Government of Puerto Rico Maintenance of Efforts Full Waiver Request

Summary

A letter from the Puerto Rico Fiscal Agency and Financial Advisory Authority to Secretary Miguel Cardona, headed Government of Puerto Rico Maintenance of Efforts Full Waiver Request. The Authority explains why the Commonwealth missed the May 17, 2021 deadline for baseline data and summarizes its fiscal situation, saying that by calendar year 2016 the Commonwealth and its component units had accumulated over $50 billion in unfunded pension liabilities and over $70 billion of debt and faced imminent default. It describes PROMESA, the Oversight Board it created, the certified Fiscal Plan and the Title III cases that stayed enforcement of debt. The letter is signed for the Authority by its Executive Director.

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“Gea GOVERNMENT OF PUERTO RICO
® ~~ BY PUERTO RICO FISCAL AGENCY AND FINANCIAL ADVISORY AUTHORITY
Executive Director | Omar J. Marrero, Esq. | omar.marrero@aafaf.pr.gov

VIA ELECTRONIC MAIL

September 1*, 2021

Hon. Miguel Cardona

Secretary

United States Department of Education
400 Maryland Ave. SW

Washington, DC 20202

Re: Government of Puerto Rico
Maintenance of Efforts Full Waiver Request

Hon. Secretary Cardona,

As Fiscal Agent and Financial Advisor of the Government of Puerto Rico
(‘Commonwealth’), and its Component Units (“CU's”), the Puerto Rico Fiscal
Agency and Financial Advisory Authority (“AAFAF”, for its Spanish Acronym)
appreciates the consideration provided by the United States Department of
Education (“USDE”) for the Commonwealth to properly address the
Maintenance of Efforts (“MoE”) requirement, as required by the Coronavirus Aid,
Relief, and Economic Security Act (“CARES Act’), the Coronavirus Response and
Relief Supplemental Appropriations Act (“CRRSA’)’, and the American Rescue
Plan (‘ARPA’).

As discussed with several USDE staff members during the past months,
although the initial deadline for the Commonwealth to submit baselines figures
for the MoE requirement was May 17, 2021, several noteworthy factors had to be
dully analyzed beforehand by the Commonwealth to provide a proper response

'As levied by its Organic Act, Act No. 2-2017.
? Public Law 116-136 § 18008 (2020).

5 Public Law 116-260 § 317 (2021).

“ Public Law 117-2 § 2004(a) (2021)
) GOVERNMENT OF PUERTO RICO

a
® Py PUERTO RICO FISCAL AGENCY AND FINANCIAL ADVISORY AUTHORITY
I Executive Director | Omar J. Marrero, Esq. | ornar.marrero@aafaf.pr.gov

Re: USDE MoE Requirement Full Waiver Request
September 1°, 2021
Page 2 of 4

to the captioned matter. For completeness purposes, we hereby summarize said
factors below.

By calendar year 2016, the Commonwealth and its CUs had accumulated over
$50 billion in unfunded pension liabilities and over $70 billion of debt and was
facing an imminent default. Because the Commonwealth and its CUs cannot
take advantage of Chapter 9 of the United States Bankruptcy Code and an
attempt to create a territorial bankruptcy law was struck down by the United
States Supreme Court, Congress stepped in to head off Puerto Rico's financial
and debt crisis by passing the Puerto Rico Oversight, Management, and
Economic Stability Act® (“*PROMESA”). PROMESA imposed an automatic stay on
Puerto Rico’s debt obligations and created the Financial Oversight and
Management Board for Puerto Rico (the “FOMB” or “Oversight Board”). The
Oversight Board is tasked with restructuring Puerto Rico’s staggering debt
burden and restoring sustained economic growth to Puerto Rico so that the
Commonwealth can achieve fiscal balance and regain access to the capital
markets.

Immediately after its formation, the Oversight Board began working with the
Commonwealth to create a fiscal plan designed to achieve fiscal responsibility
and access to the capital markets. The initial outcome of this work was the
Commonwealth's Fiscal Plan that the Oversight Board certified on March 13,
2017. A few months later, the Oversight Board commenced Title III cases for the
Commonwealth, and some of its CUs®, thereby imposing an automatic stay on
the enforcement of debt obligations of these entities. Although significant
advances and progress have been made, there is still some road to tackled
ahead.

° Public Law 114-187 (2016).

® Such as: the Puerto Rico Sales Tax Financing Corporation, Highway Transportation Authority,
Employees Retirement System, and the Puerto Rico Electric Power Authority. Thereafter, on
September 27, 2019, the Oversight Board also commenced a Title II| case for the Public Buildings
Authority.

