROMESA law establishes the composition of the Fiscal Control
Board77 which is composed of seven (7) members appointed by both U.S. Congress and the
President of the United States. On August 30th, 2016, the names of the officials appointed to the
Fiscal Oversight Control Board were announced by the President of the United States. The board,
composed of three Democrats and four Republicans, was selected by President Obama from a
list formally submitted by the congressional majority leadership. President Obama formally
appointed Andrew G. Biggs, Jose B. Carrin, Carlos M. Garcia, Arthur J. Gonzalez, Jos R.
Gonzlez, Ana J. Matosantos and David A. Skeel as the individuals to compose the fiscal oversight
control board constituted under the PROMESA law and immediately released a public statement
highlighting the competency of the boards newly appointed members and provided a general
overview of expectations regarding the board and its purpose towards Puerto Ricos economic

The cost of living in San Juan is no lower than it is in Orlando, or much of the mainland for that matter. I dont
know where you can even find a one-bedroom apartment for $700 a month that would be worth living in. I dont
know how you can pay for lunch and dinner and breakfast for $700 a month. I dont know how you can find health
coverage for $700 a month. I dont know how you can find transportation to get to that job for $700 a month. I just
dont get it. Any one of these things would be enough to break the budget and put you into bankruptcy if you are
only making $700 a month, and that is before you even have to pay taxes. What we are doing is we are taking a
Spanish-speaking population, 3.5 million of them, and we are condemning them to low wages to the point where 45-
year-old men will lose their jobs to 20-year-old sons because the 20-year-old sons are forced to work for only $4.25.
This is the lesson that we are teaching those young men and women who we are supposedly trying to help. The
lesson is this: hop on an airplane from San Juan to my district in Orlando for $168, and you can get a 70 percent
increase in your wages because that is what the difference is already under current law between what you are
talking about, a $4.25 hourly wage and $7.25 that you can earn legallyit is actually more than that under State
lawin Orlando. That is not teaching people how to work. It is teaching people to disrespect work. Congressman
Alan Grayson 162 Cong. Rec. 3798 (2016) H.Amdt.1163 to H.R.5278 PROMESA 114th Congress (2015-2016).
76
Roll Call 287, H.Amdt.1163 to H.R.5278 PROMESA 114th Congress (2015-2016)
77
Title IEstablishment and Organization of Oversight Board, Sec 201 H.R.5278 - PROMESA 114th Congress
(2015-2016).

22
recovery.78 The PROMESA fiscal oversight and control boards membership primarily possess
backgrounds from within the banking and financial sectors; as well as within legal academia79.
However, two (2) of the appointed members to the fiscal oversight control board, Carlos Garcia
and Jose Carrion, possess close ties with the administration of former governor of Puerto Rico
Luis G. Fortuno; with Carlos Garcia having served as President of the Puerto Rico Government
Development Bank and Jose Carrion being the brother in law of Puerto Ricos former non-voting
member of Congress Pedro Pierluisi, who was also former governor Luis Fortunos running mate
in 2008.

Section 4 of the PROMESA law establishes a supremacy clause that states:

The provisions of this Act shall prevail over any general or specific provisions of territory
law, State law, or regulation that is inconsistent with this Act. 80

This key provision of the laws text grants the fiscal oversight and control board enormous
power; capable of overriding Puerto Ricos legislative assembly and its democratically elected
governor. As a matter of fact, the governor of Puerto Rico only holds an ex-officio seat within the
fiscal oversight control board as provided by the enacted law in which he has no vote.81 Section
108 of the PROMESA law also reiterates the fiscal oversight control boards absolute autonomy

