April 19, 2016 | House Committee on Natural Resources Press Office
Developments in Puerto Rico foreshadow a looming financial meltdown and humanitarian fallout that will occur if the Island’s political leadership is left to its own devices. Congress cannot pass legislation to erase the decades of fiscal mismanagement and socialist policies that brought the territory to its knees. But a growing number of Members understand we must act on a responsible solution to prevent U.S. taxpayers from footing the bill.
As the Committee finalizes legislative changes to the Puerto Rico’s Oversight, Management, and Economic Stability Act (PROMESA), let’s remember the following:
Rule of Law Ignored, Puerto Rican Constitution Sidelined: Despite constitutionally required balanced budgets and a debt service limit, years “of over-borrowing and spending and the steady exit of young, working-age residents” have rendered Puerto Rico insolvent. “To keep itself afloat, the island is…shifting funds dedicated to one pool of creditors to satisfy others.”
Creditor Classes Have Already Been Tossed Aside: Puerto Rico “already shorted creditors to pay public unions” and recently enacted a debt payment moratorium “on general-obligation bonds, sales-tax securities and debt from the island’s Government Development Bank and other public agencies” as analysts warn“of a legal morass that would follow.”
Complex Crisis and Unknown Financials: The territory faces a situation where “creditors possess competing claims, bond covenants conflict, and public agencies have intermingled funds” and the government “appears unwilling to act in good faith when left to its own devices.” Further, the government has not released audited financial statements in two years.
Action Required to Avert Meltdown: The crisis has “reached a tipping point” where action will be required avert a catastrophe and “disarm this debt bomb, making it possible to arrange more reasonable and equitable settlements with creditors.”
Structure Versus Chaos: Unlike the current chaos, PROMESA “facilitates a process where restructuring is voluntary between debtors and creditors” and “the Oversight Board is given the authority to evaluate and resolve on a case-by-case basis” when restructuring cannot be reached voluntarily.
Protecting the Rule of Law and Creditor Classes: “One of the concerns from conservatives is they want to ensure that public pensions and unions are not given priority over investors in Puerto Rican debt. The bill does not do that, but Democrats are pushing to ensure pensioners see their benefits paid in full.”
“Bailouts:” Adding to the growing list of Members “who aren’t buying some of the arguments against the emerging congressional aid package” for Puerto Rico, “Republican backers and detractors of the measure emerged from a closed-door meeting agreeing that depictions of the measureas a taxpayer bailout of the island are false.”
Preventing a Bailout: It’s become very clear that PROMESA is essential to preventing a bailout. Thankfully, “the measure, drafted by House Natural Resources Committee Chairman Rob Bishop (R-Utah), appears to be a good-faith attempt tobalance competing concerns among Republicans and Democrats, the island’s elected officials, and various creditors.”
The lights may be turning off in Puerto Rico, but the lights are turning on in the minds of policy makers. At the end of the day, we need to help Americans residing on the Island by providing a better institutional framework to guide the territory out of this financial and economic crisis while also protecting mainland taxpayers from the threat of a future bailout.