SAN JUAN, Puerto Rico –– At a U.S. Senate committee hearing Oct. 22 in Washington, members of Congress seemed willing to help Puerto Rico overcome its current financial crisis, but several said they need verifiable data to make a decision.
Woman protests near the office of a hedge fund manager in New York Aug. 13 over the financial crisis gripping Puerto Rico. A Senate committee held hearings Oct. 22 to discuss solutions to the crisis. (CNS photo/Justin Lane, EPA)The hearing before the Committee on Energy and Natural Resources, which handles some aspects of U.S. territories’ oversight, was led by its chairwoman, Sen. Lisa Murkowski, R-Alaska. Financial experts and Puerto Rican government representatives were called to testify.
“We do want to help, but in order to be helpful, we need verifiable data,” said Murkowski in her opening remarks. She also noted discrepancies among recent government and external reports, pointing to the two most recent, done concurrently, that show a $1 billion gap in their data.
Local financial experts say the current Puerto Rico crisis has been building for at least 40 years. The island increased its economic debt from $34 billion in 2000 to $72 billion in 2015. International attention to the crisis came suddenly last June, when Gov. Alejandro Garcia Padilla announced on local TV the debt could not be paid.
Current data shows the island’s unemployment rate at 13.7 percent, median household income at $19,000, poverty level at 45 percent of the population, and last year’s migration at 84,000 people.
“What we do know is that a number of reports suggest that even with emergency actions taken by the government of Puerto Rico,” Murkowski continued, “the government will run out of cash in November, just a few weeks away. … In short, Puerto Rico’s financial short term liquidity crunch is real and action is needed.”
The purpose of the hearing was to evaluate “what the reality on the ground is, what actions, both locally and at the federal level could have the most positive impact, and what structural reforms can be made for a more efficient and effective government.” However, the issue of the island’s political status, a non-incorporated territory, as a fundamental factor in the current financial debacle did surface again.
Antonio F. Weiss, counselor to the Treasury Department, pushed for an immediate legislative move.
“Without federal action this crisis will escalate and result in further economic contraction, migration and suffering of American citizens in Puerto Rico,” he said. Additional complications, he added, include nonpayment of pension benefits, acceleration of the already largest migration since the 1950s, no cash in the government coffers, delayed tax refunds, and increased borrowing from workers’ compensation fund.
“By the end of this year, Puerto Rico may have to choose between paying its creditors and providing essential services to the island’s 3.5 million citizens,” said Gov. Alejandro Garcia Padilla in his testimony, adding that Puerto Rico will have no choice but to default. “Waiting will only allow the situation to grow worse, more expensive and more difficult for you to address down the road. Give us the tools and we will finish the job.”
Pedro Pierluisi, Puerto Rico’s sole member of Congress, tackled head on “the U.S. attitude toward the island.”
Known as resident commissioner in the House, he is an outspoken proponent of Puerto Rican statehood.
“I have spoken forcefully about the need of the Puerto Rico government to chart a new path forward,” said Pierluisi. “The federal government should now speak with equal force about the need to correct its immoral and illogical policy toward Puerto Rico.”
He said Puerto Rico is treated worse than the states under programs “like Medicaid, Medicare, refundable tax credits, SSI, and Chapter 9 of the Bankruptcy Code.”
Chapter 9 provides for reorganization of various entities, including municipalities like counties, townships, school districts and other special districts, but states themselves cannot declare bankruptcy and neither can Puerto Rico as a commonwealth.
Archbishop Roberto Gonzalez Nieves of San Juan has publicly supported the bankruptcy plan.
“Although not a perfect solution, bankruptcy protection would provide a fairer, transparent system for resolving Puerto Rico’s debt burden and creating the fiscal space we need to grow our economy and serve our people,” he said in a recent statement.
Economist Sergio M. Marxuach, policy director for the Center for a New Economy, a nongovernmental think tank in Puerto Rico, testified that the problem in the U.S. territory is that “during the last 20 years or so a large portion of the money borrowed by issuing long-term debt was used to finance budget deficits, operating expenses and classic pork-barrel spending.”
Marxuach recommended short-term federal solutions that included providing financing or extending Chapter 9 coverage to Puerto Rico; giving the island equal treatment under Medicare, Medicaid and the Affordable Care Act; and extending the federal earned income credit to Puerto Ricans.
For example, in states there is no limit on the amount of money the federal government provides for Medicaid as long as states provide their share of matching funds. In Puerto Rico and other U.S. territories, the federal amount is capped.
Steven Fetter, an adviser to government and industry on financial, regulatory, legislative and legal matters, voiced the only opposition to granting federal bankruptcy protection to Puerto Rico.
He acknowledged the island’s fiscal situation “is extremely serious,” but suggested “the possibility of a consensual settlement agreement with the investors short of a filing for bankruptcy.”
For example, he pointed to Puerto Rico’s electric power utility, one of the island’s highest revenue-producing public corporations. He said the public company, which issues its own investment bonds, should be excluded from any potential bankruptcy proceeding and instead to negotiate with creditors.