78 With a broad range of skills and experiences, these officials have the breadth and depth of knowledge that is
needed to tackle this complex challenge and put the future of the Puerto Rican people first. In order to be
successful, the Financial Oversight and Management Board will need to establish an open process for working
with the people and Government of Puerto Rico, and the members will have to work collaboratively to build
consensus for their decisions. I thank these individuals for making the decision to serve the people of Puerto Rico
as members of the Board. The task ahead for Puerto Rico is not an easy one, but I am confident Puerto Rico is up
to the challenge of stabilizing the fiscal situation, restoring growth, and building a better future for all Puerto
Ricans." - The White House Archives, Office of the Press Secretary, August 31, 2016.
79
The White House Archives, Office of the Press Secretary, President Obama Announces the Appointment of Seven
Individuals to the Financial Oversight and Management Board for Puerto Rico, Aug. 31, 2016,
https://obamawhitehouse.archives.gov/the-press-office/2016/08/31/president-obama-announces-appointment-seven-
individuals-financial

80
Sec.4 Supremacy, Title IEstablishment and Organization of Oversight Board, Sec 201 H.R.5278 - PROMESA
114th Congress (2015-2016).

81
Public Law 114-187, Title I, Sec 1 (e) (3)Establishment and Organization of Oversight Board, Ex Officio
Member.The Governor, or the Governors designee, shall be an ex officio member of the Oversight Board without
voting rights.

23
by expressly stating as follows:

Neither the Governor nor the Legislature may

(1) exercise any control, supervision, oversight, or review over the Oversight Board
or its activities; or

(2) enact, implement, or enforce any statute, resolution, policy, or rule that would
impair or de- feat the purposes of this Act, as determined by the Oversight Board. 82

In addition, the members of the fiscal oversight board are completely protected from any type
of liability claim that arises in relation to actions carried out by the PROMESA law,83 and directs
all legal actions for any matter related to the operation of the fiscal oversight control board to be
attended and resolved by the federal court system. 84 Another provision of PROMESA that has
sparked controversy is the ability for the Fiscal Oversight Control Board members to receive gifts,
bequests and devises in the form of money at any point during the existence of the PROMESA
law85; such a provision has been criticized harshly by local sectors on the island who have
described it as a mechanism in which creditors can improperly influence members of the fiscal
oversight control board through gifts and monetary compensation with no type of applicable legal
action or liability towards this practice.
In summary, the fiscal oversight control board instituted by the PROMESA law enjoys very

82Public Law 114-187, Title I, Sec 108 Autonomy of Oversight Board, Establishment and Organization of
Oversight Board

83
Public Law 114-187, Title I, Sec 108 - Exemption from Liability of Claims, Establishment and Organization of
Oversight Board. The Oversight Board, its members, and its employees shall not be liable for any obligation of or
claim against the Oversight Board or its members or employees or the territorial government resulting from actions
taken to carry out this Act.

84 Public Law 114-187, Title I, Sec. 106. Treatment of Actions arising from Act. Any action against the Oversight
Board, and any action otherwise arising out of this Act, in whole or in part, shall be brought in a United States
district court for the covered territory or, for any covered territory that does not have a district court, in the United
States District Court for the District of Hawaii.

85 Public Law 114-187, Title I, Treatment of Actions arising from Act.

Sec 104 (e) The Oversight Board may accept, use, and dispose of gifts, bequests, or devises of services or property,
both real and personal, for the purpose of aiding or facilitating the work of the Oversight Board. Gifts, bequests, or
devises of money and proceeds from sales of other property received as gifts, bequests, or devises shall be deposited
in such account as the Oversight Board may establish and shall be available for disbursement upon order of the
Chair, consistent with the Oversight Boards bylaws, or rules and regulations.

24
broad powers over the island of Puerto Ricos autonomy and system of self-government. An
example of the boards power, was seen when in January 2017, the board ordered the governor of
Puerto Rico to disable the Puerto Rico Debt Audit Commission 86; an independent citizen based
governmental commission created to properly audit the islands debt in order to accurately pinpoint
how the debt came to be and what specific individuals and entities played a larger role in its
creation. This triggered a legal challenge by sectors of the local community in Puerto Rico and the
members of the Debt Audit Commission, which was ultimately granted by the initial lower court
87
in Puerto Rico which ruled the dismantling of the audit debt commission was illegal. However,
an appeal by the governor of Puerto Rico and his administration is expected to be filed in the near
future.

