OBAMA ADMINISTRATION DRAWS UP PLAN TO HELP PUERTO RICO WITH DEBT BY MARY WILLIAMS WALSH AND MICHAEL CORKERY OF THE NEW YORK TIME.
Coamo, October 21, 2015. (Story by Mary Williams Walsh and Michael Corkery of The New
York Time) “The Obama administration has decided to take a political gamble on
Puerto Rico, stopping short of a direct bailout of the debt-ridden island but
proposing measures that backers say would keep the commonwealth from becoming
America’s Greece.
Senior administration officials said the island had
already run out of cash and was spending around 40 percent of its tax revenue
meeting its bond payments.
“The situation in Puerto Rico is urgent,” one
administration official said. “Without economic growth there is no path out.”
The plan was shared late Wednesday with The New York
Times and Agencia EFE, a Spanish-language news organization in Puerto Rico. On
the same day, the island’s Government Development Bank said it had ended weeks
of fruitless negotiations with creditors aimed at persuading them to
voluntarily accept lower bond payments to prevent deep cuts to services for the
island’s residents.
The plan, much of which would have to be approved by
Congress, would provide a form of bankruptcy protection — not now available to
American territories. It would give Puerto Rico a way to restructure all of its
$72 billion in debt, which it says it cannot hope to repay.
The plan entails what could be a new chapter of
bankruptcy law only for Puerto Rico and other American territories. In a nod to
Republicans in Congress, who have been resistant even to narrower debt relief
for the island, the administration will also ask lawmakers to establish an
independent body to monitor the island’s fiscal affairs.
The package would raise certain federal health
expenditures and extend existing tax credits to residents of Puerto Rico,
bringing them up to parity with what residents of the United States mainland
get now. It would also allow Puerto Ricans to claim the federal earned-income
tax credit.
At the same time, it would give Puerto Rico an
extraordinary authority to shed debt under congressional oversight. It stops short of a wholesale bailout of the
debt-ridden island, but it proposes some ambitious steps.
It will be
presented on Thursday to the Senate Committee on Energy and Natural Resources,
which has jurisdiction over all of America’s territories, including Puerto
Rico. It is led by Senator Lisa Murkowski, a Republican of Alaska, which was
itself a territory until 1959, when it became the 49th state.
Currently
Puerto Rico is barred from seeking relief under Chapter 9, the type of
bankruptcy that municipal governments use. The administration wants to change
that so that Puerto Rico could restructure its $72 billion of government debt
under court protection, a much bolder form of relief than the bankruptcy bills
that Congress has considered since the island’s debt crisis began.
A bankruptcy
measure would also give Puerto Rico relief that is unavailable to any of the 50
states. Federal law currently allows for cities, counties, special districts
and the like to seek bankruptcy protection if their states agree, but the
states themselves are excluded. There are concerns that if Puerto Rico gains
access to bankruptcy, fiscally troubled states like Illinois might try to
follow suit.
But the
Republicans who control Congress are unlikely to entertain a so-called Super
Chapter 9 proposal, which many fiscal conservatives and creditors consider a
bailout of the troubled island.
Creditors
say that the island’s government has been seeking to portray the fiscal
situation in Puerto Rico as beyond repair, hoping to force the administration
and Congress to act. On Wednesday, Puerto Rico took the unusual step of
announcing that talks over restructuring about $750 milllion of the island’s
debt had broken off, a move that some creditors saw as posturing to Washington
for help.
The
legislation introduced for Puerto Rico so far would make bankruptcy relief
available only to Puerto Rico’s government enterprises, like its power utility
or its water and sewer authority, and not to the government itself. Even those
limited bills have failed to gain support from Republican lawmakers.
There is
some willingness, particuarly among top Senate Republicans, to work out a
compromise on the bankruptcy issue, according to a person briefed on the
matter. But the Republican leadership would be willing to grant Puerto Rico
access to the bankruptcy courts only on a limited basis, and only with strings
attached like the imposition of a federal “control board” to oversee the island’s
finances.
Control
boards have been used in cases of severe municipal distress to take the power
to spend public money out of the hands of elected officials. They do not
generally have the powers that bankruptcy judges do to abrogate contracts, such
as labor contracts and promises to repay debt.
Both
Democrats and Republicans are under pressure to respond to the Puerto Rico
crisis. Largely because of the island’s economic problems, Puerto Ricans are
flooding the United States, particuarly in central Florida, and are becoming an
increasingly important voting block in the 2016 presidential race. An earlier
version of this article misidentified a news organization with which the
administration shared the plan. It was Agencia EFE, not the newspaper El Nuevo
Día.” Edited by Ramon Luis Vazquez Collazo of the Independente Press and
Noticiasillescanos.net (Vazcorp Corp.).
