Imposing an Oversight Board is more difficult if Puerto Rico were a state
Former Financial Oversight and Management Board Chairman David Skeel said Thursday that Congress could impose an oversight board on Puerto Rico even if the island were a state — but only if Puerto Rico agreed to it in exchange for federal funding, because Congress cannot unilaterally override state sovereignty.
Speaking at a Chamber of Commerce forum at Our House Restaurant in San Patricio Plaza where Skeel discussed his book: Promise Land: The Inside Story of the Puerto Rico Debt Crisis, he explained that PROMESA’s structure would not survive statehood.
“Because of state sovereignty, you can’t just impose a board on a state,” he said, adding that Congress would need to offer billions in aid and negotiate the board’s authority. If Puerto Rico, a U.S. territory, became a state without such an agreement, the Oversight Board’s legitimacy would be immediately challenged.
Skeel, a bankruptcy law professor, used the event to outline the limits of PROMESA and the long‑term implications of the restructuring. He reiterated that Puerto Rico cannot rely on PROMESA again. The statute was designed as a one‑time intervention. “PROMESA does not contemplate a second part nor a version 2.0… the parachute they gave us was only one, and we already used it,” he said, echoing remarks made earlier by Chamber leaders.
Despite concerns about the island’s economic trajectory, Skeel emphasized that Puerto Rico is unlikely to default in the foreseeable future. The Commonwealth’s debt was reduced from roughly $35 billion to $7.4 billion, and the plan of adjustment imposes strict limits on new borrowing for a decade. “There’s not going to be a bankruptcy… the debt that is currently in place is very low,” he said. Only a future legislature ignoring those limits could create long‑term risk.
He warned, however, that Puerto Rico’s economy is entering a more fragile period as federal disaster and pandemic funds recede. “The economy is slightly more precarious now… the federal money is starting to run out,” he said, noting that the next few years will test whether the government can maintain fiscal discipline without external support.
Skeel also discussed the broader national implications of Puerto Rico’s experience. He identified Illinois — particularly Chicago — as the most likely next jurisdiction to face a crisis similar to Puerto Rico’s, citing massive unfunded pensions and structural deficits. “If you’re predicting where there’s going to be a problem, it’s Chicago and Illinois,” he said. He also pointed to the U.S. Virgin Islands as another territory in distress, though he noted that its smaller scale and political resistance to PROMESA make its situation different.
Skeel also talked about the Puerto Rico Electric Power Authority’s bankruptcy, calling it the island’s most urgent unresolved crisis. He said the utility’s bankruptcy has dragged on for nearly a decade because PREPA’s financial condition has deteriorated rather than improved.
“PREPA has been getting worse over the last ten years rather than better,” he said. Unlike the Commonwealth, which accumulated cash during the bankruptcy thanks to disaster aid and halted debt payments, PREPA’s revenues have weakened and its system has continued to fail. That deterioration has made it nearly impossible to bridge the gap between the government and bondholders.
He also pointed to a single hedge fund — GoldenTree — as a central obstacle. After making large profits on the COFINA and Commonwealth restructurings, the fund bought roughly $1 billion in PREPA bonds at steep discounts, expecting a payout similar to the 2019 RSA. “It’s become clear they’re not going to get that,” Skeel said. GoldenTree has refused to take losses and has held other bondholders together in opposition to any reasonable settlement. “Their view is: so what? They don’t care about where we go,” he said, adding that the fund appears willing to wait for a future board more favorable to creditors.
Skeel said the two remaining paths are clear: either Judge Laura Taylor Swain rules on the value of the bondholders’ collateral — PREPA’s net revenues — or a future Oversight Board is appointed with members aligned with creditor interests. He believes Swain is preparing to issue a ruling once she completes the exhaustive evidentiary process required to withstand appellate review.
On the question of the Oversight Board’s exit, Skeel said the formal requirement of four consecutive balanced budgets remains unmet. The governor has claimed Puerto Rico is in its second year of compliance, while the board has suggested this may be the first. Skeel estimated that the board will remain in place for at least three more years. “There should not be a 20‑year anniversary of the board,” he said.
Throughout the event, Skeel urged the private sector to continue pressing for fiscal responsibility and to demand accountability in areas such as PREPA, where the stalled restructuring remains the island’s largest unresolved obstacle.
Chamber of Commerce President José Julio Aparicio described the book as required reading for everyone. Former representative and now analyst Jorge Colberg Toro presented the book.