II. The Hidden Cost of Reform behind PROMESA

The Puerto Rico Oversight, Management, and Economic Stability Act; more commonly known
as PROMESA was proposed and passed by the United States Congress as the ideal mechanism
to solve Puerto Ricos economic crisis and put the island on the road towards economic recovery.
However, the credibility of the premier purpose behind the creation of the PROMESA continues
to consistently be questioned due to severe austerity measures that seem to have harmed the people
of Puerto Rico more, rather than help them; and the ever-increasing evidence pointing towards
conflicts of interests by various of the members of the fiscal oversight control board. Basic and
crucial social services such as access to healthcare are not within the top priorities of the fiscal
oversight control board, which has reiterated on multiple occasions that the repayment of the debt
towards creditors is the main objective. 88

Public education on the island has also been under attack through severe budgetary cuts

86 Sandra Torres, Governor Rossello dismantles Debt Audit Commission, (Spanish), Jan. 25, 2017
http://www.noticel.com/noticia/199408/rossello-envia-cartas-para-desmantelar-comision-auditora-de-la-deuda.html

87 Noticel, The Debt Audit Commission is reinstated (Spanish), Jun. 4, 2017

http://www.noticel.com/noticia/201758/restituyen-la-comision-para-la-auditoria-integral-del-credito-publico-
documento.html

88
Public Law 114-187 Title IIResponsibilities of Oversight Board, Sec. 206. Oversight Board Duties related to
Restructuring of Debt

25
proposed by the fiscal oversight control board towards public higher education institutions like the
University of Puerto Rico. This higher education institution now faces a $450 million budgetary
cut according to the governor of Puerto Ricos resubmitted fiscal plan, after the fiscal oversight
control board rejected the governors first submitted fiscal plan and mandated an increase in cuts
to education89 while submitting a series of other amendments geared towards additional budgetary
cuts, including the elimination of Christmas bonuses for governmental employees. 90

During a congressional hearing within the Indian, Insular and Alaska Native Affairs
Subcommittee of the U.S. House of Representatives Committee on Natural Resources on March
22nd, 2017, the chairman of the fiscal oversight control board, Jose Carrion, seemed to justify the
severe austerity measures being adopted by expressing as follows:

The cuts are deep and, in some instances, will be painful. Overtime, the government
has made commitments to its constituentsincluding employees, pensioners,
college students, enrollees in health care programs, bondholders and othersthat
cannot be met based on a realistic measure of the tax revenues the economy can
currently support. However, we define the problem, whether in terms of budget
deficits, indebtedness, unfunded pensions, or the imminent risk of simply running
out of money to pay bills, Puerto Rico faces a nearly existential financial shortfall. 91

Interestingly, despite of Mr. Carrions call for sacrifice and cuts, the fiscal oversight control
board that he leads recently granted a salary of $625,000 a year to Natalie Jaresko, the former
Minister of Finance for Ukraine for over a period of four (4) years totaling a whopping $2.5 million
to become the Executive Director of the fiscal oversight control board of Puerto Rico. 92 The
President of the United States only receives a salary of $400,000 a year93. This announcement

89
Puerto Rico Government Fiscal Plan https://juntasupervision.pr.gov/index.php/en/documentos/
90
Fiscal Plan Amendments Summary March 13th, 2017 https://juntasupervision.pr.gov/index.php/en/documentos/

91 Testimony of Jose Carrion, U.S. Congress, Mar. 23, 2017, Fiscal Oversight Board public documents
https://juntasupervision.pr.gov/index.php/en/documentos/
92
Employment Contract of Natalie Jaresko, Mar. 27, 2017, Fiscal Oversight Board public documents
https://juntasupervision.pr.gov/index.php/en/documentos/

