CBO Report Confirms PROMESA Contains NO Bailout or Federal Expenditure

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Posted by Natalie De Vincenzi on Wednesday, June 8th, 2016, 9:00 AM PERMALINK

An analysis by the Congressional Budget Office (CBO) confirms that H.R. 5278, the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA) contains no bailout and no federal expenditures. Under H.R. 5278, direct spending is increased by $370 million, but all expenditures are to be paid for by the Puerto Rican government. Members of Congress should have no hesitation supporting PROMESA as the fiscally responsible solution to the Puerto Rico debt crisis.

PROMESA creates an oversight board, which is intended to address Puerto Rico’s $70 billion debt. To do so, the board has responsibility overseeing the fiscal and budgetary matters of Puerto Rico and facilitating voluntary restructuring of this debt. If needed, the board can perform additional restructuring, but only as a last resort.

H.R 5278 clearly outlines the duties of the oversight board, of which a majority is appointed by lists put together by Republican leaders in Congress. As the report states, the board is to:

  • “Ensure that fiscal plans and annual budgets developed by the governor and legislature of Puerto Rico and territorial instrumentalities meet certain accounting standards and fiscal requirements;


  • Review and approve such fiscal plans and budgets (or, if necessary, develop alternative plans that meet all such standards and requirements);


  • Monitor ongoing budget execution to identify any differences between projected and actual revenues and expenditures; and


  • Determine whether any such differences require corrective actions, including potential reductions in certain nondebt expenditures, hiring freezes, or other measures to reduce expenditures.”


This bill also creates a legal framework for restructuring debt that applies solely to territories, not high spending states like Illinois and California. Passing PROMESA best addresses the territory’s financial calamity without instituting a taxpayer bailout or granting super chapter 9 bankruptcy. As the report notes:

“The bill would prohibit Puerto Rico from issuing any new debt without the board’s approval and would grant the board the sole authority to approve agreements to restructure existing public debt. Title III of the legislation would outline procedures—enforceable in U.S. courts—for such debt restructuring.”

Because Puerto Rico is a United States territory, Congress is obligated to act under Article IV, Section 3 of the Constitution. In addition, the island’s 3.5 million residents are all U.S. citizens and failure to act will mean these citizens simply relocate to other parts of the country.

PROMESA, unlike other proposals, incorporates the protection of private property rights, minor minimum wage relief, and pro-growth economic reforms while ensuring that this fiscal crisis is controlled and stabilized without a taxpayer funded bailout. Members of Congress should have no hesitation supporting and voting for PROMESA. 

Photo Credit: Damian Entwistle

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