The Perpetuity Trap: Puerto Rico's PROMESA Crisis

Unpacking the risks to democratic accountability, economic liberty, and Puerto Rico's path to genuine autonomy.

In a recent Op-Ed, Luis R. Fortuño Vela argued that the Financial Oversight and Management Board (FOMB), established under PROMESA, has evolved from a temporary fiscal guardian into a permanent bureaucracy, deliberately extending its tenure by perpetuating fiscal instability. This provocative thesis, I think, merits deeper scrutiny: Does PROMESA inherently incentivize indefinite oversight? More critically, what broader consequences might result, not merely for fiscal policy, but for democracy, economic freedom, and the everyday lives of Puerto Ricans?

Since the FOMB’s establishment in 2016, substantial progress is undeniable. Puerto Rico’s public debt significantly declined from approximately $73 billion to $27 billion. Annual debt service payments dropped dramatically from 28 cents per tax dollar to approximately six cents, substantially easing the immediate fiscal crisis. Moreover, the FOMB has played a key role in facilitating $3.4 billion in pension contributions as of April 2025, stabilizing retirement systems and protecting vulnerable retirees amid ongoing liabilities. And let’s not forget about PROMESA’s litigation stay, which prevented crippling legal battles and aided economic stabilization. If more were needed, the FOMB’s enforcement has also prevented an estimated $60 billion in deficits and certified Puerto Rico’s first balanced budget for FY2026. This is part of a streak toward four consecutive balanced budgets that could trigger PROMESA’s exit clause. Collectively, these are crucial fiscal milestones.

To appreciate the full picture, consider the counterfactual: Without PROMESA, Puerto Rico might have faced a deeper collapse akin to Greece’s, with unchecked deficits leading to even greater population exodus and service cuts. The GAO analysis suggests as much. So the FOMB’s interventions, while intrusive, have arguably averted relapse. Indeed, it imposed discipline on a governance system that produced 16 years of unbalanced budgets pre-2016.

Despite these achievements, Fortuño Vela’s critique, widely shared among Puerto Ricans, raises legitimate concerns. The FOMB holds expansive powers: certifying budgets, reviewing legislation, and overseeing fiscal plans, frequently overriding local democratic institutions. Although FOMB Executive Director Robert Mujica touts recent successes, democratic accountability remains largely unaddressed. Anabelle Torres Colberg recently underscored this democratic deficit. One that stems from an unelected board imposed by Congress, thereby raising serious governance legitimacy concerns. And this is reinforcing fears about perpetual oversight.

Bondholder advocate Cate Long, a prominent voice on Puerto Rico’s municipal finance, amplifies this critique. She accuses the FOMB of dragging out PREPA’s bankruptcy through endless litigation and outdated financials, while accumulating over $2 billion in fees, that is, five times Congress’s estimate. Singling-out Proskauer Rose for allegedly billing over $400 million, she calls for audits. Others echo these concerns in sharper terms.

The FOMB, it is true, has enforced fiscal discipline. But it primarily does so through direct intervention rather than fostering sustainable local governance improvements. Unsurprisingly, both the Congressional Research Service (CRS) and Government Accountability Office (GAO) highlight ongoing risks and unresolved institutional reforms. GAO identifies persistent challenges: unreliable electricity, population decline, insufficient financial transparency, and ongoing pension liabilities.

Economist Gustavo Vélez’s separate Op-Ed similarly stresses Puerto Rico’s structural inefficiencies and a bloated public sector amplifying fiscal pressures. Despite significant debt reduction, the governance structure remains complex, costly, and inefficient. Even worse, it’s burdened by redundant agencies, municipalities, and a full-time legislature. It thus follows, quite naturally, that the lack of meaningful institutional reforms perpetuates high taxes, tariffs, and operational inefficiencies that burden the ones living here.