93 United States Senate website, Salaries of Federal Officials: A Fact Sheet, Apr. 26, 2013, (Retrieved May 17,
2017) also available here
https://web.archive.org/web/20130426025113/http://www.senate.gov/reference/resources/pdf/98-53.pdf

26
generated great indignation by the public in Puerto Rico, even drawing the governor of Puerto
Rico to question what he described as excessive compensation for a member of the board which
is imposing harsh austerity measures of which the most vulnerable are suffering the
consequences.94
Ms. Natalie Jaresko served as the minister of Finance for the government of Ukraine from
2014 to 2016. She is a former U.S. State Department official 95 who was instrumental in the
restructuring of the debt of Ukraine in the post-revolutionary phase of the international state,
having negotiated and collaborated with the international monetary fund to revamp Ukraines
economy and pull it from recession. Jaresko served as the first Chief of the Economic Section of
the United States Embassy in Ukraine where she negotiated important treaties and agreements
creating and implementing the foundation of the United States-Ukraine bilateral economic
cooperation.
Before that position, Ms. Jaresko served in various economic positions at the State
Department in Washington, D.C. She lead the bilateral economic relations between the United
States, the Soviet Union and the New Independent States and actively coordinated the joint
activities of the State Department, the Departments of Commerce, Treasury, the United States
Trade Representative, and Overseas Private Investment Corporation (OPIC). 96
It is clear, based on newly appointed Natalie Jareskos resume, that she has had a long and
continuous career as an operative of the United States government abroad. Why is a former U.S.
State Department official whose expertise and focus have been through experiences in Europe,
specifically her home country of Ukraine of which she is very familiar with, now put in charge of
leading the economic recovery of Puerto Rico? Was she the only or best candidate for that
position? Are there international political and foreign policy elements involved in her
appointment? These legitimate questions would unfortunately be the center topic of an entirely
different legal research paper, which I hope will be written someday.

94
Cyber News, Rossello questions salary of new Executive Director of Fiscal Board, CARIBBEAN BUSINESS
NEWSPAPER, Mar. 27, 2017, also available at http://cb.pr/rossello-y-gonzalez-cuestionan-salario-de-directora-de-la-
junta/

95
Natalie A. Jaresko CPA. Bloomberg, also available here:
https://www.bloomberg.com/research/stocks/private/person.asp?personId=70651&privcapId=3489570

96 Id.

27
 In addition to the islands cuts to education, its precarious healthcare system is also now
in risk of losing access to Medicaid if U.S. Congress does not act swiftly by including the island
within future federal health legislation, which would grant Puerto Rico continued access to
Medicaid. As of now, Puerto Rico receives Medicaid through a block grant that is set to expire at
the end of 2017. Potential federal legislation possibilities could be the upcoming Healthcare
Continuation Bill set to be addressed by U.S. Congress on April 28 th, 2017 or through the
reauthorization of the S-CHIP program. If wording directed to extend Puerto Ricos access to
Medicaid is not included in any of the before referenced pieces of legislation or any other type of
federal legislation by the end of the year, the island will receive less than one third of the Medicaid
funds it currently receives.
Currently, dozens of hospitals have closed across the island, and the American citizens of
Puerto Rico have always been shortchanged by Medicare access, despite of paying into it at an
equal footing as any citizen of the fifty (50) states of the United States. If U.S. Congress does not
act regarding the islands healthcare situation, the island will suffer devastating and catastrophic
healthcare effects which will potentially cause an even higher degree of mass migration of Puerto
Ricans to the United States.
Finally, the fact the fiscal control board is not directly elected by the people of Puerto Rico
and has absolute power over the islands government raises the undeniable fact of diminished
sovereignty which contradicts the United States stature as the leading proponent of democracy
internationally.