Roberto Sanchez Vilella (Minillas) Government Center, De Diego Ave. Stop 22, San Juan, PR 00907 | PO Box 42001, San Juan, PR 00940-2001

e@ 787.722.2525 contact@aafaf.pr.gov "@ aafaf.pr.gov
GOVERNMENT OF PUERTO RICO
® Py PUERTO RICO FISCAL AGENCY AND FINANCIAL ADVISORY AUTHORITY
I Executive Director | Omar J. Marrero, Esq. | ornar.marrero@aafaf.pr.gov

Re: USDE MoE Requirement Full Waiver Request
September 1°, 2021
Page 3 of 4

In addition to these restructuring proceedings, over the last four years, the
people of Puerto Rico have endured a series of natural disasters and
emergencies without precedent in modern history:

e On September 6, 2017 and September 20, 2017, respectively, Hurricanes
Irma and Maria struck Puerto Rico, causing Unprecedented
humanitarian, economic, and_ infrastructure-related damages and
upending the daily lives of Puerto Rico’s over three million residents.
Thousands of residents were left homeless, basic utilities were completely
shut down, and schools, hospitals, and businesses were destroyed. Tens
of thousands of Puerto Ricans fled the Island. The Federal Government's
response has become one of the largest and most complex disaster
recovery efforts in U.S. history.

e On December 28, 2019, the first of many significant earthquakes shook
Puerto Rico, registering at a magnitude of 4.7 on the Richter scale. On
January 6, 2020, Puerto Rico experienced a 5.8 magnitude earthquake.
The next day, Puerto Rico experienced a magnitude 6.4 earthquake, its
strongest and most destructive earthquake in a century. Thereafter, on
May 2, 2020, an earthquake with a 5.4 magnitude struck Puerto Rico's
southwestern coast. The seismic event, which briefly knocked out power
in some areas, hit near the city of Ponce. These earthquakes represent
only four of more than 1,000 overall earthquakes of magnitude 3 or
greater in Puerto Rico during 2020, with six over a magnitude 5.5.
Hundreds of structures—including homes, local government institutions,
small businesses, and houses of worship—have been damaged or
destroyed by these devastating shocks. According to a January 29, 2020,
report published by the United States Geological Survey (“USGS”), there is
a high likelihood of continued, material aftershocks over the course of the
next several years. While there likely will be fewer earthquakes over time,
Puerto Rico continues to be at risk of potentially catastrophic
earthquakes.

Roberto Sanchez Vilella (Minillas) Government Center, De Diego Ave. Stop 22, San Juan, PR 00907 | PO Box 42001, San Juan, PR 00940-2001

e@ 787.722.2525 contact@aafaf.pr.gov "@ aafaf.pr.gov
sxny
/ fy GOVERNMENT OF PUERTO RICO
eee PUERTO RICO FISCAL AGENCY AND FINANCIAL ADVISORY AUTHORITY

Executive Director | Omar J. Marrero, Esq. | ornar.marrero@aafaf.pr.gov

Re: USDE MoE Requirement Full Waiver Request
September 1°, 2021
Page 40f 4

e On top of the hurricanes and earthquakes, Puerto Rico—like the rest of
the world—was confronted with the global and ongoing COVID-19
pandemic in early 2020, which has required immediate action and
persistent vigilance.

The above-mentioned difficulties have certainly impacted the Commonwealth's
budgets and its financial projections. Consequently, the Commonwealth hereby
formally requests a full waiver of the MoE requirement included in the CARES
Act, the CRRSA, and the ARPA. For clarity purposes, this waiver request is with
respect to the following funds: the Elementary and Secondary School
Emergency Relief Fund | (“ESSER |"), the Governor's Emergency Education Relief
Fund | (“GEER |”), ESSER II, GEER II and ESSER III.

If further information or details are needed with respect to this request, please
feel free to reach out at your convenience.

Omar J. Marrero,

Executive Director
On behalf of the Hon. Pedro Pierluisi, Governor of Puerto Rico

C/e: Hon. Pedro Pierluisi
Hon. Francisco Parés
Mr. Juan C. Blanco, Esq.
Mr. Eliezer Ramos, Esq.
Ms. Natalie Jaresko
Ms. Ginorly Maldonado

Enclosures

Roberto Sanchez Vilella (Minillas) Government Center, De Diego Ave. Stop 22, San Juan, PR 00907 | PO Box 42001, San Juan, PR 00940-2001

rt) 787.722.2525 Gi contact@aafaf.pr.gov “t aafaf.pr.gov

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