Espacios Abiertos (EA) report reveals lack of transparency and billionaire expenses in consultancy by the Fiscal Oversight Board (FOMB)
EA questions the Board’s refusal to disclose the data that has informed the restructuring process and that it has been paid for with public money.
(San Juan – August 22, 2023) – During the period from 2017 to 2023, the Fiscal Oversight Board (FOMB) has spent over $1.5 billion in advisory and consulting services associated with the restructuring of Puerto Rico’s debt. According to a report by Espacios Abiertos, the amount spent by the FOMB in seven years is far from the $370 million that Congress estimated in 2016 as the cost on legal, financial advice, and administrative fees to be spent over a decade for the debt restructuring process in Puerto Rico.
The report titled Their Advisers, Your Money: The Lack of Access to the Data that Has Informed the Restructuring in Puerto Rico and authored by Wilmarí de Jesús Álvarez, a policy analyst at Espacios Abiertos, gives visibility to the extraordinary expense in consultants required by the Fiscal Oversight Board and the Title III court. Upon review of the Board’s monthly and annual reports, the court’s docket, and the Fee Examiner reports, Espacios Abiertos identified, as of June 18, 2023, a total expense incurred of $1,500,353,160.
“At a time when the Board refuses to publish the raw data that was the basis for the Certified Fiscal Plans, as well as for the various debt adjustment agreements, EA highlights the expenses incurred from the pocket of the Puerto Ricans. Some 54 documents and hundreds of pages of references to reports, invoices for services rendered, contracts, invoices from the Fee Examiner, and other documents reveal what the people of Puerto Rico have paid to the consultants and advisors of the Board,” said the Executive Director of Espacios Abiertos, Cecille Blondet, while reiterating their demand to the Board to publish the requested information, which is public information, and alerting Congress to take action if the Board does not do so.
On the other hand, de Jesús Álvarez, author of the report, also questioned the transparency of the Board by highlighting that: “In its most recent annual report, the Board chose not to mention the total expenses that the restructuring of the public debt has represented up to date. In addition, the Board continues its established pattern of lack of full accountability, when it leaves out detail to 40% of the almost $300 million it has directly paid to consultants”.
In contrast, while the Board fails to report its disbursements fully, the data obtained from the court’s docket regarding disbursements made through the court (a total of $1,192,798,602) is more complete and detailed. This detail offers the opportunity to visualize the total disbursed by the court per case, per agent, and per type of service. Of this total, the five (5) main lawsuits under PROMESA have represented disbursements to consultants, advisers, and lawyers, by case, in the following percentages: the Commonwealth of Puerto Rico (72.98%), Puerto Rico Electric Power Authority (15.18%), Puerto Rico Sales Tax Financing Corporation (5.27 %), Highways and Transportation Authority (3.44%), Employee Retirement System (3.07%) and Public Buildings Authority (0.06%). In addition, it was possible to classify the expense per service according to seven (7) categories of contracted services: legal advisors, financial advisors, consultants, strategic consultants, communication services, mediation, and administrative expenses. The highest expense among these categories corresponds to legal services (44.20%). While financial advisory and consulting firms represent 32.19% and 21.47% of spending, respectively. Leading the list in order of billing is McKinsey & Company and the law firm Proskauer Rose, followed by Ernst & Young (firm that recruited former Board CEO Natalie Jaresko), O’Melveny & Myers, and CITI Group (See graph in Annexes).
Espacios Abiertos’ Report also highlights that of a total of $1,220,029,476 in invoices submitted by consultants to the court for payment, the Fee Examiner–in charge of supervising and auditing the billing of advisory services prior to their payment–only recommended the disbursement of $1,192,798,602, which constitutes a difference of $27,230,873 or 2.2% less than what was invoiced.
“The bankruptcy process that the United States Congress led through PROMESA, and that the Board and the Court execute by virtue of said law, should guarantee lessons learned to the people of Puerto Rico and its institutions. This requires that both the representatives elected by the citizens and the rest of civil society have timely access to a minimum of documents, which are not restricted solely to reports and spreadsheets. But to all the documents used and prepared by experts and advisors. Knowledge and information for which the people of Puerto Rico have paid more than $1.5 billion. The transfer of knowledge to our public institutions should be a non-negotiable priority if we want to prevent Puerto Rico from entering a cycle of over dependence on private consultants. It is imperative to eliminate the parasitic relationship with the state and promote a symbiotic one where we train our public entities so that all benefit,” concluded the report by Espacios Abiertos.