III. Conclusion

Puerto Rico is a colony of the United States due to its citizens inability to vote for the
president of the United States and their lack of representation in the U.S. Congress, a legislative
body that has absolute power over the island. 97 That same congress has unilaterally legislated a
law known as PROMESA 98 which we have thoroughly discussed in this legal paper,
demonstrating the overreaching and undemocratic nature of the United States power over one of
its territories under the property clause of the United States Constitution. Whether the United States

97 Article 4, Sec 3, Clause 2 US Constitution

98 Public Law 114-187 (2016)

28
in fact holds Puerto Rico as a colony has historically been subject to debate among politicians,
constitutionalists and legal scholars; however with the approval and implementation of the
PROMESA law which possesses broad supreme powers vested by US congress over Puerto Ricos
finances and system of government; it can be legitimately argued that there can no longer be any
doubt that the United States holds a colony in 2017, much like Great Britain did in North America
until 1776 through the United States Declaration of Independence. (US 1776).

Puerto Ricos economic crisis can only be remedied through its total and complete
decolonization as either a full-fledged sovereign state of the union or as a fully sovereign and
independent country; therefore, reaching its inalienable right to freedom and subsequent control
of its owns finances as espoused in the United Nations Charter. On November 12th, 2012, the
people of Puerto Rico democratically rejected the current territorial colonial relationship with the
United States and over 61 percent voted to become the fifty first (51 st) state of the union99. The
United States Congress despite its plenary and absolute powers over Puerto Rico100 to this very
day has done nothing to respect the democratic will of the 3.5 million American citizens in Puerto
Rico.

In turn, the United States congress has stripped the people of Puerto Rico from the little
autonomy they had under the status quo through the unilateral imposition of an unelected fiscal
oversight control board which was created through the legislation of a federal law in U.S.
congress101 where the people of Puerto Rico have no voting representation. It is clear United States
corporate interests play a major role in the future of Puerto Rico, given the fact billions of federal
corporate tax dollars are legally evaded by American companies and foreign corporations in Puerto
Rico102.

99
Mariana Castillo, Puerto Ricans favor statehood for first time, C.N.N., Nov. 8, 2012,
http://www.cnn.com/2012/11/07/politics/election-puerto-rico/

100 Article 4, Sec 3, Clause 2 US Constitution

101 H.R. 5278 PROMESA 114th Congress (2015-2016)

102
Americans for Tax Fairness, 10 companies and their Tax Loopholes:
https://americansfortaxfairness.org/files/Corporate-Tax-Dodgers-Report-Final.pdf

29
 The professional backgrounds and prior corporate financial experiences of key members
of the oversight fiscal control board such as Jose Carrion and Carlos Garcia establish a legitimate
potential conflict of interests within a board that favors creditors over the future well-being of the
people of Puerto Rico. Mr. Jose Carrion is the brother in law of the previous non-voting member
of congress for Puerto Rico who debated in support of the PROMESA bill, Pedro Pierluisi; who
years before becoming a member of congress, was a corporate attorney for the San Juan based law
firm ONeil & Borges, LLC, where he returned after the end of his term in congress 103. On
February 28th, 2017, the fiscal oversight board, headed by former congressman Pedro Pierluisis
brother in law,Mr. Jose Carrion, granted a $250,000 base contract to the corporate law firm ONeil
& Borges where Pedro Pierluisi currently works 104.

