It is unfortunate that the Republican Congress is contemplating a taxpayer-funded bailout of Puerto Rico. It’s even more unfortunate that Jeb Bush is supporting this proposal. Chapter 9 bankruptcy is no solution, and will be quite damaging to seniors, to taxpayers and to good governance.
Puerto Rico’s financial unraveling has been coming for years. Its debt obligations now add up to a jaw-dropping $164 billion. Dozens of factories have closed, and tens of thousands of people have moved to the U.S. Its bonds are junk status, and new investment, which is badly needed, is screeching to a halt. The government will most likely shut down this summer.
As a U.S. territory, Puerto Rico’s financial stability should be of interest to Americans. As the crisis has deepened, Resident Commissioner Pedro Pierluisi, Gov. Alejandro Garcia Padilla and Democrats in Congress, led by Nancy Pelosi, teamed up to avoid paying debts and support a measure (H.R. 870) that is tantamount to extortion of the taxpayer. It effectively says, “Give Puerto Rico Chapter 9 or taxpayers we’ll have to pay the island’s bills.”
This trio is presenting a false choice, and Republican leaders in Congress should not be fooled. Puerto Rico’s request to be bailed out through Chapter 9 would shortchange millions of seniors, pensioners and other investors who placed their faith — and life savings — in Puerto Rican bonds, only to now see the island’s government try to shirk its obligations. This includes Puerto Ricans holding bonds, too. This is not fair to the seniors who invested in good faith. It changes the rules of the game.
To make matters worse, the Democrat-backed bailout bill would include no explicit requirement for meaningful reforms. It is the worst of both worlds — an absolution of debt without a promise to go and sin no more. America’s seniors, pensioners and retirees have the right to insist on a better deal from the people they sent to Washington.
Fortunately, there are better options. For example, one of the largest indebted entities is the Puerto Rico Electric Power Authority (PREPA), the major utility serving the island. It could negotiate with its bondholders, while municipalities and hotels could pay for their electricity use instead of getting it for free. And the Puerto Rican government itself could pay what it owes to PREPA. In addition, PREPA could improve its labor efficiency and restructure union pensions.
PREPA’s mindset, however, hasn’t caught up to financial reality. In a revealing statement, PREPA rejected efforts to improve the utility, in part because it assumes a full repayment of debt. This is an unfortunate, not to mention unrealistic, position on their part, driven home by the fact that a federal judge recently struck down a debt-avoidance bill that served only as an effort by local politicians and business to avoid paying debts.
In light of this, the correct response from Washington should be an insistence on comprehensive and long-term reforms. An independent control board similar to the one that helped to extract the District of Columbia from its own crisis 20 years ago might be a good model for Puerto Rico. It could impose budgetary, tax and structural reforms political leaders are unable or unwilling to undertake. Chapter 9 imposes no reforms and allows Puerto Rico’s political class to continue with business as usual, leaving others to clean up their mess.
With this and other options available, Republicans should reject the bailout measure. U.S. taxpayers and seniors who planned carefully for their own long-term financial security should not be punished because Puerto Rico’s leaders failed to do the same.
Jim Martin is chairman and founder of the 60 Plus Association. Thinking of submitting an op-ed to the Washington Examiner? Be sure to read our guidelines on submissions.