Data from the Instituto de Libertad Económica para Puerto Rico (ILE) underscores Puerto Rico’s severe lack of economic freedom. According to the 2024 Economic Freedom of North America report, Puerto Rico ranks dead last among U.S. jurisdictions, scoring just 2.13 out of 10, virtually unchanged since 2022. Key restrictions include excessive occupational licensing, costly property registration, mandatory container inspections with negligible benefits, and unfair competition by government-run businesses. These burdens correlate with economic woes. Jurisdictions in the top quartile of economic freedom boast per capita incomes 21 times higher ($62,184 vs. $2,997) than the bottom quartile, and Puerto Rico’s per capita income is 60% below the U.S. average. Other challenges include slack labor markets, dependence on federal transfers, and outward migration.

The never-ending bankruptcy of the Puerto Rico Electric Power Authority (PREPA), unresolved after nearly eight years, is telling. Chronic uncertainty harms residents and businesses alike, with blackouts occurring far more frequently and lasting longer than U.S. averages. (I experienced an eight-hour blackout myself two days ago!)

In the ongoing PREPA mediation, the FOMB has aggressively challenged bondholder claims exceeding $3.7 billion in administrative expenses. It presumably aims to prevent undue burdens on ratepayers and expedite a restructuring plan that could reduce the utility’s debt from $8.5 billion to $2.6 billion. At the July 23-24, 2025 omnibus hearing, the judge sought more information on the bondholders’ administrative claim. Discovery is ongoing.

The latest: The FOMB criticized a proposed 15-year, $20 billion liquified natural gas contract awarded to New Fortress Energy (NFE), identifying procedural irregularities, insufficient competition, and monopolistic exclusivity clauses. Mujica testified before Congress that NFE threatened—and then halted—critical gas supplies to force exclusivity. And this triggered immediate power-generation shortfalls.

These incidents are textbook examples of exploitation by private interests at citizens’ expense. It is thus no surprise that, in a separate Op-Ed, Mayra Montero accuses Puerto Rico’s leadership of superficial displays of concern while privately enabling monopolistic agreements. (As of July 23, the Puerto Rico government has ended negotiations with NFE on the deal, per Bloomberg.)

Recent Congressional hearings, including the July 16, 2025 session, reinforced the urgency of resolving PREPA’s restructuring before considering termination of FOMB oversight. Both Republicans and Democrats agreed that prematurely ending oversight without resolving PREPA’s bankruptcy would be irresponsible. Bruce Westerman, Chair of the House Natural Resources Committee, left no ambiguity, “It is necessary to finish the work.” Resident Commissioner Pablo José Hernández, for his part, proposed reducing the requirement for four consecutive balanced budgets to incentivize quicker action.

But bipartisan consensus emerged during hearings to maintain current conditions. And I think this reflects the systemic reluctance among local politicians to pursue lasting reforms. In turn, this softens the bite of some of the FOMB’s perceived overreaching (e.g., lawsuits invalidating fiscally unsound laws).

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| Puerto Rico Under PROMESA: Pre (2016) vs Post (2025)  |
|-------------------------------------------------------|
| Metric                        | Pre-PROMESA (2016)    |Post-PROMESA (2025)
|-------------------------------------------------------|
| Public Debt                   | 💰 $73 billion       |💰 $27 billion        
|-------------------------------------------------------|
| Debt Service (% tax revenue)  | 📊 28%               |📊 Approximately 6%    
|-------------------------------------------------------|
| Economic Freedom Rank   |Unranked (pre 2022 inclusion)|🔻 Last                                                              
|-------------------------------------------------------|
| FOMB Expenses                 | N/A                   |💸 Over $2 billion     
|-------------------------------------------------------|
| Population Decline            | Baseline              |📉 -14% since 2010     
|-------------------------------------------------------|
| PREPA Restructuring Status    | ⌛Bankruptcy initiated|🔄Unresolved, year 8  
|-------------------------------------------------------|
| Blackout Frequency            | ⚡ Post-Maria spike   |⚡⚡⚡8x U.S.      
---------------------------------------------------------

A perpetuity trap emerges: PROMESA’s discretionary benchmarks incentivize prolonged oversight. Fortuño Vela’s central argument thus remains compelling. Because the Board itself determines when conditions are met, it creates a feedback loop where unresolved issues—like PREPA’s restructuring, slow federal fund disbursements, and incomplete institutional reforms—justify its continued existence, further burdening taxpayers with excessive costs. Cate Long makes a good point on this front: Puerto Rico’s amassed $24 billion cash reserve and escalating pension risks serve as justification for indefinite oversight according to the FOMB’s projections of economic collapse.