Illinois Congressman Luis Gutierrezs fiery final debate remarks on the floor of the U.S.
House of Representatives summarized it best when describing the undemocratic nature of the
PROMESA bill and the conflicts of interest among its members by stating how U.S. Congress was
engaging in a wholly undemocratic activity in the worlds greatest democracy.105

103
ONeill & Borges Law Firm, Pedro R. Pierluisi rejoins ONeill & Borges as a Capital Member, Jan. 2017,
http://www.oneillborges.com/our-news-events/pedro-r-pierluisi-rejoins-oneill-borges-capital-member/

104
McConnel & Valdes, LLC Contract, Fiscal Oversight Board public documents
https://juntasupervision.pr.gov/index.php/en/documentos/

105 We are engaged today in a wholly undemocratic activity in the worlds greatest democracy. We are debating
how we will take power from people who are virtually powerless already. As I have said throughout this debate,
Puerto Rico, by virtue of court cases and the Territorial Clause of the Constitution, belongs to, but is not a part of
the United States. I say to all of my colleagues: treat them with dignity, with respect. Do not put blinders on as
though they do not exist. Yes, the Territorial Clause of the Constitution of the United States says that they are a
territory and that, therefore, they are property of the United States of America. But I submit to each and every one of
you that they are live human beings with hearts, with souls, and they should demand and receive the respect of any
other human. Dont treat them like a piece of trash. Dont treat them like an inanimate object that has no right to
dignity and to respect, which is what we are doing here today. I cannot vote for this. This Congress of the United
States has said they are a colony. I didnt say that. The Committee on Natural Resources says: we have plenary
powers over the people of Puerto Rico. I didnt say that. You said that. If you have plenary powers over the people
of Puerto Rico, then assume your responsibility that comes with those plenary powers over the people of Puerto
Rico. Please dont tell me you are going to put Puerto Ricans on the board. I lived in Puerto Rico. I remember when
the sugarcane cutters would cut the sugarcane. Let me assure you there were Puerto Ricans in charge of exploiting
those workers in the sugarcane field. There have been many times in history when the very same people who have
been put in charge exploit their own. Give us dignity. Give us transparency. Do it at least in the Spanish language so
the people can know what is going on. .- Congressman Luis Gutierrez,, 162 Cong. Rec. 3798 (2016) H.R.5278
PROMESA 114th Congress (2015-2016).

30
 Within the U.S. judicial branch, an unexpected voice of criticism towards PROMESA also
came from none other than a current sitting federal judge; the honorable Judge Juan Torruella of
the United States Court of Appeals for the first circuit who expressed his grave concern regarding
the undemocratic nature of the law and his fear of potential violent up rise by the people of Puerto
Rico. During a speech he gave at the 2016 Puerto Rico Bar Association convention in Rio Grande,
Puerto Rico he stated:

PROMESA is a new way of managing the colony that, beyond solving the
fundamental problems of the country, [] perpetuates them by establishing a
collection agency to claim money owed to bondholders. We have to unite in defense
of our rights and act peacefully because we are a people of peace, but that does not
mean we must be docile and accept everything they try to impose on us. [] the
plenary, omnipotent and colonial power that the United States Congress has and
exercises over Puerto Rico [] the act by Congress of approving the so called
PROMESA Act [] Promise of what, to whom? [] a seven-person Junta
politically chosen by Congress and President Obama with omnipotent powers over
the government democratically elected by the People of Puerto Rico [] If
PROMESA does not confirm the existence of our colonial relationship with the
United States, tell me where my mistake lies. In truth, this Act makes holding
elections in November superfluous. Even more than superfluous, it makes them
irrelevant. [] the main purpose of PROMESA is to establish a collection agency
to collect the monies that are owed to the bondholders. [] the imposition of that
Junta over Puerto Ricans with the powers that are granted to it by PROMESA
represents the most denigrating, disrespectful anti-democratic and colonial act that
has ever been seen. What PROMESA does with its fiscal control board is stage a
coup dtat on democracy in Puerto Rico. 106

In another speech Judge Torruella delivered at a conference at the John Jay College
of Criminal Justice, he stated how the Control Board is further evidence of the colonial
status of Puerto Rico, which is the root cause of Puerto Ricos economic crisis and
expressed his fear of violent uprise as a result while accusing the United Stated of wanting
to deepen colonial discrimination for its own financial interests. 107

