Trump administration dismisses majority of federal board overseeing Puerto Rico’s finances

Key Points

• The Trump administration dismissed five out of seven members of Puerto Rico's federal control board, all of whom were Democrats, raising concerns about the island's fragile economy.
• The board was created in 2016 to oversee Puerto Rico's financial crisis, which includes managing over $70 billion in public debt.
• A White House official criticized the board for inefficiency and high spending on outside firms, claiming it operated in secrecy without adequate results.
• Experts are worried that the dismissals could lead to further instability and questioned the legality of the removals, as board members can only be let go for just cause.

SAN JUAN, Puerto Rico (AP) — The Trump administration has dismissed five out of seven members on Puerto Rico’s federal control board that oversees the U.S. territory’s finances, sparking concern about the future of the island’s fragile economy. Four of the five are Democrats.

A White House official told The Associated Press on Tuesday that the board “has been run inefficiently and ineffectively by its governing members for far too long and it’s time to restore common sense leadership.”

Those fired are board chairman Arthur Gonzalez, along with Cameron McKenzie, Betty Rosa, Juan Sabater and Luis Ubiñas. The board’s two remaining members — Andrew G. Biggs and John E. Nixon — are Republicans.

The board confirmed in a brief statement that the five were terminated and noted that the board would continue to fulfill its mandate and work “in the interest of the people of Puerto Rico.”

Sylvette Santiago, a spokesperson for the board, did not immediately return a message seeking comment on whether the board members would fight the decision.

Meanwhile, Rep. Nydia Velázquez, a New York Democrat, criticized the dismissals though she acknowledged what she said were “serious and longstanding concerns” about actions the board has taken, including implementing austerity measures.

“This sudden purge by Donald Trump is not about justice or reform," she said in a statement. "It simply creates an opening to stack the Board with even more extreme, pro-bondholder appointees who will continue to put the needs of hedge funds over the Puerto Rican people.”

The board was created in 2016 under the Obama administration, a year after Puerto Rico’s government declared it was unable to pay its more than $70 billion public debt load and later filed for the biggest municipal bankruptcy in U.S. history.

In remarks to the AP, the White House official claimed the board had operated ineffectively and in secret and said it “shelled out huge sums to law, consulting and lobbying firms.” The official, who spoke on condition of anonymity to discuss the subject, also accused the board’s staff of receiving “exorbitant salaries.”

Puerto Rico is struggling to restructure more than $9 billion in debt held by the state’s Electric Power Authority, with officials holding bitter mediations with creditors demanding full payment.

It’s the only Puerto Rico government debt pending a restructuring, with the White House official accusing the board of preferring to “extend the bankruptcy.”

In February, the board’s executive director, Robert Mujica Jr., said it was “impossible” for Puerto Rico to pay the $8.5 billion that bondholders are demanding. He instead unveiled a new fiscal plan that proposed a $2.6 billion payment for creditors. The plan does not call for any rate increases for an island that has one of the highest power bills in any U.S. jurisdiction as chronic power outages persist, given the grid’s weak infrastructure.

Alvin Velázquez, a bankruptcy law professor at Indiana University, said he worries the dismissal of the board members could spark another crisis in Puerto Rico.

“This is really about getting a deal out of (the power company) that is not sustainable for the rate payers of Puerto Rico,” he said.

Velázquez, former chair for the unsecured creditors committee during the bankruptcy proceedings, also questioned if the dismissals are legal, since board members can only be removed for just cause.

“What’s the cause?” he said. “What you’re going to see is another instance in which the Trump administration is taking on and testing the courts.”

The dismissals were first reported by the Breitbart News Network, a conservative news site.