It seems to me that PROMESA’s true success extends beyond debt metrics or balanced budgets. Puerto Rico’s future hinges on establishing transparent, accountable governance structures capable of independently sustaining fiscal discipline. Essential reforms—modernizing procurement to prevent monopolistic scenarios, comprehensive financial transparency, market competition, and robust local governance—can expedite PROMESA’s fulfillment criteria and hasten the FOMB’s departure. Indeed, modernizing procurement would directly address vulnerabilities highlighted by the recent gas-contract controversy, and decentralizing economic planning could reduce bureaucratic inefficiencies, directly improving economic freedom and fiscal sustainability. ILE recommends ceasing undue government interference, eliminating control over productive assets, and reducing tax burdens to encourage wealth creation and reduce poverty.

Fortuño Vela and everyone else I’ve cited collectively underscore a critical imperative: Oversight must empower rather than supplant local governance. But genuine autonomy requires breaking free from PROMESA’s perpetuity trap. And this requires empowering the island’s institutions to assume lasting fiscal responsibility.

Only then will Puerto Rico achieve the democracy, dignity, and prosperity its people undeniably deserve.

Postscript – August 5, 2025
The Board Shaken, the Premise Reinforced

Since this essay’s publication on July 25, 2025, a seismic shift has occurred. As Breitbart first reported, on August 1, 2025, President Donald Trump dismissed five of the seven voting members of the FOMB: Chairman Arthur J. González, Cameron McKenzie, Betty A. Rosa, Juan A. Sabater, and Luis A. Ubiñas—all Democratic appointees—leaving only Andrew G. Biggs and John E. Nixon, alongside the governor’s non-voting ex officio representative. Today, August 5, the FOMB publicly acknowledged the decision.

What were the reasons? The White House reportedly cited inefficiency, excessive consultant fees (over $2 billion) and board salaries, lack of transparency, and delays in resolving Puerto Rico’s bankruptcy, particularly PREPA’s. The reported aim: to “restore common sense leadership.”

This shake-up validates my essay’s critique of PROMESA’s perpetuity trap. Critics like Cate Long have long decried the FOMB’s self-renewing structure and costs. Trump ally Laura Loomer’s X posts, highlighting $850,000 monthly consultant fees, no doubt amplified calls for reform. Meanwhile, Puerto Rico Governor Jenniffer González-Colón, while advocating for the FOMB’s elimination, pledged to work with new appointees, offering hope for aligning oversight with local reforms. If the reconstituted board prioritizes procurement modernization and transparent budgeting, it could hasten PROMESA’s exit by resolving issues like PREPA’s stalled mediation.

But risks loom. Democrats like Reps. Ritchie Torres and Nydia Velázquez warn of partisan overreach, fearing “loyalist” appointees could favor bondholders. In a worst-case scenario, this could lock in high electricity rates for a grid with blackouts eight times the U.S. average. Legal scholars like Alvin Velázquez caution that PROMESA’s “for cause” clause may spark lawsuits. And such lawsuits could delay PREPA’s mediation, entrenching the perpetuity trap. Cate Long, meanwhile, suggests the firings may align with President Trump’s push for onshore pharmaceutical manufacturing, as Puerto Rico’s unreliable grid deters investment. But this is a conjecture that underscores my call for true reforms.

Notably, Cameron McKenzie’s dismissal, despite his recent appointment and efforts to support PREPA’s debt mediation, highlights how broad shake-ups can overlook individual contributions to governance.

This moment sharpens the dilemma: Can oversight evolve into empowerment? With no replacements named, uncertainty threatens progress. Puerto Rico deserves more than just new appointees. It deserves a pathway to dignity, solvency, and self-governance, delivered through reforms like transparent procurement and a competitive energy market to address blackouts eight times the national average.