106
Jose Delgado, Interview with federal judge Juan Torruella, EL NUEVO DIA, Apr. 26, 2016, also available here
http://www.elnuevodia.com/noticias/politica/nota/interviewwithfederaljudgejuantorruella-2191720/

107
Jose Delgado, Juan R. Torruella's speech in the John Jay College of Criminal Justice, EL NUEVO DIA, Apr. 24,
2016 also available here
http://www.elnuevodia.com/noticias/politica/nota/juanrtorruellasspeechinthejohnjaycollegeofcriminaljustice-
2190500/

31
 This Board could lead to unintended consequences and violence in Puerto Rico
There is a double standard for Puerto Rico. The US preaches democracy to the
outside world, and then maintains a colony in Puerto Rico.

Finally, on the day President Barack Obama signed the PROMESA bill into law, the
President made it a point to acknowledge that the bill was not in fact flawless by expressing:

The people of Puerto Rico need to know that they're not forgotten; that they're
part of the American family, and our Congress's responsiveness to this issue --
even though this is not a perfect bill --it at least moves us in the right
direction. 108

The United States was founded on the notion of freedom and democracy for all enshrined
in its constitution which is the supreme law of the land. That US constitution and the American
principles bestowed upon us all as American citizens derive from the founding fathers of this
nation who always urged us to continuously strive for a more perfect union as stated in the
preamble of the United States Constitution109. Yet, it is ironic that it was precisely the President
of the United States who acknowledged signing a bill that was not perfect; a bill that continues
to contradict the United States self-proclaimed status as the beacon of freedom and democracy
worldwide. The PROMESA law is completely detrimental to the people of Puerto Rico, and its
enactment has ultimately set a dangerous precedent of undemocratic and dictatorial law in the
United States.

The PROMESA law should be repealed and the island of Puerto Rico should be freed
from its colonial chains once and for all by U.S. Congress complying with its moral and legal
duty in accordance with the International Covenant on Civil and Political Rights 110 the U.S.
government signed on October 5th, 1977 and ratified on June 8 th, 1992111; an international treaty

108
Heather Long, President Obama signs Puerto Rico rescue bill, C.N.N. MONEY, Jun. 30, 2016,
http://money.cnn.com/2016/06/29/investing/puerto-rico-debt-promesa/

109 Preamble, U.S. Constitution

110
International Covenant on Civil and Political Rights, 16 December 1966, U.N.T.S., 999, p. 171, available at:
http://www.refworld.org/docid/3ae6b3aa0.html [accessed 17 May 2017]

111
President Jimmy Carter, U.S. Finally Ratifies Human Rights Covenant, THE CARTER CENTER , Jun. 28,
1992, https://www.cartercenter.org/news/documents/doc1369.html

32
the United States clearly violated 112 and continues to violate113 when it chose to enact, implement
and execute the PROMESA Law in Puerto Rico.

Ironically, the PROMESA law was promoted by the U.S. media as a law that needed to
be passed in order to save Puerto Rico from its economic crisis. This notion was sold to
members of congress and the entire world as the only solution to remedy Puerto Ricos fiscal
woes. Unfortunately, the true nature and intent behind the PROMESA law continues to be
revealed whereas the premier objective of the PROMESA law is to assure prompt and swift
payment of debt to creditors even if it comes at the price of sacrificing essential social services,
while allegations of massive corporate fraud within the financial industry regarding Puerto Rico
have been whistle blown by plaintiff attorneys such as Michael Papantonio who exposes the
theory of corporate exploitation in Puerto Rico on his show 114.

