With a debt to GDP ratio of 70 percent, Puerto Rico is $72 billion in debt and has no realistic way to pay it back. The island’s energy infrastructure is ineffective and inefficient and its decade long economic crisis has led to 10 percent of Puerto Ricans leaving the island in that time. Because Puerto Rico’s 3.5 million residents are all U.S. citizens, Congress has an obligation to help the territory resolve its current ills.
To do so, Congress should pass H.R. 4900, the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA) introduced by the House Natural Resources Committee and Congressman Sean Duffy (R-Wis.). This legislation is a responsible proposal that provides the tools to address the crisis without bailing out the island, granting the island Chapter 9 bankruptcy, or increasing taxes.
PROMESA creates an Oversight Board modeled off the success of the fiscal control board created for the District of Columbia in 1995. This independent board will oversee Puerto Rico and work with the legislature, executive, and government agencies to produce much needed financial statements and reforms. If stakeholders fail to come together to properly identify and reform wasteful spending, the Oversight Board has the ability to act unilaterally.
Importantly, this legislation does not retroactively grant Chapter 9 bankruptcy to Puerto Rico. Doing so would undermine the rule of law, allow the territory to alter existing contracts, and could destabilize municipal markets by setting a precedent allowing states to restructure constitutionally guaranteed debt.
Instead, the legislation facilitates a process where restructuring is voluntary between debtors and creditors. If restructuring cannot be reached voluntarily and is deemed necessary, the Oversight Board is given the authority to evaluate and resolve on a case-by-case basis. Any debt restructuring that Puerto Rico is given access to will not be extended to states because the legislation places this solution into the section of the U.S. code that relates to territories.
The legislation also contains several pro-growth reforms including a provision allowing the island to adjust minimum wage requirements for workers under the age of 25, and excludes Puerto Rico from the Department of Labor’s proposed overtime rule. While these provisions are a step in the right direction, more pro-growth reforms will be needed either from the Control Board or through legislation to ensure the island can move past its current fiscal crisis.
The bottom line is that the Puerto Rico crisis is a failure borne from government inefficiency. PROMESA address this problem in a responsible way through a control board to cut down on waste, instead of through tax increases or a taxpayer funded bailout. Members of Congress should have no hesitation supporting and voting for this bill.