Puerto Rico—a territory of the United States—is in trouble. It is on the brink of a financial collapse that will affect millions of Americans, both in Puerto Rico and the U.S., as it moves forward to defaulting on $72 billion of debt. And it’s only getting worse. Just last week there were threats of a run on the territory’s banks when the Puerto Rican government enacted a bill to halt all debt payments.
The economic carnage of doing nothing will not be contained on the island. We need a solution. But has to be one that protects taxpayers and holds the right people accountable for the financial mismanagement that got us here.
The Natural Resources Committee has taken the lead in developing conservative legislation that rules out taxpayer bailouts and puts Puerto Rico on a pathway to fiscal health. H.R. 4900, the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA), introduced by Rep. Duffy (R-WI) enables Congress to appoint an independent financial control board that has the authority to go in, figure out what’s on the books, and institute the structural changes to Puerto Rico’s fiscal affairs before any debt restructuring is addressed.
Despite the buzzwords and special interest ad campaigns with deep pockets, here’s the VERIFIED truth about the bill:
VERIFIED: No bailout. H.R. 4900 protects American taxpayers from a bailout. Instead of a bailout without strings attached, the financial control board appointed by Congress will address the root causes of Puerto Rico’s financial crisis by auditing the financial records and making the necessary structural changes to Puerto Rico’s budgetary and spending policies.
VERIFIED: This PREVENTS a bailout. If Congress fails to act and Puerto Rico fails to make debt payments in the coming months, large-scale defaults will occur. This legislation would avoid this nightmare scenario, which would be disastrous for Puerto Rico, the American bond market, and American taxpayers. In fact, many big-money interest groups on Wall Street know this and have put a lot of money toward sabotaging this legislation in order to force a last-minute bailout upon Puerto Rico, putting U.S. taxpayers on the hook for their bad loans. They call this a bailout, because they know it is not. And a bailout is what they want.
VERIFIED: This protects against a dangerous precedent. A lot of people (especially those on the Left) have been calling on Congress to change the bankruptcy code to give Puerto Rico access to Chapter 9 bankruptcy. This would set a dangerous precedent for U.S. states to get bailed out any time they were in fiscal trouble. We rejected this path. Instead, the legislation protects American taxpayers from being the lender of last resort—now and into the future.
VERIFIED: This is constitutional. Puerto Rico is a U.S. territory and the Constitution explicitly gives Congress the power to “make all needful Rules and Regulations respecting the Territory or other Property belonging to the U.S.” Need we say more?
VERIFIED: This holds the right people accountable. Rather than getting a handout from taxpayers, both Puerto Rico and Wall Street will have to make amends for their involvement with this mess. The Puerto Rican government paved the way for this disaster with decades of irresponsible policies like overspending and fiscal mismanagement. Wall Street didn’t help by giving the government loans that it was clear it couldn't pay back. The Puerto Rican government’s ceding of its authority to the financial control board is a huge, but necessary move that will ensure Puerto Rico will learn fiscal discipline from a board of experts who can create efficiencies in state-run corporations.
VERIFIED: Debt restructuring will happen, with or without Congress. The Puerto Rican government has already broken its fiscal obligations when it passed a moratorium on repaying any of its debt. This legislation gives Congress a chance to bring order to debt restructuring. Only after the control board makes the necessary financial audits will any deals with debt restructuring be addressed in a fair and systematic way. As the Wall Street Journal editorial board wrote this weekend, “Federal overseers should also be in charge of crafting a debt readjustment and fiscal rehabilitation plan that covers general obligation and public agency bonds, labor contracts as well as public-worker pensions. Enabling contracts to be impaired ex post facto is rarely good policy, but the alternative is now a haphazard default dictated by Puerto Rican politicians. A federal judge . . . would be best situated to mediate negotiations, determine creditor classes, resolve claim priorities and rule on whether the readjustment plan is fair and equitable to creditors. The board should continue to oversee the government’s finances for at least a decade.”
H.R. 4900 is good, conservative, commonsense legislation that protects American taxpayers and gives Puerto Rico hope of economic revitalization.