Members of Congress such as representatives Jose Serrano and Nydia Velazquez of New
York, have declared regret on how the PROMESA bill that they both supported with their vote
was not what they originally thought it would be due to its overreaching and undemocratic
elements;115 and the international community through the United Nations committee on
decolonization is calling on the United States to move forward with a process to allow the Puerto
Rican people to take decisions in a sovereign manner, and to address their urgent economic and
social needs, including unemployment, marginalization, insolvency and poverty. 116
It is inherently imperative that federal regulations and laws be created to hold individuals
and/or entities accountable for deliberate and intentional actions that have caused an economic

112 International Covenant on Civil and Political Rights, Art. 25 (a), U.N.T.S. 999, 16 December 1966

113 Id.

114
Mike Papantonio, Mike Papantonio Exposes the Crash of Puerto Rico, THE RING OF FIRE, Jan. 5, 2017,
https://www.youtube.com/watch?v=NuQt-uhXWcw

115
,
Puerto Rico Report Velasquez and Serrano Express Concern About Austerity Measures to PROMESA Board,
May. 11, 2017 http://www.puertoricoreport.com/wp-content/uploads/2017/05/May-11-Letter-to-PR-Oversight-
Board.pdf

116
Special Committee on Decolonization, U.N. GA/COL/3296, Jun. 20, 2016,
https://www.un.org/press/en/2016/gacol3296.doc.htm

33
crisis, similar to regulations established and instituted by federal agencies such as the
Environmental Protection Agencys Comprehensive Environmental Response Compensation
and Liability Act CERCLA 117 which holds parties liable for the presence of hazardous
materials at a site. This regulation goes as far as to impose severe penalties and liability
retroactive to the date of its enactment 118. A similar regulation should be crafted by U.S.
Congress to prevent predatory lending within the municipal bonds market and Wall Street along
with other questionable financial practices that significantly impact the most vulnerable sectors
of society and that can severely destroy and cripple an entire countrys economy as is the case
of Puerto Rico and its people.
In closing, the Puerto Rico Oversight, Management, and Economic Stability Act also
known as the PROMESA law was ultimately a promise by U.S. Congress to the Puerto Rican
people to facilitate a mechanism to rescue Puerto Rico from its fiscal crisis in route towards
complete economic recuperation. However, this law has actually resulted in a broken promise
that has in turn intentionally put the financial interests of bondholders and Wall Street over the
social and economic interests of the people of Puerto Rico and its future generations. As federal
U.S. Court of Appeals judge Juan Torruellas predicted, social unrest is rapidly rising and acts of
violence have begun to surface. During the writing of this paper, a historic island wide strike
was held in Puerto Rico on May 1 st, 2017 where hundred of thousands of Puerto Ricans marched
through the streets of the financial district in San Juan, the islands capital, and various
University of Puerto Rico student protesters vandalized property of the premier financial
institutions on the island by breaking windows, setting the American flag on fire in the middle
of the street and engaging in physical interaction with law enforcement who had to recur to the
use of tear gas to disperse the crowds. 119 Shockingly, the mainstream national American media
did not cover this incident.

117 P.L. 96-510, 42 U.S.C. & (33) 9601(14) & (33), December 11, 1980.

118 P.L. 96-510, 42 U.S.C. & (33) 9601(14) & (33), December 11, 1980

119
,
Julio Varela Puerto Rico Police: 17 Arrested for Vandalism at #ParoNacional Protests, LATINO REBELS, May 2,
2017, http://www.latinorebels.com/2017/05/02/puerto-rico-police-17-arrested-for-vandalism-at-paronacional-
protests

34
 The time has come for the United States government to make true on its international
preaching of freedom and democracy by granting the island equal rights as American citizens
and access to federal funding as a state of the union, or grant Puerto Ricos inalienable right to
independence in accordance with international law 120 in order to freely enter into the
international trade market, without the extreme limitations it has today under the current
undemocratic U.S. colonial regime. Only by doing this can the United States truly take a closer
step towards a more perfect union. 121

120 UN General Assembly. (1948). "Universal Declaration of Human Rights" (217 [III] A). Paris, also available
here http://www.un.org/en/universal-declaration-human-rights/
121
Preamble, U.S. Constitution

35
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